0000911420-05-000107.txt : 20120629 0000911420-05-000107.hdr.sgml : 20120629 20050222170010 ACCESSION NUMBER: 0000911420-05-000107 CONFORMED SUBMISSION TYPE: SC 13D PUBLIC DOCUMENT COUNT: 10 FILED AS OF DATE: 20050222 DATE AS OF CHANGE: 20050222 GROUP MEMBERS: COMMONWEALTH ASSOCIATES GROUP HOLDINGS, LLC GROUP MEMBERS: COMVEST II PARTNERS, LLC GROUP MEMBERS: MICHAEL S. FALK, INDIVIDUALLY GROUP MEMBERS: ROBERT L. PRIDDY, INDIVIDUALLY FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: COMVEST INVESTMENT PARTNERS II LLC CENTRAL INDEX KEY: 0001275683 IRS NUMBER: 010784781 FILING VALUES: FORM TYPE: SC 13D MAIL ADDRESS: STREET 1: 830 THIRD AVE CITY: NEW YORK STATE: NY ZIP: 10022 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: CORVU CORP CENTRAL INDEX KEY: 0001103341 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-PREPACKAGED SOFTWARE [7372] IRS NUMBER: 411457090 STATE OF INCORPORATION: MN FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: SC 13D SEC ACT: 1934 Act SEC FILE NUMBER: 005-60219 FILM NUMBER: 05631887 BUSINESS ADDRESS: STREET 1: 3400 W 66TH ST STREET 2: STE 445 CITY: EDINA STATE: MN ZIP: 55435 BUSINESS PHONE: 9529447777 MAIL ADDRESS: STREET 1: 3400 W. 66TH ST STREET 2: SUITE 445 CITY: EDINA STATE: MN ZIP: 55435 SC 13D 1 d1028060.txt SCHEDULE 13D UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 SCHEDULE 13D UNDER THE SECURITIES EXCHANGE ACT OF 1934 CORVU CORPORATION (Name of Issuer) COMMON STOCK, PAR VALUE $.01 (Title of Class of Securities) 221011 10 9 (CUSIP Number) COMVEST INVESTMENT PARTNERS II LLC ONE NORTH CLEMATIS STREET, SUITE 300 WEST PALM BEACH, FLORIDA 33401 (561) 868-6074 (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) Copy to: Alan I. Annex, Esq. Greenberg Traurig, LLP 200 Park Avenue New York, New York 10166 FEBRUARY 11, 2005 (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition which is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Page 1 of 12) CUSIP No. 221011 10 9 13D Page 2 of 12 Pages ________________________________________________________________________________ 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) ComVest Investment Partners II LLC (01-0784781) ________________________________________________________________________________ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_] (b) [_] ________________________________________________________________________________ 3 SEC USE ONLY ________________________________________________________________________________ 4 SOURCE OF FUNDS* WC ________________________________________________________________________________ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] ________________________________________________________________________________ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware ________________________________________________________________________________ 7 SOLE VOTING POWER NUMBER OF SHARES _________________________________________________________________ 8 SHARED VOTING POWER BENEFICIALLY 25,400,000 OWNED BY _________________________________________________________________ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON _________________________________________________________________ 10 SHARED DISPOSITIVE POWER WITH 25,400,000 ________________________________________________________________________________ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 25,400,000 ________________________________________________________________________________ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_] ________________________________________________________________________________ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 48% ________________________________________________________________________________ 14 TYPE OF REPORTING PERSON* OO ________________________________________________________________________________ *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 221011 10 9 13D Page 3 of 12 Pages ________________________________________________________________________________ 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) ComVest II Partners, LLC (01-6228703) ________________________________________________________________________________ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_] (b) [_] ________________________________________________________________________________ 3 SEC USE ONLY ________________________________________________________________________________ 4 SOURCE OF FUNDS* AF ________________________________________________________________________________ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] ________________________________________________________________________________ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware ________________________________________________________________________________ 7 SOLE VOTING POWER NUMBER OF SHARES _________________________________________________________________ 8 SHARED VOTING POWER BENEFICIALLY 25,400,000 OWNED BY _________________________________________________________________ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON _________________________________________________________________ 10 SHARED DISPOSITIVE POWER WITH 25,400,000 ________________________________________________________________________________ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 25,400,000 ________________________________________________________________________________ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_] ________________________________________________________________________________ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 48% ________________________________________________________________________________ 14 TYPE OF REPORTING PERSON* OO ________________________________________________________________________________ *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 221011 10 9 13D Page 4 of 12 Pages ________________________________________________________________________________ 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Commonwealth Associates Group Holdings, LLC (01-0622406) ________________________________________________________________________________ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_] (b) [_] ________________________________________________________________________________ 3 SEC USE ONLY ________________________________________________________________________________ 4 SOURCE OF FUNDS* AF ________________________________________________________________________________ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] ________________________________________________________________________________ 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware ________________________________________________________________________________ 7 SOLE VOTING POWER NUMBER OF SHARES _________________________________________________________________ 8 SHARED VOTING POWER BENEFICIALLY 25,400,000 OWNED BY _________________________________________________________________ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON _________________________________________________________________ 10 SHARED DISPOSITIVE POWER WITH 25,400,000 ________________________________________________________________________________ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 25,400,000 ________________________________________________________________________________ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_] ________________________________________________________________________________ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 48% ________________________________________________________________________________ 14 TYPE OF REPORTING PERSON* OO ________________________________________________________________________________ *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 221011 10 9 13D Page 5 of 12 Pages ________________________________________________________________________________ 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Michael S. Falk ________________________________________________________________________________ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_] (b) [_] ________________________________________________________________________________ 3 SEC USE ONLY ________________________________________________________________________________ 4 SOURCE OF FUNDS* AF ________________________________________________________________________________ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] ________________________________________________________________________________ 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA ________________________________________________________________________________ 7 SOLE VOTING POWER NUMBER OF SHARES _________________________________________________________________ 8 SHARED VOTING POWER BENEFICIALLY 25,400,000 OWNED BY _________________________________________________________________ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON _________________________________________________________________ 10 SHARED DISPOSITIVE POWER WITH 25,400,000 ________________________________________________________________________________ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 25,400,000 ________________________________________________________________________________ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_] ________________________________________________________________________________ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 48% ________________________________________________________________________________ 14 TYPE OF REPORTING PERSON* IN ________________________________________________________________________________ *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 221011 10 9 13D Page 6 of 12 Pages ________________________________________________________________________________ 1 NAME OF REPORTING PERSONS I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY) Robert L. Priddy ________________________________________________________________________________ 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [_] (b) [_] ________________________________________________________________________________ 3 SEC USE ONLY ________________________________________________________________________________ 4 SOURCE OF FUNDS* AF ________________________________________________________________________________ 5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [_] ________________________________________________________________________________ 6 CITIZENSHIP OR PLACE OF ORGANIZATION USA ________________________________________________________________________________ 7 SOLE VOTING POWER NUMBER OF SHARES _________________________________________________________________ 8 SHARED VOTING POWER BENEFICIALLY 25,400,000 OWNED BY _________________________________________________________________ EACH 9 SOLE DISPOSITIVE POWER REPORTING PERSON _________________________________________________________________ 10 SHARED DISPOSITIVE POWER WITH 25,400,000 ________________________________________________________________________________ 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 25,400,000 ________________________________________________________________________________ 12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES* [_] ________________________________________________________________________________ 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11) 48% ________________________________________________________________________________ 14 TYPE OF REPORTING PERSON* IN ________________________________________________________________________________ *SEE INSTRUCTIONS BEFORE FILLING OUT! CUSIP No. 221011 10 9 13D Page 7 of 12 Pages ITEM 1. SECURITY AND ISSUER. This Statement relates to shares (the "Shares") of the Common Stock, par value $0.01 per share (the "Common Stock") of CorVu Corporation, a Minnesota corporation (the "Issuer") acquired by the Reporting Person on February 11, 2005. The principal executive offices of the Issuer are located at 3400 West 66th Street, Edina, Minnesota, 55435. ITEM 2. IDENTITY AND BACKGROUND. The name of the Reporting Person is ComVest Investment Partners II LLC, a Delaware limited liability company ("ComVest"). ComVest is a private investment company. The managing member of ComVest is ComVest II Partners LLC, a Delaware limited liability company ("ComVest II Partners"), the managing member of which is Commonwealth Associates Group Holdings, LLC, a Delaware limited liability company ("CAGH"). Michael Falk ("Falk") is the Chairman and principal member of CAGH. Robert Priddy ("Priddy") is a member of ComVest Partners II. Falk and Priddy are citizens of the United States of America. The business address for ComVest and the other individuals described in this Item 2 is One North Clematis Street, Suite 300, West Palm Beach, Florida 33401. During the last five years, neither ComVest nor any other person enumerated in this Item 2, has been (i) convicted in a criminal proceeding (excluding traffic violations or similar misdemeanors) or (ii) a party to a civil proceeding of a judicial or administrative body of competent jurisdiction and as a result of such proceeding was or is subject to a judgment, decree or final order enjoining future violations of, or prohibiting or mandating activities subject to, federal or state securities laws or finding any violation with respect to such laws. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION. On February 11, 2005, Issuer and ComVest signed a Securities Purchase Agreement (the "Purchase Agreement") and consummated the transactions contemplated thereby. Pursuant to the terms and conditions set forth in the Purchase Agreement, ComVest (i) purchased 22,000,000 shares of the Issuer's common stock for a purchase price of $3,300,000,(ii) purchased 17,000 shares of a Series C Convertible Preferred Stock ("Series C Preferrred Stock") plus five-year warrants to purchase up to 3,400,000 shares of the Issuer's common stock at an exercise price of $0.50 per share for an aggregate purchase price of $1,700,000, and (iii) provided to CorVu a senior secured loan in the principal amount of $1,500,000. In addition, the Issuer granted to ComVest warrants to purchase an additional 2,000,000 shares at $0.50; however, these warrants will become exercisable only if less than two ComVest designees are members of the Issuer's board of directors and ComVest owns more than 5,000,000 shares of the Issuer's common stock. Both warrants will not become exercisable prior to August 11, 2005. Each share of Series C Preferred Stock has a par value of $100 and will convert into 200 shares of the Issuer's common stock, subject to customary antidilution provisions. The Series C Preferred Stock will accrue cumulative quarterly dividends of $1.50 per share during the first year after issuance, $2.25 per share during the second year after issuance, and $3.00 per share during the third year after issuance. If the Issuer fails to pay such dividend within thirty days after the end of a quarter, ComVest has the right to request the conversion of the outstanding dividend amount into shares of the Issuer's common stock at the volume-weighted average closing price of the Common Stock of the Corporation during the twenty-day period beginning on the day of ComVest's conversion notice. The Issuer will have the right to redeem Series C Preferred Stock at any time upon 10 business days prior written notice upon payment of $100 per share plus accumulated but unpaid dividends; holders of Series C Preferred Stock may elect to CUSIP No. 221011 10 9 13D Page 8 of 12 Pages convert the stock at any time. The Issuer is obligated to use 100% of the proceeds from any equity or debt financing to redeem the Series C Preferred Stock. Upon liquidation of the Issuer, each share of Series C Preferred Stock entitles its holder to receive an amount of $150, prior and in preference to holders of common stock and any other preferred stock, and to participate, on an as-converted basis and together with holders of the Issuer's Series B Convertible Preferred Stock ("Series B Preferred Stock"), in any liquidation distributions to holders of common stock. The loan is secured by substantially all of the assets of the Issuer and its wholly-owned subsidiary, CorVu North America, and ranks senior to any existing or future indebtedness of the Issuer. The interest rate for the loan is 6% during the first year of the loan, 9% during the second year and 12% for the third year. The loan becomes immediately due and payable upon the earlier of (i) 36 months from the date of issuance, (ii) a merger or combination of the Issuer or a sale of all or substantially all of the assets of the Issuer, or (iii) the acquisition of more than 50% of the voting power or interest in the Issuer by a single entity or person. The Issuer is obligated to use 50% of any proceeds it may receive in the future upon the sale of certain equity or debt securities to retire the loan, provided, that all shares of Series C Preferred Stock have been redeemed previously. Without ComVest's approval, the Issuer may not maintain a cash balance of less than $750,000. All warrants are subject to anti-dilution protection. The Issuer paid a cash fee of $240,000 to ComVest at the closing. ITEM 4. PURPOSE OF TRANSACTION. ComVest purchased the Shares for investment purposes and not with the view to sell in connection with any distribution thereof. Except in the ordinary course of business or as set forth below, the Reporting Person has no present intention or plans or proposals which relate to or could result in any of the matters referred to in paragraphs (a) through (j) of Item 4 of Schedule 13D. Prior to the closing of the transactions with ComVest, the Issuer amended its articles of incorporation by filing the statement of designation of rights, preferences and limitations of the Series C Preferred Stock. The Issuer's board of directors had approved such statement of designation and had designated 17,000 shares out of the Issuer's authorized undesignated stock as shares of Series C Preferred Stock. As required by the Issuer's articles of incorporation, the majority of the holders of the outstanding shares of the Issuer's Series B Preferred Stock consented to the creation of the Series C Preferred Stock with liquidation preference, dividend and redemption rights on parity with, or senior to, the Series B Preferred Stock. Contingent upon the closing of the transaction, the Issuer's board of directors increased the number of directors to seven and elected two individuals designated by ComVest to fill these newly created seats. Accordingly, On February 11, 2004, the Issuer's board of directors increased the number of directors to seven and elected Robert L. Priddy and Robert L. Doretti to the board. Messrs. Priddy and Doretti had been designated by ComVest. ComVest will also appoint an observer to the Issuer's board of directors. One of the warrants granted to ComVest will become exercisable only if ComVest has less than two designees on the Issuer's board of directors at a time when ComVest owns more than 5,000,000 shares of the Issuer's stock (on an as-converted basis). In addition, ComVest entered into a Stockholders' Agreement with Justin MacIntosh, the Issuer's Chief Executive Officer, granting ComVest, among other things, a right of first refusal with respect to his shares of Common Stock under certain circumstances. CUSIP No. 221011 10 9 13D Page 9 of 12 Pages The information provided in Item 3 is incorporated by reference herein. Notwithstanding anything to the contrary contained herein, the Reporting Person reserves the right, depending on all relevant factors, to change its intention with respect to any and all of the matters referred to above. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER. (a) Including the shares of Common Stock and the shares of Series C Preferred Stock (on an as converted basis) that ComVest acquired in the transactions on February 11, 2005, ComVest now has the beneficial ownership of 25,400,000 shares of Common Stock of the Issuer, representing 48% of the Issuer's stock. In addition, ComVest has received a Preferred Warrant to purchase 3,400,000 shares of Common Stock exercisable at $0.50 per share and a Protective Warrant to purchase 2,000,000 shares of Common Stock exercisable at $0.50 per share (collectively, the "Warrants"). The Warrants have a delayed exercise period and, accordingly, the shares of Common Stock underlying the warrants have not been included in ComVest's beneficial ownership calculation. Falk and Priddy, by virtue of their status as managing members of ComVest II Partners (the managing member of ComVest) and as the principal members of ComVest and ComVest II Partners, may be deemed to have indirect beneficial ownership of the Shares owned by ComVest. However, Falk and Priddy disclaim any beneficial ownership of such Shares. (b) Falk and Priddy, by virtue of their status as managing members of ComVest II Partners (the managing member of ComVest) and as the principal members of ComVest and ComVest II Partners, have the power to vote or to direct the vote and the power to dispose and to direct the disposition of the Shares owned by ComVest. (c) Not applicable. (d) Not applicable. (e) Not applicable. ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO SECURITIES OF THE ISSUER. Other than as set forth above, neither ComVest nor any other person named in Item 2 above has any contracts, arrangements, understandings or relationships (legal or otherwise) with any person with respect to any securities of the Issuer, including but not limited to any contracts, arrangements, understandings or relationships concerning the transfer or voting of such securities, finder's fees, joint ventures, loan or option arrangements, puts or calls, guarantees of profits, division of profits or losses, or the giving or withholding of proxies. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS. 1. Joint Filing Agreement, as required by Rule 13d- 1 under the Securities exchange Act of 1934. 2. Securities Purchase Agreement, dated as of February 11, 2005, by and between CorVu Corporation and ComVest Investment Partners II LLC. 3. Senior Secured Note in the principal amount of $1,500,000. CUSIP No. 221011 10 9 13D Page 10 of 12 Pages 4. Preferred Warrant to purchase 3,400,000 shares of Common Stock at $0.50 per share. 5. Protective Warrant to purchase 2,000,000 shares of Common Stock at $0.50 per share. 6. Stockholders' Agreement. 7. Security Agreement. 8. Series C Certificate of Designation. 9. Registration Rights Agreement CUSIP No. 221011 10 9 13D Page 11 of 12 Pages SIGNATURE After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: February 22, 2005 ComVest Investment Partners II LLC By: ComVest II Partners, LLC, its managing member By: /s/ Robert L. Priddy ----------------------------------- Name: Robert L. Priddy Title: Managing Member Dated: February 22, 2005 ComVest II Partners, LLC By: /s/ Robert S. Priddy ----------------------------------- Name: Robert L. Priddy Title: Managing Member Dated: February 22, 2005 Commonwealth Associates Group Holdings, LLC By: /s/ Michael S. Falk ------------------------------------------- Name: Michael S. Falk Title: Chairman and Managing Member Dated: February 22, 2005 /s/ Michael S. Falk ------------------------------------------- Michael S. Falk, individually Dated: February 22, 2005 /s/ Robert L. Priddy ------------------------------------------- Robert L. Priddy, individually CUSIP No. 221011 10 9 13D Page 12 of 12 Pages EXHIBIT INDEX 1. Joint Filing Agreement, as required by Rule 13d-1 under the Securities exchange Act of 1934. 2. Securities Purchase Agreement, dated as of February 11, 2005, by and between CorVu Corporation and ComVest Investment Partners II LLC. 3. Senior Secured Note in the principal amount of $1,500,000. 4. Preferred Warrant to purchase 3,400,000 shares of Common Stock at $0.50 per share. 5. Protective Warrant to purchase 2,000,000 shares of Common Stock at $0.50 per share. 6. Stockholders' Agreement. 7. Security Agreement. 8. Series C Certificate of Designation. 9. Registration Rights Agreement EX-1 2 e1028060.txt AMENDED JOINT FILING AGREEMENT EXHIBIT 1 JOINT FILING AGREEMENT The undersigned hereby consent to the joint filing by any of them of a Statement on Schedule 13D and any amendments thereto, whether heretofore or hereafter filed, relating to the securities of CorVu Corporation, and hereby affirm that this Schedule 13D is being filed on behalf of each of the undersigned. Dated: February 22, 2005 ComVest Investment Partners II LLC By: ComVest II Partners, LLC, its managing member By: /s/ Robert L. Priddy ----------------------------------- Name: Robert L. Priddy Title: Managing Member Dated: February 22, 2005 ComVest II Partners, LLC By: /s/ Robert S. Priddy ----------------------------------- Name: Robert L. Priddy Title: Managing Member Dated: February 22, 2005 Commonwealth Associates Group Holdings, LLC By: /s/ Michael S. Falk ------------------------------------------- Name: Michael S. Falk Title: Chairman and Managing Member Dated: February 22, 2005 /s/ Michael S. Falk ------------------------------------------- Michael S. Falk, individually Dated: February 22, 2005 /s/ Robert L. Priddy ------------------------------------------- Robert L. Priddy, individually EX-2 3 e1019612.txt SECURITIES PURCHASE AGREEMENT EXHIBIT 2 EXECUTION COPY SECURITIES PURCHASE AGREEMENT This Securities Purchase Agreement (this "Agreement") is dated as of February 11, 2005, by and among CorVu Corporation, a Minnesota corporation (the "Company"), ComVest Investment Partners II LLC, a Delaware limited liability company ("Purchaser") and the Subsidiaries (as defined herein) set forth on the signature page hereto. WHEREAS, subject to the terms and conditions set forth in this Agreement and in accordance with and in reliance upon the exemption from securities registration afforded by Section 4(2) of the Securities Act of 1933, as amended, and the rules and regulations of the Commission promulgated thereunder (the "Securities Act"), including Regulation D ("Regulation D"), and/or upon such other exemption from the registration requirements of the Securities Act as may be available with respect to any or all of the investments to be made hereunder, the Company desires to issue and sell to Purchaser, and Purchaser desires to purchase from the Company (i) a senior secured note (the "Senior Secured Note") in an aggregate principal amount of $1,500,000, (ii) 22,000,000 shares of common stock, $0.01 par value per share ("Common Stock"), of the Company for an aggregate purchase price of $3,300,000, (iii) 17,000 of shares of convertible preferred stock, par value $100 per share (the "Series C Preferred Stock"), (iv) warrants (the "Preferred Warrant") to purchase 3,400,00 shares of Common Stock and (v) warrants (the "Protective Warrant" and, together with the Preferred Warrant, the "Warrants") to purchase 2,000,00 shares of Common Stock on the Closing Date; NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this Agreement, and for other good and valuable consideration the receipt and adequacy of which are hereby acknowledged, the Company and Purchaser agrees as follows: ARTICLE I. DEFINITIONS 1.1 Definitions. In addition to the terms defined elsewhere in this Agreement, for all purposes of this Agreement, the following terms have the meanings indicated in this Section 1.1: "Action" means any claim, action, suit, arbitration, inquiry, action or investigation by or before any Governmental Authority. "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person. "Agreement" shall have the meaning set forth in the Preamble. 1 "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in The City of New York. "Certificate of Designation" means the Certificate of Designation of Rights and Preferences of Series C Convertible Preferred Stock of the Company to be filed with the Secretary of State of the State of Minnesota in connection with the issuance of the Series C Preferred Stock in the form of Exhibit E attached hereto. "Claims" means any and all administrative, regulatory or judicial actions, suits, petitions, appeals, demands, demand letters, claims, Encumbrances, notices of noncompliance or violation, investigations, Actions, consent orders or consent agreements. "Code" means the Internal Revenue Code of 1986, as amended through the date hereof. "Company" shall have the meaning set forth in the Preamble. "Company Indemnified Party" shall have the meaning set forth in Section 4.10(b). "Company Intellectual Property" means Intellectual Property owned by the Company or any Subsidiary. "Company IP Agreements" means (a) licenses of Intellectual Property by the Company or any Subsidiary to any third party, (b) licenses of Intellectual Property by any third party to the Company or any Subsidiary, (c) agreements between the Company or any Subsidiary and any third party relating to the development or use of Intellectual Property, the development of data, or the modification, framing, linking, or advertisement with respect to Internet web sites and (d) consents, settlements, decrees, orders, injunctions, judgments or rulings to which the Company or any Subsidiary is a party, governing the use, validity or enforceability of Company Intellectual Property. "Company Software" means all Software (a) material to the operation of its business or (b) manufactured, distributed, sold, licensed or marketed by the Company or any Subsidiary. "Commission" means the Securities and Exchange Commission. "Common Stock" shall have the meaning set forth in the Recitals. "Common Stock Equivalents" means any securities of the Company or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or 2 exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock. "Company Counsel" means Fredrikson & Byron, P.A. with offices located at 200 South Sixth Street, Suite 4000, Minneapolis, Minnesota 55402. "control" (including the terms "controlled by" and "under common control with"), with respect to the relationship between or among two or more Persons, means the possession, directly or indirectly or as trustee, personal representative or executor, of the power to direct or cause the direction of the affairs or management of a Person, whether through the ownership of voting securities, as trustee, personal representative or executor, by contract, credit arrangement or otherwise. "Conversion Shares" means the shares of Common Stock issuable upon conversion of the Series C Preferred Stock. "Copyrights" means mask works, rights of publicity and privacy, and copyrights in works of authorship of any type, including Software, registrations and applications for registration thereof throughout the world, all rights therein provided by international treaties and conventions, all moral and common law rights thereto, and all other rights associated therewith. "Disclosure Schedule" means the Disclosure Schedule attached hereto, dated as of the date hereof, delivered by the Company to Purchaser in connection with this Agreement. "Encumbrance" means any security interest, pledge, hypothecation, mortgage, Encumbrance (including environmental and tax Encumbrances), violation, charge, lease, license, encumbrance, servient easement, adverse claim, reversion, reverter, preferential arrangement, restrictive covenant, condition or restriction of any kind, including any restriction on the use, voting, transfer, receipt of income or other exercise of any attributes of ownership. "Effective Date" means the date that the Registration Statement is first declared effective by the Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission promulgated thereunder. "Exempt Issuance" means the issuance of (a) shares of Common Stock or options to employees, officers or directors of the Company pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors (the "Board") of the Company or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise of or conversion of any convertible securities, options or warrants issued and outstanding on December 20, 2004, provided that such securities have not been amended since the date of this Agreement, (c) the 3 Securities issued or issuable hereunder, (d) issuances in connection with mergers, acquisitions, joint ventures or other transactions with an unrelated third party in a bona fide transaction the purpose of which is not fundraising, (e) 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, and not to exceed an aggregate of $250,000 in any fiscal year without the prior written consent of Purchaser, or (f) issuances of options ("Replacement Options") to MacIntosh at the then fair market value in replacement of options held by MacIntosh on the Closing date upon their expiration and issuances of shares of Common Stock upon exercise of any such Replacement Options, provided, that such Replacement Options have been issued in accordance with the Company's then existing stock option plan and approved by a majority of the non-employee members of the Board of the Company or a majority of the members of a committee of non-employee directors established for such purpose. "GAAP" means United States generally accepted accounting principles and practices in effect from time to time applied consistently throughout the periods involved. "Governmental Authority" means any federal, national, supranational, state, provincial, local, or similar government, governmental, regulatory or administrative authority, agency or commission or any court, tribunal, or judicial or arbitral body. "Governmental Order" means any order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Authority. "GT" means Greenberg Traurig, LLP with offices located at The Met Life Building, 200 Park Avenue, New York, New York 10166. "Indebtedness" means, with respect to any Person, (a) all indebtedness of such Person, whether or not contingent, for borrowed money, (b) all obligations of such Person for the deferred purchase price of property or services, (c) all obligations of such Person evidenced by notes, bonds, debentures or other similar instruments, (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 Company 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 as lessee under leases that have been or should be, in accordance with GAAP, recorded as capital leases, (f) all obligations, contingent or otherwise, of such Person under acceptance, letter of credit or similar facilities, (g) all obligations of such Person to purchase, redeem, retire, defease or otherwise acquire for value any capital stock of such Person or any warrants, rights or options to acquire such capital stock, valued, in the case of redeemable preferred stock, at the greater of its voluntary or involuntary liquidation preference plus accrued and unpaid dividends, (h) all Indebtedness of 4 others referred to in clauses (a) through (g) above guaranteed directly or indirectly in any manner by such Person, or in effect guaranteed directly or indirectly by such Person through an agreement (i) to pay or purchase such Indebtedness or to advance or supply funds for the payment or purchase of such Indebtedness, (ii) to purchase, sell or lease (as lessee or lessor) property, or to purchase or sell services, primarily for the purpose of enabling the debtor to make payment of such Indebtedness or to assure the holder of such Indebtedness against loss, (iii) to supply funds to or in any other manner invest in the debtor (including any agreement to pay for property or services irrespective of whether such property is received or such services are rendered) or (iv) otherwise to assure a creditor against loss, and (i) all Indebtedness referred to in clauses (a) through (g) above secured by (or for which the holder of such Indebtedness has an existing right, contingent or otherwise, to be secured by) any Encumbrance on property (including accounts and contract rights) owned by such Person, even though such Person has not assumed or become liable for the payment of such Indebtedness. "Indemnified Party" shall mean a Company Indemnified Party or a Purchaser Indemnified Party, as the case may be; "Indemnifying Party" shall mean Purchaser pursuant to Section 4.10(a) and the Company pursuant to Section 4.10(b), as the case may be "Intellectual Property" means (i) patents, patent applications and statutory invention registrations, (ii) trademarks, service marks, domain names, trade dress, logos, trade names, corporate names and other identifiers of source or goodwill, including registrations and applications for registration thereof and including the goodwill of its business symbolized thereby or associated therewith, (iii) mask works and copyrights, including copyrights in computer software, and registrations and applications for registration thereof, and (iv) confidential and proprietary information, including trade secrets, know how and invention rights. "IRS" means the Internal Revenue Service of the United States. "Law" means any federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, order, requirement or rule of law (including common law). "Leased Real Property" means the real property leased by the Company or any Subsidiary as tenant, together with, to the extent leased by the Company or any Subsidiary, all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Company or any Subsidiary attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing. "Licensed Intellectual Property" means Intellectual Property licensed to the Company or any Subsidiary pursuant to the Company IP Agreements. 5 "MacIntosh" means Justin M. MacIntosh. "Material Adverse Effect" means any circumstance, change in or effect on its business, the Company or any Subsidiary that, individually or in the aggregate with all other circumstances, changes in or effects on its business, the Company or any Subsidiary: (a) is or is reasonably likely to be materially adverse to its business, operations, assets or liabilities (including contingent liabilities), employee relationships, customer or supplier relationships, prospects, results of operations or the condition (financial or otherwise) of its business, the Company or any Subsidiary or (b) is reasonably likely to materially adversely effect the ability of Purchaser to operate or conduct its business in the manner in which it is currently or contemplated to be operated or conducted by the Company or any Subsidiary. "Owned Real Property" means the real property in which the Company or any Subsidiary has fee title (or equivalent) interest, together with all buildings and other structures, facilities or improvements currently or hereafter located thereon, all fixtures, systems, equipment and items of personal property of the Company or any Subsidiary attached or appurtenant thereto and all easements, licenses, rights and appurtenances relating to the foregoing. "Patents" means United States, foreign and international patents, patent applications and statutory invention registrations, including reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, and all rights therein provided by international treaties and conventions. "Permitted Encumbrances" means such of the following as to which no enforcement, collection, execution, levy or foreclosure Action shall have been commenced and as to which neither the Company nor any Subsidiary is otherwise subject to civil or criminal liability due to its existence: (a) Encumbrances for Taxes not yet due and payable, for which adequate reserves have been maintained in accordance with GAAP; (b) Encumbrances imposed by Law, such as materialmen's, mechanics', carriers', workmen's and repairmen's Encumbrances and other similar Encumbrances arising in the ordinary course of business securing obligations that (i) are not overdue for a period of more than 30 days and (ii) are not in excess of $5,000 in the case of a single property or $50,000 in the aggregate at any time; (c) pledges or deposits to secure obligations under workers' compensation laws or similar legislation or to secure public or statutory obligations; and (d) minor survey exceptions, reciprocal easement agreements and other customary encumbrances on title to real property that (i) were not incurred in connection with any Indebtedness, (ii) do not render title to the property encumbered thereby unmarketable and (iii) do not, individually or in the aggregate, materially adversely affect the value of or the use of such property for its current and anticipated purposes. "Person" means any individual, partnership, firm, corporation, limited liability company, association, trust, unincorporated organization or other entity, 6 as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act. "Preferred Shares" means the 17,000 shares of Series C preferred Stock issued to Purchaser pursuant to this Agreement. "Preferred Stock" means the "blank check" preferred stock designated by the Company. "Preferred Warrant" shall have the meaning set forth in the Recitals in the form of Exhibit C attached hereto. "Protective Warrant" shall have the meaning set forth in the Recitals in the form of Exhibit D attached hereto. "Purchaser" shall have the meaning set forth in the Preamble. "Purchaser Indemnified Party" shall have the meaning set forth in Section 4.10(a). "Real Property" means the Leased Real Property and the Owned Real Property. "Registration Rights Agreement" means the Registration Rights Agreement, dated as of the date of this Agreement, among the Company and Purchaser, in the form of Exhibit B attached hereto. "Registration Statement" means a registration statement meeting the requirements set forth in the Registration Rights Agreement and covering the resale by Purchaser of the Shares and the Warrant Shares. "Regulation D" shall have the meaning set forth in the Recitals. "Regulations" means the Treasury Regulations (including Temporary Regulations) promulgated by the United States Department of Treasury with respect to the Code or other federal tax statutes. "Rule 144" means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule. "SEC Reports" shall have the meaning ascribed to such term in Section 3.1(g). "Securities" collectively means the Shares, the Preferred Shares, the Conversion Shares, the Senior Secured Note, the Warrants and the Warrant Shares. 7 "Security Agreement" means the Security Agreement between the Company and Purchaser in the form of Exhibit G attached hereto. "Securities Act" shall have the meaning set forth in the Recitals. "Senior Secured Note" shall have the meaning set forth in the Recitals in the form of Exhibit A attached hereto. "Series A Preferred Stock" means the Series A Convertible Preferred Stock, par value $10.00 per share, of the Company. "Series B Preferred Stock" means the Series B Convertible Preferred Stock, par value $.01 per share, of the Company. "Series C Preferred Stock" shall have the meaning set forth in the Recitals. "Shares" means the 22,000,000 shares of Common Stock issued to Purchaser pursuant to this Agreement. "Software" means computer software, programs and databases in any form, including Internet web sites, web content and links, source code, object code, operating systems and specifications, data, databases, database management code, utilities, graphical user interfaces, menus, images, icons, forms, methods of processing, software engines, platforms and data formats, all versions, updates, corrections, enhancements and modifications thereof, and all related documentation, developer notes, comments and annotations. "Stockholders' Agreement" means the agreement among Purchaser, MacIntosh and his Affiliates relating to the Common Stock beneficially owned by MacIntosh and his Affiliates in the form of Exhibit F attached hereto. "Subsidiaries" means any and all corporations, partnerships, limited liability companies, joint ventures, associations and other entities controlled by the Company directly or indirectly through one or more intermediaries. "Tax" or "Taxes" means any and all taxes, fees, levies, duties, tariffs, imposts, and other charges of any kind (together with any and all interest, penalties, additions to tax and additional amounts imposed with respect thereto) imposed by any government or taxing authority, including taxes or other charges on or with respect to income, franchises, windfall or other profits, gross receipts, property, sales, use, capital stock, payroll, employment, social security, workers' compensation, unemployment compensation, or net worth; taxes or other charges in the nature of excise, withholding, ad valorem, stamp, transfer, value added, or gains taxes; license, registration and documentation fees; and customs' duties, tariffs, and similar charges. "Tax Returns" means any return, declaration, report, election, claim for refund or information return or other statement or form relating to, filed or 8 required to be filed with any Tax authority for the Company's fiscal years ended June 30, 2000 and thereafter, including any schedule or attachment thereto or any amendment thereof. "Trade Secrets" means trade secrets, know-how and other confidential or proprietary technical, business and other information, including manufacturing and production processes and techniques, research and development information, technology, drawings, specifications, designs, plans, proposals, technical data, financial, marketing and business data, pricing and cost information, business and marketing plans, customer and supplier lists and information, and all rights in any jurisdiction to limit the use or disclosure thereof. "Trademarks" means trademarks, service marks, trade dress, logos, trade names, corporate names, URL addresses, domain names and symbols, slogans and other indicia of source or origin, including the goodwill of its business symbolized thereby or associated therewith, common law rights thereto, registrations and applications for registration thereof throughout the world, all rights therein provided by international treaties and conventions, and all other rights associated therewith. "Transaction Documents" means this Agreement, the Senior Secured Note, the Certificate of Designation, the Warrants, the Stockholders' Agreement, the Security Agreement and the Registration Rights Agreement and any other documents or agreements executed in connection with the transactions contemplated hereunder. "Warrants" means, collectively, the Preferred Warrant and the Protective Warrant delivered to Purchaser at the Closing in accordance with Section 2.2 hereof. "Warrant Shares" means the shares of Common Stock issuable upon exercise of the Warrants. 1.2 Other Terms. Other terms may be defined elsewhere in the text of this Agreement and, unless otherwise indicated, shall have such meaning throughout this Agreement. 1.3 Interpretation and Rules of Construction. In this Agreement, except to the extent otherwise provided or that the context otherwise requires: (i) when a reference is made in this Agreement to an Article, Section, Exhibit or Schedule, such reference is to an Article or Section of, or a Schedule or Exhibit to, this Agreement unless otherwise indicated; (ii) references to the "knowledge" of the Company shall refer to the actual knowledge of any of the Company's officers or members of its Board or the knowledge that any such person would reasonably be expected to have assuming reasonable inquiry; 9 (iii) references to "due inquiry" shall refer to an inquiry that any of the Company's officers or members of its Board would reasonably be expected to undertake based upon the information available to them; (iv) the headings for this Agreement are for reference purposes only and do not affect in any way the meaning or interpretation of this Agreement; (v) whenever the words "include," "includes" or "including" are used in this Agreement, they are deemed to be followed by the words "without limitation"; (vi) the words "hereof," "herein" and "hereunder" and words of similar import, when used in this Agreement, refer to this Agreement as a whole and not to any particular provision of this Agreement; (vii) all terms defined in this Agreement have the defined meanings when used in any certificate or other document made or delivered pursuant hereto, unless otherwise defined therein; (viii) the definitions contained in this Agreement are applicable to the singular as well as the plural forms of such terms; (ix) any Law defined or referred to herein or in any agreement or instrument that is referred to herein means such Law or statute as from time to time amended, modified or supplemented, including by succession of comparable successor Laws; (x) references to a Person are, in the case of individuals, also to his or her personal representatives, heirs and permitted assigns and, in the case of entities, also to its successors and permitted assigns; and (xi) the use of "or" is not intended to be exclusive unless expressly indicated otherwise. ARTICLE II. PURCHASE AND SALE 2.1 Closing. (a) The consummation of the sale of the Senior Secured Note, Shares, Preferred Shares and Warrants (the "Closing") shall take place on or before February 11, 2005 (the "Closing Date") by telecopy exchange of signature pages with originals to follow by overnight delivery, or in such other manner or at such place as the parties hereto may agree. (b) At the Closing, Purchaser shall deliver to the Company an aggregate of Six Million Five Hundred Thousand Dollars ($6,500,000), such amount 10 representing the aggregate purchase price for the Senior Secured Note, the Shares and the Preferred Shares, by certified check or wire transfer (the "Purchase Price"). 2.2 Closing Conditions; Deliveries. (a) On the Closing Date, the Company shall deliver or cause to be delivered to Purchaser the following: (i) this Agreement duly executed by the Company; (ii) a copy of the irrevocable instructions to the Company's transfer agent instructing the transfer agent to deliver, on an expedited basis, a certificate evidencing each of the Shares and Preferred Shares, each registered in the name of Purchaser; (iii) a copy of the Preferred Warrant registered in the name of Purchaser; (iv) a copy of the Protective Warrant registered in the name of Purchaser; (v) the Registration Rights Agreement duly executed by the Company; (vi) the Stockholders' Agreement duly executed by MacIntosh and his Affiliates; (vii) the certificates referred to in Section 2.2(c)(i) and 2.2(e)(i); (viii) the Security Agreement duly executed by the Company and each of its Subsidiaries; and (ix) a legal opinion of Company Counsel, in the form reasonably acceptable to GT. (b) On the Closing Date, Purchaser shall deliver or cause to be delivered to the Company the following: (i) this Agreement duly executed by Purchaser; (ii) the Purchase Price by wire transfer of immediately available funds to the account as specified in writing by the Company; (iii) the certificates referred to in Section 2.2(c)(ii) and 2.2(e)(ii); (iv) the Stockholders' Agreement duly executed by Purchaser, 11 (v) the Security Agreement duly executed by Purchaser; and (vi) the Registration Rights Agreement duly executed by Purchaser. (c) Accuracy of Representations and Warranties. (i) Each representation and warranty contained in Section 3.1 shall be true on and as of Closing with the same effect as though such representation and warranty had been made on and as of that date and the Company has delivered to Purchaser a certificate, executed by the Chief Executive Officer and the Chief Financial Officer of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in this Section 2.2(c)(i). (ii) Each representation and warranty contained in Section 3.2 shall be true on and as of Closing with the same effect as though such representation and warranty had been made on and as of that date and Purchaser has delivered to the Company a certificate, executed by the Chief Executive Officer or Chief Financial Officer of Purchaser, dated the Closing Date, certifying to the fulfillment of the conditions specified in this Section 2.2(c)(ii). (d) Material Adverse Effect. As of the Closing, there shall not have occurred any changes that have had or could reasonably have a Material Adverse Effect on the operations or financial condition of the Company. (e) Performance. (i) The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by the Company prior to or at the Closing and the Company has delivered to Purchaser a certificate, executed by the Chief Executive Officer and the Chief Financial Officer of the Company, dated the Closing Date, certifying to the fulfillment of the conditions specified in this Section 2.2(e)(i). (ii) Purchaser shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by Purchaser prior to or at the Closing and Purchaser has delivered to the Company a certificate, executed by the Chief Executive Officer or Chief Financial Officer of Purchaser, dated the Closing Date, certifying to the fulfillment of the conditions specified in this Section 2.2(e)(ii). (f) Due Diligence. As of the Closing, Purchaser shall, in its sole discretion, have completed its legal and financial due diligence and the results of such due diligence shall, in its sole discretion, be acceptable to Purchaser and its 12 legal counsel. The Disclosure Schedule delivered to Purchaser by the Company in connection with this Agreement shall not contain any exceptions that are deemed unacceptable by Purchaser in its sole discretion. (g) Capitalization on the Closing Date. As of the Closing Date, there shall be outstanding (excluding shares of Common Stock issued or to be issued to MacIntosh and members of his family upon conversion of the Series B Preferred Stock and conversion of securities representing current Indebtedness issued thereto) (i) not more than 24 million shares of Common Stock and not more than 600,000 shares of Series B Preferred Stock; (ii) options to purchase up to 4.1 million shares of Common Stock granted to employees under the Company's stock option plans; (iii) options to purchase up to 1.4 million shares of Common Stock granted to employees outside of the Company's stock option plans with average exercise prices between $0.91 and $1.58 per share; (iv) warrants to purchase up to 1,400,000 shares of Common Stock at an exercise price of $0.20; (v) warrants to purchase up to 2,805,275 shares of Common Stock at an average exercise price of $1.71. MacIntosh and members of his family shall, as of the Closing, convert all of their shares of Series B Preferred Stock into shares of Common Stock and all of their securities representing current Indebtedness into shares of Common Stock upon terms consistent with the purchase of the Shares by Purchaser and in accordance with the terms set forth in such instruments. (h) Indebtedness. As of the Closing, (i) the Company or its Subsidiaries, as the case may be, shall cause any Indebtedness between CorVu North America, Inc. and Commerce Bank to be paid off, and (ii) there shall be no other Indebtedness, other than as set forth in the SEC Reports and accounts payable, trade payables and capital lease obligations incurred in the ordinary course of business. (i) Certificate of Designation. The Certificate of Designation shall have been accepted for filing with the Secretary of State of the State of Minnesota. (j) MacIntosh Employment Agreement. The employment agreement between the Company and MacIntosh shall have been amended to provide for an annual salary of $250,000 for all services provided by MacIntosh to the Company and the Subsidiaries. Such amended agreement shall further provide that any amounts in excess of $250,000 shall be deferred until such time as the Company achieves, on a consolidated basis, two (2) consecutive quarters of revenues in excess of $4,000,000 and positive EBITDA. (k) Board of Directors. The Board of the Company shall have been increased by two (2) members and the Designees (as defined below) shall have been duly elected and qualified. 13 ARTICLE III. REPRESENTATIONS AND WARRANTIES 3.1 Representations and Warranties of the Company. Except as set forth under the corresponding section of the Disclosure Schedules which Disclosure Schedules shall be deemed a part hereof, the Company hereby makes the representations and warranties set forth below to Purchaser: (a) Authority, Organization and Qualification of the Company. The Company is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its incorporation and has all necessary power and authority to own, operate or lease the properties and assets now owned, operated or leased by it and to carry on its business as it has been and is currently conducted. The Company is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary or desirable, except to the extent that the failure to be so licensed or qualified and in good standing would not (x) adversely affect the ability of the Company to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement and the other Transaction Documents or (y) adversely affect the ability of the Company and the Subsidiaries to conduct its business, and all such jurisdictions are set forth in Section 3.1(a) of the Disclosure Schedule. All corporate actions taken by the Company have been duly authorized, and the Company has not taken any action that in any respect conflicts with, constitutes a default under or results in a violation of any provision of its Certificate of Incorporation or By-laws. True and correct copies of the Certificate of Incorporation and By-laws of the Company, each as in effect on the date hereof, have been delivered by the Company to Purchaser. (b) Subsidiaries. (i) Section 3.1(b)(i) of the Disclosure Schedule sets forth a true and complete list of all Subsidiaries, listing for each Subsidiary its name, type of entity, the jurisdiction and date of its incorporation or organization, its authorized capital stock, partnership capital or equivalent, the number and type of its issued and outstanding shares of capital stock, partnership interests or similar ownership interests and the current ownership of such shares, partnership interests or similar ownership interests. (ii) Other than the Subsidiaries, there are no other corporations, partnerships, joint ventures, associations or other entities in which the Company or any Subsidiary owns, of record or beneficially, any direct or indirect equity or other interest or any right (contingent or otherwise) to acquire the same. Other than the Subsidiaries and except as set forth in Section 3.1(b)(ii) of the Disclosure Schedule, neither the Company nor any Subsidiary is a member of (nor is any part of its business conducted 14 through) any partnership nor is the Company or any Subsidiary a participant in any joint venture or similar arrangement. (iii) Each Subsidiary that is a corporation: (A) is a corporation duly organized, validly existing and in good standing under the laws of its jurisdiction of incorporation, (B) has all necessary power and authority to own, operate or lease the properties and assets owned, operated or leased by such Subsidiary and to carry on its business as it has been and is currently conducted by such Subsidiary and (C) is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary or desirable, except to the extent that the failure to be so licensed or qualified and in good standing would not (x) adversely affect the ability of the Company to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement and the other Transaction Documents or (y) adversely affect the ability of the Company and the Subsidiaries to conduct its business. Each Subsidiary that is not a corporation: (A) is duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, (B) has all necessary power and authority to own, operate or lease the properties and assets owned, operated or leased by such Subsidiary and to carry on its business as it has been and is currently conducted by such Subsidiary and (C) is duly licensed or qualified to do business and is in good standing in each jurisdiction in which the properties owned or leased by it or the operation of its business makes such licensing or qualification necessary or desirable, except to the extent that the failure to be so licensed or qualified and in good standing would not (x) adversely affect the ability of the Company to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement and the other Transaction Documents or (y) adversely affect the ability of the Company and the Subsidiaries to conduct its business. (iv) All corporate actions taken by each Subsidiary have been duly authorized and no Subsidiary has taken any action that in any respect conflicts with, constitutes a default under or results in a violation of any provision of its Certificate of Incorporation or By-laws (or similar organizational documents). True and complete copies of the certificate of incorporation and by-laws (or similar organizational documents), in each case as in effect on the date hereof, of each Subsidiary have been delivered by the Company to Purchaser. (c) Capitalization. (i) Immediately prior to the Closing, the authorized capital stock of the Company consists of 75,000,000 shares of Common Stock. 1,000,000 shares of Series A Preferred Stock, 600,000 shares of Series B 15 Preferred Stock, 17,000 shares of Series C Preferred Stock and 23,383,000 shares of undesignated stock. As of the date hereof and immediately prior to the Closing, (i) 23,970,268 shares of Common Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (ii) 600,000 shares of Series B Preferred Stock are issued and outstanding, all of which are validly issued, fully paid and nonassessable, (iii) 3,928,876 shares of Common Stock are reserved for issuance upon exercise of employee stock options granted pursuant to various stock option plans, (iv) 1,302,751 shares of Common Stock are reserved for issuance upon exercise of employee stock options granted outside of the Company's stock option plan, (v) 1,400,001 shares of Common Stock are reserved for issuance upon exercise of outstanding warrants at an exercise price of $0.20 per share, and (vi) 2,319,703 shares of Common Stock are reserved for issuance upon exercise of outstanding warrants at an average exercise price of $1.12 per share. None of the issued and outstanding shares of Common Stock or Series B Preferred Stock was issued in violation of any preemptive rights. Except as set forth in Section 3.1(c)(i) of the Disclosure Schedule, there are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the Shares or Preferred Shares or obligating either the Company or the Company to issue or sell any Shares or Preferred Shares, or any other interest in, the Company. There are no outstanding contractual obligations of the Company to repurchase, redeem or otherwise acquire any shares of Common Stock or Preferred Stock or to provide funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in, any other Person. As of the date hereof and immediately prior to the Closing, the Common Stock and Series B Preferred Stock constitute all of the issued and outstanding capital stock of the Company. Upon consummation of the transactions contemplated by this Agreement and registration of the Shares and Preferred Shares in the name of Purchaser in the stock records of the Company, Purchaser, assuming it shall have purchased the Shares and Preferred Shares for value in good faith and without notice of any adverse claim, will own all the Shares and Preferred Shares free and clear of all Encumbrances. Upon consummation of the transactions contemplated by this Agreement, the Shares and the Preferred Shares will be fully paid and nonassessable. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any of the Common Stock or Preferred Stock. (ii) To the best knowledge of the Company, after due inquiry, the shareholder register attached to this Agreement as Schedule A accurately records, in all material respects: (A) the name and address of each Person owning shares of Common Stock or Preferred Stock and (B) the certificate number of each certificate evidencing shares of capital stock issued by the Company, the number of shares evidenced by each 16 such certificate, the date of issuance thereof and, in the case of cancellation, the date of cancellation. (iii) All the outstanding shares of capital stock of each Subsidiary that is a corporation are validly issued, fully paid, nonassessable and, except with respect to wholly owned Subsidiaries, free of preemptive rights and are owned by the Company, whether directly or indirectly, free and clear of all Encumbrances. There are no options, warrants, convertible securities or other rights, agreements, arrangements or commitments of any character relating to the capital stock of any Subsidiary or obligating the Company or any Subsidiary to issue or sell any shares of capital stock of, or any other interest in, any Subsidiary. There are no voting trusts, stockholder agreements, proxies or other agreements or understandings in effect with respect to the voting or transfer of any shares of capital stock of or any other interests in any Subsidiary. (iv) The stock register of each Subsidiary accurately records: (A) the name and address of each Person owning shares of capital stock of such Subsidiary and (B) the certificate number of each certificate evidencing shares of capital stock issued by such Subsidiary, the number of shares evidenced by each such certificate, the date of issuance thereof and, in the case of cancellation, the date of cancellation. (v) The Conversion Shares and the Warrant Shares are duly authorized and reserved for issuance and, upon conversion of the Preferred Shares and exercise of the warrants in accordance with the terms thereof, will be validly issued, fully paid and nonassessable, and free from all Encumbrances and will not be subject to preemptive rights or similar rights of stockholders of the Company and will not impose personal liability upon the holder thereof. (vi) The Company understands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of or otherwise pursuant to the Preferred Shares and upon the issuance of the Warrant Shares upon the exercise of or otherwise pursuant to the Warrants. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of or otherwise pursuant to the Preferred Shares and Warrant Shares upon the exercise of or otherwise pursuant to the Warrants in accordance with this Agreement, the Certificate of Designation and the Warrants is absolute, subject only to the terms and conditions set forth in this Agreement, the Certificate of Designation and the Warrants, regardless of the dilutive effect that such issuance may have on the ownership interests of other stockholders of the Company. 17 (vii) The terms, designations, powers, preferences and relative, participating and optional or special rights, and the qualifications, limitations and restrictions of each series of Preferred Stock of the Company (other than the Series C Preferred Stock) are as stated in the Company's articles of incorporation (including the statement of designation of the Series B Preferred Stock), filed on or prior to the date hereof. The terms, designations, powers, preferences and relative, participating and optional or special rights, and the qualifications, limitations and restrictions of the Series C Preferred Stock are as stated in the Certificate of Designation. (d) Corporate Books and Records. The minute books of the Company and the Subsidiaries contain accurate records of all meetings and accurately reflect all other actions taken by the stockholders, Boards of Directors and all committees of the Boards of Directors of the Company and the Subsidiaries. To the extent requested, true and accurate copies of all such minute books and of the stock register of the Company and each Subsidiary have been provided by the Company to Purchaser. (e) No Conflicts. Assuming that all consents, approvals, authorizations and other actions set forth in Section 3.1(f) of the Disclosure Schedule have been obtained and all filings and notifications listed in Section 3.1(e) of the Disclosure Schedule have been made and any applicable waiting period has expired or been terminated, the execution, delivery and performance of this Agreement and the other Transaction Documents by the Company do not and will not (i) violate, conflict with or result in the breach of any provision of the certificate of incorporation or by-laws (or similar organizational documents) of the Company or any Subsidiary, (ii) conflict with or violate (or cause an event which could have a Material Adverse Effect as a result of) any Law or Governmental Order applicable to the Company, any Subsidiary or any of their respective assets, properties or businesses, or (iii) except as set forth in Section 3.1(e)(iii) of the Disclosure Schedule, conflict with, result in any breach of, constitute a default (or event which with the giving of notice or lapse of time, or both, would become a default) under, require any consent under, or give to others any rights of termination, amendment, acceleration, suspension, revocation or cancellation of, or result in the creation of any Encumbrance on any of the Securities or any of the assets or properties of the Company or any Subsidiary pursuant to any note, bond, mortgage or indenture, contract, agreement, lease, sublease, license, permit, franchise or other instrument or arrangement to which the Company or any Subsidiary is a party or by which any of the Securities or any of the assets or properties of the Company or any Subsidiary is bound or affected, except, in the case of clause (c), to the extent that such conflicts, breaches, defaults or other matters would not (i) adversely affect the ability of the Company to carry out its obligations under, and to consummate the transactions contemplated by, this Agreement and the other Transaction Documents or (ii) adversely affect the ability of the Company and the Subsidiaries to conduct its business. 18 (f) Governmental Consents and Approvals. Except as set forth in Section 3.1(f) of the Disclosure Schedule, the execution, delivery and performance of this Agreement and each Transaction Document by the Company do not and will not require any consent, approval, authorization or other order of, action by, filing with or notification to, any Governmental Authority. The Company knows of no reason why all the consents, approvals and authorizations necessary for the consummation of the transactions contemplated by this Agreement will not be received. (g) SEC Reports; Financial Statements. The Company has filed all reports required to be filed by it under the Securities Act and the Exchange Act, including pursuant to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or such shorter period as the Company was required by law to file such material) (the foregoing materials, including the exhibits thereto, being collectively referred to herein as the "SEC Reports") on a timely basis or has received a valid extension of such time of filing and has filed any such SEC Reports prior to the expiration of any such extension. As of their respective dates, the SEC Reports complied in all material respects with the requirements of the Securities Act and the Exchange Act, and none of the SEC Reports, when filed, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The financial statements of the Company included in the SEC Reports comply in all material respects with applicable accounting requirements and the rules and regulations of the Commission with respect thereto as in effect at the time of filing. Such financial statements have been prepared in accordance with GAAP, except as may be otherwise specified in such financial statements or the notes thereto and except that unaudited financial statements may not contain all footnotes required by GAAP, and fairly present in all material respects the financial position of the Company and its consolidated subsidiaries as of and for the dates thereof and the results of operations and cash flows for the periods then ended, subject, in the case of unaudited statements, to normal, immaterial, year-end audit adjustments. (h) Material Changes. Since the date of the latest financial statements included within the SEC Reports, except as specifically disclosed in the SEC Reports, (i) there has been no event, occurrence or development that has had or that could reasonably be expected to result in a Material Adverse Effect, (ii) the Company has not incurred any liabilities (contingent or otherwise) other than (A) trade payables and accrued expenses incurred in the ordinary course of business consistent with past practice and (B) liabilities not required to be reflected in the Company's financial statements pursuant to GAAP or required to be disclosed in filings made with the Commission, (iii) the Company has not altered its method of accounting, (iv) the Company has not declared or made any dividend or distribution of cash or other property to its stockholders or purchased, redeemed or made any agreements to purchase or redeem any shares of its capital stock and (v) the Company has not issued any equity securities to any officer, director or 19 Affiliate, except pursuant to existing Company stock option plans. The Company does not have pending before the Commission any request for confidential treatment of information. (i) Litigation. Except as set forth in Section 3.1(i) of the Disclosure Schedule (which, with respect to each Action set forth therein, sets forth the parties, nature of the proceeding, date and method commenced, amount of charges or other relief sought and, if applicable, paid or granted), there are no Actions by or against the Company or any Subsidiary (or by or against the Company or any Affiliate thereof and relating to its business, the Company or any Subsidiary) or affecting any of the Assets or its business pending before any Governmental Authority (or, to the best knowledge of the Company after due inquiry, threatened to be brought by or before any Governmental Authority). None of the matters set forth in Section 3.1(i) of the Disclosure Schedule has or has had a Material Adverse Effect or could affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby. Except as set forth in Section 3.1(i) of the Disclosure Schedule, none of the Company, the Subsidiaries or any of their respective assets or properties, including the Assets, is subject to any Governmental Order (nor, to the best knowledge of the Company after due inquiry, are there any such Governmental Orders threatened to be imposed by any Governmental Authority) which has or has had a Material Adverse Effect or could affect the legality, validity or enforceability of this Agreement, any other Transaction Document or the consummation of the transactions contemplated hereby or thereby. (j) Labor Relations. No material labor dispute exists or, to the knowledge of the Company, is imminent with respect to any of the employees of the Company which could reasonably be expected to result in a Material Adverse Effect. (k) Compliance. (i) Except as set forth in Section 3.1(k)(i) of the Disclosure Schedule and to the best knowledge of the Company, after due inquiry, the Company and the Subsidiaries have each conducted and continue to conduct its business in accordance with all Laws and Governmental Orders applicable to the Company or any Subsidiary or the Assets, and neither the Company nor any Subsidiary is in violation of any such Law or Governmental Order. (ii) Section 3.1(k)(ii) of the Disclosure Schedule sets forth a brief description of each Governmental Order applicable to the Company, any Subsidiary or the Assets, and no such Governmental Order has or has had a Material Adverse Effect or could affect the legality, validity or enforceability of this Agreement, any Ancillary Agreement or the consummation of the transactions contemplated hereby or thereby. (iii) To the best knowledge of the Company, after due inquiry, none of the Company, any Subsidiary or any officer, director, employee, 20 agent or representative of the Company or any Subsidiary has furthered or supported any foreign boycott in violation of the Anti-Boycott laws and regulations of the United States promulgated pursuant to the Export Administration Act of 1979 (50 U.S.C.A. App. ss. 2407, and regulations promulgated thereunder). (l) Regulatory Permits. The Company and the Subsidiaries possess all certificates, authorizations and permits issued by the appropriate federal, state, local or foreign regulatory authorities necessary to conduct their respective businesses as described in the SEC Reports, except where the failure to possess such permits could not have or reasonably be expected to result in a Material Adverse Effect ("Material Permits"), and neither the Company nor any Subsidiary has received any notice of Actions relating to the revocation or modification of any Material Permit. (m) Material Contracts. Except as set forth in Section 3.1(m) of the Disclosure Schedule, neither the Company nor any Subsidiary is a party to or bound by any "material contracts" (as such term is defined in Item 601(b)(10) of Regulation S-K of the Commission) with respect to the Company or any Subsidiary. All contracts described in this Section 3.1(m) are valid and in full force and effect except to the extent they have previously expired in accordance with their terms or if the failure to be in full force and effect, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Neither the Company nor any Subsidiary has violated any provision of, or committed or failed to perform any act which with or without notice, lapse of time or both would constitute a default under the provisions of, any contract described above, except in each case for those violations and defaults which, individually or in the aggregate, would not reasonably be expected to result in a Material Adverse Effect. (n) Title to Assets. The Company and the Subsidiaries have good and marketable title in fee simple to all real property owned by them that is material to the business of the Company and the Subsidiaries and good and marketable title in all personal property owned by them that is material to its business of the Company and the Subsidiaries, in each case free and clear of all Encumbrances, except for Encumbrances as do not materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company and the Subsidiaries and Encumbrances for the payment of federal, state or other taxes, the payment of which is neither delinquent nor subject to penalties. Any real property and facilities held under lease by the Company and the Subsidiaries are held by them under valid, subsisting and enforceable leases of which the Company and the Subsidiaries are in compliance. (o) Patents and Trademarks. Except as would not, individually or in the aggregate, have a Material Adverse Effect: 21 (i) Section 3.1(o)(i) of the Disclosure Schedule sets forth a true and complete list of (A) all patents and patent applications, registered trademarks and trademark registration applications, registered copyrights and copyright registration applications, and domain names included in the Company Intellectual Property, and (B) all material Company IP Agreements excluding licenses for the use of Company Software to customers of the Company or its Subsidiaries in the ordinary course of business. (ii) To the best knowledge of the Company, after due inquiry, the operation of its business as currently conducted or as contemplated to be conducted, the use of the Company Intellectual Property and Licensed Intellectual Property in connection therewith and the Company's and the Subsidiaries' transmission, use, linking and other practices related to the operation of their web sites in connection with its business, the content thereof and the advertisements contained therein, do not infringe, misappropriate or otherwise violate the Intellectual Property or other proprietary rights, including rights of privacy, publicity and endorsement, of any third party, and no Actions or Claims are pending or threatened against the Company or any Subsidiary alleging any of the foregoing. (iii) To the best knowledge of the Company, after due inquiry, the Company or a Subsidiary is the exclusive owner of the entire and unencumbered right, title and interest in and to the Company Intellectual Property, and the Company or a Subsidiary has a valid right to use the Company Intellectual Property and Licensed Intellectual Property as currently conducted or as contemplated to be conducted. (iv) Except as disclosed in Section 3.1(o)(iv) of the Disclosure Schedule, no Company Intellectual Property, or to the best knowledge of Seller after due inquiry, any Licensed Intellectual Property, is subject to any outstanding decree, order, injunction, judgment or ruling restricting the use of such Intellectual Property or that would impair the validity or enforceability of such Intellectual Property. (v) The Company Intellectual Property and the Licensed Intellectual Property include all of the Intellectual Property used in the ordinary day-to-day conduct of its business, and there are no other items of Intellectual Property that are material to the ordinary day-to-day conduct of its business. The Company Intellectual Property, or to the best knowledge of Seller after due inquiry, any Licensed Intellectual Property, are subsisting, valid and enforceable, and has not been adjudged invalid or unenforceable in whole or part. (vi) No Actions or Claims have been asserted or are pending or, to the best knowledge of the Company after due inquiry, threatened against the Company or any Subsidiary (i) based upon or challenging or 22 seeking to deny or restrict the use by the Company or any Subsidiary of any of the Company Intellectual Property or Licensed Intellectual Property, (ii) alleging that any services provided by, processes used by, or products manufactured or sold by the Company or any Subsidiary infringe or misappropriate any Intellectual Property right of any third party or (iii) alleging that the Licensed Intellectual Property is being licensed or sublicensed in conflict with the terms of any license or other agreement. (vii) To the best knowledge of the Company, no Person is engaging in any activity that infringes the Company Intellectual Property or Licensed Intellectual Property. Except as set forth in Section 3.1(o)(vii) of the Disclosure Schedule, neither the Company nor any Subsidiary has granted any license or other right to any third party with respect to the Company Intellectual Property or Licensed Intellectual Property except to the customers of its business to whom the Company or a Subsidiary has licensed such Company Intellectual Property or Licensed Intellectual Property in the ordinary course of business. The consummation of the transactions contemplated by this Agreement and the other Transaction Documents will not result in the termination or impairment of any of the Company Intellectual Property. (viii) To the best knowledge of the Company, after due inquiry, the Company Software is free of all viruses, worms, trojan horses and other material known contaminants. The Company Software does not incorporate any GNU or "open" source code or object code under which the Company Software is subject to the GNU general public license or GNU lesser general public license. To the best knowledge of the Company, after due inquiry, the Company or a Subsidiary has obtained all approvals necessary for exporting the Company Software outside the United States and importing the Company Software into any country in which the Company Software is now sold or licensed for use, and all such export and import approvals in the United States and throughout the world are valid, current, outstanding and in full force and effect. No rights in the Company Software have been transferred to any third party except to the customers of its business to whom the Company or a Subsidiary has licensed such Company Software in the ordinary course of business. The Company or a Subsidiary has the right to use all software development tools, library functions, compilers, and other third party software that are material to its business or that are required to operate or modify the Company Software. (ix) The Company and the Subsidiaries have taken reasonable steps in accordance with normal industry practice to maintain the confidentiality of the trade secrets and other confidential Intellectual Property used in connection with its business. To the best knowledge of the Company after due inquiry, (i) there has been no misappropriation of any material trade secrets or other material confidential Intellectual 23 Property used in connection with its business by any Person; (ii) no employee, independent contractor or agent of the Company or any Subsidiary has misappropriated any trade secrets of any other Person in the course of performance as an employee, independent contractor or agent of its business; and (iii) no employee, independent contractor or agent of the Company or any Subsidiary is in default or breach of any term of any employment agreement, nondisclosure agreement, assignment of invention agreement or similar agreement or contract relating in any way to the protection, ownership, development, use or transfer of Intellectual Property. (x) To the best knowledge of the Company, after due inquiry, the Company's or any Subsidiary's operation of any web sites used in connection with its business, and content thereof and data processed, collected, stored or disseminated in connection therewith, do not violate any applicable Law, including European Directive 95/46/EC, and any Person's right of privacy or publicity. The Company or its Subsidiary (i) has obtained all necessary permits, approvals, consents, authorizations or licenses to lawfully operate its web sites and to use its data and (ii) is operating its web sites and using its data in accordance with the scope of such permits, approvals, consents, authorizations or licenses. The Company and its Subsidiaries have taken reasonable steps in accordance with normal industry practice to secure their web sites and data, and any portion thereof, from unauthorized access by any Person. (p) Insurance. The Company and the Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in its businesses in which the Company and the Subsidiaries are engaged. To the best of Company's knowledge, such insurance contracts and policies are accurate and complete. Neither the Company nor any Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business without a significant increase in cost. (q) Employee Benefits. (i) Section 3.1(q)(i) of the Disclosure Schedule lists (A) all employee benefit plans, bonus, stock option, stock purchase, restricted stock, incentive, deferred compensation, retiree medical or life insurance, supplemental retirement, severance or other benefit plans, programs or arrangements, and all employment, termination, severance or other contracts or agreements, to which the Company or any Subsidiary is a party, with respect to which the Company or any Subsidiary has any obligation or which are maintained, contributed to or sponsored by the Company or any Subsidiary for the benefit of any current or former employee, officer or director of the Company or any Subsidiary and 24 (B) any contracts, arrangements or understandings between the Company or any of its Affiliates and any employee of the Company or any Subsidiary (collectively, the "Plans"). (ii) Each Plan has been operated in all material respects in accordance with its terms and the requirements of all applicable Laws. The Company and its Subsidiaries have performed all material obligations required to be performed by it under, is not in any material respect in default under or in material violation of, and the Company has no knowledge of any material default or violation by any party to, any Plan. No action is pending or, to the knowledge of the Company, threatened with respect to any Plan (other than claims for benefits in the ordinary course) and, to the knowledge of the Company, no fact or event exists that could give rise to any such action. (r) Taxes. (i) Except as set forth in Section 3.1(r)(i) of the Disclosure Schedule, (A) all Tax Returns required to be filed by or with respect to the Company and each Subsidiary (including the consolidated federal income Tax Return of the Company and any state, local or other Tax Return that includes the Company or any Subsidiary on a consolidated, combined or unitary basis) have been timely filed; (B) all Taxes required to be shown on such Tax Returns or otherwise due in respect of the Company or any Subsidiary have been timely paid; (C) all such Tax Returns are true, correct and complete in all material respects; (D) no adjustment relating to such Tax Returns has been proposed formally or informally by any Governmental Authority (insofar as either relates to the activities or income of the Company or any Subsidiary or could result in liability of the Company or any Subsidiary on the basis of joint and/or several liability) and, to the best knowledge of the Company after due inquiry, no basis exists for any such adjustment; (E) there are no pending or, to the best knowledge of the Company after due inquiry, threatened Actions for the assessment or collection of Taxes against the Company or any Subsidiary or (insofar as either relates to the activities or income of the Company or any Subsidiary or could result in liability of the Company or any Subsidiary on the basis of joint and/or several liability) any Person that was included in the filing of a Tax Return with the Company on a consolidated, combined or unitary basis; (F) to the best knowledge of the Company, after due inquiry, all sales and license transactions between the Company and the Company or any Subsidiary, between the Company and any Subsidiary and between any of the Subsidiaries, have been conducted on an arm's-length basis; (G) there are no Tax liens on any assets of the Company or any Subsidiary; (H) neither Seller nor any Affiliate is a party to any agreement or arrangement that would result, separately or in the aggregate, in the actual or deemed payment by the Company or a Subsidiary of any "excess parachute payments" within the meaning of 25 section 280G of the Code (without regard to Section 280G(b)(4) of the Code); (I) no acceleration of the vesting schedule for any property that is substantially unvested within the meaning of the regulations under Section 83 will occur in connection with the transactions contemplated by this Agreement; (J) from and after June 30, 2000, the Company and each Subsidiary have been and continue to be members of the affiliated group (within the meaning of Section 1504(a)(1) of the Code) for which the Company files a consolidated return as the common parent, and has not been includible in any other consolidated return for any taxable period for which the statute of limitations has not expired; (K) none of the Company or the Subsidiaries has been a United States real property holding corporation within the meaning of Section 897(c)(2) of the Code during the applicable period specified in Section 897(c)(1)(A)(ii) of the Code; (L) the Company and Subsidiary have each properly and timely withheld, collected and deposited all Taxes that are required to be withheld, collected and deposited under applicable Law; (M) none of the Company or Subsidiaries is doing business in or engaged in a trade or business in any jurisdiction in which it has not filed all required Tax Returns, and no notice or inquiry has been received from any jurisdiction in which Tax Returns have not been filed by the Company or any Subsidiary to the effect that the filing of Tax Returns may be required; (N) neither the Company nor any Subsidiary has been at any time a member of any partnership or joint venture or the holder of a beneficial interest in any trust for any period for which the statute of limitations for any Tax has not expired and (O) neither the Company nor any Subsidiary is subject to any accumulated earnings tax, personal holding company Tax or similar Tax. (ii) Except as set forth with reasonable specificity in Section 3.1(r)(ii) of the Disclosure Schedule, (A) there are no outstanding waivers or agreements extending the statute of limitations for any period with respect to any Tax to which the Company or any Subsidiary may be subject; (B) there are no requests for information currently outstanding that could affect the Taxes of the Company or any Subsidiary; (C) there are no proposed reassessments of any property owned by the Company or any Subsidiary or other proposals that could increase the amount of any Tax to which the Company or any Subsidiary would be subject; (D) no power of attorney that is currently in force has been granted with respect to any matter relating to Taxes that could affect the Company or any Subsidiary; (E) none of the Company or the Subsidiaries (1) has or is projected to have an amount includible in its income for the current taxable year under Section 951 of the Code, (2) has been a passive foreign investment company within the meaning of Section 1296 of the Code, (3) has an unrecaptured overall foreign loss within the meaning of Section 904(f) of the Code or (4) has participated in or cooperated with an international boycott within the meaning of section 999 of the Code and (F) none of the Company or the Subsidiaries has, to an extent that would cause a tax liability to the Company, any (1) income reportable for a 26 period ending after the Closing but attributable to a transaction (e.g., an installment sale) occurring in, or a change in accounting method made for, a period ending on or prior to the Closing that resulted in a deferred reporting of income from such transaction or from such change in accounting method (other than a deferred intercompany transaction), or (2) deferred gain or loss arising out of any deferred intercompany transaction. (iii) Section 3(r)(iii) of the Disclosure Schedule (A) lists all income, franchise and similar income-type Tax Returns (federal, state, local and foreign) filed with respect to each of the Company and the Subsidiaries for taxable periods ended on or after June 30, 2000, (B) indicates the most recent income, franchise or similar Tax Return for each relevant jurisdiction for which an audit has been completed or the statute of limitations has lapsed and (C) indicates all Tax Returns that currently are the subject of audit. (iv) To the extent reasonably requested by Purchaser, the Company has delivered to Purchaser correct and complete copies of all federal, state and foreign income, franchise and similar Tax Returns, examination reports and statements of deficiencies assessed against or agreed to by the Company or any Subsidiary since June 30, 2000. (v) To the extent reasonably requested by Purchaser, the Company has delivered to Purchaser a true and complete copy of any tax-sharing or allocation agreement or arrangement involving the Company or any Subsidiary and a true and complete description of any such unwritten or informal agreement or arrangement. (vi) Except as et forth in Section 3.1(r)(vi) of the Disclosure Schedule, the Company has established reserves and allowances to satisfy all liabilities for Taxes relating to the Company and the Subsidiaries for all taxable periods through the Closing (without regard to the materiality thereof). (s) Title to Tangible Personal Property. Section 3.1(s) of the Disclosure Schedule sets forth a list of all material Tangible Personal Property as of the date therein specified. Except as set forth in Section 3.1(s), as of the date hereof, The Company and any Subsidiary has good and valid title to, or a valid leasehold interest in, all Tangible Personal Property, which includes such property listed on Section 3.1(s), other than property that is obsolete or has been retired or disposed of in the ordinary course of business, free and clear of any Encumbrances, other than Permitted Encumbrances. (t) Title to Owned and Leased Real Property. 27 (i) Neither the Company nor any Subsidiary currently, and in the past, has owned any real property. (ii) As of the date hereof, except as set forth in Section 3.1(t)(ii) of the Disclosure Schedule, the Company and each Subsidiary has a valid leasehold interest in the Leased Real Property. (iii) The Leased Real Property has not suffered any material damage by fire, casualty or otherwise which has not heretofore been repaired and restored in all material respects. (iv) Except as set forth in Section 3.1(t)(iv) of the Disclosure Schedule, there (i) is no default (or event that, with or without the giving of notice or the lapse of time or both, could constitute a default) that exists under the leases for the Leased Real Property, (ii) are no adverse or other parties in possession of the Real Property, or of any part thereof and no third party has been granted any license, lease, or other right relating to the use or possession of the Real Property, or any part thereof, except tenants under written leases; and (iii) are no material unpaid impact fees, special assessments and permit fees with respect to the Real Property, if applicable. (v) Neither the Company nor any Subsidiary has granted any rights, options, rights of first refusal, or any other agreements of any kind, which are currently in effect, to purchase or to otherwise acquire the Real Property or any part thereof or any interest therein. (u) Transactions With Affiliates and Employees. Except as set forth in the SEC Reports, none of the officers or directors of the Company and, to the knowledge of the Company, none of the employees of the Company is presently a party to any transaction with the Company or any Subsidiary (other than for services as employees, officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner, in each case in excess of $60,000 in any twelve (12) month period other than (i) for payment of salary or consulting fees for services rendered, (ii) reimbursement for expenses incurred on behalf of the Company and (iii) for other employee benefits, including stock option agreements under any stock option plan of the Company. (v) Sarbanes-Oxley Act. The Company is in substantial compliance with the applicable provisions of the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act"), and the rules and regulations promulgated thereunder, that are effective and intends to comply substantially with other applicable provisions of 28 the Sarbanes-Oxley Act, and the rules and regulations promulgated thereunder, upon the effectiveness of such provisions. (w) Certain Fees. No brokerage or finder's fees or commissions are or will be payable by the Company to any broker, financial advisor or consultant, finder, placement agent, investment banker, bank or other Person with respect to the transactions contemplated by this Agreement, except as set forth in Section 3.1(x) of the Disclosure Schedule. Purchaser shall have no obligation with respect to any fees or with respect to any claims made by or on behalf of other Persons for fees of a type contemplated in this Section that may be due in connection with the transactions contemplated by this Agreement. (x) Private Placement. Assuming the accuracy of Purchaser's representations and warranties set forth in Section 3.2, no registration under the Securities Act is required for the offer and sale of the Securities by the Company to Purchaser as contemplated hereby. The issuance and sale of the Securities hereunder does not contravene the rules and regulations of any trading market. (y) Investment Company. The Company is not, and is not an Affiliate of, and immediately after receipt of payment for the Shares, will not be or be an Affiliate of, an "investment company" within the meaning of the Investment Company Act of 1940, as amended. The Company shall conduct its business in a manner so that it will not become subject to the Investment Company Act. (z) Registration Rights. Except as set forth in Section 3.1(z) of the Disclosure Schedule, no Person has any right to cause the Company to effect the registration under the Securities Act of any securities of the Company. (aa) Application of Takeover Protections. The Company and its Board have taken all necessary action, if any, in order to render inapplicable any control share acquisition, business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Company's Certificate of Incorporation (or similar charter documents) or the laws of its state of incorporation that is or could become applicable to Purchaser as a result of Purchaser and the Company fulfilling their obligations or exercising their rights under the Transaction Documents, including without limitation the Company's issuance of the Securities and Purchaser's ownership of the Securities. (bb) Disclosure. The Company understands and confirms that Purchaser will rely on the foregoing representations and covenants in effecting transactions in securities of the Company. All disclosure provided to Purchaser regarding the Company, its business and the transactions contemplated hereby, including the Schedules to this Agreement, furnished by or on behalf of the Company with respect to the representations and warranties made herein are true and correct with respect to such representations and warranties and do not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements made therein, in light of the circumstances under 29 which they were made, not misleading. The Company acknowledges and agrees that no Purchaser makes or has made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in Section 3.2 hereof. (cc) No Integrated Offering. Assuming the accuracy of Purchaser's representations and warranties set forth in Section 3.2, neither the Company, nor any of its affiliates, nor any Person acting on its or their behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers to buy any security, under circumstances that would cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the Securities Act or any applicable shareholder approval provisions, including, without limitation, under the rules and regulations of any exchange or automated quotation system on which any of the securities of the Company are listed or designated. (dd) General Solicitation. Neither the Company nor any person acting on behalf of the Company has offered or sold any of the Securities by any form of general solicitation or general advertising. The Company has offered the Securities for sale only to Purchaser. (ee) Foreign Corrupt Practices. Neither the Company, nor to the knowledge of the Company, any agent or other person acting on behalf of the Company, has (i) directly or indirectly, used any corrupt funds for unlawful contributions, gifts, entertainment or other unlawful expenses related to foreign or domestic political activity, (ii) made any unlawful payment to foreign or domestic government officials or employees or to any foreign or domestic political parties or campaigns from corporate funds, (iii) failed to disclose fully any contribution made by the Company (or made by any person acting on its behalf of which the Company is aware) which is in violation of law, or (iv) violated in any material respect any provision of the Foreign Corrupt Practices Act of 1977, as amended. (ff) Accountants. The Company's accountants are set forth in Section 3.1(ff) of the Disclosure Schedule. To the Company's knowledge, such accountants, who the Company expects will express their opinion with respect to the financial statements to be included in the Company's Annual Report on Form 10-K for the year ended June 30, 2004, are independent accountants as required by the Securities Act. (gg) Acknowledgment Regarding Purchaser's Purchase of Securities. The Company acknowledges and agrees that Purchaser is acting solely in the capacity of an arm's length purchaser with respect to the Transaction Documents and the transactions contemplated hereby. The Company further acknowledges that Purchaser is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions 30 contemplated hereby and any advice given by Purchaser or any of its representatives or agents in connection with this Agreement and the transactions contemplated hereby is merely incidental to Purchaser's purchase of the Securities. The Company further represents to Purchaser that the Company's decision to enter into this Agreement has been based solely on the independent evaluation of the transactions contemplated hereby by the Company and its representatives. 3.2 Representations and Warranties of Purchaser. Purchaser hereby represents and warrants as of the date hereof and as of the Closing Date to the Company as follows: (a) Organization; Authority. Purchaser is an entity duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization with full right, corporate or partnership power and authority to enter into and to consummate the transactions contemplated by the Transaction Documents and otherwise to carry out its obligations thereunder. The execution, delivery and performance by Purchaser of the transactions contemplated by this Agreement have been duly authorized by all necessary corporate or similar action on the part of Purchaser. Each Transaction Document to which it is a party has been duly executed by Purchaser, and, assuming this Agreement constitutes the valid and binding obligation of the Company and when delivered by Purchaser in accordance with the terms hereof, will constitute the valid and legally binding obligation of Purchaser, enforceable against it in accordance with its terms, except as the enforceability thereof may be limited by bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or similar laws relating to or affecting the rights of creditors' generally and by general equitable principles (regardless of whether such enforceability is considered in a Action in equity or at law). (b) Investment Intent. Purchaser understands that the Securities are "restricted securities" and have not been registered under the Securities Act or any applicable state securities law and is acquiring the Securities as principal for its own account for investment purposes only and not with a view to or for distributing or reselling such Securities or any part thereof, has no present intention of distributing any of such Securities and has no arrangement or understanding with any other persons regarding the distribution of such Securities (this representation and warranty not limiting Purchaser's right to sell the Securities pursuant to the Registration Statement or otherwise in compliance with applicable federal and state securities laws). Purchaser is acquiring the Securities hereunder in the ordinary course of its business. Purchaser does not have any agreement or understanding, directly or indirectly, with any Person to distribute any of the Securities. (c) Rule 144. Purchaser understands that the Securities must be held indefinitely unless such Securities are registered under the Securities Act or an exemption from registration is available. Purchaser acknowledges that it is familiar with Rule 144, and that Purchaser has been advised that Rule 144 permits resales only under certain circumstances. Purchaser understands that to the extent that Rule 144 is not available, Purchaser will be unable to sell any Securities 31 without either registration under the Securities Act or the existence of another exemption from such registration requirement. (d) Purchaser Status. At the time Purchaser was offered the Securities, it was, and at the date hereof it is, and on each date on which it exercises any Warrants, it will be either: (i) an "accredited investor" as defined in Rule 501(a)(1), (a)(2), (a)(3), (a)(7) or (a)(8) under the Securities Act or (ii) a "qualified institutional buyer" as defined in Rule 144A(a) under the Securities Act. Purchaser is not required to be registered as a broker-dealer under Section 15 of the Exchange Act. (e) Experience of Purchaser. 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 the Securities, and has so evaluated the merits and risks of such investment. 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. (k) General. Purchaser understands that the Securities are being offered and sold in reliance on a transactional exemption from the registration requirements of federal and state securities laws and the Company is relying upon the truth and accuracy of the representations, warranties, agreements, acknowledgments and understandings of Purchaser set forth herein in order to determine the applicability of such exemptions and the suitability of Purchaser to acquire the Securities. Purchaser understands that no United States federal or state agency or any government or governmental agency has passed upon or made any recommendation or endorsement of the Securities. (f) General Solicitation. 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. The Company acknowledges and agrees that Purchaser does not make or has not made any representations or warranties with respect to the transactions contemplated hereby other than those specifically set forth in this Section 3.2. ARTICLE IV. OTHER AGREEMENTS OF THE PARTIES 4.1 Transfer Restrictions. The Securities may only be disposed of in compliance with state and federal securities laws. In connection with any transfer of Securities other than pursuant to an effective registration statement or Rule 144, to the Company or to an Affiliate of a Purchaser or in connection with a pledge as contemplated in Section 4.1(b), the Company may require the transferor thereof to 32 provide to the Company an opinion of counsel selected by the transferor and reasonably acceptable to the Company, the form and substance of which opinion and shall be reasonably satisfactory to the Company, to the effect that such transfer does not require registration of such transferred Securities under the Securities Act. As a condition of transfer, any such transferee shall agree in writing to be bound by the terms of this Agreement and shall have the rights of a Purchaser under this Agreement and the Registration Rights Agreement. (b) Purchaser agrees to the imprinting, so long as is required by this Section 4.1(b), of a legend on any of the Securities in the following form: THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SECURITIES PURCHASE AGREEMENT, A CERTAIN STOCKHOLDERS' AGREEMENT AND A CERTAIN REGISTRATION RIGHTS AGREEMENT, ALL OF WHICH ARE DATED FEBRUARY 11, 2005 AND ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY. (c) Certificates evidencing the Shares, Preferred Shares, Conversion Shares and Warrant Shares shall not contain any legend (including the legend set forth in Section 4.1(b)), (i) while a registration statement (including the Registration Statement) covering the resale of such security is effective under the Securities Act, or (ii) following a sale of such Shares, Preferred Shares, Conversion Shares or Warrant Shares pursuant to an effective registration statement (including the Registration Statement), or (iii) following any sale of such Shares, Preferred Shares, Conversion Shares or Warrant Shares Shares pursuant to Rule 144, or (iv) if such Shares, Preferred Shares, Conversion Shares or Warrant Shares are eligible for sale under Rule 144(k), or (v) if such legend is not required under applicable requirements of the Securities Act (including judicial interpretations and pronouncements issued by the Staff of the Commission); provided, however, that in each of instances (iii) through (v) above, (A) Purchaser shall have provided representations that Purchaser is permitted to 33 dispose of such Shares, Preferred Shares, Conversion Shares and/or Warrant Shares without limitation as to amount or manner of sale pursuant to Rule 144 under the Securities Act and (B) such certificates evidencing the Shares, Preferred Shares, Conversion Shares and/or Warrant Shares shall have been surrendered along with a notice requesting removal of any legend and requesting the issuance of new certificates free of the legend to replace those surrendered. The Company shall cause its counsel to issue a legal opinion to the Company's transfer agent promptly after the Effective Date if required by the Company's transfer agent to effect the removal of the legend hereunder. If all or any portion of a Preferred Share or Warrant is exercised at a time when there is an effective registration statement to cover the resale of the Conversion Shares or Warrant Shares, such Conversion Shares or Warrant Shares shall be issued free of all legends. 4.2 Integration. Except as otherwise contemplated by this Agreement, the Company shall not sell, offer for sale or solicit offers to buy or otherwise negotiate in respect of any security (as defined in Section 2 of the Securities Act) that would be integrated with the offer or sale of the Securities in a manner that would require the registration under the Securities Act of the sale of the Securities to Purchaser or that would be integrated with the offer or sale of the Securities for purposes of the rules and regulations of any exchange or quotation service on which any of the securities of the Company are listed or quoted such that it would require shareholder approval prior to the closing of such other transaction unless shareholder approval is obtained before the closing of such subsequent transaction. 4.3 Description of the Senior Secured Note and Security Agreement. The following summary of the Senior Secured Note and Security Agreement is provided for illustrative purposes only. To the extent there are any inconsistencies between the summary below and the Senior Secured Note and/or Security Agreement, such agreements shall control. (a) Maturity. The Company shall pay Purchaser the outstanding principal amount of the Senior Secured Note, together with all accrued and unpaid interest thereon, on the earliest to occur (the "Maturity Date") of (i) thirty-six (36) months following the Closing Date, (ii) a merger or combination of the Company or the sale, transfer or other disposition of all or substantially all of the assets of the Company or (iii) the acquisition by a single entity, person or a "group" within the meaning of Rule 13d-1 of the Exchange Act, of more than fifty percent (50%) of the voting power or capital stock of the Company (on a fully-diluted basis). (b) Interest. The Senior Secured Note shall bear interest ("Interest") at a rate per annum as follows: Months 1-12 of the Senior Secured Note 6% per annum Months 13-24 of the Senior Secured Note 9% per annum Months 25-36 of the Senior Secured Note 12% per annum 34 Interest shall be payable quarterly in cash. If any Event of Default (as defined in the Senior Secured Note) has occurred and is continuing, the Senior Secured Note shall bear interest at a rate of the then-applicable Interest plus four percent (4%) per annum until such time as such Event of Default has been cured. (c) Prepayment. The Senior Secured Note may be prepaid, in whole or in part, at any time without penalty or premium, upon ten (10) days' prior written notice to Purchaser. In the event the Company issues any Exempt Issuance of securities during the term of the Senior Secured Note, the Company shall use at least fifty percent (50%) of the proceeds therefrom to prepay the Senior Secured Note; provided, however, that the Preferred Shares have been redeemed, in whole, in accordance with its terms. (d) Security and Ranking. The Senior Secured Note and all other obligations of the Company under this Agreement and the other Transaction Documents shall be secured by substantially all of the assets of the Company, as described in the Security Agreement (collectively, the "Collateral"), dated as of even date herewith, by and between Purchaser and the Company. As an inducement to Purchaser to purchase the Senior Secured Note and the other Securities described herein and execute and enter into this Agreement, and to secure prompt payment of the Senior Secured Note and the discharge in full of the Company's obligations under this Agreement and under the Senior Secured Note, this Agreement and the other Transaction Documents, the Company shall grant to Purchaser a first priority perfected lien and security interest in the Collateral, which security interest shall rank senior in lien priority to any other existing or future Indebtedness. 4.4 Certain Covenants of the Company. (a) Affirmative Covenants. The Company covenants that, so long as any portion of the Senior Secured Note or the Preferred Shares is outstanding, it shall take the following actions: (i) Provide to Purchaser all such information about the Company, as the case may be, that is made available publicly. (ii) If an Event of Default occurs, the Company shall, if so requested by Purchaser, promptly provide the following information: (A) Annual Financial Statements. Unless filed with the Commission through EDGAR and publicly available through the EDGAR system, copies of the consolidated balance sheet of the Company and its Subsidiaries, as of the end of the immediately preceding fiscal year and the related consolidated statements of income, stockholders' equity and cash flows for such fiscal year, prepared in accordance with generally accepted accounting principles and certified by a firm of independent public accountants of recognized national standing or such other independent public accountants, in either case, as unanimously selected by the Board; 35 (B) Monthly Financial Statements. Unless filed with the Commission through EDGAR and publicly available through the EDGAR system, copies of the consolidated balance sheet of the Company and its Subsidiaries, and the related consolidated statements of income, stockholders' equity and cash flows, unaudited but prepared in accordance with generally accepted accounting principles, such consolidated balance sheet, consolidated statements of income, stockholders' equity and cash flows to be as of the end of each month following the end of the immediately preceding fiscal year, in each case with comparative statements for the prior fiscal year; provided, however, that, to the extent the information in this Section 4.4(a)(ii)(B) is requested by Purchaser, Purchaser shall hold and treat all such information confidential; (C) Accountant's Letters. Copies of each accountant's management letter and other written report submitted to the Company by its independent public accountants in connection with an annual or interim audit of the books of the Company or any of its Subsidiaries; (D) Notices. Copies of notices of all Actions that could materially and adversely affect the Company or any of its Subsidiaries; and (E) Other Information. Any other information regarding the business, prospects, financial condition, operations, property or affairs of the Company as Purchaser may reasonably request; (iii) The Company shall maintain and cause each of its Subsidiaries to maintain their respective corporate existence unless the Board unanimously approves otherwise; (iv) The Company shall obtain and maintain and cause each of its Subsidiaries to maintain as to their respective properties and businesses, with financially sound and reputable insurers, insurance against such casualties and contingencies and of such types and in such amounts as is customary for companies similarly situated; (v) The Company shall permit and cause each of its Subsidiaries to permit Purchaser and such persons as Purchaser may designate, at Purchaser's expense, to visit and inspect any of the properties of the Company and its Subsidiaries, examine their books and take copies and extracts therefrom, discuss the affairs, finances and accounts of the Company and its Subsidiaries with their officers, employees and public accountants (and the Company hereby authorizes said accountants to discuss with Purchaser and its designees such affairs, finances and accounts), and consult with and advise the management of the Company and its Subsidiaries as to their affairs, finances and accounts, all at reasonable times and upon reasonable notice during normal business hours and provided that Purchaser or its designees have executed a confidentiality 36 agreement in substance and form reasonably acceptable to the Company; provided, however, that in no event (other than an Event of Default) shall the Company be required to provide Purchaser or its designees with any information about the Company that is not publicly available; (vi) The Company shall comply, and cause each Subsidiary to comply, with all applicable Laws, noncompliance with which could materially adversely affect its business or condition, financial or otherwise; (vii) The Company shall at all times maintain a cash balance of not less than $750,000 on its consolidated balance sheet, unless otherwise unanimously approved by the Board; (viii) The Company shall keep, and cause each Subsidiary to keep, adequate records and books of account, in which complete entries will be made in accordance with generally accepted accounting principles consistently applied, reflecting all financial transactions of the Company and such Subsidiary, and in which, for each fiscal year, all proper reserves for depreciation, depletion, obsolescence, amortization, taxes, bad debts and other purposes in connection with its business shall be made; and (ix) Within no more than five (5) days following an Event of Default (as defined in the Senior Secured Note), the Company shall notify Purchaser of such Event of Default, the circumstances causing such default and the proposed course of action to be taken by the Company to cure such default. (b) Negative Covenants. The Company covenants that, so long as any portion of the Senior Secured Note or the Preferred Shares is outstanding, it shall not take any of the following actions without the prior written consent of Purchaser, which may not be withheld unreasonably: (i) Redeem or repurchase any shares of Common Stock Equivalents of the Company, except for (A) repurchases contemplated by this Agreement, or (B) repurchases or redemptions from employees, directors or consultants of the Company in accordance with agreements existing as of the date hereof for the repurchase or redemption of shares of Common Stock Equivalents in connection with any termination of service to the Company or any of its Subsidiaries; (ii) Except to the extent required to comply with its obligations hereunder or with applicable Law, the Company shall not, nor shall it permit any of its Subsidiaries to, amend its respective articles of organization, by-laws or regulations, or similar organic documents; (iii) the Company shall not, nor shall it permit any of its Subsidiaries to, incur or guarantee any Indebtedness or enter into any "keep well" or other agreement to maintain any financial statement condition of another 37 Person or enter into any arrangement having the economic effect of any of the foregoing, other than (A) short-term indebtedness and "keep well" or similar assurances for the benefit of customers, in each case in the ordinary course of business consistent with past practice or (B) long-term Indebtedness in connection with the refunding of existing Indebtedness at a lower cost of funds; (iv) The Company shall not, nor shall it permit any of its Subsidiaries to, (A) enter into, adopt or amend or increase the amount or accelerate the payment or vesting of any benefit or amount payable under any employee benefit plan, or otherwise increase the compensation or benefits of any director, officer or other employee of such party or any of its subsidiaries, except for normal increases in compensation and benefits in the ordinary course of business consistent with past practice that, in the aggregate, do not result in a material increase in benefits or compensation expense to the Company and its Subsidiaries taken as a whole, (B) enter into or amend any employment, severance or special pay arrangement with respect to the termination of employment or other similar contract, agreement or arrangement with any director or officer; provided that the foregoing shall not preclude the implementation of incentive pay arrangements in the ordinary course of business consistent with past practice, or (C) create any Encumbrance on any of the assets or properties of the Company or any Subsidiary; (v) Declare or pay any dividend on any class of Common Stock Equivalents of the Company or the Guarantor (except dividends payable solely in Common Stock Equivalents in connection with a stock split or similar transaction of the Company); (vi) Enter into any transactions with Affiliates of the Company other than in the ordinary course of business; (vii) Merge or consolidate with any other entity or have a transaction in which any "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of the Exchange Act), becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of greater than fifty percent (50%) of the shares of Common Stock then outstanding of the Company, on a fully diluted basis, ordinarily entitled to vote in the election of directors; (viii) Sell all or substantially all of the assets of the Company; (ix) Except as contemplated by this Agreement, permit any Encumbrances on any assets of the Company (other than the Permitted Liens); (x) Liquidate, dissolve or wind-up the operations of the Company; 38 (xi) Apply for, or consent to, the appointment of a receiver, trustee or liquidator for the Company or any Subsidiary or any of their respective properties ; and (xii) Enter into any agreement to do any of the foregoing. 4.5 Non-Public Information. The Company covenants and agrees that neither it nor any other Person acting on its behalf will provide any Purchaser or its agents or counsel with any information that the Company believes constitutes material non-public information, unless prior thereto Purchaser shall have executed a written agreement regarding the confidentiality and use of such information. The Company understands and confirms that Purchaser shall be relying on the foregoing representations in effecting transactions in securities of the Company. 4.6 Board Composition. Purchaser shall have the right to designate two (2) representatives (the "Designees") for election to the Company's Board, both of whom shall not have been involved in any of the events set forth in Item 401(f) of Regulation S-K during the preceding ten (10) year and shall be qualified to serve as directors of a reporting company under the Exchange Act as determined by a majority of the members of a committee of non-employee directors established for such purpose and at least one of whom shall satisfy the Nasdaq National Market requirements for an "independent director." Such "independent" Designee shall be appointed to the Company's Compensation Committee, and any future increases in the compensation of the Chief Executive Officer, or additional grants of options to the Chief Executive Officer (except Replacement Options), shall only be approved by unanimous consent of the Company's Compensation Committee. The Company shall use its best efforts to have the Designees nominated and elected to the Board. 4.7 Additional Covenants of the Company. (a) For a period equal to the shorter of (i) three (3) years from the Closing Date and (ii) such time as Purchaser beneficially owns less than 5,000,000 shares of Common Stock (on an as converted basis), the Company shall not 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 $0.25, without the prior written consent of Purchaser. (b) The Company shall not incur Indebtedness, other than in connection with an asset-based senior line of credit, without the prior written consent of Purchaser. 4.8 Certain Transactions. Purchaser and its Affiliates agree not to engage in any "going private" transaction (including, without limitation, selling all or substantially all of the Company's assets, merging the Company, or any other transaction with similar economic effects) with the Company, without the prior written consent of MacIntosh. 39 4.9 Pre-emptive Rights. For so long as Purchaser owns more than 5,000,000 shares of Common Stock (on an as converted basis) and in the event the Company proposes to issue or sell any shares of Common Stock, or any securities convertible or exchangeable into Common Stock, Purchaser shall have the right (but not the obligation) to purchase such number of securities from the Company, on the same terms and conditions offered by the Company, in order to maintain its percentage ownership in the Company; it being understood that Purchaser shall have ten (10) Business Days from its receipt of written notice from the Company containing sufficient details with respect to such issuance or sale to exercise its rights hereunder. 4.10 Indemnification. (a) The Company shall indemnify and hold harmless Purchaser, its officers, directors, employees, agents and consultants (each, a "Purchaser Indemnified Party"), from and against any and all costs, claims, damages, losses, liabilities and expenses (including reasonable attorneys' fees) (together, the "Losses") which may be suffered or incurred by such Purchaser Indemnified Party by reason of (i) any material misrepresentation or breach of warranty by the Company in this Agreement or the other Transaction Documents or (ii) any material default of any obligation, agreement or covenant of the Company under this Agreement or the other Transaction Documents, in each case so long as such Losses were not caused by the gross negligence or willful misconduct of such Purchaser Indemnified Party. (b) Purchaser shall indemnify and hold harmless the Company and its officers, directors, employees, agents and consultants (each, a "Company Indemnified Party"), from and against any and all Losses which may be suffered or incurred by such Company Indemnified Party by reason of any material misrepresentation or breach of warranty by Purchaser in this Agreement or the other Transaction Documents, so long as such Losses were not caused by the gross negligence or willful misconduct of such Company Indemnified Party. (c) An Indemnified Party shall give the Indemnifying Party notice of any matter which an Indemnified Party has determined has given or could give rise to a right of indemnification under this Agreement, within thirty (30) days of such determination, stating the amount of the Loss, if known, and method of computation thereof, and containing a reference to the provisions of this Agreement in respect of which such right of indemnification is claimed or arises. (d) If an Indemnified Party shall receive notice of any action, audit, claim, demand or assessment (each, a "Third Party Claim") against it which may give rise to a claim for Loss under this Section 4.10, within thirty (30) days of the receipt of such notice, the Indemnified Party shall give the Indemnifying Party notice of such Third Party Claim; provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations under this Section 4.10 except to the extent that such failure results in a detriment to the Indemnifying Party and shall not relieve the Indemnifying Party from any 40 other liability that it may have to any Indemnified Party other than under this Section 4.10. The Indemnifying Party shall be entitled to assume and control the defense of such Third Party Claim at its expense and through counsel of its choice if it gives notice of its intention to do so to the Indemnified Party within ten (10) days of the receipt of such notice from the Indemnified Party. If the Indemnifying Party elects to undertake any such defense against a Third Party Claim, the Indemnified Party may participate in such defense at its own expense. The Indemnified Party shall cooperate with the Indemnifying Party in such defense and make available to the Indemnifying Party, at the Indemnifying Party's expense, all witnesses, pertinent records, materials and information in the Indemnified Party's possession or under the Indemnified Party's control relating thereto as is reasonably required by the Indemnifying Party. If the Indemnifying Party elects to direct the defense of any such claim or proceeding, the Indemnified Party shall not pay, or permit to be paid, any part of such Third Party Claim unless the Indemnifying Party consents in writing to such payment or unless the Indemnifying Party withdraws from the defense of such Third Party Claim liability or unless a final judgment from which no appeal may be taken by or on behalf of the Indemnifying Party is entered against the Indemnified Party for such Third Party Claim. If the Indemnified Party assumes the defense of any such claims or proceeding pursuant to this Section 4.10(d) and proposes to settle such claims or proceeding prior to a final judgment thereon or to forgo any appeal with respect thereto, then the Indemnified Party shall give the Indemnifying Party prompt written notice thereof and the Indemnifying Party shall have the right to participate in the settlement or assume or reassume the defense of such claims or proceeding. 4.11 "Key Man" Life Insurance. Within forty-five (45) days from the Closing Date, the Company shall have obtained "key man" life insurance on the life of MacIntosh in an amount between $2,500,000 and $5,000,000, subject to commercially reasonable availability, costs and terms of such insurance as approved by MacIntosh 4.12 Reservation of Common Stock. As of the date hereof, the Company has reserved and the Company shall continue to reserve and keep available at all times, free of preemptive rights, a sufficient number of shares of Common Stock for the purpose of enabling the Company to issue Shares pursuant to this Agreement, the Conversion Shares pursuant to any conversion of the Preferred Shares and the Warrant Shares pursuant to any exercise of the Warrants. ARTICLE V. MISCELLANEOUS 5.1 Fees and Expenses. On the Closing Date, the Company shall pay Purchaser a closing fee (the "Closing Fee") equal to Two Hundred Forty Thousand Dollars ($240,000), by check or wire transfer. The Company and Purchaser shall be responsible for their respective costs and expenses incurred in connection with this transaction. 41 5.2 Rights Upon Termination. So long as Purchaser has proceeded in good faith to consummate this Agreement and the transactions contemplated hereby, in the event the Company elects not to consummate this transaction for any reason prior to February 11, 2005, the Company shall pay to Purchaser a financial advisory and structuring fee (the "Advisory Fee") equal to Five Thousand Dollars ($500,000) which shall, at the sole option of Purchaser, be payable in cash or shares of Common Stock valued at $0.25 per share of Common Stock. Upon the Company's election to terminate this transaction, Purchaser shall have ten (10) days in which to make an election to receive either cash or shares of Common Stock from the Company. Any Advisory Fee that becomes due shall be payable to Purchaser within five (5) days following Purchaser's receipt of notice from the Company that the Company has elected not to consummate this transaction. Any Advisory Fee paid pursuant to this Section 5.2 shall be in addition to any expenses and costs payable by the Company to Purchaser in accordance with Section 5.1 hereof. The Company hereby acknowledges that, in the event the Company is required to pay the Advisory Fee in accordance with this Section 5.2, the Company shall be deemed to have received advisory services from Purchaser in consideration of such Advisory Fee. In the event Purchaser does not consummate the transactions contemplated hereby by February 11, 2005 or otherwise terminates this Agreement prior to such date despite the Company's good faith attempts to consummate the transactions contemplated hereby, the terms of this Section 5.2 shall expire and the Company shall have no further obligation to pay the Advisory Fee. 5.3 Entire Agreement. The Transaction Documents, together with the exhibits and schedules thereto, contain the entire understanding of the parties with respect to the subject matter hereof and supersede all prior agreements and understandings, oral or written, with respect to such matters, which the parties acknowledge have been merged into such documents, exhibits and schedules. 5.4 Notices. All notices, requests, consents, and other communications under this Agreement shall be in writing and shall be delivered by hand, sent via a reputable nationwide overnight courier service or mailed by first class certified or registered mail, return receipt requested, postage prepaid: If to the Company, at 3400 West 66th Street, Suite 445, Edina, Minnesota 55435, Attention: Chief Financial Officer, or at such other address or addresses as may have been furnished in writing by the Company to Purchaser, with copies to Justin M. MacIntosh, c/o CorVu Australasia Pty. Ltd., Level 8, 821-843 Pacific Highway, Chatswood NSW 2067, Australia, Facsimile: (011-61 2) 9495 5444, and Fredrikson & Byron, P.A., 200 South Sixth Street, Suite 4000, Minneapolis, Minnesota 55402, Attn: John H. Stout or Barbara Muller; or If to ComVest, at 830 Third Avenue, New York, NY 10022, Attention: Carl Kleidman, or at such other address or addresses as may have been furnished to the Company in writing by ComVest, with a copy to Greenberg Traurig, LLP, The MetLife Building, 200 Park Avenue, New York, New York 10166, Attention: Alan I. Annex, Esq. 42 Notices provided in accordance with this Section 5.4 shall be deemed delivered upon personal delivery, one business day after being sent via a reputable nationwide overnight courier service, or three business days after deposit in the mail. 5.5 Amendments; Waivers. No provision of this Agreement may be waived or amended except in a written instrument signed, in the case of an amendment, by the Company and Purchaser or, in the case of a waiver, by the party against whom enforcement of any such waiver is sought. No waiver of any default with respect to any provision, condition or requirement of this Agreement shall be deemed to be a continuing waiver in the future or a waiver of any subsequent default or a waiver of any other provision, condition or requirement hereof, nor shall any delay or omission of either party to exercise any right hereunder in any manner impair the exercise of any such right. 5.6 Construction. The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party. 5.6 Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns. The Company may not assign this Agreement or any rights or obligations hereunder without the prior written consent of Purchaser. Purchaser may assign any or all of its rights under this Agreement to any Person to whom Purchaser assigns or transfers any Securities, provided such transferee agrees in writing to be bound, with respect to the transferred Securities, by the provisions hereof that apply to Purchaser. 5.7 No Third-Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective successors and permitted assigns and is not for the benefit of, nor may any provision hereof be enforced by, any other Person, except as otherwise set forth in Section 4.8. 5.8 Governing Law. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or Action, any claim that it is not personally subject to the jurisdiction of any such court or that such Action is improper or inconvenient venue for such Action. Each party hereby irrevocably waives personal service of process and consents to process being served in any such Action by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient 43 service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an Action to enforce any provisions of the Transaction Documents, then the prevailing party in such Action shall be reimbursed by the other party for its attorneys' fees and other costs and expenses reasonably incurred with the investigation, preparation and prosecution of such Action. 5.9 Survival. Unless this Agreement is terminated under Section 5.2 hereof, all agreements, representations, warranties and covenants contained herein shall survive the execution and delivery of this Agreement and the closing of the transactions contemplated hereby until (i) Purchaser owns less than 5,000,000 shares of Common Stock (on an as converted basis) or (ii) the pay-off of the Senior Secured Note, whichever occurs later. 5.10 Execution. This Agreement may be executed in two (2) or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 5.11 Severability. If any provision of this Agreement is held to be invalid or unenforceable in any respect, the validity and enforceability of the remaining terms and provisions of this Agreement shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision that is a reasonable substitute therefor, and upon so agreeing, shall incorporate such substitute provision in this Agreement. 5.12 Rescission and Withdrawal Right. Notwithstanding anything to the contrary contained in (and without limiting any similar provisions of) the Transaction Documents, whenever any Purchaser exercises a right, election, demand or option under a Transaction Document and the Company does not timely perform its related obligations within the periods therein provided, then Purchaser may rescind or withdraw, in its sole discretion from time to time upon written notice to the Company, any relevant notice, demand or election in whole or in part without prejudice to its future actions and rights. 5.13 Replacement of Securities. If any certificate or instrument evidencing any Securities is mutilated, lost, stolen or destroyed, the Company shall issue or cause to be issued in exchange and substitution for and upon cancellation thereof, or in lieu of and substitution therefor, a new certificate or instrument, but only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction and customary and reasonable indemnity, if requested. The applicants for a new certificate or instrument under such circumstances shall also pay any reasonable third-party costs associated with the issuance of such replacement Securities. 44 5.14 Remedies. In addition to being entitled to exercise all rights provided herein or granted by law, including recovery of damages, each of Purchaser and the Company will be entitled to specific performance under the Transaction Documents. The parties agree that monetary damages may not be adequate compensation for any loss incurred by reason of any breach of obligations described in the foregoing sentence and hereby agrees to waive in any action for specific performance of any such obligation the defense that a remedy at law would be adequate. 5.15 Payment Set Aside. To the extent that the Company makes a payment or payments to Purchaser pursuant to any Transaction Document or a Purchaser enforces or exercises its rights thereunder, and such payment or payments or the proceeds of such enforcement or exercise or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside, recovered from, disgorged by or are required to be refunded, repaid or otherwise restored to the Company, a trustee, receiver or any other person under any law (including, without limitation, any bankruptcy law, state or federal law, common law or equitable cause of action), then to the extent of any such restoration the obligation or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred. (Signature Page Follows) 45 IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. COMPANY: CORVU CORPORATION By: ----------------------------------------- Name: Title: SUBSIDIARIES: CORVU NORTH AMERICA, INC. By: ----------------------------------------- Name: Title: CORVU SOFTWARE MARKETING, INC. By: ----------------------------------------- Name: Title: CORVU SOFTWARE, LTD. By: ----------------------------------------- Name: Title: CORVU LATIN AMERICA, INC. By: ----------------------------------------- Name: Title: 46 CORVU PLC By: ----------------------------------------- Name: Title: CORVU AUSTRALASIA PTY. LTD. By: ----------------------------------------- Name: Title: PURCHASER: COMVEST INVESTMENT PARTNERS II LLC By: ----------------------------------------- Name: Title: 47 EX-3 4 e1023129.txt SENIOR SECURED PROMISSORY NOTE EXHIBIT 3 EXECUTION COPY SENIOR SECURED PROMISSORY NOTE THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND THIS SECURITY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF IT UNDER THE ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE MAKER THAT SUCH SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT. THIS SECURITY MAY NOT BE TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS NOTE AND THE SECURITIES PURCHASE AGREEMENT, DATED FEBRUARY 11, 2005 (THE "PURCHASE AGREEMENT"), AND NO TRANSFER OF THIS SECURITY SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH. THE TRANSFERABILITY OF THIS SECURITY IS SUBJECT TO THE TRANSFER RESTRICTIONS SET FORTH HEREIN AND IN THE PURCHASE AGREEMENT, A COPY OF WHICH WILL BE PROVIDED TO THE HOLDER HEREOF UPON WRITTEN REQUEST TO THE MAKER. CORVU CORPORATION SENIOR SECURED NON-CONVERTIBLE PROMISSORY NOTE THIS SENIOR SECURED NOTE IS MADE AND DELIVERED PURSUANT TO THE PURCHASE AGREEMENT AND SUBJECT TO THE TERMS AND CONDITIONS THEREOF. THIS SENIOR SECURED NOTE IS SECURED BY THE COLLATERAL DESCRIBED IN A CERTAIN SECURITY AGREEMENT, DATED AS OF EVEN DATE HEREWITH (THE "SECURITY AGREEMENT"). February 11, 2005 $1,500,000 FOR VALUE RECEIVED, CORVU CORPORATION, a Minnesota corporation (the "Maker"), promises to pay to the order of COMVEST INVESTMENT PARTNERS II LLC, a Delaware limited liability company or its registered assigns (the "Holder") on or before a date which shall be the earlier of (i) thirty-six (36) months following the Closing Date, (ii) a merger or combination of the Company or the sale, transfer or other disposition of all or substantially all of the assets of the Company or (iii) the acquisition by a single entity, person or a "group" within the meaning of Rule 13d-1 of the Exchange Act, of more than fifty percent (50%) of the voting power or capital stock of the Company (on a fully-diluted basis) (the "Maturity Date") the principal amount of One Million Five Hundred Thousand Dollars ($1,500,000) together with all accrued and unpaid interest thereon, unless this Note is sooner converted in accordance with the terms set forth herein. All capitalized terms used but not defined herein shall have the meaning set forth in the Purchase Agreement. 1. Interest Rate. The unpaid balance of the principal amount of this Note shall accrue simple interest (the "Interest") at a rate (the "Interest Rate") per annum as follows: Months 1-12 of the Senior Secured Note 6% per annum Months 13-24 of the Senior Secured Note 9% per annum Months 25-36 of the Senior Secured Note 12% per annum Interest shall begin accruing as of the date hereof through the Maturity Date. Interest shall accrue on a quarterly basis and on the date of a conversion, if applicable, and shall be computed on the basis of a 365-day year, for the actual number of days involved. If any Event of Default has occurred and is continuing, the Senior Secured Note shall bear interest at a rate of the then-applicable Interest plus four percent (4%) per annum until such time as such Event of Default has been cured. 2. Payment of Principal Amount and Interest. Accrued Interest shall be due and payable on a quarterly basis. Such payments shall be made either by wire transfer or by delivery to the Holder of a check payable to the Holder. 3. Prepayment. (a) Optional Prepayment. Notwithstanding the foregoing, at any time after the Closing Date, the Maker shall have the right to prepay all or any portion of the then-outstanding principal balance of this Note, together with accrued but unpaid Interest thereon, without premium or penalty, upon ten (10) days' prior written notice to Holder. (b) Mandatory Prepayment. In the event the Maker issues Common Stock Equivalents other than an Exempt Issuance during the term of this Note, the Maker shall prepay all or a portion of the then-outstanding principal amount of this Note, together with all accrued but unpaid Interest thereon, using Fifty Percent (50%) of the net proceeds received by the Maker from such sale (or any lesser portion necessary) to repay the then-outstanding principal and interest amount of the Note; provided, however, that the Preferred Shares have first been redeemed, in whole, in accordance with its terms. All prepayments pursuant to this Section 3 shall be applied first to the interest outstanding hereunder prior to their application to the outstanding principal amount hereof. Upon full prepayment of this Note, the Holder shall surrender this Note for cancellation, after which this Note shall be of no further force or effect. 4. Security Interest. This Note shall be senior in lien priority to all other Indebtedness (existing or future) of the Maker (other than Permitted Liens (as defined in the Security Agreement)) and shall be secured by a first priority perfected lien and security interest in the Collateral (as defined in the Security Agreement). 5. Events of Default. This Note shall become due and payable upon any of the following events, herein called "Events of Default": 2 (a) failure of the Maker to pay the principal amount, interest or any other amounts due under this Note as and when due; (b) a material breach by the Maker, or the material failure by the Maker to perform, any representation, warranty, covenant or agreement made by the Maker in this Note or any other Transaction Document, or any related instrument, document or agreement (subject to any applicable cure periods); (c) Maker's application for, or Maker's consent to, the appointment of a receiver, trustee or liquidator for the Maker or any of its properties; (d) filing by the Maker of a voluntary petition in bankruptcy or a petition or an answer seeking reorganization or an arrangement with creditors; (e) the entry against the Maker of a court order approving a petition filed against it under the federal bankruptcy laws by a creditor other than the Holder, which order shall not have been vacated or set aside or otherwise terminated within sixty (60) days; (f) with respect to any instrument or agreement for borrowed money to which the Maker is or becomes a party, (i) an event of default has occurred and has been declared by any third party to such instrument or agreement, the amount of the declared default exceeds Fifty Thousand Dollars ($50,000), and such third party has accelerated any payments due under such instrument or agreement or (ii) an event of default has occurred and has been declared by any third party to such instrument or agreement, the amount of the declared default exceeds Three Hundred Thousand Dollars ($300,000), provided, that the foregoing shall not constitute a default if the Maker, with advise of its legal counsel, has made a good faith determination that such amount is not due and that the Maker has valid and reasonable defenses against non-payment of such amount. (g) the Maker agrees to pay in full settlement of any litigation, proceeding or action, or a judgment is entered by a court of competent jurisdiction with respect to any litigation, proceeding or action involving the Maker (other than any settlement entered into or judgment entered with respect to obligations incurred by the Maker in the ordinary course of business and which were accrued for on the balance sheet of the Maker in the ordinary course of business), of at least Three Hundred Thousand Dollars ($300,000) in any one instance or One Million Dollars ($1,000,000) in the aggregate, in each case that is not covered by any insurance maintained by the Maker. 6. Transferability. Subject to compliance with applicable federal and state securities laws, this Note shall be transferable solely in accordance with Section 5.6 of the Purchase Agreement. In no event may the Holder assign this Note separate from an assignment of its rights under the Security Agreement. Any such transfer shall be effected by the presentation of this Note to the Maker for transfer, accompanied by a duly completed and executed Assignment Form in the form attached hereto as Exhibit A, and an opinion of counsel 3 of the Holder in form reasonably satisfactory to the Maker that the transfer may be properly made under an exemption from registration under the Securities Act and applicable state securities laws. Any transfer made in violation of this Section 6 shall be void. 7. Definitions. As used in this Note, the following term shall have the following meaning: "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in The City of New York. 8. Notices. Any notice, request or other communication required or permitted hereunder shall be in writing, and shall be deemed delivered upon personal delivery or facsimile transmission, one (1) business day after being sent via a reputable nationwide overnight courier services, or two (2) business days after deposit in the mail addressed as follows: If to the Maker: CORVU CORPORATION 3400 West 66th Street, Suite 445 Edina, Minnesota 55435 Attention: Chief Financial Officer Facsimile No.: (952) 843 7752 With copies to: Justin M. MacIntosh C/o CorVu Australasia Pty. Ltd. Level 8, 821-843 Pacific Highway, Chatswood NSW 2067 Australia Facsimile: (011-61 2) 9495 5444 Fredrikson & Byron, P.A. 200 South Sixth Street, Suite 4000 Minneapolis, Minnesota 55402 Attention: John H. Stout or Barbara Muller Facsimile No.: (612) 492 7077 If to the Holder: COMVEST INVESTMENT PARTNERS II LLC 830 Third Avenue New York, NY 10022 Attention: Carl Kleidman Facsimile No.: (212) 829-5978 4 With a copy to: Greenberg Traurig, LLP The MetLife Building 200 Park Avenue, 14th Floor New York, NY 10166 Attention: Alan I. Annex, Esq. Facsimile No.: (212) 801-6400 Either party may change by notice the address to which notices to it are to be addressed. 9. Successors and Assigns. All covenants, agreements and undertakings in this Note by or on behalf of any of the parties shall bind and inure to the benefit of the respective successors and assigns of the parties. 10. Governing Law. This Note shall be governed by, construed under and interpreted and enforced in accordance with laws of the State of New York, without giving effect to principles of choice of law. Any action or proceeding arising out of or relating to this Note shall be commenced in a federal or state court having competent jurisdiction in the State of New York, and for the purpose of any such action or proceeding, each of the parties and any assignees thereof submits to the personal jurisdiction of the State of New York. The parties hereby irrevocably consent to the exclusive personal jurisdiction of any state or federal court for New York County in the State of New York or the Southern District of New York. The parties hereby waive any objection to venue and any objection based on a more convenient forum in any action instituted under this Note. 11. Remedies. The Maker stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Maker in the performance of or compliance with any of the terms of this Note are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 12. Amendments. The terms and provisions of this Note may not be modified, altered or amended except in accordance with Section 9 of the Security Agreement. 13. Headings. The descriptive headings of the several paragraphs of this Note are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. 5 IN WITNESS WHEREOF, the Maker has executed this Note and has delivered it to the Holder, on the day and year first above written. CORVU CORPORATION By: ----------------------------------------- Name: Title: 6 Exhibit A ASSIGNMENT FOR VALUED RECEIVED, the undersigned Holder of the attached Senior Secured Note (the "Note") issued by CorVu Corporation (the "Maker") hereby sells, assigns and transfers unto the persons below, all right, title and interest of the undersigned in and to the obligations evidenced by the Note, and does hereby irrevocably constitute and appoint _______________________ attorney-in-fact to transfer the Note on the books of the Maker with full power of substitution in the premises. Dated: ------------------------------ Signature: -------------------------- Fill in for new Registration of Note: ------------------------------------ Name of Noteholder Address of Noteholder: ------------------------------- ------------------------------- ------------------------------- 7 EX-4 5 e1020170.txt PREFERRED WARRANT EXHIBIT 4 EXECUTION COPY PREFERRED WARRANT NEITHER THIS WARRANT NOR ANY SECURITY INTO WHICH IT IS CONVERTIBLE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THIS WARRANT NOR ANY SECURITY INTO WHICH IT IS CONVERTIBLE MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER THE ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT. NEITHER THIS WARRANT NOR ANY SECURITY INTO WHICH IT IS CONVERTIBLE MAY BE TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT, DATED AS OF EVEN DATE HEREWITH, AND NO TRANSFER OF THIS WARRANT OR ANY SECURITY INTO WHICH IT IS CONVERTIBLE SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH. THE TRANSFERABILITY OF THIS WARRANT AND ANY SECURITY INTO WHICH IT IS CONVERTIBLE IS SUBJECT TO THE TRANSFER RESTRICTIONS SET FORTH HEREIN AND IN THE PURCHASE AGREEMENT. WARRANT TO PURCHASE COMMON STOCK OF CORVU CORPORATION THIS WARRANT IS MADE AND DELIVERED PURSUANT TO A CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF EVEN DATE HEREWITH, AND SUBJECT TO THE TERMS AND CONDITIONS THEREOF. Certificate No. ____ Date of Issuance: February 11, 2005 Expiration Date: August 11, 2010 This Preferred Warrant is issued to COMVEST INVESTMENT PARTNERS II LLC (the "Holder") by CORVU CORPORATION, a Minnesota corporation (the "Company") , pursuant to the terms of that certain Securities Purchase Agreement (the "Purchase Agreement") of even date herewith, in connection with the Company's issuance to the Holder of this Warrant, the Protective Warrant, the Senior Secured Note, the Shares and the Preferred Shares for an aggregate purchase price of Six Million Five Hundred Thousand Dollars ($6,500,000), in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act; THIS CERTIFIES THAT, for value received, the receipt and sufficiency of which is hereby acknowledged: Subject to the conditions set forth herein and in the Purchase Agreement, the Holder, with an address at 830 Third Avenue, New York, NY 10022, is entitled, upon surrender of this Warrant at the principal office of the Company, to subscribe for and purchase from the Company, for a period of five (5) years commencing six months after the date hereof and ending at 5:00 p.m. Eastern Standard Time on August 11, 2010 (the "Exercise Period"), up to 3,400,000 shares of Common Stock at the Per Share Exercise Price. All capitalized terms used but not defined herein shall have the meaning set forth in the Purchase Agreement. This Warrant is subject to the following provisions, terms and conditions: 1. Definitions. 1.1 "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in The City of New York. 1.2 "Common Stock" shall mean the shares of common stock, par value $.01, of the Company. 1.3 "Commission" shall mean the U.S. Securities and Exchange Commission or any other governmental authority at the time administering the Securities Act. 1.4 "Company" shall have the meaning specified in the introduction to this Warrant, and shall include any corporation or business entity resulting from the merger, consolidation or conversion of the Company . 1.5 "Current Price per Share" shall mean the average of the closing sales prices, if available, or the average of the bid and asked prices for the Warrant Shares, Common Stock or Marketable Securities, as the case may be (or their successors) on the principal market therefor for the five (5) full Trading Days preceding the day which is two (2) Business Days prior to the day of exercise, or if no such price is available, then a price that is mutually agreed upon by the Holder and the Company. If the Holder and the Company cannot agree upon a mutually acceptable price, then such price shall be determined by a written appraisal of a recognized firm of investment bankers who shall be selected by the Company and shall be reasonably acceptable to the holders of a majority of the Warrants. The determination of such independent appraiser shall be conclusive and binding on the Holder and the Company. 1.6 "Fair Market Price per Share" shall mean the fair value, as determined by a majority of the full Board of Directors of the Company in good faith, which determination shall be described in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, of any potential dilutive issuance described in Section 4(c) 1.7 "Marketable Securities" shall mean securities of a corporation subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended, that are listed and actively traded on a nationally-recognized stock exchange or inter-dealer quotation system in the United States. 2 1.8 "Per Share Exercise Price" shall be $.50, as may be adjusted in accordance with Section 4 hereof. 1.9 "Registration Statement" shall be (i) any registration statement that the Company shall file with the Commission in accordance with Section 2(a) of the Registration Rights Agreement, covering all or part of the Shares and Warrant Shares, or (ii) the registration statement that the Company may file (or has filed) with the Commission in accordance with Section 2(b) of the Registration Rights Agreement, covering all or a part of the Shares and the Warrant Shares so long as such registration statement is declared effective prior to the time the registration statement contemplated by Section 2(a) of the Registration Rights Agreement is declared effective; provided, however, that if any registration statement filed under Section 2(b) of the Registration Rights Agreement covers only a portion of the Shares and the Warrant Shares, then "Registration Statement" shall mean both registration statements described in subparagraphs (i) and (ii) above. 1.10 "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar or successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar or successor federal statute. 1.11 "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. 1.12 "Trading Days" shall mean any days during the course of which the Company's Common Stock is listed and traded with the OTC Electronic Bulletin Board or such similar organization if the OTC Electronic Bulletin Board is no longer reporting such information. 2. Payment upon Exercise; Issuance of Certificates; No Fractional Shares. (a) This Warrant may be exercised during the Exercise Period, in whole or in part, by the surrender of this Warrant with the election at the end hereof (the "Election") duly executed to the Company, during normal business hours on any Business Day, at the address and in the manner set forth in Section 11 hereof, or at such other place as is designated in writing by the Company. Such executed Election must be accompanied by payment in an amount equal to the applicable Per Share Exercise Price multiplied by the number of Warrant Shares for which this Warrant is being exercised. Such payment may be made by check payable to the order of the Company. The Company agrees that the Warrant Shares so purchased shall be and are deemed to be issued to the Holder or its designee (subject to the transfer restrictions applicable to this Warrant) as the record owner of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment shall have been made as aforesaid. (b) Certificates for the Warrant Shares so purchased, representing the aggregate number of securities specified in the Election, shall be delivered to the Holder or its designee within a reasonable time, not exceeding ten (10) Business Days after this Warrant shall 3 have been duly exercised. The stock certificate or certificates so delivered shall be in such denominations as may be requested by the Holder and shall be registered in the name of the Holder or such other name as shall be designated by the Holder (subject to the transfer restrictions applicable to this Warrant). The Company shall pay all expenses and charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section 2, except that, in case such stock certificates shall be registered in a name or names other than the Holder or the Holder's designee, funds sufficient to pay all stock transfer taxes which shall be payable in connection with the execution and delivery of such stock certificates shall be paid by the Holder to the Company at the time of delivery of such stock certificates by the Company. (c) This Warrant shall be exercisable only for a whole number of Warrant Shares. No fractions of such securities, or scrip for any such fraction of securities, shall be issued upon the exercise of this Warrant. The Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to the Current Price per Share of one share of Warrant Shares at the time of such exercise multiplied by such fraction computed to the nearest whole cent. 3. Cashless Exercise. At any time during the Exercise Period, the Company agrees that: (a) The Holder may exercise this Warrant by surrendering it to the Company and receiving, in exchange therefor, the number of shares of Common Stock then purchasable upon exercise of that portion of the Warrant to be exercised less the number of shares of Common Stock equal to the quotient of the aggregate Per Share Exercise Price of all such shares underlying that portion of the Warrant to be exercised divided by the Current Price per Share. (b) Concurrent with the occurrence of any event described in Section 4(a) for cash, the Holder may exercise this Warrant by surrendering it to the Company in exchange for the amount of cash per share the Holder would be entitled to receive after the happening of such event if this Warrant had been exercised immediately prior to the close of business on such record date or effective date, as applicable, less the applicable Per Share Exercise Price. (c) Concurrent with the occurrence of any event described in Section 4(a) for Marketable Securities, the Holder may exercise this Warrant by surrendering it to the Company in exchange for the applicable amount of such Marketable Securities the Holder would be entitled to receive after the happening of such event if this Warrant had been exercised immediately prior to the close of business on such record date or effective date, as applicable, less the number of such Marketable Securities equal to the quotient of the aggregate Per Share Exercise Price of all shares underlying this Warrant divided by the Current Price per Share of such Marketable Securities. 4. Adjustments. (a) Merger, Sale of Assets, etc. In the event the Company, at any time prior to the Holder's exercise of this Warrant, (i) reorganizes (other than a combination, reclassification, exchange or subdivision); (ii) merges or consolidates the Company with or into another 4 corporation in which the Company is not the surviving entity, or merges with another corporation 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 (iii) sells or transfers the Company's properties and assets as, or substantially as, an entirety to any other person, then, as part of such reorganization, merger, consolidation, sale or transfer, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant the number of securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the securities deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately prior to such reorganization, merger, consolidation, sale or transfer. (b) Declaration of Dividends, Stock Splits, etc. In the event the Company declares a dividend or distribution of its common stock, or effects a stock split or reverse stock split with respect to its common stock, or issues any shares of its common stock by reclassification of shares of its common stock, the exercise rights of the Holder in effect on the date of such event shall be adjusted proportionately so that the Holder thereafter shall be entitled to receive upon exercise pursuant to the terms and conditions hereof the aggregate number of shares of common stock that the Holder would own or be entitled to receive after the happening of any of the events mentioned in this Section 4(b) if this Warrant had been exercised immediately prior to the close of business on the date of such happening. (c) Issuance of Additional Shares of Common Stock. (i) Except as provided in Section 4(c)(ii), in the event the Company shall issue or sell any additional shares of Common Stock for a consideration per additional share of Common Stock less than the Fair Market Price per Share (the "Discounted per Share Price"), then the Per Share Exercise Price shall be reduced to the Discounted per Share Price. For purposes of this subsection (i), the date as of which the Fair Market Price per Share of Common Stock shall be the earlier of the date upon which the Company shall (a) enter into a firm contract for the issuance of such shares or (b) issue such shares. The number of shares of Common Stock issuable upon exercise of this Warrant shall remain unchanged after any adjustment of the Per Share Exercise Price as provided in this Section 4(c). (ii) The provisions of Section 4(c) shall not apply to (x) any issuance of additional shares of Common Stock for which an adjustment is provided under Section 4(a) or 4(b), (y) the issuance of Warrant Shares, or (z) any Exempt Issuances as defined in the Purchase Agreement. (iii) If at any time the Company shall in any manner (other than in connection with a merger in which the Company is the surviving corporation) issue or sell, any warrants (other than the Warrants) or other rights to subscribe for or purchase any additional shares of Common Stock or any convertible securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants or other rights or upon conversion or exchange of 5 such convertible securities shall be determined to be at a Discounted per Share Price, then the Per Share Exercise Price shall be adjusted as provided in Section 4(c)(i) on the basis that (i) the maximum number of additional shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such convertible securities shall be deemed to have been issued and outstanding, (ii) the price per share for such additional shares of Common Stock shall be deemed to be the lowest price per share at which such additional shares of Common Stock are issuable, and (iii) the Company shall have received all of the consideration, if any, payable for such warrants or other rights as of the date of the actual issuance thereof. No further adjustments of the Per Share Exercise Price shall be made upon the actual issue of such Common Stock or of such convertible securities upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such convertible securities. (iv) If at any time the Company shall in any manner (other than in connection with a merger in which the Company is the surviving corporation) issue or sell, any convertible securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be determined to be at a Discounted per Share Price, then the Per Share Exercise Price shall be adjusted as provided in Section 4(c)(i) on the basis that (i) the maximum number of additional shares of Common Stock issuable upon the conversion or exchange of all such convertible securities shall be deemed to have been issued and outstanding, (ii) the price per share of such additional shares of Common Stock shall be deemed to be the lowest price in any range of prices at which such additional shares of Common Stock are available to holders of such convertible securities, and (iii) the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such convertible securities. No further adjustments of the Per Share Exercise Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such convertible securities. (v) If, at any time after any adjustment of the Per Share Exercise Price shall have been made pursuant to Section 4(c)(iii) or 4(c)(iv) as the result of any issuance of warrants, rights or convertible securities, and either (1) such warrants or rights, or the rights of conversion or exchange in such other convertible securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other convertible securities, as the case may be, shall not have been exercised, or (2) the consideration per share for which shares of Common Stock are issuable pursuant to such warrants or rights, or such other convertible securities, shall be increased or decreased by virtue of provisions therein contained, then such previous adjustments shall be rescinded and annulled and the additional shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other convertible securities on the then outstanding Warrants, but not on any then outstanding Warrant Shares, on the basis of 6 (3) treating the number of additional shares of common stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (4) treating any such warrants or rights or any such other convertible securities which then remain outstanding as having been granted or issued immediately after the time of such increase or decrease of the consideration per share for which shares of Common Stock or other property are issuable under such warrants or rights or other convertible securities. (vi) To the extent that any additional shares of Common Stock or any convertible securities or any warrants or other rights to subscribe for or purchase any additional shares of Common Stock or any convertible securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such additional shares of Common Stock or convertible securities are offered by the Company for subscription, the subscription price, or, if such additional shares of Common Stock or convertible securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends, but not subtracting any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any additional shares of Common Stock or any convertible securities or any warrants or other rights to subscribe for or purchase such additional shares of Common Stock or convertible securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such additional shares of Common Stock, convertible securities, warrants or other rights, as the case may be. The consideration for any additional shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the additional consideration payable to the Company upon exercise of such warrants or other rights. The consideration for any additional shares of Common Stock issuable pursuant to the terms of any convertible securities shall be the consideration, if any, received by the Company for issuing warrants or other rights to subscribe for or purchase such convertible securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such convertible securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such convertible securities. In case of the issuance at any time of any additional shares of Common Stock or convertible securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares 7 of Common Stock or convertible securities a consideration equal to the amount of such dividend so paid or satisfied. (d) Written Notice. The Company shall give written notice to the Holder within ten (10) days following the consummation of any transaction within the scope of this Section 4 and provide in such written notice a brief description of the terms and conditions of such transaction. (e) Minimal Adjustments. No adjustment in a Per Share Exercise Price need be made if such adjustment would result in a change in such Per Share Exercise Price of less than five cents ($0.05). Any adjustment of less than five cents ($0.05) which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of five cents ($0.05) or more in a Per Share Exercise Price. 5. Issue Tax. The issuance of certificates for the Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect thereof, provided that the Company 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 certificate in a name other than that of the Holder . 6. Transferability and Assignment. Except as set forth in Section 6 hereof and subject to compliance with applicable federal and state securities laws, and to the extent applicable, the parties may not assign their rights and obligations under this Warrant except in accordance with Section 5.6 of the Purchase Agreement. In the event the Holder proposes to effect an assignment, the Holder must present this Warrant to the Company for transfer, accompanied by a duly completed and executed Form of Assignment (as provided at the end hereof), the transferee must agree to be bound by the terms of this Warrant as if such transferee were an original holder of this Warrant, and the Holder must deliver to the Company an opinion of counsel of the Holder in form reasonably satisfactory to the Company that the transfer may be properly made under an exemption from registration under the Securities Act and applicable state securities laws. Upon any registration of transfer, the Company shall execute and deliver a new Warrant certificate to the person entitled thereto. In the event the Warrant is transferred, the subsequent holder shall have no greater rights than those afforded the Holder hereunder. Any transfer made in violation of this Section 8 shall be void. 7. Reservation of Warrant Shares. The Company shall, at all times when this Warrant shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the exercise of this Warrant, such number of its duly authorized shares of capital stock as shall from time to time be sufficient to effect the exercise of this Warrant. Alternatively, the Company shall take all action necessary to cause it to be authorized to issue all necessary shares issuable upon exercise of this Warrant. All shares of capital stock which may be issued in connection with the exercise of this Warrant will, upon issuance by the Company, be validly issued, fully paid and non-assessable. 8 8. Mutilated or Missing Warrant Certificate. In case the certificate evidencing this Warrant shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the Holder, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate, or in lieu of and in substitution for the certificate lost, stolen or destroyed, a new Warrant certificate of like tenor and representing the equivalent rights and interests, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant. Applicants for such substitute Warrant certificate shall also comply with such other reasonable requirements and pay such other reasonable charges as the Company may prescribe. The Holder shall pay all taxes and all other expenses and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section 8. 9. No Rights as a Shareholder. Nothing contained herein shall be construed as conferring upon the Holder or its transferees any rights as a shareholder of the Company, including the right to vote, receive dividends, consent or receive notices as a shareholder in respect of any meeting of shareholders for the election of directors of the Company or any other matter. 10. Legend. The Warrant Shares issued upon exercise of this Warrant shall be subject to a stop transfer order and the certificate or certificates evidencing such Warrant Shares shall bear the following legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SECURITIES PURCHASE AGREEMENT, A CERTAIN STOCKHOLDERS' AGREEMENT AND A CERTAIN REGISTRATION RIGHTS AGREEMENT, ALL OF WHICH ARE DATED FEBRUARY 11, 2005 AND ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY." 11. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or by Federal Express, Express Mail or similar overnight delivery or courier service or delivered (in person or by telecopy, telex or similar telecommunications equipment) against receipt to the party to whom it is to be given, (i) if to the Company, addressed to CorVu Corporation, 3400 West 66th Street, Suite 445, Edina, Minnesota 55435, Attention: Chief 9 Financial Officer, Telecopy No. (952) 944-7447; with copies to: Justin M. MacIntosh,c/o CorVu Australasia Pty. Ltd., Level 8, 821-843 Pacific Highway, Chatswood NSW 2067, Australia, Telecopy No. (011-61 2) 9495 5444, and Fredrikson & Byron, P.A., 200 South Sixth Street, Suite 4000, Minneapolis, Minnesota 55402, Attn: John H. Stout or Barbara Muller, Telecopy No. (612) 492 7077, (ii) if to the Holder, at the address set forth above, or (iii) in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 11. Notice to the estate of any party shall be sufficient if addressed to the party as provided in this Section 11. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. Any notice given by other means permitted by this Section 11 shall be deemed given at the time of receipt thereof. 12. Governing Law. This Warrant shall be construed in accordance with the laws of the State of New York, without regard to principles governing conflicts of law. Any action or proceeding arising out of or relating to this Warrant shall be commenced in a federal or state court having competent jurisdiction in the State of New York, and for the purpose of any such action or proceeding, each of the Company and the Holder and any assignee of the Holder submits to the personal jurisdiction of the State of New York The parties hereby irrevocably consent to the exclusive jurisdiction of any state or federal court for New York County in the State of New York or the Southern District of New York. The parties hereby waive any objection to venue and any objection based on a more convenient forum in any action instituted under this Warrant. 13. Remedies. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. Amendments; Waivers. The terms and provisions of this Warrant may be amended, modified, waived or altered only in writing signed by the Company and the Holder, and any such amendment effected pursuant to this Section 14 shall be binding upon the successors and assigns of the parties. 15. Headings. The descriptive headings of the several sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. [Signature Page to Warrant] 10 Dated: February 11, 2005 CORVU CORPORATION By: -------------------------------------------- Name: Title: ACKNOWLEDGED AND ACCEPTED: COMVEST INVESTMENT PARTNERS II LLC By: --------------------------------- Name: Title: 11 FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, ___________________ hereby sells, assigns, and transfers unto _____________________________ Warrants to purchase _____________ shares of _______________ of CorVu Corporation (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint _____________________________ attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: ------------------------------ Signature: ---------------------------------- NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. 12 To: CorVu Corporation 3400 West 66th Street, Suite 445 Edina, Minnesota 55435 ELECTION TO EXERCISE The undersigned hereby exercises his or its rights to purchase ______ Warrant Shares covered by the within Warrant certificate and tenders payment herewith in the amount of $_____________ in accordance with the terms thereof, and requests that certificates for such securities be issued in the name of, and delivered to: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Print Name, Address and Social Security or Tax Identification Number) The undersigned also hereby represents that the representations and warranties provided by the undersigned in Section 3.2 of the Purchase Agreement are true and correct in all material respects as if made on and as of the date hereof. Signature: ---------------------------- 13 EX-5 6 e1020753.txt PROTECTIVE WARRANT EXHIBIT 5 EXECUTION COPY PROTECTIVE WARRANT NEITHER THIS WARRANT NOR ANY SECURITY INTO WHICH IT IS CONVERTIBLE HAS BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), NOR UNDER ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT HAS BEEN ACQUIRED FOR INVESTMENT AND NEITHER THIS WARRANT NOR ANY SECURITY INTO WHICH IT IS CONVERTIBLE MAY BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION OF THEM UNDER THE ACT OR AN OPINION OF COUNSEL OR OTHER EVIDENCE ACCEPTABLE TO THE COMPANY THAT SUCH SALE OR TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE ACT. NEITHER THIS WARRANT NOR ANY SECURITY INTO WHICH IT IS CONVERTIBLE MAY BE TRANSFERRED EXCEPT UPON THE CONDITIONS SPECIFIED IN THIS WARRANT AND THE SECURITIES PURCHASE AGREEMENT, DATED AS OF EVEN DATE HEREWITH, AND NO TRANSFER OF THIS WARRANT OR ANY SECURITY INTO WHICH IT IS CONVERTIBLE SHALL BE VALID OR EFFECTIVE UNLESS AND UNTIL SUCH CONDITIONS SHALL HAVE BEEN COMPLIED WITH. THE TRANSFERABILITY OF THIS WARRANT AND ANY SECURITY INTO WHICH IT IS CONVERTIBLE IS SUBJECT TO THE TRANSFER RESTRICTIONS SET FORTH HEREIN AND IN THE PURCHASE AGREEMENT. WARRANT TO PURCHASE COMMON STOCK OF CORVU CORPORATION THIS WARRANT IS MADE AND DELIVERED PURSUANT TO A CERTAIN SECURITIES PURCHASE AGREEMENT, DATED AS OF EVEN DATE HEREWITH, AND SUBJECT TO THE TERMS AND CONDITIONS THEREOF. Certificate No. ___ Date of Issuance: February 11, 2005 Expiration Date: August 11, 2010 This Protective Warrant is issued to COMVEST INVESTMENT PARTNERS II LLC (the "Holder") by CORVU CORPORATION, a Minnesota corporation (the "Company") , pursuant to the terms of that certain Securities Purchase Agreement (the "Purchase Agreement") of even date herewith, in connection with the Company's issuance to the Holder of this Warrant, the Preferred Warrant, the Senior Secured Note, the Shares and the Preferred Shares for an aggregate purchase price of Six Million Five Hundred Thousand Dollars ($6,500,000), in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act; THIS CERTIFIES THAT, for value received, the receipt and sufficiency of which is hereby acknowledged: Subject to the conditions set forth herein and in the Purchase Agreement, the Holder, with an address at 830 Third Avenue, New York, NY 10022, is entitled, upon surrender of this Warrant at the principal office of the Company, to subscribe for and purchase from the Company, for a period of five (5) years, commencing six months after the date hereof and ending at 5:00 p.m. Eastern Standard Time on August 11, 2010 (the "Exercise Period"), up to 2,000,000 shares of Common Stock at the Per Share Exercise Price; provided, however, that the Holder may only exercise this Warrant during the Exercise Period if on the date of such exercise (i) the Holder and its Affiliates collectively beneficially own greater than 5,000,000 shares of Common Stock and (ii) fewer than two (2) Designees (as defined in the Purchase Agreement) are members of the Board of Directors of the Company despite the Designees having voted for their own nomination and despite the Holder having voted its shares of Common Stock in favor of such election of the Designees. All capitalized terms used but not defined herein shall have the meaning set forth in the Purchase Agreement. This Warrant is subject to the following provisions, terms and conditions: 1. Definitions. 1.1 "Business Day" means any day that is not a Saturday, a Sunday or other day on which banks are required or authorized by Law to be closed in The City of New York. 1.2 "Common Stock" shall mean the shares of common stock, par value $.01, of the Company. 1.3 "Commission" shall mean the U.S. Securities and Exchange Commission or any other governmental authority at the time administering the Securities Act. 1.4 "Company" shall have the meaning specified in the introduction to this Warrant, and shall include any corporation or business entity resulting from the merger, consolidation or conversion of the Company . 1.5 "Current Price per Share" shall mean the average of the closing sales prices, if available, or the average of the bid and asked prices for the Warrant Shares, Common Stock or Marketable Securities, as the case may be (or their successors) on the principal market therefor for the five (5) full Trading Days preceding the day which is two (2) Business Days prior to the day of exercise, or if no such price is available, then a price that is mutually agreed upon by the Holder and the Company. If the Holder and the Company cannot agree upon a mutually acceptable price, then such price shall be determined by a written appraisal of a recognized firm of investment bankers who shall be selected by the Company and shall be reasonably acceptable to the holders of a majority of the Warrants. The determination of such independent appraiser shall be conclusive and binding on the Holder and the Company. 1.6 "Fair Market Price per Share" shall mean the fair value, as determined by a majority of the full Board of Directors of the Company in good faith, which determination shall be described in a duly adopted board resolution certified by the Company's Secretary or Assistant Secretary, of any potential dilutive issuance described in Section 4(c) 2 1.7 "Marketable Securities" shall mean securities of a corporation subject to the informational and reporting requirements of the Securities Exchange Act of 1934, as amended, that are listed and actively traded on a nationally-recognized stock exchange or inter-dealer quotation system in the United States. 1.8 "Per Share Exercise Price" shall be $.50, as may be adjusted in accordance with Section 4 hereof. 1.9 "Registration Statement" shall be (i) any registration statement that the Company shall file with the Commission in accordance with Section 2(a) of the Registration Rights Agreement, covering all or part of the Shares and Warrant Shares, or (ii) the registration statement that the Company may file (or has filed) with the Commission in accordance with Section 2(b) of the Registration Rights Agreement, covering all or a part of the Shares and the Warrant Shares so long as such registration statement is declared effective prior to the time the registration statement contemplated by Section 2(a) of the Registration Rights Agreement is declared effective; provided, however, that if any registration statement filed under Section 2(b) of the Registration Rights Agreement covers only a portion of the Shares and the Warrant Shares, then "Registration Statement" shall mean both registration statements described in subparagraphs (i) and (ii) above. 1.10 "Securities Act" shall mean the Securities Act of 1933, as amended, or any similar or successor federal statute, and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. Reference to a particular section of the Securities Act shall include a reference to the comparable section, if any, of any such similar or successor federal statute. 1.11 "this Warrant" shall mean and include this Warrant and any Warrant or Warrants hereafter issued as a consequence of the exercise or transfer of this Warrant in whole or in part. 1.12 "Trading Days" shall mean any days during the course of which the Company's Common Stock is listed and traded with the OTC Electronic Bulletin Board or such similar organization if the OTC Electronic Bulletin Board is no longer reporting such information. 2. Payment upon Exercise; Issuance of Certificates; No Fractional Shares. (a) This Warrant may be exercised during the Exercise Period, in whole or in part, by the surrender of this Warrant with the election at the end hereof (the "Election") duly executed to the Company, during normal business hours on any Business Day, at the address and in the manner set forth in Section 11 hereof, or at such other place as is designated in writing by the Company. Such executed Election must be accompanied by payment in an amount equal to the applicable Per Share Exercise Price multiplied by the number of Warrant Shares for which this Warrant is being exercised. Such payment may be made by check payable to the order of the Company. The Company agrees that the Warrant Shares so purchased shall be and are deemed to be issued to the Holder or its designee (subject to the transfer restrictions applicable to this 3 Warrant) as the record owner of such Warrant Shares as of the close of business on the date on which this Warrant shall have been surrendered and payment shall have been made as aforesaid. (b) Certificates for the Warrant Shares so purchased, representing the aggregate number of securities specified in the Election, shall be delivered to the Holder or its designee within a reasonable time, not exceeding ten (10) Business Days after this Warrant shall have been duly exercised. The stock certificate or certificates so delivered shall be in such denominations as may be requested by the Holder and shall be registered in the name of the Holder or such other name as shall be designated by the Holder (subject to the transfer restrictions applicable to this Warrant). The Company shall pay all expenses and charges payable in connection with the preparation, execution and delivery of stock certificates pursuant to this Section 2, except that, in case such stock certificates shall be registered in a name or names other than the Holder or the Holder's designee, funds sufficient to pay all stock transfer taxes which shall be payable in connection with the execution and delivery of such stock certificates shall be paid by the Holder to the Company at the time of delivery of such stock certificates by the Company. (c) This Warrant shall be exercisable only for a whole number of Warrant Shares. No fractions of such securities, or scrip for any such fraction of securities, shall be issued upon the exercise of this Warrant. The Company shall pay a cash adjustment in respect of such fractional interest in an amount equal to the Current Price per Share of one share of Warrant Shares at the time of such exercise multiplied by such fraction computed to the nearest whole cent. 3. Cashless Exercise. At any time during the Exercise Period, the Company agrees that: (a) The Holder may exercise this Warrant by surrendering it to the Company and receiving, in exchange therefor, the number of shares of Common Stock then purchasable upon exercise of that portion of the Warrant to be exercised less the number of shares of Common Stock equal to the quotient of the aggregate Per Share Exercise Price of all such shares underlying that portion of the Warrant to be exercised divided by the Current Price per Share. (b) Concurrent with the occurrence of any event described in Section 4(a) for cash, the Holder may exercise this Warrant by surrendering it to the Company in exchange for the amount of cash per share the Holder would be entitled to receive after the happening of such event if this Warrant had been exercised immediately prior to the close of business on such record date or effective date, as applicable, less the applicable Per Share Exercise Price. (c) Concurrent with the occurrence of any event described in Section 4(a) for Marketable Securities, the Holder may exercise this Warrant by surrendering it to the Company in exchange for the applicable amount of such Marketable Securities the Holder would be entitled to receive after the happening of such event if this Warrant had been exercised immediately prior to the close of business on such record date or effective date, as applicable, less the number of such Marketable Securities equal to the quotient of the aggregate Per Share Exercise Price of all shares underlying this Warrant divided by the Current Price per Share of such Marketable Securities. 4 4. Adjustments. (a) Merger, Sale of Assets, etc. In the event the Company, at any time prior to the Holder's exercise of this Warrant, (i) reorganizes (other than a combination, reclassification, exchange or subdivision); (ii) merges or consolidates the Company with or into another corporation in which the Company is not the surviving entity, or merges with another corporation 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 (iii) sells or transfers the Company's properties and assets as, or substantially as, an entirety to any other person, then, as part of such reorganization, merger, consolidation, sale or transfer, provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant the number of securities or property of the successor corporation resulting from such reorganization, merger, consolidation, sale or transfer that a holder of the securities deliverable upon exercise of this Warrant would have been entitled to receive in such reorganization, consolidation, merger, sale or transfer if this Warrant had been exercised immediately prior to such reorganization, merger, consolidation, sale or transfer. (b) Declaration of Dividends, Stock Splits, etc. In the event the Company declares a dividend or distribution of its common stock, or effects a stock split or reverse stock split with respect to its common stock, or issues any shares of its common stock by reclassification of shares of its common stock, the exercise rights of the Holder in effect on the date of such event shall be adjusted proportionately so that the Holder thereafter shall be entitled to receive upon exercise pursuant to the terms and conditions hereof the aggregate number of shares of common stock that the Holder would own or be entitled to receive after the happening of any of the events mentioned in this Section 4(b) if this Warrant had been exercised immediately prior to the close of business on the date of such happening. (c) Issuance of Additional Shares of Common Stock. (i) Except as provided in Section 4(c)(ii), in the event the Company shall issue or sell any additional shares of Common Stock, for a consideration per additional share of Common Stock less than the Fair Market Price per Share (the "Discounted per Share Price"), then the Per Share Exercise Price shall be reduced to the Discounted per Share Price. For purposes of this subsection (i), the date as of which the Fair Market Price per Share of Common Stock shall be the earlier of the date upon which the Company shall (a) enter into a firm contract for the issuance of such shares or (b) issue such shares. The number of shares of Common Stock issuable upon exercise of this Warant shall remain unchanged after any adjustment of the Per Share Exercise Price as provided in this Section 4(c). (ii) The provisions of Section 4(c) shall not apply to (x) any issuance of additional shares of Common Stock for which an adjustment is provided under Section 4(a) or 4(b), (y) the issuance of Warrant Shares, or (z) for any Exempt Issuances as defined in the Purchase Agreement. 5 (iii) If at any time the Company shall in any manner (other than in connection with a merger in which the Company is the surviving corporation) issue or sell, any warrants (other than the Warrants) or other rights to subscribe for or purchase any additional shares of Common Stock or any convertible securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon the exercise of such warrants or other rights or upon conversion or exchange of such convertible securities shall be determined to be at a Discounted per Share Price, then the Per Share Exercise Price shall be adjusted as provided in Section 4(c)(i) on the basis that (i) the maximum number of additional shares of Common Stock issuable pursuant to all such warrants or other rights or necessary to effect the conversion or exchange of all such convertible securities shall be deemed to have been issued and outstanding, (ii) the price per share for such additional shares of Common Stock shall be deemed to be the lowest price per share at which such additional shares of Common Stock are issuable, and (iii) the Company shall have received all of the consideration, if any, payable for such warrants or other rights as of the date of the actual issuance thereof. No further adjustments of the Per Share Exercise Price shall be made upon the actual issue of such Common Stock or of such convertible securities upon exercise of such warrants or other rights or upon the actual issue of such Common Stock upon such conversion or exchange of such convertible securities. (iv) If at any time the Company shall in any manner (other than in connection with a merger in which the Company is the surviving corporation) issue or sell, any convertible securities, whether or not the rights to exchange or convert thereunder are immediately exercisable, and the price per share for which Common Stock is issuable upon such conversion or exchange shall be determined to be at a Discounted per Share Price, then the Per Share Exercise Price shall be adjusted as provided in Section 4(c)(i) on the basis that (i) the maximum number of additional shares of Common Stock issuable upon the conversion or exchange of all such convertible securities shall be deemed to have been issued and outstanding, (ii) the price per share of such additional shares of Common Stock shall be deemed to be the lowest price in any range of prices at which such additional shares of Common Stock are available to holders of such convertible securities, and (iii) the Company shall have received all of the consideration payable therefor, if any, as of the date of actual issuance of such convertible securities. No further adjustments of the Per Share Exercise Price shall be made upon the actual issue of such Common Stock upon conversion or exchange of such convertible securities. (v) If, at any time after any adjustment of the Per Share Exercise Price shall have been made pursuant to Section 4(c)(iii) or 4(c)(iv) as the result of any issuance of warrants, rights or convertible securities, and either (1) such warrants or rights, or the rights of conversion or exchange in such other convertible securities, shall expire, and all or a portion of such warrants or rights, or the right of conversion or exchange with respect to all or a portion of such other convertible securities, as the case may be, shall not have been exercised, or (2) the consideration per share for which shares of Common Stock are issuable pursuant to such warrants or rights, or such other convertible securities, shall be increased or decreased by virtue of provisions therein contained, 6 then such previous adjustments shall be rescinded and annulled and the additional shares of Common Stock which were deemed to have been issued by virtue of the computation made in connection with the adjustment so rescinded and annulled shall no longer be deemed to have been issued by virtue of such computation. Thereupon, a recomputation shall be made of the effect of such rights or options or other convertible securities on the then outstanding Warrants, but not on any then outstanding Warrant Shares, on the basis of (3) treating the number of additional shares of common stock or other property, if any, theretofore actually issued or issuable pursuant to the previous exercise of any such warrants or rights or any such right of conversion or exchange, as having been issued on the date or dates of any such exercise and for the consideration actually received and receivable therefor, and (4) treating any such warrants or rights or any such other convertible securities which then remain outstanding as having been grated or issued immediately after the time of such increase or decrease of the consideration per share for which shares of Common Stock or other property are issuable under such warrants or rights or other convertible securities. (vi) To the extent that any additional shares of Common Stock or any convertible securities or any warrants or other rights to subscribe for or purchase any additional shares of Common Stock or any convertible securities shall be issued for cash consideration, the consideration received by the Company therefor shall be the amount of the cash received by the Company therefor, or, if such additional shares of Common Stock or convertible securities are offered by the Company for subscription, the subscription price, or, if such additional shares of Common Stock or convertible securities are sold to underwriters or dealers for public offering without a subscription offering, the public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends, but not subtracting any compensation, discounts or expenses paid or incurred by the Company for and in the underwriting of, or otherwise in connection with, the issuance thereof). To the extent that such issuance shall be for a consideration other than cash, then, except as herein otherwise expressly provided, the amount of such consideration shall be deemed to be the fair value of such consideration at the time of such issuance as determined in good faith by the Board of Directors of the Company. In case any additional shares of Common Stock or any convertible securities or any warrants or other rights to subscribe for or purchase such additional shares of Common Stock or convertible securities shall be issued in connection with any merger in which the Company issues any securities, the amount of consideration therefor shall be deemed to be the fair value, as determined in good faith by the Board of Directors of the Company, of such portion of the assets and business of the nonsurviving corporation as such Board in good faith shall determine to be attributable to such additional shares of Common Stock, convertible securities, warrants or other rights, as the case may be. The consideration for any additional shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Company for issuing such warrants or other rights plus the additional consideration payable to the Company upon exercise of such warrants or other rights. The consideration for any additional shares of Common Stock issuable pursuant to the terms of any convertible securities shall be the consideration, if any, received by the 7 Company for issuing warrants or other rights to subscribe for or purchase such convertible securities, plus the consideration paid or payable to the Company in respect of the subscription for or purchase of such convertible securities, plus the additional consideration, if any, payable to the Company upon the exercise of the right of conversion or exchange in such convertible securities. In case of the issuance at any time of any additional shares of Common Stock or convertible securities in payment or satisfaction of any dividends upon any class of stock other than Common Stock, the Company shall be deemed to have received for such additional shares of Common Stock or convertible securities a consideration equal to the amount of such dividend so paid or satisfied. (d) Written Notice. The Company shall give written notice to the Holder within ten (10) days following the consummation of any transaction within the scope of this Section 4 and provide in such written notice a brief description of the terms and conditions of such transaction. (e) Minimal Adjustments. No adjustment in a Per Share Exercise Price need be made if such adjustment would result in a change in such Per Share Exercise Price of less than five cents ($0.05). Any adjustment of less than five cents ($0.05) which is not made shall be carried forward and shall be made at the time of and together with any subsequent adjustment which, on a cumulative basis, amounts to an adjustment of five cents ($0.05) or more in a Per Share Exercise Price. 5. Issue Tax. The issuance of certificates for the Warrant Shares upon the exercise of this Warrant shall be made without charge to the Holder for any issuance tax in respect thereof, provided that the Company 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 certificate in a name other than that of the Holder .. 6. Transferability and Assignment. Except as set forth in Section 6 hereof and subject to compliance with applicable federal and state securities laws, and to the extent applicable, the parties may not assign their rights and obligations under this Warrant except in accordance with Section 5.6 of the Purchase Agreement. In the event the Holder proposes to effect an assignment, the Holder must present this Warrant to the Company for transfer, accompanied by a duly completed and executed Form of Assignment (as provided at the end hereof), the transferee must agree to be bound by the terms of this Warrant as if such transferee were an original holder of this Warrant, and the Holder must deliver to the Company an opinion of counsel of the Holder in form reasonably satisfactory to the Company that the transfer may be properly made under an exemption from registration under the Securities Act and applicable state securities laws. Upon any registration of transfer, the Company shall execute and deliver a new Warrant certificate to the person entitled thereto. In the event the Warrant is transferred, the subsequent holder shall have no greater rights than those afforded the Holder hereunder. Any transfer made in violation of this Section 8 shall be void. 7. Reservation of Warrant Shares. The Company shall, at all times when this Warrant shall be outstanding, reserve and keep available out of its authorized but unissued stock, for the purpose of effecting the exercise of this Warrant, such number of its duly 8 authorized shares of capital stock as shall from time to time be sufficient to effect the exercise of this Warrant. Alternatively, the Company shall take all action necessary to cause it to be authorized to issue all necessary shares issuable upon exercise of this Warrant. All shares of capital stock which may be issued in connection with the exercise of this Warrant will, upon issuance by the Company, be validly issued, fully paid and non-assessable. 8. Mutilated or Missing Warrant Certificate. In case the certificate evidencing this Warrant shall be mutilated, lost, stolen or destroyed, the Company shall, at the request of the Holder, issue and deliver in exchange and substitution for and upon cancellation of the mutilated certificate, or in lieu of and in substitution for the certificate lost, stolen or destroyed, a new Warrant certificate of like tenor and representing the equivalent rights and interests, but only upon receipt of evidence satisfactory to the Company of such loss, theft or destruction of such Warrant. Applicants for such substitute Warrant certificate shall also comply with such other reasonable requirements and pay such other reasonable charges as the Company may prescribe. The Company shall pay all taxes (other than securities transfer taxes) and all other expenses and charges payable in connection with the preparation, execution and delivery of Warrants pursuant to this Section 8. 9. No Rights as a Shareholder. Nothing contained herein shall be construed as conferring upon the Holder or its transferees any rights as a shareholder of the Company, including the right to vote, receive dividends, consent or receive notices as a shareholder in respect of any meeting of shareholders for the election of directors of the Company or any other matter. 10. Legend. The Warrant Shares issued upon exercise of this Warrant shall be subject to a stop transfer order and the certificate or certificates evidencing such Warrant Shares shall bear the following legend: "THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS AS EVIDENCED BY A LEGAL OPINION OF COUNSEL TO THE TRANSFEROR TO SUCH EFFECT, THE SUBSTANCE OF WHICH SHALL BE REASONABLY ACCEPTABLE TO THE COMPANY. THESE SECURITIES ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN SECURITIES PURCHASE AGREEMENT, A CERTAIN STOCKHOLDERS' AGREEMENT AND A CERTAIN REGISTRATION RIGHTS AGREEMENT, ALL OF WHICH ARE DATED FEBRUARY 11, 2005 AND ARE AVAILABLE FOR INSPECTION AT THE OFFICES OF THE COMPANY." 9 11. Notices. Any notice or other communication required or permitted to be given hereunder shall be in writing and shall be mailed by certified mail, return receipt requested, or by Federal Express, Express Mail or similar overnight delivery or courier service or delivered (in person or by telecopy, telex or similar telecommunications equipment) against receipt to the party to whom it is to be given, (i) if to the Company, addressed to CorVu Corporation, 3400 West 66th Street, Suite 445, Edina, Minnesota 55435, Attention: Chief Financial Officer, Telecopy No. (952) 944-7447; with copies to: Justin M. MacIntosh, c/o CorVu Australasia Pty. Ltd., Level 8, 821-843 Pacific Highway, Chatswood NSW 2067, Australia, Telecopy No. (011-61 2) 9495 5444, and Fredrikson & Byron, P.A., 200 South Sixth Street, Suite 4000, Minneapolis, Minnesota 55402, Attn: John H. Stout or Barbara Muller, Telecopy No. (612) 492 7077, (ii) if to the Holder, at the address set forth above, or (iii) in either case, to such other address as the party shall have furnished in writing in accordance with the provisions of this Section 11. Notice to the estate of any party shall be sufficient if addressed to the party as provided in this Section 11. Any notice or other communication given by certified mail shall be deemed given at the time of certification thereof, except for a notice changing a party's address which shall be deemed given at the time of receipt thereof. Any notice given by other means permitted by this Section 11 shall be deemed given at the time of receipt thereof. 12. Governing Law. This Warrant shall be construed in accordance with the laws of the State of New York, without regard to principles governing conflicts of law. Any action or proceeding arising out of or relating to this Warrant shall be commenced in a federal or state court having competent jurisdiction in the State of New York, and for the purpose of any such action or proceeding, each of the Company and the Holder and any assignee of the Holder submits to the personal jurisdiction of the State of New York The parties hereby irrevocably consent to the exclusive jurisdiction of any state or federal court for New York County in the State of New York or the Southern District of New York. The parties hereby waive any objection to venue and any objection based on a more convenient forum in any action instituted under this Warrant. 13. Remedies. The Company stipulates that the remedies at law of the Holder in the event of any default or threatened default by the Company in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate, and that such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise. 14. Amendments; Waivers. The terms and provisions of this Warrant may be amended, modified, waived or altered only in writing signed by the Company and the Holder, and any such amendment effected pursuant to this Section 14 shall be binding upon the successors and assigns of the parties. 15. Headings. The descriptive headings of the several sections of this Warrant are inserted for purposes of reference only, and shall not affect the meaning or construction of any of the provisions hereof. [Signature Page to Warrant] 10 Dated: February 11, 2005 CORVU CORPORATION By: -------------------------------------------- Name: Title: ACKNOWLEDGED AND ACCEPTED: COMVEST INVESTMENT PARTNERS II LLC By: --------------------------------- Name: Title: 11 FORM OF ASSIGNMENT (To be executed by the registered holder if such holder desires to transfer the attached Warrant.) FOR VALUE RECEIVED, ___________________ hereby sells, assigns, and transfers unto _____________________________ Warrants to purchase _____________ shares of _______________ of CorVu Corporation (the "Company"), together with all right, title, and interest therein, and does hereby irrevocably constitute and appoint _____________________________ attorney to transfer such Warrant on the books of the Company, with full power of substitution. Dated: Signature: ----------------------------------- NOTICE The signature on the foregoing Assignment must correspond to the name as written upon the face of this Warrant in every particular, without alteration or enlargement or any change whatsoever. 12 To: CorVu Corporation 3400 West 66th Street, Suite 445 Edina, Minnesota 55435 ELECTION TO EXERCISE The undersigned hereby exercises his or its rights to purchase ______ Warrant Shares covered by the within Warrant certificate and tenders payment herewith in the amount of $_____________ in accordance with the terms thereof, and requests that certificates for such securities be issued in the name of, and delivered to: -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- -------------------------------------------------------------------------------- (Print Name, Address and Social Security or Tax Identification Number) The undersigned also hereby represents that the representations and warranties provided by the undersigned in Section 3.2 of the Purchase Agreement are true and correct in all material respects as if made on and as of the date hereof. Signature: ---------------------------- 13 EX-7 7 e1020820.txt STOCKHOLDERS' AGREEMENT EXHIBIT 7 EXECUTION COPY ================================================================================ STOCKHOLDERS' AGREEMENT AMONG THE STOCKHOLDERS NAMED HEREIN AND COMVEST INVESTMENT PARTNERS II LLC DATED AS OF FEBRUARY 11, 2005 ================================================================================ TABLE OF CONTENTS ARTICLE I DEFINITIONS SECTION 1.01. Certain Defined Terms...........................................1 ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMVEST SECTION 2.01. Due Organization and Authority..................................4 SECTION 2.02. No Conflict.....................................................4 ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS SECTION 3.01. Organization and Authority......................................4 SECTION 3.02. No Conflict.....................................................4 ARTICLE IV TRANSFER OF SHARES SECTION 4.01. Legends.........................................................5 SECTION 4.02. Certain Restrictions on Sale and Encumbrance....................5 SECTION 4.03. Improper Sale or Encumbrance....................................5 SECTION 4.04. Tag-Along Rights................................................6 SECTION 4.05. Transferees to Execute Agreement................................7 ARTICLE V MISCELLANEOUS SECTION 5.01. Notices.........................................................7 SECTION 5.02. Public Announcements............................................8 SECTION 5.03. Cumulative Remedies; Specific Performance.......................8 SECTION 5.04. Binding Effect; Successors in Interest..........................8 SECTION 5.05. Severability....................................................8 SECTION 5.06. Counterparts....................................................9 SECTION 5.07. Entire Agreement................................................9 SECTION 5.08. Governing Law; Submission to Jurisdiction.......................9 SECTION 5.09. Expenses........................................................9 SECTION 5.10. Amendments and Waivers; Assignment..............................9 SECTION 5.11. Headings.......................................................10 SECTION 5.12. Waiver of Jury Trial...........................................10 i STOCKHOLDERS' AGREEMENT This STOCKHOLDERS' AGREEMENT, dated as of February 11, 2005, is entered into among ComVest Investment Partners II LLC ("ComVest") and each Person (other than ComVest) who becomes a signatory hereto (such signatories, individually, a "Stockholder" and, collectively, the "Stockholders"). Capitalized terms used herein but not otherwise defined shall have the meanings ascribed to them in the Purchase Agreement. W I T N E S S E T H: WHEREAS, ComVest and CorVu Corporation (the "Company") are parties to a Securities Purchase Agreement, dated as of February 11, 2005 (the "Purchase Agreement"), pursuant to which ComVest purchased from the Company for an aggregate purchase price of Six Million Five Hundred Thousand Dollars ($6,500,000), in reliance upon an exemption from registration pursuant to Section 4(2) of the Securities Act, (i) a senior secured note (the "Senior Secured Note") in an aggregate principal amount of $1,500,000, (ii) 22,000,000 shares of common stock, $0.01 par value per share ("Common Stock"), of the Company for a purchase price of $3,300,000, (iii) 17,000 shares of convertible preferred stock, par value $100 per share (the "Series C Preferred Stock"), (iv) warrants (the "Preferred Warrant") to purchase 3,400,00 shares of Common Stock and (v) warrants (the "Protective Warrant" and, together with the Preferred Warrant, the "Warrants") to purchase 2,000,00 shares of Common Stock; WHEREAS, the parties hereto desire to provide certain rights and obligations of the Stockholders and ComVest with respect to the Stock to be held by the Stockholders as hereinafter provided; and NOW, THEREFORE, in consideration of the promises and the mutual representations, covenants and agreements contained herein, and for other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: DEFINITIONS SECTION 1.01 Certain Defined Terms. (a) As used in this Agreement, the following terms shall have the following meanings: "Affiliate" means, with respect to any specified Person, any other Person that directly, or indirectly through one or more intermediaries, Controls , is Controlled by, or is under common Control with, such specified Person. "Agreement" means this Stockholders' Agreement, dated as of February 11, 2005 and all amendments made hereto in accordance with the provisions hereof. "Beneficial Owner," "Beneficially Own" or "Beneficially Owned" has the meaning given such term in Rule 13d-3 under the Exchange Act, provided that Beneficial Ownership under Rule 13d-3(1)(i) shall be determined based on whether a Person has a 14 right to acquire Beneficial Ownership irrespective of whether such right is exercisable within 60 days of the time of determination. "Business Day" means any day except a Saturday, Sunday or other day on which commercial banking institutions in the State of New York are authorized or required by law or executive order to close. "Cash Equivalents" means (a) marketable direct obligations issued or unconditionally guaranteed by the United States government or issued by any agency thereof and backed by the full faith and credit of the United States, in each case maturing within one year from the date of acquisition thereof, (b) marketable direct obligations issued by any state of the United States or any political subdivision of any such state or any public instrumentality thereof maturing within one year from the date of acquisition thereof and, at the time of acquisition, having the highest rating obtainable from any of Standard & Poor's Ratings Services, Moody's Investors Service, Inc. or Duff & Phelps Credit Rating Co. or (c) commercial paper maturing not more than one year from the date of issuance thereof and, at the time of acquisition, having the highest rating obtainable from either Standard & Poor's Corporation or Moody's Investors Service, Inc. "Control" (including the terms "Controlled by" and "under common Control with") means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, as trustee or executor, by contract or otherwise, including, without limitation, the ownership, directly or indirectly, of securities having the power to elect a majority of the board of directors or similar body governing the affairs of such Person. "Encumbrance" means any security interest, pledge, mortgage, lien, charge, adverse claim of ownership or use, or other encumbrance of any kind. "Exchange Act" means the United States Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder. "Losses" means any claims, suits, judgments, losses, damages, fines, costs or expenses (including reasonable legal fees and expenses). "Marketable Securities" means securities that are (a) (i) securities of or other interests in any Person that are traded on a United States national securities exchange or reported on by the National Association of Securities Dealers Automated Quotation System or (ii) debt securities on market terms of an issuer that has debt or equity securities that are so traded or so reported on and in which Marketable Securities a nationally recognized securities firm has agreed to make a market, and (b) not subject to restrictions on transfer as a result of any applicable contractual provisions or the provisions of the Securities Act or, if subject to such restrictions under the Securities Act, are also subject to registration rights reasonably acceptable to the Person receiving such Marketable Securities as consideration in a transaction pursuant to Article IV hereof. "Permitted Transferee" means, with respect to a specified Stockholder, (i) a transferee by gift of Stock who is a member of the family of such Person, or any trust for 2 the benefit of any such family member and (ii) a transferee of Stock who is a family member and receives such Stock by will or the laws of descent and distribution. For purposes of this definition, the word "family" shall include any spouse, lineal ancestor or descendant, brother or sister. "Person" means any individual, partnership, firm, corporation, association, trust, unincorporated organization or other entity, as well as any syndicate or group that would be deemed to be a person under Section 13(d)(3) of the Exchange Act. "Price Determination Date" means in connection with any Sale of Common Stock pursuant to Section 4.04 hereof, the date on which the Prospective Seller receives a Notice of Acceptance indicating ComVest's interest in participating such Sale. "Sale" means, in respect of any Stock, property or other asset, any sale, assignment, transfer, distribution or other disposition thereof or of a participation therein, or other conveyance of legal or beneficial interest therein, or any short position in a security or any other action or position otherwise reducing risk related to ownership through hedging or other derivative instruments, whether voluntarily or by operation of law or any agreement or commitment to do any of the foregoing. "Securities Act" means the United States Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder. "Third Party" means with respect to ComVest, any Person (other than ComVest or an Affiliate of ComVest), and with respect to any Stockholder, any other Person (other than a Permitted Transferee of such Stockholder, ComVest or any Affiliate of ComVest). (b) The following terms have the meanings set forth in the section set forth opposite such term: TERM SECTION Common Stock Recitals Company Recitals Notice of Acceptance 4.04(c) Offer 4.04(a) Offer Notice 4.04(a) Offer Period 4.04(c) Offer Price 4.04(a) Offered Shares 4.04(a) ComVest Preamble Prospective Seller 4.04(a) Prospective Transferee 4.07 Purchase Offer 4.06(a) Purchase Offer Notice 4.06(b) Stockholder(s) Preamble 3 ARTICLE II REPRESENTATIONS AND WARRANTIES OF COMVEST ComVest represents and warrants to the Stockholders as follows: SECTION 2.01. Due Organization and Authority. ComVest is a limited liability company duly organized, validly existing, in good standing and in active status under the laws of the State of Delaware. ComVest has the absolute and unrestricted right, power and authority to enter into and to perform its obligations under this Agreement and to consummate the transactions contemplated by this Agreement; and the execution, delivery and performance by ComVest of this Agreement have been duly authorized by all necessary action on the part of ComVest. This Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of ComVest, enforceable against it in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, fraudulent conveyance, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. SECTION 2.02. No Conflict. The execution, delivery and performance of this Agreement by ComVest do not and will not (a) violate, conflict with or result in the breach of any provision of its certificate of incorporation or by-laws or any other document, agreement or instrument to which ComVest is subject or by which ComVest is bound, or (b) conflict with or violate any law, governmental order or governmental regulation applicable to it or any of its assets, properties or businesses. ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS Each Stockholder severally, but not jointly, represents and warrants to ComVest and each other Stockholder as follows: SECTION 3.01. Organization and Authority. Such Stockholder has the absolute and unrestricted right, power and authority to enter into and to perform his obligations under this Agreement and to consummate the transactions contemplated by this Agreement. This Agreement has been duly executed and delivered and constitutes the legal, valid and binding obligation of such Stockholder, enforceable against him in accordance with its terms, subject to (i) laws of general application relating to bankruptcy, fraudulent conveyance, insolvency and the relief of debtors, and (ii) rules of law governing specific performance, injunctive relief and other equitable remedies. SECTION 3.02. No Conflict. The execution, delivery and performance of this Agreement by such Stockholder do not and will not conflict with or violate any law, governmental regulation or governmental order applicable to such Stockholder or any of his assets, properties or businesses or any other document, agreement or instrument to which such Stockholder is subject or by which such Stockholder is bound. 4 ARTICLE IV TRANSFER OF SHARES SECTION 4.01. Legends. The Company shall affix to each certificate evidencing Common Stock issued to Stockholders a legend in substantially the following form: "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS SET FORTH IN A STOCKHOLDERS' AGREEMENT DATED AS OF FEBRUARY 11, 2005, AS IT MAY BE AMENDED FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES OF THE ISSUER. NO REGISTRATION OF TRANSFER OF THESE SHARES WILL BE MADE ON THE BOOKS OF THE ISSUER UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE BEEN COMPLIED WITH." SECTION 4.02. Certain Restrictions on Sale and Encumbrance. 1. Until such time as all of the Shares, Conversion Shares and Warrant Shares are fully registered and freely tradable as provided in the Registration Rights Agreement, no Stockholder shall, directly or indirectly (through the transfer of any securities of the Company of any Person that holds, or Controls any Person that holds, such securities of the Company or otherwise) make or solicit any Sale of, or create, incur or assume any Encumbrance with respect to, any securities of the Company Beneficially Owned by such Stockholder, other than any Sale to a Permitted Transferee who shall agree in writing to be bound by the provisions of this Agreement, or any Sale in accordance with this Article IV. (b) No Sale of Common Stock to a Permitted Transferee shall be effective if a purpose or effect of such transfer shall have been to circumvent the provisions of this Section 4.02. Each Stockholder shall remain responsible for the performance of this Agreement by each Permitted Transferee of such Stockholder to which Common Stock is transferred. If any Permitted Transferee to which any securities of the Company is transferred pursuant to Section 4.02(a) ceases to be a Permitted Transferee of the Stockholder from which or whom it acquired such securities of the Company pursuant to such provision, such Person shall reconvey such securities of the Company to such transferring Stockholder immediately before such Person ceases to be a Permitted Transferee of such transferring Stockholder so long as such Person knows of its upcoming change of status immediately prior thereto. If such change of status is not known until after its occurrence, the former Permitted Transferee shall make such transfer to such transferring Stockholder as soon as practicable after the former Permitted Transferee receives notice thereof. For all purposes of this Agreement, a Permitted Transferee shall be obligated under this Agreement as if he, she or it were the transferring Stockholder. SECTION 4.03. Improper Sale or Encumbrance. Any attempt not in compliance with this Agreement to make any Sale of, or create, incur or assume any Encumbrance with respect to, any securities of the Company shall be null and void and of no force and effect, the purported transferee shall have no rights or privileges in or with respect to the Company, and the Company shall not give any effect in the Company's stock records to such attempted Sale or Encumbrance. Furthermore, the Stockholder and the other parties engaging or attempting to engage in such Sale shall indemnify and hold harmless the Company and each of the 5 Stockholders from all Losses that such indemnified Persons may incur (including, without limitation, incremental tax liability and lawyers' fees and expenses) in enforcing the provisions of this Agreement. SECTION 4.04. Tag-Along Rights. 1. If any Stockholder receives from or otherwise negotiates with a Third Party a bona fide offer (an "Offer") to purchase for cash, Cash Equivalents or Marketable Securities any Common Stock Beneficially Owned or held by such Stockholder, and such Stockholder intends to sell such Common Stock to such Third Party, such Stockholder (the "Prospective Seller") shall provide ComVest with written notice of such Offer (an "Offer Notice"). The Offer Notice shall identify the Third Party making the Offer, the number and type of shares of Common Stock covered by the Offer (the "Offered Shares"), the price per share of Common Stock at which a Sale is proposed to be made (the "Offer Price"), the form of consideration proposed to be paid and all other material terms and conditions of the Offer. (b) If the Offer Price includes (i) any Marketable Securities, the value of such securities shall be determined by calculating a volume-weighted average of the closing prices of such securities over the ten trading-day period ending on the Price Determination Date on the market with the largest trading volume in such securities; or (ii) any Cash Equivalents, the value of such Cash Equivalents shall be determined by reference to the closing price thereof on the market with the largest trading volume in such securities on the Price Determination Date. (c) ComVest shall have the right, but not the obligation, to include the shares of Common Stock owned by ComVest and its Affiliates, on a pro rata basis in any such Sale, on the same terms and conditions as set forth in the Offer Notice, pursuant to the procedure set forth hereunder, provided that such terms and conditions, including the price per Share, are identical to those set forth in the Offer. The Offer Notice shall state that ComVest and its Affiliates may participate in the Sale by delivering, within 10 Business Days of having received the Offer Notice (the "Offer Period"), a notice to the Prospective Seller stating that it intends to exercise its rights pursuant to this Section 4.04 and to sell its and its Affiliates' pro rata shares of Common Stock (the "Tag Along Shares") for the consideration, and on the terms and conditions, set forth in the Offer (the "Notice of Acceptance"). The Notice of Acceptance shall contain a specific provision entitling the Prospective Seller to conclude the Sale on behalf of ComVest and its Affiliates; provided, however, that such proxy will not entitle the Prospective Seller to conclude any agreement on behalf of ComVest and its Affiliates which differs from the consideration, terms and conditions described in the Offer Notice. If no Notice of Acceptance is received by the Prospective Seller within the Offer Period, or if the Notice of Acceptance does not fulfill all of the foregoing requirements, ComVest shall have waived its rights hereunder. If the Notice of Acceptance is received by the Prospective Seller within the Offer Period, then the Prospective Seller shall, for a period not to exceed 15 Business Days, seek to obtain from the third party an offer, for the consideration and on the same terms and conditions described in the Offer Notice, of its and its Affiliates' pro rata shares of Common Stock as well as all of the pro rata shares of Common Stock offered for sale by ComVest and its Affiliates (collectively, the "Total Shares"). 6 In case the prospective third party refuses to purchase all of the Total Shares, then the Prospective Seller shall not be entitled to consummate a Sale of any shares of Common Stock to such third party. (d) Anything in this Section 4.04 to the contrary notwithstanding, the provisions of this Section 4.04 shall not be applicable to any Sale to a Permitted Transferee. SECTION 4.05. Transferees to Execute Agreement. Each Stockholder agrees that it will not, as long as such Stockholder or ComVest Beneficially Own any shares of Common Stock, directly or indirectly, make any Sale of, or create, incur or assume any Encumbrance with respect to, any shares of Common Stock Beneficially Owned by such Stockholder unless prior to the consummation of any such Sale or the creation, incurrence or assumption of such Encumbrance, the Person to whom such Sale is proposed to be made or the Person in whose favor such Encumbrance is proposed to be created, incurred or assumed (a "Prospective Transferee") (i) executes and delivers this Agreement to ComVest and each Stockholder, and (ii) unless such Prospective Transferee is a recognized institutional investor, delivers to ComVest an opinion of counsel, satisfactory in form and substance to ComVest, to the effect that the execution of this Agreement by such Prospective Transferee makes this Agreement a legal, valid and binding obligation of such Prospective Transferee enforceable against such Prospective Transferee in accordance with its terms. Upon the execution and delivery by such Prospective Transferee of this Agreement and, if required, the delivery of the opinion of counsel referred to in clause (ii) of the preceding sentence, such Prospective Transferee shall be deemed a "Stockholder" for purposes of this Agreement and shall have the rights and be subject to the obligations of a Stockholder under this Agreement, in each case with respect to the Stock owned by such Prospective Transferee or in respect of which such Encumbrance shall have been created, incurred or assumed. ARTICLE V MISCELLANEOUS SECTION 5.01. Notices. Any notice or other communication required or permitted to be delivered to any party under this Agreement shall be in writing and shall be deemed properly delivered, given and received when delivered (by hand, by registered mail, by courier or express delivery service or by facsimile) to the address or facsimile telephone number set forth beneath the name of such party below (or to such other address or facsimile telephone number as such party shall have specified in a written notice given to the other parties hereto): 7 if to ComVest or the Surviving Corporation: ComVest Investment Partners II LLC 830 Third Avenue New York, New York 10022 Attn: Carl G. Kleidman Phone: (212) 829-5800 Facsimile No: (212) 829-5978 with copy to (which copy shall not constitute notice): Greenberg Traurig, LLP 200 Park Avenue New York, NewYork 10166 Attn: Alan Annex, Esq. Phone: (212) 801-9200 Facsimile No.: (212) 801-6400 if to a Stockholder: At the address specified on the signature pages. SECTION 5.02. Public Announcements. Except as required by law, no party to this Agreement shall make, or cause to be made, any press release or public announcement in respect of this Agreement or otherwise communicate with any news media without the prior written consent of the other parties, and the parties shall cooperate as to the timing and contents of any such press release or public announcement. SECTION 5.03. Cumulative Remedies; Specific Performance. The rights and remedies of the parties hereto shall be cumulative (and not alternative). The parties to this Agreement agree that, in the event of any breach or threatened breach by any party to this Agreement of any covenant, obligation or other provision set forth in this Agreement for the benefit of any other party to this Agreement, such other party shall be entitled (in addition to any other remedy that may be available to it) to seek (a) a decree or order of specific performance or mandamus to enforce the observance and performance of such covenant, obligation or other provision, and (b) an injunction restraining such breach or threatened breach. SECTION 5.04. Binding Effect; Successors in Interest. (a) This Agreement shall be binding upon and inure solely to the benefit of each party hereto, and nothing in this Agreement, express or implied, is intended to or shall confer upon any other person any right, benefit or remedy of any nature whatsoever under or by reason of this Agreement. (b) This Agreement shall be binding upon and inure to the benefit of the parties hereto and their successors and assigns (if any). No Stockholder shall, directly or indirectly, assign any rights or obligations hereunder to any Person except as expressly provided herein. SECTION 5.05. Severability. In the event that any provision of this Agreement, or the application of any such provision to any Person or set of circumstances, shall be 8 determined to be invalid, unlawful, void or unenforceable to any extent, the remainder of this Agreement, and the application of such provision to Persons or circumstances other than those as to which it is determined to be invalid, unlawful, void or unenforceable, shall not be impaired or otherwise affected and shall continue to be valid and enforceable to the fullest extent permitted by law. SECTION 5.06. Counterparts. This Agreement may be executed in several counterparts and by facsimile, each of which shall constitute an original and all of which, when taken together, shall constitute one agreement. SECTION 5.07. Entire Agreement. This Agreement sets forth the entire understanding of the parties hereto relating to the subject matter hereof and thereof and supersedes all prior agreements and understandings among or between any of the parties relating to the subject matter hereof and thereof. SECTION 5.08 Governing Law; Submission to Jurisdiction. All questions concerning the construction, validity, enforcement and interpretation of the Transaction Documents shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or Action, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or Action is improper or inconvenient venue for such Action. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or Action by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any manner permitted by law. The parties hereby waive all rights to a trial by jury. If either party shall commence an action or Action to enforce any provisions of the Transaction Documents, then the prevailing party in such action or Action shall be reimbursed by the other party for its attorneys' fees and other costs and expenses incurred with the investigation, preparation and prosecution of such action or Action. SECTION 5.09. Expenses. Except as otherwise specified in this Agreement, all costs and expenses, including, without limitation, fees and disbursements of counsel, financial advisors and accountants, incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. SECTION 5.10. Amendments and Waivers; Assignment. 1. Any provision of this Agreement may be amended or waived if, and only if, such amendment or waiver is in writing and signed, in the case of an amendment, by all parties hereto or, in the case of a waiver, by the party or parties against whom the waiver is to be effective. 9 (b) No failure or delay by any party in exercising any right, power or privilege hereunder (other than a failure or delay beyond a period of time specified herein) shall operate as a waiver thereof and no single or partial exercise thereof shall preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies herein provided shall be cumulative and not exclusive of any rights or remedies provided by law. SECTION 5.11. Headings. The headings and subheadings in this Agreement are included for convenience and identification only and are in no way intended to describe, interpret, define or limit the scope, extent or intent of this Agreement or any provision hereof. SECTION 5.12. Waiver of Jury Trial. Each of the parties hereto hereby waives to the fullest extent permitted by applicable law any right it may have to a trial by jury with respect to any litigation directly or indirectly arising out of, under or in connection with this Agreement. Each of the parties hereto (a) certifies that no representative, agent or attorney of any other party has represented, expressly or otherwise, that such other party would not, in the event of litigation, seek to enforce that foregoing waiver and (b) acknowledges that it and the other party hereto have been induced to enter into this Agreement by, among other things, the mutual waivers and certifications in this Section 5.12. 10 IN WITNESS WHEREOF, the parties hereto have executed this Agreement, or caused this Agreement to be duly executed by their respective duly authorized signatories, as of the date first above written. COMVEST INVESTMENT PARTNERS II LLC By: ----------------------------------------- Name: Title: STOCKHOLDERS: Address: -------------------------------------------- (Justin M. MacIntosh) c/o CorVu Australasia Pty. Ltd. Level 8, 821-843 Pacific Highway Chatswood NSW 2067 Australia 11 EX-8 8 e1025753.txt SECURITY AGREEMENT EXHIBIT 8 EXECUTION COPY SECURITY AGREEMENT DATE: February 11, 2005 DEBTOR: CorVu Corporation EIN: 41-1457090 (Collectively) 3400 West 66th Street Organization I.D. #4I-202 Suite 445 Edina, MN 55435 CorVu North America, Inc. EIN: 41-1819469 3400 West 66th Street Organization I.D. #8V-868 Suite 445 Edina, MN 55435 SECURED PARTY: ComVest Investment Partners II LLC 830 Third Avenue New York, NY 10022 1. Security Interest and Collateral. To secure the payment of outstanding principal and interest on that certain Promissory Note of even date herewith in the original principal amount of $1,500,000 by Debtor to Secured Party (the "Note") and the performance of every liability and obligation of every type and description that Debtor may now or at any time hereafter owe to Secured Party under the Note, whether such debt, liability or obligation now exists or is hereafter created or incurred, and whether it is absolute or contingent, liquidated or unliquidated, or sole, joint, several or joint and several (all such debts, liabilities and obligations and any amendments, extensions, renewals or replacements thereof collectively referred to herein as the "Obligations"), Debtor hereby grants Secured Party a first priority security interest (the "Security Interest") in all of Debtor's property (the "Collateral"), including without limitation the following: A. Inventory. All inventory of Debtor, whether now owned or hereafter acquired and wherever located and other tangible personal property held for sale or lease or furnished or to be furnished under contracts of service or consumed in Debtor's business, and all goods of Debtor, whether now owned or hereafter acquired and wherever located, including without limitation all computer programs embedded in goods, and all other Inventory and Goods of the Debtor, as such terms may be defined in the Uniform Commercial Code as may be in effect in the State of Minnesota from time to time (the "UCC"); B. Equipment. All equipment of Debtor, whether now owned or hereafter acquired and wherever located, including but not limited to all present and future equipment, machinery, tools, motor vehicles, trade fixtures, furniture, furnishings, 1 office and recordkeeping equipment and all goods for use in Debtor's business and all other Equipment of the Debtor, as such term may be defined in the UCC, together with all parts, equipment and attachments relating to any of the foregoing; C. Accounts, Contract Rights and Other Rights to Payment: Each and every right of Debtor to the payment of money, whether such right to payment now exists or hereafter arises, whether such right to payment arises out of a sale, lease, license, assignment or other disposition of goods or other property by Debtor, out of a rendering of services by Debtor, out of a loan by Debtor, out of the overpayment of taxes or other liabilities of Debtor, or otherwise arises under any contract or agreement, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) which Debtor may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any of the property of such account debtor or other obligor; all including but not limited to all present and future debt instruments, chattel paper, accounts, license fees, contract rights, loans and obligations receivable and tax refunds and all other Accounts of the Debtor, as such term may be defined in the UCC; D. Instruments: All instruments, chattel paper, letters of credit or other documents of Debtor, whether now owned or hereafter acquired, including but not limited to promissory notes, drafts, bills of exchange and trade acceptances; all rights and interests of Debtor, whether now existing or hereafter created or arising, under leases (where Debtor is the lessor), licenses or other contracts, in each case where assignment for security purposes is not expressly prohibited by the terms of such instruments and all other Instruments of the Debtor, as such term may be defined in the UCC; E. Deposit Accounts and Investment Property: All right, title and interest of Debtor in all deposit and investment accounts maintained with any bank, savings and loan association, broker, brokerage, or any other financial institution, together with all monies and other property deposited or held therein, including, without limitation, any checking account, savings account, escrow account, savings certificate and margin account, and all securities, whether certificated or uncertificated, security entitlements, securities accounts, commodity contracts, and commodity accounts and all other Deposit Accounts and Investment Property of the Debtor, as such terms may be defined in the UCC; F. General Intangibles: All general intangibles of Debtor, whether now owned or hereafter acquired, including, but not limited to, applications for patents, patents, copyrights, trademarks, trade secrets, good will, tradenames, customer lists, permits and franchises, software, all licenses of any of the foregoing and the right to use Debtor's name, and any and all membership interests, governance rights, and financial rights in each and every limited liability company, and all payment 2 intangibles and all other General Intangibles of the Debtor, as such term may be defined in the UCC; G. Chattel Paper: All Chattel Paper of the Debtor, whether tangible or electronic, as such term may be defined in the UCC; and H. Supporting Obligations, Embedded Software, etc.: All of Debtor's rights, whether now existing or hereafter acquired, in promissory notes, documents, embedded software, letter of credit rights and supporting obligations (and security interests and liens securing them) as such terms may be defined in the UCC. together with all substitutions and replacements for and products of any of the foregoing property and proceeds of any and all of the foregoing property together with (i) all accessories, attachments, parts, equipment, accessions and repairs and embedded software now or hereafter attached or affixed to or used in connection with any such goods, (ii) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods, and (iii) all books and records of Debtor related to the Collateral. 2. Representations, Warranties and Agreements. Debtor jointly and severally represents, warrants and agrees that: 2.1. Debtor is a corporation duly organized, validly existing and in good standing under the laws of the state of Minnesota, and the state of Minnesota has been Debtor's state of organization since the date of Debtor's organization. Debtor has full power and authority to execute this Agreement, to perform Debtor's obligations hereunder and to subject the Collateral to the Security Interest. Debtor's taxpayer identification number is the number shown at the beginning of this Agreement. Debtor's organizational identification number is the number shown at the beginning of this Agreement. 2.2. Debtor's chief place of business is, and has been for the five years preceding the date of this Agreement, located at the address shown at the beginning of this Agreement. Debtor's records concerning its accounts and contract rights are kept at such address. The Collateral is located at the address shown at the beginning of this Agreement, and there are no other locations where any of the Collateral may be kept except as set forth on Schedule 2.2 hereto. All Collateral has been located at the address shown at the beginning of this Agreement or at the locations set forth on Schedule 2.2, for the five years prior to execution of this Agreement. Debtor will give at least 30 days' advance written notice to Secured Party of any change in Debtor's jurisdiction of organization or chief place of business and any change in or addition of any Collateral location. Debtor will take all such actions as Secured Party may reasonably request to permit Secured Party to establish and perfect the Security Interest in all jurisdictions Secured Party deems necessary, including but not limited to the execution, delivery or endorsement of any and all instruments, documents, assignments, security agreements and other agreements and writings that Secured Party may at any time reasonably request in order to secure, protect, perfect or enforce the Security Interest and Secured Party's 3 rights under this Agreement. 2.3. Debtor has (or will have at the time Debtor acquires rights in Collateral hereafter arising) absolute title to each item of Collateral free and clear of all security interests, liens and encumbrances. Debtor will keep all Collateral free and clear of all security interests, liens and encumbrances except the Security Interest, and will defend the Collateral against all claims or demands of all persons other than Secured Party. Debtor will promptly pay or properly and timely contest all taxes and other governmental charges levied or assessed upon or against any Collateral or upon or against the creation, perfection or continuance of the Security Interest. 2.4. Until the Obligations are satisfied in full, Debtor will not, without Secured Party's prior written consent, sell any of the Collateral or enter into any agreement that is inconsistent with Debtor's obligations or Secured Party's rights under this Agreement, except that Debtor may sell or discard the Collateral in the ordinary course of business so long as such agreements are not inconsistent with Secured Party's rights or Debtor's obligations under this Agreement. Debtor further agrees that it will not take any action, or permit any action to be taken by others under its control, or fail to take any action, that would affect the validity of the Collateral or enforcement of Secured Party's rights in the Collateral. In addition, Debtor agrees not to enter into any instruments, chattel paper, letters of credit or other documents, including but not limited to promissory notes, drafts, bills of exchange and trade acceptances, which expressly prohibit assignment for security purposes. 2.5. This Agreement has been duly and validly authorized by all necessary action by Debtor. 2.6. Debtor will keep all tangible Collateral in good repair, working order and condition, normal depreciation excepted, and will, from time to time, replace any worn, broken or defective parts thereof. 2.7. Debtor will at all reasonable times permit Secured Party or its representatives to examine or inspect any Collateral, wherever located, and to examine, inspect and copy Debtor's books and records pertaining to the Collateral and its business and financial condition. 2.8. If Secured Party at any time so requests after the occurrence of an Event of Default, Debtor will promptly transfer to Secured Party any instrument, document, chattel paper, or investment properties constituting the Collateral, duly endorsed or assigned by Debtor. 2.9. Debtor will keep accurate and complete records pertaining to the Collateral and pertaining to Debtor's business and financial condition and submit to Secured Party such periodic reports concerning the Collateral and Debtor's business and financial condition as Secured Party may from time to time reasonably request. 4 2.10. Debtor will at all times keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, and such other risks and in such amounts as Secured Party may reasonably request, with any loss payable to Secured Party to the extent of its interest. 2.11. Debtor will pay when due or reimburse Secured Party on demand for all costs of collection of any of the Obligations and all other out-of-pocket expenses (including all reasonable attorneys' fees) incurred by Secured Party in connection with the creation, perfection, satisfaction, protection, defense or enforcement of the Security Interest or the creation, continuance, protection, defense or enforcement of this Agreement or any or all of the Obligations, including expenses incurred in any litigation or bankruptcy or insolvency proceedings. 2.12. The Obligations have been incurred and the Collateral will be used primarily for business purposes. 2.13. All rights to payment and all instruments, documents, chattel papers and other agreements constituting or evidencing Collateral are (or will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, set-off or counterclaim (other than those arising in the ordinary course of business) of each account debtor or other obligor named therein or in Debtor's records pertaining thereto as being obligated to pay such obligation. Debtor will not agree to any modification, amendment or cancellation of any such obligation without Secured Party's prior written consent except discounts provided by Debtor in the ordinary course of business, and will not subordinate any such right to payment to claims of other creditors of such account debtor or other obligor. 2.14. Debtor will promptly notify Secured Party of any material loss of or damage to any Collateral or of any adverse change in the prospect of payment of any material sums due on or under any instrument, chattel paper, account or contract right constituting Collateral. 2.15. Debtor will from time to time execute such financing statements or control agreements as Secured Party may reasonably deem necessary in order to perfect the Security Interest and, if any Collateral is covered by a certificate of title, execute such documents as may be required to have the Security Interest properly noted on a certificate of title. In addition, Debtor authorizes Secured Party to file any financing statement the Secured Party deems necessary, describing any liens held by Secured Party. Such financing statements may describe the Collateral in the same manner as described herein or may contain an indication or description of the Collateral that describes such property in any other manner as the Secured Party may determine, in its reasonable discretion, is necessary to ensure the perfection of the Security Interest, including, without limitation, describing such property as "all assets" or "all personal property." 2.16 Debtor will not use or keep any Collateral, or permit it to be used or kept, for any unlawful purpose or in violation of any federal, state or local law, statute or 5 ordinance. 2.17. If Debtor at any time fails to perform or observe any agreement contained in this Section 2, and if such failure shall continue for a period of 30 calendar days after Secured Party gives Debtor written notice thereof, Secured Party may (but need not) perform or observe such agreement on behalf and in the name, place and stead of Debtor (or, at Secured Party's option, in Secured Party's own name) and may (but need not) take any and all other actions that Secured Party may reasonably deem necessary to cure or correct such failure. Debtor shall pay Secured Party on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys' fees) incurred by Secured Party in connection with or as a result of Secured Party's performing or observing such agreements or taking such actions, together with interest thereon from the date expended or incurred by Secured Party at the highest rate then applicable to any of the Obligations. To facilitate the performance or observance by Secured Party of such agreements of Debtor (in the event Debtor does not cure any such failure during the above-described 30-day period), Debtor hereby irrevocably appoints (which appointment is coupled with an interest) Secured Party, or its delegate, as the attorney-in-fact of Debtor with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of Debtor, any and all instruments, documents, financing statements, and other agreements and writings required to be obtained, executed, delivered or endorsed by Debtor under this Section 2. 3. Account Verification and Collection Rights of Secured Party. Secured Party shall have the right to verify any accounts in the name of Debtor or in Secured Party's own name; and Debtor, whenever requested pursuant to the terms of this Section, shall furnish Secured Party with duplicate statements of the accounts, which statements may be mailed or delivered by Secured Party for that purpose. Secured Party may at any time after the occurrence of an Event of Default notify any account debtor, or any other person obligated to pay any amount due, that such chattel paper, account, or other right to payment has been assigned or transferred to Secured Party for security and shall be paid directly to Secured Party. If Secured Party so requests at any time after the occurrence of an Event of Default, Debtor will so notify such account debtors and other obligors in writing and will indicate on all invoices to such account debtors or other obligors that the amount due is payable directly to Secured Party. At any time after Secured Party or Debtor gives such notice to an account debtor or other obligor, Secured Party may (but need not), in Secured Party's own name or in Debtor's name, demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such chattel paper, account, or other right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor. 4. Events of Default. The occurrence of any of the following shall, at the sole option of the Secured Party, be an Event of Default: A. Any "Event of Default" (as defined in such agreement) by Debtor under the Note or any other agreement evidencing the Obligations, which default is not cured within any grace period granted with respect to such default or, if no specific grace period 6 is granted with respect to such default, where such default is not cured within five (5) business days after written notice thereof from the Secured Party; B. Debtor's failure to comply with any representation, warranty or covenant hereunder if not cured within thirty (30) days after written notice; C. Transfer or disposition of any of the Collateral, except as permitted by this Agreement; or D. Attachment, execution or levy on any of the Collateral. 5. Remedies upon Event of Default. Upon the occurrence of an Event of Default and at any time thereafter, Secured Party may exercise any one or more of the following rights and remedies: 5.1. declare all Obligations to be immediately due and payable, which shall then be immediately due and payable, without presentment or other notice or demand; 5.2. exercise and enforce any or all rights and remedies available upon default to a secured party under the Uniform Commercial Code, including but not limited to the right to take possession of any Collateral, proceeding without judicial process if permitted by law or by judicial process, and the right to use, sell, lease or otherwise dispose of any or all of the Collateral, and in connection therewith, Secured Party may require Debtor to make the Collateral available to Secured Party at a place to be designated by Secured Party that is reasonably convenient to both parties, and if notice to Debtor of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 8.2) at least 10 business days prior to the date of intended disposition or other action; or 5.3. exercise or enforce any or all other rights or remedies available to Secured Party by law or agreement against the Collateral, including specifically the right to use the Collateral, against Debtor or against any other person or property. All rights and remedies of Secured Party shall be cumulative and may be exercised singularly or concurrently, at Secured Party's option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other. 6. Other Personal Property. Unless at the time Secured Party takes possession of any tangible Collateral, or within seven days thereafter, Debtor gives written notice to Secured Party of the existence of any goods, papers or other property of Debtor, not affixed to or constituting a part of such Collateral, but which are located or found upon or within such Collateral, Secured Party shall not be responsible or liable to Debtor for any action taken or omitted by or on behalf of Secured Party with respect to such property without actual knowledge of the existence of any such property or without actual knowledge that it was located or to be found upon or within such Collateral. 7 7. Assignment of Insurance. Debtor hereby assigns to Secured Party, as additional security for the payment of the Obligations, any and all moneys (including but not limited to proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of Debtor under or with respect to, any and all policies of insurance covering the Collateral, and Debtor hereby directs the issuer of any such policy to pay any such moneys directly to Secured Party. Both before and after the occurrence of an Event of Default, Secured Party may (but need not), in Secured Party's own name or in Debtor's name, execute and deliver proofs of claim, receive all such moneys, endorse checks and other instruments representing payment of such moneys, and adjust, litigate, compromise or release any claim against the issuer of any such policy. 8. Miscellaneous. 8.1. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by Secured Party. A waiver signed by Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of Secured Party's rights or remedies. 8.2. All notices to be given to Debtor shall be deemed sufficiently given if delivered or mailed by registered or certified mail, postage prepaid, to Debtor at its address set forth above or at such other address as Debtor may subsequently provide to Secured Party. 8.3. Secured Party's duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if Secured Party exercises reasonable care in physically safekeeping such Collateral or, in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and Secured Party need not otherwise preserve, protect, insure or care for any Collateral. Secured Party shall not be obligated to preserve any rights Debtor may have against prior parties, to realize on the Collateral at all or in any particular manner or order, or to apply any cash proceeds of Collateral in any particular order of application. 8.4. This Agreement shall be binding upon and inure to the benefit of Debtor and Secured Party and their respective successors and assigns and shall take effect when signed by Debtor and delivered to Secured Party, and Debtor waives notice of Secured Party's acceptance hereof. 8.5. A carbon, photographic or other reproduction of this Agreement or of any financing statement signed by Debtor shall have the same force and effects as the original for all purposes of a financing statement. 8.6. This Agreement shall be governed by the internal laws of the State of Minnesota. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other 8 provisions or applications which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision or application had never been contained herein or prescribed hereby. Any dispute arising out of or relating to this Agreement, including the formation, interpretation or alleged breach hereof, shall be brought in the state or federal courts located in Hennepin County, Minnesota, and the parties hereto consent to the personal jurisdiction and venue of such courts. 8.7. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. (signature page on following page) 9 ACCORDINGLY, this Agreement has been duly executed by the parties as of the date first set forth above. CORVU CORPORATION By: ----------------------------------------- Its: ------------------------------------- CORVU NORTH AMERICA, INC. By: ----------------------------------------- Its: ------------------------------------- COMVEST INVESTMENT PARTNERS II LLC By: ----------------------------------------- Its: ------------------------------------- 10 SCHEDULE 2.2 Other Locations 555 North Point Center East Fourth Floor Alpharetta, GA 30022 5606 MacArthur Boulevard 11th Floor Irving, TX 75038 1 EX-9 9 e1025187.txt STATEMENT OF DESIGNATION EXHIBIT 9 CORVU CORPORATION STATEMENT OF DESIGNATION OF RIGHTS, PREFERENCES AND LIMITATIONS OF SERIES C CONVERTIBLE PREFERRED STOCK The undersigned, David C. Carlson, the Chief Financial Officer of CorVu Corporation, a Minnesota corporation (the "Corporation"), hereby certifies that the following resolutions establishing Series C Convertible Preferred Stock of the Corporation pursuant to Minnesota Statutes Section 302A.401 were duly adopted by the directors of the Corporation by written action dated as of February __, 2005 pursuant to Minnesota Statutes Section 302A.239: "NOW, THEREFORE, RESOLVED, that the Board approves the designation of 17,000 shares of its undesignated stock as Series C Convertible Preferred Stock ("Series C Preferred Stock"), with a par value of $100.00 per share, that are convertible into 3,400,000 shares of Common Stock at a conversion price of $0.50. FURTHER RESOLVED, that 3,400,000 shares of Common Stock be reserved for issuance upon conversion of the Series C Preferred Stock. FURTHER RESOLVED, that the Board adopt the Certificate of Designation of Rights and Preferences of Series C Preferred Stock of CorVu Corporation, attached hereto as Exhibit A, and incorporated by reference herein." IN WITNESS WHEREOF, the undersigned has signed this statement on February , 2005. _____________________________________________ David C. Carlson, Chief Financial Officer EXHIBIT A CERTIFICATE OF DESIGNATION OF RIGHTS AND PREFERENCES OF SERIES C CONVERTIBLE PREFERRED STOCK OF CORVU CORPORATION 1. Designation. The series of Preferred Stock is hereby designated Series C Convertible Preferred Stock (the "SERIES C PREFERRED STOCK"). 2. Authorized Shares. The number of authorized shares constituting the Series C Preferred Stock shall be 17,000 shares of such series, with a par value of $100.00 per share. 3. Liquidation Preference. (a) In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (a "LIQUIDATION"), the holders of the Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of the Corporation to the holders of the Common Stock or Series B Convertible Preferred Stock, par value $.01 per share (the "SERIES B PREFERRED STOCK"), or any other Preferred Stock by reason of their ownership thereof, an amount equal to $150.00 per share of Series C Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the "SERIES C LIQUIDATION VALUE"). If, upon the occurrence of such a Liquidation, the assets and funds thus distributed among the holders of the Series C Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series C Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (b) After payment to the holders of the Series C Preferred Stock of the amounts set forth in Section 3(a) above, the holders of the Series B Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the remaining assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, an amount equal to $1.00 per share of Series B Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the "SERIES B LIQUIDATION VALUE"). If, upon the occurrence of such a Liquidation, the assets and funds thus distributed among the holders of the Series B Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire remaining assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series B Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (c) After payment to the holders of the Series C Preferred Stock of the amounts set forth in Section 3(a) above and to the holders of the Series B Preferred Stock of the amounts set forth in Section 3(b) above, the holders of the Series A Convertible Preferred Stock (the "SERIES A PREFERRED STOCK") shall be entitled to receive, prior and in preference to any distribution of any of the remaining assets or surplus funds of the Corporation to the holders of the Common Stock by reason of their ownership thereof, an amount equal to $10.00 per share of Series A Preferred Stock (as adjusted for any stock dividends, combinations or splits with respect to such shares) (the "SERIES A LIQUIDATION VALUE"). If, upon the occurrence of such a Liquidation, the assets and funds thus distributed among the holders of the Series A Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amount, then the entire remaining assets and funds of the Corporation legally available for distribution shall be distributed ratably among the holders of the Series A Preferred Stock in proportion to the preferential amount each such holder is otherwise entitled to receive. (d) After payment to the holders of the Series C Preferred Stock of the amounts set forth in Section 3(a) above and to the holders of the Series B Preferred Stock of the amounts set forth in Section 3(b) above and to the holder of Series A Preferred Stock of the amounts set forth in Section 3(c) above, the entire remaining assets and funds of the Corporation legally available for distribution, if any, shall be distributed among the holders of the Common Stock, the Series C Preferred Stock and the Series B Preferrd Stock in proportion to the shares of Common Stock then held by them and the shares of Common Stock that they then have the right to acquire upon conversion of the shares of Series C Preferred Stock or Series B Preferred Stock, respectively, then held by them. (e) For purposes of this Section 3, (i) an acquisition of the Corporation by means of merger or other form of corporate reorganization in which outstanding shares of the Corporation are exchanged for securities or other consideration issued, or caused to be issued, by another entity (other than a mere reincorporation transaction) and in which the shareholders of the Corporation immediately prior to such transaction do not own a majority of the outstanding voting securities of the surviving or acquiring entity immediately following such transaction; (ii) a sale of all or substantially all of the assets of the Corporation; or (iii) the acquisition of at least fifty percent of the shares of the Corporation providing voting power or an interest in the Corporation by a single person or a group as defined in Rule 13d-1(b)(1)(J) (each, a "CHANGE OF CONTROL"), shall be treated as a Liquidation and shall entitle the holders of Series C Preferred Stock to receive at the closing of such transaction in cash, securities or other property (valued as provided in Section 3(e) below) amounts as specified in Section 3(a) above. The Corporation will provide each holder of shares of Series C Preferred Stock with at least thirty (30) days' advance written notice of the closing of a Change of Control. (f) Whenever a distribution provided for in this Section 3 shall be payable in securities or property other than cash, the amount of such distribution shall be determined based upon the fair market value of such securities or other property as unanimously determined in good faith by the Board of Directors. 4. Voting Rights. Each holder of shares of the Series C Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which such shares of Series C Preferred Stock could be converted and shall have voting rights and powers equal to the voting rights and powers of the Common Stock (except as otherwise expressly provided herein or as required by law, voting together with the Common Stock as a single class) and shall be entitled to notice of any shareholders' meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Series C Preferred Stock held by each holder could be converted) shall be rounded downwards to the nearest whole number. Each holder of Common Stock shall be entitled to one (1) vote for each share of Common Stock held. 5. Dividends. (a) Payment of Dividend. The holders of the shares of Series C Preferred Stock shall receive, on a quarterly basis, dividends at a rate of 6% per annum per share during the first year of issuance, 9% per annum per share during the second year of issuance and 12% per annum per share thereafter, payable as of the first business day of a calendar year quarter (the "Valuation Date") for the previous calendar year quarter; the dividend payment shall be reduced accordingly if the preceding dividend period was less than one entire calendar year quarter. The dividends shall be payable in cash out of legally available funds. Such dividends shall be payable before any dividends shall be paid upon, or set apart for, the Series B Preferred Stock, the Common Stock or any other Preferred Stock and shall be cumulative, so that if in any quarterly dividend period, dividends shall not have been paid upon or set apart for the Series C Preferred Stock, the deficiency (but without interest) shall be fully paid or set apart for payment before any dividends shall be paid upon or set apart for the Series B Preferred Stock, Common Stock or any other Preferred Stock. (b) Failure to Pay Dividend Amounts. In the event the Corporation fails to pay any holder of Series C Preferred Stock a dividend pursuant to Section 5(a) above within fifteen (15) days from the end of the applicable quarterly period, each holder of Series C Preferred Stock shall have the right to notify the Corporation that such holder will require the Corporation to convert the outstanding dividend amount into shares of Common Stock (the "CONVERSION NOTICE"). If the Corporation fails to pay to such holder the outstanding dividend amount within fifteen (15) days after the date of the Conversion Notice, then the Corporation shall issue immediately to such holder, in lieu of the outstanding dividend amount, the number of shares of Common Stock of the Corporation equal to the quotient of the outstanding dividend amount divided by the volume-weighted average closing price of the Common Stock of the Corporation during the twenty-day period beginning on the day of the Conversion Notice. 6. Conversion. The holders of Series C Preferred Stock shall have the following conversion rights (the "Conversion Rights"): (a) Right to Convert. Each share of Series C Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing $100.00 by the Conversion Price (as defined below) applicable to such share in effect on the date the certificate is surrendered for conversion. The option of a holder of Series C Preferred Stock to convert such holder's shares of Series C Preferred Stock into shares of Common Stock shall terminate immediately prior to the closing of a Change of Control referred to in Section 3(d) above; provided, that notice of such Change of Control has been provided to such holder as provided herein. The price at which shares of Common Stock shall be deliverable upon conversion of shares of the Series C Preferred Stock (the "CONVERSION PRICE") shall initially be $0.50 per share of Common Stock. Such initial Conversion Price shall be adjusted as hereinafter provided. (b) Mechanics of Conversion. Before any holder of Series C Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for such stock, and shall give written notice to the Corporation at such office that such holder elects to convert the same and shall state therein the name or names in which such holder wishes the certificate or certificates for shares of Common Stock to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Series C Preferred Stock a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of surrender of the shares of Series C Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date. If the conversion is in connection with an underwritten offering of securities pursuant to the Securities Act or a Change of Control, the conversion may, at the option of any holder tendering shares of Series C Preferred Stock for conversion, be conditioned upon the closing of such offering or Change of Control, in which event the person(s) entitled to receive the Common Stock upon conversion of the Series C Preferred Stock shall not be deemed to have converted such Series C Preferred Stock until immediately prior to such closing. (c) Adjustments to Conversion Prices for Stock Dividends and for Combinations or Subdivisions of Common Stock. In the event that the Corporation at any time or from time to time after the February 11, 2005 (the "Issue Date") shall declare or pay, without consideration, any dividend on the Common Stock payable in Common Stock or in any right to acquire Common Stock for no consideration, or shall effect a subdivision of the outstanding shares of Common Stock into a greater number of shares of Common Stock (by stock split, reclassification or otherwise than by payment of a dividend in Common Stock or in any right to acquire Common Stock), or in the event the outstanding shares of Common Stock shall be combined or consolidated, by reclassification or otherwise, into a lesser number of shares of Common Stock, then the Conversion Price for any series of Preferred Stock in effect immediately prior to such event shall, concurrently with the effectiveness of such event, be proportionately decreased or increased, as appropriate. In the event that this Corporation shall declare or pay, without consideration, any dividend on the Common Stock payable in any right to acquire Common Stock for no consideration, then the Corporation shall be deemed to have made a dividend payable in Common Stock in an amount of shares equal to the maximum number of shares issuable upon exercise of such rights to acquire Common Stock. (d) Adjustments for Reclassification and Reorganization. If the Common Stock issuable upon conversion of the Series C Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for in Section 6(c) above or a merger or other reorganization referred to in Section 6(b) above), the Conversion Price then in effect shall, concurrently with the effectiveness of such reorganization or reclassification, be proportionately adjusted so that the Series C Preferred Stock shall be convertible into, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive, a number of shares of such other class or classes of stock equivalent to the number of shares of Common Stock that would have been subject to receipt by the holders upon conversion of the Series C Preferred Stock immediately before that change. (e) Adjustments to Conversion Price. (i) If, at any time or from time to time after the Issue Date, the Corporation issues or sells, or is deemed by the express provisions of this subsection 6(e)(i) to have issued or sold, Additional Shares of Common Stock (as defined in subsection 6(e)(iv) below), other than as a dividend or other distribution on any class of capital stock, and other than a subdivision or combination of shares of Common Stock as provided in subsection 6(c) or (d) above, for an Effective Price (as defined in subsection 6(e)(iv) below) which shall be less than the per share purchase price of any shares of Series C Preferred Stock previously sold on an adjusted basis, the Conversion Price and the Common Stock issued upon conversion shall, as applicable, be adjusted so that the Conversion Price and the Common Stock issued upon conversion shall be adjusted to reflect the lowest per-share sale price of any Additional Shares of Common Stock. (ii) For the purpose of making any adjustment required under this Section 6(e), the consideration received by the Corporation for any issue or sale of securities shall (A) to the extent it consists of cash, be computed at the net amount of cash received by the Corporation after deduction of any underwriting or similar commissions, compensation or concessions paid or allowed by the Corporation in connection with such issue or sale but without deduction of any expenses payable by the Corporation, (B) to the extent it consists of property other than cash, be computed at the fair value of that property as determined in good faith by the Board of Directors, and (C) if Additional Shares of Common Stock or Common Stock Equivalents (as defined in subsection 6(e)(iii) below) are issued or sold together with other stock or securities or other assets of the Corporation for a consideration which covers both, be computed as the portion of the consideration so received that may be reasonably determined in good faith by the Board of Directors to be allocable to such Additional Shares of Common Stock or Common Stock Equivalents. (iii) For the purpose of the adjustment required under this Section 6(e), if the Corporation issues or sells any securities of the Corporation or the Subsidiaries which would entitle the holder thereof to acquire at any time Common Stock, including without limitation, any debt, preferred stock, rights, options, warrants or other instrument that is at any time convertible into or exchangeable for, or otherwise entitles the holder thereof to receive, Common Stock (collectively, "Common Stock Equivalents") for the purchase of Additional Shares of Common Stock or Common Stock Equivalents, and if the Effective Price of such Additional Shares of Common Stock shall be less than the per share purchase price of the Series C Preferred Stock previously sold on an adjusted basis, in each case the Corporation shall be deemed to have issued at the time of the issuance of such Common Stock Equivalents the maximum number of Additional Shares of Common Stock issuable upon exercise or conversion thereof and to have received as consideration for the issuance of such shares an amount equal to the total amount of the consideration, if any, received by the Corporation for the issuance of such Common Stock Equivalents, plus the minimum amounts of consideration, if any, payable to the Corporation (other than by cancellation of liabilities or obligations evidenced by such Common Stock Equivalents) upon the conversion thereof; provided that if in the case of Common Stock Equivalents the minimum amounts of such consideration cannot be ascertained, but are a function of antidilution or similar protective clauses, the Corporation shall be deemed to have received the minimum amounts of consideration without reference to such clauses; provided further that if the minimum amount of consideration payable to the Corporation upon the exercise or conversion of Common Stock Equivalents is reduced over time or on the occurrence or non-occurrence of specified events other than by reason of antidilution adjustments, the Effective Price shall be recalculated using the figure to which such minimum amount of consideration is reduced; provided further that if the minimum amount of consideration payable to the Corporation upon the exercise or conversion of such Common Stock Equivalents is subsequently increased, the Effective Price shall be again recalculated using the increased minimum amount of consideration payable to the Corporation upon the exercise or conversion of such Common Stock Equivalents. No further adjustment of the Conversion Price, as adjusted upon the issuance of such Common Stock Equivalents, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such conversion of any such Common Stock Equivalents. If any such conversion privilege represented by any such Common Stock Equivalents shall expire without having been exercised, the Conversion Price as adjusted upon the issuance of such Common Stock Equivalents shall be readjusted to the Conversion Price which would have been in effect had an adjustment been made on the basis that the only Additional Shares of Common Stock so issued were the Additional Shares of Common Stock, if any, actually issued or sold on the exercise of such rights of conversion of such Common Stock Equivalents, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Corporation upon such exercise, plus the consideration received for issuing or selling the Common Stock Equivalents actually converted, plus the consideration, if any, actually received by the Corporation (other than by cancellation of liabilities or obligations evidenced by such Common Stock Equivalents) on the conversion of such Common Stock Equivalents, provided that such readjustment shall not apply to prior conversions of Series C Preferred Stock. (iv) "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Corporation or deemed to be issued pursuant to this Section 6(e), whether or not subsequently reacquired or retired by the Corporation; provided, that Additional Shares of Common Stock shall not include or be deemed to include any of the following issuances (the "Exempt Issuances") of securities: (a) shares of Common Stock or options to employees, officers or directors of the Corporation pursuant to any stock or option plan duly adopted by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose, (b) securities upon the exercise of or conversion of any Common Stock Equivalents, options or warrants issued and outstanding on December 20, 2004, provided that such securities have not been amended since the Issue Date, (c) issuances in connection with mergers, acquisitions, joint ventures or other transactions with an unrelated third party in a bona fide transaction the purpose of which is not fundraising, (d) issuances at fair market value to the Corporation's suppliers, consultants and other providers of services and goods not to exceed $100,000 to any one person, and not to exceed an aggregate of $250,000 in any fiscal year without the unanimous prior written consent of the holders of the Series C Preferred Stock, or (e) issuances of options to Justin MacIntosh at the then fair market value in replacement of options held by him on the Issue Date upon their expiration and issuances of shares of Common Stock upon exercise of any such Replacement Options, provided, that such Replacement Options have been issued in accordance with the Corporation's then existing stock option plan and approved by a majority of the non-employee members of the Board of Directors or a majority of the members of a committee of non-employee directors established for such purpose. (v) The "Effective Price" of Additional Shares of Common Stock shall mean the quotient determined by dividing the total number of Additional Shares of Common Stock issued or sold, or deemed to have been issued or sold by the Corporation under this Section 6(e), into the aggregate consideration received, or deemed to have been received by the Corporation for such issue under this Section 6(e), for such Additional Shares of Common Stock. (f) No Impairment. The Corporation will not, by amendment of its Articles of Incorporation or Certificate of Designations or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 6 and in the taking of all such action as may be necessary or appropriate in order to protect the Conversion Rights of the holders of the Series C Preferred Stock against impairment. (g) Certificates as to Adjustments. Upon the occurrence of each adjustment or readjustment of any Conversion Price, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of Series C Preferred Stock a certificate executed by the Corporation's President or Chief Financial Officer setting forth (i) such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based; (ii) the Conversion Price for such series of Preferred Stock at the time in effect; and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of the Series C Preferred Stock. (h) Notices of Record Date. In the event that the Corporation shall propose at any time: (i) to declare any dividend or distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus; (ii) to offer for subscription pro rata to the holders of any class or series of its stock any additional shares of stock of any class or series or other rights; (iii) to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or (iv) to merge or consolidate with or into any other corporation, or sell, lease or convey all or substantially all of its assets, or to liquidate, dissolve or wind up; then, in connection with each such event, the Corporation shall send to the holders of Series C Preferred Stock: (i) at least thirty (30) days' prior written notice of the date on which a record shall be taken for such dividend, distribution or subscription rights (which notice shall specify the date on which the holders of Common Stock shall be entitled thereto and shall describe the amount and nature of such dividend, distribution or subscription rights) or for determining rights to vote, if any, in respect of the matters referred to in (iii) and (iv) above; and (ii) in the case of the matters referred to in (iii) and (iv) above, at least thirty (30) days' prior written notice of the date when the closing of the same shall take place (which notice shall specify the date on which the holders of Common Stock shall be entitled to exchange their Common Stock for securities or other property deliverable upon the occurrence of such event and shall describe the amount and nature of such securities or other property). (i) Issue Taxes. The Corporation shall pay any and all issue and other taxes that may be payable in respect of any issue or delivery of shares of Common Stock on conversion of Series C Preferred Stock pursuant hereto; provided, however, that the Corporation shall not be obligated to pay any transfer taxes resulting from any transfer requested by any holder in connection with any such conversion. (j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Certificate of Designations or the Corporation's Articles of Incorporation. (k) Fractional Shares. No fractional share shall be issued upon the conversion of any share or shares of Series C Preferred Stock. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one share of Series C Preferred Stock by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of any fractional share. If, after the aforementioned aggregation, the conversion would result in the issuance of a fraction of a share of Common Stock, the Corporation shall, in lieu of issuing any fractional share, pay the holder otherwise entitled to such fraction a sum in cash equal to the fair market value of such fraction on the date of conversion (as determined in good faith by the Board of Directors). (l) Notices. Any notice required by the provisions of this Section 6 to be given to the holders of shares of Series C Preferred Stock shall be deemed given if deposited in the United States mail, with appropriate postage prepaid, or if sent by facsimile or delivered personally by hand or nationally recognized courier and addressed to each holder of record at such holder's address or facsimile number appearing in the records of the Corporation. 7. Redemption. (a) Right to Redeem. The Corporation may, to the extent that funds are legally available therefor, redeem the Series C Preferred Stock any time, in its sole discretion, upon ten (10) days' prior written notice to the holders of Series C Preferred Stock, at a price of $100 per share. In addition, the value of earned and unpaid dividends will be added to the redemption price. (b) Obligation to Redeem. The Corporation shall be obligated to use one hundred percent (100%) of any proceeds that the Corporation receives for the issuance of shares of Common Stock or Preferred Stock or of any debt security to redeem shares of Series C Preferred Stock at a price of $100 per share, plus the value of earned and unpaid dividends; provided, that the Corporation shall not be obligated to use any proceeds received in connection with any Exempt Issuances. In addition, upon any event of default under that certain Secured Promissory Note issued to ComVest Investment Partners II LLC, the Corporation shall be obligated to redeem all of the then-outstanding shares of Series C Preferred Stock at a price of $100 per share, plus the value of earned and unpaid dividends. (c) Pro-rata Redemption. In the event of a redemption of less than all of the outstanding shares of Series C Preferred Stock, redemptions as among the holders of such shares of Series C Preferred Stock shall be on a pro rata basis. (d) Mechanics of Redemption. The Corporation shall give notice by mail of redemptions to the holders of record of the shares of Series C Preferred Stock at least ten (10) business days prior to the date of redemption. The notice shall (i) specify the date of redemption and the number of shares to be redeemed from each shareholder and (ii) be addressed to each holder at the holder's post office address as shown on the records of the Corporation. On or after the date fixed for redemption, each holder of shares of Series C Preferred Stock called for redemption shall surrender the certificate or certificates evidencing such shares to the Corporation at the place designated in such notice and shall thereupon be entitled to receive payment. If less than all of the certificates are redeemed, the Corporation shall issue a new certificate for the unredeemed shares. (e) Failure to Pay Redemption Amounts. If the Corporation fails to pay the applicable redemption amount pursuant to Section 7(b) above within five (5) business days of written notice that such amount is due and payable, then, in addition to all other available remedies, each holder of Series C Preferred Stock shall have the right at any time, so long as the mandatory redemption event continues, to require the Corporation, upon written notice, to immediately issue, in lieu of the mandatory redemption amount payable in accordance with Section 7(b), such number of shares of Common Stock of the Corporation equal to such applicable redemption amount divided by lesser of (i) Conversion Price then in effect and (ii) the closing price of the Common Stock of the Corporation on the date of such notice from such holder of Series C Preferred Stock. 8. Restrictions and Limitations. So long as shares of Series C Preferred Stock remain outstanding, the Corporation shall not, without the vote or written consent by the holders of a majority of the then-outstanding shares of the Series C Preferred Stock, voting as a single class: (a) Effect any sale, lease, assignment, transfer, or other conveyance of all or substantially all of the assets of the Corporation or any of its subsidiaries, or any consolidation or merger involving the Corporation or any of its subsidiaries (other than one in which the holders of capital stock of the Corporation immediately prior to such merger or consolidation continues to hold in excess of 50% by voting power of the surviving or acquiring corporation); (b) Alter or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series C Preferred Stock; (c) Increase or decrease (other than by redemption or conversion) the total number of authorized shares of Series C Preferred Stock; (d) Authorize or issue, or obligate itself to issue, or otherwise create (including by reclassification) any other equity security (including any security convertible into or exercisable for any equity security) on a parity with or senior to the Series C Preferred Stock as to liquidation preferences, voting rights, dividend rights or redemption rights; and (e) Amend its Articles of Incorporation or Bylaws if such amendment would alter or change the rights, preferences, privileges or powers of, or the restrictions provided for the benefit of, the Series C Preferred. 9. No Reissuance of Series C Preferred Stock. No share or shares of Series C Preferred Stock acquired by the Corporation by reason of redemption, purchase, conversion or otherwise shall be reissued, and all such shares shall be cancelled and restored to the shares that the Corporation shall be authorized to issue. EX-10 10 e1020106.txt REGISTRATION RIGHTS AGREEMENT EXHIBIT 10 EXECUTION COPY REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (this "Agreement"), dated February 11, 2005, is entered into by and between CORVU CORPORATION, a Minnesota corporation (the "Company") and COMVEST INVESTMENT PARTNERS II LLC, a Delaware limited liability company ("ComVest"), as a material inducement for ComVest to purchase (i) a senior secured note (the "Senior Secured Note") in an aggregate principal amount of $1,500,000, (ii) 22,000,000 shares of common stock, $0.01 par value per share ("Common Stock"), of the Company for an aggregate purchase price of $3,300,000, (iii) 17,000 of shares of convertible preferred stock, par value $100 per share (the "Series C Preferred Stock"), (iv) warrants (the "Preferred Warrant") to purchase 3,400,000 shares of Common Stock and (v) warrants (the "Protective Warrant" and, together with the Preferred Warrant, the "Warrants") to purchase 2,000,000 shares of Common Stock in accordance with the terms of that certain Securities Purchase Agreement, dated on or about the date hereof (the "Purchase Agreement"). All capitalized terms used but not defined herein shall have the meanings ascribed thereto in the Purchase Agreement. NOW, THEREFORE, the Company and ComVest hereby agree as follows: 1. Definitions. In addition to those terms defined elsewhere in this Agreement, the following terms shall have the following meanings wherever used in this Agreement: "Act" shall mean the Securities Act of 1933, as amended, and any successor statute from time to time. "Costs and Expenses" shall mean all of the costs and expenses relating to any subject Registration Statement, including but not limited to registration, filing and qualification fees, reasonable blue sky expenses, costs of listing any shares of Common Stock on any national securities exchange automated quotation system, printing expenses, fees and disbursements of counsel and accountants to the Company, and reasonable fees and disbursements of counsel to ComVest (such fees and disbursements not to exceed $15,000 per Registration); provided, however, that underwriting discounts and commissions attributable solely to the securities registered for the benefit of ComVest, fees and disbursements of any additional counsel to ComVest, and all other expenses attributable solely to ComVest shall be borne by ComVest. "Excluded Registration Statement" shall mean a registration statement relating solely to the registration of the sale of securities (i) other than for cash, (ii) to participants in a Company stock plan or employee benefit plan, agreement or arrangement, and (iii) in a transaction covered by Rule 145 under the Act or the resale of securities issued in such a transaction. "Existing Registration Rights Agreements" shall mean collectively (i) the registration rights granted to the selling shareholders set forth in the Company's Form SB-2/A filed on March 19, 2004, (ii) the Registration Rights Agreement dated May 15, 2003 with Strategic Growth International, Inc. and (iii) the registration rights agreements entered into with the shareholders of the Company's Series B Convertible Preferred Stock. "Registrable Securities" shall mean all Warrant Registrable Securities, the Conversion Shares and the Shares, held from time to time by ComVest; provided, however, that such Registrable Securities shall cease to be Registrable Securities at such time as all such Registrable Securities (i) are sold pursuant to any registration statement filed by the Company with the SEC, pursuant to Rule 144 promulgated under the Act or pursuant to any other exemption from registration under the Act or (ii) may be sold, subject to any applicable volume limitations, in open market transactions pursuant to any applicable exemption from the registration requirements of the Act, including without limitation Rule 144(k) promulgated thereunder (or any successor thereto). "Registration" shall mean any registration or proposed registration of Registrable Securities pursuant to a Registration Statement in respect to the sale of any Registrable Securities. "Registration Period" shall mean the period (i) beginning upon the earlier of declaration of effectiveness of the Registration Statements provided for in Section 2 hereof or declaration of effectiveness of any Registration Statement provided for in Section 3 hereof that includes Registrable Securities and (ii) ending on the earlier of the date that all Registrable Securities have ceased to be Registrable Securities and the second anniversary of the date of this Agreement. "Registration Statement" shall mean any registration statement filed or to be filed by the Company with the SEC. "SEC" shall mean the United States Securities and Exchange Commission, or any successor agency or agencies performing the functions thereof. "Warrant Registrable Securities" shall mean the shares of Common Stock issuable upon exercise of the Warrants or any shares issued in exchange for or replacement thereof, from time to time. 2. Demand Registration. At any time after the date hereof, ComVest may make one (1) written request to the Company for registration with the SEC under and in accordance with the provisions of the Securities Act of the Registrable Securities (the "Demand Registration"). The Demand Registration shall become effective as soon as practicable, but in no event later than four (4) months following receipt by the Company of written notice of such demand (the "Effective Date"). Unless expressly agreed to by ComVest, no securities of the Company or of any other Person other than Registrable Securities shall be included in a Demand Registration except pursuant to the exercise of any piggyback registration rights granted on or prior to the date hereof. Except as otherwise provided herein, a registration will not count as a Demand Registration until it has become effective and ComVest is legally permitted to sell all of its Registrable Securities that are requested to be so included unless ComVest fails to take such actions as are required on its part to cause the registration to become effective, in which case such registration shall count as a Demand Registration. 2 3. Piggyback Rights. (a) In addition to the foregoing and subject to the provisions of this Agreement, in the event that the Company shall at any time after the date hereof (and prior to the date of the Registration Statement provided for in Section 2 hereof is declared effective by the SEC) propose to file a Registration Statement (other than an Excluded Registration Statement), then the Company shall give to ComVest written notice (the "Registration Notice") of the proposed filing of such Registration Statement not less than twenty (20) days prior to such filing, and shall, subject to the limitations provided in this Section 3, include in such Registration Statement all or a portion of the Registrable Securities owned by ComVest, as and to the extent that ComVest may request same to be so included by means of written notice given to the Company within twenty (20) days after the Company's giving of the Registration Notice. ComVest shall be permitted to withdraw all or any part of its Registrable Securities from a Registration Statement by written notice to the Company given at any time prior to the effective date of the Registration Statement. In the event of the inclusion of all or a portion of the Registrable Securities pursuant to this Section 3, the Company shall bear all of the Costs and Expenses of such registration; provided, however, that ComVest shall pay, pro rata based upon the number of its Registrable Securities included therein, the underwriters' discounts, commissions and compensation attributable solely to the inclusion of such Registrable Securities in the overall public offering. (b) Notwithstanding anything to the contrary contained herein, the Company's obligation to include any Registrable Securities in a Registration Statement filed under this Section 3 shall be subject to the following further conditions: (i) The distribution for the account of ComVest shall be underwritten by the same underwriters (if any) who are underwriting the distribution of the securities for the account of the Company and/or any other persons whose securities are covered by such Registration Statement, if any, and ComVest shall enter into an agreement with such underwriters containing customary indemnification and other provisions; (ii) If, in connection with an underwritten public offering pursuant to a Registration Statement, the purchase agreement to be entered into with the managing underwriters contains or requires restrictions upon the sale of securities of the Company by any of the Company, its officers, directors or other principal stockholders, other than the securities which are to be included in the proposed distribution, then such restrictions shall likewise be binding upon ComVest, and if requested by the Company ComVest shall enter into a written agreement to that effect; and (iii) If, in connection with an underwritten public offering pursuant to a Registration Statement, the managing underwriter(s) thereof shall advise the Company in writing that the securities to be included in such Registration will not include all of the Registrable Securities requested to be so included (but which shall not refer to any securities held by or to be newly issued by the Company), then the Company will promptly furnish ComVest with a copy of such written statement and may require, by written notice to ComVest accompanying such written statement, that the distribution of all or a specified portion of such Registrable Securities be excluded from such distribution; and, in case of an exclusion of only a portion of the Registrable Securities proposed to be included, the Registrable Securities to be included shall (i) first be 3 allocated to the Company, (ii) then to the holders of registration rights under the Existing Registration Rights Agreements in accordance with the terms and conditions of such agreements, and (iii) then, to ComVest in proportion to its Registrable Securities so requested to be registered pursuant to such Registration Statement by ComVest (or in such other proportions as ComVest may agree), prior to inclusion of any other securities. (c) ComVest shall furnish in writing to the Company all information concerning it and its holdings of securities of the Company and its affiliates as shall be required in connection with the preparation, filing, amendment and supplementation of any Registration Statement covering any of ComVest's Registrable Securities. 4. Blackout Periods. The Company may suspend ComVest's sale or transfer of Registrable Securities under a Registration Statement if the Company shall furnish to ComVest a certificate (the "Grace Period Notice") signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company it would be seriously detrimental to the Company or its stockholders for such sales or transfers not to be suspended (a "Grace Period"); provided, however, that the Company shall not so suspend ComVest unless it similarly suspends the sale or transfer of securities by any other holder of securities of the Company whose securities are covered by the same or another Registration Statement (expressly including holders of securities under the Existing Registration Rights Agreements). In such event, the Company's obligations under this Agreement to seek to have a Registration Statement declared effective or kept effective shall be suspended for a Grace Period not to exceed thirty (30) consecutive days during any ninety (90)-day period; provided, however, that the Company may not exercise this right for more than seventy-five (75) days in any one annual period (an "Allowable Grace Period"); provided, further, however, that the Company may not exercise this right unless it also suspends the effectiveness of any other Registration Statement (expressly including the Existing Registration Statement or any other Registration Statement of the Company with respect to the securities of the Company covered by the Existing Registration Rights Agreements) for the same amount of time. Subject to the similar suspension of all other holders of securities of the Company whose securities are covered by the same or another Registration Statement, ComVest agrees that, upon receipt of any notice from the Company of a Grace Period Notice, ComVest (and its directors, officers, members and Affiliates) shall immediately discontinue disposition of its Registrable Securities pursuant to any Registration Statement(s) covering such Registrable Securities until ComVest's receipt of the copies of the supplemented or amended prospectus contemplated by Section 4(e) hereof or receipt of notice from the Company that no such supplement or amendment is required. During any Grace Period during which the Registrable Securities are suspended from trading, then no other Registration Statements shall be declared effective. Similarly, during any Grace Period during which the effectiveness of any Registration Statement covering the Registrable Securities is suspended, then trading under any other Registration Statement shall be similarly suspended. 5. Registration Procedures. In the case of each Registration effected by the Company in which Registrable Securities are to be sold for the account of ComVest, the Company will use its good faith reasonable efforts to: (a) furnish to counsel selected by ComVest copies of all Registration Statements or prospectuses or any amendments or supplements thereto proposed to be filed with the SEC, 4 which documents will be subject to review by such counsel before filing solely with regard to any information contained therein which pertains to ComVest; (b) prepare and file with the SEC 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 during the Registration Period (or, with respect to Registration Statement filed in accordance with Section 3 hereof, for such shorter or longer period covered thereby) and to comply with the provisions of the Act with respect to the disposition of all securities covered by such Registration Statement during such period; (c) furnish to ComVest electronic copies of such Registration Statement, each amendment and supplement thereto, the prospectus included in such Registration Statement (including each preliminary prospectus) and such other documents as ComVest may reasonably require in order to facilitate the disposition of the Registrable Securities held by ComVest; (d) register or qualify such Registrable Securities under such other securities or blue sky laws of such states as may be reasonably required and do any and all other acts and things which may be reasonably necessary or advisable to enable ComVest to consummate the disposition of the Registrable Securities in such jurisdictions (provided that the Company will not be required to (i) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subparagraph, (ii) subject itself to taxation in any such jurisdiction, or (iii) consent to general service of process in any such jurisdiction); (e) notify ComVest, at any time when a prospectus relating to a Registration Statement is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in a Registration Statement contains an untrue statement of a material fact or omits to state any fact necessary to make the statements therein not materially misleading, and prepare a supplement or amendment to such prospectus so that, as thereafter delivered to the purchaser(s) of Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not materially misleading; and (f) effective not later than the effectiveness of the subject Registration Statement, cause all subject Registrable Securities to be listed for trading on each national securities exchange or automated quotation system on which the Common Stock is then listed. 6. Indemnification by the Company. (a) In the event that the Company has failed to use its reasonable best efforts and has otherwise failed to act in good faith to effect the registration of the Registrable Securities in accordance with Section 2 hereof and the SEC has failed to declare effective any such Registration Statement by the Effective Date, then the Company shall pay ComVest a cash payment in the aggregate amount of One Thousand Dollars ($1,000) for each day after the Effective Date during which such Registration Statement has not been declared effective by the SEC. Such payment shall be due on the earlier of (i) three (3) days following the date on which such Registration Statement is declared effective or (ii) the last day of any calendar month during which such delay is or continues to be incurred. In the event the Company otherwise materially 5 breaches or materially fails to perform, as applicable, any representation, warranty or covenant contained in this Agreement, the Company shall indemnify ComVest from and against any expenses, claims, losses, costs, charges or liabilities of any kind, including amounts paid in settlement and reasonable attorneys' fees (collectively, the "Losses"), which may be incurred by ComVest as a result of any such failure or breach, with such indemnification to be made within thirty (30) days of receipt of written request therefor. (b) The Company shall indemnify and hold harmless ComVest, each of its directors, legal counsel and accountants for ComVest, and any underwriter (as defined in the Act) for any Losses to which ComVest or any other such indemnified person becomes subject, under the Act or any rule or regulation thereunder, insofar as such Losses (i) are caused by any untrue statement or alleged untrue statement of any material fact contained in any preliminary prospectus (if used prior to the Effective Date of the Registration Statement), or contained, on the Effective Date thereof, in any Registration Statement of which Registrable Securities were the subject, the prospectus contained therein, any amendment or supplement thereto, or (ii) arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or (iii) arise out of any violation by the Company of the Act or any rule or regulation thereunder applicable to the Company and relating to actions or omissions otherwise required of the Company in connection with such Registration Statement. The Company shall reimburse ComVest and any such other indemnified person for any legal or other expenses reasonably incurred by ComVest or such other indemnified person in connection with investigating, defending or settling any such Loss; provided, however, that the Company shall not be liable to any such Persons in any such case to the extent that any such Loss arises out of or is based upon any untrue statement or alleged untrue statement or omission or alleged omission made in reliance upon and in conformity with information furnished to the Company in writing by such person expressly for inclusion in any of the foregoing documents. This indemnity shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of the Company. 7. Indemnification by ComVest. ComVest shall indemnify and hold harmless the Company, each of its directors, each of its officers who has signed a Registration Statement, legal counsel and accountants for the Company, each person (if any) who controls the Company within the meaning of the Act and any underwriter (as defined in the Act) for the Company, against any Losses to which the Company or any other such indemnified person may become subject under the Act or any rule or regulation thereunder or otherwise to the extent that such Losses (or related actions) (i) are caused solely by any untrue statement or alleged untrue statement of any material fact contained in any preliminary prospectus (if used prior to the effective date of the Registration Statement), or contained, on the Effective Date thereof, in any Registration Statement of which such ComVest's Registrable Securities were the subject, the prospectus contained therein, any amendment or supplement thereto, or (ii) arise out of or are based solely upon the 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 each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with information furnished to the Company by ComVest, in writing, expressly for inclusion in any of the foregoing documents; provided, however, that the aggregate liability of ComVest shall not be greater than the net proceeds received by ComVest upon the sale of the Registrable Securities giving rise to such 6 indemnification obligation. This indemnity shall not apply to amounts paid in settlement of any such Loss or related Action if such settlement is effected without the consent of ComVest. 8. Additional Provisions. (a) ComVest and each other person indemnified pursuant to Section 6 above shall, in the event that it receives notice of the commencement of any Action against it which is based upon an alleged act or omission which, if proven, would result in the Company's having to indemnify it pursuant to Section 6 above, promptly notify the Company, in writing, of the commencement of such Action and permit the Company, if the Company so notifies ComVest or other indemnified person within thirty (30) days after receipt by the Company of notice of the commencement of the Action, to assume the defense of such Action with counsel reasonably satisfactory to ComVest; provided, however, that ComVest or other indemnified person shall be entitled to retain its own counsel at its own expense. The omission to notify the Company promptly of the commencement of any such Action shall not relieve the Company of any liability to indemnify ComVest or such other indemnified person, as the case may be, under Section 6 above, from and after the Company's receipt of such notice, except to the extent that the Company shall suffer any Losses by reason of such failure to give notice, and shall not relieve the Company of any other liabilities which it may have under this or any other agreement. (b) The Company and each other person indemnified pursuant to Section 7 above shall, in the event that it receives notice of the commencement of any Action against it which is based upon an alleged act or omission which, if proven, would result in any Holder having to indemnify it pursuant to Section 7 above, promptly notify ComVest or other indemnified person, in writing, of the commencement of such Action and permit ComVest, if ComVest so notifies the Company within thirty (30) days after receipt by ComVest of notice of the commencement of the Action, to assume the defense of such Action with counsel reasonably satisfactory to the Company; provided, however, that the Company or other indemnified person shall be entitled to retain its own counsel at the Company's expense. The omission to notify any Holder promptly of the commencement of any such Action shall not relieve ComVest of liability to indemnify the Company or such other indemnified person, as the case may be, under Section 6 above, from and after ComVest's receipt of such notice, except to the extent that the subject Holder shall suffer any Losses by reason of such failure to give notice, and shall not relieve ComVest of any other liabilities which it may have under this or any other agreement. (c) No indemnifying party, in the defense of any such Action, shall, except with the consent of each indemnified party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such indemnified party of a release from all liability in respect to such Action. Each indemnified party shall furnish such information regarding itself or the Action in question as an indemnifying party may reasonably request in writing and as shall be reasonably required in connection with defense of such Action resulting therefrom. (d) If a court of competent jurisdiction determines that the foregoing indemnity provided under Sections 6 and 7 above is unavailable, or is insufficient to hold harmless an indemnified party, then the indemnifying party shall contribute to the amount paid or payable by the indemnified party as a result of such Losses (A) in such proportion as is appropriate to reflect the 7 relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, or (B) if the allocation provided by clause (A) above is not permitted by applicable law, or provides a lesser sum to the indemnified party than the amount hereinafter calculated, in such proportion as is appropriate to reflect not only the relative benefits received by the indemnifying party on the one hand and the indemnified party on the other, but also the relative fault of the indemnifying party and the indemnified party, as well as any other relevant equitable considerations. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. 9. Notices. All notices, requests, demands and other communications required or permitted under this Agreement shall be given in accordance with Section 5.4 of the Purchase Agreement. 10. Waiver and Amendment. No waiver, amendment or modification of this Agreement or of any provision hereof shall be valid unless evidenced by a writing duly executed by the Company and ComVest. No waiver of any default hereunder shall be deemed a waiver of any other, prior or subsequent default hereunder. 11. Governing Law. This Agreement shall be governed by, construed under and interpreted and enforced in accordance with the laws of the State of New York, without giving effect to principles of choice of law. Any Action arising out of or relating to this Agreement shall be commenced in a federal or state court having competent jurisdiction in the State of New York, and for the purpose of any such Action, each of the parties and any assignees thereof submits to the personal jurisdiction of the State of New York. The parties hereby irrevocably consent to the exclusive personal jurisdiction of any state or federal court for New York County in the State of New York or the Southern District of New York. The parties hereby waive any objection to venue and any objection based on a more convenient form in any Action instituted under this Agreement. 12. Captions. The captions and Section headings used in this Agreement are for convenience only, and shall not affect the construction or interpretation of this Agreement or any of the provisions hereof. 13. Entire Agreement. This Agreement constitutes the sole and entire agreement and understanding between the parties hereto as to the subject matter hereof, and supersedes all prior discussions, agreements and understandings of every kind and nature between them as to such subject matter. 14. No Third Party Beneficiaries. Except as expressly provided herein, this Agreement is not intended to confer upon any person any rights or remedies hereunder. 15. Successors and Assigns. The Company may not sell, assign, transfer or otherwise convey any of its rights or delegate any of its duties under this Agreement, except to a corporation which has succeeded to substantially all of the business and assets of the Company and has assumed in writing its obligations under this Agreement, and this Agreement shall be binding on the Company and such successor. This Agreement shall be binding upon and inure to 8 the benefit of and be enforceable by ComVest and its successors and assigns. Without limiting the generality of the foregoing, any transferee of Registrable Securities shall have the rights set forth in this Agreement, and such rights shall be enforceable against the Company by such transferees as third-party beneficiaries. 16. Execution. This Agreement may be executed in two (2) or more counterparts, all of which when taken together shall be considered one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party, it being understood that both parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid and binding obligation of the party executing (or on whose behalf such signature is executed) with the same force and effect as if such facsimile signature page were an original thereof. 17. Term. This Agreement shall terminate upon the expiration of the Registration Period; provided, however, that the parties' rights and obligations under Sections 6 and 7 shall survive any termination of this Agreement. 9 IN WITNESS WHEREOF, the parties have executed this Agreement as of the 11th day of February 2005. CORVU CORPORATION By: ----------------------------------------- Name: Title: COMVEST INVESTMENT PARTNERS II LLC By: ----------------------------------------- Name: Title: 10