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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) June 27, 1997
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Altris Software, Inc.
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(Exact name of registrant as specified in charter)
California 0-15935 95-3634089
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(State or other jurisdiction (Commission file number) (IRS employer
of incorporation) identification no.)
9339 Carroll Park Drive, San Diego, California 92121
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(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (619) 625-3000
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Not applicable
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
Altris Software, Inc., a California corporation (the "Company"), on
June 27, 1997 completed a private placement to Sirrom Capital Corporation, an
affiliate of Tandem Capital ("Purchaser") of (i) 3,000 shares of its newly
created Series D Convertible Preferred Stock with an aggregate stated value of
$3,000,000 (the "Convertible Preferred Stock") and (ii) its 11.5% Subordinated
Debenture due June 27, 2002 with a principal amount of $3,000,000 (the
"Subordinated Debenture"), for aggregate gross proceeds to the Company of
$6,000,000. The Company intends to use the proceeds received in the private
placement for general corporate purposes, including working capital.
A. CONVERTIBLE PREFERRED STOCK
The Series D Convertible Preferred Stock bears a dividend of 11.5% per
annum and is convertible into the Company's common stock at a conversion price
of $6.00 per share (subject to reset on June 27, 1999 to a lower conversion
price if the average closing price of the common stock on the 20 trading days
immediately prior to June 27, 1999 is less than $6.00 per share). The Company
may redeem any or all of the Convertible Preferred Stock at its stated value on
or after June 27, 1999 at any time the 20-day average of the closing price of
the common stock equals or exceeds $9.50 per share, and the Company may redeem
any or all of the Convertible Preferred Stock on or after June 27, 2002 at its
stated value irrespective of the trading price of its common stock. The
Certificate of Determination for the Convertible Preferred Stock contains
customary anti-dilution provisions.
B. SUBORDINATED DEBENTURE
The Subordinated Debenture, which was issued at 100% of par, provides
for quarterly interest payments with a maturity date of June 27, 2002. The
Company may prepay the Subordinated Debenture prior to maturity without penalty.
C. WARRANTS AND CONTINGENT WARRANTS
In connection with the issuance of the Subordinated Debenture, the
Company granted to Purchaser warrants to purchase 300,000 shares of its common
stock at an exercise price of $6.00 per share. In addition, the Company has
agreed to grant to Purchaser additional warrants to purchase 50,000 shares of
its common stock at an exercise price of $7.00 per share on June 27, 2000 if the
Subordinated Debenture then remains outstanding and on each anniversary
thereafter on which the Subordinated Debenture remains outstanding.
In connection with the issuance of the Convertible Preferred Stock,
the Company has agreed to grant to Purchaser warrants to purchase the following
number of shares of its common stock if the Convertible Preferred Stock remains
outstanding on each of the following dates: (i) 50,000 shares, at an exercise
price of $7.00 per share, on June 27, 2000 if the Convertible Preferred Stock
has not been redeemed or converted in full on or prior to June 27, 2000; (ii)
50,000 shares, at an exercise price of $7.00 per share, on June 27, 2001 if the
Convertible Preferred Stock has not been redeemed or converted in full on or
prior to June 27, 2001; (iii) 250,000 shares, at an exercise price equal to the
trading price per share at the issuance of the warrant, on July 17, 2002 if the
Convertible Preferred Stock has not been redeemed or converted in full on or
prior to July 17, 2002; and (iv) 250,000 shares, at an exercise price equal to
the trading price per share at the issuance of the warrant, on June 27, 2003 if
the Convertible Preferred Stock has not been redeemed or converted in full on or
prior to June 27, 2003.
Each warrant granted to Purchaser expires on the date that is five
years from the date of grant of such warrant.
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D. REGISTRATION RIGHTS
In connection with the issuance of the Convertible Preferred Stock,
the warrants to purchase 300,000 shares of common stock and the various
contingent warrants to purchase shares of common stock, the Company granted to
Purchaser certain registration rights for the underlying common stock as set
forth in the Registration Rights Agreement attached hereto as Exhibit 99.3.
Such registration rights include the right, subject to certain conditions, to
demand at any time and on up to three occasions that the Company register such
underlying shares for resale.
E. BOARD SEAT
In connection with the issuance of the Convertible Preferred Stock,
the Company agreed to increase the size of its Board of Directors by one and to
elect a designee of Purchaser to fill such vacancy, which the Company effected
shortly after closing. In addition, the Company agreed to include a designee of
Purchaser in management's slate of nominees to the Board of Directors for so
long as Purchaser or any affiliate of Purchaser holds at least 33% of the
Convertible Preferred Stock (approximately $1 million in stated value).
ITEM 7. EXHIBITS.
(c) Exhibits:
4.1 Certificate of Determination of Series D Convertible Preferred
Stock of the Company
4.2 11.5% Subordinated Debenture due June 27, 2002 in principal
amount of $3,000,000 issued by the Company to Purchaser on June
27, 1997
99.1 Convertible Preferred Stock Purchase Agreement, dated as of June
27, 1997, by and between the Company and Purchaser
99.2 Debenture Purchase Agreement, dated as of June 27, 1997, by and
between the Company and Purchaser
99.3 Registration Rights Agreement, dated as of June 27, 1997, by and
between the Company and Purchaser
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: July 16, 1997
ALTRIS SOFTWARE, INC.
By: /s/ John W. Low
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John W. Low, Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT NO. DESCRIPTION
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4.1 Certificate of Determination of Series D Convertible Preferred
Stock of Altris Software, Inc.
4.2 11.5% Subordinated Debenture due June 27, 2002 in principal
amount of $3,000,000 issued by Altris Software, Inc. to Sirrom
Capital Corporation (d/b/a Tandem Capital) on June 27, 1997
99.1 Convertible Preferred Stock Purchase Agreement, dated as of June
27, 1997, by and between Altris Software, Inc. and Sirrom Capital
Corporation (d/b/a Tandem Capital)
99.2 Debenture Purchase Agreement, dated as of June 27, 1997, by and
between Altris Software, Inc. and Sirrom Capital Corporation
(d/b/a Tandem Capital)
99.3 Registration Rights Agreement, dated as of June 27, 1997, by and
between Altris Software, Inc. and Sirrom Capital Corporation
(d/b/a Tandem Capital)
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CERTIFICATE OF DETERMINATION OF
SERIES D CONVERTIBLE PREFERRED STOCK
OF
ALTRIS SOFTWARE, INC.
The undersigned, Jay V. Tanna and John W. Low, hereby certify that:
I. They are the duly elected and acting President and Secretary,
respectively, of Altris Software, Inc., a California corporation (the
"Company").
II. The Company has 1,000,000 shares of preferred stock authorized, of
which 478,261 shares have been previously designated as Series A Preferred
Stock, none of which are issued and outstanding as of the date hereof; 172,500
shares have been previously designated as Series B Convertible Preferred Stock,
none of which are issued and outstanding as of the date hereof; and 100,000
shares have been previously designated as Series C Convertible Preferred Stock,
none of which are issued and outstanding as of the date hereof. No other series
of preferred stock has been designated and no other shares of preferred stock
have been issued. The number of shares of preferred stock to be designated as
Series D Convertible Preferred Stock is 3,000.
III. Pursuant to authority given to it by the Company's Articles of
Incorporation, the Board of Directors of the Company has duly adopted the
following recitals and resolutions.
WHEREAS, the Articles of Incorporation of the Company, as amended, provide
for a class of shares known as preferred stock issuable from time to time in one
or more series;
WHEREAS, the Board of Directors of the Company is authorized, within the
limitations and restrictions stated in the Articles of Incorporation, to
determine and alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of preferred stock, to fix the
number of shares constituting any such series and to determine the designation
thereof;
WHEREAS, the Board of Directors of the Company desires, pursuant to its
authority as aforesaid, to designate a new series of preferred stock and the
number of shares constituting such series and to fix the rights, preferences,
privileges and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors of the Company
hereby designates a new series of preferred stock and the number of shares
constituting such series and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
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1. DESIGNATION, AMOUNT, RANKING AND PAR VALUE. The series of Preferred
Stock shall be designated as the Series D Convertible Preferred Stock (the
"Preferred Stock") and the number of shares so designated shall be 3,000. The
par value of each share of Preferred Stock shall be $1.00. Each share of
Preferred Stock shall have a stated value of $1,000.00 per share (the "Stated
Value"). The shares of the Preferred Stock shall rank senior to all other
shares of preferred stock (unless otherwise approved under Section 3) and
Common Stock as to distribution of assets (upon liquidation or otherwise) and
payment of dividends.
2. DIVIDENDS.
(a) Holders of Preferred Stock shall be entitled to receive, when and
as declared by the Board of Directors of the Company out of funds legally
available therefor, cumulative cash dividends at the rate per share (as a
percentage of the Stated Value per share) equal to 11.5% per annum, payable
quarterly in arrears on March 1, June 1, September 1 and December 1 in each
year, with the first dividend payable on September 1, 1997. Dividends on the
Preferred Stock shall accrue on March 1, June 1, September 1 and December 1
of each year beginning on September 1, 1997 and shall be deemed to accrue on
such date whether or not earned or declared. Each such dividend will be payable
to holders of record as they appear on the books of the Company on such record
dates, which shall be 30 days prior to the payment dates thereof unless another
record date, which shall be no more than 45 days prior to such payment dates,
shall be fixed by the Board of Directors of the Company. The party that holds
the Preferred Stock on an applicable record date for any dividend payment will
be entitled to receive such dividend payment and any other accrued and unpaid
dividends which were accrued prior to such dividend payment date, without regard
to any sale or disposition of such Preferred Stock subsequent to the applicable
record date but prior to the applicable dividend payment date. The Company
shall pay interest on all accrued but unpaid dividends at an annual rate of
11.5% compounded annually from the date of accrual until paid.
(b) So long as any Preferred Stock shall remain outstanding, in no event
shall any dividend or distribution (other than a dividend or distribution
described in Section 5) be paid upon, nor shall any distribution be made in
respect of, the Junior Stock, nor shall any monies be set aside for or applied
to the purchase or redemption (through a sinking fund or otherwise) of the
Junior Stock unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid, plus interest at an annual rate of 11.5%
compounded annually from the date of accrual until paid.
3. VOTING RIGHTS. The holder of each share of Preferred Stock shall be
entitled to one vote on all matters submitted to the vote of the holders of
Common Stock, and shall vote as a class with the holders of Common Stock.
Provided, so long as any shares of the Preferred Stock are outstanding, the
Company shall not, without the affirmative vote of the holders of two-thirds of
the outstanding shares of the Preferred Stock, (i) alter or change adversely
the powers, preferences or rights given to the Preferred Stock, or (ii)
authorize or create any class of stock or series of preferred stock
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ranking as to dividends or distribution of assets (upon liquidation or
otherwise) prior to or pari passu with the Preferred Stock.
4. LIQUIDATION. In the event of any complete liquidation, dissolution or
winding-up of the Company, whether voluntary or involuntary, the holders of
shares of the Preferred Stock shall be entitled to receive out of the assets of
the Company, whether such assets are capital or surplus, for each share of the
Preferred Stock an amount equal to $1,000.00 per share, plus (i) an amount
equal to accrued but unpaid dividends per share, whether declared or not, and
(ii) interest on all accrued but unpaid dividends at an annual rate of 11.5%
compounded annually from the date of accrual until paid, before any distribution
shall be made to the holders of Junior Stock of the Company, and if the assets
of the Company shall be insufficient to pay in full such amounts, then such
assets shall be distributed among such holders ratably in accordance with the
respective amounts that would be payable on such shares if all amounts payable
thereon were paid in full.
5. CONVERSION.
(a)(i)Each share of Preferred Stock shall be convertible into shares of
Common Stock at the Conversion Ratio (subject to reduction under Section
5(a)(ii)), at the option of the holder, in whole or in part at any time after
the expiration of 45 days after the Original Issue Date (as defined in Section
8 below) (the "Conversion Term"). The holder shall effect conversions by
delivering to the Company a written notice (the "Conversion Notice"),
accompanied by the certificate representing the shares of the Preferred Stock to
be converted. Each Conversion Notice shall specify the number of shares of
Preferred Stock to be converted and the date on which such conversion is to be
effected (the "Conversion Date"), which shall in no event be earlier than the
date such Conversion Notice is given in accordance with Section 5(j) below.
Each Conversion Notice, once given, shall be irrevocable (subject to Section
5(b) below). If the holder is converting less than all shares of Preferred
Stock, the Company shall promptly deliver to the holder a certificate for such
number of shares of Preferred Stock as have not been converted.
(ii) If on the Conversion Date applicable to any conversion, the Conversion
Price (as defined below) then in effect is such that the aggregate number of
shares of Common Stock that would then be issuable upon conversion of all
then-outstanding shares of Preferred Stock, when combined with (i) any shares of
Common Stock previously issued upon conversion of any shares of Preferred Stock
and (ii) any shares of Common Stock issued or issuable upon the exercise of
warrants to purchase shares of the Common Stock pursuant to the Stock Purchase
Warrant, Convertible Preferred Stock Contingent Stock Purchase Warrant and
Subordinated Debenture Contingent Stock Purchase Warrant, each granted by the
Company to the initial purchaser of the Preferred Stock (all such warrants will
be collectively referred to herein as the "Warrants"), would equal or exceed
approximately 1,906,692 shares of Common Stock (which is 19.9% of the issued and
outstanding shares of the Common Stock on the Original Issue Date) (the
"Issuable Maximum"), then the Company shall be obligated to effect the
conversion of only such portion of each share of Preferred Stock subject to such
conversion as is
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represented by the Conversion Percentage, and the remaining portion of such
share shall be subject to the mandatory redemption provisions of Section 6.
The Conversion Percentage shall be a fraction, the numerator of which is
the Allowable Conversion Maximum and the denominator of which is the total
number of shares of Preferred Stock outstanding prior to such conversion. The
Allowable Conversion Maximum at any time shall be the difference between the
Issuable Maximum and the total number of shares of Common Stock (i) previously
issued upon conversion of shares of Preferred Stock and (ii) issued or issuable
upon exercise of the Warrants. In the event of any stock split, stock dividend,
recapitalization, reorganization or other similar action or event, appropriate
adjustment shall be made to the Issuable Maximum and the Allowable Conversion
Maximum.
(b) Three Trading Days after the Conversion Date, the Company will deliver
to the holder (i) a certificate or certificates which shall be free of
restrictive legends and trading restrictions (other than those then required by
law), representing the number of shares of Common Stock being acquired upon the
conversion of shares of Preferred Stock (subject to any reduction required
pursuant to Section 5(a)(ii)), and (ii) subject to Section 6 below, the
certificate representing the number of shares of Preferred Stock not converted;
provided, however that the Company shall not be obligated to issue certificates
evidencing the shares of Common Stock issuable upon conversion of any shares of
Preferred Stock (or with respect to shares subject to redemption pursuant to
Section 5(a)(ii) and 6, to pay the redemption price payable under Section 6),
until certificates evidencing such shares of Preferred Stock are either
delivered to the Company or any transfer agent for the Preferred Stock or Common
Stock, or the holder notifies the Company that such certificates have been lost,
stolen or destroyed and provides a bond (or other adequate security acceptable
to the Company) satisfactory to the Company to indemnify the Company from any
loss incurred by it in connection therewith. In the case of a conversion
pursuant to a Conversion Notice, if such certificate or certificates are not
delivered by the date required under this Section 5(b), the holder shall be
entitled by written notice to the Company at any time on or before such holder's
receipt of such certificate or certificates thereafter, to rescind such
conversion, in which event the Company shall immediately return the certificates
representing the shares of Preferred Stock tendered for conversion.
(c)(i)The Conversion Price (the "Conversion Price") in effect on any
Conversion Date shall be the lesser of (a) $6.00, or (b) the average Closing
Price on the 20 Trading Days immediately preceding the second anniversary of the
Original Issue Date. For purposes of this Section, the "Closing Price" on any
Trading Day shall mean the last reported closing price of the Common Stock of
the Company on such day on the principal securities exchange on which the Common
Stock is listed or, if the Common Stock is not so listed, the last reported bid
price of the Common Stock as reported on the Nasdaq National Market on such date
or, if the Common Stock is neither so listed nor so reported, the last reported
bid price of the Common Stock as quoted by a registered broker-dealer for which
such quotes are available on such date.
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(ii) If the Company, at any time while any shares of Preferred Stock are
outstanding, (a) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Junior Stock payable in shares of its capital
stock (whether payable in shares of its Common Stock or of capital stock of any
class), (b) subdivide outstanding shares of Common Stock into larger number of
shares, (c) combine outstanding shares of Common Stock into a smaller number of
shares, or (d) issue by reclassification of shares of Common Stock any shares
of capital stock of the Company, the Conversion Price designated in Section
5(c)(i) shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock of the Company outstanding before such event
and of which the denominator shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this Section
5(c)(ii) shall become effective immediately after the record date in the case of
a dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(iii) In case the Company, at any time while any shares of the
Preferred Stock are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the Per Share Market Value of Common Stock
at the record date mentioned below, the Conversion Price designated in Section
5(c)(i) shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock (excluding treasury shares, if any) outstanding
on the date of issuance of such rights or warrants plus the number of additional
shares of Common Stock offered for subscription or purchase, and of which the
numerator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or warrants
plus the number of shares which the aggregate offering price of the total number
of shares so offered would purchase at such Per Share Market Value. Such
adjustment shall be made whenever such rights or warrants are issued, and shall
become effective immediately after the record date for the determination of
stockholders entitled to receive such rights or warrants. However, upon the
expiration of any right or warrant to purchase Common Stock the issuance of
which resulted in an adjustment in the Conversion Price pursuant to this Section
5(c)(iii), if such right or warrant shall expire and shall not have been
exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 5 after the
issuance of such rights or warrants) had the adjustment of the Conversion Price
made upon the issuance of such rights or warrants been made on the basis of
offering for subscription or purchase only that number of shares of Common Stock
actually purchased upon the exercise of such rights or warrants actually
exercised.
(iv) In case the Company, at any time while any shares of the Preferred
Stock are outstanding, shall issue (A) options or warrants entitling the holder
to subscribe for or purchase shares of Common Stock at an exercise price less
than the Conversion Price, or (B) securities convertible into Common Stock at a
conversion price less than the Conversion Price (in either of (A) or (B) other
than with respect to such issuances or
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grants of options, warrants or securities convertible into Common Stock (1)
under the Company's Amended and Restated 1996 Stock Incentive Plan or pursuant
to a successor plan thereof, (2) in connection with any merger or acquisition
involving the Company and (3) in connection with the issuance of options,
warrants or convertible securities to the initial purchaser of the Preferred
Stock or any successor to any of the rights which may be granted to such initial
purchaser as a result of or in connection with the purchase of the Preferred
Stock or any of the Company's 11.5% Subordinated Debentures which may be
purchased by such initial purchaser), then the Conversion Price designated in
Section 5(c)(i) shall be multiplied by a fraction, of which the denominator
shall be the number of shares of Common Stock (excluding treasury shares, if
any) outstanding on the date of issuance of such options, warrants or
convertible securities, as the case may be, plus the number of additional shares
of Common Stock offered for subscription, purchase or conversion into, and of
which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding on the date of issuance of such options,
warrants or convertible securities, as the case may be, plus the number of
shares which the aggregate exercise or conversion price (as the case may be) of
the total number of shares issuable upon exercise or conversion of such options,
warrants or convertible securities would purchase at the Conversion Price. Such
adjustment shall be made whenever such options, warrants or convertible
securities are issued at an exercise or conversion price less than the
Conversion Price, and such adjustment shall become effective immediately after
the date on which such options, warrants or convertible securities are issued at
an exercise or conversion price less than the Conversion Price. However, upon
the expiration of any option or warrant to purchase or subscribe for Common
Stock, or upon the expiration of the conversion feature of a convertible
security, the issuance of any of which resulted in an adjustment in the
Conversion Price pursuant to this Section 5(c)(iv), if such option, warrant or
the conversion feature of a convertible security shall expire and shall not have
been exercised, the Conversion Price shall immediately upon such expiration be
recomputed and effective immediately upon such expiration be increased to the
price which it would have been (but reflecting any other adjustments in the
Conversion Price made pursuant to the provisions of this Section 5 after the
issuance of such options, warrants or convertible securities) had the adjustment
of the Conversion Price made upon the issuance of such options, warrants or
convertible securities been made on the basis of offering for purchase,
subscription or conversion into only that number of shares of Common Stock
actually purchased, subscribed for or converted into upon the exercise or
conversion of such options, warrants or convertible securities actually
exercised or converted.
(v) In case the Company, at any time while shares of Preferred Stock are
outstanding, shall distribute to all holders of Common Stock (and not to holders
of Preferred Stock) evidences of its indebtedness or assets or rights or
warrants, to subscribe for or purchase any security (excluding those referred to
in Section 5(c)(iii) above) then in each such case the Conversion Price at
which each share of the Preferred Stock shall thereafter be convertible shall be
determined by multiplying the Conversion Price in effect prior to the record
date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Per Share
Market Value of
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Common Stock determined as of the record date mentioned above, and of which the
numerator shall be such Per Share Market Value of the Common Stock on such
record date less the then fair market value at such record date of the portion
of such assets or evidence of indebtedness so distributed applicable to one
outstanding share of Common Stock as determined by the Board of Directors of the
Company in good faith; provided, however that in the event of a distribution
exceeding ten percent of the net assets of the Company, then such fair market
value shall be determined by a nationally recognized or major regional
investment banking firm or firm of independent certified public accountants of
recognized standing (which may be the firm that regularly examines the financial
statements of the Company) (an "Appraiser") selected in good faith by the
holders of a majority in interest of the shares of Preferred Stock; and
provided, further than the Company, after receipt of the determination by such
Appraiser shall have the right to select an additional Appraiser, in which case
the fair market value shall be equal to the average of the determination by each
such Appraiser. In either case the adjustments shall be described in a
statement provided to all holders of Preferred Stock of the portion of assets or
evidences of indebtedness so distributed or such subscription rights applicable
to one share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(vi) All calculations under this Section 5 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(vii) Whenever the Conversion Price is adjusted pursuant to Section
5(c)(ii), (iii), (iv), (v) or (vi), the Company shall promptly mail to each
holder of shares of Preferred Stock, a notice setting forth the Conversion Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(viii)In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which share exchange the Common Stock is
converted into other securities, cash or property, then the holders of the
shares of Preferred Stock then outstanding shall have the right thereafter to
convert such shares only into the kind and amount of shares of stock and other
securities and property receivable upon or deemed to be held following such
reclassification, consolidation, merger, sale, transfer or share exchange by a
holder of a number of shares of the Common Stock of the Company into which such
shares of Preferred Stock could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange. The
terms of any such consolidation, merger, sale transfer or share exchange shall
include such terms so as to continue to give to the holder of shares of
Preferred Stock the right to receive the securities or property set forth in
this Section 5(c)(viii) upon any conversion following such consolidation,
merger, sale, transfer or share exchange. This provision shall similarly apply
to successive reclassifications, consolidations, mergers, sales, transfers of
share exchanges.
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(ix) In case:
(A) the Company shall declare a dividend (or any other distribution)
on its Common Stock; or
(B) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(C) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(D) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of the Company
(other than a subdivision or combination of the outstanding shares of
Common Stock), any consolidation or merger to which the Company is a party,
any sale or transfer of all or substantially all of the assets of the
Company, or any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; or
(E) of the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company;
then the Company shall cause to be filed at each office or agency maintained for
the purpose of conversion of the shares of Preferred Stock, and shall cause to
be mailed to the holders of the shares of Preferred Stock at their last
addresses as they shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined, or (y) the date on which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities or other property deliverable upon
such reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up (but no failure to mail such notice or
any defect therein or in the mailing thereof shall affect the validity of the
corporate action required to be specified in such notice).
(d) In case at any time conditions shall arise by reason of action
taken by the Company which in the opinion of the Board of Directors of the
Company are not adequately covered by the other provisions hereof and which
might materially and adversely affect the rights of the holders of shares of
Preferred Stock (different than or distinguished from the effect generally on
the rights of holders of any class of the Company's capital stock) or in case at
any time any such conditions are expected to arise
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by reason of any action contemplated by the Company, an Appraiser selected by
the holders of a majority in interest of the shares of Preferred Stock shall
give its opinion as to the adjustment, if any (not inconsistent with the
standards established in this Section 5), of the Conversion Price (including, if
necessary, any adjustment as to the securities into which shares of Preferred
Stock may thereafter be convertible) and any distributions which is or would be
required to preserve without diluting the rights of the holders of the shares of
Preferred Stock; provided, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case the adjustment shall be equal to the average of the
adjustments recommended by each such Appraiser. The Board of Directors of the
Company shall make the adjustment recommended forthwith upon the receipt of such
opinion or opinions or the taking of any such action contemplated, as the case
may be; provided, however, that no such adjustment of the Conversion Price shall
be made which in the opinion of the Appraiser(s) giving the aforesaid opinion or
opinions would result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
(e) The Company covenants that it will at all times reserve and keep
available, out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Preferred Stock as herein provided, free
from preemptive rights or any other actual contingent purchase rights of Persons
other than the holders of shares of Preferred Stock, such number of shares of
Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(c) hereof) upon the conversion of all outstanding
shares of Preferred Stock. The Company covenants that all shares of Common
Stock that shall be so issuable shall, upon issue, be duly and validly issued
and fully paid and nonassessable.
(f) Except as otherwise required by Section 6 hereof, the Company
shall not be required to issue stock certificates representing fractions of
shares of Common Stock, but may if otherwise permitted, make a cash payment in
respect of any final fraction of a share based on the Per Share Market Value at
such time. If the Company elects not, or is unable, to make such a cash
payment, the holder of a share of Preferred Stock shall be entitled to receive,
in lieu of the final fraction of a share, one whole share of Common Stock;
provided, however, that in no event shall any such issuance of a whole share
result in the issuance of a number of shares of Common Stock in excess of the
Issuable Maximum and if such issuance would so result in the issuance of a
number of shares in excess of the Issuable Maximum, the holder shall be entitled
to receive the cash payment described above as soon as such cash payment may be
lawfully made.
(g) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the Company
shall not be required to pay any tax that may be payable in respect of any
transfer involved in the issuance and delivery of any such certificate in a name
other than that of the holder of the shares of Preferred Stock converted and the
Company shall not be required to issue or deliver such certificates
9
<PAGE>
unless or until the person or persons requesting the issuance thereof shall have
paid to the Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
(h) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
preferred stock.
(i) If the Company intends to initiate a public offering of its
securities in an amount exceeding $5,000,000 in the aggregate and the Company
reasonably believes that the conversion of any shares of Preferred Stock may
have an adverse effect on the ability of the Company to complete such offering
or the price at which such securities could be sold therein, the Company, upon
at least 30 days prior written notice to the holders of Preferred Stock, may
suspend the right of the holders of the shares of Preferred Stock to convert
such shares pursuant to Section 5 for the period commencing on the date the
Company files a registration statement with the Securities and Exchange
Commission and terminating 90 days after the closing of the public offering,
provided that the last day that the Preferred Stock is convertible (as set forth
in Section 5(a)) shall be extended for such number of days as the conversion
right was suspended under this Section 5(i).
(j) Each Conversion Notice shall be given by facsimile and by mail,
postage prepaid, addressed to the attention of the Chief Financial Officer of
the Company at the facsimile telephone number and address of the principal place
of business of the Company. Any such notice shall be deemed given and effective
upon the earliest to occur of (i) receipt of such facsimile at the facsimile
telephone number specified in this Section 5(j), (ii) three days after deposit
in the United States mails, or (iii) upon actual receipt by the party to whom
such notice is required to be given.
6. MANDATORY REDEMPTION OF THE PREFERRED STOCK.
(a) If on the Conversion Date specified in any Conversion Notice the
provisions of Section 5(a)(ii) do not permit the issuance of the full number of
shares into which the shares of Preferred Stock to be converted would otherwise
be convertible, then the Company shall, with respect to each share of Preferred
Stock that is subject to such Conversion Notice, redeem, from funds legally
available therefor at the time of such redemption, a portion of such share that
is represented by the fraction that is the difference between one and the
Conversion Percentage (such fraction to be known as the "Redemption Ratio").
The redemption price for such portion of each share of Preferred Stock to be
redeemed shall be an amount equal to the product of (i) the Per Share Market
Value on the Conversion Date, (ii) the number of shares of Common Stock into
which such share of Preferred Stock would then be convertible, but for Section
5(a)(ii), times (iii) the Redemption Ratio. If any portion of such redemption
price shall not be paid by the Company within 20 days after the Conversion Date,
such redemption price shall be increased by an amount accruing after the
twenty-first (21st) day at the rate of 14% per annum. If, on any such
Conversion Date, the Company is prohibited under the relevant provisions of the
California General Corporation Law (the "CGCL") from paying, in whole or in
part, the redemption price for any shares of Preferred Stock, any portion of
10
<PAGE>
the redemption price which may be lawfully paid in accordance with the CGCL
shall be paid pro rata to the holders of the shares of Preferred Stock being
redeemed on such Conversion Date and the remainder of such redemption price
shall be paid on a pro rata basis to such holders as soon as such payment is
permissible under the CGCL.
7. OPTIONAL REDEMPTION OF THE PREFERRED STOCK.
(a) FROM THE SECOND TO FIFTH ANNIVERSARY OF THE ORIGINAL ISSUE DATE.
The Preferred Stock may be redeemed, at the option of the Company, in whole or
in part, at any time from and after the second anniversary of the Original Issue
Date until the fifth anniversary thereof, PROVIDED the average bid price of the
Company's Common Stock for the 20 trading days preceding the date of the
Redemption Notice (as defined below) (which such 20-trading day period may
include trading days that fall on or prior to the second anniversary of the
Original Issue Date) exceeds $9.50 per share, at a redemption price per share
equal to the sum of (i) $1,000, (ii) all accrued but unpaid dividends and
(iii) interest on such accrued but unpaid dividends at an annual rate of 11.5%
(the "Redemption Price").
(b) FROM AND AFTER THE FIFTH ANNIVERSARY OF THE ORIGINAL ISSUE DATE.
The Preferred Stock may be redeemed, in whole or in part, at the option of the
Company, at any time from and after the fifth anniversary of the Original Issue
Date at the Redemption Price.
(c) PARTIAL REDEMPTION. In the event of a redemption of only a part
of the then-outstanding Preferred Stock under Section 7(a) or 7(b) above, the
Company shall effect such redemption PRO RATA according to the number of shares
held by each holder of the Preferred Stock.
(d) NOTICE OF REDEMPTION; CONVERSION. At least thirty (30) days and
not more than sixty (60) days prior to the date fixed for any redemption of the
Preferred Stock (the "Redemption Date"), written notice (the "Redemption
Notice") shall be mailed, postage prepaid, to each holder of record of the
Preferred Stock to be redeemed pursuant to such Redemption Notice, at such
holder's address as last shown on the records of the Company. The Redemption
Notice may be given on or prior to the date on which redemption is permissible
at the Company's option pursuant to Sections 7(a) and 7(b) above; provided that
the Redemption Date falls on or after the date on which redemption is first
permissible at the Company's option pursuant to Sections 7(a) and 7(b) above.
Notwithstanding the receipt of such notice, prior to and in lieu of redemption,
any holder of Preferred Stock may convert all or any part of such holder's
shares of Preferred Stock into Common Stock in accordance with Section 5(a)(i)
provided that the Conversion Date occurs prior to the Redemption Date. The
Redemption Notice shall state:
(i) whether or all less than all of the outstanding shares of
Preferred Stock are to be redeemed and the total number of shares being
redeemed;
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<PAGE>
(ii) the number of shares of Preferred Stock held by the
holder (to whom the Redemption Notice is addressed) which the Company
intends to redeem;
(iii) the Redemption Date and the Redemption Price; and
(iv) that the holder is to surrender to the Company, in the
manner and at the place designated, such holder's certificate or
certificates representing the Preferred Stock that is being redeemed.
(e) SURRENDER OF CERTIFICATES. On or before the Redemption Date,
each holder of Preferred Stock to be redeemed shall surrender the certificate or
certificates representing such shares to the Company, in the manner and at the
place designated in the Redemption Notice, and thereupon the Redemption Price
for such shares shall be payable to the order of the person whose name appears
on such certificate or certificates as the owner thereof, and each surrendered
certificate shall be canceled and retired. In the event less than all of the
shares represented by any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares.
(f) PAYMENT. On or before the Redemption Date, the Company shall
deposit with any bank or trust company, having a capital and surplus of at least
$100,000,000, as a trust fund, a sum equal to the Redemption Price of all of the
Preferred Stock called for redemption, with irrevocable instructions and
authority to the bank or trust company to pay, on or after the Redemption Date,
the Redemption Price to the respective holders upon the surrender of their share
certificates. From and after the Redemption Date, the shares so called for
redemption shall be redeemed. The deposit shall constitute full payment of the
shares to their holders, and from and after the Redemption Date the shares shall
be deemed to be no longer outstanding, and the holders thereof shall cease to be
stockholders with respect to such shares and shall have no rights with respect
thereto except the rights to receive from the bank or trust company payment of
the Redemption Price of the shares, without further interest thereon, upon
surrender of their certificates therefor. Any monies so deposited and unclaimed
at the end of one year from the Redemption Date shall be released or repaid to
the Company, after which the holders of shares called for redemption shall be
entitled to receive payment of the Redemption Price only from the Company.
8. DEFINITIONS. For the purposes hereof,
"Common Stock" means shares now or hereafter authorized of the class of
Common Stock, no par value, of the Company presently authorized and stock of any
other class into which such shares may hereafter have been reclassified or
changed.
"Conversion Ratio" means, at any time, a fraction, of which the numerator
is Stated Value plus (i) accrued but unpaid dividends, and (ii) interest on
all accrued but unpaid dividends at an annual rate of 11.5% compounded annually
from the date of accrual until paid, and of which the denominator is the
Conversion Price at such time.
12
<PAGE>
"Junior Stock" means the Common Stock of the Company and any other stock of
the Company over which shares of the Preferred Stock have preference as to
distribution of assets.
"Original Issue Date" means the date of the first issuance of any shares of
the Preferred Stock.
"Per Share Market Value" means on any particular date (a) the last sale
price per share of the Common Stock on such date on the Nasdaq National Market
or other stock exchange on which the Common Stock has been listed or if there is
no such price on such date, then the last price on such exchange on the date
nearest preceding such date, or (b) if the Common Stock is not listed on the
Nasdaq National Market or any stock exchange, the average of the bid and asked
price for a share of Common Stock in the over-the-counter market, as reported by
the Nasdaq Stock Market at the close of business on such date, or (c) if the
Common Stock is not quoted on the Nasdaq Stock Market, the average of the bid
and asked price for a share of Common stock in the over-the-counter market as
reported by the National Quotation Bureau Incorporated (or similar organization
or agency succeeding to its functions of reporting prices), or (d) if the
Common Stock is no longer publicly traded the fair market value of a share of
Common Stock as determined by an Appraiser (as defined in Section 5(c)(v)
above) selected in good faith by the holders of a majority in interest of the
shares of the Preferred Stock; provided, however, that the Company, after
receipt of the determination by such Appraiser, shall have the right to select
an additional Appraiser, in which case, the fair market value shall be equal to
the average of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership, limited
liability company, organization, a business, an individual, a governmental or
political subdivision thereof or a governmental agency.
"Trading Day" means (a) a day on which the Common Stock is traded on the
Nasdaq National Market or principal stock exchange on which the Common Stock has
been listed, or (b) if the Common Stock is not listed on the Nasdaq National
Market or any stock exchange, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the Nasdaq Stock Market, or (c) if the
Common Stock is not quoted on the Nasdaq Stock Market, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices).
RESOLVED FURTHER, that the President and Secretary of the Company be, and
they hereby are, authorized and directed to prepare, execute, verify, and file
in the Office of the California Secretary of State, a Certificate of
Determination in accordance with this resolution and as required by law.
13
<PAGE>
Each of the undersigned further declares under penalty of perjury under the
laws of the State of California that the matters set forth in this certificate
are true and correct of his own knowledge.
Executed at San Diego, California on the 25th day of June, 1997.
/s/ Jay V. Tanna
-------------------------------------
Jay V. Tanna, President
/s/ John W. Low
-------------------------------------
John W. Low, Secretary
14
<PAGE>
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT") OR ANY APPLICABLE STATE SECURITIES LAW AND MAY
NOT BE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OR (ii) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY,
REGISTRATION UNDER THE SECURITIES ACT OR SUCH APPLICABLE STATE SECURITIES LAWS
IS NOT REQUIRED IN CONNECTION WITH SUCH TRANSFER.
ALTRIS SOFTWARE, INC.
11.5% SUBORDINATED DEBENTURE DUE JUNE 27, 2002
No. R-1 Nashville, Tennessee
$3,000,000.00 June 27, 1997
FOR VALUE RECEIVED, Altris Software, Inc., a California corporation (the
"Company"), promises to pay to the order of Sirrom Capital Corporation, a
Tennessee corporation ("Purchaser"), pursuant to the Debenture Purchase
Agreement (as hereinafter defined) at such place as Purchaser may from time to
time designate in writing, in lawful money of the United States of America and
in immediately available funds, by automatic debit, the principal sum of Three
Million Dollars ($3,000,000.00) and any accrued but unpaid interest thereon.
This Debenture is referred to in and is executed and delivered pursuant to,
a Debenture Purchase Agreement dated of even date herewith between the Company
and Purchaser (the "Debenture Purchase Agreement"), to which reference is hereby
made for a statement of the terms and conditions under which this Debenture may
be repaid and accelerated. Capitalized terms not otherwise defined herein shall
have the meanings ascribed to them in the Debenture Purchase Agreement.
Interest shall accrue from the date of issue of this Debenture at the rate
of 11.5% per annum, payable quarterly by automatic debit on the first day of
each March, June, September and December, commencing September 1, 1997, and at
maturity, to mature on June 27, 2002.
Interest shall be computed on the basis of a 360-day year and the actual
number of days elapsed.
Any principal payment due under this Debenture not paid when due, whether
at stated maturity, by notice of repayment, by acceleration or otherwise, and
any accrued but unpaid interest shall, to the extent permitted by applicable
law, thereafter bear interest (compounded monthly and payable upon demand) at an
annual rate of 14% in respect of
<PAGE>
such principal and such unpaid interest until such unpaid amounts have been paid
in full (whether before or after judgment).
This Debenture may be prepaid at any time without payment of penalty or
premium. All payments made hereunder shall be applied first to interest and
then to outstanding principal.
If payment hereunder becomes due and payable on a Saturday, Sunday, or
legal holiday, under the laws of the State of Tennessee, the due date thereof
shall be extended to the next succeeding business day.
Demand, presentment, protest, diligence, notice of dishonor, and any other
formality are hereby expressly waived by the Company and any endorser or
guarantor.
If there is any default under this Debenture, and this Debenture is placed
in the hands of an attorney for collection, or is collected through any court,
including any bankruptcy court, the Company promises to pay to the order of the
holder hereof such holder's reasonable attorneys' fees and court costs actually
incurred in collecting or attempting to collect or securing or attempting to
secure this Debenture or enforcing the holder's rights with respect to the
Collateral, to the extent allowed by the laws of the State of Tennessee or any
state in which any Collateral is situated.
THIS DEBENTURE HAS BEEN DELIVERED IN, AND SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF, THE STATE OF CALIFORNIA APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED THEREIN WITHOUT REGARD TO THE CONFLICTS OF
LAW PROVISIONS THEREOF.
The holder of this Debenture may, with or without notice to any party, and
without affecting the obligations of any maker, surety, guarantor, endorser,
accommodation party, or any other party to this Debenture (i) extend the time
for payment of either principal or interest from time to time, (ii) release or
discharge any one or more parties liable on this Debenture, (iii) suspend the
right to enforce this Debenture with respect to any persons, (iv) change,
exchange, or release any property in which the holder has any interest securing
this Debenture, (v) justifiably or otherwise, impair any of the Collateral or
suspend the right to enforce against any such Collateral, and (vi) at any time
it deems it necessary or proper, call for and, should it be made available,
accept, as additional security, the signature or signatures of additional
parties or a security interest in property of any kind or description or both.
This Debenture is subordinated to certain other indebtedness of the Company
to the extent and with the effect set forth in the Debenture Purchase Agreement.
This Debenture is registered on the books of the Company and is
transferable only by surrender thereof at the principal office of the Company at
9339 Carroll Park Drive, San Diego, California 92121, or such other address as
the Company shall have advised the
2
<PAGE>
holder of the Debenture in writing, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of this Debenture
or its attorney duly authorized in writing. Payment of or on account of
principal, premium, if any, and interest on this Debenture shall be made only to
or upon the order in writing of the registered holder thereof.
Any provision herein, or in the Debenture Purchase Agreement, or any other
document executed or delivered in connection herewith or therewith, or in any
other agreement or commitment, whether written or oral, expressed or implied, to
the contrary notwithstanding, neither the Purchaser nor any holder hereof shall
in any event be entitled to receive or collect, nor shall any amounts received
hereunder be credited, so that Purchaser or any holder hereof shall be paid, as
interest, a sum greater than the maximum amount permitted by applicable law to
be charged to the person primarily obligated to pay this Debenture at the time
in question. If any construction of this Debenture or the Debenture Purchase
Agreement, or any and all other papers, agreements or commitments, indicate a
different right given to Purchaser or any holder hereof to ask for, demand, or
receive any larger sum as interest, such is a mistake in calculation or wording
which this clause shall override and control, it being the intention of the
parties that this Debenture, the Debenture Purchase Agreement, and all other
documents executed or delivered in connection herewith shall in all ways comply
with applicable law and proper adjustments shall automatically be made
accordingly. In the event that Purchaser or any holder hereof ever receives,
collects, or applies as interest, any sum in excess of the maximum amount
permitted by applicable law, if any, such excess amount shall be applied to the
reduction of the unpaid principal balance of this Debenture, and if this
Debenture is paid in full, any remaining excess shall be paid to the Company.
In determining whether or not the interest paid or payable, under any specific
contingency, exceeds the maximum amount permitted by applicable law, if any, the
Company and any holder hereof shall, to the maximum extent permitted under
applicable law: (a) characterize any non-principal payment as an expense or fee
rather than as interest, and (b) "spread" the total amount of interest
throughout the entire term of this Debenture.
3
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to be executed in
its corporate name by the undersigned officer, thereunto duly authorized.
ALTRIS SOFTWARE, INC.
By:/s/ Roger H. Erickson
-------------------------------
Roger H. Erickson
Vice President, U.S. Operations
4
<PAGE>
CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement")
entered into the 27th day of June, 1997, by and between ALTRIS SOFTWARE, INC., a
California corporation (the "Company"), and SIRROM CAPITAL CORPORATION d/b/a
Tandem Capital, a Tennessee corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain additional capital for use in
connection with its business through the issue and sale of certain obligations,
and Purchaser is willing to purchase such obligations from the Company, on the
terms and conditions set forth herein. Capitalized terms shall have the
meanings assigned by Section 11 unless otherwise defined herein.
NOW, THEREFORE, in mutual consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
1. SALE AND PURCHASE OF STOCK.
1.1 CONVERTIBLE PREFERRED STOCK. The Company has authorized the
issue and sale of 3,000 shares of its Series D Convertible Preferred Stock (the
"Convertible Preferred Stock") having the rights and preferences set forth by
the Certificate of Determination (the "Certificate of Determination") attached
as Exhibit A-1 at a purchase price of $1,000.00 per share, for an aggregate
purchase price of Three Million Dollars ($3,000,000.00). The Certificate of
Determination shall be filed with the Secretary of State of California on or
before the Closing Date. The Convertible Preferred Stock shall (i) have a
Stated Value of $1,000.00 per share, (ii) entitle the holder to quarterly
cumulative dividends of $28.75 per share, (iii) entitle the holder to one vote
upon all matters submitted to a vote of the holders of the Company's common
stock, no par value (the "Common Stock"), (iv) entitle the holder to convert
such Convertible Preferred Stock into shares of Common Stock at a Conversion
Price of $6.00, (v) shall rank senior to all other Preferred Stock issued by
the Company (unless otherwise authorized by vote of the holders of the
Convertible Preferred Stock in accordance with Section 3 of the Certificate of
Determination), and senior to the Common Stock, and (vi) shall have such other
rights and preferences as are set forth by the Certificate of Determination.
1.2 PAYMENT OF DIVIDENDS; AUTOMATIC DEBIT. The Convertible Preferred
Stock shall entitle the holder to quarterly cumulative dividends of $28.75 per
share, payable quarterly by automatic debit on the first day of March, June,
September, and December in each year, commencing September 1, 1997, provided
that (i) such dividends shall not be payable by automatic debit if not later
than two business days prior to such payment dates the Company shall have
notified Purchaser in writing that such dividends have not been declared, and
(ii) if such automatic debit is inadvertently or mistakenly effected without
due declaration thereof by the Board of Directors of the Company, Purchaser
shall return such debit amount to the Company.
<PAGE>
1.3 REDEMPTION FEATURE. The Convertible Preferred Stock may be
redeemed, at the option of the Company, at any time on or after June 27, 1999,
PROVIDED the average bid price of the Company's Common Stock for the 20 trading
days preceding the date of the Redemption Notice (which such 20-trading day
period may include trading days that fall on or prior to June 27, 1999) exceeds
$9.50 per share, and the Redemption Price per share shall be the sum of (i)
$1,000, (ii) all accrued but unpaid dividends and (iii) interest on such
accrued but unpaid dividends at an annual rate of 11.5%. Notwithstanding the
immediately preceding sentence, the Convertible Preferred Stock may be redeemed,
at the option of the Company, at any time on or after June 27, 2002, and the
Redemption Price per share shall be the sum of (i) $1,000, (ii) all accrued
but unpaid dividends and (iii) interest on such accrued but unpaid dividends at
an annual rate of 11.5%.
1.4 CONTINGENT WARRANTS. As long as there are shares of Convertible
Preferred Stock outstanding, the Company shall grant, issue, and deliver to
Purchaser, on each such issue date on which shares of Convertible Preferred
Stock remain outstanding, contingent Stock Purchase Warrants, in the form of
EXHIBIT A-2 (the "Contingent Warrants"), entitling Purchaser to purchase Shares
of Common Stock at the Exercise Price set forth below, at any time and from time
to time during the five year period beginning on the applicable issue date of
each such Contingent Warrant, such Contingent Warrants to be issued on the issue
dates set forth below and with respect to the following numbers of Shares of
Common Stock (provided that for such issuance to be made on any issue date,
shares of Convertible Preferred Stock must remain outstanding).
<TABLE>
<CAPTION>
NUMBER
ISSUE DATE OF SHARES EXERCISE PRICE
---------- ---------- --------------
<S> <C> <C>
Third anniversary of the 50,000 $7.00 per share
Closing Date
Fourth anniversary of the 50,000 $7.00 per share
Closing Date
Twentieth day following 250,000 100% of Closing Bid Price on such date in July
the fifth anniversary of the 2002 (or on the immediately preceding trading
Closing Date day if such day is not a trading day)
Sixth anniversary of the 250,000 100% of Closing Bid Price on such date in June
Closing Date 2003 (or on the immediately preceding trading
day if such day is not a trading day)
</TABLE>
1.5 COMMITMENT; CLOSING DATE. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to Purchaser, and Purchaser agrees
to purchase from the Company, 3,000 shares of Convertible Preferred Stock for
an aggregate purchase price of $3,000,000. Delivery of a certificate
representing the Convertible Preferred Stock purchased by Purchaser shall be
made at the offices of Tandem Capital, Inc., Nashville, Tennessee, against
payment therefor by federal funds wire transfer in immediately available funds
and to the accounts and in the amounts set forth in the Company's wire
instructions in the form of EXHIBIT B hereto, at 10:00 A.M., Nashville time, on
June 27, 1997 or such later date as the Company and Purchaser shall agree (the
"Closing
2
<PAGE>
Date"). The stock certificate shall be registered in Purchaser's name or in the
name of such nominee as Purchaser may specify at least 24 hours prior to the
date fixed for delivery.
1.6 PROCESSING FEE. The Company shall pay to Purchaser on or before
the Closing Date a processing fee in an amount equal to $60,000.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser as follows:
2.1 CORPORATE STATUS.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has the
corporate power to own and operate its properties, to carry on its business as
now conducted and to enter into and to perform its obligations under this
Agreement, the Certificate of Determination, the Contingent Warrants, the
Convertible Preferred Stock Registration Rights Agreement, and any other
document executed and delivered by the Company in connection herewith or
therewith (collectively, the "Operative Documents"). The Company is qualified
to do business and is in good standing in each state or other jurisdiction in
which such qualification is necessary under applicable law, except where the
failure to so qualify would not have a Material Adverse Effect on the financial
condition or results of operations of the Company.
(b) SCHEDULE 2.1(b) sets forth a complete list of each corporation,
partnership, joint venture, limited liability company or other business
organization in which the Company owns, directly or indirectly, any capital
stock or other equity interest (the "Subsidiary" or, collectively, the
"Subsidiaries"), or with respect to which the Company or any Subsidiary, alone
or in combination with others, is in a control position, which list shows the
jurisdiction of incorporation or other organization, and, if the Company does
not directly or indirectly own 100% of the outstanding equity interests in the
entities so listed on SCHEDULE 2.1(b), the percentage interest so owned by the
Company or any Subsidiary. Each Subsidiary is duly organized, validly existing
and in good standing under the laws of the jurisdiction of incorporation or
other organization as indicated on SCHEDULE 2.1(b), each has all requisite power
and authority and holds all material licenses, permits and other required
authorizations from government authorities necessary to own its properties and
assets and to conduct its business as now being conducted, and each is qualified
to do business as a foreign corporation (or business organization) and is in
good standing in every jurisdiction in which such qualification is necessary
under applicable law, except where the failure to so qualify would not have a
Material Adverse Effect on the financial condition or results of operations of
the Company. All of the outstanding shares of capital stock, or other equity
interest, of each Subsidiary owned, directly or indirectly, by the Company have
been validly issued, are fully paid and nonassessable, and are owned by the
Company free and clear of all liens, charges, security interests, or
encumbrances.
2.2 CAPITALIZATION.
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(a) The authorized capital stock of the Company consists of (i)
1,000,000 shares of Preferred Stock, none of which are issued and outstanding,
and (ii) 20,000,000 shares of Common Stock, of which 9,581,370 shares are
issued and outstanding. All shares of Common Stock outstanding have been
validly issued and are fully paid and nonassessable. There are no statutory or
contractual preemptive rights, rights of first refusal, antidilution rights, or
any similar rights held by any party with respect to the issuance of the
Convertible Preferred Stock.
(b) The Company has not granted, or agreed to grant or issue, any
options, warrants or rights to purchase or acquire from the Company any shares
of capital stock of the Company, there are no securities outstanding or
committed to be issued by the Company or any Subsidiary which are convertible
into or exchangeable for any shares of capital stock or other securities of the
Company, and there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company is a party, or by which it
is bound, requiring or restricting the issuance of any shares of capital stock
or other securities of the Company, whether or not outstanding except for (i)
the Convertible Preferred Stock to be issued pursuant to this Agreement, (ii)
the Contingent Warrants to be issued pursuant to this Agreement, (iii) the
Debentures, (iv) the Initial Warrants and the Additional Warrants, (v) options
to purchase an aggregate of 292,563 shares of the Company's Common Stock
outstanding under its 1987 Stock Option Plan, (vi) options to purchase an
aggregate of 546,000 shares of the Company's Common Stock outstanding under its
Amended and Restated 1996 Stock Incentive Plan and (vii) such other warrants and
other rights to acquire capital stock of the Company set forth on SCHEDULE
2.2(b). Except as set forth on SCHEDULE 2.2(b), all such shares have been duly
reserved for issuance, have been duly and validly authorized, and upon issuance
in accordance with the terms of the respective instruments and receipt of
payment therefor, will be validly issued, fully paid, and nonassessable.
(c) The Convertible Preferred Stock that is being purchased by the
Purchaser, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Operative Documents and under applicable state and federal securities laws. The
Common Stock issuable upon conversion of the Preferred Stock being purchased
under this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Certificate of Determination and
this Agreement, will be duly and validly issued, fully paid, and nonassessable
and will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities laws.
2.3 AUTHORIZATION. The Company has full legal right, power and
authority to enter into and perform its obligations under this Agreement and the
Operative Documents without the consent or approval of any other person, firm,
governmental agency, or other legal entity, except as contemplated hereby or
thereby. The execution and delivery of this Agreement, the issuance of the
Convertible Preferred Stock hereunder, the execution and delivery of each other
document in connection herewith or therewith to which the Company is a party,
and the performance by the Company of its obligations hereunder or thereunder
are within the corporate powers of the Company and have been duly authorized by
all necessary corporate action properly
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taken, have received all necessary governmental approvals, if any were required,
and do not and will not contravene or conflict with (i) the Articles of
Incorporation or Bylaws of the Company, (ii) any material agreement to which the
Company or any of its Subsidiaries is a party or by which any of them or their
properties is bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge, security interest, or encumbrance of
any nature upon any of the property or assets of the Company or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument, or (iii)
violate any provision of law or any applicable judgment, ordinance, regulation
or order of any court or governmental agency. The officer executing this
Agreement, and any other document executed and delivered by the Company in
connection herewith or therewith, is duly authorized to act on behalf of the
Company.
2.4 VALIDITY AND BINDING EFFECT. Each of the Operative Documents is
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
2.5 CONTRACTS AND OTHER COMMITMENTS. Except as disclosed on SCHEDULE
2.5 and other than as filed by the Company with the Securities and Exchanges
Commission ("SEC") as an exhibit pursuant to Item 601(b)(10) of Regulation S-K
under the Securities Act, the Company and its Subsidiaries do not have and are
not bound by any loans, liens, pledges, security interests agreements,
indentures or other instruments defining the rights of security holders, under
any securities or other financings upon which the Company or any Subsidiary is
obligated or by which the Company is bound.
2.6 LITIGATION. Except as set forth on SCHEDULE 2.6, there is no
litigation, arbitration, claim, proceeding or investigation pending or
threatened in writing to which the Company or any Subsidiary is a party or to
which any of its respective properties or assets is the subject which, if
determined adversely to the Company or such Subsidiary, would individually or in
the aggregate have a Material Adverse Effect on the financial position, results
of operations, or business of the Company and its Subsidiaries.
2.7 FINANCIAL STATEMENTS. The consolidated financial statements of
the Company and its Subsidiaries for the fiscal years ended December 31, 1996,
1995, and 1994, and the unaudited consolidated financial statements as of and
for the three months ended March 31, 1997, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly present the
financial position, results of operations, cash flows and changes in
stockholders' equity of the Company and its consolidated Subsidiaries, at the
respective dates of and for the periods to which they apply in such financial
statements, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
indicated, subject, in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the most recent
audited consolidated financial statements). No financial statements of any
other
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person(s) are required by GAAP to be included in the consolidated financial
statements of the Company.
2.8 SEC REPORTS. The Company's Common Stock is listed for trading on
the Nasdaq National Market and has been duly registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Since January
1, 1994, the Company has timely filed all reports, registrations, proxy or
information statements, and all other documents, together with any amendments
required to be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC Reports"). As of
their respective dates, the SEC Reports complied in all material respects with
all rules and regulations promulgated by the SEC and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.9 ABSENCE OF CHANGES. Since March 31, 1997, except as contemplated
hereby or by the other Operative Documents, (i) neither the Company nor any of
its Subsidiaries have incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that are material to the Company, (ii) neither the Company nor any of
its Subsidiaries have purchased any of its outstanding capital stock or
declared, or paid any dividend or other distribution or payment in respect of
its capital stock, (iii) there has not been any change in the authorized or
issued capital stock, long-term debt, or short-term debt of the Company, and
(iv) there has not been any material adverse change in or affecting the
business, operations, properties, prospects, assets, or condition (financial or
otherwise) of the Company or any Subsidiary, taken as a whole.
2.10 NO DEFAULTS. Except as set forth on SCHEDULE 2.10 and except
where a default or event of default does not and would not constitute a Material
Adverse Event, no default or event of default by the Company or any Subsidiary
exists under this Agreement or any of the other Operative Documents, or under
any Applicable Contract, or other material instrument or agreement to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or its respective properties may be bound, except for any such default or event
of default which would not reasonably be expected to cause a Material Adverse
Event, and no event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of default
thereunder.
2.11 COMPLIANCE WITH LAW. The Company is in compliance with all
foreign, federal, state or local laws, regulations, decrees and orders
applicable to it (including but not limited to the Foreign Corrupt Practices
Act, occupational and health standards and controls, antitrust, monopoly,
restraint of trade or unfair competition) to the extent that noncompliance, in
the aggregate, would not reasonably be expected to cause a Material Adverse
Event.
2.12 TAXES. Except as set forth on SCHEDULE 2.12, the Company and its
Subsidiaries have filed or caused to be filed all federal, state and local
income, excise and franchise tax returns required to be filed (except for
returns that have been appropriately extended), and have paid, or provided for
the payment of, all taxes shown to be due and payable
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on said returns and all other taxes, impositions, assessments, fees or other
charges imposed on it by any governmental authority, agency or instrumentality,
prior to any delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith by
appropriate proceedings, for which appropriate amounts have been reserved), and
the Company does not know of any proposed assessment for additional taxes or any
basis therefor. No tax liens have been filed against the Company or its
properties. The Company's federal income tax liability has been finally
determined by the Internal Revenue Service and satisfied for all taxable years
up to and including the taxable year ended December 31, 1993, or closed by
applicable statutes of limitation.
2.13 CERTAIN TRANSACTIONS. Except as set forth on in the proxy
statements filed by the Company with the SEC and except as to indebtedness
incurred in the ordinary course of business and approved by the Board of
Directors of the Company, neither the Company nor any Subsidiary is indebted,
directly or indirectly, to any of its officers or directors, or to their
respective spouses or children, or to any affiliate, in excess of an aggregate
amount of $60,000, and none of such officers or directors or any members of
their immediate families or affiliates, are indebted to the Company or any
Subsidiary in excess of an aggregate amount of $60,000, or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any Subsidiary is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company or any
Subsidiary, except that the Company's officers and directors may own
individually no more than 1% of the outstanding capital stock of any publicly
traded company which competes directly with the Company. Except as set forth in
the proxy statements filed by the Company with the SEC, no officer or director
of the Company or any Subsidiary or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company or
any Subsidiary that would require disclosure under Item 404 of Regulation S-K.
Except as set forth on SCHEDULE 2.13, neither the Company nor any Subsidiary is
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.14 TITLE TO PROPERTY. The Company and each Subsidiary has good and
marketable title to all of the real and personal property owned by it, free and
clear of all liens, security interests, pledges, encumbrances, equities claims
and restrictions of every kind and nature whatsoever, except as disclosed on
SCHEDULE 2.14 and other than (a) liens for taxes not yet due, (b) imperfections
in title, if any, not material in amount and which, individually or in the
aggregate, do not materially interfere with the conduct of the business of the
Company or the use of its assets, (c) such secured indebtedness as is disclosed
in the Financial Statements covering the assets and properties referred to
therein (if any), (d) liens in the ordinary course of business consistent with
past practice and (f) installments of special assessments not yet delinquent,
recorded easements, covenants and other restrictions, and utility easements,
building restrictions, zoning restrictions and other easements and restrictions
existing generally with respect to properties of a similar character. Any real
property and buildings held under lease by the Company or any Subsidiary are
held under valid existing and enforceable leases, except as disclosed on
SCHEDULE 2.14 or which are not material and do not interfere with the use to be
made of such buildings or property by the Company.
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2.15 INTELLECTUAL PROPERTY.
(a) Except as set forth in SCHEDULE 2.15, to the Company's knowledge,
the Company is the lawful owner or has a valid right to use the proprietary
information used in its business free and clear of any claim, right, trademark,
patent or copyright protection of any third party; provided, however, that this
paragraph (a) shall not be deemed to include any representation regarding the
absence of infringements or conflicts with the rights of others, which
representation is made only in paragraph (c) hereof and only to the knowledge of
the Company. As used herein, "proprietary information" includes without
limitation (i) any computer software and related documentation, inventions,
technical and nontechnical data related thereto, and (ii) other documentation,
inventions and data related to patterns, plans, methods, techniques, drawings,
finances, customer lists, suppliers, products, special pricing and cost
information, designs, processes, procedures, formulas, research data owned or
used by the Company or any Subsidiary or marketing studies conducted by the
Company, all of which the Company considers to be commercially important and
competitively sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business.
(b) Except as set forth in SCHEDULE 2.15, to the Company's knowledge,
the Company has good and marketable title to or has a valid right to use all
patents, trademarks, trade names, service marks, copyrights or other intangible
property rights, and registrations or applications for registration thereof,
owned by the Company or any Subsidiary or used or required by the Company or any
Subsidiary in the operation of its business as presently being conducted;
provided, however, that this paragraph (a) shall not be deemed to include any
representation regarding the absence of infringements or conflicts with the
rights of others, which representation is made only in paragraph (c) hereof and
only to the knowledge of the Company.
(c) The Company has no knowledge of any infringements or conflict
with asserted rights of others with respect to copyrights, patents, trademarks,
service marks, trade names, trade secrets or other intangible property rights or
know-how which could cause a Material Adverse Event. To the Company's
knowledge, no products or processes of the Company infringe or conflict with any
rights of patent or copyright, or any discovery, invention product or process,
that is the subject of a patent or copyright application or registration known
to the Company. The Company follows such procedures as the Company deems
necessary or appropriate to provide reasonable protection of the Company's trade
secrets and proprietary rights in intellectual property of all kinds. To the
knowledge of the Company, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the knowledge of the
Company, no person employed by or affiliated with the Company has violated any
confidential relationship that such person may have had with any third person,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company.
2.16 ENVIRONMENTAL MATTERS. The Company has duly complied in all
material respects with, and its business, operations, assets, equipment,
property, leaseholds or other facilities are in compliance in all material
respects with, the provisions of all federal, state and
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local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder except to the extent that the
violation thereof would not reasonably be expected to cause a Material Adverse
Event. The Company has been issued and will maintain all required material
federal, state and local permits, licenses, certificates and approvals relating
to (i) air emissions; (ii) discharges to surface water or groundwater; (iii)
noise emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
(which shall include any and all such materials listed in any federal, state or
local law, code or ordinance and all rules and regulations promulgated
thereunder as hazardous or potentially hazardous); or (vi) other environmental,
health or safety matters, except to the extent that the absence thereof would
not reasonably be expected to cause a Material Adverse Event. The Company has
not during the two years prior to the date hereof received notice of, does not
know of, and does not suspect facts which might constitute a material violation
of any federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property, leaseholds, or other
facilities. Except in accordance with a valid governmental permit, license,
certificate or approval, there has been no material emission, spill, release or
discharge into or upon (i) the air; (ii) soils, or any improvements located
thereon; (iii) surface water or groundwater; or (iv) the sewer, septic system or
waste treatment, storage or disposal system servicing the premises, of any toxic
or hazardous substances or wastes at or from the premises, except to the extent
that any such emission, spill, release or discharge would not reasonably be
expected to cause a Material Adverse Event. During the two years prior to the
date hereof, there has been no complaint, order, directive, claim, citation or
notice by any governmental authority or any person or entity with respect to (i)
air emissions; (ii) spills, releases or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or waste;
or (vi) other environmental, health or safety matters materially affecting the
Company or its business, operations, assets, equipment, property, leaseholds or
other facilities. The Company does not have any material indebtedness,
obligation or liability (absolute or contingent, matured or not matured), with
respect to the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
2.17 ACCOUNTING MATTERS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain accountability for the assets of the Company and each of
its Subsidiaries; (iii) access to the assets of the Company and each of its
Subsidiaries is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets of the
Company and each of its Subsidiaries are compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
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2.18 DISTRIBUTIONS TO COMPANY. Except for limitations existing under
applicable law, no Subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any other
distributions on such Subsidiary's capital stock, from repaying to the Company
any loans or advances to such Subsidiary, or from transferring any of such
Subsidiary's property or assets to the Company or any other Subsidiary of the
Company.
2.19 PRIOR SALES. All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times (i) exempt from the
registration requirements of the Securities Act or were duly registered under
the Securities Act, and (ii) were duly registered or were the subject of an
available exemption from the registration requirements of all applicable state
securities or Blue Sky laws.
2.20 REGULATORY COMPLIANCE. Except as set forth on SCHEDULE 2.20, the
conduct of the business and the ownership of the assets of the Company is not
dependent on any license, permit approved, waiver or other authorization of any
federal, state or local governmental or regulatory body which the Company has
not obtained, except to the extent that the absence thereof would not reasonably
be expected to cause a Material Adverse Event. All material licenses, permits
and authorizations held by the Company are in full force and effect.
2.21 MARGIN REGULATIONS. The Company is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or carry
any equity security of a class which is registered pursuant to Section 12 of
the Exchange Act.
2.22 1940 ACT COMPLIANCE. The Company is an " eligible portfolio
company" as such term is defined in Section 2(a)(46) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and the issuance and
sale by the Company of the Convertible Preferred Stock does not constitute a
"public offering" as such term is used in Section 55(a)(1) thereof.
2.23 LIMITED OFFERING. Subject in part to the truth and accuracy of
Purchaser's representations set forth in this Agreement, the offer, sale and
issuance of the Convertible Preferred Stock is exempt from the registration
requirements of the Securities Act, and neither the Company nor any authorized
agent acting on its behalf has taken or will take any action hereafter that
would cause the loss of such exemption.
2.24 REGISTRATION OBLIGATIONS. Except as described in Schedule 2.24,
the Company is not under any obligation to register under the Securities Act or
the Trust Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that are proposed to be subsequently issued.
2.25 INSURANCE. The Company has maintained, and has caused each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business in such forms
and amounts and against such risks, casualties and contingencies as are
customary for corporations of comparable size and condition (financial
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and otherwise) engaged in the same or a similar business and owning
and operating similar properties.
2.26 GOVERNMENTAL CONSENTS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state, or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement by the
Company, except (i) the filing of the Certificate of Determination with the
Secretary of State of the State of California and (ii) such filings as have been
made prior to the Closing, except notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act or
such post-closing filings as may be required under applicable state securities
laws, which will be timely filed within the applicable periods therefor.
2.27 EMPLOYEES. To the best of the Company's knowledge, there is no
strike, labor dispute or union organization activities pending or threatened
between it and its employees. None of the Company's employees belongs to any
union or collective bargaining unit. To the knowledge of the Company, the
Company has complied in all material respects with all applicable state and
federal equal opportunity and other laws related to employment. To the
knowledge of the Company, no employee of the Company is or will be in violation
of any judgment, decree, or order, or any term of any employment contract,
patent disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with the Company, or any other party because
of the nature of the business conducted or presently proposed to be conducted by
the Company or to the use by the employee of his or her best efforts with
respect to such business. Other than as set forth on SCHEDULE 2.27 hereto and
other than the Company's 1987 Stock Option Plan and its Amended and Restated
1996 Stock Incentive Plan, the Company is not a party to or bound by any
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement. To the knowledge of the Company, it is not aware that any officer or
key employee, or that any group of key employees, intends to terminate
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company.
2.28 ERISA. The Company is in compliance in all material respects
with all applicable provisions of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29
U.S.C.A. SS 1001 et seq. (1975), as amended from time to time ("ERISA").
Neither a reportable event nor a prohibited transaction (as defined in ERISA)
has occurred and is continuing with respect to any "pension plan" (as such term
is defined in ERISA, a "Plan"); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation (together with any
entity succeeding to or all of its functions, the "PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Company nor any commonly
controlled entity (as defined in ERISA) has completely or partially withdrawn
from a multiemployer plan (as defined in ERISA). The Company and each commonly
controlled entity has met its minimum
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funding requirements under ERISA with respect to all of its Plans and the
present fair market value of all Plan property equals or exceeds the present
value of all vested benefits under each Plan, as determined on the most recent
valuation date of the Plan and in accordance with the provisions of ERISA and
the regulations thereunder for calculating the potential liability of the
Company or any commonly controlled entity to the PBGC or the Plan under Title IV
or ERISA; and neither the Company nor any commonly controlled entity has
incurred any liability to the PBGC under ERISA.
2.29 FEES/COMMISSIONS. Except as set forth on SCHEDULE 2.29, the
Company has not agreed to pay any finder's fee, commission, origination fee or
other fee or charge to any person or entity with respect to or as a result of
the consummation of the transactions contemplated hereunder, except for the
processing fee due to Purchaser under Section 1.5.
2.30 DISCLOSURE. No representation or warranty made as of the date
hereof by the Company contained in this Agreement, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a material
fact, or omits or will (as of the time so furnished) omit to state any material
fact which is necessary in order to make the statements contained herein or
therein not misleading.
2.31 SURVIVAL. The representations and warranties of the Company
contained in this Agreement shall survive until the first anniversary of the
date hereof, provided, however, that the representations and warranties
contained in Sections 2.1 through 2.4 shall survive until the termination of
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser hereby
represents to the Company as follows:
3.1 CORPORATE STATUS. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee
and has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement and any other document executed or delivered by Purchaser in
connection herewith.
3.2 AUTHORIZATION. Purchaser has full legal right, power and
authority to enter into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection herewith,
without the consent or approval of any other person, firm, governmental agency
or other legal entity. The execution and delivery of this Agreement and any
other document executed and delivered by Purchaser in connection herewith, and
the performance by Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all necessary
governmental approvals, if any were required, have been duly authorized by all
necessary corporate action properly taken, and do not and will not contravene or
conflict with (i) the Charter or Bylaws of Purchaser, (ii) any material
agreement to which Purchaser is a party or by which it or any of its properties
is bound, or constitute a default thereunder, or result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
upon any of the property or assets of Purchaser pursuant to
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the terms of any such agreement or instrument, or (iii) violate any provision of
law or any applicable judgment, ordinance, regulation or order of any court or
governmental agency. The officer(s) executing this Agreement and any other
document executed and delivered by Purchaser in connection herewith, is duly
authorized to act on behalf of Purchaser.
3.3 VALIDITY AND BINDING EFFECT. This Agreement and any other
document executed and delivered by Purchaser in connection herewith are the
legal, valid and binding obligations of the Purchaser, enforceable against it in
accordance with their respective terms.
3.4 ACCREDITED INVESTOR, INVESTMENT INTENT. In connection with the
issuance and sale to Purchaser of the Convertible Preferred Stock and shares of
Common Stock issuable upon conversion thereof pursuant to this Agreement,
Purchaser further represents and warrants to the Company as follows:
(a) PURCHASE FOR INVESTMENT. Purchaser is acquiring the Convertible
Preferred Stock and any shares of Common Stock issuable upon conversion thereof
for its own account as principal, for investment, and not with a view to the
distribution or resale thereof, in whole or in part, in violation of the
Securities Act or any applicable state securities law, and Purchaser has no
present intention of selling, negotiating or otherwise disposing of the
Convertible Preferred Stock or shares of Common Stock issuable upon conversion
thereof.
(b) NO REGISTRATION; RULE 144. (i) Neither the Convertible
Preferred Stock nor the shares of Common Stock issuable upon conversion thereof
has been registered under the Securities Act, and as such, such shares of
Convertible Preferred Stock and any shares of Common Stock issuable upon
conversion thereof are "restricted securities" as defined in Rule 144; (ii)
neither the shares of Convertible Preferred Stock nor the shares of Common Stock
issuable upon conversion thereof may be resold unless they are registered under
the Securities Act or unless an exemption therefrom is available; (iii) the
Purchaser understands that the availability of Rule 144 for the sale and
transfer of the Convertible Preferred Stock and any shares of Common Stock
issuable upon conversion thereof is limited, and that certain conditions and
events must exist and occur before Purchaser would be able to utilize Rule 144
in connection with the sale or other disposition of the Convertible Preferred
Stock or shares of Common Stock issuable upon conversion thereof.
(c) INVESTMENT COMPANY; ACCESS TO INFORMATION. Purchaser is a
registered investment company under the Investment Company Act and as such is an
"accredited investor" under Rule 501(a) under the Securities Act. Purchaser
understands that its investment in the Convertible Preferred Stock involves a
high degree of risk. Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the investments contemplated by this Agreement. Purchaser has been afforded, to
the satisfaction of Purchaser, the opportunity to review the financial and other
information which it has requested from the Company, and to obtain such
additional publicly available information concerning the Company and its
business, and to ask such questions and receive such answers (based upon
publicly available information), as the Purchaser deems necessary to make an
informed investment decision.
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(d) RELIANCE ON REPRESENTATIONS OF PURCHASER. Purchaser understands
that the Convertible Preferred Stock is being offered and sold, and the shares
of Common Stock issuable upon conversion thereof are being offered, to it in
reliance on specific exemptions from the registration requirements of the U.S.
securities laws and that the Company is relying of the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Convertible Preferred Stock and the shares of Common Stock
issuable upon conversion thereof.
(e) TRANSFER TO SUBSIDIARY. Notwithstanding anything in this Section
3.4 to the contrary, Purchaser may transfer and assign its rights and
obligations under this Agreement to one or more of its Wholly-owned
Subsidiaries, provided that any such Subsidiary shall agree to become bound by
the terms of this Agreement, including the representations and warranties
contained in this Section 3.4, and provided, further that Purchaser shall remain
liable for the performance of its obligations hereunder notwithstanding any such
assignment.
3.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will not (i)
result in the violation of the Purchaser's charter documents or by-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, any agreement, indenture or
instrument to which the Purchaser is a party, or, to the actual knowledge of the
Purchaser, result in a violation of any law, rule, regulation, order, judgment
or decree of any court of governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on the
Purchaser). The Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court of governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or purchase the Convertible Preferred Stock in accordance
with terms hereof.
3.6 SURVIVAL. The representations and warranties of the Purchaser
contained in this Agreement shall survive until the first anniversary of the
date hereof.
4. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER. The obligation
of Purchaser to purchase and pay for the Convertible Preferred Stock on the
Closing Date shall be subject to the satisfaction, on or before the Closing
Date, of each of the following conditions set forth below. These conditions are
for Purchaser's sole benefit and may be waived by Purchaser at any time in its
sole discretion.
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement and in any Schedule hereto
or any document or instrument delivered to Purchaser or its representatives
hereunder, shall have been true and correct when made and shall be true and
correct as of the Closing Date as if made on such date, except to the extent
such representations and warranties expressly relate to a specific date. The
Company shall
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have duly performed all of the covenants and agreements to be performed by it
hereunder on or prior to the Closing Date.
4.2 OFFICER'S CERTIFICATE. The Company shall have delivered to
Purchaser a certificate, dated the Closing Date, signed by the President or
Chief Financial Officer of the Company, substantially in the form attached
hereto as EXHIBIT C.
4.3 SATISFACTORY PROCEEDINGS AND SECRETARY'S CERTIFICATE. All
proceedings taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to Purchaser and Purchaser's counsel, and the
Company shall have delivered to Purchaser a certificate, dated the Closing Date,
signed by the Secretary of the Company, substantially in the form attached
hereto as EXHIBIT D.
4.4 LEGAL OPINION. Purchaser shall have received the opinion of
Gibson, Dunn & Crutcher LLP, counsel for the Company, dated the Closing Date,
addressed to Purchaser, in form and substance satisfactory to Purchaser's
counsel, and covering the matters set forth in EXHIBIT E hereto.
4.5 AUTHORIZATION AGREEMENT. The Company shall have delivered to
Purchaser an Authorization Agreement for Pre-Authorized Payments (Debit), dated
the Closing Date, executed by a duly authorized officer of the Company in the
form attached hereto as EXHIBIT F.
4.6 CERTIFICATE OF DETERMINATION. The Certificate of Determination
shall have been filed with the Secretary of State of California.
4.7 SALE OF SUBORDINATED DEBENTURES. The closing with respect to the
sale by the Company and the purchase by the Purchaser of $3,000,000 of the
Company's 11.5% subordinated debentures due June 27, 2002, shall occur
simultaneously with the sale of the Convertible Preferred Stock by the Company
to the Purchaser.
4.8 EXISTENCE AND AUTHORITY. The Company shall have delivered to
Purchaser the following certificates of public officials, in each case as of a
date within ten days of the Closing Date:
(a) the Articles of Incorporation of the Company certified by the
Secretary of State of the State of California; and
(b) a certificate as to the legal existence and good standing of the
Company from the Secretary of State of the State of California.
4.9 DELIVERY OF OPERATIVE DOCUMENTS. The Company shall have
delivered to Purchaser the following documents, executed by the Company and
dated the Closing Date:
(a) its certificate(s) representing the shares of Convertible
Preferred Stock;
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(b) the Certificate of Determination as filed with the California
Secretary of State;
(c) the Registration Rights Agreement between the Company and the
Purchaser.
4.10 REQUIRED CONSENTS. Any consents or approvals required to be
obtained from any third party, including any holder of indebtedness or any
outstanding security of the Company, and any amendments of agreements which
shall be necessary to permit the consummation of the transactions contemplated
hereby on the Closing Date, shall have been obtained and all such consents or
amendments shall be satisfactory in form and substance to Purchaser and
Purchaser's counsel.
4.11 WAIVER OF CONDITIONS. If on the Closing Date the Company fails
to tender to Purchaser the Convertible Preferred Stock certificate to be issued
to Purchaser, or if the conditions specified in this ARTICLE IV have not been
fulfilled, Purchaser may thereupon elect to be relieved of all further
obligations under this Agreement and shall be entitled to be reimbursed for its
reasonable expenses pursuant to Section 12.1. Without limiting the foregoing,
if the conditions specified in this ARTICLE IV have not been fulfilled,
Purchaser may waive compliance by the Company with any such condition to such
extent as Purchaser, in Purchaser's sole discretion, may determine. Nothing in
this Section 4.11 shall operate to relieve the Company of any of its obligations
hereunder or to waive any of Purchaser's rights against the Company.
5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company hereunder to sell the shares of Convertible Preferred
Stock to Purchaser is further subject to the satisfaction, on or before the
Closing, of each of the following conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall have been true and
correct when made and shall be true and correct as of the Closing Date as if
made on such date, except to the extent such representations and warranties
expressly relate to a specific date. Purchaser shall have duly performed all of
the covenants and agreements to be performed by it hereunder on or prior to the
Closing Date.
6. COVENANTS. From and after the Closing Date and continuing so long as
the Convertible Preferred Stock remains outstanding,
6.1 USE OF PROCEEDS. The Company shall use the proceeds of the
Convertible Preferred Stock for general corporate purposes, including working
capital.
6.2 CORPORATE EXISTENCE, ETC. The Company will preserve and keep in
force and effect, and will cause each Subsidiary to preserve and keep in force
and effect, its corporate
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existence and good standing in the state of incorporation thereof, its
qualification and good standing as a foreign corporation in each jurisdiction
where such qualification is required by applicable law except where the failure
to so qualify would not have a Material Adverse Effect on the financial
condition or results of operations of the Company, and all licenses and permits
necessary to the proper conduct of its business.
6.3 MAINTENANCE, ETC. The Company will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties and assets which are used or useful in the conduct of its business
(whether owned in fee or pursuant to a leasehold interest) in good repair and
working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency
thereof shall be maintained.
6.4 NATURE OF BUSINESS. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the
business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed from the
general nature of the business engaged in by the Company and its Subsidiaries
on the date of this Agreement.
6.5 INSURANCE. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business in such
forms and amounts and against such risks, casualties and contingencies as are
customary for corporations of comparable size and condition (financial and
otherwise) engaged in the same or a similar business and owning and operating
similar properties.
6.6 TAXES, CLAIMS FOR LABOR AND MATERIALS. The Company will
promptly pay and discharge, and will cause each Subsidiary promptly to pay
and discharge, (i) all lawful taxes, assessments and governmental charges or
levies imposed upon the property or business of the Company or such
Subsidiary, respectively, (ii) all trade accounts payable in accordance with
usual and customary business terms, and (iii) all claims for work, labor or
materials, which if unpaid might become a lien or charge upon any property of
the Company or such Subsidiary; provided the Company or such Subsidiary shall
not be required to pay any such tax, assessment, charge, levy, account
payable or claim if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or proceedings which
will prevent the forfeiture or sale of any property of the Company or such
Subsidiary or any material interference with the use thereof by the Company
or such Subsidiary, and (ii) the Company or such Subsidiary shall set aside
on its books, reserves deemed by it to be adequate with respect thereto.
6.7 COMPLIANCE WITH LAWS, AGREEMENTS, ETC. Except where failure
to do so does not and would not constitute a Material Adverse Event, the
Company shall maintain its business operations and property owned or used in
connection therewith in compliance with (i) all applicable federal, state and
local laws, regulations and ordinances, and such laws, regulations and
ordinances of foreign jurisdictions, governing such business operations and
the use and ownership of such property, and (ii) all agreements, licenses,
franchises, indentures and mortgages to which the Company is a party or by
which the Company or any of its properties is bound. Without
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limiting the foregoing, the Company shall pay all of its indebtedness promptly
and substantially in accordance with the terms thereof.
6.8 ERISA MATTERS. If the Company has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable during
such period as any such Plan shall be in effect: (i) throughout the
existence of the Plan, the Company's contributions under the Plan will meet
the minimum funding standards required by ERISA and the Company will not
institute a distress termination of the Plan; and (ii) the Company will send
to Purchaser a copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the PBGC, at the
time that such notice is so filed.
6.9 BOOKS AND RECORDS: RIGHTS OF INSPECTION. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such Subsidiary, in accordance with GAAP consistently maintained. The
Company shall permit a representative of Purchaser to visit any of its
properties and inspect its corporate books and financial records, and will
discuss its accounts, affairs and finances with a representative of
Purchaser, during reasonable business hours, at such times as Purchaser may
reasonably request.
6.10 REPORTS. The Company will furnish to Purchaser the following:
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 45 days after the end of each quarterly fiscal period (except the
last) of each fiscal year, copies of:
(i) consolidated and consolidating balance sheets of
the Company and Subsidiaries as of the close of the three-month period
then ended, setting forth in comparative form the consolidated figures
at the end of the preceding fiscal year,
(ii) consolidated and consolidating statements of income
and retained earnings of the Company and Subsidiaries for the
three-month period then ended, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding
fiscal year, and
(iii) consolidated and consolidating statements of cash flows
of the Company and Subsidiaries for the portion of the fiscal year ending
with such three-month period, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding fiscal
year,
all in reasonable detail and accompanied by a certificate of an authorized
financial officer of the Company that such financial statements fairly present
the financial condition and results of operations and cash flows of the Company
at and for the periods presented, subject to normal year-end adjustment;
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(b) ANNUAL STATEMENTS. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company,
copies of:
(i) consolidated and consolidating balance sheets of the
Company and Subsidiaries as of the close of such fiscal year, and
(ii) consolidated and consolidating statements of income and
retained earnings and cash flows of the Company and Subsidiaries for such
fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by an
unqualified report thereon of a firm of independent public accountants of
recognized national standing or a firm reasonably acceptable to Purchaser;
(c) SEC AND OTHER REPORTS. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each
periodic or current report, and any registration statement or prospectus
filed by the Company or any Subsidiary with any securities exchange or
the SEC or any successor agency, and copies of any orders in any
proceedings to which the Company or any of its Subsidiaries is a party,
issued by any governmental agency, federal or state, having jurisdiction
over the Company or any of its Subsidiaries. The Company specifically
covenants to timely file each such item required to be filed with the
SEC and each state requiring securities laws filings; and
(d) PIPELINE REPORT AND OTHER REQUESTED INFORMATION. Within
five business days after preparation, the Company's internal pipeline
report, and with reasonable promptness, such financial data and other
information relating to the business of the Company as Purchaser may
from time to time reasonably request.
6.11 BOARD OF DIRECTORS DESIGNEE. Effective upon the Closing of
the transactions contemplated hereby, (i) the size of the Board of Directors
of the Company shall be increased to eight (8) directors, and (ii) a nominee
of Purchaser shall be elected a director. For so long as the initial
Purchaser or any Affiliate holds Convertible Preferred Stock representing at
least thirty-three (33%) of the outstanding Convertible Preferred Stock, the
Company agrees to include a nominee of the initial Purchaser in management's
slate of nominees to be elected to the Board of Directors and to recommend to
the stockholders the election of such nominee. Any nominee of Purchaser
hereunder shall be reimbursed for all reasonable expenses incurred as a
director and shall be entitled to receive such compensation as may be
received by other non-employee directors of the Company, including indemnity
and advancement of expenses to the fullest extent permitted under applicable
law.
6.12 ANNUAL PLAN. The Board of Directors shall adopt no later than
the thirty-first day of each fiscal year, a financial plan for the Company,
which shall include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each quarter in
such fiscal year, and a projected balance sheet as of the end of each
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month in such fiscal year (the "Annual Plan"). The Annual Plan may only be
amended or revised, in any material manner, with the approval of the Board of
Directors.
6.13 FURTHER ASSURANCES. The Company and Purchaser will each take
all actions reasonably requested by the other party to effect the
transactions contemplated by this Agreement and the other Operative Documents.
6.14 NO VIOLATION OF CGCL. Notwithstanding any provision of this
Agreement to the contrary, if any repurchase or redemption of shares of
Convertible Preferred Stock otherwise required under this Agreement would be
prohibited by the relevant provisions of the California General Corporation
Law (the "CGCL"), such repurchase or redemption shall be effected as soon as
it is permitted under the CGCL.
6.15 TRANSFER OF SHARES. Subject to Section 12.4, Purchaser shall
not transfer any of the Convertible Preferred Stock other than to a
transferee who agrees to be bound by this Agreement.
6.16 MINIMUM NUMBER OF SHARES TO BE CONVERTED. Purchaser shall not
deliver any conversion notice to the Company or exercise any right of
conversion provided in Section 5 of the Certificate of Determination with
respect to fewer than 100 shares of Convertible Preferred Stock.
7. CONVERSION OF CONVERTIBLE PREFERRED STOCK.
7.1 CONVERSION PRIVILEGE. The Convertible Preferred Stock
shall be convertible into Common Stock at an initial Conversion Price of
$6.00, and as set forth in the Certificate of Determination.
7.2 RESERVATION OF SHARES. The Company shall take all such
corporate action as may be required to validly reserve for issuance a
sufficient number of shares of Common Stock into which the Convertible
Preferred Stock may be converted.
8. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
8.1 LEGENDS; RESTRICTIONS ON TRANSFER. Neither the
Convertible Preferred Stock nor the shares of Common Stock issuable upon
exercise of the Warrants have been registered under the Securities Act
or any state securities laws. Each certificate representing Convertible
Preferred Stock issued pursuant to this Agreement and each stock
certificate issued upon exercise of Warrants shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED , OR
ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE
TRANSFERRED IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND
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SUCH APPLICABLE STATE SECURITIES LAWS, OR (II) AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
8.2 REGISTRATION RIGHTS. The Purchaser shall be entitled to
register Common Stock issuable upon conversion of the Convertible
Preferred Stock or upon exercise of the Contingent Warrants as provided
in the Registration Rights Agreement.
9. EVENTS OF DEFAULT; REMEDIES.
9.1 EVENTS OF DEFAULT. The occurrence of any one of the
following shall constitute an "Event of Default" under this Agreement:
(a) Default shall occur in the payment of any dividends when
the same shall have accrued and be due and payable; provided, that any
such default will be curable within two business days to the extent that
the failure to make the dividend payment on the date when due was caused
by unforeseen or inadvertent circumstances (such as a customer's or
other third party's check being returned for insufficient funds) and not
due to the Company's failure to attempt to deposit sufficient credits to
the payment account, or to the general inability or unwillingness of the
Company to make dividend payments hereunder as they become due; or
(b) Default shall occur in the observance or performance of
any covenant or agreement contained in Sections 6.2 through 6.10 hereof
and such default shall continue for a period of 10 days after the sooner
to occur of (i) senior management's knowledge of such default, and (ii)
the date on which the Company receives notice thereof in writing from
any holder of Convertible Preferred Stock; or
(c) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied within 30
days after the sooner to occur of (i) senior management's knowledge of
such default, and (ii) the date on which the Company receives notice
thereof in writing from any holder of Convertible Preferred Stock; or
(d) Any representation or warranty made by the Company herein
is untrue in any material respect as of the date of the issuance or
making thereof; or
(e) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes
an assignment for the benefit of creditors, or the Company or any
Subsidiary applies for or consents to the appointment of a custodian,
trustee, liquidator, or receiver for the Company or such Subsidiary or
for the major part of the property of either; or
(f) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any Subsidiary or for the major part of the
property of either and is not discharged within 60 days after such
appointment; or
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(g) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary, are consented to or are not dismissed within
60 days after such institution.
9.2 REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall occur, and for so long as
such Event of Default continues, the dividend rate on the Convertible
Preferred Stock shall increase from 11.5% to 14%, and shall remain at
14% until such Event of Default is cured.
(b) If either (i) the Company fails to pay dividends when the
same shall have accrued and be payable on six consecutive dividend
payment dates, or (ii) the aggregate amount of all accrued but unpaid
dividends shall equal or exceed the sum of $172.50, then upon the
request of Purchaser, the Company shall use its best efforts to increase
the size of its Board of Directors by one, and shall use its best
efforts to cause a designee of Purchaser to be elected a director to
fill such newly created directorship.
10. AMENDMENTS, WAIVERS AND CONSENTS.
10.1 CONSENT REQUIRED. Any term, covenant, agreement or condition
of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the Company shall
have obtained the consent in writing of the holders of at least 50% of the
outstanding Convertible Preferred Stock.
10.2 SOLICITATION OF CONVERTIBLE PREFERRED STOCK HOLDERS. The
Company will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any holder of the Convertible Preferred Stock as consideration
for or as an inducement to the entering into by any holder of the Convertible
Preferred Stock of any waiver or amendment of any of the terms and provisions
of this Agreement, unless remuneration is currently paid, on the same terms,
ratably to the holders of all of the Convertible Preferred Stock then
outstanding.
10.3 EFFECT OF AMENDMENT OR WAIVER. Any such amendment or waiver
shall apply equally to all of the holders of the Convertible Preferred Stock
and shall be binding upon them, upon each future holder of any Convertible
Preferred Stock, and upon the Company, whether or not such Convertible
Preferred Stock shall have been marked to indicate such amendment or waiver.
No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
11. INTERPRETATION OF AGREEMENT; DEFINITIONS.
11.1 DEFINITIONS. As used herein,
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"Affiliate" means any Person (i) which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, the Company, (ii) which beneficially owns or holds 5 % or more of any
class of the Voting Stock of the Company or (iii) 5 % or more of the Voting
Stock (or in the case of a Person which is not a corporation, 5 % or more of the
equity interest) of which is beneficially owned or held by the Company or a
Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or other day on
which banks in Tennessee are authorized to close.
The term "control" (including the terms "controlling," "controlled by" and
"under common control") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by contract, or
otherwise.
"Debenture" means the Company's 11.5% Subordinated Debenture in the
principal amount of $3,000,000 issued to Purchaser of even date herewith
pursuant to the Debenture Purchase Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer any successor sections.
"Guaranties" by any Person means all obligations (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing, or in effect guaranteeing, any
Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (A) for the purchase or payment of such Indebtedness or obligation, (B) to
maintain working capital or other balance sheet condition or (C) otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Hazardous Substance" means any hazardous or toxic material, substance or
waste, pollutant or contaminant which is regulated under any statute, law,
ordinance, rule or regulation
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of any local, state, regional or Federal authority having jurisdiction over the
property of the Company and its Subsidiaries or its use, including but not
limited to any material, substance or waste which is: (i) defined as a
hazardous substance under Section 311 of the Federal Water Pollution Control Act
(33 U.S. C. SS 1317. 1) as amended; (ii) regulated as a hazardous waste under
Section 1004 or Section 3001 of the Federal Solid Waste Disposal Act, as amended
by the Resource Conservation and Recovery Act (42 U.S.C. SS 6901 et seq.) as
amended; (iii) defined as a hazardous substance under Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
SS 9601 et seq.) as amended; or (iv) defined or regulated as a hazardous
substance or hazardous waste under any rules or regulations promulgated under
any of the foregoing statutes.
"Indebtedness" of any Person means and includes all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet of
such Person as liabilities of such Person, and in any event shall include all
(i) obligations of such Person for borrowed money or which have been incurred in
connection with the acquisition of property or assets, (ii) obligations secured
by any lien or other charge upon property or assets owned by such Person, even
though such Person has not assumed or become liable for the payment of such
obligations, (iii) obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person, notwithstanding the fact that the rights and remedies of the seller,
lender or lessor under such agreement in the Event of Default are limited to
repossession or sale or property, (iv) capitalized rentals, and (v) Guaranties
of obligations of others of the character referred to in this definition.
"Investments" means all investments, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or Securities or by loan,
advance, capital contribution or otherwise; provided, however that "Investments"
shall not mean or include routine investments in property to be used or consumed
in the ordinary course of business.
"Material Adverse Event" means any event or circumstance, or set of events
or circumstances, individually or collectively, that reasonably could be
expected to result in any (i) material adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material and adverse
effect on the financial condition of the Company as represented to Purchaser
herein or in any document delivered to Purchaser in connection herewith, or
(iii) material default or potential material default under any of the Operative
Documents.
"Redemption Notice" means the notice of redemption delivered by the Company
to the holder of Convertible Preferred Stock indicating the Company's intent to
redeem all or a portion of the shares held by such holder.
"Person" means an individual, partnership, corporation, limited liability
company, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
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"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Purchaser of even date herewith.
"Security" shall have the same meaning as in Section 2(1) of the Securities
Act of 1933, as amended.
The term "subsidiary" means, as to any particular parent corporation, any
corporation of which more than 50% (by number of votes) of the Voting Stock
shall be owned by such parent corporation and/or one or more corporations which
are themselves Restricted Subsidiaries of such parent corporation. The term
"Subsidiary" shall mean a subsidiary of the Company.
"Voting Stock" means Securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) shall be owned by the Company
and/or one or more of its Subsidiaries.
11.2 ACCOUNTING PRINCIPLES. Where the character or amount of any
asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made
for the purposes of this Agreement, the same shall be done in accordance with
GAAP as applied by the Company, to the extent applicable, except where such
principles are inconsistent with the requirements of this Agreement.
11.3 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
12. MISCELLANEOUS.
12.1 EXPENSES, STAMP TAX INDEMNITY. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of Purchaser's reasonable out-of-pocket expenses in
connection with (i) the entering into of this Agreement and the consummation
of the transactions contemplated hereby, including but not limited to the
reasonable fees, expenses and disbursements, of Purchaser's counsel, and (ii)
so long as Purchaser holds any of the Convertible Preferred Stock, all such
expenses relating to any amendment, waiver or consent pursuant to the
provisions hereof (whether or not the same are actually executed and
delivered), including, without limitation, any amendments, waivers or
consents resulting from any work-out, restructuring or similar proceedings
relating to the performance by the Company of its obligations under this
Agreement and the Convertible Preferred Stock. The Company also agrees that
it will pay and save Purchaser harmless against any and all liability with
respect to stamp and other taxes, if any, which may be payable in connection
with the execution and delivery of this Agreement or the Convertible
Preferred Stock, whether or not any Convertible Preferred Stock is
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then outstanding. The Company agrees to protect and indemnify Purchaser against
any liability for any and all brokerage fees and commissions payable or claimed
to be payable to any Person in connection with the transactions contemplated by
this Agreement.
12.2 POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No delay
or failure on the part of the holder of any share of Convertible Preferred
Stock in the exercise of any power or right shall operate as a waiver
thereof; nor shall any single or partial exercise of the same preclude any
other or further exercise thereof, or the exercise of any other power or
right, and the rights and remedies of the holder of any share of Convertible
Preferred Stock are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent,
given or extended pursuant to Article VIII hereof, shall extend to or affect
any obligation or right not expressly waived or consented to.
12.3 NOTICES. All communications provided for hereunder shall be
in writing and shall be delivered personally, or mailed by registered mail,
or by prepaid overnight air courier, or by facsimile communication, in each
case addressed:
If to Purchaser: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Facsimile No: (615) 726-1208
Attention: Mike Comegna
with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327
Facsimile No.: (404) 816-6854
If to the Company: Altris Software, Inc.
9339 Carroll Park Drive
San Diego, California 92121
Facsimile No.: (619) 546-7671
Attention: John W. Low
with a copy to: Gibson, Dunn & Crutcher LLP
2029 Century Park East, Suite 4000
Los Angeles, California 90067
Facsimile No.: (310) 551-8741
Attention: Russell C. Hansen, Esq.
or such other address as Purchaser or the subsequent holder of any Convertible
Preferred Stock initially issued to Purchaser may designate to the Company in
writing, or such other address as the Company may in writing designate to
Purchaser or to a subsequent holder of the Convertible Preferred Stock initially
issued to Purchaser, provided, however, that a notice sent by overnight air
courier shall only be effective if delivered at a street address designated for
such purpose by
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such person and a notice sent by facsimile communication shall only be effective
if made by confirmed transmission at a telephone number designated for such
purpose by such person or, in either case, as Purchaser or a subsequent holder
of any Convertible Preferred Stock initially issued to Purchaser may designate
to the Company in writing or at a telephone number herein set forth in the case
of the Company.
12.4 ASSIGNMENTS. This Agreement, the Convertible Preferred Stock
and the other Operative Documents may be endorsed, assigned and/or
transferred in whole or in part by Purchaser to no more than three
transferees (each a "Permitted Transferred"); provided, however, that
Purchaser shall not transfer any shares of Convertible Preferred Stock or its
rights hereunder to any entity which the Company's Board of Directors deems
to be a competitor of the Company. Any Permitted Transferee shall succeed to
and be possessed of the rights and powers of Purchaser under all of the same
to the extent transferred and assigned. The Company shall not assign any of
its rights nor delegate any of its duties under this Agreement or any of the
other Operative Documents by operation of law or otherwise without the prior
express written consent of Purchaser, and if the Company obtains such
consent, this Agreement and the other Operative Documents shall be binding
upon such assignee.
12.5 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company and the Purchaser herein
and in any instruments or certificates delivered pursuant hereto shall
survive the Closing and the delivery of this Agreement for so long as the
Convertible Preferred Stock remain outstanding, except that the
representations and warranties set forth herein (other than those contained
in Sections 2.1 through 2.4, which shall survive until termination of this
Agreement) shall expire on the first anniversary of the Closing Date.
12.6 SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect
the validity of any remaining portion, which remaining portion shall remain
in force and effect as if this Agreement had been executed with the invalid
or unenforceable portion thereof eliminated and it is hereby declared the
intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may for any reason, be hereafter declared invalid or
unenforceable.
12.7 GOVERNING LAW. This Agreement and the Convertible Preferred
Stock issued and sold hereunder shall be governed by and construed in
accordance with California law, without regard to its conflicts of law rules.
12.8 CAPTIONS; COUNTERPARTS. The descriptive headings of the
various Sections or parts of this Agreement are for convenience only and
shall not affect the meaning or construction of any of the provisions
hereof. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
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12.9 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party hereto, it shall at all times
keep confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other party to which such party has been
or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of its obligations
hereunder or the ownership of Convertible Preferred Stock purchased
hereunder. The parties hereto further agree that there shall be no press
release or other public statement issued by any party relating to this
Agreement or the transactions contemplated hereby, unless the party otherwise
agrees in writing.
12.10 PUBLICITY. The Company and Purchaser shall consult with
each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby.
Neither party shall issue any press release or otherwise make any public
statement without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be executed and delivered by their duly
authorized officers as of the date first written above.
ALTRIS SOFTWARE, INC.
By:/s/ ROGER H. ERICKSON
---------------------------
Roger H. Erickson
Vice President
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By:/s/ CARL W. STRATTON
---------------------------
Carl W. Stratton
Chief Financial Officer
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DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement ") entered into the 27th
day of June, 1997, by and between ALTRIS SOFTWARE, INC., a California
corporation (the "Company"), and SIRROM CAPITAL CORPORATION, d/b/a Tandem
Capital, a Tennessee corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain additional capital for use in
connection with its business through the issue and sale of certain obligations,
and Purchaser is willing to purchase such obligations from the Company, on the
terms and conditions set forth herein.
NOW, THEREFORE, in mutual consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
1. SALE AND PURCHASE OF DEBENTURES.
1.1 DEBENTURES. The Company has authorized the issue and sale of
Three Million Dollars ($3,000,000.00) aggregate principal amount of its 11.5%
Subordinated Debenture due June 27, 2002 (the "Debenture"), to be dated the date
of issue, to bear interest from such date at the rate of 11.5% per annum,
payable quarterly by automatic debit on the first day of March, June, September
and December in each year, commencing September 1, 1997, and at maturity, to
mature on June 27, 2002, and to bear such other terms as are set forth in the
form of Debenture attached hereto as EXHIBIT A-1. Interest on the Debenture
shall be computed on the basis of a 360-day year of twelve 30-day months. The
Debenture is subject to prepayment or redemption at the option of the Company
prior to its expressed maturity date without penalty and as provided for herein.
The terms "Debenture" and "Debentures" as used herein shall include each
Debenture delivered pursuant to this Agreement. Capitalized terms shall have
the meanings assigned by Section 11 unless otherwise defined herein.
1.2 INITIAL WARRANT. At the closing of the purchase and sale of the
Debentures, the Company shall grant, issue, and deliver to Purchaser its Stock
Purchase Warrant, dated June 27, 1997, in the form attached hereto as EXHIBIT
A-2 (the "Initial Warrant"), entitling Purchaser to purchase 300,000 Shares of
the Company's common stock, no par value (the "Common Stock") at an Exercise
Price of $6.00 per share, at any time and from time to time during the five year
period beginning on June 27, 1997.
1.3 ADDITIONAL WARRANTS. Until the indebtedness evidenced by the
Debenture has been paid in full, the Company shall grant, issue, and deliver to
Purchaser additional Stock Purchase Warrants, in the form of Exhibit A-3 (the
"Additional Warrants"), each entitling Purchaser to purchase 50,000 Shares of
Common Stock at an Exercise Price of $7.00 per Share, at any time and from time
to time during the five year period beginning on the date of issue of each
Additional Warrant, such Additional Warrants to be issued on the anniversary of
the Closing
<PAGE>
Date of each year beginning on June 27, 2000, and each year thereafter until the
Debenture has been paid in full.
1.4 COMMITMENT; CLOSING DATE. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to Purchaser, and Purchaser agrees
to purchase from the Company, Debentures in the aggregate principal amount of
Three Million Dollars ($3,000,000.00) at a price of 100% of the principal
amount thereof. Delivery of the Debentures will be made at the offices of
Tandem Capital, Inc., Nashville, Tennessee, against payment therefor by federal
funds wire transfer in immediately available funds and to the accounts and in
the amounts set forth in the Company's wire instructions in the form of Exhibit
B hereto, at 10:00 A.M., Nashville time, on June 27 or such later date as the
Company and Purchaser shall agree (the "Closing Date"). The Debentures
delivered to Purchaser on the Closing Date will be delivered to Purchaser in the
form of a single registered Debenture for the full amount of such purchase
(unless different denominations are specified by Purchaser), registered in
Purchaser's name or in the name of such nominee as Purchaser may specify and,
with appropriate insertions, in the form attached hereto as EXHIBIT A-1, all as
Purchaser may specify at least 24 hours prior to the date fixed for delivery.
1.5 PROCESSING FEE. The Company shall pay to Purchaser on or before
the Closing Date a processing fee in an amount equal to $60,000.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser as follows:
2.1 CORPORATE STATUS.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has the
corporate power to own and operate its properties, to carry on its business as
now conducted and to enter into and to perform its obligations under this
Agreement, the Debentures, the Initial Warrant, the Registration Rights
Agreement, and any other document executed and delivered by the Company in
connection herewith or therewith (collectively, the "Operative Documents"). The
Company is qualified to do business and is in good standing in each state or
other jurisdiction in which such qualification is necessary under applicable
law, except where the failure to so qualify would not have a Material Adverse
Effect on the financial condition or results of operations of the Company.
(b) SCHEDULE 2.1(b) sets forth a complete list of each corporation,
partnership, joint venture, limited liability company or other business
organization in which the Company owns, directly or indirectly, any capital
stock or other equity interest (the "Subsidiary" or, collectively, the
"Subsidiaries"), or with respect to which the Company or any Subsidiary, alone
or in combination with others, is in a control position, which list shows the
jurisdiction of incorporation or other organization, and, if the Company does
not directly or indirectly own 100% of the outstanding equity interests in the
entities so listed on SCHEDULE 2.1(b), the percentage interest so owned by the
Company or any Subsidiary. Each Subsidiary is duly organized, validly existing
and in good standing under the laws of the jurisdiction of incorporation
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or other organization as indicated on SCHEDULE 2.1(B), each has all requisite
power and authority and holds all material licenses, permits and other required
authorizations from government authorities necessary to own its properties and
assets and to conduct its business as now being conducted, and each is qualified
to do business as a foreign corporation (or business organization) and is in
good standing in every jurisdiction in which such qualification is necessary
under applicable law, except where the failure to so qualify would not have a
Material Adverse Effect on the financial condition or results of operations of
the Company. All of the outstanding shares of capital stock, or other equity
interest, of each Subsidiary owned, directly or indirectly, by the Company have
been validly issued, are fully paid and nonassessable, and are owned by the
Company free and clear of all liens, charges, security interests, or
encumbrances.
2.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (i)
1,000,000 shares of Preferred Stock, none of which are issued and outstanding,
and (ii) 20,000,000 shares of Common Stock, of which 9,581,370 shares are issued
and outstanding. All shares of Common Stock outstanding have been validly
issued and are fully paid and nonassessable. There are no statutory or
contractual preemptive rights, rights of first refusal, antidilution rights, or
any similar rights held by any party with respect to the issuance of the
Debentures.
(b) The Company has not granted, or agreed to grant or issue, any
options, warrants or rights to purchase or acquire from the Company any shares
of capital stock of the Company, there are no securities outstanding or
committed to be issued by the Company or any Subsidiary which are convertible
into or exchangeable for any shares of capital stock or other securities of the
Company, and there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company is a party, or by which it
is bound, requiring or restricting the issuance of any shares of capital stock
or other securities of the Company, whether or not outstanding except for (i)
the Debentures to be issued pursuant to this Agreement, (ii) the Initial Warrant
and Additional Warrants to be issued pursuant to this Agreement, (iii) the
Convertible Preferred Stock, (iv) the Contingent Warrants, (v) options to
purchase an aggregate of 292,563 shares of the Company's Common Stock
outstanding under its 1987 Stock Option Plan, (vi) options to purchase an
aggregate of 546,000 shares of the Company's Common Stock outstanding under its
Amended and Restated 1996 Stock Incentive Plan, and (vii) such other warrants
and other rights to acquire capital stock of the Company set forth on SCHEDULE
2.2(b). Except as set forth on SCHEDULE 2.2(b), all such shares have been duly
reserved for issuance, have been duly and validly authorized, and upon issuance
in accordance with the terms of the respective instruments and receipt of
payment therefor, will be validly issued, fully paid, and nonassessable.
2.3 AUTHORIZATION. The Company has full legal right, power and
authority to enter into and perform its obligations under this Agreement and the
Operative Documents without the consent or approval of any other person, firm,
governmental agency, or other legal entity, except as contemplated hereby or
thereby. The execution and delivery of this Agreement, the issuance of the
Debentures hereunder, the execution and delivery of each other document in
connection herewith or therewith to which the Company is a party, and the
performance by the
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Company of its obligations hereunder or thereunder are within the corporate
powers of the Company and have been duly authorized by all necessary corporate
action properly taken, have received all necessary governmental approvals, if
any were required, and do not and will not contravene or conflict with (i) the
Articles of Incorporation or Bylaws of the Company, (ii) any material agreement
to which the Company or any of its Subsidiaries is a party or by which any of
them or their properties is bound, or constitute a default thereunder, or result
in the creation or imposition of any lien, charge, security interest, or
encumbrance of any nature upon any of the property or assets of the Company or
any of its Subsidiaries pursuant to the terms of any such agreement or
instrument, or (iii) violate any provision of law or any applicable judgment,
ordinance, regulation or order of any court or governmental agency. The officer
executing this Agreement, and any other document executed and delivered by the
Company in connection herewith or therewith, is duly authorized to act on
behalf of the Company.
2.4 VALIDITY AND BINDING EFFECT. Each of the Operative Documents is
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
2.5 CONTRACTS AND OTHER COMMITMENTS. Except as disclosed on SCHEDULE
2.5 and other than as filed by the Company with the Securities and Exchanges
Commission ("SEC") as an exhibit pursuant to Item 601(b)(10) of Regulation S-K
under the Securities Act, the Company and its Subsidiaries do not have and are
not bound by any loans, liens, pledges, security interests agreements,
indentures or other instruments defining the rights of security holders, under
any securities or other financings upon which the Company or any Subsidiary is
obligated or by which the Company is bound.
2.6 LITIGATION. Except as set forth on SCHEDULE 2.6, there is no
litigation, arbitration, claim, proceeding or investigation pending or
threatened in writing to which the Company or any Subsidiary is a party or to
which any of its respective properties or assets is the subject which, if
determined adversely to the Company or such Subsidiary, would individually or in
the aggregate have a Material Adverse Effect on the financial position, results
of operations, or business of the Company and its Subsidiaries.
2.7 FINANCIAL STATEMENTS. The consolidated financial statements of
the Company and its Subsidiaries for the fiscal years ended December 31, 1996,
1995, and 1994, and the unaudited consolidated financial statements as of and
for the three months ended March 31, 1997, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly present the
financial position, results of operations, cash flows and changes in
stockholders' equity of the Company and its consolidated Subsidiaries, at the
respective dates of and for the periods to which they apply in such financial
statements, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
indicated, subject, in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse)
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and the absence of notes (that, if presented, would not differ materially from
those included in the most recent audited consolidated financial statements).
No financial statements of any other person(s) are required by GAAP to be
included in the consolidated financial statements of the Company.
2.8 SEC REPORTS. The Company's Common Stock is listed for trading on
the Nasdaq National Market and has been duly registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Since January
1, 1994, the Company has timely filed all reports, registrations, proxy or
information statements, and all other documents, together with any amendments
required to be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC Reports"). As of
their respective dates, the SEC Reports complied in all material respects with
all rules and regulations promulgated by the SEC and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.9 ABSENCE OF CHANGES. Since March 31, 1997, except as contemplated
hereby or by the other Operative Documents, (i) neither the Company nor any of
its Subsidiaries have incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that are material to the Company, (ii) neither the Company nor any of
its Subsidiaries have purchased any of its outstanding capital stock or
declared, or paid any dividend or other distribution or payment in respect of
its capital stock, (iii) there has not been any change in the authorized or
issued capital stock, long-term debt, or short-term debt of the Company, and
(iv) there has not been any material adverse change in or affecting the
business, operations, properties, prospects, assets, or condition (financial or
otherwise) of the Company or any Subsidiary, taken as a whole.
2.10 NO DEFAULTS. Except as set forth on SCHEDULE 2.10 and except
where a default or event of default does not and would not constitute a Material
Adverse Event, no default or event of default by the Company or any Subsidiary
exists under this Agreement or any of the other Operative Documents, or under
any Applicable Contract, or other material instrument or agreement to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or its respective properties may be bound, except for any such default or event
of default which would not reasonably be expected to cause a Material Adverse
Event, and no event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of default
thereunder.
2.11 COMPLIANCE WITH LAW. The Company is in compliance with all
foreign, federal, state or local laws, regulations, decrees and orders
applicable to it (including but not limited to the Foreign Corrupt Practices
Act, occupational and health standards and controls, antitrust, monopoly,
restraint of trade or unfair competition) to the extent that noncompliance, in
the aggregate, would not reasonably be expected to cause a Material Adverse
Event.
2.12 TAXES. Except as set forth on SCHEDULE 2.12, the Company and its
Subsidiaries have filed or caused to be filed all federal, state and local
income, excise and
5
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franchise tax returns required to be filed (except for returns that have been
appropriately extended), and have paid, or provided for the payment of, all
taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on it by any
governmental authority, agency or instrumentality, prior to any delinquency with
respect thereto (other than taxes, impositions, assessments, fees and charges
currently being contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved), and the Company does not know of any
proposed assessment for additional taxes or any basis therefor. No tax liens
have been filed against the Company or its properties. The Company's federal
income tax liability has been finally determined by the Internal Revenue Service
and satisfied for all taxable years up to and including the taxable year ended
December 31, 1993, or closed by applicable statutes of limitation.
2.13 CERTAIN TRANSACTIONS. Except as set forth on in the proxy
statements filed by the Company with the SEC and except as to indebtedness
incurred in the ordinary course of business and approved by the Board of
Directors of the Company, neither the Company nor any Subsidiary is indebted,
directly or indirectly, to any of its officers or directors, or to their
respective spouses or children, or to any affiliate, in excess of an aggregate
amount of $60,000, and none of such officers or directors or any members of
their immediate families or affiliates, are indebted to the Company or any
Subsidiary in excess of an aggregate amount of $60,000, or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any Subsidiary is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company or any
Subsidiary, except that the Company's officers and directors may own
individually no more than 1% of the outstanding capital stock of any publicly
traded company which competes directly with the Company. Except as set forth in
the proxy statements filed by the Company with the SEC, no officer or director
of the Company or any Subsidiary or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company or
any Subsidiary that would require disclosure under Item 404 of Regulation S-K.
Except as set forth on SCHEDULE 2.13, neither the Company nor any Subsidiary is
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.14 TITLE TO PROPERTY. The Company and each Subsidiary has good and
marketable title to all of the real and personal property owned by it, free and
clear of all liens, security interests, pledges, encumbrances, equities claims
and restrictions of every kind and nature whatsoever, except as disclosed on
SCHEDULE 2.14 and other than (a) liens for taxes not yet due, (b) imperfections
in title, if any, not material in amount and which, individually or in the
aggregate, do not materially interfere with the conduct of the business of the
Company or the use of its assets, (c) such secured indebtedness as is disclosed
in the Financial Statements covering the assets and properties referred to
therein (if any), (d) liens in the ordinary course of business consistent with
past practice and (f) installments of special assessments not yet delinquent,
recorded easements, covenants and other restrictions, and utility easements,
building restrictions, zoning restrictions and other easements and restrictions
existing generally with respect to properties of a similar character. Any real
property and buildings held under lease by the Company or any Subsidiary are
held under valid existing and enforceable leases, except as
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disclosed on SCHEDULE 2.14 or which are not material and do not interfere with
the use to be made of such buildings or property by the Company.
2.15 INTELLECTUAL PROPERTY. (a) Except as set forth in SCHEDULE 2.15,
the Company is the lawful owner or has a valid right to use the proprietary
information used in its business free and clear of any claim, right, trademark,
patent or copyright protection of any third party; provided, however, that this
paragraph (a) shall not be deemed to include any representation regarding the
absence of infringements or conflicts with the rights of others, which
representation is made only in paragraph (c) hereof and only to the knowledge of
the Company. As used herein, "proprietary information" includes without
limitation (i) any computer software and related documentation, inventions,
technical and nontechnical data related thereto, and (ii) other documentation,
inventions and data related to patterns, plans, methods, techniques, drawings,
finances, customer lists, suppliers, products, special pricing and cost
information, designs, processes, procedures, formulas, research data owned or
used by the Company or any Subsidiary or marketing studies conducted by the
Company, all of which the Company considers to be commercially important and
competitively sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business. (b) Except as
set forth in SCHEDULE 2.15, the Company has good and marketable title to or has
a valid right to use all patents, trademarks, trade names, service marks,
copyrights or other intangible property rights, and registrations or
applications for registration thereof, owned by the Company or any Subsidiary or
used or required by the Company or any Subsidiary in the operation of its
business as presently being conducted; provided, however, that this paragraph
(b) shall not be deemed to include any representation regarding the absence of
infringements or conflicts with the rights of others, which representation is
made only in paragraph (c) hereof and only to the knowledge of the Company. (c)
The Company has no knowledge of any infringements or conflict with asserted
rights of others with respect to copyrights, patents, trademarks, service marks,
trade names, trade secrets or other intangible property rights or know-how which
could cause a Material Adverse Event. To the Company's knowledge, no products
or processes of the Company infringe or conflict with any rights of patent or
copyright, or any discovery, invention product or process, that is the subject
of a patent or copyright application or registration known to the Company. The
Company follows such procedures as the Company deems necessary or appropriate to
provide reasonable protection of the Company's trade secrets and proprietary
rights in intellectual property of all kinds. To the knowledge of the Company,
no person employed by or affiliated with the Company has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer, and to the knowledge of the Company, no person employed by or
affiliated with the Company has violated any confidential relationship that such
person may have had with any third person, in connection with the development,
manufacture or sale of any product or proposed product or the development or
sale of any service or proposed service of the Company.
2.16 ENVIRONMENTAL MATTERS. The Company has duly complied in all
material respects with, and its business, operations, assets, equipment,
property, leaseholds or other facilities are in compliance in all material
respects with, the provisions of all federal, state and local environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder except to the extent that the violation thereof would not
reasonably be
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expected to cause a Material Adverse Event. The Company has been issued and
will maintain all required material federal, state and local permits, licenses,
certificates and approvals relating to (i) air emissions; (ii) discharges to
surface water or groundwater; (iii) noise emissions; (iv) solid or liquid waste
disposal; (v) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (which shall include any and all such
materials listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder as hazardous or potentially
hazardous); or (vi) other environmental, health or safety matters, except to the
extent that the absence thereof would not reasonably be expected to cause a
Material Adverse Event. The Company has not during the two years prior to the
date hereof received notice of, does not know of, and does not suspect facts
which might constitute a material violation of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder with respect to its businesses, operations,
assets, equipment, property, leaseholds, or other facilities. Except in
accordance with a valid governmental permit, license, certificate or approval,
there has been no material emission, spill, release or discharge into or upon
(i) the air; (ii) soils, or any improvements located thereon; (iii) surface
water or groundwater; or (iv) the sewer, septic system or waste treatment,
storage or disposal system servicing the premises, of any toxic or hazardous
substances or wastes at or from the premises, except to the extent that any such
emission, spill, release or discharge would not reasonably be expected to cause
a Material Adverse Event. During the two years prior to the date hereof, there
has been no complaint, order, directive, claim, citation or notice by any
governmental authority or any person or entity with respect to (i) air
emissions; (ii) spills, releases or discharges to soils or improvements located
thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or waste;
or (vi) other environmental, health or safety matters materially affecting the
Company or its business, operations, assets, equipment, property, leaseholds or
other facilities. The Company does not have any material indebtedness,
obligation or liability (absolute or contingent, matured or not matured), with
respect to the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
2.17 ACCOUNTING MATTERS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain accountability for the assets of the Company and each of
its Subsidiaries; (iii) access to the assets of the Company and each of its
Subsidiaries is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets of the
Company and each of its Subsidiaries are compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2.18 DISTRIBUTIONS TO COMPANY. Except for limitations existing under
applicable law, no Subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any
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dividends to the Company, from making any other distributions on such
Subsidiary's capital stock, from repaying to the Company any loans or advances
to such Subsidiary, or from transferring any of such Subsidiary's property or
assets to the Company or any other Subsidiary of the Company.
2.19 PRIOR SALES. All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times (i) exempt from the
registration requirements of the Securities Act or were duly registered under
the Securities Act, and (ii) were duly registered or were the subject of an
available exemption from the registration requirements of all applicable state
securities or Blue Sky laws.
2.20 REGULATORY COMPLIANCE. Except as set forth on SCHEDULE 2.20, the
conduct of the business and the ownership of the assets of the Company is not
dependent on any license, permit approved, waiver or other authorization of any
federal, state or local governmental or regulatory body which the Company has
not obtained, except to the extent that the absence thereof would not reasonably
be expected to cause a Material Adverse Event. All material licenses, permits
and authorizations held by the Company are in full force and effect.
2.21 MARGIN REGULATIONS. The Company is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or carry
any equity security of a class which is registered pursuant to Section 12 of
the Exchange Act.
2.22 1940 ACT COMPLIANCE. The Company is an "eligible portfolio
company" as such term is defined in Section 2(a)(46) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and the issuance and
sale by the Company of the Debentures does not constitute a "public offering" as
such term is used in Section 55(a)(1) thereof.
2.23 LIMITED OFFERING. Subject in part to the truth and accuracy of
Purchaser's representations set forth in this Agreement, the offer, sale and
issuance of the Debentures and the Initial Warrant are exempt from the
registration requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf has taken or will take any action
hereafter that would cause the loss of such exemption.
2.24 REGISTRATION OBLIGATIONS. Except as described in Schedule 2.24,
the Company is not under any obligation to register under the Securities Act or
the Trust Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that are proposed to be subsequently issued.
2.25 INSURANCE. The Company has maintained, and has caused each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business in such forms
and amounts and against such risks, casualties and contingencies as are
customary for corporations of comparable size and condition (financial and
otherwise) engaged in the same or a similar business and owning and operating
similar properties.
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2.26 GOVERNMENTAL CONSENTS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state, or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement by the
Company, except such filings as have been made prior to the Closing and except
notices of sale required to be filed with the Securities and Exchange Commission
under Regulation D of the Securities Act or such post-closing filings as may be
required under applicable state securities laws, which will be timely filed
within the applicable periods therefor.
2.27 EMPLOYEES. To the best of the Company's knowledge, there is no
strike, labor dispute or union organization activities pending or threatened
between it and its employees. None of the Company's employees belongs to any
union or collective bargaining unit. To the knowledge of the Company, the
Company has complied in all material respects with all applicable state and
federal equal opportunity and other laws related to employment. To the
knowledge of the Company, no employee of the Company is or will be in violation
of any judgment, decree, or order, or any term of any employment contract,
patent disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with the Company, or any other party because
of the nature of the business conducted or presently proposed to be conducted by
the Company or to the use by the employee of his or her best efforts with
respect to such business. Other than as set forth on SCHEDULE 2.27 hereto and
other than the Company's 1987 Stock Option Plan and its Amended and Restated
1996 Stock Incentive Plan, the Company is not a party to or bound by any
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement. To the knowledge of the Company, it is not aware that any officer or
key employee, or that any group of key employees, intends to terminate
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company.
2.28 ERISA. The Company is in compliance in all material respects
with all applicable provisions of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29
U.S.C.A. SS 1001 et seq. (1975), as amended from time to time ("ERISA").
Neither a reportable event nor a prohibited transaction (as defined in ERISA)
has occurred and is continuing with respect to any "pension plan" (as such term
is defined in ERISA, a "Plan"); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation (together with any
entity succeeding to or all of its functions, the "PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Company nor any commonly
controlled entity (as defined in ERISA) has completely or partially withdrawn
from a multiemployer plan (as defined in ERISA). The Company and each commonly
controlled entity has met its minimum funding requirements under ERISA with
respect to all of its Plans and the present fair market value of all Plan
property equals or exceeds the present value of all vested benefits under each
Plan, as determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA and the regulations thereunder for
calculating the potential liability of the
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Company or any commonly controlled entity to the PBGC or the Plan under Title IV
or ERISA; and neither the Company nor any commonly controlled entity has
incurred any liability to the PBGC under ERISA.
2.29 FEES/COMMISSIONS. Except as set forth on SCHEDULE 2.29, the
Company has not agreed to pay any finder's fee, commission, origination fee or
other fee or charge to any person or entity with respect to or as a result of
the consummation of the transactions contemplated hereunder, except for the
processing fee due to Purchaser under Section 1.5.
2.30 DISCLOSURE. No representation or warranty made as of the date
hereof by the Company contained in this Agreement, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a material
fact, or omits or will (as of the time so furnished) omit to state any material
fact which is necessary in order to make the statements contained herein or
therein not misleading.
2.31 SURVIVAL. The representations and warranties of the Company
contained in this Agreement shall survive until the first anniversary of the
date hereof, provided, however, that the representations and warranties
contained in Sections 2.1 through 2.4 shall survive until the termination of
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser hereby
represents to the Company as follows:
3.1 CORPORATE STATUS. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee
and has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement and any other document executed or delivered by Purchaser in
connection herewith.
3.2 AUTHORIZATION. Purchaser has full legal right, power and
authority to enter into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection herewith,
without the consent or approval of any other person, firm, governmental agency
or other legal entity. The execution and delivery of this Agreement and any
other document executed and delivered by Purchaser in connection herewith, and
the performance by Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all necessary
governmental approvals, if any were required, have been duly authorized by all
necessary corporate action properly taken, and do not and will not contravene or
conflict with (i) the Charter or Bylaws of Purchaser, (ii) any material
agreement to which Purchaser is a party or by which it or any of its properties
is bound, or constitute a default thereunder, or result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
upon any of the property or assets of Purchaser pursuant to the terms of any
such agreement or instrument, or (iii) violate any provision of law or any
applicable judgment, ordinance, regulation or order of any court or governmental
agency. The officer(s) executing this Agreement and any other document executed
and delivered by Purchaser in connection herewith, is duly authorized to act on
behalf of Purchaser.
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3.3 VALIDITY AND BINDING EFFECT. This Agreement and any other
document executed and delivered by Purchaser in connection herewith are the
legal, valid and binding obligations of the Purchaser, enforceable against it in
accordance with their respective terms.
3.4 ACCREDITED INVESTOR, INVESTMENT INTENT. In connection with the
issuance and sale to Purchaser of the Debenture and the shares of Common Stock
issuable upon exercise of the Initial Warrant and the Additional Warrants (the
"Underlying Shares"), Purchaser further represents and warrants to the Company
as follows:
(a) PURCHASE FOR INVESTMENT. Purchaser is acquiring the Debenture
and any Underlying Shares for its own account as principal, for investment, and
not with a view to the distribution or resale thereof, in whole or in part, in
violation of the Securities Act or any applicable state securities law, and
Purchaser has no present intention of selling, negotiating or otherwise
disposing of the Debenture or any Underlying Shares.
(b) NO REGISTRATION; RULE 144. (i) Neither the Debenture nor the
Underlying Shares have been registered under the Securities Act, and as such,
such Debenture and any Underlying Shares are "restricted securities" as defined
in Rule 144; (ii) neither the Debenture nor any Underlying Shares may be resold
unless they are registered under the Securities Act or unless an exemption
therefrom is available; (iii) the Purchaser understands that the availability of
Rule 144 for the sale and transfer of the Debenture and any Underlying Shares is
limited, and that certain conditions and events must exist and occur before
Purchaser would be able to utilize Rule 144 in connection with the sale or other
disposition of the Debenture or any Underlying Shares.
(c) INVESTMENT COMPANY; ACCESS TO INFORMATION. Purchaser is a
registered investment company under the Investment Company Act and as such is an
"accredited investor" under Rule 501(a) under the Securities Act. Purchaser
understands that its investment in the Debenture and the Underlying Shares
involves a high degree of risk. Purchaser has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investments contemplated by this Agreement. Purchaser has been
afforded, to the satisfaction of Purchaser, the opportunity to review the
financial and other information which it has requested from the Company, and to
obtain such additional publicly available information concerning the Company and
its business, and to ask such questions and receive such answers (based upon
publicly available information), as the Purchaser deems necessary to make an
informed investment decision.
(d) RELIANCE ON REPRESENTATIONS OF PURCHASER. Purchaser understands
that the Debenture is being offered and sold and the Underlying Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of the U.S. securities laws and that the Company is relying of the
truth and accuracy of, and the Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Debenture and any Underlying Shares.
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(e) TRANSFER TO SUBSIDIARY. Notwithstanding anything in this Section
3.4 to the contrary, Purchaser may transfer and assign its rights and
obligations under this Agreement to one or more of its Wholly-owned
Subsidiaries, provided that any such Subsidiary shall agree to become bound by
the terms of this Agreement, including the representations and warranties
contained in this Section 3.4, and provided, further that Purchaser shall remain
liable for the performance of its obligations hereunder notwithstanding any such
assignment.
3.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in the
violation of the Purchaser's charter documents or by-laws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, any agreement, indenture or instrument to which
Purchaser is a party, or, to the actual knowledge of Purchaser, result in a
violation of any law, rule, regulation, order, judgment or decree of any court
of governmental agency applicable to Purchaser or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on Purchaser). Purchaser is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court of governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or purchase the
Debenture in accordance with terms hereof.
3.6 SURVIVAL. The representations and warranties of Purchaser
contained in this Agreement shall survive until the first anniversary of the
date hereof.
4. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER. The obligation
of Purchaser to purchase and pay for the Debentures on the Closing Date shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions set forth below. These conditions are for Purchaser's sole
benefit and may be waived by Purchaser at any time in its sole discretion.
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement and in any Schedule hereto
or any document or instrument delivered to Purchaser or its representatives
hereunder, shall have been true and correct when made and shall be true and
correct as of the Closing Date as if made on such date, except to the extent
such representations and warranties expressly relate to a specific date. The
Company shall have duly performed all of the covenants and agreements to be
performed by it hereunder on or prior to the Closing Date.
4.2 OFFICER'S CERTIFICATE. The Company shall have delivered to
Purchaser a certificate, dated the Closing Date, signed by the President or
Chief Financial Officer of the Company, substantially in the form attached
hereto as EXHIBIT C.
4.3 SATISFACTORY PROCEEDINGS AND SECRETARY'S CERTIFICATE. All
proceedings taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to Purchaser and Purchaser's counsel, and the
Company shall have delivered to Purchaser a certificate, dated the
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Closing Date, signed by the Secretary of the Company, substantially in the form
attached hereto as EXHIBIT D.
4.4 LEGAL OPINION. Purchaser shall have received the opinion of
Gibson, Dunn & Crutcher LLP, counsel for the Company, dated the Closing Date,
addressed to Purchaser, in form and substance satisfactory to Purchaser's
counsel, and covering the matters set forth in EXHIBIT E hereto.
4.5 AUTHORIZATION AGREEMENT. The Company shall have delivered to
Purchaser an Authorization Agreement for Pre-authorized Payments (Debit), dated
the Closing Date, executed by a duly authorized officer(s) of the Company, in
the form attached hereto as EXHIBIT F.
4.6 SALE OF CONVERTIBLE PREFERRED STOCK. The closing with respect to
the sale by the Company of its Series D Convertible Preferred Stock to
Purchaser, shall occur simultaneously with the sale of the Debentures by the
Company to the Purchaser.
4.7 EXISTENCE AND AUTHORITY. The Company shall have delivered to
Purchaser the following certificates of public officials, in each case as of a
date within ten days of the Closing Date:
(a) the Articles of Incorporation of the Company certified by the
Secretary of State of the State of California; and
(b) a certificate as to the legal existence and good standing of the
Company from the Secretary of State of the State of California.
4.8 DELIVERY OF OPERATIVE DOCUMENTS. The Company shall have
delivered to Purchaser the following documents, executed by the Company and
dated the Closing Date:
(a) the Debenture;
(b) the Initial Warrant; and
(c) the Registration Rights Agreement between the Company and the
Purchaser.
4.9 REQUIRED CONSENTS. Any consents or approvals required to be
obtained from any third party, including any holder of indebtedness or any
outstanding security of the Company, and any amendments of agreements which
shall be necessary to permit the consummation of the transactions contemplated
hereby on the Closing Date, shall have been obtained and all such consents or
amendments shall be satisfactory in form and substance to Purchaser and
Purchaser's counsel.
4.10 WAIVER OF CONDITIONS. If on the Closing Date the Company fails
to tender to Purchaser the Debentures to be issued to Purchaser, or if the
conditions specified in this ARTICLE
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IV have not been fulfilled, Purchaser may thereupon elect to be relieved of all
further obligations under this Agreement and shall be entitled to be reimbursed
for its reasonable expenses pursuant to Section 12.1. Without limiting the
foregoing, if the conditions specified in this ARTICLE IV have not been
fulfilled, Purchaser may waive compliance by the Company with any such condition
to such extent as Purchaser, in Purchaser's sole discretion, may determine.
Nothing in this Section 4.10 shall operate to relieve the Company of any of its
obligations hereunder or to waive any of Purchaser's rights against the Company.
5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company hereunder to sell the Debenture to Purchaser is
further subject to the satisfaction, on or before the Closing Date, of each of
the following conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall have been true and
correct when made and shall be true and correct as of the Closing Date as if
made on such date, except to the extent such representations and warranties
expressly relate to a specific date. Purchaser shall have duly performed all of
the covenants and agreements to be performed by it hereunder on or prior to the
Closing Date.
6. COVENANTS. From and after the Closing Date and continuing so long as
any amount remains unpaid on any of the Debentures,
6.1 USE OF PROCEEDS. The Company shall use the proceeds of the
Debentures for general corporate purposes, including working capital.
6.2 PAYMENT OF DEBENTURES. The Company shall pay the indebtedness
evidenced by the Debentures according to the terms thereof and shall timely pay
or perform all of the other obligations of the Company under this Agreement.
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6.3 OPTIONAL REDEMPTIONS OF DEBENTURE; PROCEDURES.
(a) The Debentures may be redeemed, repaid or repurchased by the
Company or any Subsidiary or Affiliate, at the option of the Company, at any
time. The Debentures shall be subject to redemption, at the Company's option,
in whole at any time or in part from time to time, provided that in case of each
redemption at the Company's option hereunder, the Company will give written
notice thereof to each holder of a Debenture to be redeemed not less than 30 nor
more than 45 days prior to the date fixed for such redemption (the "Redemption
Date"), in each case specifying the Redemption Date, the aggregate principal
amount of the Debentures to be redeemed on such date and the principal amount of
Debentures held by such holder to be redeemed on such date.
(b) Neither the Company nor any Subsidiary or Affiliate, directly or
indirectly, may repurchase or make any offer to repurchase any Debentures unless
the offer has been made to repurchase Debentures, PRO RATA, from all holders of
the Debentures at the same time and upon the same terms and in accordance with
the provisions of Section 6.3(a). If the Company repurchases or otherwise
acquires any Debentures, such Debentures shall immediately thereafter be
canceled, and no Debentures shall be issued in substitution therefor. Without
limiting the foregoing, upon the purchase or other acquisition of any Debentures
by the Company or any Subsidiary or Affiliate, such Debentures shall no longer
be outstanding for purposes of any Section of this Agreement relating to the
taking by the holders of the Debentures of any actions with respect hereto,
including, without limitation, Sections 9.3 and 10.1.
6.4 CORPORATE EXISTENCE, ETC. The Company will preserve and keep in
force and effect, and will cause each Subsidiary to preserve and keep in force
and effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a foreign
corporation in each jurisdiction where such qualification is required by
applicable law except where the failure to so qualify would not have a Material
Adverse Effect on the financial condition or results of operations of the
Company, and all licenses and permits necessary to the proper conduct of its
business.
6.5 MAINTENANCE, ETC. The Company will maintain, preserve and keep,
and will cause each Subsidiary to maintain, preserve and keep, its properties
and assets which are used or useful in the conduct of its business (whether
owned in fee or pursuant to a leasehold interest) in good repair and working
order and from time to time will make all necessary repairs, replacements,
renewals and additions so that at all times the efficiency thereof shall be
maintained.
6.6 NATURE OF BUSINESS. Neither the Company nor any Subsidiary will
engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries on the date of this
Agreement.
6.7 INSURANCE. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their
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respective properties and business in such forms and amounts and against such
risks, casualties and contingencies as are customary for corporations of
comparable size and condition (financial and otherwise) engaged in the same or a
similar business and owning and operating similar properties.
6.8 TAXES, CLAIMS FOR LABOR AND MATERIALS. The Company will promptly
pay and discharge, and will cause each Subsidiary promptly to pay and discharge,
(i) all lawful taxes, assessments and governmental charges or levies imposed
upon the property or business of the Company or such Subsidiary, respectively,
(ii) all trade accounts payable in accordance with usual and customary business
terms, and (iii) all claims for work, labor or materials, which if unpaid might
become a lien or charge upon any property of the Company or such Subsidiary;
provided the Company or such Subsidiary shall not be required to pay any such
tax, assessment, charge, levy, account payable or claim if (i) the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any property
of the Company or such Subsidiary or any material interference with the use
thereof by the Company or such Subsidiary, and (ii) the Company or such
Subsidiary shall set aside on its books, reserves deemed by it to be adequate
with respect thereto.
6.9 COMPLIANCE WITH LAWS, AGREEMENTS, ETC. Except where failure to
do so does not and would not constitute a Material Adverse Event, the Company
shall maintain its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances, and such laws, regulations and ordinances of foreign
jurisdictions, governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which the Company is a party or by which the Company or any of its
properties is bound. Without limiting the foregoing, the Company shall pay all
of its indebtedness promptly and substantially in accordance with the terms
thereof.
6.10 ERISA MATTERS. If the Company has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable during such
period as any such Plan shall be in effect: (i) throughout the existence of the
Plan, the Company's contributions under the Plan will meet the minimum funding
standards required by ERISA and the Company will not institute a distress
termination of the Plan; and (ii) the Company will send to Purchaser a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the PBGC, at the time that such notice is so
filed.
6.11 BOOKS AND RECORDS: RIGHTS OF INSPECTION. The Company will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of the Company or such Subsidiary, in
accordance with GAAP consistently maintained. The Company shall permit a
representative of Purchaser to visit any of its properties and inspect its
corporate books and financial records, and will discuss its accounts, affairs
and finances with a representative of Purchaser, during reasonable business
hours, at all such times as Purchaser may reasonably request.
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6.12 REPORTS. The Company will furnish to Purchaser the following:
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 45 days after the end of each quarterly fiscal period (except the last)
of each fiscal year, copies of:
(i) consolidated and consolidating balance sheets of the Company
and Subsidiaries as of the close of the three-month period then ended,
setting forth in comparative form the consolidated figures at the end of
the preceding fiscal year,
(ii) consolidated and consolidating statements of income and
retained earnings of the Company and Subsidiaries for the three-month
period then ended, setting forth in comparative form the consolidated
figures for the corresponding period of the preceding fiscal year, and
(iii) consolidated and consolidating statements of cash flows
of the Company and Subsidiaries for the portion of the fiscal year ending
with such three-month period, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding fiscal
year,
all in reasonable detail and accompanied by a certificate of an authorized
financial officer of the Company that such financial statements fairly present
the financial condition and results of operations and cash flows of the Company
at and for the periods presented, subject to normal year-end adjustment;
(b) ANNUAL STATEMENTS. As soon as available and in any event within
90 days after the close of each fiscal year of the Company, copies of:
(i) consolidated and consolidating balance sheets of the Company
and Subsidiaries as of the close of such fiscal year, and
(ii) consolidated and consolidating statements of income and
retained earnings and cash flows of the Company and Subsidiaries for such
fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by an
unqualified report thereon of a firm of independent public accountants of
recognized national standing;
(c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of the
Company or any Subsidiary;
(d) SEC AND OTHER REPORTS. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement sent by
the Company to stockholders generally and of each periodic or current report,
and any registration statement or prospectus filed by the Company to any
Subsidiary with any securities exchange or the SEC or any successor agency, and
copies of any orders in any proceedings to which the Company or any
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of its Subsidiaries is a party, issued by any governmental agency, federal or
state, having jurisdiction over the Company or any of its Subsidiaries. The
Company specifically covenants to timely file each such item required to be
filed with the SEC and each state requiring securities laws filings; and
(e) PIPELINE REPORT AND OTHER REQUESTED INFORMATION. Within five
business days after preparation, the Company's internal pipeline report, and
with reasonable promptness, such financial data and other information relating
to the business of the Company as Purchaser may from time to time reasonably
request.
6.13 LIMITATIONS ON DEBT AND OBLIGATIONS. Except as to (i)
[intentionally omitted]; (ii) the Indebtedness incurred pursuant to the
Debentures as it may be extended, renewed or refinanced; (iii) accounts payable
and other trade payables incurred in the ordinary course of business; (iv)
purchase money indebtedness incurred by the Company in the purchase of equipment
and other property used by the Company in the ordinary course of business, such
purchase money indebtedness not to exceed an aggregate amount of principal and
accrued interest thereon of $500,000; (v) obligations of the Company pursuant to
capitalized leases; (vi) [intentionally omitted]; and (vii) Indebtedness
incurred in connection with the acquisition of a business (including the assets
of a business), whether secured or unsecured; neither the Company nor any
Subsidiary shall incur Indebtedness in excess of an aggregate amount of
principal and interest thereon of $2,500,000 at any time outstanding.
Notwithstanding the foregoing, the aggregate principal amount of any
Indebtedness secured by the accounts receivable and/or inventory of the Company
and its Subsidiaries (whether such Indebtedness is permitted under clause (i) or
in clause (vi)), may be increased based upon the amount of the accounts
receivable and/or inventory eligible as collateral, so long as the ratio of
outstanding principal amount of such Indebtedness to "eligible receivables"
and/or "inventory" remains the same (howsoever such terms are defined but
provided such definitions remain consistent).
6.14 GUARANTIES. Without the prior written consent of Purchaser, the
Company will not, and will not permit any Subsidiary to, become or be liable in
respect of any Guaranty except (a) Guaranties by the Company which are limited
in maximum financial exposure to the amounts set forth in, and are incurred in
compliance with, the provisions of Section 6.13 of this Agreement and (b)
inter-company Guaranties between the Company and any Subsidiary or any of the
Subsidiaries.
6.15 LIMITATION ON LIENS. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, create
or incur, or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (collectively, "Liens") on its
or their property or assets, whether now owned or hereafter acquired, or upon
any income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the payment of
its or their general creditors, or acquire or agree to acquire, or permit any
Subsidiary to acquire, any property or assets upon conditional sales agreement
or other title retention devices, except those Liens which exist as of the date
hereof as set forth on SCHEDULE 2.14, and except:
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(a) purchase money liens on and security interests in equipment
hereafter acquired securing Indebtedness permitted by Section 6.13(iv) of this
Agreement, provided that such liens and security interests attach only to the
equipment so acquired and do not encumber any other property of the Company or
any Subsidiary;
(b) liens for taxes (excluding federal and state income taxes) not
yet payable or being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided on the books of the Company or a
Subsidiary;
(c) mechanics', materialmen's, warehousemen's, carriers' or other
like liens arising in the ordinary course of business of the Company or any
Subsidiary, if any, arising with respect to obligations which are not overdue
for a period longer than 30 days or which are being contested in good faith by
appropriate proceedings and for which adequate reserves have been provided on
the books of the Company or a Subsidiary;
(d) deposits or pledges to secure the performance of bids, tenders,
contracts, leases, public or statutory obligations, surety or appeal bonds or
other deposits or pledges for purposes of a like general nature or given in the
ordinary course of business by the Company or any Subsidiary; and
(e) other encumbrances consisting of zoning restrictions, easements,
restrictions on the use of real property or minor irregularities in the title
thereto, which do not arise in connection with the borrowing of, or any
obligation for the payment of, money and which, in the aggregate, do not
materially detract from the value of the premises or the business, properties or
assets of the Company or any Subsidiary; and
(f) liens securing indebtedness permissible under Section 6.13 above.
6.16 RESTRICTED PAYMENTS. For so long as the Debentures are
outstanding, the Company will not, without the prior written consent of
Purchaser and except as hereinafter provided:
(a) declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class except (i) dividends or other
distributions payable solely in shares of Common Stock of the Company, and (ii)
dividends on the Series D Convertible Preferred Stock;
(b) directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its capital
stock (other than in exchange for or out of the net proceeds to the
Company from the substantially concurrent issue or sale of other shares of
capital stock of the Company or warrants, rights or options to purchase or
acquire any shares of its capital stock); or
(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock, except as
contemplated by the Certificate of
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Determination and the Convertible Preferred Stock Purchase Agreement or with
respect to the Warrants issued hereunder or thereunder.
6.17 INVESTMENTS. The Company will not, and will not permit any
Subsidiary to, make any Investments outside the ordinary course of business for
the Company or any Subsidiary, without the prior written consent of Purchaser,
except:
(a) Investments in direct obligations of the United States of
America, or any agency or instrumentality of the United States of America, the
payment or guaranty of which constitutes a full faith and credit obligation of
the United States of America, in either case maturing in twelve months or less
from the date of acquisition thereof;
(b) Investments in certificates of deposit maturing within one year
from the date of origin, issued by a bank or trust company organized under the
laws of the United States or any state thereof, having capital, surplus and
undivided profits aggregating at least $100,000,000 and whose long-term
certificates of deposit are, at the time of acquisition thereof by Company or a
Subsidiary, rated AA or better by Standard & Poor's Corporation or AA or better
by Moody's Investors Service, Inc.;
(c) Investments in commercial paper maturing in 270 days or less from
the date of issuance which, at the time of acquisition by the Company or any
Subsidiary, is accorded the highest rating by Standard & Poor's Corporation,
Moody's Investors Service, Inc. or another nationally recognized credit rating
agency of similar standing;
(d) loans or advances in the usual and ordinary course of business to
officers, directors and employees for expenses (including moving expenses
related to a transfer) incidental to carrying on the business of the Company or
any Subsidiary;
(e) receivables arising from the sale of goods and services in the
ordinary course of business of the Company and its Subsidiaries; and
(f) acquisitions, mergers and other consolidations permissible
pursuant to Section 6.18(a)(ii) below; and
(g) investments by the Company in any Subsidiary or by any Subsidiary
in the Company or in any other Subsidiary.
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6.18 MERGERS, CONSOLIDATIONS AND SALES OF ASSETS.
(a) Without the prior written consent of Purchaser, the Company will
not, and will not permit any Subsidiary to (i) consolidate with or be a party to
a merger or share exchange with any other corporation, or (ii) sell, lease or
otherwise dispose of all or any substantial part (as defined in paragraph (d) of
this Section 6.18) of the assets of Company and its Subsidiaries; provided,
however, that:
(i) any Subsidiary may merge or consolidate with or into the
Company or any Wholly-owned Subsidiary so long as in any merger or
consolidation involving the Company, the Company shall be the surviving or
continuing corporation; and
(ii) the Company may consolidate or merge with any other
corporation, or acquire all or a substantial portion of the assets of any
other entity, provided that such corporation or entity is engaged primarily
in the Company's general line of business as conducted on the date hereof,
and further provided that (A) Company shall be the surviving or continuing
corporation, (B) at the time of such consolidation or merger and after
giving effect thereto, no Default or Event of Default shall have occurred
and be continuing, and (C) such consolidation or merger shall be deemed in
the good faith estimate of the Board of Directors to be a consolidation or
merger that will be accretive to earnings per share not later than the
fifth full quarter following the consolidation or merger; and
(iii) any Subsidiary may sell, lease or otherwise dispose of
all or any substantial part of its assets to the Company or any other
Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser, the Company
will not permit any Subsidiary to issue or sell any shares of stock of any
class (including as "stock" for the purposes of this Section 6.18, any
warrants, rights or options to purchase or otherwise acquire stock or other
Securities exchangeable for or convertible into stock) of such Subsidiary to
any Person other than the Company or a Wholly-owned Subsidiary, except for
the purpose of qualifying directors, or except in satisfaction of the validly
preexisting preemptive rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate interest in
such Subsidiary.
(c) Without the prior written consent of Purchaser, the Company will
not sell, transfer or otherwise dispose of any shares of stock in any Subsidiary
(except to qualify directors) or any indebtedness of any Subsidiary, and will
not permit any Subsidiary to sell, transfer or otherwise dispose of (except to
the Company or a Wholly-owned Subsidiary) any shares of stock or any
indebtedness of any other Subsidiary, unless all of the following conditions are
met:
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(i) simultaneously with such sale, transfer or disposition, all
shares of stock and all indebtedness of such Subsidiary at the time owned
by the Company and by every other Subsidiary shall be sold, transferred or
disposed of as an entirety;
(ii) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the retention of
such stock and indebtedness is no longer in the best interests of the
Company;
(iii) such stock and Indebtedness is sold, transferred or
otherwise disposed of to a Person, for consideration and on terms
reasonably deemed by the Board of Directors to be adequate and
satisfactory; and
(iv) the Subsidiary being disposed of shall not have any
continuing investment in the Company or any other Subsidiary not being
simultaneously disposed of; and
(v) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company and
its Subsidiaries taken as a whole.
(d) As used in this Section 6.18, a sale, lease or other disposition
of assets shall be deemed to be a "substantial part" of the assets of the
Company and its Subsidiaries only if the book value of such assets, when added
to the book value of all other assets sold, leased or otherwise disposed of by
the Company and its Subsidiaries (other than in the ordinary course of business)
during the same twelve month period ending on the date of such sale, lease or
other disposition, exceeds 25 percent of the consolidated net tangible assets of
the Company and its Subsidiaries determined as of the end of the immediately
preceding fiscal year.
6.19 TRANSACTIONS WITH AFFILIATES. Without the prior written consent
of Purchaser, the Company will not, and will not permit any Subsidiary to, enter
into or be a party to any transaction or arrangement with any officer, director
or Affiliate (including, without limitation, the purchase from, sale to, or
exchange of property with, or the rendering of any service by or for, any
Affiliate), except (a) for transactions or arrangements between the Company and
any Subsidiary or any of the Subsidiaries and (b) in the ordinary course of and
pursuant to the reasonable requirements of the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than could be obtained in an arm's-length transaction with a
Person other than an Affiliate, in each case as determined in good faith by a
majority of the disinterested directors of the Company.
6.20 NOTICE. The Company shall promptly upon the discovery thereof
give written notice to Purchaser of (i) the occurrence of any default or Event
of Default or event which, with the passage of time, would constitute an Event
of Default, under this Agreement, (ii) the occurrence of any default or event of
default under any other agreement providing for material Indebtedness of the
Company or any Subsidiary or under a capitalized lease obligation, (iii) any
material actions, suits or proceedings instituted by any Person against the
Company or a Subsidiary or materially affecting any of the assets of the Company
or any Subsidiary, or (iv) any
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material investigation initiated by, or any dispute between any governmental
regulatory body, on the one hand, and the Company or any Subsidiary, on the
other hand, which dispute might interfere with the normal operations of the
Company or any Subsidiary; provided, however, that Purchaser shall not be
required by this Agreement to disclose any such information provided in (iii) or
(iv) above to any third party other than Purchaser's counsel and except to the
extent compelled by law or otherwise authorized by the Company.
6.21 BOARD OF DIRECTORS; OBSERVER RIGHTS.
(a) For so long as the Purchaser or any Affiliate of Purchaser owns
Debentures representing at least 33.33% of the original principal amount of the
Debentures, provided that no nominee of the Purchaser is a director, the Company
shall invite one representative of Purchaser to attend, at the Company's
expense, all meetings of the Company's Board of Directors and all committees of
the Company's Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices and meeting agenda
in advance of such meetings and shall permit such representative to review all
documents and other materials provided to directors at such meetings. The
Company shall also provide Purchaser, in advance, with copies of all actions
proposed to be taken by the Board of Directors in lieu of meeting.
6.22 ANNUAL PLAN. The Board of Directors shall adopt no later than
the thirty-first day of each fiscal year, a financial plan for the Company,
which shall include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each quarter in
such fiscal year, and a projected balance sheet as of the end of each month in
such fiscal year (the "Annual Plan"). The Annual Plan may only be amended or
revised, in any material manner, with the approval of the Board of Directors.
6.23 FURTHER ASSURANCES. The Company and Purchaser will each take all
actions reasonably requested by Purchaser to effect the transactions
contemplated by this Agreement and the other Operative Documents.
7. SUBORDINATION OF DEBENTURES.
7.1 SUBORDINATION. Notwithstanding anything to the contrary in this
Agreement or in the Debentures, the indebtedness evidenced by the Debentures,
including principal and interest, shall be subordinate and junior to the prior
payment of the indebtedness of the Company for borrowed money (except such
indebtedness of the Company other than the Debentures which is expressly stated
to be subordinate or junior in any respect to other indebtedness of the
Company), whether outstanding as of the date of this Agreement (including any
obligations of the Company under any guaranty or suretyship agreement relating
to indebtedness for borrowed money by Subsidiaries of the Company), or hereafter
created constituting borrowed money from financial institutions approved by the
Board of Directors of the Company and designated as being senior to the
Debentures (but only to the extent so designated), together with all obligations
issued in renewal, deferral, extension, refunding, amendment or modification of
any such indebtedness including, without limitation, any and all indebtedness
now or hereafter owing by the Company to Merrill Lynch Business Financial
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Services Inc. and its successors and assigns (collectively, the "Senior
Indebtedness"). Purchaser covenants that it will execute any subordination or
intercreditor agreements requested by any lender of the Company and reasonably
acceptable to Purchaser effectuating the foregoing subordination provisions and
containing such additional customary provisions as such lender may request.
Nothing contained in this Section 7.1 shall be deemed to permit the Company to
incur Indebtedness which is prohibited by Section 6.13 above, and the
indebtedness evidenced by the Debentures shall not be subordinate to any such
prohibited Indebtedness.
7.2 LIQUIDATION, ETC.
(a) Upon any distribution of assets of the Company in connection with
any dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency, or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise), the holders of all Senior
Indebtedness shall first be entitled to receive payment in full of the principal
thereof, premium, if any, and interest due thereon, and all costs and expenses
(including attorneys' fees) related thereto, before the holders of the
Debentures shall be entitled to receive any payment on account of the principal
of or interest on or any other amount owing with respect to the Debentures
(other than payment in shares of capital stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment, which stock and securities are
subordinated to the payment of all Senior Indebtedness and securities received
in lieu thereof which may at the time be outstanding). Under the circumstances
provided herein, the holders of the Senior Indebtedness shall have the right to
receive and collect any distributions made with respect to the Debentures until
such time as the Senior Indebtedness is paid in full, and shall have the further
right to take such actions as may be deemed necessary or required to so receive
and collect such distributions including making or filing any proofs of claim
relating thereto.
(b) Without in any way modifying the provisions of this Article VII
or affecting the subordination effected hereby if such notice is not given, the
Company shall give prompt written notice to the Purchaser of any dissolution,
winding up, liquidation or reorganization of maker (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise).
7.3 SENIOR INDEBTEDNESS DEFAULT. The Company shall not declare or
pay any dividends or make any distributions to the holders of capital stock of
the Company, or purchase or acquire for value, or pay any principal, interest,
or other amount on any of the Debentures if any default has occurred and is
continuing with respect to the payment of principal of, premium if any or
interest on any Senior Indebtedness.
7.4 SUBROGATION. Upon the prior payment in full of all Senior
Indebtedness, the Purchaser shall be subrogated to the rights of the holders of
the Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on the
Debentures shall be paid in fall, and for the purpose of such subrogation, no
payments or distributions to the Purchaser otherwise payable or distributable to
the holders of Senior Indebtedness shall, as between the Company, its creditors,
other than the holders of Senior
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Indebtedness, and Purchaser, be deemed to be payment by the Company to or on
account of the Debentures, it being understood that the provisions of this
Article VII are and are intended solely for the purpose of defining the relative
rights of Purchaser, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
7.5 COMPANY'S OBLIGATIONS NOT IMPAIRED.
(a) Nothing contained in this Article VII or in the Debentures is
intended to or shall impair, as between the Company and Purchaser, the
obligation of the Company, which is absolute and unconditional, to pay the
Purchaser the principal of and interest on the Debentures as and when the same
shall become due and payable in accordance with the terms of the Debentures, or
is intended to or shall affect the relative rights of the Purchaser other than
with respect to the holders of the Senior Indebtedness, nor, except as expressly
provided in this Article VII, shall anything herein or therein prevent the
Purchaser from exercising all remedies otherwise permitted by applicable law
upon the occurrence of an Event of Default under this Agreement or under the
Debentures.
(b) If any payment or distribution shall be received in respect of
the Debentures in contravention of the terms of this Article VII, such payment
or distribution shall be held in trust for the holders of the Senior
Indebtedness, and shall be immediately delivered to such holders in the same
form as received.
8. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
8.1 LEGENDS; RESTRICTIONS ON TRANSFER. Neither the Debentures nor
the shares of Common Stock issuable upon exercise of the Warrants have been
registered under the Securities Act or any state securities laws. Each
Debenture issued pursuant to this Agreement and each stock certificate issued
upon exercise of Warrants shall bear a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED , OR ANY
APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND SUCH APPLICABLE STATE SECURITIES LAWS, OR
(II) AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
8.2 REGISTRATION RIGHTS. The Purchaser shall be entitled to
register Common Stock issuable upon exercise of the Warrants as provided in
the Registration Rights Agreement.
9. EVENTS OF DEFAULT; REMEDIES.
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9.1 EVENTS OF DEFAULT. The occurrence of any one of the following
shall constitute an "Event of Default" under this Agreement:
(a) Default shall occur in the making of any payment of the interest
or principal of any Debenture or the premium, if any, by the Company thereon
when the same shall have become due or at the expressed or any accelerated
maturity date or at any date fixed by the Company for prepayment; provided, that
any such default will be curable within two business days to the extent that the
failure to make payment on the date when due was caused by unforeseen or
inadvertent circumstances (such as a customer's or other third party's check
being returned for insufficient funds) and not due to the Company's failure to
attempt to deposit sufficient credits to the payment account, or to the general
inability or unwillingness of the Company to make payments hereunder as they
become due; or
(b) Default shall be made in the payment of the principal of or
interest on any Indebtedness of the Company or any Subsidiary, and any such
default or event of default or failure shall result in all or any part of such
Indebtedness in the aggregate amount exceeding $250,000 becoming or being
declared due and payable prior to the date on which all or any part thereof
otherwise would have become due and payable; or
(c) Default or the happening of any event shall occur under any
contract, agreement, lease, indenture or other instrument under which any
Indebtedness of the Company or any Subsidiary may be issued, and any such
default or event of default or failure shall result in all or any part of such
Indebtedness in the aggregate amount exceeding $250,000 under any such document
becoming due and payable prior to the date on which all or any part thereof
otherwise would have become due and payable; or
(d) Default shall occur in the observance or performance of any
covenant or agreement contained in Sections 6.2 through 6.12 hereof and such
default shall continue for a period of 10 days after the sooner to occur of (i)
senior management's knowledge of such default, and (ii) the date on which the
Company receives notice thereof in writing from the holder of any Debenture; or
(e) Default shall occur in the observance or performance of any other
provision of this Agreement which is not remedied within 30 days after the
sooner to occur of (i) senior management's knowledge of such default, and (ii)
the date on which the Company receives notice thereof in writing from the holder
of any Debenture; or
(f) Any representation or warranty made by the Company herein is
untrue in any material respect as of the date of the issuance or making thereof;
or
(g) Final judgments for the payment of money aggregating in excess of
$250,000, are outstanding against the Company or any Subsidiary or against any
property or assets of either and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a period of 60 days
from the date of its entry; or
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(h) The Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an assignment for the
benefit of creditors, or the Company or any Subsidiary applies for or consents
to the appointment of a custodian, trustee, liquidator, or receiver for the
Company or such Subsidiary or for the major part of the property of either; or
(i) A custodian, trustee, liquidator, or receiver is appointed for
the Company or any Subsidiary or for the major part of the property of either
and is not discharged within 60 days after such appointment; or
(j) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company or
any Subsidiary and, if instituted against the Company or any Subsidiary, are
consented to or are not dismissed within 60 days after such institution.
9.2 NOTICE TO HOLDERS. When any Event of Default has occurred, or if
the holder of any Debenture or of any other evidence of indebtedness of the
Company gives any notice or takes any other action with respect to a claimed
default, the Company agrees to give notice within three Business Days of such
event to all holders of the Debentures then outstanding as reflected on the
Company's register for the Debentures.
9.3 ACCELERATION OF MATURITIES. When any Event of Default described
in paragraph (a) or (b) of Section 9.1 has occurred and is continuing, any
holder of any Debenture may, and when any Event of Default described in
paragraphs (c) through (h), inclusive, of Section 9.1 has occurred and is
continuing, the holder or holders of 50% or more of the principal amount of
Debentures at the time outstanding may, by notice to the Company, declare the
entire principal and all interest accrued on all Debentures to be, and all
Debentures shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. When any Event of Default described in paragraph (i)
or (j) of Section 9.1 has occurred, then all outstanding Debentures shall
immediately become due and payable without presentment, demand or notice of any
kind, all of which are hereby expressly waived. Upon the Debentures becoming
due and payable as a result of any Event of Default as aforesaid, the Company
will forthwith pay to the holders of the Debentures the entire principal and
interest accrued on the Debentures. No course of dealing on the part of any
Debenture holder nor any delay or failure on the part of any Debenture holder to
exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. The Company further
agrees, to the fullest extent permitted by law, to pay to the holder or holders
of the Debentures all costs and expenses, including reasonable attorneys' fees,
incurred by them in the collection of any Debentures upon any default hereunder
or thereon.
10. AMENDMENTS, WAIVERS AND CONSENTS.
10.1 CONSENT REQUIRED. Any term, covenant, agreement or condition of
this Agreement may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the
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Company shall have obtained the consent in writing of the holders of at least
50% in aggregate principal amount of outstanding Debentures; provided that
without the written consent of the holders of all of the Debentures then
outstanding, no such waiver, modification, alteration or amendment shall be
effective (i) which will change the time of payment of the principal of or the
interest on any Debenture or reduce the principal amount thereof or change the
rate of interest thereon, (ii) which will change any of the provisions with
respect to optional prepayments, or (iii) which will change the percentage of
holders of the Debentures required to consent to any such amendment,
modification or waiver of any of the provisions of Article IX or Article X
hereof.
10.2 SOLICITATION OF DEBENTURE HOLDERS. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any holder of the
Debentures as consideration for or as an inducement to the entering into by any
holder of the Debentures of any waiver or amendment of any of the terms and
provisions of this Agreement, unless such remuneration is concurrently paid, on
the same terms, ratably to the holders of all of the Debentures then
outstanding.
10.3 EFFECT OF AMENDMENT OR WAIVER. Any such amendment or waiver
shall apply equally to all of the holders of the Debentures and shall be binding
upon them, upon each future holder of any Debenture, and upon the Company,
whether or not such Debenture shall have been marked to indicate such amendment
or waiver. No such amendment or waiver shall extend to or affect any obligation
not expressly amended or waived or impair any right consequent thereon.
11. INTERPRETATION OF AGREEMENT; DEFINITIONS.
11.1 DEFINITIONS. As used herein,
"Affiliate" means any Person (i) which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, the Company, (ii) which beneficially owns or holds 5% or more of any class
of the Voting Stock of the Company or (iii) 5 % or more of the Voting Stock (or
in the case of a Person which is not a corporation, 5 % or more of the equity
interest) of which is beneficially owned or held by the Company or a Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or other day on
which banks in Tennessee are authorized to close.
The term "control" (including the terms "controlling," "controlled by" and
"under common control") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by contract, or
otherwise.
"Default" means any event or condition, the occurrence of which would, with
the lapse of time or the giving of notice, or both, constitute an Event of
Default as defined in Section 9.1.
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"Event of Default" shall have the meaning set forth in Section 9.1.
"Guaranties" by any Person means all obligations (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing, or in effect guaranteeing, any
Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation
or any property or assets constituting security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of such Indebtedness or
obligation, (B) to maintain working capital or other balance sheet condition
or (C) otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation, or (iii) to lease property or to
purchase Securities or other property or services primarily for the purpose
of assuring the owner of such Indebtedness or obligation of the ability of
the primary obligor to make payment of the Indebtedness or obligation, or
(iv) otherwise to assure the owner of the Indebtedness or obligation of the
primary obligor against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to
the principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum
aggregate amount of such obligation, liability or dividend.
"Hazardous Substance" means any hazardous or toxic material, substance or
waste, pollutant or contaminant which is regulated under any statute, law,
ordinance, rule or regulation of any local, state, regional or Federal
authority having jurisdiction over the property of the Company and its
Subsidiaries or its use, including but not limited to any material, substance
or waste which is: (i) defined as a hazardous substance under Section 311 of
the Federal Water Pollution Control Act (33 U.S.C. SS 1317.1) as amended;
(ii) regulated as a hazardous waste under Section 1004 or Section 3001 of the
Federal Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act (42 U.S.C. SS 6901 et seq.) as amended; (iii) defined as a
hazardous substance under Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. SS 9601 et seq.) as
amended; or (iv) defined or regulated as a hazardous substance or hazardous
waste under any rules or regulations promulgated under any of the foregoing
statutes.
"Indebtedness" of any Person means and includes all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet
of such Person as liabilities of such Person, and in any event shall include
all (i) obligations of such Person for borrowed money or which have been
incurred in connection with the acquisition of property or assets, (ii)
obligations secured by any lien or other charge upon property or assets owned
by such Person, even though such Person has not assumed or become liable for
the payment of such obligations, (iii) obligations created or arising under
any conditional sale or other title retention agreement with respect to
property acquired by such Person, notwithstanding the fact that the rights
and remedies of the seller, lender or lessor under such agreement in the
Event of Default are limited to
30
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repossession or sale or property, (iv) capitalized rentals, and (v)
Guaranties of obligations of others of the character referred to in this
definition.
"Investments" means all investments, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares
of capital stock, indebtedness or other obligations or Securities or by loan,
advance, capital contribution or otherwise; provided, however that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Material Adverse Event" means any event or circumstance, or set of
events or circumstances, individually or collectively, that reasonably could
be expected to result in any (i) material adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material and
adverse effect on the financial condition of the Company as represented to
Purchaser herein or in any document delivered to Purchaser in connection
herewith, or (iii) material default or potential material default under any
of the Operative Documents.
"Person" means an individual, partnership, corporation, limited liability
company, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to
which the Company or any ERISA Affiliate contributed or is a member or
otherwise may have any liability.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
The term "subsidiary" means, as to any particular parent corporation, any
corporation of which more than 50% (by number of votes) of the Voting Stock
shall be owned by such parent corporation and/or one or more corporations
which are themselves Restricted Subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of the Company.
"Voting Stock" means Securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
"Warrants" means the Initial Warrant and the Additional Warrants.
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all funded debt or
current debt shall be owned by the Company and/or one or more of its
Wholly-owned Restricted Subsidiaries.
11.2 ACCOUNTING PRINCIPLES. Where the character or amount of any
asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made
for the purposes of this Agreement, the same shall
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be done in accordance with GAAP as applied by the Company, to the extent
applicable, except where such principles are inconsistent with the
requirements of this Agreement.
11.3 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is
prohibited from taking such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
12. MISCELLANEOUS.
12.1 EXPENSES, STAMP TAX INDEMNITY. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of Purchaser's reasonable out-of-pocket expenses in
connection with (i) the entering into of this Agreement and the consummation
of the transactions contemplated hereby, including but not limited to the
reasonable fees, expenses and disbursements of Purchaser's counsel, and (ii)
so long as Purchaser holds any of the Debentures, all such expenses relating
to any amendment, waiver or consent pursuant to the provisions hereof
(whether or not the same are actually executed and delivered), including,
without limitation, any amendments, waivers or consents resulting from any
work-out, restructuring or similar proceedings relating to the performance by
the Company of its obligations under this Agreement and the Debentures. The
Company also agrees that it will pay and save Purchaser harmless against any
and all liability with respect to stamp and other taxes, if any, which may be
payable in connection with the execution and delivery of this Agreement or
the Debentures, whether or not any Debentures are then outstanding. The
Company agrees to protect and indemnify Purchaser against any liability for
any and all brokerage fees and commissions payable or claimed to be payable
to any Person in connection with the transactions contemplated by this
Agreement.
12.2 POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No delay
or failure on the part of the holder of any Debenture in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof,
or the exercise of any other power or right, and the rights and remedies of
the holder of any Debenture are cumulative to and are not exclusive of any
rights or remedies any such holder would otherwise have, and no waiver or
consent, given or extended pursuant to Article VIII hereof, shall extend to
or affect any obligation or right not expressly waived or consented to.
12.3 NOTICES. All communications provided for hereunder shall be
in writing and shall be delivered personally, or mailed by registered mail,
or by prepaid overnight air courier, or by facsimile communication, in each
case addressed:
If to Purchaser: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Facsimile No: (615) 726-1208
Attention: Mike Comegna
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with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327-1503
Facsimile No.: (404) 816-6854
If to the Company: Altris Software, Inc.
9339 Carroll Park Drive
San Diego, California 92121
Facsimile No.: (619) 546-7671
Attention: John W. Low
with a copy to: Gibson, Dunn & Crutcher LLP
2029 Century Park East, Suite 4000
Los Angeles, California 90067
Facsimile No.: (310) 551-8741
Attention: Russell C. Hansen, Esq.
or such other address as Purchaser or the subsequent holder of any Debenture
initially issued to Purchaser may designate to the Company in writing, or
such other address as the Company may in writing designate to Purchaser or to
a subsequent holder of the Debenture initially issued to Purchaser, provided,
however, that a notice sent by overnight air courier shall only be effective
if delivered at a street address designated for such purpose by such person
and a notice sent by facsimile communication shall only be effective if made
by confirmed transmission at a telephone number designated for such purpose
by such person or, in either case, as Purchaser or a subsequent holder of any
Debentures initially issued to Purchaser may designate to the Company in
writing or at a telephone number herein set forth in the case of the Company.
12.4 ASSIGNMENTS. This Agreement, the Debentures and the other
Operative Documents may be endorsed, assigned and/or transferred in whole or
in part to no more than three transferees (each a "Permitted Transferred");
provided, however, that Purchaser shall not transfer any Debentures or
Purchaser's rights hereunder to any entity which the Company's Board of
Directors deems to be a competitor of the Company. Any Permitted Transferee
shall succeed to and be possessed of the rights and powers of Purchaser under
all of the same to the extent transferred and assigned. The Company shall
not assign any of its rights nor delegate any of its duties under this
Agreement or any of the other Operative Documents by operation of law or
otherwise without the prior express written consent of Purchaser, and if the
Company obtains such consent, this Agreement and the other Operative
Documents shall be binding upon such assignee.
12.5 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company and the Purchaser herein
and in any instruments or certificates delivered pursuant hereto shall
survive the Closing and the delivery of this Agreement for so long as the
Debentures remain outstanding, except that the representations and warranties
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set forth herein (other than those contained in Sections 2.1 through 2.4,
which shall survive until termination of this Agreement) shall expire on the
first anniversary of the Closing Date.
12.6 SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect
the validity of any remaining portion, which remaining portion shall remain
in force and effect as if this Agreement had been executed with the invalid
or unenforceable portion thereof eliminated and it is hereby declared the
intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may for any reason, be hereafter declared invalid or
unenforceable.
12.7 GOVERNING LAW. This Agreement and the Debentures issued and
sold hereunder shall be governed by and construed in accordance with
California law, without regard to its conflicts of law rules.
12.8 CAPTIONS; COUNTERPARTS. The descriptive headings of the
various Sections or parts of this Agreement are for convenience only and
shall not affect the meaning or construction of any of the provisions hereof.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
12.9 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party hereto, it shall at all times
keep confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other party to which such party has been
or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of its obligations
hereunder or the ownership of the Debenture purchased hereunder. The parties
hereto further agree that there shall be no press release or other public
statement issued by any party relating to this Agreement or the transactions
contemplated hereby, unless the party otherwise agrees in writing.
12.10PUBLICITY. The Company and Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby. Neither party shall
issue any press release or otherwise make any public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed.
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IN WITNESS WHEREOF, the parties hereto have caused this Debenture
Purchase Agreement to be executed and delivered by their duly authorized
officers as of the date first written above.
ALTRIS SOFTWARE, INC.
By:/s/ Roger H. Erickson
------------------------------------
Roger H. Erickson
Vice President
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By:/s/ Carl W. Stratton
------------------------------------
Carl W. Stratton
Chief Financial Officer
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REGISTRATION RIGHTS AGREEMENT
------------------------------
This Registration Rights Agreement (the "Agreement") dated this 27th day of
June, 1997, is by and between ALTRIS SOFTWARE, INC., a California corporation
(the "Company"), and SIRROM CAPITAL CORPORATION d/b/a Tandem Capital, a
Tennessee corporation (the "Holder"). Capitalized terms not otherwise defined
shall have the meanings assigned by Section 11.
W I T N E S S E T H:
--------------------
WHEREAS, the Company and the Holder have entered into a certain Convertible
Preferred Stock Purchase Agreement (the "Preferred Stock Purchase Agreement") of
even date herewith that provides for, among other things, the Company to grant
to Holder certain registration rights with respect to shares of the Company's
common stock, no par value (the "Common Stock"), as set forth herein; and
WHEREAS, the Company and the Holder have also entered into a certain
Debenture Purchase Agreement (the "Debenture Purchase Agreement") of even date
herewith that provides for, among other things, the Company to grant to Holder
certain registration rights with respect to shares of the Common Stock, also as
set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and undertakings
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Demand Registration.
1.1 DEMAND RIGHTS. If the holders of at least 25% of the Registrable
Securities outstanding ("Initiating Holders") request in writing (a "Demand
Request") that the Company register an offering of Registrable Securities under
the Securities Act of 1933, by underwriters selected by the Initiating Holders
and reasonably acceptable to the Company, with anticipated gross offering
proceeds of at least $1,000,000, the Company shall:
(i) promptly give Notice of the Demand Request to all other
holders of Registrable Securities; and
(ii) use its best efforts to effect the registration and sale of
such Registrable Securities, together with all other Registrable Securities
specified in any written request received by the Company (provided such
notice is received by the Company within 20 days after the date of the
Notice of Demand Request), in accordance with the intended method of
disposition thereof, and in accordance with the procedures set forth in
Section 6.
1.2 NUMBER OF DEMAND REGISTRATIONS. Initiating Holders shall be
entitled to request three registrations of Registrable Securities in which the
Company shall pay all
<PAGE>
Registration Expenses in connection with each such registration request. A
registration shall not count towards the maximum of three registration requests
held by the Holder hereunder unless the registration statement for such
requested registration has become effective and an offering closed in which all
Registrable Securities requested to be included in such registration by the
Initiating Holders shall have been sold. Provided, however, that the Company in
any event shall pay all Registration Expenses in connection with any requested
registration whether or not the registration statement becomes effective (unless
the failure to become effective is such as to require the Initiating Holders to
pay all Registration Expenses for such aborted or withdrawn registration
pursuant to Section 4 below, in which case (i) such Initiating Holders shall
reimburse the Company for all such Registration Expenses incurred and paid by
the Company in connection with such registration, and (ii) such withdrawn
request shall not count as a requested registration hereunder). Further
provided, that if (i) the Initiating Holders withdraw from or abort more than
one registration in any consecutive 12-month period, and (ii) the Initiating
Holders are required to pay Registration Expenses pursuant to Section 4 for more
than one such withdrawn or aborted registration, only one such registration
shall not be counted.
1.3 OTHER SECURITIES AND PRIORITY. The registration statement filed
pursuant to the Demand Request may, subject to the prior written consent of the
Initiating Holders, include other securities of the Company, provided that all
Registrable Securities for which the Initiating Holders have requested
registration shall be covered by such registration statement and sold in such
offering before any such other securities are included and sold.
1.4 LIMITATIONS. The Company shall not be obligated to effect, or to
take any action to effect, any demand registration:
(i) in any jurisdiction in which the Company would be required
to execute a general consent to service of process, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(ii) during the period beginning 15 days prior to the Company's
good faith estimate of the date of filing of, and ending 180 days after the
effective date of, a Company-initiated registration, provided that the
Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
(iii) if the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 3 hereof.
1.5 DEFERRAL OF REGISTRATION. If (i) in the good faith judgment of
the Board of Directors of the Company, the filing of a registration statement as
soon as practicable after receipt of the Demand Request would be materially
detrimental to the Company because there exist BONA FIDE financing, acquisition,
or other activities of the Company, and the Board of Directors of the Company
concludes, as a result, that it is essential to defer the filing of such
registration statement at such time, and (ii) the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company stating
that in the good faith judgment of the Board of Directors of the
2
<PAGE>
Company, it would be materially detrimental to the Company for such registration
statement to be filed in the near future and that it is essential to defer the
filing of such registration statement, then the Company may defer such filing
for a period of not more than 90 days after receipt of the Demand Request of the
Initiating Holders, provided that the Company shall not defer its obligations in
this manner for more than an aggregate of 90 days in any twelve-month period,
and provided further that the Initiating Holders shall be entitled to withdraw
the request for registration and, if such request is withdrawn, such
registration shall not count as a requested registration hereunder and the
Company shall pay all Registration Expenses incurred in connection with such
withdrawn registration request.
1.6 UNDERWRITING. The right of any other holders of Registrable
Securities to join in a request for registration shall be conditioned upon such
holders' participation in such registration on the same terms as the Initiating
Holders (unless otherwise agreed by a majority in interest of the Initiating
Holders).
1.7 INCLUSION OF OTHER SECURITIES. In any demand registration, if the
Company shall request inclusion of securities to be sold for its own account, or
if other persons entitled to incidental registrations shall request inclusion in
such registration, the Initiating Holders shall offer to include such securities
in the underwriting and may condition such offer on the acceptance by the
Company or such other persons of the provisions of this Agreement. The Company
and all such other persons proposing to distribute securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriters selected by a majority in interest of the Initiating Holders
and reasonably acceptable to the Company.
2. PIGGYBACK REGISTRATION.
2.1 NOTICE AND PROCEDURES. If the Company proposes to register any
of its Common Stock either for its own account or for the account of other
security holders (other than holders of Registrable Securities), the Company
will:
(i) promptly give written notice thereof to each holder of
Registrable Securities; and
(ii) use its best efforts to include in such registration and in
any underwriting involved therein, all Registrable Securities specified in
any written request from holders of Registrable Securities received by the
Company within 15 days after such notice.
2.2 LIMITATIONS. The provisions of this Section 2 shall not apply to
any registration relating solely to employee benefit plans (as defined under
Rule 405 of the Securities Act), or a registration relating solely to securities
issued in connection with an acquisition or merger, or a registration on any
registration form that does not permit secondary sales.
2.3 UNDERWRITING. The right of any holder of Registrable Securities
to participate in a piggyback registration shall be conditioned upon such
holder's agreement to enter
3
<PAGE>
into an underwriting agreement in customary form with the underwriters selected
by the Company.
2.4 UNDERWRITERS' CUTBACK. Notwithstanding any other provision of
this Section 2, if the underwriters of any piggyback registration advise the
Company of the need for an Underwriters' Cutback, the underwriters may (subject
to the limitations set forth below) limit the number of Registrable Securities
to be included in the registration and sold; provided, however, that Registrable
Securities shall be included in any over allotment option granted to the
underwriters before inclusion of any shares to be sold by the Company. The
Company shall advise all holders of securities requesting registration of the
Underwriters' Cutback, and the number of shares of securities that are entitled
to be included in the registration and underwriting shall be allocated first to
the Company for securities being sold for its own account and thereafter as set
forth in Section 9.
2.5 OTHER PROVISIONS. If holders of Registrable Securities request
participation in a piggyback registration, the provisions of Section 1.4 shall
apply to such registration, and if the registration is for an underwritten
offering, the provisions of Sections 1.6 and 1.7 shall also apply to such
registration.
3. REGISTRATION ON FORM S-3. After the Company has qualified for the use
of Form S-3, and for so long as the Company continues to be so qualified, in
addition to the rights contained in the foregoing provisions of this Agreement,
the holders of the Registrable Securities shall have the right to request
registrations on Form S-3 or any comparable or successor form. Each such
request shall be in writing and shall state the anticipated number of shares of
Registrable Securities to be disposed of, the anticipated gross proceeds of the
offering, and the intended methods of disposition of such shares by such
holders, including whether sales are to be made on a delayed or continuous basis
pursuant to Rule 415. The Company shall not be obligated to effect any
registration pursuant to this Section 3 if (i) the holders of Registrable
Securities, together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and such other shares of Common Stock (if any) on Form S-3 at an
aggregate price to the public of less than $500,000, or (ii) the Company shall
delay or defer registration in accordance with Section 1.4(ii) or Section 1.5,
or (iii) the Company will be required to obtain an audit (other than for its
normal year-end audit) for such registration to become effective. The Company
shall only be required to effect two registrations of Registrable Securities
pursuant to this Section 3 in each calendar year, provided, however, that if the
offering is to be effected on a continuous or delayed basis pursuant to Rule 415
(or any successor rule), and the registration statement is kept effective for a
period in excess of 180 days, then the Company shall not be required to effect
another registration in that calendar year.
4. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement, shall be borne by the Company; provided, however, that a holder of
Registrable Securities shall bear the Registration Expenses for any registration
process begun pursuant to Section 1 and subsequently withdrawn by such holder,
unless such withdrawal is based upon (i) material adverse information relating
to the Company that is different from the information known or available (upon
request from the
4
<PAGE>
Company or otherwise) to the Initiating Holders at the time of the request for
registration under Section 1, or (ii) material adverse changes in the financial
markets which result in a significant decline in the public market price for the
Company's Common Stock of at least 20 percent from the date of the request to
the date of such withdrawal. All Selling Expenses relating to securities
registered pursuant to this Agreement shall be borne by the holders of such
securities PRO RATA on the basis of the number of shares of securities so
registered on their behalf.
5. HOLDBACK AGREEMENTS.
5.1 BY HOLDERS. If requested in writing by the Company and the
managing underwriter of an underwritten registered public offering by the
Company of its Common Stock, the holders of Registrable Securities shall agree
not to sell or otherwise transfer or dispose of any Common Stock of the Company
held by such holders (other than those included in the registration statement)
for a period not to exceed 180 days following the effective date of a
registration statement of the Company filed under the Securities Act, provided
that all officers and directors of the Company, all other holders of the
Registrable Securities, and all other holders of rights to registration of any
other security of the Company enter into similar agreements identical in terms
to that of the holders of Registrable Securities.
5.2 BY COMPANY. In connection with any underwritten registration,
the Company (i) shall not effect any public sale or distribution of its equity
securities, or any securities convertible into or exchangeable or exercisable
for such securities, during the seven days prior to and during the 90-day period
after the effective date of any underwritten registration pursuant to this
Agreement, and (ii) shall use its reasonable best efforts to cause each holder
of at least two percent (on a fully-diluted basis) of its Common Stock, or any
securities convertible into or exchangeable or exercisable for Common stock,
purchased from the Company at any time after the date of this Agreement (other
than in a registered public offering or pursuant to stock options granted under
a stock option plan primarily for employees, officers or directors) to agree not
to effect any public sale or distribution (including sales pursuant to Rule 144)
of any such securities during such period.
6. REGISTRATION PROCEDURES. In the case of each registration effected by
the Company pursuant to this Agreement, the Company will use its best efforts to
effect the registration and sale of Registrable Securities in accordance with
the intended method of disposition thereof, and pursuant thereto the Company
shall as expeditiously as possible:
(i) prepare and file a registration statement with respect
to such offering of Registrable Securities, and use its best efforts to
cause such registration statement to become effective,
(ii) notify each holder of Registrable Securities of the
effectiveness of each registration statement hereunder and prepare and file
with the Securities and Exchange Commission such amendments and supplements
to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
for a period of not less than 180 days and comply with the
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provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition the sellers thereof set
forth in such registration statement;
(iii) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus) and such other documents as such
seller may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by such seller;
(iv) use its best efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller reasonably requests and do any and all other
acts and things which may be reasonably necessary or advisable to enable
such seller to consummate the disposition in such jurisdictions of the
Registrable Securities owned by such seller;
(v) notify each seller of such Registrable Securities, at
any time when a prospectus relating thereto is required to be delivered
under the Securities Act, of the happening of any event as a result of which
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make there
statements therein not misleading, and, at the request of any such seller,
the Company shall prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements
therein not misleading;
(vi) cause all such Registrable Securities to be listed on
each securities exchange on which similar securities issued by the Company
are then listed and, if not so listed, to be listed on the NASD automated
quotation system and, if listed on the NASD automated quotation system, use
its best efforts to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ "national market system
security" within the meaning of Rule 11a2-1 of the Securities and Exchange
Commission or, failing that, to secure NASDAQ authorization for such
Registrable Securities and, without limiting the generality of the
foregoing, to arrange for a least two market makers to register as such
with respect to such Registrable Securities with the NASD;
(vii) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such
registrations statement;
(viii) enter into such customary agreements (including
underwriting agreements in customary form) and take all such other actions
as the holders of a majority of the Registrable Securities being sold or
the underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities (including
effecting a stock split or combination of shares);
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(ix) make available for inspection by any seller of
Registrable Securities, any underwriter participating in any disposition
pursuant to such registration statement and any attorney, accountant or
other agent retained by any such seller or underwriter, all financial and
other records, pertinent corporate documents and properties of the Company,
and cause the Company's officers, directors, employees and independent
accountants to supply all information reasonably requested by any such
seller, underwriter, attorney, accountant or agent in connection with such
registration statement, provided that any recipient of such records,
documents or information executes such confidentiality agreement as the
Company reasonably requests;
(x) otherwise use its best efforts to comply with all
applicable rules and regulations of the Securities and Exchange Commission,
and make available to its security holders, as soon as reasonably
practicable, an earnings statement covering the period of at least twelve
months beginning with the first day of the Company's first full calendar
quarter after the effective date of the registration statement, which
earning statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
(xi) permit any holder of Registrable Securities which
holder, in its sole and exclusive judgment, might be deemed to be an
underwriter or controlling person of the Company, to participate in the
preparation of such registration or comparable statement and to require the
insertion therein of material, furnished to the Company in writing, which
(i) with respect to matters relating to such holder of Registrable
Securities, should be included in the reasonable judgment of such holder and
its counsel, and (ii) with respect to matters relating to the Company,
should be included in the reasonable judgment of such holder, subject in the
case of clause (ii) to the approval of the Company and any managing
underwriter of the offering (which approval shall not be unreasonably
withheld);
(xii) use its best efforts to cause such Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be
necessary to enable the sellers thereof to consummate the disposition of
such Registrable Securities; and
(xiii) in connection with any underwritten registration,
obtain a cold comfort letter from the Company's independent public
accountants in customary form and covering such matters of the type
customarily covered by cold comfort letters as the holders of a majority of
the Registrable Securities being sold reasonably request (provided that
such Registrable Securities constitute at least 10% of the securities
covered by such registration statement).
7. INDEMNIFICATION.
7.1 BY COMPANY. The Company shall indemnify each holder of
Registrable Securities, each of its officers, directors, employees, agents, and
Affiliates, and each underwriter, and each of its officers, directors,
employees, agents, and Affiliates, against all expenses, claims,
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losses, damages, and liabilities (or actions, proceedings, or settlements in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any prospectus (including any
related registration statement, notification, or the like) incident to any
registration under this Agreement, or based on any 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 any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, and will reimburse such persons for any
legal and any other expenses reasonably incurred in connection with
investigating and defending or settling any such claim, loss, damage, liability
or action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission based upon written information
furnished to the Company by such holder or underwriter and stated to be
specifically for use therein. It is agreed that the indemnity agreement
contained in this Section shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability, or action if such settlement is effected
without the prior written consent of the Company (which consent shall not be
unreasonably withheld).
7.2 BY HOLDERS. In connection with the registration or sale of
shares of Registrable Securities pursuant to this Agreement, each holder whose
Registrable Securities are included in such registration being effected under
this Agreement, shall indemnify the Company, and each of its directors,
officers, employees, agents, and Affiliates, and each underwriter, and each of
its directors, officers, employees, agents, and Affiliates, against all claims
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement or prospectus, or any omission
(or alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, and will
reimburse the Company and such directors, officers, partners, underwriters, or
control person for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such clam, loss, damage,
liability, or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement or prospectus, in reliance upon
and in conformity with written information furnished to the Company by such
holder of the Registrable Securities, and stated to be specifically for use
therein; provided, however, that the obligations of such holder hereunder shall
not apply to amounts paid in settlement of any such claims, losses, damages, or
liabilities if such settlement is effected without the prior written consent of
such holder, which consent shall not be unreasonably withheld; and provided that
in no event shall any indemnity under this Section 7.2 exceed the net amount of
proceeds from the offering received by such holder.
7.3 PROCEDURE. Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party or parties
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
such claim or any litigation resulting
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therefrom, shall be reasonably acceptable to the Indemnified Party. Failure
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this section to the extent such failure is not
prejudicial. 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 that does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to such
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.
7.4 CONTRIBUTION. If the indemnification provided for in this
Section is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage, or expense
referred to therein, then the Indemnifying Party, in lieu of indemnifying such
Indemnified Party hereunder, shall contribute to the amount paid or payable by
such Indemnified Party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand and of the Indemnified Party on the other
in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
7.5 CONFLICTING PROVISIONS. Notwithstanding the foregoing, to the
extent that the provisions on indemnification and contribution contained in any
underwriting agreement entered into in connection with a registration are in
conflict with the foregoing provisions, the provisions of the underwriting
agreement shall control.
8. INFORMATION BY HOLDER. Each holder of Registrable Securities shall
furnish to the Company in writing such information regarding such holder and the
distribution proposed by such holder as the Company or underwriters may
reasonably request in writing and as shall be reasonably required in connection
with any registration, qualification, or compliance referred to in this
Agreement.
9. ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in
which all of the Registrable Securities and other outstanding shares of Common
Stock of the Company (the "Other Shares") requested and entitled to be included
in a demand registration cannot be so included as a result of limitations on the
aggregate number of shares of Registrable Securities and Other Shares that may
be so included, or in case of an Underwriters' Cutback, the number of shares of
Registrable Securities and Other Shares that may be so included shall be
allocated among the holders of Registrable Securities and other selling
stockholders PRO RATA on the basis of the number of shares of Registrable
Securities and Other Shares held by such holders and other selling stockholders.
If any holder of Registrable Securities or other selling stockholder does not
request inclusion of the maximum number of shares of Registrable Securities and
Other Shares
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allocated to him pursuant to this procedure, the remaining portion of his
allocation shall be reallocated among those requesting holders of Registrable
Securities and other selling stockholders whose allocations did not satisfy
their requests PRO RATA on the basis of the number of shares of Registrable
Securities and Other Shares held by such holders and other selling stockholders,
and this procedure shall be repeated until all of the shares of Registrable
Securities and Other Shares which may be included in the registration on behalf
of the holders of Registrable Securities and other selling stockholders have
been so allocated. Provided, however, the Company shall not limit the number of
Registrable Securities to be included in a registration pursuant to this
Agreement in order to include shares held by stockholders with no registration
rights or to include in that registration shares of stock issued to employees,
officers, directors, or consultants pursuant to any Company stock option plan,
and in such case all Registrable Securities covered by the registration shall be
sold before any such other securities are sold.
10. SURVIVAL OF RIGHTS. The right of any holder of Registrable Securities
to request registration or inclusion in any registration pursuant to this
Agreement shall terminate on the earlier of (i) such date as all shares of
Registrable Securities held or entitled to be held upon conversion by Holder
shall equal less than 25% of the outstanding Registrable Securities, or (ii)
seven years from the date hereof.
11. DEFINITIONS. As used herein,
"Holder" means any Person who holds Registrable Securities and any holder
of Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance herewith.
"Initiating Holders" means holders of the Registrable Securities who in the
aggregate hold not less than 25 percent of the outstanding Registrable
Securities.
"Person" means an individual, corporation, partnership, limited liability
company, joint venture, sole proprietorship, trust or other entity, business
association or organization.
"Register," "registered" and "registration" refers to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act of 1933 and applicable rules and regulations thereunder, and such
other actions as may be required to cause such registration statement to become
effective or with respect to registration, qualification or compliance under
applicable state securities laws.
"Registration Expenses" means all expenses incurred in effecting any
registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, fees and
disbursements of custodians, fees and disbursements of counsel for the Company
and its independent certified public accountants, blue sky fees and expenses,
and reasonable fees and disbursements of one counsel chosen by the holders of a
majority of the Registrable Securities included in such registration, but shall
not include Selling Expenses.
"Registrable Securities" means shares of the Company's Common Stock issued
or issuable (i) upon conversion of the Convertible Preferred Stock, (ii) upon
exercise of the Contingent
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Warrants under the Preferred Stock Purchase Agreement, (iii) upon exercise of
the Initial Warrants and the Additional Warrants under the Debenture Purchase
Agreement and (iv) as a dividend or other distribution with respect to, or in
exchange for, or in replacement of, the shares referred to in clause (i), (ii)
or (iii); provided, however, that shares shall cease to be Registrable
Securities if and when (x) they are sold pursuant to Rule 144 under the
Securities Act or a registration statement under the Securities Act or (y) such
shares are eligible for resale pursuant to Rule 144 under the Securities Act
without regard to any volume limitations thereunder.
"Rule 144" means Rule 144 as promulgated by the SEC under the Securities
Act, as such Rule may be amended from time to time, or any similar successor
rule that may be promulgated by the SEC.
"Rule 145" means Rule 145 as promulgated by the Commission under the
Securities Act, as such Rule may be amended from time to time, or any similar
successor rule that may be promulgated by the SEC.
"Security" has the same meaning as in Section 2(1) of the Securities of
1933, as amended.
"Selling Expenses" means all underwriting discounts, selling commissions
and stock transfer taxes applicable to the sale of Registrable Securities, and
fees and disbursements of counsel for any stockholder (other than the fees and
disbursements of one counsel for the holders of Registrable Securities, as
selling stockholders, included in Registration Expenses).
"Underwriters' Cutback" means a reduction in the number of shares to be
included in any underwritten offering as the result of receipt of written notice
from the representative(s) of the underwriters to the effect that the number of
shares requested to be included in such registration exceeds the number which,
in the representative's judgment, can be sold in an orderly manner in such
offering within a price range acceptable to either the Company (in a primary
registration) or the majority of the holders initially requesting such
registration (in a secondary registration).
12. NOTICE OF TRANSFER. The registration rights granted to the Holder
hereunder may be transferred to any transferee of 300,000 shares (adjusted
appropriately for stock splits, stock dividends and the like) of Registrable
Securities; provided, however, that the registration rights of the Holder may be
transferred to a wholly-owned subsidiary of the Holder without regard to the
number of shares transferred; and provided, further, that registration rights
may not be transferred to any proposed transferee deemed to be a competitor of
the Company by its Board of Directors. Each such permitted transferee must
agree in a written instrument provided to the Company to be bound hereby and
shall thereupon be deemed to be a "Holder" for purposes hereunder.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights
Agreement to be executed by their duly authorized officers as of the date first
above written.
ALTRIS SOFTWARE, INC.
By:/s/ Roger H. Erickson
------------------------------
Roger H. Erickson
Vice President
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By:/s/ Carl W. Stratton
------------------------------
Carl W. Stratton
Chief Financial Officer
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