EXHIBIT 99.1
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EXCHANGE AGREEMENT
THIS EXCHANGE AGREEMENT ("Agreement") is made and entered into as of
December __, 2000 by and among by and among ON Technology Corporation, a
Delaware corporation (the "Company") and Castle Creek Technology Partners LLC
("CC").
The Company and CC are parties to that certain Securities Purchase
Agreement, dated as of December 29, 1999 (the "Stock Purchase Agreement"). The
Company and CC desire to exchange the Series I Warrant, dated as of December 29,
1999, issued to CC pursuant to the Stock Purchase Agreement ("Series I Warrant")
for a new Warrant in the form attached hereto as ANNEX A (the "Exchange
Warrant"), providing for the right to purchase up to 1,400,000 shares of the
Company's common stock, $0.01 par value (the "Common Stock") for a purchase
price of $0.01 per share, and a Promissory Note in the form attached hereto as
ANNEX B in the amount of $500,000 (the "Note"). The Company and CC also desire
to amend the Registration Rights Agreement, dated as of December 29, 1999,
between the Company and CC ("Registration Rights Agreement") in accordance with
the terms hereof.
The exchange contemplated hereby is being effected in reliance on the
exemption from securities registration afforded by the provisions of Section
3(a)(9) of the Securities Act of 1933, as amended.
In consideration of the mutual promises and agreements of the parties
hereto, and of other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to such terms in the Stock Purchase
Agreement.
2. EXCHANGE. Immediately upon the execution of this Agreement the
Company shall execute and deliver to CC the Exchange Warrant and the Note and
immediately upon receipt of the Exchange Warrant and the Note CC shall deliver
the Series I Warrant to the Company for cancellation.
3. REPRESENTATIONS AND WARRANTIES. The Company hereby represents and
warrants to CC that:
3.1 AUTHORIZATION; CONSENTS. The Company has the requisite corporate
power and authority to enter into and perform its obligations under (i) this
Agreement, the Exchange Warrant, the Note and the Registration Rights Agreement,
as amended hereby (together, the "Transaction Documents"), and to issue and
deliver shares of Common Stock in accordance with the terms of the Exchange
Warrant. All corporate action on the part of the Company by its officers,
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directors and stockholders necessary for the authorization, execution and
delivery of, and the performance by the Company of its obligations under, the
Transaction Documents has been taken, and no further consent or authorization of
the Company, its Board of Directors, its stockholders, any governmental agency
or organization (other than such approval as may be required under the
Securities Act and applicable state securities laws in respect of the
Registration Rights Agreement), or any other person or entity is required
(pursuant to any rule of the Nasdaq National Market, or otherwise). The Company
has provided notice of the transaction contemplated by the Transaction Documents
to Nasdaq, but such notice was not provided 15 days prior to the date hereof.
Therefore, if Nasdaq Rule 4310(c)(17) applies to this transaction, the notice
was not timely under Rule 4310(c)(17). The Company agrees to use its best
efforts to obtain a waiver of the 15-day notice requirement under Rule
4310(c)(17).
3.2 ENFORCEMENT. Each of the Transaction Documents constitutes a valid
and legally binding obligation of the Company, enforceable in accordance with
its terms, except as such enforceability may be limited by applicable
bankruptcy, insolvency or other laws affecting creditors' rights generally and
to general principles of equity (regardless of whether enforcement is sought in
a proceeding at law or in equity) or public policy.
3.3 CAPITALIZATION. No event has occurred which required or requires
(or would permit) adjustment of the exercise price or of the number of shares
issuable under the Series I Warrant.
3.4 VALID ISSUANCE. The shares issuable under the Exchange Warrant
("New Warrant Shares") are duly authorized and reserved for issuance and when
issued, sold and delivered in accordance with the terms of the Exchange Warrant,
the shares of Common Stock to be issued thereunder will be duly and validly
issued, fully paid and nonassessable, free and clear of any taxes, liens,
claims, preemptive or similar rights or encumbrances imposed by or through the
Company (collectively, "Encumbrances").
3.5 NO DEFAULT. Neither the Company nor any of its subsidiaries is in
breach of any agreement to which it is a party or by which it is bound where
such breach could reasonably be expected to have a material adverse effect on
(i) the consolidated business, operations, properties, financial condition,
prospects or results of operations of the Company and its subsidiaries taken as
a whole, (ii) the transactions contemplated by the Transaction Documents or
(iii) the ability of the Company to perform its obligations under the
Transaction Documents (collectively, a "Material Adverse Effect").
3.6 NO CONFLICT WITH OTHER INSTRUMENTS. Neither the Company nor any of
its subsidiaries is in violation of any provisions of its charter, bylaws or any
other governing document as amended and in effect on and as of the date hereof
or of any provision of any Federal, state or foreign judgment, writ, decree,
order, statute,
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rule or governmental regulation applicable to the Company, which violation could
reasonably be expected to have a Material Adverse Effect. The (i) execution,
delivery and performance of the Transaction Documents, and (ii) consummation of
the transactions contemplated hereby and thereby (including without limitation,
the reservation for issuance and issuance of the New Warrant Shares) will not,
in any such case, result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any provision of any instrument or contract to which the Company
is a party or by which it is bound or any provision of any Federal, state or
foreign judgment, writ, decree, order, statute, rule or governmental regulation
applicable to the Company or an event which results in the creation of any lien,
charge or encumbrance upon any assets of the Company or of any of its
subsidiaries or the triggering of any preemptive or anti-dilution rights or
rights of first refusal or first offer, or any similar rights (whether pursuant
to a "poison pill" provision or otherwise) on the part of holders of the
Company's securities.
3.7 REPORTING COMPANY; FORM S-3. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has timely filed all reports required
thereby. The Company is currently eligible to register the New Warrant Shares
for resale by CC on a registration statement on Form S-3 under the Securities
Act. To the Company's knowledge, except as described on Schedule 3.7 attached
hereto and hereby made a part hereof, there exist no facts or circumstances
(including without limitation any required approvals or waivers of any
circumstances that may delay or prevent the obtaining of accountant's consents)
that would prohibit or delay the preparation and filing of a registration
statement on Form S-3 with respect to the Registrable Securities (as defined in
the Registration Rights Agreement, as amended hereby).
3.8 LISTING ON NASDAQ. The Common Stock is listed on the Nasdaq
National Market, and trading in the Common Stock on such market has not been
suspended. The Company is, to its knowledge, in full compliance with the
continued listing criteria of the Nasdaq National Market, and, except as
described on Schedule 3.7 attached hereto and hereby made a part hereof, does
not reasonably anticipate that the Common Stock will lose its listing on the
Nasdaq National Market, whether by reason of the transactions contemplated by
the Transaction Documents, or otherwise and is not aware of any inquiry by or
received any notice from the Nasdaq National Market regarding any failure or
alleged failure by the Company to comply with such criteria.
3.9 FEES. The Company is not obligated to pay any compensation or other
fee, cost or related expenditure to any underwriter, broker, agent or other
representative or entity in connection with the transactions contemplated
hereby. The Company will indemnify and hold harmless CC from and against any
claim by any person or entity alleging that CC is obligated to pay any such
compensation,
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fee, cost or related expenditure in connection with the transactions
contemplated hereby.
3.10 SURVIVAL. The representations and warranties made by the Company
in this Section 3 shall survive the closing of the transactions contemplated by
this Agreement and other Transaction Documents notwithstanding any due diligence
investigations made by or on behalf of CC.
4. REGISTRABLE SECURITIES. Without any implication that the contrary
would otherwise be the case, the Company and CC hereby acknowledge that all
shares of Common Stock issuable under the Exchange Warrant shall constitute
"Shares" and "Registrable Securities" for all purposes of the Registration
Rights Agreement and the Stock Purchase Agreement, it being understood that
article III and Sections 4.2 and 4.7 of the Stock Purchase Agreement shall not
apply to this Agreement or the transactions contemplated hereby and no event
occurring pursuant to this Agreement or the transactions contemplated hereby
shall constitute a Closing Date or Effective Date under Section 4.5 of the Stock
Purchase Agreement. CC shall be deemed an Initial Purchaser of such Shares for
purposes of and as that term is used in the Registration Rights Agreement. It is
understood and agreed that the representation and warranty in Section 2.5 of the
Registration Rights Agreement as to meeting the requirements to use Form S-3 is
superseded for the purposes of this Agreement and the transactions contemplated
hereby by the representations and warranties as to that matter contained in
Section 3.7 of this Agreement.
5. CURRENT REPORT ON FORM 8-K; CURRENT REGISTRATION STATEMENT. The
Company agrees to file a Current Report on Form 8-K disclosing this Amendment
and the transactions contemplated hereby with the SEC no later than five days
after date of this Agreement. Such Form 8-K shall contain as exhibits this
Agreement, the New Warrant, the Note and the corresponding documentation with
respect to the other holder(s) of Series 1 Warrants. The Company agrees to use
its best efforts to take all actions reasonably required to cause Registration
Statement 333-95333 to be available for sale of shares covered thereby at the
earliest practicable date.
6. MANDATORY REGISTRATION.
(a) The Company shall prepare and file as soon as practicable
but in any event on or prior to twenty (20) business days after the
date of execution of this Agreement by all parties hereto and of
agreements on similar terms with all other holder(s) of Series 1
Warrants hereof (the "Filing Date") with the SEC a Registration
Statement on Form S-3 covering the resale of all of the Registrable
Securities not covered by existing registration statement 333-95333
(including, without limitation, those issuable upon exercise of the
Exchange Warrant) in a secondary offering by Purchasers (as defined in
the Registration Rights Agreement),
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provided that each Purchaser shall have provided timely to the Company
all information needed for the Registration Statement regarding it and
its plan of distribution. The Registration Statement (and each
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the
approval of (which approval shall not be unreasonably withheld or
denied)) each Initial Purchaser and its counsel at least three (3) days
prior to its filing or other submission. If the initial Purchasers and
their counsel do not provide such approval comments reflecting such
changes as they require for such approval by the end of the second
business day after being provided such documents, the Registration
Deadline (as set forth in Section 6(b) below shall be extended for the
number of days by which the time period between the providing of such
documents and the receipt of approval or such comments exceeds the
period ending at the end of the second business day after the documents
are so provided. A filing which is timely hereunder shall be deemed to
be a timely filing with respect to the Filing Date under Section 2.1 of
the Registration Rights Agreement resulting from the transactions
contemplated by this Agreement.
(b) The Company shall cause the Registration Statement filed
pursuant to the preceding Section 6(a) (the "Registration Statement")
to become effective as soon as practicable, but in no event later than
the ninetieth (90th) day after the Filing Date. If the Registration
Statement is not declared effective by the SEC on or before the
ninetieth (90th) day after the Filing Date (such date, the
"Registration Deadline" and such failure a "Registration Failure") or
if after such Registration Statement has been declared effective by the
SEC, sales of all the Registrable Securities, including without
limitation all New Warrant Shares, cannot be made pursuant to the
Registration Statement within two years after its effective date (by
reason of a stop order or the Company's failure to update the
Registration Statement or any other reason outside the sole control of
the Purchasers) (a "Registration Suspension"), then the Company will
make payments to CC in such amounts and at such times as shall be
determined pursuant to this Section 6(b) as partial relief for the
damages to CC by reason of any such delay in or reduction of its
ability to sell the Registrable Securities (which remedy shall not be
exclusive of any other remedies available at law or in equity except
that it is exclusive of those otherwise provided under Section 2.3 of
the Registration Rights Agreement). In the event of a Registration
Failure, the Company shall pay to CC an amount equal to (A) $5,000
TIMES (B) the number of days of the first month following the
Registration Deadline (prorated per day for a partial month), plus (C)
$10,000 TIMES (D) the number of days of the any month following the
first month after the Registration Deadline (prorated per day for
partial months) prior to the date the Registration Statement filed
pursuant to Section 6(a) is declared effective by the SEC. In addition,
in the event of a Registration Suspension, the Company shall pay to the
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Purchasers an amount equal to (E) $7,500 TIMES (F) the number of months
(prorated per day for partial months) from (x) the date on which sales
of all the Registrable Securities first cannot be made to (y) the date
on which sales of all the Registrable Securities can again be made.
Amounts to be paid pursuant to this Section 6(b) shall be paid in cash
within five (5) days after the end of each period that gives rise to
such obligation, provided that, if any such period extends for more
than thirty (30) days, payments shall be made for each such thirty (30)
day period within five (5) days after the end of such thirty (30) day
period.
7. EXERCISE OF EXCHANGE WARRANT. Subject to the limitation on the
exercise provided in Section 8f. of the Exchange Warrant, CC hereby agrees to
exercise its rights to purchase to the extent of 358,460 shares of Common Stock
under the Exchange Warrant on the fifth day after it receives the Exchange
Warrant and to exercise its rights to purchase to the extent of an additional
36,939 shares of Common Stock under the Exchange Warrant on the eighth day after
it receives the Exchange Warrant.
8. OPINION OF COUNSEL. Immediately upon the execution and delivery of
this Agreement by the Company and CC, Epstein, Becker & Green, P.C. shall
provide to CC its opinion in the form attached hereto as ANNEX C.
9. GENERAL RELEASE. Immediately upon the execution and delivery of this
Agreement by the Company and CC, the Company and CC shall execute and deliver to
each other the Mutual General Release in the form attached hereto as ANNEX D.
10. MOST FAVORED NATION. The transactions contemplated hereby are
conditioned on evidence satisfactory to CC that the Company has entered in
arrangements with the other Purchaser(s) under the Securities Purchase Agreement
no more favorable to such Purchaser(s) than those terms expressed herein and if
any different terms are offered to other Purchasers, CC shall have the option of
voiding this Amendment AB INITIO, proceeding on the terms contained herein or
revising the terms of this Agreement and the transactions contemplated hereby to
include any such terms it deems more favorable than those set forth herein.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first above written.
ON TECHNOLOGY CORPORATION
By:
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Its:
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CASTLE CREEK TECHNOLOGY PARTNERS LLC
By: Castle Creek Partners, L.L.C.
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Its: Investment Manager
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By:
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Michael L. Spolan, Managing Director
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SCHEDULE 3.7
At December 13, 2000 the closing price of the Company's Common Stock on
the Nasdaq National Market was below $1.00 for the 17th consecutive day. If the
closing price remains below $1.00 for the next 13 trading days, the Company
anticipates that it will be notified by Nasdaq that it failed to meet the
minimum bid price for continued listing on Nasdaq under Nasdaq Rule 4310(4).
If the Company's Common Stock ceases to be listed on Nasdaq, absent
listing on another exchange or quotation on another automated quotation system
of a national securities association the resale of the Company's Common Stock by
CC will no longer satisfy the transaction requirement set forth in General
Instruction I.B.3. as to the filing of a registration statement for such resales
on Form S-3.
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