SECURITIES PURCHASE AGREEMENT
among
MEDPLUS, INC.
and
THE SEVERAL PURCHASERS NAMED IN EXHIBIT 1.01
Dated as of April 30, 1999
TABLE OF CONTENTS
Page
ARTICLE I - PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS 1
1.01 The Notes 1
1.02 The Preferred Shares 2
1.03 The Warrants 2
1.04 Purchase and Sale of Notes, Preferred Shares and Warrants 2
1.05 Payments and Endorsements 3
1.06 Redemptions 3
1.07 Payment on Non-Business Days 3
1.08 Registration, etc. 3
1.09 Transfer and Exchange of Notes 4
1.10 Replacement of Notes 4
1.11 Subordination 4
1.12 Acceleration 4
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY 5
2.01 Organization, Qualifications and Corporate Power 5
2.02 Authorization of Agreements, Etc. 6
2.03 Validity 6
2.04 Authorized Capital Stock 6
2.05 Company SEC Reports and Financial Statements 7
2.06 Events Subsequent to the Balance Sheet Date 8
2.07 Litigation; Compliance with Law 9
2.08 Proprietary Information of Third Parties 9
2.09 Patents, Trademarks, Etc. 9
2.10 Title to Properties 10
2.11 Leasehold Interests 10
2.12 [Reserved] 10
2.13 Taxes 10
2.14 Other Agreements 11
2.15 Loans and Advances 12
2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons 13
2.17 Significant Customers and Suppliers 13
2.18 Governmental Approvals 13
2.19 Disclosure 13
2.20 Offering of the Notes, Preferred Shares and Warrants 13
2.21 Brokers 14
2.22 Transactions With Affiliates 14
2.23 Employees 14
2.24 U.S. Real Property Holding Corporation 14
2.25 Environmental Protection 14
2.26 ERISA 15
2.27 Foreign Corrupt Practices Act 16
2.28 Federal Reserve Regulations 16
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS 16
ARTICLE IV - CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS AND
THE COMPANY
4.01 Conditions to the Obligations of the Purchasers 17
4.02 Conditions to the Obligations of the Purchasers 17
ARTICLE V - COVENANTS OF THE COMPANY 20
5.01 Information 20
5.02 Reserve for Conversion Shares and Warrant Shares. 21
5.03 Restrictive Agreements Prohibited 22
5.04 Use of Proceeds 22
5.05 Activities of Subsidiaries 22
5.06 U.S. Real Property Interest Statement 22
5.07 International Investment Survey Act of 1976 23
5.08 Consolidation, Merger of Disposition of Assets 23
5.09 Election of Directors 23
5.10 No Merger, Consolidation, etc 24
5.11 Opinion Regarding Subsidiaries 24
5.12 Termination of Covenants 24
ARTICLE VI EVENTS OF DEFAULT 24
6.01. Events of Default 24
6.02. Annulment of Defaults 25
ARTICLE VII COVENANTS OF THE MANAGING SHAREHOLDER 26
7.01 Tag-Along Rights 27
7.02 Termination 28
ARTICLE VIII - MISCELLANEOUS 28
8.01 Expenses 28
8.02 Survival of Agreements 28
8.03 Brokerage 28
8.04 Parties in Interest 28
8.05 Notices 28
8.06 Governing Law 29
8.07 Entire Agreement 29
8.08 Counterparts 29
8.09 Amendments 29
8.10 Severability 29
8.11 Titles and Subtitles 29
8.12 Indemnification 30
8.13 Remedies Cumulative 30
8.14 Remedies Not Waived 30
INDEX TO EXHIBITS
EXHIBIT 1.01 Purchasers
EXHIBIT 1.01a Form of Subordinated Note
EXHIBIT 1.02 Charter and All Amendments thereto
EXHIBIT 1.03 Form of Warrant
EXHIBIT 2.01 Form of Registration Rights Agreement
EXHIBIT 2.23 Form of Employee Nondisclosure and
Developments
Agreement
EXHIBIT 4.02 Form of Company Counsel Opinion
EXHIBIT 4.02A Shareholders to Deliver Proxies
EXHIBIT 4.02B Form of Proxy
MedPlus, Inc.
0000 Xxxxxxxx'x Xxxx Xxxxx, Xxxxx 000
Xxxxxxxxxx, XX 00000
As of April 30, 1999
To: The Persons listed on Exhibit 1.01 hereto
Re: Subordinated Notes due 2004, Series A Preferred Stock
and
Series A Preferred Stock Purchase Warrants
Ladies and Gentlemen:
MedPlus, Inc., an Ohio corporation (the "Company"), hereby agrees
with the Persons listed on Exhibit 1.01 hereto (each, a
"Purchaser" and collectively, the "Purchasers") as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01 The Notes. The Company has authorized the issuance and sale
of the Company's Subordinated Notes, due 2004, in the original
aggregate principal amount of $2,000,000 to the Purchasers in the
respective amounts set forth in Exhibit 1.01 hereto. The
Subordinated Notes shall be substantially in the form set forth in
Exhibit 1.01A hereto and are herein referred to individually as a
"Note" and collectively as the "Notes", which terms shall also
include any notes delivered in exchange or replacement therefor.
The Notes shall provide that if the Preferred Share and Warrant
Closing (as defined below) has not occurred prior to July 30,
1999, then (i) the entire amount of principal and interest which
remains unpaid shall become due and payable as of November 28,
1999, (ii) the Company shall immediately issue, for no additional
consideration, to the holders of the Notes that number of shares
of the Company's Common Stock, no par value (the "Common Stock"),
as is equal in the aggregate to ten percent (10%) of the aggregate
number of issued and outstanding shares of Common Stock, on a
fully diluted basis, as of such date and (iii) on December 31,
1999 and on the last day of each calendar month thereafter, if any
amount of principal or interest under the Notes remains
outstanding on such date, the Company shall issue, for no
additional consideration, to the holders of the Notes that number
of shares of the Common Stock as is equal to two percent (2%) of
the aggregate number of issued and outstanding shares of Common
Stock on a Fully Diluted basis, as of such date, up to a maximum
of 19.9% of the Common Stock on a Fully Diluted basis. The Notes
will provide that that Company will issue, and the Company
covenants to issue, on the Preferred Share and Warrant Closing
Date (as defined below) to the Purchasers warrants in the form
attached thereto as Exhibit A to purchase shares of Series A
Convertible Preferred Stock (as defined below), unless the
Preferred Share and Warrant Closing Date does not occur prior to
July 30, 1999, in which event the Company will issue on July 30,
1999 to the Purchasers warrants in the form attached thereto as
Exhibit B to purchase shares of Common Stock. Any warrants issued
or issuable pursuant to the Notes are referred to herein as the
"Note Warrants", any shares of Common Stock issued or issuable
upon exercise of any Note Warrants are referred to herein as the
"Note Warrant Common Shares", and any shares of Series A
Convertible Preferred Stock issued or issuable upon exercise of
any Note Warrants are referred to herein as the "Note Warrant
Preferred Shares".
1.02 The Preferred Shares. Subject to shareholder
approval, the Company has also authorized the issuance and sale of
an aggregate of 2,371,815 shares (the "Preferred Shares") of a
Series A Convertible Preferred Stock, $.01 per share (the "Series
A Convertible Preferred Stock") at a purchase price of $1.729 per
share to the Purchasers in the respective amounts set forth in
Exhibit 1.01 hereto. The designation, rights, preferences and
other terms and conditions relating to the Series A Convertible
Preferred Stock shall be as set forth on Exhibit 1.02 hereto.
1.03 The Warrants. Subject to shareholder approval, the Company
has also authorized the issuance and sale of the Company's
Series A Convertible Preferred Stock Purchase Warrants (the
"Purchase Warrants") for the purchase (subject to adjustment as
provided therein) of 759,562 shares (the "Purchase Warrant Shares"
and together with the Note Warrant Preferred Shares, the "Warrant
Shares") of the Company's Series A Convertible Preferred Stock to
the Purchasers in the respective amounts set forth in Exhibit 1.01
hereto. The Purchase Warrants shall be substantially in the form
set forth in Exhibit 1.03 hereto and are herein referred to,
together with the Note Warrants, individually as a "Warrant" and
collectively as the "Warrants", which terms shall also include any
warrants delivered in exchange or replacement therefor.
1.04 Purchase and Sale of Notes, Preferred Shares and Warrants.
(a) The Note Closing. The Company agrees to issue and sell to
the Purchasers, and, subject to and in reliance upon the
representations, warranties, terms and conditions of this
Agreement, the Purchasers, severally but not jointly, agree to
purchase, the Notes in the original principal amount set forth
opposite their respective names on Exhibit 1.01. Such purchase
and sale shall take place at a closing (the "Note Closing") to be
held at the offices of Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP, 000 Xxxx
Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx, on April 30, 1999 at 10:00 A.M., or
on such other date and at such time as may be mutually agreed upon
(such date and time being called the "Note Closing Date"). At the
Note Closing, the Company will issue and deliver a Note payable to
the order of each Purchaser against payment of the full purchase
price therefor (indicated on Exhibit 1.01 under the column headed
"Amount of Subordinated Notes to be Purchased" opposite such
Purchaser's name) by (i) wire transfer of immediately available
funds to an account designated by the Company, (ii) a check
payable to the order of the Company or its assignees, or (iii) any
combination of (i) and (ii) above.
(b) The Preferred Share and Warrant Closing. Provided that the
shareholders of the Company approve the transactions contemplated
by this Agreement prior to July 30, 1999, and subject to the terms
and conditions contained herein, the Company agrees to issue and
sell to the Purchasers, and, subject to and in reliance upon the
representations, warranties, terms and conditions of this
Agreement, the Purchasers, severally but not jointly, agree to
purchase the number of Preferred Shares and Purchase Warrants set
forth opposite the name of such Purchaser under the headings
"Number of Preferred Shares to be Purchased" and "Number of
Purchase Warrants to be Purchased", respectively, on Exhibit 1.01
hereto. Such purchase and sale shall take place at a closing (the
"Preferred Share and Warrant Closing") at the offices of Xxxxx,
Xxxxxxx & Xxxxxxxxx, LLP, 000 Xxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx
at 10:00 a.m. on the later of June 18, 1999 (assuming satisfaction
of the conditions in Article IV by such date) or on the date that
is five business days after satisfaction of the conditions in
Article IV but before July 30, 1999 or at such other time or place
as the Company and the Purchasers may agree in writing (such date
and time being called the "Preferred Share and Warrant Closing
Date"). If the Preferred Share and Warrant Closing has not
occurred prior to July 30, 1999, this Agreement may be terminated
by the Purchasers upon notice to the Company. At the Preferred
Share and Warrant Closing, the Company shall issue and deliver to
each Purchaser a stock certificate or certificates, registered in
the name of such Purchaser, representing the Preferred Shares
being purchased by it at the Closing, and a Purchase Warrant or
Purchase Warrants, registered in the name of such Purchaser,
representing the number of Purchase Warrant Shares covered by the
Purchase Warrants being purchased by it at the Preferred Share and
Warrant Closing. At the Preferred Share and Warrant Closing the
Company will issue and deliver the stock certificate or
certificates and Purchase Warrants as aforesaid against payment by
each Purchaser of the full purchase price therefor (equal to the
amount set forth opposite the name of such Purchaser under the
heading "Aggregate Purchase Price for Preferred Shares and
Purchase Warrants" on Exhibit 1.01) by (i) wire transfer of
immediately available funds to an account designated by the
Company, (ii) check payable to the order of the Company or its
designees, or (iii) any combination of (i) and (ii) above.
(c) Allocation of Purchase Price. The Company and the
Purchasers, having adverse interests and as a result of arm's
length bargaining, agree that (i) neither the Purchasers nor any
of their respective affiliates or associates have rendered or
agreed to render any services to the Company in connection with
this Agreement or the issuance of the Notes, Preferred Shares and
Warrants; (ii) the Warrants are not being issued as compensation;
and (iii) for federal income tax purposes, the fair market value
of the Notes and the Note Warrants is $1,895,000 and $105,000,
respectively. Upon the issuance of the Preferred Shares and the
Purchase Warrants, the parties agree to work in good faith to
allocate the purchase price with respect to the Preferred Shares
and the Purchase Warrants.
1.05 Payments and Endorsements. Payments of principal, interest
and premium, if any, on the Notes, shall be made directly by check
duly mailed or delivered to the Purchaser at its address referred
to in Exhibit 1.01 hereof, without any presentment or notation of
payment, provided that prior to any transfer of any Note, the
holder of record shall endorse on such Note a record of the date
to which interest has been paid and all payments made on account
of principal of such Note.
1.06 Redemptions.
(a) Optional Redemptions Without Premium. Subject to Section
1.12, the Company may redeem, without premium, the Notes in whole
together with interest due.
(b) Notice of Redemptions; Pro rata Redemptions.
Notice of any optional redemptions pursuant to subsection 1.06(a)
shall be given to all registered holders of the Notes at least ten
(10) business days prior to the date of such redemption. Each
redemption of Notes pursuant to subsection 1.06(a) shall be made
so that the Notes then held by each holder shall be redeemed in a
principal amount which shall bear the same ratio to the total
principal amount of Notes being redeemed as the principal amount
of Notes then held by such holder bears to the aggregate principal
amount of the Notes then outstanding.
1.07 Payment on Non-Business Days. Whenever any payment to be
made shall be due on a Saturday, Sunday or a public holiday under
the laws of the State of Ohio, such payment may be made on the
next succeeding business day, and such extension of time shall in
such case be included in the computation of payment of interest
due.
1.08 Registration, etc.. The Company shall maintain at its
principal office a register of the Notes and shall record therein
the names and addresses of the registered holders of the Notes,
the address to which notices are to be sent and the address to
which payments are to be made as designated by the registered
holder if other than the address of the holder, and the
particulars of all transfers, exchanges and replacements of Notes.
No transfer of a Note shall be valid unless made on such register
for the registered holder or his executors or administrators or
his or their duly appointed attorney, upon surrender therefor for
exchange as hereinafter provided, accompanied by an instrument in
writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon
transfer, exchange or replacement of a Note or Notes, shall be
registered on the date of execution thereof by the Company and
shall be dated the date to which interest has been paid on such
Notes or Note. The registered holder of a Note shall be that
Person in whose name the Note has been so registered by the
Company. A registered holder shall be deemed the owner of a Note
for all purposes of this Agreement and, subject to the provisions
hereof, shall be entitled to the principal, premium, if any, and
interest evidenced by such Note free from all equities or rights
of setoff or counterclaim between the Company and the transferor
of such registered holder or any previous registered holder of
such Note.
1.09 Transfer and Exchange of Notes. The registered holder of
any Note or Notes may, prior to maturity or prepayment thereof,
surrender such Note or Notes at the principal office of the
Company for transfer or exchange. Within a reasonable time after
notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in
exchange therefor another Note or Notes, in such denominations as
requested by the registered holder, for the same aggregate
principal amount as the unpaid principal amount of the Note or
Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same
terms and conditions as the Note or Notes so surrendered. Each
new Note shall be made payable to such Person or Persons, or
registered assigns, as the registered holder of such surrendered
Note or Notes may designate, and such transfer or exchange shall
be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
1.10 Replacement of Notes. Upon receipt of evidence satisfactory
to the Company of the loss, theft, destruction or mutilation of
any Note and, if requested in the case of any such loss, theft or
destruction, upon delivery of an indemnity bond or other agreement
or security reasonably satisfactory to the Company, or, in the
case of any such mutilation, upon surrender and cancellation of
such Note, the Company will issue a new Note, of like tenor and
amount and dated the date to which interest has been paid, in lieu
of such lost, stolen, destroyed or mutilated Note; provided,
however, if any Note of which a Purchaser is the registered holder
is lost, stolen or destroyed, the affidavit of the registered
holder setting forth the circumstances with respect to such loss,
theft or destruction shall be accepted as satisfactory evidence
thereof, and no indemnification bond or other security shall be
required as a condition to the execution and delivery by the
Company of a new Note in replacement of such lost, stolen or
destroyed Note other than the registered holder's written
agreement to indemnify the Company.
1.11 Subordination. The indebtedness evidenced by the
Notes and the rights and remedies of the Purchasers under this
Agreement shall be subordinate and junior to (i) certain
indebtedness of the Company to Provident Bank (the "Bank") in the
manner and to the extent provided in the Subordination Agreement
of even date herewith by and among the Bank, the Company and the
Purchasers purchasing Notes hereunder, and (ii) Senior Debt.
1.12 Acceleration. If, prior to July 30, 1999, the shareholders
of the Company have not approved (i) the adoption of this
Agreement and the transactions contemplated hereby as required by
the Ohio Control Share Acquisition Act, the Articles of
Incorporation and Code of Regulations of the Company and the rules
of the Nasdaq National Market, and (ii) the amendment of the
Company's Articles of Incorporation so that such Articles of
Incorporation shall read as set forth in Exhibit 1.02 hereto, then
(A) the entire amount of principal and interest which remains
unpaid under the Notes shall become due and payable as of November
28, 1999, (B) the Company shall immediately issue, for no
additional consideration, to the holders of the Notes that number
of shares of the Common Stock as is equal in the aggregate to ten
percent (10%) of the aggregate number of issued and outstanding
shares of Common Stock, on a fully diluted basis, as of such date,
and (C) on December 31, 1999 and on the last day of each calendar
month, if any amount of principal or interest under the Notes
remains outstanding on such date, the Company shall issue, for no
additional consideration, to the holders of the Notes that number
of shares of the Common Stock as is equal to two percent (2%) of
the aggregate number of issued and outstanding shares of Common
Stock on a Fully Diluted basis, as of such date, up to a maximum
of 19.9% of the Common Stock on a Fully Diluted basis.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers
that, except as set forth in the Disclosure Schedule attached
hereto (which Disclosure Schedule makes explicit reference to the
particular representation or warranty as to which exception is
taken, which in each case shall constitute the sole representation
and warranty as to which such exception shall apply, unless it is
reasonably evident to the Purchasers that an exception applies to
one or more other representations or warranties) or as set forth
in the Company SEC Reports (as defined below):
2.01 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the State
of Ohio and is duly licensed or qualified to transact business as
a foreign corporation and is in good standing in each jurisdiction
in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such
licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, and
subject to the approval of the shareholders of the Company as
described herein, to execute, deliver and perform this Agreement,
the Registration Rights Agreement with the Purchasers in the form
attached as Exhibit 2.01 (the "Registration Rights Agreement" and
together with this Agreement and any documents or agreements
ancillary to this Agreement, the "Transaction Documents"), to
issue, sell and deliver the Notes, the Preferred Shares, the
Warrants, the Note Warrant Common Shares and the Warrant Shares,
to perform the terms of the Notes and the Warrants and to issue
and deliver the Note Warrant Common Shares and the shares of
Common Stock issuable upon conversion of the Preferred Shares and
Warrant Shares (the "Conversion Shares").
(b) Schedule 2.01 to the Disclosure Schedule contains a
list of all subsidiaries of the Company. Except for such
subsidiaries, the Company does not (i) own of record or
beneficially, directly or indirectly, (A) any shares of capital
stock or securities convertible into capital stock of any other
corporation or (B) any participating interest in any partnership,
joint venture or other non-corporate business enterprise or (ii)
control, directly or indirectly, any other entity. Each of the
subsidiaries is a corporation duly incorporated, validly existing
and in good standing under the laws of its respective jurisdiction
of incorporation and is duly licensed or qualified to transact
business as a foreign corporation and is in good standing in each
jurisdiction in which the nature of the business transacted by it
or the character of the properties owned or leased by it requires
such licensing or qualification. Each of the subsidiaries has the
corporate power and authority to own and hold its properties and
to carry on its business as now conducted and as proposed to be
conducted. Except as set forth on Schedule 2.01(b) to the
Disclosure Schedule, all of the outstanding shares of capital
stock of each of the subsidiaries are owned beneficially and of
record by the Company, one of its other subsidiaries, or any
combination of the Company and/or one or more of its other
subsidiaries, in each case free and clear of any liens, charges,
restrictions, claims or encumbrances of any nature whatsoever; and
there are no outstanding subscriptions, warrants, options,
convertible securities, or other rights (contingent or other)
pursuant to which any of the subsidiaries is or may become
obligated to issue any shares of its capital stock to any person
other than the Company or one of the other subsidiaries. As used
in Sections 2.06 through 2.09, 2.11 through 2.17, 2.21 and 2.22
through 2.28 inclusive, the term "Company" shall mean the Company
and each of the subsidiaries.
2.02 Authorization of Agreements, Etc.
(a) Subject to the approval of the shareholders of the
Company as described herein, the execution and delivery by the
Company of the Transaction Documents, the performance by the
Company of its obligations thereunder, the issuance, sale and
delivery of the Notes, the Preferred Shares, the Warrants, the
Note Warrant Common Shares and the Warrant Shares, the performance
by the Company of its obligations under the Notes and the
Warrants, and the issuance and delivery of the Conversion Shares
have been duly authorized by all requisite corporate action and
will not violate any provision of law, any order of any court or
other agency of government, the Articles of Incorporation of the
Company, as amended (the "Charter") or the Code of Regulations of
the Company, as amended, or any provision of any indenture,
agreement or other instrument to which the Company, any of its
subsidiaries or any of their respective properties or assets is
bound, or conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the
creation or imposition of any lien, charge, restriction, claim or
encumbrance of any nature whatsoever upon any of the properties or
assets of the Company or any of its subsidiaries.
(b) The Note Warrant Common Shares and, subject to the
approval of the shareholders of the Company as described herein,
the Preferred Shares and Warrant Shares have been duly authorized
and, when issued in accordance with this Agreement or the
Warrants, as appropriate, will be validly issued, fully paid and
nonassessable shares of Common Stock or Series A Convertible
Preferred Stock, as the case may be, with no personal liability
attaching to the ownership thereof and will be free and clear of
all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in the Registration
Rights Agreement. The Warrants, when issued in accordance with
this Agreement, will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Warrants. The Note Warrant
Common Shares have been and the Warrant Shares will have been duly
reserved for issuance upon exercise of the Warrants. The
Conversion Shares will have been duly reserved for issuance upon
conversion of the Notes, Preferred Shares and Warrant Shares and,
when so issued, will be duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company except as set forth in the
Registration Rights Agreement. Neither the issuance, sale or
delivery of the Notes, Preferred Shares, Warrants, Note Warrant
Common Shares or Warrant Shares nor the issuance or delivery of
the Conversion Shares is subject to any preemptive right of
shareholders of the Company or to any right of first refusal or
other right in favor of any person.
2.03 Validity. Subject to the approval of the
shareholders of the Company as described herein, this Agreement
has been duly executed and delivered by the Company and
constitutes the legal, valid and binding obligation of the
Company, enforceable in accordance with its terms. The Notes,
Warrants and the remaining Transaction Documents, when executed
and delivered in accordance with this Agreement, will constitute
the legal, valid and binding obligations of the Company,
enforceable in accordance with their respective terms.
2.04 Authorized Capital Stock. Subject to the approval
of the shareholders of the Company as described herein, the
authorized capital stock of the Company as of the Preferred Share
and Warrant Closing Date shall consist of (i) 5,000,000 shares of
Preferred Stock, $.01 par value (the "Preferred Stock"), all of
which shares have been designated Series A Convertible Preferred
Stock, and (ii) 15,000,000 shares of Common Stock. As of
April 27, 1999, 6,055,269 shares of Common Stock will be validly
issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and no
shares of Preferred Stock will have been issued. Immediately
prior to the Preferred Share and Warrant Closing, no shares of
Preferred Stock will have been issued. As of the date hereof,
200,000 shares of Common Stock are held in treasury. As of the
date hereof, the holders of subscriptions, warrants, options,
convertible securities, and other rights (contingent or other) to
purchase or otherwise acquire equity securities of the Company,
and the number of shares of Common Stock and the number of such
subscriptions, warrants, options, convertible securities, and
other such rights held by each, are as set forth in Schedule 2.04
of the Disclosure Schedule. The designations, powers,
preferences, rights, qualifications, limitations and restrictions
in respect of each class and series of authorized capital stock of
the Company are as set forth in the Charter, a copy of which is
attached as Exhibit 1.02, and all such designations, powers,
preferences, rights, qualifications, limitations and restrictions
are valid, binding and enforceable and in accordance with all
applicable laws. Except as set forth in the Schedule 2.04 of the
Disclosure Schedule, (i) no subscription, warrant, option,
convertible security, or other right (contingent or other) to
purchase or otherwise acquire equity securities of the Company is
authorized or outstanding and (ii) there is no commitment by the
Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to
holders of any of its equity securities any evidence of
indebtedness or asset. Except as provided for in the Charter or
as set forth in Schedule 2.04 of the Disclosure Schedule, the
Company has no obligation (contingent or other) to purchase,
redeem or otherwise acquire any of its equity securities or any
interest therein or to pay any dividend or make any other
distribution in respect thereof. Except as set forth on Schedule
2.04 of the Disclosure Schedule to the best of the Company's
knowledge there are no voting trusts or agreements, shareholders'
agreements, pledge agreements, buy-sell agreements, rights of
first refusal, preemptive rights or proxies relating to any
securities of the Company or any of its subsidiaries (whether or
not the Company or any of its subsidiaries is a party thereto).
All of the outstanding securities of the Company were issued in
compliance with all applicable Federal and state securities laws.
2.05 Company SEC Reports and Financial Statements.
(a) The Company has made available to
Purchasers true and complete copies of all periodic reports,
statements and other documents that the Company has filed with the
SEC under the Exchange Act since January 31, 1995, and the Form S-
B2 Registration Statement (File 33-77896C) and the Form S-1
Registration Statement (File 33-98696) (the "Registration
Statements") filed under the Securities Act (collectively, the
"Company SEC Reports"), each in the form (including exhibits and
any amendments thereto) required to be filed with the SEC. As of
their respective dates, each of the Company's SEC Reports (i)
complied in all respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder, respectively, (ii) were filed in a timely
manner, and (iii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. None of the subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the audited
consolidated financial statements of the Company (including any
related notes and schedules thereto) included (or incorporated by
reference) in its Quarterly Report on Form 10-QSB for the quarter
ended October 31, 1998, its Annual Report on Form 10-KSB for the
fiscal year ended January 31, 1999 (when filed) or the
Registration Statement, is accurate and complete and fairly
presents, in conformity with generally accepted accounting
principles ("GAAP") applied on a consistent basis throughout the
periods involved (except as may be noted therein), and in
conformity with the SEC's regulations, the consolidated financial
position of the Company and its consolidated subsidiaries as of
its date and the consolidated results of operations and changes in
financial position for the period then ended.
(c) Except as and to the extent set
forth (or incorporated by reference) in any Registration Statement
or the Company's Quarterly Report on Form 10-QSB for the quarter
ended October 31, 1998 (the "Balance Sheet Date"), none of the
Company or any of its subsidiaries has incurred any liability or
obligation of any nature whatsoever (whether due or to become due,
accrued, fixed, contingent, liquidated, unliquidated or otherwise)
that would be required by GAAP to be accrued on, reflected on, or
reserved against it, on a consolidated balance sheet (the "Balance
Sheet") (or in the applicable notes thereto) of the Company or any
of its subsidiaries prepared in accordance with GAAP consistently
applied as of the date and for the period required.
2.06 Events Subsequent to the Balance Sheet Date.
Except as set forth on Schedule 2.06 of the Disclosure Schedule,
since January 31, 1999, the Company has not (i) issued any stock,
bond or other corporate security, (ii) borrowed any amount or
incurred or become subject to any liability (absolute, accrued or
contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business,
(iii) discharged or satisfied any lien or encumbrance or incurred
or paid any obligation or liability (absolute, accrued or
contingent) other than current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet
Date in the ordinary course of business, (iv) declared or made any
payment or distribution to shareholders or purchased or redeemed
any share of its capital stock or other security, (v) mortgaged,
pledged, encumbered or subjected to lien any of its assets,
tangible or intangible, other than liens of current real property
taxes not yet due and payable, (vi) sold, assigned or transferred
any of its tangible assets except in the ordinary course of
business, or cancelled any debt or claim, (vii) sold, assigned,
transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service xxxx, copyright, trade
secret or other intangible asset, (viii) suffered any loss of
property or waived any right of substantial value whether or not
in the ordinary course of business, (ix) made any change in
officer compensation except in the ordinary course of business and
consistent with past practice, (x) made any material change in the
manner of business or operations of the Company, (xi) entered into
any transaction except in the ordinary course of business or as
otherwise contemplated hereby or (xii) entered into any commitment
(contingent or otherwise) to do any of the foregoing.
2.07 Litigation; Compliance with Law. Except as set
forth on Schedule 2.07 of the Disclosure Schedule, there is no
(i) action, suit, claim, proceeding or investigation pending or,
to the best of the Company's knowledge, threatened against or
affecting the Company, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, com-
mission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company
pending under collective bargaining agreements or otherwise or
(iii) governmental inquiry pending or, to the best of the Com-
pany's knowledge, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification
of the Company to hold or receive any license or permit), and
there is no basis for any of the foregoing. The Company has not
received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint,
to any liability or disadvantage which may be material to its
business, prospects, financial condition, operations, property or
affairs. The Company is not in default with respect to any order,
writ, injunction or decree known to or served upon the Company of
any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except as set forth on
Schedule 2.07 of the Disclosure Schedule, there is no action or
suit by the Company pending, threatened or contemplated against
others. The Company has complied with all laws, rules,
regulations and orders applicable to its business, operations,
properties, assets, products and services, the Company has all
necessary permits, licenses and other authorizations required to
conduct its business as conducted and as proposed to be conducted,
and the Company has been operating its business pursuant to and in
compliance with the terms of all such permits, licenses and other
authorizations. There is no existing law, rule, regulation or
order, and the Company after due inquiry is not aware of any
proposed law, rule, regulation or order, whether Federal, state,
county or local, which would prohibit or restrict the Company
from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
2.08 Proprietary Information of Third Parties. Except
as set forth on Schedule 2.08 of the Disclosure Schedule, to the
best of the Company's knowledge, no third party has claimed or has
reason to claim that any person employed by or affiliated with the
Company has (a) violated or may be violating any of the terms or
conditions of his employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party or
(c) interfered or may be interfering in the employment relation-
ship between such third party and any of its present or former
employees. No third party has requested information from the
Company which suggests that such a claim might be contemplated.
To the best of the Company's knowledge, no person employed by or
affiliated with the Company has employed or proposes to employ any
trade secret or any information or documentation proprietary to
any former employer, and to the best of the Company's knowledge,
no person employed by or affiliated with the Company has violated
any confidential relationship which such person may have had with
any third party, in connection with the development, manufacture
or sale of any product or proposed product or the development or
sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such employment
or violation. To the best of the Company's knowledge, none of the
execution or delivery of this Agreement, or the carrying on of the
business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct
or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions
of or constitute a default under any contract, covenant or
instrument under which any such person is obligated.
2.09 Patents, Trademarks, Etc. Set forth in Schedule
2.09 of the Disclosure Schedule is a list and brief description of
all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks,
service xxxx applications, trade names and copyrights, and all
applications for such which are in the process of being prepared,
owned by or registered in the name of the Company, or of which the
Company is a licensor or licensee or in which the Company has any
right, and in each case a brief description of the nature of such
right. The Company owns or possesses adequate licenses or other
rights to use all patents, patent applications, trademarks,
trademark applications, service marks, service xxxx applications,
trade names, copyrights, manufacturing processes, formulae, trade
secrets, customer lists and know how (collectively, "Intellectual
Property") necessary or desirable to the conduct of its business
as conducted and as proposed to be conducted, and no claim is
pending or, to the best of the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or
conflict with the asserted rights of any other person under any
Intellectual Property, and there is no basis for any such claim
(whether or not pending or threatened). No claim is pending or
threatened to the effect that any such Intellectual Property owned
or licensed by the Company, or which the Company otherwise has the
right to use, is invalid or unenforceable by the Company, and
there is no basis for any such claim (whether or not pending or
threatened). All prior art known to the Company which may be or
may have been pertinent to the examination of any United States
patent or patent application listed in Schedule 2.09 of the
Disclosure Schedule has been cited to the United States Patent and
Trademark Office. To the best of the Company's knowledge, all
technical information developed by and belonging to the Company
which has not been patented has been kept confidential. The
Company has not granted or assigned to any other person or entity
any right to manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services or
proposed services of the Company. The Company is not aware that
any other Person is using any of the Company's Intellectual
Property without Company authorization.
2.10 Title to Properties. The Company and its sub-
sidiaries have good, clear and marketable title to their
respective properties and assets reflected on the Balance Sheet or
acquired by them since the Balance Sheet Date (other than
properties and assets disposed of in the ordinary course of
business since the Balance Sheet Date), and all such properties
and assets are free and clear of mortgages, pledges, security
interests, liens, charges, claims, restrictions and other
encumbrances (including without limitation, easements and
licenses), except for liens for or current taxes not yet due and
payable and minor imperfections of title, if any, not material in
nature or amount and not materially detracting from the value or
impairing the use of the property subject thereto or impairing the
operations or proposed operations of the Company and its
subsidiaries, including without limitation, the ability of the
Company and its subsidiaries to secure financing using such
properties and assets as collateral. To the best of the Company's
knowledge after due inquiry, there are no condemnation,
environmental, zoning or other land use regulation proceedings,
either instituted or planned to be instituted, which would
adversely affect the use or operation of the Company's and its
subsidiaries' properties and assets for their respective intended
uses and purposes, or the value of such properties, and neither
the Company nor any subsidiary has received notice of any special
assessment proceedings which would affect such properties and
assets.
2.11 Leasehold Interests. Each lease or agreement to
which the Company is a party under which it is a lessee of
any property, real or personal, is a valid and subsisting
agreement, duly authorized and entered into, without any default
of the Company thereunder and, to the best of the Company's
knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due
notice or lapse of time or both, would constitute a default or
event of default by the Company under any such lease or agreement
or, to the best of the Company's knowledge, by any other party
thereto. The Company's possession of such property has not been
disturbed and, to the best of the Company's knowledge after due
inquiry, no claim has been asserted against the Company adverse to
its rights in such leasehold interests.
2.12 [Reserved]
2.13 Taxes. The Company has filed all tax returns,
Federal, state, county and local, required to be filed by it, and
the Company has paid all taxes shown to be due by such returns as
well as all other taxes, assessments and governmental charges
which have become due or payable, including without limitation all
taxes which the Company is obligated to withhold from amounts
owing to employees, creditors and third parties. The Company has
established adequate reserves for all taxes accrued but not yet
payable. All material tax elections of any type which the Company
has made as of the date hereof are set forth in the financial
statements referred to in Section 2.05. The Federal income tax
returns of the Company have never been audited by the Internal
Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or
local taxes is pending or, to the best of the Company's knowledge,
threatened. There is no tax lien (other than for current taxes
not yet due and payable), whether imposed by any Federal, state,
county or local taxing authority, outstanding against the assets,
properties or business of the Company. Neither the Company nor
any of its present or former shareholders has ever filed an
election pursuant to Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Company be taxed as an S
corporation. As of the Note Closing Date and except as otherwise
provided on Schedule 2.13 to the Disclosure Schedule, the
Company's net operating losses for Federal income tax purposes, as
set forth in the financial statements referred to in Section 2.05,
are not subject to any limitations imposed by Section 382 of the
Code and the full amount of such net operating losses are
available to offset the taxable income of the Company for the
current fiscal year and, to the extent not so used, succeeding
fiscal years. Consummation of the transactions contemplated by
this Agreement or by any other agreement, understanding or
commitment (contingent or otherwise) to which the Company is a
party or by which it is otherwise bound will not have the effect
of limiting the Company's ability to use such net operating losses
in full to offset such taxable income, except to the extent that
such use is limited as a result of any anti-dilution adjustments
pursuant to the terms of the Series A Convertible Preferred Stock.
2.14 Other Agreements. The Company is not a party to
or otherwise bound by any written or oral agreement, instrument,
commitment or restriction which individually or, taking any
related agreements, instruments, commitments or restrictions
together, in the aggregate is material to or could materially
adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company or any of the
following which is material to or could materially adversely
affect the business, prospects, financial condition, operations,
property or affairs of the Company, whether written or oral:
(a) distributor, dealer, manufacturer's representative
or sales agency agreement which is not terminable on less than
ninety (90) days' notice without cost or other liability to the
Company (except for agreements which, in the aggregate, are not
material to the business of the Company);
(b) sales agreement which entitles any customer to a
rebate or right of set-off, to return any product to the Company
after acceptance thereof or to delay the acceptance thereof, or
which varies in any material respect from the Company's standard
form agreements;
(c) agreement with any labor union (and, to the knowl-
edge of the Company, no organizational effort is being made with
respect to any of its employees);
(d) agreement with any supplier containing any
provision permitting any party other than the Company to
renegotiate the price or other terms, or containing any pay-back
or other similar provision, upon the occurrence of a failure by
the Company to meet its obligations under the agreement when due
or the occurrence of any other event;
(e) agreement for the future purchase of fixed assets
or for the future purchase of materials, supplies or equipment in
excess of its normal operating requirements;
(f) agreement for the employment of any officer,
employee or other person (whether of a legally binding nature or
in the nature of informal understandings) on a full-time or
consulting basis which is not terminable on notice without cost or
other liability to the Company, except normal severance
arrangements and accrued vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospi-
talization, insurance, stock purchase, stock option or other plan,
agreement or understanding pursuant to which benefits are provided
to any employee of the Company (other than an Employee Plan or
group insurance plans which are not self-insured and are
applicable to employees generally);
(h) agreement relating to the borrowing of money or to
the mortgaging or pledging of, or otherwise placing a lien or
security interest on, any asset of the Company;
(i) guaranty of any obligation for borrowed money or
otherwise;
(j) voting trust or agreement, shareholders' agreement,
pledge agreement, buy-sell agreement or first refusal or pre-
emptive rights agreement relating to any securities of the
Company;
(k) agreement, or group of related agreements with the
same party or any group of affiliated parties, under which the
Company has advanced or agreed to advance money or has agreed to
lease any property as lessee or lessor;
(l) agreement or obligation (contingent or otherwise)
to issue, sell or otherwise distribute or to repurchase or
otherwise acquire or retire any share of its capital stock or any
of its other equity securities;
(m) assignment, license or other agreement with respect
to any form of intangible property;
(n) agreement under which it has granted any person any
registration rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted
its right to compete with any person in any respect;
(p) other agreement or group of related agreements with
the same party involving more than $50,000 or continuing over a
period of more than six months from the date or dates thereof
(including renewals or extensions optional with another party),
which agreement or group of agreements is not terminable by the
Company without penalty upon notice of thirty (30) days or less,
but excluding any agreement or group of agreements with a customer
of the Company for the sale, lease or rental of the Company's
products or services if such agreement or group of agreements was
entered into by the Company in the ordinary course of business; or
(q) other agreement, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with
the Securities and Exchange Commission (the "Commission") as an
exhibit to a registration statement on Form S-1 if the Company
were registering securities under the Securities Act of 1933, as
amended (the "Securities Act").
The Company, and to the best of the Company's knowledge after due
inquiry, each other party thereto have in all material respects
performed all the obligations required to be performed by them to
date (or each non-performing party has received a valid,
enforceable and irrevocable written waiver with respect to its
non-performance), have received no notice of default and are not
in default (with due notice or lapse of time or both) under any
agreement, instrument, commitment, plan or arrangement to which
the Company is a party or by which it or its property may be
bound. The Company has no present expectation or intention of not
fully performing all its obligations under each such agreement,
instrument, commitment, plan or arrangement, and the Company has
no knowledge of any breach or anticipated breach by the other
party to any agreement, instrument, commitment, plan or
arrangement to which the Company is a party. The Company is in
full compliance with all of the terms and provisions of its
Charter and Code of Regulations, as amended.
2.15 Loans and Advances. The Company does not have any
outstanding loans or advances to any person and is not obligated
to make any such loans or advances, except, in each case, for
advances to employees of the Company in respect of reimbursable
business expenses anticipated to be incurred by them in connection
with their performance of services for the Company.
2.16 Assumptions, Guaranties, Etc. of Indebtedness of
Other Persons. The Company has not assumed, guaranteed, endorsed
or otherwise become directly or contingently liable on any
indebtedness of any other person (including, without limitation,
liability by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the credi-
tor against loss), except for guaranties by endorsement of nego-
tiable instruments for deposit or collection in the ordinary
course of business.
2.17 Significant Customers and Suppliers. No customer
or supplier which was significant to the Company during the period
covered by the financial statements referred to in Section 2.05 or
which has been significant to the Company thereafter, has
terminated, materially reduced or threatened to terminate or
materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
2.18 Governmental Approvals. Except for the filing of
a Form 10b-17 with the Nasdaq Stock Market, subject to the accu-
racy of the representations and warranties of the Purchasers set
forth in Article III, no registration or filing with, or consent
or approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for
the valid execution, delivery and performance by the Company of
the Transaction Documents, the issuance, sale and delivery of the
Notes, Preferred Shares, the Warrants, the Note Warrant Common
Shares and the Warrant Shares, the performance by the Company of
its obligations under the Notes, Warrants or, upon conversion of
the Preferred Shares and the Warrant Shares, the issuance and
delivery of the Conversion Shares, other than (i) filings pursuant
to state securities laws (all of which filings have been made by
the Company, other than those which are required to be made after
the Preferred Share and Warrant Closing and which will be duly
made on a timely basis) in connection with the sale of the Notes,
Preferred Shares, the Warrants, the Note Warrant Common Shares and
the Warrant Shares and (ii) with respect to the Registration
Rights Agreement, the registration of the shares covered thereby
with the Commission and filings pursuant to state securities laws.
2.19 Disclosure. Neither this Agreement, nor any
Schedule or Exhibit to this Agreement, nor any document furnished
or made available to the Purchasers relating to this Agreement
contains an untrue statement of a material fact or omits a
material fact necessary to make the statements contained herein or
therein not misleading. None of the statements, documents,
certificates or other items prepared or supplied by the Company
with respect to the transactions contemplated hereby contains an
untrue statement of a material fact or omits a material fact
necessary to make the statements contained therein not misleading.
There is no fact which the Company has not disclosed to the
Purchasers and their counsel in writing and of which the Company
is aware which materially and adversely affects or could
materially and adversely affect the business, prospects, financial
condition, operations, property or affairs of the Company or any
of its subsidiaries. The financial projections and other
estimates contained in any documents furnished to the Purchasers
were prepared by the Company based on the Company's experience in
the industry and on assumptions of fact and opinion as to future
events which the Company believed to be reasonable, but which the
Company cannot and does not assure or guarantee the attainment of
in any manner. As of the date hereof no facts have come to the
attention of the Company which would, in its opinion, require the
Company to revise or amplify the assumptions underlying such
projections and other estimates or the conclusions derived
therefrom.
2.20 Offering of the Notes, Preferred Shares and
Warrants. Neither the Company nor any person authorized or
employed by the Company as agent, broker, dealer or otherwise in
connection with the offering or sale of the Notes, Preferred
Shares and Warrants or any security of the Company similar to the
Notes, Preferred Shares or Warrants has offered the Notes,
Preferred Shares, Warrants or any such similar security for sale
to, or solicited any offer to buy the Notes, Preferred Shares,
Warrants or any such similar security from, or otherwise
approached or negotiated with respect thereto with, any person or
persons, and neither the Company nor any person acting on its
behalf has taken or will take any other action (including, without
limitation, any offer, issuance or sale of any security of the
Company under circumstances which might require the integration of
such security with the Notes, Preferred Shares or Warrants under
the Securities Act or the rules and regulations of the Commission
thereunder), in either case so as to subject the offering,
issuance or sale of the Notes, Preferred Shares or Warrants to the
registration provisions of the Securities Act.
2.21 Brokers. Except for NatCity Investments, Inc.,
the fees of which are set forth on Schedule 2.21 to the Disclosure
Schedule, the Company has no contract, arrangement or
understanding with any broker, finder or similar agent with
respect to the transactions contemplated by this Agreement.
2.22 Transactions With Affiliates. Except as set forth
on Schedule 2.22 of the Disclosure Schedule, no director, officer,
employee or shareholder of the Company, or member of the family of
any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of
any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the
outstanding capital stock thereof, is a party to any transaction
with the Company, including any contract, agreement or other
arrangement providing for the employment of, furnishing of ser-
vices by, rental of real or personal property from or otherwise
requiring payments to any such person or firm, other than
employment-at-will arrangements in the ordinary course of business
and for the payment by the Company of an amount in excess of
$50,000 per annum.
2.23 Employees. Each of the officers of the Company,
each key employee and each other employee now employed by the
Company who has access to confidential information of the Company
has executed an Employee Nondisclosure and Developments Agreement
substantially in the form of Exhibit 2.23A and Exhibit 2.23B
(collectively, the "Employee Nondisclosure and Developments
Agreements"), and such agreements are in full force and effect.
No officer or key employee of the Company has advised the Company
(orally or in writing) that he intends to terminate employment
with the Company. The Company has complied in all material
respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social
Security and other taxes.
2.24 U.S. Real Property Holding Corporation. The
Company is not now and has never been a "United States real prop-
erty holding corporation", as defined in Section 897(c)(2) of the
Code and Section 1.897-2(b) of the Regulations promulgated by the
Internal Revenue Service, and the Company has filed with the
Internal Revenue Service all statements, if any, with its United
States income tax returns which are required under Section 1.897-
2(h) of such Regulations.
2.25 Environmental Protection. The Company has not
caused or allowed, or contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of
any Hazardous Substances (as defined below) in connection with the
operation of its business or otherwise. The Company, the
operation of its business, and any real property that the Company
owns, leases or otherwise occupies or uses (the "Premises") are in
compliance with all applicable Environmental Laws (as defined
below) and orders or directives of any governmental authorities
having jurisdiction under such Environmental Laws, including,
without limitation, any Environmental Laws or orders or directives
with respect to any cleanup or remediation of any release or
threat of release of Hazardous Substances. The Company has not
received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or
lawsuit, from any person arising out of the ownership or
occupation of the Premises, or the conduct of its operations, and
the Company is not aware of any basis therefor. The Company has
obtained and is maintaining in full force and effect all necessary
permits, licenses and approvals required by all Environmental Laws
applicable to the Premises and the business operations conducted
thereon (including operations conducted by tenants on the
Premises), and is in compliance with all such permits, licenses
and approvals. The Company has not caused or allowed a release,
or a threat of release, of any Hazardous Substance unto, at or
near the Premises, and, to the best of the Company's knowledge,
neither the Premises nor any property at or near the Premises has
ever been subject to a release, or a threat of release, of any
Hazardous Substance. For the purposes of this Agreement, the term
"Environmental Laws" shall mean any Federal, state or local law or
ordinance or regulation pertaining to the protection of human
health or the environment, including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability
Act, 42 U.S.C. Sections 9601, et seq., the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq.,
and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq. For purposes of this Agreement, the term
"Hazardous Substances" shall include oil and petroleum products,
asbestos, polychlorinated biphenyls, urea formaldehyde and any
other materials classified as hazardous or toxic under any
Environmental Laws.
2.26 ERISA.
(a) Schedule 2.26 to the Disclosure Schedule lists and
describes each Employee Plan that covers any employee of the
Company.
(b) Schedule 2.26 to the Disclosure Schedule also
includes a list of each Benefit Arrangement of the Company.
(c) No Employee Plan is a Multiemployer Plan and no
Employee Plan is subject to Title IV of ERISA. The Company and
its Affiliates have not incurred, nor do they expect to incur, any
liability under Title IV of ERISA arising in connection with the
termination of any plan covered or previously covered by Title IV
of ERISA.
(d) Except as set forth on Schedule 2.26 to the
Disclosure Schedule, none of the Employee Plans or other
arrangements listed on Schedule 2.26 to the Disclosure Schedule
covers any non-United States employee or former employee of the
Company.
(e) No "prohibited transaction," as defined in
Section 406 of ERISA or Section 4975 of the Code, has occurred
with respect to any Employee Plan.
(f) Except as set forth on Schedule 2.26 to the
Disclosure Schedule, each Employee Plan which is intended to be
qualified under Section 401(a) of the Code is so qualified and has
been so qualified during the period from its adoption to date, and
each trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. Each Employee Plan has been
maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are
applicable to such plan.
(g) Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Employee Plan and Benefit
Arrangement.
(h) All contributions and payments accrued under each
Employee Plan and Benefit Arrangement, determined in accordance
with prior funding and accrual practices, as adjusted to include
proportional accruals for the period ending on the Note Closing
Date and the period ending on the Preferred Share and Warrant
Closing Date, will be discharged and paid on or prior to such date
except to the extent reflected on the Balance Sheet. Except as
disclosed in writing to the Purchasers prior to the date hereof,
there has been no amendment to, written interpretation of or
announcement (whether or not written) by the Company or any of its
ERISA Affiliates relating to, or change in employee participation
or coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee
Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended prior to the
date hereof.
(i) There is no contract, agreement, plan or
arrangement covering any employee or former employee of the
Company that, individually or collectively, could give rise to the
payment of any amount that would not be deductible pursuant to the
terms of Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been
incurred in respect of any Employee Plan that is a group health
plan, as defined in Section 5000(b)(1) of the Code.
(k) With respect to the employees and former employees
of the Company, there are no employee post-retirement medical or
health plans in effect, except as required by Section 4980B of the
Code.
(l) No employee of the Company will become entitled to
any bonus, retirement, severance or similar benefit or enhanced
benefit solely as a result of the transactions contemplated
hereby.
2.27 Foreign Corrupt Practices Act. The Company has
not taken any action which would cause it to be in violation of
the Foreign Corrupt Practices Act of 1977, as amended, or any
rules and regulations thereunder. To the best of the Company's
knowledge after due inquiry, there is not now, and there has never
been, any employment by the Company of, or beneficial ownership in
the Company by, any governmental or political official in any
country in the world.
2.28 Federal Reserve Regulations. The Company is not
engaged in the business of extending credit for the purpose of
purchasing or carrying margin securities (within the meaning of
Regulation G of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of the Preferred Shares,
Warrants, Note Warrant Common Shares or Warrant Shares will be
used to purchase or carry any margin security or to extend credit
to others for the purpose of purchasing or carrying any margin
security or in any other manner which would involve a violation of
any of the regulations of the Board of Governors of the Federal
Reserve System.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the
Company that:
(a) it is an "accredited investor" within the meaning
of Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Notes, Preferred Shares or
Warrants;
(b) it has sufficient knowledge and experience in
investing in companies similar to the Company in terms of the
Company's stage of development so as to be able to evaluate the
risks and merits of its investment in the Company and it is able
financially to bear the risks thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
management and to review certain documents related to the Company;
(d) the Notes, Preferred Shares and Warrants being
purchased by it are being acquired for its own account for the
purpose of investment and not with a view to or for sale in
connection with any distribution thereof; and
(e) it understands that (i) the Notes, Preferred
Shares, Warrants, Warrant Shares and Conversion Shares have not
been registered under the Securities Act by reason of their
issuance in a transaction exempt from the registration
requirements of the Securities Act pursuant to Section 4(2)
thereof or Rule 505 or 506 promulgated under the Securities Act,
(ii) the Notes, Preferred Shares, Warrants, the Note Warrant
Common Shares, Warrant Shares and Conversion Shares must be held
indefinitely unless a subsequent disposition thereof is registered
under the Securities Act or is exempt from such registration,
(iii) the Notes, Preferred Shares, Warrants, the Note Warrant
Common Shares, Warrant Shares and Conversion Shares will bear a
legend to such effect and (iv) the Company will make a notation on
its transfer books to such effect.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS AND THE
COMPANY
4.01 Conditions to the Obligations of the
Purchasers and the Company. The obligation of each Purchaser to
purchase and pay for the Preferred Shares and Warrants to be
purchased by it at the Preferred Share and Warrant Closing, and
the obligation of the Company to sell the Preferred Shares and
Warrants at the Preferred Share and Warrant Closing, are subject
to the satisfaction, on or before the Preferred Share and Warrant
Closing Date, of the following condition:
(a) Shareholder Approvals. The
Shareholders of the Company shall have approved (i) the adoption
of this Agreement and the transactions contemplated hereby as
required by the Ohio Control Share Acquisition Act, the Articles
of Incorporation and Code of Regulations of the Company and the
rules of the Nasdaq National Market, and (ii) the amendment of the
Company's Articles of Incorporation so that such Articles of
Incorporation shall read as set forth in Exhibit 1.02 hereto.
4.02 Conditions to the Obligations of the Purchasers.
The obligation of each Purchaser to purchase and pay for the Notes
to be purchased by it at the Note Closing, and the obligation of
each Purchaser to purchase and pay for the Preferred Shares and
Purchase Warrants to be purchased by it at the Preferred Share and
Warrant Closing, is in each case subject to the following
conditions, any or all of which may be waived by the Purchasers:
(a) Representations and Warranties to be True and Cor-
rect. The representations and warranties of the Company contained
in Article II shall be true, complete and correct on and as of the
Note Closing Date and the Preferred Share and Warrant Closing Date
with the same effect as though such representations and warranties
had been made on and as of such date, except to the extent such
representations and warranties are by their express provisions
made as of the date of this Agreement or another specified date,
and the President and Treasurer of the Company shall have
certified to such effect to the Purchasers in writing, on and as
of each of the Note Closing Date and the Preferred Share and
Warrant Closing Date.
(b) Performance. The Company shall have performed and
complied with all agreements contained herein required to be
performed or complied with by it prior to or at the Note Closing
Date and the Preferred Share and Warrant Closing Date, and the
President and Treasurer of the Company shall have certified to the
Purchasers in writing to such effect, on and as of each of the
Note Closing Date and the Preferred Share and Warrant Purchase
Date, and to the further effect that all of the conditions set
forth in this Article IV have been satisfied as of such date.
(c) All Proceedings to be Satisfactory. As of the Note
Closing Date and the Preferred Share and Warrant Closing Date, all
corporate and other proceedings to be taken by the Company in
connection with the transactions contemplated hereby and all docu-
ments incident thereto shall be satisfactory in form and substance
to the Purchasers and their counsel, and the Purchasers and their
counsel shall have received all such counterpart originals or
certified or other copies of such documents as they reasonably may
request.
(d) Documentation at the Closings. The Purchasers
shall have received prior to or at (i) the Note Closing, and (ii)
the Preferred Share and Warrant Closing, all of the following
documents or instruments, or evidence of completion thereof, each
in form and substance satisfactory to the Purchasers and their
special counsel:
(i) At the Note Closing, an opinion of Xxxxxxxx &
Shohl LLP, counsel to the Company, dated the Note Closing Date, in
form and scope satisfactory to the Purchasers and their counsel,
substantially in the form attached hereto as Exhibit 4.02, and at
the Preferred Share and Warrant Closing, an opinion of Xxxxxxxx &
Shohl LLP, counsel to the Company, dated the Preferred Share and
Warrant Closing Date, in form and scope satisfactory to the
Purchasers and their counsel.
(ii) (A) the Charter, certified as of a recent date
by the Secretary of State of the State of Ohio, (B) a certificate
of said Secretary dated as of a recent date as to the due
incorporation and good standing of the Company, the payment of all
excise taxes by the Company and listing all documents of the
Company on file with said Secretary and (C) a certificate of the
Secretary of State of the jurisdiction of incorporation of each of
the Company's subsidiaries dated as of a recent date as to the due
incorporation and good standing of such subsidiary;
(iii) a certificate of the Secretary or an Assistant
Secretary of the Company dated, with respect to the Note Closing,
the Note Closing Date, and with respect to the Preferred Share and
Warrant Closing, the Preferred Share and Warrant Closing Date, and
certifying: (A) that attached thereto is a true and complete copy
of the Code of Regulations of the Company as in effect on the date
of such certification; (B) that attached thereto is a true and
complete copy of all resolutions adopted by the Board of Directors
or the shareholders of the Company authorizing the execution,
delivery and performance of the Transaction Documents, the
issuance, sale and delivery of the Notes, Preferred Shares and the
Warrants, the performance of the Notes and Warrants, the
reservation, issuance, sale and delivery of the Note Warrant
Common Shares and the Warrant Shares and the reservation, issuance
and delivery of the Conversion Shares, and that all such
resolutions are in full force and effect and are all the
resolutions adopted in connection with the transactions
contemplated by the Transaction Documents; (C) that the Charter
has not been amended since the date of the last amendment referred
to in the certificate delivered pursuant to clause (i)(B) above;
and (D) to the incumbency and specimen signature of each officer
of the Company executing any of the Transaction Documents, the
Notes, the Warrants or any of the stock certificates representing
the Preferred Shares and any certificate or instrument furnished
pursuant hereto, and a certification by another officer of the
Company as to the incumbency and signature of the officer signing
the certificate referred to in this clause (ii); and
(iiii) such additional supporting documents and other
information with respect to the operations and affairs of the
Company as the Purchasers or their counsel reasonably may request.
(e) Warrants. With respect to the Preferred Share and
Warrant Closing only, the Company shall have executed and
delivered the Warrants.
(f) Registration Rights Agreement. With respect to the
Note Closing only, the Company shall have executed and delivered
the Registration Rights Agreement.
(g) Charter. With respect to the Preferred Share and
Warrant Closing only, the Charter shall read in its entirety as
set forth in Exhibit 1.02.
(h) Election of Directors. With respect to the
Preferred Share and Warrant Closing only, Xxxxxx X. Xxxxxx and the
second Purchaser Director, if designated as of such date, shall
have been elected as Purchaser Directors pursuant to Section 5.09
hereof and shall hold such positions as of the Preferred Share and
Warrant Closing Date.
(i) Preemptive Rights. With respect to the Note
Closing only, all shareholders of the Company having any
preemptive, first refusal or other rights with respect to the
issuance of the Notes shall have irrevocably waived the same in
writing. With respect to the Preferred Share and Warrant Closing
only, all shareholders of the Company having any preemptive, first
refusal or other rights with respect to the issuance of the
Preferred Shares, the Warrants, the Note Warrant Common Shares,
the Warrant Shares or the Conversion Shares shall have irrevocably
waived the same in writing.
(j) Fees of Purchasers' Counsel. The Company shall
have paid in accordance with Section 8.01 the fees and
disbursements of Purchasers' counsel invoiced at each of the Note
Closing and the Preferred Share and Warrant Closing.
(k) Consents. The Company shall have received the
written consent of the Bank to the transactions contemplated
hereby.
(l) Proxies. With respect to the Note Closing only,
each shareholder listed on Exhibit 4.02A shall have validly
executed and delivered a proxy in the form attached hereto as
Exhibit 4.02B.
(m) Bank Agreement. The Company shall have entered
into a, and there shall be no event of default existing with
respect to such, definitive term loan agreement with a financial
institution providing for the conversion of the Company's current
indebtedness to the Bank of approximately $3.1 million into a
revolving credit facility to the Company of no less than
$2.25 million maturing no earlier than February 1, 2000.
(n) No Event of Default. With respect to the Preferred
Share and Warrant Closing only, there shall be no Event of Default
existing.
(o) Shareholder Approvals. With respect to the
Preferred Share and Warrant Closing only, the shareholders of the
Company shall have approved (i) the adoption of this Agreement and
the transactions contemplated hereby as required by the Ohio
Control Share Acquisition Act, the Articles of Incorporation and
Code of Regulations of the Company and the rules of the Nasdaq
National Market, and (ii) the amendment of the Company's Articles
of Incorporation so that such Articles of Incorporation shall read
as set forth in Exhibit 1.02 hereto.
All such documents shall be satisfactory in form and substance to
the Purchasers and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the
Purchasers that:
5.01 Information. Commencing on the Note Closing Date and
continuing so long as any Notes, Preferred Shares, Warrant Shares,
Note Warrant Common Shares or Conversion Shares remain outstanding
(or such earlier time as provided below), the Company shall
deliver to the Purchasers the information specified in this
Section 5.01 unless (i) any such Purchaser at any time
specifically requests that such information not be delivered to
it, or (ii) any such Purchaser has assigned its interest in any
Notes, Preferred Shares, Warrant Shares or Conversion Shares to a
third party, in which case the Company shall deliver to such
assignee the information specified in this Section 5.01 so long as
such assignee, if not an Affiliate of a Purchaser, has executed a
mutually acceptable agreement to maintain the confidentiality of
the information so long as such information is not, or has not
been, made available to the general public:
(a) Annual Financial Statements. As soon as available, but in
any event within one hundred twenty (120) days after the end of
each fiscal year of the Company, a copy of the audited
consolidated balance sheets of the Company and its subsidiaries as
at the end of such fiscal year and the related audited
consolidated statements of operations, shareholders' equity and
cash flows of the Company and its subsidiaries for such fiscal
year, all in reasonable detail and stating in comparative form the
figures as at the end of and for the immediately preceding fiscal
year, accompanied (in the case of the audited consolidated
financial statements) by an opinion of an accounting firm of
recognized national standing selected by the Company, which
opinion shall state that such accounting firm's audit was
conducted in accordance with generally accepted auditing
standards. All such financial statements shall be prepared in
accordance with GAAP applied on a consistent basis throughout the
periods reflected therein except as stated therein.
(b) Quarterly Financial Statements. As soon as available, but
in any event not later than forty-five (45) days after the end of
each quarterly fiscal period (other than the last quarterly fiscal
period in any fiscal year of the Company), the unaudited
consolidated balance sheet of the Company and its subsidiaries as
at the end of each such period and the related unaudited
consolidated statements of income and cash flows of the Company
and its subsidiaries for such period and for the elapsed period in
such fiscal year, all in reasonable detail and stating in
comparative form (i) the figures as of the end of and for the
comparable periods of the preceding fiscal year and (ii) the
figures reflected in the operating budget (if any) for such period
as specified in the financial plan of the Company. All such
financial statements shall be prepared in accordance with GAAP
applied on a consistent basis throughout the periods reflected
therein except as stated therein.
(c) Monthly Financial Statements. Within thirty (30) days after
the end of each month in each fiscal year (other than the last
month in each fiscal year) a consolidated balance sheet of the
Company and its subsidiaries, if any, and the related consolidated
statements of income, shareholders' equity and cash flows,
unaudited but prepared in accordance with generally accepted
accounting principles and certified by the Chief Financial Officer
of the Company, such consolidated balance sheet to be as of the
end of such month and such consolidated statements of income,
shareholders' equity and cash flows to be for such month and for
the period from the beginning of the fiscal year to the end of
such month, in each case with comparative statements for the prior
fiscal year.
(d) Material Litigation. Within twenty (20) days after the
Company learns of the commencement or written threat of
commencement of any litigation or proceeding against the Company
or any of its subsidiaries or any of their respective assets that
could reasonably be expected to have a material effect, written
notice of the nature and extent of such litigation or proceeding.
(e) Material Agreements. Within five (5) days after the
expiration of the applicable cure period, if any, or if no such
cure period exists within five (5) days after the receipt by the
Company of written notice of a default by the Company or any of
its subsidiaries under any material contract, agreement or
document to which it is a party or by which it is bound, written
notice of the nature and extent of such default.
(f) Other Reports and Statements. Promptly upon any
distribution to its shareholders generally, to its directors or to
the financial community of an annual report, quarterly report,
proxy statement, registration statement or other similar report or
communication, a copy of each such annual report, quarterly
report, proxy statement, registration statement or other similar
report or communication and promptly upon filing by the Company
with the SEC or with The Nasdaq Stock Market, the National
Association of Securities Dealers, Inc. or any national securities
exchange or other market system of all regular and other reports
or applications, a copy of each such report or application; and a
copy of such report or statement and copies of all press releases
and other statements made available generally by the Company to
the public concerning material developments in the Company.
(g) Accountants' Management Letters, Etc. Promptly after
receipt by the Company, copies of all accountants' management
letters and all management and board responses to such letters,
and copies of all certificates as to compliance, defaults,
material adverse changes, material litigation or similar matters
relating to the Company and its subsidiaries, which shall be
prepared by the Company or its officers and delivered to the third
parties.
(h) Annual Budget. Not later than the beginning of each fiscal
year of the Company, a copy of a consolidated operating budget of
the Company and its subsidiaries prepared by the Company for such
fiscal year, which shall include at minimum a projected balance
sheet and a projected statement of operations and cash flows for
each month in such fiscal year.
(i) Notices to Senior Lenders. Copies of all notices, reports,
certificates and other information furnished to the holders of
Senior Debt or to any agent or representative to such holders, in
each case promptly after the same are so furnished.
(j) Other. Promptly, from time to time, such other information
regarding the business, prospects, financial condition, oper-
ations, property or affairs of the Company and its subsidiaries as
such Purchaser reasonably may request.
5.02 Reserve for Conversion Shares and Warrant Shares.
The Company shall at all times reserve and keep available out of
its authorized but unissued shares of Common Stock, for the
purpose of effecting the exercise of the Note Warrants and the
conversion of the Preferred Shares and Warrant Shares and
otherwise complying with the terms of this Agreement, such number
of its duly authorized shares of Common Stock as shall be
sufficient to effect the exercise of the Note Warrants and the
conversion of the Preferred Shares from time to time outstanding
and the Warrant Shares from time to time outstanding and issuable
upon exercise of the Warrants, or otherwise to comply with the
terms of this Agreement. The Company shall at all times reserve
and keep available out of its authorized but unissued shares of
Series A Convertible Preferred Stock, for the purpose of effecting
the exercise of the Warrants and otherwise complying with the
terms of this Agreement, such number of its duly authorized shares
of Series A Convertible Preferred Stock as shall be sufficient to
effect the exercise of the Warrants from time to time outstanding,
or otherwise to comply with the terms of this Agreement. If at
any time the number of authorized but unissued shares of Common
Stock or Series A Convertible Preferred Stock shall not be
sufficient to effect the exercise of the Note Warrants and the
conversion of the Preferred Shares and Warrant Shares (assuming
the exercise of all outstanding Warrants) or the exercise of the
Warrants, as the case may be, or otherwise to comply with the
terms of this Agreement, the Company will forthwith take such
corporate action as may be necessary to increase its authorized
but unissued shares of Common Stock or Series A Convertible
Preferred Stock, as the case may be, to such number of shares as
shall be sufficient for such purposes. The Company will obtain
any authorization, consent, approval or other action by or make
any filing with any court or administrative body that may be
required under applicable state securities laws in connection with
the issuance of shares of Common Stock upon conversion of the
Preferred Shares and Warrant Shares and shares of Series A
Convertible Preferred Stock or Common Stock upon exercise of the
Warrants.
5.03 Restrictive Agreements Prohibited. Neither the
Company nor any of its subsidiaries shall become a party to any
agreement which by its terms restricts the Company's performance
of any of the Transaction Documents, the Notes, the Warrants or
the Charter.
5.04 Use of Proceeds. The Company shall use the
proceeds from the sale of the Notes, Preferred Shares and Warrants
solely to fund the continued market penetration of ChartMaxx and
OptiMaxx and for working capital. Without the prior written
consent of the Purchasers, the Company shall not use more than an
aggregate of $750,000 of the proceeds from the sale of the Notes,
Preferred Shares and Warrants to finance the operations of any
subsidiary of the Company.
5.05 Activities of Subsidiaries. The Company will not
organize or acquire any entity that is a subsidiary unless such
subsidiary is wholly-owned (directly or indirectly) by the
Company. The Company shall not permit any subsidiary to
consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may
(i) consolidate or merge into or with or sell or transfer assets
to any other subsidiary, or (ii) merge into or sell or transfer
assets to the Company. Without the prior written consent of the
Purchasers, the Company shall not sell or otherwise transfer any
shares of capital stock of any subsidiary, except to the Company
or another subsidiary, or permit any subsidiary to issue, sell or
otherwise transfer any shares of its capital stock or the capital
stock of any subsidiary, except to the Company or another
subsidiary, provided that DiaLogos Incorporated may issue and sell
shares of its capital stock to existing shareholders of DiaLogos
Incorporated and pursuant to the DiaLogos Incorporated 1999 Long
Term Stock Incentive Plan so long as the ownership interest of the
Company in DiaLogos Incorporated does not go below 58.5% on a
fully diluted basis. The Company shall not permit any subsidiary
to purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of its stock,
except for dividends or other distributions payable to the Company
or another subsidiary.
5.06 U.S. Real Property Interest Statement. The
Company shall provide prompt written notice to each Purchaser
following any "determination date" (as defined in Treasury
Regulation Section 1.897-2(c)(i)) on which the Company becomes a
United States real property holding corporation. In addition,
upon a written request by any Purchaser, the Company shall provide
such Purchaser with a written statement informing the Purchaser
whether such Purchaser's interest in the Company constitutes a
U.S. real property interest. The Company's determination shall
comply with the requirements of Treasury Regulation Section 1.897-
2(h)(1) or any successor regulation, and the Company shall provide
timely notice to the Internal Revenue Service, in accordance with
and to the extent required by Treasury Regulation Section 1.897-
2(h)(2) or any successor regulation, that such statement has been
made. The Company's written statement to any Purchaser shall be
delivered to such Purchaser within ten (10) days of such
Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.06 shall
continue notwithstanding the fact that a class of the Company's
stock may be regularly traded on an established securities market.
5.07 International Investment Survey Act of 1976. The
Company shall use its best efforts to file on a timely basis all
reports required of it under 22 U.S.C. Section 3104, or any
similar statute, relating to a foreign person's direct or indirect
investment in the Company.
5.08 Consolidation, Merger of Disposition of Assets.
The Company will not consolidate with or merge with any other
person or convey, transfer or lease substantially all of its
assets in a single transaction or series of transactions to any
person unless the Company shall have paid all outstanding
principal and interest on the Notes and all interest that would
have been due and payable on the Note had they been held to
maturity. The Company shall provide each holder of a Notes with
written notice of such payment at least 30 business days in
advance of any proposed transaction.
5.09 Election of Directors
(a) Board of Directors. The Company shall be governed by a
Board of Directors consisting, as of the date hereof, of six
members (each a "Director"). Without the consent of the Purchaser
Directors (as hereinafter defined), the number of Directors
constituting the full Board of Directors shall not be increased
beyond nine; without the consent of the Company Directors (as
hereinafter defined), the number of Directors constituting the
full Board of Directors shall not be reduced below five. Regular
meetings of the Board shall be held at least four times per year,
on a quarterly basis.
(b) Nomination and Election of Directors.
(i) The Purchasers shall have the right to nominate two
Directors (each, a "Purchaser Director").
(ii) The Company agrees that it shall cause the Board of
Directors in office immediately prior to the Preferred Share and
Warrant Closing to increase the size of the Board of Directors by
two, and to elect the nominees designated by the Purchasers as
Directors, to serve as Directors until their respective successors
are elected and qualified. The Board of Directors (other than the
Purchaser Directors) shall have the right to nominate the
directors other than the Purchaser Directors (each a "Company
Director"), to serve until their respective successors are elected
and qualified. The initial Company Directors shall be the
incumbent Board of Directors as of the date of the Preferred Share
and Warrant Closing. The initial Purchaser Directors shall be
Xxxxxx X. Xxxxxx and an individual to be designated after the date
hereof by the Purchasers, subject to the approval of the Company,
which approval shall not be unreasonably withheld or delayed.
(c) Vacancy. If any vacancy occurs in the Board of Directors
because of the death, disability, resignation, retirement or
removal of a Purchaser Director, then the Purchasers shall
nominate a successor, and the Board of Directors shall vote to
elect such successor to the Board, or if a vote of the
shareholders of the Company is held, the Board of Directors shall
recommend to the shareholders that such successor be elected to
the Board of Directors. If any vacancy occurs in the Board of
Directors because of the death, disability, resignation,
retirement or removal of a Company Director, then the Company
Directors shall either (i) nominate a successor, and the Board of
Directors shall vote to elect such successor to the board, or if a
vote of the shareholders of the Company is held, the Board of
Directors shall recommend to the shareholders that such successor
be elected to the Board of Directors, or (ii) decide expressly not
to fill such vacancy at such time.
5.10 No Merger, Consolidation, etc. The Company hereby
agrees that between the date hereof and the Preferred Share and
Warrant Closing Date, it shall not, and it shall not enter into a
binding obligation or definitive agreement to, merge or
consolidate the Company with another person, or sell, transfer or
convey all or substantially all of the assets of the Company to
another person.
5.11 Opinion Regarding Subsidiaries. The Company
hereby agrees that it shall cause an opinion of Xxxxxxxx & Shohl
LLP, counsel to the Company, to be delivered to the Purchasers to
the effect that all the outstanding shares of capital stock of
each of the Company's subsidiaries have been duly authorized and
are validly issued.
5.12 Termination of Covenants. The covenants set forth
in Sections 5.06 and 5.07 shall terminate and be of no further
force or effect as to each of the Purchasers when such Purchaser
no longer holds any shares of capital stock or rights to acquire
capital stock of the Company. The covenant set forth in Section
5.10 shall terminate and be of no further force or effect on the
Preferred Share and Warrant Closing Date. All of the other
covenants set forth in this Article V shall terminate and be of no
further force or effect as to each of the Purchasers when such
Purchaser owns (i) no Notes, and (ii) less than 10% of the
Preferred Shares which (A) such Purchaser purchased at the
Preferred Share and Warrant Closing and (B) had the right to
purchase pursuant to the Warrants (in each case, appropriately
adjusted to reflect stock splits, stock dividends, combinations of
shares and the like with respect to the Series A Convertible
Preferred Stock).
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default. If any of the following
events ("Events of Default") shall occur and be continuing:
(a) The Company shall fail to pay
any installment of principal of any of the Notes when due; or
(b) The Company shall fail to pay
any interest or premium on any of the Notes when due and such
failure shall continue for five (5) business days; or
(c) Any representation or warranty
made by the Company in this Agreement or by the Company (or any
officers of the Company) in any certificate, instrument or written
statement contemplated by or made or delivered pursuant to or in
connection with this Agreement, shall prove to have been incorrect
when made in any material respect; or
(d) The Company, or any subsidiary
shall fail to perform or observe any other term, covenant or
agreement contained in this Agreement, the Notes, the Preferred
Shares or the Warrants on its part to be performed or observed and
any such failure remains unremedied for ten (10) business days
after written notice thereof shall have been given to the Company
by any registered holder thereof; or
(e) The Company or any subsidiary
shall fail to pay any Indebtedness for borrowed money (other than
as evidenced by the Notes) owing by the Company or such subsidiary
(as the case may be), or any interest or premium thereon, when due
(or, if permitted by the terms of the relevant document, within
any applicable grace period), whether such Indebtedness shall
become due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, or shall fail to perform any
term, covenant or agreement on its part to be performed under any
agreement or instrument (other than this Agreement or the Notes)
evidencing or securing or relating to any Indebtedness owing by
the Company or any subsidiary, as the case may be, when required
to be performed (or, if permitted by the terms of the relevant
document, within any applicable grace period), if the effect of
such failure to pay or perform is to accelerate, or to permit the
holder or holders of such Indebtedness, or the trustee or trustees
under any such agreement or instrument to accelerate, the maturity
of such Indebtedness, unless such failure to pay or perform shall
be waived by the holder or holders of such Indebtedness or such
trustee or trustees; or
(f) The Company or any subsidiary
shall be involved in financial difficulties as evidenced (i) by
its admitting in writing its inability to pay its debts generally
as they become due; (ii) by its commencement of a voluntary case
under Title 11 of the United States Code as from time to time in
effect, or by its authorizing, by appropriate proceedings of its
Board of Directors or other governing body, the commencement of
such a voluntary case; (iii) by its filing an answer or other
pleading admitting or failing to deny the material allegations of
a petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the
relief therein provided, or by its failing to controvert timely
the material allegations of any such petition; (iv) by the entry
of an order for relief in any involuntary case commenced under
said Title 11; (v) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or by its
consenting to or acquiescing in such relief; (vi) by the entry of
an order by a court of competent jurisdiction (a) finding it to be
bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of
its creditors, or (c) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its
property; or (vii) by its making an assignment for the benefit of,
or entering into a composition with, its creditors, or appointing
or consenting to the appointment of a receiver or other custodian
for all or a substantial part of its property; or
(g) Any judgment, writ, warrant of
attachment or execution or similar process shall be issued or
levied against a substantial part of the property of the Company
or any subsidiary and such judgment, writ, or similar process
shall not be released, vacated or fully bonded within sixty (60)
days after its issue or levy;
then, and in any such event, the Purchaser or any other holder of
the Notes may, by notice to the Company, declare the entire unpaid
principal amount of the Notes, all interest accrued and unpaid
thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such accrued
interest and all such amounts shall become and be forthwith due
and payable (unless there shall have occurred an Event of Default
under subsection 6.01(g) in which case all such amounts shall
automatically become due and payable), without presentment,
demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company.
6.02. Annulment of Defaults. Section 6.01 is subject
to the condition that, if at any time after the principal of any
of the Notes shall have become due and payable, and before any
judgment or decree for the payment of the moneys so due, or any
thereof, shall have been entered, all arrears of interest upon all
the Notes and all other sums payable under the Notes and under
this Agreement (except the principal of the Notes which by such
declaration shall have become payable) shall have been duly paid,
and every other default and Event of Default shall have been made
good or cured, then and in every such case the holders of seventy-
five percent (75%) or more in principal amount of all Notes then
outstanding may, by written instrument filed with the Company,
rescind and annul such declaration and its consequences; but no
such rescission or annulment shall extend to or affect any
subsequent default or Event of Default or impair any right
consequent thereon.
ARTICLE VII
COVENANTS OF THE MANAGING SHAREHOLDER
7.01 Tag-Along Rights. For the purposes of this
Section 7.01 only, the term "Shares" shall mean and include all
voting securities of the Company now owned or hereafter acquired
by either (i) the Managing Shareholder or (ii) the Purchasers
prior to the termination of this Article VII.
(a) The Managing Shareholder agrees
that if he (a "Selling Shareholder") proposes to sell or transfer
any of his Shares (the "Tag-Along Securities"), and the amount of
such Tag-Along Securities together with all other Shares sold by
Managing Shareholder after the date hereof exceeds 597,201, then
such Selling Shareholder shall provide written notice (the "Tag-
Along Offer Notice") of such intent to the Purchasers in the
manner set forth in this Section 7.01 (the date of receipt of such
notice being the "Tag-Along Notice Date"). The Tag-Along Offer
Notice shall identify the proposed transferee(s) (the "Tag-Along
Purchaser"), the number of Tag-Along Securities proposed to be
purchased by the Tag-Along Purchaser, the Tag-Along Ratio (as
defined in Section 7.01(b)(i)), the consideration offered per Tag-
Along Security (the "Tag-Along Offer Price") and any other
material terms and conditions of the proposed transfer (the
"Tag-Along Offer") and, in the case of a Tag-Along Offer in which
the Tag-Along Offer Price consists in part or in whole of
consideration other than cash, such information relating to such
consideration as the Purchasers may reasonably request in order to
evaluate such non-cash consideration. The Purchasers shall have
the right, exercisable as set forth below, to accept the Tag-Along
Offer to sell for up to the number of Shares determined pursuant
to Section 7.01(b). The Tag-Along Offer Price paid to any
Purchaser shall be not less than the highest price paid per Tag-
Along Security to any Selling Shareholder, which shall include any
payments to such Selling Shareholder for an agreement not to
compete or any consulting or other similar fees payable to such
Selling Shareholder (other than fees for actually anticipated
future services). Any Purchaser that wishes to accept the
Tag-Along Offer shall, within 30 days after the Tag-Along Notice
Date (the "Tag-Along Notice Period"), provide the Selling
Shareholder with written notice (a "Tag-Along Acceptance Notice")
specifying the number of Shares that the Purchaser wishes to sell,
and shall simultaneously provide a copy of such Tag-Along
Acceptance Notice to the Company.
Not less than ten days prior to the proposed date of any
sale pursuant to a Tag-Along Offer (the "Transfer Date"), which
date may not be earlier than 20 days after the termination of the
Tag-Along Notice Period, the Selling Shareholder shall notify the
Company and the Purchasers of the Transfer Date. Not less than
three days prior to the Transfer Date, the participating
Purchasers shall deliver to the Company in escrow (pending the
consummation of the sale pursuant to the Tag-Along Offer) their
duly endorsed certificates representing the Shares to be
transferred by the participating Purchasers pursuant to the
Tag-Along Offer, together with all other documents reasonably
required by the Company and/or the Tag-Along Purchaser to be
executed in connection with the sale of such Tag-Along Securities
pursuant to the terms of the Tag-Along Offer; provided, that each
participating Purchaser shall, as a condition to the sale of the
Tag-Along Securities, have the right to receive all documentation
(the "Transfer Documentation") from the Selling Shareholder
relating to the sale of the Tag-Along Securities at least ten days
prior to the consummation of such sale. Any material change in
the terms of the Tag-Along Offer (whether or not reflected in the
Transfer Documentation) will require the submission of a new Tag-
Along Offer Notice and the recommencement of compliance with all
of the other applicable provisions of this Section 7.01.
(b) (i) The Purchasers
shall have the right to sell (and the Selling Shareholder shall
reduce the number of its shares to be sold by a corresponding
amount), pursuant to the Tag-Along Offer, a number of shares equal
to the product of the total number of Tag-Along Securities offered
to be purchased by the Tag-Along Purchaser as set forth in such
Tag-Along Offer multiplied by a fraction (the "Tag-Along Ratio"),
the numerator of which shall be the aggregate number of Shares
owned by such Purchaser and the denominator of which shall be the
aggregate number of Shares owned at that time by the Selling
Shareholder and the participating Purchasers.
(ii) In no event may
the Purchasers sell more than the total number of Shares specified
in such Purchasers' Tag-Along Notice applicable to the relevant
Tag-Along Offer. If, at the termination of the Tag-Along Notice
Period, any Purchaser shall not have accepted the Tag-Along Offer,
the Purchaser will be deemed to have waived any and all of its
rights under this Section 7.01 with respect to the sale of any of
its Shares pursuant to such Tag-Along Offer.
(c) The Selling Shareholder shall
have 60 days from the conclusion of the Tag-Along Notice Period in
which to consummate the sale contemplated by the Tag-Along Offer
to the Tag-Along Purchaser at the price and on the terms contained
in the Tag-Along Offer Notice. If, at the end of such 60-day
period, the Selling Shareholder has not completed the sale
contemplated by the Tag-Along Offer Notice, the right of the
Selling Shareholder to effect such sale shall terminate, and the
Tag-Along Securities subject to such proposed sale shall again be
subject to all the restrictions on sale or other disposition and
other provisions contained in this Agreement.
(d) Immediately after the
consummation of the sale of the Tag-Along Securities pursuant to
the Tag-Along Offer, the Selling Shareholder shall notify the
participating Purchasers and the Company thereof, shall remit to
each of the participating Purchasers their portion of the total
sales price specified in the Tag-Along Offer Notice, and shall
furnish such other evidence of such sale (including the time of
completion) and the terms thereof as may be reasonably requested
by the Purchasers. The Company shall, upon being notified of the
consummation of such sale, return to each participating Purchaser
a new stock certificate, as the case may be, for the balance of
the Shares not sold as part of the Tag-Along Securities, in
accordance with each Purchasers instructions.
(e) Notwithstanding anything
contained in this Section 7.01, there shall be no liability on the
part of a Selling Shareholder to any Purchaser if the sale of the
Tag-Along Securities is not consummated for whatever reason.
(f) No Purchaser shall be required
to make any representation or warranty in connection with the Tag-
Along Offer other than as to such Purchaser's ownership and
authority to sell, free of liens, claims and encumbrances, the
Shares proposed to be sold by it.
7.02 Termination. The covenants set forth in this
Article VII shall terminate and be of no further force or effect
as to each Purchaser when such Purchaser no longer holds at least
10% of the aggregate principal amount of the Notes, 10% of the
Preferred Shares, 10% of the Warrant Shares or 10% of the
Conversion Shares issuable thereon, purchased hereby.
ARTICLE VIII
MISCELLANEOUS
8.01 Expenses. Each party hereto will pay its own
expenses in connection with the transactions contemplated hereby,
whether or not such transactions shall be consummated, provided,
however, that the Company shall pay the fees and disbursements of
the Purchasers' special counsel, Xxxxx, Xxxxxxx & Xxxxxxxxx, LLP,
up to a maximum of $75,000, in connection with such transactions
and any subsequent amendment, waiver, consent or enforcement
thereof.
8.02 Survival of Agreements. All covenants, agree-
ments, representations and warranties made in any of the
Transaction Documents or in the Notes or the Warrants or any
certificate or instrument delivered to the Purchasers pursuant to
or in connection with any of the Transaction Documents or the
Notes or the Warrants, shall survive the execution and delivery of
all of the Transaction Documents, the Notes and the Warrants, the
issuance, sale and delivery of the Notes, Preferred Shares, the
Warrants and the Warrant Shares, and the issuance and delivery of
the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder
or thereunder or in connection herewith or therewith shall be
deemed to constitute representations and warranties made by the
Company.
8.03 Brokerage. Each party hereto will indemnify and
hold harmless the others against and in respect of any claim for
brokerage or other commissions relative to this Agreement or to
the transactions contemplated hereby, based in any way on
agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
8.04 Parties in Interest. All representations,
covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto shall bind and inure to the
benefit of the respective successors and assigns of the parties
hereto whether so expressed or not. Without limiting the gener-
ality of the foregoing, all representations, covenants and agree-
ments benefiting the Purchasers shall inure to the benefit of any
and all subsequent holders from time to time of Preferred Shares,
Warrants, Warrant Shares or Conversion Shares.
8.05 Notices. All notices, requests, consents and
other communications hereunder shall be in writing and shall be
delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or telex,
addressed as follows:
(a) if to the Company, at 0000 Xxxxxxxxx Xxxx Xxxxx,
Xxxxx 000, Xxxxxxxxxx, Xxxx 00000, Attention: General Counsel,
with a copy to Xxxxxxxx & Shohl LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000,
Xxxxxxxxxx, Xxxx 00000, Attention: Xxxxxxx X. Xxxxxxxx, Xx.,
Esq.; and
(b) if to any Purchaser, at the address of such Pur-
chaser set forth in Exhibit 1.01, with a copy to Xxxxx, Xxxxxxx &
Xxxxxxxxx, LLP, 000 Xxxx Xxxxxx, Xxxxxx, Xxxxxxxxxxxxx 00000,
Attention: Xxxxxx X. Xxxxx, Esq.; and
(c) if to the Managing Shareholder, at 0000 Xxxxxxxxx
Xxxx Xxxxx, Xxxxx 000, Xxxxxxxxxx, Xxxx 00000, with a copy to
Xxxxxxxx & Shohl LLP, 000 Xxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxx,
Xxxx 00000, Attention: Xxxxxxx X. Xxxxxxxx, Xx., Esq.;
or, in any such case, at such other address or addresses as shall
have been furnished in writing by such party to the others.
8.06 Governing Law. This Agreement shall be governed
by and construed in accordance with the laws of the State of Ohio.
8.07 Entire Agreement. This Agreement, including the
Schedules and Exhibits hereto, constitutes the sole and entire
agreement of the parties with respect to the subject matter
hereof. All Schedules and Exhibits hereto are hereby incorporated
herein by reference.
8.08 Counterparts. This Agreement may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the
same instrument.
8.09 Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the
written consent of the Company and the holders of at least two-
thirds of the outstanding shares of Common Stock issued or issu-
able upon conversion of the Preferred Shares and Warrant Shares,
taken as a group, and, with respect to Article VII only, with the
consent of the Managing Shareholder.
8.10 Severability. If any provision of this Agreement
shall be declared void or unenforceable by any judicial or
administrative authority, the validity of any other provision and
of the entire Agreement shall not be affected thereby.
8.11 Titles and Subtitles. The titles and subtitles
used in this Agreement are for convenience only and are not to be
considered in construing or interpreting any term or provision of
this Agreement.
8.12 Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Purchasers and their affiliates, and their respective partners,
co-investors, officers, directors, employees, agents, consultants,
attorneys and advisers (each, an "Indemnified Party"), from and
against any and all actual losses, claims, damages, liabilities,
costs and expenses (including, without limitation, environmental
liabilities, costs and expenses and all reasonable fees, expenses
and disbursements of counsel), joint or several (hereinafter
collectively referred to as a "Loss"), which may be incurred by or
asserted or awarded against any Indemnified Party in connection
with or in any manner arising out of or relating to any
investigation, litigation or proceeding or the preparation of any
defense with respect thereto, arising out of or in connection with
or relating to this Agreement, the other Transaction Documents or
the transactions contemplated hereby or thereby or any use made by
the Company or proposal to be made by the Company with the
proceeds of the Purchasers' purchase of the Notes, Preferred
Shares, Warrant Shares and Conversion Shares pursuant to this
Agreement, whether or not such investigation, litigation or
proceeding is brought by the Company, any of its subsidiaries,
shareholders or creditors, an Indemnified Party or any other
person, whether or not any of the transactions contemplated by
this Agreement or the other Transaction Documents are consummated,
except to the extent such Loss is found in a final judgment by a
court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct. The
Company agrees that no Indemnified Party shall have any liability
(whether direct or indirect, in contract, tort or otherwise) to
the Company or any of its subsidiaries, shareholders or creditors
for or in connection with the transactions contemplated hereby,
except to the extent such liability is found in a final judgment
by a court of competent jurisdiction to have resulted from such
Indemnified Party's gross negligence or willful misconduct but in
no event shall an Indemnified Party be liable for punitive,
exemplary or consequential damages.
(b) An Indemnified Party shall give written notice to the
Company of any claim with respect to which it seeks
indemnification promptly (but in no event later than within thirty
(30) days) after the discovery by such parties of any matters
giving arise to a claim for indemnification pursuant to Section
8.12(a); provided that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Company of
its obligations under this Section 8.12, except to the extent that
the Company is actually prejudiced by such failure to give notice.
In case any such action or claim is brought against any
Indemnified Party, the Company shall be entitled to participate in
and, unless in the judgment of the Indemnified Party a conflict of
interest between such Indemnified Party and the Company may exist
in respect of such action or claim, to assume the defense thereof,
with counsel reasonably satisfactory to the Indemnified Party and
after notice from the Company to the Indemnified Party of its
election so to assume the defense thereof. If the Company elects
in writing to assume the defense of such action or claim, and does
so assume the defense of any such action or claim, the Company
shall not be liable to such Indemnified Party for any legal or
other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of
investigation. In any event, unless and until the Company elects
in writing to assume and does so assume the defense of any such
action or claim the Indemnified Party's reasonable costs and
expenses arising out of the defense, settlement or compromise of
any such action or claim shall be Losses subject to
indemnification hereunder. If the Company elects to defend any
such action or claim, then the Indemnified Party shall be entitled
to participate in such defense with counsel of its choice at its
sole cost and expense. The Company shall not be liable for any
settlement of any action or claim effected without its written
consent. Anything in this Section 8.12 to the contrary
notwithstanding, the Company shall not, without the Indemnified
Party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof that imposes
any future obligation on the Indemnified Party or that does not
include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnified Party, a release from
all liability in respect of such claim.
8.13 Remedies Cumulative. No remedy conferred in this Agreement
or the other Transaction Documents is intended to be exclusive of
any other remedy and each and every such remedy shall be
cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or
otherwise.
8.14 Remedies Not Waived. No course of dealing between the
Company and any Purchaser and no delay or failure in exercising
any rights hereunder or under any other Transaction Document shall
operate as a waiver of any of the rights of any Purchaser.
8.15 Certain Defined Terms. As used in this Agreement,
the following terms shall have the following meanings (such
meanings to be equally applicable to both the singular and plural
forms of the terms defined):
(a) "Affiliate" shall mean, with respect to any person,
(i) any person directly or indirectly controlling, controlled by,
or under common control with such person, (ii) if such person is a
partnership, any limited or general partner of such person, or any
limited or general partner of a partner of such person, (iii) if
such person is a limited liability company, any manager or member
of such limited liability company, and (iv) any combination of any
of the foregoing.
(b) "Benefit Arrangement" means each employment,
severance or other similar contract, arrangement or policy
(written or oral) and each plan or arrangement (written or oral)
providing for severance benefits, insurance coverage (including
any self-insured arrangements), workers' compensation, disability
benefits, supplemental unemployment benefits, vacation benefits,
retirement benefits or for deferred compensation, profit-sharing,
bonuses, stock options, stock appreciation rights or other forms
of incentive compensation or post-retirement insurance,
compensation or benefits which (i) is not an Employee Plan and
(ii) covers any employee or former employee of the Company.
(c) "Employee Plan" means each "employee benefit plan,"
as such term is defined in Section 3(3) of ERISA, that (A)(i) is
subject to any provision of ERISA and (ii) is maintained or
contributed to by the Company, or (B)(i) is subject to any
provision of Title IV of ERISA and (ii) is maintained or
contributed to by any of the Company's ERISA Affiliates.
(d) "ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
(e) "ERISA Affiliate" of any entity means any other
entity that, together with such entity, would be treated as a
single employer under Section 414 of the Code.
(f) "Fully Diluted" shall mean including all
outstanding options, warrants and securities exchangeable for or
convertible into shares of Common Stock, and all commitments of
the Company to issue any of the foregoing.
(g) "Lien" means mortgage, deed of trust, pledge, lien,
security interest or other charge or encumbrance (including the
lien or retained security title of a conditional vendor) of any
nature.
(h) "Managing Shareholder" shall mean Xxxxxxx X.
Xxxxxxx.
(i) "Multiemployer Plan" means each Employee Plan that
is a multiemployer plan, as defined in Section 3(37) of ERISA.
(j) "person" shall mean an individual, corporation,
trust, partnership, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof,
or other entity.
(k) "Senior Debt" means (i) all indebtedness of the
Company for money borrowed from banks or institutional lenders,
including any extensions, renewals, replacements or refinancings
thereof, whether outstanding on the date hereof or hereafter
created or incurred, which is not by its terms subordinate and
junior to the Notes and which is disclosed in the Company SEC
Reports or is permitted by this Agreement at the time it is
created or incurred and (ii) all indebtedness of the Company for
money borrowed and incurred to replace or refinance any of the
indebtedness referred to in item (i) above, where the security
securing such indebtedness is substantially the same security as
that securing the indebtedness being refinanced.
(l) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having
ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether or not at
the time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by
the Company, or by one or more of its subsidiaries, or by the
Company and one or more of its subsidiaries.
IN WITNESS WHEREOF, the Company and the Purchasers have
executed this Agreement as of the day and year first above
written.
MEDPLUS, INC.
By:__________________
[Corporate Seal] Title:_______________
Attest:
___________________
General Counsel
PURCHASERS:
XXXXXX, XXXXXXX STRATEGIC PARTNERS
FUND, L.P.
By: XXXXXX, XXXXXXX STRATEGIC PARTNERS, L.P.,
its General Partner
By:_____________________
Title:__________________
STRATEGIC ASSOCIATES, L.P.
By: XXXXXX, XXXXXXX & COMPANY, LLC,
its General Partner
By:______________________
Title:___________________
DOUBLE BLACK DIAMOND II, LLC
By:_______________________
Title:____________________
MANAGING SHAREHOLDER:
(For the purposes of Articles VII and VIII only)
_____________________
Xxxxxxx X. Xxxxxxx
EXHIBIT 1.01
Purchasers
Aggregate
Purchase Price
for Preferred
Amount of Number of Number of Shares and
Name and Address Notes Preferred Shares Preferred Shares Purchase
of Purchaser to be Purchased to be Purchased to be Purchased Warrants
__________________________ ________________ _________________ ____________________ _______________
Xxxxxx Xxxxxxx $ 1,895,000 2,192,494 703,995 $3,790,019.63
Strategic Partners, L.P.
c/x Xxxxxx, Xxxxxxx
& Company, LLC
Xxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Strategic Associates, L.P. 105,000 121,484 39,008 210,001.37
c/x Xxxxxx, Xxxxxxx
& Company, LLC
Xxx Xxxxx Xxxxxx,
Xxxxx 0000
Xxxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxx
Double Black Diamond, II LLC 0 57,837 16,559 99,979.00
00 Xxxxxxxxxx
Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, XX 00000
Attn: Xxxxxx X.XxXxxxxx
________________ _________________ ____________________ _______________
Total $ 2,000,000 2,371,815 759,562 $4,100,000.00
