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 September 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-11135
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: 33,875,790 shares of
common stock, $.0001 par value, as of October 23, 1998.
<PAGE>
TREEV, INC.
Form 10-Q
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. Financial Statements.
Consolidated Balance Sheets at September 30, 1998
(unaudited) and December 31, 1997 2
Consolidated Statements of Operations (unaudited) for
the three months ended September 30, 1998 and 1997 3
Consolidated Statements of Operations (unaudited) for
the nine months ended September 30, 1998 and 1997 4
Consolidated Statement of Changes in Stockholders' Equity
(unaudited) for the nine months ended September 30, 1998 5
Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 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. 12
PART II. OTHER INFORMATION
Item 1. Legal Proceedings. 18
Item 6. Exhibits and Reports on Form 8-K. 18
<PAGE>
TREEV, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
September 30, December 31,
1998 1997
--------- ---------
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 4,291 $ 3,816
Accounts and notes receivable, net 9,506 8,569
Note receivable Dorotech sale -- 7,000
Inventories 827 722
Prepaid expenses and other 682 1,108
--------- ---------
Total current assets 15,306 21,215
Fixed assets, net 1,745 2,165
Long-term notes receivable, net 138 378
Software development costs and
purchased technology, net 2,637 2,490
Goodwill, net 374 499
Other assets 127 113
--------- ---------
Total assets $ 20,327 $ 26,860
========= =========
LIABILITIES & STOCKHOLDERS' EQUITY
Current liabilities:
Current debt maturities and
obligations under capital leases $ 571 $ 2,479
Accounts payable 1,973 2,037
Accrued compensation and
related expenses 1,078 1,135
Deferred revenue 3,584 3,334
Other accrued expenses 2,714 2,250
--------- ---------
Total current liabilities 9,920 11,235
Long-term debt and obligations
under capital leases 60 1,108
--------- ---------
Total liabilities 9,980 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;
3,169,601 and 1,615,675 shares
issued and outstanding
Common stock, $.0001 par value,
100,000,000 shares authorized;
33,875,790 and 26,236,186 shares
issued and outstanding 3 3
Additional paid-in-capital 139,697 132,403
Accumulated deficit (129,353) (124,437)
--------- ---------
Total stockholders' equity 10,347 7,969
--------- ---------
Total liabilities and
stockholders' equity $ 20,327 $ 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 September 30,
1998 1997
----------- -----------
Revenue:
Products $ 5,125 $ 5,225
Services 2,902 4,719
----------- -----------
8,027 9,944
----------- -----------
Costs and expenses:
Cost of products sold 1,527 2,585
Cost of services provided 1,847 3,865
Sales and marketing 2,748 3,649
General and administrative 925 1,649
Product development 966 1,142
----------- -----------
8,013 12,890
----------- -----------
Loss before investment and
interest income and income taxes 14 (2,946)
Investment and interest income
(expense), net 3 (130)
----------- -----------
Loss before income taxes 17 (3,076)
Income tax benefit -- (142)
----------- -----------
Net income (loss) 17 (2,934)
----------- -----------
Preferred stock preferences
Accrued dividends (337) (930)
Imputed dividends -- (774)
----------- -----------
Net loss applicable to common shares $ (320) $ (4,638)
=========== ===========
Net loss per common share $ (0.01) $ (0.18)
=========== ===========
Weighted average shares outstanding 32,993,308 25,436,748
=========== ===========
Net loss per common share -
assuming dilution $ (0.01) $ (0.18)
=========== ===========
Weighted average shares outstanding 32,993,308 25,436,748
=========== ===========
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)
Nine Months Ended September 30,
1998 1997
------------ ------------
Revenue:
Products $ 13,760 $ 13,591
Services 8,395 14,805
------------ ------------
22,155 28,396
------------ ------------
Costs and expenses:
Cost of products sold 5,188 6,740
Cost of services provided 5,633 11,681
Sales and marketing 8,585 10,901
General and administrative 3,175 4,949
Product development 2,927 3,451
Gain from extinguishment of debt -- (267)
Restructuring costs 1,505 --
------------ ------------
27,013 37,455
------------ ------------
Loss before investment and interest
income and income taxes (4,858) (9,059)
Investment and interest income
(expense), net (58) (163)
------------ ------------
Loss before income taxes (4,916) (9,222)
Income tax benefit -- (87)
------------ ------------
Net loss (4,916) (9,135)
------------ ------------
Preferred stock preferences
Accrued dividends (1,011) (2,836)
Imputed dividends -- (774)
------------ ------------
Net loss applicable to common shares $ (5,927) $ (12,745)
============ ============
Net loss per common share $ (0.20) $ (0.51)
============ ============
Weighted average shares outstanding 29,957,510 24,957,354
============ ============
Net loss per common share -
assuming dilution $ (0.20) $ (0.51)
============ ============
Weighted average shares outstanding 29,957,510 24,957,354
============ ============
The accompanying notes are an integral part of these financial statements.
-4-
<PAGE>
TREEV, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
For the nine months ended September 30, 1998
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<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 $245 5,338,500 4,318 4,318
Issuance of preferred stock,
net of offering costs of $763 1,560,576 10,667 10,667
Conversion of preferred stock (1,300) 1,958,720 0
Redemption of preferred stock (5,250) (7,085) (7,085)
Issuance of warrants 68 68
Dividends on preferred stock 342,384 (674) (674)
Net loss (4,916) (4,916)
-------------------- ----------------------- ---------------- ---------------- -------------
Balance September 30, 1998 3,169,601 $ -- 33,875,790 $3 $139,697 ($129,353) $10,347
==================== ======================= ================ ================ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
-5-
<PAGE>
TREEV, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months
Ended September 30,
1998 1997
--------- ---------
(In thousands)
Cash flows from operating activities:
Net loss $(4,916) $(9,135)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Depreciation and amortization 1,762 3,752
Restructuring costs 1,505 --
Other non-cash adjustments 77 15
Changes in assets and liabilities:
Accounts and notes receivable (964) (1,837)
Inventories (105) (6)
Prepaid expenses and other 2 145
Accounts payable (80) 1,698
Accrued compensation and
related expenses (57) 242
Accrued expenses, other (561) 161
Deferred revenues 250 (81)
Deferred income taxes -- (71)
------- -------
Net cash used in operating activities (3,087) (5,117)
------- -------
Cash flows from investing activities:
Capitalized software development and
license costs (1,072) (1,059)
Purchases of fixed assets (548) (557)
Proceeds from business divestitures,
net of related costs 7,230 60
------- -------
Net cash provided by (used in)
investing activities 5,610 (1,556)
------- -------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net 4,318 23
Proceeds from issuance of preferred
stock, net 9,707 2,901
Cash dividends paid on preferred stock (337) (1,779)
Redemption of Mandatory Redeemable
Preferred Stock (6,548) (3,500)
Redemption of convertible preferred
stock (7,085) --
Redemption of convertible debentures (1,500) --
Proceeds from borrowings -- 5,000
Proceeds from issuance of long-term
debt -- 2,000
Principal payments on capital lease
obligations (603) (800)
Principal payments on debt -- (843)
------- -------
Net cash (used in) provided by
financing activities (2,048) 3,002
------- -------
Effect of exchange rate changes on cash
and cash equivalents -- (148)
Net increase (decrease) in cash and cash
equivalents 475 (3,819)
Cash and cash equivalents at beginning of year 3,816 7,601
------- -------
Cash and cash equivalents at September 30, $ 4,291 $ 3,782
======= =======
Supplemental Cash Flow Information:
Interest paid $ 191 $ 478
Income taxes paid $ 188 $ 261
The accompanying notes are an integral part of these financial statements.
-6-
<PAGE>
TREEV, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine month period ended September
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 September 30, 1998, 24 employees had been terminated, severance
benefits of $539,000 had been paid out and the accrual balance relating to the
Plan was $138,000.
-7-
<PAGE>
4. REDEMPTION OF SERIES K AND L CONVERTIBLE PREFERRED STOCK
In September 1998, the Company redeemed in cash the remaining 2,000 shares
outstanding of Series K Convertible Preferred Stock ("Series K Stock") and all
of the outstanding 3,250 shares of Series L Convertible Preferred Stock ("Series
L Stock") for $7,100,000 including outstanding interest. The $7,100,000 payment
retired the obligations under the Series K Stock and Series L Stock. Proceeds
from the $10,000,000 issuance of the Company's Series N Convertible Preferred
Stock ("Series N Stock") were used, in part, to fund the redemption of the
Series K Stock and Series L Stock (See Note 5).
5. ISSUANCE OF SERIES N CONVERTIBLE PREFERRED STOCK
In September 1998, the Company completed a private placement of 1,559,576 shares
of Series N Stock, together with warrants to purchase and additional 800,000
shares of Common Stock at an exercise price of $0.625 per share. Proceeds from
the offering were $10,000,000 and offering costs were $619,000. In accordance
with the terms of the Series N Stock offering, approximately $7,100,000 of the
proceeds was used to redeem the Company's Series K Stock and Series L Stock, and
the remainder will be used for working capital purposes (See Note 4). The
Company also issued warrants to purchase 509,091 shares of Common Stock at an
exercise price of $0.69 per share to the placement agent in the transaction. In
connection with the sale of the Series N Stock, the Company agreed to register
the Common Stock issuable upon conversion of the preferred stock and execution
of the warrants upon such time as the Company files a registration statement to
register shares for any other stockholder of the Company. At September 30, 1998,
the 1,559,576 shares of Series N Stock were convertible into 15,595,760 shares
of Common Stock.
Each share of Series N Stock is convertible at the option of each holder into 10
shares of Common Stock. Upon stockholders' approval of the Series N Stock
offering at a special meeting of the stockholders, scheduled for December 9,
1998, any Series N Stock that has not previously been converted shall be
immediately converted into shares of Common Stock. Assuming that no shares of
the Series N Stock have been converted prior to such time, the Series N Stock
shall immediately convert into 15,595,760 shares of the Company's Common Stock.
The conversion price of the Series N Stock is $0.6412 per share, which was the
average volume market price of the Common Stock on the date the terms for the
Series N Stock were agreed to by the parties.
6. CONVERSION OF LINE OF CREDIT TO PREFERRED STOCK
In June 1998, the Company converted the remaining $1.0 million of the Stock-
holder line of credit into equity through the issuance of 1,000 shares of Series
-8-
<PAGE>
M1 Convertible Stock ("Series M1 Stock"). The Company agreed, by amendment to
the securities purchase agreement for the Series M1 Stock, to file a
registration statement to register the Common Stock issuable upon conversion of
the preferred stock on or before March 30, 1999.
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 September 30, 1998, the 1,000
shares of Series M1 Stock were convertible into 1,256,823 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 certain 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 M1 Stock for a price
per share equal to $1,000 plus the accrued unpaid dividend.
7. 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 $1,100,000 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
when the Company files a registration statement to register shares for any other
stockholder, but in no event later than March 30, 1999.
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.
-9-
<PAGE>
Proceeds from the offering were $2,500,000 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 when the Company files a registration statement to register shares
for any other stockholder, but in no event later than March 30, 1999.
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.
During the third quarter of 1998, the Company completed a private placement of
750,000 shares of Common Stock pursuant to Regulation D under the Securities
Act. Proceeds from the offering were $750,000 and offering costs were $60,000.
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 when the Company files a registration statement to register shares
for any other stockholder, but in no event later than March 30, 1999. The
Company also completed a private placement of 200,000 shares of Common Stock
pursuant to Regulation D under the Securities Act. Proceeds from the offering
were $200,000 and offering costs were $10,000. Pursuant to the terms of the
private placement, the Company agreed to file a registration statement with the
Securities and Exchange Commission to register the shares.
During the third quarter of 1998, the Company issued 122,427 shares of Common
Stock under the Company's Employee Stock Purchase Plan ("the Plan"). Through
payroll deductions, employees can purchase the Company's Common Stock at a 15%
discount to the market price. Under the Plan, there are two six-month offering
periods beginning on January 1st and July 1st. The purchase price is determined
by taking 85% of the lower of (a) the average of the high and low market prices
on the offering commencement date and (b) the average of the high and low market
prices on the offering termination date. The terms of the Plan require that the
purchaser hold the shares purchased under the Plan for a minimum of six months
from the date the offering period ends.
8. 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.
-10-
<PAGE>
9. 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 $6,500,000 payment retired the obligations under the Series F
Stock. The Company used the $7,000,000 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.
10. 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.
During the second quarter of 1998, the Company redeemed in cash $200,000 of the
Notes. At September 30, 1998, $400,000 of the Notes remained outstanding. During
October 1998, the Company redeemed in cash an additional $200,000 of the Notes
(See Note 11)
11. SUBSEQUENT EVENTS
During October 1998, the Company redeemed in cash $200,000 of the Notes. After
the October 1998 redemption, $200,000 of the Notes remained outstanding.
-11-
<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. Readers should carefully review the risk
factors described in other documents the Company files from time to time with
the Securities and Exchange Commission, specifically any Current Reports on Form
8-K filed by the Company. Some risks and uncertainties of the Company that
should be considered by the reader include:
The adverse results of operations that the Company has experienced have
been declining, and the Company's operating results were break even during the
quarter ended September 30, 1998. Although the Company expects the trend of
improved operating results to continue, there can be no assurances that the
Company will not experience adverse results of operations in the future.
The Company has had net losses in each period of its operations since
its inception, except for two quarters including the most current, and it had an
accumulated deficit at September 30, 1998 of $129.4 million.
Pursuant to Nasdaq requirements, common and preferred stock trading on
Nasdaq must maintain a minimum bid price of $1.00. Nasdaq has indicated that
because the Company's Common Stock has traded below the Nasdaq minimum bid price
below $1.00, the Company is not currently in compliance with the minimum bid
price requirement to maintain listing on the Nasdaq National Market System.
Nasdaq indicated that the Company's Common Stock needed to be in compliance by
October 7, 1998. The Company was out of compliance at that time and has
requested a hearing. The Company understands that, under Nasdaq procedures, the
Company's Common Stock will continue to trade on the Nasdaq pending the outcome
of that hearing. A hearing date has not yet been scheduled. The Company has also
filed proxy materials with the SEC to seek shareholder approval to effect a
one-for-four reverse stock split to bring the stock price above $1.00. The
Company believes that if a reverse stock split is approved by shareholders and
-12-
<PAGE>
implemented, the Company's Common Stock will trade at a price above the minimum
required bid price for continued listing on the Nasdaq National Market System.
However, no assurances can be given that the market price would rise in
proportion to the reverse split or remain at levels necessary for such continued
listing. Any inability to trade on Nasdaq would likely adversely effect the
market price and liquidity of the Common Stock. In the event that the Company's
Common Stock trades at a minimum price of more than $1.00 for a period of 10
consecutive trading days, and the Company is thereby able to maintain its Nasdaq
National Market System listing, the Company will reassess whether to proceed
with the reverse stock split.
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. The Company's
future profitability will depend on, among other things, wide-scale market
acceptance of the Company's products and on the Company's ability to develop in
a timely fashion enhancements to existing products or new products. 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.
Results of Operations - Nine months ended September 30, 1998 and 1997
Revenues. Total revenues were $22.2 million and $28.4 million
for the nine months ended September 30, 1998 and 1997, respectively. The $6.2
million decrease in revenue was the result of an increase in product revenue of
$169,000, or 1%, offset by a decrease in service revenue of $6.4 million, or
43%. The increase in product revenue was attributable to an increase of $3.7
million, or 37%, in comparative company revenues offset by a decrease of $3.6
million due to the disposition in 1997 of the Company's subsidiary in France
("Dorotech"). The decrease in service sales of $6.4 million was the result of a
$7.7 million decrease due to the disposition of Dorotech, offset by a $1.3
million, or 19%, increase in comparative company revenues. On a comparative
company basis, overall revenues increased $5.1 million, or 30%, from $17.1
million for the nine months ended September 30, 1997 to $22.2 million for the
same period in 1998.
Profit margins. Profit margins for product sales increased 12
percentage points for the first nine months of 1998 over the same period in 1997
as cost of products decreased from 50% to 38% 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 12 percentage points for the nine months ended September 30, 1998 as
compared to 1997 as the cost of services decreased from 79% to 67% of sales. The
increase in service sales margins from 21% to 33% was due to the Company's
continued emphasis on its custom development and professional services. On a
comparative company basis, overall profit margins increased 10 percentage points
to 51% for the nine months ended September 30, 1998 from 41% for the same period
in 1997.
-13-
<PAGE>
Sales and marketing. Sales and marketing expenses were $8.6
million or 39% of revenue, for the nine months ended September 30, 1998 compared
to $10.9 million, or 38% of revenue in 1997. The decrease of $2.3 million, or
21%, was the result of the Company's disposition of Dorotech during 1997, which
reduced sales and marketing expenses $2.5 million, offset by an $144,000
increase in comparative company expenses.
General and administrative. G&A expenses were $3.2 million or
14% of revenue, for the nine months ended September 30, 1998 compared to $5.0
million, or 17% of revenue in 1997. The decrease of $1.8 million, or 36%, was
the result of the Company's disposition of Dorotech during 1997, which reduced
G&A expenses $1.1 million, and a $671,000, or 17%, 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 nine months ended September
30, 1998 were $4.0 million, of which $1.1 million was capitalized and $2.9
million was expensed. Software research and development expenditures for the
1997 period were $4.5 million, of which $1.1 million was capitalized and $3.4
million was expensed. The $502,000 decrease in research and development
expenditures is attributable to the Company's 1997 disposition of Dorotech,
which reduced R&D expenses $790,000, offset by a $288,000 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.
Net loss. The Company's net loss for the nine months ended
September 30, 1998 was $4.9 million as compared to $9.1 million for the
comparable period of 1997. The net loss decrease of $4.2 million is due to a
$3.4 million decrease in net loss from the Company's continuing operations and
due to the disposition of Dorotech, which reduced the net loss by $835,000. The
$3.4 million decrease in net loss from the Company's continuing operations is
primarily attributable to an increase of $4.3 million in gross margins and a
$671,000 decrease in G&A expense, offset by the $1.5 restructuring charge.
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 and, during 1997, for a $774,000 non-cash
charge to preferred stock dividends for the Company's Series K Preferred Stock.
The net loss applicable to the nine months ended common shares was $5.9 million,
-14-
<PAGE>
or ($.20) per share, for the nine months ended September 30, 1998 as compared to
$12.7 million or ($.51) 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, the decrease in annual Series A Preferred Stock
dividends from $2.00 to $0.84 per share and the $774,000 Series K non-cash
dividend charge in 1997.
Results of Operations - Three months ended September 30, 1998 and 1997
Revenues. Total revenues were $8.0 million and $9.9 million
for the three months ended September 30, 1998 and 1997, respectively. The $1.9
million decrease in revenue was the result of a decrease in product revenue of
$100,000, or 2%, and a decrease in service revenue of $1.8 million, or 39%. The
decrease in product revenue was primarily attributable to an increase of $1.0
million, or 25%, in comparative company product revenues offset by a $1.1
million reduction due the disposition in 1997 of the Company's French
subsidiary, Dorotech. The decrease in service revenues of $1.8 million was the
result of a $2.3 million decrease due to the disposition of Dorotech, offset by
a $472,000, or 19%, increase in comparative company service revenues. On a
comparative company basis, overall revenues increased $1.5 million, or 23%, from
$6.5 million for the nine months ended September 30, 1997 to $8.0 million for
the same period in 1998.
Profit margins. Profit margins for product sales increased 19
percentage points in the third quarter of 1998 over the same period in 1997 as
cost of products decreased from 49% to 30% 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 18 percentage points for the three months ended September 30, 1998 as
compared to 1997 as the cost of services decreased from 82% to 64% of sales. The
increase in service sales margins from 18% to 36% was due to the Company's
continuing emphasis on its custom development and professional services. On a
comparative company basis, overall profit margins increased 15 percentage points
to 58% for the three months ended September 30, 1998 from 43% for the same
period in 1997.
Sales and marketing. Sales and marketing expenses were $2.7
million or 34% of revenue, for the three months ended September 30, 1998
compared to $3.6 million, or 37% of revenue in 1997. The decrease of $901,000,
or 25%, was the result of the Company's disposition of Dorotech during 1997,
which reduced sales and marketing expenses $784,000 and by a $117,000 decrease
in comparative company expenses.
General and administrative. G&A expenses were $925,000 or 12%
of revenue, for the three months ended September 30, 1998 compared to $1.6
million, or 17% of revenue in 1997. The decrease of $724,000, or 44%, was the
-15-
<PAGE>
result of the Company's disposition of Dorotech during 1997, which reduced G&A
expenses $349,000, and a $375,000, or 29%, 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 September 30, 1998 were $1.3 million,
of which $300,000 was capitalized and $1.0 million was expensed. Software
research and development expenditures for the 1997 period were $1.5 million, of
which $300,000 was capitalized and $1.2 million was expensed. The $0.2 million
decrease in research and development expenditures is primarily attributable to
the Company's 1997 disposition of Dorotech.
Net income (loss). The Company's net income for the three
months ended September 30, 1998 was $17,000 as compared to a $2.9 million loss
for the comparable period of 1997. The net loss decrease of $2.9 million in the
third quarter of 1998 as compared to the same period in 1997 is due to a $2.4
million decrease in net loss from the Company's continuing operations and the
disposition of Dorotech, which reduced the net loss by $500,000. The $2.4
million decrease in net loss from the Company's continuing operations is
primarily attributable to an increase of $1.8 million in gross margins, $375,000
decrease in G&A expense and $117,000 reduction in sales and marketing expense.
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 and, during 1997, for a $774,000 non-cash
charge to preferred stock dividends for the Company's Series K Preferred Stock.
The net loss applicable to common shares was $320,000, or ($.01) per share, for
the three months ended September 30, 1998 as compared to $4.6 million or ($.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 and the $774,000 Series K non-cash dividend charge
in 1997.
Liquidity and Capital Resources
As of September 30, 1998, the Company had $4.3 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 $5.4 million at June 30, 1998 and
$10.0 million at December 31, 1997.
For the nine months ended September 30, 1998, the $475,000 increase in
-16-
<PAGE>
cash and cash equivalents resulted from $5.6 million in cash generated by
investing activities, offset by $3.1 million used to fund operating activities
and $2.0 million in cash used to fund financing activities.
The $5.6 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 $3.1 million used by operating activities arose
primarily with respect to the $4.9 million net loss in operations, offset by a
$1.8 million in depreciation charges, $1.5 million in restructuring costs, $1.0
million reduction in accounts receivable and $561,000 increase in accrued
expenses. The $2.0 million used by financing activities arose primarily from the
$6.5 million redemption of the Company's Series F Preferred Stock, $7.1 million
redemption of the Company's Series K and L Preferred Stock, $1.5 million used to
redeem the Company's convertible debentures and payments in capital leases of
$603,000, offset by the $4.3 million proceeds from the issuance of common stock,
$9.7 million proceeds from the issuance of preferred stock and $337,000 paid in
preferred stock dividends.
The adverse results of operations that the Company has experienced have
been declining and the Company's operating results were break even during the
quarter ended September 30, 1998. Although the Company expects the trend of
improved operating results to continue, there can be no assurances that the
Company will not experience adverse results of operations in the future. 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.
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.
-17-
<PAGE>
Item 2. Changes in Securities
In September 1998, the Company redeemed in cash the remaining 2,000
shares outstanding of Series K Stock and all of the outstanding 3,250 shares of
Series L Stock for $7,100,000 including outstanding interest. The $7,100,000
payment retired the obligations under the Series K Stock and Series L Stock.
In September 1998, the Company completed a private placement of
1,559,576 shares of Series N Stock, together with warrants to purchase and
additional 800,000 shares of Common Stock at an exercise price of $0.625 per
share. Proceeds from the offering were $10,000,000. The Company also issued
warrants to purchase 509,091 shares of Common Stock at an exercise price of
$0.69 per share to the placement agent in the transaction. At September 30,
1998, the 1,559,576 shares of Series N Stock were convertible into 15,595,760
shares of Common Stock.
During the third quarter of 1998, the Company completed a
private placement of 950,000 shares of Common Stock pursuant to Regulation D
under the Securities Act. Proceeds from the offering were $950,000.
Item 3. Changes Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
3.35 Certificate of Designations, Preferences and Rights of Series N Convertible
Preferred Stock to be filed with the Secretary of State of the State of Delaware
on October 30, 1998.
10.36 Securities Purchase Agreement between TREEV, Inc. and Horace T. Ardinger,
Jr., Ardinger Family Partnership, Baker Family Trust, and the Adkins Family
Trust as of September 22, 1998.
27.1 Financial data schedule
-18-
<PAGE>
(b) Reports on Form 8-K.
Form 8-K filed on September 17, 1998 to report the Company's plans to seek
stockholders' approval for a reverse stock split and to announce an equity
financing through a private placement of convertible preferred stock.
-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: October 27, 1998 By /s/ James J. Leto
-----------------
James J. Leto
Chief Executive Officer
Date: October 27, 1998 By /s/ Thomas A. Wilson
--------------------
Thomas A. Wilson
President and Chief Operating
Officer
Date: October 27, 1998 By /s/ Jorge R. Forgues
--------------------
Jorge R. Forgues
Senior Vice President of Finance
and Administration, Chief Financial
Officer and Treasurer
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
of
SERIES N 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 N Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 1,559,576 shares of
Preferred Stock, is the Series N Convertible Preferred Stock (the "Series N
Preferred Stock") and the face amount shall be $6.4120 per share (the "Face
Amount"). The Holder will be issued shares of the Series N Preferred Stock in
denominations of 100,000 shares. No other Series N Preferred Stock shall be
issued without the consent of the purchaser.
1
<PAGE>
II. 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 a Holder faxes or
otherwise delivers the Notice of Conversion to the Corporation. The Conversion
Date for the Required Conversion shall be the date the Corporation's shareholder
approve the transaction (as discussed in Paragraph D of Article III).
B. "Conversion Price" means a price equal to $.6412 per share of
Common Stock.
III. 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 N Preferred Stock may, at any time and from time to
time, convert (an "Optional Conversion") each of its shares of Series N
Preferred Stock into a number of fully paid and nonassessable shares of Common
Stock at $.6412 per share.
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 for the Common Stock and (y) surrender
or cause to be surrendered the original certificates representing the Series N
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. 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 XI.B).
(i) Delivery of Common Stock Upon Conversion. Upon the
surrender of Preferred Stock Certificates from a Holder of Series N 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
2
<PAGE>
certificates, after provision of indemnity pursuant to Article XI.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 N Preferred Stock
being converted and (y) a certificate representing the number of shares of
Series N 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 N Preferred Stock.
(iii) No Fractional Shares. If any conversion of Series N
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 N 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 Upon Shareholders' Approval of the Transaction.
Provided all shares of Common Stock issuable upon conversion of all outstanding
shares of Series N Preferred Stock are then authorized and reserved for
issuance, each share of Series N Preferred Stock issued and outstanding on the
date the Corporation's shareholders approve the issuance of the Common Stock
issuable under the Series N Preferred Stock to the Holder, 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 III (the "Required
Conversion"). When the Required Conversion occurs, the Corporation and the
Holders of Series N Preferred Stock shall follow the applicable conversion
procedures set forth in Paragraph B of this Article III; provided, however, that
the Holders of Series N Preferred Stock are not required to deliver a Notice of
Conversion to the Corporation or its transfer agent.
3
<PAGE>
In the event that shareholders' approval is not obtained, the
Corporation shall endeavor to again pursue shareholders' approval. After the
first attempt at obtaining shareholders' approval of the issuance of the shares
whereby the shareholders do not approve the issuance of the shares and until
such time as the shareholders do approve of the issuance of the shares to
Holder, the Holder may convert a number of shares of the Series N Stock;
provided however, that with Holder's current stock ownership in the Corporation,
that ownership does not exceed 19.99% of the outstanding shares of Common Stock
of the Corporation.
IV. RESERVATION OF SHARES OF COMMON STOCK
Upon the initial issuance of the shares of Series N Preferred Stock,
the Corporation shall reserve 15,595,760 shares of the authorized but unissued
shares of Common Stock for issuance upon conversion of the Series N 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 N Preferred
Stock outstanding at the Conversion Price.
V. 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 N
Preferred Stock upon conversion of the Series N Preferred Stock as and when
required by the Securities Purchase Agreement;
(ii) the Corporation provides notice to any Holder of Series N
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 N
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
4
<PAGE>
incorporation of the Corporation); or
(c) have approved, recommended or otherwise con-
sented 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 N 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 N Preferred Stock held by such Holder for an
amount per share equal to $6.4120.
VI. RANK
All shares of the Series N Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to any class or series of capital stock
of the Corporation hereafter created (unless, with the consent of the Holder(s)
of Series N Preferred Stock); and (iii) junior to the Corporation's Series A
Cumulative Convertible Preferred Stock, par value $.0001 per share, and the
Corporation's Series M and Series M1 Convertible Preferred Stock (the "Senior
Securities"), in each case as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary.
VII. 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
5
<PAGE>
shares of Series N 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 N
Preferred Stock means an amount equal to the Face Amount thereof. The
Liquidation Preference with respect to any other security shall be as set forth
in the Certificate of Designation filed in respect thereof.
VIII. 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 N
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 N
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 N Preferred
6
<PAGE>
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 N 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 N 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 N Preferred Stock shall be entitled,
upon any conversion of shares of Series N 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 N
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 N 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 VIII, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each Holder of Series N 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
N 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
7
<PAGE>
securities or property which at the time would be received upon conversion of a
share of Series N Preferred Stock.
IX. VOTING RIGHTS
The Holders of the Series N Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "Business Corporation Law"), in this Article IX and in Article X below.
To the extent that under the Business Corporation Law the vote of the
Holders of the Series N 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 N 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 N
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 N
Preferred Stock are entitled to vote on a matter with Holders of Common Stock,
voting together as one class, each share of Series N Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is convertible.
X. PROTECTION PROVISIONS
So long as any shares of Series N 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 N Preferred Stock:
(a) alter or change the rights, preferences or privileges of
the Series N 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 N Preferred Stock;
(c) create any new class or series of capital stock having a
preference over the Series N 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 N Preferred Stock as to
distribution of assets upon liquidation, dissolution or
winding up of the Corporation (as previously defined, "Pari
Passu Securities");
8
<PAGE>
(e) increase the authorized number of shares of Series N Pre-
ferred Stock;
(f) issue any shares of Series N Preferred Stock other than
pursuant to the Securities Purchase Agreement with the
original parties thereto;
(g) issue any additional shares of Senior Securities; or
(h) redeem, or declare or pay any cash dividend or dis-
tribution on, any Junior Securities.
If Holders of at least a majority of the then outstanding shares of Series N
Preferred Stock agree to allow the Corporation to alter or change the rights,
preferences or privileges of the shares of Series N Preferred Stock pursuant to
subsection (a) above, then the Corporation shall deliver notice of such approved
change to the Holders of the Series N 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 N Preferred
Stock.
XI. MISCELLANEOUS
A. Cancellation of Series N Preferred Stock. If any shares of Series N
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 N 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 N
Preferred Stock.
C. Status as Stockholder. Upon submission of a Notice of Conversion by
a Holder of Series N 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 N 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
9
<PAGE>
a conversion of Series N 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 N Preferred Stock with respect to
such unconverted shares of Series N Preferred Stock and the Corporation shall,
as soon as practicable, return such unconverted shares to the Holder.
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 22nd day of September, 1998.
TREEV, INC.
By:______________________________
10
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series N Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series N 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
N 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 N 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: $.6412
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 September
22, 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
Horace T. Ardinger, Jr., Ardinger Family Partnership, Baker Family Trust, and
the Adkins Family Trust (the "Purchasers").
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. Mr. Ardinger and the Company executed a final term sheet for Series
N Preferred Stock on September 17, 1998, and the parties now wish to enter into
a securities purchase agreement for 1,559,576 shares of the Company's Series N
Convertible Preferred Stock, par value $.0001 per share (the "Series N Stock"),
convertible into its common stock, par value $.0001 per share, of the Company
(the "Common Stock"). 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."
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF THE SERIES N STOCK.
a. Purchase of the Series N Stock. Upon execution of this Agreement,
the Purchasers shall be deemed to have purchased from the Company, at a purchase
price of $10,000,000 (the "Funds"), 1,559,576 shares of the Series N Stock.
Purchasers agree that he shall same-day wire the Funds to the Company on
September 22, 1998.
b. Use of Proceeds. The Company agrees that the proceeds from the sale
and purchase of the Series N Stock shall be used (i) to redeem all of the
outstanding shares of the Series K and Series L Convertible Preferred Stocks and
(ii) for working capital needs.
c. Shareholder Approval of the Issuance of the Series N Stock. The
Company's common stockholders must approve the issuance of the Series N Stock to
Purchasers. The Company agrees to use its best efforts to obtain such
shareholder approval by December 31, 1998.
<PAGE>
d. Conversion of the Series N Stock into Common Stock. Upon the
approval of the Company's common stockholders of the issuance of the Series N
Stock to Purchasers, the Series N Stock shall immediately convert to 15,595,760
shares of the Company's Common Stock and shall remain subject to the terms and
conditions contained in this Agreement. The shares of Common Stock shall be
distributed to the Purchasers as follows: 6,238,304 shares to H.T. Ardinger,
Jr.; 6,238,304 shares to Ardinger Family Partnership; 1,559,576 shares to the
Baker Family Trust; and 1,559,576 shares to the Adkins Family Trust.
In the event that stockholders' approval is not obtained, the Company
shall endeavor to again pursue the stockholders' approval. After the first
attempt at obtaining stockholders' approval of the issuance of the shares
whereby the stockholders do not approve the issuance of the shares and until
such time as the stockholders do approve of the issuance of the shares to
Purchasers, the Purchasers may convert a number of shares of the Series N Stock;
provided however, that with the Purchasers' current stock ownership in the
Company, that ownership does not exceed 19.99% of the outstanding shares of
Common Stock of the Company.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
The Purchasers represent and warrant to the Company that:
a. Investment Purpose. Purchasers are purchasing the Series N Stock for
Purchasers' own accounts 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. Purchasers understand that Purchasers 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. Purchasers agree 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. Accredited Investor. Each Purchaser is an "Accredited Investor" as
that term is defined in Rule 501(a) of Regulation D of the Securities Act of
1993, as amended. Each Purchaser further acknowledges completion of a review of
due diligence and disclosure materials provided by the Company and other
information obtained independently. Purchasers further acknowledge that in
making its decision to enter into this Agreement and purchase the Securities, it
has relied on its own examination of the Company and the terms of, and,
consequences of, holding the Securities.
c. Governmental Review. Purchasers understand 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.
d. Transfer or Resale. Purchasers understand that the Securities have
not been and are not being registered under the Securities Act or any state
2
<PAGE>
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.
e. Legends. Purchasers understand that the Series N Stock and, until
such time as the Conversion Shares have been registered under the Securities Act
may be sold by Purchasers 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. Purchasers agree
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 Purchasers 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 Purchasers 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.
3
<PAGE>
f. Enforcement. This Agreement has been duly and validly executed and
delivered on behalf of Purchasers and is a valid and binding agreement of
Purchasers enforceable in accordance with their terms.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchasers 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.
d. 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 N Stock and issuance of the Conversion Shares in connection therewith and
as otherwise required by the Certificate of Designation.
e. Corporate Existence. So long as a Purchaser beneficially owns any of
the Series N 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 N Stock as of the date of such transaction.
f. 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 Purchasers or its nominees, for the Conversion
Shares in such amounts as specified from time to time by such Purchaser to the
4
<PAGE>
Company upon conversion of the Series N 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.
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
Purchasers' 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 a 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 on Form S-3, it shall promptly notify Purchasers of such
pending registration and shall undertake, upon the request of the Purchasers, to
register the Conversion Shares. Purchasers 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.
Registration expenses shall be borne by the Company.
6. LIQUIDATION PREFERENCE.
The Series N Stock shall hold liquidation preference over the Common
Stock. The Series N 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, and shall be junior to the Series M
Convertible Preferred Stock and Series M1 Convertible Preferred Stock until such
time as the holder of the Series M and Series M1 Convertible Preferred Stock has
converted to shares of the Company's common stock.
7. WARRANT ISSUANCE.
Upon execution of this Agreement, Purchasers shall receive warrants,
pro rata, for the purchase of 500,000 shares of the Company's common stock at an
5
<PAGE>
exercise price equal to the closing price for the common stock on September 16,
1998. All terms of the warrant shall be provided for in the Stock Purchase
Warrant.
8. RIGHT OF FIRST OFFER.
The Company agrees that during the period beginning on the date hereof
and ending September 22, 1999, the Company will not, without the prior written
consent of Purchasers, contract with any party to obtain additional equity
financing in any form (a "Future Offering") unless the Company shall have first
delivered to Purchasers at least five (5) business days prior to the closing of
such Future Offering, written notice describing the proposed Future Offering,
including the terms and conditions thereof, and providing the Purchasers, an
option during the five (5) business day period following delivery of such notice
to purchase the shares included in the Future Offering on the same terms as
contemplated by such Future Offering. This right of first offer shall not apply
to any transaction involving issuances of securities as consideration for a
merger, consolidation or acquisition of assets, or in connection with any
strategic partnership or joint venture (the primary purpose of which is not to
raise equity capital), or as consideration for the acquisition of a business,
product or license by the Company or exercise of options by employees or
directors. This right of first refusal also shall not apply to (i) the issuance
of securities pursuant to an underwritten public offering; (ii) the issuance of
securities upon exercise or conversion of the Company's options, warrants or
other convertible securities outstanding as of the date hereof; (iii) the grant
of additional options or warrants, or the issuance of additional securities,
under any Company stock option or restricted stock plan for the benefit of the
Company's employees or directors; or (iv) the issuance of securities to an
investment banking firm retained by the Company to perform business services to
the Company.
9. BOARD REPRESENTATION.
Upon execution of this Agreement, H.T. Ardinger, Jr., at his election, shall
have either (i) a seat on the Company's Board of Directors or (ii) observation
rights to attend or listen via conference call to the Company's Board of
Directors' quarterly meetings. Such election must be made in writing addressed
to James J. Leto, Chairman and Chief Executive Officer, TREEV, Inc., 500 Huntmar
Park Drive, Herndon, Virginia 20170. If such an election is not made within
thirty (30) days of this Agreement, the Purchaser shall be deemed to have
elected observation rights to attend or listen via conference call to the
Company's Board of Directors' quarterly meetings.
10. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of Virginia applicable to
contracts made and to be performed in the State of Virginia. The Company and the
Purchaser irrevocably consent to the exclusive jurisdiction of the United States
federal courts located in the State of Virginia 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
6
<PAGE>
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 Purchasers, to such address set forth under such Purchasers'
name on the execution page hereto executed by the Purchasers.
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.
7
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasers and the Company have caused this
Agreement to be duly executed as of the date first above written.
TREEV, Inc.
By:_________________________________
Name:_______________________________
Title:______________________________
PURCHASERS:
_________________________________________
Horace T. Ardinger, Jr.
ADDRESS: ________________________________
_________________________________________
Ardinger Family Partnership
ADDRESS: ________________________________
_________________________________________
Baker Family Trust
ADDRESS: ________________________________
_________________________________________
Adkins Family Trust
ADDRESS: ________________________________
<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 nine months ended September 30, 1998.
</LEGEND>
<CIK> 0000883946
<NAME> TREEV INC
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,291
<SECURITIES> 0
<RECEIVABLES> 10,687
<ALLOWANCES> (1,043)
<INVENTORY> 827
<CURRENT-ASSETS> 15,306
<PP&E> 7,581
<DEPRECIATION> (5,836)
<TOTAL-ASSETS> 20,327
<CURRENT-LIABILITIES> 9,920
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 10,344
<TOTAL-LIABILITY-AND-EQUITY> 20,327
<SALES> 22,155
<TOTAL-REVENUES> 22,155
<CGS> 10,821
<TOTAL-COSTS> 10,821
<OTHER-EXPENSES> 16,192
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 58
<INCOME-PRETAX> (4,916)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,916)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,916)
<EPS-PRIMARY> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
