Exhibit 1
CONVERTIBLE LOAN AGREEMENT
This Agreement is made and entered into as of this 29th day of January
2003 by and between Commtouch Software Ltd. (the "Company"), a company organized
under the laws of the State of Israel, with offices located at 0X Xxxxxxx Xx.,
Xxxxxxx, Xxxxxx and the lenders listed in the attached hereto Exhibit "A" (each,
a "Lender", and collectively, the "Lenders").
Whereas, the Lenders and Company are interested in having Lenders provide
to the Company a convertible loan, under the terms and conditions set forth in
this Convertible Loan Agreement (the "Agreement") and in the Promissory Note.
Now, therefore, in consideration of the mutual promises contained herein
and other good and valuable consideration, the parties hereto expressly agree as
follows:
1. Definitions
"Agreement Date" means the date of this Agreement, as set forth above in
the preamble to this Agreement.
"Closing" shall have the meaning ascribed to such term in Section 4
hereof.
"Collateral" means the property described in the Debenture, and all other
property now existing or hereafter acquired which may at any time be or
become subject to a security interest in favor of the Lenders or the
Collateral Agent pursuant to the Debenture or otherwise.
"Collateral Agent" shall means XDL Capital Corp.
"Collateral Agency Agreement" shall mean a Collateral Agency Agreement
among the Lenders, the Company, the U.S. Subsidiary and the Collateral
Agent, in the form attached hereto as Exhibit "I".
"Commission" shall mean the Securities and Exchange Commission.
"Company Security Agreement" shall mean a Security Agreement between the
Company and the Collateral Agent in the form attached hereto as Exhibit
"H".
"Conversion" shall have the meaning ascribed to such term in the
Promissory Note.
"Debenture" shall mean the debenture issued to Lenders in the form
attached hereto as Exhibit "C".
"Effective Date" shall mean the date the Registration Statement of the
Company covering the Shares acquired herein upon Conversion and the Shares
issuable upon exercise of the Warrants is declared effective by the
Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
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"Guaranty" shall mean a Guaranty made by the U.S. Subsidiary in favor of
the Lenders in the form attached hereto as Exhibit "F".
"Lender Majority" shall mean those Lenders who have lent collectively to
the Company over 50% of the Loan Amount.
"Loan" shall have the meaning ascribed to such term in Section 3.1.
"Loan Amount(s)" shall mean the principal amount(s) of the Loan advanced
by Lenders to the Company under this Agreement.
"Material Adverse Effect" means a material adverse effect on (i) the
business operations or condition (financial or otherwise) of the Company
and its subsidiaries taken as a whole, (ii) the ability of the Company to
repay the Loan, or otherwise perform its obligations under this Agreement
and the agreements and instruments ancillary hereto, or (iii) the
attachment, perfection, or priority of the Lenders' security interests in
the Collateral or the value of the Collateral.
"Patent and Trademark Security Agreement" shall mean a Patent and
Trademark Security Agreement between the U.S. Subsidiary and the
Collateral Agent in the form attached hereto as Exhibit "J".
"Permitted Transferee" means, with respect to a Lender, any entities
controlled by, controlling or under common control with such Lender or if
the Lender is a partnership, any partners, former partners or affiliated
partnerships managed by the same manager or managing partner or management
company, or managed by an entity controlling, controlled by, or under
common control with, such manager or managing partner or management
company.
"Pro Rata Share" means, as to any Lender at any time, such Lender's funded
portion of the Loan Amount divided by all Lenders' funded portions of the
Loan Amount.
"Promissory Note" shall mean promissory notes issued to Lenders in the
form attached hereto as Exhibit "B".
"Registrable Securities" shall have the meaning ascribed to such term in
Section 7.2.
"Registration Statement" shall have the meaning ascribed to such term in
Section 7.2.
"Securities Act" shall mean the Securities Act of 1933, as amended, and
the rules and regulations of the Commission promulgated thereunder.
"Shares" shall mean the Ordinary Shares of the Company, including those
that may be issued hereunder.
"Trading Day" shall mean (a) any day on which the Ordinary Shares are
traded on the Nasdaq SmallCap or National Market, or (b) if the Ordinary
Shares are not then listed or quoted for trading on the Nasdaq SmallCap or
National Market, then a day on which trading occurs on the New York Stock
Exchange (or any successor thereto).
"Transaction Document" shall have the meaning ascribed to such term in
Section 12.
"U.S. Subsidiary" means Commtouch, Inc., a California corporation.
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"U.S. Subsidiary Security Agreement" shall mean a Security Agreement
between the U.S. Subsidiary and the Collateral Agent in the form attached
hereto as Exhibit "G".
"Warrants" shall have the meaning ascribed to such term in Section 3.4.
2. Exhibits
The following exhibits are attached hereto and incorporated herein by
reference:
a. Exhibit "A" - Names of Lenders and Loan Amounts
b. Exhibit "B" - Form of Promissory Note
c. Exhibit "C" - Form of Debenture
d. Exhibit "D" - Form of Warrant
e. Exhibit "F" - Form of Guaranty
f. Exhibit "G" - Form of U.S. Subsidiary Security Agreement
g. Exhibit "H" - Form of Company Security Agreement
h. Exhibit "I" - Form of Collateral Agency Agreement
i. Exhibit "J" - Form of Patent and Trademark Security Agreement.
j. Exhibit "K" - Opinion of Israeli Counsel to the Company
k. Exhibit "L" - Opinion of US Counsel to the Company
l. Exhibit "M" - Form of Second Tranche Notice
3. The Loan and Warrant Coverage
3.1 Each Lender severally agrees, on the terms and conditions hereinafter
set forth, to provide the Company with a Loan in the amounts set forth next to
the Lender's name in Exhibit "A" hereunder, which shall total together with all
Lenders a Loan Amount of up to $1,250,000 (one million two hundred fifty
thousand United States Dollars) in two tranches, with the first tranche being
not less than $300,000 (three hundred thousand United States Dollars) and not
more than $500,000 (five hundred thousand United States Dollars) ("first
tranche"), and the second tranche being not less than $450,000 (four hundred
fifty thousand United States Dollars) and not more than $750,000 (seven hundred
fifty thousand United States Dollars)("second tranche"), pursuant to the terms
described in Section 3.2 below. The Loan Amount shall bear interest at a rate of
ten percent (10%) per annum, compounded annually. All computations of fees and
interest hereunder shall be made on the basis of a year of 360 days for the
actual number of days occurring in the period for which any such interest or fee
is payable. Interest payments shall be calculated annually in arrears at the end
of each calendar year or such shorter period in accordance with this Agreement.
The Loan proceeds shall be utilized by the Company for working capital and
general corporate needs.
3.2 Subject to the conditions of this Section 3.2, the Loan will be funded
in a maximum of two tranches as follows:
a. The first tranche of will be paid by the Lenders by wire transference
to the Company within three (3) business days of the First Closing (defined
below), in accordance with the respective amounts set forth in Exhibit A
attached hereto. The firm first tranche Loan Amount shall be determined by no
later than February 28, 2003, unless otherwise extended by the Company and
Lender Majority in writing. Until that time, the Company shall be entitled to
add new Lenders to this Agreement in order to finalize the amount of the first
tranche and thereby set the firm amount of the second tranche, pursuant to the
terms set forth in Section 3.1 above. Despite the above, the First Closing date
may occur prior to February 28 pursuant to Section 4.1, with additional closings
of the first tranche occurring as new lenders are added after the First Closing.
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b. The second tranche shall be funded at the discretion of the Lenders
(subject to Section 3.3 below). If Lenders decide to fund the second tranche,
the respective second tranche Loan Amounts must be delivered to the Collateral
Agent or a Lender Majority designee on or prior to the third (3rd) business day
from delivery of a Second Tranche Notice (the "Second Tranche Deadline"), as
defined under Section 4.4 below.
3.3 If the Lender Majority has determined to fund the second tranche of
the Loan, all Lenders must transfer their respective portions of the second
tranche Loan Amount by no later than the Second Tranche Deadline. Without
derogating from any other rights that the Company may have hereunder or by law
relating to breach of this Agreement, the failure of any Lender to fund the
second tranche of the Loan (such Lender, a "Defaulting Lender"), following
receipt of a written notification from the Lender Majority of its decision to
fund the second tranche or its funding of the second tranche, shall result in
the automatic forfeiture of all of such Defaulting Lender's rights and interests
under this Agreement. In such event of forfeiture, the remaining Lenders (the
"Non-Defaulting Lenders") shall have a right of first refusal to provide its
pro-rata portion of the second tranche of the Loan not funded by the Defaulting
Lender(s) (the "Shortfall"). For the purposes of such rights of first refusal, a
Non-Defaulting Lender's pro-rata portion is determined by multiplying the amount
of the Shortfall, by a fraction, the numerator of which is the aggregate Loan
Amount funded by each Non-Defaulting Lender, and the denominator of which is the
aggregate Loan Amount funded by all Non-Defaulting Lenders. Notwithstanding the
aforesaid, the Non-Defaulting Lenders may unanimously agree amongst themselves
as to a different allocation of the Shortfall. The Company shall provide notice
of the availability of this right of first refusal by no later than five (5)
days as from the Second Tranche Deadline and, notwithstanding any other
provisions to the contrary in this Agreement, the Company may provide this
notice by confirmed email and/or confirmed fax. Non-Defaulting Lenders willing
to exercise the right of first refusal must indicate their intentions by return
email or fax to the Company by no later than the close of business two (2)
business days following receipt of the Company's above-stated notice. By the
close of business two (2) business days following the date for receipt of the
Non-Defaulting Lenders notice, the Company will issue instructions by email or
fax to each Non-Defaulting Lender that has exercised its rights of first
refusal, advising of the amounts of additional Loan that each is obliged to
transfer to the Company. Such amounts shall be transferred to the Company within
four (4) business days following the date of the instructions. In addition to
the rights of each Non-Defaulting Lender hereunder relating to the portion of
the Shortfall they elect to provide, it shall receive proportionate rights (i.e.
equivalent to its relative proportion of the aggregate Shortfall being provided
by all Non-Defaulting Lenders) in the first tranche of the Loan provided by the
Defaulting Lender(s), as if such Non-Defaulting Lender has funded such amount
itself, with the Defaulting Lender(s) losing their rights to an identical amount
of the first tranche of the Loan. For purposes of effecting the transfer of
rights and obligations of a Defaulting Lender hereunder, each Lender hereby
grants to the Company an irrevocable power of attorney to execute all documents
and take all necessary actions on its behalf if it becomes a Defaulting Lender.
Should the Non-Defaulting Lenders not exercise their right of first refusal in
full within the allotted time, the first tranche of the Loan provided by a
defaulting Lender, equivalent to the portion of the Shortfall not provided,
shall be deemed a gift to the Company, and each Lender (who becomes a Defaulting
Lender) voluntarily waives any rights it may possess to contest such
classification.
3.4 The obligations of the Lenders hereunder are several. The failure of
any Lender to carry out its obligations hereunder shall not relieve any other
Lender of any obligation thereunder, nor shall any Lender be responsible for the
obligations of, or any action taken or omitted by, any other Person hereunder or
thereunder. Nothing contained herein shall be deemed to cause any Lender to be
considered a partner of or joint venturer with any other Lender or Lenders, the
U.S. Subsidiary or the Company.
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3.5 Concurrent with the payment of a Loan Amount to the Company as
aforementioned, the Company shall issue to each of the Lenders warrants in the
form attached hereto as Exhibit "D" (the "Warrants", each a "Warrant") to
purchase up to:
a. such number of Shares of the Company (rounded up to the nearest whole
Share) determined by dividing the Shares to be issued to Lender upon Conversion
of its Loan Amount by three (s), at a Warrant price of $0.25 per Share, plus
b. such number of Shares of the Company (rounded up to the nearest whole
Share) determined by dividing the Shares to be issued to Lender upon Conversion
of its Loan Amount by three (3), at a Warrant price of $0.33 per Share, plus
c. such number of Shares of the Company (rounded up to the nearest whole
Share) determined by dividing the Shares to be issued to Lender upon Conversion
of its Loan Amount by three (3), at a Warrant price of $0.50 per Share.
By way of example, if $500,000 were advanced, it would convert into
2,000,000 shares. Therefore, whether or not conversion occurs, warrants to
purchase an additional 2,000,000 shares would be created, for 666,666, 666,667
and 666,667 shares, at prices of .25c, .33c and .50c respectively.
Each Lender shall be issued three separate Warrants, for each of (a), (b)
and (c) above. The exercise price per Share under each Warrant shall be as
indicated in (a) through (c) above. Furthermore, each Lender shall be entitled
to warrants to purchase additional Shares based on the interest accrued on the
relevant Loan Amount ("Additional Warrant Shares"). The amount of Additional
Warrant Shares which may be purchased in respect of the interest which has
accrued in any given year (or such shorter period as may be applicable), shall
be calculated in the manner specified in sub-section (a) through (c) above, but
with the interest accumulated on the Loan Amount through each such anniversary
date (or such shorter period as may be applicable) being substituted for the
Loan Amount in each such calculation. For purpose of clarification and as an
example only, interest accrued in the first year and in respect of which
Additional Warrant Shares may be purchased will not be utilized in computing
subsequent issuances of Additional Warrant Shares for interest. For the
avoidance of doubt, no further Additional Warrant Shares shall accrue for a
Lender on principal and interest following Conversion by that Lender. Within
thirty days of the each anniversary of the Closing, the Company shall issue each
Lender a warrant certificate in the form attached as Exhibit D with respect to
the number of Additional Warrant Shares which it has the right to purchase
hereunder. Notwithstanding anything else in this paragraph the exercise price
per Additional Warrant Share shall be $0.25 for the Additional Warrant Shares
accrued in the first year from the Closing, $0.33 for the Additional Warrant
Shares accrued in the second year from the Closing, and $0.50 for the Additional
Warrant Shares accrued in the third year from the Closing. That is, the
Additional Warrant Shares in any year are not divided into three sets of
warrants exercisable at vary prices, but shall all have the price appropriate
for that year.
All Warrants shall have a term of five (5) years as from the date of
issuance of the applicable Warrant.
For the avoidance of doubt, the term Warrant, as used herein shall be
deemed to include Warrants issued for the purchase of Additional Warrant Shares.
3.6 The Company shall make each payment hereunder and under the Notes,
unconditionally in full without set-off, counterclaim or, to the extent
permitted by applicable law, other defense. Each payment shall be made on the
day when due to each Lender in United States Dollars and in same day funds, or
such other funds as shall be separately agreed upon by the Company and the
Lenders, in accordance with the Lenders' payment instructions.
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3.7 Payment in United States Dollars of all amounts due under the
Transaction Documents is of the essence, and Dollars shall be the currency of
account in all events. The payment obligations of Company under any Transaction
Document shall not be discharged by an amount paid in another currency or in
another place, whether pursuant to a judgment or otherwise, to the extent that
the amount so paid on conversion to Dollars and transfer to Lenders or the
Collateral Agent, as the case may be, under normal banking procedures (after
premium and costs of exchange) does not yield the amount of Dollars due under
such Transaction Document. If, for the purposes of obtaining judgment in any
court, it is necessary to convert a sum due hereunder in Dollars into another
currency (the "Other Currency"), the rate of exchange used shall be that at
which in accordance with normal banking procedures a Lender or the Collateral
Agent, as the case may be, could purchase Dollars with the Other Currency on
business day preceding that on which final judgment is given. The obligation of
Company in respect of any such sum due from it to a Lender or the Collateral
Agent, as the case may be, under such Transaction Document shall,
notwithstanding any judgment in such Other Currency, be discharged only to the
extent that on the business day following receipt by Lender of any sum adjudged
to be so due in the Other Currency, such Lender or the Collateral Agent, as the
case may be, may in accordance with normal banking procedures purchase Dollars
with the Other Currency; if the Dollars so purchased are less than the sum
originally due to such Lender or the Collateral Agent, as the case may be, in
Dollars, Company agrees, as a separate and independent obligation and
notwithstanding any such judgment, to indemnify such Lender or the Collateral
Agent, as the case may be, against such loss, and if the Dollars so purchased
exceed the sum originally due to such Lender or the Collateral Agent, as the
case may be, in Dollars, such Lender or the Collateral Agent, as the case may
be, agrees to remit to Company such excess.
3.8 Except as otherwise provided in this Agreement or the Notes, each
borrowing hereunder, each payment (including each prepayment) by the Company on
account of the principal of and interest on the Notes shall be made ratably in
accordance with the respective Pro Rata Shares of the Lenders.
4. Conditions to Closing of Loan
4.1 Subject to fulfillment of the conditions set forth in Sections 4.2 and
4.3 below, the First Closing shall occur on or about February 14, 2003 or such
other date as may be mutually agreed upon by the Company and the Lender Majority
(the "First Closing"). If the First Closing has not occurred by the later of
ninety (90) days from the Agreement Date, or March 31, 2003, due to the
non-fulfillment of any of the conditions set forth in Section 4.2 below, unless
extended by the Lender Majority at their sole option, the Lenders' obligations
to effect such Loan shall terminate, and this Agreement shall terminate with no
further obligation of any of the parties.
4.2 Without derogating from the discretionary powers of the Lender
Majority in relation to the funding of the second tranche of the Loan, as
detailed above, the First Closing hereunder is subject to the satisfaction of
each of the following conditions precedent, any of which may be waived in whole
or in part by the Lender Majority (on behalf of the Lenders):
a. The representations and warranties made by the Company in this
Agreement, shall be true when made, and shall be true and correct at the date of
the First Closing with same force and effect as if they had been made and as of
the same date and no Event of Default (as defined in the Notes) shall exist.
b. Approval by the Board of Directors of the Company and the U.S.
Subsidiary of the transactions contemplated hereunder, evidence of which shall
have been provided to the Lender Majority.
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c.(i) Approval by the Office of the Chief Scientist ("OCS") and the
Investment Center of the Ministry of Industry and Trade of the State of Israel
of the transactions contemplated hereunder, together with such other agreements
as the Lenders shall reasonably require to ensure that the Lenders enjoy full
rights with respect to the Collateral (subject to the rights of the Chief
Scientist under the Law for the Encouragement of Industrial Research and
Development, 5744-1984 (as amended) and the regulations promulgated thereunder
(the "R&D Law")), evidence of which shall have been provided to the Lender
Majority; and (ii) an updated status report (estoppel certificate) from the OCS
dated as close to the First Closing as possible indicating that (A) the DIAMOND
MASSAGING PLATFORM project (file) No. 27173 is an active project; and (B) that
the amount of the grant to be repaid on the aforementioned project is no more
than $784,000 plus linkage and interest.
d. Waiver by any holder of anti-dilution or preemptive rights of such
rights with respect to the Conversion and Warrants, evidence of which shall have
been provided to the Lender Majority. Notwithstanding the aforementioned, no
such waiver shall be required with respect to the warrant issued to Go2Net, Inc.
(now known as Infospace) in July 1999 in the sum of 1,136,000 Shares.
e. The Company or the U.S. Subsidiary, as the case may be shall have
delivered by fax executed copies of the following documents to the Lenders: (i)
a Promissory Note, in the name of each Lender, in respect of the Loan Amount
funded by each such Lender; (ii) the Debenture; (iii) a Warrant in the name of
each Lender; and (iv) each other Transaction Document contemplated hereby. For
purpose of clarification, provided that all other First Closing conditions have
occurred, originals of the above-stated documents shall be mailed to Lenders
concurrent with the faxing of the executed copies.
f. All covenants, agreements and conditions contained in and contemplated
by this Agreement, to be performed on or prior to the First Closing shall have
been performed or complied with in all material respects.
g. An executed opinion from Israeli counsel to the Company, dated as of
the First Closing, in the form attached hereto as Exhibit K.
h. An executed opinion from internal U.S. counsel to the U.S. Subsidiary,
dated as of the First Closing, in the form attached hereto as Exhibit L.
i. The Lenders shall have received evidence that all filings,
registrations and recordings have been made in the appropriate governmental
offices, and all other action has been taken, which shall be necessary to
create, in favor of the Collateral Agent or the Lenders, a perfected security
interest in the Collateral as contemplated by the Debenture, the Company
Security Agreement and the Patent and Trademark Security Agreement, in first
priority, subject to the terms thereof.
In each case where evidence is to be provided, it shall be in form and content
satisfactory to the Lender Majority, acting reasonably and in good faith.
4.3 RESERVED.
4.4 The second tranche of the Loan (if funded by the Lenders at their sole
discretion, in such amounts as determined in accordance with Section 3.3 above),
shall be
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transferred to the Company by the Collateral Agent or Lender designee at a
closing which shall occur no later than seventy-five days (75) following the
receipt by the Company of an irrevocable notice in the form attached as Exhibit
M signed by all of those Lenders advising of their desire to close the second
tranche funding (the "Second Tranche Notice"), which Second Tranche Notice shall
be provided by the later of twenty-one (21) days following the First Closing or
February 28, 2003 (the "Second Closing"), with such closing being subject to the
satisfaction of the Lender Majority that each of the following conditions
precedent, any of which may be waived in whole or in part by the Lender Majority
(on behalf of the Lenders), have been fulfilled:
a. approval of the board of directors and shareholders of the Company of
any necessary increase in the authorized share capital of the Company (in an
amount as determined by the Board of Directors of the Company), which amount
shall provide for an adequate reserve of Shares for issuance upon Conversion and
exercise of the Warrants relating to the second tranche funds advanced by the
Lenders, and (whether or not the authorized share capital needs to be increased)
any necessary approval by the shareholders of the Company of the second tranche
funding (including disclosure as part of the materials relating to the vote, of
as much information as is necessary to ensure compliance with NASDAQ or SEC
regulations);
b. the representations and warranties made by the Company in this
Agreement, shall be true when made, and shall be true and correct at the date of
the Second Closing with same force and effect as if they had been made and as of
the same date and no Event of Default (as defined in the Notes) shall exist;
c. the Company shall have sent by fax to the relevant Lenders the
documents listed in Section 4.2(e) reflecting the second tranche of the loan
(including any rights of Defaulting Lenders to which Non-Defaulting Lenders are
entitled) and crediting the same to the relevant Lender; and
d. the Company shall, in a manner satisfactory to the Collateral Agent,
provide for and perfect the security interests in the second tranche funds in a
manner identical to the security interests in the first tranche funds.
The parties agree that, in relation to Section 4.4c above and provided
that all other conditions for the Second Closing have occurred, concurrent with
the sending by fax of the subject documents described therein, original executed
copies of such documents shall be sent to the relevant Lenders.
4.5 In the event of the exercise by Non-Defaulting Lenders of their rights
of first refusal pursuant to Section 3.3 above, such Non-Defaulting Lenders will
receive the same documents and be entitled to the same closing conditions as set
forth in Section 4.4 above.
4.6 The Company undertakes to take all reasonable steps in a timely
fashion subsequent to the signing of this Agreement to achieve the approval of
necessary Boards of Directors and/or shareholders prior to Closing. The Company
shall make best efforts to encourage its directors, officers and founder
shareholders, in their capacities as shareholders, to vote in favor of the
transaction, and shall use commercially reasonable efforts to persuade all
shareholders to vote in favor of the transaction. Xxxxxxx Xxxx, Xxxxx Xxxxxxxx,
Xxxx Xxx and Xxxxxx Xxxxxx shall agree in writing, at the time of signing of
this Agreement, to support the transaction, as shareholders of the Company and
to notify other shareholders of this support.
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5. Conversion.
The rights and obligations of the parties with respect to a Conversion
shall be as set forth in the Promissory Note.
6. Reservation of Shares.
The Company agrees, at all times prior to a Conversion and subject to
shareholder approval of an increase in authorized share capital as detailed in
Section 4.2(b), to have sufficient authorized share capital to allow full
Conversion of the outstanding Loan Amount and interest accrued thereon, and full
exercise of the Warrants, free and clear of all restrictions on issuance, sale
or transfer other than those imposed by law and clear of all pre-emptive rights.
The Shares represented by each and every Conversion, and exercise of Warrants
hereunder shall, at the time of such issuance, be validly issued and
outstanding, fully paid and non-assessable.
7. Registration of Shares
7.1 The Lenders comprising not less than the Lender Majority shall have
one demand right to have the Shares issued upon Conversion and/or exercise of
Warrants registered by the Company with the Commission. Said demand right shall
be in effect until three (3) months following the third anniversary of the last
applicable Warrant issuance date. No demand served on the Company shall be
effective until at least the Lender Majority has effected a Conversion.
7.2 Following receipt of a demand in accordance with Section 7.1 above,
the Company will file as soon as commercially practicable a registration
statement, on an applicable form, with the Commission (the "Registration
Statement"), for non-underwritten resale into the open market of the Shares
issued or issuable any to Lender hereunder upon conversion or exercise of the
Warrants (the "Registrable Securities"). Once filed, the Company shall take all
reasonable measures to cause such Registration Statement registering the
Registrable Securities to be declared effective. The Company will notify the
Lenders and the Company's transfer agent of the effectiveness of the
Registration Statement within ten (10) Trading Days of such event.
7.3 The Company will maintain the Registration Statement effective under
the Securities Act until the earlier of (i) the date that all of the Shares
issued or issuable to the Lenders hereunder have been sold pursuant to such
Registration Statement (ii) the date the Lenders receive an opinion from counsel
to the Company, which counsel shall be reasonably acceptable to the Company,
that such Shares may be sold under the provisions of Rule 144 without limitation
as to volume, (iii) the date that all such Shares have been otherwise
transferred to persons who may trade such shares without restriction under the
Securities Act, and the Company has delivered a new certificate or other
evidence of ownership for such Shares not bearing a restrictive legend or (iv)
forty-eight (48) months from the Effective Date.
7.4 The Company shall notify the Lenders, by way of written notice to the
Lenders, at least fifteen (15) days prior to filing any registration statement
under the 1933 Act for purposes of effecting a public offering of securities of
the Company (including, but not limited to, registration statements relating to
secondary offerings of securities of the Company, but excluding registration
statements relating to any employee benefit plan or a corporate reorganization)
and will afford Lender an opportunity to include in such registration statement
all or any part of the Shares issued or issuable upon Conversion or exercise of
the Warrants to such Lender, provided that at such time of the filing of the
registration statement at least the Lender Majority shall have effected a
Conversion. If the Lenders desire to include in any such registration statement
all or any part of such Shares, such Lenders shall, within
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ten (10) days after receipt of the above-described notice from the Company, so
notify the Company in writing, and in such notice shall inform the Company of
the number of Shares that such Lender wishes to include in such registration
statement. If any Lender decides not to include all of the Shares reserved for
issuance thereto in any registration statement thereafter filed by the Company,
such Lender shall nevertheless continue to have the right to include any such
Shares in any subsequent registration statement or registration statements as
may be filed by the Company with respect to offerings of its securities, all
upon the terms and conditions set forth herein. The Company will cooperate with
the Lenders to facilitate their distribution of Shares pursuant to any such
registration statement.
7.5 All expenses incurred by the Company in complying with Section 7.2 and
Section 7.4 (other than the underwriter's discounts and commissions), including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the National Association of Securities Dealers, Inc.),
fees and expenses of complying with securities and blue sky laws (except for
blue sky expenses required by law to be borne by the Lenders), expense
allowances of the underwriters, printing expenses, fees and disbursements of
counsel or other advisors to the Company, and of the accountants to Company, are
herein called "Registration Expenses." All fees and expenses of counsel for any
selling Lender and all underwriting discounts and commissions applicable to the
eligible securities covered by any such registration of Shares issued or
issuable to the Lenders, are herein called "Selling Expenses." The Company shall
pay all Registration Expenses in connection with each registration pursuant to
Section 7.2 and Section 7.4. All Selling Expenses and blue sky expenses required
by law to be borne by Lenders in connection with each registration pursuant to
Section 7.2 and/or 7.4 shall be borne by the Lenders therein in proportion to
the number of eligible securities included by each in such registration or in
such other proportions as they may agree upon. In the event of any dispute as to
how Selling Expenses are allocated, the Company shall be entitled to apportion
the expenses in a reasonable manner between the various Lenders.
7.6 The piggy-back registration rights granted above shall be in effect
until three (3) months following the third anniversary of the Closing.
7.7 The Lenders agree to the imprinting, so long as is required by law, of
the following legend (the "Legend") on any certificate evidencing the Shares
issued upon Conversion or exercise of the Warrants:
"THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON
AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO
AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE LAW. THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE THAT SUCH REGISTRATION IS NOT REQUIRED.
Certificates evidencing the Shares shall not contain any legend (including the
legend set forth above) while a registration statement covering the resale of
such security is effective under the Securities Act, or (ii) following any sale
of such Shares pursuant to Rule 144, or (iii) if such Shares are eligible for
sale under Rule 144(k), or (iv) if such legend is not required under
11
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the Staff of the Commission).
7.8 With a view to making available to holders of Registrable Securities
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to: (i) make and keep public information available,
as those terms are understood and defined in Rule 144 and Rule 144A; and (ii)
use its best efforts to file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act.
7.9 For purposes of facilitating sales pursuant to Rule 144A, so long as
the Company is not subject to the reporting requirements of Section 13 or 15(d)
of the Exchange Act, each holder of Registrable Securities and any prospective
purchaser of such holder's securities shall have the right to obtain from the
Company, upon request of the holder prior to the time of sale, a brief statement
of the nature of the business of the Company and the products and services it
offers; and the Company's most recent balance sheet and profit and loss and
retained earnings statements, and similar financial statements for the two
preceding fiscal years (the year end financial statements should be audited to
the extent reasonably available).
7.10 The Company will use best efforts to list the Shares issued or
issuable to Lenders hereunder for trading on the Nasdaq SmallCap Market system
or any relevant market or system, if applicable. The Company will continue to
take all action necessary to continue the listing or trading of its Shares on
the Nasdaq SmallCap Market or any relevant market or system, if applicable, and
will make good faith efforts to comply in all respects with the Company's
reporting, listing or other obligations under the rules of the Nasdaq SmallCap
Market or any relevant market or system.
7.11 Indemnification.
a. Indemnification by Company. In the event of a registration of any
Shares pursuant to this Section 7, the Company will hold harmless the Lenders
and each officer, director, employee and advisor of each of the foregoing,
against any expenses, losses, claims, damages or liabilities, joint or several,
to which the Lenders may become subject under the Securities Act, any state
securities law or otherwise, including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, insofar as such expenses,
losses, claims, damages or liabilities (or actions in respect thereof) arise out
of or are based upon any untrue statement or alleged untrue statement of any
material fact contained, on the Effective Date thereof, in any registration
statement under which such Shares are registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein in light of the circumstances under
which they were made not misleading; provided, however, that the Company will
not be liable in any such case to the extent that any such expense, loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, said preliminary prospectus or said prospectus or said
amendment or supplement in reliance upon and in conformity with information
furnished in writing to the Company by or on behalf of the Lenders specifically
for use in the preparation thereof.
b. Indemnification by the Lenders. In the event of any registration of any
Shares under the Securities Act pursuant to this Section 7, each Lender,
severally and not jointly, will indemnify and hold harmless the Company, each
officer of the Company who signs the registration statement, and each director
of the Company against any and all such expenses,
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losses, claims, damages or liabilities referred to in the first paragraph of
this Section 7.11, to the extent that the statement, alleged statement, omission
or alleged omission in respect of which such expense, loss, claim, damage or
liability is asserted was made in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of such Lender
specifically for use in connection with the preparation of such registration
statement, preliminary prospectus, prospectus, amendment or supplement.
c. Indemnification Procedure. Each party entitled to indemnification under
this Section 7.11 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting thereon, provided that the
Indemnified Party may participate in such defense at its own expense, and
provided further that the failure of any Indemnified Party to give notice as
provided herein shall not relieve the Indemnifying Party of its obligations
under this Section 7.11 except to the extent such failure resulted in actual
detriment to the Indemnifying Party. No Indemnifying Party, in the defense of
any such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
8. Repayment of Loan
Repayment of the Loan to each Lender shall be in accordance with the
Promissory Note issued to such Lender. If both tranches of the Loan are fully
funded by the Lenders, the Loan Amount and accrued interest thereon shall not be
pre-paid in whole or in part by the Company without the prior written consent of
the Lender Majority, in their sole and absolute discretion. Notwithstanding
anything to the contrary contained herein, if only the first tranche of the Loan
is funded by the Lenders, the Company shall be entitled to repay the Loan Amount
plus interest accrued thereon at any time, subject to the notice provision of
Section 4.1 of the Promissory Note.
9. Representations and Warranties of the Company
The Company represents and warrants to the Lenders, as of the Agreement
Date and as of the First Closing and Second Closing, as follows, and
acknowledges that the Lenders are entering into this Agreement in reliance
thereon:
9.1 The Company and each subsidiary thereof, including the U.S. Subsidiary
is a corporation duly incorporated, validly existing, and in good standing,
under the laws of the state of its incorporation and qualified to do business
in, and is in good standing in, any state in which the conduct of its business
or its ownership of property requires that it be so qualified. This Agreement
and the other Transaction Documents to which the Company is a party constitutes,
or shall constitute when executed and delivered, valid and binding obligations
of the Company enforceable against the Company in accordance with their terms.
Subject to the approval of its board of directors, shareholders and Chief
Scientist and Investment Center for the State of Israel as described in this
Agreement, the Company has the corporate power and authority to execute and
deliver this Agreement and the other Transaction Documents to which the Company
is a party, to perform fully its obligations hereunder and to consummate the
transactions contemplated hereby.
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9.2 Neither the Company nor any of its subsidiaries is a borrower or
guarantor under any other loan instrument. Except pursuant to this Agreement and
the Debenture, the Company and its subsidiaries do not have any secured
indebtedness for money borrowed or credit extended to them.
9.3 The Company is the sole owner of all of the Collateral (as such term
is defined in the Debenture), free and clear of any mortgage, lien, deed of
trust, charge, pledge, security interest or other encumbrance (or any agreement
to grant any of the foregoing, whether or not contingent on the happening of any
future event), subject to the rights of the OCS pursuant to the R&D Law.
9.4 Other than as otherwise explicitly detailed in this Agreement,
compliance with the terms of the Agreement does not require the consent or
agreement of any person who is not a party to the Agreement and does not violate
the Company's governing articles of association, or any judicial restriction
binding on or affecting the Company.
9.5 Upon obtaining the approvals required under Sections 4.2(b) and (c)
and, with respect to a second tranche Loan funding, Section 4.4(a), the Company
shall have all requisite power and authority to execute, deliver, and perform
the Agreement and to issue any Shares upon Conversion and/or exercise of
Warrants.
9.6 The Shares issuable upon Conversion and/or exercise of Warrants, when
issued will be duly authorized, validly issued, fully paid, and non-assessable,
will not be issued in violation of any preemptive rights (all of which shall
have been waived prior to the issuance of any such Shares), and the holders of
such Shares will have good title to such Shares, free and clear of all liens,
security interests, pledges, charges encumbrances, and shareholders' agreements
and voting trusts. Such Shares will be issued in compliance with all applicable
securities laws. Furthermore, as of the Agreement Date, the Company knows of no
reason why it will not be able to register the Registrable Securities as
provided in Section 7.2 above. Except as noted in Section 4.2(d) with respect to
the Go2Net warrant, no party holds any rights of preemption or participation, or
anti-dilution protection, with respect to or in connection with any issuance by
the Company of any shares or other securities, including in connection with the
transactions contemplated hereby.
9.7 The Company has received financing for research and development
projects through the OCS, and is in compliance with the provisions of the R&D
Law. The Company has remaining contingent obligations to pay royalties to the
OCS in the amount of approximately US$ 784,088 plus linkage and interest as at
Closing.
9.8 Neither the Company or its subsidiaries have taken any corporate
action, nor have any other steps been taken, either by the Company, its
subsidiaries, or by any third party, for the winding up, dissolution,
administration, reorganization of the Company, or for the appointment of a
receiver, liquidator, administrator or similar officer (in each case, including
on a temporary basis) over any or all of the Company's or its subsidiaries
assets or revenues.
9.9 All financial statements of the Company and its subsidiaries delivered
to the Lenders are complete and correct and fairly present the financial
condition of the Company and its subsidiaries as at the times and for the
periods covered by such statements, in each case in accordance with GAAP,
subject, in the case of any unaudited financial statements, to normal year end
adjustments and any absence of notes. There has not been a material adverse
change in the consolidated financial condition of Company since the date of the
most recent filing of Form 20-F to the SEC.
9.10 There are no actions, suits or proceedings pending or, to the best of
the Company's knowledge, threatened against or affecting the Company or any of
its subsidiaries
14
or the properties of the Company or any of its subsidiaries before any
governmental agency or authority or arbitrator which if determined adversely to
the Company or any such subsidiary would result in a Material Adverse Effect.
9.11 None of the representations or warranties made by the Company in the
Transaction Documents as of the date of such representations and warranties, and
none of the statements contained in any other information with respect to the
Company and its subsidiaries, including each exhibit or report, furnished by or
on behalf of the Company to the Lenders in connection with the Transaction
Documents, contains any untrue statement of a material fact or omits any
material fact required to be stated therein or necessary to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading.
9.12 All of the outstanding Shares have been duly and validly authorized
and issued, in compliance with federal and state securities laws, and fully paid
and nonassessable.
9.13 The Company has not retained any brokers in relation to the subject
transaction of this Agreement, and no brokerage fees are payable in connection
therewith.
9.14 (i) Neither Company nor any of its property has any immunity from
jurisdiction of any court or from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) under the laws of Israel in respect of its obligations under the
Transaction Documents.
(ii) Each Transaction Document executed by Company is in proper
legal form under the laws of Israel for the enforcement thereof against Company
under the law of Israel, and to ensure the legality, validity, enforceability,
priority or admissibility in evidence of such Transaction Document. It is not
necessary to ensure the legality, validity, enforceability, priority or
admissibility in evidence of any Transaction Document executed by Company that
such Transaction Document be filed, registered or recorded with, or executed or
notarized before, any court or other authority in Israel or that any
registration charge or stamp or similar tax be paid on or in respect of such
Transaction Document, except for any such filing, registration or recording, or
execution or notarization, as has been made (or will be made in connection with
the Collateral) or is not required to be made until such Transaction Document or
any other document is sought to be enforced and for any charge or tax as has
been timely paid.
(iii) Other than Israeli stamp tax and withholding tax, there is no
tax, levy, impost, duty, fee, assessment or other governmental charge, or any
deduction or withholding, imposed by any governmental agency or authority in or
of Israel either (A) on or by virtue of the execution or delivery of the
Transaction Documents to which Company is a party or (B) on any payment to be
made by Company pursuant to the Transaction Documents.
9.15 The products currently being sold by the Company do not use any of
the technology developed with funding from the OCS prior to the Diamond
Messaging Project and the Company will not be required to pay royalties to the
OCS from sales of its current products in repayment of such prior funding. The
Company's business as currently contemplated to be conducted does not require
the use of technology developed with funding from the OCS prior to the Diamond
Messaging Product.
10. Representations and Warranties of the Lenders
Each of the Lenders represents and warrants to the Company (with respect
to itself only), as follows:
10.1 This Agreement, when signed, constitutes a legal, valid binding and
enforceable obligation of the Lender.
15
10.2 The Lender possesses the means and resources to fully fund both of
its respective tranches of the Loan, and is not aware of any prohibition or
other restriction that will limit or prevent the Lender from fully meeting its
obligations to the Company hereunder.
10.3 The Lender has such knowledge and experience as to be capable of
evaluating the merits and risks associated with its advance of its portion of
the Loan, it is able to fend for itself and can bear the economic risk relating
to such Loan, including a complete loss and, in relation to a Conversion or
exercise of Warrants, is an "accredited investor" within the meaning of Rule 501
of Regulation D of the Commission, as presently in effect.
10.4 Should the Lender partake in a Conversion or exercise Warrants, it
undertakes to acquire the Shares for investment and for the Lender's own
account, not as a nominee or agent, and not with a view to the resale or
distribution of any part thereof, and the Lender has no present intention of
selling, granting any participation in, or otherwise distributing the same,
provided that nothing in this section shall constitute an agreement by the
Lender to hold or refrain from disposing of the Shares for any amount of time,
provided that any transfer, sale or other disposition of the Shares shall comply
in all respects with the requirements of the Securities Act and similar
provisions of state law. The Lender will have sole voting control over the
Shares for purposes of Section 13(d) of the Exchange Act. The Lender does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to any of the Shares.
10.5 The Lender understands that, except as may occur pursuant to the
rights provided for in Section 7 hereof, the Shares issuable upon Conversion and
exercise of the Warrants have not been, and will not at the time of issuance by
the Company be, registered under the Securities Act by reason of a specific
exemption from the registration provisions of the Securities Act which depends
upon, among other things, the bona fide nature of the investment intent and the
accuracy of the Lender's representations as expressed herein]. The Lender
understands that such Shares are "restricted securities" under applicable U.S.
federal and state securities laws and regulations, and that pursuant to these
laws, the Lender must hold the Shares indefinitely unless they are registered
with the Commission and qualified by necessary state authorities or an exemption
from such registration and qualification requirements is available. The Lender
further acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Shares and
requirements relating to the Company which are outside of the Lender's control
and which the Company is under no obligation, except as set forth herein, to
satisfy.
10.6 The Lender acknowledges that, without derogating from the liability
of the Company under Section 9 above, (i) it has been furnished with all
materials relating to the business, finances and operations of the Company and
materials relating to the issuance of Shares to the Lender hereunder which have
been requested by the Lender; (ii) it has been afforded the opportunity to ask
questions of the Company; (iii) it has sought such accounting, legal and tax
advice as it has considered necessary to make an informed decision with respect
to its potential acquisition of the Shares; (iv) it understands that it (and not
the Company) shall be responsible for its own tax liabilities that may arise as
a result of the transactions contemplated by this Agreement; (v) it has had
access to the Company's Annual Report on Form 20-F for the year ended December
31, 2001 as amended by Amendment No. 1 thereto, and with such Reports on Form
6-K as filed by the Company with the SEC; and (vi) it understands that the Loan
may be considered as a high-risk venture, and the Lender nevertheless has
voluntarily agreed to consummate this transaction.
16
10.7 The Lender has had appropriate opportunities to discuss and review
the Company's business with Company representatives and perform extensive due
diligence.
10.8 The Lender has not retained any brokers in relation to the subject
transaction of this Agreement.
11. Additional Covenants of the Company
Until repayment of the Loan (together with all accrued interest) to, or
Conversion by, a Lender Majority, the Company undertakes the following:
11.1 not to pay any dividends or make any distribution on outstanding
Shares;
11.2 not to grant new bonuses or other new incentive based compensation to
officers or directors other than in good faith and in the ordinary course of
business;
11.3 not to redeem any Shares for consideration without the prior written
consent of the Lender Majority;
11.4 to provide the Lenders with quarterly financial statements within
forty-five (45) days of the end of each calendar quarter and annual financial
statements within one hundred and twenty (120) days of the end of each calendar
year; provided that in the event the U.S. Securities and Exchange Commission
shall shorten at any time the periods within which annual and quarterly reports
must be publicly filed, the period specified herein shall be correspondingly
shortened. The annual financial statements may be provided by way of a link to
the relevant website page of the SEC containing such document;
11.5 not to alter the capital structure of the Company or permit any
corporate reorganization and/or disposal of assets outside the ordinary course
of business, except as may be determined by vote of the Board and shareholders
of the Company and, with respect to the issuance to third parties of preferred
shares or other preferential liquidation rights in the Company, not to issue
same without Lender Majority approval;
11.6 if the Loan is not repaid in full or the subject of Conversion by a
Lender Majority by the third anniversary of the First Closing, then, (unless the
Lender Majority, acting reasonably, ascertains that the Company has sufficient
funds to repay the Loan at the end of the term), if requested by the Lender
Majority, to appoint within fifteen (15) business days an investment banking
firm, such firm to be approved by the Lender Majority, to search for alternative
transactions, including the sale of the Company, to retire the outstanding Loan
Amount and accrued interest thereon;
11.7 not to create any security interests on indebtedness that will rank
prior to the Loan and the security interest granted under the Debenture, unless
first approved in writing by the Lender Majority;
11.8 that it will and will cause each of its subsidiaries to, maintain and
preserve its legal existence, its rights to transact business and all other
rights, franchises and privileges necessary or desirable in the normal course of
its business and operations and the ownership of its properties; and that it
will not, and will not permit any of its subsidiaries to, pledge or otherwise
dispose of any assets of the Company or any of its subsidiaries, other than in
the ordinary course of business or as otherwise provided for in this Agreement,
and provided that any pledge is pari passu or junior to the secured interests of
the Lenders hereunder;
11.9 that it will maintain all authorizations, consents, approvals,
licenses, exemptions of, or filings or registrations with, any governmental
agency or authority, or
17
approvals or consents of any other Person, of or in Israel required in
connection with the Transaction Documents;
11.10 subject to applicable restrictions of the SEC, that it will at any
reasonable time and from time to time permit an independent accounting firm
appointed by Lenders to visit and inspect any of the properties of the Company
and its subsidiaries and to examine the records and books of account of the
Company and its subsidiaries, and to discuss the business affairs, finances and
accounts of the Company and any such subsidiary with any of the officers,
employees or accountants of the Company or such subsidiary;
11.11 that it will not, and will not permit any of its subsidiaries to,
engage in any material line of business substantially different from those lines
of business carried on by it at the date hereof;
11.12 will not, and will not permit any of its subsidiaries to, merge with
or consolidate into, or acquire all or substantially all of the assets of, any
entity;
11.13 may only obtain additional funding from the OCS, which together with
the existing obligation to the repay grants to the OCS, will not exceed
US$1,500,000, provided that the terms of such additional funding are no less
onerous on the Company than the terms of its existing active project; and
11.13 that the Lender Majority shall be entitled to one (1) non-voting
observer (the "Observer") at meetings of the Board of Directors (the "Board").
The Observer shall have the right to attend and speak at all meetings of the
Board of Directors. The Observer will be entitled to receive notice and all
written materials and other information given to directors in connection with
such meetings (or resolutions in lieu of meetings) at the same time as such
notice and those materials or information are given to the Board members. The
Observer will be able to disclose to the Lenders materials received pertinent to
the ability of the Company to repay the Loan, or to the advisability of
conversion, subject to the Company being in compliance with all applicable laws
and regulations, and further provided that reasonable terms for the maintenance
of confidentiality are secured in advance. The Observer shall, at all times,
comply with the Company's applicable internal policies, including its xxxxxxx
xxxxxxx policy.
12. Taxes
All payments under this Agreement, the Notes or any related document, instrument
or agreement (the "Transaction Documents") shall be made in freely transferable
U.S. dollars ("Dollars") and free and clear of and without deduction for any
present and future taxes or charges whatsoever ("Taxes"). Company agrees all
such Taxes imposed on any payment made under the Transaction Documents shall be
for the exclusive account of Company and Company shall directly pay or cause
such Taxes to be paid directly to the appropriate governmental authority. If at
any time Company is required by law or is otherwise compelled to withhold or
deduct any such Taxes from any payment to be made by Company in respect of any
Transaction Document, Company shall increase the amount paid so that Lenders and
the Collateral Agent receive when due (and each is entitled to retain), after
deduction or withholding for or on account of such Taxes (including deductions
or withholdings applicable to additional sums payable under this paragraph), the
full amount of the payment provided for in the Transaction Documents. Company
further agrees to pay any present or future stamp or documentary taxes or any
other excise or property taxes, charges or similar levies and any notarial fees
that any governmental agencies or authorities of or in Israel ("Israel") may
impose on the Transaction Documents, including any stamp taxes or any other
similar taxes which may be required in Israel for enforcement purposes or any
stamp tax due upon issuance of the shares underlying the Promissory Notes and
Warrants (the "Other Charges").
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Company hereby indemnifies and holds each Lender and the Collateral Agent
harmless for any and all payments made by any Lender or the Collateral Agent of
any Taxes and Other Charges and for any liabilities (including penalties,
interest, legal costs and expenses) incurred by any Lender or the Collateral
Agent or which may be imposed on any Lender or the Collateral Agent in
connection therewith or any delays in their payment. Company shall promptly
provide the Lenders with original tax receipts, notarized copies of tax
receipts, or such other documentation as any Lender shall reasonably request,
for all Taxes and Other Charges paid by Company pursuant hereto.
13. Notices
All notices and other communications required or permitted hereunder to be
given to a party to the Agreement shall be in writing and shall be faxed or
mailed by registered or certified mail, postage prepaid, or otherwise delivered
by hand or by messenger, addressed to such party's address as first set forth
above with respect to the Company or as set forth in Exhibit "A" with respect to
the Lenders, or at such other address as the party shall have furnished to each
other party in writing in accordance with this provision. Any notice sent in
accordance with this Section 16 shall be effective (i) if mailed, by registered
mail seven (7) business days after mailing, and (ii) if faxed or sent by
messenger, upon delivery.
14. Miscellaneous
14.1 The Company and each Lender will each bear its own expenses with
respect to the Closing of the transaction described under this Agreement.
However, whether or not the transaction is completed (provided that the failure
to complete the transaction is not due solely to the actions/inactions of
Lenders or any one of them), the Company will promptly upon request therefore by
the Lender Majority, pay to the Lenders all the reasonable fees and expenses of
advisors to the Lenders (estimated for both tranches, to be approximately
US$25,000 in total). The fees and expenses shall be deducted from the tranches
of the Loan Amount. The Lenders agree to make good faith efforts to cause their
advisors to maintain their fees within the above estimation. The Company agrees
to pay on demand: (i) the reasonable out-of-pocket costs and expenses of the
Lenders, the Collateral Agent and any of their affiliates, and the reasonable
fees and disbursements of counsel to the Lenders and the Collateral Agent, in
connection with any amendments, modifications or waivers of the terms hereof;
(ii) all audit, consulting, appraisal, search, recording, filing and similar
costs, fees and expenses incurred or sustained by any Lender, the Collateral
Agent or any of their affiliates in connection with the Transaction Documents or
the Collateral; and (iii) all costs and expenses of the Lenders, the Collateral
Agent and their Affiliates, and fees and disbursements of counsel, in connection
with the enforcement or attempted enforcement of, and preservation of any rights
or interests under, the Transaction Documents, any out-of-court workout or other
refinancing or restructuring or any bankruptcy or insolvency case or proceeding,
and the preservation of and realization upon any of the Collateral.
14.2 If at any time there shall be a recapitalization of the share capital
of the Company, such as a combination of shares, share split, issuance of bonus
shares or any other similar transaction (a "Recapitalization Event"), the
appropriate adjustments shall be made to the number of Shares into which the
Loan may be converted into and all the other necessary changes shall be deemed
made to the provisions of this Agreement with respect to the rights of the
Lenders pursuant to such Recapitalization Event.
14.3 The Company agrees that until the First Closing it, its directors,
officers and senior employees, and their respective advisors, shall not solicit,
continue to negotiate or sign an agreement with any person pertaining to the
raising of funds by Company, pursuant to a loan or sale of shares or assets or
the merger, amalgamation or other form of business
19
combination or material transaction with or involving Company or any of its
Shares or assets, other than as contemplated by this transaction.
14.4 This Agreement constitutes the entire agreement of the parties with
respect to the subject matter hereof. This Agreement may not be modified or
amended except by a written agreement signed by the parties hereto (a Lender
Majority being sufficient to bind all Lenders). This Agreement shall not be
assigned or transferred by a party, without the prior written consent of the
other parties (a Lender Majority being sufficient to bind all Lenders),
provided, however, that any Lender may assign this Agreement to a Permitted
Transferee. This Agreement shall for all purposes be governed by, and construed
in accordance with the laws of the State of California (without reference to its
conflict of laws principles) and the competent U.S. federal and state courts in
and of Santa Xxxxx County, California, shall have non-exclusive jurisdiction
over any dispute hereunder. In addition to the foregoing jurisdiction, the
Lenders, at their sole option, may commence any suit to enforce their rights
hereunder in any jurisdiction in which the Company has a principal business
office. The provisions of this Agreement are severable and if any one provision
hereof shall be held invalid or unenforceable in whole or in part in any
jurisdiction, such invalidity or unenforceability shall affect only such
provision in such jurisdiction. THE COMPANY AND THE LENDERS EACH WAIVE THEIR
RESPECTIVE RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER TRANSACTION DOCUMENTS,
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR
OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER
PARTY OR PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR
OTHERWISE. THE COMPANY AND THE LENDERS EACH AGREE THAT ANY SUCH CLAIM OR CAUSE
OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER TRANSACTION DOCUMENTS OR ANY
PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT
AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE
OTHER TRANSACTION DOCUMENTS
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS AGREEMENT AS OF THE DATE
FIRST SET OUT ABOVE.
COMMTOUCH SOFTWARE LTD.
By: __________________ By: ________________
Title: _______________ Title:______________
LENDERS:
AxcessNet Resources LLC
By: __________________________
Title: _________________________
20
Xxxx Xxxxx
By: ____________________________
Title: _________________________
Compugen Systems Ltd.
By: ____________________________
Title: _________________________
Delta Capital Investments Ltd.
By: ____________________________
Title: _________________________
KKB Ventures LLC
By: ____________________________
Title: _________________________
XDL Capital Corp.
By: ____________________________
Title: _________________________
Xxxxxx X. Xxxxxxx
By: ____________________________
Title: _________________________
LENE L.P.
By: ____________________________
Title: _________________________
Xxxx Xxxxxxxxx
By: ____________________________
Title: _________________________
Acknowledged and Agreed:
COLLATERAL AGENT:
XDL Capital Corp.
By: ____________________________
Title: _________________________
21
EXHIBIT "A"
First Tranche Second Tranche
Lenders' Names and Addresses Loan Amount Loan Amount
---------------------------- ------------- --------------
AxcessNet Resources LLC. $44,000 $66,000
0000 Xxxxxx Xxxxxx (Xxxxx 0000),
Xxxxxxx XX 00000
Xxxx Xxxxx $40,000 $60,000
000 Xxxxxxxxx Xxxxxx
Xxxxxxx, Xxxxxxx
X0X 0X0
Compugen Systems Ltd. $50,000 $75,000
00 Xxxx Xxxxxxxx
Xxxxxxxx Xxxx, XX Xxxxxx X0X 0X0
Delta Capital Investments Ltd. $20,000 $30,000
00-00 Xxxxxxx Xxx
Xxxxxx, XX0X0XX
Attn: Xxxxx Teacher
KKB Ventures LLC $100,000 $150,000
Attn: Xxx Xxxxx
000 Xxxxxxxxxxx Xx. Xxxxxxx, Xx. 00000
22
XDL Capital Corp. $50,000 $75,000
00 Xx. Xxxxx Xxxxxx Xxxx, Xxx. 000,
Xxxxxxx, X0X 0X0
Attn: Xxxxx Xxxxxx, ASO & Xxxxxx Xxxxxx
Xxxxxx X. Xxxxxxx $30,000 $45,000
Xxxxx Xxxxxxx Professor of the
Management of Technology
MIT Xxxxx School of Management
000 Xxxxxxxx Xx.
Xxxxxx, XX 00000
LENE L.P. $20,000 $30,000
c/o Xxxxx X. Xxxxxxx, General Partner
000 X. Xxxxxxxx Xxx.
Xxxxxxx, XX 00000
Xxxx Xxxxxxxxx $8,000 $12,000
00000 Xxxx xxxx
Xxxxxxxxx, XX 00000
23
EXHIBIT "B"
Form of Promissory Note
CONVERTIBLE PROMISSORY NOTE
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED, OR ANY OTHER APPLICABLE SECURITIES LAWS AND MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED UNDER CIRCUMSTANCES THAT WOULD RESULT IN A
VIOLATION OF SUCH LAWS. THIS NOTE IS SUBJECT TO FURTHER RESTRICTIONS ON TRANSFER
AS SET FORTH IN THIS NOTE.
1. Promise to Pay.
FOR VALUE RECEIVED, the undersigned, Commtouch Software Ltd., an Israeli
company (the "Company"), subject to the earlier conversion of the Loan (as
defined below) in accordance with the provisions of Section 3 below, promises to
pay in lawful money of the United States of America to the order of __________
("Lender"), at (ADDRESS), or such other place as Lender may designate in writing
from time to time, the principal sum of _________ Dollars ($________) (the
"Principal Amount", together with interest accrued thereon, the "Loan"), with
interest from the date hereof on the unpaid principal balance at the rate set
forth below, on the earlier to occur of the Repayment Date (defined in Section
4.1 below) or an Event of Default (defined in Section 4.1 below). This Note is
issued in connection with the Convertible Loan Agreement dated _______, 2002,
between the Company, the Lender and certain other lenders (the "Loan
Agreement"). This Promissory Note is one of the Promissory Notes referred to as
"Promissory Notes" in the Loan Agreement.
2. Interest.
Interest shall accrue on the unpaid principal balance at a rate of ten
percent (10%) per annum, compounded annually ("Initial Interest"). Interest
payments shall be calculated annually in arrears at the end of each calendar
year. In the event that the Principal Amount is not paid in full when such
amount becomes due in accordance with this Note, interest at the rate of the
Initial Interest plus eight percent (8%) shall continue to accrue on the balance
of any unpaid portion of the Principal Amount until such balance is paid.
3. Conversion.
3.1 The Lender has the right, at the Lender's option, at any time, to
convert all but not less than all of the Loan ("Conversion") into shares in the
Company having identical rights to the then most senior shares in the Company
(if there shall be more than one class of shares at any time of Conversion)
together with all rights provided by the Company to purchasers of such shares,
by contract or otherwise ("Shares"). The number of Shares into which the Loan
may be converted shall be determined by dividing the Loan by a price equal to
US$0.25 cents per share (the "Conversion Price").
3.2 In order to effect a Conversion the Lender shall provide the Company
with written notice (the "Conversion Notice") of its election to convert the
Loan pursuant to Section 3.1 above. As soon as practicable after receipt of the
Conversion Notice, the Company shall report the issuance of shares to the
Israeli Registrar of Companies, shall update its Shareholders Registry and shall
issue a certificate in the name of the Lender for such class and number of
shares to which the Lender shall be entitled hereunder. No fractional shares
shall be issued. In lieu of the Company issuing any fractional shares to the
Lender,
24
upon the Conversion hereunder, the Company shall pay to the Lender the balance
of the Loan that is not so converted. Conversion shall be deemed to have been
made immediately prior to the close of business on the date of receipt by the
Company of the Conversion Notice, and Lender shall be treated for all purposes
as the record holder or holders of such Shares as of such date. The election of
the Lender to effect a Conversion immediately prior to the closing of a Sale (as
defined below), may be made conditional upon the closing of such Sale.
3.3 Upon Conversion, the Company's obligation of repayment hereunder shall
automatically be deemed null and void concurrently with such Conversion.
4. Payments and Term.
4.1 Without derogating from the provisions hereunder relating to Default
and Conversion and the provisions of Section 8 of the Loan Agreement, the Loan
shall be immediately repayable upon the occurrence of the earlier of the
following events: (a) a merger of the Company or sale of all or substantially
all of the shares or assets of the Company (unless the Lender elects to perform
a Conversion) (a "Sale"), or (b) the third anniversary of receipt of the
Principal Amount by the Company (the earlier to occur of the aforesaid, the
"Repayment Date"). The Company shall provide ten (10) business days notice prior
to any repayment, during which time the Lender may elect to perform a
Conversion.
4.2 Should there occur a Conversion with respect to the amounts owing
hereunder, this Promissory Note and the Company's obligation of repayment
hereunder shall automatically be deemed null and void concurrent with the
Conversion.
4.3 All payments hereunder shall be applied (i) first to any fees,
expenses or other amounts reasonably incurred by and due to Lender or the
Collateral Agent in accordance with this Promissory Note or any other
Transaction Document in case of a Default, (ii) next to any accrued and unpaid
interest, and (iii) lastly to the outstanding Principal Amount.
4.4 If the shares of the Company have traded for 60 Trading Days (as
defined in the Loan Agreement), at a price of US$1.50 per share or higher, with
an average trading volume of 100,000 shares per Trading Day, (subject to any
Recapitalization Event, as defined below), then the Company may provide the
Lender with written notice requesting the Lender to accept repayment or convert
the Loan (the "Company Request"). The Company Request shall offer to repay the
Loan in full in to the Lender, twenty-one (21) days after the Company Request is
delivered ("Action Date"). If, prior to the Action Date, the Lender does not
deliver to the Company (i) a written notice requesting repayment of the Loan in
full, or (ii) a Conversion Notice, then the amount of the Loan then outstanding
under this Promissory Note shall automatically become an interest free,
non-convertible loan repayable at the time set forth in Section 4.1 or 6 of this
Promissory Note, and shall cease to be a secured loan on the date 12 months
after the date of the Company Request.
5. Restrictions on Transfer.
Without derogating from the rights of the Collateral Agent under the
Debenture and other Transaction Documents (such capitalized terms, as defined in
the Loan Agreement), this Promissory Note and the rights of the Lender and
obligations of the Company hereunder shall be non-assignable and
non-transferable, and this Promissory Note shall be considered a non-negotiable
instrument. Any attempt to transfer or assign this Promissory Note shall be
void. Notwithstanding the aforesaid, the Lender may assign this Promissory Note
to any entities controlled by, controlling or under common control with such
Lender or if the Lender is a partnership, any partners, former partners or
affiliated partnerships managed by the same manager or managing partner or
management company, or managed by an entity controlling,
25
controlled by, or under common control with, such manager or managing partner or
management company.
6. Default.
6.1 Subject to prior Conversion in accordance with Section 3.1 hereof, and
unless agreed otherwise by the Lender Majority, the Loan shall immediately
become due and payable upon the occurrence of any of the following events, each
of which shall each be deemed an "Event of Default":
a. Failure of the Company to repay the Loan or any portion thereof on the
Repayment Date, or within fourteen (14) days following receipt of a written
notice from the Lender advising of a failure to make a timely payment.
b. Failure of the Company to make in a timely manner any payment on a loan
or debt ranking in priority to, or parri passu with, the Loan, or the triggering
of any event of default in any loan arrangement ranking in priority to, or parri
passu with, the Loan.
c. If any material representation, warranty or certification made herein
or any document furnished or signed in connection hereto shall prove to be at
any time materially untrue, except to the extent that such material
representation, warranty or certification is expressly limited in time and the
falsity thereof arises subsequent to the time limitation.
d. If the cash reserves of the Company (based on its consolidated
financial statements), at any time following Closing and prior to the Repayment
Date fall below an amount equal to the lesser of (i) $500,000 or (ii) if less
than the maximum Loan Amount is provided to the Company as described in Section
3.1 of the Loan Agreement, an amount determined by multiplying $500,000 by a
fraction, the numerator of which is the Loan Amount actually funded by the
Lenders and the denominator of which is the maximum possible Loan Amount under
the Loan Agreement ; provided, however, that the Company shall be allowed
fourteen (14) days within which to bring the cash reserve back above the
applicable amount. This sub-section (d) shall be null and void if the second
tranche is not funded by the Lenders.
e. Any admission in writing to the Lender by the Company of the Company's
inability to pay Company's debts as they become due or any inability to pay its
debts generally as they mature.
f. The filing by or against the Company of any action in bankruptcy,
insolvency, winding up, dissolution, liquidation, moratorium, receivership or
reorganization for the benefit of creditors, which (in the case of an
involuntary action) has not been withdrawn or dismissed within ninety (90) days
of its filing or an effective resolution is passed by the Company for any such
action.
g. Any material breach by the Company of the Loan Agreement, the Debenture
or this Promissory Note, or any other Transaction Document, which is not cured
by the Company within 30 days of occurrence.
h. The commencement of a proceeding to foreclose a security interest or
lien in any property or assets of the Company upon default in the payment or
performance of any debt of the Company, in excess of $250,000 which is secured
thereby.
i. The entry against the Company of a final judgment for the payment of
money in excess of $250,000 by a court of competent jurisdiction, which judgment
shall not be
26
discharged (or the discharge thereof not duly provided for) in accordance with
its terms within thirty (30) days of the date of entry thereof, or a stay of
execution thereof procured within thirty (30) days from the date of entry
thereof and, within such period (or such longer period during which execution of
such judgment shall have been effectively stayed) an appeal therefrom shall not
have been prosecuted and the execution thereof caused to be stayed during such
appeal.
j. An attachment shall have been levied against the assets of the Company
involving an amount in excess of $250,000 and such levy is not vacated, bonded
or otherwise terminated within thirty (30) days after the date of the
effectiveness of the levy.
6.2 The Company shall notify the Lender in writing within 48 hours of
receiving notification or otherwise becoming aware of any Event of Default.
6.3 For the purpose of this Section 6, the term Company shall be deemed to
refer to the Company and any subsidiary thereof, provided that such subsidiary
possesses assets of a material nature in comparison to the assets of the
Company.
7. Waiver of Presentment, Etc.
The Company hereby waives presentment and demand for payment, notice of
dishonor, protest and notice of protest.
8. Charges.
Interest, fees and charges collected or to be collected in connection with
the indebtedness evidenced hereby shall not exceed the maximum, if any,
permitted by any applicable law. If any term of this Promissory Note is
interpreted so that said interest, fees and/or charges would exceed any such
maximum and the Company is entitled to the benefit of such law, then: (i) such
interest, fees and/or charges shall be reduced by the amount necessary to reduce
the same to the permitted maximum; and (ii) any sums already collected from the
Company which exceeded the permitted maximum will be refunded. Lender may choose
to make the refund either by treating the payments, to the extent of the excess,
as prepayments of principal or by making a direct payment to the Company. No
prepayment premium shall be assessed on prepayments under this paragraph. The
provisions of this paragraph shall control over any inconsistent provision of
this Promissory Note or any other document executed in connection with the
indebtedness evidenced hereby.
9. Recapitalization The maximum number of Shares issuable upon Conversion shall
be adjusted if any of the following events occur before Conversion (each of the
following, a "Recapitalization Event"):
9.1 Distributions, Share Dividends and Splits.
a. In case the Company declares a dividend (whether ordinary or
extraordinary) or other distribution payable in Ordinary Shares or subdivides
its Ordinary Shares into a greater number of Ordinary Shares, the Conversion
Price in effect immediately prior to such declaration or subdivision shall be
proportionately decreased and the number and kind of Shares to be issued upon
Conversion shall be adjusted so that the Lender shall be entitled to receive the
kind and number of shares or the other securities of the Company that the Lender
would have owned or have been entitled to receive after the happening of any of
the events described in this paragraph (a)(i) had the Shares been issued
immediately prior to the happening of such event or any record date with respect
thereto.
27
b. An adjustment made pursuant to this Section 9.1 shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become immediately effective after the effective date in
the case of a subdivision. If, as a result of an adjustment made pursuant to
this Section 9.1, the holder after exercise shall become entitled to receive
shares of two or more classes of the Company's share capital or Ordinary Shares
and any other class of the Company's share capital, the Board of Directors of
the Company (whose determination shall be conclusive and shall be described in a
written notice to the holder promptly after such adjustment) shall determine the
allocation of the adjusted Conversion Price between or among shares of such
classes of the Company's share capital or Ordinary Shares and such other classes
of the Company's share capital.
c. In the case of any adjustment in the number of Shares receivable
upon Conversion, the chief financial officer of the Company shall promptly
thereafter compute such adjustment in accordance with the terms hereof and
prepare a certificate setting forth such adjustment and showing in detail the
facts upon which such adjustment is based. The Company will provide copies of
such certificate to Lender in the manner provided for notices hereunder.
9.2 Record Date. In case the Company shall take a record of the holders of
its Ordinary Shares for the purpose of determining holders entitled to receive a
dividend or other distribution payable in Ordinary Shares, then such record date
shall be considered to be the date of the issue or sale of the Ordinary Shares
related to such dividend or distribution.
9.3 Stock Combinations. In case the Company shall combine all of the
outstanding Ordinary Shares into a smaller number of Ordinary Shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased and the number of Shares shall be proportionately
decreased.
9.4 Fractional Shares. No fractional Shares shall be issued upon
Conversion. Upon Conversion, Lender shall be entitled to receive the aggregate
full number of Shares which Lender may receive upon Conversion.
9.5 The adjustment to the number of Ordinary Shares issuable upon
Conversion and the adjustments to the Conversion Price described in this Section
9 shall be made each time any event listed in this Section 9 occurs.
9.6 If any event occurs of the type contemplated by the provisions of this
Section 9, but not expressly provided for by such provisions or definition, then
the Company's Board of Directors in its reasonable judgment shall make an
appropriate adjustment in the number of Shares obtainable upon Conversion so as
to protect the rights of the Lender.
10. Governing Law and Jurisdiction.
This note shall be construed, enforced and otherwise governed by the laws
of the State of California, and U.S. federal and state courts in and of Santa
Xxxxx County, California shall have non-exclusive jurisdiction to hear any
matter arising hereunder. Notwithstanding the aforementioned, matters that may
relate to the dissolution or other disposition of the Company and its assets,
the realization of any security interests in Israel, and companies law, shall be
governed by the laws of the State of Israel.
11. Notices.
All notices and other communications required or permitted hereunder to be
given to a party hereto shall be in writing and shall be faxed or mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, addressed to such party's
28
address as first set forth above, or at such other address as the party shall
have furnished to each other party in writing in accordance with this provision.
Any notice sent in accordance with this Section 11 shall be effective (i) if
mailed, by registered mail seven (7) business days after mailing and (ii) if
faxed sent by messenger, upon delivery.
12. Amendment and Waiver.
The observance of any term hereunder may be waived only by a writing
signed by the party to be bound thereby. The waiver by the Lender of any default
or breach shall not be deemed to constitute a waiver of any other such default
or any succeeding breach or default. No delay on the part of the Lender in
exercising any right hereunder shall operate as a waiver of such right or any
other right. No provision of this Promissory Note shall be modified without the
written consent of the Company and the majority in interest of the Lenders under
the Loan Agreement. Any amendment or waiver effected in accordance with this
Section 12 shall be binding upon the Company, the holders of all outstanding
Promissory Notes and each transferee of the Promissory Notes.
13. Lender.
As used herein, the term "Lender" shall mean the holder and owner of this
Promissory Note.
Commtouch Software Ltd.
By:____________________
Name: _________________
Title:_________________
Lender
By:____________________
Name: _________________
Title:_________________
EXHIBIT "C"
Form of Debenture
UNLIMITED DEBENTURE
(Floating Charge)
This Debenture is made on January 29, 2003 between Commtouch Software Ltd.
("Company") of 0X Xxxxxxxx Xx., Xxxxxxx Xxxxxx and XDL Capital Corp. of 00 Xx.
Xxxxx Xxxxxx Xxxx, 0xx Xxxxx, Xxxxxxx, X0X 0X0. In order to secure the Company's
obligations under the Convertible Loan Agreement dated as of January 29, 2003,
(the "Convertible Loan Agreement"), and each of the Convertible Promissory Notes
issued to each of the parties set forth in Exhibit A hereto (the "Lenders" or
"Note Holders") the Company grants XDL Capital Corp. (as collateral agent on
behalf of the Note Holders), (the "Collateral Agent") a security interest in the
Collateral as defined hereinbelow. Capitalized terms not otherwise defined
herein shall have the meaning ascribed to them in the Promissory Notes.
1. As security for the timely repayment of the amounts due under the Convertible
Loan Agreement and each Promissory Note, including interest accumulating thereon
and costs and expenses associated with collection actions due to an Event of
Default, the Company hereby grants the Collateral Agent a continuing first
priority floating charge on and to, all the Collateral (defined in Section 2
below) (the "Floating Charge"), and agrees that the Collateral Agent and the
Lenders shall have the rights stated in this Debenture with respect to the
Collateral, in addition to all other rights which Collateral Agent or the
Lenders may have by law. The amount being secured under the Floating Charge is
unlimited in amount.
1A. The Collateral Agent undertakes and confirms that: (a) it is aware that the
creation and realization of the Floating Charge will be performed in accordance
with the laws of the State of Israel and registered at the Registrar of
Companies in Israel; (b) in the event that the Floating Charge (with respect to
the technology and intellectual property developed with assistance from the
Office of the Chief Scientist of the Ministry of Industry and Trade (the
"Know-How")) will be realized, the sale, assignment and/or transfer of the
Know-How in the course of the procedures for the realization of the Floating
Charge, including in the event that the acquiror of the Know-How is the
Collateral Agent itself, is subject to the approval of the Research Committee
(as defined in Law for the Encouragement of Industrial Research and Development,
5744-1984 (as amended) (the "R&D Law")); and (c) the sale, assignment and/or
transfer of the Know-How in the course of the procedures for the realization of
the Floating Charge will be conditional upon the recipient of Know-How accepting
upon itself the obligations under the R&D Law.
2. The "Collateral" means all Company's present and future right, title and
interest in and to all of the assets of the Company, including, but not limited
to the items described in Exhibit B attached hereto
3. Upon request of the Collateral Agent, the Company shall take all steps deemed
necessary or desirable by the Collateral Agent, to assist the Collateral Agent
in perfecting the registration of the Floating Charge with the Registrar of
Companies, in the priority noted in s.1 above, and shall bear all stamp tax with
respect to such registration.. In addition, upon request of the Collateral
Agent, the Company will promptly make, execute, deliver, record, register and
file all such financing statements, continuation statements and amendments
thereto, and other instruments, acts, pledges, assignments and transfers to
perfect and continue the Collateral Agent's security interest in the Collateral
(or cause the same to be executed) both in the State of Israel and California.
4. Except as expressly permitted by this Section 4 the Company shall not
mortgage, pledge, charge or otherwise encumber the Collateral or any part
thereof in any manner
2
whatsoever whereby the rights thereunder shall rank prior or subsequent to, or
parri passu with, the rights of the Collateral Agent and the Collateral Agent
under this Debenture without the prior written consent of the Collateral Agent.
Notwithstanding the aforesaid, the Collateral Agent agrees to provide its
consent with respect to the subsequent registration security interests on the
Collateral junior to or pari passu with its own.
5. The Company, upon request of the Collateral Agent, will deliver to the
Collateral Agent a schedule of Collateral locations. The Company shall keep the
Collateral (or to the extent the Collateral consists of intangible property such
as accounts, the records concerning the Collateral) at the Company's address
shown above, or at such other locations as are utilized by the Company in the
ordinary course of business. Except in the ordinary course of its business,
including the sale of used equipment for which the Company has no current need,
the Company shall maintain the Collateral at its existing locations.
6. Except for the sale of used equipment as noted above and accounts collected
or other transactions in the ordinary course of the Company's business, the
Company shall not sell, offer to sell, or otherwise transfer, convey, encumber,
mortgage, pledge or dispose of the Collateral.
7. The Company will maintain the Collateral in good order and repair (reasonable
wear and tear excepted), and the Company will pay all taxes, liens and
assessments when due, except for liens of property taxes not yet due and payable
and except for the payment of any taxes or other claims which are being
contested in good faith by the Company. Furthermore, the Company will continue
to maintain its current insurance policies that provide coverage on the
Collateral, and renew such policies in a timely manner throughout the term of
the security interest granted herein.
8. A representative of Collateral Agent, to be approved by the Company, such
approval not to be unreasonably withheld or delayed, shall be entitled to
examine, inspect and audit the Collateral wherever located, at reasonable times
and upon the providing of reasonable advance notice to the Company.
9. If not discharged or paid when due, the Collateral Agent may (but shall not
be obligated to) discharge or pay any amounts required to be discharged or paid
by the Company under this Debenture, including without limitation, all taxes,
liens, security interests, encumbrances and other claims, at any time levied or
placed on the Collateral. The Collateral Agent also may (but shall not be
obligated to) pay all costs for insuring, maintaining and preserving the
Collateral. All such expenditures incurred or paid by the Collateral Agent for
such purposes will then bear interest at the rate of ten percent (10%) per annum
from the date incurred or paid by the Collateral Agent to the date of repayment
by the Company. All such expenses shall become a part of the obligations secured
by the security interest granted herein and, at the Collateral Agent's option,
will be payable on demand. Such right shall be in addition to all other rights
and remedies to which the Collateral Agent may be entitled upon the occurrence
of an Event of Default.
10. The security interests set forth in this Debenture and in respect of all
other Collateral shall automatically terminate and be deleted from all registers
in their entirety upon (i) repayment of the Loan under each Promissory Note in
full, or (ii) Conversion by all Note Holders or (iii) (if a Lender declines to
convert or be repaid upon an event as defined in section 4.4 of the Promissory
Note), the expiry of 12 months from the date of the request to convert or be
repaid, by the Company to the declining Lender. The Collateral Agent grants the
Company an irrevocable power of attorney to execute all documents, on Collateral
Agent's behalf, required to cancel registration of the security interests upon
occurrence of the foregoing events.
3
11. Provided that no Event of Default occurs, the Company shall continue to
enjoy possession and lawful use of the Collateral, as may be necessary in the
ordinary course of the Company's business.
12. Upon the occurrence of an Event of Default prior to Conversion by a Lender
Majority, the Collateral Agent shall have all rights of a secured party under
applicable law with the security interest granted hereunder, in addition to all
other rights and remedies including, without limitation, the following:
a. The Lenders may declare all relevant Promissory Notes' obligations
immediately due and payable, without notice or demand of any kind or nature.
b. The Lender Majority may seek court order for the exercise of the
Floating Charge and appoint a receiver (the "Receiver") to the Collateral.
c. The Receiver may require the Company to deliver to him all or any
portion of the Collateral and any and all certificates of title and other
documents relating to the Collateral. The Receiver may require the Company to
assemble, at the Company's expense, the Collateral and make it available to the
Receiver at a time and place to be designated by the Receiver. The Receiver may
require the Company to allow him to enter any premises within the Company's
control in order to take possession and remove the Collateral.
d. Subject to applicable law, the Receiver shall have full power to sell,
lease, transfer or otherwise deal with the Collateral or proceeds thereof in its
own name or in the name of the Company. Each purchaser at any sale of the
Collateral shall hold the property sold absolutely free from any claim or right
on the part of the Company. The Receiver may sell the Collateral at public
auction or private sale, in entirety or in separate parcels, as approved by a
court of competent jurisdiction. The Receiver may, without notice or
publication, adjourn a public or private sale of the Collateral, or cause the
same to be adjourned from time to time by announcement, at the time and place
fixed for sale, and such sale may, without further notice, be made at the time
and place to which the same was so adjourned.
e. The Company shall pay all reasonable costs and expenses incurred by the
Collateral Agent or the Lenders in the enforcement or exercise of any of the
Collateral Agent or the Lenders' rights under this Debenture. Such costs
include, without limitation, the expenses of retaking, holding, insuring,
preparing for sale and selling the Collateral; all court costs and such
additional fees as may be directed by the court; and related attorneys' fees and
legal expenses. Such costs shall become a part of the obligations secured by the
security interest granted hereunder and shall be payable promptly upon demand.
f. The Receiver may collect the payments, rents, income and revenues from
the Collateral.
g. If the Receiver chooses to sell any or all of the Collateral, the
Collateral Agent or the Lenders may obtain a judgment against the Company for
any deficiency remaining on the Company's obligations to Lenders hereunder after
application of all amounts received from the exercise of the rights provided in
this Agreement.
13. This Agreement shall be exclusively governed by and construed in accordance
with the laws of the State of Israel. Any disputes arising under or in relation
to this Agreement shall be resolved exclusively by the competent court in
Jerusalem.
14. The Company shall promptly notify the Lenders in writing of any event, which
materially adversely affects the value of the Xxxxxxxxxx.
0
00. Xxxx of the rights, privileges, or obligations set forth in, arising under,
or created by this Agreement may be assigned or transferred by the Company
without the prior consent in writing of the Lenders. This Agreement shall inure
to the benefit of Collateral Agent and the Lenders, their successors, assigns
and representatives and shall bind the Company its successors, assigns and
representatives. Nothing contained herein shall prevent any Collateral Agent
from assigning all or part of its rights hereunder upon prior written notice to
the Company, provided that all of the Collateral Agent's related duties,
obligations and liabilities are also delegated to such assignee; and provided
further that any such assignee shall be deemed to be the "Collateral Agent" for
all purposes under this Agreement.
IN WITNESS WHEREOF, THE PARTIES HAVE EXECUTED THIS DEBENTURE AS OF THE DATE
FIRST SET OUT ABOVE.
COMMTOUCH SOFTWARE LTD.
By: ________________
Title: _____________
XDL CAPITAL CORP.:
Signature: ___________________
By: __________________________
Title: _______________________
5
EXHIBIT A
TO THE DEBENTURE
Note Holders
AxcessNet Resources LLC. Xxxxxx X. Xxxxxxx
0000 Xxxxxx Xxxxxx (Suite 2400), Xxxxx Xxxxxxx Professor of the
Xxxxxxx XX 00000 Management of Technology
MIT Xxxxx School of Management
000 Xxxxxxxx Xx.
Xxxxxx, XX 00000
Xxxx Xxxxx LENE L.P.
000 Xxxxxxxxx Xxxxxx c/o Xxxxx X. Xxxxxxx, General Partner
Toronto, Ontario 000 X. Xxxxxxxx Xxx.
X0X 0X0 Xxxxxxx, XX 00000
Compugen Systems Ltd. Xxxx Xxxxxxxxx
00 Xxxx Xxxxxxxx 00000 Xxxx xxxx
Xxxxxxxx Xxxx, XX Xxxxxx X0X 0X0 Xxxxxxxxx, XX 00000
Delta Capital Investments Ltd.
00-00 Xxxxxxx Xxx
Xxxxxx, XX0X0XX
Attn: Xxxxx Teacher
KKB Ventures LLC
Attn: Xxx Xxxxx
000 Xxxxxxxxxxx Xx. Xxxxxxx,Xx. 00000
XDL Capital Corp.
00 Xx. Xxxxx Xxxxxx Xxxx, 0xx Xxxxx,
Xxxxxxx, X0X 0X0
6
EXHIBIT B
TO THE DEBENTURE
The Collateral consists of all right, title and interest in and to all assets of
the Company, including but not limited to the following:
1. all accounts including, without limitation, all present and future rights of
Company to payment for goods sold or leased or for services rendered, which are
not evidenced by instruments or chattel paper, and whether or not earned by
performance and all rights to payment arising out of the use of a credit or
charge card and all information contained on or for use with any such card and
all records and evidences of credit card transactions (the "Accounts");
2. all present and future contract rights, general intangibles (including, but
not limited to, tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures), chattel paper, documents, instruments, securities and other
investment property, letters of credit, letter of credit rights, commercial tort
claims, payment intangibles, software, supporting obligations, bankers'
acceptances and guaranties;
3. all present and future monies, securities, credit balances, deposits, deposit
accounts and other property of the Company now or hereafter held or received by
or in transit to Collateral Agent, the Lenders or their affiliates or at any
other depository or other institution from or for the account of the Company,
whether for safekeeping, pledge, custody, transmission, collection or otherwise,
and all present and future liens, security interests, rights, remedies, title
and interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (i) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (ii) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienholder or secured party, (iii) goods described in invoices, documents,
contracts or instruments with respect to, or otherwise representing or
evidencing, Accounts or other Collateral, including, without limitation,
returned, repossessed and reclaimed goods, and (iv) deposits by and property of
account debtors or other persons securing the obligations of account debtors;
4. all of the Company's now owned and hereafter existing or acquired raw
materials, work in process, finished goods and all other inventory of whatsoever
kind or nature, wherever located ("Inventory");
5. all of Company's now owned and hereafter acquired equipment, machinery,
computers and computer hardware and software (whether owned or licensed),
vehicles, tools, furniture, fixtures, all attachments, accessions and property
now or hereafter affixed thereto or used in connection therewith, and
substitutions and replacements thereof, wherever located ("Equipment);
6. all of the Company's now owned and hereafter existing or acquired securities,
financial assets, securities accounts, securities entitlements and all other
investment property of whatsoever kind or nature, wherever located, including,
without limitation, securities issued by any subsidiary of the Company
("Investment Property");
7. all of the Company's present and future books of account of every kind or
nature, purchase and sale agreements, invoices, ledger cards, bills of lading
and other shipping evidence, statements, correspondence, memoranda, credit files
and other data relating to the
7
Collateral or any account debtor, together with the tapes, disks, diskettes and
other data and software storage media and devices, file cabinets or containers
in or on which the foregoing are stored (including any rights of the Company
with respect to the foregoing maintained with or by any other person)
("Records"); and
8. all products and proceeds of the foregoing, in any form, including, without
limitation, insurance proceeds and any claims against third parties for loss or
damage to or destruction of any or all of the foregoing.
EXHIBIT "D"
Form of Warrant
Issued _______, 200_
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF ARE SUBJECT TO
RESTRICTIONS ON TRANSFERABILITY SET FORTH HEREIN. "THIS WARRANT AND THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN
RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT. THE COMPANY MAY REQUIRE AN
OPINION OF COUNSEL IN FORM AND SUBSTANCE REASONABLY ACCEPTABLE THAT SUCH
REGISTRATION IS NOT REQUIRED.
THIS WARRANT MAY NOT BE EXERCISED EXCEPT IN COMPLIANCE WITH ALL APPLICABLE
FEDERAL AND STATE SECURITIES LAWS TO THE REASONABLE SATISFACTION OF THE COMPANY
AND LEGAL COUNSEL FOR THE COMPANY.
Void after ________, 200_
COMMTOUCH SOFTWARE LTD.
WARRANT TO PURCHASE UP TO ________ [ORDINARY] SHARES
----------
THIS CERTIFIES THAT, for value received, _____________, a ________ company
("_______" or "Holder"), is entitled at any time prior to expiration of this
Warrant to subscribe for and purchase up to __________ shares of the fully paid
and nonassessable ordinary shares, nominal value NIS 0.05, of Commtouch Software
Ltd., an Israeli company (the "Company"), at the price per share equal to
___________ (such price and such other price as may result, from time to time,
from the adjustments/restrictions specified in paragraph 4 hereof are
collectively referred to herein as the "Warrant Price"), subject to the
provisions and upon the terms and conditions hereinafter set forth. As used
herein, "Shares" shall mean the ordinary shares of the Company; "Warrant Shares"
shall mean the Shares issued or issuable upon exercise of the Warrants; and
"Date of Grant" shall mean ___________, 200_.
1. TERM.
This Warrant is exercisable, in whole or in part, at any time and from time to
time on and after the Date of Grant through ______, 200__[fifth anniversary of
Date of Grant].
2. METHOD OF EXERCISE; PAYMENT; ISSUANCE OF NEW WARRANT.
(a) The purchase right represented by this Warrant may be exercised by
the holder hereof, in whole or in part, by the surrender of this
Warrant (with the notice of
2
exercise form attached hereto as Exhibit A duly executed) at the
principal office of the Company and (i) by the payment to the
Company, by check, of an amount equal to the Warrant Price per Share
multiplied by the number of Shares then being purchased.
(b) In the event of any exercise of the purchase right represented by
this Warrant, certificates for the Shares so purchased shall be
delivered to the holder hereof within ten business days of the
effective date of such purchase and, unless this Warrant has been
fully exercised or expired, a new Warrant representing the portion
of the securities, if any, with respect to which this Warrant shall
not then have been exercised shall also be issued to the holder
hereof within such ten-day period. Upon the effective date of such
purchase, the holder shall be deemed to be the holder of record of
the securities, notwithstanding that certificates representing the
securities shall not then be actually delivered to such holder or
that such securities are not then set forth on the stock transfer
books of the Company.
(c) In lieu of exercising this Warrant by payment of cash or check, and
provided that applicable law so allows, the Holder may elect to
receive shares equal to the value of this Warrant (or the portion
thereof being exercised) at any time after the date hereof during
the term hereof, by surrender of this Warrant at the principal
executive office of the Company, together with the Notice of
Conversion in the form of Exhibit B annexed hereto, in which event
the Company shall issue to Holder a number of Shares in accordance
with the following formula:
Y(A-B)
X = ------
A
Where, X = the number of Shares to be issued to Holder;
Y = the number of Shares for which the Warrant is being
exercised;
A = the fair market value of one Share; and
B = the Exercise Price.
For purposes of this Section 2(c), the fair market value of the
Shares shall mean the price determined by the Company's Board of
Directors, acting in good faith, upon a review of all relevant
factors; provided, however, that (i) where there exists a public
market for the Company's Shares at the time of such exercise, the
fair market value per Share shall be the average of the closing bid
and asked prices of the Shares quoted in the Over-The-Counter-
Market Summary or the last reported sale price of the Shares or the
closing price quoted on the Nasdaq SmallCap or National Market on
which the Shares are listed for the five (5) days prior to the date
of determination of fair market value, or (ii) upon the exercise of
this Warrant concurrently with the closing of the sale, lease,
distribution or other disposition of all or substantially all of the
assets of the Company or all or substantially of the Company's share
capital including a merger or consolidation of the Company with or
into any other entity or entities, or any other corporate
reorganization, where the shareholders of record as constituted
immediately prior to such event do not retain, immediately after
such event, as a result of or in exchange for their equity in the
Company at least a fifty percent (50%) interest in
3
the successor entity (a "Sale"), the per share price to be received
by the holders of Shares. Exercise of this Warrant concurrently with
the closing of a Sale, made be made conditional on the closing of
such Sale.
3. SHARES FULLY PAID; RESERVATION OF SHARES.
(a) All securities which may be issued upon the exercise of the rights
represented by this Warrant will, upon issuance, be fully paid and
nonassessable, and free from all taxes, liens, preemptive rights and
charges with respect to the issue thereof. During the period within
which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized, and reserved for the
purpose of the issue upon exercise of the purchase rights evidenced
by this Warrant, a sufficient number of Shares to provide for the
exercise of the rights represented by this Warrant.
(b) The Company will not, by amendment of its memorandum or association
or articles of association, or through reorganization,
consolidation, merger, dissolution, issue or sale of securities,
sale of assets or any other voluntary action, willfully avoid or
seek to avoid the observance or performance of any of the terms
hereof, but will at all times in good faith assist in the carrying
out of all such terms and in the taking of all such actions as may
be necessary or appropriate in order to protect the rights of
Warrant Holder under the Warrants against such willful actions.
Without limiting the generality of the foregoing, the Company: (i)
will not set nor increase the par or nominal value of any Warrant
Shares above the amount payable therefor upon such exercise, and
(ii) will take all actions that are necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable Warrant Shares upon the exercise of the Warrants.
4. ADJUSTMENTS.
The maximum number of Warrant Shares issuable upon exercise of this Warrant and
the Warrant Price shall be adjusted if any of the following events occur before
the holder's exercise of this Warrant:
(a) Distributions, Share Dividends and Splits.
(i) In case the Company declares a dividend (whether ordinary or
extraordinary) or other distribution payable in Shares or subdivides its Shares
into a greater number of Shares, the Warrant Price in effect immediately prior
to such declaration or subdivision shall be proportionately decreased and the
number and kind of Shares purchasable upon exercise of this Warrant shall be
adjusted so that the holder thereof shall be entitled to receive the kind and
number of shares or the other securities of the Company that the holder would
have owned or have been entitled to receive after the happening of any of the
events described in this paragraph (a)(i) had the Warrant Shares been issued
immediately prior to the happening of such event or any record date with respect
thereto.
(ii) In the case of any reclassification or change of the
outstanding securities of the Company or of any reorganization of the Company
after the date hereof, or in case, after such date, the Company shall
consolidate with or merge with or into another corporation or convey all or
substantially all of its assets to another corporation or other entity, then, in
each such case, Warrant Holder, upon any exercise of this Warrant, at any time
after the consummation of such reclassification, change, reorganization,
consolidation, merger, or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and
4
property receivable upon the exercise of this Warrant prior to such
consummation, the stock or other securities or property to which such Warrant
Holder would have been entitled upon the consummation of such reclassification,
change, reorganization, consolidation, merger or conveyance if Warrant Holder
had exercised the Warrants immediately prior thereto, all subject to further
adjustment as provided in this Section, and the successor or purchasing
corporation or other entity in such reclassification, change, reorganization,
consolidation, merger or conveyance (if not the Company) shall duly execute and
deliver to Warrant Holder a supplement hereto acknowledging such corporation's
or entity's obligations under the Warrants; and in each such case, the terms of
the Warrants (including the exercisability, transfer and adjustment provisions
of the Warrants) shall be applicable to the shares of stock or other securities
or property receivable upon the exercise of the Warrants after the consummation
of such reclassification, change, reorganization, consolidation, merger or
conveyance.
(iii) An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become immediately effective after the effective date in
the case of a subdivision. If, as a result of an adjustment made pursuant to
this paragraph (a), the holder after exercise shall become entitled to receive
shares of two or more classes of capital stock or Shares and any other class of
capital stock of the Company, the Board of Directors of the Company (whose
determination shall be conclusive and shall be described in a written notice to
the holder promptly after such adjustment) shall determine the allocation of the
adjusted Warrant Price between or among shares of such classes of capital stock
or Shares and such other classes of capital stock.
(iv) In the case of any adjustment in the number of Warrant Shares
receivable upon the exercise of the Warrants pursuant to the terms hereof, the
chief financial officer of the Company shall promptly thereafter compute such
adjustment in accordance with the terms hereof and prepare a certificate setting
forth such adjustment and showing in detail the facts upon which such adjustment
is based. The Company will provide copies of such certificate to Warrant Holder
in the manner provided for notices hereunder.
(v) In case, at any time during the term of this Warrant, the
Company shall declare a cash dividend upon its Ordinary Shares payable otherwise
than out of earnings or earned surplus or shall distribute to holders of its
Ordinary Shares, shares of its share capital (other than Ordinary Shares), or
other securities of other persons, evidences of indebtedness issued by the
Company or other persons, assets (excluding cash dividends and distributions) or
options or rights (excluding options to purchase and rights to subscribe for
Ordinary Shares or other securities of the Company convertible into or
exchangeable for Ordinary Shares), then, in each such case, immediately
following the record date fixed for the determination of the holders of Ordinary
Shares entitled to receive such dividend or distribution, the Warrant Price in
effect thereafter shall be determined by multiplying the Warrant Price in effect
immediately prior to such record date by a fraction of which the numerator shall
be an amount equal to the difference of (x) the Current Market Price of one
share of Ordinary Shares minus (y) the fair market value (as determined by the
Board of Directors of the Company, whose determination shall be conclusive) of
the amount of cash, stock, securities, evidences of indebtedness, assets,
options or rights, as the case may be, so distributed in respect of one Ordinary
Share, and of which the denominator shall be such Current Market Price. For the
purpose of any computation pursuant to this Section, the Current Market Price at
any date of one Ordinary Share shall be deemed to be the average of the daily
closing prices for the 15 consecutive business days ending on the last business
day before the day in question (as adjusted for any stock dividend, split,
combination or reclassification that took effect during such 15 business day
period). The closing price for each day shall be the last reported sales price
regular way or, in case no such reported sales took place on such day, the
average of the last reported bid and asked prices regular way, in
5
either case on the principal national securities exchange on which the Ordinary
Shares is listed or admitted to trading or as reported by Nasdaq (or if the
Ordinary Shares is not at the time listed or admitted for trading on any such
exchange or if prices of the Ordinary Shares are not reported by Nasdaq then
such price shall be equal to the average of the last reported bid and asked
prices on such day as reported by The National Quotation Bureau Incorporated or
any similar reputable quotation and reporting service, if such quotation is not
reported by The National Quotation Bureau Incorporated); provided, however, that
if the Ordinary Shares are not traded in such manner that the quotations
referred to in this clause (v) are available for the period required hereunder,
the Current Market Price shall be determined in good faith by the Board of
Directors of the Company or, if such determination cannot be made or if Holder
disputes in writing any determination so made by the Company's Board of
Directors within 30 days of being informed of such determination, by a
nationally recognized independent investment banking or accounting firm selected
by the Board of Directors of the Company (or if such selection cannot be made,
by a nationally recognized independent investment banking or accounting firm
selected by the American Arbitration Association in accordance with its rules).
(b) Record Date. In case the Company shall take a record of the holders
of its Shares for the purpose of determining holders entitled to
receive a dividend or other distribution payable in Shares, then
such record date shall be considered to be the date of the issue or
sale of the Shares related to such dividend or distribution.
(c) Stock Combinations. In case the Company shall combine all of the
outstanding Shares into a smaller number of Shares, the Warrant
Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares shall be
proportionately decreased.
(d) Fractional Shares. No fractional Warrant Shares shall be issued upon
the exercise hereof. Upon exercise by any holder, such holder shall
be entitled to receive the aggregate full number of Shares which the
holder may receive upon exercise.
(e) The adjustment to the number of Shares issuable upon the exercise
hereof and the adjustments to the Warrant Price described in this
Section 4 shall be made each time any event listed in this Section 4
occurs.
(f) If any event occurs of the type contemplated by the provisions of
this Section 4, but not expressly provided for by such provisions or
definition, then the Company's Board of Directors in its reasonable
judgment shall make an appropriate adjustment in the number of
Warrant Shares obtainable upon exercise of this Warrant so as to
protect the rights of the Warrant Holder.
5. COMPLIANCE WITH SECURITIES ACT; RESTRICTIONS ON TRANSFER; REPRESENTATIONS.
Holder hereby represents and warrants that:
(a) Purchase Entirely for Own Account. This Warrant and the Warrant
Shares issuable upon exercise hereof (collectively, the
"Securities") will be acquired for investment for Holder's own
account, not as a nominee or agent, and not with a view to the
resale or distribution of any part thereof, and Holder has no
present intention of selling, granting any participation in or
otherwise distributing the same, provided that nothing in this
section shall constitute an agreement by the Lender to hold or
refrain from disposing of the Warrant Shares for any amount of time,
provided that any transfer, sale or other disposition of the Warrant
Shares shall comply in all respects with the requirements of the
Securities Act and
6
similar provisions of state law. Holder does not presently have any
contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to any person with respect to
any of the Securities.
(b) Investment Experience. Holder acknowledges that it is able to fend
for itself, can bear the economic risk of its investment and has
such knowledge and experience in financial or business matters that
it is capable of evaluating the merits and risks of the investment
in this Warrant. Holder also represents it has not been organized
for the purpose of acquiring this Warrant.
(c) Accredited Investor. Holder is (a) an "accredited investor" within
the meaning of Rule 501 of Regulation D of the Securities and
Exchange Commission (the "SEC"), as presently in effect.
(d) Restricted Securities. Holder understands that the Securities are
characterized as "restricted securities" under the federal
securities laws in as much as they are being acquired from the
Company in a transaction not involving a public offering, and that
under such laws and applicable regulations such securities may be
resold without registration under the Securities Act of 1933, as
amended ("the Securities Act") only in certain limited
circumstances. In this connection, Holder represents that it is
familiar with SEC Rule 144 promulgated under the Securities Act, as
presently in effect, and understands the resale limitations imposed
thereby and by the Act.
(e) Further Limitations on Disposition. Without in any way limiting the
representations set forth above, Holder further agrees not to make
any disposition of all or any portion of the Warrant Shares: (i)
unless and until there is then in effect a registration statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement,
or (ii) pursuant to an available exemption from, or in a transaction
not subject to, the registration requirements of the securities act.
The Company may require an opinion of counsel in form and substance
reasonably acceptable that such registration is not required.
(f) Authorization. If the holder is not a natural person, the holder
hereby represents that its acceptance of this Warrant has been
authorized on its behalf by all appropriate limited liability
company, corporate or partnership action.
(h) Legend. This Warrant and all Shares issued upon exercise of this
Warrant(unless registered under the Securities Act) shall be stamped
or imprinted with a legend in substantially the following form:
"THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT. THE COMPANY MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY ACCEPTABLE THAT SUCH REGISTRATION IS NOT REQUIRED.
7
The Company need not register a transfer of this Warrant or the
Warrant Shares unless the conditions specified in such legend are
satisfied. Subject to the foregoing transfer restrictions set forth
in this Section, this Warrant is transferable, in whole or in part,
on the books of the Company, upon surrender of this Warrant to the
Company, together with a written assignment duly executed by the
Holder.
(i) Notwithstanding the foregoing, the restrictions imposed upon the
transferability of this Warrant and the Warrant Shares shall cease
and terminate as to this Warrant or any particular shares of capital
stock when, (i) such Warrant or Warrant Shares shall have been
effectively registered under the 1933 Act and sold by the holder
thereof in accordance with such registration or (ii) counsel for
Holder provides an opinion, in form and substance reasonably
satisfactory to the Company (or in lieu of an opinion of counsel,
Holder provides the Company with other evidence satisfactory to the
Company), that such restrictions are no longer required in order to
ensure compliance with the 1933 Act. If and whenever the
restrictions imposed hereunder shall terminate as to this Warrant
(or to any Warrant Shares) as hereinabove provided, Holder may and
the Company shall, as promptly as practicable upon the request of
Holder and at the Company's expense, cause to be stamped or
otherwise imprinted upon this Warrant or such shares of capital
stock a legend in substantially the following form:
"The restrictions on the transferability of [this] [these] [Warrant]
[securities] terminated on _______________, _____, and are of no
further force or effect"
or take such other action as to effectively remove the restrictions
on the transferability of the Warrant and the Warrant Shares.
Any Warrant issued upon the split-up, combination, exchange,
substitution, transfer or loan of the Warrants entitled to bear such
legend shall have a similar legend endorsed thereon. Whenever the
restrictions imposed hereunder shall terminate as to any Warrant or
as to any shares of capital stock, as hereinabove provided, the
Holder thereof shall be entitled to receive from the Company without
expense, a new Warrant or new shares of capital stock not bearing
the restrictive legend set forth hereon or above, respectively.
(j) The Company shall cause all Warrant Shares covered by a valid
registration statement to be listed on any securities exchange upon
which the Shares are then listed.
6. RIGHTS OF SHAREHOLDERS.
No holder of the Warrant or Warrants shall be entitled to vote or receive
dividends or be deemed the holder of Shares, nor shall anything contained herein
be construed to confer upon the holder of this Warrant, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of par
value or change of stock to no par value, consolidation, merger, conveyance, or
otherwise) or to receive notice of meetings, or to receive dividends until the
Warrant or Warrants shall have been exercised and the Shares shall have become
deliverable, as provided herein.
8
7. PIGGY-BACK REGISTRATION RIGHTS
(a) The Company shall notify Warrant Holder in writing at least fifteen
(15) days prior to filing any registration statement under the 1933
Act for purposes of effecting a public offering of securities of the
Company (including, but not limited to, registration statements
relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any employee benefit
plan or a corporate reorganization) and will afford Warrant Holder
an opportunity to include in such registration statement all or any
part of the Warrant Shares issued or reserved for issuance to
Warrant Holder upon exercise of this Warrant. If Warrant Holder
desires to include in any such registration statement all or any
part of such Warrant Shares, Warrant Holder shall, within ten (10)
days after receipt of the above-described notice from the Company,
so notify the Company in writing, and in such notice shall inform
the Company of the number of Warrant Shares Warrant Holder wishes to
include in such registration statement. If Warrant Holder decides
not to include all of the shares of Ordinary Shares issued or
reserved for issuance to Warrant Holder upon the exercise of this
Warrant in any registration statement thereafter filed by the
Company, Warrant Holder shall nevertheless continue to have the
right to include any such Warrant Shares any subsequent registration
statement or registration statements as may be filed by the Company
with respect to offerings of its securities, all upon the terms and
conditions set forth herein. The Company will cooperate with Warrant
Holder to facilitate its distribution of Warrant Shares pursuant to
any such registration statement.
(b) The Company agrees to indemnify and hold harmless Warrant Holder and
its directors, officers, employees, agents, partners, members,
controlling persons and affiliates from and against any expenses,
losses, claims, damages or liabilities they may incur arising out of
any untrue or alleged untrue statement of material fact contained in
such registration statement, or any amendment or supplement thereto,
or arising out of or based upon the omission or alleged omission to
state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or arising
out of any violation of the 1933 Act or the Securities Exchange Act
of 1934, as amended, in connection therewith, provided, however,
that the Company will not be liable in any such case to the extent
that any such expense, loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement,
or amendment thereto in reliance upon and in conformity with
information furnished in writing to the Company by or on behalf of
the Holder specifically for use in the preparation thereof. Provided
that Warrant Holder is entitled to indemnification hereunder, the
Company will reimburse Warrant Holder and its directors, officers,
employees, agents, controlling persons and affiliates for any legal
or other expenses reasonably incurred in connection with
investigating or defending any such action or claim as such expenses
are incurred.
(c) All expenses incurred by the Company in complying with Section 7(a)
(other than the underwriter's discounts and commissions), including,
without limitation, all registration and filing fees (including all
expenses incident to filing with the National Association of
Securities Dealers, Inc.), fees and expenses of complying with
securities and blue sky laws (except for blue sky expenses required
by law to be borne by sellers), expense allowances of the
underwriters, printing expenses, fees and disbursements of counsel
or other advisor to the Company, and of the accountants to Company,
are herein called "Registration
9
Expenses." All fees and expenses of counsel for any selling Warrant
Holder and all underwriting discounts and commissions applicable to
the eligible securities covered by any such registration, are herein
called "Selling Expenses."
(d) The Company shall pay all Registration Expenses in connection with
each registration pursuant to Section 7(a). All Selling Expenses and
blue sky expenses required by law to be borne by sellers in
connection with each registration pursuant to Section 7(a) shall be
borne by the seller or sellers therein in proportion to the number
of eligible securities included by each in such registration or in
such other proportions as they may agree upon. In the event of any
dispute as to how Selling Expenses are allocated, the Company shall
be entitled to apportion the expenses in a reasonable manner between
the various sellers.
(e) The piggy-back registration rights granted in this Section 6 are in
addition to, and not in lieu of, any other registration rights the
Holder may have by virtue of other contractual arrangements with the
Company.
8. GOVERNING LAW.
The terms and conditions of this Warrant shall be governed by and construed in
accordance with the laws of the State of California.
9. MISCELLANEOUS.
The headings in this Warrant are for purposes of convenience and reference only,
and shall not be deemed to constitute a part hereof. Neither this Warrant nor
any term hereof may be changed, waived, discharged or terminated orally but only
by an instrument in writing signed by the Company and the registered holder
hereof. All notices and other communications from the Company to the holder of
this Warrant shall be mailed by first-class registered or certified mail or
recognized commercial courier service, 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.
_______, 200_ COMMTOUCH SOFTWARE LTD.
--------------------------------------
Xxxxxx Xxxxxx, Chief Executive Officer
EXHIBIT A
NOTICE OF EXERCISE
TO: COMMTOUCH SOFTWARE LTD.
1. The undersigned hereby elects to purchase ___________ Shares of
Commtouch Software Ltd. pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price of such
Shares in full, together with all applicable transfer taxes, if any.
2. The undersigned represents that the Shares are being acquired for
the account of the undersigned for investment and not with a view
to, or for resale in connection with, the distribution thereof and
that the undersigned has no present intention of distributing or
reselling such shares.
3. Please issue a certificate or certificates representing said Shares
in the name of the undersigned or in such other name as is specified
below:
---------------------------------
(Name)
---------------------------------
---------------------------------
(Address)
-----------------------------------
Name of Warrant holder
-----------------------------------
Signature of Authorized Signatory
-----------------------------------
Print Name and Title
-----------------------------------
Date
EXHIBIT B
NOTICE OF CONVERSION
TO: COMMTOUCH SOFTWARE LTD.
1. The undersigned hereby elects to convert the attached Warrant into such
number of Ordinary Shares (the "Shares") of Commtouch Software Ltd. as is
determined pursuant to Section 2(c) of such Warrant, which conversion shall be
effected pursuant to the terms of the attached Warrant.
2. Please issue a certificate or certificates representing the Shares in
the name of the undersigned or in such other name as is specified below:
---------------------------------
(Print Name)
---------------------------------
(Address)
---------------------------------
(Address)
3. The undersigned represents that the Shares are being acquired for the
account of the undersigned for investment and not with a view to, or for resale
in connection with, the distribution thereof and that the undersigned has no
present intention of distributing or reselling such shares.
(Date) (Signature)
(Print Name)
