SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
August 31, 2001
Date of Report (date of earliest event reported)
INTRAWARE, INC.
(Exact name of Registrant as specified in charter)
| Delaware (State or other jurisdiction of incorporation) |
000-25249 (Commission File Number) |
68-0389976 (I.R.S. Employer Identification No.) |
25 Orinda Way
Orinda, California 94563
(Address of principal executive offices)
Registrant's telephone number, including area code: (925) 253-4500
N/A
(Former name or former address, if changed since last report)
On August 31, 2001, Intraware, Inc. (the "Company") issued one year Senior Secured Promissory Notes (the "Notes"), bearing interest of 8% annually, to certain institutional and individual investors for an aggregate sale price of approximately $6,150,000 with net proceeds after fees and expenses of approximately $5,600,000 (the "Financing"). The investors will also receive warrants to purchase 6.15 million shares of common stock at an exercise price of $0.01 per share. Warrants exceeding 19.9% of the Company's common stock will not be exercisable until the Company has received stockholder approval. The Company has agreed to hold a stockholder meeting seeking stockholder approval no later than November 29, 2001. If the Company obtains stockholder approval at the meeting, the Notes will be convertible into the same type of securities issued by the Company in its next financing round. The Notes hold senior rank and are secured by substantially all of the Company's assets as set forth in the Security Agreement, attached hereto as Exhibit 4.3 and dated August 31, 2001. The Notes are repayable by the Company at any time, and will mature early if the Company is acquired or undergoes a change of control, or if its stockholders do not approve the Financing within 90 days. On September 20, 2001, the Company completed an additional closing for an aggregate sale price of approximately $850,000 on the same terms as those in the August 31, 2001 closing.
In connection with the Financing, all investors in the Company's previous Series B Convertible Preferred Stock financing exchanged their shares pursuant to an Exchange Agreement, attached hereto as Exhibit 4.4, for shares of Series B-1 Convertible Preferred Stock and the Company eliminated its Series B Convertible Preferred Stock from its Certificate of Incorporation. The Series B-1 Convertible Preferred Stock is subject to the terms and conditions of the Certificate of Designations, Preferences and Rights attached hereto as Exhibit 3(i).3, which terms and conditions are substantially the same as those for the Series B Convertible Preferred Stock.
A member of the Company's Board of Directors is affiliated with the placement agent in the Financing and with one of the investors. Because of this relationship, as well as the quantity of warrants being issued and the price of the warrants, The Nasdaq Stock Market's application of NASD rules would have required the Company to obtain stockholder approval before issuing the warrants. However, Nasdaq granted the Company an exception from the stockholder approval rule. In keeping with Nasdaq's determination, the Company mailed to its stockholders on or about September 14, 2001 a written notice of this exception, and the Company will wait 10 days before issuing the Warrants.
The Notes are subject to the terms and conditions of the form of Promissory Note attached hereto as Exhibit 4.1. The Warrants are subject to the terms and conditions of the form of Warrant attached hereto as Exhibit 4.2. Pursuant to a Registration Rights Agreement, attached hereto as Exhibit 4.5, the Company has agreed to prepare and file with the Securities and Exchange Commission a registration statement covering the resale of the shares of Common Stock issuable pursuant to the terms of the Warrants. The terms of the financing are more fully set forth in the form of Subscription Agreement and the Placement Agency Agreement attached hereto as Exhibit 10.1 and Exhibit 10.2, respectively.
On September 4, 2001, the Company issued a press release relating to the closing of the Financing. A copy of the press release is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
Not applicable.
Not applicable.
2
| 3(i).1 | Restated Certificate of Incorporation. | |
3(i).2 |
Certificate of Elimination of Series B Certificate of Designations, Preferences and Rights. |
|
3(i).3 |
Series B-1 Certificate of Designations, Preferences and Rights. |
|
4.1 |
Form of Promissory Note. |
|
4.2 |
Form of Warrant. |
|
4.3 |
Security Agreement, dated August 31, 2001 by and among Intraware, Inc., Commonwealth Associates, L.P. and the investors named therein. |
|
4.4 |
Exchange Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors named therein. |
|
4.5 |
Registration Rights Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors named therein. |
|
10.1 |
Form of Subscription Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors. |
|
10.2 |
Placement Agency Agreement, dated August 31, 2001 by and between Intraware, Inc. and the placement agent. |
|
99.1 |
Press Release. |
3
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Date: September 21, 2001 | INTRAWARE, INC. | |
/s/ JOHN J. MOSS John J. Moss General Counsel and Secretary |
4
| Exhibit Number |
Exhibit Title |
|
|---|---|---|
| 3(i).1 | Restated Certificate of Incorporation. | |
3(i).2 |
Certificate of Elimination of Series B Certificate of Designations, Preferences and Rights. |
|
3(i).3 |
Series B-1 Certificate of Designations, Preferences and Rights. |
|
4.1 |
Form of Promissory Note. |
|
4.2 |
Form of Warrant. |
|
4.3 |
Security Agreement, dated August 31, 2001 by and among Intraware, Inc., Commonwealth Associates, L.P. and the investors named therein. |
|
4.4 |
Exchange Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors named therein. |
|
4.5 |
Registration Rights Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors named therein. |
|
10.1 |
Form of Subscription Agreement, dated August 31, 2001 by and among Intraware, Inc. and the investors. |
|
10.2 |
Placement Agency Agreement, dated August 31, 2001 by and between Intraware, Inc. and the placement agent. |
|
99.1 |
Press Release. |
5
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
INTRAWARE, INC.
(Pursuant
to Sections 242 and 245 of the
General Corporation Law of the State of Delaware)
Peter H. Jackson and David J. Segre each hereby certifies:
(1) They are the President and Secretary, respectively, of Intraware, Inc., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "General Corporation Law");
(2) The original Certificate of Incorporation of this corporation, originally filed on August 13, 1996, is hereby amended and restated in its entirety to read as follows:
| FIRST: | The name of this corporation is Intraware, Inc. (the "Corporation"). | |
SECOND: |
The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, Wilmington, County of New Castle, Delaware 19801. The name of its registered agent at such address is Corporation Service Company. |
|
THIRD: |
The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. |
|
FOURTH: |
The Corporation is authorized to issue two classes of stock to be designated respectively Common Stock and Preferred Stock. The total number of shares of all classes of stock which the Corporation has authority to issue is Two Hundred Sixty Million (260,000,000), consisting of Two Hundred Fifty Million (250,000,000) shares of Common Stock, $0.0001 par value (the "Common Stock"), and Ten Million (10,000,000) shares of Preferred Stock, $0.0001 par value (the "Preferred Stock"). |
|
The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized subject to limitations prescribed by law, to fix by resolution or resolutions the designations, powers, preferences and rights, and the qualifications, limitations or restrictions thereof, of each such series of Preferred Stock, including without limitation authority to fix by resolution or resolutions, the dividend rights, dividend rate, conversion rights, voting rights, rights and terms of redemption (including sinking fund provisions), redemption price or prices, and liquidation preferences of any wholly unissued series of Preferred Stock, and the number of shares constituting any such series and the designation thereof, or any of the foregoing. |
The Board of Directors is further authorized to increase (but not above the total number of authorized shares of the class) or decrease (but not below the number of shares of any such series then outstanding) the number of shares of any series, the number of which was fixed by it, subsequent to the issue of shares of such series then outstanding, subject to the powers, preferences and rights, and the qualifications, limitations and restrictions thereof stated in the resolution of the Board of Directors originally fixing the number of shares of such series. If the number of shares of any series is so decreased, then the shares constituting such decrease shall resume the status which they had prior to the adoption of the resolution originally fixing the number of shares of such series. |
||
FIFTH: |
The Corporation is to have perpetual existence. |
|
SIXTH: |
The election of directors need not be by written ballot unless the Bylaws of the Corporation shall so provide. |
|
SEVENTH: |
The number of directors which constitute the whole Board of Directors of the Corporation shall be designated in the Bylaws of the Corporation. |
|
EIGHTH: |
In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, alter, amend or repeal the Bylaws of the Corporation. |
|
NINTH: |
To the fullest extent permitted by the Delaware General Corporation Law as the same exists or may hereafter be amended, no director of the Corporation shall be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director. |
|
The Corporation may indemnify to the fullest extent permitted by law any person made or threatened to be made a party to an action or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that he, his testator or intestate is or was a director, officer or employee of the Corporation or any predecessor of the Corporation or serves or served at any other enterprise as a director, officer or employee at the request of the Corporation or any predecessor to the Corporation. |
||
Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision. |
||
TENTH: |
At the election of directors of the Corporation, each holder of stock of any class or series shall be entitled to one vote for each share held. No stockholder will be permitted to cumulate votes at any election of directors. |
2
The number of directors which constitute the whole Board of Directors of the Corporation shall be fixed exclusively by one or more resolution adopted from time to time by the Board of Directors. The Board of Directors shall be divided into three classes designated as Class I, Class II, and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the date hereof, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the date hereof, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the date hereof, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. |
||
Vacancies created by newly created directorships, created in accordance with the Bylaws of this Corporation, may be filled by the vote of a majority, although less than a quorum, of the directors then in office, or by a sole remaining director. |
||
ELEVENTH: |
Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide. The books of the Corporation may be kept (subject to any provision contained in the laws of the State of Delaware) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. |
|
The stockholders of the Corporation may not take any action by written consent in lieu of a meeting, and must take any actions at a duly called annual or special meeting of stockholders and the power of stockholders to consent in writing without a meeting is specifically denied. |
||
TWELFTH: |
Advance notice of new business and stockholder nominations for the election of directors shall be given in the manner and to the extent provided in the Bylaws of the Corporation. |
|
THIRTEENTH: |
Notwithstanding any other provisions of this Restated Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of the capital stock required by law or this Restated Certificate of Incorporation, the affirmative vote of the holders of at least two-thirds (2/3) of the combined voting power of all of the then-outstanding shares of the Corporation entitled to vote shall be required to alter, amend or repeal Articles NINTH, TENTH, ELEVENTH or TWELFTH hereof, or this Article THIRTEENTH, or any provision thereof or hereof, unless such amendment shall be approved by a majority of the directors of the Corporation. |
|
FOURTEENTH: |
The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Amended and Restated Certificate of Incorporation, in the manner now or hereafter prescribed by the laws of the State of Delaware, and all rights conferred herein are granted subject to this reservation. |
3
(3) This Amended and Restated Certificate of Incorporation has been duly adopted by the Board of Directors of this Corporation in accordance with Sections 242 and 245 of the General Corporation Law.
(4) This Amended and Restated Certificate of Incorporation has been duly approved, in accordance with Section 242 of the General Corporation Law, by vote of the holders of a majority of the outstanding stock entitled to vote thereon.
IN WITNESS WHEREOF, the undersigned have executed this Amended and Restated Certificate of Incorporation on this 9th day of February, 1999.
| /s/ Peter H. Jackson Peter H. Jackson President |
||
/s/ David J. Segre David J. Segre Secretary |
4
CERTIFICATE OF ELIMINATION OF THE SERIES B PREFERRED STOCK
OF
INTRAWARE, INC.
(pursuant to Section 151(g) of the
General Corporation Law of the State of Delaware)
Intraware, Inc. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that the following resolutions regarding the Company's Series B Preferred Stock, were duly adopted by the board of directors of the Company:
RESOLVED: That none of the authorized shares of the Company's Series B Preferred Stock (the "Preferred Stock") are outstanding.
RESOLVED FURTHER: That none of the Company's authorized shares of Preferred Stock will be issued subject to the Company's certificate of designations previously filed with the Delaware Secretary of State at any time prior to the date hereof.
RESOLVED FURTHER: That the proper officers of the Company are hereby authorized and directed to prepare and file with the Delaware Secretary of State an appropriate certificate of elimination with respect to the Preferred Stock in order to eliminate from the Company's certificate of incorporation all matters set forth in the certificate of designations previously filed with respect to the Preferred Stock.
[Signature page to follow]
IN WITNESS WHEREOF, the Company has caused this Certificate of Elimination to be signed by John J. Moss, its Vice President, General Counsel and Secretary, this 31st day of August 2001.
| INTRAWARE, INC. | |||
By: |
/s/ JOHN J. MOSS |
||
| Name: John J. Moss Title: Vice President, General Counsel and Secretary |
|||
2
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES B-1 CONVERTIBLE PREFERRED STOCK
OF
INTRAWARE, INC.
Intraware, Inc. (the "Company"), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify that, pursuant to authority conferred upon the Board of Directors of the Company by the Amended and Restated Certificate of Incorporation of the Company (the "Certificate Of Incorporation"), and pursuant to Section 151 of the General Corporation Law of the State of Delaware, the Board of Directors of the Company at a meeting duly held, adopted resolutions (i) authorizing a series of the Company's previously authorized preferred stock, par value $0.0001 per share, and (ii) providing for the designations, preferences and relative, participating, optional or other rights, and the qualifications, limitations or restrictions thereof, of 360,000 shares of Series B-1 Convertible Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue three hundred sixty thousand (360,000) shares of Series B-1 Convertible Preferred Stock (the "Series B-1 Preferred Shares"), par value $0.0001 per share, which shall have the powers, designations, preferences and other special rights set forth below.
(1) Voting Rights.
(a) Series B-1 Preferred Stock. Except as otherwise provided herein or the Certificate of Incorporation or required by law, the holders of the Series B-1 Preferred Shares and the holders of the Company's common stock, par value $0.0001 per share (the "Common Stock") shall vote together as a single class with each Preferred Share having the number of votes equal to the largest whole number of shares of Common Stock into which such Preferred Share could be converted, at the record date for the determination of the stockholders entitled to vote on such matters or, if no such record date is established, at the date such vote is taken.
(b) Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held. Except as otherwise expressly provided herein or as required by law, the holders of the Series B-1 Preferred Shares and the holders of Common Stock shall vote together and not as separate classes.
(c) Authorized Director. Subject to subsection (d) of this Section 1 the holders of the Series B-1 Preferred Shares, as a class, shall be entitled to elect one (1) director (the "Series B-1 Director"), which director shall be entitled to be a member of each committee, current and future, of the Board of Directors of the Company. The Series B-1 Director shall have the same voting powers as the other members of the Board of Directors. The holders of the Series B-1 Preferred Shares shall elect the Series B-1 Director annually and the Series B-1 Director shall not be a Class I, Class II or Class III director.
(d) Vacancies. In the case of any vacancy in the office of the director elected by the holders of the Series B-1 Preferred Shares, the holders of the Series B-1 Preferred Shares may, by affirmative vote of a majority, elect a successor to hold the office for the unexpired term of the director whose place shall be vacant. Any director who shall have been elected by the holders of the Series B-1 Preferred Shares, or any director so elected as provided in the immediately preceding sentence, shall be removed during the aforesaid term of office, whether with or without cause, only by the affirmative vote of the holders of a majority of the Series B-1 Preferred Shares.
(2) Stated Value. Subject to Section 6, each Preferred Share shall have a "Stated Value" equal to $10.
(3) Conversion of Series B-1 Preferred Shares. Series B-1 Preferred Shares shall be convertible into shares of the Company's Common Stock, on the terms and conditions set forth in this Section 3.
(a) Conversion Right. At any time or times on or after the first date of issuance of any Preferred Share (the "Original Issuance Date"), any holder of Series B-1 Preferred Shares shall be entitled to convert any whole or partial number of Series B-1 Preferred Shares into fully paid and nonassessable shares of Common Stock in accordance with this Section 3(a) and Sections 3(b) and 3(c). The Company shall not issue any fraction of a share of Common Stock upon any conversion. All shares of Common Stock (including fractions thereof) issuable upon conversion of more than one Preferred Share by a holder thereof shall be aggregated for purposes of determining whether the conversion would result in the issuance of a fraction of a share of Common Stock. If, after the aforementioned aggregation, the issuance would result in the issuance of a fraction of a share of Common Stock, the Company shall, in lieu of issuing such fractional share, pay to the holder the fair value thereof in cash. The Company shall pay any and all taxes that may be payable with respect to the issuance and delivery of Common Stock upon conversion of Series B-1 Preferred Shares unless such taxes result from the issuance of Common Stock upon conversion to a person other than the holder of Series B-1 Preferred Shares.
(b) Conversion Price. Subject to anti-dilution adjustment as provided in Section 3(d), the "Conversion Price" of each Preferred Share shall be equal to $1.00. Each Preferred Share will convert into that number of shares of Common Stock determined by dividing the Stated Value of the Preferred Share by the Conversion Price, as adjusted at the time of conversion.
(c) Mechanics of Conversion. To convert Series B-1 Preferred Shares into shares of Common Stock on any date (a "Conversion Date"), the holder thereof shall (i) transmit by facsimile (or otherwise deliver), for receipt on or prior to 11:59 p.m., California time on such date, a copy of an executed notice of conversion in the form attached hereto as Exhibit I (the "Conversion Notice") to the Company, and (ii) surrender to a common carrier for delivery to the Company within 3 business days of such date the original certificates representing the Series B-1 Preferred Shares being converted (or an indemnification undertaking with respect to such shares in the case of their loss, theft or destruction) (the "Preferred Stock Certificates"). On or before the third Business Day following the date of receipt of a Conversion Notice (the "Share Delivery Date"), the Company shall (x) issue and deliver to the address as specified in the Conversion Notice, a certificate, registered in the name of the holder or its designee, for the number of shares of Common Stock to which the holder shall be entitled, or (y) provided that the Company's transfer agent (the "Transfer Agent") is participating in The Depository Trust Company ("DTC") Fast Automated Securities Transfer Program, upon the request of the holder, credit such aggregate number of shares of Common Stock to which the holder shall be entitled to the holder's or its designee's balance account with DTC through its Deposit Withdrawal Agent Commission system. If the number of Series B-1 Preferred Shares represented by the Preferred Stock Certificate(s) submitted for conversion pursuant to Section 3(c) (ii) is greater than the number of Series B-1 Preferred Shares being converted, then the Company shall, as soon as practicable and in no event later than three Business Days after receipt of the Preferred Stock Certificate(s) (the "Preferred Stock Delivery Date") and at its own expense, issue and deliver to the holder a new Preferred Stock Certificate representing the number of Series B-1 Preferred Shares not converted. The person or persons entitled to receive the shares of Common Stock issuable upon a conversion of Series B-1 Preferred Shares shall be treated for all purposes as the record holder or holders of such shares of Common Stock on the Conversion Date.
(d) Anti-Dilution Provisions. The Conversion Price in effect at any time and the number and kind of securities issuable upon conversion of the Series B-1 Preferred Shares shall be subject to adjustment from time to time upon the happening of certain events as follows:
(i) Adjustment for Stock Splits and Combinations. If the Company at any time or from time to time on or after the Original Issuance Date effects a subdivision of the outstanding Common
2
Stock, the Conversion Price then in effect immediately before that subdivision shall be proportionately decreased, and conversely, if the Company at any time or from time to time on or after the Original Issuance Date combines the outstanding shares of Common Stock into a smaller number of shares, the Conversion Price then in effect immediately before the combination shall be proportionately increased. Any adjustment under this subsection (i) shall become effective at the close of business on the date the subdivision or combination becomes effective.
(ii) Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time on or after the Original Issuance Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the Conversion Price then in effect shall be decreased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Conversion Price then in effect by a fraction (1) the numerator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date and (2) the denominator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Conversion Price shall be recomputed accordingly as of the close of business on such record date and thereafter the Conversion Price shall be adjusted pursuant to this subsection (ii) as of the time of actual payment of such dividends or distributions.
(iii) Adjustments for Other Dividends and Distributions. In the event the Company at any time or from time to time on or after the Original Issuance Date makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in securities of the Company other than shares of Common Stock, then and in each such event provision shall be made so that the holders of Series B-1 Preferred Shares shall receive upon conversion thereof, in addition to the number of shares of Common Stock receivable thereupon, the amount of securities of the Company which they would have received had their Series B-1 Preferred Shares been converted into Common Stock on the date of such event and had they thereafter, during the period from the date of such event to and including the conversion date, retained such securities receivable by them as aforesaid during such period, subject to all other adjustments called for during such period under this subsection (d) with respect to the rights of the holders of the Series B-1 Preferred Shares.
(iv) Adjustment for Reclassification, Exchange and Substitution. In the event that at any time or from time to time on or after the Original Issuance Date, the Common Stock issuable upon the conversion of the Series B-1 Preferred Shares is changed into the same or a different number of shares of any class or classes of stock, whether by recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend or a reorganization, merger, consolidation or sale of assets, provided for elsewhere in this subsection (d)), then and in any such event each holder of Series B-1 Preferred Shares shall have the right thereafter to convert such stock into the kind and amount of stock and other securities and property receivable upon such recapitalization, reclassification or other change, by holders of the maximum number of shares of Common Stock into which such shares of Series B-1 Preferred Shares could have been converted immediately prior to such recapitalization, reclassification or change, all subject to further adjustment as provided herein.
(v) Reorganizations, Mergers, Consolidations or Sales of Assets. If at any time or from time to time on or after the Original Issuance Date there is a capital reorganization of the Common Stock (other than a recapitalization, subdivision, combination, reclassification or exchange of shares provided for elsewhere in this subsection (d)) or a merger or consolidation of the Company with or into another corporation, or the sale of all or substantially all of the Company's properties and assets to any other person, then, as a part of such reorganization, merger, consolidation or sale, provision
3
shall be made so that the holders of the Series B-1 Preferred Shares shall thereafter be entitled to receive upon conversion of the Series B-1 Preferred Shares the number of shares of stock or other securities or property to which a holder of the number of shares of Common Stock deliverable upon conversion would have been entitled on such capital reorganization, merger, consolidation, or sale. In any such case, appropriate adjustment shall be made in the application of the provisions of this subsection (d) with respect to the rights of the holders of the Series B-1 Preferred Shares after the reorganization, merger, consolidation or sale to the end that the provisions of this subsection (d) (including adjustment of the Conversion Price then in effect and the number of shares purchasable upon conversion of the Series B-1 Preferred Shares) shall be applicable after that event and be as nearly equivalent as may be practicable.
(vi) Sale of Shares Below Conversion Price After Full Rachet Period:
A. Upon expiration of the Full Rachet Period, the following provisions of this subsection 3(d)(vi)(A) shall apply: if at any time or from time to time, during the twelve-month period immediately following the Original Issuance Date, the Company issues or sells, or is deemed by the express provisions of this subsection 3(d)(vi) to have issued or sold, Additional Shares of Common Stock (as hereinafter defined), other than as a dividend or other distribution on any class of stock and other than upon a subdivision or combination of shares of Common Stock, in either case as provided in subsection 3(d)(i) above, for an Effective Price (as hereinafter defined) less than the then existing Conversion Price, then and in each such case the then existing Conversion Price shall be reduced, as of the opening of business on the date of such issue or sale, as follows: if such issuance or deemed issuance occurs, the Conversion Price shall be reduced to a price determined by multiplying that Conversion Price by a fraction (1) the numerator of which shall be (a) the number of shares of Common Stock outstanding at the close of business on the day next preceding the date of such issue or sale, plus (b) the number of shares of Common Stock which the aggregate consideration received (or by the express provisions hereof deemed to have been received) by the Company for the total number of Additional Shares of Common Stock so issued would purchase at such Conversion Price, plus (c) the number of shares of Common Stock into which all outstanding shares of Series A Preferred and Series B-1 Preferred Shares are convertible at the close of business on the date next preceding the date of such issue or sale, plus (d) the number of shares of Common Stock underlying all Other Securities (as hereinafter defined) at the close of business on the date next preceding the date of such issue or sale, plus (e) the number of shares of Common Stock issuable upon exercise of certain warrants issued by the Company to the original holders of the Series B-1 Preferred Shares concurrently with the issuance of the Series B-1 Preferred Shares (the "Warrants") and all warrants outstanding on the Original Issuance Date that are exercisable for shares of Common Stock and (2) the denominator of which shall be (a) the number of shares of Common Stock outstanding at the close of business on the date of such issue or sale after giving effect to such issue of Additional Shares of Common Stock, plus (b) the number of shares of Common Stock into which the outstanding shares of all Series A Preferred and the Series B-1 Preferred Shares are convertible at the close of business on the date next preceding the date of such issue or sale, plus (c) the number of shares of Common Stock underlying the Other Securities at the close of business on the date next preceding the date of such issue or sale, plus (d) the number of shares of Common Stock issuable upon exercise of the Warrants and exercise of all warrants outstanding on the Original Issuance Date that are exercisable for shares of Common Stock. Notwithstanding any other provision herein, the Conversion Price shall not be reduced under this paragraph (vi)(A) of this subsection (d) if the holders of a majority of the outstanding Series B-1 Preferred Shares consent to such non-reduction.
B. For the purpose of making any adjustment required under subsections 3(d)(vi) and (viii), the consideration received by the Company for any issue or sale of securities shall (I) to the extent it consists of cash be computed at the amount of cash received by the Company, (II) 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 of the Company (the "Board"), (III) if
4
Additional Shares of Common Stock, Convertible Securities (as hereinafter defined) or rights or options to purchase either Additional Shares of Common Stock or Convertible Securities are issued or sold together with other stock or securities or other assets of the Company 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 to be allocable to such Additional Shares of Common Stock, Convertible Securities or rights or options, and (IV) be computed after reduction for all expenses payable by the Company in connection with such issue or sale.
C. For the purpose of the adjustment required under subsections 3(d)(vi) and (viii), if the Company issues or sells any rights, warrants or options for the purchase of, or stock or other securities convertible into or exchangeable for, Additional Shares of Common Stock (such convertible or exchangeable stock or securities being hereinafter referred to as "Convertible Securities") and if the Effective Price of such Additional Shares of Common Stock is less than the Conversion Price then in effect, then in each case the Company shall be deemed to have issued at the time of the issuance of such rights, warrants or options or Convertible Securities the maximum number of Additional Shares of Common Stock issuable upon exercise, conversion or exchange 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 Company for the issuance of such rights, warrants or options or Convertible Securities, plus, in the case of such rights, warrants or options, the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights, warrants or options, plus, in the case of Convertible Securities, the minimum amounts of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange thereof. No further adjustment of the Conversion Price, adjusted upon the issuance of such rights, warrants, options or Convertible Securities, shall be made as a result of the actual issuance of Additional Shares of Common Stock on the exercise of any such rights, warrants or options or the conversion or exchange of any such Convertible Securities. If any such rights or options or the conversion or exchange privilege represented by any such Convertible Securities shall expire without having been exercised, the Conversion Price adjusted upon the issuance of such rights, warrants, options or Convertible Securities 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, warrants, or options or rights of conversion or exchange of such Convertible Securities, and such Additional Shares of Common Stock, if any, were issued or sold for the consideration actually received by the Company upon such exercise, plus the consideration, if any, actually received by the Company for the granting of all such rights, warrants, or options, whether or not exercised, plus the consideration received for issuing or selling the Convertible Securities actually converted or exchanged, plus the consideration, if any, actually received by the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) on the conversion or exchange of such Convertible Securities.
D. For the purpose of the adjustment required under subsections 3(d)(vi) and (viii), if the Company issues or sells, or is deemed by the express provisions of this subsection to have issued or sold, any rights or options for the purchase of Convertible Securities and if the Effective Price of the Additional Shares of Common Stock underlying such Convertible Securities is less than the Conversion Price then in effect, then in each such case the Company shall be deemed to have issued at the time of the issuance of such rights or options the maximum number of Additional Shares of Common Stock issuable upon conversion or exchange of the total amount of Convertible Securities covered by such rights or options and to have received as consideration for the issuance of such Additional Shares of Common Stock an amount equal to the amount of consideration, if any, received by the Company for the issuance of such rights, warrants or options, plus the minimum amounts of consideration, if any, payable to the Company upon the exercise of such rights, warrants or options, plus the minimum amount of consideration, if any, payable to the Company (other than by cancellation of liabilities or obligations evidenced by such Convertible Securities) upon the conversion or exchange of such
5
Convertible Securities. No further adjustment of the Conversion Price, adjusted upon the issuance of such rights, warrants or options, shall be made as a result of the actual issuance of the Convertible Securities upon the exercise of such rights, warrants or options or upon the actual issuance of Additional Shares of Common Stock upon the conversion or exchange of such Convertible Securities. The provisions of paragraph (C) above for the readjustment of the Conversion Price upon the expiration of rights, warrants or options or the rights of conversion or exchange of Convertible Securities shall apply mutatis mutandis to the rights, warrants options and Convertible Securities referred to in this paragraph (D).
E. "Additional Shares of Common Stock" shall mean all shares of Common Stock issued by the Company on or after the Original Issuance Date, whether or not subsequently reacquired or retired by the Company, other than (I) shares of Common Stock issued upon conversion of the Series A Preferred in accordance with the Certificate of Designations for the Series A Preferred (the "Series A Designation") and the conversion of the Series B-1 Preferred Shares in accordance herewith, (II) shares of Common Stock issuable upon exercise of the Warrants, (III) shares of Common Stock issuable upon exercise of warrants outstanding as of the Original Issuance Date (provided that the terms of such warrants are not modified after the Original Issuance Date to adjust the exercise price), (IV) shares of Common Stock issued to individuals who are or were employees or directors of or consultants and advisors to the Company or any Subsidiary pursuant to stock purchases or stock option plans or other arrangements approved by the compensation committee of the Board and not vetoed by the Series B-1 Director or pursuant to guidelines approved by the compensation committee of the Board and not vetoed by the Series B-1 Director (V) shares of Common Stock issued in connection with bona fide acquisitions, mergers, joint ventures and other similar transactions approved by the Board and (VI) shares of Common Stock issued pursuant to any event for which adjustment is made to the Conversion Price under Section 3(d) hereof or to the exercise price under the anti-dilution provisions of the Warrants. 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 Company under this subsection (vi), into the aggregate consideration received, or deemed to have been received, by the Company for such issue under this subsection (vi), for such Additional Shares of Common Stock. "Other Securities" with respect to an issue or sale of Additional Shares of Common Stock shall mean (1) Convertible Securities (other than the Series B-1 Preferred Shares and shares of the Company's Series A Preferred Stock, par value $0.0001 per share (the "Series A Preferred") (provided that the terms of the Series A Preferred are not modified after the Original Issuance Date to adjust the conversion price thereof), and (2) the Warrants); "the number of shares of Common Stock underlying Other Securities" on a particular date shall mean the number of shares of Common Stock issuable upon the exercise, conversion or exchange, as the case may be, of such Other Securities at the close of business on such date.
F. Any reduction in the conversion price of any Convertible Security, whether outstanding on the Original Issuance Date or thereafter, or the price of any option, warrant or right to purchase Common Stock or any Convertible Security (whether such option, warrant or right is outstanding on the Original Issuance Date or thereafter), to an Effective Price less than the then current Conversion Price, shall be deemed to be an issuance of such Convertible Security and all such options, warrants or rights at such Effective Price, and the provisions of Section 3(vi)(C), (D) and (E) shall apply thereto mutatis mutandis.
(vii) No adjustment in the Conversion Price shall be required unless such adjustment would require an increase or decrease of at least one cent ($0.01) in such price; provided, however, that any adjustments which by reason of this subsection (vii) are not required to be made shall be carried forward and taken into account in any subsequent adjustment required to be made hereunder. All calculations under this subsection 3(d)(vii) shall be made to the nearest cent or to the nearest one-hundredth of a share, as the case may be.
6
(viii) Sale of Shares Below Conversion Price During the Full Rachet Period. For a period of 90 days after April 2, 2001 (the "Full Rachet Period"), if the Company issues or sells, or is deemed by the express provisions of subsections 3(d)(vi)(B) through (E) to have issued or sold, Additional Shares of Common Stock, other than as a dividend or other distribution on any class of stock and other than upon a subdivision or combination of shares of Common Stock, in either case as provided in subsection 3(d)(i) above, for an Effective Price that is less than the then existing Conversion Price, then in each such case the then existing Conversion Price shall be reduced such that it is equal to the lowest Effective Price at which any Additional Shares of Common Stock are issued.
(e) No Impairment. The Company will not, by amendment of its Certificate of Incorporation 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 Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 3 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 B-1 Preferred Shares against impairment.
(f) Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 3, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Series B-1 Preferred Shares a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any holder of Series B-1 Preferred Shares, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) Conversion Price 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 B-1 Preferred Shares.
(g) Status of Converted Stock. In the event any Series B-1 Preferred Shares shall be converted pursuant to Section 3 hereof, the shares so converted shall be canceled and shall not be reissued as Series B-1 Preferred Shares.
(h) Stock Purchase Rights. If at any time or from time to time, the Company grants or issues to the record holders of the Common Stock any options, warrants or rights (collectively, "Stock Purchase Rights") entitling any holder of Common Stock to purchase Common Stock or any security convertible into or exchangeable for Common Stock or to purchase any other stock or securities of the Company, the holders of Series B-1 Preferred Shares shall be entitled to acquire, upon the terms applicable to such Stock Purchase Rights, the aggregate Stock Purchase Rights which such holders of Series B-1 Preferred Shares could have acquired if they had been the record holder of the maximum number of shares of Common Stock issuable upon conversion of their Series B-1 Preferred Shares on both (x) the record date for such grant or issuance of such Stock Purchase Rights, and (y) the date of the grant or issuance of such Stock Purchase Rights.
(4) Assumption and Provision Upon Organic Change. Prior to the consummation of any Organic Change (as defined below), the Company shall make appropriate provision to ensure that each of the holders of the Series B-1 Preferred Shares will thereafter have the right to acquire and receive in lieu of or in addition to (as the case may be) the shares of Common Stock immediately theretofore acquirable and receivable upon the conversion of such holder's Series B-1 Preferred Shares such shares of stock, securities or assets that would have been issued or payable in such Organic Change with respect to or in exchange for the number of shares of Common Stock which would have been acquirable and receivable upon the conversion of such holder's Series B-1 Preferred Shares into Common Stock immediately prior to such Organic Change.. The following shall constitute an "Organic Change": any recapitalization, reorganization, reclassification, consolidation or merger, sale of all or substantially all of the Company's assets to another Person or other transaction which is effected in
7
such a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock.
(5) Reservation of Authorized Shares. The Company shall, so long as any of the Series B-1 Preferred Shares are outstanding, take all action necessary to reserve and keep available out of its authorized and unissued Common Stock, solely for the purpose of effecting the conversion of the Series B-1 Preferred Shares, 100% of such number of shares of Common Stock as shall from time to time be sufficient to effect the conversion of all of the Series B-1 Preferred Shares then outstanding.
(6) Liquidation, Dissolution, Winding-Up. In the event of any Liquidation (as defined below) of the Company, the holders of the Series B-1 Preferred Shares shall be entitled to receive out of the assets of the Company, legally available for distribution therefrom (the "Liquidation Funds"), before any amount shall be paid to the holders of any of the capital stock of the Company of any class junior in rank to the Series B-1 Preferred Shares in respect of the preferences as to the distributions and payments on the liquidation, dissolution and winding up of the Company, an amount per Preferred Share equal to the greater of (i) the Stated Value (as adjusted for any stock dividend, stock split, combination or other similar recapitalization affecting such shares in the manner provided in Section 3(d) for the adjustment of the Conversion Price) plus all dividends, if any, which have accrued or are payable under Section 8 hereof, but have not been paid in cash or added to the Stated Value, up to and including the date full payment is tendered to the holder of such Preferred Share with respect to such Liquidation (such sum, "Liquidation Choice 1") or (ii) the amount the holder of the Series B-1 Preferred Shares would have received upon such Liquidation, had such holder converted its Series B-1 Preferred Shares into Common Stock in accordance with Section 3 immediately prior to such Liquidation, plus all accrued but unpaid dividends, if any, regardless of whether or not such dividends were added to the Liquidation Preference as provided in clause (i) above, up to and including the date full payment is tendered to the holder of the Series B-1 Preferred Shares with respect to such Liquidation (such sum, "Liquidation Choice 2", and considered together with Liquidation Choice 1, the "Liquidation Preference"); provided that, if the Liquidation Funds are insufficient to pay, issue or deliver the full amount due to the holders of Series B-1 Preferred Shares and holders of shares of other classes or series of preferred stock of the Company that are of equal rank with the Series B-1 Preferred Shares as to payments of Liquidation Funds (the "Pari Passu Shares"), then each holder of Series B-1 Preferred Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds equal to the full amount of Liquidation Funds payable to such holder as a liquidation preference, in accordance with their respective Certificate of Designations, Preferences and Rights, as a percentage of the full amount of Liquidation Funds payable to all holders of Series B-1 Preferred Shares and Pari Passu Shares. After the Liquidation Preference has been paid, the Series B-1 Preferred Shares shall receive no additional portion of the remaining Liquidation Funds. No holder of Series B-1 Preferred Shares shall be entitled to receive any amounts with respect thereto upon any Liquidation other than the amounts provided for herein; provided that a holder of Series B-1 Preferred Shares shall be entitled to all amounts previously accrued with respect to amounts owed hereunder. If a Liquidation is a Cash-Out Liquidation, the form of consideration in which the Liquidation Preference is to be paid to the holders of the Series B-1 Preferred Shares as provided in this paragraph (6) shall be cash. If a Liquidation is a Like-Kind Liquidation, the form of consideration in which the Liquidation Preference is to be paid to the holders of the Series B-1 Preferred Shares as provided in this paragraph (6) shall be the form of consideration received by the Company or the other holders of the Company's capital stock, as the case may be. Upon full payment of any such applicable liquidation preference set forth above such shares of Preferred Stock shall be deemed redeemed.
"Liquidation" means either a Cash-Out Liquidation or a Like-Kind Liquidation.
"Cash-Out Liquidation" means (i) any liquidation, dissolution or winding up of the Company, whether voluntary or involuntary or (ii) a change in the voting control of the Company such that any one person, entity or "group" (as contemplated by Rule 13d-5(b)(1) under the Securities Exchange Act of 1934, as amended) acquires from the Company in a cash transaction the right to cast greater than
8
50% of votes eligible to be cast by all holders of capital stock of the Company in the election of directors of the Company. Notwithstanding any other provision herein, the events described in item (ii) shall not be deemed a Cash-Out Liquidation if the holders of a majority of the Series B-1 Preferred Stock consent, vote or otherwise agree that such event is not a Cash-Out Liquidation.
"Like-Kind Liquidation" shall include the merger or consolidation of the Company with or into another entity and the sale of all or substantially all of the assets of the Company.
(7) Preferred Rank. All shares of Common Stock shall be of junior rank to all Series B-1 Preferred Shares in all respects as to the preferences as to distributions and payments upon the liquidation, dissolution and winding up of the Company. The rights of the shares of Common Stock shall be subject to the preferences and relative rights of the Series B-1 Preferred Shares. The Series B-1 Preferred Shares shall rank pari passu with the Company's Series A Preferred. The Company shall not create or authorize any other class or series of capital stock ranking senior in any respect to the Series B-1 Preferred Shares, or issue any indebtedness convertible into, or exchangeable or redeemable for, any equity security, or issue any indebtedness issued together with any right, option or warrant to purchase any equity security.
(8) Dividends; Participation. Subject to the rights of the holders, if any, of the Pari Passu Shares, the holders of the Series B-1 Preferred Shares shall, as holders of Series B-1 Preferred Shares, be entitled to such dividends paid and distributions made to the holders of Common Stock to the same extent as if such holders of Series B-1 Preferred Shares had converted the Series B-1 Preferred Shares into Common Stock (without regard to any limitations on conversion herein or elsewhere) and had held such shares of Common Stock on the record date for such dividends and distributions. Payments under the preceding sentence shall be made concurrently with the dividend or distribution to the holders of Common Stock. So long as any Series B-1 Preferred Shares shall be outstanding, no dividends, whether in cash, securities or property, shall be paid or declared, nor shall any other distribution be made, on the Common Stock or any other security junior to the Series B-1 Preferred Shares as to dividend rights, unless all dividends, if any, payable with respect to the Preferred shall have been paid or declared and duly provided for in cash or in kind.
(9) Vote to Issue, or Change the Terms of, Series B-1 Preferred Shares. The affirmative vote of the holders of not less than a majority of the then outstanding Series B-1 Preferred Shares at a meeting duly called for such purpose or the written consent without a meeting of the holders of not less than a majority of the then outstanding Series B-1 Preferred Shares shall be required for any amendment to this Certificate of Designations or the Series A Designation or the Company's Certificate of Incorporation or By-laws which would amend, alter, change, repeal or otherwise adversely affect any of the powers, designations, preferences and rights of the Series B-1 Preferred Shares. Notwithstanding any other provision herein, no power, (including voting power), preference or right set forth in this Certificate of Designation shall be effective in any circumstance or circumstances if the holders of a majority of the Series B-1 Preferred Shares consent at any time to the ineffectiveness of such power, preference or right under such circumstance or circumstances.
(10) Lost or Stolen Certificates. Upon receipt by the Company of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of any Preferred Stock Certificates representing the Series B-1 Preferred Shares, and, in the case of loss, theft or destruction, of any indemnification undertaking by the holder to the Company in customary form and, in the case of mutilation, upon surrender and cancellation of the Preferred Stock Certificate(s), the Company shall execute and deliver new preferred stock certificate(s) of like tenor and date.
(11) Notices. Whenever notice is required to be given under this Certificate of Designations, unless otherwise provided herein, such notice shall be given in accordance with the notice provisions set forth in the placement agency agreement pursuant to which the Series B-1 Preferred Shares were issued. The Company shall provide such holder of Series B-1 Preferred Shares with written notice at least ten days
9
prior to the date on which the Company closes its books or takes record with respect to any pro rata subscription offer to holders of Common Stock.
(12) Remedies for Breaches of Certain Registration Rights.
(a) As partial relief for a Registration Statement Default, and for the damages to any Holder by reason of any such delay in or reduction of its ability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), the Conversion Price as set forth herein shall be reduced by 5% for each aggregate thirty (30) day period (or pro rated amounts thereof for partial thirty (30) day periods) that (i) the Registration Statement is not (A) filed with the SEC on or before the Filing Deadline, or (B) declared effective by the SEC following the Effectiveness Deadline, and (ii) after the Registration Statement is declared effective by the SEC, such Registration Statement is not available for the sale of at least all of the Registrable Securities required to be included in such Registration Statement. The capitalized terms used in this Section 12(a) but not defined herein shall have the meanings given such terms in the Registration Rights Agreement entered into in connection with the issuance of the Series B-1 Preferred Shares by the Company, Commonwealth Associates, L.P. and the other investors parties thereto (the "Registration Rights Agreement").
(b) In the event of any Rule 144 Default by the Company, then, as partial relief for damages to any Holder by reason of any delay or inability to sell the Registrable Securities (which remedy shall not be exclusive of any other remedies available at law or in equity), the Conversion Price relating to the Series B-1 Preferred Shares as set forth herein shall be reduced by 5% for each aggregate thirty (30) day period (or pro rated amounts thereof for partial thirty (30) day periods) that the Holder is delayed from selling, or unable to sell, Registrable Securities under Rule 144 due to (i) the Company's failure to promptly provide the requisite legal opinion as provided in Section 3.8 of the Registration Rights Agreement, or (ii) the Company's failure to comply with the filing and other requirements under Rule 144 necessary to make such Rule available to the Holders. The capitalized terms used in this Section 12(b) but not defined herein shall have the meanings given such terms in the Registration Rights Agreement.
(13) Penalty for Failure to Obtain Required Approval. If, the Required Approval (as defined below) is not obtained by the Company within 6 months after the first date on which Series B-1 Preferred Shares are issued (the "Approval Deadline") then upon the delivery of written notice from the Commonwealth Associates, L.P. (or its successor) to the Company, the Company shall be required to repurchase the number of Series B-1 Preferred Shares set forth in such notice at a price per Preferred Share equal to the greater of (x) double the amount of the Conversion Price or (y) the difference between (A) the Conversion Price and (B) the average closing bid price on Nasdaq National Market for the Common Stock for the 10 trading days preceding the Approval Deadline. The "Required Approval" means either (i) approval of the conversion and exercise, respectively, of all Series B-1 Preferred Shares and Warrants by the holders of a majority of the issued and outstanding Common Stock, if such approval is required by NASD Marketplace Rule 4460(i)(1)(D)(ii) or (ii) obtaining an exception from Nasdaq under NASD Marketplace Rule 4460(i)(2) permitting the Company to issue the Series B-1 Preferred Shares and Warrants without obtaining the shareholder approval required under clause (i) of this sentence.
[SIGNATURE PAGE TO FOLLOW]
10
IN WITNESS WHEREOF, the Company has caused this Certificate of Designations to be signed by John J. Moss, its Vice President, General Counsel and Secretary, this 25th day of August 2001.
| INTRAWARE, INC. | |||
By: |
/s/ JOHN J. MOSS |
||
| Name: John J. Moss Title: Vice President, General Counsel and Secretary |
|||
11
EXHIBIT I
INTRAWARE, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights Series B-1 Convertible Preferred Stock of Intraware, Inc. (the "Certificate Of Designations"). In accordance with and pursuant to the Certificate of Designations, the undersigned hereby elects to convert the number of shares of Series B-1 Convertible Preferred Stock, par value $0.0001 per share (the "Series B-1 Preferred Shares"), of Intraware, Inc., a Delaware corporation (the "Company"), indicated below into shares of Common Stock, par value $0.0001 per share (the "Common Stock"), of the Company, as of the date specified below.
Date of Conversion:
Number of Series B-1 Preferred Shares to be converted:
Stock certificate no(s). of Series B-1 Preferred Shares to be converted:
Please deliver the Common Stock into which the Series B-1 Preferred Shares are being converted to the following address:
12
THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND MAY NOT BE TRANSFERRED UNTIL (i) A REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") SHALL HAVE BECOME EFFECTIVE WITH RESPECT THERETO OR (ii) RECEIPT BY THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT THAT REGISTRATION UNDER THE ACT IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED TRANSFER NOR IS IN VIOLATION OF ANY APPLICABLE STATE SECURITIES LAWS. THIS LEGEND SHALL BE ENDORSED UPON ANY NOTE ISSUED IN EXCHANGE FOR THIS NOTE.
INTRAWARE, INC.
8% Senior Secured Promissory Note
| $ | August , 2001 |
FOR VALUE RECEIVED, Intraware, Inc., a Delaware corporation (the "Company") with its principal executive office at 25 Orinda Way, Orinda, California 94563, promises to pay to the order of (the "Payee") or registered assigns the principal amount of ($ ) or such lesser amount as shall equal the outstanding principal amount hereof (the "Principal Amount") on August , 2002 [12 months from the first issuance date of the Notes] (the "Maturity Date"), subject to acceleration of the Maturity Date as provided herein. The Principal Amount is payable in such coin or currency of the United States of America as at the time of payment shall be legal tender for the payment of public and private debts.
This Note and other identical notes in the aggregate principal amount of up to $7,000,000 (the "Notes") is issued to the Payee in connection with a private placement of Notes (the "Bridge Financing") through Commonwealth Associates, L.P. ("Commonwealth"), as placement agent, and pursuant to a Subscription Agreement between the Company and the Payee (the "Subscription Agreement"), a copy of which agreement is available for inspection at the Company's principal office. Notwithstanding any provision to the contrary contained herein, this Note is subject and entitled to certain terms, conditions, covenants and agreements contained in the Subscription Agreement. Any transferee of this Note, by its acceptance hereof, assumes the obligations of the Payee in the Subscription Agreement with respect to the conditions and procedures for transfer of this Note. Reference to the Subscription Agreement shall in no way impair the absolute and unconditional obligation of the Company to pay both the Principal Amount and interest thereon as provided herein.
Interest on this Note shall accrue on the Principal Amount outstanding from time to time at a rate per annum computed in accordance with Section 2 hereof and shall be payable quarterly in arrears on each February 28, May 31, August 31 and November 30 commencing February 28, 2002. All payments by the Company hereunder shall be applied first to pay any interest which is due, but unpaid, then to reduce the Principal Amount.
The Maturity Date may be accelerated upon notice to the Company from holders of the Notes ("Holders") holding at least a majority of the outstanding principal amount of the Notes (the "Required Holders") in the event of: (i) the closing of a sale (or the closing of the last of a series of sales) of any debt or equity securities resulting in aggregate gross proceeds of not less than the gross proceeds to the Company from the Bridge Financing plus $1,400,000 (the "Subsequent Placement"); (ii) a merger or combination of the Company in which the shareholders of the Company prior to the transaction own less than a majority of the outstanding shares of the surviving or combined entity after such transaction (a "Change of Control"); or (iii) the sale of all or substantially all of the assets of the Company to one or more third parties or the purchase by a single entity or person or group of
affiliated entities or persons of more than 50% of the issued and outstanding voting shares of the Company.
The Company (i) waives presentment, demand, protest or notice of any kind in connection with this Note and (ii) agrees, in the event of an Event of Default (as defined below), to pay to the Payee, on demand, all reasonable costs and expenses (including reasonable legal fees) incurred in connection with the enforcement and collection of this Note.
The obligations of the Company under the Notes are secured by liens on the Company's assets, including its intellectual property rights, as set forth in and pursuant to a General Security Agreement (the "Security Agreement") of even date herewith.
1. Prepayment. This Note may be prepaid, in whole or in part, without penalty, at any time upon five (5) days' prior written notice to the Payee.
2. Computation of Interest.
A. Base Interest Rate. Subject to subsections 2B and 2C below, the outstanding Principal Amount shall bear interest at the rate of eight percent (8%) per annum calculated on the basis of a year of 365 days (or 366 days as applicable).
B. Penalty Interest. In the event this Note is not repaid on the Maturity Date, the rate of interest applicable to the unpaid Principal Amount shall be adjusted to thirteen percent (13%) per annum from the Maturity Date until repayment; provided, that in no event shall the interest rate exceed the Maximum Rate provided in Section 2C below.
C. Maximum Rate. In the event that it is determined that, under the laws relating to usury applicable to the Company or the indebtedness evidenced by this Note, the interest charges and fees payable by the Company in connection herewith or in connection with any other document or instrument executed and delivered in connection herewith (collectively, the "Effective Interest Rate") cause the Effective Interest Rate applicable to the indebtedness evidenced by this Note to exceed the maximum rate allowed by law (the "Maximum Rate"), then such interest shall be recalculated for the period in question and any excess over the Maximum Rate paid with respect to such period shall be credited, without further agreement or notice, to the Principal Amount outstanding hereunder to reduce said balance by such amount with the same force and effect as though the Company had specifically designated such extra sums to be so applied to principal and the Payee had agreed to accept such extra payment(s) as a premium-free prepayment. All such deemed prepayments shall be applied to the principal balance payable on the Maturity Date.
3. Covenants of Company
A. Affirmative Covenants. The Company covenants and agrees that, so long as this Note shall be outstanding, it will perform and have each of its subsidiaries perform the obligations set forth in this Section 3A (the term "Company" as used in this Section 3 being deemed to refer also to such subsidiaries):
(i) Taxes and Levies. The Company will promptly pay and discharge all material taxes, assessments, and governmental charges or levies imposed upon the Company or upon its income and profits, or upon any of its property, before the same shall become delinquent, as well as all material claims for labor, materials and supplies which, if unpaid, might become a lien or charge upon such properties or any part thereof; provided, however, that the Company shall not be required to pay and discharge any such tax, assessment, charge, levy or claim so long as the validity thereof shall be contested in good faith by appropriate proceedings and the Company shall set aside on its books adequate reserves in accordance with generally accepted accounting principles ("GAAP") with respect to any such tax, assessment, charge, levy or claim so contested;
2
(ii) Maintenance of Existence. The Company will do or cause to be done all things reasonably necessary to preserve and keep in full force and effect its corporate existence, rights and franchises and comply with all laws applicable to the Company, except where the failure to comply would not have a material adverse effect on the Company;
(iii) Maintenance of Property. The Company will at all times maintain, preserve, protect and keep its property used or useful in the conduct of its business in good repair, working order and condition, and from time to time make all needful and proper repairs, renewals, replacements and improvements thereto as shall be reasonably required in the conduct of its business;
(iv) Books and Records. The Company will at all times keep true and correct books, records and accounts reflecting all of its business affairs and transactions in accordance with GAAP. Such books and records shall be open at reasonable times and upon reasonable notice to the inspection of the Payee or its agents at Payee's expense;
(v) Notice of Certain Events. The Company will give prompt written notice (with a description in reasonable detail) to the Payee of the occurrence of any Event of Default or any event which, with the giving of notice or the lapse of time, would constitute an Event of Default.
(vi) Shareholder Approval. Within 90 days from the date hereof, the Company shall have obtained the shareholder approval of (1) the issuance of shares of Common Stock upon the exercise of the warrants issued in the Bridge Financing (including any warrants issued to Commonwealth, as placement agent, and/or its designees), (2) the conversion provisions of Section 5 hereof, and (3) the Subsequent Placement (the "Shareholder Approval").
B. Negative Covenants. The Company covenants and agrees that, so long as this Note shall be outstanding, it will perform the obligations set forth in this Section 3B:
(i) Liquidation, Dissolution. The Company will not liquidate or dissolve, consolidate with, or merge into or with, any corporation or entity, except that (1) any wholly-owned subsidiary may merge with another wholly-owned subsidiary or with the Company (so long as the Company is the surviving corporation and no Event of Default shall occur as a result thereof) and (2) the Company may complete a merger or consolidation if the surviving entity has cash and cash equivalents and/or net assets which are either (a) equal to or greater than the then outstanding Principal Amount and accrued interest on the Notes or (equal to or greater than the Company's cash and cash equivalents and/or net assets immediately prior to such merger or consolidation;
(ii) Redemptions. The Company will not redeem or repurchase any outstanding equity securities of the Company, except for (a) repurchases of unvested or restricted shares of Common Stock at cost from employees, consultants or members of the Company's Board of Directors (the "Board") pursuant to repurchase options of the Company (1) currently outstanding or (2) hereafter entered into pursuant to a stock option plan or restricted stock plan approved by the Board or (b) rescission offers necessary or appropriate to address any violations of applicable securities laws;
(iii) Indebtedness. The Company will hereafter not create, incur, assume or suffer to exist, contingently or otherwise, any indebtedness for borrowed money which is not expressly subordinated in right of payment to this Note other than (a) indebtedness securing liens permitted by Subsection (iv) below and (b) up to $250,000 in the aggregate of Permitted Liens (as defined in the Security Agreement);
3
(iv) Negative Pledge. The Company will not hereafter create, incur, assume or suffer to exist any mortgage, pledge, hypothecation, assignment, security interest, encumbrance, lien (statutory or other), preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement and any financing lease) (each, a "Lien") upon any of its property, revenues or assets, whether now owned or hereafter acquired, except:
(a) Liens granted to secure indebtedness incurred to finance the acquisition (whether by purchase or capitalized lease) of tangible assets, but only on the assets acquired with the proceeds of such indebtedness;
(b) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;
(c) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with GAAP shall have been set aside on its books;
(d) Liens (other than Liens arising under the Employee Retirement Income Security Act of 1974, as amended, or Section 412(n) of the Internal Revenue Code of 1986, as amended) incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds;
(e) judgment Liens in existence less than 60 days after the entry thereof or with respect to which execution has been stayed; and
(f) other "Permitted Liens" as such term is defined in the Security Agreement.
(v) Investments. The Company will not purchase, own, invest in or otherwise acquire, directly or indirectly, any stock or other securities or make or permit to exist any investment or capital contribution or acquire any interest whatsoever in any other person or entity or permit to exist any loans or advances for such purposes except for investments in direct obligations of the United States of America or any agency thereof, obligations guaranteed by the United States of America and certificates of deposit or other obligations of any bank or trust company organized under the laws of the United States or any state thereof and having capital and surplus of at least $500,000,000; provided, however, that nothing contained in this clause (vi) shall preclude the Company from making acquisitions, organizing and making advances to subsidiaries, and entering into joint ventures or other business arrangements for the purpose of expanding its business.
(vi) Transactions with Affiliates. The Company will not enter into any transaction, including, without limitation, the purchase, sale, lease or exchange of property, real or personal, the purchase or sale of any security, the borrowing or lending of any money, or the rendering of any service, with any person or entity affiliated with the Company (including officers, directors and shareholders owning 3% or more of the Company's outstanding capital stock), except (a) transactions in the ordinary course of and pursuant to the reasonable requirements of its business and upon fair and reasonable terms not less favorable than would be obtained in a comparable arms-length transaction with any other person or entity not
4
affiliated with the Company, (b) transactions with Commonwealth or its affiliates, or (c) transactions valued at less than $150,000.
(vii) Dividends. The Company will not declare or pay any cash dividends or distributions on its outstanding capital stock other than as provided for in any certificates of designation with respect to shares of preferred stock outstanding on the date hereof or shares of preferred stock that may hereafter be issued in connection with a private placement through Commonwealth.
(viii) Executive Compensation. The Company shall not increase the compensation payable to any current executive officer of the Company by more than ten percent (10%) per annum without the approval of the majority of the independent members of the Board.
(ix) Acceleration of Payments. The Company shall not make any accelerated payment under any agreement, lease, loan or any other similar instrument, whether due to settlement, entry of judgement or otherwise, which shall exceed $1,000,000 in any one instance or $1,000,000 in the aggregate. Notwithstanding the preceding sentence, the Company shall be permitted to pay the accounts payable reflected on the balance sheet of the Company contained in the most recently filed Quarterly Report on Form 10-Q and other trade payables which are incurred in the ordinary course of business.
4. Events of Default
A. The term "Event of Default" shall mean any of the events set forth in this Section 4A:
(i) Non-Payment of Obligations. The Company shall default in the payment of the Principal Amount or accrued interest on this Note as and when the same shall become due and payable, whether by acceleration or otherwise, which default shall continue uncured for fifteen (15) days.
(ii) Non-Performance of Affirmative Covenants. The Company shall default in the due observance or performance of any covenant set forth in Section 3A, which default shall continue uncured for fifteen (15) days.
(iii) Non-Performance of Negative Covenants. The Company shall default in the due observance or performance of any covenant set forth in Section 3B.
(iv) Bankruptcy, Insolvency, etc. The Company shall:
(a) admit in writing its inability to pay its debts as they become due;
(b) apply for, consent to, or acquiesce in, the appointment of a trustee, receiver, sequestrator or other custodian for the Company or any of its property, or make a general assignment for the benefit of creditors;
(c) in the absence of such application, consent or acquiesce in, permit or suffer to exist the appointment of a trustee, receiver, sequestrator or other custodian for the Company or for any part of its property;
(d) permit or suffer to exist the commencement of any bankruptcy, reorganization, debt arrangement or other case or proceeding under any bankruptcy or insolvency law, or any dissolution, winding up or liquidation proceeding, in respect of the Company, and, if such case or proceeding is not commenced by the Company or converted to a voluntary case, such case or proceeding shall be consented to or acquiesced in by the Company or shall result in the entry of an order for relief; or
(e) take any corporate or other action authorizing, or in furtherance of, any of the foregoing.
5
B. Action if Bankruptcy. If any Event of Default described in clauses (iv)(a) through (d) of Section 4A shall occur, the outstanding Principal Amount and all other obligations under this Note shall automatically be and become immediately due and payable, without notice or demand.
C. Action if Other Event of Default. If any Event of Default (other than any Event of Default described in clauses (iv)(a) through (d) of Section 4A) shall occur for any reason, whether voluntary or involuntary, and be continuing, the Payee may, upon notice to the Company, declare all or any portion of the outstanding Principal Amount, together with interest accrued on this Note, to be due and payable and any or all other obligations hereunder to be due and payable, whereupon the full unpaid Principal Amount hereof, such accrued interest and any and all other such obligations which shall be so declared due and payable shall be and become immediately due and payable, without further notice, demand, or presentment.
5. Conversion into Subsequent Financing.
A. Provided the Shareholder Approval has been obtained, in the event that prior to the Maturity Date the Company completes (i) the Subsequent Placement or (ii) any other bona fide private placement of equity securities for the purpose of raising capital for the Company and excluding, among other things, (a) the issuance or exercise of options, warrants or other securities issued to officers, directors, employees or consultants of the Company pursuant to plans and arrangements approved by the Company's board of directors, (b) the issuance of securities upon the exercise or conversion of currently outstanding securities, or (c) securities issued in connection with a stock split, stock dividend or similar transaction (collectively, a "Subsequent Financing"), the Required Holders shall have the right, but not the obligation, to elect to have the outstanding Principal Amount of the Notes converted into an investment in the securities sold in the Subsequent Financing. In such event, all of the Notes will be so converted without any further action on the part of the Payee.
B. The Payee's investment in the Subsequent Financing shall be on the same terms and conditions as other investors in the Subsequent Financing. Upon cancellation of this Note in connection with the Payee's investment in the Subsequent Financing, all accrued interest shall be paid in cash.
6. Amendments and Waivers.
A. The provisions of this Note may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to in writing by the Company and the Required Holders; provided, however, that no such amendment, modification or waiver which would (i) modify this Section 6A, (ii) extend the Maturity Date for more than one additional year, or (iii) reduce the Principal Amount payable hereunder (other than in accordance with Section 2C herein or the Agency Appointment Agreement between the Payee and Commonwealth of even date herewith) shall be made without the consent of the Holder of each Note so affected.
B. No failure or delay on the part of the Payee in exercising any power or right under this Note shall operate as a waiver thereof, nor shall any single or partial exercise of any such power or right preclude any other or further exercise thereof or the exercise of any other power or right. No notice to or demand on the Company in any case shall entitle it to any notice or demand in similar or other circumstances. No waiver or approval by the Payee shall, except as may be otherwise stated in such waiver or approval, be applicable to subsequent transactions. No waiver or approval hereunder shall require any similar or dissimilar waiver or approval thereafter to be granted hereunder.
C. To the extent that the Company makes a payment or payments to the Payee, and such payment or payments or any part thereof are subsequently for any reason invalidated, set aside
6
and/or required to be repaid to a trustee, receiver or any other party under any bankruptcy law, state or federal law, common law or equitable cause, then to the extent of such recovery, the obligation or part thereof originally intended to be satisfied, and all rights and remedies therefor, 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.
D. After any waiver, amendment or supplement under this Section 6 becomes effective, the Company shall mail to the Holders a copy thereof.
7. Miscellaneous.
A. Parties in Interest. All covenants, agreements and undertakings in this Note binding upon the Company or the Payee shall bind and inure to the benefit of the successors and permitted assigns of the Company and the Payee, respectively, whether so expressed or not.
B. Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York. Sections 5-1401 and 5-1402 of the General Obligations Law of the State of New York shall apply to this Note and the Company hereby waives any right to stay or dismiss on the basis of forum non conveniens any action or proceeding brought before the courts of the State of New York sitting in New York County or of United States of America for the Southern District of New York and hereby submits to the jurisdiction of such courts.
C. Waiver of Jury Trial. THE PAYEE AND THE COMPANY HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH, THIS NOTE OR ANY OTHER DOCUMENT OR INSTRUMENT EXECUTED AND DELIVERED IN CONNECTION HEREWITH, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER VERBAL OR WRITTEN), OR ACTIONS OF THE PAYEE OR THE COMPANY. THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE PAYEE'S PURCHASING THIS NOTE.
IN WITNESS WHEREOF, this Note has been executed and delivered on the date specified above by the duly authorized representative of the Company.
| INTRAWARE, INC. | |||
By: |
|||
Name: Title: |
|||
7
THIS WARRANT AND ANY SHARES OF COMMON STOCK ISSUED UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
INTRAWARE, INC.
No.
WARRANT TO PURCHASE
SHARES OF COMMON STOCK
void after August , 2006
This certifies that for value , or registered assigns ("Holder"), is entitled, subject to the terms set forth below, at any time from and after August , 2001 (the "Original Issuance Date") and before 5:00 P.M., Eastern Time, on August , 2006, to purchase from Intraware, Inc., a Delaware corporation (the "Company"), shares (subject to adjustment as described herein), of the Common Stock, par value $0.0001 per share (which authorized class of shares is herein called the "Common Stock") of the Company, as constituted on the Original Issuance Date, upon surrender hereof, at the principal office of the Company referred to below, with a duly executed subscription form in the form attached hereto as Exhibit A and simultaneous payment therefor in lawful money of the United States or otherwise as hereinafter provided, at the price per share (the "Purchase Price") equal to $.01 per share. The number and character of such shares of Common Stock are subject to further adjustment as provided below, and the term "Common Stock" shall include, unless the context otherwise requires, the stock and other securities and property at the time receivable upon the exercise of this Warrant. This Warrant, together with like warrants constituting in the aggregate warrants to purchase up to an aggregate of 7,700,000 shares of Common Stock (the "Warrants"), was originally issued in connection with a private placement of the Company's securities through Commonwealth Associates, L.P. (the "Bridge Financing") pursuant to a placement agency agreement dated August , 2001 (the "Agency Agreement"). The term "Warrants" as used herein shall include the Warrants and any warrants delivered in substitution or exchange therefor as provided herein.
1. Exercise.
A. Subject to the limitation set forth in Section 1(B) and the redemption provisions of Section 14, this Warrant may be exercised at any time or from time to time from and after the Original Issuance Date and before 5:00 P.M., Eastern Time, on August , 2006, on any business day, for the full number of shares of Common Stock called for hereby, by surrendering it at the principal office of the Company, at 25 Orinda Way, Orinda CA 94563, with the subscription form duly executed, together with payment in an amount equal to (a) the number of shares of Common Stock called for on the face of this Warrant, as adjusted in accordance with the preceding paragraph of this Warrant (without giving effect to any further adjustment herein) multiplied (b) by the Purchase Price. Payment of this amount may be made at Holder's choosing either (1) by payment in cash or by bank draft, certified check or money order, payable to the order of the Company, or (2) by the Company not issuing that number of shares of Common Stock subject to this Warrant having a Fair Market Value (as defined below) on the date of exercise equal to such sum. This Warrant may be exercised for less than the full number of shares of Common Stock at
the time called for hereby, except that the number of shares receivable upon the exercise of this Warrant as a whole, and the sum payable upon the exercise of this Warrant as a whole, shall be proportionately reduced. Upon a partial exercise of this Warrant in accordance with the terms hereof, this Warrant shall be surrendered, and a new Warrant of the same tenor and for the purchase of the number of such shares not purchased upon such exercise shall be issued by the Company to Holder without any charge therefor. A Warrant shall be deemed to have been exercised immediately prior to the close of business on the date of its surrender for exercise as provided above, and the person entitled to receive the shares of Common Stock issuable upon such exercise shall be treated for all purposes as the holder of such shares of record as of the close of business on such date. Within two business days after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for the number of full shares of Common Stock issuable upon such exercise, together with cash, in lieu of any fraction of a share, equal to such fraction of the then Fair Market Value on the date of exercise of one full share of Common Stock.
"Fair Market Value" shall mean, as of any date, (i) if shares of the Common Stock are listed on a national securities exchange, the average of the closing prices as reported for composite transactions during the ten (10) consecutive trading days preceding the trading day immediately prior to such date or, if no sale occurred on a trading day, then the mean between the closing bid and asked prices on such exchange on such trading day; (ii) if shares of the Common Stock are not so listed but are traded on the Nasdaq National Market ("NNM"), the average of the closing prices as reported on the NNM during the ten (10) consecutive trading days preceding the trading day immediately prior to such date or, if no sale occurred on a trading day, then the mean between the highest bid and lowest asked prices as of the close of business on such trading day, as reported on the NNM; or if applicable, the Nasdaq SmallCap Market, or if not then included for quotation on the NNM or the Nasdaq SmallCap Market, the average of the highest reported bid and lowest reported asked prices as reported by the OTC Bulletin Board or the National Quotations Bureau, as the case may be, or (iii) if the shares of the Common Stock are not then publicly traded, the fair market price, not less than book value thereof, of the Common Stock as determined in good faith by the independent members of the Board of Directors of the Company (the "Board").
B. Exercise Limitation. In the event that more than 5,600,000 Warrants (the "Maximum Amount") are issued in the Bridge Financing, then until such time as the Company shall have obtained shareholder approval of the Bridge Financing (the "Shareholder Approval"), the Holder shall be entitled to exercise this Warrant only to the extent of the number of Warrant Shares obtained by multiplying the total number of Warrant Shares for which this Warrant is exercisable by a fraction, the numerator of which is the Maximum Amount and the denominator of which is the total number of Warrant Shares issuable upon exercise of all of the Warrants issued in the Bridge Financing.
2. Payment of Taxes. All shares of Common Stock issued upon the exercise of a Warrant shall be validly issued, fully paid and non-assessable, and the Company shall pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery thereof.
3. Transfer and Exchange. This Warrant and all rights hereunder are transferable, in whole or in part, on the books of the Company maintained for such purpose at its principal office referred to above by Holder in person or by duly authorized attorney, upon surrender of this Warrant together with a completed and executed assignment form in the form attached as Exhibit B and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. Upon any partial transfer, the Company will issue and deliver to Holder a new Warrant or Warrants with respect to the shares of Common Stock not so transferred. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant when endorsed in blank shall be deemed
2
negotiable and that when this Warrant shall have been so endorsed, the holder hereof may be treated by the Company and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented hereby, or to the transfer hereof on the books of the Company, any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered Holder hereof as the owner for all purposes.
This Warrant is exchangeable at such office for Warrants for the same aggregate number of shares of Common Stock, each new Warrant to represent the right to purchase such number of shares as the Holder shall designate at the time of such exchange.
4. Adjustment for Dividends in Other Stock and Property; Reclassifications.
A. In case at any time or from time to time the holders of the Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received, or, on or after the record date fixed for the determination of eligible shareholders, shall have become entitled to receive, without payment therefor,
(1) other or additional stock or other securities or property (other than cash) by way of dividend,
(2) any cash or other property paid or payable out of any source other than retained earnings (determined in accordance with generally accepted accounting principles), or
(3) other or additional stock or other securities or property (including cash) by way of stock-split, spin-off, reclassification, combination of shares or similar corporate rearrangement, (other than (x) additional shares of Common Stock or any other stock or securities into which such Common Stock shall have been changed, (y) any other stock or securities convertible into or exchangeable for such Common Stock or such other stock or securities or (z) any Stock Purchase Rights, issued as a stock dividend or stock-split), then and in each such case Holder, upon the exercise hereof as provided in Section 1, shall be entitled to receive the amount of stock and other securities and property (including cash in the cases referred to in clauses (2) and (3) above) which such Holder would hold on the date of such exercise if on the Original Issuance Date Holder had been the holder of record of the number of shares of Common Stock called for on the face of this Warrant, as adjusted in accordance with the first paragraph of this Warrant, and had thereafter, during the period from the Original Issuance Date to and including the date of such exercise, retained such shares and/or all other or additional stock and other securities and property (including cash in the cases referred to in clause (2) and (3) above) receivable by it as aforesaid during such period, giving effect to all adjustments called for during such period by Sections 4.A, 4.B and 4.C.
B. Adjustment for Reorganization, Consolidation and Merger. In case of any reorganization of the Company (or any other corporation the stock or other securities of which are at the time receivable on the exercise of this Warrant) after the Original Issuance Date, or in case, after such date, the Company (or any such other corporation) shall consolidate with or merge into another corporation or entity or convey all or substantially all its assets to another corporation or entity, then and in each such case Holder, upon the exercise hereof as provided in Section 1 at any time after the consummation of such reorganization, consolidation, merger or conveyance, shall be entitled to receive, in lieu of the stock or other securities and property receivable upon the exercise of this Warrant prior to such consummation, the stock or other securities or property to which such Holder would have been entitled upon such consummation if Holder had exercised this Warrant immediately prior thereto, all subject to further adjustment as provided in Sections 4.A, 4.B, and 4.C; in each such case, the terms of this Warrant shall be applicable to the shares of stock or other securities or property receivable upon the exercise of this Warrant after such consummation.
3
C. Adjustment for Certain Dividends and Distributions. If the Company at any time or from time to time makes, or fixes a record date for the determination of holders of Common Stock entitled to receive, a dividend or other distribution payable in additional shares of Common Stock, then and in each such event the number of shares of Common Stock receivable upon the full exercise of this Warrant (the "Aggregate Number") then in effect shall be increased as of the time of such issuance or, in the event such record date is fixed, as of the close of business on such record date, by multiplying the Aggregate Number then in effect by a fraction (A) the denominator of which is the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date, and (B) the numerator of which shall be the total number of shares of Common Stock issued and outstanding immediately prior to the time of such issuance or the close of business on such record date as the case may be, plus the number of shares of Common Stock issuable in payment of such dividend or distribution; provided, however, that if such record date is fixed and such dividend is not fully paid or if such distribution is not fully made on the date fixed therefor, the Aggregate Number shall be recomputed accordingly as of the close of business on such record date, and thereafter the Aggregate Number shall be adjusted pursuant to this Section 4.C as of the time of actual payment of such dividends or distributions.
D. Stock Split and Reverse Stock Split. If the Company at any time or from time to time effects a stock split or subdivision of the outstanding Common Stock, the Aggregate Number then in effect immediately before that stock split or subdivision shall be proportionately increased. If the Company at any time or from time to time effects a reverse stock split or combines the outstanding shares of Common Stock into a smaller number of shares, the Aggregate Number then in effect immediately before that reverse stock split or combination shall be proportionately decreased. Each adjustment under this Section 4.D shall become effective at the close of business on the date the stock split, subdivision, reverse stock split or combination becomes effective.
E. No Impairment. The Company will not, by amendment of its Certificate of Incorporation 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 Company but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the Holders of the Warrants against impairment.
F. Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Company at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of a Warrant a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Company shall, upon the written request at any time of any holder of a Warrant, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) Aggregate Number 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 exercise of the Warrant.
5. Notices of Record Date. In case
A. the Company shall take a record of the holders of its Common Stock (or other stock or securities at the time receivable upon the exercise of the Warrants) for the purpose of entitling them to receive any dividend or other distribution, or any right to subscribe for or purchase any shares of stock of any class or any other securities, or to receive any other right, or
4
B. of any capital reorganization of the Company, any reclassification of the capital stock of the Company, any consolidation or merger of the Company with or into another corporation, or any conveyance of all or substantially all of the assets of the Company to another corporation, or
C. of any voluntary dissolution, liquidation or winding-up of the Company,
then, and in each such case, the Company will mail or cause to be mailed to each holder of a Warrant at the time outstanding a notice specifying, as the case may be, (a) the date on which a record is to be taken for the purpose of such dividend, distribution or right, and stating the amount and character of such dividend, distribution or right, or (b) the date on which such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up is expected to take place, and the time, if any is to be fixed, as of which the holders of record of Common Stock (or such stock or securities at the time receivable upon the exercise of the Warrants) shall be entitled to exchange their shares of Common Stock (or such other stock or securities) for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, conveyance, dissolution, liquidation or winding-up, such notice shall be mailed at least 30 days prior to the date therein specified.
6. Stock Purchase Rights. If at any time or from time to time, the Company grants or issues to all the record holders of the Common Stock any options, warrants or subscription rights (collectively, the "Stock Purchase Rights") entitling a holder to purchase Common Stock or any security convertible into or exchangeable for Common Stock or to purchase any other stock or securities of the Company, the Holder shall be entitled to acquire, upon the terms applicable to such Stock Purchase Rights, the aggregate Stock Purchase Rights which Holder could have acquired if Holder had been the record holder of the maximum number of shares of Common Stock issuable upon exercise of this Warrant on both (x) the record date for such grant or issuance of such Stock Purchase Rights, and (y) the date of the grant or issuance of such Stock Purchase Rights.
7. Loss or Mutilation. Upon receipt by the Company of evidence satisfactory to it (in the exercise of reasonable discretion) of the ownership of and the loss, theft, destruction or mutilation of any Warrant and (in the case of loss, theft or destruction) of indemnity satisfactory to it (in the exercise of reasonable discretion), and (in the case of mutilation) upon surrender and cancellation thereof, the Company will execute and deliver in lieu thereof a new Warrant of like tenor.
8. Reservation of Common Stock. The Company shall at all times reserve and keep available for issue upon the exercise of Warrants such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants.
9. Subscription Agreement and Registration Rights Agreement. This Warrant has been issued pursuant to the Subscription Agreement dated as of August 31, 2001 between the Company and the original holder hereof (the "Subscription Agreement"), and the transferability of this Warrant and the Common Stock issuable upon the exercise hereof are subject to the Subscription Agreement. In addition, the Holder of this Warrant and the Common Stock issuable upon the exercise hereof are entitled to have such Common Stock registered under the Securities Act of 1933 in accordance with the Registration Rights Agreement referred to in the Subscription Agreement and to such remedies for breaches of, or defaults under, such Registration Rights Agreement.
10. Notices. All notices and other communications from the Company to the Holder of this Warrant shall be mailed by first-class registered or certified mail, postage prepaid, to the address furnished to the Company in writing by the last holder of this Warrant who shall have furnished an address to the Company in writing.
11. Change; Waiver. The provisions of this Warrant may from time to time be amended, modified or waived, if such amendment, modification or waiver is in writing and consented to in writing by the Company and the holders of at least a majority of the Warrants then outstanding.
5
12. Headings. The headings in this Warrant are for purposes of convenience in reference only, and shall not be deemed to constitute a part hereof.
13. Law Governing. This Warrant shall be construed and enforced in accordance with and governed by the internal laws, and not the law of conflicts of laws, of the State of New York.
14. Redemption. In the event that (a) prior to the 17th day ("Day 17") following the initial closing of the Bridge Financing (the "Initial Closing"), the Company enters into a definitive merger or acquisition agreement with the entity set forth in Schedule 1 to the Agency Agreement pursuant to which such entity acquires more than 50% of the Company at a price per share greater than $1.00, and (b) as a result of such acquisition or other agreement with such entity the outstanding principal amount of, and accrued interest on, the notes issued in the Bridge Financing (the "Notes") is repaid in full on or prior to the 90th day after the Initial Closing ("Day 90"), then the Company shall have the right to redeem 50% of the Warrants (or, if previously exercised, the Warrant Shares), on a pro-rata basis, at a price of $.01 per Warrant. The Company must exercise its redemption right within thirty (30) days after repayment of the Notes in accordance with clause (b) above. Warrant Shares issued upon exercise of Warrants (x) prior to Day 17 or (y) after Day 17, provided the event referenced in clause (a) occurs and prior to the earlier of repayment of the Notes or Day 90, shall bear a legend referencing the Company's right of redemption under this Section 14.
15. Voting of Warrant Shares. The Warrant Shares issuable hereunder may not be voted on the three proposals set forth in Section 4(j) of the Agency Agreement. The Company may place a legend on the certificates representing the Warrant Shares for this purpose.
| DATED: , 2001 | |||
INTRAWARE, INC. |
|||
By: |
|||
Name: Title: |
|||
6
EXHIBIT A
SUBSCRIPTION FORM
(To be executed only upon exercise of Warrant)
1. The undersigned registered owner of this Warrant irrevocably exercises this Warrant and purchases of the number of shares of Common Stock of Intraware, Inc., purchasable with this Warrant, and herewith makes payment therefor, all at the price and on the terms and conditions specified in this Warrant.
2. The undersigned elects to exercise the within Warrant on a cashless basis pursuant to the provisions of the Warrant by checking below:
check if cashless exercise; or
3. The undersigned encloses herewith a bank draft, certified check or money order payable to the Company in payment of the exercise price determined under, and on the terms specified in, the Warrant.
| DATED: | ||||
(Signature of Registered Owner) |
||||
(Street Address) |
||||
(City) (State) (Zip) |
EXHIBIT B
FORM OF ASSIGNMENT
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby sells, assigns and transfers unto the Assignee named below all of the rights of the undersigned under the within Warrant, with respect to the number of shares of Common Stock set forth below:
| Name of Assignee | Address | No. of Shares |
and does hereby irrevocably constitute and appoint Attorney to make such transfer on the books of Intraware, Inc., maintained for the purpose, with full power of substitution in the premises.
| DATED: | ||||
(Signature) |
||||
(Witness) |
GENERAL SECURITY AGREEMENT
(Floating Lien)
SECURITY AGREEMENT, dated as of August 31, 2001, between Intraware, Inc., a Delaware corporation with its principal executive office located at 25 Orinda Way, Orinda, California 94563 (the "Debtor"), and Commonwealth Associates, L. P., a New York limited partnership with offices at 830 Third Avenue, New York, New York 10022, as agent (the "Agent") for the investors (the "Investors") from time to time set forth on Annex I hereto (the Agent, acting in such capacity, the "Secured Party");
W I T N E S S E T H:
WHEREAS, Debtor and the Investors are parties to a series of 8% senior secured promissory notes in the aggregate principal amount of up to $7,000,000 issued by Debtor from time to time in a private placement through the Agent, as placement agent (herein collectively, as at any time amended, extended, restated, renewed or modified, the "Notes");
WHEREAS, it is a condition to the willingness of the Investors to make the loan evidenced by the Notes that Debtor enter into this Agreement and grant to the Secured Party, for the ratable benefit of the Investors, the security interest provided for herein.
NOW, THEREFORE, FOR VALUE RECEIVED, IT IS AGREED:
Section 1. Terms. Unless otherwise defined herein, capitalized terms used in this Agreement shall have the meaning specified therefor in the Notes. As used herein the following terms shall have the meanings specified and shall include in the singular number the plural and in the plural number the singular:
"Assigned Agreements" shall mean all contracts and agreements of the Debtor.
"Collateral" means all of the Debtor's right, title and interest in and under or arising out of each and all of the following:
All personal property and fixtures of the Debtor of any type or description, wherever located and now existing or hereafter arising or acquired, including but not limited to the following:
(i) all of the Debtor's goods including, without limitation:
(a) all inventory, including without limitation, equipment held for lease, whether raw materials, in process or finished, all material or equipment usable in processing the same and all documents of title covering any inventory (as such term is defined in the Uniform Commercial Code, as in effect from time to time in the State of New York (the "NYUCC")) (all of the foregoing, "Inventory"), including without limitation that located at the locations listed on Schedule 1 annexed hereto;
(b) all equipment (the "Equipment") employed in connection with the Debtor's business, together with all present and future additions, attachments and accessions thereto and all substitutions therefor and replacements thereof, including without limitation that located at the locations listed on Schedule 1 annexed hereto;
(ii) all of the Debtor's present and future accounts, accounts receivable, general intangibles, as such terms are defined in the NYUCC, and all contracts and contract rights (herein sometimes referred to as "Receivables"), including but not limited to the Debtor's rights (including rights to payment) under all Assigned Agreements, together with
(a) all claims, rights, powers or privileges and remedies of the Debtor relating thereto or arising in connection therewith including, without limitation, all rights of the Debtor to make determinations, to exercise any election (including, but not limited to, election of remedies) or
option or to give or receive any notice, consent, waiver or approval, together with full power and authority to demand, receive, enforce, collect or receipt for any of the foregoing or any property which is the subject of the Assigned Agreements, to enforce or execute any checks, or other instruments or orders, to file any claims and to take any action which (in the opinion of the Secured Party) may be necessary or advisable in connection with any of the foregoing,
(b) all liens, security, guaranties, endorsements, warranties and indemnities and all insurance and claims for insurance relating thereto or arising in connection therewith,
(c) all rights to property forming the subject matter of the Receivables including, without limitation, rights to stoppage in transit and rights to returned or repossessed property,
(d) all writings relating thereto or arising in connection therewith including without limitation, all notes, contracts, security agreements, guaranties, chattel paper and other evidence of indebtedness or security, all powers-of-attorney, all books, records, ledger cards and invoices, all credit information, reports or memoranda and all evidence of filings or registrations relating thereto,
(e) all catalogs, computer and automatic machinery software and programs, and the like pertaining to operations by the Debtor in, on or about any of its plants or warehouses, all sales data and other information relating to sales or service of products now or hereafter manufactured on or about any of its plants, and all accounting information pertaining to operations in, on or about any of its plants, and all media in which or on which any of the information or knowledge or data is stored or contained, and all computer programs used for the compilation or printout of such information, knowledge, records or data, and
(f) all accounts, contract rights, general intangibles and other property rights of any nature whatsoever arising out of or in connection with the foregoing, including without limitation, payments due and to become due, whether as repayments, reimbursements, contractual obligations, indemnities, damages or otherwise;
(iii) all other personal property of the Debtor of any nature whatsoever, including, without limitation, all accounts, bank accounts, deposits, credit balances, contract rights, inventory, general intangibles, goods, equipment, instruments, chattel paper, machinery, furniture, furnishings, fixtures, tools, supplies, appliances, plans and drawings, together with all customer and supplier lists and records of the business, and all property from time to time described in any financing statement signed by the Debtor naming the Agent as secured party;
(iv) all of the Debtor's right, title, and market in and to any shares of capital stock of any subsidiary corporation and the certificates representing any such shares;
(v) any and all of Debtor's right, title and interest in its intellectual property, including, without limitation, (a) each of the Trademarks (as hereinafter defined), and the goodwill of the business symbolized by each of the Trademarks, all customer lists and other records of the Debtor relating to the distribution of products bearing the Trademarks and each of the registrations described in Schedule 2-A hereto; (b) each of the Patents (as hereinafter defined) and each of the registrations listed on Schedule 2-B hereto; (c) all of the tradenames listed on Schedule 1 hereto (the "Tradenames") and (d) any and all proceeds of the foregoing, including, without limitation, any claims by Debtor against third parties for infringement of the Trademarks or the Patents (collectively, the "Intellectual Property");
(vi) all additions, accessions, replacements, substitutions or improvements and all products and proceeds including, without limitation, proceeds of insurance, of any and all of the Collateral described in clauses (i) through (iv) above; and
2
(vii) any consideration received from the sale, exchange, lease or other disposition of any asset or property which constitutes Collateral, any other value received as a consequence of the possession of any Collateral and any payment received from any insurer or other person or entity as a result of the destruction, loss, theft or other involuntary conversion of whatever nature of any asset or property that constitutes Collateral.
Notwithstanding the foregoing, the term "Collateral" does not include any license or contract rights to the extent the granting of a security interest in it would be contrary to applicable law.
"Instrument" shall have the meaning specified in Article 3 of the NYUCC and shall also include any other writing which evidences a right to the payment of money and is not itself a security agreement or lease and is of a type which is in the ordinary course of business transferred by delivery with any necessary endorsement or assignment.
"Lien" means any mortgage, pledge, hypothecation, assignment, security interest, deposit arrangement, encumbrance (including any easement, right of way, zoning restriction and the like), lien (statutory or other) or preference, priority or other security agreement or preferential arrangement of any kind or nature whatsoever (including any conditional sale or other title retention agreement, any financing lease involving substantially the same economic effect as any of the foregoing and the filing of any financing statement under the NYUCC or comparable law of any jurisdiction).
"Patents" shall mean (i) all letters patent of the United States or any other country, all right, title and interest therein and thereto, and all applications, registrations and recordings thereof, including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or province thereof or any other country or any political subdivision thereof, all whether now owned or hereafter acquired by Debtor, including, but not limited to, those described in Schedule 2-B annexed hereto and made a part hereof, and (ii) all reissues, continuations, continuations-in-part, extensions or divisionals thereof and all licenses thereof.
"Permitted Liens" means:
(a) Liens for taxes, assessments or other governmental charges or levies not at the time delinquent or thereafter payable without penalty or being contested in good faith by appropriate proceedings and for which adequate reserves in accordance with generally accepted accounting principles shall have been set aside on its books;
(b) Liens of carriers, warehousemen, mechanics, materialmen and landlords incurred in the ordinary course of business for sums not overdue or being contested in good faith by appropriate proceedings and for which adequate reserves shall have been set aside on its books;
(c) Liens (other than Liens arising under the Employee Retirement Income Security Act of 1974, as amended, or Section 412(n) of the Internal Revenue Code of 1986, as amended) incurred in the ordinary course of business in connection with workers' compensation, unemployment insurance or other forms of governmental insurance or benefits, or to secure performance of tenders, statutory obligations, leases and contracts (other than for borrowed money) entered into in the ordinary course of business or to secure obligations on surety or appeal bonds;
(d) judgment Liens in existence less than 60 days after the entry thereof or with respect to which execution has been stayed;
(e) ground leases in respect of real property on which facilities owned or leased by the Debtor or any of its subsidiaries are located;
3
(f) easements, rights-of-way, restrictions, minor defects or irregularities in title and other similar charges or encumbrances not interfering in any material respect with the business of the Debtor and its subsidiaries taken as a whole;
(g) any interest or title of a lessor secured by a lessor's interest under any lease of real property on which facilities owned or leased by the Debtor or any of its subsidiaries are located;
(h) leases or subleases and licenses or sublicenses granted to others not interfering in any material respect with the business of the Debtor and its subsidiaries taken as a whole;
(i) a Lien on any asset securing indebtedness (including capitalized lease obligations) incurred or assumed for the purpose of financing the purchase price (including capitalized lease payments in the nature thereof) of such asset, provided that such Lien attaches only to the asset acquired with the proceeds of such indebtedness and attaches concurrently with or within ten (10) days following the acquisition thereof; and
(j) Liens existing on the date hereof as disclosed on Schedule (2) hereto.
"Person" means any natural person, corporation, firm, association, partnership, joint venture, limited liability company, joint-stock company, trust, unincorporated organization, government, governmental agency or subdivision, or any other entity, whether acting in an individual, fiduciary or other capacity.
"Receivables" has the meaning specified therefor in clause (ii) of the definition of Collateral.
"Secured Obligations" means all obligations of the Debtor, whether for fees, expenses or otherwise, now existing or hereafter arising under this Agreement and the Notes, including, without limitation, full and prompt payment and performance of (i) all principal and interest on the Notes when and as due, whether at maturity, by acceleration, or otherwise and (ii) all obligations of the Debtor at any time and from time to time under this Agreement.
"Trademarks" shall mean (i) all trademarks, trade names, trade styles, service marks, prints and labels on which said trademarks, trade names, trade styles and service marks have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, all right, title and interest therein and thereto, and all applications, registrations and recordings thereof, including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any state or province thereof, or any other country or any political subdivision thereof, all whether now owned or hereafter acquired by Debtor, including, but not limited to, those described in Schedule 2-B annexed hereto and made a part hereof, and (ii) all reissues, extensions or renewals thereof and all licenses thereof.
Section 2. Security Interests.
(a) As security for the payment and performance of all Secured Obligations, and subject to the last sentence of this Section 2, the Debtor does hereby create, grant and assign to the Secured Party, for its own benefit and for the ratable benefit of the Investors, a continuing security interest in all of the Collateral, whether now existing or hereafter arising or acquired and wherever located, subject to the priority, if any, of Permitted Liens (the "Security Interest"). Without limiting the foregoing, the Secured Party is hereby authorized to file one or more financing statements, continuation statements or such other documents, including, without limitation, the Assignment of Security (Trademarks) attached hereto as Exhibit 1, for the purpose of perfecting, confirming, continuing, enforcing or protecting the Security Interest.
(b) The Debtor hereby assigns to the Secured Party all of Debtor's right, title and interest in and to any and all moneys which may become due and payable with respect to the Collateral under any policy insuring the Collateral (except proceeds relating to tangible personal property which are applied
4
to restoration or replacement), including return of unearned premium, and shall cause any such insurance company to make payment directly to the Secured Party for application to amounts outstanding under the Notes in accordance with the terms of the Notes and, to the extent not provided therein, in such order as the Secured Party shall determine.
Section 3. General Representations, Warranties and Covenants. The Debtor represents, warrants and covenants, which representations, warranties and covenants shall survive execution and delivery of this Agreement, as follows:
(a) This Agreement is made with full recourse to the Debtor and pursuant to and upon all the warranties, representations, covenants, and agreements on the part of the Debtor contained herein, in the Notes and otherwise made in writing in connection herewith or therewith.
(b) Except for the Security Interest of the Secured Party therein, the Debtor is, and as to Collateral acquired from time to time after the date hereof the Debtor will be, the owner of all the Collateral free from any lien, security interest, encumbrance or other right, title or interest of any Person (other than Permitted Liens) and the Debtor shall defend the Collateral against all claims and demands of all Persons at any time claiming the same or any interest therein adverse to the Secured Party (other than Permitted Liens).
(c) There is no financing statement, assignment of trademark, or assignment of patent (or similar statement or instrument of registration under the law of any jurisdiction) now on file or registered in any public office covering any interest of any kind in the Collateral, or, to the knowledge of Debtor intended to cover any such interest, which has not been terminated or released by the secured party named therein and so long as the Notes remain outstanding or any of the Secured Obligations of the Debtor remain unpaid, the Debtor will not execute and there will not be on file in any public office any financing statement, assignment of trademark, or assignment of patent (or similar statement or instrument of registration under the law of any jurisdiction) or statements relating to the Collateral, except (i) financing statements, assignment of trademark, or assignment of patent filed or to be filed in respect of and covering the Security Interest of the Secured Party hereby granted and provided for and (ii) with respect to Permitted Liens.
(d) The chief executive office and chief place of business of the Debtor is located at the address of the Debtor listed on the signature page hereof, and the Debtor will not move its chief executive office and chief place of business except to such new location as the Debtor may establish in accordance with the last sentence of this Section 3(d). The originals of all Assigned Agreements and all documents (as well as all duplicates thereof) evidencing all Receivables and all other contract rights or accounts and other property of the Debtor and the only original books of account and records of the Debtor relating thereto are, and will continue to be, kept at such chief executive office or at such new location as the Debtor may establish in accordance with the last sentence of this Section 3(d). The Debtor shall establish no such new location until (i) it shall have given to the Secured Party not less than 30 days' prior written notice of its intention to do so, clearly describing such new location and providing such other information in connection therewith as the Secured Party may reasonably request, and (ii) with respect to such new location, it shall have taken such action, satisfactory to the Secured Party (including, without limitation, all action required by Section 7 hereof), to maintain the Security Interest of the Secured Party in the Receivables intended to be granted at all times fully perfected and in full force and effect.
(e) Substantially all of the Collateral is located inside the State of California or the State of Pennsylvania or other states in which inventory may be held on consignment.
(f) The name of the Debtor is as set forth on the signature page hereto and the Debtor shall not change such name, conduct its business in any other name or take title to the Collateral in any
5
other name while this Agreement remains in effect. The Debtor has never had any name, or conducted business under any name in any jurisdiction, other than its name set forth on the signature page hereto, during the past six years other than as set forth in Schedule 2 annexed hereto.
(g) At the Debtor's own expense, the Debtor will: (i) without limiting the provisions of the Notes, keep the Collateral fully insured at all times with financially sound and responsible insurance carriers against loss or damage by fire and other risks, casualties and contingencies and in such manner and to the same extent that like properties are customarily so insured by other entities engaged in the same or similar businesses similarly situated and keep adequate insurance at all times against liability on account of damage to persons and properties and under all applicable workers' compensation laws, by financially sound and reputable insurers and in amounts usually carried by similar businesses, for the benefit of the Debtor and the Secured Party, (ii) upon request by the Secured Party, promptly deliver the insurance policies or certificates thereof to the Secured Party, and (iii) keep the Collateral in good condition at all times (normal wear and tear excepted). Upon any failure of the Debtor to comply with its obligations pursuant to this Section 3(g), the Secured Party may at its option and after 20 days' prior written notice to Debtor, and without affecting any of its other rights or remedies provided herein or as a secured party under the NYUCC, procure the insurance protection it deems necessary to be made to the Collateral and the cost of either or both of which shall be a lien against the Collateral added to the amount of the indebtedness secured hereby and payable on demand with interest at a rate per annum equal to 8%.
(h) The Debtor will not use the Collateral in material violation of any statute or ordinance or applicable insurance policy and will promptly pay all material taxes and assessments levied against the Collateral; provided that the Debtor shall not be required to pay any such tax or assessment that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained.
(i) The Debtor will not sell, transfer, change the registration, if any, dispose of, attempt to dispose of, substantially modify (other than in the ordinary course of business) or abandon the Collateral or any material part thereof other than (i) sales of Inventory in the ordinary course of business, (ii) the disposition of obsolete or worn-out Equipment in the ordinary course of business, and (iii) the sale of Collateral where the proceeds of such sale are equal to or greater than the then outstanding principal amount and accrued interest on the Notes and the Notes are repaid in full directly from the purchaser as a condition to, and simultaneously with, the consummation of such sale.
(j) The Debtor will not assert against the Secured Party any claim or defense which the Debtor may have against any seller of the Collateral or any part thereof or against any other Person with respect to the Collateral or any part thereof.
(k) The Debtor will indemnify and hold the Secured Party harmless from and against any loss, liability, damage, costs and expenses whatsoever arising from the Debtor's use, operation, ownership or possession of the Collateral or any part thereof other than liabilities arising as a result of Secured Party's gross negligence or willful misconduct.
(l) The Debtor will maintain the confidentiality of all customer lists and not sell or otherwise dispose of such lists except (i) that the Debtor shall deliver copies thereof to the Secured Party upon its request, which may be made at any time and from time to time after an Event of Default (as such term is defined in the Notes) and (ii) in accordance with Section 3(i) herein.
6
(m) In addition to, and not in limitation of, the foregoing, with respect to the Intellectual Property, the Debtor hereby represents and warrants:
(i) Debtor has the sole, full and clear title to the Trademarks shown on Schedule 2-A hereto for the goods and services covered by the registrations thereof and such registrations are valid and subsisting.
(ii) Debtor will perform all acts and execute all documents, to the extent reasonable, including, without limitation, assignments for security in form suitable for filing with the United States Patent and Trademark Office, substantially in the forms of Exhibits 1 and 2 hereof, respectively, requested by the Secured Party at any time to evidence, perfect, maintain, record and enforce the Secured Party's interest in the Patents and Trademarks or otherwise in furtherance of the provisions of this Agreement, and Debtor hereby authorizes the Secured Party to execute and file one or more financing statements (and similar documents) or copies thereof or of this Agreement with respect to the Intellectual Property signed only by the Secured Party.
(iii) None of the Trademarks have been abandoned or invalidated, and, except to the extent that the Secured Party, upon 10 days' prior written notice by the Debtors, shall consent, and except to the extent such Debtor has a valid business purpose for doing otherwise (so long as any action on the part of any such Debtor would not have a material adverse effect on Debtor's business), Debtor (either itself or through licensees) will continue to use the Trademarks on each and every trademark class of goods in order to maintain the Trademarks in full force free from any claim of abandonment for nonuse and Debtor will not (nor will it permit any licensee thereof to) do any act or knowingly omit to do any act whereby any Trademark may become abandoned or invalidated, and Debtor shall notify the Secured Party immediately if it knows of any reason or has reason to know that any pending application or issued Trademark may become abandoned or invalidated.
(iv) Debtor has the sole, full and clear title to each of the Patents shown on Schedule 2-B hereto and the issued Patents are subsisting. None of the Patents has been abandoned or dedicated, and, except to the extent that the Secured Party, upon 10 days' prior written notice by the Debtor, shall consent, and except to the extent such Debtor has a valid business purpose for doing otherwise (so long as any action on the part of any such Debtor would not have a material adverse effect on Debtor's business), Debtor will not do any act, or omit to do any act, whereby the Patents may become abandoned or dedicated and shall notify the Secured Party immediately if it knows of any reason or has reason to know that any pending application or issued Patent may become abandoned or dedicated.
(v) In no event shall Debtor, either itself or through any agent, employee, licensee or designee, (A) file an application for the registration of any Patent or Trademark with the United States Patent and Trademark Office or any similar office or agency of the United States, any state or province thereof, any other country or any political subdivision thereof or (B) file any assignment of any patent or trademark, which Debtor may acquire from a third party, with the United States Patent and Trademark Office or any similar office or agency of the United States, any state or province thereof, any other country or any political subdivision thereof, unless Debtor shall promptly notify the Secured Party thereof, and, upon request of the Secured Party, execute and deliver any and all assignments, agreements, instruments, documents and papers as the Secured Party may reasonably request to evidence the Secured Party's interest in such Patent or Trademark and the goodwill and general intangibles of Debtor relating thereto or represented thereby, and Debtor hereby constitutes the Secured Party its attorney-in-fact to execute and file all such writings for the foregoing purposes, all
7
acts of such attorney being hereby ratified and confirmed, such power being coupled with an interest is irrevocable until the Secured Obligations are paid in full.
(vi) Except (i) to the extent that the Secured Party, upon prior written notice from Debtor, shall consent (which consent shall not be unreasonably withheld) or (ii) in accordance with Section 3(i) herein, Debtor will not assign, sell, mortgage, lease, transfer, pledge, hypothecate, grant a security interest in or lien upon, encumber, grant an exclusive or non-exclusive license (except in the ordinary course of business), or otherwise dispose of any of the Intellectual Property, and nothing in this Agreement shall be deemed a consent by the Secured Party to any such action except as expressly permitted herein.
(vii) As of the date hereof neither Debtor nor any affiliate or subsidiary thereof owns any Patents or Trademarks registered in, or the subject of pending applications in, the United States Patent and Trademark Office or any similar office or agency of the United States, any state or province thereof, any other country or any political subdivision thereof, other than those described in Schedules 2-A and 2-B hereto.
(viii) Except to the extent Debtor has a valid business purpose for doing otherwise (so long as any action on the part of Debtor would not have a material adverse effect on Debtor's business), Debtor will take all necessary steps in any proceeding before the United States Patent and Trademark Office or any similar office or agency of the United States, any state or province thereof, any other country or any political subdivision thereof, to maintain each application and registration of the Trademarks and Patents, including, without limitation, filing of renewals, affidavits of use, affidavits of incontestability and opposition, interference and cancellation proceedings (except to the extent that dedication, abandonment or invalidation is permitted under paragraphs (ii) and (iii) hereof).
(ix) Debtor agrees that the Secured Party does not assume, and shall have no responsibility for, the payment of any sums due or to become due under any agreement or contract included in the Intellectual Property or the performance of any obligations to be performed under or with respect to any such agreement or contract by Debtor, and the Debtor hereby agrees to indemnify and hold the Secured Party harmless with respect to any and all claims by any person relating thereto.
(x) Debtor agrees that if it, or any affiliate or subsidiary thereof, learns of any use by any person of any term or design likely to cause confusion with any Trademark, it shall promptly notify the Secured Party of such use and, if requested by the Secured Party, shall join with the Secured Party, at the Secured Party's expense, in such action as the Secured Party, in its reasonable discretion may deem advisable for the protection of the Secured Party's interest in and to such Trademarks.
(xi) All licenses of Trademarks and Patents which Debtor has granted to third parties are set forth in Schedule C hereto.
(xii) If Debtor shall acquire title to any new Trademarks or Patents, the provisions of this Agreement shall automatically apply thereto. Debtor shall promptly notify the Secured Party in writing of any rights to any new Trademarks or Patents acquired by Debtor after the date hereof and of any registrations issued or applications for registration made after the date hereof. Concurrently with the filing of an application for registration for any Trademarks or Patents, Debtor shall execute, deliver and record in all places where this Agreement is recorded an appropriate agreement, substantially in the form hereof, with appropriate insertions, or an amendment to this Agreement, in form and substance reasonably satisfactory to the Secured Party, pursuant to which Debtor shall grant a security interest to the extent of its interest in such registration as provided herein to the Secured Party.
8
Section 4. Special Provisions Concerning Assigned Agreements. The Debtor represents, warrants and agrees as follows:
(a) The Assigned Agreements constitute the legal, valid and binding obligations of the Debtor and, to the best of its knowledge, the other parties thereto, enforceable in accordance with their respective terms, except to the extent that enforceability may be limited by applicable bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the enforcement of creditors' rights or by the effect of general equitable principles.
(b) The Debtor will use best efforts to abide by, perform and discharge each and every material obligation, covenant and agreement to be performed by the Debtor under the Assigned Agreements.
(c) At the request of the Secured Party, and at the sole cost and expense of the Debtor, the Debtor will use best efforts to enforce or secure the performance of each and every material obligation, covenant, condition and agreement contained in the Assigned Agreements to be performed by the other parties thereto.
(d) The Debtor will not modify, amend or agree to vary any of the Assigned Agreements in any material respect other than in the ordinary course of business or in accordance with Section 3(i) herein, or otherwise act or fail to act in a manner likely (directly or indirectly) to entitle any party thereto to claim that the Debtor is in material default under the terms thereof.
(e) The Debtor will not terminate or permit the termination of any material Assigned Agreement, except in accordance with its terms, other than in the ordinary course of business or in accordance with Section 3(i) herein.
(f) Without the prior written consent of the Secured Party, the Debtor will not, other than in the ordinary course of business or in accordance with Section 3(i) herein, waive or in any manner release or discharge any party to any material Assigned Agreement from any of the material obligations, covenants, conditions and agreements to be performed by it under such Assigned Agreement including, without limitation, the obligation to make all payments in the manner and at the time and places specified.
(g) If the Secured Party so requests after the occurrence and continuance of an Event of Default and, if prior to the Maturity Date (as such term is defined in the Notes), acceleration of the Notes ("Acceleration"), the Debtor will hold any payments received by it which are assigned and set over to the Secured Party by this Agreement for and on behalf of the Secured Party and turn them promptly over to the Secured Party forthwith in the same form in which they are received (together with any necessary endorsement) for application to amounts outstanding under the Notes in accordance with the terms of the Notes and, to the extent not provided therein, in such order as the Secured Party shall determine.
(h) The Debtor will appear in and defend every action or proceeding arising under, growing out of or in any manner connected with the Assigned Agreements or the obligations, duties or liabilities of the Debtor and any assignee thereunder.
(i) Should the Debtor fail to make any payment or to do any act as herein provided after 30 days' notice by the Secured Party, the Secured Party may (but without obligation on the Secured Party's part to do so and without notice to or demand on the Debtor and without releasing the Debtor from any obligation hereunder) make or do the same in such manner and to such extent as the Secured Party may deem reasonably necessary to protect the Security Interests provided hereby, including specifically, without limiting the general powers, the right to appear in and defend any action or proceeding purporting to affect the Security Interests provided hereby and the Debtor, and the Secured Party may also perform and discharge each and every obligation,
9
covenant and agreement of the Debtor contained in any Assigned Agreement and, in exercising any such powers, pay necessary costs and expenses, employ counsel and incur and pay reasonable attorneys' fees.
(j) Upon the request of the Secured Party, the Debtor will send to the Secured Party copies of all material notices, documents and other papers furnished or received by it with respect to any of the Assigned Agreements.
Section 5. Special Provisions Concerning Receivables.
(a) As of the time when each Receivable arises, the Debtor shall be deemed to have warranted as to each such Receivable that such Receivable and all papers and documents relating thereto are genuine and in all respects what they purport to be, and that all papers and documents relating thereto:
(i) will be signed by the account debtor named therein (or such account debtor's duly authorized agent) or otherwise be binding on the account debtor;
(ii) will represent the genuine, legal, valid and binding obligation of the account debtor evidencing indebtedness unpaid and owed by such account debtor arising out of the performance of labor or services or the sale and delivery of merchandise or both;
(iii) to the extent evidenced by writings, will be the only original writings evidencing and embodying such obligation of the account debtor named therein; and
(iv) will be in compliance and will conform, in all material respects, with all applicable federal, state and local laws (including applicable usury laws) and applicable laws of any relevant foreign jurisdiction.
(b) The Debtor will keep and maintain at the Debtor's own cost and expense satisfactory and complete records of the Receivables, including, but not limited to, records of all payments received, all credits granted thereon, all merchandise returned and all other dealings therewith, and the Debtor will make the same available to the Secured Party, at the Debtor's own cost and expense, at any and all reasonable times during the existence of an Event of Default upon demand of the Secured Party. The Debtor shall, at the Debtor's own cost and expense, deliver the Receivables (including, without limitation, all documents evidencing the Receivables) and such books and records to the Secured Party or to its representatives upon its demand at any time during the existence of an Event of Default and, if prior to the Maturity Date, Acceleration. If the Secured Party shall so request during the existence of an Event of Default, the Debtor shall legend, in form and manner satisfactory to the Secured Party, the Receivables and other books, records and documents of the Debtor evidencing or pertaining to the Receivables with an appropriate reference to the fact that the Receivables have been assigned to the Secured Party and that the Secured Party has a security interest therein.
(c) Except in the ordinary course of business prior to an Event of Default and, if prior to the Maturity Date, Acceleration or in accordance with Section 3(i) herein, the Debtor will not rescind or cancel any indebtedness evidenced by any Receivable or modify any term thereof or make any adjustment with respect thereto, or extend or renew the same, or compromise or settle any dispute, claim, suit or legal proceeding relating thereto, or sell any Receivable or interest therein, without the prior written consent of the Secured Party, except that the Debtor may (i) grant discounts in connection with the prepayment of any Receivable in an amount which is customary in the line of business in which the Debtor is engaged and consistent with the Debtor's past practices and (ii) extend the payment period of up to $250,000 of Receivables in any one instance and $1,000,000 of Receivables in the aggregate, by up to 180 days.
(d) The Debtor will duly fulfill all obligations on its part to be fulfilled under or in connection with the Receivables and will do nothing to impair the rights of the Secured Party in the Receivables.
10
(e) The Debtor shall endeavor to collect or cause to be collected from the account debtor named in each Receivable, as and when due (including, without limitation, Receivables which are delinquent, such Receivables to be collected in accordance with generally accepted lawful collection procedures) any and all amounts owing under or on account of such Receivable, and credit forthwith (on a daily basis) upon receipt thereof all such amounts as are so collected to the outstanding balance of such Receivable. The costs and expenses (including attorney's fees) of collection, whether incurred by the Debtor or the Secured Party, shall be borne by the Debtor.
(f) If any of the Receivables becomes evidenced by an Instrument (other than a check received in payment of a Receivable and deposited in the ordinary course of business), the Debtor will notify the Secured Party thereof, and, upon request by the Secured Party after an Event of Default, promptly deliver such Instrument to the Secured Party appropriately endorsed to the order of the Secured Party as further security for the satisfaction in full of the Secured Obligations.
(g) Upon request of the Secured Party, at any time when an Event of Default and, if prior to the Maturity Date, Acceleration shall exist, the Debtor shall promptly notify (in manner, form and substance satisfactory to the Secured Party) all Persons who are at any time obligated under any Receivable that the Secured Party possesses a Security Interest in such Receivable and that all payments in respect thereof are to be made to such account as the Secured Party directs.
Section 6. Special Provisions Concerning Equipment. The Debtor will do nothing to impair the rights of the Secured Party in the Equipment except in accordance with Section 3(i) herein. The Debtor shall cause the Equipment to at all times constitute and remain personal property. The Debtor retains all liability and responsibility in connection with the Equipment and the liability of the Debtor to pay the Secured Obligations shall in no way be affected or diminished by reason of the fact that such Equipment may be lost, destroyed, stolen, damaged or for any reason whatsoever unavailable to the Debtor.
Section 7. Financing Statements; Documentary Stamp Taxes.
(a) The Debtor will, at its own expense, make, execute, endorse, acknowledge, file and/or deliver to the Secured Party from time to time such lists, descriptions and designations of Inventory, warehouse receipts, bills of lading, documents of title, vouchers, invoices, schedules, confirmatory assignments, conveyances, financing statements, transfer endorsements, powers of attorney, certificates, reports and other assurances or instruments and take such further steps relating to the Collateral and other property or rights covered by the Security Interest hereby granted, which the Secured Party reasonably deems appropriate or advisable to perfect, preserve or protect its Security Interest in the Collateral. The Debtor hereby constitutes the Secured Party its attorney-in-fact to execute and file in the name and on behalf of the Debtor such additional financing statements as the Secured Party may reasonably request, such acts of such attorney being hereby ratified and confirmed; such power, being coupled with an interest, is irrevocable until the Secured Obligations are paid in full. Further, to the extent permitted by applicable law, the Debtor authorizes the Secured Party to file any such financing statements without the signature of the Debtor and Secured Party shall use reasonable efforts to notify Debtor of any such filings. The Debtor will pay all applicable filing fees and related expenses in connection with any such financing statements.
(b) The Debtor agrees to procure, pay for, affix to any and all documents and cancel any documentary tax stamps required by and in accordance with, applicable law and the Debtor will indemnify and hold the Secured Party harmless against any liability (including interest and penalties) in respect of such documentary stamp taxes.
Section 8. Special Provisions Concerning Remedies and Sale. In addition to any rights and remedies now or hereafter granted under applicable law and not by way of limitation of any such rights and remedies, during the existence of an Event of Default and, if prior to the Maturity Date,
11
Acceleration, the Secured Party shall have all of the rights and remedies of a secured party under the NYUCC as enacted in any applicable jurisdiction in addition to the rights and remedies provided herein, in the Notes and in any other agreement executed in connection with the Notes whereby the Debtor has granted any Lien to the Secured Party. Without in any way limiting the foregoing, upon the giving of notice to the Debtor of Secured Party's intent to pursue any one or all of the following or any other remedies the Secured Party shall have the right, in the name of the Debtor or in the name of the Secured Party or otherwise:
(i) to ask for, demand, collect, receive, compound and give acquittance for the Receivables or any part thereof;
(ii) to extend the time of payment of, compromise or settle for cash, credit or otherwise, but only upon commercially reasonable terms and conditions, any of the Receivables;
(iii) to endorse the name of the Debtor on any checks, drafts or other orders or instruments for the payment of moneys payable to the Debtor which shall be issued in respect of any Receivable;
(iv) to file any claims, commence, maintain or discontinue any actions, suits or other proceedings deemed by the Secured Party necessary or advisable for the purpose of collecting or enforcing payment of any Receivable;
(v) to make test verifications of the Receivables or any portion thereof;
(vi) to notify any or all account debtors under any or all of the Receivables to make payment thereof directly to the Secured Party for the account of the Secured Party and to require the Debtor to forthwith give similar notice to the account debtors;
(vii) to require the Debtor forthwith to account for and transmit to the Secured Party in the same form as received all proceeds (other than physical property) of collection of Receivables received by the Debtor and, until so transmitted, to hold the same in trust for the Secured Party and not commingle such proceeds with any other funds of the Debtor;
(viii) to take possession of any or all of the Collateral and, for that purpose, to enter, with the aid and assistance of any Person or Persons and with or without legal process, any premises where the Collateral, or any part thereof, are, or may be, placed or assembled, and to remove any of such Collateral;
(ix) to execute any instrument and do all other things necessary and proper to protect and preserve and realize upon the Collateral and the other rights contemplated hereby;
(x) upon notice to such effect, to require the Debtor to deliver, at the Debtor's expense, any or all Collateral to the Secured Party at a place designated by the Secured Party;
(xi) without obligation to resort to other security, at any time and from time to time, to sell, re-sell, assign and deliver all or any of the Collateral, in one or more parcels at the same or different times, and all right, title and interest, claim and demand therein and right of redemption thereof, at public or private sale, for cash, upon credit or for future delivery, and at such price or prices and on such terms as the Secured Party may determine, with the amounts realized from any such sale to be applied to the Secured Obligations in the manner determined by the Secured Party;
(xii) to enforce (and shall have the exclusive right to enforce), at any time (without assuming any liability or obligation thereunder), against any licensee or sublicensee, all rights and remedies of Debtor in, to and under any one or more license agreements with respect to the Intellectual Property, and take or refrain from taking any action under any thereof, and Debtor hereby releases the Secured Party from, and agrees to hold the Secured Party free and harmless from and
12
against any claims arising out of, any action taken or omitted to be taken with respect to any such license agreement;
(xiii) in addition to the foregoing, in order to implement the assignment, sale or other disposal of any of the Intellectual Property pursuant to this Agreement, the Secured Party may, at any time, pursuant to the authority granted in the Power of Attorney described herein (such authority becoming effective on the occurrence or continuation as hereinabove provided of an Event of Default), execute and deliver on behalf of the applicable Debtor, one or more instruments of assignment of the Patents or Trademarks (or any application or registration thereof), in form suitable for filing, recording or registration in any country. Debtor agrees to pay when due all reasonable costs incurred in any such transfer of the Patents or Trademarks, including any taxes, fees and reasonable attorneys' fees, and all such costs shall be added to the Secured Obligations.
In the event of any license, assignment, sale or other disposition of the Intellectual Property, or any of it, after the occurrence or continuation as hereinabove provided of an Event of Default, Debtor shall supply its know-how and expertise relating to the manufacture and sale of the products bearing or in connection with the Trademarks or Patents, and its customer lists and other records relating to the Trademarks or Patents and to the distribution of said products, to the Secured Party or its designee.
The Secured Party shall not be obligated to do any of the acts hereinabove authorized, but in the event that the Secured Party elects to do any such act, the Secured Party shall not be responsible to the Debtor except for its gross negligence or willful misconduct.
(b) The Secured Party may take legal proceedings for the appointment of a receiver or receivers (to which the Secured Party shall be entitled as a matter of right) to take possession of the Collateral pending the sale thereof pursuant either to the powers of sale granted by this Agreement or to a judgment, order or decree made in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement. If, after the exercise of any or all of such rights and remedies, any of the Secured Obligations shall remain unpaid, the Debtor shall remain liable for any deficiency. After the indefeasible payment in full of the Secured Obligations, any proceeds of the Collateral received or held by the Secured Party shall be turned over to the Debtor and the Collateral shall be reassigned to the Debtor by the Secured Party without recourse to the Secured Party and without any representations, warranties or agreements of any kind.
(c) Upon any sale of any of the Collateral, whether made under the power of sale hereby given or under judgment, order or decree in any judicial proceeding for the foreclosure or involving the enforcement of this Agreement:
(i) the Secured Party may, to the extent permitted by law, bid for and purchase the property being sold, and upon compliance with the terms of sale may hold, retain and possess and dispose of such property in its own absolute right without further accountability, and may, in paying the purchase money therefor, deliver any Notes or claims for interest thereon and any other instruments evidencing the Secured Obligations or agree to the satisfaction of all or a portion of the Secured Obligations in lieu of cash in payment of the amount which shall be payable thereon, and the Notes and such instruments, in case the amounts so payable thereon shall be less than the amount due thereon, shall be returned to the Secured Party after being appropriately stamped to show partial payment;
(ii) the Secured Party may make and deliver to the purchaser or purchasers a good and sufficient deed, bill of sale and instrument of assignment and transfer of the property sold;
(iii) the Secured Party is hereby irrevocably appointed the true and lawful attorney-in-fact of the Debtor in its name and stead, to make all necessary deeds, bills of sale and instruments of assignment and transfer of the property thus sold and for such other purposes as are necessary or desirable to effectuate the provisions (including, without limitation, this Section 8) of this
13
Agreement, and for that purpose it may execute and deliver all necessary deeds, bills of sale and instruments of assignment and transfer, and may substitute one or more Persons with like power, the Debtor hereby ratifying and confirming all that its said attorney, or such substitute or substitutes, shall lawfully do by virtue hereof; but if so requested by the Secured Party or by any purchaser, the Debtor shall ratify and confirm any such sale or transfer by executing and delivering to the Secured Party or to such purchaser all property, deeds, bills of sale, instruments or assignment and transfer and releases as may be designated in any such request;
(iv) all right, title, interest, claim and demand whatsoever, either at law or in equity or otherwise, of the Debtor of, in and to the property so sold shall be divested; such sale shall be a perpetual bar both at law and in equity against the Debtor, its successors and assigns, and against any and all Persons claiming or who may claim the property sold or any part thereof from, through or under the Debtor, its successors or assigns;
(v) the receipt of the Secured Party or of the officer thereof making such sale shall be a sufficient discharge to the purchaser or purchasers at such sale for his or their purchase money, and such purchaser or purchasers, and his or their assigns or personal representatives, shall not, after paying such purchase money and receiving such receipt of the Secured Party or of such officer therefor, be obliged to see to the application of such purchase money or be in any way answerable for any loss, misapplication or nonapplication thereof; and
(vi) to the extent that it may lawfully do so, and subject to any legal requirement that the Secured Party act in a commercially reasonable manner, the Debtor agrees that it will not at any time insist upon, or plead, or in any manner whatsoever claim or take the benefit or advantage of, any appraisement, valuation, stay, extension or redemption laws, or any law permitting it to direct the order in which the Collateral or any part thereof shall be sold, now or at any time hereafter in force, which may delay, prevent or otherwise affect the performance or enforcement of this Agreement, the Notes or any other agreement executed in connection with the Notes whereby the Debtor has granted any Lien to the Secured Party, and the Debtor hereby expressly waives all benefit or advantage of any such laws and covenants that it will not hinder, delay or impede the execution of any power granted or delegated to the Secured Party in this Agreement, but will suffer and permit the execution of every such power as though no such laws were in force. In the event of any sale of Collateral pursuant to this Section, the Secured Party shall, at least 10 days before such sale, give the Debtor written, telecopied or telex notice of its intention to sell.
Section 9. Application of Moneys.
(a) Except as otherwise provided herein or in the Notes, all moneys which the Secured Party shall receive, in accordance with the provisions hereof, shall be applied (to the extent thereof) in the following manner: First, to the payment of all costs and expenses reasonably incurred in connection with the administration and enforcement of, or the preservation of any rights under, this Agreement or any of the reasonable expenses and disbursements of the Secured Party (including, without limitation, the reasonable fees and disbursements of its counsel and agents); Second, to the payment of all Secured Obligations arising out of the Notes in accordance with the terms of the Notes and, if not therein provided, in such order as the Secured Party may determine; and Third, to the payment of all other Secured Obligations in such order as the Secured Party may determine.
(b) If after applying any amounts which the Secured Party has received in respect of the Collateral any of the Secured Obligations remain unpaid, the Debtor shall continue to be liable for any deficiency, together with interest.
Section 10. Fees and Expenses, etc. Any and all reasonable fees, costs and expenses of whatever kind or nature, including but not limited to the reasonable attorneys' fees and legal expenses incurred by the Secured Party in connection with this Agreement, the filing or recording of any documents
14
(including all taxes in connection therewith) in public offices, the payment or discharge of any taxes, counsel fees, maintenance fees, fees and other costs relating to the encumbrances or otherwise protecting, maintaining, preserving the Collateral, or in defending or prosecuting any actions or proceedings arising out of or related to the Collateral, shall be borne and paid by the Debtor on written demand by the Secured Party setting forth in reasonable detail the nature of such expenses and until so paid shall be added to the principal amount of the Secured Obligations and shall bear interest at the rate accruing thereon. In addition, the Debtor will pay, and indemnify and hold the Secured Party harmless from and against, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the Collateral, including (without limitation) claims of patent or trademark infringement and any claim of unfair competition or anti-trust violation, other than liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements arising as a result of Secured Party's gross negligence or willful misconduct.
Section 11. Power of Attorney.
Concurrently with the execution and delivery hereof, the Debtor is executing and delivering to the Secured Party, in the form of Exhibit 3 hereto, three originals of a Power of Attorney for the implementation of the assignment, sale or other disposal of the Collateral, including the Trademarks and Patents pursuant to this Agreement and Debtor hereby releases the Secured Party from any claims, causes of action and demands at any time arising out of or with respect to any actions taken or omitted to be taken by the Secured Party under the powers of attorney granted herein, other than actions taken or omitted to be taken through the gross negligence or willful misconduct of the Secured Party.
Section 12. Miscellaneous.
(a) All notices, communications and distributions hereunder shall be in writing (including telecopied communication) and mailed by certified mail, telecopied, personally delivered or delivered by Federal Express or other reputable overnight courier service, if to the Debtor addressed to it at its address set forth opposite its signature below, if to the Secured Party, addressed to it at its address set forth opposite its signature below, or as to either party at such other address as shall be designated by such party in a written notice to such other party complying as to delivery with the terms of this Section. All such notices and other communications shall be effective (i) if mailed by certified mail, three days after the date of deposit thereof with the U.S. Postal Service, properly addressed with postage prepaid, (ii) if telecopied, upon receipt by the addressee, (iii) if personally delivered, upon such delivery and (iv) if delivered by overnight courier service, on the business day following delivery thereof to such courier service in time for next-business-day delivery.
(b) No delay on the part of the Secured Party in exercising any of its rights, remedies, powers and privileges hereunder or partial or single exercise thereof, shall constitute a waiver thereof. None of the terms and conditions of this Agreement may be changed, waived, modified or varied in any manner whatsoever unless in writing duly signed by the Debtor and the Secured Party. No notice to or demand on the Debtor in any case shall entitle the Debtor to any other or further notice or demand in similar or other circumstances or constitute a waiver of any of the rights of the Secured Party to any other or further action in any circumstances without notice or demand.
(c) The obligations of the Debtor hereunder shall remain in full force and effect without regard to, and shall not be impaired by, (i) any bankruptcy, insolvency, reorganization, arrangement, readjustment, composition, liquidation or the like of the Debtor; (ii) any exercise or non-exercise, or any waiver of, any right, remedy, power or privilege under or in respect of the Notes, this Agreement or any other agreement executed in connection with the Notes whereby the Debtor has granted any Lien to the Secured Party or any other agreement executed in connection with any of the foregoing, the Secured Obligations or any security for any of the Secured Obligations; or (iii) any amendment to or modification of any of the foregoing; whether or not the Debtor shall have notice or knowledge of
15
any of the foregoing. The rights and remedies of the Secured Party herein provided are cumulative and not exclusive of any rights or remedies which the Secured Party would otherwise have.
(d) This Agreement shall be binding upon the Debtor and its successors and assigns and shall inure to the benefit of the Secured Party and its successors and assigns, except that the Debtor may not transfer or assign any of its obligations, rights or interest hereunder without the prior written consent of the Secured Party and any such purported assignment by the Debtor shall be void. All agreements, representations and warranties made herein shall survive the execution and delivery of this Agreement.
(e) The descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not in any way affect the meaning or construction of any provision of this Agreement.
(f) Any provision of this Agreement which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
(g) All rights, remedies and powers provided by this Agreement may be exercised only to the extent that the exercise thereof does not violate any applicable provision of law, and the provisions hereof are intended to be subject to all applicable mandatory provisions of law that may be controlling and to be limited to the extent necessary so that they will not render this Agreement invalid, unenforceable in whole or in part or not entitled to be recorded, registered or filed under the provisions of any applicable law.
(h) This Agreement and the rights and obligations of the parties hereunder shall be construed in accordance with and be governed by the laws of the State of New York except to the extent that matters of title, or creation, perfection and priority of the Security Interests created hereby, or procedural issues of foreclosure are required to be governed by the laws of the state in which the Collateral, or part thereof, is located.
(i) It is expressly agreed, anything herein, in the Notes or in any other agreement or instrument executed in connection with the Notes to the contrary notwithstanding, that the Debtor shall remain liable to perform all of the obligations, if any, assumed by it with respect to the Collateral and the Secured Party shall not have any obligations or liabilities with respect to any Collateral by reason of or arising out of this Agreement, nor shall the Secured Party be required or obligated in any manner to perform or fulfill any of the obligations of the Debtor under or pursuant to any or in respect of any Collateral.
(j) This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all of which counterparts taken together shall be deemed to constitute one and the same instrument.
16
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered by their duly authorized officers as of the date first above written.
| INTRAWARE, INC. as Debtor |
|||
By: |
/s/ PETER H. JACKSON Name: Peter H. Jackson Title: Chief Executive Officer |
||
COMMONWEALTH ASSOCIATES, as Agent, as Secured Party |
|||
By: |
Commonwealth Associates Management Co., Inc. |
||
By: |
/s/ JOSEPH P. WYNNE Name: Joseph P. Wynne Title: Secretary |
||
17
Schedule 1
LOCATION OF CERTAIN INVENTORY AND EQUIPMENT COLLATERAL
Current place(s) of business of the Debtor:
Corporate Headquarters:
25 Orinda Way
Orinda, California 94563
Locations of Inventory and Equipment:
18
Schedule 2
EXISTING FINANCING STATEMENTS
| Secured Party |
Date of Financing Statement |
Number of Financing Statement |
Location Filed |
Description of Collateral |
Amount of Indebtedness Secured |
|||||
|---|---|---|---|---|---|---|---|---|---|---|
OTHER NAMES UNDER WHICH DEBTOR HAS CONDUCTED BUSINESS
19
| Trademark |
Reg. Date |
Serial Number |
|---|
| Title |
Date Issued |
Patent No. |
|---|
20
21
Exhibit 1 to Security Agreement
SCHEDULE 1-A TO ASSIGNMENT FOR SECURITY
(TRADEMARKS)
WHEREAS, Intraware, Inc., a Delaware corporation (herein referred to as "Assignor"), has adopted, used and is using the trademarks listed on Schedule 1-A annexed hereto as part hereof (the "Trademarks");
WHEREAS, Assignor is obligated to Commonwealth Associates, L.P., a New York limited partnership, as agent (referred to herein as the "Assignee") for the investors to whom Assignor has issued a series of secured promissory notes pursuant to a private placement of up to $5,000,000 and Assignor has entered into a Security Agreement dated the date hereof (the "Agreement") in favor of Assignee; and
WHEREAS, pursuant to the Agreement, Assignor has assigned to Assignee and granted to Assignee a security interest in, and mortgage on, all right, title and interest of Assignor in and to the Trademarks, together with the goodwill of the business symbolized by the Trademarks and the applications and registrations thereof, and all proceeds thereof, including, without limitation, any and all causes of action which may exist by reason of infringement thereof (the "Collateral"), to secure the payment, performance and observance of the Secured Obligations (as defined in the Agreement);
NOW, THEREFORE, for good and valuable consideration, receipt of which is hereby acknowledged, Assignor does hereby further assign unto Assignee and grant to Assignee a security interest in, and mortgage on, the Collateral to secure the prompt payment, performance and observance of the Secured Obligations.
Assignor does hereby further acknowledge and affirm that the rights and remedies of Assignee with respect to the assignment of, security interest in and mortgage on the Collateral made and granted hereby are more fully set forth in the Agreement, the terms and provisions of which are hereby incorporated herein by reference as if fully set forth herein.
Assignee's address is 25 Orinda Way, Orinda, California 94563.
IN WITNESS WHEREOF, Assignor has caused this Assignment to be duly executed by its officer thereunto duly authorized as of the day of August , 2001.
| INTRAWARE, INC. | ||||
By |
||||
| Name: | ||||
| Title: | ||||
22
SCHEDULE 1-A TO ASSIGNMENT FOR SECURITY
TRADEMARKS
| Trademark |
Reg. Date |
Serial Number |
|---|
23
Exhibit 2 to
Security Agreement
| STATE OF CALIFORNIA | ) | |
| : ss.: | ||
| COUNTY OF | ) |
KNOW ALL MEN BY THESE PRESENTS, THAT Intraware, Inc., a Delaware corporation with its principal office at 25 Orinda Way, Orinda, California 94563 (hereinafter called "Assignor") hereby appoints and constitutes Commonwealth Associates, L.P., a New York limited partnership (referred to herein as the "Assignee") for the investors to whom Assignor has issued a series of secured promissory notes pursuant to a private placement of up to $5,000,000 its true and lawful attorney, with full power of substitution, and with full power and authority to perform the following acts on behalf of Assignor:
1. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title and interest of Assignor in and to any letters patent of the United States or any other country or political subdivision thereof, and all registrations, recordings, reissues, continuations, continuations-in-part and extensions thereof, and all pending applications therefor, and for the purpose of the recording, registering and filing of, or accomplishing any other formality with respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect such purpose;
2. For the purpose of assigning, selling, licensing or otherwise disposing of all right, title and interest of Assignor in and to any trademarks, trade names, trade styles and service marks, and all registrations, recordings, reissues, extensions and renewals thereof, and all pending applications therefor, and for the purpose of the recording, registering and filing of, or accomplishing any other formality with respect to, the foregoing, to execute and deliver any and all agreements, documents, instruments of assignment or other papers necessary or advisable to effect such purpose;
3. To execute any and all documents, statements, certificates or other papers necessary or advisable in order to obtain the purposes described above as Assignee may in its sole discretion determine.
This power of attorney is made pursuant to a Security Agreement, dated the date hereof, between Assignor and Assignee and takes effect solely for the purposes of sections 8 (xv) and (xvi) thereof and is subject to the conditions thereof and may not be revoked until the payment in full of all "Secured Obligations" as defined in such Security Agreement.
Dated: August , 2001
24
| [Corporate Seal] | INTRAWARE, INC. | |||
By |
||||
| Name: | ||||
| Title: | ||||
| STATE OF CALIFORNIA | ) | |
| : ss.: | ||
| COUNTY OF | ) |
On this day of August 2001, before me personally appeared [ ], to me known, who, being by me duly sworn, did depose and say that he resides at and that he is of Intraware, Inc., the Delaware corporation described in and which executed the foregoing instrument; that he knows the seal of said corporation; that the seal affixed to said instrument is such corporate seal; that it was affixed pursuant to authority of the Board of Directors of said corporation, and that he signed his name thereto pursuant to such authority.
Notary Public |
25
INTRAWARE, INC.
SHARE EXCHANGE AGREEMENT
This Share Exchange Agreement (the "Agreement") is entered into as of August 31, 2001, by and between Intraware, Inc. (the "Company") and the undersigned holders of the Company's Series B Convertible Preferred Stock (collectively the "Holders" and each a "Holder").
In consideration of the mutual promises and covenants contained herein, and subject to the terms and conditions hereof, the parties hereby agree as follows:
1. Exchange of Shares. Subject to the terms and conditions of this Agreement, effective upon the endorsement and filing by the Secretary of State of the State of Delaware of the Series B-1 Certificate of Designations, Preferences and Rights of Series B Convertible Preferred Stock, a copy of which is attached hereto as Exhibit A (the "Series B-1 Certificate of Designation"), the Holder hereby surrenders, transfers and assigns all of his, her or its shares of Series B Convertible Preferred Stock (the "Series B Shares") to the Company in exchange for the issuance of shares of Series B-1 Convertible Preferred Stock (the "Series B-1 Shares") on a one-for-one basis concurrently herewith, the Holder is delivering to the Company herewith a certificate or certificates representing the Series B Shares, together with a stock power duly executed by the Holder, in the form attached hereto.
2. Understanding of Terms of Series B-1 Preferred Stock. Holder acknowledges that it has had an opportunity to review the provisions of the Series B-1 Certificate of Designation that set forth the terms of the Series B-1 Shares. Holder understands and acknowledges that the Series B-1 Shares rank pari passu with the Company's Series A Preferred Stock and the Series B Shares (which Series B shares will no longer be outstanding after completion of the transactions contemplated hereby), and understands that the only differences in rights, preferences and privileges between the Series B Shares and the Series B-1 Shares are as set forth in Exhibit A.
3. Consent/Approval. Each of the Holders hereby consents to the ineffectiveness of Section 7 of the Series B-1 Certificate of Designation solely with respect to the Company's issuance of convertible debt and warrants in connection therewith on substantially the terms set forth in that certain Term Sheet, dated August 24, 2001, between and among the Company and Commonwealth Associates, L.P. and agrees and consents that the transactions contemplated thereby (assuming or in the event of full exercise or conversion of the convertible debt and warrants issues in connection therewith) shall not constitute a Cash-Out Liquidation (as defined in the Series B-1 Certificate of Designation).
4. Ancillary Agreements. Subsequent to the exchange of their Series B Shares for Series B-1 Shares pursuant to the terms hereof, each Holder shall under (i) the Registration Rights Agreement, dated as of April 2, 2001 (ii) the Lock-up Agreement, dated April 2, 2001 and (iii) the Warrant for the purchase of Company Common Stock issued in connection with the sale of the Series B Shares (collectively, the "Ancillary Agreements") be entitled to such rights, preferences and privileges, and subject to such obligations and responsibilities, with respect to the Series B-1 Shares as that Holder was entitled with respect to the Series B Shares, and any references to Series B Shares in the Ancillary Agreements shall apply mutis mutandis to the Series B-1 Shares.
5. Counterparts. This Agreement may be executed in any counterparts, each of which shall be an original, but all of which together shall constitute one instrument.
6. Entire Agreement. This Agreement represents the entire agreement between the parties with respect to the exchange of the Series B Shares for the Series B-1 Shares and may be modified or amended only in writing signed by the Company and each of the Holders.
1
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the date set forth above.
| INTRAWARE, INC. | |||||
/s/ Peter H. Jackson Signature |
|||||
Peter H. Jackson, Chief Executive Officer Print Name and Title |
|||||
HOLDERS: |
|||||
J.F. SHEA & CO., INC. |
|||||
By: |
/s/ Edmund H. Shea, Jr. |
||||
| Name: | Edmund H. Shea, Jr. |
||||
| Title: | Vice President |
||||
ROBERT PRIDDY, an individual |
|||||
By: |
/s/ Robert Priddy |
||||
COMVEST VENTURE PARTNERS, L.P. |
|||||
By: |
/s/ Michael S. Falk |
||||
| Name: | Michael S. Falk |
||||
| Title: | Managing Partner |
||||
2
Pursuant to that certain Share Exchange Agreement dated as of August 31, 2001 (the "Agreement"), for value received J.F. Shea & Co., Inc.("Holder") hereby assigns and transfers unto Intraware, Inc., a Delaware corporation (the "Company"), Sixty Thousand (60,000) shares of the Company's Series B Preferred Stock (the "Shares"), standing in Holder's name on the books of the Company represented by certificate no. PB-1; such shares to be exchanged on a share-for-share basis into shares of the Company's Series B-1 Preferred Stock, and does hereby irrevocably constitute and appoint Wilson Sonsini Goodrich & Rosati, Professional Corporation as such Holder's attorney to transfer the Shares on the books of the Company with full power of substitution in the premises.
Dated: August 31, 2001
| J.F. SHEA & CO., INC. | |||||
By |
/s/ Edmund H. Shea, Jr. |
||||
| Name: | Edmund H. Shea, Jr. |
||||
| Title: | Vice President |
||||
3
Pursuant to that certain Share Exchange Agreement dated as of August 31, 2001 (the "Agreement"), for value received Robert Priddy ("Holder") hereby assigns and transfers unto Intraware, Inc., a Delaware corporation (the "Company"), One Hundred Thousand (100,000) shares of the Company's Series B Preferred Stock (the "Shares"), standing in Holder's name on the books of the Company represented by certificate no. PB-2; such shares to be exchanged on a share-for-share basis into shares of the Company's Series B-1 Preferred Stock, and does hereby irrevocably constitute and appoint Wilson Sonsini Goodrich & Rosati, Professional Corporation as such Holder's attorney to transfer the Shares on the books of the Company with full power of substitution in the premises.
Dated: August 31, 2001
| ROBERT PRIDDY, an individual | |||||
/s/ Robert Priddy |
|||||
4
Pursuant to that certain Share Exchange Agreement dated as of August 31, 2001 (the "Agreement"), for value received ComVest Venture Partners, L.P.("Holder") hereby assigns and transfers unto Intraware, Inc., a Delaware corporation (the "Company"), Two Hundred Thousand (200,000) shares of the Company's Series B Preferred Stock (the "Shares"), standing in Holder's name on the books of the Company represented by certificate no. PB-3; such shares to be exchanged on a share-for-share basis into shares of the Company's Series B-1 Preferred Stock, and does hereby irrevocably constitute and appoint Wilson Sonsini Goodrich & Rosati, Professional Corporation as such Holder's attorney to transfer the Shares on the books of the Company with full power of substitution in the premises.
Dated: August 31, 2001
| COMVEST VENTURE PARTNERS, L.P. | |||||
By |
/s/ Michael S. Falk |
||||
| Name: | /s/ Michael S. Falk |
||||
| Title: | Managing Partner |
||||
5
(Comparison of Series B-1 Certificate of Designation to Series B Certificate of Designation.)
6
REGISTRATION RIGHTS AGREEMENT (the "Agreement"), dated as of August 31, 2001, by and between Intraware, Inc., a Delaware corporation (the "Company"), Commonwealth Associates, L.P., a New York limited partnership ("Commonwealth"), and each of the investors identified on Schedule 1 hereto (as such schedule may be updated from time to time) and signatory hereto (each, an "Investor", and collectively, the "Investors") or their permitted assigns (each, a "Holder", and collectively, the "Holders").
WHEREAS, this Agreement is being entered into in connection with the financing extended by the Investors to the Company (the "Financing") in which, pursuant to the terms of subscription agreements entered into between the Company and each Investor (collectively, the "Subscription Agreement"), each Investor will receive (a) 8% senior secured promissory notes of the Company and (b) warrants ("Warrants") to purchase shares of common stock, par value $0.0001 per share (the "Common Stock"), of the Company (the "Warrant Shares"); and
WHEREAS, the terms of the Warrants contemplate that the Warrant Shares are entitled to registration rights.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises, representations, warranties and covenants and agreements contained herein, the Company and each of the Investors hereto, intending to be legally bound hereby agree as follows:
I. DEFINITIONS.
The following additional definitions shall apply for purposes of this Agreement:
1.1 The term "Holder" means an Investor and any transferee or assignee thereof to whom an Investor assigns its rights under this Agreement and who agrees to become bound by the provisions of this Agreement in accordance with Section 6.2.
1.2 The term "Person" means an individual, a limited liability company, a partnership, a joint venture, a corporation, a trust, an unincorporated organization, a government or any department or agency thereof.
1.3 The term "Prospectus" means the Prospectus included in any Registration Statement (including without limitation, a Prospectus that discloses information previously omitted from a Prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the 1933 Act), as amended or supplemented by any amendment or Prospectus supplement, including post-effective amendments, and all materials incorporated by reference or explicitly deemed to be incorporated by reference in such Prospectus.
1.4 The terms "Register," "Registered," and "Registration" refer to a registration effected by preparing and filing one or more Registration Statements, (as defined below) or similar document in compliance with the Securities Act of 1933, as amended (the "1933 Act"), and Rule 415 thereunder or any successor rule providing for the offering for resale of securities on a continuous or delayed basis ("Rule 415"), and the declaration or ordering of effectiveness of such Registration Statement or document by the United States Securities and Exchange Commission (the "SEC").
1.5 The term "Registrable Securities" means (a) the Warrant Shares and any other securities of the Company issuable upon the exercise of the Warrants, and (b) any shares of capital stock or other securities issued or issuable with respect to the Warrant Shares as a result of any stock split, stock dividend, recapitalization, exchange or similar event or otherwise, without regard to any limitations on the exercise of the Warrants; provided, however, that any securities deemed Registrable Securities in accordance herewith shall cease to be Registrable Securities (i) upon the sale of such securities pursuant to a Registration Statement, (ii) upon the sale of such securities pursuant to Rule 144
promulgated under the 1933 Act, or (iii) on the date on which such securities become available for sale under Rule 144(k).
1.6 The term "Registration Statement" means a registration statement on Form S-1 or Form S-3 or any similar or successor form then appropriate for or applicable to the offer and sale of the Registrable Securities and filed under the 1933 Act.
II. REGISTRATION.
2.1 Right to Include Registrable Stock. If the Company proposes to register any of its securities under the 1933 Act in connection with the public offering of such securities solely for cash (other than a registration on Form S-4, Form S-8, or any successor or similar forms or the registration statement covering the shares underlying the Company's Series A Preferred Stock and Series B Preferred Stock outstanding on the date hereof) (a "Piggyback Registration"), whether for the account of the Company or otherwise, it will promptly, but not later than thirty (30) days before the anticipated date of filing such Registration Statement, give written notice to each Holder. Upon the written request of any of the Holders made within fifteen (15) days after the receipt of any such notice (which request shall specify the Registrable Securities intended to be disposed of by such Holders and the intended method of distribution thereof), the Company will use its reasonable best efforts to effect the registration under the 1933 Act of all Registrable Securities which the Company has been requested to register by any of the Holders in accordance with the intended methods of distribution specified in such request; provided, however, that (a) if, at any time after giving written notice of its intention to register any securities and prior to the effective date of the Registration Statement filed in connection with such registration, the Company determines for any reason not to proceed with such registration, the Company may, at its election, give written notice of such determination to the Holders and, thereupon, will be relieved of its obligation to register any Registrable Securities in connection with such registration, and (b) in case of a determination by the Company to delay registration of its securities, the Company will be permitted to delay the registration of Registrable Securities for the same period as the delay in registering such other securities; provided, however, that the provisions of this Article II will not be deemed to limit or otherwise restrict the rights of the Holders under Article III.
2.2 Mandatory Registration. Notwithstanding the foregoing, the Company shall prepare and file with the SEC on or before the earlier of (a) the six-month anniversary of the Initial Closing (as defined in the Subscription Agreement), (b) the date on which a Registration Statement covering resale of the shares of Common Stock underlying the securities issued in a subsequent private placement through Commonwealth, as placement agent (the "Subsequent Placement"), is required to be filed with the SEC, (c) the date on which the Company actually files a Registration Statement covering any resale of securities issued as part of a Subsequent Placement, or (d) the date on which the Company files a Registration Statement covering shares issued or to be issued in connection with a merger (the earliest of (a), (b), (c) and (d) above shall be referred to as the "Filing Deadline"), a Registration Statement or Registration Statements, as necessary, on Form S-3 covering the resale of all of the Holders' Registrable Securities. In the event that Form S-3 is unavailable for such a registration, the Company shall use such other form as is available for such a registration, subject to the provisions of Section 2.5. The Company shall use its reasonable best efforts to cause such Registration Statement to be declared effective by the SEC as promptly as practicable, but in no event later than the three-month anniversary of the Filing Deadline (the "Effectiveness Deadline").
2.3 Priority. If the managing underwriter for a registration (other than with respect to a Registration Statement filed pursuant to Section 2.2) involving an underwritten offering advises the Company in writing that, in its opinion, the number of securities of the Company (including without limitation, Registrable Securities) requested to be included in such registration by the holders thereof exceeds the number of securities of the Company (the "Sale Number") which can be sold in an orderly manner in such offering within a price range acceptable to the Company, the Company will include
2
(a) first, all securities of the Company that the Company proposes to register for its own account, and (b) second, to the extent that the number of securities of the Company to be included by the Company is less than the Sale Number, a number of the Registrable Securities equal to the number derived by multiplying (i) the difference between the Sale Number and the securities proposed to be sold by the Company, and (ii) a fraction the numerator of which is the number of Registrable Securities originally requested to be registered by the Holders, and the denominator of which shall be the aggregate number of all securities requested to be registered by all holders of the Company's securities (other than securities being registered by the Company itself). The Company hereby agrees that it will not grant registration rights to any other holder that are more favorable to such holder than the registration rights granted hereunder.
2.4 Legal Counsel. Subject to Section 6.1 hereof, the Investors holding a majority of the Registrable Securities shall have the right to select one legal counsel to review and oversee any offering pursuant to this Article II ("Legal Counsel"), which shall be Loeb & Loeb LLP or such other counsel as thereafter designated by the holders of a majority of the Registrable Securities. The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations under this Agreement.
2.5 Ineligibility of Form S-3. In the event that Form S-3 is not available for the registration of the resale of Registrable Securities hereunder, the Company shall (a) register the resale of the Registrable Securities on another appropriate form, and (b) undertake to register the resale of the Registrable Securities on Form S-3 as soon as such form is available; provided, however, that the Company shall maintain the effectiveness of the Registration Statement then in effect until such time as a Registration Statement on Form S-3 covering the Registrable Securities has been declared effective by the SEC.
2.6 Sufficient Number of Shares Registered. In the event the number of shares available under a Registration Statement filed pursuant to Section 2.2 is insufficient to cover all of the Registrable Securities which such Registration Statement is required to cover, the Company shall amend the Registration Statement, or file a new Registration Statement (on the short form available therefor, if applicable), or both, so as to cover at least 100% of the Registrable Securities, in each case, as soon as practicable, but in any event not later than fifteen (15) business days after the necessity therefor arises. The Company shall cause such amendment and/or new Registration Statement to become effective as soon as practicable following the filing thereof. For purposes of the foregoing provision, the number of shares available under a Registration Statement shall be deemed "insufficient to cover all of the Registrable Securities" if the number of Registrable Securities issued or issuable upon exercise of the Warrants covered by such Registration Statement is greater than the number of shares of Common Stock available for resale under the Registration Statement to cover shares issued or issuable upon exercise of the Warrants. For purposes of the calculation set forth in the foregoing sentence, any restrictions on the exercise of the Warrants shall be disregarded and such calculation shall assume that the Warrants are then exercisable for shares of Common Stock at the then prevailing applicable Exercise Price (as defined in the Warrants).
III. OBLIGATIONS OF THE COMPANY.
Whenever required under this Agreement to effect the registration of any Registrable Securities, the Company will, as expeditiously as possible, fulfill the following obligations:
3.1 Registration Statement. The Company shall promptly prepare and file with the SEC a Registration Statement with respect to the Registrable Securities (but in no event later than the Filing Deadline) and use its best efforts to cause such Registration Statement to become effective (but in no event later than the applicable Effectiveness Deadline). The Company will keep such Registration Statement effective for up to three (3) years from its effective date, but not in any event after such
3
securities cease being Registrable Securities (the "Registration Period"). The Registration Statement (including any amendments or supplements thereto and Prospectuses contained therein) shall not contain any untrue statement of a material fact or omit to state a material fact required to be stated therein, or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading. The Company shall submit to the SEC, within three (3) business days, unless Legal Counsel withholds approval as provided in 3.3, after the Company learns that no review of a particular Registration Statement will be made by the staff of the SEC or that the staff has no further comments on the Registration Statement, as the case may be, a request for acceleration of effectiveness of such Registration Statement to a time and date not later than 2 business days after the submission of such request.
3.2 Registration Statement Amendments and Supplements. The Company shall prepare and file with the SEC such amendments and supplements to such Registration Statement and the Prospectus used in connection with such Registration Statement as may be necessary to comply with the provisions of the 1933 Act with respect to the disposition of all Registrable Securities covered by such Registration Statement until such time as all of such Registrable Securities shall have been disposed of in accordance with the intended methods of disposition by the seller or sellers thereof as set forth in such Registration Statement. In the case of amendments and supplements to a Registration Statement which are required to be filed pursuant to this Agreement (including pursuant to this Section 3.2) by reason of the Company filing a report on Form 10-K, Form 10-Q or Form 8-K or any analogous report under the Securities Exchange Act of 1934, as amended (the "1934 Act"), the Company shall have incorporated such report by reference into the Registration Statement, if applicable, or shall file such amendments or supplements with the SEC on the same day on which the 1934 Act report is filed which created the requirement for the Company to amend or supplement the Registration Statement.
3.3 Legal Counsel. The Company shall (a) permit Legal Counsel to review and comment upon (i) those sections of a Registration Statement relating to the Investors at least five (5) business days prior to its filing with the SEC, and (ii) all other sections of a Registration Statement and all amendments and supplements to all Registration Statements, which are applicable to the Investors (except for Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and any similar or successor report and registration statements on Form S-8) at least four (4) business days prior to their filing with the SEC, and (b) not file any document in a form to which Legal Counsel reasonably objects. The Company shall not submit a request for acceleration of the effectiveness of a Registration Statement or any amendment or supplement thereto without the prior approval of Legal Counsel, which consent shall not be unreasonably withheld. The Company shall furnish to Legal Counsel, without charge, (a) any correspondence from the SEC or the staff of the SEC to the Company or its representatives relating to any Registration Statement, (b) promptly after the same is prepared and filed with the SEC, one copy of any Registration Statement and any amendment(s) thereto, including financial statements and schedules and all exhibits and (c) upon the effectiveness of any Registration Statement, one copy of the Prospectus included in such Registration Statement and all amendments and supplements thereto. The Company shall reasonably cooperate with Legal Counsel in performing the Company's obligations pursuant to this Article III.
3.4 Notification. As promptly as practicable give notice to the Holders and Legal Counsel (a) when the Registration Statement or any post-effective amendment has been declared effective, (b) of the issuance by the SEC or any other federal or state governmental authority of any stop order or other suspension of the effectiveness of the Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any proceedings for that purpose, (c) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction or the initiation or threatening of any proceeding for such purpose, (d) of the occurrence of (but not the nature of or details concerning) a Material Event
4
(defined in Section 3.7), and (e) of the determination by the Company that a post-effective amendment to the Registration Statement will be filed with the SEC, which notice may, at the discretion of the Company (or as required pursuant to Section 3.7), state that it constitutes a Deferral Notice, in which event the provisions of Section 3.7 shall apply.
3.5 Prospectuses. The Company shall deliver to each Holder in connection with any sale of Registrable Securities pursuant to the Registration Statement, without charge, as many copies of the Prospectus or Prospectuses relating to such Registrable Securities (including each preliminary Prospectus) and any amendment or supplement thereto as such Holder may reasonably request, and the Company hereby consents (except during such periods that a Deferral Notice is outstanding and has not been revoked) to the use of such Prospectus or each amendment or supplement thereto by each Holder in connection with any offering and sale of the Registrable Securities covered by such Prospectus or any amendment or supplement thereto in the manner set forth therein.
3.6 Blue Sky Laws. The Company shall, prior to any public offering of the Registrable Securities pursuant to the Registration Statement, register or qualify or cooperate with the Holders in connection with the registration or qualification (or exemption from such registration or qualification) of such Registrable Securities for offer and sale under the securities or "Blue Sky" laws of such jurisdictions within the United States as any Holder reasonably requests in writing, and keep each such registration or qualification (or exemption therefrom) effective during the Registration Period in connection with such Holder's offer and sale of Registrable Securities pursuant to such registration or qualification (or exemption therefrom) and do any and all other acts or things necessary or advisable to enable the disposition in such jurisdictions of such Registrable Securities in the manner set forth in the Registration Statement and the related Prospectus; provided, however, that the Company will not be required to (a) qualify as a foreign corporation or as a dealer in securities in any jurisdiction where it would not otherwise be required to qualify but for this Agreement, or (b) take any action that would subject it to general service of process in suits or to taxation in any such jurisdiction where it is not then so subject. The Company shall promptly notify Legal Counsel and each Holder who holds Registrable Securities of the receipt by the Company of any notification with respect to the suspension of the registration or qualification of any of the Registrable Securities for sale under the securities or "Blue Sky" laws of any jurisdiction in the United States or its receipt of actual notice of the initiation or threat of any proceeding for such purpose.
3.7 Stop Orders; Material Events. The Company shall use commercially reasonable efforts to prevent the issuance of any stop order or other suspension of effectiveness of a Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction. Upon (a) any issuance by the SEC of a stop order or other suspension of the effectiveness of the Registration Statement, or the suspension of the qualification of any of the Registrable Securities for sale in any jurisdiction despite the Company's commercially reasonable efforts to prevent such stop order or suspension, or the initiation of proceedings with respect to the Registration Statement under Section 8(d) or 8(e) of the 1933 Act; (b) the occurrence of any event or the existence of any fact (a "Material Event") as a result of which the Registration Statement shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, or any Prospectus shall contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading; or (c) the occurrence or existence of any pending corporate development, public filing with the SEC or other similar event with respect to the Company that, in the reasonable discretion of the Company, makes it appropriate to suspend the availability of the Registration Statement and the related Prospectus, the Company shall (i) in the case of clause (b) above, subject to the next sentence, as promptly as practicable prepare and file, if necessary pursuant to applicable law, a post-effective amendment to such Registration Statement or a supplement to the related Prospectus or any document
5
incorporated therein by reference or file any other required document that would be incorporated by reference into such Registration Statement and Prospectus so that such Registration Statement does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and such Prospectus does not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading, and, in the case of a post-effective amendment to a Registration Statement, subject to the next sentence, use its reasonable efforts to cause it to be declared effective as promptly as is practicable; and (ii) give notice to the Holders and Legal Counsel that the availability of the Registration Statement is suspended (a "Deferral Notice") and, upon receipt of any Deferral Notice, each Holder agrees not to sell any Registrable Securities pursuant to the Registration Statement until such Holder's receipt of copies of the supplemented or amended Prospectus provided for in clause (i) above, or until it is advised in writing by the Company that the Prospectus may be used, and has received copies of any additional or supplemental filings that are incorporated or deemed incorporated by reference in such Prospectus. The Company will use commercially reasonable efforts to ensure that the use of the Prospectus may be resumed (x) in the case of clause (a) above, as promptly as is practicable, (y) in the case of clause (b) above, as soon as, in the sole judgment of the Company, public disclosure of such Material Event would not be prejudicial to or contrary to the interests of the Company or, if necessary to avoid unreasonable burden or expense, as soon as practicable thereafter, and (z) in the case of clause (c) above, as soon as, in the discretion of the Company, such suspension is no longer appropriate (such period, during which the availability of the Registration Statement and any Prospectus is suspended being a "Deferral Period"). Notwithstanding the foregoing, no Deferral Period instituted pursuant to clause (b) or clause (c) above shall last for a period of time in excess of thirty (30) days from the date of the Material Event or other occurrence or state of facts on account of which such Deferral Period is instituted, and the Company shall institute no more than one (1) Deferral Period in the aggregate pursuant to clause (b) or clause (c) above in any consecutive twelve (12) month period. The Company shall use commercially reasonable efforts to obtain the withdrawal of any order suspending the effectiveness of a Registration Statement or the lifting of any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction in which they have been qualified for sale, in either case as promptly as practicable.
3.8 Accountants Letters and Legal Opinions. At the reasonable request of any Holder and at the expense of the Company the Company shall furnish to such Holder, on the date of the effectiveness of the Registration Statement and thereafter from time to time on such dates as any of the Holders may reasonably request (if the offering contemplated by such Registration Statement is an underwritten offering) (a) a letter, dated such date, from the Company's independent certified public accountants in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering, and (b) an opinion, dated as of such date, of counsel representing the Company for purposes of such Registration Statement, in form, scope and substance as is customarily given to underwriters in an underwritten public offering, addressed to the Holders.
3.9 Listing or Quotation. The Company shall either (a) cause all the Registrable Securities covered by a Registration Statement to be listed on each securities exchange on which securities of the same class or series issued by the Company are then listed, if any, if the listing of such Registrable Securities is then permitted under the rules of such exchange, or (b) secure designation and quotation of all the Registrable Securities covered by the Registration Statement on the Nasdaq National Market or The New York Stock Exchange, Inc., or, if the Company is unsuccessful in satisfying the preceding clause (a) or (b), (c) the Company shall secure the inclusion for quotation on The American Stock Exchange, Inc., or The Nasdaq SmallCap Market, for such Registrable Securities and, without limiting the generality of the foregoing, to arrange for at least two (2) market makers to register with the National Association of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
6
Securities. The Company shall pay all fees and expenses in connection with satisfying its obligation under this Section 3.9.
3.10 Access to Information. The Company shall make documents, files, books, records, officers, directors and employees of the Company reasonably available to any Holder, Legal Counsel and one firm of accountants or other agents retained by the Holders and provided the underwriters, if any, shall have agreed to be bound by the provisions of this Section 3.10, to such underwriters (collectively the "Inspectors"), and make such other accommodations as are reasonably necessary for the Inspectors, if any, to perform a due diligence review of the Company; provided, however, that all such information ("Confidential Information") will be kept confidential and not utilized by the Inspectors except as contemplated herein and except as required by law or court order. The term "Confidential Information" does not include information that (a) is already in possession of such other party (other than that which is subject to another confidentiality agreement), (b) becomes generally available to the public, or (c) becomes available on a non-confidential basis from a source other than the Company. Each Holder agrees that it shall, upon learning that disclosure of such Confidential Information is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt notice to the Company and allow the Company, at its expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, the information deemed confidential.
3.11 Non-Disclosure. The Company shall hold in confidence and not make any disclosure of information concerning any Holder provided to the Company unless (a) disclosure of such information is necessary to comply with federal or state securities laws, (b) the disclosure of such information is necessary to avoid or correct a misstatement or omission in any Registration Statement, (c) the release of such information is ordered pursuant to a subpoena or other final, non-appealable order from a court or governmental body of competent jurisdiction, (d) such information has been made generally available to the public other than by disclosure in violation of this Agreement or any other agreement, or (e) such Holder consents to the form and content of any such disclosure. The Company agrees that it shall, upon learning that disclosure of such information concerning any Holder is sought in or by a court or governmental body of competent jurisdiction or through other means, give prompt written notice to such Holder and allow such Holder, at the Holder's expense, to undertake appropriate action to prevent disclosure of, or to obtain a protective order for, such information.
3.12 Certificates. The Company shall cooperate with each of the Holders who hold Registrable Securities being offered, and to the extent applicable, to facilitate the timely preparation and delivery of certificates (not bearing any restrictive legend) representing the Registrable Securities to be offered pursuant to a Registration Statement and enable such certificates to be in such denominations or amounts, as the case may be, as the Holders may reasonably request and registered in such names as the Holders may request.
3.13 Transfer Agent and Registrar. The Company shall provide a transfer agent and registrar of all such Registrable Securities not later than the effective date of such Registration Statement.
3.14 Amendments and Supplements Requested by Holders. If requested by any Holder, the Company shall (a) as soon as practicable incorporate in a Prospectus supplement or post-effective amendment such information as such Holder requests to be included therein relating to the sale and distribution of Registrable Securities, including without limitation, information with respect to the number of Registrable Securities being offered or sold, the purchase price being paid therefor and any other terms of the offering of the Registrable Securities to be sold in such offering, (b) as soon as practicable make all required filings of such Prospectus supplement or post-effective amendment after being notified of the matters to be incorporated in such Prospectus supplement or post-effective amendment, and (c) supplement or make amendments to any Registration Statement if reasonably requested by any Holder of such Registrable Securities.
7
3.15 Additional Registrations and Approvals. The Company shall use its best efforts to cause the Registrable Securities covered by the applicable Registration Statement to be registered with or approved by such other governmental agencies or authorities as may be necessary to consummate the disposition of such Registrable Securities.
3.16 Earnings Statements. The Company shall make generally available to its security holders as soon as practical, but not later than ninety (90) days after the close of the period covered thereby, an earnings statement (in form complying with the provisions of Rule 158 under the 1933 Act) covering a twelve (12) month period beginning not later than the first day of the Company's fiscal quarter next following the effective date of the Registration Statement, provided that the Company shall be deemed to satisfy its obligations under this Section 3.16 if it timely makes all required filings under the 1934 Act and does not change its fiscal year.
3.17 SEC Compliance. The Company shall otherwise comply with all applicable rules and regulations of the SEC in connection with any registration hereunder.
3.18 Confirmation of Registration. Within two (2) business days after a Registration Statement which covers applicable Registrable Securities is ordered effective by the SEC, the Company shall deliver, and shall cause legal counsel for the Company to deliver, to the transfer agent for such Registrable Securities (with copies to the Holders whose Registrable Securities are included in such Registration Statement and to Legal Counsel) confirmation that such Registration Statement has been declared effective by the SEC in the form attached hereto as Exhibit A.
3.19 Actions for Public Offering. The Company shall provide such opinions, certifications, indemnifications, and take such other actions, including without limitation, entering into such agreements (including underwriting agreements), as are reasonably required and appropriate, to permit the Holders to make a public offering of the Registrable Securities requested to be registered.
3.20 Rule 144 Requirements. The Company covenants that it shall file the reports required to be filed by it under the 1933 Act and the 1934 Act, and the rules and regulations adopted by the SEC thereunder, provided, however, the Company may delay any such filing but only pursuant to Rule 12b-25 under the 1934 Act, and the Company shall take such further action as any Holder of Registrable Securities may reasonably request (including without limitation, promptly obtaining and required legal opinions from Company counsel necessary to effect the sale of Registrable Securities under Rule 144 and paying the related fees and expenses of such counsel), all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the 1933 Act within the limitation of the exemptions provided by (a) Rule 144 under the Act, as such Rule may be amended from time to time, or (b) any similar rule or regulation hereafter adopted by the SEC. Upon the request of any Holder of Registrable Securities, the Company will deliver to such Holder a written statement as to whether it has complied with such requirements. If the Company fails to satisfy its covenants and obligations under this Section 3.20, then it shall be in breach of this Agreement (such a breach being a "Rule 144 Default"). Notwithstanding the foregoing, the Company shall have 30 days to cure a Rule 144 Default after the date of its occurrence and to deliver a written statement to the holders of Registrable Securities that such Rule 144 Default has been so cured; and if such cure is timely effected and such statement is timely delivered, the Company shall not be subject to the remedies for a Rule 144 Default.
IV. OBLIGATIONS OF THE HOLDERS.
4.1 Furnish Information. The Company's obligation to cause any Registration Statement to become effective in connection with distribution of any Registrable Securities pursuant to this Agreement is contingent upon each Holder, with reasonable promptness, furnishing to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities, as is required pursuant to Regulation S-K promulgated under the 1933
8
Act, to effect the registration of the Registrable Securities. Each Holder agrees, by acquisition of the Registrable Securities, that it shall not be entitled to sell any of such Registrable Securities pursuant to the Registration Statement or to receive a Prospectus relating thereto, unless such Holder has furnished the Company with all information required to be disclosed in order to make the information previously furnished to the Company by such Holder not misleading in a material respect and any other information regarding such Holder and the distribution of such Registrable Securities as the Company may from time to time reasonably request. Any sale of any Registrable Securities by any Holder shall constitute a representation and warranty by such Holder that the information relating to such Holder and its plan of distribution is as set forth in the Prospectus delivered by such Holder in connection with such disposition, that such Prospectus does not as of the time of such sale contain any untrue statement of a material fact relating to or provided by such Holder or relating to its plan of distribution and that such Prospectus does not as of the time of such sale omit to state any material fact relating to or provided by such Holder or relating to its plan of distribution necessary to make the statements in such Prospectus, in the light of the circumstances under which they were made, not misleading.
V. INDEMNIFICATION.
In the event of any registration under this Agreement:
5.1 Indemnification by the Company. The Company will indemnify and hold harmless each Holder and its officers, directors, partners and affiliates (and their officers, directors and partners), any underwriter (as defined in the 1933 Act) for each Holder and each person (and its officers, directors, partners and affiliates), if any, who controls any Holder or underwriter within the meaning of the 1933 Act or the 1934 Act (each a "Company Indemnified Person"), against any losses, claims, damages, expenses or liabilities, joint or several, or actions in respect thereof ("Losses") to which they may become subject under the 1933 Act, the 1934 Act, or other federal or state law, insofar as such Losses arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation"): (a) any untrue statement or alleged untrue statement of a material fact contained in such Registration Statement, including any preliminary Prospectus or final Prospectus contained therein or any amendments or supplements thereto, (b) the omission or alleged omission to state therein 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, or (c) any violation or alleged violation by the Company of the 1933 Act, the 1934 Act, any state securities law, or any rule or regulation promulgated under the 1933 Act, the 1934 Act, or any state securities law, and the Company will pay to each such Company Indemnified Person, as incurred, any legal or other expenses reasonably incurred by or on behalf of him in connection with investigating or defending any such Loss; provided, however, that the indemnity agreement contained in this Section 5.1 shall not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor will the Company be liable in any such case for any such Loss to the extent that it arises out of or is based upon (a) a Violation which occurs solely as the result of the written information furnished by any Holder, underwriter or controlling person seeking indemnification hereunder, as applicable, expressly for inclusion in the Registration Statement, or (b) with respect to any underwriter and controlling person of such underwriter (and their respective officers and directors), a Violation which results from the fact that there was not sent or given to a person who bought Registrable Securities, at or prior to the written confirmation of the sale, a copy of the final Prospectus, as then amended or supplemented, if the Company had previously furnished copies of such Prospectus hereunder and such Prospectus corrected the misstatement or omission forming the basis of the Violation.
5.2 Indemnification by Holders. Each Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the Registration Statement, each person, if any, who controls the Company within the meaning of the 1933 Act, any underwriter and any controlling
9
person of any such underwriter or other holder (each a "Holder Indemnified Person"), against any Losses to which any of the foregoing persons may become subject, under the 1933 Act, the 1934 Act, or other federal or state law, insofar as such Losses arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs solely as a result of the written information furnished by each Holder expressly for inclusion in the applicable Registration Statement, and such Holder will pay, as incurred, any legal or other expenses reasonably incurred by any Holder Indemnified Person intended to be indemnified pursuant to this Section 5.2, in connection with investigating or defending any such Loss; provided, however, that any Holder's liability pursuant to this Section 5.2 shall be limited to the amount of the net proceeds received by such Holder from the sale of the Registrable Securities sold by it, and further provided that the indemnity agreement contained in this Section 5.2 does not apply to amounts paid in settlement of any such Loss if such settlement is effected without the consent of such Holder, which consent shall not be unreasonably withheld.
5.3 Indemnification Procedures. Promptly after receipt by an indemnified party under this Article V of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Article V, deliver to the indemnifying party a written notice of the commencement of such action and the indemnifying party will have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties which may be represented without conflict by one counsel) will have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of the indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between the indemnified party and any other party represented by such counsel in the same proceeding. If the indemnifying party shall fail to defend the action, or conducts a defense which is not reasonably adequate in light of the circumstances, the indemnified party may conduct its own defense and shall be entitled to reimbursement for the costs of such defense. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action shall not relieve such indemnifying party of any liability to the indemnified party under this Agreement, except to the extent that the indemnifying party is materially prejudiced by such failure. The omission so to deliver written notice to the indemnifying party does not relieve it of any liability that it may have to any indemnified party otherwise than under this Agreement. No indemnifying party under this Agreement will enter into any settlement or consent to any entry of judgment without the indemnified party's written consent which does not include as an unconditional term thereof the giving by the claimant or plaintiff to the indemnified party of a release from all liability in respect of such claim or litigation.
5.4 Contribution. If the indemnification provided for in this Article V is held by a court of competent jurisdiction to be unavailable to an indemnified party or is insufficient to indemnify an indemnified party with respect to any Loss, then the indemnifying party, in lieu of or in addition to, as appropriate, indemnifying such indemnified party hereunder, will contribute to the amount paid or payable by such indemnified party as a result of such Loss in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such Loss as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party will be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. The obligation of any Holder to make a contribution pursuant to this Section 5.4 shall be limited to the net proceeds received by such Holder from the sale of the Registrable Securities sold by it, less any amounts paid
10
pursuant to Section 5.2. To the extent any indemnification by an indemnifying party is prohibited or limited by law, the indemnifying party agrees to make the maximum contribution with respect to any amounts for which it would otherwise be liable under Article V to the fullest extent permitted by law; provided, however, that: (a) no seller of Registrable Securities guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any seller of Registrable Securities who was not guilty of fraudulent misrepresentation, and (b) contribution by any seller of Registrable Securities shall be limited in amount to the net amount of proceeds received by such seller from the sale of such Registrable Securities pursuant to such Registration Statement.
5.5 Survival. The indemnity and contribution provisions contained in this Article V shall remain operative and in full force and effect regardless of (a) any termination of this Agreement, (b) any investigation made by or on behalf of any Holder or any person controlling any Holder, or the Company, or the Company's officers or directors or any person controlling the Company, and (c) the sale of any Registrable Securities by any Holder.
VI. MISCELLANEOUS.
6.1 Expenses. The Company shall bear all fees and expenses incurred in connection with the performance by the Company of its obligations under this Agreement (including without limitation, all registration and filing fees, fees with respect to filings required to be made with the National Association of Securities Dealers, Inc., fees and expenses of compliance with securities or "Blue Sky" laws, printing expenses, messenger, telephone and distribution expenses associated with the preparation and distribution of any Registration Statement, all fees and expenses associated with the listing of any Registrable Securities on any securities exchange or exchanges, the fees and disbursements of counsel for the Company and its accountants, any underwriting fees and the reasonable fees and expenses of one counsel to the Holders, not to exceed an amount equal to $25,000, whether or not the Registration Statement is declared effective. Notwithstanding the provisions of this Section 6.1, each seller of Registrable Securities shall pay all underwriting fees and expenses, selling commissions and stock transfer and documentary stamp taxes, if any, applicable to any Registrable Securities registered and sold by such seller and all registration expenses to the extent the Company is prohibited from paying such expenses under applicable law.
6.2 Assignment of Registration Rights. The rights under this Agreement shall be automatically assignable by any Holder to any transferee of all or any portion of Registrable Securities if: (a) such Holder agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment; (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee, and (ii) the securities with respect to which such registration rights are being transferred or assigned; (c) immediately following such transfer or assignment the further disposition of such securities by the transferee or assignee is restricted under the 1933 Act and applicable state securities laws; (d) at or before the time the Company receives the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein and (e) at least 100,000 shares of Common Stock (or the equivalent number of Warrants that are exercisable for that number of shares of Common Stock) are transferred by such Holder to the transferee of the Registrable Securities contemplated by this Section 6.2.
VII. GENERAL.
7.1 Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally, (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by
11
the sending party), or (c) one (1) business day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Intraware, Inc.
25 Orinda Way
Orinda, CA 94563
Telephone: (925) 253-4500
Facsimile: (925) 253-4541
Attention: General Counsel
With a copy to (which shall not constitute notice):
Wilson
Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Attention: Adam R. Dolinko, Esq.
If to a Holder, to its most recent address and facsimile number provided to the Company five (5) days prior to the effectiveness of any change thereof, together with a copy to Commonwealth Associates, L.P., 830 Third Avenue, New York, NY 10022.
Written confirmation of receipt (a) given by the recipient of such notice, consent, waiver or other communication, (b) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, or (c) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (a), (b) or (c) above, respectively.
7.2 Owner of Registrable Securities. A Person is deemed to be a holder of Registrable Securities whenever such Person owns or is deemed to be owner of record of such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more Persons with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities.
7.3 Consents. All consents and other determinations to be made by the Holders pursuant to this Agreement shall be made, unless otherwise specified in this Agreement, by Holders holding a majority of the Registrable Securities, determined as if all the Warrants then outstanding have been exercised for Registrable Securities without regard for any limitations on exercise of the Warrants.
7.4 Additional Rights. From and after the date of this Agreement, the Company shall not without the prior written consent of holders of majority of the outstanding Registrable Securities enter into any agreement with any holder or prospective holder of any securities of the Company providing for the grant to such holder of rights superior to those granted herein.
7.5 Specific Performance. Each of the parties hereto acknowledges and agrees that the breach of this Agreement would cause irreparable damage to the other parties hereto and that the other parties hereto will not have an adequate remedy at law. Therefore, the obligations of each of the parties hereto under this Agreement shall be enforceable by a decree of specific performance issued by any court of competent jurisdiction, and appropriate injunctive relief may be applied for and granted in connection therewith. Such remedies shall, however, be cumulative and not exclusive and shall be in addition to any other remedies which any party may have under this Agreement or otherwise.
12
7.6 Entire Agreement; Amendment. This Agreement supersedes all other prior oral or written agreements among the parties, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein. No provision of this Agreement may be amended or waived other than by an instrument in writing signed by the Company and the Holders of at least a majority of the Registrable Securities then outstanding. Notwithstanding the foregoing, a waiver or consent to depart from the provisions hereof with respect to a matter that relates exclusively to the rights of Holders of Registrable Securities whose securities are being sold pursuant to the Registration Statement and that does not directly or indirectly affect the rights of other Holders of Registrable Securities may be given by Holders of at least a majority of the Registrable Securities being sold by such Holders pursuant to such Registration Statement. Each Holder of Registrable Securities outstanding at the time of any such amendment, modification, supplement, waiver or consent or thereafter shall be bound by any such amendment, modification, supplement, waiver or consent effected pursuant to this Section 7.6, whether or not any notice, writing or marking indicating such amendment, modification, supplement, waiver or consent appears on the Registrable Securities or is delivered to such Holder.
7.7 Severability. If any provision of this Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Agreement in that jurisdiction or the validity or enforceability of any provision of this Agreement in any other jurisdiction.
7.8 Termination. This Agreement and the obligations of the parties hereunder shall terminate as of the end of the Registration Period except for Article V hereof which shall survive and remain in full force and effect in accordance with its terms.
7.9 Governing Law; Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action or proceeding seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of New York or, if it has or can acquire jurisdiction, in the United States District Court for the Southern District of New York, and each of the parties consents to the jurisdiction of such courts (and of the appropriate appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party anywhere in the world.
7.10 Headings. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement.
7.11 Successors and Assigns; No Third Party Beneficiaries. Subject to Section 6.2, this Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and permitted assigns. Nothing in this Agreement shall create or be deemed to create any third-party beneficiary rights in any person not a party to this Agreement except as provided below and in Section 6.2. Upon any assignment, the references in this Agreement to any Holder shall also apply to any such assignee unless the context otherwise requires.
7.12 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
13
7.13 No Strict Construction. 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.
7.14 Counterparts. This Agreement may be executed in two or more identical counterparts, all of which 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; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.
14
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
| COMMONWEALTH ASSOCIATES, L.P. | ||
By: |
/s/ JOSEPH P. WYNNE Name: Joseph P. Wynne Title: CFO |
|
15
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
| COMVEST VENTURE PARTNERS, L.P. | ||
By: |
/s/ MICHAEL S. FALK Name: Michael S. Falk Title: General Partner |
|
16
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ GERALD CRAMER Name: Gerald Cramer Title: |
17
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ GEORGE M. DRYSDALE Name: George M. Drysdale Title: |
18
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ NEAL GOLDMAN Name: Neal Goldman Title: |
19
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
| HARVARD DEVELOPMENT, INC. | ||
By: |
/s/ TERRY DOWNIE Name: Terry Downie Title: Vice President of Finance and Secretary |
|
By: |
/s/ PAUL BOURASSA Name: Paul Bourassa Title: Assistant Secretary |
|
20
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
| HARVARD INVESTMENTS, INC. | ||
By: |
/s/ CRAIG L. KRUMWIEDE Name: Craig L. Krumwiede Title: President |
|
21
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
| CAROL R. HILL SPOUSAL TRUST | ||
By: |
/s/ CAROL R. HILL Name: Carol R. Hill Title: Trustee |
|
22
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ ROBERT PRIDDY Name: Robert Priddy Title: |
23
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
| SHEA VENTURES LLC | ||
By: |
/s/ EDMUND H. SHEA, JR. Name: Edmund H. Shea, Jr. Title: Manager |
|
24
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ NOAM GOTTESMAN Name: Noam Gottesman Title: |
|
By: |
/s/ GERALDINE GOTTESMAN Name: Geraldine Gottesman Title: |
25
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ RICHARD LINHART Name: Richard Linhart Title: |
26
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ LLOYD A. MORIBER Name: Lloyd A. Moriber Title: |
27
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ ALLAN MACDONALD Name: Allan MacDonald Title: |
|
By: |
/s/ EILEEN MACDONALD Name: Eileen MacDonald Title: |
28
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ WILLIAM T. MCCAFFREY Name: William T. McCaffrey Title: |
29
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
| STACEY B. AND THOMAS T. MCCORMICK FAMILY TRUST | ||
By: |
/s/ STACEY B. MCCORMICK Name: Stacey B. McCormick Title: Trustee |
|
30
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ JAMES NEALIS Name: James Nealis Title: |
31
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ TRAVIS L. PROVOW Name: Travis L. Provow Title: |
32
IN WITNESS WHEREOF, the parties hereto have executed or have caused this Registration Rights Agreement to be executed by their respective officers thereunto duly authorized, as of the date first written above.
| INTRAWARE, INC. | |||
By: |
/s/ FROST PRIOLEAU Name: Frost Prioleau Title: President |
||
The foregoing Agreement is hereby accepted as of the date first above written:
By: |
/s/ RICKY C. SANDER Name: Ricky C. Sander Title: |
33
This Schedule I shows the names and addresses of the Investors under the Registration Rights Agreement.
[NAME OF INVESTOR]
Address for all communications, including written confirmation of such wire transfers:
[TO BE PROVIDED]
Telecopy No.
Telephone No.
Tax ID #
34
EXHIBIT A
Form of Notice of Effectiveness of Registration Statement
[Transfer Agent]
Attn:
Re: Intraware, Inc.
Ladies and Gentlemen:
We are counsel to Intraware, Inc., a Delaware corporation (the "Company"), and have represented the Company in connection with those certain Subscription Agreements (the "Subscription Agreements") entered into by and among the Company and the Investors named therein (collectively, the "Holders") pursuant to which the Company issued to the Holders 8% senior secured promissory notes and warrants (the "Warrants") to purchase shares of the Company's common stock, par value $0.0001 per share (the "Common Stock"). Pursuant to the above mentioned agreements, the Company also has entered into a Registration Rights Agreement with the Holders (the "Registration Rights Agreement") pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issuable upon exercise of the Warrants, under the 1933 Act of 1933, as amended (the "1933 Act"). In connection with the Company's obligations under the Registration Rights Agreement, on , the Company filed a Registration Statement on Form S-3 (File No. 333- ) (the "Registration Statement") with the Securities and Exchange Commission (the "SEC") relating to the Registrable Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's staff has advised us by telephone that the SEC has entered an order declaring the Registration Statement effective under the 1933 Act at [Enter Time of Effectiveness] on [Enter Date of Effectiveness] and we have no knowledge, after telephonic inquiry of a member of the SEC's staff, that any stop order suspending its effectiveness has been issued or that any proceedings for that purpose are pending before, or threatened by, the SEC and the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.
Very
truly yours,
[Issuer's Counsel]
By:
cc: [List Names of Holders]
35
THIS Subscription Agreement is made as of this 31st day of August, 2001 between Intraware, Inc., a corporation organized under the laws of the State of Delaware with offices at 25 Orinda Way, Suite 101, Orinda, California 94563 (the "Company"), and the undersigned (the "Subscriber", and together with each of the other subscribers in the Offering (defined below), the "Subscribers").
WHEREAS, the Company desires to issue a minimum of 60 (the "Minimum Offering") and a maximum of 70 units (including fractions thereof) (the "Maximum Offering") (such units, the "Units") in a bridge financing (the "Offering"), each Unit consisting of (a) $100,000 principal amount of 8% senior secured promissory notes (the "Notes"), the form of which is attached to this Subscription Agreement as Exhibit A, and (ii) warrants (the "Warrants") to purchase 100,000 shares of the Company's common stock, $.0001 par value (the "Common Stock"), subject to the redemption provisions set forth in the Warrant, the form of which is attached to this Subscription Agreement as Exhibit B; and
WHEREAS, Commonwealth Associates, L.P. is acting as placement agent (the "Placement Agent") in the Offering pursuant to a Placement Agency Agreement dated August 31 2001 between the Company and the Placement Agent (the "Agency Agreement"); and
WHEREAS, each Warrant represents the right to purchase one share of Common Stock (the "Warrant Shares") on the terms set forth in the Warrant; and
WHEREAS, the Warrant Shares are entitled to registration rights on the terms set forth in this Subscription Agreement and in the Registration Rights Agreement (the "Registration Rights Agreement"), attached hereto as Exhibit C and incorporated herein by reference and made a part hereof; and
WHEREAS, the Notes are secured by a lien on the Company's assets pursuant to the terms set forth in the security agreement (the "Security Agreement") and the Subscriber is appointing the Placement Agent to act as agent for the Subscriber in connection with the Security Agreement on the terms set forth in the agency appointment agreement (the "Appointment Agreement"), the forms of which agreements are attached to this Subscription Agreement as Exhibit D;
WHEREAS, the Subscriber is delivering simultaneously herewith a completed confidential investor questionnaire (the "Questionnaire").
NOW, THEREFORE, for and in consideration of the promises and the mutual covenants hereinafter set forth, the parties hereto do hereby agree as follows:
I. SUBSCRIPTION FOR UNITS AND REPRESENTATIONS BY AND COVENANTS OF SUBSCRIBER
1.1 Subscription for Units. Subject to the terms and conditions hereinafter set forth, the Subscriber hereby subscribes for and agrees to purchase from the Company such number of Units as is set forth upon the signature page hereof at a price equal to $100,000 per Unit and the Company agrees to sell such Units to the Subscriber for said purchase price subject to the Company's right to sell to the Subscriber such lesser number of Units as the Company may, in its sole discretion, deem necessary or desirable. The purchase price is payable by certified or bank check made payable to "American Stock Transfer & Trust Company as escrow agent for Intraware, Inc." (American Stock Transfer & Trust Company is referred to as the "Escrow Agent") or by wire transfer of funds, contemporaneously with the execution and delivery of this Subscription Agreement. The Escrow Agent shall act as such in accordance with the terms and conditions of an Escrow Agreement to be entered into among the Placement Agent, the Company and the Escrow Agent. The Notes and Warrants shall be delivered by the Company within five (5) business days following the consummation of the Offering as set forth in
Article III hereof; provided that, the Warrants shall be subject to the terms of the warrant escrow agreement by and among the Company, Commonwealth and Loeb & Loeb LLP (the "Warrant Escrow Agreement"). Provided further that in the event that prior to the 17th day following the initial closing of the Bridge Financing (the "Initial Closing"), the Company enters into a definitive merger or acquisition agreement with the entity set forth in Schedule 1 hereto pursuant to which such entity acquires more than 50% of the Company at a price per share greater than $1.00, and provided that as a result of such acquisition or other agreement with such entity the Notes are repaid in full within 90 days after the Initial Closing, the Company shall have the right to redeem 50% of the Warrants, on a pro-rata basis, at a price of $.01 per Warrant..
1.2 Reliance on Exemptions. The Subscriber acknowledges that this offering of Units has not been reviewed by the United States Securities and Exchange Commission (the "SEC") or any state agency because of the Company's representations that this is intended to be a nonpublic offering exempt from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act") and state securities laws. The Subscriber understands that the Company is relying in part upon the truth and accuracy of, and the Subscriber's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Subscriber set forth herein in order to determine the availability of such exemptions and the eligibility of the Subscriber to acquire the Units.
1.3 Investment Purpose. The Subscriber represents that the Notes and Warrants comprising its Units are being purchased for its own account, for investment purposes only and not for distribution or resale to others in contravention of the registration requirements of the 1933 Act. The Subscriber agrees that it will not sell or otherwise transfer the Notes, the Warrants or the Warrant Shares (collectively, the "Securities") unless they are registered under the 1933 Act or unless an exemption from such registration is available.
1.4 Accredited Investor. The Subscriber represents and warrants that it is an "accredited investor" as such term is defined in Rule 501 of Regulation D promulgated under the 1933 Act, as indicated by its responses to the Questionnaire, and that it is able to bear the economic risk of any investment in the Units. The Subscriber further represents and warrants that the information furnished in the Questionnaire is accurate and complete in all material respects.
1.5 Risk of Investment. The Subscriber recognizes that the purchase of Units involves a high degree of risk in that: (i) the Company has incurred substantial losses from operations; (ii) an investment in the Company is highly speculative and only investors who can afford the loss of their entire investment should consider investing in the Company and the Units; (iii) an investment in the Units is illiquid; (iv) transferability of the securities comprising the Units is extremely limited; (v) the Company will require substantial additional funds to operate its business and there can be no assurance that the Maximum Offering will be completed or that any other funds will be available to the Company and (vi) the Company will be unable to repay the Notes without obtaining additional financing.
1.6 Information. The Subscriber acknowledges receipt and careful review of: (a) the Annual Report of the Company for the fiscal year ended February 28, 2001 filed with the SEC on Form 10-K on June 13, 2001, (b) the Quarterly Report of the Company for the fiscal quarter ended May 31, 2001 filed with the SEC on Form 10-Q on July 13, 2001, (c) the Note, (d) the Warrant, (e) this Subscription Agreement, (f) the Registration Rights Agreement, (g) the Security Agreement, (h) the Appointment Agreement, and (i) all exhibits, schedules and appendices which are part of the aforementioned documents (collectively, the "Offering Documents"), and hereby represents that: (i) the Subscriber has been furnished by the Company during the course of this transaction with all information regarding the Company which it has requested; (ii) that the Subscriber has been afforded the opportunity to ask questions of and receive answers from duly authorized officers of the Company concerning the terms and conditions of the Offering, and any additional information which it has requested; and (iii) the
2
Subscriber has been given the opportunity by the Placement Agent to review the Agency Agreement if it has requested.
1.7 No Representations. The Subscriber hereby represents that, except as expressly set forth in the Offering Documents, no representations or warranties have been made to the Subscriber by the Company or any agent, employee or affiliate of the Company, including the Placement Agent, and in entering into this transaction the Subscriber is not relying on any information other than that contained in the Offering Documents and the results of independent investigation by the Subscriber.
1.8 Tax Consequences. The Subscriber acknowledges that this offering of Units may involve tax consequences and that the contents of the Offering Documents do not contain tax advice or information. The Subscriber acknowledges that he must retain his own professional advisors to evaluate the tax and other consequences of an investment in the Units.
1.9 Transfer or Resale. The Subscriber understands that, except as set forth in the Registration Rights Agreement: (a) the Units have not been and are not being registered under the 1933 Act or any state securities laws; (b) the Securities may not be offered for sale, sold, assigned, transferred or otherwise disposed of (each a "Disposition") unless, prior to effecting any such Disposition, (i) (A) such Securities, or the offering of such Securities, as applicable, are or is subsequently registered under the 1933 Act, (B) the Subscriber delivers to the Company an opinion of counsel, in a reasonably acceptable form, that a Disposition of the Securities may be made pursuant to an exemption from such registration, or (C) the Subscriber provides the Company with reasonable assurance that a Disposition of the Securities may be made pursuant to Rule 144 promulgated under the 1933 Act (the "Rule") and (ii) the Subscriber and all direct or indirect transferees in any such Disposition have agreed in writing upon the aggregate number of shares of Common Stock (the "Issuable Shares") that each such direct or indirect transferee may receive upon the exercise of the Warrants transferred to such transferee so that such exercise does not, when aggregated with exercises allocated to the Subscriber and any other transferees of such Subscriber, exceed the Per Subscriber Limit (defined below); (c) any Disposition of Securities made in reliance upon the Rule may be made only in accordance with the terms of the Rule and further, if the Rule is not applicable, any Disposition of the Securities under circumstances in which the seller (or the person through whom the Disposition is made) may be deemed to be an underwriter (as such term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC promulgated thereunder; and (d) the Company is under no obligation to register the Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any registration exemption thereunder.
1.10 No Hedging Transactions. The Subscriber hereby agrees not to engage in any Hedging Transaction until such time as the Warrant Shares have been registered for resale under the 1933 Act or may otherwise be sold in the public market without an effective registration statement under the 1933 Act. "Hedging Transaction" means any short sale (whether or not against the box) or any purchase, sale or grant of any right (including, without limitation, any put or call option) with respect to any security (other than a broad-based market basket or index) that includes, relates to or derives any significant part of its value from the Company's Common Stock or any rights, warrants, options or other securities that are convertible into, or exercisable or exchangeable for, Common Stock.
1.11 Placement Agent. The Subscriber agrees that neither the Placement Agent or any of its directors, officers, employees or agents shall be liable to any Subscriber for any action taken or omitted to be taken by it in connection therewith, except for willful misconduct or gross negligence.
1.12 Legends. The Subscriber understands that the certificates or other instruments representing the Securities, until such time as they have been registered under the 1933 Act as contemplated by the
3
Registration Rights Agreement, shall bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of such certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES LAWS, OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a certificate or other instrument without such legend to the holder of the Securities upon which it is stamped, if (a) such Securities are registered under the 1933 Act, (b) such holder delivers to the Company an opinion of counsel, in a reasonably acceptable form, to the Company that a Disposition of the Securities may be made pursuant to an exemption from such registration, or (c) such holder provides the Company with reasonable assurance that a Disposition of the Securities may be made pursuant to the Rule without any restriction as to the number of securities acquired as of a particular date that can then be immediately sold.
1.13 Validity; Enforcement. If the Subscriber is a corporation, partnership, trust or other entity, the Subscriber represents and warrants that: (a) it is authorized and otherwise duly qualified to purchase and hold the Units; and (b) that this Subscription Agreement has been duly and validly authorized, executed and delivered and constitutes the legal, binding and enforceable obligation of the undersigned.
1.14 Residency. The Subscriber represents that its principal address is furnished at the end of this Subscription Agreement.
1.15 Foreign Subscriber. If the Subscriber is not a United States person, such Subscriber hereby represents that it has satisfied itself as to the full observance of the laws of its jurisdiction in connection with any invitation to subscribe for the Notes and Warrants comprising the Units or any use of this Subscription Agreement, including: (a) the legal requirements within its jurisdiction for the purchase of the Units; (b) any foreign exchange restrictions applicable to such purchase; (c) any governmental or other consents that may need to be obtained; and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of the securities comprising the Units. Such Subscriber's subscription and payment for, and his or her continued beneficial ownership of the Units, will not violate any applicable securities or other laws of the Subscriber's jurisdiction.
1.16 NASD Member. The Subscriber acknowledges that if it is a Registered Representative of a NASD member firm, the Subscriber must give such firm notice required by the NASD's Rules of Fair Practice, receipt of which must be acknowledged by such firm on the signature page hereof.
II. REPRESENTATIONS BY THE COMPANY
The Company represents and warrants to the Subscriber, except as set forth in the disclosure schedules attached hereto:
2.1 Organization and Qualification. The Company is duly organized and validly existing in good standing under the laws of the jurisdiction in which it is organized, and has the requisite power and
4
authorization to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Subscription Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company, or on the transactions contemplated hereby, or by the other Offering Documents or the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Offering Document. The Company does not have any operating subsidiaries and all of the non-operating subsidiaries are wholly-owned by the Company.
2.2 Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Subscription Agreement and other Offering Documents, to file and perform its obligations under the Offering Documents, and to issue the Securities in accordance with the terms of the Offering Documents. The execution and delivery of the Offering Documents by the Company and the consummation by the Company of the transactions contemplated by the Offering Documents, including without limitation the issuance of the Securities, have been duly authorized by the Company's board of directors and no further consent or authorization is required by the Company, its board of directors or its stockholders. The Offering Documents have been duly executed and delivered by the Company, and constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies.
2.3 Capitalization. The authorized, issued and outstanding capital stock of the Company prior to the consummation of the transactions contemplated hereby is set forth in Schedule 2.3. All of such outstanding shares have been and are, or upon issuance will be duly authorized, validly issued, fully paid and non-assessable. Except as disclosed in Schedule 2.3, (i) no shares of the Company's capital stock are subject to preemptive rights under Delaware law or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding debt securities issued by the Company; (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company; (iv) there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the 1933 Act; (v) there are no outstanding securities of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company; (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in the Offering Documents; and (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. All prior sales of securities of the Company were either registered under the 1933 Act and applicable state securities laws or exempt from such registration, and no security holder has any rescission rights with respect thereto.
2.4 Issuance of Securities; Reservation. The issuance, sale and delivery of the Securities have been duly authorized by all requisite corporate action by the Company and, upon issuance in
5
accordance with the Offering Documents, shall be (a) duly authorized, validly issued, fully paid and non-assessable, (b) free from all taxes, liens and charges with respect to the issue thereof, and (c) entitled to the rights and preferences set forth in the Notes and the Warrants. At least 7,700,000 shares of Common Stock have been duly authorized and reserved for issuance upon exercise of the Warrants and Agent's Warrants. In the event the number of shares of Common Stock issuable upon exercise of the Warrants exceeds the number of authorized shares of Common Stock as a result of the exercise terms of the Warrants, the Company shall use its reasonable best efforts to seek stockholder approval of and file a Certificate of Amendment to increase the authorized number of shares of Common Stock accordingly. Upon exercise of the Warrants in accordance with the terms thereof, the Warrant Shares will be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Assuming (i) the accuracy of the information provided by the respective Subscribers in the Subscription Agreement and Questionnaire, (ii) that all of the offerees and Subscribers are "accredited investors" as such term is defined in Rule 501 of Regulation D, and (iii) that the Placement Agent has not engaged, nor will engage, in connection with the Offering, in any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D, the offer and sale of the Notes and the Warrants pursuant to the terms of this Subscription Agreement are and will be exempt from the registration requirements of the 1933 Act and the rules and regulations promulgated thereunder. The Company is not disqualified from the exemption under Regulation D by virtue of the disqualification contained in Rule 507 thereof or otherwise.
2.5 No Conflicts. Except as set forth in Schedule 2.5, the execution, delivery and performance of the Offering Documents by the Company, the consummation by the Company of the transactions contemplated by the Offering Documents, and the performance by the Company of its obligations under the Notes and the Warrants, including without limitation, the reservation for issuance and the issuance of the Securities, will not (a) result in a violation of the Company's Certificate of Incorporation, any certificate of designations, preferences and rights of any outstanding series of preferred stock of the Company, or the Company's bylaws, (b) conflict with, or constitute a default or an event which with notice or lapse of time or both would become a default under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, lease, license or instrument (including without limitation, any document filed as an exhibit to any of the Company's SEC Documents (as defined below)), or (c) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of The Nasdaq National Market, Inc.) applicable to the Company or by which any property or asset of the Company is bound or affected.
2.6 Consents. Except as contemplated by the Agency Agreement, and except for the filing of the Registration Statement (as defined in the Registration Rights Agreement) with the SEC, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Offering Documents. Except as otherwise provided in the Offering Documents, all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the foregoing.
2.7 No General Solicitation. Neither the Company nor any of its affiliates, and any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities.
2.8 No Integrated Offering. None of the Company, any of its affiliates, and any person acting on its behalf has, directly or indirectly, made any offers or sales of any security or solicited any offers
6
to buy any security, under circumstances that would require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder 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. None of the Company, its affiliates and any person acting on its behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the 1933 Act or cause the Offering of the Securities to be integrated with other offerings.
2.9 Application of Takeover Protections; Rights Agreement. The Company and its board of directors 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 Certificate of Incorporation or the laws of the state of its incorporation which is or could become applicable to the Subscriber as a result of the transactions contemplated by this Subscription Agreement, including without limitation, the Company's issuance of the Securities and the Subscriber's ownership of the Securities. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.
2.10 SEC Documents; Financial Statements. Since February 28, 2001, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). The Company has made available to the Subscriber or its representatives copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, 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. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (a) as may be otherwise indicated in such financial statements or the notes thereto, or (b) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments that will not be material). As of the date hereof, the Company meets the requirements for the use of Form S-3 for registration of the resale of the Warrant Shares.
2.11 Conduct of Business; Regulatory Permits. Except as set forth on Schedule 2.11, since February 28, 2001, the Company has not (a) incurred any debts, obligations or liabilities, absolute, accrued, contingent or otherwise, whether due or to become due, except current liabilities incurred in the usual and ordinary course of business and consistent with past practices, having individually or in the aggregate a Material Adverse Effect, (b) made or suffered any changes in its contingent obligations by way of guaranty, endorsement (other than the endorsement of checks for deposit in the usual and ordinary course of business), indemnity, warranty or otherwise, (c) discharged or satisfied any liens other than those securing, or paid any obligation or liability other than, current liabilities shown on the balance sheet dated as at February 28, 2001 and forming part of the SEC Documents, and current
7
liabilities incurred since the February 28, 2001, in each case in the usual and ordinary course of business and consistent with past practices, (d) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, (e) sold, transferred or leased any of its assets except in the usual and ordinary course of business and consistent with past practices, (f) cancelled or compromised any debt or claim, or waived or released any right, of material value, (g) suffered any physical damage, destruction or loss (whether or not covered by insurance) adversely affecting the properties, business or prospects of the Company, (h) entered into any transaction other than in the usual and ordinary course of business except for this Subscription Agreement and the related agreements referred to herein, (i) encountered any labor difficulties or labor union organizing activities, (j) made or granted any wage or salary increase or entered into any employment agreement, (k) issued or sold any shares of capital stock or other securities or granted any options with respect thereto, or modified any equity security of the Company, (l) declared or paid any dividends on or made any other distributions with respect to, or purchased or redeemed, any of its outstanding equity securities, (m) suffered or experienced any change in, or condition affecting, its condition (financial or otherwise), properties, assets, liabilities, business operations, results of operations or prospects other than changes, events or conditions in the usual and ordinary course of its business and consistent with past practices, having (either by itself or in conjunction with all such other changes, events and conditions) a Material Adverse Effect, (n) made any change in the accounting principles, methods or practices followed by it or depreciation or amortization policies or rates theretofore adopted, or (o) entered into any agreement, or otherwise obligated itself, to do any of the foregoing. The Company is not in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company, and the Company will not conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. The Company's Common Stock has been designated for quotation or listed on the Nasdaq National Market, trading in the Common Stock has not been suspended by the SEC or the Nasdaq National Market and the Company has received no communication, written or oral, from the SEC or the Nasdaq National Market regarding the suspension or delisting of the Common Stock from the Nasdaq National Market. Except as disclosed on Schedule 2.11, the Company is not in violation of the listing requirements of the Nasdaq National Market as in effect on the date hereof and has no actual knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock by the Nasdaq National Market in the foreseeable future. The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
2.12 Foreign Corrupt Practices. Neither the Company nor any director, officer, agent, employee or other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company, (a) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (b) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (c) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
2.13 Absence of Litigation. Except as set forth in Schedule 2.13, there is no action, suit, proceeding, inquiry or investigation before or by the Nasdaq National Market, any court, public board, government agency, self-regulatory organization or body, or arbitrator pending or, to the knowledge of the Company, threatened against the Company or any of the Company's officers or directors in their capacities as such.
8
2.14 Tax Status. The Company has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations or otherwise due and payable, except those being contested in good faith and has set aside on its books reserves in accordance with GAAP reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
2.15 Securities Law Compliance. The offer, offer for sale, and sale of the Units have not been registered with the SEC. The Units are to be offered, offered for sale and sold in reliance upon the exemptions from the registration requirements of Section 5 of the 1933 Act. The Company will conduct the Offering in compliance with the requirements of Regulation D under the 1933 Act, and the Company will file all appropriate notices of offering with the SEC.
2.16 Title. Except as set forth in or contemplated by Schedule 2.16, the Company has good and marketable title to all material properties and tangible assets owned by it, free and clear of all liens, charges, encumbrances or restrictions, except as such as are not significant or important in relation to the Company's business; all of the material leases and subleases under which the Company is the lessor or sublessor of properties or assets or under which the Company holds properties or assets as lessee or sublessee are in full force and effect, and the Company is not in default in any material respect with respect to any of the terms or provisions of any of such leases or subleases, and no material claim has been asserted by anyone adverse to rights of the Company as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company to continued possession of the leased or subleased premises or assets under any such lease or sublease. The Company owns, leases or licenses all such properties as are necessary to its operations as described in the Offering Documents.
2.17 Intellectual Property Rights. To the Company's knowledge after due investigation, the Company owns or possesses adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct its business as now conducted. Except as set forth on Schedule 2.17, to the Company's knowledge after due investigation, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two years from the date of this Subscription Agreement, except where such expiration or termination would not have either individually or in the aggregate a Material Adverse Effect. After due investigation, the Company does not have any knowledge of any infringement by the Company of trademarks, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secrets or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth on Schedule 2.17, no claim, action or proceeding has been made or brought against, or to the Company's knowledge, has been threatened against, the Company regarding trademarks, trade name rights, patents, patent rights, inventions, copyrights, licenses, service names, service marks, service mark registrations, trade secrets or other infringement, except where such infringement, claim, action or proceeding would not reasonably be expected to have either individually or in the aggregate a Material Adverse Effect. Except as set forth on Schedule 2.17, the Company is unaware, after due investigation, of any facts or circumstances which might give rise to any of the foregoing. The Company has taken reasonable security measures to
9
protect the secrecy, confidentiality and value of all of its intellectual properties except where the failure to do so would not have either individually or in the aggregate a Material Adverse Effect.
2.18 Registration Rights. Except with respect to holders of the Units and the Warrants, and except as set forth in Schedule 2.18, no person has any right to cause the Company to effect the registration under the 1933 Act of any securities of the Company.
2.19 Brokers. Neither the Company nor any of its officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by the Agency Agreement other than the Placement Agent.
2.20 Right of First Refusal. No person, firm or other business entity is a party to any agreement, contract or understanding, written or oral entitling such party to a right of first refusal with respect to offerings of securities by the Company.
2.21 Disclosure. None of the representations and warranties of the Company appearing in this Subscription Agreement or any information appearing in any Exhibit or Schedule hereto or in any of the Offering Documents, when considered together as a whole, contains, or on any Closing Date will contain, any untrue statement of a material fact or omits, or on any Closing Date will omit, to state any material fact required to be stated herein or therein in order for the statements herein or therein, in light of the circumstances under which they were made, not to be misleading.
2.22 Certain Officers. As of the date hereof, Peter Jackson, Frost Prioleau, James Brentano, David Dunlap, Paul Martinelli and Norman Pensky (the "Key Executives") are employed by the Company on a full-time basis, and, to the Company's knowledge, none of the Key Executives is planning to cease being employed by the Company on a full-time basis in their current capacity and the Company is not aware of any circumstances related to the employment of the Key Executives, apart from circumstances related to the operations of the Company as a whole, that could result in cessation of full-time employment of any of the Key Executives in their current capacities.
III. TERMS OF SUBSCRIPTION
3.1 Closing and Termination of Offering. Provided the Minimum Offering shall have been subscribed for, funds representing the sale thereof shall have cleared, all conditions to closing set forth in Section 3 of the Agency Agreement and Articles V and VI hereof have been satisfied or waived and neither the Company nor the Placement Agent have notified the other that they do not intend to effect the closing of the Minimum Offering, a closing (the "Initial Closing") shall take place at the offices of counsel to the Placement Agent, Loeb & Loeb, 345 Park Avenue, New York, New York 10154, within one (1) business day thereafter (but in no event later than five days following the Termination Date, as defined below), which closing date may be accelerated or adjourned by agreement between the Company and the Placement Agent. At the Initial Closing, payment for the Units issued and sold by the Company shall be made against delivery of the Notes and Warrants comprising such Units. The Warrants shall be subject to the Warrant Escrow Agreement. The Company and the Placement Agent may consummate subsequent closings of the Offering, upon mutual agreement only, each of which shall be subject to satisfaction or waiver of the conditions to closing set forth in Articles V and VI hereof and in Section 3 of the Agency Agreement, and each of which shall be deemed a "Closing" hereunder. The date of the last closing of the Offering is hereinafter referred to as the "Final Closing" and the date of any Closing hereunder is hereinafter referred to as a "Closing Date". The offering period for the Offering (the "Offering Period") shall commence on the day the Transaction Documents (as defined in the Agency Agreement) relating thereto are first made available to Commonwealth by the Company for delivery in connection with the offering for sale of the Units and shall continue until the earlier to occur of: (i) the sale of the Maximum Offering; or (ii) 5:00 p.m. (New York time) on September 7, 2001, provided the Minimum Offering has been completed on or prior to 5:00 p.m. (New York time) on August 31, 2001 and Company has proceeded in good faith to complete the Bridge
10
Financing on or prior to such date. If the Minimum Offering is not sold by 5:00 p.m. (New York time) on August 31, 2001, the Offering will be terminated and all funds received from Subscribers will be returned, without interest and without any deduction. The day that the Offering Period terminates is hereinafter referred to as the "Termination Date." The Termination Date may be extended for up to thirty (30) days by mutual agreement of the Placement Agent and the Company.
3.2 Expenses; Fees. Simultaneously with payment for and delivery of the Units at each Closing, the Company shall: (A) pay to the Placement Agent a cash fee equal to 5% of the gross proceeds of the Units sold; (B) reimburse the Placement Agent for its actual out-of-pocket expenses incurred in connection with the Offering, including, without limitation, the reasonable fees and expenses of its counsel (Loeb & Loeb LLP), due diligence investigation expenses, travel and mailing expenses, up to a maximum of $35,000, which amount may be increased with the prior written consent of the Company, and (C) pay all expenses in connection with the qualification of the Securities under the blue sky laws of the states which the Placement Agent shall designate, including legal fees, filing fees and disbursements of Placement Agent's counsel in connection with such blue sky matters.
3.3 Escrow. Pending the sale of the Units, all funds paid hereunder shall be deposited by the Company in escrow with American Stock Transfer & Trust Company. If the Company shall not have obtained subscriptions (including this subscription) for purchases of at least 60 Units ($6,000,000) on or before the Termination Date, then this subscription shall be void and all funds paid hereunder by the Subscriber, without interest, shall be promptly returned to the Subscriber, subject to Section 3.5 hereof. If at least 60 Units ($6,000,000) are sold on or prior to the Termination Date, then all subscription proceeds shall be paid over to the Company within three (3) business days thereafter at the Initial Closing. In such event, placements of additional Units may continue until the Termination Date, with subsequent releases of funds to be at the mutual consent of the Company and the Placement Agent.
3.4 Certificates. The Subscriber hereby authorizes and directs the Company, upon each closing in the Offering, to deliver the Notes and Warrants to be issued to such Subscriber pursuant to this Subscription Agreement either (a) to the Subscriber's address indicated in the Questionnaire, or (b) directly to the Subscriber's account maintained with the Placement Agent, if any.
3.5 Return of Funds. The Subscriber hereby authorizes and directs the Company to return any funds for unaccepted subscriptions to the same account from which the funds were drawn, including any customer account maintained with the Placement Agent.
IV. COVENANTS
4.1 Registration Rights Agreement. The Company shall provide for the registration of the Warrant Shares for resale under the 1933 Act, as provided herein and in the Registration Rights Agreement. The Company and the Subscriber agree to the terms and provisions of Registration Rights Agreement attached hereto as Exhibit C, which terms and provisions are incorporated herein by reference in their entirety and made a part hereof.
4.2 Best Efforts. Each party shall use its best efforts timely to satisfy each of the conditions to be satisfied by it as provided in Articles V and VI of this Subscription Agreement.
4.3 Form D and Blue Sky. The Company shall file a Form D with respect to the Notes and Warrants as required under Regulation D under the 1933 Act and, upon request, provide a copy thereof to the Subscriber promptly after such filing. The Company shall, on or before the Closing, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Notes and the Warrants for sale to the Subscriber pursuant to this Subscription Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Subscriber on or prior to the Closing. The
11
Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing.
4.4 Use of Proceeds. The Company shall only use the proceeds of the sale of the Units for repayment in full of amounts outstanding under the Company's line of credit with Imperial Bank, with any remaining proceeds being used for the purposes set forth on Schedule 4.4 hereto.
V. CONDITIONS TO CLOSING IN FAVOR OF THE COMPANY
The obligation of the Company hereunder to issue and sell Units to the Subscriber at the Closing is subject to the satisfaction, at or before the Closing, of each of the following conditions, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion by providing the Subscriber with prior written notice thereof:
5.1 Offering Documents. The Subscriber shall have executed a Questionnaire, a Subscription Agreement and the Registration Rights Agreement and delivered the same to the Company.
5.2 Purchase Price. The Subscriber shall have delivered to the Escrow Agent the purchase price for the Units being purchased by the Subscriber at the Closing in the manner set forth in Section 1.1.
5.3 Representations and Warranties. The representations and warranties of the Subscriber shall be true and correct in all material respects as of the date when made and as of the Closing as though made at that time, and the Subscriber shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Subscription Agreement to be performed, satisfied or complied with by the Subscriber at or prior to the Closing.
5.4 Series B Preferred Stock Exchange. The Company and the holders of the Company's Series B Preferred Stock shall have completed an exchange for Series B-1 Preferred Stock and no shares of the Company's Series B Preferred Stock shall be outstanding.
VI. CONDITIONS TO CLOSING IN FAVOR OF THE SUBSCRIBER
The obligation of the Subscriber hereunder to purchase the Units is subject to the satisfaction, at or before the Closing, of each of the following conditions, provided that these conditions are for the Subscriber's sole benefit and may be waived by the Subscriber at any time in its sole discretion by providing the Company with prior written notice thereof:
6.1 Offering Documents. The Company shall have executed and delivered to the Subscriber each of the Offering Documents to which its signature is required.
6.2 Lock-Up Agreements. The Company shall have delivered to the Placement Agent lock-up agreements in form and substance satisfactory to the Placement Agent executed by Mark Hoffman.
6.3 Legal Opinion. The Subscriber shall have received the opinion of the Company's counsel dated as of the Closing, in substantially the form provided for in Section 3(c)(v) of the Agency Agreement.
6.4 Representations and Warranties. The representations and warranties of the Company shall be true and correct as of the date when made and as of the Closing as though made at that time (except for representations and warranties that reference a specific date which shall have been true and correct in all material respects as of such date), and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing, except where the failure of such representations and warranties to be true and correct as stated above and except for such nonperformance, failure to satisfy or comply as would not, individually or in the aggregate, have a Material Adverse Effect.
12
6.5 Due Diligence. The Placement Agent shall have completed its due diligence investigation of the Company, including without limitation, its review of the Company's financial statements, projections, business prospects, capital structure, and contractual arrangements, to the Placement Agent's reasonable satisfaction.
6.6 Satisfaction of Bank Obligation. At the Closing, the Company shall have delivered to the Placement Agent the following: (A) instructions for the wire transfer directly from the Placement Agent to Imperial Bank (the "Bank") of Offering proceeds sufficient to repay in full amounts outstanding under the Company's line of credit with the Bank, together with accrued and unpaid interest thereon and (B) evidence of the Bank's release of its security interest in the Company's assets effective upon the Bank's receipt of such wire transfer.
6.7 Closing Documents. At the Closing, the Company shall have delivered to the Placement Agent the following: (A) a certificate of the Chief Executive Officer stating that (I) except as set forth in the any Schedule or Exhibit to this Subscription Agreement or the Agency Agreement, since May 31, 2001, there has been no event, condition or circumstance that has had or could reasonably be expected to have a Material Adverse Effect, and (II) the Company has complied with its covenants and agreements set forth in the Transaction Documents, and (B) a certificate of the Secretary of the Company containing: (I) true and complete copies, as of the Closing Date, of the Certificate of Incorporation and by-laws of the Company and of the certificates of designations of all series of preferred stock of the Company, (II) true and complete copies of the resolutions of the Board of Directors of the Company approving the Transaction Documents and all documents and matters incident thereto, and (III) a certification of authenticity of the signatures of the officers of the Company who have executed and delivered the documentation for this Offering.
6.8 Conditions of Agency Agreement. All of the conditions to closing set forth in Section 3 of the Agency Agreement shall have been satisfied.
6.9 Other Matters. All opinions, certificates and documents and all proceedings related to this Offering shall be in form and content satisfactory to the Placement Agent and its counsel.
6.10 Series B Preferred Stock Exchange. The Company and the holders of the Company's Series B Preferred Stock shall have completed an exchange for Series B-1 Preferred Stock and no shares of the Company's Series B Preferred Stock shall be outstanding.
VII. RIGHTS OF TERMINATION
7.1 Termination by Subscriber or Company. This Subscription Agreement may be terminated at any time prior to the Closing: (a) by mutual written consent of the parties hereto; (b) by either the Company or the Placement Agent upon written notice to the other party if the Closing of the Minimum Offering shall not have been consummated by 5:00 p.m. on August 31, 2001, unless such failure of consummation shall be due to the failure of the party seeking to terminate to perform or observe in all material respects the covenants and agreements hereof to be performed or observed by such party; or (c) by the Company or the Subscriber upon written notice to the other party if any court or governmental authority of competent jurisdiction shall have issued a final, non-appealable order restraining, enjoining or otherwise prohibiting the consummation of the transactions contemplated by this Subscription Agreement. Termination of this Subscription Agreement under this Section 7.1 shall result in this Subscription Agreement becoming void and of no further force and effect, except that a termination shall not release, or be construed as so releasing, any party hereto from any liability or damage to the other party hereto arising out of the breaching party's willful and material breach of the warranties and representations made by it, or willful and material failure in performance of any of its covenants, agreements, duties or obligations provided hereunder, and the obligations under Section 8.8 shall survive such termination.
13
7.2 Termination by the Placement Agent. In the event the Placement Agent decides for any reason prior to the Closing not to proceed with the Offering, upon notice to the Company and the Subscriber, this Subscription Agreement shall be terminated and become void and of no further force and effect, and none of the Company, the Placement Agent, or the Subscriber shall have any further obligations pursuant to this Subscription Agreement, including without limitation, the obligation to consummate the Offering, provided, however, that the obligations under Section 9.8 shall survive such termination.
VIII. INVESTMENT IN SUBSEQUENT FINANCING
8.1 Provided the Shareholder Approval (as defined in the Notes) has been obtained, in the event that prior to the Maturity Date (as defined in the Notes) the Company completes any bona fide private placement of equity securities for the purpose of raising capital for the Company and excluding, among other things, (a) the issuance or exercise of options, warrants or other securities issued to officers, directors, employees or consultants of the Company pursuant to plans and arrangements approved by the Company's board of directors, (b) the issuance of securities upon the exercise or conversion of currently outstanding securities, or (c) securities issued in connection with a stock split, stock dividend or similar transaction (a "Subsequent Financing"), the holders of at least a majority of the outstanding principal amount of the Notes shall have the right, but not the obligation, to elect to have the outstanding principal amount of the Notes converted into an investment in the securities sold in the Subsequent Financing. In such event, all of the Notes shall be converted without any further action on the part of the Subscriber.
8.2 The Subscriber agrees that its investment in the Subsequent Financing will be made without any further action on the part of the Subscriber; however, the Subscriber agrees to execute and deliver all documents reasonably requested by the Company to effectuate such investment.
8.3 The Subscriber understands that the Company will rely on the representations and warranties of the Subscriber contained in this Subscription Agreement and the Investor Questionnaire in connection with the Subscriber's investment in the Subsequent Financing.
IX. MISCELLANEOUS
9.1 Notice. Any notices, consents, waivers or other communications required or permitted to be given under the terms of this Subscription Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally, (b) upon receipt, when sent by facsimile (provided confirmation of transmission is mechanically or electronically generated and kept on file by the sending party), or (c) one (1) business day after deposit with an overnight courier service, in each case properly addressed to the party to receive the same. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Intraware, Inc.
25 Orinda Way
Orinda, CA 94563
Telephone: (925) 253-4500
Facsimile: (925) 253-4541
Attention: General Counsel
14
With a copy to:
Wilson
Sonsini Goodrich & Rosati, Professional Corporation
650 Page Mill Road
Palo Alto, CA 94304
Telephone: (650) 493-9300
Facsimile: (650) 493-6811
Attention: Adam R. Dolinko, Esq.
If to the Subscriber, to its address and facsimile number set forth at the end of this Subscription Agreement, or to such other address and/or facsimile number and/or to the attention of such other person as specified by written notice given to the Company five (5) days prior to the effectiveness of such change. Written confirmation of receipt (a) given by the recipient of such notice, consent, waiver or other communication, (b) mechanically or electronically generated by the sender's facsimile machine containing the time, date, recipient facsimile number and an image of the first page of such transmission, or (c) provided by an overnight courier service shall be rebuttable evidence of personal service, receipt by facsimile or receipt from an overnight courier service in accordance with clause (a), (b) or (c) above, respectively.
9.2 Entire Agreement; Amendment. This Subscription Agreement supersedes all other prior oral or written agreements between the Subscriber, the Company, their affiliates and persons acting on their behalf with respect to the matters discussed herein, and this Subscription Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Subscriber makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Subscription Agreement may be amended or waived other than by an instrument in writing signed by the Company and the holders of at least a majority of the Securities then outstanding (or if prior to the Closing, the Subscribers purchasing at least a majority of the Units to be purchased at the Closing). No such amendment shall be effective to the extent that it applies to less than all of the holders of the Securities then outstanding.
9.3 Severability. If any provision of this Subscription Agreement shall be invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall not affect the validity or enforceability of the remainder of this Subscription Agreement in that jurisdiction or the validity or enforceability of any provision of this Subscription Agreement in any other jurisdiction.
9.4 Governing Law; Jurisdiction; Jury Trial. All questions concerning the construction, validity, enforcement and interpretation of this Subscription Agreement shall be governed by the internal laws of the State of New York, without giving effect to any choice of law or conflict of law provision or rule (whether of the State of New York or any other jurisdictions) that would cause the application of the laws of any jurisdictions other than the State of New York. Each party hereby irrevocably submits to the non-exclusive jurisdiction of the state and federal courts sitting in the Southern District of New York, for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein, and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is brought in an inconvenient forum or that the venue of such suit, action or proceeding is improper. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address for such notices to it under this Subscription 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. Each party hereby irrevocably waives any right it may have, and agrees not to
15
request, a jury trial for the adjudication of any dispute hereunder or in connection with or arising out of this Subscription Agreement or any transaction contemplated hereby.
9.5 Headings. The headings of this Subscription Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Subscription Agreement.
9.6 Successors And Assigns. This Subscription Agreement shall be binding upon and inure to the benefit of the parties and their respective successors and assigns, including any purchasers of the Notes and the Warrants. The Company shall not assign this Subscription Agreement or any rights or obligations hereunder without the prior written consent of the holders of at least a majority the Securities then outstanding, except by merger or consolidation. The Subscriber may assign some or all of its rights hereunder without the consent of the Company, provided, however, that any such assignment shall not release the Subscriber from its obligations hereunder unless such obligations are assumed by such assignee and the Company has consented to such assignment and assumption, which consent shall not be unreasonably withheld.
9.7 No Third Party Beneficiaries. This Subscription Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
9.8 Survival. The representations and warranties of the Company and the Subscriber contained in Articles I and II and the agreements set forth this Article VIII shall survive the Closing for a period of two years.
9.9 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Subscription Agreement and the consummation of the transactions contemplated hereby.
9.10 No Strict Construction. The language used in this Subscription 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.
9.11 Legal Representation. The Subscriber acknowledges that: (a) it has read this Subscription Agreement and the exhibits hereto; (b) it understands that the Company has been represented in the preparation, negotiation, and execution of this Subscription Agreement by Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to the Company; (c) it understands that the Placement Agent has been represented by Loeb & Loeb LLP, counsel to the Placement Agent, and that such counsel has not represented and is not representing the Subscriber; (d) it has either been represented in the preparation, negotiation, and execution of this Subscription Agreement by legal counsel of its own choice, or has chosen to forego such representation by legal counsel after being advised to seek such legal representation; and (e) it understands the terms and consequences of this Subscription Agreement and is fully aware of its legal and binding effect.
9.12 Expenses of Enforcement. The Company shall pay all fees and expenses (including reasonable fees and expenses of counsel and other professionals) incurred by the Subscriber or any successor holder of Securities in enforcing any of its rights and remedies under this Subscription Agreement, the Notes, the Warrants, the Security Agreement or the Registration Rights Agreement.
9.13 Confidentiality. The Subscriber agrees that, at all times during the period ending five (5) business days after the filing by the Company with the SEC of its next Quarterly Report on Form 10-Q or Current Report on Form 8-K following the date hereof, it shall keep confidential and not divulge, furnish or make accessible to anyone, the confidential information concerning or relating
16
to the business or financial affairs of the Company contained in the Offering Documents to which it has become privy by reason of this Subscription Agreement.
9.14 Counterparts. This Subscription Agreement may be executed in two or more identical counterparts, all of which 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; provided that a facsimile signature shall be considered due execution and shall be binding upon the signatory thereto with the same force and effect as if the signature were an original, not a facsimile signature.
17
IN WITNESS WHEREOF, the parties have executed this Subscription Agreement as of the day and year first written above.
Signature of Subscriber |
Signature of Co-Subscriber |
|
Name of Subscriber [please print] |
Name of Co-Subscriber [please print] |
|
Address of Subscriber |
Address of Co-Subscriber |
|
Social Security or Taxpayer Identification Number of Subscriber |
Social Security or Taxpayer Identification Number of Co-Subscriber |
|
Subscriber's Account Number at Commonwealth Associates |
||
Principal Amount of Bridge Note Subscribed For |
| Subscription Accepted: | |||
INTRAWARE, INC. |
|||
By: |
|||
Name: Title |
|||
Principal Amount of Subscription Accepted |
|||
Number of Bridge Warrants Subscribed For |
|||
18
EXHIBIT A
8% Senior Secured Promissory Note
19
20
EXHIBIT C
Registration Rights Agreement
21
EXHIBIT D
Security Agreement and Agency Appointment Agreement
22
INTRAWARE, INC.
PLACEMENT AGENCY AGREEMENT
Commonwealth
Associates, L.P.
830 Third Avenue
New York, New York 10022
August 31, 2001
Ladies and Gentlemen:
This Placement Agency Agreement (the "Agency Agreement") confirms the retention by Intraware, Inc., a Delaware corporation (the "Company"), of Commonwealth Associates, L.P., a New York limited partnership ("Commonwealth" or the "Placement Agent"), to act as the sales agent, on a best efforts basis, in connection with bridge financing for the Company, on the terms set forth below.
The Company proposes to offer for sale solely to "accredited investors," in a private placement (the "Bridge Financing"), up to 70 units (including fractions thereof) (the "Units") at $100,000 per Unit, each Unit consisting of (i) $100,000 principal amount of 8% senior secured promissory notes in the form attached hereto as Exhibit A (the "Notes"), and (ii) five-year warrants in the form attached hereto as Exhibit B (the "Warrants") to purchase 100,000 shares of the Company's common stock, par value $0.0001 per share (the "Common Stock"). In the event that prior to the 17th day following the initial closing of the Bridge Financing (the "Initial Closing"), the Company enters into a definitive merger or acquisition agreement with the entity set forth in Schedule 1 hereto pursuant to which such entity acquires more than 50% of the Company at a price per share greater than $1.00, and provided that as a result of such acquisition or other agreement with such entity the Notes are repaid in full within 90 days after the Initial Closing, the Company shall have the right to redeem 50% of the Warrants, on a pro-rata basis, at a price of $.01 per Warrant.
A minimum of 60 Units ($6,000,000) (the "Minimum Offering") and a maximum of 70 Units ($7,000,000) (the "Maximum Offering") will be sold in the Bridge Financing. The Units will be offered pursuant to those terms and conditions set forth herein. The Minimum Offering will be made on a "best efforts-all-or-none" basis and the balance of the Bridge Financing will be made on a "best efforts" basis. The Units will be offered in accordance with Regulation D promulgated by the Securities and Exchange Commission (the "SEC").
The SEC Documents (as defined in Section 2(j)) and the Subscription Agreement between each prospective investor subscribing to purchase Units in the Bridge Financing (each a "Subscriber") and the Company (the "Subscription Agreement") attached hereto as Exhibit C are together referred to herein as the "Offering Documents." The (i) Notes, (ii) Registration Rights Agreement among each Subscriber, the Company and the Placement Agent (the "Registration Rights Agreement") attached hereto as Exhibit D, (iii) Security Agreement between the Company and the Placement Agent (the "Security Agreement") attached hereto as Exhibit E, (iv) Warrants, (vi) Agency Agreement, (vii) escrow agreement among the Company, the Placement Agent and a bank or trust company acceptable to the Placement Agent (the "Fund Escrow Agreement"), (viii) the Agent's Warrant (as defined in Section 3(d)(i) hereof), (ix) the Warrant Escrow Agreement (as defined in Section 3(b)(xvii) hereof and (x) exhibits, schedules and appendices which are part of the Subscription Agreement, the Notes, the Registration Rights Agreement, the Security Agreement, the Warrants, the Agent's Warrant, the Warrant Escrow Agreement and the Agency Agreement are collectively referred to herein as the "Transaction Documents."
The Company will prepare and deliver to the Placement Agent a reasonable number of copies of the Transaction Documents in form and substance satisfactory to the Placement Agent and its counsel.
Each Subscriber will be required to deliver, among other things, the Subscription Agreement and a confidential investor questionnaire ("Investor Questionnaire") in the form to be provided to offerees. Capitalized terms used herein, unless otherwise defined or unless the context otherwise indicates, shall have the same meanings provided in the Transaction Documents.
1. Appointment of Placement Agent.
(a) Commonwealth is hereby appointed exclusive placement agent of the Company (subject to Commonwealth's right to have selected dealers ("Selected Dealers") in good standing with the National Association of Securities Dealers ("NASD") participate in the Offering) during the offering period for the Bridge Financing herein specified for the purpose of assisting the Company in finding qualified Subscribers in the Bridge Financing.
(b) Subject to the performance by the Company in all material respects of its obligations to be performed under this Agency Agreement and to the completeness and accuracy of all representations and warranties of the Company contained in this Agency Agreement, the Placement Agent hereby accepts such agency and agrees to use its reasonable best efforts to assist the Company in finding qualified Subscribers. It is understood that the Placement Agent has no commitment to sell the Units. Commonwealth's agency hereunder is not terminable by the Company except upon termination of the Offering Period (as hereinafter defined) or a material breach by Commonwealth of its obligations hereunder.
(c) Subscriptions for Units shall be evidenced by the execution by Subscribers of a Subscription Agreement. No Subscription Agreement shall be effective unless and until it is accepted by the Company. The Placement Agent shall not have any obligation to independently verify the accuracy or completeness of any information contained in any Subscription Agreement or the authenticity, sufficiency, or validity of any check delivered by any prospective investor in payment for Units.
(d) The Placement Agent and/or its affiliates may be Subscribers in the Bridge Financing.
2. Representations and Warranties of the Company. The Company represents and warrants to the Placement Agent and each Selected Dealer, if any, as follows:
(a) Organization and Qualification. The Company is duly organized and validly existing in good standing under the laws of the jurisdiction in which it was organized, and has the requisite power and authorization to own its properties and to carry on its business as now being conducted. The Company is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership of property or the nature of the business conducted by it makes such qualification necessary, except to the extent that the failure to be so qualified or be in good standing would not have a Material Adverse Effect. As used in this Agency Agreement, "Material Adverse Effect" means any material adverse effect on the business, properties, assets, operations, results of operations, financial condition or prospects of the Company or on the transactions contemplated hereby, or on the other Transaction Documents or the agreements and instruments to be entered into in connection herewith or therewith, or on the authority or ability of the Company to perform its obligations under the Transaction Documents. The Company does not have any operating subsidiaries and all of the non-operating subsidiaries are wholly-owned by the Company
(b) Authorization; Enforcement; Validity. The Company has the requisite corporate power and authority to enter into and perform its obligations under this Agency Agreement and the other Transaction Documents, to file and perform its obligations under the Transaction Documents, and to issue the Notes, the Warrants and the shares of Common Stock upon exercise of the Warrants and the Agent's Warrants (the "Warrant Shares") (the Notes, Warrants and Warrant Shares being collectively referred to herein as the "Securities") in accordance with the terms of the Transaction Documents. The execution and delivery of the Transaction Documents by the Company and the
2
consummation by the Company of the transactions contemplated by the Transaction Documents, including without limitation the issuance of the Securities, have been duly authorized by the Company's Board of Directors (the "Board") and no further consent or authorization is required by the Company, the Board or the Company's stockholders. The Transaction Documents have been duly executed and delivered by the Company, and constitute valid and binding obligations of the Company enforceable against the Company in accordance with their terms, except as such enforceability may be limited by general principles of equity or applicable bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws relating to, or affecting generally, the enforcement of creditors' rights and remedies.
(c) Capitalization. The authorized, issued and outstanding capital stock of the Company prior to the consummation of the transactions contemplated hereby is set forth in Schedule 2(c). All of such outstanding shares have been and are, or upon issuance will be duly authorized, validly issued, fully paid and non-assessable. Except as disclosed in Schedule 2(c), (i) no shares of the Company's capital stock are subject to preemptive rights under Delaware law or any other similar rights or any liens or encumbrances suffered or permitted by the Company; (ii) there are no outstanding debt securities issued by the Company; (iii) there are no outstanding options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company, or contracts, commitments, understandings or arrangements by which the Company is or may become bound to issue additional shares of capital stock of the Company or options, warrants, scrip, rights to subscribe to, calls or commitments of any character whatsoever relating to, or securities or rights convertible into or exchangeable for, any shares of capital stock of the Company; (iv) there are no agreements or arrangements under which the Company is obligated to register the sale of any of their securities under the 1933 Act; (v) there are no outstanding securities of the Company which contain any redemption or similar provisions, and there are no contracts, commitments, understandings or arrangements by which the Company is or may become bound to redeem a security of the Company; (vi) there are no securities or instruments containing anti-dilution or similar provisions that will be triggered by the issuance of the Securities as described in the Transaction Documents which shall not have been waived prior to the Initial Closing; and (vii) the Company does not have any stock appreciation rights or "phantom stock" plans or agreements or any similar plan or agreement. All prior sales of securities of the Company were either registered under the 1933 Act and applicable state securities laws or exempt from such registration, and no security holder has any rescission rights with respect thereto.
(d) Issuance of Securities; Reservation. The issuance, sale and delivery of the Securities have been duly authorized by all requisite corporate action by the Company and, upon issuance in accordance with the Transaction Documents, shall be (i) duly authorized, validly issued, fully paid and non-assessable, (ii) free from all taxes, liens and charges with respect to the issue thereof, and (iii) entitled to the rights and preferences set forth in the Notes and the Warrants. At least 7,700,000 shares of Common Stock have been duly authorized and reserved for issuance upon exercise of the Warrants. In the event the number of shares of Common Stock issuable upon exercise of the Warrants exceeds the number of authorized shares of Common Stock as a result of the exercise terms of the Warrants, the Company shall use its reasonable best efforts to seek stockholder approval of and file a Certificate of Amendment to increase the authorized number of shares of Common Stock accordingly. Upon exercise of the Warrants in accordance with their terms, the Warrant Shares will be duly authorized, validly issued, fully paid and nonassessable and free from all taxes, liens and charges with respect to the issue thereof, with the holders being entitled to all rights accorded to a holder of Common Stock. Assuming (i) the accuracy of the information provided by the respective Subscribers in the Subscription Agreement and Investor Questionnaires, (ii) that all of the offerees and Subscribers are "accredited investors" as such term is defined in Rule 501 of Regulation D, and (iii) that the Placement Agent has not engaged, nor
3
will engage, in connection with the Bridge Financing, in any form of general solicitation or general advertising within the meaning of Rule 502(c) of Regulation D, the offer and sale of the Notes and the Warrants pursuant to the terms of this Agency Agreement are and will be exempt from the registration requirements of the 1933 Act and the rules and regulations promulgated thereunder. The Company is not disqualified from the exemption under Regulation D by virtue of the disqualification contained in Rule 507 thereof or otherwise.
(e) No Conflicts. Except as set forth in Schedule 2(e), the execution, delivery and performance of the Transaction Documents by the Company, the consummation by the Company of the transactions contemplated by the Transaction Documents, and the performance by the Company of its obligations under the Notes and the Warrants, including without limitation, the reservation for issuance and the issuance of the Securities, will not (1) result in a violation of the Company's Certificate of Incorporation, any certificate of designations, preferences and rights of any outstanding series of preferred stock of the Company, or the Company's bylaws, (2) conflict with, or constitute a default or an event which with notice or lapse of time or both would become a default under, or give to others any rights of termination, amendment, acceleration or cancellation of, any material agreement, lease, license or instrument to which the Company is a party (including without limitation, any document filed as an exhibit to any of the Company's SEC Documents (as defined below)), or (3) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and the rules and regulations of The Nasdaq National Market, Inc.) applicable to the Company or by which any property or asset of the Company is bound or affected.
(f) Consents. Except as contemplated by this Agency Agreement, and except for the filing of the Registration Statement (as defined in the Registration Rights Agreement) with the SEC, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court or governmental agency or any regulatory or self-regulatory agency in order for it to execute, deliver or perform any of its obligations under or contemplated by the Transaction Documents. Except as otherwise provided in the Transaction Documents, all consents, authorizations, orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is unaware of any facts or circumstances which might prevent the Company from obtaining or effecting any of the foregoing.
(g) No General Solicitation. None of the Company, any of its affiliates, and any person acting on its behalf, has engaged in any form of general solicitation or general advertising (within the meaning of Regulation D under the 1933 Act) in connection with the offer or sale of the Securities.
(h) No Integrated Offering. None of the Company, any of its affiliates, and any person acting on its 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 require registration of any of the Securities under the 1933 Act or cause this offering of the Securities to be integrated with prior offerings by the Company for purposes of the 1933 Act or any applicable stockholder 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. None of the Company, its affiliates and any person acting on its behalf will take any action or steps referred to in the preceding sentence that would require registration of any of the Securities under the 1933 Act or cause the offering of the Securities to be integrated with other offerings.
(i) Application of Takeover Protections; Rights Agreement. The Company and the Board have taken all necessary action, if any, in order to render inapplicable any control share acquisition,
4
business combination, poison pill (including any distribution under a rights agreement) or other similar anti-takeover provision under the Certificate of Incorporation or the laws of the state of its incorporation which is or could become applicable to the Subscriber as a result of the transactions contemplated by this Agency Agreement, including without limitation, the Company's issuance of the Securities and the Subscriber's ownership of the Securities. The Company has not adopted a shareholder rights plan or similar arrangement relating to accumulations of beneficial ownership of Common Stock or a change in control of the Company.
(j) SEC Documents; Financial Statements. Since February 28, 2001, the Company has filed all reports, schedules, forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents incorporated by reference therein being hereinafter referred to as the "SEC Documents"). The Company has made available to the Subscriber or its representatives copies of the SEC Documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the time they were filed with the SEC, 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. As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with generally accepted accounting principles, consistently applied, during the periods involved (except (i) as may be otherwise indicated in such financial statements or the notes thereto, or (ii) in the case of unaudited interim statements, to the extent they may exclude footnotes or may be condensed or summary statements) and fairly present in all material respects the financial position of the Company as of the dates thereof and the results of its operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments that will not be material). As of the date hereof, the Company meets the requirements for the use of Form S-3 for registration of the resale of the Warrant Shares.
(k) Conduct of Business; Regulatory Permits. Except as set forth on Schedule 2(k), since February 28, 2001 the Company has not (i) incurred any debts, obligations or liabilities, absolute, accrued, contingent or otherwise, whether due or to become due, except current liabilities incurred in the usual and ordinary course of business and consistent with past practices, having individually or in the aggregate a Material Adverse Effect, (ii) made or suffered any changes in its contingent obligations by way of guaranty, endorsement (other than the endorsement of checks for deposit in the usual and ordinary course of business), indemnity, warranty or otherwise, (iii) discharged or satisfied any liens other than those securing, or paid any obligation or liability other than, current liabilities shown on the balance sheet dated as at February 28, 2001 and forming part of the SEC Documents, and current liabilities incurred since the February 28, 2001, in each case in the usual and ordinary course of business and consistent with past practices, (iv) mortgaged, pledged or subjected to lien any of its assets, tangible or intangible, (v) sold, transferred or leased any of its assets except in the usual and ordinary course of business and consistent with past practices, (vi) cancelled or compromised any debt or claim, or waived or released any right, of material value, (vii) suffered any physical damage, destruction or loss (whether or not covered by insurance) adversely affecting the properties, business or prospects of the Company, (viii) entered into any transaction other than in the usual and ordinary course of business except for this Agency Agreement, the other Transaction Documents and the related agreements referred to herein and therein, (ix) encountered any labor difficulties or labor union organizing activities, (x) made or
5
granted any wage or salary increase or entered into any employment agreement, (xi) issued or sold any shares of capital stock or other securities or granted any options with respect thereto, or modified any equity security of the Company, (xii) declared or paid any dividends on or made any other distributions with respect to, or purchased or redeemed, any of its outstanding equity securities, (xiii) suffered or experienced any change in, or condition affecting, its condition (financial or otherwise), properties, assets, liabilities, business operations, results of operations or prospects other than changes, events or conditions in the usual and ordinary course of its business and consistent with past practices, having (either by itself or in conjunction with all such other changes, events and conditions) a Material Adverse Effect, (xiv) made any change in the accounting principles, methods or practices followed by it or depreciation or amortization policies or rates theretofore adopted, or (xv) entered into any agreement, or otherwise obligated itself, to do any of the foregoing. The Company is not in violation of any judgment, decree or order or any statute, ordinance, rule or regulation applicable to the Company, and the Company will not conduct its business in violation of any of the foregoing, except for possible violations which would not, individually or in the aggregate, have a Material Adverse Effect. The Company's Common Stock has been designated for quotation or listed on the Nasdaq National Market, trading in the Common Stock has not been suspended by the SEC or the Nasdaq National Market and the Company has received no communication, written or oral, from the SEC or the Nasdaq National Market regarding the suspension or delisting of the Common Stock from the Nasdaq National Market. Except as disclosed on Schedule 2(k), the Company is not in violation of the listing requirements of the Nasdaq National Market as in effect on the date hereof and has no actual knowledge of any facts which would reasonably lead to delisting or suspension of the Common Stock by the Nasdaq National Market in the foreseeable future. The Company possesses all certificates, authorizations and permits issued by the appropriate federal, state or foreign regulatory authorities necessary to conduct their respective businesses, except where the failure to possess such certificates, authorizations or permits would not have, individually or in the aggregate, a Material Adverse Effect, and the Company has not received any notice of proceedings relating to the revocation or modification of any such certificate, authorization or permit.
(l) Foreign Corrupt Practices. Neither the Company nor any director, officer, agent, employee or other person acting on behalf of the Company has, in the course of its actions for, or on behalf of, the Company, (i) used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; made any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds, (ii) violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or (iii) made any unlawful bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
(m) Absence of Litigation. Except as set forth in Schedule 2(m), there is no action, suit, proceeding, inquiry or investigation before or by the Nasdaq National Market, any court, public board, government agency, self-regulatory organization or body, or arbitrator pending or, to the knowledge of the Company, threatened against the Company or any of the Company's officers or directors in their capacities as such.
(n) Tax Status. The Company has made or filed all federal and state income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject, and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations or otherwise due and payable, except those being contested in good faith and has set aside on its books reserves in accordance with GAAP reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material
6
amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim.
(o) Securities Law Compliance. The offer, offer for sale, and sale of the Units have not been registered with the SEC. The Units are to be offered, offered for sale and sold in reliance upon the exemptions from the registration requirements of Section 5 of the 1933 Act. The Company will conduct the Bridge Financing in compliance with the requirements of Regulation D under the 1933 Act, and the Company will file all appropriate notices of offering with the SEC.
(p) Title. Except as set forth in or contemplated by Schedule 2(p), the Company has good and marketable title to all material properties and tangible assets owned by it, free and clear of all liens, charges, encumbrances or restrictions, except as such as are not significant or important in relation to its business; all of the material leases and subleases under which the Company is the lessor or sublessor of properties or assets or under which the Company holds properties or assets as lessee or sublessee are in full force and effect, and the Company is not in default in any material respect with respect to any of the terms or provisions of any of such leases or subleases, and no material claim has been asserted by anyone adverse to rights of the Company as lessor, sublessor, lessee or sublessee under any of the leases or subleases mentioned above, or affecting or questioning the right of the Company to continued possession of the leased or subleased premises or assets under any such lease or sublease. The Company owns, leases or licenses all such properties as are necessary to its operations as currently conducted.
(q) Intellectual Property Rights. To the Company's knowledge after due investigation, the Company owns or possesses adequate rights or licenses to use all trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, governmental authorizations, trade secrets and rights necessary to conduct its business as now conducted. Except as set forth on Schedule 2(q), to the Company's knowledge after due investigation, none of the Company's trademarks, trade names, service marks, service mark registrations, service names, patents, patent rights, copyrights, inventions, licenses, approvals, government authorizations, trade secrets or other intellectual property rights have expired or terminated, or are expected to expire or terminate within two years from the date of this Agency Agreement, except where such expiration or termination would not have either individually or in the aggregate a Material Adverse Effect. After due investigation, the Company does not have any knowledge of any infringement by the Company of trademarks, trade name rights, patents, patent rights, copyrights, inventions, licenses, service names, service marks, service mark registrations, trade secrets or other similar rights of others, or of any such development of similar or identical trade secrets or technical information by others and, except as set forth on Schedule 2(q), no claim, action or proceeding has been made or brought against, or to the Company's knowledge, has been threatened against, the Company regarding trademarks, trade name rights, patents, patent rights, inventions, copyrights, licenses, service names, service marks, service mark registrations, trade secrets or other infringement, except where such infringement, claim, action or proceeding would not reasonably be expected to have either individually or in the aggregate a Material Adverse Effect. Except as set forth on Schedule 2(q), the Company is unaware, after due investigation, of any facts or circumstances which might give rise to any of the foregoing. The Company has taken reasonable security measures to protect the secrecy, confidentiality and value of all of its intellectual properties except where the failure to do so would not have either individually or in the aggregate a Material Adverse Effect.
(r) Registration Rights. Except with respect to holders of the Units and the Warrant Shares, and except as set forth in Schedule 2(r), no person has any right to cause the Company to effect the registration under the 1933 Act of any securities of the Company.
7
(s) Brokers. Neither the Company nor any of its officers, directors, employees or stockholders has employed any broker or finder in connection with the transactions contemplated by the Agency Agreement other than the Placement Agent.
(t) Right of First Refusal. No person, firm or other business entity is a party to any agreement, contract or understanding, written or oral entitling such party to a right of first refusal with respect to offerings of securities by the Company.
(u) Disclosure. None of the representations and warranties of the Company appearing in this Agency Agreement or any information appearing in any Exhibit or Schedule hereto or in any of the Transaction Documents or Offering Documents contains, or on any Closing Date will contain, any untrue statement of a material fact or omits, or on any Closing Date will omit, to state any material fact required to be stated herein or therein in order for the statements herein or therein, in light of the circumstances under which they were made, not to be misleading.
(v) Certain Officers. As of the date hereof, Peter Jackson, Frost Prioleau, James Brentano, David Dunlap, Paul Martinelli and Norman Pensky (the "Key Executives") are employed by the Company on a full-time basis, and, to the Company's knowledge, none of the Key Executives is planning to cease being employed by the Company on a full-time basis in their current capacity and the Company is not aware of any circumstances related to the employment of the Key Executives, apart from circumstances related to the operations of the Company as a whole, that could result in cessation of full-time employment of any of the Key Executives in their current capacities.
3. Closing and Fees.
(a) Closing of the Bridge Financing. Provided the Minimum Offering shall have been subscribed for, funds representing the sale thereof shall have cleared, all conditions to closing set forth in Section 3 hereof and Articles V and VI of the Subscription Agreement have been satisfied or waived and neither the Company nor the Placement Agent have notified the other that they do not intend to effect the closing of the Minimum Offering, the Initial Closing shall take place at the offices of counsel to the Placement Agent, Loeb & Loeb LLP, 345 Park Avenue, New York, New York, within one (1) business day thereafter (but in no event later than five days following the Termination Date, as defined herein), which closing date may be accelerated or adjourned by agreement between the Company and the Placement Agent. At the Initial Closing, payment for the Units issued and sold by the Company shall be made against delivery of the Notes and Warrants comprising such Units. The Warrants shall be subject to the terms of the Warrant Escrow Agreement. The Company and the Placement Agent may consummate subsequent closings of the Bridge Financing, upon mutual agreement only, each of which shall be subject to satisfaction or waiver of the conditions to closing set forth in Articles V and VI of the Subscription Agreement and in Section 3 hereof, and each of which shall be deemed a "Closing" hereunder. The date of the last Closing of the Bridge Financing is hereinafter referred to as the "Final Closing" and the date of any Closing hereunder is hereinafter referred to as a "Closing Date". The offering period for the Bridge Financing (the "Offering Period") shall commence on the date hereof and shall continue until the earlier to occur of: (i) the sale of the Maximum Offering; or (ii) 5:00 p.m. (New York time) on September 7, 2001, provided the Minimum Offering has been completed on or prior to 5:00 p.m. (New York time) on August 31, 2001 and Company has proceeded in good faith to complete the Bridge Financing on or prior to such date. If the Minimum Offering is not sold by 5:00 p.m. (New York time) on August 31, 2001, the Bridge Financing will be terminated and all funds received from Subscribers will be returned, without interest and without any deduction. The day that the Offering Period terminates is hereinafter referred to as the "Termination Date." The Termination Date may be extended for up to thirty (30) days by mutual agreement of the Placement Agent and the Company.
8
(b) Conditions to Placement Agent's Obligations. The obligations of the Placement Agent hereunder will be subject to the accuracy in all material respects of the representations and warranties of the Company herein contained as of the date hereof and as of each Closing Date of the Bridge Financing, to the performance by the Company of its obligations hereunder and to the following additional conditions:
(i) Due Qualification or Exemption. (1) The Bridge Financing will become qualified or be exempt from qualification under the securities or "blue sky" laws of the several states pursuant to Section 4(d) below not later than the Initial Closing Date, and (2) at any Closing Date no stop order suspending the sale of the Units shall have been issued and no proceedings by any governmental authority, self regulatory organization or any securities exchange for that purpose shall have been initiated or threatened in writing;
(ii) No Material Misstatements. Neither the blue sky qualification materials nor the Transaction Documents, nor any supplement thereto, will contain any untrue statement of a fact which in the reasonable opinion of the Placement Agent is material, or omits to state a fact, which in the reasonable opinion of the Placement Agent is material and is required to be stated therein, or is necessary to make the statements therein, in light of the circumstances under which they were made, not misleading;
(iii) Compliance with Agreements. The Company will have complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied hereunder at or prior to each Closing;
(iv) Corporate Action. The Company has or will have taken all necessary corporate action, including, without limitation, obtaining the approval of its stockholders and the Board, for the execution and delivery of this Agency Agreement, the performance by the Company of its obligations hereunder and the Bridge Financing contemplated hereby;
(v) Opinion of Company Counsel. At each Closing, the Placement Agent shall receive the opinion of Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, counsel to the Company, addressed to the Placement Agent and the Subscribers substantially to the effect that:
(1) The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. The Company is duly qualified as a foreign corporation to do business and is in good standing in the State of California.
(2) The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Agency Agreement and each of the other Transaction Documents, including issuance of the Notes and the Warrants in accordance with the terms thereof. The execution and delivery of the Transaction Documents by the Company, the performance of the obligations of the Company thereunder and the consummation by it of the transactions contemplated therein have been duly authorized by the Board. The Transaction Documents have been duly executed and delivered by the Company.
(3) The issuance and sale of the Notes and the Warrants has been duly authorized. The Warrant Shares are duly authorized and reserved for issuance in accordance with the Agency Agreement and the Warrants, and when issued and paid for in accordance with the Agency Agreement and the Warrants, the Warrant Shares will be validly issued, fully paid and non-assessable and free of all taxes, liens, charges and preemptive rights with respect to the issue thereof.
9
(4) Based in part upon, and subject to the accuracy as to factual matters of, the Subscribers' representations in Article I of the Subscription Agreement, the Notes and the Warrants may be issued to the Subscribers pursuant to the Transaction Documents without registration under the Securities Act of 1933, as amended.
(5) No authorization, approval, consent, filing or other order of any Federal or state governmental body, regulatory agency, self-regulatory organization or stock exchange or market, or to such counsel's knowledge, any court, is required to be obtained by the Company to enter into and perform its obligations under the Transaction Documents or for the issuance and sale of the Notes and the Warrants as contemplated by the Transaction Documents, except such as have been made or will be made by the Company.
(6) To such counsel's knowledge, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board or body or any governmental agency or self-regulatory organization pending or threatened against the Company or any of the properties of the Company which might reasonably be expected to prevent the transactions contemplated by the Transaction Documents.
(7) The execution, delivery and performance by the Company of the Transaction Documents, the consummation by the Company of the transactions contemplated thereby and the compliance by the Company with the terms thereof does not violate, conflict with or constitute a default under the Company's Certificate of Incorporation, as amended to date, the Company's Bylaws as currently in effect or any other material contract, agreement arrangement by which the Company is bound, other than as set forth in the Schedules to this Agreement.
(vi) Representations and Warranties. The representations and warranties of the Company set forth in Section 2 hereof shall be true and correct as of the date when made and as of the Closing as though made at that time (except for representations and warranties that reference a specific date which shall have been true and correct in all material respects as of such date), and the Company shall have performed, satisfied and complied in all respects with the covenants, agreements and conditions required by the Transaction Documents to be performed, satisfied or complied with by the Company at or prior to the Closing, except where the failure of such representations and warranties to be true and correct as stated above, and except for such nonperformance, failure to satisfy or comply as would not, individually or in the aggregate, have a Material Adverse Effect.
(vii) Officer's Certificate. At each Closing, the Company shall have delivered to the Placement Agent a certificate of the Chief Executive Officer stating that (1) the condition set forth in Section 3(b)(vi) has been satisfied, (2) except as expressly set forth in any Schedule or Exhibit to the Subscription Agreement or this Agency Agreement, since May 31, 2001, there has been no event, condition or circumstance that has had or could reasonably be expected to have a Material Adverse Effect, (3) the Company has no more than 45 million shares of Common Stock outstanding on a fully-diluted basis as set forth in its most recently filed SEC Document, (4) other than accounts payable and capital lease obligations in the ordinary course of its business and consistent with past practices, the Company has no debt outstanding (assuming repayment in full of the bank debt described in Section 3(b)(ix) below) and (5) the Company has complied with its covenants and agreements set forth in the Transaction Documents, and
(viii) Secretary's Certificate. At each Closing, the Company shall have delivered to the Placement Agent a certificate of the Secretary of the Company containing: (1) true and complete copies, as of the Closing Date, of the Certificate of Incorporation and Bylaws of the Company and of the certificates of designations of all series of preferred stock of the
10
Company, (2) true and complete copies of the resolutions of the Board approving the Transaction Documents and all documents and matters incident thereto, and (3) a certification of authenticity of the signatures of the officers of the Company who have executed and delivered the documentation for the Bridge Financing.
(ix) Satisfaction of Bank Obligation. At the Initial Closing, the Company shall have delivered to the Placement Agent the following: (1) instructions for the wire transfer directly from the Placement Agent to Imperial Bank (the "Bank") of Bridge Financing proceeds sufficient to repay in full amounts outstanding under the Company's line of credit with the Bank, together with accrued and unpaid interest thereon and (2) evidence of the Bank's release of its security interest in the Company's assets effective upon the Bank's receipt of such wire transfer.
(x) Minimum Offering. The Minimum Offering shall have been sold in the Bridge Financing and the Escrow Agent shall have received gross proceeds from such offering of at least $6,000,000.
(xi) No Adverse Changes. There shall not have occurred, at any time prior to the applicable closing (1) a general suspension of, or a general limitation on prices for, trading in securities on the New York Stock Exchange, the Nasdaq Stock Market, the American Stock Exchange, or in the over-the-counter market; (2) any outbreak of major hostilities or other national or international calamity; (3) any banking moratorium declared by Federal or New York authorities; (4) any material adverse change in the business, properties, assets, results of operations, or financial condition of the Company which materially impairs the investment quality of the Units; or (5) any material adverse change in the market for securities in general or in political, financial, or economic conditions which, in the Placement Agent's reasonable judgment, makes it inadvisable to proceed with the Bridge Financing.
(xii) Due Diligence Investigation Complete. The Placement Agent shall have concluded its due diligence investigation of the Company to the Placement Agent's reasonable satisfaction, including, without limitation, an investigation of the Company's financial statements, projections, business prospects, capital structure, and other contractual arrangements.
(xiii) Lock-Up Agreements. The Placement Agent shall have received a signed lock-up agreement from Mark Hoffman in substantially the form attached as Exhibit F hereto.
(xiv) Additional Director. Effective as of the Initial Closing, either Lee Provow or Harold Blue (the "Designee") shall have been appointed to the Board. The Company shall use its reasonable best efforts to cause the Designee (or any replacement designee chosen by Commonwealth to fill a vacancy left by the Designee) to be nominated as a member of the Board to serve until the earlier of (i) his resignation or removal, (ii) the repayment or conversion of the Notes, (iii) his failure to be elected by the shareholders at a duly convened meeting, or (iv) the date on which a designee of the investors in the Subsequent Placement (as defined in Section 4(j)) is appointed to the Board. In the event that the Placement Agent does not exercise its right to designate a member of the Board or the Designee is no longer a director, then the Placement Agent may appoint any person to be an observer who shall be entitled to attend and observe meetings of the Board and any committees thereof (and receive notices, communications and other information provided in connections with such meetings) until the earlier of the repayment or conversion of the Notes.
(xv) Sun Microsystems Restructuring. The Placement Agent shall have received evidence of the restructuring of the agreement between the Company and SunMicrosystems and the amounts payable thereunder satisfactory to the Placement Agent and its counsel.
11
(xvi) Series B Preferred Stock Exchange. The Company and the holders of the Company's Series B Preferred Stock shall have completed and exchange for Series B-1 Preferred Stock and no shares of the Company's Series B Preferred Stock shall be outstanding. Satisfaction of the foregoing shall also be a condition to the Company's obligation to consummate the Bridge Financing.
(xvii) Warrant Escrow Agreement. The Placement Agent shall have received a counterpart signature page to the escrow agreement substantially in the form attached hereto as Exhibit H (the "Warrant Escrow Agreement") duly executed by the Company.
(c) Blue Sky. The Company (or at the Company's request, counsel to the Placement Agent) shall prepare and file the necessary documents so that offers and sales of the securities to be offered in the Bridge Financing may be made in certain jurisdictions in the United States. It is understood that such filings may be based on or rely upon: (i) the representations of each Subscriber set forth in the Subscription Agreement delivered by such Subscriber; (ii) the representations, warranties and agreements of the Company set forth in Section 2 of this Agency Agreement; and (iii) the representations of the Company set forth in the certificate to be delivered at each Closing pursuant to Section 3(b)(vii).
(d) Placement Fee and Expenses.
(i) Bridge Financing. Simultaneously with payment for and delivery of the Units at each Closing, the Company shall: (1) pay to the Placement Agent a cash fee equal to 5% of the gross proceeds of the Units sold (the "Cash Fee"); (2) issue to the Placement Agent a warrant to purchase 10% of the Warrant Shares underlying the Units sold in the Bridge Financing (the "Agent's Warrant") which Agent Warrant shall be subject to the terms of the Warrant Escrow Agreement; (3) reimburse the Placement Agent for its actual out-of-pocket expenses incurred in connection with the Bridge Financing, including, without limitation, the reasonable fees and expenses of its counsel (Loeb & Loeb LLP), including, due diligence investigation expenses, travel and mailing expenses, up to a maximum of $35,000, which amount may be increased with the prior written consent of the Company, and (4) pay all expenses in connection with the qualification of the Securities under the blue sky laws of the states which the Placement Agent shall designate, including legal fees, filing fees and disbursements of Placement Agent's counsel in connection with such blue sky matters (the reimbursement and payment obligations of the Company set forth in clauses (3) and (4) above, the "Placement Agent Expenses").
(ii) Interest. In the event that for any reason the Company shall fail to pay to the Placement Agent all or any portion of the fees payable hereunder when due, interest shall accrue and be payable on the unpaid cash balance due hereunder from the date when first due through and including the date when actually collected by the Placement Agent, at a rate equal to four percent above the prime rate of Citibank, N.A., in New York, New York, computed on a daily basis and adjusted as announced from time to time.
(e) Bring-Down Opinions and Certificates. If there is more than one Closing, then at each such Closing there shall be delivered to the Placement Agent updated opinions and certificates as described in Section 3(b)(v), (vii) and (viii) above, respectively.
4. Covenants of the Company.
(a) Use of Proceeds. The net proceeds of the Bridge Financing will be used by the Company substantially as set forth in Section 4.4 of the Subscription Agreement. The Company shall not use any of the proceeds from the Bridge Financing to repay any indebtedness of the Company to any current executive officers, directors or principal stockholders of the Company.
12
(b) Expenses of Offering.
(i) The Company shall be responsible for, and shall bear all expenses directly incurred in connection with, the Bridge Financing including, but not limited to, (i) legal fees of the Company's counsel relating to the costs of preparing the Transaction Documents and all amendments, supplements and exhibits thereto delivering all Units and (ii) the Placement Agent Expenses. The Placement Agent shall have no liability to the Company for any reason should the Placement Agent choose not to proceed with the Bridge Financing contemplated hereby.
(ii) Prior to the Initial Closing, if the Company unilaterally decides not to effect the Initial Closing (for any reason other than the Placement Agent's inability to close the Minimum Offering) prior to 5:00 p.m. (New York time) on August 31, 2001 except upon mutual written agreement with the Placement Agent not to proceed with the Offering), the Company shall pay the Placement Agent $200,000 (which fee the Company agrees is a fair measure of the compensation to be received by the Placement Agent in respect of, among other things, its advice, time and effort in respect of the Offering), and the Company will be obligated to reimburse the Placement Agent and counsel for the Placement Agent, as applicable, for the Placement Agent Expenses as set forth in Sections 3(d)(i)(3) and 3(d)(i)(4) above within ten business days of the occurrence of any event described in this Section 4(b)(ii).
(c) Notification. The Company shall notify the Placement Agent immediately, and in writing, (i) when any event shall have occurred during the period commencing on the date hereof and ending on the later of the Final Closing or the Termination Date as a result of which the Transaction Documents would include any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein not misleading, and (ii) of the receipt of any notification with respect to the modification, rescission, withdrawal or suspension of the qualification or registration of any of the Securities, or of any exemption from such registration or qualification, in any jurisdiction. The Company will use its reasonable best efforts to prevent the issuance of any such modification, rescission, withdrawal or suspension and, if any such modification, rescission, withdrawal or suspension is issued and the Placement Agent so requests, to obtain the lifting thereof as promptly as possible.
(d) Form D and Blue Sky. The Company shall file a Form D with respect to the Units as required under Regulation D under the 1933 Act and provide a copy thereof to the Placement Agent promptly after such filing. The Company shall, on or before the Closing, take such action as the Company shall reasonably determine is necessary in order to obtain an exemption for or to qualify the Notes and the Warrants for sale to the Subscriber pursuant to this Agency Agreement under applicable securities or "Blue Sky" laws of the states of the United States, and shall provide evidence of any such action so taken to the Placement Agent on or prior to the Closing. The Company shall make all filings and reports relating to the offer and sale of the Securities required under applicable securities or "Blue Sky" laws of the states of the United States following the Closing.
(e) Press Releases, Etc. To the extent practicable, the Company shall provide two business days prior written notice of any proposed press release or other communication, or any press conference with respect to any material development concerning the Company, its financial condition, results of operations, business, prospects, properties, assets, or liabilities; provided however, the Company may issue any press release without such prior notice if in the reasonable opinion of counsel to the Company issuance before such notice can be provided is required for compliance with any governmental agency or exchange on which the Company's securities are listed. Furthermore, the Company shall not at any time include information with respect to the use
13
of the Placement Agent's name in any press release, advertisement or on any website maintained by the Company without the prior written consent of the Placement Agent.
(f) Restrictions on Issuances of Securities. During the period commencing on the date hereof and ending on the later of (i) the Final Closing or (ii) the Termination Date, provided the Placement Agent shall not have breached any material covenant, representation or warranty contained in this Agency Agreement and the Placement Agent is actively conducting the Bridge Financing, the Company will not, without the prior written consent of the Placement Agent, issue additional shares of Common Stock, other than pursuant to the exercise of options, warrants or rights outstanding on the date hereof, or issue or grant any warrants, options or other securities of the Company or any debt convertible, redeemable or exchangeable for any equity security of the Company.
(g) Executive Compensation. The compensation of the Company's executive officers (as identified by the Company for purposes of compliance with Section 16 under the 1934 Act) shall not increase by more than 10% per annum while any of the Notes remain outstanding without the approval of a majority of the independent members of the Board.
(h) Independent Auditors. During the three-year period following the Initial Closing, the Company will not switch auditors, other than to a "Big Five" accounting firm, without the approval of a majority of the independent members of the Board.
(i) Quarterly Communications. Within forty-five (45) days after the end of each fiscal quarter, the Company shall (i) send to the Placement Agent (x) a letter setting forth the results of operations for the fiscal quarter and management's analysis thereof (which delivery obligation shall be satisfied by timely filing with the SEC the applicable quarterly report on Form 10-Q) and (y) a schedule of all securities issuances by the Company, including the issuances of shares pursuant to the cashless exercise provisions of any options or warrants, and (ii) present an update on the affairs of the Company at the offices of the Placement Agent for the Subscribers and employees of the Placement Agent, ensuring that such update complies with Regulation FD under the Securities Act. In addition, within ninety (90) days after the end of each fiscal year, the Company shall send to the Subscribers a stockholders letter in form and substance reasonably satisfactory to the Placement Agent setting forth the results of operations for the fiscal year and management's analysis thereof (which delivery obligation shall be satisfied by timely filing with the SEC the applicable annual report on Form 10-K).
(j) Shareholder Approval. Within 90 days after the Initial Closing Date, the Company shall seek shareholder approval of (1) the issuance of shares of Common Stock upon the exercise of the Warrants and the Agent's Warrant, (2) the conversion provisions of Section 5 of the Notes, and (3) the private placement of convertible preferred stock through Commonwealth contemplated by the term sheet dated August 23, 2001 (the "Subsequent Placement").
(k) Rule 144 Opinions. The Company shall cause its legal counsel to issue appropriate Rule 144 opinions by facsimile to the Company's transfer agent (with a copy to the person requesting such opinion) within one business day after counsel's receipt of the following completed documentation: (a) seller's representation letter, (b) broker's representation letter, and (c) copy of the Form 144, unless counsel determines that such documentation is insufficient or has other reasonable grounds for delaying the issuance of the requested opinion.
(l) Certificates for Securities. The Company shall maintain at the offices of its transfer agent at least 250 printed Common Stock certificates to enable the issuance of certificates in connection with the conversion of the Notes and exercise of the Warrants.
(m) Transmittal Letters. Within five days after each Closing of the Bridge Financing, the Placement Agent shall receive copies of all letters from the Company to the Subscribers
14
transmitting the securities sold in the Bridge Financing and shall receive a letter from the Company confirming transmittal of the securities to the Subscribers.
(n) Committees. The Company will not create any committees of its Board that are not composed of a majority of the independent members of the Board unless it has received the approval of a majority of the independent members of the Board to do so.
(o) Finder's Agreement. In the event the Board authorizes the Company to seek a senior secured lender, the Company shall enter into a non-exclusive finder's agreement with the Placement Agent substantially in the form attached hereto as Exhibit G, pursuant to which the Placement Agent shall be entitled to a 2% success fee.
(p) Transfer of Assets; Subsidiary Guaranty. Within six months following the Initial Closing Date, if the majority of the principal amount of the Notes issued in the Bridge Financing has not been repaid or converted, the Company shall transfer the assets of the Company's SubscribeNet division (the "Asset Transfer") to a wholly-owned subsidiary (the "Subsidiary") of the Company, and concurrently with the completion of the Asset Transfer, the Company shall deliver to the Placement Agent evidence satisfactory to the Placement Agent that the Asset Transfer has been completed, including (1) Board authorization of the Asset Transfer, (2) incorporation documents for, and approval of the Asset Transfer by, the board of directors of the Subsidiary, and (3) the executed asset transfer agreement. The Placement Agent shall also have received concurrently with the completion of the Asset Transfer duly executed copies of a guaranty by the Subsidiary, a security agreement securing the obligations under the guaranty, and a stock pledge agreement by the Company, each in a form reasonably satisfactory to the parties and their counsel.
(q) Chief Financial Officer. The Company will use its reasonable best efforts to hire a Chief Financial Officer of the Company reasonably acceptable to the Placement Agent as promptly as practicable following the date hereof.
(r) Shareholder Notice. The Company shall send out a notice to its shareholders which complies with the Nasdaq Stock Market's interpretations of the NASD Rules as promptly as practicable following the date hereof notifying the shareholders that the audit committee of the Company has expressly approved reliance on an exception to the Nasdaq Stock Market's shareholder approval requirement as to the issuance of certain Warrants and the Agent Warrants to the Subscribers and Commonwealth, respectively.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the Placement Agent and each selected dealer, if any, and their respective stockholders, directors, officers, agents and controlling persons (an "Indemnified Party") against any and all loss, liability, claim, damage and expense whatsoever (and all actions in respect thereof), and to reimburse the Placement Agent for reasonable legal fees and related expenses as incurred (including, but not limited to the costs of investigating, preparing or defending any such action or claim whether or not in connection with litigation in which the Placement Agent is a party and the costs of giving testimony or furnishing documents in response to a subpoena or otherwise), caused by or arising out of (i) any untrue statement or alleged untrue statement of a material fact contained in the Transaction Documents or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading (provided, however, that the Company shall not be liable in any such case to the extent that any such loss, liability, claim, damage or expense arises out of or is based upon any untrue statement of a material fact or alleged untrue statement or a material fact provided by the Placement Agent in writing to the Company specifically for use in the Transaction Documents), (ii) any violation by the Company of the federal securities laws or the securities laws of any states, or otherwise arising out of the Placement Agent's engagement hereunder, except in respect of any matters
15
as to which the Placement Agent shall have been adjudicated to have acted with gross negligence, or (iii) any breach by the Company of any of its representations, warranties or covenants contained in this Agency Agreement.
(b) Promptly after receipt by an Indemnified Party under this Section of notice of the commencement of any action, the indemnified party will, if a claim in respect thereof is to be made against the Company under this Section, notify in writing the Company of the commencement thereof; but the omission so to notify the Company will not relieve the Company from any liability which it may have to the Indemnified Party otherwise than under this Section except to the extent the defense of the claim is prejudiced. In case any such action is brought against an Indemnified Party, and it notifies the Company of the commencement thereof, the Company will be entitled to participate in, and, to the extent that it may wish, jointly with any other indemnifying party similarly notified, to assume the defense thereof, subject to the provisions herein stated, with counsel reasonably satisfactory to the Indemnified Party, and after notice from the Company to the Indemnified Party of its election so to assume the defense thereof, the Company will not be liable to the Indemnified Party under this Section for any legal or other expenses subsequently incurred by the Indemnified Party in connection with the defense thereof other than reasonable costs of investigation (provided the Company has been advised in writing that such investigation is being undertaken). The Indemnified Party shall have the right to employ separate counsel in any such action and to participate in the defense thereof, but the fees and expenses of such counsel shall not be at the expense of the Company if the Company has assumed the defense of the action with counsel reasonably satisfactory to the Indemnified Party; provided that the fees and expenses of such counsel shall be at the expense of the Company if (i) the employment of such counsel has been specifically authorized in writing by the Company (which it shall have no obligation to do) or (ii) the named parties to any such action (including any impleaded parties) include both the Indemnified Party or Parties and the Company and, in the reasonable judgment of counsel for the Indemnified Party, it is advisable for the Indemnified Party or Parties to be represented by separate counsel due to material conflict of interest (in which case the Company shall not have the right to assume the defense of such action on behalf of an Indemnified Party or Parties), it being understood, however, that the Company shall not, in connection with any one such action or separate but substantially similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances, be liable for the reasonable fees and expenses of more than one separate firm of attorneys for all the Indemnified Parties. No settlement by an Indemnified Party of any action against an Indemnified Party shall be made without the Company's consent which shall not be unreasonably withheld. No settlement of any action against an Indemnified Party by the Company shall be made unless such an Indemnified Party is fully and completely released in connection therewith.
6. Contribution.
To provide for just and equitable contribution, if (i) an Indemnified Party makes a claim for indemnification pursuant to Section 5 but it is found in a final judicial determination, not subject to further appeal, that such indemnification may not be enforced in such case, even though this Agency Agreement expressly provides for indemnification in such case, or (ii) any indemnified or indemnifying party seeks contribution under the 1933 Act, the 1934 Act, or otherwise, then the Company (including for this purpose any contribution made by or on behalf of any officer, director, employee or agent for the Company, or any controlling person of the Company), on the one hand, and the Placement Agent and any Selected Dealers (including for this purpose any contribution by or on behalf of an indemnified party), on the other hand, shall contribute to the losses, liabilities, claims, damages, and expenses whatsoever to which any of them may be subject, in such proportions as are appropriate to reflect the relative benefits received by the Company, on the one hand, and the Placement Agent and the Selected Dealers, on the other hand; provided, however, that if applicable law does not permit such allocation, then other relevant equitable considerations such as the relative fault of the Company and the Placement Agent and the Selected Dealers in connection with the facts which resulted in such
16
losses, liabilities, claims, damages, and expenses shall also be considered. In no case shall the Placement Agent or a Selected Dealer be responsible for a portion of the contribution obligation in excess of the compensation received by it or the Selected Dealers, as the case may be. No person guilty of a fraudulent misrepresentation shall be entitled to contribution from any person who is not guilty of such fraudulent misrepresentation. For purposes of this Section 6, each person, if any, who controls the Placement Agent or a Selected Dealer within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act and each officer, director, shareholder, employee and agent of the Placement Agent or a Selected Dealer, shall have the same rights to contribution as the Placement Agent or the Selected Dealer, and each person, if any who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20(a) of the 1934 Act and each officer, director, employee and agent of the Company, shall have the same rights to contribution as the Company, subject in each case to the provisions of this Section 6. Anything in this Section 6 to the contrary notwithstanding, no party shall be liable for contribution with respect to the settlement of any claim or action effected without its written consent. This Section 6 is intended to supersede any right to contribution under the 1933 Act, the 1934 Act, or otherwise.
7. Miscellaneous.
(a) Survival. Any termination of the Bridge Financing without consummation thereof shall be without obligation on the part of any party except that the indemnification provided in Section 5 hereof and the contribution provided in Section 6 hereof shall survive any termination and shall survive the Final Closing for a period of two years.
(b) Representations, Warranties and Covenants to Survive Delivery. The respective representations, warranties, indemnities, agreements, covenants and other statements as of the date hereof shall survive execution of this Agency Agreement and delivery of the Units and the termination of this Agency Agreement for a period of three (3) years after such respective event.
(c) No Other Beneficiaries. This Agency Agreement is intended for the sole and exclusive benefit of the parties hereto and their respective successors and controlling persons, and no other person, firm or corporation shall have any third-party beneficiary or other rights hereunder.
(d) Governing Law; Resolution of Disputes. This Agency Agreement shall be governed by and construed in accordance with the law of the State of New York without regard to conflict of law provisions. The Placement Agent and the Company will attempt to settle any claim or controversy arising out of this Agency Agreement through consultation and negotiation in good faith and a spirit of mutual cooperation. Should such attempts fail, then the dispute will be mediated by a mutually acceptable mediator to be chosen by the Placement Agent and the Company within fifteen (15) days after written notice from either party demanding mediation. Neither party may unreasonably withhold consent to the selection of a mediator, and the parties will share the costs of the mediation equally. Any dispute which the parties cannot resolve through negotiation or mediation within six (6) months of the date of the initial demand for it by one of the parties may then be submitted to the courts for resolution. The use of mediation will not be construed under the doctrine of laches, waiver or estoppel to affect adversely the rights of either party. Nothing in this Section will prevent either party from resorting to judicial proceedings if (a) good faith efforts to resolve the dispute under these procedures have been unsuccessful or (b) interim relief from a court is necessary to prevent serious and irreparable injury.
(e) Counterparts. This Agency Agreement may be signed in counterparts with the same effect as if both parties had signed one and the same instrument.
(f) Notices. Any communications specifically required hereunder to be in writing, if sent to the Placement Agent, will be sent by overnight courier providing a receipt of delivery or by certified or registered mail to it at Commonwealth Associates, 830 Third Avenue, New York, New
17
York 10022, Att: Christopher W. Young, Jr., with a copy to Loeb& Loeb LLP, 345 Park Avenue, New York, New York 10154-0037, Att: Fran Stoller, and if sent to the Company, will be sent by overnight courier providing a receipt of delivery or by certified or registered mail to it at 25 Orinda Way, Orinda, California 94563, Att: Frost Prioleau, with a copy to Wilson, Sonsini, Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, California 94304, Attention: Adam R. Dolinko.
(g) Entire Agreement. This Agency Agreement constitutes the entire agreement of the parties with respect to the matters herein referred and supersedes all prior agreements and understandings, written and oral, between the parties with respect to the subject matter hereof including, but not limited to, that certain term sheet dated August 22, 2001 between the Company and Commonwealth. Neither this Agency Agreement nor any term hereof may be changed, waived or terminated orally, except by an instrument in writing signed by the party against which enforcement of the change, waiver or termination is sought.
(h) Termination. This Agency Agreement is subject to termination by notice given by the Placement Agent to the Company, if (i) after the execution and delivery of this Agency Agreement and prior to the Initial Closing (A) trading generally shall have been suspended or materially limited on or by, as the case may be, any of the New York Stock Exchange, the American Stock Exchange, the National Association of Securities Dealers, Inc., the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the Chicago Board of Trade, (B) trading of any securities of the Company shall have been suspended on any exchange or in any over-the-counter market, (C) a general moratorium on commercial banking activities in New York shall have been declared by either Federal or New York State authorities or (D) there shall have occurred any outbreak or escalation of hostilities or any change in financial markets or any calamity or crises that, in the Placement Agent's judgement, is material and adverse and (ii) in the case of any of the events specified in Sections 7(h)(i)(A) through 7(h)(i)(D), such event, singly or together with any other such event, makes it, in the Placement Agent's judgement, impracticable to offer the Units on the terms and in the manner contemplated herein.
(i) If you find the foregoing is in accordance with our understanding, kindly sign and return to us a counterpart hereof, whereupon this instrument along with all counterparts will become a binding agreement between us.
| Very truly yours, | |||
INTRAWARE, INC. |
|||
By: |
/s/ PETER H. JACKSON Name: Peter H. Jackson Title: Chief Executive Officer |
||
| Agreed: | |||
COMMONWEALTH ASSOCIATES, L.P. |
|||
By: |
Commonwealth Associates Management Company, Inc., its general partner |
||
By: |
/s/ JOSEPH P. WYNNE Name: Joseph P. Wynne Title: Secretary |
||
18
| Exhibit A | Form of Note | |
Exhibit B |
Form of Warrants |
|
Exhibit C |
Form of Subscription Agreement |
|
Exhibit D |
Form of Registration Rights Agreement |
|
Exhibit E |
Form of Security Agreement |
|
Exhibit F |
Form of Lock-Up Agreement |
|
Exhibit G |
Form of Finder's Agreement |
|
Exhibit H |
Form of Warrant Escrow Agreement |
For Further Information Contact:
Roman Reznicek
Intraware, Inc.
925-253-6589
Roman@intraware.com
Intraware Raises $6.15 Million in Capital
Orinda, CA—September 4, 2001—Intraware, Inc. (NASDAQ: ITRA), a leading provider of Electronic Software Distribution Management and IT Asset Management solutions, today announced that it has raised $6.15 million in additional financing through the private sale of promissory notes and warrants to institutional and individual investors.
"This financing, along with our recently announced alliances with Computer Associates and Corporate Software, and our momentum towards reaching EBITDA profitability on a quarterly basis, puts us in a position to capitalize on the tremendous growth opportunities in front of us," said Peter Jackson, Chief Executive Officer of Intraware. "We are especially gratified to see this vote of confidence in Intraware's future by our existing preferred stock holders, who contributed most of the new funds."
Financing Terms
In connection with the financing, Intraware issued one-year senior secured promissory notes, bearing interest of 8% annually, for an aggregate sale price of $6.15 million and net receipts of approximately $5.6 million after fees and expenses. The note holders will also receive warrants to purchase 6.15 million shares of common stock at an exercise price of $0.01 per share. However, warrants exceeding 19.9% of Intraware's common stock will not be exercisable until the company has received stockholder approval. The company has agreed to hold a stockholder meeting seeking stockholder approval within 90 days. Also, if the company obtains stockholder approval at the meeting, the notes will be convertible into the same type of securities issued by Intraware in its next financing round. The notes hold senior rank and are secured by substantially all of the company's assets. They are repayable by Intraware at any time, and will mature early if Intraware is acquired or undergoes a change of control, or if its stockholders do not approve the financing within 90 days.
A member of Intraware's Board of Directors is affiliated with the placement agent in the financing and with one of the investors. Because of this relationship, as well as the quantity of warrants being issued and the price of the warrants, Nasdaq's application of NASD rules would have required Intraware to obtain stockholder approval before issuing the warrants. However, Nasdaq granted Intraware an exception from the stockholder approval rule. In keeping with Nasdaq's determination, Intraware will give its stockholders 10 days prior written notice of this exception before issuing the warrants.
The promissory notes and warrants were issued in a private placement without registration under the Securities Act of 1933 and may not be offered or sold in the United States absent registration or an applicable exemption from registration requirements. The company has agreed to file with the Securities and Exchange Commission (SEC) a registration statement to register the resale of the common stock issuable upon exercise of the warrants, and if the notes are ultimately converted into equity of the company, the shares issuable upon exercise of the notes. The company is required to file the registration statement within 6 months after the closing of the financing, and to cause the registration to be declared effective by the SEC within 9 months after the closing. However, the registration deadline may be accelerated to any earlier stock registration deadline agreed to by the company in any subsequent private placement.
Repayment of Bank Loan
Intraware also announced today that it has fully repaid the $3.3 million loan previously owing to Imperial Bank, and that the loan agreement has been terminated.
New Board Member
Under the financing, Intraware's Board of Directors appointed a new director to the Board.
About Intraware
Intraware, Inc. [Nasdaq: ITRA] is a leading provider of Internet-enabled information technology (IT) management solutions that enable corporations to optimize their IT investments. Intraware's unique spectrum of innovative IT management solutions has attracted strategic relationships with industry-leading vendors, including Computer Associates International, Inc. and Corporate Software. Intraware is headquartered in Orinda, California, and can be reached by phone at (888) 446-8729, (925) 253-4500 or http://www.intraware.com.
Forward Looking Statements
The statements in this news release referring to Intraware's momentum toward reaching EBITDA profitability on a quarterly basis, and other statements in this release which are not historical facts, may be deemed to be forward-looking statements involving a number of risk factors and uncertainties. Factors that could cause actual results to differ materially from those anticipated in this news release include a failure by the Company to generate sufficient gross profits and/or manage its costs sufficiently to reach profitability; lower than expected sales due to the current business environment or due to concerns about the Company's financial strength vis-à-vis that of its competitors; delays in fully implementing the Company's recently announced strategic alliances; the Company's failure to adequately manage its working capital and/or maintain sufficient cash levels to satisfy its liquidity needs; and the introduction of competitive services and products by other companies. Further information on potential factors that could affect Intraware's financial results is included in Intraware's Form 10-K for the 2001 fiscal year, and its Form 10-Q for the second quarter of its 2001 fiscal year, filed with the SEC. Copies of this and other Intraware filings with the SEC are available from Intraware without charge or online at www.intraware.com.
# # #
© 2001 Intraware, Inc. Intraware is a registered trademark of Intraware, Inc. Other products and company names mentioned herein may be trademarks of their respective holders.