SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-22970
TREEV, INC.
(Exact name of registrant as specified in its charter)
Delaware 54-1590649
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
500 Huntmar Park Drive, Herndon, Virginia 20170
(Address of principal executive offices)
(703) 478-2260
(Issuer's telephone number)
Indicate by check mark whether the registrant: (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the past 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 32,491,048 shares of
common stock, $.0001 par value, as of July 22, 1998.
<PAGE>
TREEV, INC.
Form 10-Q
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets at June 30, 1998
(unaudited) and December 31, 1997 2
Consolidated Statements of Operations (unaudited)
for the three months ended June 30, 1998 and 1997 3
Consolidated Statements of Operations (unaudited)
for the six months ended June 30, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the six months ended June 30, 199 5
Consolidated Statements of Cash Flows (unaudited)
for the six months ended June 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations. 10
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 17
Item 6. Exhibits and Reports on Form 8-K. 19
<PAGE>
TREEV, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
June 30, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,092 $ 3,816
Accounts and notes receivable, net 7,954 8,569
Note receivable Dorotech sale -- 7,000
Inventories 691 722
Prepaid expenses and other 599 1,108
--------- ---------
Total current assets 13,336 21,215
Fixed assets, net 1,977 2,165
Long-term notes receivable, net 138 378
Software development costs and
purchased technology, net 2,484 2,490
Goodwill, net 416 499
Other assets 121 113
--------- ---------
Total assets $ 18,472 $ 26,860
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 803 $ 2,479
Accounts payable 1,736 2,037
Accrued compensation and related
expenses 1,199 1,135
Deferred revenue 4,681 3,334
Other accrued expenses 2,901 2,250
--------- ---------
Total current liabilities 11,320 11,235
Long-term debt and obligations
under capital leases 77 1,108
--------- ---------
Total liabilities 11,397 12,343
Commitments
Redeemable Series F preferred
stock, none and 792,186 shares
issued and outstanding -- 6,548
Stockholders' equity:
Preferred stock, $.0001 par value,
20,000,000 shares authorized;
1,615,575 and 1,615,675 shares
issued and outstanding
Common stock, $.0001 par value,
100,000,000 shares authorized;
32,044,328 and 26,236,186 shares
issued and outstanding 3 3
Additional paid-in-capital 136,442 132,403
Accumulated deficit (129,370) (124,437)
--------- ---------
Total stockholders' equity 7,075 7,969
--------- ---------
Total liabilities and
stockholders' equity $ 18,472 $ 26,860
========= =========
The accompanying notes are an integral part of these financial statements.
-2-
<PAGE>
TREEV, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Three Months Ended June 30,
1998 1997
------------ ------------
Revenue:
Products $ 5,085 $ 4,098
Services 2,844 5,236
------------ ------------
7,929 9,334
------------ ------------
Costs and expenses:
Cost of products sold 1,846 2,198
Cost of services provided 1,941 3,934
Sales and marketing 3,103 3,640
General and administrative 1,075 1,689
Product development 965 1,266
Restructuring costs 1,505 --
------------ ------------
10,435 12,727
------------ ------------
Loss before interest income
and income taxes (2,506) (3,393)
Interest income (expense), net 6 (64)
------------ ------------
Loss before income taxes (2,500) (3,457)
Income tax provision -- 61
------------ ------------
Net loss (2,500) (3,518)
------------ ------------
Preferred stock preferences (337) (930)
------------ ------------
Net loss applicable to common
shares $ (2,837) $ (4,448)
============ ============
Net loss per common share $ (0.10) $ (0.18)
============ ============
Weighted average shares
outstanding 29,330,815 24,963,956
============ ============
Net loss per common share -
assuming dilution $ (0.10) $ (0.18)
============ ============
Weighted average shares
outstanding 29,330,815 24,963,956
============ ============
The accompanying notes are an integral part of these financial statements.
-3-
<PAGE>
TREEV, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share amounts)
(Unaudited)
Six Months Ended June 30,
1998 1997
------------ ------------
Revenue:
Products $ 8,636 $ 8,366
Services 5,493 10,087
------------ ------------
14,129 18,453
------------ ------------
Costs and expenses:
Cost of products sold 3,661 4,156
Cost of services provided 3,786 7,816
Sales and marketing 5,837 7,252
General and administrative 2,250 3,300
Product development 1,961 2,308
Restructuring costs 1,505 --
Gain from extinguishment of debt -- (267)
------------ ------------
19,000 24,565
------------ ------------
Loss before interest income
and income taxes (4,871) (6,112)
Interest expense, net (62) (33)
------------ ------------
Loss before income taxes (4,933) (6,145)
Income tax provision -- 55
------------ ------------
Net loss (4,933) (6,200)
------------ ------------
Preferred stock preferences (674) (1,906)
------------ ------------
Net loss applicable to common
shares $ (5,607) $ (8,106)
============ ============
Net loss per common share $ (0.21) $ (0.33)
============ ============
Weighted average shares
outstanding 27,316,368 24,715,116
============ ============
Net loss per common share -
assuming dilution $ (0.21) $ (0.33)
============ ============
Weighted average shares
outstanding 27,316,368 24,715,116
============ ============
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
<TABLE>
TREEV, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the six months ended June 30, 1998
(In thousands, except share amounts)
(Unaudited)
<CAPTION>
Additional
Preferred Stock Common Stock paid-in Accumulated
Shares Amt. Shares Amt. capital Deficit Total
----------------------- --------------------------- ---------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance December 31, 1997 1,615,575 $ -- 26,236,186 $3 $132,403 ($124,437) $7,969
Issuance of common stock,
net of offering costs of $175 4,016,073 3,352 3,352
Issuance of preferred stock,
net of offering costs of $144 1,000 972 972
Conversion of preferred stock (1,000) 1,449,685 0
Issuance of warrants 52 52
Dividends on preferred stock 342,384 (337) (337)
Net loss (4,933) (4,933)
----------------------- --------------------------- ---------------- ------------- ----------
Balance June 30, 1998 1,615,575 -- 32,044,328 $3 136,442 ($129,370) $7,075
======================= =========================== ================ ============= ==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
TREEV INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months Ended June 30,
1998 1997
------- -------
(In thousands)
Cash flows from operating activities:
Net loss $(4,933) $(6,200)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 1,221 2,550
Restructuring costs 1,505 --
Other non-cash adjustments 40 10
Changes in assets and liabilities:
Accounts and notes receivable 588 (836)
Inventories 31 (182)
Prepaid expenses and other 111 190
Accounts payable (320) 474
Accrued compensation and
related expenses 64 418
Accrued expenses, other (438) (212)
Deferred revenues 1,347 641
Deferred income taxes -- 74
------- -------
Net cash used in operating activities (784) (3,073)
------- -------
Cash flows from investing activities:
Capitalized software development
and license costs (751) (751)
Purchases of fixed assets (473) (410)
Proceeds from business divestitures,
net of related costs 7,230 60
------- -------
Net cash provided by (used in)
investing activities 6,006 (1,101)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net 3,423 22
Proceeds from issuance of preferred
stock, net -- (24)
Cash dividends paid on preferred
stock -- (1,779)
Redemption of Mandatory Redeemable
Preferred Stock (6,548) (3,500)
Redemption of convertible debentures (1,300) --
Proceeds from borrowings -- 5,000
Principal payments on capital lease
obligations (521) (536)
Principal payments on debt -- (633)
------- -------
Net cash used in financing activities (4,946) (1,450)
------- -------
Effect of exchange rate changes on cash
and cash equivalents -- (132)
Net decrease in cash and cash
equivalents 276 (5,756)
Cash and cash equivalents at beginning
of year 3,816 7,601
------- -------
Cash and cash equivalents at June 30, $ 4,092 $ 1,845
======= =======
Supplemental Cash Flow Information:
Interest paid $ 156 $ 234
Income taxes paid $ 175 $ 198
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998 and 1997
1. BASIS OF PRESENTATION
The unaudited financial statements presented herein have been prepared in
accordance with the instructions to Form 10-Q and should be read in conjunction
with the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1997 which include
information and note disclosures not included herein. In the opinion of
management all adjustments, which include only those of a normal recurring
nature, necessary to fairly present the Company's financial position, results of
operations and cash flows have been made to the accompanying financial
statements. The results of operations for the six month period ended June 30,
1998 may not be indicative of the results that may be expected for the year
ending December 31, 1998.
2. NAME CHANGE
During the second quarter of 1998, the Company changed its name from Network
Imaging Corporation to TREEV, Inc. The name change more accurately reflects the
Company's new orientation as a provider of integrated, production level document
management solutions and was done in conjunction with the introduction of the
Company's new integrated document management software product suite.
3. RESTRUCTURING CHARGES
During the second quarter of 1998, the Company incurred a charge of $1.5 million
as a result of effecting a restructuring plan ("the Plan"). The Plan provided
for the elimination of duplicate job functions and outdated or discontinued
products. Under the Plan, the Company is combining its three separate customer
support organizations into one support organization, and the Company's strategic
focus will shift to its newest suite of integrated document management software
using a Microsoft based architecture. The restructuring charge includes a
$827,000 write down to net realizable value of prepaid licenses and capitalized
software which related to products abandoned in favor of the new integrated
document management software suite. In addition, $677,000 of the restructuring
charge related to severance costs for 29 employees located throughout the U.S.,
including customer support, sales, marketing, engineering and administrative
personnel. The Plan is expected to be completed by the end of the first quarter
of 1999. At June 30, 1998, 19 employees had been terminated, severance benefits
of $267,000 had been paid out and the accrual balance relating to the Plan was
$410,000.
-7-
<PAGE>
4. CONVERSION OF LINE OF CREDIT TO PREFERRED STOCK
In June 1998, the Company converted the remaining $1.0 million of the
Stockholder line of credit into equity through the issuance of 1,000 shares of
Series M1 Convertible Stock ("Series M1 Stock"). The Company agreed to file a
registration statement to register the Common Stock issuable upon conversion of
the preferred stock on or about August 1, 1998. The Company received no proceeds
from the conversion of the Stockholder line of credit to equity. The Series M1
Stock issued and outstanding in December 2001 automatically converts into Common
Stock. At June 30, 1998, the 1,000 shares of Series M1 Stock were convertible
into 1,230,769 shares of Common Stock.
The Series M1 Stock has a per share liquidation preference, subject to the
liquidation preference of the Series A Stock, of an amount equal to the sum of
$1,000 plus 8 1/2% per annum simple interest thereon for the period since the
date of issuance. Each share is convertible at the option of the holder into the
number of shares of Common Stock determined by dividing an amount equal to the
initial purchase price of $1,000 by $0.8125. The Series M1 Stock has a
cumulative dividend rate of 8 1/2% per annum which is payable at the time of
conversion or redemption in cash or shares of Common Stock, at the election of
the Company. If the cumulative dividend is paid in stock, the amount paid is
based on 95% of the closing bid price on the date of notice of conversion or
redemption.
The Series M1 holder has a right of redemption under various circumstances, all
of which are under the sole control of the Company. The Company has the right,
at any time, to redeem all of the then outstanding Series M Stock for a price
per share equal to $1,000 plus the accrued unpaid dividend.
5. ISSUANCE OF COMMON STOCK
During the first quarter of 1998, the Company completed a private placement of
1,108,947 shares of Common Stock, together with warrants to purchase an
additional 50,000 shares of Common Stock, pursuant to Regulation D under the
Securities Act of 1933, as amended (the "Securities Act"). Proceeds from the
offering were $1.1 million and offering costs were $26,000. Pursuant to the
terms of the private placement, the Company is obligated to file a registration
statement with the Securities and Exchange Commission to register the shares by
August 31, 1998.
During the second quarter of 1998, the Company completed a private placement of
2,907,126 shares of Common Stock, pursuant to Regulation D under the Securities
Act. Proceeds from the offering were $2.5 million and offering costs were
$150,000. Pursuant to the terms of the private placement, the Company is
obligated to file a registration statement with the Securities and Exchange
Commission to register the shares by August 31, 1998.
-8-
<PAGE>
During the second quarter of 1998, the Company issued 342,384 shares of Common
Stock as a quarterly dividend to the shareholders of the Company's Series A
Preferred Stock.
6. EXCHANGE OF NOTE RECEIVABLE FOR EQUITY
During the second quarter of 1998, the Company exchanged a $1.1 million note
receivable, that had been received from the sale of a previously owned
subsidiary, for equity in the company that acquired the subsidiary. Previously,
the note had been reserved in its entirety, and the Company has made a similar
reserve on the equity received in the exchange.
7. RETIREMENT OF REDEEMABLE PREFERRED STOCK
During the first quarter of 1998, the Company redeemed the remaining 792,186
shares of Series F Preferred Stock for $6.5 million including outstanding
interest. The $6.5 million payment retired the obligations under the Series F
Stock. The Company used the $7.0 million proceeds received in January 1998 from
the sale of its subsidiary in France, Dorotech, S.A., to finance the buy back of
the Company's Series F Stock.
8. CONVERTIBLE NOTE REDEMPTION
During the first quarter of 1998, the Company redeemed in cash $1.3 million of
the 8% Convertible Notes ("the Notes") due July 8, 2002 and August 20, 2002. At
June 30, 1998, $600,000 of the Notes remained outstanding.
-9-
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements and Certain Risk Factors
This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" section of this Quarterly Report on Form 10-Q contains
certain forward looking statements that are subject to a number of risks and
uncertainties. In addition, the Company may publish or make forward looking
statements from time to time relating to such matters as anticipated financial
performance, business prospects and strategies, sales and marketing efforts,
technological developments, new products, research and development activities,
and similar matters. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors could
cause the Company's actual results to differ materially from the anticipated
results or other expectations made in the Company's forward looking statements
in this Quarterly Report or elsewhere. The risks and uncertainties of the
Company include those set forth in the Company's Prospectus dated April 6, 1998,
such as the following:
The Company has had net losses in each period of its operations since
its inception, except for one quarter, and it had an accumulated deficit at June
30, 1998 of $129.4 million. Net losses applicable to Common Stock were $14.3
million for the twelve months ended December 31, 1997, $21.1 million for the
year ended December 31, 1996, and $34.9 million for the year ended December 31,
1995. Included in those losses were non-recurring charges. See "Description of
Network Imaging - Business."
The adverse results of operations that the Company has experienced is
expected to continue at least until the latter part of 1998. The Company
believes that the combination of existing cash, benefits from its second quarter
restructuring, potential future proceeds from such additional offerings of
equity securities as may be required, and any anticipated cash flows from
operations, will provide sufficient resources to fund its activities through the
next twelve months. Any anticipated cash flows from operations are largely
dependent upon the Company's ability to achieve its sales and gross profit
objectives for its TREEV product suite. If the Company is unable to meet these
objectives, it will consider alternative sources of liquidity. Although the
Company believes that it can successfully implement its operating plan and, if
necessary, raise additional capital, there can be no assurance that
implementation of the plan will be successful or that financing, if sought, will
be available.
The Company's stock is listed on Nasdaq, and Nasdaq requires companies
to comply with certain listing and maintenance requirements. In 1997, the
Company fell below the requirement to maintain net tangible assets of at least
$4.0 million. The Company appealed to a Nasdaq Listing Qualifications Panel, who
-10-
<PAGE>
allowed the Company to continue to trade on Nasdaq but required the Company to
have a minimum of $6 million in net tangible assets to ensure long term
compliance with the requirement. The Company achieved net tangible assets in
excess of $6 million at the end of 1997, and the Company has since that time
maintained net tangible assets over $4 million. The Company expects to continue
to maintain net tangible assets over $4 million; however, there can be no
assurances that the Company will continue to do so. If the Company is unable to
meet the net tangible assets requirement, it will consider additional offerings
of equity securities and/or further reductions of operating expenses (such as
travel, marketing, consulting and salaries). Although the Company believes it
can successfully implement its operating plan and, if necessary, raise
additional capital, there can be no assurance that implementation of the plan
will be successful or that financing, if sought, will be available. Pursuant to
Nasdaq requirements, common and preferred stock trading on Nasdaq must maintain
a minimum bid price of $1.00. At times in 1997 and the first half of 1998, the
Company's Common Stock has had a minimum bid price below $1.00. Currently, the
Company's Common Stock is trading with a minimum bid price below $1.00. Any
inability to trade on Nasdaq could adversely impact the value of the Company's
stock. In order to maintain the Nasdaq listing, the Company may be required to
seek shareholder approval to effect a reverse stock split to bring the stock
price above $1.00.
The computer industry, including the information access, document
management, imaging and optical disk storage segments, is highly competitive,
and is characterized by rapid and continuous technological change, short product
cycles, frequent product innovations and new product introductions, evolving
industry standards, and changes in customer requirements and preferences. The
Company's future profitability will depend on, among other things, wide-scale
market acceptance of the Company's products, the Company's ability to
demonstrate the potential advantages of its products over other types of similar
products and on the Company's ability to develop in a timely fashion
enhancements to existing products or new products that are responsive to the
demands of the marketplace for information access, document management, imaging
and optical disk storage systems. There can be no assurance that the Company
will be able to market successfully its current products, develop and market
enhancements to existing products or introduce new products. In addition, the
Company faces existing competitors that are larger and more established and have
substantially greater resources than the Company. Because of the rapid expansion
of the information access, document management, imaging and optical disk storage
market, the Company will also face competition from new entrants, possibly
including the Company's customers, suppliers or resellers. Technological
advances by any of the Company's current or future competitors could render
obsolete or less competitive the products being offered by the Company. The
Company believes that the principal competitive factors affecting the market for
information access, document management, imaging and optical disk storage
products
-11-
<PAGE>
include effectiveness, scope of product offerings, technical features, ease of
use, reliability, customer service and support, name recognition, distribution
resources and price. Current and potential competitors have established, or may
establish in the future, strategic alliances to increase their ability to
compete for the Company's prospective customers. Accordingly, it is possible
that new competitors or alliances may emerge and rapidly acquire significant
market share. Such competition could have a material adverse effect on the
Company's business, financial condition and results of operations.
The Company's development of enhancements to existing products and of
new products is subject to the kinds of problems and delays that are routinely
encountered in the development of software. For example, the Company may
experience schedule overruns in software development triggered by factors such
as insufficient staffing or the unavailability of development-related software,
hardware or technologies. Further, during the development of new software
products, or the enhancement of existing products, the Company's development
schedules may be altered as a result of the discovery of software bugs,
performance problems or changes to the product specification in response to
customer requirements, market developments or Company initiated changes. Changes
in product specifications may delay completion of documentation, packaging or
testing, which may, in turn, affect the release schedule of the product. In
connection with complex software products, the technology market may shift
during the development cycle, requiring the Company either to enhance or change
a product's specifications to meet a customer's changing needs. Any of these
factors may cause a product to enter the market behind schedule, which may
adversely affect market acceptance of the product, or place it at a disadvantage
to a competitor's product that has already gained market share or market
acceptance during the delay. The Company does not believe, however, that it is
practicable to quantify the impact that such delays have had or in the future
may have on its operating results. There can be no assurance that the Company
will not experience difficulties that will interrupt the marketing and
distribution of its current products or that the Company will not experience
difficulties in the future that could materially delay or prevent the successful
development of other products.
Results of Operations - Six months ended June 30, 1998 and 1997
Revenues. Total revenues were $14.1 million and $18.4 million
for the six months ended June 30, 1998 and 1997, respectively. The $4.3 million
decrease in revenue was the result of an increase in product revenue of
$270,000, or 3%, offset by a decrease in service revenue of $4.6 million, or
46%. The increase in product revenue was attributable to an increase of $2.7
million, or 46%, in comparative company revenues offset by a decrease of $2.4
million due to the disposition in 1997 of the Company's subsidiary in France
("Dorotech"). The decrease in service sales of $4.6 million was the result of a
$5.5 million decrease due to the disposition of Dorotech, offset by a $867,000,
or 19%, increase in comparative company revenues. On a comparative company
basis, overall revenues increased $3.6 million, or 34%, from $10.5 million for
the six months ended June 30, 1997 to $14.1 million for the same period in 1998.
-12-
<PAGE>
Profit margins. Profit margins for product sales increased 8
percentage points for the first six months of 1998 over the same period in 1997
as cost of products decreased from 50% to 42% of sales. The increase in product
sales margins was primarily due to the increased sales mix of the Company's
internally developed software products. Profit margins for service sales
increased 8 percentage points for the six months ended June 30, 1998 as compared
to 1997 as the cost of services decreased from 77% to 69% of sales. The increase
in service sales margins from 23% to 31% was due to the Company's continued
emphasis on its custom development and professional services. On a comparative
company basis, overall profit margins increased 7 percentage points to 47% for
the six months ended June 30, 1998 from 40% for the same period in 1997.
Sales and marketing. Sales and marketing expenses were $5.8
million or 41% of revenue, for the six months ended June 30, 1998 compared to
$7.3 million, or 39% of revenue in 1997. The decrease of $1.4 million, or 20%,
was the result of the Company's disposition of Dorotech during 1997, which
reduced sales and marketing expenses $1.7 million, offset by an $260,000
increase in comparative company expenses.
General and administrative. G&A expenses were $2.3 million or
16% of revenue, for the six months ended June 30, 1998 compared to $3.3 million,
or 18% of revenue in 1997. The decrease of $1.1 million, or 32%, was the result
of the Company's disposition of Dorotech during 1997, which reduced G&A expenses
$754,000, and a $296,000, or 12%, decrease in comparative company G&A expenses
due to the Company's efforts in cost reduction.
Product development. The Company's expenditures on software
research and development activities ("R&D") in the six months ended June 30,
1998 were $2.7 million, of which $0.7 million was capitalized and $2.0 million
was expensed. Software research and development expenditures for the 1997 period
were $3.0 million, of which $0.7 million was capitalized and $2.3 million was
expensed. The $337,000 decrease in research and development expenditures is
attributable to the Company's 1997 disposition of Dorotech, which reduced R&D
expenses $589,000, offset by a $252,000 increase in comparative company R&D
expenses.
Restructuring costs. During the second quarter 1998, the
Company committed to a plan of restructuring and incurred a charge of $1.5
million.
Gain on extinguishement of debt. During the first quarter
1997, the Company's French subsidiary, Dorotech, realized a $267,000 gain in
connection with the partial forgiveness of a grant made from a French government
agency.
-13-
<PAGE>
Net loss. The Company's net loss for the six months ended
June 30, 1998 was $4.9 million as compared to $6.2 million for the comparable
period of 1997. The net loss decrease of $1.3 million is due to a $1.0 million
decrease in net loss from the Company's continuing operations, which is
primarily attributable to an increase of $2.5 million in gross margins offset by
the $1.5 restructuring charge, and due to the disposition of Dorotech which
reduced the net loss by $330,000.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's Series A preferred stock. The net loss applicable to common shares was
$5.6 million, or ($.21) per share, for the six months ended June 30, 1998 as
compared to $8.1 million or ($.33) per share, for the comparable period of 1997.
The decrease in net loss applicable to common shares is attributable to the
decrease in net loss described above and to the decrease in annual Series A
Preferred Stock dividends from $2.00 to $0.84 per share.
Results of Operations - Three months ended June 30, 1998 and 1997
Revenues. Total revenues were $7.9 million and $9.3 million
for the three months ended June 30, 1998 and 1997, respectively. The $1.4
million decrease in revenue was the result of an increase in product revenue of
$1.0 million, or 24%, offset by a decrease in service revenue of $2.4 million,
or 46%. The increase in product revenue was primarily attributable to an
increase of $2.3 million, or 85%, in comparative company product revenues offset
by a $1.3 million reduction due the disposition in 1997 of the Company's French
subsidiary, Dorotech. The decrease in service revenues of $2.4 million was the
result of a $3.0 million decrease due to the disposition of Dorotech, offset by
a $573,000, or 25%, increase in comparative company service revenues. On a
comparative company basis, overall revenues increased $2.9 million, or 58%, from
$5.0 million for the six months ended June 30, 1997 to $7.9 million for the same
period in 1998.
Profit margins. Profit margins for product sales increased 18
percentage points in the second quarter of 1998 over the same period in 1997 as
cost of products decreased from 54% to 36% of sales. The increase in product
sales margins was primarily due to the increased sales mix of the Company's
internally developed software products. Profit margins for service sales
increased 7 percentage points for the three months ended June 30, 1998 as
compared to 1997 as the cost of services decreased from 75% to 68% of sales. The
increase in service sales margins from 25% to 32% was due to the Company's
continuing emphasis on its custom development and professional services. On a
comparative company basis, overall profit margins increased 14 percentage points
to 52% for the three months ended June 30, 1998 from 38% for the same period in
1997.
-14-
<PAGE>
Sales and marketing. Sales and marketing expenses were $3.1
million or 39% of revenue, for the three months ended June 30, 1998 compared to
$3.6 million, or 39% of revenue in 1997. The decrease of $537,000, or 15%, was
the result of the Company's disposition of Dorotech during 1997, which reduced
sales and marketing expenses $840,000, offset by a $303,000 increase in
comparative company expenses.
General and administrative. G&A expenses were $1.1 million or
14% of revenue, for the three months ended June 30, 1998 compared to $1.7
million, or 18% of revenue in 1997. The decrease of $614,000, or 36%, was the
result of the Company's disposition of Dorotech during 1997, which reduced G&A
expenses $362,000, and a $252,000, or 19%, decrease in comparative company G&A
expenses due to the Company's efforts in cost reduction.
Product development. The Company's expenditures on software
R&D activities in the three months ended June 30, 1998 were $1.4 million, of
which $0.4 million was capitalized and $1.0 million was expensed. Software
research and development expenditures for the 1997 period were $1.6 million, of
which $0.3 million was capitalized and $1.3 million was expensed. The $0.2
million decrease in research and development expenditures is primarily
attributable to the Company's 1997 disposition of Dorotech.
Restructuring costs. During the second quarter 1998, the
Company committed to a plan of restructuring and incurred a charge of $1.5
million.
Net loss. The Company's net loss for the three months ended
June 30, 1998 was $2.5 million as compared to $3.5 million for the comparable
period of 1997. The net loss decrease of $1.0 million in the second quarter of
1998 as compared to the same period in 1997 is due to a $900,000 decrease in net
loss from the Company's continuing operations, which is primarily attributable
to an increase of $2.4 million in gross margins offset by the $1.5 restructuring
charge, and the disposition of Dorotech, which reduced the net loss by $100,000.
Net loss applicable to Common Shares. The net loss applicable
to common shares includes adjustments for dividend amounts related to the
Company's Series A preferred stock. The net loss applicable to common shares was
$2.8 million, or ($.10) per share, for the three months ended June 30, 1998 as
compared to $4.4 million or ($.18) per share, for the comparable period of 1997.
The decrease in net loss applicable to common shares is attributable to the
decrease in net loss described above and to the decrease in annual Series A
Preferred Stock dividends from $2.00 to $0.84 per share.
-15-
<PAGE>
Liquidity and Capital Resources
As of June 30, 1998, the Company had $4.1 million in cash and cash
equivalents, as compared to $3.8 million in cash and cash equivalents at
December 31, 1997. Net working capital was $2.0 million at June 30, 1998 and
$10.0 million at December 31, 1997.
For the six months ended June 30, 1998, the $276,000 increase in cash
and cash equivalents resulted from $6.0 million in cash generated by investing
activities, offset by $784,000 used to fund operating activities and $4.9
million in cash used to fund financing activities.
The $6.0 million provided by investing activities arose primarily with
respect to cash collected from the promissory note received as consideration for
the sale of Dorotech. The $784,000 used by operating activities arose primarily
with respect to the $4.9 million net loss in operations, offset by a $1.2
million in depreciation charges, $1.5 million in restructuring costs and $1.3
million increase in deferred revenues. The $4.9 million in cash used by
financing activities arose primarily from the $6.5 million redemption of the
Company's Series F Preferred Stock, $1.3 million used to redeem the Company's
convertible debentures and payments in capital leases of $521,000, offset by the
$3.4 million proceeds from the issuance of common stock.
The adverse results of operations that the Company has experienced is
expected to continue at least until the latter part of 1998. The Company
believes that the combination of existing cash, benefits from its second quarter
restructuring, potential future proceeds from such additional offerings of
equity securities as may be required, and any anticipated cash flows from
operations, will provide sufficient resources to fund its activities through the
next twelve months. Any anticipated cash flows from operations are largely
dependent upon the Company's ability to achieve its sales and gross profit
objectives for its TREEV product suite. If the Company is unable to meet these
objectives, it will consider alternative sources of liquidity. Although the
Company believes that it can successfully implement its operating plan and, if
necessary, raise additional capital, there can be no assurance that
implementation of the plan will be successful or that financing, if sought, will
be available.
-16-
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is not involved in any legal proceedings, other than the
routine litigation incidental to the business.
Item 2. Changes in Securities
In June 1998, the Company converted the remaining $1.0 million of
the Stockholder line of credit into equity through the issuance of 1,000 shares
of Series M1 Convertible Stock ("Series M1 Stock") held by an investor of the
Company. The Company agreed to file a registration statement to register the
Common Stock issuable upon conversion of the preferred stock on or about August
1, 1998. The Company received no proceeds from the conversion of the Stockholder
line of credit to equity. The Series M1 Stock issued and outstanding in December
2001 automatically converts into Common Stock. At June 30, 1998, the 1,000
shares of Series M1 Stock were convertible into 1,230,769 shares of Common
Stock.
During the first quarter of 1998, the Company completed a private
placement of 1,108,947 shares of Common Stock, together with warrants to
purchase an additional 50,000 shares of Common Stock, pursuant to Regulation D
under the Securities Act of 1933, as amended (the "Securities Act") to a group
of seven investors. Proceeds from the offering were $1.1 million and offering
costs were $26,000. Pursuant to the terms of the private placement, the Company
is obligated to file a registration statement with the Securities and Exchange
Commission to register the shares by August 31, 1998.
-17-
<PAGE>
During the second quarter of 1998, the Company completed a private
placement of 2,907,126 shares of Common Stock, pursuant to Regulation D under
the Securities Act to a group of three investors. Proceeds from the offering
were $2.5 million and offering costs were $150,000. Pursuant to the terms of the
private placement, the Company is obligated to file a registration statement
with the Securities and Exchange Commission to register the shares by August 31,
1998.
During the second quarter of 1998, the Company issued 342,384
shares of Common Stock as a quarterly dividend to the shareholders of the
Company's Series A Preferred Stock
Item 3. Changes Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Stockholders on June 11, 1998 at
which the Stockholders elected five directors, ratified the selection of Ernst &
Young LLP as the Company's independent accountants for the fiscal year ending
1998, approved the adoption of the 1997 Director Stock Option Plan, approved an
increase to the number of shares which may be granted under the 1994 Key
Incentive Stock Option Plan, and approved the issuance of shares of the
Company's Common Stock issuable in connection with the Series L Convertible
Preferred Stock, on exercise of warrants to purchase shares of Common Stock for
$1.00 under Nasdaq Rule 4460(i)(1)(D).
The following table sets forth the names of the nominees for director
and the votes for and withheld with respect to each such nominee:
Nominee For Authority Withheld
- ------- ---------- ------------------
Robert P. Bernardi....................24,343,678 624,768
John F. Burton........................24,343,678 624,768
James J. Leto.........................24,343,678 624,768
C. Alan Peyser........................24,343,678 624,768
Robert Ripp...........................24,343,678 624,768
In connection with the ratification of the selection of Ernst & Young
LLP as the independent auditors for the Company for the fiscal year ending 1998,
24,369,788 shares were voted in favor of the ratification and 598,658 abstained.
With respect to the proposal to approve the adoption of the 1997 Direc-
tor Stock Option Plan, 24,403,088 shares were voted for the proposal and 565,358
were Broker non-votes.
-18-
<PAGE>
With respect to the proposal to approve an increase to the number of
shares which may granted under the 1994 Key Incentive Stock Option Plan,
23,215,519 shares were voted for the proposal and 1,752,927 were Broker
non-votes.
In connection with the approval of the issuance of shares of the
Company's Common Stock issuable in connection with the Series L Convertible
Preferred Stock, on exercise of warrants to purchase shares of Common Stock for
$1.00 under Nasdaq Rule 4460(i)(1)(D), 24,398,288 shares were voted for the
proposal and 570,158 were Broker non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.14 Certificate of Ownership and Merger Merging TREEV, Inc. into Network Imag-
ing Corporation filed in Delaware on May 5, 1998.
3.15 Certificate of Designations, Preferences and Rights of Series M1
convertible Preferred Stock filed with the Secretary of State of the State of
Delaware on July 22, 1998.
10.34 Securities Purchase Agreement between TREEV, Inc. and Fred Kassner as of
June 30, 1998.
27.1 Financial data schedule
(b) Reports on Form 8-K.
Form 8-K filed on June 1, 1998 to report certain organizational changes in the
Company aimed at saving $4,800,000 annually.
-19-
<PAGE>
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.
TREEV, INC.
(Registrant)
Date: July 23, 1998 By /s/ James Leto
--------------
James J. Leto
Chief Executive Officer
Date: July 23, 1998 By /s/ David MacWhorter
--------------------
David E. MacWhorter
President and Chief Operating
Officer
Date: July 23, 1998 By /s/ Jorge R. Forgues
--------------------
Jorge R. Forgues
Senior Vice President of Finance
and Administration, Chief Finan-
cial Officer and Treasurer
State of Delaware
Office of the Secretary of State
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"TREEV, INC.", A DELAWARE CORPORATION,
WITH AND INTO "NETWORK IMAGING CORPORATION" UNDER
THE NAME OF "TREEV, INC.", A CORPORATION ORGANIZED AND EXISTING
UNDER THE LAWS OF THE STATE OF DELAWARE, AS RECEIVED AND FILED
IN THIS OFFICE THE FIFTH DAY OF MAY, A.D. 1998, AT 4:05 O'CLOCK P.M.
A FILED COPY OF THIS CERTIFICATE HAD BEEN FORWARDED TO THE
NEW CASTLE COUNTY RECORDER OF DEEDS.
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
TREEV, INC.
INTO NETWORK IMAGING CORPORATION
(PURSUANT TO SECTION 253 OF THE GENERAL
CORPORATION LAW OF DELAWARE)
Network Imaging Corporation, a Delaware corporation (the "Corporation"), does
hereby certify:
FIRST: The Corporation is incorporated pursuant to the General Cor-
poration Law of the State of Delaware.
SECOND: The Corporation owns all of the outstanding shares of each
class of the capital stock of TREEV, Inc., a Delaware corporation.
THIRD: The Corporation, by the following resolutions of its Board of
Directors, duly adopted on May 5, 1998, determined to merge its subsidiary,
TREEV, Inc., with and into the Corporation on the conditions set forth in such
resolutions:
RESOLVED, that the Corporation merge its subsidiary, TREEV,
Inc., with and into the Corporation and assume all of said subsidiary's
liabilities and obligations;
RESOLVED, that upon the effective date of the merger with its
subsidiary, the name of the Corporation be changed to TREEV, Inc.;
RESOLVED, that the officers of the Corporation be, and each of
them hereby is, directed to execute and acknowledge a certificate of
ownership and merger including the resolutions of the Board of
Directors of the Corporation to (i) merge TREEV, Inc. with and into the
Corporation and assume its responsibilities and obligations and (ii)
change the Corporation's name to TREEV, Inc., and to file the same in
the office of the Secretary of State of Delaware and a certified copy
thereof in the Office of the Recorder of Deeds of the County of New
Castle.
FOURTH: The name of the Corporation following the filing of this
Certificate of Ownership and Merger with the Secretary of State of Delaware
shall be changed to TREEV, Inc.
FIFTH: Article I of the Certificate of Incorporation of the Cor-
poration is hereby amended to read as follows: "The name of the Corporation is
TREEV, Inc."
IN WITNESS THEREOF, the Corporation has caused its corporate seal to be
affixed and this certificate to be signed by Julia A. Bowen, its authorized
officer, this 5th day of May, 1998.
NETWORK IMAGING CORPORATION
By: _______________________
Julia A. Bowen
Vice President and General Counsel
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES M1 CONVERTIBLE PREFERRED STOCK
of
TREEV, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
TREEV, Inc., a corporation organized and existing under the laws of the
State of Delaware (the "Corporation"), hereby certifies that the following
resolutions were adopted by the Board of Directors of the Corporation pursuant
to authority of the Board of Directors as required by Section 151 of the
Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation and
Bylaws, each as amended and restated through the date hereof, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.0001 per share (the "Preferred Stock"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series M1 Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 1,000 shares of
Preferred Stock, is the Series M1 Convertible Preferred Stock (the "Series M1
Preferred Stock") and the face amount shall be One Thousand U.S. Dollars
($1,000.00) per share (the "Face Amount"). The Holder will be issued shares of
the Series M1 Preferred Stock in denominations of 100 shares. No other Series M1
Preferred Stock shall be issued without the consent of Fred Kassner (the
"Holder").
II. NO DIVIDENDS
The Series M1 Preferred Stock will bear no dividends, and the holders
of the Series M1 Preferred Stock shall not be entitled to receive dividends on
the Series M1 Preferred Stock.
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "Conversion Date" means, for any Optional Conversion, the date
specified in the notice of conversion in the form attached hereto (the "Notice
of Conversion"), so long as the copy of the Notice of Conversion is faxed (or
delivered by other means resulting in notice) to the Corporation before
Midnight, New York City time, on the Conversion Date indicated in the Notice of
Conversion. If the Notice of Conversion is not so faxed or otherwise delivered
before such time, then the Conversion Date shall be the date the holder faxes or
otherwise delivers the Notice of Conversion to the Corporation. The Conversion
Date for the Required Conversion at Maturity shall be the Maturity Date (as such
terms are defined in Paragraph D of Article IV).
B. "Conversion Price" means a price equal to $.8125 per share of Common
Stock.
C. "N" means the number of days from, but excluding, the date of
original issuance of such share of Series M1 Preferred Stock.
D. "Premium" means an amount equal to (.0850) x(N/365)x(1,000).
IV. CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the
limitations on conversions contained in Paragraph C of this Article IV, each
holder of shares of Series M1 Preferred Stock may, at any time and from time to
time, convert (an "Optional Conversion") each of its shares of Series M1
Preferred Stock into a number of fully paid and nonassessable shares of Common
Stock at $.8125 per share if the Corporation timely redeems the Premium thereon
in cash or Common Stock, at the sole option of the Company. Each 100 shares of
the Series M1 Preferred Stock is convertible into 123,070 shares of Common
Stock. The Premium, if paid in Common Stock, shall be determined by dividing the
total amount of the accrued Premium as of the date the Notice of Conversion is
received by 95% of the bid price for the Common Stock as of that date.
(ii) (a) The Corporation shall have the right, in its sole discretion, upon
receipt of a Notice of Conversion or in the event of a Required Conversion
at Maturity, to redeem any portion of the Premium subject to such
conversion for a sum of cash or Common Stock, at the sole option of the
Company, equal to the amount of the Premium being so redeemed. In the
event that the Corporation elects to pay the Premium in Common Stock, the
number of shares of Common Stock issued shall be equal to the total dollar
amount of the Premium divided by 95% of the then-current bid price for the
Common Stock on that date the Notice of Conversion is received. All cash
redemption payments hereunder shall be paid in lawful money of the United
States of America at such address for the holder as appears on the record
books of the Corporation (or at such other address as such holder shall
hereafter give to the Corporation by written notice).
B. Mechanics of Conversion. In order to effect an Optional Conversion,
a holder shall: (x) fax (or otherwise deliver) a copy of the fully executed
Notice of Conversion to the Corporation or the transfer agent for the Common
Stock and (y) surrender or cause to be surrendered the original certificates
representing the Series M1 Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion as
soon as practicable thereafter to the Corporation or the transfer agent. Upon
receipt by the Corporation of a facsimile copy of a Notice of Conversion from a
holder, the Corporation shall immediately send, via facsimile, a confirmation to
such holder stating that the Notice of Conversion has been received, the date
upon which the Corporation expects to deliver the Common Stock issuable upon
such conversion and the name and telephone number of a contact person at the
Corporation regarding the conversion. The Corporation shall not be obligated to
issue shares of Common Stock upon a conversion unless either the Preferred Stock
Certificates are delivered to the Corporation or the transfer agent as provided
above, or the holder notifies the Corporation or the transfer agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
Article XII.B).
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a holder of Series M1 Preferred
Stock accompanied by a Notice of Conversion, the Corporation shall, no later
than the second business day following the later of (a) the Conversion Date and
(b) the date of such surrender (or, in the case of lost, stolen or destroyed
certificates, after provision of indemnity pursuant to Article XII.B) (the
"Delivery Period"), issue and deliver to the holder (x) that number of shares of
Common Stock issuable upon conversion of such shares of Series M1 Preferred
Stock being converted and (y) a certificate representing the number of shares of
Series M1 Preferred Stock not being converted, if any. In lieu of delivering
physical certificates representing the Common Stock issuable upon conversion,
provided the Borrower's transfer agent is participating in the Depository Trust
Company ("DTC") Fast Automated Securities Transfer program, upon request of the
holder and its compliance with the provisions contained in this paragraph, so
long as the certificates therefor do not bear a legend and the holder thereof is
not obligated to return such certificate for the placement of a legend thereon,
the Corporation shall use its best efforts to cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission system.
(ii) Taxes. The Corporation shall pay any and all taxes and
all other reasonable expenses which may be imposed upon it with respect to the
issuance and delivery of the shares of Common Stock upon the conversion of the
Series M1 Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series M1
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series M1 Preferred Stock shall be
the next higher whole number of shares.
(iv) Conversion Disputes. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to its outside accountant via
facsimile within two (2) business days of receipt of the Notice of Conversion.
The accountant shall audit the calculations and notify the Corporation and the
holder of the results no later than two (2) business days from the date it
receives the disputed calculations. The accountant's calculation shall be deemed
conclusive, absent manifest error. The Corporation shall then issue the
appropriate number of shares of Common Stock in accordance with subparagraph (i)
above.
C. Required Conversion at Maturity. Provided all shares of Common Stock
issuable upon conversion of all outstanding shares of Series M1 Preferred Stock
are then (i) authorized and reserved for issuance, (ii) registered under the
Securities Act of 1933, as amended (the "Securities Act") for resale by the
holders of such shares of Series M1 Preferred Stock and (iii) eligible to be
traded on either the Nasdaq, the New York Stock Exchange or the American Stock
Exchange, each share of Series M1 Preferred Stock issued and outstanding on the
fourth anniversary of the execution date (the "Maturity Date"), automatically
shall be converted into shares of Common Stock on such date in accordance with
the conversion rate set forth in Paragraph A of this Article IV (the "Required
Conversion at Maturity"). If the Required Conversion at Maturity occurs, the
Corporation and the holders of Series M1 Preferred Stock shall follow the
applicable conversion procedures set forth in Paragraph B of this Article IV;
provided, however, that the holders of Series M1 Preferred Stock are not
required to deliver a Notice of Conversion to the Corporation or its transfer
agent.
V. RESERVATION OF SHARES OF COMMON STOCK
Upon the initial issuance of the shares of Series M1 Preferred Stock,
the Corporation shall reserve 1,730,769 shares of the authorized but unissued
shares of Common Stock for issuance upon conversion of the Series M1 Preferred
Stock and thereafter the number of authorized but unissued shares of Common
Stock so reserved (the "Reserved Amount") shall not be decreased and shall at
all times be sufficient to provide for the conversion of the Series M1 Preferred
Stock outstanding at the then current Conversion Price.
VI. REDEMPTION DUE TO CERTAIN EVENTS
A. Redemption by Holder. In the event (each of the events described in
clauses (i)-(v) below after expiration of the applicable cure period (if any)
being a "Redemption Event"):
(i) the Corporation fails, and any such failure continues
uncured for five (5) business days after the Corporation has been notified
thereof in writing by the holder, to remove any restrictive legend on any
certificate or any shares of Common Stock issued to the holders of Series M1
Preferred Stock upon conversion of the Series M1 Preferred Stock as and when
required by the Securities Purchase Agreement;
(ii) the Corporation provides notice to any holder of Series
M1 Preferred Stock, including by way of public announcement, at any time, of its
intention not to issue shares of Common Stock to any holder of Series M1
Preferred Stock upon conversion in accordance with the terms of this Certificate
of Designation (other than due to the circumstances contemplated by Articles V
or VII for which the holders shall have the remedies set forth in such
Articles);
(iii) the Corporation shall:
(a) sell, convey or dispose of all or substantially
all of its assets;
(b) merge, consolidate or engage in any other busi-
ness combination with any other entity (other than pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of incor-
poration of the Corporation); or
(c) have approved, recommended or otherwise consented
to any transaction or series of related transactions which result in fifty
percent (50%) or more of the voting power of its capital stock owned
beneficially by one person, entity or "group" (as such term is used under
Section 13(d) of the Securities Exchange Act of 1934, as amended);
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series M1 Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series M1 Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the redemption hereunder.
B. Definition of Redemption Amount. The "Redemption Amount" with
respect to a share of Series M1 Preferred Stock means an amount equal to:
V X M
----------
C P
where:
"V" means the face amount thereof plus the accrued Premium thereon and
all Conversion Default Payments (if any) with respect thereto through the date
of redemption;
"CP" means $.8125; and
"M" means the highest Closing Price of the Corporation's Common Stock
during the period beginning on the date of the Redemption Notice and ending on
the date of the redemption.
C. Redemption Defaults. If the Corporation fails to pay any holder the
Redemption Amount with respect to any share of Series M1 Preferred Stock within
ten (10) business days of its receipt of a notice requiring such redemption (a
"Redemption Notice"), then the holder of Series M1 Preferred Stock delivering
such Redemption Notice (i) shall be entitled to interest on the Redemption
Amount at a per annum rate equal to the lower of twelve percent (12%) and the
highest interest rate permitted by applicable law from the date of the
Redemption Notice until the date of redemption hereunder, and (ii) shall have
the right, at any time and from time to time, to require the Corporation, upon
written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article IV) all or any portion of the Redemption Amount, plus
interest as aforesaid, into shares of Common Stock at the Conversion Price.
D. Redemption by Corporation.
(i) The Corporation shall have the right, at any time and provided the
Corporation is not in material violation of any of its obligations under this
Certificate of Designation or the Securities Purchase Agreement to redeem (an
"Optional Redemption") all (but not less than all) of the then outstanding
Series M1 Preferred Stock (other than Series M1 Preferred Stock which is the
subject of a Notice of Conversion delivered prior to the delivery date of the
Optional Redemption Notice) for a price per share equal to the Optional
Redemption Amount (as defined below) which right shall be exercisable only one
time while any Series M1 Preferred Stock is outstanding by the Corporation in
its sole discretion by delivery of an Optional Redemption Notice in accordance
with the redemption procedures set forth below. Holders of Series M1 Preferred
Stock may not convert any shares of Series M1 Preferred Stock selected for
redemption hereunder into Common Stock at any time or on prior to the Effective
Date of Redemption designated by the Corporation in the Optional Redemption
Notice. The "Optional Redemption Amount" with respect to all of the
then-outstanding shares of the Series M1 Preferred Stock shall be equal to (i)
the combined Face Amount of those outstanding shares plus (ii) the accrued
Premium thereon.
VII. RANK
All shares of the Series M1 Preferred Stock shall rank (i) equal with
the Series M Preferred Stock; (ii) prior to the Corporation's Common Stock;
(iii) prior to the Series K and L Cumulative Convertible Preferred Stocks; (iv)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holder(s) of Series M1 and M Preferred
Stock); and (iii) junior to the Corporations Series A Cumulative Convertible
Preferred Stock, par value $.0001 per share (the "Senior Securities"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
VIII. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of sixty (60) consecutive
days and, on account of any such event, the Corporation shall liquidate,
dissolve or wind up, or if the Corporation shall otherwise liquidate, dissolve
or wind up (a "Liquidation Event"), no distribution shall be made to the holders
of any shares of capital stock of the Corporation (other than Senior Securities)
upon liquidation, dissolution or winding up unless prior thereto the holders of
shares of Series M1 Preferred Stock shall have received the Liquidation
Preference with respect to each share.
B. The purchase or redemption by the Corporation of stock of any class,
in any manner permitted by law, shall not, for the purposes hereof, be regarded
as a liquidation, dissolution or winding up of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other entity nor the
sale or transfer by the Corporation of less than substantially all of its assets
shall, for the purposes hereof, be deemed to be a liquidation, dissolution or
winding up of the Corporation.
C. The "Liquidation Preference" with respect to a share of Series M1
Preferred Stock means an amount equal to the Face Amount thereof plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any Pari Passu Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
IX. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. Stock Splits, Stock Dividends, Etc. If at any time on or after the
date of execution, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, combination, reclassification or other similar
event, the Conversion Price shall be proportionately reduced, or if the number
of outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares, or other similar event, the
Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after
the date of execution, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Fundamental Change"), then the holders of Series M1
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Fundamental Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion had such Fundamental
Change not taken place, and in any such case, appropriate provisions shall be
made with respect to the rights and interests of the holders of the Series M1
Preferred Stock to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the number
of shares of Common Stock issuable upon conversion of the Series M1 Preferred
Stock) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any transaction described
in this Paragraph B unless (i) each holder of Series M1 Preferred Stock has
received written notice of such transaction at least thirty (30) days prior
thereto, but in no event later than ten (10) days prior to the record date for
the determination of shareholders entitled to vote with respect thereto, and
(ii) the resulting successor or acquiring entity (if not the Corporation)
assumes by written instrument the obligations of this Paragraph B. The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series M1 Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Distribution. If at any time after the date of
execution the Corporation shall declare or make any distribution of its assets
(or rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the holders of Series M1 Preferred Stock shall be
entitled, upon any conversion of shares of Series M1 Preferred Stock after the
date of record for determining shareholders entitled to such Distribution, to
receive the amount of such assets which would have been payable to the holder
with respect to the shares of Common Stock issuable upon such conversion had
such holder been the holder of such shares of Common Stock on the record date
for the determination of shareholders entitled to such Distribution.
D. Purchase Rights. If at any time after the date of execution, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the holders of Series M1
Preferred Stock will be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete conversion of the Series M1 Preferred Stock immediately before the
date on which a record is taken for the grant, issuance or sale of such Purchase
Rights, or, if no such record is taken, the date as of which the record holders
of Common Stock are to be determined for the grant, issue or sale of such
Purchase Rights.
E. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article IX, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series M1 Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
M1 Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series M1 Preferred Stock.
X. VOTING RIGHTS
The holders of the Series M1 Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "Business Corporation Law"), in this Article X and in Article XI below.
Notwithstanding the above, the Corporation shall provide each holder of
Series M1 Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). If the Corporation takes a record of its shareholders for the
purpose of determining shareholders entitled to (a) receive payment of any
dividend or other distribution, any right to subscribe for, purchase or
otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or (b) to vote in connection with any proposed sale,
lease or conveyance of all or substantially all of the assets of the
Corporation, or any proposed merger, consolidation, liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
holder, at least twenty (20) days prior to the record date specified therein (or
thirty (30) days prior to the consummation of the transaction or event,
whichever is earlier, but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such vote, dividend, distribution, right or other event, and a
brief statement regarding the amount and character of such vote, dividend,
distribution, right or other event to the extent known at such time.
To the extent that under the Business Corporation Law the vote of the
holders of the Series M1 Preferred Stock, voting separately as a class or
series, as applicable, is required to authorize a given action of the
Corporation, the affirmative vote or consent of the holders of at least a
majority of the shares of the Series M1 Preferred Stock represented at a duly
held meeting at which a quorum is present or by written consent of a majority of
the shares of Series M1 Preferred Stock (except as otherwise may be required
under the Business Corporation Law) shall constitute the approval of such action
by the class. To the extent that under the Business Corporation Law holders of
the Series M1 Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series M1 Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated.
XI. PROTECTION PROVISIONS
So long as any shares of Series M1 Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the Business Corporation Law) of the holders of at least
a majority of the then outstanding shares of Series M1 Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series M1 Preferred Stock;
(b) alter or change the rights, preferences or privileges of
any capital stock of the Corporation so as to affect adversely
the Series M1 Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series M1 Preferred Stock as to
distribution of assets upon liquidation, dissolution or
winding up of the Corporation (as previously defined, "Senior
Securities");
(d) create any new class or series of capital stock ranking
pari passu with the Series M1 Preferred Stock as to
distribution of assets upon liquidation, dissolution or
winding up of the Corporation (as previously defined, "Pari
Passu Securities");
(e) increase the authorized number of shares of Series M1
Preferred Stock;
(f) issue any shares of Series M1 Preferred Stock other than
pursuant to the Securities Purchase Agreement with Fred
Kassner;
(g) issue any additional shares of Senior Securities; or
(h) redeem, or declare or pay any cash dividend or distribu-
tion on, any Junior Securities.
If holders of at least a majority of the then outstanding shares of Series M1
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series M1 Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the holders of the Series M1 Preferred Stock that did not agree to
such alteration or change (the "Dissenting Holders") and the Dissenting Holders
shall have the right, for a period of thirty (30) days, to convert pursuant to
the terms of this Certificate of Designation as they existed prior to such
alteration or change or to continue to hold their shares of Series M1 Preferred
Stock.
XII. MISCELLANEOUS
A. Cancellation of Series M1 Preferred Stock. If any shares of Series
M1 Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series M1 Preferred Stock.
B. Lost or Stolen Certificates. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to the Corporation, or (z) in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Corporation shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date. However, the Corporation shall not be
obligated to reissue such lost or stolen Preferred Stock Certificate(s) if the
holder contemporaneously requests the Corporation to convert such Series M1
Preferred Stock.
C. Status as Stockholder. Upon submission of a Notice of Conversion by
a holder of Series M1 Preferred Stock, the shares covered thereby shall be
deemed converted into shares of Common Stock and the holder's rights as a holder
of such converted shares of Series M1 Preferred Stock shall cease and terminate,
excepting only the right to receive certificates for such shares of Common Stock
and to any remedies provided herein or otherwise available at law or in equity
to such holder because of a failure by the Corporation to comply with the terms
of this Certificate of Designation. Notwithstanding the foregoing, if a holder
has not received certificates for all shares of Common Stock prior to the tenth
(10th) business day after the expiration of the Delivery Period with respect to
a conversion of Series M1 Preferred Stock for any reason, then (unless the
holder otherwise elects to retain its status as a holder of Common Stock) the
holder shall regain the rights of a holder of Series M1 Preferred Stock with
respect to such unconverted shares of Series M1 Preferred Stock and the
Corporation shall, as soon as practicable, return such unconverted shares to the
holder.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 30th day of June, 1998.
TREEV, INC.
By:_________________________
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series M1 Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series M1 Preferred Stock (the "Conversion"), represented by stock certificate
No.(s). ___________ (the "Preferred Stock Certificates") into shares of common
stock ("Common Stock") of TREEV, Inc. (the "Corporation") according to the
conditions of the Certificate of Designations, Preferences and Rights of Series
M1 Convertible Preferred Stock (the "Certificate of Designation"), as of the
date written below. If securities are to be issued in the name of a person other
than the undersigned, the undersigned will pay all transfer taxes payable with
respect thereto. No fee will be charged to the holder for any conversion, except
for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction thereof).
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series M1 Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "Act"), or pursuant to
an exemption from registration under the Act.
[ ] The undersigned hereby requests that the Corporation electronically
transmit the Common Stock issuable pursuant to this Notice of
Conversion to the account of the undersigned's Prime Broker (which is
__________) with DTC through its Deposit Withdrawal Agent Commission
System.
Date of Conversion:___________________________
Applicable Conversion Price: $.8125
Number of Shares of
Common Stock to be Issued:____________________
Signature:____________________________________
Name:_________________________________________
Address:______________________________________
* The Corporation is not required to issue shares of Common Stock until the
original Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
transfer agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than the later of (a) two (2) business days
following receipt of this Notice of Conversion and (b) delivery of the original
Preferred Stock Certificates (or evidence of loss, theft or destruction thereof)
and shall make payments pursuant to the Certificate of Designation for the
failure to make timely delivery.
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of June 30,
1998, by and among TREEV, Inc. (formerly, Network Imaging Corporation), a
corporation organized under the laws of the State of Delaware (the "Company"),
with headquarters located at 500 Huntmar Park Drive, Herndon, Virginia 20170 and
Fred Kassner (the "Purchaser").
WHEREAS:
A. The Company and the Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act");
B. The Purchaser and the Company executed a line of credit in the
amount of $5,000,000 on December 31, 1996 (the "Line of Credit");
C. On December 29, 1997, Purchaser agreed to convert $4,000,000 of the
Line of Credit into equity, and the remaining $1,000,000 continued to exist in
accordance with all of the terms and conditions of the Line of Credit dated
December 31, 1996 with the exception that it shall be payable with respect to
that amount with an interest rate of 8 1/2% per annum due April 1, 1999;
D. The Company has requested that the Purchaser convert the remaining
$1,000,000 of the Line of Credit into equity;
E. The Company has requested that the Purchaser convert the Line of
Credit into, upon the terms and conditions stated in this Agreement, 1,000
shares of the Company's Series M1 Convertible Preferred Stock, par value $.0001
per share (the "Series M1 Stock"), convertible into its common stock, par value
$.0001 per share, of the Company (the "Common Stock"). The effective yield under
the Series M1 Stock will be 8 1/2% per annum, payable in kind at the option of
the Company. The rights, preferences and privileges of the Preferred Shares,
including the terms upon which such Preferred Shares are convertible into shares
of Common Stock are set forth in the form of Certificate of Designations,
Preferences and Rights attached hereto as Exhibit A (the "Certificate of
Designation"). The shares of Common Stock issuable upon conversion of the
Preferred Shares or otherwise pursuant to the Certificate of Designation are
referred to herein as the "Conversion Shares". The Preferred Shares and the
Conversion Shares are collectively referred to herein as the "Securities."
<PAGE>
NOW, THEREFORE, the Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF UNITS.
a. Purchase of Units. Upon execution of this Agreement, the Purchaser
shall be deemed to have purchased from the Company, with no fee or payment due
to the Company, 1,000 shares of the Series M1 Stock. Upon the execution of this
Agreement, the Line of Credit shall be terminated.
2. PURCHASER'S REPRESENTATIONS AND WARRANTIES
The Purchaser represents and warrants to the Company that:
a. Investment Purpose. Purchaser is purchasing the Units for
Purchaser's own account for investment only and not with a present view towards
the public sale or distribution thereof, except pursuant to sales that are
exempt from the registration requirements of the Securities Act and/or sales
registered under the Securities Act. Purchaser understands that Purchaser must
bear the economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is available,
and that the Company has no present intention of registering any such
Securities. Purchaser agrees that any and all disposal(s) of the Securities
shall be in accordance with or pursuant to a registration statement or an
exemption under the Securities Act.
b. Governmental Review. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
c. Transfer or Resale. Purchaser understands that the Securities have
not been and are not being registered under the Securities Act or any state
securities laws, and may not be transferred unless (a) subsequently registered
thereunder, or (b) Purchaser shall have delivered to the Company an opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration or (c) sold pursuant to Rule 144 promulgated
under the Securities Act (or a successor rule) ("Rule 144"); any sale of such
Securities made in reliance on Rule 144 may be made only in accordance with the
terms of said Rule and further, if said Rule is not applicable, any resale of
such Securities under circumstances in which the seller (or the person through
whom the sale is made) may be deemed to be an underwriter (as that term is
defined in the Securities Act) may require compliance with some other exemption
under the Securities Act or the rules and regulations of the SEC thereunder; and
(iii) neither the Company nor any other person is under any obligation to
register such Securities under the Securities Act or any state securities laws
or to comply with the terms and conditions of any exemption thereunder except as
otherwise set forth herein.
<PAGE>
d. Legends. Purchaser understands that the Series M1 Stock and, until
such time as the Conversion Shares have been registered under the Securities Act
may be sold by Purchaser pursuant to Rule 144, the certificates for the
Securities may bear a restrictive legend in substantially the following form:
The securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended. The securities have been
acquired for investment and may not be sold, transferred or assigned in
the absence of an effective registration statement for the securities
under said Act, or an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant to
Rule 144 under said Act.
The legend set forth above shall be removed and the Company shall issue
a certificate without such legend to the holder of any Security upon which it is
stamped, if, unless otherwise required by state securities laws, (a) the sale of
such Security is registered under the Securities Act, or (b) such holder
provides the Company with an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, to the effect that
a public sale or transfer of such Security may be made without registration
under the Securities Act or (c) such holder provides the Company with reasonable
assurances that such Security can be sold pursuant to Rule 144. Purchaser agrees
to sell all Securities, including those represented by a certificate(s) from
which the legend has been removed, pursuant to an effective registration
statement or in compliance with an exemption from the registration requirements
of the Securities Act. In the event the above legend is removed from any
Security and thereafter the effectiveness of a registration statement covering
such Security is suspended or the Company determines that a supplement or
amendment thereto is required by applicable securities laws, then upon
reasonable advance notice to Purchaser the Company may require that the above
legend be placed on any such Security that cannot then be sold pursuant to an
effective registration statement or Rule 144 and Purchaser shall cooperate in
the prompt replacement of such legend. Such legend shall be removed when such
Security may be sold pursuant to an effective registration statement or Rule
144.
e. Enforcement. This Agreement has been duly and validly executed and
delivered on behalf of Purchaser and is a valid and binding agreement of
Purchaser enforceable in accordance with their terms.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchaser that:
a. Organization and Qualification. The Company is a corporation duly
organized and existing in good standing under the laws of the jurisdiction in
which it is incorporated, and has the requisite corporate power to own its
properties and to carry on its business as now being conducted. The Company is
duly qualified as a foreign corporation to do business and is in good standing
in every jurisdiction in which the nature of the business conducted by it makes
such qualification necessary.
b. Authorization; Enforcement. The Company has the requisite corporate
power and authority to enter into and perform this Agreement.
c. Expenses. Except as otherwise provided in this Agreement, each party
hereto shall be responsible for its own expenses incurred in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other agreements to be executed in connection herewith except the
Company agrees that it shall be responsible for payment of reasonable legal fees
to Purchaser's counsel.
d. Financial Information. The Company agrees to send the following
reports to the Purchaser until such Purchaser transfers, assigns or sells all of
its Securities contemporaneous with filing with the SEC, a copy of its Annual
Report on Form 10-K, its Quarterly Reports on Form 10-Q, its proxy statements
and any Current Reports on Form 8-K, and all other relevant information on
request from Purchaser.
e. Reservation of Shares. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Series M1 Stock and issuance of the Conversion Shares in connection therewith
and as otherwise required by the Certificate of Designation.
f. Corporate Existence. So long as a Purchaser beneficially owns any of
the Series M1 Stock, the Company shall maintain its corporate existence, and in
the event of a merger, consolidation or sale of all or substantially all of the
Company's assets, the Corporation shall ensure that the surviving or successor
entity in such transaction assumes the Company's obligations hereunder and under
the agreements and instruments entered into in connection herewith regardless of
whether or not the Company would have had a sufficient number of shares of
Common Stock authorized and available for issuance in order to effect the
conversion of all the Series M1 Stock as of the date of such transaction.
g. Compliance with Certificate of Designation. The Company shall comply
with all of the provisions contained in the Certificate of Designation.
4. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of the Purchaser or its nominee, for the Conversion
Shares in such amounts as specified from time to time by such Purchaser to the
Company upon conversion of the Series M1 Stock. To the extent and during the
periods provided in Section 2(c) and 2(d) of this Agreement, all such
certificates shall bear the restrictive legend specified in Section 2(d) of this
Agreement.
<PAGE>
b. The Company warrants that no instruction other than such
instructions referred to in this Section 4, and stop transfer instructions to
give effect to Section 2(c) hereof in the case of all of the Securities prior to
registration of the Conversion Shares under the Securities Act, will be given by
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement. Nothing in this Section shall affect in any way the
Purchaser's obligations and agreement set forth in Section 2(d) hereof to resell
the Securities pursuant to an effective registration statement or in compliance
with an exemption from the registration requirements of applicable securities
law.
c. If the Purchaser provides the Company with an opinion of counsel,
which opinion of counsel shall be in form, substance and scope customary for
opinions of counsel in comparable transactions, to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from registration, or the Purchaser provides the Company with
reasonable assurances that such Securities may be sold pursuant to Rule 144, the
Company shall permit the transfer, and, in the case of the Conversion Shares
promptly instruct its transfer agent to issue one or more certificates in such
name and in such denominations as specified by the Purchaser.
5. REGISTRATION RIGHTS.
The Company agrees that at any time it registers shares of common stock
for any other party, it shall promptly notify Purchaser of such pending
registration and shall undertake, upon the request of the Purchaser, to register
the Conversion Shares. Purchaser shall notify the Company that it seeks to have
the Conversion Shares registered within ten days of the Company's notification
of a filing to the Purchaser. Notwithstanding the foregoing, the Company shall
undertake to file a registration statement to register the Conversion Shares no
later than August 1, 1998 and the Company shall keep such registration current
and effective thereafter. In the event that the Company does not register the
Conversion Shares by August 1, 1998, the Purchaser shall have a demand
registration right at the Company's expense.
6. LIQUIDATION PREFERENCE.
The Series M1 Stock shall share liquidation preference with the Series
M Stock and shall hold liquidation preference over the Common Stock and the
Series K and L Convertible Preferred Stocks of the Company. The Series M1 Stock
shall rank junior to the Series A Convertible Preferred Stock until such time as
the Company has effected the conversion of the Series A Convertible Preferred
Stock.
7. EXISTING WARRANTS.
All warrants to purchase shares of the Company's common stock that are
currently held by the Purchaser and Liberty Travel shall be repriced to $1.00,
and such warrants shall expire on December 31, 2002. Such modifications to the
warrants shall become effective the first business day immediately following
execution of this Agreement. Effective May 6, 1998, the Company repriced all of
the Company's publicly held warrants to $1.00. All other terms and conditions of
the warrants shall remain unchanged.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New Jersey applicable to
contracts made and to be performed in the State of New Jersey. The Company and
the Purchaser irrevocably consent to the exclusive jurisdiction of the United
States federal courts located in the State of New Jersey in any suit or
proceeding based on or arising under this Agreement and irrevocably agrees that
all claims in respect of such suit or proceeding may be determined in such
courts.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party.
c. Headings. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement or the
validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Purchasers make any
representation, warranty, covenant or undertaking with respect to such matters.
No provision of this Agreement may be waived other than by an instrument in
writing signed by the party to be charged with enforcement and no provision of
this Agreement may be amended other than by an instrument in writing signed by
the Company and the Purchasers.
f. Notices. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
telecopy, and shall be effective five days after being placed in the mail, if
mailed, or upon receipt or refusal of receipt, if delivered personally or by
courier or confirmed telecopy, in each case addressed to a party. The addresses
for such communications shall be:
If to the Company:
TREEV, Inc.
500 Huntmar Park Drive
Herndon, Virginia 20170
Attn: General Counsel's Office
If to the Purchaser, to such address set forth under such Purchaser's
name on the execution page hereto executed by the Purchaser, with an additional
copy to Purchaser's counsel.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Purchaser shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
h. Survival. The Company agrees to indemnify and hold harmless the
Purchaser for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations or covenants set
forth herein, including advancement of expenses as they are incurred.
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused this
Agreement to be duly executed as of the date first above written.
TREEV, Inc.
By: ___________________________
Name: _________________________
Title: ________________________
PURCHASER:
_______________________________
Fred Kassner
ADDRESS: 69 Spring Street, Ramsey New Jersey 07446
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC
Form 10-Q and is qualified in its entirety by reference to such financial
statements as of and for the six months ended June 30, 1998.
</LEGEND>
<CIK> 0000883946
<NAME> TREEV INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 4,092
<SECURITIES> 0
<RECEIVABLES> 9,195
<ALLOWANCES> (1,103)
<INVENTORY> 691
<CURRENT-ASSETS> 13,336
<PP&E> 7,481
<DEPRECIATION> (5,504)
<TOTAL-ASSETS> 18,472
<CURRENT-LIABILITIES> 11,320
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 7,072
<TOTAL-LIABILITY-AND-EQUITY> 18,472
<SALES> 14,129
<TOTAL-REVENUES> 14,129
<CGS> 7,447
<TOTAL-COSTS> 7,447
<OTHER-EXPENSES> 11,553
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62
<INCOME-PRETAX> (4,933)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,933)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,933)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
