CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the "Agreement")
entered into the 27th day of June, 1997, by and between ALTRIS SOFTWARE, INC., a
California corporation (the "Company"), and SIRROM CAPITAL CORPORATION d/b/a
Tandem Capital, a Tennessee corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain additional capital for use in
connection with its business through the issue and sale of certain obligations,
and Purchaser is willing to purchase such obligations from the Company, on the
terms and conditions set forth herein. Capitalized terms shall have the
meanings assigned by Section 11 unless otherwise defined herein.
NOW, THEREFORE, in mutual consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
1. SALE AND PURCHASE OF STOCK.
1.1 CONVERTIBLE PREFERRED STOCK. The Company has authorized the
issue and sale of 3,000 shares of its Series D Convertible Preferred Stock (the
"Convertible Preferred Stock") having the rights and preferences set forth by
the Certificate of Determination (the "Certificate of Determination") attached
as Exhibit A-1 at a purchase price of $1,000.00 per share, for an aggregate
purchase price of Three Million Dollars ($3,000,000.00). The Certificate of
Determination shall be filed with the Secretary of State of California on or
before the Closing Date. The Convertible Preferred Stock shall (i) have a
Stated Value of $1,000.00 per share, (ii) entitle the holder to quarterly
cumulative dividends of $28.75 per share, (iii) entitle the holder to one vote
upon all matters submitted to a vote of the holders of the Company's common
stock, no par value (the "Common Stock"), (iv) entitle the holder to convert
such Convertible Preferred Stock into shares of Common Stock at a Conversion
Price of $6.00, (v) shall rank senior to all other Preferred Stock issued by
the Company (unless otherwise authorized by vote of the holders of the
Convertible Preferred Stock in accordance with Section 3 of the Certificate of
Determination), and senior to the Common Stock, and (vi) shall have such other
rights and preferences as are set forth by the Certificate of Determination.
1.2 PAYMENT OF DIVIDENDS; AUTOMATIC DEBIT. The Convertible Preferred
Stock shall entitle the holder to quarterly cumulative dividends of $28.75 per
share, payable quarterly by automatic debit on the first day of March, June,
September, and December in each year, commencing September 1, 1997, provided
that (i) such dividends shall not be payable by automatic debit if not later
than two business days prior to such payment dates the Company shall have
notified Purchaser in writing that such dividends have not been declared, and
(ii) if such automatic debit is inadvertently or mistakenly effected without
due declaration thereof by the Board of Directors of the Company, Purchaser
shall return such debit amount to the Company.
1.3 REDEMPTION FEATURE. The Convertible Preferred Stock may be
redeemed, at the option of the Company, at any time on or after June 27, 1999,
PROVIDED the average bid price of the Company's Common Stock for the 20 trading
days preceding the date of the Redemption Notice (which such 20-trading day
period may include trading days that fall on or prior to June 27, 1999) exceeds
$9.50 per share, and the Redemption Price per share shall be the sum of (i)
$1,000, (ii) all accrued but unpaid dividends and (iii) interest on such
accrued but unpaid dividends at an annual rate of 11.5%. Notwithstanding the
immediately preceding sentence, the Convertible Preferred Stock may be redeemed,
at the option of the Company, at any time on or after June 27, 2002, and the
Redemption Price per share shall be the sum of (i) $1,000, (ii) all accrued
but unpaid dividends and (iii) interest on such accrued but unpaid dividends at
an annual rate of 11.5%.
1.4 CONTINGENT WARRANTS. As long as there are shares of Convertible
Preferred Stock outstanding, the Company shall grant, issue, and deliver to
Purchaser, on each such issue date on which shares of Convertible Preferred
Stock remain outstanding, contingent Stock Purchase Warrants, in the form of
EXHIBIT A-2 (the "Contingent Warrants"), entitling Purchaser to purchase Shares
of Common Stock at the Exercise Price set forth below, at any time and from time
to time during the five year period beginning on the applicable issue date of
each such Contingent Warrant, such Contingent Warrants to be issued on the issue
dates set forth below and with respect to the following numbers of Shares of
Common Stock (provided that for such issuance to be made on any issue date,
shares of Convertible Preferred Stock must remain outstanding).
NUMBER
ISSUE DATE OF SHARES EXERCISE PRICE
---------- ---------- --------------
Third anniversary of the 50,000 $7.00 per share
Closing Date
Fourth anniversary of the 50,000 $7.00 per share
Closing Date
Twentieth day following 250,000 100% of Closing Bid Price on such date in July
the fifth anniversary of the 2002 (or on the immediately preceding trading
Closing Date day if such day is not a trading day)
Sixth anniversary of the 250,000 100% of Closing Bid Price on such date in June
Closing Date 2003 (or on the immediately preceding trading
day if such day is not a trading day)
1.5 COMMITMENT; CLOSING DATE. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to Purchaser, and Purchaser agrees
to purchase from the Company, 3,000 shares of Convertible Preferred Stock for
an aggregate purchase price of $3,000,000. Delivery of a certificate
representing the Convertible Preferred Stock purchased by Purchaser shall be
made at the offices of Tandem Capital, Inc., Nashville, Tennessee, against
payment therefor by federal funds wire transfer in immediately available funds
and to the accounts and in the amounts set forth in the Company's wire
instructions in the form of EXHIBIT B hereto, at 10:00 A.M., Nashville time, on
June 27, 1997 or such later date as the Company and Purchaser shall agree (the
"Closing
2
Date"). The stock certificate shall be registered in Purchaser's name or in the
name of such nominee as Purchaser may specify at least 24 hours prior to the
date fixed for delivery.
1.6 PROCESSING FEE. The Company shall pay to Purchaser on or before
the Closing Date a processing fee in an amount equal to $60,000.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser as follows:
2.1 CORPORATE STATUS.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has the
corporate power to own and operate its properties, to carry on its business as
now conducted and to enter into and to perform its obligations under this
Agreement, the Certificate of Determination, the Contingent Warrants, the
Convertible Preferred Stock Registration Rights Agreement, and any other
document executed and delivered by the Company in connection herewith or
therewith (collectively, the "Operative Documents"). The Company is qualified
to do business and is in good standing in each state or other jurisdiction in
which such qualification is necessary under applicable law, except where the
failure to so qualify would not have a Material Adverse Effect on the financial
condition or results of operations of the Company.
(b) SCHEDULE 2.1(b) sets forth a complete list of each corporation,
partnership, joint venture, limited liability company or other business
organization in which the Company owns, directly or indirectly, any capital
stock or other equity interest (the "Subsidiary" or, collectively, the
"Subsidiaries"), or with respect to which the Company or any Subsidiary, alone
or in combination with others, is in a control position, which list shows the
jurisdiction of incorporation or other organization, and, if the Company does
not directly or indirectly own 100% of the outstanding equity interests in the
entities so listed on SCHEDULE 2.1(b), the percentage interest so owned by the
Company or any Subsidiary. Each Subsidiary is duly organized, validly existing
and in good standing under the laws of the jurisdiction of incorporation or
other organization as indicated on SCHEDULE 2.1(b), each has all requisite power
and authority and holds all material licenses, permits and other required
authorizations from government authorities necessary to own its properties and
assets and to conduct its business as now being conducted, and each is qualified
to do business as a foreign corporation (or business organization) and is in
good standing in every jurisdiction in which such qualification is necessary
under applicable law, except where the failure to so qualify would not have a
Material Adverse Effect on the financial condition or results of operations of
the Company. All of the outstanding shares of capital stock, or other equity
interest, of each Subsidiary owned, directly or indirectly, by the Company have
been validly issued, are fully paid and nonassessable, and are owned by the
Company free and clear of all liens, charges, security interests, or
encumbrances.
2.2 CAPITALIZATION.
3
(a) The authorized capital stock of the Company consists of (i)
1,000,000 shares of Preferred Stock, none of which are issued and outstanding,
and (ii) 20,000,000 shares of Common Stock, of which 9,581,370 shares are
issued and outstanding. All shares of Common Stock outstanding have been
validly issued and are fully paid and nonassessable. There are no statutory or
contractual preemptive rights, rights of first refusal, antidilution rights, or
any similar rights held by any party with respect to the issuance of the
Convertible Preferred Stock.
(b) The Company has not granted, or agreed to grant or issue, any
options, warrants or rights to purchase or acquire from the Company any shares
of capital stock of the Company, there are no securities outstanding or
committed to be issued by the Company or any Subsidiary which are convertible
into or exchangeable for any shares of capital stock or other securities of the
Company, and there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company is a party, or by which it
is bound, requiring or restricting the issuance of any shares of capital stock
or other securities of the Company, whether or not outstanding except for (i)
the Convertible Preferred Stock to be issued pursuant to this Agreement, (ii)
the Contingent Warrants to be issued pursuant to this Agreement, (iii) the
Debentures, (iv) the Initial Warrants and the Additional Warrants, (v) options
to purchase an aggregate of 292,563 shares of the Company's Common Stock
outstanding under its 1987 Stock Option Plan, (vi) options to purchase an
aggregate of 546,000 shares of the Company's Common Stock outstanding under its
Amended and Restated 1996 Stock Incentive Plan and (vii) such other warrants and
other rights to acquire capital stock of the Company set forth on SCHEDULE
2.2(b). Except as set forth on SCHEDULE 2.2(b), all such shares have been duly
reserved for issuance, have been duly and validly authorized, and upon issuance
in accordance with the terms of the respective instruments and receipt of
payment therefor, will be validly issued, fully paid, and nonassessable.
(c) The Convertible Preferred Stock that is being purchased by the
Purchaser, when issued, sold, and delivered in accordance with the terms of this
Agreement for the consideration expressed herein, will be duly and validly
issued, fully paid, and nonassessable, and will be free of restrictions on
transfer other than restrictions on transfer under this Agreement and the
Operative Documents and under applicable state and federal securities laws. The
Common Stock issuable upon conversion of the Preferred Stock being purchased
under this Agreement has been duly and validly reserved for issuance and, upon
issuance in accordance with the terms of the Certificate of Determination and
this Agreement, will be duly and validly issued, fully paid, and nonassessable
and will be free of restrictions on transfer other than restrictions on transfer
under this Agreement and under applicable state and federal securities laws.
2.3 AUTHORIZATION. The Company has full legal right, power and
authority to enter into and perform its obligations under this Agreement and the
Operative Documents without the consent or approval of any other person, firm,
governmental agency, or other legal entity, except as contemplated hereby or
thereby. The execution and delivery of this Agreement, the issuance of the
Convertible Preferred Stock hereunder, the execution and delivery of each other
document in connection herewith or therewith to which the Company is a party,
and the performance by the Company of its obligations hereunder or thereunder
are within the corporate powers of the Company and have been duly authorized by
all necessary corporate action properly
4
taken, have received all necessary governmental approvals, if any were required,
and do not and will not contravene or conflict with (i) the Articles of
Incorporation or Bylaws of the Company, (ii) any material agreement to which the
Company or any of its Subsidiaries is a party or by which any of them or their
properties is bound, or constitute a default thereunder, or result in the
creation or imposition of any lien, charge, security interest, or encumbrance of
any nature upon any of the property or assets of the Company or any of its
Subsidiaries pursuant to the terms of any such agreement or instrument, or (iii)
violate any provision of law or any applicable judgment, ordinance, regulation
or order of any court or governmental agency. The officer executing this
Agreement, and any other document executed and delivered by the Company in
connection herewith or therewith, is duly authorized to act on behalf of the
Company.
2.4 VALIDITY AND BINDING EFFECT. Each of the Operative Documents is
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
2.5 CONTRACTS AND OTHER COMMITMENTS. Except as disclosed on SCHEDULE
2.5 and other than as filed by the Company with the Securities and Exchanges
Commission ("SEC") as an exhibit pursuant to Item 601(b)(10) of Regulation S-K
under the Securities Act, the Company and its Subsidiaries do not have and are
not bound by any loans, liens, pledges, security interests agreements,
indentures or other instruments defining the rights of security holders, under
any securities or other financings upon which the Company or any Subsidiary is
obligated or by which the Company is bound.
2.6 LITIGATION. Except as set forth on SCHEDULE 2.6, there is no
litigation, arbitration, claim, proceeding or investigation pending or
threatened in writing to which the Company or any Subsidiary is a party or to
which any of its respective properties or assets is the subject which, if
determined adversely to the Company or such Subsidiary, would individually or in
the aggregate have a Material Adverse Effect on the financial position, results
of operations, or business of the Company and its Subsidiaries.
2.7 FINANCIAL STATEMENTS. The consolidated financial statements of
the Company and its Subsidiaries for the fiscal years ended December 31, 1996,
1995, and 1994, and the unaudited consolidated financial statements as of and
for the three months ended March 31, 1997, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly present the
financial position, results of operations, cash flows and changes in
stockholders' equity of the Company and its consolidated Subsidiaries, at the
respective dates of and for the periods to which they apply in such financial
statements, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
indicated, subject, in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse) and the absence of notes (that, if
presented, would not differ materially from those included in the most recent
audited consolidated financial statements). No financial statements of any
other
5
person(s) are required by GAAP to be included in the consolidated financial
statements of the Company.
2.8 SEC REPORTS. The Company's Common Stock is listed for trading on
the Nasdaq National Market and has been duly registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Since January
1, 1994, the Company has timely filed all reports, registrations, proxy or
information statements, and all other documents, together with any amendments
required to be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC Reports"). As of
their respective dates, the SEC Reports complied in all material respects with
all rules and regulations promulgated by the SEC and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.9 ABSENCE OF CHANGES. Since March 31, 1997, except as contemplated
hereby or by the other Operative Documents, (i) neither the Company nor any of
its Subsidiaries have incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that are material to the Company, (ii) neither the Company nor any of
its Subsidiaries have purchased any of its outstanding capital stock or
declared, or paid any dividend or other distribution or payment in respect of
its capital stock, (iii) there has not been any change in the authorized or
issued capital stock, long-term debt, or short-term debt of the Company, and
(iv) there has not been any material adverse change in or affecting the
business, operations, properties, prospects, assets, or condition (financial or
otherwise) of the Company or any Subsidiary, taken as a whole.
2.10 NO DEFAULTS. Except as set forth on SCHEDULE 2.10 and except
where a default or event of default does not and would not constitute a Material
Adverse Event, no default or event of default by the Company or any Subsidiary
exists under this Agreement or any of the other Operative Documents, or under
any Applicable Contract, or other material instrument or agreement to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or its respective properties may be bound, except for any such default or event
of default which would not reasonably be expected to cause a Material Adverse
Event, and no event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of default
thereunder.
2.11 COMPLIANCE WITH LAW. The Company is in compliance with all
foreign, federal, state or local laws, regulations, decrees and orders
applicable to it (including but not limited to the Foreign Corrupt Practices
Act, occupational and health standards and controls, antitrust, monopoly,
restraint of trade or unfair competition) to the extent that noncompliance, in
the aggregate, would not reasonably be expected to cause a Material Adverse
Event.
2.12 TAXES. Except as set forth on SCHEDULE 2.12, the Company and its
Subsidiaries have filed or caused to be filed all federal, state and local
income, excise and franchise tax returns required to be filed (except for
returns that have been appropriately extended), and have paid, or provided for
the payment of, all taxes shown to be due and payable
6
on said returns and all other taxes, impositions, assessments, fees or other
charges imposed on it by any governmental authority, agency or instrumentality,
prior to any delinquency with respect thereto (other than taxes, impositions,
assessments, fees and charges currently being contested in good faith by
appropriate proceedings, for which appropriate amounts have been reserved), and
the Company does not know of any proposed assessment for additional taxes or any
basis therefor. No tax liens have been filed against the Company or its
properties. The Company's federal income tax liability has been finally
determined by the Internal Revenue Service and satisfied for all taxable years
up to and including the taxable year ended December 31, 1993, or closed by
applicable statutes of limitation.
2.13 CERTAIN TRANSACTIONS. Except as set forth on in the proxy
statements filed by the Company with the SEC and except as to indebtedness
incurred in the ordinary course of business and approved by the Board of
Directors of the Company, neither the Company nor any Subsidiary is indebted,
directly or indirectly, to any of its officers or directors, or to their
respective spouses or children, or to any affiliate, in excess of an aggregate
amount of $60,000, and none of such officers or directors or any members of
their immediate families or affiliates, are indebted to the Company or any
Subsidiary in excess of an aggregate amount of $60,000, or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any Subsidiary is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company or any
Subsidiary, except that the Company's officers and directors may own
individually no more than 1% of the outstanding capital stock of any publicly
traded company which competes directly with the Company. Except as set forth in
the proxy statements filed by the Company with the SEC, no officer or director
of the Company or any Subsidiary or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company or
any Subsidiary that would require disclosure under Item 404 of Regulation S-K.
Except as set forth on SCHEDULE 2.13, neither the Company nor any Subsidiary is
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.14 TITLE TO PROPERTY. The Company and each Subsidiary has good and
marketable title to all of the real and personal property owned by it, free and
clear of all liens, security interests, pledges, encumbrances, equities claims
and restrictions of every kind and nature whatsoever, except as disclosed on
SCHEDULE 2.14 and other than (a) liens for taxes not yet due, (b) imperfections
in title, if any, not material in amount and which, individually or in the
aggregate, do not materially interfere with the conduct of the business of the
Company or the use of its assets, (c) such secured indebtedness as is disclosed
in the Financial Statements covering the assets and properties referred to
therein (if any), (d) liens in the ordinary course of business consistent with
past practice and (f) installments of special assessments not yet delinquent,
recorded easements, covenants and other restrictions, and utility easements,
building restrictions, zoning restrictions and other easements and restrictions
existing generally with respect to properties of a similar character. Any real
property and buildings held under lease by the Company or any Subsidiary are
held under valid existing and enforceable leases, except as disclosed on
SCHEDULE 2.14 or which are not material and do not interfere with the use to be
made of such buildings or property by the Company.
7
2.15 INTELLECTUAL PROPERTY.
(a) Except as set forth in SCHEDULE 2.15, to the Company's knowledge,
the Company is the lawful owner or has a valid right to use the proprietary
information used in its business free and clear of any claim, right, trademark,
patent or copyright protection of any third party; provided, however, that this
paragraph (a) shall not be deemed to include any representation regarding the
absence of infringements or conflicts with the rights of others, which
representation is made only in paragraph (c) hereof and only to the knowledge of
the Company. As used herein, "proprietary information" includes without
limitation (i) any computer software and related documentation, inventions,
technical and nontechnical data related thereto, and (ii) other documentation,
inventions and data related to patterns, plans, methods, techniques, drawings,
finances, customer lists, suppliers, products, special pricing and cost
information, designs, processes, procedures, formulas, research data owned or
used by the Company or any Subsidiary or marketing studies conducted by the
Company, all of which the Company considers to be commercially important and
competitively sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business.
(b) Except as set forth in SCHEDULE 2.15, to the Company's knowledge,
the Company has good and marketable title to or has a valid right to use all
patents, trademarks, trade names, service marks, copyrights or other intangible
property rights, and registrations or applications for registration thereof,
owned by the Company or any Subsidiary or used or required by the Company or any
Subsidiary in the operation of its business as presently being conducted;
provided, however, that this paragraph (a) shall not be deemed to include any
representation regarding the absence of infringements or conflicts with the
rights of others, which representation is made only in paragraph (c) hereof and
only to the knowledge of the Company.
(c) The Company has no knowledge of any infringements or conflict
with asserted rights of others with respect to copyrights, patents, trademarks,
service marks, trade names, trade secrets or other intangible property rights or
know-how which could cause a Material Adverse Event. To the Company's
knowledge, no products or processes of the Company infringe or conflict with any
rights of patent or copyright, or any discovery, invention product or process,
that is the subject of a patent or copyright application or registration known
to the Company. The Company follows such procedures as the Company deems
necessary or appropriate to provide reasonable protection of the Company's trade
secrets and proprietary rights in intellectual property of all kinds. To the
knowledge of the Company, no person employed by or affiliated with the Company
has employed or proposes to employ any trade secret or any information or
documentation proprietary to any former employer, and to the knowledge of the
Company, no person employed by or affiliated with the Company has violated any
confidential relationship that such person may have had with any third person,
in connection with the development, manufacture or sale of any product or
proposed product or the development or sale of any service or proposed service
of the Company.
2.16 ENVIRONMENTAL MATTERS. The Company has duly complied in all
material respects with, and its business, operations, assets, equipment,
property, leaseholds or other facilities are in compliance in all material
respects with, the provisions of all federal, state and
8
local environmental, health, and safety laws, codes and ordinances, and all
rules and regulations promulgated thereunder except to the extent that the
violation thereof would not reasonably be expected to cause a Material Adverse
Event. The Company has been issued and will maintain all required material
federal, state and local permits, licenses, certificates and approvals relating
to (i) air emissions; (ii) discharges to surface water or groundwater; (iii)
noise emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or wastes
(which shall include any and all such materials listed in any federal, state or
local law, code or ordinance and all rules and regulations promulgated
thereunder as hazardous or potentially hazardous); or (vi) other environmental,
health or safety matters, except to the extent that the absence thereof would
not reasonably be expected to cause a Material Adverse Event. The Company has
not during the two years prior to the date hereof received notice of, does not
know of, and does not suspect facts which might constitute a material violation
of any federal, state or local environmental, health or safety laws, codes or
ordinances, and any rules or regulations promulgated thereunder with respect to
its businesses, operations, assets, equipment, property, leaseholds, or other
facilities. Except in accordance with a valid governmental permit, license,
certificate or approval, there has been no material emission, spill, release or
discharge into or upon (i) the air; (ii) soils, or any improvements located
thereon; (iii) surface water or groundwater; or (iv) the sewer, septic system or
waste treatment, storage or disposal system servicing the premises, of any toxic
or hazardous substances or wastes at or from the premises, except to the extent
that any such emission, spill, release or discharge would not reasonably be
expected to cause a Material Adverse Event. During the two years prior to the
date hereof, there has been no complaint, order, directive, claim, citation or
notice by any governmental authority or any person or entity with respect to (i)
air emissions; (ii) spills, releases or discharges to soils or improvements
located thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or waste;
or (vi) other environmental, health or safety matters materially affecting the
Company or its business, operations, assets, equipment, property, leaseholds or
other facilities. The Company does not have any material indebtedness,
obligation or liability (absolute or contingent, matured or not matured), with
respect to the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
2.17 ACCOUNTING MATTERS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain accountability for the assets of the Company and each of
its Subsidiaries; (iii) access to the assets of the Company and each of its
Subsidiaries is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets of the
Company and each of its Subsidiaries are compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
9
2.18 DISTRIBUTIONS TO COMPANY. Except for limitations existing under
applicable law, no Subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any dividends to the Company, from making any other
distributions on such Subsidiary's capital stock, from repaying to the Company
any loans or advances to such Subsidiary, or from transferring any of such
Subsidiary's property or assets to the Company or any other Subsidiary of the
Company.
2.19 PRIOR SALES. All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times (i) exempt from the
registration requirements of the Securities Act or were duly registered under
the Securities Act, and (ii) were duly registered or were the subject of an
available exemption from the registration requirements of all applicable state
securities or Blue Sky laws.
2.20 REGULATORY COMPLIANCE. Except as set forth on SCHEDULE 2.20, the
conduct of the business and the ownership of the assets of the Company is not
dependent on any license, permit approved, waiver or other authorization of any
federal, state or local governmental or regulatory body which the Company has
not obtained, except to the extent that the absence thereof would not reasonably
be expected to cause a Material Adverse Event. All material licenses, permits
and authorizations held by the Company are in full force and effect.
2.21 MARGIN REGULATIONS. The Company is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or carry
any equity security of a class which is registered pursuant to Section 12 of
the Exchange Act.
2.22 1940 ACT COMPLIANCE. The Company is an " eligible portfolio
company" as such term is defined in Section 2(a)(46) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and the issuance and
sale by the Company of the Convertible Preferred Stock does not constitute a
"public offering" as such term is used in Section 55(a)(1) thereof.
2.23 LIMITED OFFERING. Subject in part to the truth and accuracy of
Purchaser's representations set forth in this Agreement, the offer, sale and
issuance of the Convertible Preferred Stock is exempt from the registration
requirements of the Securities Act, and neither the Company nor any authorized
agent acting on its behalf has taken or will take any action hereafter that
would cause the loss of such exemption.
2.24 REGISTRATION OBLIGATIONS. Except as described in Schedule 2.24,
the Company is not under any obligation to register under the Securities Act or
the Trust Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that are proposed to be subsequently issued.
2.25 INSURANCE. The Company has maintained, and has caused each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business in such forms
and amounts and against such risks, casualties and contingencies as are
customary for corporations of comparable size and condition (financial
10
and otherwise) engaged in the same or a similar business and owning
and operating similar properties.
2.26 GOVERNMENTAL CONSENTS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state, or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement by the
Company, except (i) the filing of the Certificate of Determination with the
Secretary of State of the State of California and (ii) such filings as have been
made prior to the Closing, except notices of sale required to be filed with the
Securities and Exchange Commission under Regulation D of the Securities Act or
such post-closing filings as may be required under applicable state securities
laws, which will be timely filed within the applicable periods therefor.
2.27 EMPLOYEES. To the best of the Company's knowledge, there is no
strike, labor dispute or union organization activities pending or threatened
between it and its employees. None of the Company's employees belongs to any
union or collective bargaining unit. To the knowledge of the Company, the
Company has complied in all material respects with all applicable state and
federal equal opportunity and other laws related to employment. To the
knowledge of the Company, no employee of the Company is or will be in violation
of any judgment, decree, or order, or any term of any employment contract,
patent disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with the Company, or any other party because
of the nature of the business conducted or presently proposed to be conducted by
the Company or to the use by the employee of his or her best efforts with
respect to such business. Other than as set forth on SCHEDULE 2.27 hereto and
other than the Company's 1987 Stock Option Plan and its Amended and Restated
1996 Stock Incentive Plan, the Company is not a party to or bound by any
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement. To the knowledge of the Company, it is not aware that any officer or
key employee, or that any group of key employees, intends to terminate
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company.
2.28 ERISA. The Company is in compliance in all material respects
with all applicable provisions of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29
U.S.C.A. SS 1001 et seq. (1975), as amended from time to time ("ERISA").
Neither a reportable event nor a prohibited transaction (as defined in ERISA)
has occurred and is continuing with respect to any "pension plan" (as such term
is defined in ERISA, a "Plan"); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation (together with any
entity succeeding to or all of its functions, the "PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Company nor any commonly
controlled entity (as defined in ERISA) has completely or partially withdrawn
from a multiemployer plan (as defined in ERISA). The Company and each commonly
controlled entity has met its minimum
11
funding requirements under ERISA with respect to all of its Plans and the
present fair market value of all Plan property equals or exceeds the present
value of all vested benefits under each Plan, as determined on the most recent
valuation date of the Plan and in accordance with the provisions of ERISA and
the regulations thereunder for calculating the potential liability of the
Company or any commonly controlled entity to the PBGC or the Plan under Title IV
or ERISA; and neither the Company nor any commonly controlled entity has
incurred any liability to the PBGC under ERISA.
2.29 FEES/COMMISSIONS. Except as set forth on SCHEDULE 2.29, the
Company has not agreed to pay any finder's fee, commission, origination fee or
other fee or charge to any person or entity with respect to or as a result of
the consummation of the transactions contemplated hereunder, except for the
processing fee due to Purchaser under Section 1.5.
2.30 DISCLOSURE. No representation or warranty made as of the date
hereof by the Company contained in this Agreement, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a material
fact, or omits or will (as of the time so furnished) omit to state any material
fact which is necessary in order to make the statements contained herein or
therein not misleading.
2.31 SURVIVAL. The representations and warranties of the Company
contained in this Agreement shall survive until the first anniversary of the
date hereof, provided, however, that the representations and warranties
contained in Sections 2.1 through 2.4 shall survive until the termination of
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser hereby
represents to the Company as follows:
3.1 CORPORATE STATUS. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee
and has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement and any other document executed or delivered by Purchaser in
connection herewith.
3.2 AUTHORIZATION. Purchaser has full legal right, power and
authority to enter into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection herewith,
without the consent or approval of any other person, firm, governmental agency
or other legal entity. The execution and delivery of this Agreement and any
other document executed and delivered by Purchaser in connection herewith, and
the performance by Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all necessary
governmental approvals, if any were required, have been duly authorized by all
necessary corporate action properly taken, and do not and will not contravene or
conflict with (i) the Charter or Bylaws of Purchaser, (ii) any material
agreement to which Purchaser is a party or by which it or any of its properties
is bound, or constitute a default thereunder, or result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
upon any of the property or assets of Purchaser pursuant to
12
the terms of any such agreement or instrument, or (iii) violate any provision of
law or any applicable judgment, ordinance, regulation or order of any court or
governmental agency. The officer(s) executing this Agreement and any other
document executed and delivered by Purchaser in connection herewith, is duly
authorized to act on behalf of Purchaser.
3.3 VALIDITY AND BINDING EFFECT. This Agreement and any other
document executed and delivered by Purchaser in connection herewith are the
legal, valid and binding obligations of the Purchaser, enforceable against it in
accordance with their respective terms.
3.4 ACCREDITED INVESTOR, INVESTMENT INTENT. In connection with the
issuance and sale to Purchaser of the Convertible Preferred Stock and shares of
Common Stock issuable upon conversion thereof pursuant to this Agreement,
Purchaser further represents and warrants to the Company as follows:
(a) PURCHASE FOR INVESTMENT. Purchaser is acquiring the Convertible
Preferred Stock and any shares of Common Stock issuable upon conversion thereof
for its own account as principal, for investment, and not with a view to the
distribution or resale thereof, in whole or in part, in violation of the
Securities Act or any applicable state securities law, and Purchaser has no
present intention of selling, negotiating or otherwise disposing of the
Convertible Preferred Stock or shares of Common Stock issuable upon conversion
thereof.
(b) NO REGISTRATION; RULE 144. (i) Neither the Convertible
Preferred Stock nor the shares of Common Stock issuable upon conversion thereof
has been registered under the Securities Act, and as such, such shares of
Convertible Preferred Stock and any shares of Common Stock issuable upon
conversion thereof are "restricted securities" as defined in Rule 144; (ii)
neither the shares of Convertible Preferred Stock nor the shares of Common Stock
issuable upon conversion thereof may be resold unless they are registered under
the Securities Act or unless an exemption therefrom is available; (iii) the
Purchaser understands that the availability of Rule 144 for the sale and
transfer of the Convertible Preferred Stock and any shares of Common Stock
issuable upon conversion thereof is limited, and that certain conditions and
events must exist and occur before Purchaser would be able to utilize Rule 144
in connection with the sale or other disposition of the Convertible Preferred
Stock or shares of Common Stock issuable upon conversion thereof.
(c) INVESTMENT COMPANY; ACCESS TO INFORMATION. Purchaser is a
registered investment company under the Investment Company Act and as such is an
"accredited investor" under Rule 501(a) under the Securities Act. Purchaser
understands that its investment in the Convertible Preferred Stock involves a
high degree of risk. Purchaser has such knowledge and experience in financial
and business matters that it is capable of evaluating the merits and risks of
the investments contemplated by this Agreement. Purchaser has been afforded, to
the satisfaction of Purchaser, the opportunity to review the financial and other
information which it has requested from the Company, and to obtain such
additional publicly available information concerning the Company and its
business, and to ask such questions and receive such answers (based upon
publicly available information), as the Purchaser deems necessary to make an
informed investment decision.
13
(d) RELIANCE ON REPRESENTATIONS OF PURCHASER. Purchaser understands
that the Convertible Preferred Stock is being offered and sold, and the shares
of Common Stock issuable upon conversion thereof are being offered, to it in
reliance on specific exemptions from the registration requirements of the U.S.
securities laws and that the Company is relying of the truth and accuracy of,
and the Purchaser's compliance with, the representations, warranties,
agreements, acknowledgments and understandings set forth herein in order to
determine the availability of such exemptions and the eligibility of Purchaser
to acquire the Convertible Preferred Stock and the shares of Common Stock
issuable upon conversion thereof.
(e) TRANSFER TO SUBSIDIARY. Notwithstanding anything in this Section
3.4 to the contrary, Purchaser may transfer and assign its rights and
obligations under this Agreement to one or more of its Wholly-owned
Subsidiaries, provided that any such Subsidiary shall agree to become bound by
the terms of this Agreement, including the representations and warranties
contained in this Section 3.4, and provided, further that Purchaser shall remain
liable for the performance of its obligations hereunder notwithstanding any such
assignment.
3.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement by the Purchaser and the consummation by the Purchaser of the
transactions contemplated hereby or relating hereto do not and will not (i)
result in the violation of the Purchaser's charter documents or by-laws or (ii)
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, any agreement, indenture or
instrument to which the Purchaser is a party, or, to the actual knowledge of the
Purchaser, result in a violation of any law, rule, regulation, order, judgment
or decree of any court of governmental agency applicable to the Purchaser or its
properties (except for such conflicts, defaults and violations as would not,
individually or in the aggregate, have a material adverse effect on the
Purchaser). The Purchaser is not required to obtain any consent, authorization
or order of, or make any filing or registration with, any court of governmental
agency in order for it to execute, deliver or perform any of its obligations
under this Agreement or purchase the Convertible Preferred Stock in accordance
with terms hereof.
3.6 SURVIVAL. The representations and warranties of the Purchaser
contained in this Agreement shall survive until the first anniversary of the
date hereof.
4. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER. The obligation
of Purchaser to purchase and pay for the Convertible Preferred Stock on the
Closing Date shall be subject to the satisfaction, on or before the Closing
Date, of each of the following conditions set forth below. These conditions are
for Purchaser's sole benefit and may be waived by Purchaser at any time in its
sole discretion.
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement and in any Schedule hereto
or any document or instrument delivered to Purchaser or its representatives
hereunder, shall have been true and correct when made and shall be true and
correct as of the Closing Date as if made on such date, except to the extent
such representations and warranties expressly relate to a specific date. The
Company shall
14
have duly performed all of the covenants and agreements to be performed by it
hereunder on or prior to the Closing Date.
4.2 OFFICER'S CERTIFICATE. The Company shall have delivered to
Purchaser a certificate, dated the Closing Date, signed by the President or
Chief Financial Officer of the Company, substantially in the form attached
hereto as EXHIBIT C.
4.3 SATISFACTORY PROCEEDINGS AND SECRETARY'S CERTIFICATE. All
proceedings taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to Purchaser and Purchaser's counsel, and the
Company shall have delivered to Purchaser a certificate, dated the Closing Date,
signed by the Secretary of the Company, substantially in the form attached
hereto as EXHIBIT D.
4.4 LEGAL OPINION. Purchaser shall have received the opinion of
Gibson, Dunn & Crutcher LLP, counsel for the Company, dated the Closing Date,
addressed to Purchaser, in form and substance satisfactory to Purchaser's
counsel, and covering the matters set forth in EXHIBIT E hereto.
4.5 AUTHORIZATION AGREEMENT. The Company shall have delivered to
Purchaser an Authorization Agreement for Pre-Authorized Payments (Debit), dated
the Closing Date, executed by a duly authorized officer of the Company in the
form attached hereto as EXHIBIT F.
4.6 CERTIFICATE OF DETERMINATION. The Certificate of Determination
shall have been filed with the Secretary of State of California.
4.7 SALE OF SUBORDINATED DEBENTURES. The closing with respect to the
sale by the Company and the purchase by the Purchaser of $3,000,000 of the
Company's 11.5% subordinated debentures due June 27, 2002, shall occur
simultaneously with the sale of the Convertible Preferred Stock by the Company
to the Purchaser.
4.8 EXISTENCE AND AUTHORITY. The Company shall have delivered to
Purchaser the following certificates of public officials, in each case as of a
date within ten days of the Closing Date:
(a) the Articles of Incorporation of the Company certified by the
Secretary of State of the State of California; and
(b) a certificate as to the legal existence and good standing of the
Company from the Secretary of State of the State of California.
4.9 DELIVERY OF OPERATIVE DOCUMENTS. The Company shall have
delivered to Purchaser the following documents, executed by the Company and
dated the Closing Date:
(a) its certificate(s) representing the shares of Convertible
Preferred Stock;
15
(b) the Certificate of Determination as filed with the California
Secretary of State;
(c) the Registration Rights Agreement between the Company and the
Purchaser.
4.10 REQUIRED CONSENTS. Any consents or approvals required to be
obtained from any third party, including any holder of indebtedness or any
outstanding security of the Company, and any amendments of agreements which
shall be necessary to permit the consummation of the transactions contemplated
hereby on the Closing Date, shall have been obtained and all such consents or
amendments shall be satisfactory in form and substance to Purchaser and
Purchaser's counsel.
4.11 WAIVER OF CONDITIONS. If on the Closing Date the Company fails
to tender to Purchaser the Convertible Preferred Stock certificate to be issued
to Purchaser, or if the conditions specified in this ARTICLE IV have not been
fulfilled, Purchaser may thereupon elect to be relieved of all further
obligations under this Agreement and shall be entitled to be reimbursed for its
reasonable expenses pursuant to Section 12.1. Without limiting the foregoing,
if the conditions specified in this ARTICLE IV have not been fulfilled,
Purchaser may waive compliance by the Company with any such condition to such
extent as Purchaser, in Purchaser's sole discretion, may determine. Nothing in
this Section 4.11 shall operate to relieve the Company of any of its obligations
hereunder or to waive any of Purchaser's rights against the Company.
5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company hereunder to sell the shares of Convertible Preferred
Stock to Purchaser is further subject to the satisfaction, on or before the
Closing, of each of the following conditions set forth below. These conditions
are for the Company's sole benefit and may be waived by the Company at any time
in its sole discretion.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall have been true and
correct when made and shall be true and correct as of the Closing Date as if
made on such date, except to the extent such representations and warranties
expressly relate to a specific date. Purchaser shall have duly performed all of
the covenants and agreements to be performed by it hereunder on or prior to the
Closing Date.
6. COVENANTS. From and after the Closing Date and continuing so long as
the Convertible Preferred Stock remains outstanding,
6.1 USE OF PROCEEDS. The Company shall use the proceeds of the
Convertible Preferred Stock for general corporate purposes, including working
capital.
6.2 CORPORATE EXISTENCE, ETC. The Company will preserve and keep in
force and effect, and will cause each Subsidiary to preserve and keep in force
and effect, its corporate
16
existence and good standing in the state of incorporation thereof, its
qualification and good standing as a foreign corporation in each jurisdiction
where such qualification is required by applicable law except where the failure
to so qualify would not have a Material Adverse Effect on the financial
condition or results of operations of the Company, and all licenses and permits
necessary to the proper conduct of its business.
6.3 MAINTENANCE, ETC. The Company will maintain, preserve and
keep, and will cause each Subsidiary to maintain, preserve and keep, its
properties and assets which are used or useful in the conduct of its business
(whether owned in fee or pursuant to a leasehold interest) in good repair and
working order and from time to time will make all necessary repairs,
replacements, renewals and additions so that at all times the efficiency
thereof shall be maintained.
6.4 NATURE OF BUSINESS. Neither the Company nor any Subsidiary
will engage in any business if, as a result, the general nature of the
business, taken on a consolidated basis, which would then be engaged in by
the Company and its Subsidiaries would be substantially changed from the
general nature of the business engaged in by the Company and its Subsidiaries
on the date of this Agreement.
6.5 INSURANCE. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business in such
forms and amounts and against such risks, casualties and contingencies as are
customary for corporations of comparable size and condition (financial and
otherwise) engaged in the same or a similar business and owning and operating
similar properties.
6.6 TAXES, CLAIMS FOR LABOR AND MATERIALS. The Company will
promptly pay and discharge, and will cause each Subsidiary promptly to pay
and discharge, (i) all lawful taxes, assessments and governmental charges or
levies imposed upon the property or business of the Company or such
Subsidiary, respectively, (ii) all trade accounts payable in accordance with
usual and customary business terms, and (iii) all claims for work, labor or
materials, which if unpaid might become a lien or charge upon any property of
the Company or such Subsidiary; provided the Company or such Subsidiary shall
not be required to pay any such tax, assessment, charge, levy, account
payable or claim if (i) the validity, applicability or amount thereof is
being contested in good faith by appropriate actions or proceedings which
will prevent the forfeiture or sale of any property of the Company or such
Subsidiary or any material interference with the use thereof by the Company
or such Subsidiary, and (ii) the Company or such Subsidiary shall set aside
on its books, reserves deemed by it to be adequate with respect thereto.
6.7 COMPLIANCE WITH LAWS, AGREEMENTS, ETC. Except where failure
to do so does not and would not constitute a Material Adverse Event, the
Company shall maintain its business operations and property owned or used in
connection therewith in compliance with (i) all applicable federal, state and
local laws, regulations and ordinances, and such laws, regulations and
ordinances of foreign jurisdictions, governing such business operations and
the use and ownership of such property, and (ii) all agreements, licenses,
franchises, indentures and mortgages to which the Company is a party or by
which the Company or any of its properties is bound. Without
17
limiting the foregoing, the Company shall pay all of its indebtedness promptly
and substantially in accordance with the terms thereof.
6.8 ERISA MATTERS. If the Company has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable during
such period as any such Plan shall be in effect: (i) throughout the
existence of the Plan, the Company's contributions under the Plan will meet
the minimum funding standards required by ERISA and the Company will not
institute a distress termination of the Plan; and (ii) the Company will send
to Purchaser a copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the PBGC, at the
time that such notice is so filed.
6.9 BOOKS AND RECORDS: RIGHTS OF INSPECTION. The Company will
keep, and will cause each Subsidiary to keep, proper books of record and
account in which full and correct entries will be made of all dealings or
transactions of or in relation to the business and affairs of the Company or
such Subsidiary, in accordance with GAAP consistently maintained. The
Company shall permit a representative of Purchaser to visit any of its
properties and inspect its corporate books and financial records, and will
discuss its accounts, affairs and finances with a representative of
Purchaser, during reasonable business hours, at such times as Purchaser may
reasonably request.
6.10 REPORTS. The Company will furnish to Purchaser the following:
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 45 days after the end of each quarterly fiscal period (except the
last) of each fiscal year, copies of:
(i) consolidated and consolidating balance sheets of
the Company and Subsidiaries as of the close of the three-month period
then ended, setting forth in comparative form the consolidated figures
at the end of the preceding fiscal year,
(ii) consolidated and consolidating statements of income
and retained earnings of the Company and Subsidiaries for the
three-month period then ended, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding
fiscal year, and
(iii) consolidated and consolidating statements of cash flows
of the Company and Subsidiaries for the portion of the fiscal year ending
with such three-month period, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding fiscal
year,
all in reasonable detail and accompanied by a certificate of an authorized
financial officer of the Company that such financial statements fairly present
the financial condition and results of operations and cash flows of the Company
at and for the periods presented, subject to normal year-end adjustment;
18
(b) ANNUAL STATEMENTS. As soon as available and in any event
within 90 days after the close of each fiscal year of the Company,
copies of:
(i) consolidated and consolidating balance sheets of the
Company and Subsidiaries as of the close of such fiscal year, and
(ii) consolidated and consolidating statements of income and
retained earnings and cash flows of the Company and Subsidiaries for such
fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by an
unqualified report thereon of a firm of independent public accountants of
recognized national standing or a firm reasonably acceptable to Purchaser;
(c) SEC AND OTHER REPORTS. Promptly upon their becoming
available, one copy of each financial statement, report, notice or proxy
statement sent by the Company to stockholders generally and of each
periodic or current report, and any registration statement or prospectus
filed by the Company or any Subsidiary with any securities exchange or
the SEC or any successor agency, and copies of any orders in any
proceedings to which the Company or any of its Subsidiaries is a party,
issued by any governmental agency, federal or state, having jurisdiction
over the Company or any of its Subsidiaries. The Company specifically
covenants to timely file each such item required to be filed with the
SEC and each state requiring securities laws filings; and
(d) PIPELINE REPORT AND OTHER REQUESTED INFORMATION. Within
five business days after preparation, the Company's internal pipeline
report, and with reasonable promptness, such financial data and other
information relating to the business of the Company as Purchaser may
from time to time reasonably request.
6.11 BOARD OF DIRECTORS DESIGNEE. Effective upon the Closing of
the transactions contemplated hereby, (i) the size of the Board of Directors
of the Company shall be increased to eight (8) directors, and (ii) a nominee
of Purchaser shall be elected a director. For so long as the initial
Purchaser or any Affiliate holds Convertible Preferred Stock representing at
least thirty-three (33%) of the outstanding Convertible Preferred Stock, the
Company agrees to include a nominee of the initial Purchaser in management's
slate of nominees to be elected to the Board of Directors and to recommend to
the stockholders the election of such nominee. Any nominee of Purchaser
hereunder shall be reimbursed for all reasonable expenses incurred as a
director and shall be entitled to receive such compensation as may be
received by other non-employee directors of the Company, including indemnity
and advancement of expenses to the fullest extent permitted under applicable
law.
6.12 ANNUAL PLAN. The Board of Directors shall adopt no later than
the thirty-first day of each fiscal year, a financial plan for the Company,
which shall include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each quarter in
such fiscal year, and a projected balance sheet as of the end of each
19
month in such fiscal year (the "Annual Plan"). The Annual Plan may only be
amended or revised, in any material manner, with the approval of the Board of
Directors.
6.13 FURTHER ASSURANCES. The Company and Purchaser will each take
all actions reasonably requested by the other party to effect the
transactions contemplated by this Agreement and the other Operative Documents.
6.14 NO VIOLATION OF CGCL. Notwithstanding any provision of this
Agreement to the contrary, if any repurchase or redemption of shares of
Convertible Preferred Stock otherwise required under this Agreement would be
prohibited by the relevant provisions of the California General Corporation
Law (the "CGCL"), such repurchase or redemption shall be effected as soon as
it is permitted under the CGCL.
6.15 TRANSFER OF SHARES. Subject to Section 12.4, Purchaser shall
not transfer any of the Convertible Preferred Stock other than to a
transferee who agrees to be bound by this Agreement.
6.16 MINIMUM NUMBER OF SHARES TO BE CONVERTED. Purchaser shall not
deliver any conversion notice to the Company or exercise any right of
conversion provided in Section 5 of the Certificate of Determination with
respect to fewer than 100 shares of Convertible Preferred Stock.
7. CONVERSION OF CONVERTIBLE PREFERRED STOCK.
7.1 CONVERSION PRIVILEGE. The Convertible Preferred Stock
shall be convertible into Common Stock at an initial Conversion Price of
$6.00, and as set forth in the Certificate of Determination.
7.2 RESERVATION OF SHARES. The Company shall take all such
corporate action as may be required to validly reserve for issuance a
sufficient number of shares of Common Stock into which the Convertible
Preferred Stock may be converted.
8. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
8.1 LEGENDS; RESTRICTIONS ON TRANSFER. Neither the
Convertible Preferred Stock nor the shares of Common Stock issuable upon
exercise of the Warrants have been registered under the Securities Act
or any state securities laws. Each certificate representing Convertible
Preferred Stock issued pursuant to this Agreement and each stock
certificate issued upon exercise of Warrants shall bear a legend in
substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED , OR
ANY APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE
TRANSFERRED IN THE ABSENCE OF (I) AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933 AND
20
SUCH APPLICABLE STATE SECURITIES LAWS, OR (II) AN OPINION OF COUNSEL
ACCEPTABLE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
8.2 REGISTRATION RIGHTS. The Purchaser shall be entitled to
register Common Stock issuable upon conversion of the Convertible
Preferred Stock or upon exercise of the Contingent Warrants as provided
in the Registration Rights Agreement.
9. EVENTS OF DEFAULT; REMEDIES.
9.1 EVENTS OF DEFAULT. The occurrence of any one of the
following shall constitute an "Event of Default" under this Agreement:
(a) Default shall occur in the payment of any dividends when
the same shall have accrued and be due and payable; provided, that any
such default will be curable within two business days to the extent that
the failure to make the dividend payment on the date when due was caused
by unforeseen or inadvertent circumstances (such as a customer's or
other third party's check being returned for insufficient funds) and not
due to the Company's failure to attempt to deposit sufficient credits to
the payment account, or to the general inability or unwillingness of the
Company to make dividend payments hereunder as they become due; or
(b) Default shall occur in the observance or performance of
any covenant or agreement contained in Sections 6.2 through 6.10 hereof
and such default shall continue for a period of 10 days after the sooner
to occur of (i) senior management's knowledge of such default, and (ii)
the date on which the Company receives notice thereof in writing from
any holder of Convertible Preferred Stock; or
(c) Default shall occur in the observance or performance of
any other provision of this Agreement which is not remedied within 30
days after the sooner to occur of (i) senior management's knowledge of
such default, and (ii) the date on which the Company receives notice
thereof in writing from any holder of Convertible Preferred Stock; or
(d) Any representation or warranty made by the Company herein
is untrue in any material respect as of the date of the issuance or
making thereof; or
(e) The Company or any Subsidiary becomes insolvent or
bankrupt, is generally not paying its debts as they become due or makes
an assignment for the benefit of creditors, or the Company or any
Subsidiary applies for or consents to the appointment of a custodian,
trustee, liquidator, or receiver for the Company or such Subsidiary or
for the major part of the property of either; or
(f) A custodian, trustee, liquidator, or receiver is
appointed for the Company or any Subsidiary or for the major part of the
property of either and is not discharged within 60 days after such
appointment; or
21
(g) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or
similar law or laws for the relief of debtors, are instituted by or
against the Company or any Subsidiary and, if instituted against the
Company or any Subsidiary, are consented to or are not dismissed within
60 days after such institution.
9.2 REMEDIES UPON EVENT OF DEFAULT.
(a) If an Event of Default shall occur, and for so long as
such Event of Default continues, the dividend rate on the Convertible
Preferred Stock shall increase from 11.5% to 14%, and shall remain at
14% until such Event of Default is cured.
(b) If either (i) the Company fails to pay dividends when the
same shall have accrued and be payable on six consecutive dividend
payment dates, or (ii) the aggregate amount of all accrued but unpaid
dividends shall equal or exceed the sum of $172.50, then upon the
request of Purchaser, the Company shall use its best efforts to increase
the size of its Board of Directors by one, and shall use its best
efforts to cause a designee of Purchaser to be elected a director to
fill such newly created directorship.
10. AMENDMENTS, WAIVERS AND CONSENTS.
10.1 CONSENT REQUIRED. Any term, covenant, agreement or condition
of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular
instance and either retroactively or prospectively), if the Company shall
have obtained the consent in writing of the holders of at least 50% of the
outstanding Convertible Preferred Stock.
10.2 SOLICITATION OF CONVERTIBLE PREFERRED STOCK HOLDERS. The
Company will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any holder of the Convertible Preferred Stock as consideration
for or as an inducement to the entering into by any holder of the Convertible
Preferred Stock of any waiver or amendment of any of the terms and provisions
of this Agreement, unless remuneration is currently paid, on the same terms,
ratably to the holders of all of the Convertible Preferred Stock then
outstanding.
10.3 EFFECT OF AMENDMENT OR WAIVER. Any such amendment or waiver
shall apply equally to all of the holders of the Convertible Preferred Stock
and shall be binding upon them, upon each future holder of any Convertible
Preferred Stock, and upon the Company, whether or not such Convertible
Preferred Stock shall have been marked to indicate such amendment or waiver.
No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
11. INTERPRETATION OF AGREEMENT; DEFINITIONS.
11.1 DEFINITIONS. As used herein,
22
"Affiliate" means any Person (i) which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, the Company, (ii) which beneficially owns or holds 5 % or more of any
class of the Voting Stock of the Company or (iii) 5 % or more of the Voting
Stock (or in the case of a Person which is not a corporation, 5 % or more of the
equity interest) of which is beneficially owned or held by the Company or a
Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or other day on
which banks in Tennessee are authorized to close.
The term "control" (including the terms "controlling," "controlled by" and
"under common control") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by contract, or
otherwise.
"Debenture" means the Company's 11.5% Subordinated Debenture in the
principal amount of $3,000,000 issued to Purchaser of even date herewith
pursuant to the Debenture Purchase Agreement.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended and any successor statute of similar import, together with the
regulations thereunder, in each case as in effect from time to time. References
to sections of ERISA shall be construed to also refer any successor sections.
"Guaranties" by any Person means all obligations (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing, or in effect guaranteeing, any
Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation or
any property or assets constituting security therefor, (ii) to advance or supply
funds (A) for the purchase or payment of such Indebtedness or obligation, (B) to
maintain working capital or other balance sheet condition or (C) otherwise to
advance or make available funds for the purchase or payment of such Indebtedness
or obligation, or (iii) to lease property or to purchase Securities or other
property or services primarily for the purpose of assuring the owner of such
Indebtedness or obligation of the ability of the primary obligor to make payment
of the Indebtedness or obligation, or (iv) otherwise to assure the owner of the
Indebtedness or obligation of the primary obligor against loss in respect
thereof. For the purposes of all computations made under this Agreement, a
Guaranty in respect of any Indebtedness for borrowed money shall be deemed to be
Indebtedness equal to the principal amount of such Indebtedness for borrowed
money which has been guaranteed, and a Guaranty in respect of any other
obligation or liability or any dividend shall be deemed to be Indebtedness equal
to the maximum aggregate amount of such obligation, liability or dividend.
"Hazardous Substance" means any hazardous or toxic material, substance or
waste, pollutant or contaminant which is regulated under any statute, law,
ordinance, rule or regulation
23
of any local, state, regional or Federal authority having jurisdiction over the
property of the Company and its Subsidiaries or its use, including but not
limited to any material, substance or waste which is: (i) defined as a
hazardous substance under Section 311 of the Federal Water Pollution Control Act
(33 U.S. C. SS 1317. 1) as amended; (ii) regulated as a hazardous waste under
Section 1004 or Section 3001 of the Federal Solid Waste Disposal Act, as amended
by the Resource Conservation and Recovery Act (42 U.S.C. SS 6901 et seq.) as
amended; (iii) defined as a hazardous substance under Section 101 of the
Comprehensive Environmental Response, Compensation and Liability Act (42 U.S.C.
SS 9601 et seq.) as amended; or (iv) defined or regulated as a hazardous
substance or hazardous waste under any rules or regulations promulgated under
any of the foregoing statutes.
"Indebtedness" of any Person means and includes all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet of
such Person as liabilities of such Person, and in any event shall include all
(i) obligations of such Person for borrowed money or which have been incurred in
connection with the acquisition of property or assets, (ii) obligations secured
by any lien or other charge upon property or assets owned by such Person, even
though such Person has not assumed or become liable for the payment of such
obligations, (iii) obligations created or arising under any conditional sale or
other title retention agreement with respect to property acquired by such
Person, notwithstanding the fact that the rights and remedies of the seller,
lender or lessor under such agreement in the Event of Default are limited to
repossession or sale or property, (iv) capitalized rentals, and (v) Guaranties
of obligations of others of the character referred to in this definition.
"Investments" means all investments, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares of
capital stock, indebtedness or other obligations or Securities or by loan,
advance, capital contribution or otherwise; provided, however that "Investments"
shall not mean or include routine investments in property to be used or consumed
in the ordinary course of business.
"Material Adverse Event" means any event or circumstance, or set of events
or circumstances, individually or collectively, that reasonably could be
expected to result in any (i) material adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material and adverse
effect on the financial condition of the Company as represented to Purchaser
herein or in any document delivered to Purchaser in connection herewith, or
(iii) material default or potential material default under any of the Operative
Documents.
"Redemption Notice" means the notice of redemption delivered by the Company
to the holder of Convertible Preferred Stock indicating the Company's intent to
redeem all or a portion of the shares held by such holder.
"Person" means an individual, partnership, corporation, limited liability
company, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to which
the Company or any ERISA Affiliate contributed or is a member or otherwise may
have any liability.
24
"Registration Rights Agreement" means the Registration Rights Agreement
between the Company and the Purchaser of even date herewith.
"Security" shall have the same meaning as in Section 2(1) of the Securities
Act of 1933, as amended.
The term "subsidiary" means, as to any particular parent corporation, any
corporation of which more than 50% (by number of votes) of the Voting Stock
shall be owned by such parent corporation and/or one or more corporations which
are themselves Restricted Subsidiaries of such parent corporation. The term
"Subsidiary" shall mean a subsidiary of the Company.
"Voting Stock" means Securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) shall be owned by the Company
and/or one or more of its Subsidiaries.
11.2 ACCOUNTING PRINCIPLES. Where the character or amount of any
asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made
for the purposes of this Agreement, the same shall be done in accordance with
GAAP as applied by the Company, to the extent applicable, except where such
principles are inconsistent with the requirements of this Agreement.
11.3 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is
prohibited from taking, such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
12. MISCELLANEOUS.
12.1 EXPENSES, STAMP TAX INDEMNITY. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of Purchaser's reasonable out-of-pocket expenses in
connection with (i) the entering into of this Agreement and the consummation
of the transactions contemplated hereby, including but not limited to the
reasonable fees, expenses and disbursements, of Purchaser's counsel, and (ii)
so long as Purchaser holds any of the Convertible Preferred Stock, all such
expenses relating to any amendment, waiver or consent pursuant to the
provisions hereof (whether or not the same are actually executed and
delivered), including, without limitation, any amendments, waivers or
consents resulting from any work-out, restructuring or similar proceedings
relating to the performance by the Company of its obligations under this
Agreement and the Convertible Preferred Stock. The Company also agrees that
it will pay and save Purchaser harmless against any and all liability with
respect to stamp and other taxes, if any, which may be payable in connection
with the execution and delivery of this Agreement or the Convertible
Preferred Stock, whether or not any Convertible Preferred Stock is
25
then outstanding. The Company agrees to protect and indemnify Purchaser against
any liability for any and all brokerage fees and commissions payable or claimed
to be payable to any Person in connection with the transactions contemplated by
this Agreement.
12.2 POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No delay
or failure on the part of the holder of any share of Convertible Preferred
Stock in the exercise of any power or right shall operate as a waiver
thereof; nor shall any single or partial exercise of the same preclude any
other or further exercise thereof, or the exercise of any other power or
right, and the rights and remedies of the holder of any share of Convertible
Preferred Stock are cumulative to and are not exclusive of any rights or
remedies any such holder would otherwise have, and no waiver or consent,
given or extended pursuant to Article VIII hereof, shall extend to or affect
any obligation or right not expressly waived or consented to.
12.3 NOTICES. All communications provided for hereunder shall be
in writing and shall be delivered personally, or mailed by registered mail,
or by prepaid overnight air courier, or by facsimile communication, in each
case addressed:
If to Purchaser: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Facsimile No: (615) 726-1208
Attention: Mike Comegna
with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327
Facsimile No.: (404) 816-6854
If to the Company: Altris Software, Inc.
9339 Carroll Park Drive
San Diego, California 92121
Facsimile No.: (619) 546-7671
Attention: John W. Low
with a copy to: Gibson, Dunn & Crutcher LLP
2029 Century Park East, Suite 4000
Los Angeles, California 90067
Facsimile No.: (310) 551-8741
Attention: Russell C. Hansen, Esq.
or such other address as Purchaser or the subsequent holder of any Convertible
Preferred Stock initially issued to Purchaser may designate to the Company in
writing, or such other address as the Company may in writing designate to
Purchaser or to a subsequent holder of the Convertible Preferred Stock initially
issued to Purchaser, provided, however, that a notice sent by overnight air
courier shall only be effective if delivered at a street address designated for
such purpose by
26
such person and a notice sent by facsimile communication shall only be effective
if made by confirmed transmission at a telephone number designated for such
purpose by such person or, in either case, as Purchaser or a subsequent holder
of any Convertible Preferred Stock initially issued to Purchaser may designate
to the Company in writing or at a telephone number herein set forth in the case
of the Company.
12.4 ASSIGNMENTS. This Agreement, the Convertible Preferred Stock
and the other Operative Documents may be endorsed, assigned and/or
transferred in whole or in part by Purchaser to no more than three
transferees (each a "Permitted Transferred"); provided, however, that
Purchaser shall not transfer any shares of Convertible Preferred Stock or its
rights hereunder to any entity which the Company's Board of Directors deems
to be a competitor of the Company. Any Permitted Transferee shall succeed to
and be possessed of the rights and powers of Purchaser under all of the same
to the extent transferred and assigned. The Company shall not assign any of
its rights nor delegate any of its duties under this Agreement or any of the
other Operative Documents by operation of law or otherwise without the prior
express written consent of Purchaser, and if the Company obtains such
consent, this Agreement and the other Operative Documents shall be binding
upon such assignee.
12.5 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company and the Purchaser herein
and in any instruments or certificates delivered pursuant hereto shall
survive the Closing and the delivery of this Agreement for so long as the
Convertible Preferred Stock remain outstanding, except that the
representations and warranties set forth herein (other than those contained
in Sections 2.1 through 2.4, which shall survive until termination of this
Agreement) shall expire on the first anniversary of the Closing Date.
12.6 SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect
the validity of any remaining portion, which remaining portion shall remain
in force and effect as if this Agreement had been executed with the invalid
or unenforceable portion thereof eliminated and it is hereby declared the
intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may for any reason, be hereafter declared invalid or
unenforceable.
12.7 GOVERNING LAW. This Agreement and the Convertible Preferred
Stock issued and sold hereunder shall be governed by and construed in
accordance with California law, without regard to its conflicts of law rules.
12.8 CAPTIONS; COUNTERPARTS. The descriptive headings of the
various Sections or parts of this Agreement are for convenience only and
shall not affect the meaning or construction of any of the provisions
hereof. This Agreement may be executed in counterparts, each of which
shall be deemed an original, but all of which together shall constitute
one and the same instrument.
27
12.9 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party hereto, it shall at all times
keep confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other party to which such party has been
or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of its obligations
hereunder or the ownership of Convertible Preferred Stock purchased
hereunder. The parties hereto further agree that there shall be no press
release or other public statement issued by any party relating to this
Agreement or the transactions contemplated hereby, unless the party otherwise
agrees in writing.
12.10 PUBLICITY. The Company and Purchaser shall consult with
each other in issuing any press releases or otherwise making public
statements with respect to the transactions contemplated hereby.
Neither party shall issue any press release or otherwise make any public
statement without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed.
IN WITNESS WHEREOF, the parties hereto have caused this Convertible
Preferred Stock Purchase Agreement to be executed and delivered by their duly
authorized officers as of the date first written above.
ALTRIS SOFTWARE, INC.
By:/s/ ROGER H. ERICKSON
---------------------------
Roger H. Erickson
Vice President
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By:/s/ CARL W. STRATTON
---------------------------
Carl W. Stratton
Chief Financial Officer
28