EXHIBIT 10.16
SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
BY AND AMONG
RIVER CITIES CAPITAL FUND II LIMITED PARTNERSHIP,
JG FUNDING, LLC,
▇▇▇▇▇▇▇▇ CAPITAL GROUP, LLC,
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇,
DPEC, INC.
AND
▇▇▇▇▇ ▇. ▇▇▇▇▇
JANUARY 7, 2000
TABLE OF CONTENTS
PAGE
1. Sale and Issuance of Series C Convertible Preferred Stock and Warrant.........1
2. Closing.......................................................................2
3. Closing Items.................................................................2
4. Benefit Plans.................................................................3
5. Further Assurances............................................................3
6. Representations and Warranties of the Company and ▇▇▇▇▇.......................3
6.1 Corporate Standing...................................................4
6.2 Authorization........................................................4
6.3 Capitalization.......................................................4
6.4 Validly Issued Shares................................................5
6.5 No Conflict..........................................................6
6.6 Contracts and Other Commitments; Compliance..........................6
6.7 Subsidiaries.........................................................6
6.8 Consents.............................................................6
6.9 Financial Statements.................................................6
6.10 Indebtedness for Borrowed Money; No Undisclosed Liabilities..........7
6.11 Title to Property and Assets; Leases.................................7
6.12 Legal Proceedings....................................................7
6.13 Environmental Matters................................................7
6.14 Licenses and Permits; Compliance with Laws...........................8
6.15 Employee Benefit Plans...............................................8
6.16 Labor Relations......................................................8
6.17 Insurance............................................................9
6.18 Tax Matters..........................................................9
6.19 Changes in Circumstances............................................10
6.20 Patents and Trade Names, Etc........................................11
6.21 Affiliated Transactions.............................................12
6.22 Bank Accounts.......................................................12
6.23 Brokers' and Finders' Fees..........................................12
6.24 Registration Rights.................................................13
6.25 Small Business Concern..............................................13
6.26 Material Facts......................................................13
6.27 ▇▇▇▇▇ Debt Repayment Obligations....................................13
6.28 Year 2000 Compliance................................................14
7. Representations and Warranties of River Cities and other Investors...........14
7.1 Authorization; Binding Agreement....................................14
7.2 Investment Representations..........................................14
7.3 Accredited Investor; Residence......................................14
7.4 Receipt of Information; Restricted Securities.......................14
7.5 Investment Experience...............................................15
8. Survival of Representations and Warranties...................................15
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9. Indemnification..............................................................15
9.1 Indemnification by the Company......................................15
9.2 Indemnification by ▇▇▇▇▇............................................16
9.3 Indemnification by Investors........................................16
10. Covenants of the Company (and ▇▇▇▇▇ solely with respect to Section 10.6).....16
10.1 Insurance...........................................................16
10.2 Financial Reporting.................................................16
10.3 Board of Directors..................................................17
10.4 Reservation of Shares...............................................17
10.5 Use of Proceeds.....................................................17
10.6 ▇▇▇▇▇ Debt Repayment Obligations....................................18
10.7 Compliance with Small Business Investment Act.......................18
10.8 Negative Covenants..................................................18
10.9 Definition of a Qualified Sale......................................19
11. Restrictions of Transfers....................................................19
11.1 Notice of Sale by ▇▇▇▇▇.............................................19
11.2 Definition of Qualified IPO.........................................19
11.3 Co-Sale Right.......................................................19
11.4 Rights of Refusal...................................................20
11.5 Exceptions..........................................................20
11.6 Right of First Refusal..............................................21
11.7 Right of First Offer................................................21
11.8 Restrictive Legend..................................................22
11.9 Preemptive Rights...................................................22
12. Default......................................................................22
12.1 Events of Default...................................................22
12.2 Remedy..............................................................23
12.3 Diversion of Proceeds...............................................24
12.4 Loss of ▇▇▇▇▇.......................................................24
13. Public Statements............................................................24
14. Notices......................................................................25
15. Parties in Interest; Assignment..............................................26
16. Construction; Governing Law..................................................26
17. Entire Agreement; Amendment and Waiver.......................................26
18. Severability.................................................................27
19. Counterparts.................................................................27
20. Expenses.....................................................................27
21. Time of Essence..............................................................27
22. Confidentiality Agreement....................................................27
23. Attorneys' Fees..............................................................27
24. Rights of the Investors......................................................27
25. Termination Upon a Qualified IPO.............................................27
26. Termination of Certain Provisions............................................28
27. Pronouns.....................................................................28
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SERIES C CONVERTIBLE PREFERRED STOCK
PURCHASE AGREEMENT
THIS SERIES C CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
("Agreement") is made and entered into as of the 7th day of January, 2000, by
and among RIVER CITIES CAPITAL FUND II LIMITED PARTNERSHIP, a Delaware limited
partnership ("River Cities"); JG FUNDING, LLC, a Kentucky limited liability
company ("JG"); ▇▇▇▇▇▇▇▇ CAPITAL GROUP, LLC, a Kentucky limited liability
company ("▇▇▇▇▇▇▇▇"); ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇, an individual ("▇▇▇▇▇▇") (River
Cities, JG, ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ are hereinafter sometimes referred to
individually as an "Investor" and collectively as the "Investors"); DPEC, INC.,
an Ohio corporation (the "Company"); and ▇▇▇▇▇ ▇.
▇▇▇▇▇ ("▇▇▇▇▇").
WITNESSETH:
On September 15, 1998, the Company sold, and River Cities Capital Group
II Limited Partnership ("Group") purchased, 5,123 shares of Senior Convertible
Preferred Stock of the Company (the "Senior Preferred Stock") for a price of
$2,000,000;
On February 22, 1999, Group assigned the Senior Preferred Stock to
River Cities;
On August 27, 1999, the Company sold, and the Investors purchased, an
aggregate of 2,979 shares of Series B Convertible Preferred Stock of the Company
(the "Series B Preferred Stock") for an aggregate price of $3,000,121 pursuant
to the terms of a certain Series B Convertible Preferred Stock Purchase
Agreement (the "Prior Stock Purchase Agreement"); and
The Company desires to sell and issue, and River Cities desires to
purchase and acquire, 1,167 shares of the Company's authorized but unissued
Series C Convertible Preferred Stock (the "Series C Preferred Stock") and a
warrant to purchase 292 shares of the Company's authorized but unissued Common
Stock (the "Warrant") for an aggregate price of $1,500,000 pursuant to the terms
and subject to the conditions contained herein. The shares of Senior Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are sometimes
referred to herein collectively as the "Preferred Stock."
NOW, THEREFORE, in consideration of the mutual covenants,
representations and warranties herein contained, and intending to be legally
bound, the parties hereto agree as follows:
1. SALE AND ISSUANCE OF SERIES C CONVERTIBLE PREFERRED STOCK AND
WARRANT.
1.1 The Company shall adopt and file with the Secretary of
State of Ohio on or before the Closing (as defined below) the Certificate of
Amendment of Articles of Incorporation in the form attached hereto as EXHIBIT
A (the "Amended Articles"). The Series C Preferred Stock will have the
rights, preferences and privileges and restrictions set forth in the Amended
Articles.
1.2 Subject to the terms and conditions of this Agreement, at
the Closing, River Cities agrees to purchase from the Company, and the Company
agrees to sell, issue and deliver to
River Cities, 1,167 shares of Series C Preferred Stock and the Warrant for an
aggregate price of $1,500,000.
1.3 Effective upon the Closing, the Company and the Investors
shall enter into the Second Amended and Restated Registration Rights Agreement
in the form attached hereto as EXHIBIT B ("Second Amended and Restated
Registration Rights Agreement").
2. CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") will occur simultaneously with the execution of this
Agreement and shall take place either by facsimile or at the offices of ▇▇▇▇▇▇▇,
Head & ▇▇▇▇▇▇▇, counsel to the Investors, 1900 Fifth Third Center, ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, or at such other time, date, or place as shall
be mutually agreed upon by the parties hereto in writing (the "Closing Date").
3. CLOSING ITEMS.
3.1 At the Closing, the Company shall deliver, or cause to be
delivered, to River Cities the following items:
3.1.1 the Amended Articles as file stamped by the Ohio
Secretary of State;
3.1.2 the Amended and Restated Code of Regulations (as
amended by agreed amendments) in the form attached hereto as EXHIBIT C
("Restated Regulations"), certified as to their current form by the Secretary
of the Company;
3.1.3 the Second Amended and Restated Registration
Rights Agreement duly executed by the Company;
3.1.4 the Fifth Amended and Restated Shareholders
Agreement among the Company, ▇▇▇▇▇, a trust created by ▇▇▇▇▇, ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ("▇▇▇▇▇▇▇▇") and a trust created by Papalios, in the form attached
hereto as EXHIBIT D duly executed by each of such parties (the "Shareholders
Agreement");
3.1.5 the opinion of Vorys, ▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇
LLP, counsel to the Company, in the form attached hereto as EXHIBIT E;
3.1.6 resolutions of the Board of Directors and
shareholders of the Company authorizing the execution, delivery and
consummation of this Agreement, the filing of the Amended Articles, the
issuance of the shares of Series C Preferred Stock and the Warrant, the
adoption of the agreed amendments to the Restated Regulations, and the other
matters contemplated hereby, certified as to their due adoption and continued
validity by the Secretary of the Company;
3.1.7 the completed United States Small Business
Administration ("SBA") Parts A and B of Form 1031; and
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3.1.8 the Warrant issued in River Cities' name in the
form attached hereto as EXHIBIT F and a share certificate in River Cities'
name representing the Series C Preferred Stock.
3.2 At the Closing, River Cities shall deliver, or cause to be
delivered, to the Company $1,500,000 in immediately available funds.
3.3 At the Closing, the Investors shall deliver to the Company
the Second Amended and Restated Registration Rights Agreement, duly executed
by the Investors.
4. BENEFIT PLANS. Subsequent to the Closing, senior management,
employees and non-employee directors and consultants (a) may be granted options
pursuant to the 1998 Stock Option Plan or any successor thereto (the "Plan"),
with such Options to be exercisable for shares of Common Stock, no par value per
share ("Common Stock"), and (b) may be issued shares of Common Stock pursuant to
such other employee benefit plans as the Company may hereafter adopt. All such
grants of options and issuances of shares of Common Stock shall be on such terms
and conditions as the Compensation Committee of the Board of Directors may
determine; provided, however: (a) the options granted (excluding options granted
pursuant to an employee stock purchase plan as described in Section 423 of the
Internal Revenue Code of 1986, as amended ("Excluded Options")) shall not exceed
in the aggregate ten percent (10%) of the fully diluted shares of capital stock
of the Company (including the Preferred Stock on an as converted basis and the
shares of Common Stock issued upon the exercise of outstanding options) without
the prior written consent of the designated representative on the Compensation
Committee of the holders of the Preferred Stock; (b) included in such number of
options shall be the 345 outstanding "conditional" options previously issued to
key employees by the Company or options granted under the Plan in exchange for
such conditional options, it being understood that the Company may exchange some
or all of the 345 conditional options for options under the Plan; and (c)
without the prior written consent of the designated representative on the
Compensation Committee of the holders of the Preferred Stock: (i) the price per
share, including the exercise price per share of Common Stock covered by any
options granted by the Company (excluding Excluded Options), shall not be less
than the fair market value per share of the Common Stock at the time of grant,
and (ii) the exercise price per share of Common Stock covered by any Excluded
Options granted by the Company shall not be less than eighty five percent of the
fair market value per share of the Common Stock at the time of grant. For
purposes of the shares of Common Stock authorized for issuance pursuant to the
Plan, the fair market value of the Common Stock at the time of the option grant
shall be determined at least annually by the Board of Directors.
5. FURTHER ASSURANCES. Each party shall execute such additional
documents and take such other actions as the other party or parties may
reasonably request to consummate the transactions contemplated hereby and
otherwise as may be necessary to effectively carry out the terms and provisions
of this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND ▇▇▇▇▇. The Company
hereby represents and warrants to River Cities (with respect to Sections 6.1
through 6.28 inclusive) and to the other Investors (solely with respect to
Section 6.2) and ▇▇▇▇▇ hereby represents and warrants to
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River Cities (solely with respect to the last sentence of Section 6.20.1 and
all of Section 6.27), as follows:
6.1 CORPORATE STANDING. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
Ohio. The Company has all requisite corporate power and authority to own, lease
and operate its properties and to carry on its business as now being conducted
and as presently proposed to be conducted and to execute, deliver and perform
this Agreement, the Warrant, the Second Amended and Restated Registration Rights
Agreement and any other agreement to which the Company is a party, the execution
and delivery of which is contemplated hereby (the "Ancillary Agreements"). The
Company is duly licensed, authorized and qualified to do business and is in good
standing in all jurisdictions (domestic or foreign) in which the conduct of its
business or the ownership or leasing of its properties requires it to be so
licensed, authorized or qualified, except where its failure to be so licensed,
authorized or qualified would not constitute a Material Adverse Effect. For
purposes of this Agreement, "Material Adverse Effect" means any event or
circumstance or any action taken or omitted to be taken by or on behalf of the
Company which has constituted, or with reasonable certainty will constitute, a
material adverse effect, singly or in the aggregate, on the condition (financial
or otherwise), properties, business, operations or prospects of the Company,
taken as a whole. True and accurate copies of the articles of incorporation (and
all amendments thereto), code of regulations (and all amendments thereto) and
minute book (containing the records of meetings and written consents of the
shareholders, the board of directors and any committees of the board of
directors) of the Company have previously been delivered to legal counsel to
River Cities.
6.2 AUTHORIZATION. The execution and delivery of this
Agreement, the Warrant, the Second Amended and Restated Registration Rights
Agreement and any Ancillary Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of the Company. Each of this
Agreement, the Warrant, the Second Amended and Restated Registration Rights
Agreement and any Ancillary Agreement has been duly executed and delivered by
the Company and constitutes the legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except
as (i) the enforceability thereof may be limited by bankruptcy, insolvency or
similar laws affecting the enforcement of creditors' rights generally and
(ii) the availability of equitable remedies may be limited by equitable
principles of general applicability.
6.3 CAPITALIZATION. The authorized capital stock of the
Company consists of 70,000 shares of capital stock, including (i) 60,731
shares of Common Stock of which as of the date hereof 33,737 shares are
validly issued and outstanding, fully paid and nonassessable, 5,123 shares of
which have been duly and validly reserved for issuance upon conversion of the
Senior Preferred Stock, 2,979 shares of which have been duly and validly
reserved for issuance upon conversion of the Series B Preferred Stock, 1,167
shares of which have been duly and validly reserved for issuance upon
conversion of the Series C Preferred Stock, 292 shares of which have been
duly and validly reserved for issuance upon exercise of the Warrant and 4,844
shares of which have been duly and validly reserved for issuance upon
exercise of stock options; (ii) 5,123 shares of Senior Preferred Stock, all
of which are validly issued and outstanding, fully paid and nonassessable;
(iii) 2,979 shares of Series B Preferred Stock, all of which are validly
issued and outstanding, fully paid and
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nonassessable; and (iv) 1,167 shares of Series C Preferred Stock, none of
which are outstanding as of the date hereof. Except as set forth on SCHEDULE
6.3 or as contemplated by this Agreement, the Prior Purchase Agreement, the
Amended Articles, the Warrant, the Second Amended and Restated Registration
Rights Agreement and Ancillary Agreements, there are outstanding no
subscriptions, options, warrants, calls, commitments or rights (including
conversion or preemptive rights and rights of first refusal), proxy or
shareholder agreements or agreements of any character relating to shares of
the Company's capital stock or any instruments that can be converted into
shares of the Company's capital stock. None of the shares of the Company's
capital stock have been issued in violation of any preemptive right. All
issuances, transfers or purchases of the capital stock of the Company have
been in compliance with all applicable agreements and all applicable laws,
including federal and state securities laws, and all taxes thereon, if any,
have been paid. Except as set forth on SCHEDULE 6.3, no former or present
holder of any of the shares of capital stock of the Company has any legally
cognizable claim against the Company based on any issuance, sale, purchase,
redemption or involvement in any transfer of any shares of capital stock by
the Company. Except as contemplated by this Agreement, the Prior Stock
Purchase Agreement or as set forth on SCHEDULE 6.3, there are no contractual
obligations of the Company to repurchase, redeem or otherwise acquire any
shares of capital stock of the Company. No bonds, debentures, notes or other
indebtedness having the right to vote (or convertible into or exercisable for
securities having the right to vote) on any matters on which shareholders of
the Company may vote are issued or outstanding. Except for this Agreement,
the Prior Stock Purchase Agreement and the Shareholders Agreement, the
Company is not a party or subject to any agreement or understanding, and, to
the Company's best knowledge, there is no agreement or understanding between
any persons that affects or relates to the voting or giving of written
consents with respect to any security or the voting by any director of the
Company.
6.4 VALIDLY ISSUED SHARES. The shares of Series C Preferred
Stock and the Warrant to be issued, sold and delivered in accordance with the
terms of this Agreement for the consideration set out herein, will, upon
issuance in accordance with the terms hereof, be duly and validly issued,
fully paid and nonassessable, free of restrictions on transfer other than
restrictions on transfer under this Agreement and under applicable federal
and state securities laws. The issuance of the Series C Preferred Stock and
the Warrant to River Cities pursuant to this Agreement will comply with all
applicable laws, including federal and state securities laws (assuming the
accuracy of the representations set forth in Sections 7.2 through 7.5
hereof), and will not violate the preemptive rights of any person. The Common
Stock issuable upon conversion of the Series C Preferred Stock and the Common
Stock issuable upon exercise of the Warrant and payment of the purchase price
of such shares of Common Stock will be, upon issuance and delivery in
accordance with the terms of the Amended Articles and the Warrant, as the
case may be, duly and validly issued, fully paid and nonassessable and free
of restrictions on transfer other than restrictions on transfer under this
Agreement and under applicable federal and state securities laws. The
issuance of the Common Stock upon conversion of the Series C Preferred Stock
and upon exercise of the Warrant will comply with all applicable laws,
including federal and state securities laws (assuming the accuracy of the
representations set forth in Sections 7.2 through 7.5 hereof as of the date
hereof and as of the date of issuance of such Common Stock), and will not
violate the preemptive rights of any person.
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6.5 NO CONFLICT. Except as set forth on SCHEDULE 6.5, the
execution and delivery of this Agreement, the Warrant, the Second Amended and
Restated Registration Rights Agreement and any Ancillary Agreement do not,
and the consummation of the transactions contemplated hereby and thereby will
not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or the loss of a
material benefit under, or the creation of a lien, pledge, security interest,
charge or other encumbrance on assets (any such conflict, violation, default,
right of termination, cancellation or acceleration, loss or creation, a
"Violation") pursuant to, any provision of the Amended Articles or Restated
Regulations, or result in any Violation of any lease, agreement, obligation,
instrument, permit, concession, franchise, license, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to the Company or the
Company's properties or assets.
6.6 CONTRACTS AND OTHER COMMITMENTS; COMPLIANCE. Except as set
forth on SCHEDULE 6.6 or those which do not constitute a Material Adverse
Effect, the Company is not bound by any judgment, order, writ or decree, written
or oral, absolute or contingent. The Company has made available to River Cities
for its review prior to the date hereof a copy of all written contracts,
agreements, leases, loans, and commitments with a third party to which the
Company is a party (each a "Contract") and the Company has described to River
Cities the terms of any oral Contracts that are material to the condition
(financial or otherwise), properties, business, operations or prospects of the
Company taken as a whole. Except those which do not constitute a Material
Adverse Effect, the Company is not in violation or default of any provision of
its Amended Articles or Restated Regulations, any provision of a written or oral
Contract, or any provisions of any other items listed on SCHEDULE 6.6.
6.7 SUBSIDIARIES. As of the date of this Agreement, the Company
does not own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, association or other
business entity and is not a participant in any joint venture, partnership or
similar arrangement.
6.8 CONSENTS. Except as set forth on SCHEDULE 6.8, no consent,
approval, qualification, order or authorization of, or registration, declaration
or filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, or other third
party is required by or with respect to the Company in connection with the
execution and delivery of this Agreement, or the consummation by the Company of
the transactions contemplated hereby, which has not already been obtained,
except for notices of sale required to be filed with the Securities and Exchange
Commission under Regulation D of the Securities Act or such post closing filings
as may be required under applicable state securities laws which will be timely
filed within the applicable periods therefor.
6.9 FINANCIAL STATEMENTS. The Company has delivered to River
Cities prior to the date hereof the Company's unaudited balance sheet as of
November 30, 1999, and the related unaudited statements of income and cash
flows for the eleven months then ended (the "Financial Statements"). The
Financial Statements present fairly in all material respects the financial
condition and results of operations of the Company as of such date and for
such period and have been prepared
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in all material respects in accordance with GAAP consistently applied during
such period except for the omission of footnote disclosures and the omission
of year-end adjustments.
6.10 INDEBTEDNESS FOR BORROWED MONEY; NO UNDISCLOSED
LIABILITIES. Except as and to the extent reflected in the Financial
Statements or on SCHEDULE 6.10, the Company has no direct or indirect
indebtedness for borrowed money, indebtedness by way of lease-purchase
arrangements, guarantees, undertakings, chattel mortgages or other security
arrangements with any bank, financial institution or other third party or any
other material liability required by GAAP to be disclosed in the Financial
Statements.
6.11 TITLE TO PROPERTY AND ASSETS; LEASES.
6.11.1 SCHEDULE 6.11.1 sets forth a complete and accurate
list and description of all the real property that the Company owns or leases
and all personal property that the Company owns or leases that the Company
carries on its books at a value of greater than $100,000. Except as set forth
in SCHEDULE 6.11.1, the Company is not bound or committed to make any capital
improvement or expenditure in excess of $100,000 with respect to any single
piece of owned or leased real or personal property.
6.11.2 Except as set forth in SCHEDULE 6.11.2, the Company
has good, valid and marketable title to all the personal and mixed, tangible
and intangible properties and assets which it purports to own, free and clear
of all liens, restrictions, claims, charges, security interests, easements or
other encumbrances of any nature whatsoever, except for liens for current
taxes not yet due and payable and except for liens, claims or other
encumbrances that do not constitute a Material Adverse Effect. With respect
to the property and assets that it leases, the Company is in compliance with
such leases and holds a valid leasehold interest free and clear of any liens,
claims and encumbrances except for liens, claims or other encumbrances that
do not constitute a Material Adverse Effect. Except in accordance with a
valid license or other agreement with the Company, all properties and assets
of the Company are in the possession or control of the Company, and no other
person is entitled to possession of any such properties and assets.
6.12 LEGAL PROCEEDINGS. Except as set forth on SCHEDULE
6.12, there are no claims of any kind or any actions, suits, proceedings,
arbitrations or investigations ("Legal Actions") pending or, to the Company's
knowledge, threatened against or affecting the Company or against any asset,
interest or right of any of them or which questions the validity of the
transactions contemplated by this Agreement and the Company does not know of
any facts which may constitute a basis for Legal Actions which would
constitute a Material Adverse Effect.
6.13 ENVIRONMENTAL MATTERS. The Company is not in
violation of any applicable statute, law or regulation relating to the
environment or occupational health and safety (the "Environmental Laws")
except to the extent that such violation does not constitute a Material
Adverse Effect, and as of the date hereof no material expenditures are
required to be made by the Company in order to comply with any of the
Environmental Laws.
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6.14 LICENSES AND PERMITS; COMPLIANCE WITH LAWS. Except
as set forth on SCHEDULE 6.14, the Company holds all franchises, permits,
licenses, variances, exemptions, orders and approvals of all governmental
entities which are required for the operation of the Company's business and
is in compliance with the terms thereof, except where the failure to so hold
or to be in such compliance would not constitute a Material Adverse Effect.
The Company has complied with and is not in any default under (and has not
been charged with or received notice with respect to, nor is threatened with
or under investigation with respect to, any charge concerning any violation
of any provision of) any federal, state or local law, regulation, ordinance,
rule or order (whether executive, judicial, legislative or administrative) or
any order, writ, injunction or decree of any court, agency or
instrumentality, except where the failure to be in compliance or where being
in default would not constitute a Material Adverse Effect, and no action,
suit, proceeding, hearing, investigation, charge, complaint, claim, demand,
or notice has been filed or commenced against any of them alleging any
failures to comply.
6.15 EMPLOYEE BENEFIT PLANS. Except as set forth on SCHEDULE
6.15, the Company has no employee benefit plans including any profit
sharing, deferred compensation, incentive compensation, stock ownership,
stock purchase, phantom stock, retirement, vacation, severance, disability,
death benefit, hospitalization, medical or other plan, arrangement or
understanding (whether or not legally binding) providing benefits to any
current or former employee, officer or director of the Company (collectively,
the "Benefit Plans"), or any employment, consulting, severance, termination
or indemnification agreement, arrangement or understanding between the
Company and any officer, director or employee of the Company. The Company has
delivered to River Cities true, complete and correct copies of each Benefit
Plan, or, in the case of any unwritten Benefit Plans, descriptions thereof.
Each Benefit Plan has been administered in compliance with its terms and all
applicable laws except where the failure to be in compliance would not
constitute a Material Adverse Effect.
6.16 LABOR RELATIONS.
6.16.1 The Company is in compliance with all applicable
laws respecting employment and employment practices, terms and conditions of
employment and wages and hours and occupational safety and health except
where the failure to be in compliance would not constitute a Material Adverse
Effect.
6.16.2 There is no unfair labor practice charge or
complaint or any other matter against or involving the Company pending or, to
the Company's knowledge, threatened against the Company before the National
Labor Relations Board or any court of law.
6.16.3 There is no labor strike, dispute, slowdown or
stoppage actually pending or, to the Company's knowledge, threatened against
the Company.
6.16.4 The Company is not a party to or bound by any
collective bargaining agreement or any similar labor union arrangement.
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6.16.5 There are no charges, investigations, administrative
proceedings or formal complaints of discrimination (including discrimination
based upon sex, age, marital status, race, color, religion, national origin,
sexual preference, disability, handicap or veteran status) pending or, to the
Company's best knowledge, threatened against the Company before the Equal
Employment Opportunity Commission or any federal, state or local agency or
court. There have been no governmental audits of the equal employment
opportunity practices of the Company and, to the Company's best knowledge, no
basis for any such claim of violation exists except where such violation would
not constitute a Material Adverse Effect.
6.16.6 The Company is in compliance with the requirements
of the Americans With Disabilities Act except where the failure to be in
compliance would not constitute a Material Adverse Effect.
6.17 INSURANCE. SCHEDULE 6.17 sets forth a list of all insurance
policies, including property, casualty, liability and other insurance maintained
with respect to the assets and business of the Company (the "Company
Insurance"). The Company is not liable for any material retroactive premium
adjustments with respect to any of its insurance policies or bonds. All such
policies and bonds are legal, valid and enforceable and in full force and effect
and the Company is not in breach or default (including with respect to the
payment of premiums or the giving of notices) and no event has occurred which,
with notice or the lapse of time or both, would constitute such a breach or
default, or permit termination, modification or acceleration under the policy.
The Company has not received any notice of premium increases or cancellations
with respect to any such policies and bonds except in the ordinary course of
business. The Company believes the amount and type of the Company Insurance
coverage is adequate for the Company's business and is consistent with good
business practice.
6.18 TAX MATTERS. Except as set forth on SCHEDULE 6.18, the
Company has timely filed or caused to be filed all federal, state, foreign
and local income, franchise, gross receipts, payroll, sales, use,
withholding, occupancy, excise, real and personal property, employment and
other tax returns, tax information returns and reports (the "Tax Returns")
required to be filed and all such Tax Returns were correct and complete in
all respects, except where the failure to file or to be correct and complete
would not constitute a Material Adverse Effect. The Company has paid, or made
adequate provisions for the payment of, all taxes, duties or assessments of
any nature whatsoever, interest payments, penalties and additions (whether or
not reflected in the returns as filed) due and payable (and/or property
accruable for all periods ending on or before the date of this Agreement) to
any city, county, state, foreign country, the United States or any other
taxing authority, except where the failure to pay or make adequate provisions
for payment would not constitute a Material Adverse Effect. There are no
security interests on any of the assets of the Company that arise in
connection with any failure (or alleged failure) to pay timely any tax. The
Company has withheld and paid all taxes required to have been withheld and
paid in connection with amounts paid or owing to any employee, independent
contractor, creditor, shareholder or other third party, except where the
failure to withhold or pay would not constitute a Material Adverse Effect.
Except as set forth in SCHEDULE 6.18, no deficiencies for any taxes have been
asserted or assessed or, to the knowledge of the Company, proposed against
the Company that are not adequately reserved for.
9
6.19 CHANGES IN CIRCUMSTANCES. Except as set forth in SCHEDULE
6.19 and except for any of the following actions which occur after the
Closing and are authorized by the Company's Board of Directors, since
November 30, 1999 there has not been:
6.19.1 any change in the condition (financial or
otherwise), properties, business, operations or prospects of the Company, or
any event or circumstance, which constitutes a Material Adverse Effect;
6.19.2 any indebtedness, liability or obligation (whether
absolute, accrued, contingent or otherwise and whether due or to become due)
incurred by the Company or any transaction entered into by the Company, other
than in the ordinary course of business and consistent with past practice, or
any guarantee by the Company of any indebtedness, liability or obligation of any
other person;
6.19.3 any declaration, setting aside or payment of any
dividend or other distribution in respect of any of the capital stock or other
securities of the Company other than the dividend required by the terms of the
Senior Preferred Stock;
6.19.4 any obligation, liability, lien or encumbrance paid,
discharged or satisfied by or on behalf of the Company, other than in the
ordinary course of business and consistent with past practice;
6.19.5 any mortgage, lien, pledge, charge or encumbrance
affecting the properties of the Company (except liens for current taxes not yet
due and payable) created, suffered or assumed by or on behalf of the Company in
excess of $50,000;
6.19.6 any sale, transfer or other disposition of any
tangible asset of the Company or any cancellation of any debt or claim owed
the Company, except in the ordinary course of business and consistent with
past practice, or any sale, transfer or other disposition of any of the
Company's intangible properties, assets or rights, except in the ordinary
course of business and consistent with past practice;
6.19.7 any loan made or increased by the Company, including
any loan to any officer, director, employee or agent of the Company or to any
member of their families, except for advances to non-executive officers in the
ordinary course of business;
6.19.8 any action taken or omitted to be taken by or on
behalf of the Company that would cause (after lapse of time, notice or both)
the breach, default or acceleration of any right, contact or other obligation
of the Company except where the breach, default or acceleration would not
constitute a Material Adverse Effect;
6.19.9 any material change in the compensation arrangement
or agreement with any officer, director, employee or agent of the Company
except in the ordinary course of business and consistent with past practice;
or
10
6.19.10 any agreement or commitment by the Company to do
any of the foregoing.
6.20 PATENTS AND TRADE NAMES, ETC.
6.20.1 SCHEDULE 6.20.1 sets forth a complete list of all
trade names, trademark and service ▇▇▇▇ registrations, common law trademarks,
copyright registrations and copyright applications currently owned by the
Company and a complete list of all works of authorship licensed to the
Company and from which the Company has created a courseware product on the
basis of such license (which, together with any proprietary works of
authorship, including software, owned by the Company for which there is no
current copyright registration or application, are referred to herein as the
"Intellectual Property"). The Company does not own or license any patents.
Except as set forth on SCHEDULE 6.20.1, all of the Intellectual Property is
owned by the Company. SCHEDULE 6.20.1 also indicates whether any of the
Intellectual Property was acquired by assignment to the Company or is used by
the Company under authority of a license. Except as set forth in SCHEDULE
6.20.1, to the knowledge of the Company, no employees of the Company, past or
present, claim or have claimed any interest in the Intellectual Property and
no basis for such claim exists. ▇▇▇▇▇ hereby acknowledges to and for the
benefit of the Company and River Cities that she claims no independent
interest in the Intellectual Property of the Company or any such intellectual
property previously used in the business of the Company other than by virtue
of any ownership interest she may maintain in the Company.
6.20.2 Except as provided on SCHEDULE 6.20.1, with respect
to the Intellectual Property listed thereon:
6.20.2.1 the Intellectual Property and all rights
appurtenant thereto are free and clear of any and all liens, claims, security
interests and other encumbrances of any nature or kind except for those which
do not constitute a Material Adverse Effect;
6.20.2.2 no prior transfer, sale or assignment has
been made by the Company of any part of any item constituting part of the
Intellectual Property or any rights appurtenant thereto;
6.20.2.3 each item constituting part of the
Intellectual Property which is owned by the Company has been duly registered
with, filed in or issued by, as the case may be, the United States Patent and
Trademark Office, and such registrations, filings and issuances remain in
full force and effect, or is otherwise protected as unregistered under common
law principles; and
6.20.2.4 the Intellectual Property constitutes all
intellectual property necessary for the Company to carry on its business as
presently conducted.
6.20.3 Except as set forth on SCHEDULE 6.20.3, there are no
pending or, to the knowledge of the Company, threatened proceedings or
litigation or other adverse claims affecting
11
or with respect to the Intellectual Property as currently used by the
Company. Except as set forth on SCHEDULE 6.20.3, no person or entity is known
to be infringing upon the Company's rights with respect to the Intellectual
Property. None of the operations, processes or products of the Company are
known to infringe upon or violate the rights of any third party and the
Company has not received any charge, complaint, claim or notice alleging any
such infringement or violation. The Company has not copied in violation of
the rights of others any proprietary feature of any competitive product in
designing the Company's products. The Company has not knowingly
misappropriated any trade secrets which are the property of a third party.
6.20.4 There are no claims pending or, to the knowledge of
the Company, threatened to the effect that any shareholder, director,
employee or agent of the Company has, in respect of his or her activities to
date, violated any terms or conditions of any written or oral Contract, or
disclosed or utilized any trade secrets or proprietary information or
documentation of such third party, or interfered in the employment
relationship between such third party and any of its employees and, to the
knowledge of the Company, no basis for any such action exists except where
such actions would not constitute a Material Adverse Effect.
6.21 AFFILIATED TRANSACTIONS. Except as set forth on SCHEDULE
6.21, to the knowledge of the Company, no affiliate of the Company has any
interest (other than as a non-controlling holder of securities of a
publicly-traded company), either directly or indirectly, in any person
(whether as an employee, officer, director, shareholder, agent, independent
contractor, security holder, creditor, consultant or otherwise) that
currently (i) provides any services or designs, produces and/or sells any
products or product lines, or engages in any activity which is the same,
similar to or competitive with any activity or business in which the Company
is now engaged; (ii) is a supplier of, customer of, creditor of, or has an
existing contractual relationship with, the Company; or (iii) has any direct
or indirect interest in any asset or property used by the Company or any
property, real or personal, tangible or intangible, that is necessary or
desirable for the conduct of the business of the Company. All transactions
set forth on SCHEDULE 6.21 were negotiated and entered into on an
arms'-length basis
6.22 BANK ACCOUNTS. SCHEDULE 6.22 sets forth a complete and
accurate list of each bank or financial institution in which the Company has an
account or safe deposit box (giving the address and account numbers) and the
names of the persons authorized to draw thereon or to have access thereto.
6.23 BROKERS' AND FINDERS' FEES. Except as set forth on
SCHEDULE 6.23, the Company has not employed any broker, finder or financial
advisor or incurred any liability for fees or commissions payable to any
broker, finder or financial advisor in connection with the negotiations
relating to or the transactions contemplated by this Agreement.
6.24 REGISTRATION RIGHTS. Except as provided in the Second
Amended and Restated Registration Rights Agreement attached hereto as EXHIBIT
B and the Registration Rights Agreement (a copy of which has been previously
provided to River Cities) among the Company, Papalios, a trust created by
Papalios, Clark, a trust created by ▇▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and a trust
created by ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, the Company is presently not under any
obligation and has not
12
granted any rights to register under the Securities Act any of its
outstanding securities or any of its securities that may be subsequently
issued.
6.25 SMALL BUSINESS CONCERN. The Company acknowledges that River
Cities is a Federal licensee under the Small Business Investment Act of 1958, as
amended (the "SBIA"). The Company, together with its "affiliates" (as that term
is defined in Title 13, Code of Federal Regulations, Section 121.103), is a
"small business concern" within the meaning of the SBIA, and the regulations
thereunder, including Title 13, Code of Federal Regulations, Section 121.101 ET
SEQ. The information regarding the Company and its affiliates set forth in the
SBA Form 1031 delivered at the Closing is accurate and complete. The Company
does not presently engage in, and it shall not hereafter engage in, any
activities prohibited by the SBIA and the regulations thereunder, nor shall the
Company use, directly or indirectly, the proceeds from the sale hereunder of the
Series C Preferred Stock and the Warrant for any purpose for which a Small
Business Investment Company is prohibited from providing funds by the SBIA and
such regulations thereunder.
6.26 MATERIAL FACTS. To the knowledge of the Company, the
Company has provided River Cities with all the information reasonably
available to the Company that River Cities has requested for deciding whether
to purchase the Series C Preferred Stock and the Warrant. This Agreement and
the documents or written statements furnished by the Company to River Cities
in connection with the transactions contemplated hereby do not contain any
untrue statement of a material fact or omit to state any material fact
necessary to make the statements contained herein or therein, in light of the
circumstances in which they are made, not misleading, except, with respect to
assumptions, projections and expressions of opinions or predictions contained
in the documents or written materials furnished by the Company, the Company
represents only that such assumptions, projections and expressions of
opinions and predictions were made in good faith and the Company believes
that there is a reasonable basis therefor.
6.27 ▇▇▇▇▇ DEBT REPAYMENT OBLIGATIONS. All payments due to date
by ▇▇▇▇▇ to Firstar, N.A., in connection with that certain term note issued
to Firstar in the original principal amount of $660,464.20 dated July 28,
1999 (the "Refinancing"), have been paid in full and when due and all
payments due to date by the Company to ▇▇▇▇▇ pursuant to that certain
promissory note in the principal amount of $1,000,000 dated May 10, 1996,
have been paid in full and when due. In connection with the Refinancing,
▇▇▇▇▇ repaid in full that certain term note issued to Huntington National
Bank in the original principal amount of $800,000.
6.28 YEAR 2000 COMPLIANCE. All of the assets and products of the
Company that are material to its business and that contain (i) computer hardware
and/or software, and/or (ii) embedded chips/controllers with date-time
functionality, are "Year 2000 Compliant". "Year 2000 Compliant" means such asset
or product is able to provide all of the following functions: (i) handle date
information before, during and after January 1, 2000, including but not limited
to accepting date input, providing date output, and performing calculations on
dates or portions of dates; (ii) function accurately and without interruption
before, during and after January 1, 2000, without any change in operations
associated with the advent of the new century; (iii) respond to two-digit
year-date input in a way that resolves the ambiguity as to century in a
disclosed, defined and predetermined manner; and (iv) store and provide output
of date information in ways that are unambiguous as to century.
13
7. REPRESENTATIONS AND WARRANTIES OF RIVER CITIES AND OTHER INVESTORS.
River Cities (with respect to Sections 7.1 through 7.5 inclusive) and the other
Investors (solely with respect to Section 7.1) hereby represent and warrant to
the Company as follows:
7.1 AUTHORIZATION; BINDING AGREEMENT. Each Investor represents
and warrants that this Agreement and the Second Amended and Restated
Registration Rights Agreement have been duly authorized, executed and
delivered by it and each constitutes its legal, valid and binding obligation,
enforceable against it in accordance with its terms; except as (i) the
enforceability thereof may be limited by bankruptcy, insolvency or similar
laws affecting the enforcement of creditors' rights generally and (ii) the
availability of equitable remedies may be limited by equitable principles of
general applicability.
7.2 INVESTMENT REPRESENTATIONS. River Cities is acquiring the
Series C Preferred Stock, the Warrant and the Common Stock issuable upon
conversion or exercise thereof (collectively the "Securities") solely for its
own account as principal, for investment purposes only and not with a view to
resale or distribution thereof in whole or in part, and River Cities has no
present intention of selling, granting any participation in, or otherwise
distributing the Securities. No other person has a direct or indirect beneficial
interest in the Securities to be acquired by River Cities hereunder and River
Cities does not have any contract, undertaking, agreement or arrangement with
any person to sell, transfer or grant participation to any third person, with
respect to any of the Securities.
7.3 ACCREDITED INVESTOR; RESIDENCE. River Cities is a resident
of the State of Ohio and is an "accredited investor" as such term is defined
under Regulation D of the Securities Act.
7.4 RECEIPT OF INFORMATION; RESTRICTED SECURITIES. River Cities
acknowledges that the Securities are not being and will not be registered under
the Securities Act or the securities laws of any other jurisdiction in reliance
on exemptions thereunder. Accordingly, each certificate evidencing the
Securities shall be imprinted with the legend set forth in Article FOURTH of the
Amended Articles. River Cities acknowledges that the Securities have not been
and will not be approved or disapproved by the Securities and Exchange
Commission or any other governmental authority or agency of any jurisdiction.
River Cities represents that it has had an opportunity to ask questions and
receive answers from the Company regarding the terms and conditions of the
offering of the Series C Preferred Stock and the Warrant and the business,
properties, prospects, and financial condition of the Company and to obtain
additional information (to the extent the Company possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to River Cities or to which River Cities
had access. River Cities' representations under this Section 7, however, shall
not limit or modify the representations and warranties of the Company in Section
6 of this Agreement or the right of River Cities to rely thereon.
7.5 INVESTMENT EXPERIENCE. River Cities is experienced in
evaluating and investing in private placement transactions of securities of
companies in a similar stage of development and acknowledges that it can bear
the economic risk of its investment and has such
14
knowledge and experience in financial and business matters that it is capable
of evaluating the merits and risks of its investment in the Securities. River
Cities also represents that it has not been organized for the purpose of
acquiring the Series C Preferred Stock and the Warrant.
8. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations and
warranties contained in this Agreement by the Company and the Investors and any
certificate or other instrument delivered by or on behalf of such party pursuant
to this Agreement shall survive the Closing and shall continue so long as the
Preferred Holders (as defined in Section 15 hereof), individually or in the
aggregate, hold capital stock of the Company in the form of Senior Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock, the Warrant, Common
Stock or a combination thereof equal to a minimum of 1,000 shares (subject to
adjustment for stock splits, combinations, dividends and other similar events
occurring on or after the Closing Date) of Common Stock (a "Minimum Interest").
Each party shall have the right to rely on each other party's representations
and warranties made herein, notwithstanding any investigation conducted by such
party.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION BY THE COMPANY. The Company shall indemnify
and reimburse the Investors for any and all claims, losses, liabilities,
damages (including, without limitation, fines, penalties, and criminal or
civil judgments and settlements), costs (including, without limitation, court
costs) and expenses (including, without limitation, reasonable attorneys' and
accountants' fees) (hereinafter "Loss" or "Losses") suffered or incurred by
any Investor or any of its successors or assigns as a result of or with
respect to:
9.1.1 any breach or inaccuracy of any representation or
warranty of the Company set forth in this Agreement and the Exhibits hereto;
9.1.2 any breach of or noncompliance by the Company with
any covenant or agreement of the Company contained in this Agreement; and
9.1.3 any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
9.2 INDEMNIFICATION BY ▇▇▇▇▇. ▇▇▇▇▇ shall indemnify and
reimburse the Investors for any Loss suffered or incurred by any Investor or
any of its successors or assigns as a result of or with respect to:
9.2.1 any breach or inaccuracy of any representation or
warranty by ▇▇▇▇▇ set forth in the last sentence of Section 6.20.1 and Section
6.27; and
9.2.2 any breach of or noncompliance by ▇▇▇▇▇ with any
covenant or agreement of ▇▇▇▇▇ contained in Section 10.6; and
15
9.2.3 any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
9.3 INDEMNIFICATION BY INVESTORS. Each Investor shall indemnify
and reimburse the Company and ▇▇▇▇▇ for any and all Losses suffered or
incurred by the Company or ▇▇▇▇▇ or any successors or assigns thereto as a
result of, or with respect to:
9.3.1 any breach or inaccuracy of any representation or
warranty of such Investor set forth in this Agreement and the Exhibits hereto;
9.3.2 any breach of or noncompliance by any Investor with
any covenant or agreement of such Investor contained in this Agreement; and
9.3.3 any and all actions, suits, proceedings, claims,
demands, assessments and judgments incident to any of the foregoing.
10. COVENANTS OF THE COMPANY (AND ▇▇▇▇▇ SOLELY WITH RESPECT TO SECTION
10.6).
10.1 INSURANCE. The Company has policies of term life insurance
on the life of ▇▇▇▇▇ in the aggregate face amount of not less than $3,000,000
naming the Company as loss payee and the Investors as collateral assignee of
the proceeds. The Company shall use commercially reasonable efforts to
maintain such insurance for so long as the Preferred Holders hold a Minimum
Interest.
10.2 FINANCIAL REPORTING. For periods commencing on or after the
Closing Date, the Company shall deliver or cause to be delivered to the
Investors monthly and year-to-date balance sheets and income and cash flow
statements (each as compared to budget and the comparable prior year period), a
brief monthly written summary of operations and such other information and data
with respect to the Company as the Investors may reasonably request. Such
monthly reports shall be provided on or before 15 days following the end of each
month. Prior to the end of each fiscal year, the Company shall provide a
business plan and projections for the next fiscal year which are similar in
format to those provided by the Company historically. Annual audits of the
Company's financial statements for periods commencing on or after August 1, 1998
shall be performed by Deloitte & Touche LLP or another independent accounting
firm reasonably acceptable to the Investors and copies thereof shall be
delivered to the Investors on or before the 120th day following the end of the
Company's fiscal year.
16
10.3 BOARD OF DIRECTORS.
10.3.1 The Restated Regulations of the Company provide for
a Board of Directors of seven members. So long as the Preferred Holders hold
a Minimum Interest and do not possess the rights set forth in Section 12.2.2
below, ▇▇▇▇▇ and the Investors shall vote their respective Preferred Stock in
a manner intended to cause the following composition of the Board of
Directors: the Investors shall designate one director, ▇▇▇▇▇ and the other
holders of Common Stock shall designate four directors (one of whom must be
▇▇▇▇▇), and ▇▇▇▇▇ and the other holders of Common Stock shall designate two
directors (who must be non-employees and not related to an employee) who must
be reasonably acceptable to the Investors.
10.3.2 The Company shall reimburse the director designated
by the Investors for the reasonable travel expenses incurred in connection
with meetings of the Board of Directors. Pursuant to the Restated
Regulations, the Board of Directors shall also have a Compensation Committee
and an Audit Committee, each of which shall be comprised of three directors.
So long as the Preferred Holders hold a Minimum Interest, ▇▇▇▇▇ and the
Investors shall use their best efforts to cause at least two of the members
of each such committee to be non-employee (and not related to an employee)
directors and one of those two shall be designated by the Investors. The
Compensation Committee shall be responsible for initiating all decisions
regarding the compensation of the directors, executive officers and senior
management of the Company, including, but not limited to, all decisions
regarding salary increases, bonus awards, perquisites and stock option
awards. The Audit Committee shall supervise the annual audit of the Company
and undertake such other responsibilities and duties as the Board of
Directors of the Company may from time to time designate.
10.4 RESERVATION OF SHARES. So long as any shares of Preferred
Stock are outstanding, the Company shall reserve and keep reserved at all
times sufficient shares of Common Stock for issuance upon conversion of the
Preferred Stock. Upon conversion of any shares of Preferred Stock, the
Company shall promptly issue and deliver the shares of Common Stock required
to be delivered.
10.5 USE OF PROCEEDS. The proceeds from the sale of the Series C
Preferred Stock and the Warrant shall be used by the Company for general working
capital, capital expenditures, acquisitions, legal/IPO expense and other
expenses approved by the Company's Board of Directors.
10.6 ▇▇▇▇▇ DEBT REPAYMENT OBLIGATIONS. ▇▇▇▇▇ shall remain current
in her principal and interest payments to Firstar Bank, N.A. pursuant to the
Refinancing, in accordance with that certain term note in the original
principal amount of $660,464.20 dated July 28, 1999, as such indebtedness may
be restructured and/or refinanced from time to time.
10.7 COMPLIANCE WITH SMALL BUSINESS INVESTMENT ACT. The Company
agrees to provide River Cities with sufficient information to permit it to
comply with its obligations under the SBIA and the regulations thereunder.
Upon reasonable request, the Company shall also provide each Investor with
(i) reasonable access to the Company's properties, places of business,
records
17
(including financial records) and offices during normal business hours and
(ii) the opportunity to discuss the affairs, finances and accounts of the
Company with the officers of the Company. Each Investor and representatives
of the SBA shall be given reasonable access to the Company's records to
confirm that the proceeds received by the Company in connection with the
consummation of the transactions contemplated by this Agreement are used for
the purposes set forth in Section 10.5 hereof. Upon written request, the
President of the Company shall certify to the Investors, within three months
of the date of the Closing Date and from time to time thereafter, that the
Company has used the proceeds in accordance with the purposes set forth in
Section 10.5 hereof.
10.8 NEGATIVE COVENANTS. So long as any shares of Preferred
Stock are outstanding, the Company shall not, without the prior written
consent of the holders of a majority of the shares of Preferred Stock then
outstanding:
10.8.1 sell a material portion of the Company's assets;
10.8.2 merge or sell a controlling interest in the Company
(except in the case of a Qualified Sale (as defined below) and except that
the Company may, without the consent of the holders of the Preferred stock,
merge with another entity if the Company (or its subsidiary) is the surviving
corporation and the consideration paid by the Company (or its subsidiary) for
the merged entity's securities is cash);
10.8.3 amend the Amended Articles or the Restated
Regulations in any manner, the consent of the holders of the Preferred Stock
to which shall not be unreasonably withheld;
10.8.4 declare dividends or distributions (other than the
dividends required by the terms of the Preferred Stock) to, and/or
redemptions or repurchases of any securities other than the Preferred Stock
or pursuant to buy-sell agreements between the Company and its employees;
10.8.5 become a party to, modify, amend or restate the
terms of any agreement which restricts or would restrict the rights of the
Preferred Stock; provided, however, that, without restricting or limiting an
Investor's ability to exercise its remedies pursuant to Section 12.2 or any
other section hereof, the Company may enter into credit agreements that
restrict the Company's ability to pay dividends on or repurchase the
Preferred Stock if such restrictions are required by the lender;
10.8.6 make any significant change in the fundamental
nature of the Company's business not contemplated in its existing business
plan;
10.8.7 create a subsidiary or make an investment in any
entity;
10.8.8 enter into transactions with affiliates other than
on an arms'-length basis and on commercially reasonable terms; or
18
10.8.9 issue or sell Common Stock without consideration.
10.9 DEFINITION OF A QUALIFIED SALE. A Qualified Sale is a sale
transaction which yields the Investors at least an amount in cash equal to the
greater of: (i) return of the aggregate purchase price of the Preferred Stock
purchased by the Investors from the Company, plus a compounded annual return of
20% on such amount or (ii) two times the aggregate purchase price of the
Preferred Stock purchased by the Investors from the Company.
11. RESTRICTIONS OF TRANSFERS
11.1 NOTICE OF SALE BY ▇▇▇▇▇. In the absence of and until a
Qualified IPO (as defined below), ▇▇▇▇▇ shall give written notice to the
holders of the Preferred Stock and the Company if at any time she desires to
sell or transfer any of her shares ("Notice of Sale"). The Notice of Sale
shall set forth a description of the proposed sale or transfer, including the
name of the proposed purchaser or transferee, the number of shares affected,
the purchase price or consideration and any other conditions of the sale or
transfer. For a period of ten days following receipt of such Notice of Sale,
the Investors shall have the right to prohibit such sale or transfer by
▇▇▇▇▇. The holders of a majority of the shares of Preferred Stock then
outstanding shall notify ▇▇▇▇▇ and the Company in writing within ten days of
receipt of the Notice of Sale of their intention to either allow or prohibit
the proposed sale or transfer ("Notice Reply").
11.2 DEFINITION OF QUALIFIED IPO. A Qualified IPO is an initial
public offering which yields net proceeds to the Company of at least
$30,000,000 at a price per share indicating a total market equity
capitalization (post-money) of at least $90,000,000.
11.3 CO-SALE RIGHT. If the holders of the majority of the shares
of Preferred Stock then outstanding do not prohibit the proposed sale or
transfer of shares by ▇▇▇▇▇ pursuant to Section 11.1, for a period of 30 days
following the receipt by the holders of the Preferred Stock of the Notice of
Sale, each holder of Preferred Stock shall have the right to elect to
participate in such sale or transfer with ▇▇▇▇▇ (on a pro rata basis, I.E.,
if ▇▇▇▇▇ owns 75 shares of Common Stock and such holder owns 25 shares of
Preferred Stock, the holder may sell one-fourth of the shares proposed to be
sold by ▇▇▇▇▇) on the same terms and conditions and for the price or
consideration designated in the Notice of Sale. Notice of the holder's
intention to participate in such sale or transfer shall be evidenced by a
writing signed by the holder and delivered to ▇▇▇▇▇ prior to the end of the
30th day following the holders' receipt of the Notice of Sale. If the holder
fails to notify ▇▇▇▇▇ within such 30-day period of its intent to participate
in such sale, its rights under this Section 11.3 shall be waived with respect
to the proposed sale or transfer by ▇▇▇▇▇.
11.4 RIGHTS OF REFUSAL. If the holders of a majority of the shares
of Preferred Stock then outstanding do not prohibit the proposed sale or
transfer of shares by ▇▇▇▇▇ pursuant to Section 11.1, for a period of 30 days
following the Company's receipt of the Notice of Sale, the Company shall have
the right to purchase all but not less than all of the shares designated in
the Notice of Sale on the same terms and conditions and for the price or
consideration designated therein (the "First Right of Refusal"). If the
Company does not exercise its First Right of Refusal, then, for a period of
30 days following the receipt by the holders of the Preferred Stock of notice
from the
19
Company of the Company's decision not to exercise its First Right of Refusal,
the holders of the Preferred Stock shall have the right to purchase all but
not less than all of the shares from ▇▇▇▇▇ on the same terms and conditions
and for the price or consideration designated in the Notice of Sale (the
"Second Right of Refusal"). At the sole option of the holders of a majority
of the shares of Preferred Stock then outstanding, the Company may be
permitted to participate with the holders of the Preferred Stock in the
purchase of the shares pursuant to the Second Right of Refusal so long as the
holders of the Preferred Stock and the Company together purchase all but not
less than all of the shares.
Notice of the Company's intention to purchase the shares pursuant to
its First Right of Refusal shall be evidenced by a writing signed by the Company
and delivered to ▇▇▇▇▇ prior to the end of the 30th day following the Company's
receipt of the Notice of Sale. Notice of the intention of the holders of the
Preferred Stock to purchase the shares evidenced by their Second Right of
Refusal shall be evidenced by a writing signed by the holders of the Preferred
Stock and delivered to ▇▇▇▇▇ prior to the end of the 30th day following the
later of the holders' receipt of the Notice of Sale or the holders' receipt of
the notice of the Company's decision not to exercise its First Right of Refusal.
In the event the holders of the Preferred Stock do not exercise their
Second Right of Refusal, ▇▇▇▇▇ shall have the right to sell or transfer the
shares designated in the Notice of Sale on the same terms and conditions and for
the price or consideration designated therein within 60 days from the expiration
of the period during which the holders had the option to purchase the shares
pursuant to its Second Right of Refusal. After such 60 day period, ▇▇▇▇▇ shall
not transfer ▇▇▇▇▇'▇ shares again without complying with this Section 11.
11.5 EXCEPTIONS. Sections 11.1, 11.3, and 11.4 shall not apply
(a) to any sale or transfer by ▇▇▇▇▇ for estate planning purposes or to her
ancestors, siblings, descendants or spouse, (b) if the Preferred Holders no
longer hold a Minimum Interest, or (c) to sales or transfers of up to 4,000
shares in the aggregate (subject to adjustment for stock splits, combinations,
dividends and other similar events) to employees of the Company.
11.6 RIGHT OF FIRST REFUSAL. In the absence of and until a
Qualified IPO, if a holder of Preferred Stock desires to sell or transfer any of
its Preferred Stock pursuant to a bona fide offer, the holder shall first give
notice (the "Notice of Intent") to the Company. The Notice of Intent shall set
forth the terms of the bona fide offer, including the name(s) of the proposed
transferee(s), the type and number of securities proposed to be transferred and
the price or consideration for the securities proposed to be transferred.
For a period of 30 days following receipt of such Notice of Intent, the
Company shall have the right to purchase all (but not less than all) of the
Preferred Stock designated in the Notice of Intent on the same terms and
conditions and for the price or consideration designated therein. Notice of the
Company's intention to purchase such Preferred Stock shall be evidenced by a
writing signed by the Company and delivered to the holder prior to the end of
the 30th day following the Company's receipt of the Notice of Intent.
20
In the event the Company does not exercise its Right of First Refusal,
the holder shall have the right to sell or transfer the Preferred Stock
designated in the Notice of Intent on the same terms and conditions and for the
price or consideration and to the proposed transferee designated therein within
60 days from the expiration of the period during which the Company had the
option to purchase such Preferred Stock. Notwithstanding the foregoing, the
holder may not transfer any Preferred Stock pursuant to this Section 11.6 to
those persons competitive with the Company which are described on SCHEDULE 11.6
without the consent of the Company. This Section 11.6 shall not apply to any
distribution in kind by a holder to its partners, members or shareholders
pursuant to Section 15.
11.7 RIGHT OF FIRST OFFER. In the absence of and until a
Qualified IPO, if a holder of Preferred Stock desires to sell or transfer any
of its Preferred Stock (except pursuant to a bona fide offer received by the
holder in accordance with Section 11.6), the holder shall first give a Notice
of Intent to the Company. The Notice of Intent shall set forth the number of
shares of Preferred Stock which the holder desires to sell.
For a period of 30 days following receipt of such Notice of Intent, the
Company shall have the right to negotiate a transaction with the holder whereby
the Company will purchase for cash all (but not less than all) of the Preferred
Stock designated in the Notice of Intent at a price and upon other terms and
conditions acceptable to the holder and the Company. Any such purchase shall be
consummated on or prior to the 60th day after the Company's receipt of the
Notice of Intent.
If (a) the Company elects not to exercise the right provided in this
Section 11.7, (b) the Company and the holder cannot agree on the terms and
conditions of a purchase by the Company during such 30 day period, or (c) the
Company and the holder shall agree on the terms and conditions of such purchase
but the Company shall fail to pay the purchase price in a timely manner, then
the holder may sell the Preferred Stock designated in the Notice of Intent at a
price and on terms not more favorable to the purchaser than the price and terms
offered to the Company. The holder may sell such Preferred Stock during the
period ending on the 150th day following the later of the end of such 30 day
period and the date on which the Company fails to pay such price. If the holder
does not sell such Preferred Stock in such 150 day period, the Preferred Stock
shall again be subject to this Section 11.7. This Section 11.7 shall not apply
to any distribution in kind by the holder to its partners or shareholders
pursuant to Section 15. Notwithstanding the foregoing, the holder may not
transfer any Preferred Stock pursuant to this Section 11.7 to those persons
competitive with the Company which are described on SCHEDULE 11.6 without the
consent of the Company.
11.8 RESTRICTIVE LEGEND. The share certificates evidencing the
shares subject to the foregoing provisions of this Section 11 shall bear
appropriate legends referring to the restrictions on transfer.
11.9 PREEMPTIVE RIGHTS. In the absence of and until a Qualified
IPO, each holder of Preferred Stock shall have the right of first refusal to
purchase all or part of its pro rata share (equal to its percentage ownership of
the Company on a fully diluted basis) of New Securities (as defined below) that
the Company may, from time to time, propose to sell and issue, subject to the
terms and conditions set forth below. "New Securities" shall mean any capital
stock of the Company
21
whether now authorized or not, and rights, options, or warrants to purchase
capital stock, and securities of any type whatsoever that are, or may become,
convertible into capital stock, provided, however, that the term "New
Securities" does not include (i) the Series C Preferred Stock or the Warrant
issuable under this Agreement, the shares of Common Stock issuable upon
conversion of the Series C Preferred Stock, the Series B Preferred Stock or
the Senior Preferred Stock or the shares of Common Stock issuable upon
exercise of the Warrant; (ii) securities issued pursuant to an acquisition;
(iii) options granted or securities issued pursuant to an employee or
director stock option program; or (iv) securities issued as a result of any
stock split, stock dividend, or reclassification of Common Stock,
distributable on a pro rata basis to all holders of Common Stock. In the
event the Company intends to issue New Securities, it shall give written
notice to the holders of Preferred Stock ("Notice of Issuance") which shall
set forth the purchase price and any other conditions of the issuance. Each
holder of Preferred Stock shall have 30 days from the date of Notice of
Issuance to agree to purchase all or part of its pro rata share of such New
Securities for the price and upon the general terms and conditions specified
in the Notice of Issuance by giving written notice to the Company stating the
quantity of New Securities to be so purchased.
The Company shall have the right during the period expiring 150 days
after the giving of the Notice of Issuance to sell any or all of such New
Securities not purchased by the holders of Preferred Stock at a price and upon
general terms no more favorable to the purchasers than specified in the Notice
of Issuance. In the event that the Company has not sold such New Securities
within such 150 day period, the Company shall not thereafter issue or sell any
New Securities without first offering such New Securities to the holders of
Preferred Stock in the manner provided in this Section 11.9. Each of JG,
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇ hereby waives its right to purchase any part of the Series C
Preferred Stock and the Warrant being purchased hereunder by River Cities.
12. DEFAULT.
12.1 EVENTS OF DEFAULT. The occurrence of any of the following
events shall constitute an "Event of Default":
12.1.1 a material breach of any representation, warranty or
covenant of the Company or ▇▇▇▇▇ contained herein or in the exhibits hereto or
in the Prior Stock Purchase Agreement or the exhibits thereto;
12.1.2 any default in the performance by the Company or
▇▇▇▇▇ of any other material term of this Agreement or of the Prior Stock
Purchase Agreement or a declared event of default under any loan agreement or
financing agreement to which the Company is a party (following any applicable
cure period contained in such loan agreement or financing agreement);
12.1.3 the adjudication of the insolvency of the Company or
the filing by or against the Company of any proceedings in bankruptcy,
reorganization or receivership (unless such proceedings are stayed or
dismissed), any assignment by the Company for the benefit of creditors or the
exercise of control rights by any secured lender of the Company; or
22
12.1.4 the failure of the Company to redeem or repurchase
the Preferred Stock or converted shares in accordance with the terms of this
Agreement, the Prior Stock Purchase Agreement and the Amended Articles.
12.2 REMEDY. Upon the occurrence of any Event of Default, the
holders of a majority of the Preferred Stock then outstanding may, at their
option, elect either of the following rights and remedies:
12.2.1 require the Company to redeem all but not less than
all of the Preferred Stock (including repurchase of conversion stock) at a
price equal to the greater of (i) the aggregate original issue price of the
Preferred Stock plus any accrued and unpaid dividends or (ii) the Fair Market
Value (as defined below) thereof, including any accrued and unpaid dividends;
or
12.2.2 as authorized by the Amended Articles, the holders
of a majority of the Preferred Stock then outstanding shall have the right to
elect a majority of the Board of Directors of the Company and to vote two
thirds (2/3rds) of the combined voting power of the Company until the Event
of Default is cured, and such majority of the Board of Directors may vote to
require the Company to redeem the Preferred Stock in accordance with Section
12.2.1 above.
The "Fair Market Value" per share shall take into account
the liquidation preference of the Preferred Stock provided in the Amended
Articles but not any discount for lack of marketability or for the minority
interest and shall be determined by a qualified, independent appraiser
experienced in valuation of shares of companies similar to the Company (the
"Qualified Appraiser") acceptable to both the Company (with the decision of
the Company being exercised by a majority of the directors who were not
designated by the holders of the Preferred Stock) and the holders of a
majority of the Preferred Stock then outstanding. If the holders of a
majority of the Preferred Stock then outstanding and the Company are unable
to agree upon a Qualified Appraiser, each of them shall separately designate
a person and those two persons shall jointly designate a Qualified Appraiser.
The Qualified Appraiser's determination of the Fair Market Value of the
Preferred Stock shall be conclusive and binding upon the parties. The fees
and expenses of the Qualified Appraiser shall be borne one-half by the
holders of the Preferred Stock and one-half by the Company.
12.3 DIVERSION OF PROCEEDS. In addition, any diversion by the
Company of the proceeds hereunder from the Use of Proceeds as set forth in
Section 10.5 hereof shall constitute a default requiring the immediate
redemption of the Investor's interest in the Company and full refund of the
purchase price, plus interest at 14% per annum.
12.4 LOSS OF ▇▇▇▇▇. In addition, so long as the holders of the
Preferred Stock hold a Minimum Interest, in the event of the death, permanent
disability or termination of full time employment of ▇▇▇▇▇, except for a
termination by the Company other than for "cause" or a termination by ▇▇▇▇▇ for
"good reason" (as those terms are defined in the Employment Agreement between
▇▇▇▇▇ and the Company), upon six months written notice to the Company, the
holders of a majority of the Preferred Stock then outstanding may require the
Company to redeem all but not less than all of the Preferred Stock (including
the conversion stock) for the higher of (i) aggregate
23
original issue price of the Preferred Stock plus any accrued and unpaid
dividends or (ii) Fair Market Value of the Preferred Stock, as determined in
accordance with Section 12.2. Permanent disability shall occur whenever
▇▇▇▇▇, due to ill health, physical or mental disability for a period of 180
consecutive working days, is unable or otherwise fails to perform the
essential functions of her job. If the holders of a majority of the Preferred
Stock then outstanding and the Company are unable to agree as to whether
▇▇▇▇▇ is permanently disabled, the question of permanent disability shall be
submitted to three physicians, one of whom shall be appointed by the holders
of a majority of the Preferred Stock then outstanding, one of whom shall be
appointed by ▇▇▇▇▇'▇ representative and one of whom shall be appointed by the
first two appointed physicians. The decision of any two of the three
physicians shall be final and binding. If the question of permanent
disability is raised, ▇▇▇▇▇ shall submit to a medical examination by such
physicians and the holders of the Preferred Stock shall have access to the
findings of the physicians. This Section 12.4 shall be of no force or effect
for such time as the Company employs a Chief Operating Officer (other than
▇▇▇▇▇) who is reasonably acceptable to the holders of a majority of the
Preferred Stock then outstanding, or if a Chief Operating Officer has been
appointed but is no longer employed by the Company, for such time as the
Company is actively seeking such a Chief Operating Officer. Notwithstanding
the foregoing, this Section 12.4 shall terminate and be of no further force
and effect as of August 27, 2000.
13. PUBLIC STATEMENTS. Neither the Company, ▇▇▇▇▇ nor the Investors
shall, without the prior written approval of the other parties hereto, make any
press release or other public announcement concerning the transactions
contemplated by this Agreement, provided, however, that an Investor may issue a
"tombstone" advertisement stating the amount of its investment in the Company.
Each Investor, the Company and ▇▇▇▇▇ may disclose additional information with
respect to the transactions contemplated hereby to their respective employees,
agents, consultants and third parties only to the extent such persons have a
need to know such information.
14. NOTICES. All notices, requests, consents, and other communications
under this Agreement shall be in writing and shall be mailed by first class,
registered, or certified mail, postage prepaid, or sent via overnight courier
service, or delivered personally:
If to River Cities, to: River Cities Capital Fund II Limited
Partnership
ATTN: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
With a copy to: ▇▇▇▇▇▇▇, Head & ▇▇▇▇▇▇▇
ATTN: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇, Esq.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
If to JG, to: JG Funding, LLC
ATTN: ▇▇▇▇▇ ▇▇▇▇▇, Jr.
1850 National City Tower
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to ▇▇▇▇▇▇▇▇, to: ▇▇▇▇▇▇▇▇ Capital Group, LLC
ATTN: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
1850 National City Tower
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
If to ▇▇▇▇▇▇, to: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇
c/▇ ▇▇▇▇▇▇ Capital Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
If to the Company or
▇▇▇▇▇, to: DPEC, Inc.
ATTN: ▇▇▇▇▇ ▇. ▇▇▇▇▇
Building 3
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
With a copy to: Vorys, ▇▇▇▇▇, ▇▇▇▇▇▇▇ and ▇▇▇▇▇ LLP
ATTN: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
or to such other address of which the addressee shall have notified the sender
in writing. Notices mailed in accordance with this section shall be deemed given
when mailed, and notices sent by overnight courier service shall be deemed given
when placed in the hands of a representative of such service.
15. PARTIES IN INTEREST; ASSIGNMENT. Except as otherwise provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties to this Agreement shall bind and inure to the benefit of
their respective heirs, executors, successors, and permitted assigns, whether so
expressed or not. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto and their respective
successors and permitted assigns any rights, remedies, obligations or
liabilities under or by reason of this Agreement. This Agreement and the rights
and obligations under this Agreement are not assignable and any purported
assignment shall be null and void, provided that, subject to the provisions of
Sections 11.6 and 11.7, prior to the termination of an Investor's fund and the
resulting distribution in kind by the Investor to its partners, members or
shareholders, an Investor may assign its rights and obligations under this
Agreement to an affiliate and/or a maximum of two unrelated assignees, and, upon
the termination of an Investor's fund and the resulting distribution in kind by
the Investor to its partners, members or shareholders, the Investor may assign
its rights and obligations under this Agreement to any and all of its partners,
members or shareholders (all of such permitted assignees being collectively
referred to as the
25
"Preferred Holders"). Notwithstanding such permitted assignment, the Investor
shall not be released from its obligations hereunder.
16. CONSTRUCTION; GOVERNING LAW. The section headings contained in this
Agreement are inserted as a matter of convenience and shall not affect in any
way the construction of the terms of this Agreement. This Agreement shall be
governed by and interpreted in accordance with the laws of the State of Ohio as
applied to agreements entered into and performed entirely within Ohio. The
parties agree that any actions brought in connection with this Agreement or the
transactions contemplated hereby shall be filed and heard in ▇▇▇▇▇▇▇▇ County,
Ohio, and each party submits to the jurisdiction of the Court of Common Pleas of
▇▇▇▇▇▇▇▇ County, Ohio, and to the United States District Court for the Southern
District of Ohio.
17. ENTIRE AGREEMENT; AMENDMENT AND WAIVER. This Agreement, including
the Schedules and Exhibits hereto, constitutes and contains the entire agreement
between the parties hereto with respect to the transactions contemplated hereby
and supersedes any prior writing by the parties. Any term of this Agreement may
be amended and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company, ▇▇▇▇▇ and the
holders of a majority of the shares of the Preferred Stock then outstanding).
Any amendment or waiver effected in accordance with this paragraph shall be
binding upon the Investors, each other holder of any Preferred Stock purchased
under this Agreement at the time outstanding (including Common Stock into which
such Preferred Stock have been converted), each future holder of any such
Preferred Stock, ▇▇▇▇▇ and the Company.
18. SEVERABILITY. The invalidity or unenforceability of any provision
of this Agreement shall not affect the validity or enforceability of the
remaining provisions.
19. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which taken
together shall constitute one and the same agreement.
20. EXPENSES. The Company agrees, upon consummation of the transactions
contemplated by this Agreement, to pay, against receipt of the documentation
therefor in reasonable detail, up to $15,000 of the reasonable legal and
out-of-pocket expenses incurred by River Cities in connection with this
Agreement and the transactions contemplated hereunder, including, without
limitation, all fees and expenses of legal counsel, accountants and other
advisers engaged by River Cities in connection with this Agreement and the
transactions contemplated hereunder.
21. TIME OF ESSENCE. Time is of the essence to the performance of the
obligations set forth in this Agreement.
22. CONFIDENTIALITY AGREEMENT. At the request of the Company, an
Investor and any subsequent holder of Preferred Stock or the conversion stock
shall execute and deliver to the Company a confidentiality letter in a form
reasonably acceptable to the Investor.
26
23. ATTORNEYS' FEES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the Warrant, the Second
Amended and Restated Registration Rights Agreement, any Ancillary Agreement or
the Amended Articles, the prevailing party shall be entitled to reasonable
attorneys' fees, costs, and disbursements in addition to any other relief to
which such party may be entitled.
24. RIGHTS OF THE INVESTORS. The holders of a majority of the shares of
Preferred Stock then outstanding shall have the absolute right to exercise or
refrain from exercising any rights that the Investors may have by reason of this
Agreement, including without limitation the right to consent to the waiver of
any obligation of Company under this Agreement and to enter into an agreement
with Company for the purpose of modifying this Agreement or any agreement
effecting any such modification, and shall not incur any liability to any other
holder or holders of Preferred Stock with respect to exercising or refraining
from exercising any such rights and all other holders of Preferred Stock shall
be bound by such exercising or refraining from exercising any such rights.
25. TERMINATION UPON A QUALIFIED IPO. Notwithstanding anything to the
contrary contained in this Agreement, this Agreement shall terminate upon the
closing of a Qualified IPO.
26. TERMINATION OF CERTAIN PROVISIONS. Sections 4, 10, 11 and 12 of the
Prior Stock Purchase Agreement are hereby terminated and shall be of no further
force and effect.
27. PRONOUNS. Use of male, female and neuter pronouns in the singular
or plural in this Agreement shall be understood to include each of the other
pronouns as the context requires.
[Remainder of page intentionally left blank]
27
IN WITNESS WHEREOF, the Company, ▇▇▇▇▇ and the Investors have caused
this Agreement to be executed as of the day and year first above written.
INVESTORS
RIVER CITIES CAPITAL FUND II
LIMITED PARTNERSHIP
By:/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, President of ▇▇▇▇▇▇,
Inc., the General Partner of River
Cities Capital Fund II Limited
Partnership
Address: Suite 1900
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
JG FUNDING, LLC
By:/s/ ▇▇▇▇▇ ▇▇▇▇▇, Jr.
------------------------------------------
▇▇▇▇▇ ▇▇▇▇▇, Jr., Manager of Chrysalis
Ventures, LLC, the Manager of JG
Funding, LLC
Address: 1850 National City Tower
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ CAPITAL GROUP, LLC
By:/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
----------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Manager
Address: 1850 National City Tower
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
28
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇
---------------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇
Address: c/▇ ▇▇▇▇▇▇ Capital Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
COMPANY
DPEC, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
-----------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇, President
Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
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/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
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Address: ▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
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