DEBENTURE PURCHASE AGREEMENT
This DEBENTURE PURCHASE AGREEMENT (the "Agreement ") entered into the 27th
day of June, 1997, by and between ALTRIS SOFTWARE, INC., a California
corporation (the "Company"), and SIRROM CAPITAL CORPORATION, d/b/a Tandem
Capital, a Tennessee corporation (the "Purchaser").
W I T N E S S E T H:
WHEREAS, the Company desires to obtain additional capital for use in
connection with its business through the issue and sale of certain obligations,
and Purchaser is willing to purchase such obligations from the Company, on the
terms and conditions set forth herein.
NOW, THEREFORE, in mutual consideration of the premises and the respective
representations, warranties, covenants and agreements contained herein, the
parties agree as follows:
1. SALE AND PURCHASE OF DEBENTURES.
1.1 DEBENTURES. The Company has authorized the issue and sale of
Three Million Dollars ($3,000,000.00) aggregate principal amount of its 11.5%
Subordinated Debenture due June 27, 2002 (the "Debenture"), to be dated the date
of issue, to bear interest from such date at the rate of 11.5% per annum,
payable quarterly by automatic debit on the first day of March, June, September
and December in each year, commencing September 1, 1997, and at maturity, to
mature on June 27, 2002, and to bear such other terms as are set forth in the
form of Debenture attached hereto as EXHIBIT A-1. Interest on the Debenture
shall be computed on the basis of a 360-day year of twelve 30-day months. The
Debenture is subject to prepayment or redemption at the option of the Company
prior to its expressed maturity date without penalty and as provided for herein.
The terms "Debenture" and "Debentures" as used herein shall include each
Debenture delivered pursuant to this Agreement. Capitalized terms shall have
the meanings assigned by Section 11 unless otherwise defined herein.
1.2 INITIAL WARRANT. At the closing of the purchase and sale of the
Debentures, the Company shall grant, issue, and deliver to Purchaser its Stock
Purchase Warrant, dated June 27, 1997, in the form attached hereto as EXHIBIT
A-2 (the "Initial Warrant"), entitling Purchaser to purchase 300,000 Shares of
the Company's common stock, no par value (the "Common Stock") at an Exercise
Price of $6.00 per share, at any time and from time to time during the five year
period beginning on June 27, 1997.
1.3 ADDITIONAL WARRANTS. Until the indebtedness evidenced by the
Debenture has been paid in full, the Company shall grant, issue, and deliver to
Purchaser additional Stock Purchase Warrants, in the form of Exhibit A-3 (the
"Additional Warrants"), each entitling Purchaser to purchase 50,000 Shares of
Common Stock at an Exercise Price of $7.00 per Share, at any time and from time
to time during the five year period beginning on the date of issue of each
Additional Warrant, such Additional Warrants to be issued on the anniversary of
the Closing
Date of each year beginning on June 27, 2000, and each year thereafter until the
Debenture has been paid in full.
1.4 COMMITMENT; CLOSING DATE. Subject to the terms and conditions
hereof and on the basis of the representations and warranties hereinafter set
forth, the Company agrees to issue and sell to Purchaser, and Purchaser agrees
to purchase from the Company, Debentures in the aggregate principal amount of
Three Million Dollars ($3,000,000.00) at a price of 100% of the principal
amount thereof. Delivery of the Debentures will be made at the offices of
Tandem Capital, Inc., Nashville, Tennessee, against payment therefor by federal
funds wire transfer in immediately available funds and to the accounts and in
the amounts set forth in the Company's wire instructions in the form of Exhibit
B hereto, at 10:00 A.M., Nashville time, on June 27 or such later date as the
Company and Purchaser shall agree (the "Closing Date"). The Debentures
delivered to Purchaser on the Closing Date will be delivered to Purchaser in the
form of a single registered Debenture for the full amount of such purchase
(unless different denominations are specified by Purchaser), registered in
Purchaser's name or in the name of such nominee as Purchaser may specify and,
with appropriate insertions, in the form attached hereto as EXHIBIT A-1, all as
Purchaser may specify at least 24 hours prior to the date fixed for delivery.
1.5 PROCESSING FEE. The Company shall pay to Purchaser on or before
the Closing Date a processing fee in an amount equal to $60,000.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to Purchaser as follows:
2.1 CORPORATE STATUS.
(a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of California, and has the
corporate power to own and operate its properties, to carry on its business as
now conducted and to enter into and to perform its obligations under this
Agreement, the Debentures, the Initial Warrant, the Registration Rights
Agreement, and any other document executed and delivered by the Company in
connection herewith or therewith (collectively, the "Operative Documents"). The
Company is qualified to do business and is in good standing in each state or
other jurisdiction in which such qualification is necessary under applicable
law, except where the failure to so qualify would not have a Material Adverse
Effect on the financial condition or results of operations of the Company.
(b) SCHEDULE 2.1(b) sets forth a complete list of each corporation,
partnership, joint venture, limited liability company or other business
organization in which the Company owns, directly or indirectly, any capital
stock or other equity interest (the "Subsidiary" or, collectively, the
"Subsidiaries"), or with respect to which the Company or any Subsidiary, alone
or in combination with others, is in a control position, which list shows the
jurisdiction of incorporation or other organization, and, if the Company does
not directly or indirectly own 100% of the outstanding equity interests in the
entities so listed on SCHEDULE 2.1(b), the percentage interest so owned by the
Company or any Subsidiary. Each Subsidiary is duly organized, validly existing
and in good standing under the laws of the jurisdiction of incorporation
2
or other organization as indicated on SCHEDULE 2.1(B), each has all requisite
power and authority and holds all material licenses, permits and other required
authorizations from government authorities necessary to own its properties and
assets and to conduct its business as now being conducted, and each is qualified
to do business as a foreign corporation (or business organization) and is in
good standing in every jurisdiction in which such qualification is necessary
under applicable law, except where the failure to so qualify would not have a
Material Adverse Effect on the financial condition or results of operations of
the Company. All of the outstanding shares of capital stock, or other equity
interest, of each Subsidiary owned, directly or indirectly, by the Company have
been validly issued, are fully paid and nonassessable, and are owned by the
Company free and clear of all liens, charges, security interests, or
encumbrances.
2.2 CAPITALIZATION.
(a) The authorized capital stock of the Company consists of (i)
1,000,000 shares of Preferred Stock, none of which are issued and outstanding,
and (ii) 20,000,000 shares of Common Stock, of which 9,581,370 shares are issued
and outstanding. All shares of Common Stock outstanding have been validly
issued and are fully paid and nonassessable. There are no statutory or
contractual preemptive rights, rights of first refusal, antidilution rights, or
any similar rights held by any party with respect to the issuance of the
Debentures.
(b) The Company has not granted, or agreed to grant or issue, any
options, warrants or rights to purchase or acquire from the Company any shares
of capital stock of the Company, there are no securities outstanding or
committed to be issued by the Company or any Subsidiary which are convertible
into or exchangeable for any shares of capital stock or other securities of the
Company, and there are no contracts, commitments, agreements, understandings,
arrangements or restrictions as to which the Company is a party, or by which it
is bound, requiring or restricting the issuance of any shares of capital stock
or other securities of the Company, whether or not outstanding except for (i)
the Debentures to be issued pursuant to this Agreement, (ii) the Initial Warrant
and Additional Warrants to be issued pursuant to this Agreement, (iii) the
Convertible Preferred Stock, (iv) the Contingent Warrants, (v) options to
purchase an aggregate of 292,563 shares of the Company's Common Stock
outstanding under its 1987 Stock Option Plan, (vi) options to purchase an
aggregate of 546,000 shares of the Company's Common Stock outstanding under its
Amended and Restated 1996 Stock Incentive Plan, and (vii) such other warrants
and other rights to acquire capital stock of the Company set forth on SCHEDULE
2.2(b). Except as set forth on SCHEDULE 2.2(b), all such shares have been duly
reserved for issuance, have been duly and validly authorized, and upon issuance
in accordance with the terms of the respective instruments and receipt of
payment therefor, will be validly issued, fully paid, and nonassessable.
2.3 AUTHORIZATION. The Company has full legal right, power and
authority to enter into and perform its obligations under this Agreement and the
Operative Documents without the consent or approval of any other person, firm,
governmental agency, or other legal entity, except as contemplated hereby or
thereby. The execution and delivery of this Agreement, the issuance of the
Debentures hereunder, the execution and delivery of each other document in
connection herewith or therewith to which the Company is a party, and the
performance by the
3
Company of its obligations hereunder or thereunder are within the corporate
powers of the Company and have been duly authorized by all necessary corporate
action properly taken, have received all necessary governmental approvals, if
any were required, and do not and will not contravene or conflict with (i) the
Articles of Incorporation or Bylaws of the Company, (ii) any material agreement
to which the Company or any of its Subsidiaries is a party or by which any of
them or their properties is bound, or constitute a default thereunder, or result
in the creation or imposition of any lien, charge, security interest, or
encumbrance of any nature upon any of the property or assets of the Company or
any of its Subsidiaries pursuant to the terms of any such agreement or
instrument, or (iii) violate any provision of law or any applicable judgment,
ordinance, regulation or order of any court or governmental agency. The officer
executing this Agreement, and any other document executed and delivered by the
Company in connection herewith or therewith, is duly authorized to act on
behalf of the Company.
2.4 VALIDITY AND BINDING EFFECT. Each of the Operative Documents is
the legal, valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally the enforcement
of, creditors' rights and remedies or by other equitable principles of general
application.
2.5 CONTRACTS AND OTHER COMMITMENTS. Except as disclosed on SCHEDULE
2.5 and other than as filed by the Company with the Securities and Exchanges
Commission ("SEC") as an exhibit pursuant to Item 601(b)(10) of Regulation S-K
under the Securities Act, the Company and its Subsidiaries do not have and are
not bound by any loans, liens, pledges, security interests agreements,
indentures or other instruments defining the rights of security holders, under
any securities or other financings upon which the Company or any Subsidiary is
obligated or by which the Company is bound.
2.6 LITIGATION. Except as set forth on SCHEDULE 2.6, there is no
litigation, arbitration, claim, proceeding or investigation pending or
threatened in writing to which the Company or any Subsidiary is a party or to
which any of its respective properties or assets is the subject which, if
determined adversely to the Company or such Subsidiary, would individually or in
the aggregate have a Material Adverse Effect on the financial position, results
of operations, or business of the Company and its Subsidiaries.
2.7 FINANCIAL STATEMENTS. The consolidated financial statements of
the Company and its Subsidiaries for the fiscal years ended December 31, 1996,
1995, and 1994, and the unaudited consolidated financial statements as of and
for the three months ended March 31, 1997, and the related notes, copies of
which the Company previously has delivered to Purchaser, fairly present the
financial position, results of operations, cash flows and changes in
stockholders' equity of the Company and its consolidated Subsidiaries, at the
respective dates of and for the periods to which they apply in such financial
statements, and have been prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied throughout the periods
indicated, subject, in the case of interim financial statements, to normal
recurring year-end adjustments (the effect of which will not, individually or in
the aggregate, be materially adverse)
4
and the absence of notes (that, if presented, would not differ materially from
those included in the most recent audited consolidated financial statements).
No financial statements of any other person(s) are required by GAAP to be
included in the consolidated financial statements of the Company.
2.8 SEC REPORTS. The Company's Common Stock is listed for trading on
the Nasdaq National Market and has been duly registered with the SEC under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Since January
1, 1994, the Company has timely filed all reports, registrations, proxy or
information statements, and all other documents, together with any amendments
required to be made thereto, required to be filed with the SEC under the
Securities Act and the Exchange Act (collectively, the "SEC Reports"). As of
their respective dates, the SEC Reports complied in all material respects with
all rules and regulations promulgated by the SEC and did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading.
2.9 ABSENCE OF CHANGES. Since March 31, 1997, except as contemplated
hereby or by the other Operative Documents, (i) neither the Company nor any of
its Subsidiaries have incurred any liabilities or obligations, direct or
contingent, or entered into any transactions, not in the ordinary course of
business, that are material to the Company, (ii) neither the Company nor any of
its Subsidiaries have purchased any of its outstanding capital stock or
declared, or paid any dividend or other distribution or payment in respect of
its capital stock, (iii) there has not been any change in the authorized or
issued capital stock, long-term debt, or short-term debt of the Company, and
(iv) there has not been any material adverse change in or affecting the
business, operations, properties, prospects, assets, or condition (financial or
otherwise) of the Company or any Subsidiary, taken as a whole.
2.10 NO DEFAULTS. Except as set forth on SCHEDULE 2.10 and except
where a default or event of default does not and would not constitute a Material
Adverse Event, no default or event of default by the Company or any Subsidiary
exists under this Agreement or any of the other Operative Documents, or under
any Applicable Contract, or other material instrument or agreement to which the
Company or any Subsidiary is a party or by which the Company or any Subsidiary
or its respective properties may be bound, except for any such default or event
of default which would not reasonably be expected to cause a Material Adverse
Event, and no event has occurred and is continuing that with notice or the
passage of time or both would constitute a default or event of default
thereunder.
2.11 COMPLIANCE WITH LAW. The Company is in compliance with all
foreign, federal, state or local laws, regulations, decrees and orders
applicable to it (including but not limited to the Foreign Corrupt Practices
Act, occupational and health standards and controls, antitrust, monopoly,
restraint of trade or unfair competition) to the extent that noncompliance, in
the aggregate, would not reasonably be expected to cause a Material Adverse
Event.
2.12 TAXES. Except as set forth on SCHEDULE 2.12, the Company and its
Subsidiaries have filed or caused to be filed all federal, state and local
income, excise and
5
franchise tax returns required to be filed (except for returns that have been
appropriately extended), and have paid, or provided for the payment of, all
taxes shown to be due and payable on said returns and all other taxes,
impositions, assessments, fees or other charges imposed on it by any
governmental authority, agency or instrumentality, prior to any delinquency with
respect thereto (other than taxes, impositions, assessments, fees and charges
currently being contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved), and the Company does not know of any
proposed assessment for additional taxes or any basis therefor. No tax liens
have been filed against the Company or its properties. The Company's federal
income tax liability has been finally determined by the Internal Revenue Service
and satisfied for all taxable years up to and including the taxable year ended
December 31, 1993, or closed by applicable statutes of limitation.
2.13 CERTAIN TRANSACTIONS. Except as set forth on in the proxy
statements filed by the Company with the SEC and except as to indebtedness
incurred in the ordinary course of business and approved by the Board of
Directors of the Company, neither the Company nor any Subsidiary is indebted,
directly or indirectly, to any of its officers or directors, or to their
respective spouses or children, or to any affiliate, in excess of an aggregate
amount of $60,000, and none of such officers or directors or any members of
their immediate families or affiliates, are indebted to the Company or any
Subsidiary in excess of an aggregate amount of $60,000, or have any direct or
indirect ownership interest in any firm or corporation with which the Company or
any Subsidiary is affiliated or with which the Company has a business
relationship, or any firm or corporation which competes with the Company or any
Subsidiary, except that the Company's officers and directors may own
individually no more than 1% of the outstanding capital stock of any publicly
traded company which competes directly with the Company. Except as set forth in
the proxy statements filed by the Company with the SEC, no officer or director
of the Company or any Subsidiary or any member of their immediate families is,
directly or indirectly, interested in any material contract with the Company or
any Subsidiary that would require disclosure under Item 404 of Regulation S-K.
Except as set forth on SCHEDULE 2.13, neither the Company nor any Subsidiary is
a guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.
2.14 TITLE TO PROPERTY. The Company and each Subsidiary has good and
marketable title to all of the real and personal property owned by it, free and
clear of all liens, security interests, pledges, encumbrances, equities claims
and restrictions of every kind and nature whatsoever, except as disclosed on
SCHEDULE 2.14 and other than (a) liens for taxes not yet due, (b) imperfections
in title, if any, not material in amount and which, individually or in the
aggregate, do not materially interfere with the conduct of the business of the
Company or the use of its assets, (c) such secured indebtedness as is disclosed
in the Financial Statements covering the assets and properties referred to
therein (if any), (d) liens in the ordinary course of business consistent with
past practice and (f) installments of special assessments not yet delinquent,
recorded easements, covenants and other restrictions, and utility easements,
building restrictions, zoning restrictions and other easements and restrictions
existing generally with respect to properties of a similar character. Any real
property and buildings held under lease by the Company or any Subsidiary are
held under valid existing and enforceable leases, except as
6
disclosed on SCHEDULE 2.14 or which are not material and do not interfere with
the use to be made of such buildings or property by the Company.
2.15 INTELLECTUAL PROPERTY. (a) Except as set forth in SCHEDULE 2.15,
the Company is the lawful owner or has a valid right to use the proprietary
information used in its business free and clear of any claim, right, trademark,
patent or copyright protection of any third party; provided, however, that this
paragraph (a) shall not be deemed to include any representation regarding the
absence of infringements or conflicts with the rights of others, which
representation is made only in paragraph (c) hereof and only to the knowledge of
the Company. As used herein, "proprietary information" includes without
limitation (i) any computer software and related documentation, inventions,
technical and nontechnical data related thereto, and (ii) other documentation,
inventions and data related to patterns, plans, methods, techniques, drawings,
finances, customer lists, suppliers, products, special pricing and cost
information, designs, processes, procedures, formulas, research data owned or
used by the Company or any Subsidiary or marketing studies conducted by the
Company, all of which the Company considers to be commercially important and
competitively sensitive and which generally has not been disclosed to third
parties other than customers in the ordinary course of business. (b) Except as
set forth in SCHEDULE 2.15, the Company has good and marketable title to or has
a valid right to use all patents, trademarks, trade names, service marks,
copyrights or other intangible property rights, and registrations or
applications for registration thereof, owned by the Company or any Subsidiary or
used or required by the Company or any Subsidiary in the operation of its
business as presently being conducted; provided, however, that this paragraph
(b) shall not be deemed to include any representation regarding the absence of
infringements or conflicts with the rights of others, which representation is
made only in paragraph (c) hereof and only to the knowledge of the Company. (c)
The Company has no knowledge of any infringements or conflict with asserted
rights of others with respect to copyrights, patents, trademarks, service marks,
trade names, trade secrets or other intangible property rights or know-how which
could cause a Material Adverse Event. To the Company's knowledge, no products
or processes of the Company infringe or conflict with any rights of patent or
copyright, or any discovery, invention product or process, that is the subject
of a patent or copyright application or registration known to the Company. The
Company follows such procedures as the Company deems necessary or appropriate to
provide reasonable protection of the Company's trade secrets and proprietary
rights in intellectual property of all kinds. To the knowledge of the Company,
no person employed by or affiliated with the Company has employed or proposes to
employ any trade secret or any information or documentation proprietary to any
former employer, and to the knowledge of the Company, no person employed by or
affiliated with the Company has violated any confidential relationship that such
person may have had with any third person, in connection with the development,
manufacture or sale of any product or proposed product or the development or
sale of any service or proposed service of the Company.
2.16 ENVIRONMENTAL MATTERS. The Company has duly complied in all
material respects with, and its business, operations, assets, equipment,
property, leaseholds or other facilities are in compliance in all material
respects with, the provisions of all federal, state and local environmental,
health, and safety laws, codes and ordinances, and all rules and regulations
promulgated thereunder except to the extent that the violation thereof would not
reasonably be
7
expected to cause a Material Adverse Event. The Company has been issued and
will maintain all required material federal, state and local permits, licenses,
certificates and approvals relating to (i) air emissions; (ii) discharges to
surface water or groundwater; (iii) noise emissions; (iv) solid or liquid waste
disposal; (v) the use, generation, storage, transportation or disposal of toxic
or hazardous substances or wastes (which shall include any and all such
materials listed in any federal, state or local law, code or ordinance and all
rules and regulations promulgated thereunder as hazardous or potentially
hazardous); or (vi) other environmental, health or safety matters, except to the
extent that the absence thereof would not reasonably be expected to cause a
Material Adverse Event. The Company has not during the two years prior to the
date hereof received notice of, does not know of, and does not suspect facts
which might constitute a material violation of any federal, state or local
environmental, health or safety laws, codes or ordinances, and any rules or
regulations promulgated thereunder with respect to its businesses, operations,
assets, equipment, property, leaseholds, or other facilities. Except in
accordance with a valid governmental permit, license, certificate or approval,
there has been no material emission, spill, release or discharge into or upon
(i) the air; (ii) soils, or any improvements located thereon; (iii) surface
water or groundwater; or (iv) the sewer, septic system or waste treatment,
storage or disposal system servicing the premises, of any toxic or hazardous
substances or wastes at or from the premises, except to the extent that any such
emission, spill, release or discharge would not reasonably be expected to cause
a Material Adverse Event. During the two years prior to the date hereof, there
has been no complaint, order, directive, claim, citation or notice by any
governmental authority or any person or entity with respect to (i) air
emissions; (ii) spills, releases or discharges to soils or improvements located
thereon, surface water, groundwater or the sewer, septic system or waste
treatment, storage or disposal systems servicing the premises; (iii) noise
emissions; (iv) solid or liquid waste disposal; (v) the use, generation,
storage, transportation or disposal of toxic or hazardous substances or waste;
or (vi) other environmental, health or safety matters materially affecting the
Company or its business, operations, assets, equipment, property, leaseholds or
other facilities. The Company does not have any material indebtedness,
obligation or liability (absolute or contingent, matured or not matured), with
respect to the storage, treatment, cleanup or disposal of any solid wastes,
hazardous wastes or other toxic or hazardous substances (including without
limitation any such indebtedness, obligation, or liability with respect to any
current regulation, law or statute regarding such storage, treatment, cleanup or
disposal).
2.17 ACCOUNTING MATTERS. The Company and each of its Subsidiaries
maintain a system of internal accounting controls sufficient to provide
reasonable assurance that (i) transactions are executed in accordance with
management's general or specific authorization; (ii) transactions are recorded
as necessary to permit preparation of financial statements in conformity with
GAAP and to maintain accountability for the assets of the Company and each of
its Subsidiaries; (iii) access to the assets of the Company and each of its
Subsidiaries is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets of the
Company and each of its Subsidiaries are compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2.18 DISTRIBUTIONS TO COMPANY. Except for limitations existing under
applicable law, no Subsidiary of the Company is currently prohibited, directly
or indirectly, from paying any
8
dividends to the Company, from making any other distributions on such
Subsidiary's capital stock, from repaying to the Company any loans or advances
to such Subsidiary, or from transferring any of such Subsidiary's property or
assets to the Company or any other Subsidiary of the Company.
2.19 PRIOR SALES. All offers and sales of the Company's capital stock
prior to the date hereof were at all relevant times (i) exempt from the
registration requirements of the Securities Act or were duly registered under
the Securities Act, and (ii) were duly registered or were the subject of an
available exemption from the registration requirements of all applicable state
securities or Blue Sky laws.
2.20 REGULATORY COMPLIANCE. Except as set forth on SCHEDULE 2.20, the
conduct of the business and the ownership of the assets of the Company is not
dependent on any license, permit approved, waiver or other authorization of any
federal, state or local governmental or regulatory body which the Company has
not obtained, except to the extent that the absence thereof would not reasonably
be expected to cause a Material Adverse Event. All material licenses, permits
and authorizations held by the Company are in full force and effect.
2.21 MARGIN REGULATIONS. The Company is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock. No
proceeds received pursuant to this Agreement will be used to purchase or carry
any equity security of a class which is registered pursuant to Section 12 of
the Exchange Act.
2.22 1940 ACT COMPLIANCE. The Company is an "eligible portfolio
company" as such term is defined in Section 2(a)(46) of the Investment Company
Act of 1940, as amended (the "Investment Company Act"), and the issuance and
sale by the Company of the Debentures does not constitute a "public offering" as
such term is used in Section 55(a)(1) thereof.
2.23 LIMITED OFFERING. Subject in part to the truth and accuracy of
Purchaser's representations set forth in this Agreement, the offer, sale and
issuance of the Debentures and the Initial Warrant are exempt from the
registration requirements of the Securities Act, and neither the Company nor any
authorized agent acting on its behalf has taken or will take any action
hereafter that would cause the loss of such exemption.
2.24 REGISTRATION OBLIGATIONS. Except as described in Schedule 2.24,
the Company is not under any obligation to register under the Securities Act or
the Trust Indenture Act of 1939, as amended, any of its presently outstanding
securities or any of its securities that are proposed to be subsequently issued.
2.25 INSURANCE. The Company has maintained, and has caused each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their respective properties and business in such forms
and amounts and against such risks, casualties and contingencies as are
customary for corporations of comparable size and condition (financial and
otherwise) engaged in the same or a similar business and owning and operating
similar properties.
9
2.26 GOVERNMENTAL CONSENTS. No consent, approval, qualification,
order or authorization of, or filing with, any local, state, or federal
governmental authority is required on the part of the Company in connection with
the Company's valid execution, delivery, or performance of this Agreement by the
Company, except such filings as have been made prior to the Closing and except
notices of sale required to be filed with the Securities and Exchange Commission
under Regulation D of the Securities Act or such post-closing filings as may be
required under applicable state securities laws, which will be timely filed
within the applicable periods therefor.
2.27 EMPLOYEES. To the best of the Company's knowledge, there is no
strike, labor dispute or union organization activities pending or threatened
between it and its employees. None of the Company's employees belongs to any
union or collective bargaining unit. To the knowledge of the Company, the
Company has complied in all material respects with all applicable state and
federal equal opportunity and other laws related to employment. To the
knowledge of the Company, no employee of the Company is or will be in violation
of any judgment, decree, or order, or any term of any employment contract,
patent disclosure agreement, or other contract or agreement relating to the
relationship of any such employee with the Company, or any other party because
of the nature of the business conducted or presently proposed to be conducted by
the Company or to the use by the employee of his or her best efforts with
respect to such business. Other than as set forth on SCHEDULE 2.27 hereto and
other than the Company's 1987 Stock Option Plan and its Amended and Restated
1996 Stock Incentive Plan, the Company is not a party to or bound by any
employment contract, deferred compensation agreement, bonus plan, incentive
plan, profit sharing plan, retirement agreement, or other employee compensation
agreement. To the knowledge of the Company, it is not aware that any officer or
key employee, or that any group of key employees, intends to terminate
employment with the Company, nor does the Company have a present intention to
terminate the employment of any of the foregoing. Subject to general principles
related to wrongful termination of employees, the employment of each officer and
employee of the Company is terminable at the will of the Company.
2.28 ERISA. The Company is in compliance in all material respects
with all applicable provisions of Title IV of the Employee Retirement Income
Security Act of 1974, Pub. L. No. 93-406, September 2, 1974, 88 Stat. 829, 29
U.S.C.A. SS 1001 et seq. (1975), as amended from time to time ("ERISA").
Neither a reportable event nor a prohibited transaction (as defined in ERISA)
has occurred and is continuing with respect to any "pension plan" (as such term
is defined in ERISA, a "Plan"); no notice of intent to terminate a Plan has been
filed nor has any Plan been terminated; no circumstances exist which constitute
grounds entitling the Pension Benefit Guaranty Corporation (together with any
entity succeeding to or all of its functions, the "PBGC") to institute
proceedings to terminate, or appoint a trustee to administer, a Plan, nor has
the PBGC instituted any such proceedings; neither the Company nor any commonly
controlled entity (as defined in ERISA) has completely or partially withdrawn
from a multiemployer plan (as defined in ERISA). The Company and each commonly
controlled entity has met its minimum funding requirements under ERISA with
respect to all of its Plans and the present fair market value of all Plan
property equals or exceeds the present value of all vested benefits under each
Plan, as determined on the most recent valuation date of the Plan and in
accordance with the provisions of ERISA and the regulations thereunder for
calculating the potential liability of the
10
Company or any commonly controlled entity to the PBGC or the Plan under Title IV
or ERISA; and neither the Company nor any commonly controlled entity has
incurred any liability to the PBGC under ERISA.
2.29 FEES/COMMISSIONS. Except as set forth on SCHEDULE 2.29, the
Company has not agreed to pay any finder's fee, commission, origination fee or
other fee or charge to any person or entity with respect to or as a result of
the consummation of the transactions contemplated hereunder, except for the
processing fee due to Purchaser under Section 1.5.
2.30 DISCLOSURE. No representation or warranty made as of the date
hereof by the Company contained in this Agreement, taken as a whole, contains or
will (as of the time so furnished) contain any untrue statement of a material
fact, or omits or will (as of the time so furnished) omit to state any material
fact which is necessary in order to make the statements contained herein or
therein not misleading.
2.31 SURVIVAL. The representations and warranties of the Company
contained in this Agreement shall survive until the first anniversary of the
date hereof, provided, however, that the representations and warranties
contained in Sections 2.1 through 2.4 shall survive until the termination of
this Agreement.
3. REPRESENTATIONS AND WARRANTIES OF PURCHASER. The Purchaser hereby
represents to the Company as follows:
3.1 CORPORATE STATUS. Purchaser is a corporation duly organized,
validly existing and in good standing under the laws of the State of Tennessee
and has the corporate power to own and operate its properties, to carry on its
business as now conducted and to enter into and to perform its obligations under
this Agreement and any other document executed or delivered by Purchaser in
connection herewith.
3.2 AUTHORIZATION. Purchaser has full legal right, power and
authority to enter into and perform its obligations under this Agreement and any
other document executed and delivered by Purchaser in connection herewith,
without the consent or approval of any other person, firm, governmental agency
or other legal entity. The execution and delivery of this Agreement and any
other document executed and delivered by Purchaser in connection herewith, and
the performance by Purchaser of its obligations hereunder and/or thereunder are
within the corporate powers of Purchaser, have received all necessary
governmental approvals, if any were required, have been duly authorized by all
necessary corporate action properly taken, and do not and will not contravene or
conflict with (i) the Charter or Bylaws of Purchaser, (ii) any material
agreement to which Purchaser is a party or by which it or any of its properties
is bound, or constitute a default thereunder, or result in the creation or
imposition of any lien, charge, security interest or encumbrance of any nature
upon any of the property or assets of Purchaser pursuant to the terms of any
such agreement or instrument, or (iii) violate any provision of law or any
applicable judgment, ordinance, regulation or order of any court or governmental
agency. The officer(s) executing this Agreement and any other document executed
and delivered by Purchaser in connection herewith, is duly authorized to act on
behalf of Purchaser.
11
3.3 VALIDITY AND BINDING EFFECT. This Agreement and any other
document executed and delivered by Purchaser in connection herewith are the
legal, valid and binding obligations of the Purchaser, enforceable against it in
accordance with their respective terms.
3.4 ACCREDITED INVESTOR, INVESTMENT INTENT. In connection with the
issuance and sale to Purchaser of the Debenture and the shares of Common Stock
issuable upon exercise of the Initial Warrant and the Additional Warrants (the
"Underlying Shares"), Purchaser further represents and warrants to the Company
as follows:
(a) PURCHASE FOR INVESTMENT. Purchaser is acquiring the Debenture
and any Underlying Shares for its own account as principal, for investment, and
not with a view to the distribution or resale thereof, in whole or in part, in
violation of the Securities Act or any applicable state securities law, and
Purchaser has no present intention of selling, negotiating or otherwise
disposing of the Debenture or any Underlying Shares.
(b) NO REGISTRATION; RULE 144. (i) Neither the Debenture nor the
Underlying Shares have been registered under the Securities Act, and as such,
such Debenture and any Underlying Shares are "restricted securities" as defined
in Rule 144; (ii) neither the Debenture nor any Underlying Shares may be resold
unless they are registered under the Securities Act or unless an exemption
therefrom is available; (iii) the Purchaser understands that the availability of
Rule 144 for the sale and transfer of the Debenture and any Underlying Shares is
limited, and that certain conditions and events must exist and occur before
Purchaser would be able to utilize Rule 144 in connection with the sale or other
disposition of the Debenture or any Underlying Shares.
(c) INVESTMENT COMPANY; ACCESS TO INFORMATION. Purchaser is a
registered investment company under the Investment Company Act and as such is an
"accredited investor" under Rule 501(a) under the Securities Act. Purchaser
understands that its investment in the Debenture and the Underlying Shares
involves a high degree of risk. Purchaser has such knowledge and experience in
financial and business matters that it is capable of evaluating the merits and
risks of the investments contemplated by this Agreement. Purchaser has been
afforded, to the satisfaction of Purchaser, the opportunity to review the
financial and other information which it has requested from the Company, and to
obtain such additional publicly available information concerning the Company and
its business, and to ask such questions and receive such answers (based upon
publicly available information), as the Purchaser deems necessary to make an
informed investment decision.
(d) RELIANCE ON REPRESENTATIONS OF PURCHASER. Purchaser understands
that the Debenture is being offered and sold and the Underlying Shares are being
offered to it in reliance on specific exemptions from the registration
requirements of the U.S. securities laws and that the Company is relying of the
truth and accuracy of, and the Purchaser's compliance with, the representations,
warranties, agreements, acknowledgments and understandings set forth herein in
order to determine the availability of such exemptions and the eligibility of
Purchaser to acquire the Debenture and any Underlying Shares.
12
(e) TRANSFER TO SUBSIDIARY. Notwithstanding anything in this Section
3.4 to the contrary, Purchaser may transfer and assign its rights and
obligations under this Agreement to one or more of its Wholly-owned
Subsidiaries, provided that any such Subsidiary shall agree to become bound by
the terms of this Agreement, including the representations and warranties
contained in this Section 3.4, and provided, further that Purchaser shall remain
liable for the performance of its obligations hereunder notwithstanding any such
assignment.
3.5 NO CONFLICTS. The execution, delivery and performance of this
Agreement by Purchaser and the consummation by Purchaser of the transactions
contemplated hereby or relating hereto do not and will not (i) result in the
violation of the Purchaser's charter documents or by-laws or (ii) conflict with,
or constitute a default (or an event which with notice or lapse of time or both
would become a default) under, any agreement, indenture or instrument to which
Purchaser is a party, or, to the actual knowledge of Purchaser, result in a
violation of any law, rule, regulation, order, judgment or decree of any court
of governmental agency applicable to Purchaser or its properties (except for
such conflicts, defaults and violations as would not, individually or in the
aggregate, have a material adverse effect on Purchaser). Purchaser is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court of governmental agency in order for it to execute,
deliver or perform any of its obligations under this Agreement or purchase the
Debenture in accordance with terms hereof.
3.6 SURVIVAL. The representations and warranties of Purchaser
contained in this Agreement shall survive until the first anniversary of the
date hereof.
4. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF PURCHASER. The obligation
of Purchaser to purchase and pay for the Debentures on the Closing Date shall be
subject to the satisfaction, on or before the Closing Date, of each of the
following conditions set forth below. These conditions are for Purchaser's sole
benefit and may be waived by Purchaser at any time in its sole discretion.
4.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of the Company contained in this Agreement and in any Schedule hereto
or any document or instrument delivered to Purchaser or its representatives
hereunder, shall have been true and correct when made and shall be true and
correct as of the Closing Date as if made on such date, except to the extent
such representations and warranties expressly relate to a specific date. The
Company shall have duly performed all of the covenants and agreements to be
performed by it hereunder on or prior to the Closing Date.
4.2 OFFICER'S CERTIFICATE. The Company shall have delivered to
Purchaser a certificate, dated the Closing Date, signed by the President or
Chief Financial Officer of the Company, substantially in the form attached
hereto as EXHIBIT C.
4.3 SATISFACTORY PROCEEDINGS AND SECRETARY'S CERTIFICATE. All
proceedings taken in connection with the transactions contemplated by this
Agreement, and all documents necessary to the consummation thereof, shall be
satisfactory in form and substance to Purchaser and Purchaser's counsel, and the
Company shall have delivered to Purchaser a certificate, dated the
13
Closing Date, signed by the Secretary of the Company, substantially in the form
attached hereto as EXHIBIT D.
4.4 LEGAL OPINION. Purchaser shall have received the opinion of
Gibson, Dunn & Crutcher LLP, counsel for the Company, dated the Closing Date,
addressed to Purchaser, in form and substance satisfactory to Purchaser's
counsel, and covering the matters set forth in EXHIBIT E hereto.
4.5 AUTHORIZATION AGREEMENT. The Company shall have delivered to
Purchaser an Authorization Agreement for Pre-authorized Payments (Debit), dated
the Closing Date, executed by a duly authorized officer(s) of the Company, in
the form attached hereto as EXHIBIT F.
4.6 SALE OF CONVERTIBLE PREFERRED STOCK. The closing with respect to
the sale by the Company of its Series D Convertible Preferred Stock to
Purchaser, shall occur simultaneously with the sale of the Debentures by the
Company to the Purchaser.
4.7 EXISTENCE AND AUTHORITY. The Company shall have delivered to
Purchaser the following certificates of public officials, in each case as of a
date within ten days of the Closing Date:
(a) the Articles of Incorporation of the Company certified by the
Secretary of State of the State of California; and
(b) a certificate as to the legal existence and good standing of the
Company from the Secretary of State of the State of California.
4.8 DELIVERY OF OPERATIVE DOCUMENTS. The Company shall have
delivered to Purchaser the following documents, executed by the Company and
dated the Closing Date:
(a) the Debenture;
(b) the Initial Warrant; and
(c) the Registration Rights Agreement between the Company and the
Purchaser.
4.9 REQUIRED CONSENTS. Any consents or approvals required to be
obtained from any third party, including any holder of indebtedness or any
outstanding security of the Company, and any amendments of agreements which
shall be necessary to permit the consummation of the transactions contemplated
hereby on the Closing Date, shall have been obtained and all such consents or
amendments shall be satisfactory in form and substance to Purchaser and
Purchaser's counsel.
4.10 WAIVER OF CONDITIONS. If on the Closing Date the Company fails
to tender to Purchaser the Debentures to be issued to Purchaser, or if the
conditions specified in this ARTICLE
14
IV have not been fulfilled, Purchaser may thereupon elect to be relieved of all
further obligations under this Agreement and shall be entitled to be reimbursed
for its reasonable expenses pursuant to Section 12.1. Without limiting the
foregoing, if the conditions specified in this ARTICLE IV have not been
fulfilled, Purchaser may waive compliance by the Company with any such condition
to such extent as Purchaser, in Purchaser's sole discretion, may determine.
Nothing in this Section 4.10 shall operate to relieve the Company of any of its
obligations hereunder or to waive any of Purchaser's rights against the Company.
5. CONDITIONS PRECEDENT TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company hereunder to sell the Debenture to Purchaser is
further subject to the satisfaction, on or before the Closing Date, of each of
the following conditions set forth below. These conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion.
5.1 REPRESENTATIONS AND WARRANTIES. The representations and
warranties of Purchaser contained in this Agreement shall have been true and
correct when made and shall be true and correct as of the Closing Date as if
made on such date, except to the extent such representations and warranties
expressly relate to a specific date. Purchaser shall have duly performed all of
the covenants and agreements to be performed by it hereunder on or prior to the
Closing Date.
6. COVENANTS. From and after the Closing Date and continuing so long as
any amount remains unpaid on any of the Debentures,
6.1 USE OF PROCEEDS. The Company shall use the proceeds of the
Debentures for general corporate purposes, including working capital.
6.2 PAYMENT OF DEBENTURES. The Company shall pay the indebtedness
evidenced by the Debentures according to the terms thereof and shall timely pay
or perform all of the other obligations of the Company under this Agreement.
15
6.3 OPTIONAL REDEMPTIONS OF DEBENTURE; PROCEDURES.
(a) The Debentures may be redeemed, repaid or repurchased by the
Company or any Subsidiary or Affiliate, at the option of the Company, at any
time. The Debentures shall be subject to redemption, at the Company's option,
in whole at any time or in part from time to time, provided that in case of each
redemption at the Company's option hereunder, the Company will give written
notice thereof to each holder of a Debenture to be redeemed not less than 30 nor
more than 45 days prior to the date fixed for such redemption (the "Redemption
Date"), in each case specifying the Redemption Date, the aggregate principal
amount of the Debentures to be redeemed on such date and the principal amount of
Debentures held by such holder to be redeemed on such date.
(b) Neither the Company nor any Subsidiary or Affiliate, directly or
indirectly, may repurchase or make any offer to repurchase any Debentures unless
the offer has been made to repurchase Debentures, PRO RATA, from all holders of
the Debentures at the same time and upon the same terms and in accordance with
the provisions of Section 6.3(a). If the Company repurchases or otherwise
acquires any Debentures, such Debentures shall immediately thereafter be
canceled, and no Debentures shall be issued in substitution therefor. Without
limiting the foregoing, upon the purchase or other acquisition of any Debentures
by the Company or any Subsidiary or Affiliate, such Debentures shall no longer
be outstanding for purposes of any Section of this Agreement relating to the
taking by the holders of the Debentures of any actions with respect hereto,
including, without limitation, Sections 9.3 and 10.1.
6.4 CORPORATE EXISTENCE, ETC. The Company will preserve and keep in
force and effect, and will cause each Subsidiary to preserve and keep in force
and effect, its corporate existence and good standing in the state of
incorporation thereof, its qualification and good standing as a foreign
corporation in each jurisdiction where such qualification is required by
applicable law except where the failure to so qualify would not have a Material
Adverse Effect on the financial condition or results of operations of the
Company, and all licenses and permits necessary to the proper conduct of its
business.
6.5 MAINTENANCE, ETC. The Company will maintain, preserve and keep,
and will cause each Subsidiary to maintain, preserve and keep, its properties
and assets which are used or useful in the conduct of its business (whether
owned in fee or pursuant to a leasehold interest) in good repair and working
order and from time to time will make all necessary repairs, replacements,
renewals and additions so that at all times the efficiency thereof shall be
maintained.
6.6 NATURE OF BUSINESS. Neither the Company nor any Subsidiary will
engage in any business if, as a result, the general nature of the business,
taken on a consolidated basis, which would then be engaged in by the Company and
its Subsidiaries would be substantially changed from the general nature of the
business engaged in by the Company and its Subsidiaries on the date of this
Agreement.
6.7 INSURANCE. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage by financially sound and reputable
insurers with respect to their
16
respective properties and business in such forms and amounts and against such
risks, casualties and contingencies as are customary for corporations of
comparable size and condition (financial and otherwise) engaged in the same or a
similar business and owning and operating similar properties.
6.8 TAXES, CLAIMS FOR LABOR AND MATERIALS. The Company will promptly
pay and discharge, and will cause each Subsidiary promptly to pay and discharge,
(i) all lawful taxes, assessments and governmental charges or levies imposed
upon the property or business of the Company or such Subsidiary, respectively,
(ii) all trade accounts payable in accordance with usual and customary business
terms, and (iii) all claims for work, labor or materials, which if unpaid might
become a lien or charge upon any property of the Company or such Subsidiary;
provided the Company or such Subsidiary shall not be required to pay any such
tax, assessment, charge, levy, account payable or claim if (i) the validity,
applicability or amount thereof is being contested in good faith by appropriate
actions or proceedings which will prevent the forfeiture or sale of any property
of the Company or such Subsidiary or any material interference with the use
thereof by the Company or such Subsidiary, and (ii) the Company or such
Subsidiary shall set aside on its books, reserves deemed by it to be adequate
with respect thereto.
6.9 COMPLIANCE WITH LAWS, AGREEMENTS, ETC. Except where failure to
do so does not and would not constitute a Material Adverse Event, the Company
shall maintain its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances, and such laws, regulations and ordinances of foreign
jurisdictions, governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which the Company is a party or by which the Company or any of its
properties is bound. Without limiting the foregoing, the Company shall pay all
of its indebtedness promptly and substantially in accordance with the terms
thereof.
6.10 ERISA MATTERS. If the Company has in effect, or hereafter
institutes, a pension plan that is subject to the requirements of Title IV of
ERISA (a "Plan"), then the following covenants shall be applicable during such
period as any such Plan shall be in effect: (i) throughout the existence of the
Plan, the Company's contributions under the Plan will meet the minimum funding
standards required by ERISA and the Company will not institute a distress
termination of the Plan; and (ii) the Company will send to Purchaser a copy of
any notice of a reportable event (as defined in ERISA) required by ERISA to be
filed with the Labor Department or the PBGC, at the time that such notice is so
filed.
6.11 BOOKS AND RECORDS: RIGHTS OF INSPECTION. The Company will keep,
and will cause each Subsidiary to keep, proper books of record and account in
which full and correct entries will be made of all dealings or transactions of
or in relation to the business and affairs of the Company or such Subsidiary, in
accordance with GAAP consistently maintained. The Company shall permit a
representative of Purchaser to visit any of its properties and inspect its
corporate books and financial records, and will discuss its accounts, affairs
and finances with a representative of Purchaser, during reasonable business
hours, at all such times as Purchaser may reasonably request.
17
6.12 REPORTS. The Company will furnish to Purchaser the following:
(a) QUARTERLY STATEMENTS. As soon as available and in any event
within 45 days after the end of each quarterly fiscal period (except the last)
of each fiscal year, copies of:
(i) consolidated and consolidating balance sheets of the Company
and Subsidiaries as of the close of the three-month period then ended,
setting forth in comparative form the consolidated figures at the end of
the preceding fiscal year,
(ii) consolidated and consolidating statements of income and
retained earnings of the Company and Subsidiaries for the three-month
period then ended, setting forth in comparative form the consolidated
figures for the corresponding period of the preceding fiscal year, and
(iii) consolidated and consolidating statements of cash flows
of the Company and Subsidiaries for the portion of the fiscal year ending
with such three-month period, setting forth in comparative form the
consolidated figures for the corresponding period of the preceding fiscal
year,
all in reasonable detail and accompanied by a certificate of an authorized
financial officer of the Company that such financial statements fairly present
the financial condition and results of operations and cash flows of the Company
at and for the periods presented, subject to normal year-end adjustment;
(b) ANNUAL STATEMENTS. As soon as available and in any event within
90 days after the close of each fiscal year of the Company, copies of:
(i) consolidated and consolidating balance sheets of the Company
and Subsidiaries as of the close of such fiscal year, and
(ii) consolidated and consolidating statements of income and
retained earnings and cash flows of the Company and Subsidiaries for such
fiscal year,
in each case setting forth in comparative form the consolidated figures for the
preceding fiscal year, all in reasonable detail and accompanied by an
unqualified report thereon of a firm of independent public accountants of
recognized national standing;
(c) AUDIT REPORTS. Promptly upon receipt thereof, one copy of each
interim or special audit made by independent accountants of the books of the
Company or any Subsidiary;
(d) SEC AND OTHER REPORTS. Promptly upon their becoming available,
one copy of each financial statement, report, notice or proxy statement sent by
the Company to stockholders generally and of each periodic or current report,
and any registration statement or prospectus filed by the Company to any
Subsidiary with any securities exchange or the SEC or any successor agency, and
copies of any orders in any proceedings to which the Company or any
18
of its Subsidiaries is a party, issued by any governmental agency, federal or
state, having jurisdiction over the Company or any of its Subsidiaries. The
Company specifically covenants to timely file each such item required to be
filed with the SEC and each state requiring securities laws filings; and
(e) PIPELINE REPORT AND OTHER REQUESTED INFORMATION. Within five
business days after preparation, the Company's internal pipeline report, and
with reasonable promptness, such financial data and other information relating
to the business of the Company as Purchaser may from time to time reasonably
request.
6.13 LIMITATIONS ON DEBT AND OBLIGATIONS. Except as to (i)
[intentionally omitted]; (ii) the Indebtedness incurred pursuant to the
Debentures as it may be extended, renewed or refinanced; (iii) accounts payable
and other trade payables incurred in the ordinary course of business; (iv)
purchase money indebtedness incurred by the Company in the purchase of equipment
and other property used by the Company in the ordinary course of business, such
purchase money indebtedness not to exceed an aggregate amount of principal and
accrued interest thereon of $500,000; (v) obligations of the Company pursuant to
capitalized leases; (vi) [intentionally omitted]; and (vii) Indebtedness
incurred in connection with the acquisition of a business (including the assets
of a business), whether secured or unsecured; neither the Company nor any
Subsidiary shall incur Indebtedness in excess of an aggregate amount of
principal and interest thereon of $2,500,000 at any time outstanding.
Notwithstanding the foregoing, the aggregate principal amount of any
Indebtedness secured by the accounts receivable and/or inventory of the Company
and its Subsidiaries (whether such Indebtedness is permitted under clause (i) or
in clause (vi)), may be increased based upon the amount of the accounts
receivable and/or inventory eligible as collateral, so long as the ratio of
outstanding principal amount of such Indebtedness to "eligible receivables"
and/or "inventory" remains the same (howsoever such terms are defined but
provided such definitions remain consistent).
6.14 GUARANTIES. Without the prior written consent of Purchaser, the
Company will not, and will not permit any Subsidiary to, become or be liable in
respect of any Guaranty except (a) Guaranties by the Company which are limited
in maximum financial exposure to the amounts set forth in, and are incurred in
compliance with, the provisions of Section 6.13 of this Agreement and (b)
inter-company Guaranties between the Company and any Subsidiary or any of the
Subsidiaries.
6.15 LIMITATION ON LIENS. Without the prior written consent of
Purchaser, the Company will not, and will not permit any Subsidiary to, create
or incur, or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, lien or charge of any kind (collectively, "Liens") on its
or their property or assets, whether now owned or hereafter acquired, or upon
any income or profits therefrom, or transfer any property for the purpose of
subjecting the same to the payment of obligations in priority to the payment of
its or their general creditors, or acquire or agree to acquire, or permit any
Subsidiary to acquire, any property or assets upon conditional sales agreement
or other title retention devices, except those Liens which exist as of the date
hereof as set forth on SCHEDULE 2.14, and except:
19
(a) purchase money liens on and security interests in equipment
hereafter acquired securing Indebtedness permitted by Section 6.13(iv) of this
Agreement, provided that such liens and security interests attach only to the
equipment so acquired and do not encumber any other property of the Company or
any Subsidiary;
(b) liens for taxes (excluding federal and state income taxes) not
yet payable or being contested in good faith by appropriate proceedings and for
which adequate reserves have been provided on the books of the Company or a
Subsidiary;
(c) mechanics', materialmen's, warehousemen's, carriers' or other
like liens arising in the ordinary course of business of the Company or any
Subsidiary, if any, arising with respect to obligations which are not overdue
for a period longer than 30 days or which are being contested in good faith by
appropriate proceedings and for which adequate reserves have been provided on
the books of the Company or a Subsidiary;
(d) deposits or pledges to secure the performance of bids, tenders,
contracts, leases, public or statutory obligations, surety or appeal bonds or
other deposits or pledges for purposes of a like general nature or given in the
ordinary course of business by the Company or any Subsidiary; and
(e) other encumbrances consisting of zoning restrictions, easements,
restrictions on the use of real property or minor irregularities in the title
thereto, which do not arise in connection with the borrowing of, or any
obligation for the payment of, money and which, in the aggregate, do not
materially detract from the value of the premises or the business, properties or
assets of the Company or any Subsidiary; and
(f) liens securing indebtedness permissible under Section 6.13 above.
6.16 RESTRICTED PAYMENTS. For so long as the Debentures are
outstanding, the Company will not, without the prior written consent of
Purchaser and except as hereinafter provided:
(a) declare or pay any dividends, either in cash or property, on any
shares of its capital stock of any class except (i) dividends or other
distributions payable solely in shares of Common Stock of the Company, and (ii)
dividends on the Series D Convertible Preferred Stock;
(b) directly or indirectly, or through any Subsidiary, purchase,
redeem or retire any shares of its capital stock of any class or any
warrants, rights or options to purchase or acquire any shares of its capital
stock (other than in exchange for or out of the net proceeds to the
Company from the substantially concurrent issue or sale of other shares of
capital stock of the Company or warrants, rights or options to purchase or
acquire any shares of its capital stock); or
(c) make any other payment or distribution, either directly or
indirectly or through any Subsidiary, in respect of its capital stock, except as
contemplated by the Certificate of
20
Determination and the Convertible Preferred Stock Purchase Agreement or with
respect to the Warrants issued hereunder or thereunder.
6.17 INVESTMENTS. The Company will not, and will not permit any
Subsidiary to, make any Investments outside the ordinary course of business for
the Company or any Subsidiary, without the prior written consent of Purchaser,
except:
(a) Investments in direct obligations of the United States of
America, or any agency or instrumentality of the United States of America, the
payment or guaranty of which constitutes a full faith and credit obligation of
the United States of America, in either case maturing in twelve months or less
from the date of acquisition thereof;
(b) Investments in certificates of deposit maturing within one year
from the date of origin, issued by a bank or trust company organized under the
laws of the United States or any state thereof, having capital, surplus and
undivided profits aggregating at least $100,000,000 and whose long-term
certificates of deposit are, at the time of acquisition thereof by Company or a
Subsidiary, rated AA or better by Standard & Poor's Corporation or AA or better
by Moody's Investors Service, Inc.;
(c) Investments in commercial paper maturing in 270 days or less from
the date of issuance which, at the time of acquisition by the Company or any
Subsidiary, is accorded the highest rating by Standard & Poor's Corporation,
Moody's Investors Service, Inc. or another nationally recognized credit rating
agency of similar standing;
(d) loans or advances in the usual and ordinary course of business to
officers, directors and employees for expenses (including moving expenses
related to a transfer) incidental to carrying on the business of the Company or
any Subsidiary;
(e) receivables arising from the sale of goods and services in the
ordinary course of business of the Company and its Subsidiaries; and
(f) acquisitions, mergers and other consolidations permissible
pursuant to Section 6.18(a)(ii) below; and
(g) investments by the Company in any Subsidiary or by any Subsidiary
in the Company or in any other Subsidiary.
21
6.18 MERGERS, CONSOLIDATIONS AND SALES OF ASSETS.
(a) Without the prior written consent of Purchaser, the Company will
not, and will not permit any Subsidiary to (i) consolidate with or be a party to
a merger or share exchange with any other corporation, or (ii) sell, lease or
otherwise dispose of all or any substantial part (as defined in paragraph (d) of
this Section 6.18) of the assets of Company and its Subsidiaries; provided,
however, that:
(i) any Subsidiary may merge or consolidate with or into the
Company or any Wholly-owned Subsidiary so long as in any merger or
consolidation involving the Company, the Company shall be the surviving or
continuing corporation; and
(ii) the Company may consolidate or merge with any other
corporation, or acquire all or a substantial portion of the assets of any
other entity, provided that such corporation or entity is engaged primarily
in the Company's general line of business as conducted on the date hereof,
and further provided that (A) Company shall be the surviving or continuing
corporation, (B) at the time of such consolidation or merger and after
giving effect thereto, no Default or Event of Default shall have occurred
and be continuing, and (C) such consolidation or merger shall be deemed in
the good faith estimate of the Board of Directors to be a consolidation or
merger that will be accretive to earnings per share not later than the
fifth full quarter following the consolidation or merger; and
(iii) any Subsidiary may sell, lease or otherwise dispose of
all or any substantial part of its assets to the Company or any other
Wholly-owned Subsidiary.
(b) Without the prior written consent of Purchaser, the Company
will not permit any Subsidiary to issue or sell any shares of stock of any
class (including as "stock" for the purposes of this Section 6.18, any
warrants, rights or options to purchase or otherwise acquire stock or other
Securities exchangeable for or convertible into stock) of such Subsidiary to
any Person other than the Company or a Wholly-owned Subsidiary, except for
the purpose of qualifying directors, or except in satisfaction of the validly
preexisting preemptive rights of minority shareholders in connection with the
simultaneous issuance of stock to the Company and/or a Subsidiary whereby the
Company and/or such Subsidiary maintain their same proportionate interest in
such Subsidiary.
(c) Without the prior written consent of Purchaser, the Company will
not sell, transfer or otherwise dispose of any shares of stock in any Subsidiary
(except to qualify directors) or any indebtedness of any Subsidiary, and will
not permit any Subsidiary to sell, transfer or otherwise dispose of (except to
the Company or a Wholly-owned Subsidiary) any shares of stock or any
indebtedness of any other Subsidiary, unless all of the following conditions are
met:
22
(i) simultaneously with such sale, transfer or disposition, all
shares of stock and all indebtedness of such Subsidiary at the time owned
by the Company and by every other Subsidiary shall be sold, transferred or
disposed of as an entirety;
(ii) the Board of Directors of the Company shall have
determined, as evidenced by a resolution thereof, that the retention of
such stock and indebtedness is no longer in the best interests of the
Company;
(iii) such stock and Indebtedness is sold, transferred or
otherwise disposed of to a Person, for consideration and on terms
reasonably deemed by the Board of Directors to be adequate and
satisfactory; and
(iv) the Subsidiary being disposed of shall not have any
continuing investment in the Company or any other Subsidiary not being
simultaneously disposed of; and
(v) such sale or other disposition does not involve a
substantial part (as hereinafter defined) of the assets of the Company and
its Subsidiaries taken as a whole.
(d) As used in this Section 6.18, a sale, lease or other disposition
of assets shall be deemed to be a "substantial part" of the assets of the
Company and its Subsidiaries only if the book value of such assets, when added
to the book value of all other assets sold, leased or otherwise disposed of by
the Company and its Subsidiaries (other than in the ordinary course of business)
during the same twelve month period ending on the date of such sale, lease or
other disposition, exceeds 25 percent of the consolidated net tangible assets of
the Company and its Subsidiaries determined as of the end of the immediately
preceding fiscal year.
6.19 TRANSACTIONS WITH AFFILIATES. Without the prior written consent
of Purchaser, the Company will not, and will not permit any Subsidiary to, enter
into or be a party to any transaction or arrangement with any officer, director
or Affiliate (including, without limitation, the purchase from, sale to, or
exchange of property with, or the rendering of any service by or for, any
Affiliate), except (a) for transactions or arrangements between the Company and
any Subsidiary or any of the Subsidiaries and (b) in the ordinary course of and
pursuant to the reasonable requirements of the Company's or such Subsidiary's
business and upon fair and reasonable terms no less favorable to the Company or
such Subsidiary than could be obtained in an arm's-length transaction with a
Person other than an Affiliate, in each case as determined in good faith by a
majority of the disinterested directors of the Company.
6.20 NOTICE. The Company shall promptly upon the discovery thereof
give written notice to Purchaser of (i) the occurrence of any default or Event
of Default or event which, with the passage of time, would constitute an Event
of Default, under this Agreement, (ii) the occurrence of any default or event of
default under any other agreement providing for material Indebtedness of the
Company or any Subsidiary or under a capitalized lease obligation, (iii) any
material actions, suits or proceedings instituted by any Person against the
Company or a Subsidiary or materially affecting any of the assets of the Company
or any Subsidiary, or (iv) any
23
material investigation initiated by, or any dispute between any governmental
regulatory body, on the one hand, and the Company or any Subsidiary, on the
other hand, which dispute might interfere with the normal operations of the
Company or any Subsidiary; provided, however, that Purchaser shall not be
required by this Agreement to disclose any such information provided in (iii) or
(iv) above to any third party other than Purchaser's counsel and except to the
extent compelled by law or otherwise authorized by the Company.
6.21 BOARD OF DIRECTORS; OBSERVER RIGHTS.
(a) For so long as the Purchaser or any Affiliate of Purchaser owns
Debentures representing at least 33.33% of the original principal amount of the
Debentures, provided that no nominee of the Purchaser is a director, the Company
shall invite one representative of Purchaser to attend, at the Company's
expense, all meetings of the Company's Board of Directors and all committees of
the Company's Board of Directors in a nonvoting observer capacity and, in this
respect, shall give such representative copies of all notices and meeting agenda
in advance of such meetings and shall permit such representative to review all
documents and other materials provided to directors at such meetings. The
Company shall also provide Purchaser, in advance, with copies of all actions
proposed to be taken by the Board of Directors in lieu of meeting.
6.22 ANNUAL PLAN. The Board of Directors shall adopt no later than
the thirty-first day of each fiscal year, a financial plan for the Company,
which shall include at least a projection of income and expenses (including
capital expenditures) and a projected cash flows statement for each quarter in
such fiscal year, and a projected balance sheet as of the end of each month in
such fiscal year (the "Annual Plan"). The Annual Plan may only be amended or
revised, in any material manner, with the approval of the Board of Directors.
6.23 FURTHER ASSURANCES. The Company and Purchaser will each take all
actions reasonably requested by Purchaser to effect the transactions
contemplated by this Agreement and the other Operative Documents.
7. SUBORDINATION OF DEBENTURES.
7.1 SUBORDINATION. Notwithstanding anything to the contrary in this
Agreement or in the Debentures, the indebtedness evidenced by the Debentures,
including principal and interest, shall be subordinate and junior to the prior
payment of the indebtedness of the Company for borrowed money (except such
indebtedness of the Company other than the Debentures which is expressly stated
to be subordinate or junior in any respect to other indebtedness of the
Company), whether outstanding as of the date of this Agreement (including any
obligations of the Company under any guaranty or suretyship agreement relating
to indebtedness for borrowed money by Subsidiaries of the Company), or hereafter
created constituting borrowed money from financial institutions approved by the
Board of Directors of the Company and designated as being senior to the
Debentures (but only to the extent so designated), together with all obligations
issued in renewal, deferral, extension, refunding, amendment or modification of
any such indebtedness including, without limitation, any and all indebtedness
now or hereafter owing by the Company to Merrill Lynch Business Financial
24
Services Inc. and its successors and assigns (collectively, the "Senior
Indebtedness"). Purchaser covenants that it will execute any subordination or
intercreditor agreements requested by any lender of the Company and reasonably
acceptable to Purchaser effectuating the foregoing subordination provisions and
containing such additional customary provisions as such lender may request.
Nothing contained in this Section 7.1 shall be deemed to permit the Company to
incur Indebtedness which is prohibited by Section 6.13 above, and the
indebtedness evidenced by the Debentures shall not be subordinate to any such
prohibited Indebtedness.
7.2 LIQUIDATION, ETC.
(a) Upon any distribution of assets of the Company in connection with
any dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency, or receivership proceedings or upon an
assignment for the benefit of creditors or otherwise), the holders of all Senior
Indebtedness shall first be entitled to receive payment in full of the principal
thereof, premium, if any, and interest due thereon, and all costs and expenses
(including attorneys' fees) related thereto, before the holders of the
Debentures shall be entitled to receive any payment on account of the principal
of or interest on or any other amount owing with respect to the Debentures
(other than payment in shares of capital stock of the Company as reorganized or
readjusted, or securities of the Company or any other corporation provided for
by a plan of reorganization or readjustment, which stock and securities are
subordinated to the payment of all Senior Indebtedness and securities received
in lieu thereof which may at the time be outstanding). Under the circumstances
provided herein, the holders of the Senior Indebtedness shall have the right to
receive and collect any distributions made with respect to the Debentures until
such time as the Senior Indebtedness is paid in full, and shall have the further
right to take such actions as may be deemed necessary or required to so receive
and collect such distributions including making or filing any proofs of claim
relating thereto.
(b) Without in any way modifying the provisions of this Article VII
or affecting the subordination effected hereby if such notice is not given, the
Company shall give prompt written notice to the Purchaser of any dissolution,
winding up, liquidation or reorganization of maker (whether in bankruptcy,
insolvency or receivership proceedings or upon an assignment for the benefit of
creditors or otherwise).
7.3 SENIOR INDEBTEDNESS DEFAULT. The Company shall not declare or
pay any dividends or make any distributions to the holders of capital stock of
the Company, or purchase or acquire for value, or pay any principal, interest,
or other amount on any of the Debentures if any default has occurred and is
continuing with respect to the payment of principal of, premium if any or
interest on any Senior Indebtedness.
7.4 SUBROGATION. Upon the prior payment in full of all Senior
Indebtedness, the Purchaser shall be subrogated to the rights of the holders of
the Senior Indebtedness to receive payments or distributions of assets of the
Company applicable to the Senior Indebtedness until all amounts owing on the
Debentures shall be paid in fall, and for the purpose of such subrogation, no
payments or distributions to the Purchaser otherwise payable or distributable to
the holders of Senior Indebtedness shall, as between the Company, its creditors,
other than the holders of Senior
25
Indebtedness, and Purchaser, be deemed to be payment by the Company to or on
account of the Debentures, it being understood that the provisions of this
Article VII are and are intended solely for the purpose of defining the relative
rights of Purchaser, on the one hand, and the holders of the Senior
Indebtedness, on the other hand.
7.5 COMPANY'S OBLIGATIONS NOT IMPAIRED.
(a) Nothing contained in this Article VII or in the Debentures is
intended to or shall impair, as between the Company and Purchaser, the
obligation of the Company, which is absolute and unconditional, to pay the
Purchaser the principal of and interest on the Debentures as and when the same
shall become due and payable in accordance with the terms of the Debentures, or
is intended to or shall affect the relative rights of the Purchaser other than
with respect to the holders of the Senior Indebtedness, nor, except as expressly
provided in this Article VII, shall anything herein or therein prevent the
Purchaser from exercising all remedies otherwise permitted by applicable law
upon the occurrence of an Event of Default under this Agreement or under the
Debentures.
(b) If any payment or distribution shall be received in respect of
the Debentures in contravention of the terms of this Article VII, such payment
or distribution shall be held in trust for the holders of the Senior
Indebtedness, and shall be immediately delivered to such holders in the same
form as received.
8. RESTRICTIONS ON TRANSFER; REGISTRATION RIGHTS.
8.1 LEGENDS; RESTRICTIONS ON TRANSFER. Neither the Debentures nor
the shares of Common Stock issuable upon exercise of the Warrants have been
registered under the Securities Act or any state securities laws. Each
Debenture issued pursuant to this Agreement and each stock certificate issued
upon exercise of Warrants shall bear a legend in substantially the following
form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED , OR ANY
APPLICABLE STATE SECURITIES LAW, AND MAY NOT BE TRANSFERRED IN THE
ABSENCE OF (I) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OF 1933 AND SUCH APPLICABLE STATE SECURITIES LAWS, OR
(II) AN OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
8.2 REGISTRATION RIGHTS. The Purchaser shall be entitled to
register Common Stock issuable upon exercise of the Warrants as provided in
the Registration Rights Agreement.
9. EVENTS OF DEFAULT; REMEDIES.
26
9.1 EVENTS OF DEFAULT. The occurrence of any one of the following
shall constitute an "Event of Default" under this Agreement:
(a) Default shall occur in the making of any payment of the interest
or principal of any Debenture or the premium, if any, by the Company thereon
when the same shall have become due or at the expressed or any accelerated
maturity date or at any date fixed by the Company for prepayment; provided, that
any such default will be curable within two business days to the extent that the
failure to make payment on the date when due was caused by unforeseen or
inadvertent circumstances (such as a customer's or other third party's check
being returned for insufficient funds) and not due to the Company's failure to
attempt to deposit sufficient credits to the payment account, or to the general
inability or unwillingness of the Company to make payments hereunder as they
become due; or
(b) Default shall be made in the payment of the principal of or
interest on any Indebtedness of the Company or any Subsidiary, and any such
default or event of default or failure shall result in all or any part of such
Indebtedness in the aggregate amount exceeding $250,000 becoming or being
declared due and payable prior to the date on which all or any part thereof
otherwise would have become due and payable; or
(c) Default or the happening of any event shall occur under any
contract, agreement, lease, indenture or other instrument under which any
Indebtedness of the Company or any Subsidiary may be issued, and any such
default or event of default or failure shall result in all or any part of such
Indebtedness in the aggregate amount exceeding $250,000 under any such document
becoming due and payable prior to the date on which all or any part thereof
otherwise would have become due and payable; or
(d) Default shall occur in the observance or performance of any
covenant or agreement contained in Sections 6.2 through 6.12 hereof and such
default shall continue for a period of 10 days after the sooner to occur of (i)
senior management's knowledge of such default, and (ii) the date on which the
Company receives notice thereof in writing from the holder of any Debenture; or
(e) Default shall occur in the observance or performance of any other
provision of this Agreement which is not remedied within 30 days after the
sooner to occur of (i) senior management's knowledge of such default, and (ii)
the date on which the Company receives notice thereof in writing from the holder
of any Debenture; or
(f) Any representation or warranty made by the Company herein is
untrue in any material respect as of the date of the issuance or making thereof;
or
(g) Final judgments for the payment of money aggregating in excess of
$250,000, are outstanding against the Company or any Subsidiary or against any
property or assets of either and any one of such judgments has remained unpaid,
unvacated, unbonded or unstayed by appeal or otherwise for a period of 60 days
from the date of its entry; or
27
(h) The Company or any Subsidiary becomes insolvent or bankrupt, is
generally not paying its debts as they become due or makes an assignment for the
benefit of creditors, or the Company or any Subsidiary applies for or consents
to the appointment of a custodian, trustee, liquidator, or receiver for the
Company or such Subsidiary or for the major part of the property of either; or
(i) A custodian, trustee, liquidator, or receiver is appointed for
the Company or any Subsidiary or for the major part of the property of either
and is not discharged within 60 days after such appointment; or
(j) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company or
any Subsidiary and, if instituted against the Company or any Subsidiary, are
consented to or are not dismissed within 60 days after such institution.
9.2 NOTICE TO HOLDERS. When any Event of Default has occurred, or if
the holder of any Debenture or of any other evidence of indebtedness of the
Company gives any notice or takes any other action with respect to a claimed
default, the Company agrees to give notice within three Business Days of such
event to all holders of the Debentures then outstanding as reflected on the
Company's register for the Debentures.
9.3 ACCELERATION OF MATURITIES. When any Event of Default described
in paragraph (a) or (b) of Section 9.1 has occurred and is continuing, any
holder of any Debenture may, and when any Event of Default described in
paragraphs (c) through (h), inclusive, of Section 9.1 has occurred and is
continuing, the holder or holders of 50% or more of the principal amount of
Debentures at the time outstanding may, by notice to the Company, declare the
entire principal and all interest accrued on all Debentures to be, and all
Debentures shall thereupon become, forthwith due and payable, without any
presentment, demand, protest or other notice of any kind, all of which are
hereby expressly waived. When any Event of Default described in paragraph (i)
or (j) of Section 9.1 has occurred, then all outstanding Debentures shall
immediately become due and payable without presentment, demand or notice of any
kind, all of which are hereby expressly waived. Upon the Debentures becoming
due and payable as a result of any Event of Default as aforesaid, the Company
will forthwith pay to the holders of the Debentures the entire principal and
interest accrued on the Debentures. No course of dealing on the part of any
Debenture holder nor any delay or failure on the part of any Debenture holder to
exercise any right shall operate as a waiver of such right or otherwise
prejudice such holder's rights, powers and remedies. The Company further
agrees, to the fullest extent permitted by law, to pay to the holder or holders
of the Debentures all costs and expenses, including reasonable attorneys' fees,
incurred by them in the collection of any Debentures upon any default hereunder
or thereon.
10. AMENDMENTS, WAIVERS AND CONSENTS.
10.1 CONSENT REQUIRED. Any term, covenant, agreement or condition of
this Agreement may, with the consent of the Company, be amended or compliance
therewith may be waived (either generally or in a particular instance and either
retroactively or prospectively), if the
28
Company shall have obtained the consent in writing of the holders of at least
50% in aggregate principal amount of outstanding Debentures; provided that
without the written consent of the holders of all of the Debentures then
outstanding, no such waiver, modification, alteration or amendment shall be
effective (i) which will change the time of payment of the principal of or the
interest on any Debenture or reduce the principal amount thereof or change the
rate of interest thereon, (ii) which will change any of the provisions with
respect to optional prepayments, or (iii) which will change the percentage of
holders of the Debentures required to consent to any such amendment,
modification or waiver of any of the provisions of Article IX or Article X
hereof.
10.2 SOLICITATION OF DEBENTURE HOLDERS. The Company will not,
directly or indirectly, pay or cause to be paid any remuneration, whether by way
of supplemental or additional interest, fee or otherwise, to any holder of the
Debentures as consideration for or as an inducement to the entering into by any
holder of the Debentures of any waiver or amendment of any of the terms and
provisions of this Agreement, unless such remuneration is concurrently paid, on
the same terms, ratably to the holders of all of the Debentures then
outstanding.
10.3 EFFECT OF AMENDMENT OR WAIVER. Any such amendment or waiver
shall apply equally to all of the holders of the Debentures and shall be binding
upon them, upon each future holder of any Debenture, and upon the Company,
whether or not such Debenture shall have been marked to indicate such amendment
or waiver. No such amendment or waiver shall extend to or affect any obligation
not expressly amended or waived or impair any right consequent thereon.
11. INTERPRETATION OF AGREEMENT; DEFINITIONS.
11.1 DEFINITIONS. As used herein,
"Affiliate" means any Person (i) which directly or indirectly through one
or more intermediaries controls, or is controlled by, or is under common control
with, the Company, (ii) which beneficially owns or holds 5% or more of any class
of the Voting Stock of the Company or (iii) 5 % or more of the Voting Stock (or
in the case of a Person which is not a corporation, 5 % or more of the equity
interest) of which is beneficially owned or held by the Company or a Subsidiary.
"Business Day" means any day other than a Saturday, Sunday, or other day on
which banks in Tennessee are authorized to close.
The term "control" (including the terms "controlling," "controlled by" and
"under common control") means the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of a
person, whether through the ownership of Voting Stock, by contract, or
otherwise.
"Default" means any event or condition, the occurrence of which would, with
the lapse of time or the giving of notice, or both, constitute an Event of
Default as defined in Section 9.1.
29
"Event of Default" shall have the meaning set forth in Section 9.1.
"Guaranties" by any Person means all obligations (other than endorsements
in the ordinary course of business of negotiable instruments for deposit or
collection) of such Person guaranteeing, or in effect guaranteeing, any
Indebtedness, dividend or other obligation of any other Person (the "primary
obligor") in any manner, whether directly or indirectly, including, without
limitation, all obligations incurred through an agreement, contingent or
otherwise, by such Person: (i) to purchase such Indebtedness or obligation
or any property or assets constituting security therefor, (ii) to advance or
supply funds (A) for the purchase or payment of such Indebtedness or
obligation, (B) to maintain working capital or other balance sheet condition
or (C) otherwise to advance or make available funds for the purchase or
payment of such Indebtedness or obligation, or (iii) to lease property or to
purchase Securities or other property or services primarily for the purpose
of assuring the owner of such Indebtedness or obligation of the ability of
the primary obligor to make payment of the Indebtedness or obligation, or
(iv) otherwise to assure the owner of the Indebtedness or obligation of the
primary obligor against loss in respect thereof. For the purposes of all
computations made under this Agreement, a Guaranty in respect of any
Indebtedness for borrowed money shall be deemed to be Indebtedness equal to
the principal amount of such Indebtedness for borrowed money which has been
guaranteed, and a Guaranty in respect of any other obligation or liability or
any dividend shall be deemed to be Indebtedness equal to the maximum
aggregate amount of such obligation, liability or dividend.
"Hazardous Substance" means any hazardous or toxic material, substance or
waste, pollutant or contaminant which is regulated under any statute, law,
ordinance, rule or regulation of any local, state, regional or Federal
authority having jurisdiction over the property of the Company and its
Subsidiaries or its use, including but not limited to any material, substance
or waste which is: (i) defined as a hazardous substance under Section 311 of
the Federal Water Pollution Control Act (33 U.S.C. SS 1317.1) as amended;
(ii) regulated as a hazardous waste under Section 1004 or Section 3001 of the
Federal Solid Waste Disposal Act, as amended by the Resource Conservation and
Recovery Act (42 U.S.C. SS 6901 et seq.) as amended; (iii) defined as a
hazardous substance under Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act (42 U.S.C. SS 9601 et seq.) as
amended; or (iv) defined or regulated as a hazardous substance or hazardous
waste under any rules or regulations promulgated under any of the foregoing
statutes.
"Indebtedness" of any Person means and includes all obligations of such
Person which in accordance with GAAP shall be classified upon a balance sheet
of such Person as liabilities of such Person, and in any event shall include
all (i) obligations of such Person for borrowed money or which have been
incurred in connection with the acquisition of property or assets, (ii)
obligations secured by any lien or other charge upon property or assets owned
by such Person, even though such Person has not assumed or become liable for
the payment of such obligations, (iii) obligations created or arising under
any conditional sale or other title retention agreement with respect to
property acquired by such Person, notwithstanding the fact that the rights
and remedies of the seller, lender or lessor under such agreement in the
Event of Default are limited to
30
repossession or sale or property, (iv) capitalized rentals, and (v)
Guaranties of obligations of others of the character referred to in this
definition.
"Investments" means all investments, in cash or by delivery of property
made, directly or indirectly in any Person, whether by acquisition of shares
of capital stock, indebtedness or other obligations or Securities or by loan,
advance, capital contribution or otherwise; provided, however that
"Investments" shall not mean or include routine investments in property to be
used or consumed in the ordinary course of business.
"Material Adverse Event" means any event or circumstance, or set of
events or circumstances, individually or collectively, that reasonably could
be expected to result in any (i) material adverse effect upon the validity or
enforceability of any of the Operative Documents, or (ii) material and
adverse effect on the financial condition of the Company as represented to
Purchaser herein or in any document delivered to Purchaser in connection
herewith, or (iii) material default or potential material default under any
of the Operative Documents.
"Person" means an individual, partnership, corporation, limited liability
company, trust or unincorporated organization, and a government or agency or
political subdivision thereof.
"Plan" means a "pension plan," as such term is defined in ERISA,
established or maintained by the Company or any ERISA Affiliate or as to
which the Company or any ERISA Affiliate contributed or is a member or
otherwise may have any liability.
"Security" shall have the same meaning as in Section 2(1) of the
Securities Act of 1933, as amended.
The term "subsidiary" means, as to any particular parent corporation, any
corporation of which more than 50% (by number of votes) of the Voting Stock
shall be owned by such parent corporation and/or one or more corporations
which are themselves Restricted Subsidiaries of such parent corporation. The
term "Subsidiary" shall mean a subsidiary of the Company.
"Voting Stock" means Securities of any class or classes the holders of
which are ordinarily, in the absence of contingencies, entitled to elect a
majority of the corporate directors (or Persons performing similar functions).
"Warrants" means the Initial Warrant and the Additional Warrants.
"Wholly-owned" when used in connection with any Subsidiary shall mean a
Subsidiary of which all of the issued and outstanding shares of stock (except
shares required as directors' qualifying shares) and all funded debt or
current debt shall be owned by the Company and/or one or more of its
Wholly-owned Restricted Subsidiaries.
11.2 ACCOUNTING PRINCIPLES. Where the character or amount of any
asset or liability or item of income or expense is required to be determined
or any consolidation or other accounting computation is required to be made
for the purposes of this Agreement, the same shall
31
be done in accordance with GAAP as applied by the Company, to the extent
applicable, except where such principles are inconsistent with the
requirements of this Agreement.
11.3 DIRECTLY OR INDIRECTLY. Where any provision in this Agreement
refers to action to be taken by any Person, or which such Person is
prohibited from taking such provision shall be applicable whether the action
in question is taken directly or indirectly by such Person.
12. MISCELLANEOUS.
12.1 EXPENSES, STAMP TAX INDEMNITY. Whether or not the
transactions herein contemplated shall be consummated, the Company agrees to
pay directly all of Purchaser's reasonable out-of-pocket expenses in
connection with (i) the entering into of this Agreement and the consummation
of the transactions contemplated hereby, including but not limited to the
reasonable fees, expenses and disbursements of Purchaser's counsel, and (ii)
so long as Purchaser holds any of the Debentures, all such expenses relating
to any amendment, waiver or consent pursuant to the provisions hereof
(whether or not the same are actually executed and delivered), including,
without limitation, any amendments, waivers or consents resulting from any
work-out, restructuring or similar proceedings relating to the performance by
the Company of its obligations under this Agreement and the Debentures. The
Company also agrees that it will pay and save Purchaser harmless against any
and all liability with respect to stamp and other taxes, if any, which may be
payable in connection with the execution and delivery of this Agreement or
the Debentures, whether or not any Debentures are then outstanding. The
Company agrees to protect and indemnify Purchaser against any liability for
any and all brokerage fees and commissions payable or claimed to be payable
to any Person in connection with the transactions contemplated by this
Agreement.
12.2 POWERS AND RIGHTS NOT WAIVED; REMEDIES CUMULATIVE. No delay
or failure on the part of the holder of any Debenture in the exercise of any
power or right shall operate as a waiver thereof; nor shall any single or
partial exercise of the same preclude any other or further exercise thereof,
or the exercise of any other power or right, and the rights and remedies of
the holder of any Debenture are cumulative to and are not exclusive of any
rights or remedies any such holder would otherwise have, and no waiver or
consent, given or extended pursuant to Article VIII hereof, shall extend to
or affect any obligation or right not expressly waived or consented to.
12.3 NOTICES. All communications provided for hereunder shall be
in writing and shall be delivered personally, or mailed by registered mail,
or by prepaid overnight air courier, or by facsimile communication, in each
case addressed:
If to Purchaser: Tandem Capital, Inc.
500 Church Street, Suite 200
Nashville, Tennessee 37219
Facsimile No: (615) 726-1208
Attention: Mike Comegna
32
with a copy to: C. Christopher Trower, Esq.
3159 Rilman Road, N.W.
Atlanta, Georgia 30327-1503
Facsimile No.: (404) 816-6854
If to the Company: Altris Software, Inc.
9339 Carroll Park Drive
San Diego, California 92121
Facsimile No.: (619) 546-7671
Attention: John W. Low
with a copy to: Gibson, Dunn & Crutcher LLP
2029 Century Park East, Suite 4000
Los Angeles, California 90067
Facsimile No.: (310) 551-8741
Attention: Russell C. Hansen, Esq.
or such other address as Purchaser or the subsequent holder of any Debenture
initially issued to Purchaser may designate to the Company in writing, or
such other address as the Company may in writing designate to Purchaser or to
a subsequent holder of the Debenture initially issued to Purchaser, provided,
however, that a notice sent by overnight air courier shall only be effective
if delivered at a street address designated for such purpose by such person
and a notice sent by facsimile communication shall only be effective if made
by confirmed transmission at a telephone number designated for such purpose
by such person or, in either case, as Purchaser or a subsequent holder of any
Debentures initially issued to Purchaser may designate to the Company in
writing or at a telephone number herein set forth in the case of the Company.
12.4 ASSIGNMENTS. This Agreement, the Debentures and the other
Operative Documents may be endorsed, assigned and/or transferred in whole or
in part to no more than three transferees (each a "Permitted Transferred");
provided, however, that Purchaser shall not transfer any Debentures or
Purchaser's rights hereunder to any entity which the Company's Board of
Directors deems to be a competitor of the Company. Any Permitted Transferee
shall succeed to and be possessed of the rights and powers of Purchaser under
all of the same to the extent transferred and assigned. The Company shall
not assign any of its rights nor delegate any of its duties under this
Agreement or any of the other Operative Documents by operation of law or
otherwise without the prior express written consent of Purchaser, and if the
Company obtains such consent, this Agreement and the other Operative
Documents shall be binding upon such assignee.
12.5 SURVIVAL OF COVENANTS AND REPRESENTATIONS. All covenants,
representations and warranties made by the Company and the Purchaser herein
and in any instruments or certificates delivered pursuant hereto shall
survive the Closing and the delivery of this Agreement for so long as the
Debentures remain outstanding, except that the representations and warranties
33
set forth herein (other than those contained in Sections 2.1 through 2.4,
which shall survive until termination of this Agreement) shall expire on the
first anniversary of the Closing Date.
12.6 SEVERABILITY. Should any part of this Agreement for any
reason be declared invalid or unenforceable, such decision shall not affect
the validity of any remaining portion, which remaining portion shall remain
in force and effect as if this Agreement had been executed with the invalid
or unenforceable portion thereof eliminated and it is hereby declared the
intention of the parties hereto that they would have executed the remaining
portion of this Agreement without including therein any such part, parts or
portion which may for any reason, be hereafter declared invalid or
unenforceable.
12.7 GOVERNING LAW. This Agreement and the Debentures issued and
sold hereunder shall be governed by and construed in accordance with
California law, without regard to its conflicts of law rules.
12.8 CAPTIONS; COUNTERPARTS. The descriptive headings of the
various Sections or parts of this Agreement are for convenience only and
shall not affect the meaning or construction of any of the provisions hereof.
This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the
same instrument.
12.9 CONFIDENTIALITY. Each party hereto agrees that, except with
the prior written permission of the other party hereto, it shall at all times
keep confidential and not divulge, furnish or make accessible to anyone any
confidential information, knowledge or data concerning or relating to the
business or financial affairs of the other party to which such party has been
or shall become privy by reason of this Agreement, discussions or
negotiations relating to this Agreement, the performance of its obligations
hereunder or the ownership of the Debenture purchased hereunder. The parties
hereto further agree that there shall be no press release or other public
statement issued by any party relating to this Agreement or the transactions
contemplated hereby, unless the party otherwise agrees in writing.
12.10PUBLICITY. The Company and Purchaser shall consult with each
other in issuing any press releases or otherwise making public statements
with respect to the transactions contemplated hereby. Neither party shall
issue any press release or otherwise make any public statement without the
prior written consent of the other, which consent shall not be unreasonably
withheld or delayed.
34
IN WITNESS WHEREOF, the parties hereto have caused this Debenture
Purchase Agreement to be executed and delivered by their duly authorized
officers as of the date first written above.
ALTRIS SOFTWARE, INC.
By:/s/ Roger H. Erickson
------------------------------------
Roger H. Erickson
Vice President
SIRROM CAPITAL CORPORATION
d/b/a TANDEM CAPITAL
By:/s/ Carl W. Stratton
------------------------------------
Carl W. Stratton
Chief Financial Officer
35