EXHIBIT 10.6
SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
BY AND AMONG
RIVER CITIES CAPITAL FUND II LIMITED PARTNERSHIP,
JG FUNDING, LLC,
XXXXXXXX CAPITAL GROUP, LLC,
XXXXXX X. XXXXXX XX,
DPEC, INC.
AND
XXXXX X. XXXXX
AUGUST 27, 1999
TABLE OF CONTENTS
PAGE
1. Sale and Issuance of Series B Convertible Preferred Stock..............1
2. Closing................................................................2
3. Closing Items..........................................................2
4. Benefit Plans..........................................................3
5. Further Assurances.....................................................4
6. Representations and Warranties of the Company and Xxxxx................4
6.1 Corporate Standing............................................4
6.2 Authorization.................................................5
6.3 Capitalization................................................5
6.4 Validly Issued Shares.........................................6
6.5 No Conflict...................................................6
6.6 Contracts and Other Commitments; Compliance...................6
6.7 Subsidiaries..................................................7
6.8 Consents......................................................7
6.9 Financial Statements..........................................7
6.10 Indebtedness for Borrowed Money; No Undisclosed Liabilities...7
6.11 Title to Property and Assets; Leases..........................8
6.12 Legal Proceedings.............................................8
6.13 Environmental Matters.........................................8
6.14 Licenses and Permits; Compliance with Laws....................8
6.15 Employee Benefit Plans........................................9
6.16 Labor Relations...............................................9
6.17 Insurance....................................................10
6.18 Tax Matters..................................................10
6.19 Changes in Circumstances.....................................10
6.20 Patents and Trade Names, Etc.................................12
6.21 Affiliated Transactions......................................13
6.22 Bank Accounts................................................13
6.23 Brokers'and Finders'Fees.....................................13
6.24 Registration Rights..........................................13
6.25 Small Business Concern.......................................14
6.26 Material Facts...............................................14
6.27 Xxxxx Debt Repayment Obligations.............................14
6.28 Year 2000 Compliance.........................................14
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7. Representations and Warranties of the Investors.......................15
7.1 Authorization; Binding Agreement.............................15
7.2 Investment Representations...................................15
7.3 Accredited Investor; Residence...............................15
7.4 Receipt of Information; Restricted Securities................15
7.5 Investment Experience........................................16
8. Survival of Representations and Warranties............................16
9. Indemnification.......................................................16
9.1 Indemnification by the Company...............................16
9.2 Indemnification by Xxxxx.....................................17
9.3 Indemnification by an Investor...............................17
10. Covenants of the Company (and Xxxxx solely with respect to
Section 10.6).........................................................17
10.1 Insurance....................................................17
10.2 Financial Reporting..........................................17
10.3 Board of Directors...........................................18
10.4 Reservation of Shares........................................18
10.5 Use of Proceeds..............................................19
10.6 Xxxxx Debt Repayment Obligations.............................19
10.7 Compliance with Small Business Investment Act................19
10.8 Negative Covenants...........................................19
10.9 Definition of a Qualified Sale...............................20
11. Restrictions of Transfers.............................................20
11.1 Notice of Sale by Xxxxx......................................20
11.2 Definition of Qualified IPO..................................20
11.3 Co-Sale Right................................................21
11.4 Rights of Refusal............................................21
11.5 Exceptions...................................................22
11.6 Right of First Refusal.......................................22
11.7 Right of First Offer.........................................22
11.8 Restrictive Legend...........................................23
11.9 Preemptive Rights............................................23
12. Default...............................................................24
12.1 Events of Default............................................24
12.3 Diversion of Proceeds........................................24
12.4 Loss of Xxxxx................................................24
13. Public Statements.....................................................25
14. Notices...............................................................25
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15. Parties in Interest; Assignment.......................................26
16. Construction; Governing Law...........................................26
17. Entire Agreement; Amendment and Waiver................................27
18. Severability..........................................................27
19. Counterparts..........................................................27
20. Expenses..............................................................27
21. Time of Essence.......................................................27
22. Confidentiality Agreement.............................................27
23. Attorneys'Fees........................................................27
24. Rights of the Investors...............................................28
25. Termination Upon a Qualified IPO......................................28
26. Termination of Certain Provisions.....................................28
27. Pronouns..............................................................28
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SERIES B CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
("Agreement") is made and entered into as of the 27th day of August, 1999, by
and among RIVER CITIES CAPITAL FUND II LIMITED PARTNERSHIP, a Delaware limited
partnership ("River Cities"); JG FUNDING, LLC, a Kentucky limited liability
company ("JG"); XXXXXXXX CAPITAL GROUP, LLC, a Kentucky limited liability
company ("Xxxxxxxx"); XXXXXX X. XXXXXX XX, an individual ("Xxxxxx") (River
Cities, JG, Xxxxxxxx and Xxxxxx are hereinafter sometimes referred to
individually as an "Investor" and collectively as the "Investors"); DPEC, INC.,
an Ohio corporation (the "Company"); and XXXXX X. XXXXX ("Xxxxx").
WITNESSETH:
On September 15, 1998, the Company, Xxxxx and River Cities Capital
Group II Limited Partnership ("Group"), an affiliate of River Cities, entered
into a certain Senior Convertible Preferred Stock Purchase Agreement (the
"Senior Preferred Stock Purchase Agreement") pursuant to which, for an aggregate
purchase price of $2,000,000, the Company sold to Group and Group purchased from
the Company, 5,123 shares of the Senior Preferred Stock (as defined in the
Senior Preferred Stock Purchase Agreement).
On February 22, 1999, Group assigned the Senior Preferred Stock to
River Cities.
The Company desires to sell and issue, and the Investors desire to
purchase and acquire, $3,000,121 of shares of the Company's authorized but
unissued Series B Convertible Preferred Stock upon the terms and subject to the
conditions contained herein. The shares of Senior Preferred Stock and the Series
B Convertible Preferred Stock are sometimes referred to herein collectively as
the "Preferred Stock."
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, the Company, Xxxxx and the Investors agree as follows:
1. SALE AND ISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK.
1.1 The Company shall adopt and file with the Secretary
of State of Ohio on or before the Closing (as defined below) the Certificate of
Amendment of Articles of Incorporation in the form attached hereto as EXHIBIT A
(the "Amended Articles"). The Series B Convertible Preferred Stock, no par value
per share (the "Series B Preferred Stock"), will have the rights, preferences
and privileges and restrictions set forth in the Amended Articles.
1.2 Subject to the terms and conditions of this
Agreement, at the Closing the Investors agree to purchase from the Company, and
the Company agrees to sell, issue and deliver
to the Investors, an aggregate of 2,979 shares of the Series B Preferred Stock
at the price of $1,007.09 per share resulting in a total purchase price at the
Closing of $3,000,121, allocated among the Investors as follows:
Investor Number of Shares Total Purchase Price
-------- ---------------- --------------------
River Cities 1,490 $1,500,564
JG 993 $1,000,040
Xxxxxxxx 198 $ 199,404
Xxxxxx 298 $ 300,113
----- ----------
Total 2,979 $3,000,121
1.3 Effective upon the Closing, the Company shall grant
to the Investors registration rights under the Securities Act of 1933, as
amended (the "Securities Act"), on the terms and subject to the conditions of
the Registration Rights Agreement in the form attached hereto as EXHIBIT B
("Registration Rights Agreement").
2. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") will occur simultaneously with the execution of this
Agreement and shall take place on or before August 27, 1999, either by facsimile
or at the offices of Xxxxxxx, Head & Xxxxxxx, counsel to the Investors, 1900
Fifth Third Center, 000 Xxxxxx Xxxxxx, Xxxxxxxxxx, Xxxx 00000, or at such other
time, date, or place as shall be mutually agreed upon by the parties hereto in
writing (the "Closing Date").
3. CLOSING ITEMS.
3.1 At the Closing, the Company shall deliver, or cause
to be delivered, the following items:
3.1.1 the Amended Articles as file stamped by the
Ohio Secretary of State;
3.1.2 the Amended and Restated Code of Regulations
(as amended by agreed amendments) in the form attached hereto as EXHIBIT C
("Restated Regulations"), certified as to their current form by the Secretary of
the Company;
3.1.3 the Amended and Restated Registration Rights
Agreement duly executed by the Company;
3.1.4 the Fourth Amended and Restated Shareholders
Agreement among the Company, Xxxxx, Xxxx Xxxxxxxx ("Xxxxxxxx") and Xxxxxxx
Xxxxxxxx, as trustee and grantor of the Xxxxxxx Xxxxxxxx Trust, in the form
attached hereto as EXHIBIT D duly executed by each of such parties (the
"Shareholders Agreement");
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3.1.5 the opinion of Vorys, Xxxxx, Xxxxxxx and Xxxxx
LLP, counsel to the Company, in the form attached hereto as EXHIBIT E
3.1.6 resolutions of the Board of Directors and
shareholders of the Company authorizing the execution, delivery and consummation
of this Agreement, the filing of the Amended Articles, the issuance of the
shares of Series B Preferred Stock, the adoption of the agreed amendments to the
Restated Regulations, and the other matters contemplated hereby, certified as to
their due adoption and continued validity by the Secretary of the Company; and
3.1.7 the completed United States Small Business
Administration ("SBA") Parts A and B of Form 1031.
3.1.8 a certificate in each Investor's name
representing the portion of the 2,979 shares of Series B Preferred Stock that
such Investor is purchasing; and
3.1.9 a certificate, in form reasonably acceptable to
the Investors and dated as of the Closing Date, from the Company, duly executed
by the President of the Company and by Xxxxx, individually, as follows: (i)
except for changes expressly contemplated by the terms of this Agreement or
approved by the Investors, the representations and warranties of the Company and
Xxxxx contained in this Agreement are true and complete in all material respects
on and as of the Closing Date as if made on and as of that date; and (ii) the
Company and Xxxxx have complied with or performed in all material respects all
terms, covenants and conditions to be complied with or performed by them on or
prior to the Closing Date.
3.2 At the Closing, the Investors shall deliver, or cause
to be delivered:
3.2.1 immediately available funds equal to the
aggregate purchase price of $3,000,121; and
3.2.2 the Amended and Restated Registration Rights
Agreement, duly executed by the Investors; and
3.2.3 a certificate, in form reasonably acceptable to
the Company and dated as of the Closing Date, from each Investor, duly executed
by its General Partner or Manager as appropriate, as follows: (i) except for
changes expressly contemplated by the terms of this Agreement or approved by the
Company, the representations and warranties of the Investor contained in this
Agreement are true and complete in all material respects on and as of the
Closing Date as if made on and as of that date; and (ii) the Investor has
complied with or performed in all material respects all terms, covenants and
conditions to be complied with or performed by it on or prior to the Closing
Date.
4. BENEFIT PLANS. Subsequent to the Closing, senior management,
employees and non-employee directors and consultants (a) may be granted
options pursuant to the 1998 Stock Option Plan or any successor thereto (the
"Plan"), with such Options to be exercisable for shares of Common Stock, no
par value per share ("Common Stock"), and (b) may be issued shares of
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Common Stock pursuant to such other employee benefit plans as the Company
may hereafter adopt. All such grants of options and issuances of shares of
Common Stock shall be on such terms and conditions as the Compensation
Committee of the Board of Directors may determine; provided, however: (a) the
options granted (excluding options granted pursuant to an employee stock
purchase plan as described in Section 423 of the Internal Revenue Code of
1986, as amended ("Excluded Options") shall not exceed in the aggregate ten
percent (10%) of the fully diluted shares of capital stock of the Company
(including the Preferred Stock on an as converted basis and the shares of
Common Stock issued upon the exercise of outstanding options) without the
prior written consent of the designated representative on the Compensation
Committee of the holders of the Preferred Stock; (b) included in such number
of options shall be the 345 outstanding "conditional" options previously
issued to key employees by the Company or options granted under the Plan in
exchange for such conditional options, it being understood that the Company
may exchange some or all of the 345 conditional options for options under the
Plan; and (c) without the prior written consent of the designated
representative on the Compensation Committee of the holders of the Preferred
Stock: (i) the price per share, including the exercise price per share of
Common Stock covered by any options granted by the Company (excluding
Excluded Options), shall not be less than the fair market value per share of
the Common Stock at the time of grant, and (ii) the exercise price per share
of Common Stock covered by any Excluded Options granted by the Company shall
not be less than eighty-five percent of the fair market value per share of
the Common Stock at the time of grant. For purposes of the shares of Common
Stock authorized for issuance pursuant to the Plan, the fair market value of
the Common Stock at the time of the option grant shall be determined at least
annually by the Board of Directors.
5. FURTHER ASSURANCES. Each party shall execute such additional
documents and take such other actions as the other party or parties may
reasonably request to consummate the transactions contemplated hereby and
otherwise as may be necessary to effectively carry out the terms and provisions
of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND XXXXX. The
Company hereby represents and warrants to the Investors, as of the date hereof
and as of the Closing Date (and Xxxxx hereby represents and warrants to the
Investors as of the Closing Date solely with respect to the last sentence of
Section 6.20.1 and all of Section 6.27), as follows:
6.1 Corporate Standing. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Ohio. The Company has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
and as presently proposed to be conducted and to execute, deliver and perform
this Agreement, the Amended and Restated Registration Rights Agreement and any
other agreement to which the Company is a party, the execution and delivery of
which is contemplated hereby (the "Ancillary Agreements"). The Company is duly
licensed, authorized and qualified to do business and is in good standing in all
jurisdictions (domestic or foreign) in which the conduct of its business or the
ownership or leasing of its properties requires it to be so licensed, authorized
or qualified, except where its failure to be so licensed, authorized or
qualified would not constitute a Material Adverse Effect. For purposes of this
Agreement,
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"Material Adverse Effect" means any event or circumstance or any action taken or
omitted to be taken by or on behalf of the Company which has constituted, or
with reasonable certainty will constitute, a material adverse effect, singly or
in the aggregate, on the condition (financial or otherwise), properties,
business, operations or prospects of the Company, taken as a whole. True and
accurate copies of the articles of incorporation (and all amendments thereto),
code of regulations (and all amendments thereto) and minute book (containing the
records of meetings and written consents of the shareholders, the board of
directors and any committees of the board of directors) of the Company have
previously been delivered to legal counsel to the Investor.
6.2 AUTHORIZATION. The execution and delivery of this
Agreement, the Amended and Restated Registration Rights Agreement and any
Ancillary Agreement and the consummation of the transactions contemplated hereby
and thereby have been duly authorized by all necessary corporate action on the
part of the Company. Each of this Agreement, the Amended and Restated
Registration Rights Agreement and any Ancillary Agreement has been duly executed
and delivered by the Company and constitutes the legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as (i) the enforceability thereof may be limited by bankruptcy,
insolvency or similar laws affecting the enforcement of creditors' rights
generally and (ii) the availability of equitable remedies may be limited by
equitable principles of general applicability.
6.3 CAPITALIZATION. The authorized capital stock of the
Company consists of (i) 70,000 shares of Common Stock of which as of the date
hereof 33,737 shares are validly issued and outstanding, fully paid and
non-assessable, 5,123 shares of which have been duly and validly reserved for
issuance upon conversion of the Senior Preferred Stock, and 2,979 shares of
which have been duly and validly reserved for issuance upon conversion of the
Series B Preferred Stock, (ii) 5,123 shares of Senior Preferred Stock of which
as of the date hereof 5,123 shares are validly issued and outstanding, fully
paid and non-assessable, and (iii) 2,979 shares of Series B Preferred Stock,
none of which are outstanding as of the date hereof. Except as set forth on
SCHEDULE 6.3 or as contemplated by this Agreement, the Senior Preferred Stock
Purchase Agreement, the Amended Articles, the Amended and Restated Registration
Rights Agreement and Ancillary Agreements, there are outstanding no
subscriptions, options, warrants, calls, commitments or rights (including
conversion or preemptive rights and rights of first refusal), proxy or
shareholder agreements or agreements of any character relating to shares of the
Company's capital stock or any instruments that can be converted into shares of
the Company's capital stock. None of the shares of the Company's capital stock
have been issued in violation of any preemptive right. All issuances, transfers
or purchases of the capital stock of the Company have been in compliance with
all applicable agreements and all applicable laws, including federal and state
securities laws, and all taxes thereon, if any, have been paid. Except as set
forth on SCHEDULE 6.3, no former or present holder of any of the shares of
capital stock of the Company has any legally cognizable claim against the
Company based on any issuance, sale, purchase, redemption or involvement in any
transfer of any shares of capital stock by the Company. Except as contemplated
by this Agreement, the Senior Preferred Stock Purchase Agreement or as set forth
on SCHEDULE 6.3, there are no contractual obligations of the Company to
repurchase, redeem or otherwise acquire any shares of capital stock of the
Company. No bonds, debentures, notes or other indebtedness having the right to
vote (or convertible into or
5
exercisable for securities having the right to vote) on any matters on which
shareholders of the Company may vote are issued or outstanding. Except for this
Agreement, the Senior Preferred Stock Purchase Agreement and the Shareholders
Agreement, the Company is not a party or subject to any agreement or
understanding, and, to the Company's best knowledge, there is no agreement or
understanding between any persons that affects or relates to the voting or
giving of written consents with respect to any security or the voting by any
director of the Company.
6.4 VALIDLY ISSUED SHARES. The shares of Series B
Preferred Stock to be issued, sold and delivered in accordance with the terms of
this Agreement for the consideration set out herein, will, upon issuance in
accordance with the terms hereof, be duly and validly issued, fully paid and
non-assessable, free of restrictions on transfer other than restrictions on
transfer under this Agreement and under applicable federal and state securities
laws. The issuance of the Series B Preferred Stock to the Investors pursuant to
this Agreement will comply with all applicable laws, including federal and state
securities laws (assuming the accuracy of the representations set forth in
Sections 7.2 through 7.5 hereof), and will not violate the preemptive rights of
any person. The Common Stock issuable upon conversion of the Series B Preferred
Stock being purchased under this Agreement will be, upon issuance and delivery
in accordance with the terms of the Amended Articles, duly and validly issued,
fully paid and non-assessable and free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable federal and
state securities laws. The issuance of the Common Stock upon conversion of the
Series B Preferred Stock will comply with all applicable laws, including federal
and state securities laws (assuming the accuracy of the representations set
forth in Sections 7.2 through 7.5 hereof as of the date of issuance of such
Common Stock and of such Series B Preferred Stock), and will not violate the
preemptive rights of any person.
6.5 NO CONFLICT. Except as set forth on SCHEDULE 6.5, the
execution and delivery of this Agreement, the Amended and Restated Registration
Rights Agreement and any Ancillary Agreement do not, and the consummation of the
transactions contemplated hereby and thereby will not, conflict with, or result
in any violation of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or the loss of a material benefit under, or the
creation of a lien, pledge, security interest, charge or other encumbrance on
assets (any such conflict, violation, default, right of termination,
cancellation or acceleration, loss or creation, a "Violation") pursuant to, any
provision of the Amended Articles or Restated Regulations, or result in any
Violation of any lease, agreement, obligation, instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or the Company's properties or assets.
6.6 CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. Except
as set forth on SCHEDULE 6.6 or those which do not constitute a Material Adverse
Effect, the Company is not bound by any judgment, order, writ or decree, written
or oral, absolute or contingent. The Company has made available to the Investors
for their review prior to the date hereof a copy of all written contracts,
agreements, leases, loans, and commitments with a third party to which the
Company is a party (each a "Contract") and the Company has described to the
Investors the terms of any oral Contracts that are material to the condition
(financial or otherwise), properties,
6
business, operations or prospects of the Company taken as a whole. Except those
which do not constitute a Material Adverse Effect, the Company is not in
violation or default of any provision of its Amended Articles or Restated
Regulations, any provision of a written or oral Contract, or any provisions of
any other items listed on SCHEDULE 6.6.
6.7 SUBSIDIARIES. As of the date of this Agreement, the
Company does not own or control, directly or indirectly, any interest in any
other corporation, partnership, limited liability company, association or other
business entity and is not a participant in any joint venture, partnership or
similar arrangement.
6.8 CONSENTS. Except as set forth on SCHEDULE 6.8, no
consent, approval, qualification, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, or other
third party is required by or with respect to the Company in connection with the
execution and delivery of this Agreement, or the consummation by the Company of
the transactions contemplated hereby, which has not already been obtained,
except for 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.
6.9 FINANCIAL STATEMENTS. The Company has delivered to
the Investors prior to the date hereof the Company's balance sheet as of July
31, 1998, and the related statements of income and cash flows for the twelve
months ended July 31, 1998, the Company's unaudited balance sheet as of June 30,
1999 and the related unaudited statements of income and cash flows for the year
to date ended June 30, 1999, and SCHEDULE 6.9 related thereto (the "Financial
Statements"). The Financial Statements present fairly in all material respects
the financial condition and results of operations of the Company as of such
dates and the periods indicated and have been prepared in all material respects
in accordance with GAAP consistently applied during such periods except for the
omission of footnote disclosures and the omission of year-end adjustments.
6.10 INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED
LIABILITIES. Except as and to the extent reflected in the Financial Statements
or on SCHEDULE 6.10, the Company has no direct or indirect indebtedness for
borrowed money, indebtedness by way of lease-purchase arrangements, guarantees,
undertakings, chattel mortgages or other security arrangements with any bank,
financial institution or other third party or any other material liability
required by GAAP to be disclosed in the Financial Statements.
6.11 TITLE TO PROPERTY AND ASSETS; LEASES.
6.11.1 SCHEDULE 6.11.1 sets forth a complete and
accurate list and description of all the real property that the Company owns or
leases and all personal property that the Company owns or leases that the
Company carries on its books at a value of greater than $100,000. Except as set
forth in SCHEDULE 6.11.1, the Company is not bound or committed to
7
make any capital improvement or expenditure in excess of $100,000 with respect
to any single piece of owned or leased real or personal property.
6.11.2 Except as set forth in SCHEDULE 6.11.2, the
Company has good, valid and marketable title to all the personal and mixed,
tangible and intangible properties and assets which it purports to own, free and
clear of all liens, restrictions, claims, charges, security interests, easements
or other encumbrances of any nature whatsoever, except for liens for current
taxes not yet due and payable and except for liens, claims or other encumbrances
that do not constitute a Material Adverse Effect. With respect to the property
and assets that it leases, the Company is in compliance with such leases and
holds a valid leasehold interest free and clear of any liens, claims and
encumbrances except for liens, claims or other encumbrances that do not
constitute a Material Adverse Effect. Except in accordance with a valid license
or other agreement with the Company, all properties and assets of the Company
are in the possession or control of the Company, and no other person is entitled
to possession of any such properties and assets.
6.12 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE
6.12, there are no claims of any kind or any actions, suits, proceedings,
arbitrations or investigations ("Legal Actions") pending or, to the Company's
knowledge, threatened against or affecting the Company or against any asset,
interest or right of any of them or which questions the validity of the
transactions contemplated by this Agreement and the Company does not know of any
facts which may constitute a basis for Legal Actions which would constitute a
Material Adverse Effect.
6.13 ENVIRONMENTAL MATTERS. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety (the "Environmental Laws") except
to the extent that such violation does not constitute a Material Adverse Effect,
and as of the date hereof no material expenditures are required to be made by
the Company in order to comply with any of the Environmental Laws.
6.14 LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except as
set forth on SCHEDULE 6.14, the Company holds all franchises, permits, licenses,
variances, exemptions, orders and approvals of all governmental entities which
are required for the operation of the Company's business and is in compliance
with the terms thereof, except where the failure to so hold or to be in such
compliance would not constitute a Material Adverse Effect. The Company has
complied with and is not in any default under (and has not been charged with or
received notice with respect to, nor is threatened with or under investigation
with respect to, any charge concerning any violation of any provision of) any
federal, state or local law, regulation, ordinance, rule or order (whether
executive, judicial, legislative or administrative) or any order, writ,
injunction or decree of any court, agency or instrumentality, except where the
failure to be in compliance or where being in default would not constitute a
Material Adverse Effect, and no action, suit, proceeding, hearing,
investigation, charge, complaint, claim, demand, or notice has been filed or
commenced against any of them alleging any failures to comply.
6.15 EMPLOYEE BENEFIT PLANS. Except as set forth on
SCHEDULE 6.15, the Company has no employee benefit plans including any profit
sharing, deferred compensation,
8
incentive compensation, stock ownership, stock purchase, phantom stock,
retirement, vacation, severance, disability, death benefit, hospitalization,
medical or other plan, arrangement or understanding (whether or not legally
binding) providing benefits to any current or former employee, officer or
director of the Company (collectively, the "Benefit Plans"), or any employment,
consulting, severance, termination or indemnification agreement, arrangement or
understanding between the Company and any officer, director or employee of the
Company. The Company has delivered to the Investors true, complete and correct
copies of each Benefit Plan, or, in the case of any unwritten Benefit Plans,
descriptions thereof. Each Benefit Plan has been administered in compliance with
its terms and all applicable laws except where the failure to be in compliance
would not constitute a Material Adverse Effect.
6.16 LABOR RELATIONS.
6.16.1 The Company is in compliance with all
applicable laws respecting employment and employment practices, terms and
conditions of employment and wages and hours and occupational safety and health
except where the failure to be in compliance would not constitute a Material
Adverse Effect.
6.16.2 There is no unfair labor practice charge or
complaint or any other matter against or involving the Company pending or, to
the Company's knowledge, threatened against the Company before the National
Labor Relations Board or any court of law.
6.16.3 There is no labor strike, dispute, slowdown or
stoppage actually pending or, to the Company's knowledge, threatened against the
Company.
6.16.4 The Company is not a party to or bound by any
collective bargaining agreement or any similar labor union arrangement.
6.16.5 There are no charges, investigations,
administrative proceedings or formal complaints of discrimination (including
discrimination based upon sex, age, marital status, race, color, religion,
national origin, sexual preference, disability, handicap or veteran status)
pending or, to the Company's best knowledge, threatened against the Company
before the Equal Employment Opportunity Commission or any federal, state or
local agency or court. There have been no governmental audits of the equal
employment opportunity practices of the Company and, to the Company's best
knowledge, no basis for any such claim of violation exists except where such
violation would not constitute a Material Adverse Effect.
6.16.6 The Company is in compliance with the
requirements of the Americans With Disabilities Act except where the failure to
be in compliance would not constitute a Material Adverse Effect.
6.17 INSURANCE. SCHEDULE 6.17 sets forth a list of all
insurance policies, including property, casualty, liability and other insurance
maintained with respect to the assets and business of the Company (the "Company
Insurance"). The Company is not liable for any material retroactive premium
adjustments with respect to any of its insurance policies or bonds.
9
All such policies and bonds are legal, valid and enforceable and in full force
and effect and the Company is not in breach or default (including with respect
to the payment of premiums or the giving of notices) and no event has occurred
which, with notice or the lapse of time or both, would constitute such a breach
or default, or permit termination, modification or acceleration under the
policy. The Company has not received any notice of premium increases or
cancellations with respect to any such policies and bonds except in the ordinary
course of business. The Company believes the amount and type of the Company
Insurance coverage is adequate for the Company's business and is consistent with
good business practice.
6.18 TAX MATTERS. Except as set forth on SCHEDULE 6.18,
the Company has timely filed or caused to be filed all federal, state, foreign
and local income, franchise, gross receipts, payroll, sales, use, withholding,
occupancy, excise, real and personal property, employment and other tax returns,
tax information returns and reports (the "Tax Returns") required to be filed and
all such Tax Returns were correct and complete in all respects, except where the
failure to file or to be correct and complete would not constitute a Material
Adverse Effect. The Company has paid, or made adequate provisions for the
payment of, all taxes, duties or assessments of any nature whatsoever, interest
payments, penalties and additions (whether or not reflected in the returns as
filed) due and payable (and/or property accruable for all periods ending on or
before the date of this Agreement) to any city, county, state, foreign country,
the United States or any other taxing authority, except where the failure to pay
or make adequate provisions for payment would not constitute a Material Adverse
Effect. There are no security interests on any of the assets of the Company that
arise in connection with any failure (or alleged failure) to pay timely any tax.
The Company has withheld and paid all taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party, except where the failure
to withhold or pay would not constitute a Material Adverse Effect. Except as set
forth in SCHEDULE 6.18, no deficiencies for any taxes have been asserted or
assessed or, to the knowledge of the Company, proposed against the Company that
are not adequately reserved for.
6.19 CHANGES IN CIRCUMSTANCES. Except as set forth in
SCHEDULE 6.19 and except for any of the following actions which occur after the
Closing and are authorized by the Company's Board of Directors, since June 30,
1999 there has not been:
6.19.1 any change in the condition (financial or
otherwise), properties, business, operations or prospects of the Company, or any
event or circumstance, which constitutes a Material Adverse Effect;
6.19.2 any indebtedness, liability or obligation
(whether absolute, accrued, contingent or otherwise and whether due or to become
due) incurred by the Company or any transaction entered into by the Company,
other than in the ordinary course of business and consistent with past practice,
or any guarantee by the Company of any indebtedness, liability or obligation of
any other person;
10
6.19.3 any declaration, setting aside or payment of
any dividend or other distribution in respect of any of the capital stock or
other securities of the Company other than the minimum amount of distributions
required by the Shareholders Agreement;
6.19.4 any obligation, liability, lien or encumbrance
paid, discharged or satisfied by or on behalf of the Company, other than in the
ordinary course of business and consistent with past practice;
6.19.5 any mortgage, lien, pledge, charge or
encumbrance affecting the properties of the Company (except liens for current
taxes not yet due and payable) created, suffered or assumed by or on behalf of
the Company in excess of $50,000;
6.19.6 any sale, transfer or other disposition of any
tangible asset of the Company or any cancellation of any debt or claim owed the
Company, except in the ordinary course of business and consistent with past
practice, or any sale, transfer or other disposition of any of the Company's
intangible properties, assets or rights, except in the ordinary course of
business and consistent with past practice;
6.19.7 any loan made or increased by the Company,
including any loan to any officer, director, employee or agent of the Company or
to any member of their families, except for advances to non-executive officers
in the ordinary course of business;
6.19.8 any action taken or omitted to be taken by or
on behalf of the Company that would cause (after lapse of time, notice or both)
the breach, default or acceleration of any right, contact or other obligation of
the Company except where the breach, default or acceleration would not
constitute a Material Adverse Effect;
6.19.9 any material change in the compensation
arrangement or agreement with any officer, director, employee or agent of the
Company except in the ordinary course of business and consistent with past
practice; or
6.19.10 any agreement or commitment by the Company to
do any of the foregoing.
6.20 PATENTS AND TRADE NAMES, ETC.
6.20.1 SCHEDULE 6.20.1 sets forth a complete list of
all trade names, trademark and service xxxx registrations, common law
trademarks, copyright registrations and copyright applications currently owned
by the Company and a complete list of all works of authorship licensed to the
Company and from which the Company has created a courseware product on the basis
of such license (which, together with any proprietary works of authorship,
including software, owned by the Company for which there is no current copyright
registration or application, are referred to herein as the "Intellectual
Property"). The Company does not own or license any patents. Except as set forth
on SCHEDULE 6.20.1, all of the Intellectual Property is owned by the Company.
SCHEDULE 6.20.1 also indicates whether any of the Intellectual Property
11
was acquired by assignment to the Company or is used by the Company under
authority of a license. Except as set forth in SCHEDULE 6.20.1, to the knowledge
of the Company, no employees of the Company, past or present, claim or have
claimed any interest in the Intellectual Property and no basis for such claim
exists. Xxxxx hereby acknowledges to and for the benefit of the Company and the
Investors that she claims no independent interest in the Intellectual Property
of the Company or any such intellectual property previously used in the business
of the Company other than by virtue of any ownership interest she may maintain
in the Company.
6.20.2 Except as provided on SCHEDULE 6.20.1, with
respect to the Intellectual Property listed thereon:
6.20.2.1 the Intellectual Property and all rights
appurtenant thereto are free and clear of any and all liens, claims, security
interests and other encumbrances of any nature or kind except for those which do
not constitute a Material Adverse Effect;
6.20.2.2 no prior transfer, sale or assignment has
been made by the Company of any part of any item constituting part of the
Intellectual Property or any rights appurtenant thereto;
6.20.2.3 each item constituting part of the
Intellectual Property which is owned by the Company has been duly registered
with, filed in or issued by, as the case may be, the United States Patent and
Trademark Office, and such registrations, filings and issuances remain in full
force and effect, or is otherwise protected as unregistered under common law
principles; and
6.20.2.4 the Intellectual Property constitutes all
intellectual property necessary for the Company to carry on its business as
presently conducted.
6.20.3 Except as set forth on SCHEDULE 6.20.3, there
are no pending or, to the knowledge of the Company, threatened proceedings or
litigation or other adverse claims affecting or with respect to the Intellectual
Property as currently used by the Company. Except as set forth on SCHEDULE
6.20.3, no person or entity is known to be infringing upon the Company's rights
with respect to the Intellectual Property. None of the operations, processes or
products of the Company are known to infringe upon or violate the rights of any
third party and the Company has not received any charge, complaint, claim or
notice alleging any such infringement or violation. The Company has not copied
in violation of the rights of others any proprietary feature of any competitive
product in designing the Company's products. The Company has not knowingly
misappropriated any trade secrets which are the property of a third party.
6.20.4 There are no claims pending or, to the
knowledge of the Company, threatened to the effect that any shareholder,
director, employee or agent of the Company has, in respect of his or her
activities to date, violated any terms or conditions of any written or oral
Contract, or disclosed or utilized any trade secrets or proprietary information
or documentation of such third party, or interfered in the employment
relationship between such third party and any
12
of its employees and, to the knowledge of the Company, no basis for any such
action exists except where such actions would not constitute a Material Adverse
Effect.
6.21 AFFILIATED TRANSACTIONS. Except as set forth on
SCHEDULE 6.21, to the knowledge of the Company, no affiliate of the Company has
any interest (other than as a non-controlling holder of securities of a
publicly-traded company), either directly or indirectly, in any person (whether
as an employee, officer, director, shareholder, agent, independent contractor,
security holder, creditor, consultant or otherwise) that currently (i) provides
any services or designs, produces and/or sells any products or product lines, or
engages in any activity which is the same, similar to or competitive with any
activity or business in which the Company is now engaged; (ii) is a supplier of,
customer of, creditor of, or has an existing contractual relationship with, the
Company; or (iii) has any direct or indirect interest in any asset or property
used by the Company or any property, real or personal, tangible or intangible,
that is necessary or desirable for the conduct of the business of the Company.
All transactions set forth on SCHEDULE 6.21 were negotiated and entered into on
an arms'-length basis
6.22 BANK ACCOUNTS. SCHEDULE 6.22 sets forth a complete
and accurate list of each bank or financial institution in which the Company has
an account or safe deposit box (giving the address and account numbers) and the
names of the persons authorized to draw thereon or to have access thereto.
6.23 BROKERS' AND FINDERS' FEES. Except as set forth on
SCHEDULE 6.23, the Company has not employed any broker, finder or financial
advisor or incurred any liability for fees or commissions payable to any broker,
finder or financial advisor in connection with the negotiations relating to or
the transactions contemplated by this Agreement.
6.24 REGISTRATION RIGHTS. Except as provided in the
Amended and Restated Registration Rights Agreement attached hereto as EXHIBIT B,
the Registration Rights Agreement between the Company, Papalios, Xxxxxxx
Xxxxxxxx Trust (as successor to Xxxx Xxxxxxxx) and Xxxxx dated May 10, 1996, or
the Supplement to Registration Rights Agreement between the Company and Xxxx
Xxxxxxxx dated July 31, 1996, the Company is presently not under any obligation
and has not granted any rights to register under the Securities Act any of its
outstanding securities or any of its securities that may be subsequently issued.
6.25 SMALL BUSINESS CONCERN. The Company acknowledges that
River Cities is a Federal licensee under the Small Business Investment Act of
1958, as amended (the "SBIA"). The Company, together with its "affiliates" (as
that term is defined in Title 13, Code of Federal Regulations, Section 121.103),
is a "small business concern" within the meaning of the SBIA, and the
regulations thereunder, including Title 13, Code of Federal Regulations, Section
121.101 ET SEQ. The information regarding the Company and its affiliates set
forth in the SBA Form 1031 delivered at the Closing is accurate and complete.
The Company does not presently engage in, and it shall not hereafter engage in,
any activities prohibited by the SBIA and the regulations thereunder, nor shall
the Company use, directly or indirectly, the proceeds from the sale of the
Series B Preferred Stock hereunder for any purpose for which a Small Business
Investment Company is prohibited from providing funds by the SBIA and such
regulations thereunder.
13
6.26 MATERIAL FACTS. To the knowledge of the Company, the
Company has provided the Investors with all the information reasonably available
to the Company that the Investors have requested for deciding whether to
purchase the Series B Preferred Stock. This Agreement and the documents or
written statements furnished by the Company to the Investors in connection with
the transactions contemplated hereby do not contain any untrue statement of a
material fact or omit to state any material fact necessary to make the
statements contained herein or therein, in light of the circumstances in which
they are made, not misleading, except, with respect to assumptions, projections
and expressions of opinions or predictions contained in the documents or written
materials furnished by the Company, the Company represents only that such
assumptions, projections and expressions of opinions and predictions were made
in good faith and the Company believes that there is a reasonable basis
therefor.
6.27 XXXXX DEBT REPAYMENT OBLIGATIONS. All payments due to
date by Xxxxx to Firstar, N.A., in connection with that certain term note issued
to Firstar in the original principal amount of $660,464.20 dated July 28, 1999
(the "Refinancing"), have been paid in full and when due and all payments due to
date by the Company to Xxxxx pursuant to that certain promissory note in the
principal amount of $1,000,000 dated May 10, 1996, have been paid in full and
when due. In connection with the Refinancing, Xxxxx repaid in full that certain
term note issued to Huntington National Bank in the original principal amount of
$800,000.
6.28 YEAR 2000 COMPLIANCE. All of the assets and products
of the Company that are material to its business and that contain (i) computer
hardware and/or software, and/or (ii) embedded chips/controllers with date-time
functionality, are or will be prior to January 1, 2000, "Year 2000 Compliant".
"Year 2000 Compliant" means such asset or product is able to provide all of the
following functions: (i) handle date information before, during and after
January 1, 2000, including but not limited to accepting date input, providing
date output, and performing calculations on dates or portions of dates; (ii)
function accurately and without interruption before, during and after January 1,
2000, without any change in operations associated with the advent of the new
century; (iii) respond to two-digit year-date input in a way that resolves the
ambiguity as to century in a disclosed, defined and predetermined manner; and
(iv) store and provide output of date information in ways that are unambiguous
as to century.
7. REPRESENTATIONS AND WARRANTIES OF THE INVESTORS. Each Investor
hereby represents and warrants to the Company, as of the date hereof and as of
the Closing Date, as follows:
7.1 Authorization; Binding Agreement. This Agreement and
the Amended and Restated Registration Rights Agreement have been duly
authorized, executed and delivered by the Investor and each constitutes the
legal, valid and binding obligation of the Investor enforceable against it in
accordance with its terms; except as (i) the enforceability thereof may be
limited by bankruptcy, insolvency or similar laws affecting the enforcement of
creditors' rights generally and (ii) the availability of equitable remedies may
be limited by equitable principles of general applicability.
14
7.2 INVESTMENT REPRESENTATIONS. The Investor is acquiring
the Series B Preferred Stock and the Common Stock issuable upon conversion
thereof (collectively the "Securities") solely for its own account as principal,
for investment purposes only and not with a view to resale or distribution
thereof in whole or in part, and the Investor has no present intention of
selling, granting any participation in, or otherwise distributing the
Securities. No other person has a direct or indirect beneficial interest in the
Securities to be acquired by the Investor hereunder and the Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participation to any third person, with respect to any
of the Securities.
7.3 ACCREDITED INVESTOR; RESIDENCE. River Cities is a
resident of the State of Ohio; Xxxxxx is a resident of the State of Florida;
each of the other Investors is a resident of the State of Kentucky. Each of the
Investors is an "accredited investor" as such term is defined under Regulation D
of the Securities Act.
7.4 RECEIPT OF INFORMATION; RESTRICTED SECURITIES. The
Investor acknowledges that the Securities are not being and will not be
registered under the Securities Act or the securities laws of any other
jurisdiction in reliance on exemptions thereunder. Accordingly, each certificate
evidencing the Securities shall be imprinted with the legend set forth in
Article FOURTH of the Amended Articles. The Investor acknowledges that the
Securities have not been and will not be approved or disapproved by the
Securities and Exchange Commission or any other governmental authority or agency
of any jurisdiction. The Investor represents that it has had an opportunity to
ask questions and receive answers from the Company regarding the terms and
conditions of the offering of the Series B Preferred Stock and the business,
properties, prospects, and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to the Investor or to which the Investor
had access. The Investor's representations under this Section 7, however, shall
not limit or modify the representations and warranties of the Company in Section
6 of this Agreement or the right of the Investor to rely thereon.
7.5 INVESTMENT EXPERIENCE. The Investor is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development and acknowledges that it can bear
the economic risk of the Investor's investment and has such knowledge and
experience in financial and business matters that the Investor is capable of
evaluating the merits and risks of the investment in the Securities. The
Investor also represents that it has not been organized for the purpose of
acquiring the Series B Preferred Stock.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained in this Agreement by the Company and
the Investors and any certificate or other instrument delivered by or on behalf
of such party pursuant to this Agreement shall survive the Closing and shall
continue so long as the Preferred Holders (as defined in Section 15 hereof),
individually or in the aggregate, hold capital stock of the Company in the form
of Senior Preferred Stock, Series B Preferred Stock, Common Stock or a
combination thereof equal to a
15
minimum of 1,000 shares (subject to adjustment for stock splits, combinations,
dividends and other similar events occurring on or after the Closing Date) of
Common Stock (a "Minimum Interest"). Each party shall have the right to rely on
each other party's representations and warranties made herein, notwithstanding
any investigation conducted by such party.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY THE COMPANY. The Company shall
indemnify and reimburse an Investor for any and all claims, losses, liabilities,
damages (including, without limitation, fines, penalties, and criminal or civil
judgments and settlements), costs (including, without limitation, court costs)
and expenses (including, without limitation, reasonable attorneys' and
accountants' fees) (hereinafter "Loss" or "Losses") suffered or incurred by the
Investor or any successors or assigns thereto as a result of or with respect to:
9.1.1 any breach or inaccuracy of any representation
or warranty of the Company set forth in this Agreement and the Exhibits hereto;
9.1.2 any breach of or noncompliance by the Company
with any covenant or agreement of the Company contained in this Agreement; and
9.1.3 any and all actions, suits, proceedings,
claims, demands, assessments and judgments incident to any of the foregoing.
9.2 INDEMNIFICATION BY XXXXX. Xxxxx shall indemnify and
reimburse an Investor for any Loss suffered or incurred by the Investor or any
successors or assigns thereto as a result of or with respect to:
9.2.1 any breach or inaccuracy of any representation
or warranty by Xxxxx set forth in the last sentence of Section 6.20.1 and
Section 6.27; and
9.2.2 any breach of or noncompliance by Xxxxx with
any covenant or agreement of Xxxxx contained in Section 10.6; and
9.2.3 any and all actions, suits, proceedings,
claims, demands, assessments and judgments incident to any of the foregoing.
9.3 INDEMNIFICATION BY AN INVESTOR. An Investor shall
indemnify and reimburse the Company and Xxxxx for any and all Losses suffered or
incurred by the Company or Xxxxx or any successors or assigns thereto as a
result of, or with respect to:
9.3.1 any breach or inaccuracy of any representation
or warranty of the Investor set forth in this Agreement and the Exhibits hereto;
9.3.2 any breach of or noncompliance by the Investor
with any covenant or agreement of the Investor contained in this Agreement; and
16
9.3.3 any and all actions, suits, proceedings,
claims, demands, assessments and judgments incident to any of the foregoing.
10. CONVENANTS OF THE COMPANY (AND XXXXX SOLELY WITH RESPECT TO
SECTION 10.6).
10.1 INSURANCE. The Company will use commercially
reasonable efforts to obtain, as soon as practicable after the Closing Date, but
not later than sixty (60) days after the Closing Date, additional term life
insurance on the life of Xxxxx in the face amount of $3,000,000 naming the
Company as loss payee and the Investors as collateral assignee of the proceeds.
The Company shall use commercially reasonable efforts to maintain such insurance
for so long as the Preferred Holders hold a Minimum Interest.
10.2 FINANCIAL REPORTING. For periods commencing on or
after the Closing Date, the Company shall deliver or cause to be delivered to
the Investors monthly and year-to-date balance sheets and income and cash flow
statements (each as compared to budget and the comparable prior year period), a
brief monthly written summary of operations and such other information and data
with respect to the Company as the Investors may reasonably request. Such
monthly reports shall be provided on or before 15 days following the end of each
month. Prior to the end of each fiscal year, the Company shall provide a
business plan and projections for the next fiscal year which are similar in
format to those provided by the Company historically. Annual audits of the
Company's financial statements for periods commencing on or after August 1, 1998
shall be performed by Deloitte & Touche or another independent accounting firm
reasonably acceptable to the Investor and copies thereof shall be delivered to
the Investors on or before the 120th day following the end of the Company's
fiscal year.
10.3 BOARD OF DIRECTORS.
10.3.1 The Restated Regulations of the Company
provide for a Board of Directors of seven members. So long as the Preferred
Holders hold a Minimum Interest and do not possess the rights set forth in
Section 12.2.2 below, Xxxxx and the Investors shall vote their respective
Preferred Stock in a manner intended to cause the following composition of the
Board of Directors: the Investors shall designate one director, Xxxxx and the
other holders of Common Stock shall designate four directors (one of whom must
be Xxxxx), and Xxxxx and the other holders of Common Stock shall designate two
directors (who must be non-employees and not related to an employee) who must be
reasonably acceptable to the Investors. The initial directors are currently
expected to include Xxxxx, Xxxx Xxxxxxxx (an employee director designated by
Xxxxx and the other holders of Common Stock), Xxxx Xxxx (a non-employee director
designated by Xxxxx and the other holders of Common Stock and reasonably
acceptable to the Investors), and Xxxxxx X. Xxxxxx (designated by and related to
the Investors). The remaining vacancies on the seven member Board of Directors
shall be filled by Xxxxx and the other holders of Common Stock in accordance
with the above requirements as soon as practicable.
10.3.2 The Company shall reimburse the director
designated by the Investors for the reasonable travel expenses incurred in
connection with meetings of the Board of
17
Directors. Pursuant to the Restated Regulations, the Board of Directors shall
also have a Compensation Committee and an Audit Committee, each of which shall
be comprised of three directors. So long as the Preferred Holders hold a Minimum
Interest, Xxxxx and the Investors shall use their best efforts to cause at least
two of the members of each such committee to be non-employee (and not related to
an employee) directors and one of those two shall be designated by the
Investors. The Compensation Committee shall be responsible for initiating all
decisions regarding the compensation of the directors, executive officers and
senior management of the Company, including, but not limited to, all decisions
regarding salary increases, bonus awards, perquisites and stock option awards.
The Audit Committee shall supervise the annual audit of the Company and
undertake such other responsibilities and duties as the Board of Directors of
the Company may from time to time designate.
10.4 RESERVATION OF SHARES. So long as any shares of
Preferred Stock are outstanding, the Company shall reserve and keep reserved at
all times sufficient shares of Common Stock for issuance upon conversion of the
Preferred Stock. Upon conversion of any shares of Preferred Stock, the Company
shall promptly issue and deliver the shares of Common Stock required to be
delivered.
10.5 USE OF PROCEEDS. The proceeds from the sale of the
Series B Preferred Stock shall be used by the Company for working capital
and/or the payment of indebtedness.
10.6 XXXXX DEBT REPAYMENT OBLIGATIONS. Xxxxx shall remain
current in her principal and interest payments to Firstar Bank, N.A. pursuant to
the Refinancing, in accordance with that certain term note in the original
principal amount of $660,464.20 dated July 28,1999, as such indebtedness may be
restructured and/or refinanced from time to time.
10.7 COMPLIANCE WITH SMALL BUSINESS INVESTMENT ACT. The
Company agrees to provide each Investor with sufficient information to permit
the Investor to comply with its obligations under the SBIA and the regulations
thereunder. Upon reasonable request, the Company shall also provide each
Investor with (i) reasonable access to the Company's properties, places of
business, records (including financial records) and offices during normal
business hours and (ii) the opportunity to discuss the affairs, finances and
accounts of the Company with the officers of the Company. Each Investor and
representatives of the SBA shall be given reasonable access to the Company's
records to confirm that the proceeds received by the Company in connection with
the consummation of the transactions contemplated by this Agreement are used for
the purposes set forth in Section 10.5 hereof. The President of the Company
shall certify to the Investors, within three months of the date of the First
Closing Date and from time to time thereafter, that the Company has used the
proceeds in accordance with the purposes set forth in Section 10.5 hereof.
10.8 NEGATIVE COVENANTS. So long as any shares of Preferred
Stock are outstanding, the Company shall not, without the prior written consent
of the holders of a majority of the shares of Preferred Stock then outstanding:
10.8.1 sell a material portion of the Company's
assets;
18
10.8.2 merge or sell a controlling interest in the
Company (except in the case of a Qualified Sale (as defined below) and except
that the Company may, without the consent of the holders of the Preferred stock,
merge with another entity if the Company (or its subsidiary) is the surviving
corporation and the consideration paid by the Company (or its subsidiary) for
the merged entity's securities is cash);
10.8.3 amend the Amended Articles or the Restated
Regulations in any manner, the consent of the holders of the Preferred Stock to
which shall not be unreasonably withheld;
10.8.4 declare dividends or distributions (other than
the minimum tax distributions required by the Shareholders Agreement) to, and/or
redemptions or repurchases of any securities other than the Preferred Stock or
pursuant to buy-sell agreements between the Company and its employees;
10.8.5 become a party to, modify, amend or restate
the terms of any agreement which restricts or would restrict the rights of the
Preferred Stock; provided, however, that, without restricting or limiting an
Investor's ability to exercise its remedies pursuant to Section 12.2 or any
other section hereof, the Company may enter into credit agreements that restrict
the Company's ability to pay dividends on or repurchase the Preferred Stock if
such restrictions are required by the lender;
10.8.6 make any significant change in the fundamental
nature of the Company's business not contemplated in its existing business plan;
10.8.7 create a subsidiary or make an investment in
any entity;
10.8.8 enter into transactions with affiliates other
than on an arms'-length basis and on commercially reasonable terms; or
10.8.9 issue or sell Common Stock without
consideration.
10.9 DEFINITION OF A QUALIFIED SALE. A Qualified Sale is a
sale transaction which yields the Investors at least an amount in cash equal to
the greater of: (i) return of the aggregate purchase price of the Preferred
Stock purchased by the Investors from the Company, plus a compounded annual
return of 20% on such amount or (ii) two times the aggregate purchase price of
the Preferred Stock purchased by the Investors from the Company.
11. RESTRICTIONS OF TRANSFERS.
11.1 NOTICE OF SALE BY XXXXX. In the absence of and until
a Qualified IPO (as defined below), Xxxxx shall give written notice to the
holders of the Preferred Stock and the Company if at any time she desires to
sell or transfer any of her shares ("Notice of Sale"). The Notice of Sale shall
set forth a description of the proposed sale or transfer, including the name of
19
the proposed purchaser or transferee, the number of shares affected, the
purchase price or consideration and any other conditions of the sale or
transfer. For a period of ten days following receipt of such Notice of Sale, the
Investors shall have the right to prohibit such sale or transfer by Xxxxx. The
holders of a majority of the shares of Preferred Stock then outstanding shall
notify Xxxxx and the Company in writing within ten days of receipt of the Notice
of Sale of their intention to either allow or prohibit the proposed sale or
transfer ("Notice Reply").
11.2 DEFINITION OF QUALIFIED IPO. A Qualified IPO is an
initial public offering which yields net proceeds to the Company of at least
$30,000,000 at a price per share indicating a total market equity capitalization
(post-money) of at least $90,000,000.
11.3 CO-SALE RIGHT. If the holders of the majority of the
shares of Preferred Stock then outstanding do not prohibit the proposed sale or
transfer of shares by Xxxxx pursuant to Section 11.1, for a period of 30 days
following the receipt by the holders of the Preferred Stock of the Notice of
Sale, each holder of Preferred Stock shall have the right to elect to
participate in such sale or transfer with Xxxxx (on a pro rata basis, I.E., if
Xxxxx owns 75 shares of Common Stock and such holder owns 25 shares of Preferred
Stock, the holder may sell one-fourth of the shares proposed to be sold by
Xxxxx) on the same terms and conditions and for the price or consideration
designated in the Notice of Sale. Notice of the holder's intention to
participate in such sale or transfer shall be evidenced by a writing signed by
the holder and delivered to Xxxxx prior to the end of the 30th day following the
holders' receipt of the Notice of Sale. If the holder fails to notify Xxxxx
within such 30-day period of its intent to participate in such sale, its rights
under this Section 11.3 shall be waived with respect to the proposed sale or
transfer by Xxxxx.
11.4 RIGHTS OF REFUSAL. If the holders of a majority of
the shares of Preferred Stock then outstanding do not prohibit the proposed sale
or transfer of shares by Xxxxx pursuant to Section 11.1, for a period of 30 days
following the Company's receipt of the Notice of Sale, the Company shall have
the right to purchase all but not less than all of the shares designated in the
Notice of Sale on the same terms and conditions and for the price or
consideration designated therein (the "First Right of Refusal"). If the Company
does not exercise its First Right of Refusal, then, for a period of 30 days
following the receipt by the holders of the Preferred Stock of notice from the
Company of the Company's decision not to exercise its First Right of Refusal,
the holders of the Preferred Stock shall' have the right to purchase all but not
less than all of the shares from Xxxxx on the same terms and conditions and for
the price or consideration designated in the Notice of Sale (the "Second Right
of Refusal"). At the sole option of the holders of a majority of the shares of
Preferred Stock then outstanding, the Company may be permitted to participate
with the holders of the Preferred Stock in the purchase of the shares pursuant
to the Second Right of Refusal so long as the holders of the Preferred Stock and
the Company together purchase all but not less than all of the shares.
Notice of the Company's intention to purchase the shares pursuant to
its First Right of Refusal shall be evidenced by a writing signed by the Company
and delivered to Xxxxx prior to the end of the 30th day following the Company's
receipt of the Notice of Sale. Notice of the intention of the holders of the
Preferred Stock to purchase the shares evidenced by their Second
20
Right of Refusal shall be evidenced by a writing signed by the holders of the
Preferred Stock and delivered to Xxxxx prior to the end of the 30th day
following the later of the holders' receipt of the Notice of Sale or the
holders' receipt of the notice of the Company's decision not to exercise its
First Right of Refusal.
In the event the holders of the Preferred Stock do not exercise their
Second Right of Refusal, Xxxxx shall have the right to sell or transfer the
shares designated in the Notice of Sale on the same terms and conditions and for
the price or consideration designated therein within 60 days from the expiration
of the period during which the holders had the option to purchase the shares
pursuant to its Second Right of Refusal. After such 60-day period, Xxxxx shall
not transfer Xxxxx'x shares again without complying with this Section 11.
11.5 EXCEPTIONS. Sections 11.1, 11.3, and 11.4 shall not
apply (a) to any sale or transfer by Xxxxx for estate planning purposes or
to her ancestors, siblings, descendants or spouse, (b) if the Preferred
Holders no longer hold a Minimum Interest, or (c) to sales or transfers of up
to 4,000 shares in the aggregate (subject to adjustment for stock splits,
combinations, dividends and other similar events) to employees of the Company.
11.6 RIGHT OF FIRST REFUSAL. In the absence of and until a
Qualified IPO, if a holder of Preferred Stock desires to sell or transfer any of
its Preferred Stock pursuant to a bona fide offer, the holder shall first give
notice (the "Notice of Intent") to the Company. The Notice of Intent shall set
forth the terms of the bona fide offer, including the name(s) of the proposed
transferee(s), the type and number of securities proposed to be transferred and
the price or consideration for the securities proposed to be transferred.
For a period of 30 days following receipt of such Notice of Intent, the
Company shall have the right to purchase all (but not less than all) of the
Preferred Stock designated in the Notice of Intent on the same terms and
conditions and for the price or consideration designated therein. Notice of the
Company's intention to purchase such Preferred Stock shall be evidenced by a
writing signed by the Company and delivered to the holder prior to the end of
the 30th day following the Company's receipt of the Notice of Intent.
In the event the Company does not exercise its Right of First Refusal,
the holder shall have the right to sell or transfer the Preferred Stock
designated in the Notice of Intent on the same terms and conditions and for the
price or consideration and to the proposed transferee designated therein within
60 days from the expiration of the period during which the Company had the
option to purchase such Preferred Stock. Notwithstanding the foregoing, the
holder may not transfer any Preferred Stock pursuant to this Section 11.6 to
those persons competitive with the Company which are described on Schedule 11.6
without the consent of the Company. This Section 11.6 shall not apply to any
distribution in kind by a holder to its partners, members or shareholders
pursuant to Section 15.
11.7 RIGHT OF FIRST OFFER. In the absence of and until a
Qualified IPO, if a holder of Preferred Stock desires to sell or transfer any of
its Preferred Stock (except pursuant to a bona fide offer received by the holder
in accordance with Section 11.6), the holder shall first
21
give a Notice of Intent to the Company. The Notice of Intent shall set forth the
number of shares of Preferred Stock which the holder desires to sell.
For a period of 30 days following receipt of such Notice of Intent, the
Company shall have the right to negotiate a transaction with the holder whereby
the Company will purchase for cash all (but not less than all) of the Preferred
Stock designated in the Notice of Intent at a price and upon other terms and
conditions acceptable to the holder and the Company. Any such purchase shall be
consummated on or prior to the 60th day after the Company's receipt of the
Notice of Intent.
If (a) the Company elects not to exercise the right provided in this
Section 11.7, (b) the Company and the holder cannot agree on the terms and
conditions of a purchase by the Company during such 30 day period, or (c) the
Company and the holder shall agree on the terms and conditions of such purchase
but the Company shall fail to pay the purchase price in a timely manner, then
the holder may sell the Preferred Stock designated in the Notice of Intent at a
price and on terms not more favorable to the purchaser than the price and terms
offered to the Company. The holder may sell such Preferred Stock during the
period ending on the 150th day following the later of the end of such 30 day
period and the date on which the Company fails to pay such price. If the holder
does not sell such Preferred Stock in such 150 day period, the Preferred Stock
shall again be subject to this Section 11.7. This Section 11.7 shall not apply
to any distribution in kind by the holder to its partners or shareholders
pursuant to Section 15. Notwithstanding the foregoing, the holder may not
transfer any Preferred Stock pursuant to this Section 11.7 to those persons
competitive with the Company which are described on SCHEDULE 11.6 without the
consent of the Company.
11.8 RESTRICTIVE LEGEND. The share certificates evidencing
the shares subject to the foregoing provisions of this Section 11 shall bear
appropriate legends referring to the restrictions on transfer.
11.9 PREEMPTIVE RIGHTS. In the absence of and until a
Qualified IPO, each holder of Preferred Stock shall have the right of first
refusal to purchase all or part of its pro rata share (equal to its percentage
ownership of the Company on a fully diluted basis) of New Preferred Stock (as
defined below) that the Company may, from time to time, propose to sell and
issue, subject to the terms and conditions set forth below. "New Securities"
shall mean any capital stock of the Company whether now authorized or not, and
rights, options, or warrants to purchase capital stock, and securities of any
type whatsoever that are, or may become, convertible into capital stock,
provided, however, that the term "New Securities" does not include (i) the
Series B Preferred Stock issuable under this Agreement or the shares of Company
Stock issuable upon conversion of the Series B Preferred Stock or the Senior
Preferred Stock; (ii) securities issued pursuant to an acquisition; (iii)
options granted or securities issued pursuant to an employee or director stock
option program; or (iv) securities issued as a result of any stock split, stock
dividend, or reclassification of Common Stock, distributable on a pro rata basis
to all holders of Common Stock. In the event the Company intends to issue New
Securities, it shall give written notice to the holders of Preferred Stock
("Notice of Issuance") which shall set forth the purchase price and any other
conditions of the issuance. Each holder of Preferred Stock shall
22
have 30 days from the date of Notice of Issuance to agree to purchase all or
part of its pro rata share of such New Securities for the price and upon the
general terms and conditions specified in the Notice of Issuance by giving
written notice to the Company stating the quantity of New Securities to be so
purchased.
The Company shall have the right during the period expiring 150 days
after the giving of the Notice of Issuance to sell any or all of such New
Securities not purchased by the holders of Preferred Stock at a price and upon
general terms no more favorable to the purchasers than specified in the Notice
of Issuance. In the event that the Company has not sold such New Securities
within such 150 day period, the Company shall not thereafter issue or sell any
New Securities without first offering such New Securities to the holders of
Preferred Stock in the manner provided in this Section 11.9.
12. DEFAULT.
12.1 EVENTS OF DEFAULT. The occurrence of any of the
following events shall constitute an "Event of Default":
12.1.1 a material breach of any representation, warranty or
covenant of the Company or Xxxxx contained herein or in the exhibits hereto
or in the Senior Preferred Stock purchase Agreement or the exhibits thereto;
12.1.2 any default in the performance by the Company or
Xxxxx of any other material term of this Agreement or of the Senior Preferred
Stock Purchase Agreement or a declared event of default under any loan
agreement or financing agreement to which the Company is a party (following
any applicable cure period contained in such loan agreement or financing
agreement);
12.1.3 the adjudication of the insolvency of the Company or
the filing by or against the Company of any proceedings in bankruptcy,
reorganization or receivership (unless such proceedings are stayed or
dismissed), any assignment by the Company for the benefit of creditors or the
exercise of control rights by any secured lender of the Company; or
12.1.4 the failure of the Company to redeem or repurchase
the Preferred Stock or converted shares in accordance with the terms of this
Agreement, the Senior Preferred Stock Purchase Agreement and the Amended
Articles.
12.2 REMEDY. Upon the occurrence of any Event of Default,
the holders of a majority of the Preferred Stock then outstanding may, at
their option, elect either of the following rights and remedies:
12.2.1 require the Company to redeem all but not less than
all of the Preferred Stock (including repurchase of conversion stock) at a
price equal to the greater of (i) the aggregate original issue price of the
Preferred Stock plus any accrued and unpaid dividends or (ii) the Fair Market
Value (as defined below) thereof, including any accrued and unpaid dividends;
or
12.2.2 as authorized by the Amended Articles, the holders
of a majority of the Preferred Stock then outstanding shall have the right to
elect a majority of the Board of Directors of the Company and to vote two
thirds (2/3) of the combined voting power within the Company until the Event
of Default is cured, and such majority of the Board of Directors may vote to
require the Company to redeem the Preferred Stock in accordance with Section
12.2.1 above.
The "Fair Market Value" per share shall take into account
the liquidation preference of the Preferred Stock provided in the Amended
Articles but not any discount for lack of marketability or for the minority
interest and shall be determined by a qualified, independent appraiser
experienced in valuation of shares of companies similar to the Company (the
"Qualified Appraiser") acceptable to both the Company (with the decision of
the Company being exercised by a majority of the directors who were not
designated by the holders of the Preferred Stock) and the holders of a
majority of the Preferred Stock then outstanding. If the holders of a
majority of the Preferred Stock then outstanding and the Company are unable
to agree upon a Qualified Appraiser, each of them shall separately designate
a person and those two persons shall jointly designate a Qualified Appraiser.
The Qualified Appraiser's determination of the Fair Market Value of the
Preferred Stock shall be conclusive and binding upon the parties. The fees
and expenses of the Qualified Appraiser shall be borne one-half by the
holders of the Preferred Stock and one-half by the Company.
12.3 DIVERSION OF PROCEEDS. In addition, any diversion by
the Company of the proceeds hereunder from the Use of Proceeds as set forth in
Section 10.5 hereof shall constitute a default requiring the immediate
redemption of the Investor's interest in the Company and full refund of the
purchase price, plus interest at 14% per annum.
12.4 LOSS OF XXXXX. In addition, so long as the holders of
the Preferred Stock hold a Minimum Interest, in the event of the death,
permanent disability or termination of full time employment of Xxxxx, except for
a termination by the Company other than for "cause" or a termination by Xxxxx
for "good reason" (as those terms are defined in the Employment Agreement
between Xxxxx and the Company), upon six months written notice to the Company,
the holders of a majority of the Preferred Stock then outstanding may require
the Company to redeem all but not less than all of the Preferred Stock
(including the conversion stock) for the higher of (i) aggregate original issue
price of the Preferred Stock plus any accrued and unpaid dividends or (ii) Fair
Market Value of the Preferred Stock, as determined in accordance with Section
12.2. Permanent disability shall occur whenever Xxxxx, due to ill health,
physical or mental disability for a period of 180 consecutive working days, is
unable or otherwise fails to perform the essential functions of her job. If the
holders of a majority of the Preferred Stock then outstanding and the Company
are unable to agree as to whether Xxxxx is permanently disabled, the question of
permanent disability shall be submitted to three physicians, one of whom shall
be appointed by the holders of a majority of the Preferred Stock then
outstanding, one of whom shall be appointed by Xxxxx'x representative and one of
whom shall be appointed by the first two appointed physicians. The decision of
any two of the three physicians shall be final and binding. If the question of
permanent disability is raised, Xxxxx shall submit to a medical examination by
such physicians and the holders of the Preferred Stock shall have access to the
findings of the physicians. This Section 12.4 shall be of no force or effect for
such time as the Company employs a Chief Operating Officer (other than Xxxxx)
who is reasonably acceptable to the holders
23
of a majority of the Preferred Stock then outstanding, or if a Chief Operating
Officer has been appointed but is no longer employed by the Company, for such
time as the Company is actively seeking such a Chief Operating Officer.
Notwithstanding the foregoing, this Section 12.4 shall terminate and be of no
further force and effect as of August 27, 2000.
13. PUBLIC STATEMENTS. Neither the Company, Xxxxx nor the
Investors shall, without the prior written approval of the other parties hereto,
make any press release or other public announcement concerning the transactions
contemplated by this Agreement, provided, however, that an Investor may issue a
"tombstone" advertisement stating the amount of its investment in the Company.
Each Investor, the Company and Xxxxx may disclose additional information with
respect to the transactions contemplated hereby to their respective employees,
agents, consultants and third parties only to the extent such persons have a
need to know such information.
14. NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be mailed by
first class, registered, or certified mail, postage prepaid, or sent via
overnight courier service, or delivered personally:
If to River Cities, to: River Cities Capital Fund II Limited Partnership
ATTN: Xxxxxx X. Xxxxxx
000 Xxxx Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, Xxxx 00000-0000
With a copy to: Xxxxxxx, Head & Xxxxxxx
ATTN: Xxxxxxx X. Xxxxxxxxxx, Esq.
0000 Xxxxx Xxxxx Xxxxxx
000 Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000-0000
If to JG, to: JG Funding, LLC
ATTN: Xxxxx Xxxxx, Jr.
1850 National City Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
If to Xxxxxxxx, to: Xxxxxxxx Capital Group, LLC
ATTN: Xxxxxx X. Xxxxxxxx
1850 National City Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
If to Xxxxxx, to: Xxxxxx X. Xxxxxx XX
c/x Xxxxxx Capital Corporation
000 Xxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
24
If to the Company or
Xxxxx, to: DPEC, Inc.
ATTN: Xxxxx X. Xxxxx
Building 3
000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx, Xxxx 00000
With a copy to: Vorys, Xxxxx, Xxxxxxx and Xxxxx LLP
ATTN: Xxxxxxx X. Xxxxx, Esq.
00 Xxxx Xxx Xxxxxx
Xxxxxxxx, Xxxx 00000
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
15. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties to this Agreement shall bind and inure to the benefit of
their respective heirs, executors, successors, and permitted assigns, whether so
expressed or not. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. This Agreement and the rights
and obligations under this Agreement are not assignable and any purported
assignment shall be null and void, provided that, subject to the provisions of
Sections 11.6 and 11.7, prior to the termination of an Investor's fund and the
resulting distribution in kind by the Investor to its partners, members or
shareholders, an Investor may assign its rights and obligations under this
Agreement to an affiliate and/or a maximum of two unrelated assignees, and, upon
the termination of an Investor's fund and the resulting distribution in kind by
the Investor to its partners, members or shareholders, the Investor may assign
its rights and obligations under this Agreement to any and all of its partners,
members or shareholders (all of such permitted assignees being collectively
referred to as the "Preferred Holders"). Notwithstanding such permitted
assignment, the Investor shall not be released from its obligations hereunder.
16. CONSTRUCTION; GOVERNING LAW. The section headings contained in
this Agreement are inserted as a matter of convenience and shall not affect in
any way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of Ohio as
applied to agreements entered into and performed entirely within Ohio. The
parties agree that any actions brought in connection with this Agreement or the
transactions contemplated hereby shall be filed and heard in Xxxxxxxx County,
Ohio, and each party submits to the jurisdiction of the Court of Common Pleas of
Xxxxxxxx County, Ohio, and to the United States District Court for the Southern
District of Ohio.
25
17. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement,
including the Schedules and Exhibits hereto, constitutes and contains the entire
agreement between the parties hereto with respect to the transactions
contemplated hereby and supersedes any prior writing by the parties. Any term of
this Agreement may be amended and the observance of any term of this Agreement
may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company,
Xxxxx and the holders of a majority of the shares of the Preferred Stock then
outstanding). Any amendment or waiver effected in accordance with this paragraph
shall be binding upon the Investors, each other holder of any Preferred Stock
purchased under this Agreement at the time outstanding (including Common Stock
into which such Preferred Stock have been converted), each future holder of any
such Preferred Stock, Xxxxx and the Company.
18. SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability
of the remaining provisions.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
20. EXPENSES. The Company agrees, upon consummation of the
transactions contemplated by this Agreement, to pay, against receipt of the
documentation therefor in reasonable detail, up to $22,500 of the reasonable
legal and out-of-pocket expenses incurred by the Investors in connection with
this Agreement and the transactions contemplated hereunder, including, without
limitation, all fees and expenses of legal counsel, accountants and other
advisers engaged by the Investors in connection with this Agreement and the
transactions contemplated hereunder.
21. TIME OF ESSENCE. Time is of the essence to the performance of
the obligations set forth in this Agreement.
22. CONFIDENTIALITY AGREEMENT. At the request of the Company, an
Investor and any subsequent holder of Preferred Stock or the conversion stock
shall execute and deliver to the Company a confidentiality letter in a form
reasonably acceptable to the Investor.
23. ATTORNEYS' FEES. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the Amended and
Restated Registration Rights Agreement, any Ancillary Agreement or the Amended
Articles, the prevailing party shall be entitled to reasonable attorneys' fees,
costs, and disbursements in addition to any other relief to which such party may
be entitled.
24. RIGHTS OF THE INVESTORS. The holders of a majority of the
shares of Preferred Stock then outstanding shall have the absolute right to
exercise or refrain from exercising any rights that the Investors may have by
reason of this Agreement, including without limitation the right to consent to
the waiver of any obligation of Company under this Agreement and to enter into
an agreement with Company for the purpose of modifying this Agreement or any
agreement
26
effecting any such modification, and shall not incur any liability to
any other holder or holders of Preferred Stock with respect to exercising or
refraining from exercising any such rights and all other holders of Preferred
Stock shall be bound by such exercising or refraining from exercising any such
rights.
25. TERMINATION UPON A QUALIFIED IPO. Notwithstanding anything to
the contrary contained in this Agreement, this Agreement shall terminate upon
the closing of a Qualified IPO.
26. TERMINATION OF CERTAIN PROVISIONS. Sections 4, 10, 11 and 12
of the Senior Preferred Stock Purchase Agreement are hereby terminated and shall
be of no further force and effect.
27. PRONOUNS. Use of male, female and neuter pronouns in the
singular or plural in this Agreement shall be understood to include each of the
other pronouns as the context requires.
IN WITNESS WHEREOF, the Company, Xxxxx and the Investors have caused
this Agreement to be executed as of the day and year first above written.
INVESTORS
RIVER CITIES CAPITAL FUND II
LIMITED PARTNERSHIP
By: /s/ Xxxxx X. Xxxxxxxx
-------------------------------------------
Xxxxx X. Xxxxxxxx, President of Xxxxxx,
Inc., the General Partner of River Cities
Fund II Limited Partnership
Address: Suite 2250
000 Xxxx Xxxxxx Xxxxxx
Xxxxxxxxxx, Xxxx 00000-0 147
27
JG FUNDING, LLC
By: /s/ Xxxxx Xxxxx, Jr.
--------------------------------------------
Xxxxx Xxxxx, Jr., Manager of Chrysalis
Ventures, LLC, the Manager of JG Funding,
LLC
Address: 1850 National City Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
XXXXXXXX CAPITAL GROUP, LLC
By: /s/ Xxxxxx X. Xxxxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxxxx, Manager
Address: 1850 National City Tower
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxxx 00000
/s/ Xxxxxx X. Xxxxxx
--------------------------------------------
Xxxxxx X. Xxxxxx XX
Address: c/x Xxxxxx Capital Corporation
000 Xxxxx Xxxxxx, Xxxxx 000
Xxxx Xxxxx, Xxxxxxx 00000
COMPANY
DPEC, INC.
By: /s/ Xxxxx X. Xxxxx
--------------------------------------------
Xxxxx X. Xxxxx, President
Address: 000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx 0
Xxxxxxxx, Xxxx 00000
28
XXXXX
By: /s/ Xxxxx X. Xxxxx
--------------------------------------------
Xxxxx X. Xxxxx
Address: 000 Xxxx Xxxxx Xxxxxx
Xxxxxxxx 0
Xxxxxxxx, Xxxx 00000
29
