UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Date of Report (date of earliest event reported): June 8, 1999
MEDPLUS, INC.
(Exact name of registrant as specified in its charter)
Ohio 48-1094982
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
8805 Governor's Hill Drive, Suite 100
Cincinnati, OH 45249
(Address of principal executive offices)
(513) 583-0500
(Registrant's telephone number, including area code)
N/A
(Former name or former address, if changed since last report)
Item 5. Other Events. On June 8, 1999, the registrant amended a
Securities Purchase Agreement (the "Agreement"), originally entered
into on April 30, 1999, with three investment firms to obtain
$6,100,000 in debt and equity financing. In summary, the terms of
the Agreement provide for financing of $4,100,000 in Series A
Convertible Preferred Shares and $2,000,000 in subordinated
debentures. Certain terms of the agreement, including the
authorization of the preferred shares, are subject to shareholder
approval at the Company's special (and annual) shareholders'
meeting scheduled for June 18, 1999. The specific amendments made
to the Agreement included (1) certain amendments to the Notes (as
defined therein), (2) certain amendments to the terms of the
Preferred Stock (as defined therein) and (3) certain amendments to
the terms of the Ten-Year Warrants (as defined therein). A copy
of the Amended and Restated Agreement is attached hereto.
Item 7. Financial Statements and Exhibits
(c) Exhibits
99 Amended and Restated Securities Purchase Agreement dated June
8, 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned thereunto duly authorized.
MEDPLUS, INC.
Date: June 9, 1999 By:______________________________
Daniel A. Silber
Chief Financial Officer
Exhibit 99.1
AMENDED AND RESTATED
SECURITIES PURCHASE AGREEMENT
among
MEDPLUS, INC.
and
THE SEVERAL PURCHASERS NAMED IN EXHIBIT 1.01
Dated as of June 8, 1999
MedPlus, Inc.
8805 Governor's Hill Drive, Suite 100
Cincinnati, OH 45249
As of June 8, 1999
To: The Persons listed on Exhibit 1.01 hereto
Re: Subordinated Notes due 2004, Series A Preferred Stock and
Series A Preferred Stock Purchase Warrants
Ladies and Gentlemen:
MedPlus, Inc., an Ohio corporation (the "Company"), hereby
agrees with the Persons listed on Exhibit 1.01 hereto (each, a
"Purchaser" and collectively, the "Purchasers") that this Amended
and Restated Securities Purchase Agreement (the "Agreement") is
dated as of June 8, 1999 and amends and restates in its entirety
that certain Securities Purchase Agreement (the "Original
Agreement") dated as of April 30, 1999 among the Company and the
Purchasers, and further agrees as follows:
ARTICLE I
PURCHASE, SALE AND TERMS OF NOTES AND WARRANTS
1.01 The Notes. The Company has authorized the issuance and
sale of, and has issued and sold, the Company's Subordinated
Notes, due 2004 (the "Original Notes"), in the original aggregate
principal amount of $2,000,000 to the Purchasers in the respective
amounts set forth in Exhibit 1.01 hereto. In connection with
entering into this Agreement, the parties hereto are amending and
restating the Original Notes in their entirety so that they read
as set forth in Exhibit 1.01A hereto and as amended and restated
they are herein referred to individually as a "Note" and
collectively as the "Notes", which terms shall also include any
notes delivered in exchange or replacement therefor. The Notes
provide that if the Preferred Share and Warrant Closing (as
defined below) has not occurred prior to July 30, 1999, then (i)
the entire amount of principal and interest which remains unpaid
shall become due and payable as of November 28, 1999, (ii) the
Company shall immediately issue, for no additional consideration,
to the holders of the Notes that number of shares of the Company's
Common Stock, no par value (the "Common Stock"), as is equal in
the aggregate to ten percent (10%) of the aggregate number of
issued and outstanding shares of Common Stock, on a fully diluted
basis, as of such date and (iii) on December 31, 1999 and on the
last day of each calendar month thereafter, if any amount of
principal or interest under the Notes remains outstanding on such
date, the Company shall issue, for no additional consideration, to
the holders of the Notes that number of shares of the Common Stock
as is equal to two percent (2%) of the aggregate number of issued
and outstanding shares of Common Stock on a Fully Diluted basis,
as of such date, up to a maximum of 19.9% of the Common Stock on a
Fully Diluted basis. The Notes provide that the Company will
issue, and the Company covenants to issue, on the Preferred Share
and Warrant Closing Date (as defined below) to the Purchasers
warrants in the form attached thereto as Exhibit A to purchase
shares of Series A Convertible Preferred Stock (as defined below),
unless the Preferred Share and Warrant Closing Date does not occur
prior to July 30, 1999, in which event the Company will issue on
July 30, 1999 to the Purchasers warrants in the form attached
thereto as Exhibit B to purchase shares of Common Stock. Any
warrants issued or issuable pursuant to the Notes are referred to
herein as the "Note Warrants", any shares of Common Stock issued
or issuable upon exercise of any Note Warrants are referred to
herein as the "Note Warrant Common Shares", and any shares of
Series A Convertible Preferred Stock issued or issuable upon
exercise of any Note Warrants are referred to herein as the "Note
Warrant Preferred Shares".
1.02 The Preferred Shares. Subject to shareholder
approval, the Company has also authorized the issuance and sale of
an aggregate of 2,371,815 shares (the "Preferred Shares") of a
Series A Convertible Preferred Stock, $.01 per share (the "Series
A Convertible Preferred Stock") at a purchase price of $1.729 per
share to the Purchasers in the respective amounts set forth in
Exhibit 1.01 hereto. The designation, rights, preferences and
other terms and conditions relating to the Series A Convertible
Preferred Stock shall be as set forth on Exhibit 1.02 hereto.
1.03 The Warrants. Subject to shareholder approval, the
Company has also authorized the issuance and sale of the Company's
Series A Convertible Preferred Stock Purchase Warrants (the
"Purchase Warrants") for the purchase (subject to adjustment as
provided therein) of 721,702 shares (the "Purchase Warrant Shares"
and together with the Note Warrant Preferred Shares, the "Warrant
Shares") of the Company's Series A Convertible Preferred Stock to
the Purchasers in the respective amounts set forth in Exhibit 1.01
hereto. The Purchase Warrants shall be substantially in the form
set forth in Exhibit 1.03 hereto and are herein referred to,
together with the Note Warrants, individually as a "Warrant" and
collectively as the "Warrants", which terms shall also include any
warrants delivered in exchange or replacement therefor.
1.04 Purchase and Sale of Notes, Preferred Shares and
Warrants.
(a) The Note Closing. On April 30, 1999, the
Company issued and sold to the Purchasers, and, subject to and in
reliance upon the representations, warranties, terms and
conditions of the Original Agreement, the Purchasers purchased the
Original Notes in the original principal amount set forth opposite
their respective names on Exhibit 1.01. Such purchase and sale
took place at a closing (the "Note Closing") held at the offices
of Testa, Hurwitz & Thibeault, LLP, 125 High Street, Boston,
Massachusetts, on April 30, 1999 (the "Note Closing Date"). At
the Note Closing, the Company issued and delivered an Original
Note payable to the order of each Purchaser against payment of the
full purchase price therefor (indicated on Exhibit 1.01 under the
column headed "Amount of Subordinated Notes Purchased" opposite
such Purchaser's name) and the Company and the Purchasers entered
into the Registration Rights Agreement (as defined below).
(b) The Preferred Share and Warrant Closing.
Provided that the shareholders of the Company approve the
transactions contemplated by this Agreement prior to July 30,
1999, and subject to the terms and conditions contained herein,
the Company agrees to issue and sell to the Purchasers, and,
subject to and in reliance upon the representations, warranties,
terms and conditions of this Agreement, the Purchasers, severally
but not jointly, agree to purchase the number of Preferred Shares
and Purchase Warrants set forth opposite the name of such
Purchaser under the headings "Number of Preferred Shares to be
Purchased" and "Number of Purchase Warrants to be Purchased",
respectively, on Exhibit 1.01 hereto. Such purchase and sale
shall take place at a closing (the "Preferred Share and Warrant
Closing") at the offices of Testa, Hurwitz & Thibeault, LLP, 125
High Street, Boston, Massachusetts at 10:00 a.m. on the later of
June 18, 1999 (assuming satisfaction of the conditions in
Article IV by such date) or on the date that is five business days
after satisfaction of the conditions in Article IV but before July
30, 1999 or at such other time or place as the Company and the
Purchasers may agree in writing (such date and time being called
the "Preferred Share and Warrant Closing Date"). If the Preferred
Share and Warrant Closing has not occurred prior to July 30, 1999,
this Agreement may be terminated by the Purchasers upon notice to
the Company. At the Preferred Share and Warrant Closing, the
Company shall issue and deliver to each Purchaser a stock
certificate or certificates, registered in the name of such
Purchaser, representing the Preferred Shares being purchased by it
at the Closing, and a Purchase Warrant or Purchase Warrants,
registered in the name of such Purchaser, representing the number
of Purchase Warrant Shares covered by the Purchase Warrants being
purchased by it at the Preferred Share and Warrant Closing. At
the Preferred Share and Warrant Closing the Company will issue and
deliver the stock certificate or certificates and Purchase
Warrants as aforesaid against payment by each Purchaser of the
full purchase price therefor (equal to the amount set forth
opposite the name of such Purchaser under the heading "Aggregate
Purchase Price for Preferred Shares and Purchase Warrants" on
Exhibit 1.01) by (i) wire transfer of immediately available funds
to an account designated by the Company, (ii) check payable to the
order of the Company or its designees, or (iii) any combination of
(i) and (ii) above.
(c) Allocation of Purchase Price. The Company and
the Purchasers, having adverse interests and as a result of arm's
length bargaining, agree that (i) neither the Purchasers nor any
of their respective affiliates or associates have rendered or
agreed to render any services to the Company in connection with
this Agreement or the issuance of the Notes, Preferred Shares and
Warrants; (ii) the Warrants are not being issued as compensation;
and (iii) for federal income tax purposes, the fair market value
of the Notes and the Note Warrants is $1,895,000 and $105,000,
respectively. Upon the issuance of the Preferred Shares and the
Purchase Warrants, the parties agree to work in good faith to
allocate the purchase price with respect to the Preferred Shares
and the Purchase Warrants.
1.05 Payments and Endorsements. Payments of principal,
interest and premium, if any, on the Notes, shall be made directly
by check duly mailed or delivered to the Purchaser at its address
referred to in Exhibit 1.01 hereof, without any presentment or
notation of payment, provided that prior to any transfer of any
Note, the holder of record shall endorse on such Note a record of
the date to which interest has been paid and all payments made on
account of principal of such Note.
1.06 Redemptions.
(a) Optional Redemptions Without Premium. Subject
to Section 1.12, the Company may redeem, without premium, the
Notes in whole together with interest due.
(b) Notice of Redemptions; Pro rata Redemptions.
Notice of any optional redemptions pursuant to subsection 1.06(a)
shall be given to all registered holders of the Notes at least ten
(10) business days prior to the date of such redemption. Each
redemption of Notes pursuant to subsection 1.06(a) shall be made
so that the Notes then held by each holder shall be redeemed in a
principal amount which shall bear the same ratio to the total
principal amount of Notes being redeemed as the principal amount
of Notes then held by such holder bears to the aggregate principal
amount of the Notes then outstanding.
1.07 Payment on Non-Business Days. Whenever any payment to
be made shall be due on a Saturday, Sunday or a public holiday
under the laws of the State of Ohio, such payment may be made on
the next succeeding business day, and such extension of time shall
in such case be included in the computation of payment of interest
due.
1.08 Registration, etc.. The Company shall maintain at its
principal office a register of the Notes and shall record therein
the names and addresses of the registered holders of the Notes,
the address to which notices are to be sent and the address to
which payments are to be made as designated by the registered
holder if other than the address of the holder, and the
particulars of all transfers, exchanges and replacements of Notes.
No transfer of a Note shall be valid unless made on such register
for the registered holder or his executors or administrators or
his or their duly appointed attorney, upon surrender therefor for
exchange as hereinafter provided, accompanied by an instrument in
writing, in form and execution reasonably satisfactory to the
Company. Each Note issued hereunder, whether originally or upon
transfer, exchange or replacement of a Note or Notes, shall be
registered on the date of execution thereof by the Company and
shall be dated the date to which interest has been paid on such
Notes or Note. The registered holder of a Note shall be that
Person in whose name the Note has been so registered by the
Company. A registered holder shall be deemed the owner of a Note
for all purposes of this Agreement and, subject to the provisions
hereof, shall be entitled to the principal, premium, if any, and
interest evidenced by such Note free from all equities or rights
of setoff or counterclaim between the Company and the transferor
of such registered holder or any previous registered holder of
such Note.
1.09 Transfer and Exchange of Notes. The registered holder
of any Note or Notes may, prior to maturity or prepayment thereof,
surrender such Note or Notes at the principal office of the
Company for transfer or exchange. Within a reasonable time after
notice to the Company from a registered holder of its intention to
make such exchange and without expense (other than transfer taxes,
if any) to such registered holder, the Company shall issue in
exchange therefor another Note or Notes, in such denominations as
requested by the registered holder, for the same aggregate
principal amount as the unpaid principal amount of the Note or
Notes so surrendered and having the same maturity and rate of
interest, containing the same provisions and subject to the same
terms and conditions as the Note or Notes so surrendered. Each
new Note shall be made payable to such Person or Persons, or
registered assigns, as the registered holder of such surrendered
Note or Notes may designate, and such transfer or exchange shall
be made in such a manner that no gain or loss of principal or
interest shall result therefrom.
1.10 Replacement of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or
mutilation of any Note and, if requested in the case of any such
loss, theft or destruction, upon delivery of an indemnity bond or
other agreement or security reasonably satisfactory to the
Company, or, in the case of any such mutilation, upon surrender
and cancellation of such Note, the Company will issue a new Note,
of like tenor and amount and dated the date to which interest has
been paid, in lieu of such lost, stolen, destroyed or mutilated
Note; provided, however, if any Note of which a Purchaser is the
registered holder is lost, stolen or destroyed, the affidavit of
the registered holder setting forth the circumstances with respect
to such loss, theft or destruction shall be accepted as
satisfactory evidence thereof, and no indemnification bond or
other security shall be required as a condition to the execution
and delivery by the Company of a new Note in replacement of such
lost, stolen or destroyed Note other than the registered holder's
written agreement to indemnify the Company.
1.11 Subordination. The indebtedness evidenced by the Notes
and the rights and remedies of the Purchasers under this Agreement
shall be subordinate and junior to (i) certain indebtedness of the
Company to Provident Bank (the "Bank") in the manner and to the
extent provided in the Subordination Agreement (the "Subordination
Agreement") of even date herewith by and among the Bank, the
Company and the Purchasers purchasing Notes hereunder, and
(ii) Senior Debt.
1.12 Acceleration. If, prior to July 30, 1999, the
shareholders of the Company have not approved (i) the adoption of
this Agreement and the transactions contemplated hereby as
required by the Ohio Control Share Acquisition Act, the Articles
of Incorporation and Code of Regulations of the Company and the
rules of the Nasdaq National Market, and (ii) the amendment of the
Company's Articles of Incorporation so that such Articles of
Incorporation shall read as set forth in Exhibit 1.02 hereto, then
(A) the entire amount of principal and interest which remains
unpaid under the Notes shall become due and payable as of November
28, 1999, (B) the Company shall immediately issue, for no
additional consideration, to the holders of the Notes that number
of shares of the Common Stock as is equal in the aggregate to ten
percent (10%) of the aggregate number of issued and outstanding
shares of Common Stock, on a fully diluted basis, as of such date,
and (C) on December 31, 1999 and on the last day of each calendar
month, if any amount of principal or interest under the Notes
remains outstanding on such date, the Company shall issue, for no
additional consideration, to the holders of the Notes that number
of shares of the Common Stock as is equal to two percent (2%) of
the aggregate number of issued and outstanding shares of Common
Stock on a Fully Diluted basis, as of such date, up to a maximum
of 19.9% of the Common Stock on a Fully Diluted basis.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Purchasers that,
as of the Note Closing Date and as of the date hereof, except as
set forth in the Disclosure Schedule attached hereto (which
Disclosure Schedule makes explicit reference to the particular
representation or warranty as to which exception is taken, which
in each case shall constitute the sole representation and warranty
as to which such exception shall apply, unless it is reasonably
evident to the Purchasers that an exception applies to one or more
other representations or warranties) or as set forth in the
Company SEC Reports (as defined below):
2.01 Organization, Qualifications and Corporate Power.
(a) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of Ohio
and is duly licensed or qualified to transact business as a
foreign corporation and is in good standing in each jurisdiction
in which the nature of the business transacted by it or the
character of the properties owned or leased by it requires such
licensing or qualification. The Company has the corporate power
and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted, and
subject to the approval of the shareholders of the Company as
described herein, to execute, deliver and perform this Agreement,
the Registration Rights Agreement with the Purchasers in the form
attached as Exhibit 2.01 (the "Registration Rights Agreement" and
together with this Agreement and any documents or agreements
ancillary to this Agreement, the "Transaction Documents"), to
issue, sell and deliver the Notes, the Preferred Shares, the
Warrants, the Note Warrant Common Shares and the Warrant Shares,
to perform the terms of the Notes and the Warrants and to issue
and deliver the Note Warrant Common Shares and the shares of
Common Stock issuable upon conversion of the Preferred Shares and
Warrant Shares (the "Conversion Shares").
(b) Schedule 2.01 to the Disclosure Schedule contains a list
of all subsidiaries of the Company. Except for such subsidiaries,
the Company does not (i) own of record or beneficially, directly
or indirectly, (A) any shares of capital stock or securities con-
vertible into capital stock of any other corporation or (B) any
participating interest in any partnership, joint venture or other
non-corporate business enterprise or (ii) control, directly or
indirectly, any other entity. Each of the subsidiaries is a cor-
poration duly incorporated, validly existing and in good standing
under the laws of its respective jurisdiction of incorporation and
is duly licensed or qualified to transact business as a foreign
corporation and is in good standing in each jurisdiction in which
the nature of the business transacted by it or the character of
the properties owned or leased by it requires such licensing or
qualification. Each of the subsidiaries has the corporate power
and authority to own and hold its properties and to carry on its
business as now conducted and as proposed to be conducted. Except
as set forth on Schedule 2.01(b) to the Disclosure Schedule, all
of the outstanding shares of capital stock of each of the
subsidiaries are owned beneficially and of record by the Company,
one of its other subsidiaries, or any combination of the Company
and/or one or more of its other subsidiaries, in each case free
and clear of any liens, charges, restrictions, claims or
encumbrances of any nature whatsoever; and there are no out-
standing subscriptions, warrants, options, convertible securities,
or other rights (contingent or other) pursuant to which any of the
subsidiaries is or may become obligated to issue any shares of its
capital stock to any person other than the Company or one of the
other subsidiaries. As used in Sections 2.06 through 2.09, 2.11
through 2.17, 2.21 and 2.22 through 2.28 inclusive, the term
"Company" shall mean the Company and each of the subsidiaries.
2.02 Authorization of Agreements, Etc.
(a) Subject to the approval of the shareholders of the Company
as described herein, the execution and delivery by the Company of
the Transaction Documents, the performance by the Company of its
obligations thereunder, the issuance, sale and delivery of the
Notes, the Preferred Shares, the Warrants, the Note Warrant Common
Shares and the Warrant Shares, the performance by the Company of
its obligations under the Notes and the Warrants, and the issuance
and delivery of the Conversion Shares have been duly authorized by
all requisite corporate action and will not violate any provision
of law, any order of any court or other agency of government, the
Articles of Incorporation of the Company, as amended (the
"Charter") or the Code of Regulations of the Company, as amended,
or any provision of any indenture, agreement or other instrument
to which the Company, any of its subsidiaries or any of their
respective properties or assets is bound, or conflict with, result
in a breach of or constitute (with due notice or lapse of time or
both) a default under any such indenture, agreement or other
instrument, or result in the creation or imposition of any lien,
charge, restriction, claim or encumbrance of any nature whatsoever
upon any of the properties or assets of the Company or any of its
subsidiaries.
(b) The Note Warrant Common Shares and, subject to the
approval of the shareholders of the Company as described herein,
the Preferred Shares and Warrant Shares have been duly authorized
and, when issued in accordance with this Agreement or the
Warrants, as appropriate, will be validly issued, fully paid and
nonassessable shares of Common Stock or Series A Convertible
Preferred Stock, as the case may be, with no personal liability
attaching to the ownership thereof and will be free and clear of
all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company except as set forth in the Registration
Rights Agreement. The Warrants, when issued in accordance with
this Agreement, will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the
Company except as set forth in the Warrants. The Note Warrant
Common Shares have been and the Warrant Shares will have been duly
reserved for issuance upon exercise of the Warrants. The
Conversion Shares will have been duly reserved for issuance upon
conversion of the Notes, Preferred Shares and Warrant Shares and,
when so issued, will be duly authorized, validly issued, fully
paid and nonassessable shares of Common Stock with no personal
liability attaching to the ownership thereof and will be free and
clear of all liens, charges, restrictions, claims and encumbrances
imposed by or through the Company except as set forth in the
Registration Rights Agreement. Neither the issuance, sale or
delivery of the Notes, Preferred Shares, Warrants, Note Warrant
Common Shares or Warrant Shares nor the issuance or delivery of
the Conversion Shares is subject to any preemptive right of
shareholders of the Company or to any right of first refusal or
other right in favor of any person.
2.03 Validity. Subject to the approval of the shareholders
of the Company as described herein, this Agreement has been duly
executed and delivered by the Company and constitutes the legal,
valid and binding obligation of the Company, enforceable in
accordance with its terms. The Notes, and the Warrants and the
remaining Transaction Documents when executed and delivered in
accordance with this Agreement, constitute the legal, valid and
binding obligations of the Company, enforceable in accordance with
their respective terms.
2.04 Authorized Capital Stock. Subject to the approval of
the shareholders of the Company as described herein, the
authorized capital stock of the Company as of the Preferred Share
and Warrant Closing Date shall consist of (i) 5,000,000 shares of
Preferred Stock, $.01 par value (the "Preferred Stock"), all of
which shares have been designated Series A Convertible Preferred
Stock, and (ii) 15,000,000 shares of Common Stock. As of
April 27, 1999, 6,055,269 shares of Common Stock were validly
issued and outstanding, fully paid and nonassessable with no
personal liability attaching to the ownership thereof and no
shares of Preferred Stock were issued. Immediately prior to the
Preferred Share and Warrant Closing, no shares of Preferred Stock
will have been issued. As of April 30, 1999, 200,000 shares of
Common Stock were held in treasury. As of April 30, 1999, the
holders of subscriptions, warrants, options, convertible
securities, and other rights (contingent or other) to purchase or
otherwise acquire equity securities of the Company, and the number
of shares of Common Stock and the number of such subscriptions,
warrants, options, convertible securities, and other such rights
held by each, are as set forth in Schedule 2.04 of the Disclosure
Schedule. As of the Preferred Share and Warrant Closing Date, the
designations, powers, preferences, rights, qualifications,
limitations and restrictions in respect of each class and series
of authorized capital stock of the Company will be as set forth in
the Charter to be filed prior to the Preferred Share and Warrant
Closing Date, a copy of which is attached as Exhibit 1.02, and all
such designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. The designation,
powers, preferences, rights, qualifications, limitations and
restrictions in respect of the Common Stock are as set forth in
Section Fourth of the Charter attached as Exhibit 1.02, and all
such designations, powers, preferences, rights, qualifications,
limitations and restrictions are valid, binding and enforceable
and in accordance with all applicable laws. Except as set forth
in the Schedule 2.04 of the Disclosure Schedule, (i) no
subscription, warrant, option, convertible security, or other
right (contingent or other) to purchase or otherwise acquire
equity securities of the Company is authorized or outstanding and
(ii) there is no commitment by the Company to issue shares,
subscriptions, warrants, options, convertible securities, or other
such rights or to distribute to holders of any of its equity
securities any evidence of indebtedness or asset. Except as
provided for in the Charter or as set forth in Schedule 2.04 of
the Disclosure Schedule, the Company has no obligation (contingent
or other) to purchase, redeem or otherwise acquire any of its
equity securities or any interest therein or to pay any dividend
or make any other distribution in respect thereof. Except as set
forth on Schedule 2.04 of the Disclosure Schedule to the best of
the Company's knowledge there are no voting trusts or agreements,
shareholders' agreements, pledge agreements, buy-sell agreements,
rights of first refusal, preemptive rights or proxies relating to
any securities of the Company or any of its subsidiaries (whether
or not the Company or any of its subsidiaries is a party thereto).
All of the outstanding securities of the Company were issued in
compliance with all applicable Federal and state securities laws.
2.05 Company SEC Reports and Financial Statements.
(a) The Company has made available to Purchasers
true and complete copies of all periodic reports, statements and
other documents that the Company has filed with the SEC under the
Exchange Act since January 31, 1995 until the Note Closing Date,
and the Form S-B2 Registration Statement (File 33-77896C) and the
Form S-1 Registration Statement (File 33-98696) (the "Registration
Statements") filed under the Securities Act (collectively, the
"Company SEC Reports"), each in the form (including exhibits and
any amendments thereto) required to be filed with the SEC. As of
their respective dates, each of the Company's SEC Reports (i)
complied in all respects with all applicable requirements of the
Securities Act and the Exchange Act, and the rules and regulations
promulgated thereunder, respectively, (ii) were filed in a timely
manner, and (iii) did not contain any untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made,
not misleading. None of the subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the audited consolidated financial
statements of the Company (including any related notes and
schedules thereto) included (or incorporated by reference) in its
Quarterly Report on Form 10-QSB for the quarter ended October 31,
1998, its Annual Report on Form 10-KSB for the fiscal year ended
January 31, 1999 (when filed) or the Registration Statement, is
accurate and complete and fairly presents, in conformity with
generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the periods involved (except as may be
noted therein), and in conformity with the SEC's regulations, the
consolidated financial position of the Company and its
consolidated subsidiaries as of its date and the consolidated
results of operations and changes in financial position for the
period then ended.
(c) Except as and to the extent set forth (or
incorporated by reference) in any Registration Statement or the
Company's Quarterly Report on Form 10-QSB for the quarter ended
October 31, 1998 (the "Balance Sheet Date"), none of the Company
or any of its subsidiaries has incurred any liability or
obligation of any nature whatsoever (whether due or to become due,
accrued, fixed, contingent, liquidated, unliquidated or otherwise)
that would be required by GAAP to be accrued on, reflected on, or
reserved against it, on a consolidated balance sheet (the "Balance
Sheet") (or in the applicable notes thereto) of the Company or any
of its subsidiaries prepared in accordance with GAAP consistently
applied as of the date and for the period required.
2.06 Events Subsequent to the Balance Sheet Date. Except as
set forth on Schedule 2.06 of the Disclosure Schedule, since
January 31, 1999, the Company has not (i) issued any stock, bond
or other corporate security, (ii) borrowed any amount or incurred
or become subject to any liability (absolute, accrued or
contingent), except current liabilities incurred and liabilities
under contracts entered into in the ordinary course of business,
(iii) discharged or satisfied any lien or encumbrance or incurred
or paid any obligation or liability (absolute, accrued or
contingent) other than current liabilities shown on the Balance
Sheet and current liabilities incurred since the Balance Sheet
Date in the ordinary course of business, (iv) declared or made any
payment or distribution to shareholders or purchased or redeemed
any share of its capital stock or other security, (v) mortgaged,
pledged, encumbered or subjected to lien any of its assets,
tangible or intangible, other than liens of current real property
taxes not yet due and payable, (vi) sold, assigned or transferred
any of its tangible assets except in the ordinary course of
business, or cancelled any debt or claim, (vii) sold, assigned,
transferred or granted any exclusive license with respect to any
patent, trademark, trade name, service mark, copyright, trade
secret or other intangible asset, (viii) suffered any loss of
property or waived any right of substantial value whether or not
in the ordinary course of business, (ix) made any change in
officer compensation except in the ordinary course of business and
consistent with past practice, (x) made any material change in the
manner of business or operations of the Company, (xi) entered into
any transaction except in the ordinary course of business or as
otherwise contemplated hereby or (xii) entered into any commitment
(contingent or otherwise) to do any of the foregoing.
2.07 Litigation; Compliance with Law. Except as set forth
on Schedule 2.07 of the Disclosure Schedule, there is no
(i) action, suit, claim, proceeding or investigation pending or,
to the best of the Company's knowledge, threatened against or
affecting the Company, at law or in equity, or before or by any
Federal, state, municipal or other governmental department, com-
mission, board, bureau, agency or instrumentality, domestic or
foreign, (ii) arbitration proceeding relating to the Company
pending under collective bargaining agreements or otherwise or
(iii) governmental inquiry pending or, to the best of the Com-
pany's knowledge, threatened against or affecting the Company
(including without limitation any inquiry as to the qualification
of the Company to hold or receive any license or permit), and
there is no basis for any of the foregoing. The Company has not
received any opinion or memorandum or legal advice from legal
counsel to the effect that it is exposed, from a legal standpoint,
to any liability or disadvantage which may be material to its
business, prospects, financial condition, operations, property or
affairs. The Company is not in default with respect to any order,
writ, injunction or decree known to or served upon the Company of
any court or of any Federal, state, municipal or other
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign. Except as set forth on
Schedule 2.07 of the Disclosure Schedule, there is no action or
suit by the Company pending, threatened or contemplated against
others. The Company has complied with all laws, rules,
regulations and orders applicable to its business, operations,
properties, assets, products and services, the Company has all
necessary permits, licenses and other authorizations required to
conduct its business as conducted and as proposed to be conducted,
and the Company has been operating its business pursuant to and in
compliance with the terms of all such permits, licenses and other
authorizations. There is no existing law, rule, regulation or
order, and the Company after due inquiry is not aware of any
proposed law, rule, regulation or order, whether Federal, state,
county or local, which would prohibit or restrict the Company
from, or otherwise materially adversely affect the Company in,
conducting its business in any jurisdiction in which it is now
conducting business or in which it proposes to conduct business.
2.08 Proprietary Information of Third Parties. Except as
set forth on Schedule 2.08 of the Disclosure Schedule, to the best
of the Company's knowledge, no third party has claimed or has
reason to claim that any person employed by or affiliated with the
Company has (a) violated or may be violating any of the terms or
conditions of his employment, non-competition or non-disclosure
agreement with such third party, (b) disclosed or may be
disclosing or utilized or may be utilizing any trade secret or
proprietary information or documentation of such third party or
(c) interfered or may be interfering in the employment relation-
ship between such third party and any of its present or former
employees. No third party has requested information from the
Company which suggests that such a claim might be contemplated.
To the best of the Company's knowledge, no person employed by or
affiliated with the Company has employed or proposes to employ any
trade secret or any information or documentation proprietary to
any former employer, and to the best of the Company's knowledge,
no person employed by or affiliated with the Company has violated
any confidential relationship which such person may have had with
any third party, in connection with the development, manufacture
or sale of any product or proposed product or the development or
sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such employment
or violation. To the best of the Company's knowledge, none of the
execution or delivery of this Agreement, or the carrying on of the
business of the Company as officers, employees or agents by any
officer, director or key employee of the Company, or the conduct
or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions
of or constitute a default under any contract, covenant or
instrument under which any such person is obligated.
2.09 Patents, Trademarks, Etc. Set forth in Schedule 2.09
of the Disclosure Schedule is a list and brief description of all
domestic and foreign patents, patent rights, patent applications,
trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for
such which are in the process of being prepared, owned by or
registered in the name of the Company, or of which the Company is
a licensor or licensee or in which the Company has any right, and
in each case a brief description of the nature of such right. The
Company owns or possesses adequate licenses or other rights to use
all patents, patent applications, trademarks, trademark
applications, service marks, service mark applications, trade
names, copyrights, manufacturing processes, formulae, trade
secrets, customer lists and know how (collectively, "Intellectual
Property") necessary or desirable to the conduct of its business
as conducted and as proposed to be conducted, and no claim is
pending or, to the best of the Company's knowledge, threatened to
the effect that the operations of the Company infringe upon or
conflict with the asserted rights of any other person under any
Intellectual Property, and there is no basis for any such claim
(whether or not pending or threatened). No claim is pending or
threatened to the effect that any such Intellectual Property owned
or licensed by the Company, or which the Company otherwise has the
right to use, is invalid or unenforceable by the Company, and
there is no basis for any such claim (whether or not pending or
threatened). All prior art known to the Company which may be or
may have been pertinent to the examination of any United States
patent or patent application listed in Schedule 2.09 of the
Disclosure Schedule has been cited to the United States Patent and
Trademark Office. To the best of the Company's knowledge, all
technical information developed by and belonging to the Company
which has not been patented has been kept confidential. The
Company has not granted or assigned to any other person or entity
any right to manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services or
proposed services of the Company. The Company is not aware that
any other Person is using any of the Company's Intellectual
Property without Company authorization.
2.10 Title to Properties. The Company and its subsidiaries
have good, clear and marketable title to their respective
properties and assets reflected on the Balance Sheet or acquired
by them since the Balance Sheet Date (other than properties and
assets disposed of in the ordinary course of business since the
Balance Sheet Date), and all such properties and assets are free
and clear of mortgages, pledges, security interests, liens,
charges, claims, restrictions and other encumbrances (including
without limitation, easements and licenses), except for liens for
or current taxes not yet due and payable and minor imperfections
of title, if any, not material in nature or amount and not
materially detracting from the value or impairing the use of the
property subject thereto or impairing the operations or proposed
operations of the Company and its subsidiaries, including without
limitation, the ability of the Company and its subsidiaries to
secure financing using such properties and assets as collateral.
To the best of the Company's knowledge after due inquiry, there
are no condemnation, environmental, zoning or other land use
regulation proceedings, either instituted or planned to be
instituted, which would adversely affect the use or operation of
the Company's and its subsidiaries' properties and assets for
their respective intended uses and purposes, or the value of such
properties, and neither the Company nor any subsidiary has
received notice of any special assessment proceedings which would
affect such properties and assets.
2.11 Leasehold Interests. Each lease or agreement to which
the Company is a party under which it is a lessee of any property,
real or personal, is a valid and subsisting agreement, duly
authorized and entered into, without any default of the Company
thereunder and, to the best of the Company's knowledge, without
any default thereunder of any other party thereto. No event has
occurred and is continuing which, with due notice or lapse of time
or both, would constitute a default or event of default by the
Company under any such lease or agreement or, to the best of the
Company's knowledge, by any other party thereto. The Company's
possession of such property has not been disturbed and, to the
best of the Company's knowledge after due inquiry, no claim has
been asserted against the Company adverse to its rights in such
leasehold interests.
2.12 [Reserved]
2.13 Taxes. The Company has filed all tax returns, Federal,
state, county and local, required to be filed by it, and the
Company has paid all taxes shown to be due by such returns as well
as all other taxes, assessments and governmental charges which
have become due or payable, including without limitation all taxes
which the Company is obligated to withhold from amounts owing to
employees, creditors and third parties. The Company has
established adequate reserves for all taxes accrued but not yet
payable. All material tax elections of any type which the Company
has made as of the date hereof are set forth in the financial
statements referred to in Section 2.05. The Federal income tax
returns of the Company have never been audited by the Internal
Revenue Service. No deficiency assessment with respect to or
proposed adjustment of the Company's Federal, state, county or
local taxes is pending or, to the best of the Company's knowledge,
threatened. There is no tax lien (other than for current taxes
not yet due and payable), whether imposed by any Federal, state,
county or local taxing authority, outstanding against the assets,
properties or business of the Company. Neither the Company nor
any of its present or former shareholders has ever filed an
election pursuant to Section 1362 of the Internal Revenue Code of
1986, as amended (the "Code"), that the Company be taxed as an S
corporation. As of the Note Closing Date and except as otherwise
provided on Schedule 2.13 to the Disclosure Schedule, the
Company's net operating losses for Federal income tax purposes, as
set forth in the financial statements referred to in Section 2.05,
are not subject to any limitations imposed by Section 382 of the
Code and the full amount of such net operating losses are
available to offset the taxable income of the Company for the
current fiscal year and, to the extent not so used, succeeding
fiscal years. Consummation of the transactions contemplated by
this Agreement or by any other agreement, understanding or
commitment (contingent or otherwise) to which the Company is a
party or by which it is otherwise bound will not have the effect
of limiting the Company's ability to use such net operating losses
in full to offset such taxable income, except to the extent that
such use is limited as a result of any anti-dilution adjustments
pursuant to the terms of the Series A Convertible Preferred Stock.
2.14 Other Agreements. The Company is not a party to or
otherwise bound by any written or oral agreement, instrument,
commitment or restriction which individually or, taking any
related agreements, instruments, commitments or restrictions
together, in the aggregate is material to or could materially
adversely affect the business, prospects, financial condition,
operations, property or affairs of the Company or any of the
following which is material to or could materially adversely
affect the business, prospects, financial condition, operations,
property or affairs of the Company, whether written or oral:
(a) distributor, dealer, manufacturer's representative or
sales agency agreement which is not terminable on less than ninety
(90) days' notice without cost or other liability to the Company
(except for agreements which, in the aggregate, are not material
to the business of the Company);
(b) sales agreement which entitles any customer to a rebate or
right of set-off, to return any product to the Company after
acceptance thereof or to delay the acceptance thereof, or which
varies in any material respect from the Company's standard form
agreements;
(c) agreement with any labor union (and, to the knowledge of
the Company, no organizational effort is being made with respect
to any of its employees);
(d) agreement with any supplier containing any provision
permitting any party other than the Company to renegotiate the
price or other terms, or containing any pay-back or other similar
provision, upon the occurrence of a failure by the Company to meet
its obligations under the agreement when due or the occurrence of
any other event;
(e) agreement for the future purchase of fixed assets or for
the future purchase of materials, supplies or equipment in excess
of its normal operating requirements;
(f) agreement for the employment of any officer, employee or
other person (whether of a legally binding nature or in the nature
of informal understandings) on a full-time or consulting basis
which is not terminable on notice without cost or other liability
to the Company, except normal severance arrangements and accrued
vacation pay;
(g) bonus, pension, profit-sharing, retirement, hospi-
talization, insurance, stock purchase, stock option or other plan,
agreement or understanding pursuant to which benefits are provided
to any employee of the Company (other than an Employee Plan or
group insurance plans which are not self-insured and are
applicable to employees generally);
(h) agreement relating to the borrowing of money or to the
mortgaging or pledging of, or otherwise placing a lien or security
interest on, any asset of the Company;
(i) guaranty of any obligation for borrowed money or
otherwise;
(j) voting trust or agreement, shareholders' agreement, pledge
agreement, buy-sell agreement or first refusal or preemptive
rights agreement relating to any securities of the Company;
(k) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company
has advanced or agreed to advance money or has agreed to lease any
property as lessee or lessor;
(l) agreement or obligation (contingent or otherwise) to
issue, sell or otherwise distribute or to repurchase or otherwise
acquire or retire any share of its capital stock or any of its
other equity securities;
(m) assignment, license or other agreement with respect to any
form of intangible property;
(n) agreement under which it has granted any person any
registration rights, other than the Registration Rights Agreement;
(o) agreement under which it has limited or restricted its
right to compete with any person in any respect;
(p) other agreement or group of related agreements with the
same party involving more than $50,000 or continuing over a period
of more than six months from the date or dates thereof (including
renewals or extensions optional with another party), which
agreement or group of agreements is not terminable by the Company
without penalty upon notice of thirty (30) days or less, but
excluding any agreement or group of agreements with a customer of
the Company for the sale, lease or rental of the Company's
products or services if such agreement or group of agreements was
entered into by the Company in the ordinary course of business; or
(q) other agreement, instrument, commitment, plan or
arrangement, a copy of which would be required to be filed with
the Securities and Exchange Commission (the "Commission") as an
exhibit to a registration statement on Form S-1 if the Company
were registering securities under the Securities Act of 1933, as
amended (the "Securities Act").
The Company, and to the best of the Company's knowledge after due
inquiry, each other party thereto have in all material respects
performed all the obligations required to be performed by them to
date (or each non-performing party has received a valid,
enforceable and irrevocable written waiver with respect to its
non-performance), have received no notice of default and are not
in default (with due notice or lapse of time or both) under any
agreement, instrument, commitment, plan or arrangement to which
the Company is a party or by which it or its property may be
bound. The Company has no present expectation or intention of not
fully performing all its obligations under each such agreement,
instrument, commitment, plan or arrangement, and the Company has
no knowledge of any breach or anticipated breach by the other
party to any agreement, instrument, commitment, plan or
arrangement to which the Company is a party. The Company is in
full compliance with all of the terms and provisions of its
Charter and Code of Regulations, as amended.
2.15 Loans and Advances. The Company does not have any
outstanding loans or advances to any person and is not obligated
to make any such loans or advances, except, in each case, for
advances to employees of the Company in respect of reimbursable
business expenses anticipated to be incurred by them in connection
with their performance of services for the Company.
2.16 Assumptions, Guaranties, Etc. of Indebtedness of Other
Persons. The Company has not assumed, guaranteed, endorsed or
otherwise become directly or contingently liable on any
indebtedness of any other person (including, without limitation,
liability by way of agreement, contingent or otherwise, to
purchase, to provide funds for payment, to supply funds to or
otherwise invest in the debtor, or otherwise to assure the credi-
tor against loss), except for guaranties by endorsement of nego-
tiable instruments for deposit or collection in the ordinary
course of business.
2.17 Significant Customers and Suppliers. No customer or
supplier which was significant to the Company during the period
covered by the financial statements referred to in Section 2.05 or
which has been significant to the Company thereafter, has
terminated, materially reduced or threatened to terminate or
materially reduce its purchases from or provision of products or
services to the Company, as the case may be.
2.18 Governmental Approvals. Except for the filing of a
Form 10b-17 with the Nasdaq Stock Market, subject to the accuracy
of the representations and warranties of the Purchasers set forth
in Article III, no registration or filing with, or consent or
approval of or other action by, any Federal, state or other
governmental agency or instrumentality is or will be necessary for
the valid execution, delivery and performance by the Company of
the Transaction Documents, the issuance, sale and delivery of the
Notes, Preferred Shares, the Warrants, the Note Warrant Common
Shares and the Warrant Shares, the performance by the Company of
its obligations under the Notes, Warrants or, upon conversion of
the Preferred Shares and the Warrant Shares, the issuance and
delivery of the Conversion Shares, other than (i) filings pursuant
to state securities laws (all of which filings have been made by
the Company, other than those which are required to be made after
the Preferred Share and Warrant Closing and which will be duly
made on a timely basis) in connection with the sale of the Notes,
Preferred Shares, the Warrants, the Note Warrant Common Shares and
the Warrant Shares and (ii) with respect to the Registration
Rights Agreement, the registration of the shares covered thereby
with the Commission and filings pursuant to state securities laws.
2.19 Disclosure. Neither this Agreement, nor any Schedule
or Exhibit to this Agreement, nor any document furnished or made
available to the Purchasers relating to this Agreement contains an
untrue statement of a material fact or omits a material fact
necessary to make the statements contained herein or therein not
misleading. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to
the transactions contemplated hereby contains an untrue statement
of a material fact or omits a material fact necessary to make the
statements contained therein not misleading. There is no fact
which the Company has not disclosed to the Purchasers and their
counsel in writing and of which the Company is aware which
materially and adversely affects or could materially and adversely
affect the business, prospects, financial condition, operations,
property or affairs of the Company or any of its subsidiaries.
The financial projections and other estimates contained in any
documents furnished to the Purchasers were prepared by the Company
based on the Company's experience in the industry and on
assumptions of fact and opinion as to future events which the
Company believed to be reasonable, but which the Company cannot
and does not assure or guarantee the attainment of in any manner.
As of the date hereof no facts have come to the attention of the
Company which would, in its opinion, require the Company to revise
or amplify the assumptions underlying such projections and other
estimates or the conclusions derived therefrom.
2.20 Offering of the Notes, Preferred Shares and Warrants.
Neither the Company nor any person authorized or employed by the
Company as agent, broker, dealer or otherwise in connection with
the offering or sale of the Notes, Preferred Shares and Warrants
or any security of the Company similar to the Notes, Preferred
Shares or Warrants has offered the Notes, Preferred Shares,
Warrants or any such similar security for sale to, or solicited
any offer to buy the Notes, Preferred Shares, Warrants or any such
similar security from, or otherwise approached or negotiated with
respect thereto with, any person or persons, and neither the
Company nor any person acting on its behalf has taken or will take
any other action (including, without limitation, any offer,
issuance or sale of any security of the Company under
circumstances which might require the integration of such security
with the Notes, Preferred Shares or Warrants under the Securities
Act or the rules and regulations of the Commission thereunder), in
either case so as to subject the offering, issuance or sale of the
Notes, Preferred Shares or Warrants to the registration provisions
of the Securities Act.
2.21 Brokers. Except for NatCity Investments, Inc., the
fees of which are set forth on Schedule 2.21 to the Disclosure
Schedule, the Company has no contract, arrangement or
understanding with any broker, finder or similar agent with
respect to the transactions contemplated by this Agreement.
2.22 Transactions With Affiliates. Except as set forth on
Schedule 2.22 of the Disclosure Schedule, no director, officer,
employee or shareholder of the Company, or member of the family of
any such person, or any corporation, partnership, trust or other
entity in which any such person, or any member of the family of
any such person, has a substantial interest or is an officer,
director, trustee, partner or holder of more than 5% of the
outstanding capital stock thereof, is a party to any transaction
with the Company, including any contract, agreement or other
arrangement providing for the employment of, furnishing of ser-
vices by, rental of real or personal property from or otherwise
requiring payments to any such person or firm, other than
employment-at-will arrangements in the ordinary course of business
and for the payment by the Company of an amount in excess of
$50,000 per annum.
2.23 Employees. Each of the officers of the Company, each
key employee and each other employee now employed by the Company
who has access to confidential information of the Company has
executed an Employee Nondisclosure and Developments Agreement
substantially in the form of Exhibit 2.23A and Exhibit 2.23B
(collectively, the "Employee Nondisclosure and Developments
Agreements"), and such agreements are in full force and effect.
No officer or key employee of the Company has advised the Company
(orally or in writing) that he intends to terminate employment
with the Company. The Company has complied in all material
respects with all applicable laws relating to the employment of
labor, including provisions relating to wages, hours, equal
opportunity, collective bargaining and the payment of Social
Security and other taxes.
2.24 U.S. Real Property Holding Corporation. The Company is
not now and has never been a "United States real property holding
corporation", as defined in Section 897(c)(2) of the Code and
Section 1.897-2(b) of the Regulations promulgated by the Internal
Revenue Service, and the Company has filed with the Internal
Revenue Service all statements, if any, with its United States
income tax returns which are required under Section 1.897-2(h) of
such Regulations.
2.25 Environmental Protection. The Company has not caused
or allowed, or contracted with any party for, the generation, use,
transportation, treatment, storage or disposal of any Hazardous
Substances (as defined below) in connection with the operation of
its business or otherwise. The Company, the operation of its
business, and any real property that the Company owns, leases or
otherwise occupies or uses (the "Premises") are in compliance with
all applicable Environmental Laws (as defined below) and orders or
directives of any governmental authorities having jurisdiction
under such Environmental Laws, including, without limitation, any
Environmental Laws or orders or directives with respect to any
cleanup or remediation of any release or threat of release of
Hazardous Substances. The Company has not received any citation,
directive, letter or other communication, written or oral, or any
notice of any proceeding, claim or lawsuit, from any person
arising out of the ownership or occupation of the Premises, or the
conduct of its operations, and the Company is not aware of any
basis therefor. The Company has obtained and is maintaining in
full force and effect all necessary permits, licenses and
approvals required by all Environmental Laws applicable to the
Premises and the business operations conducted thereon (including
operations conducted by tenants on the Premises), and is in
compliance with all such permits, licenses and approvals. The
Company has not caused or allowed a release, or a threat of
release, of any Hazardous Substance unto, at or near the Premises,
and, to the best of the Company's knowledge, neither the Premises
nor any property at or near the Premises has ever been subject to
a release, or a threat of release, of any Hazardous Substance.
For the purposes of this Agreement, the term "Environmental Laws"
shall mean any Federal, state or local law or ordinance or
regulation pertaining to the protection of human health or the
environment, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liability Act,
42 U.S.C. Sections 9601, et seq., the Emergency Planning and
Community Right-to-Know Act, 42 U.S.C. Sections 11001, et seq.,
and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq. For purposes of this Agreement, the term
"Hazardous Substances" shall include oil and petroleum products,
asbestos, polychlorinated biphenyls, urea formaldehyde and any
other materials classified as hazardous or toxic under any
Environmental Laws.
2.26 ERISA.
(a) Schedule 2.26 to the Disclosure Schedule lists and
describes each Employee Plan that covers any employee of the
Company.
(b) Schedule 2.26 to the Disclosure Schedule also includes a
list of each Benefit Arrangement of the Company.
(c) No Employee Plan is a Multiemployer Plan and no Employee
Plan is subject to Title IV of ERISA. The Company and its
Affiliates have not incurred, nor do they expect to incur, any
liability under Title IV of ERISA arising in connection with the
termination of any plan covered or previously covered by Title IV
of ERISA.
(d) Except as set forth on Schedule 2.26 to the Disclosure
Schedule, none of the Employee Plans or other arrangements listed
on Schedule 2.26 to the Disclosure Schedule covers any non-United
States employee or former employee of the Company.
(e) No "prohibited transaction," as defined in Section 406 of
ERISA or Section 4975 of the Code, has occurred with respect to
any Employee Plan.
(f) Except as set forth on Schedule 2.26 to the Disclosure
Schedule, each Employee Plan which is intended to be qualified
under Section 401(a) of the Code is so qualified and has been so
qualified during the period from its adoption to date, and each
trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Code. Each Employee Plan has been
maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations,
including but not limited to ERISA and the Code, which are
applicable to such plan.
(g) Each Benefit Arrangement has been maintained in
substantial compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations
which are applicable to such Employee Plan and Benefit
Arrangement.
(h) All contributions and payments accrued under each Employee
Plan and Benefit Arrangement, determined in accordance with prior
funding and accrual practices, as adjusted to include proportional
accruals for the period ending on the Note Closing Date and the
period ending on the Preferred Share and Warrant Closing Date,
will be discharged and paid on or prior to such date except to the
extent reflected on the Balance Sheet. Except as disclosed in
writing to the Purchasers prior to the date hereof, there has been
no amendment to, written interpretation of or announcement
(whether or not written) by the Company or any of its ERISA
Affiliates relating to, or change in employee participation or
coverage under, any Employee Plan or Benefit Arrangement that
would increase materially the expense of maintaining such Employee
Plan or Benefit Arrangement above the level of the expense
incurred in respect thereof for the fiscal year ended prior to the
date hereof.
(i) There is no contract, agreement, plan or arrangement
covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of
any amount that would not be deductible pursuant to the terms of
Section 280G of the Code.
(j) No tax under Section 4980B of the Code has been incurred
in respect of any Employee Plan that is a group health plan, as
defined in Section 5000(b)(1) of the Code.
(k) With respect to the employees and former employees of the
Company, there are no employee post-retirement medical or health
plans in effect, except as required by Section 4980B of the Code.
(l) No employee of the Company will become entitled to any
bonus, retirement, severance or similar benefit or enhanced
benefit solely as a result of the transactions contemplated
hereby.
2.27 Foreign Corrupt Practices Act. The Company has not
taken any action which would cause it to be in violation of the
Foreign Corrupt Practices Act of 1977, as amended, or any rules
and regulations thereunder. To the best of the Company's
knowledge after due inquiry, there is not now, and there has never
been, any employment by the Company of, or beneficial ownership in
the Company by, any governmental or political official in any
country in the world.
2.28 Federal Reserve Regulations. The Company is not
engaged in the business of extending credit for the purpose of
purchasing or carrying margin securities (within the meaning of
Regulation G of the Board of Governors of the Federal Reserve
System), and no part of the proceeds of the Preferred Shares,
Warrants, Note Warrant Common Shares or Warrant Shares will be
used to purchase or carry any margin security or to extend credit
to others for the purpose of purchasing or carrying any margin
security or in any other manner which would involve a violation of
any of the regulations of the Board of Governors of the Federal
Reserve System.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser severally represents and warrants to the Com-
pany that:
(a) it is an "accredited investor" within the meaning of
Rule 501 under the Securities Act and was not organized for the
specific purpose of acquiring the Notes, Preferred Shares or
Warrants;
(b) it has sufficient knowledge and experience in investing in
companies similar to the Company in terms of the Company's stage
of development so as to be able to evaluate the risks and merits
of its investment in the Company and it is able financially to
bear the risks thereof;
(c) it has had an opportunity to discuss the Company's
business, management and financial affairs with the Company's
management and to review certain documents related to the Company;
(d) the Notes purchased and the Preferred Shares and Warrants
being purchased by it are being acquired for its own account for
the purpose of investment and not with a view to or for sale in
connection with any distribution thereof; and
(e) it understands that (i) the Notes, Preferred Shares,
Warrants, Warrant Shares and Conversion Shares have not been
registered under the Securities Act by reason of their issuance in
a transaction exempt from the registration requirements of the
Securities Act pursuant to Section 4(2) thereof or Rule 505 or 506
promulgated under the Securities Act, (ii) the Notes, Preferred
Shares, Warrants, the Note Warrant Common Shares, Warrant Shares
and Conversion Shares must be held indefinitely unless a
subsequent disposition thereof is registered under the Securities
Act or is exempt from such registration, (iii) the Notes,
Preferred Shares, Warrants, the Note Warrant Common Shares,
Warrant Shares and Conversion Shares will bear a legend to such
effect and (iv) the Company will make a notation on its transfer
books to such effect.
ARTICLE IV
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASERS AND THE COMPANY
4.01 Conditions to the Obligations of the Purchasers and
the Company. The obligation of each Purchaser to purchase and pay
for the Preferred Shares and Warrants to be purchased by it at the
Preferred Share and Warrant Closing, and the obligation of the
Company to sell the Preferred Shares and Warrants at the Preferred
Share and Warrant Closing, are subject to the satisfaction, on or
before the Preferred Share and Warrant Closing Date, of the
following condition:
(a) Shareholder Approvals. The Shareholders of the
Company shall have approved (i) the adoption of this Agreement and
the transactions contemplated hereby as required by the Ohio
Control Share Acquisition Act, the Articles of Incorporation and
Code of Regulations of the Company and the rules of the Nasdaq
National Market, and (ii) the amendment of the Company's Articles
of Incorporation so that such Articles of Incorporation shall read
as set forth in Exhibit 1.02 hereto.
4.02 Conditions to the Obligations of the Purchasers. The
obligation of each Purchaser to purchase and pay for the Preferred
Shares and Purchase Warrants to be purchased by it at the
Preferred Share and Warrant Closing, is in each case subject to
the following conditions, any or all of which may be waived by the
Purchasers:
(a) Representations and Warranties to be True and Correct.
The representations and warranties of the Company contained in
Article II shall be true, complete and correct on and as of the
Note Closing Date and the Preferred Share and Warrant Closing Date
with the same effect as though such representations and warranties
had been made on and as of such date, except to the extent such
representations and warranties are by their express provisions
made as of another specified date, and the President and Treasurer
of the Company shall have certified to such effect to the
Purchasers in writing, on and as of the Preferred Share and
Warrant Closing Date.
(b) Performance. The Company shall have performed and
complied with all agreements contained herein required to be
performed or complied with by it prior to or at the Note Closing
Date and the Preferred Share and Warrant Closing Date, and the
President and Treasurer of the Company shall have certified to the
Purchasers in writing to such effect, on and as of the Preferred
Share and Warrant Purchase Date, and to the further effect that
all of the conditions set forth in this Article IV have been
satisfied as of such date.
(c) All Proceedings to be Satisfactory. As of the Note
Closing Date and the Preferred Share and Warrant Closing Date, all
corporate and other proceedings to be taken by the Company in
connection with the transactions contemplated hereby and all docu-
ments incident thereto were and shall be satisfactory in form and
substance to the Purchasers and their counsel, and the Purchasers
and their counsel shall have received all such counterpart
originals or certified or other copies of such documents as they
reasonably may request.
(d) Documentation at the Closings. The Purchasers shall have
received all of the following documents or instruments, or
evidence of completion thereof, each in form and substance
satisfactory to the Purchasers and their special counsel:
(i) an opinion of Dinsmore & Shohl LLP, counsel to the
Company, dated the Note Closing Date, in form and scope
satisfactory to the Purchasers and their counsel, substantially in
the form attached hereto as Exhibit 4.02, and an opinion of
Dinsmore & Shohl LLP, counsel to the Company, dated the Preferred
Share and Warrant Closing Date, in form and scope satisfactory to
the Purchasers and their counsel.
(ii) (A) the Charter, certified as of a recent date by the
Secretary of State of the State of Ohio, (B) a certificate of said
Secretary dated as of a recent date as to the due incorporation
and good standing of the Company, the payment of all excise taxes
by the Company and listing all documents of the Company on file
with said Secretary and (C) a certificate of the Secretary of
State of the jurisdiction of incorporation of each of the
Company's subsidiaries dated as of a recent date as to the due
incorporation and good standing of such subsidiary;
(iii) certificates of the Secretary or an Assistant Secretary
of the Company dated the Note Closing Date and the Preferred Share
and Warrant Closing Date, and certifying: (A) that attached
thereto is a true and complete copy of the Code of Regulations of
the Company as in effect on the date of such certification;
(B) that attached thereto is a true and complete copy of all
resolutions adopted by the Board of Directors or the shareholders
of the Company authorizing the execution, delivery and performance
of the Transaction Documents, the issuance, sale and delivery of
the Notes, Preferred Shares and the Warrants, the performance of
the Notes and Warrants, the reservation, issuance, sale and
delivery of the Note Warrant Common Shares and the Warrant Shares
and the reservation, issuance and delivery of the Conversion
Shares, and that all such resolutions are in full force and effect
and are all the resolutions adopted in connection with the
transactions contemplated by the Transaction Documents; (C) that
the Charter has not been amended since the date of the last
amendment referred to in the certificate delivered pursuant to
clause (i)(B) above; and (D) to the incumbency and specimen
signature of each officer of the Company executing any of the
Transaction Documents, the Notes, the Warrants or any of the stock
certificates representing the Preferred Shares and any certificate
or instrument furnished pursuant hereto, and a certification by
another officer of the Company as to the incumbency and signature
of the officer signing the certificate referred to in this
clause (ii); and
(iii) such additional supporting documents and other
information with respect to the operations and affairs of the
Company as the Purchasers or their counsel reasonably may request.
(e) Warrants. The Company shall have executed and delivered
the Warrants.
(f) Registration Rights Agreement. The Company shall have
executed and delivered the Registration Rights Agreement.
(g) Charter. The Charter shall read in its entirety as set
forth in Exhibit 1.02.
(h) Election of Directors. Edward L. Cahill and the second
Purchaser Director, if designated as of such date, shall have been
elected as Purchaser Directors pursuant to Section 5.09 hereof and
shall hold such positions as of the Preferred Share and Warrant
Closing Date.
(i) Preemptive Rights. All shareholders of the Company having
any preemptive, first refusal or other rights with respect to the
issuance of the Notes shall have irrevocably waived the same in
writing and all shareholders of the Company having any preemptive,
first refusal or other rights with respect to the issuance of the
Preferred Shares, the Warrants, the Note Warrant Common Shares,
the Warrant Shares or the Conversion Shares shall have irrevocably
waived the same in writing.
(j) Fees of Purchasers' Counsel. The Company shall have paid
in accordance with Section 8.01 the fees and disbursements of
Purchasers' counsel.
(k) Consents. The Company shall have received the written
consent of the Bank to the transactions contemplated hereby.
(l) Proxies. Each shareholder listed on Exhibit 4.02A shall
have validly executed and delivered a proxy in the form attached
hereto as Exhibit 4.02B.
(m) Bank Agreement. The Company shall have entered into a,
and there shall be no event of default existing with respect to
such, definitive term loan agreement with a financial institution
providing for the conversion of the Company's current indebtedness
to the Bank of approximately $3.1 million into a revolving credit
facility to the Company of no less than $2.25 million maturing no
earlier than February 1, 2000.
(n) No Event of Default. There shall be no Event of Default
existing.
(o) Shareholder Approvals. The shareholders of the Company
shall have approved (i) the adoption of this Agreement and the
transactions contemplated hereby as required by the Ohio Control
Share Acquisition Act, the Articles of Incorporation and Code of
Regulations of the Company and the rules of the Nasdaq National
Market, and (ii) the amendment of the Company's Articles of
Incorporation so that such Articles of Incorporation shall read as
set forth in Exhibit 1.02 hereto.
All such documents shall be satisfactory in form and substance to
the Purchasers and their counsel.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with each of the Purchasers
that:
5.01 Information. Commencing on the Note Closing Date and
continuing so long as any Notes, Preferred Shares, Warrant Shares,
Note Warrant Common Shares or Conversion Shares remain outstanding
(or such earlier time as provided below), the Company has
delivered and shall deliver to the Purchasers the information
specified in this Section 5.01 unless (i) any such Purchaser at
any time specifically requests that such information not be
delivered to it, or (ii) any such Purchaser has assigned its
interest in any Notes, Preferred Shares, Warrant Shares or
Conversion Shares to a third party, in which case the Company
shall deliver to such assignee the information specified in this
Section 5.01 so long as such assignee, if not an Affiliate of a
Purchaser, has executed a mutually acceptable agreement to
maintain the confidentiality of the information so long as such
information is not, or has not been, made available to the general
public:
(a) Annual Financial Statements. As soon as
available, but in any event within one hundred twenty (120) days
after the end of each fiscal year of the Company, a copy of the
audited consolidated balance sheets of the Company and its
subsidiaries as at the end of such fiscal year and the related
audited consolidated statements of operations, shareholders'
equity and cash flows of the Company and its subsidiaries for such
fiscal year, all in reasonable detail and stating in comparative
form the figures as at the end of and for the immediately
preceding fiscal year, accompanied (in the case of the audited
consolidated financial statements) by an opinion of an accounting
firm of recognized national standing selected by the Company,
which opinion shall state that such accounting firm's audit was
conducted in accordance with generally accepted auditing
standards. All such financial statements shall be prepared in
accordance with GAAP applied on a consistent basis throughout the
periods reflected therein except as stated therein.
(b) Quarterly Financial Statements. As soon as
available, but in any event not later than forty-five (45) days
after the end of each quarterly fiscal period (other than the last
quarterly fiscal period in any fiscal year of the Company), the
unaudited consolidated balance sheet of the Company and its
subsidiaries as at the end of each such period and the related
unaudited consolidated statements of income and cash flows of the
Company and its subsidiaries for such period and for the elapsed
period in such fiscal year, all in reasonable detail and stating
in comparative form (i) the figures as of the end of and for the
comparable periods of the preceding fiscal year and (ii) the
figures reflected in the operating budget (if any) for such period
as specified in the financial plan of the Company. All such
financial statements shall be prepared in accordance with GAAP
applied on a consistent basis throughout the periods reflected
therein except as stated therein.
(c) Monthly Financial Statements. Within thirty
(30) days after the end of each month in each fiscal year (other
than the last month in each fiscal year) a consolidated balance
sheet of the Company and its subsidiaries, if any, and the related
consolidated statements of income, shareholders' equity and cash
flows, unaudited but prepared in accordance with generally
accepted accounting principles and certified by the Chief
Financial Officer of the Company, such consolidated balance sheet
to be as of the end of such month and such consolidated statements
of income, shareholders' equity and cash flows to be for such
month and for the period from the beginning of the fiscal year to
the end of such month, in each case with comparative statements
for the prior fiscal year.
(d) Material Litigation. Within twenty (20) days
after the Company learns of the commencement or written threat of
commencement of any litigation or proceeding against the Company
or any of its subsidiaries or any of their respective assets that
could reasonably be expected to have a material effect, written
notice of the nature and extent of such litigation or proceeding.
(e) Material Agreements. Within five (5) days after
the expiration of the applicable cure period, if any, or if no
such cure period exists within five (5) days after the receipt by
the Company of written notice of a default by the Company or any
of its subsidiaries under any material contract, agreement or
document to which it is a party or by which it is bound, written
notice of the nature and extent of such default.
(f) Other Reports and Statements. Promptly upon any
distribution to its shareholders generally, to its directors or to
the financial community of an annual report, quarterly report,
proxy statement, registration statement or other similar report or
communication, a copy of each such annual report, quarterly
report, proxy statement, registration statement or other similar
report or communication and promptly upon filing by the Company
with the SEC or with The Nasdaq Stock Market, the National
Association of Securities Dealers, Inc. or any national securities
exchange or other market system of all regular and other reports
or applications, a copy of each such report or application; and a
copy of such report or statement and copies of all press releases
and other statements made available generally by the Company to
the public concerning material developments in the Company.
(g) Accountants' Management Letters, Etc. Promptly
after receipt by the Company, copies of all accountants'
management letters and all management and board responses to such
letters, and copies of all certificates as to compliance,
defaults, material adverse changes, material litigation or similar
matters relating to the Company and its subsidiaries, which shall
be prepared by the Company or its officers and delivered to the
third parties.
(h) Annual Budget. Not later than the beginning of
each fiscal year of the Company, a copy of a consolidated
operating budget of the Company and its subsidiaries prepared by
the Company for such fiscal year, which shall include at minimum a
projected balance sheet and a projected statement of operations
and cash flows for each month in such fiscal year.
(i) Notices to Senior Lenders. Copies of all
notices, reports, certificates and other information furnished to
the holders of Senior Debt or to any agent or representative to
such holders, in each case promptly after the same are so
furnished.
(j) Other. Promptly, from time to time, such other
information regarding the business, prospects, financial
condition, operations, property or affairs of the Company and its
subsidiaries as such Purchaser reasonably may request.
5.02 Reserve for Conversion Shares and Warrant Shares.
Since the Note Closing Date the Company has reserved and kept
available, and hereafter the Company shall at all times reserve
and keep available, out of its authorized but unissued shares of
Common Stock, for the purpose of effecting the exercise of the
Note Warrants and the conversion of the Preferred Shares and
Warrant Shares and otherwise complying with the terms of this
Agreement, such number of its duly authorized shares of Common
Stock as shall be sufficient to effect the exercise of the Note
Warrants and the conversion of the Preferred Shares from time to
time outstanding and the Warrant Shares from time to time
outstanding and issuable upon exercise of the Warrants, or
otherwise to comply with the terms of this Agreement. The Company
shall at all times reserve and keep available out of its
authorized but unissued shares of Series A Convertible Preferred
Stock, for the purpose of effecting the exercise of the Warrants
and otherwise complying with the terms of this Agreement, such
number of its duly authorized shares of Series A Convertible
Preferred Stock as shall be sufficient to effect the exercise of
the Warrants from time to time outstanding, or otherwise to comply
with the terms of this Agreement. If at any time the number of
authorized but unissued shares of Common Stock or Series A
Convertible Preferred Stock shall not be sufficient to effect the
exercise of the Note Warrants and the conversion of the Preferred
Shares and Warrant Shares (assuming the exercise of all
outstanding Warrants) or the exercise of the Warrants, as the case
may be, or otherwise to comply with the terms of this Agreement,
the Company will forthwith take such corporate action as may be
necessary to increase its authorized but unissued shares of Common
Stock or Series A Convertible Preferred Stock, as the case may be,
to such number of shares as shall be sufficient for such purposes.
The Company will obtain any authorization, consent, approval or
other action by or make any filing with any court or
administrative body that may be required under applicable state
securities laws in connection with the issuance of shares of
Common Stock upon conversion of the Preferred Shares and Warrant
Shares and shares of Series A Convertible Preferred Stock or
Common Stock upon exercise of the Warrants.
5.03 Restrictive Agreements Prohibited. Since the Note
Closing Date neither the Company nor any of its subsidiaries has,
and hereafter neither the Company nor any of its subsidiaries
shall, become a party to any agreement which by its terms
restricts the Company's performance of any of the Transaction
Documents, the Notes, the Warrants or the Charter.
5.04 Use of Proceeds. The Company shall use the proceeds
from the sale of the Notes, Preferred Shares and Warrants solely
to fund the continued market penetration of ChartMaxx and OptiMaxx
and for working capital. Without the prior written consent of the
Purchasers, the Company shall not use more than an aggregate of
$750,000 of the proceeds from the sale of the Notes, Preferred
Shares and Warrants to finance the operations of any subsidiary of
the Company.
5.05 Activities of Subsidiaries. Since the Note Closing
Date the Company has not and hereafter the Company will not
organize or acquire any entity that is a subsidiary unless such
subsidiary is wholly-owned (directly or indirectly) by the
Company. Since the Note Closing Date the Company has not and
hereafter the Company shall not permit any subsidiary to
consolidate or merge into or with or sell or transfer all or
substantially all its assets, except that any subsidiary may
(i) consolidate or merge into or with or sell or transfer assets
to any other subsidiary, or (ii) merge into or sell or transfer
assets to the Company. Without the prior written consent of the
Purchasers, the Company shall not sell or otherwise transfer any
shares of capital stock of any subsidiary, except to the Company
or another subsidiary, or permit any subsidiary to issue, sell or
otherwise transfer any shares of its capital stock or the capital
stock of any subsidiary, except to the Company or another
subsidiary, provided that DiaLogos Incorporated may issue and sell
shares of its capital stock to existing shareholders of DiaLogos
Incorporated and pursuant to the DiaLogos Incorporated 1999 Long
Term Stock Incentive Plan so long as the ownership interest of the
Company in DiaLogos Incorporated does not go below 58.5% on a
fully diluted basis. Since the Note Closing Date the Company has
not and hereafter the Company shall not permit any subsidiary to
purchase or set aside any sums for the purchase of, or pay any
dividend or make any distribution on, any shares of its stock,
except for dividends or other distributions payable to the Company
or another subsidiary.
5.06 U.S. Real Property Interest Statement. The Company
shall provide prompt written notice to each Purchaser following
any "determination date" (as defined in Treasury Regulation
Section 1.897-2(c)(i)) on which the Company becomes a United
States real property holding corporation. In addition, upon a
written request by any Purchaser, the Company shall provide such
Purchaser with a written statement informing the Purchaser whether
such Purchaser's interest in the Company constitutes a U.S. real
property interest. The Company's determination shall comply with
the requirements of Treasury Regulation Section 1.897-2(h)(1) or
any successor regulation, and the Company shall provide timely
notice to the Internal Revenue Service, in accordance with and to
the extent required by Treasury Regulation Section 1.897-2(h)(2)
or any successor regulation, that such statement has been made.
The Company's written statement to any Purchaser shall be
delivered to such Purchaser within ten (10) days of such
Purchaser's written request therefor. The Company's obligation to
furnish a written statement pursuant to this Section 5.06 shall
continue notwithstanding the fact that a class of the Company's
stock may be regularly traded on an established securities market.
5.07 International Investment Survey Act of 1976. Since the
Note Closing Date the Company has used and hereafter the Company
shall use its best efforts to file on a timely basis all reports
required of it under 22 U.S.C. Section 3104, or any similar
statute, relating to a foreign person's direct or indirect
investment in the Company.
5.08 Consolidation, Merger of Disposition of Assets. The
Company will not consolidate with or merge with any other person
or convey, transfer or lease substantially all of its assets in a
single transaction or series of transactions to any person unless
the Company shall have paid all outstanding principal and interest
on the Notes and all interest that would have been due and payable
on the Note had they been held to maturity. The Company shall
provide each holder of a Notes with written notice of such payment
at least 30 business days in advance of any proposed transaction.
5.09 Election of Directors
(a) Board of Directors. The Company shall be governed by
a Board of Directors consisting, as of the date hereof, of six
members (each a "Director"). Without the consent of the Purchaser
Directors (as hereinafter defined), the number of Directors
constituting the full Board of Directors shall not be increased
beyond nine; without the consent of the Company Directors (as
hereinafter defined), the number of Directors constituting the
full Board of Directors shall not be reduced below five. Regular
meetings of the Board shall be held at least four times per year,
on a quarterly basis.
(b) Nomination and Election of Directors.
(i) The Purchasers shall have the right to nominate
two Directors (each, a "Purchaser Director").
(ii) The Company agrees that it shall cause the
Board of Directors in office immediately prior to the Preferred
Share and Warrant Closing to increase the size of the Board of
Directors by two, and to elect the nominees designated by the
Purchasers as Directors, to serve as Directors until their
respective successors are elected and qualified. The Board of
Directors (other than the Purchaser Directors) shall have the
right to nominate the directors other than the Purchaser Directors
(each a "Company Director"), to serve until their respective
successors are elected and qualified. The initial Company
Directors shall be the incumbent Board of Directors as of the date
of the Preferred Share and Warrant Closing. The initial Purchaser
Directors shall be Edward L. Cahill and an individual to be
designated after the date hereof by the Purchasers, subject to the
approval of the Company, which approval shall not be unreasonably
withheld or delayed.
(c) Vacancy. If any vacancy occurs in the Board of
Directors because of the death, disability, resignation,
retirement or removal of a Purchaser Director, then the Purchasers
shall nominate a successor, and the Board of Directors shall vote
to elect such successor to the Board, or if a vote of the
shareholders of the Company is held, the Board of Directors shall
recommend to the shareholders that such successor be elected to
the Board of Directors. If any vacancy occurs in the Board of
Directors because of the death, disability, resignation,
retirement or removal of a Company Director, then the Company
Directors shall nominate a successor, and the Board of Directors
shall vote to elect such successor to the board, or if a vote of
the shareholders of the Company is held, the Board of Directors
shall recommend to the shareholders that such successor be elected
to the Board of Directors.
5.10 No Merger, Consolidation, etc. The Company hereby
agrees that between the date hereof and the Preferred Share and
Warrant Closing Date, it shall not, and it shall not enter into a
binding obligation or definitive agreement to, merge or
consolidate the Company with another person, or sell, transfer or
convey all or substantially all of the assets of the Company to
another person.
5.11 Opinion Regarding Subsidiaries. The Company hereby
agrees that it shall cause an opinion of Dinsmore & Shohl LLP,
counsel to the Company, to be delivered to the Purchasers to the
effect that all the outstanding shares of capital stock of each of
the Company's subsidiaries have been duly authorized and are
validly issued.
5.12 Termination of Covenants. The covenants set forth in
Sections 5.06 and 5.07 shall terminate and be of no further force
or effect as to each of the Purchasers when such Purchaser no
longer holds any shares of capital stock or rights to acquire
capital stock of the Company. The covenant set forth in Section
5.10 shall terminate and be of no further force or effect on the
Preferred Share and Warrant Closing Date. All of the other
covenants set forth in this Article V shall terminate and be of no
further force or effect as to each of the Purchasers when such
Purchaser owns (i) no Notes, and (ii) less than 10% of the
Preferred Shares which (A) such Purchaser purchased at the
Preferred Share and Warrant Closing and (B) had the right to
purchase pursuant to the Warrants (in each case, appropriately
adjusted to reflect stock splits, stock dividends, combinations of
shares and the like with respect to the Series A Convertible
Preferred Stock).
5.13. Repayment of Notes. Except as prohibited by the
Subordination Agreement, for as long as any amount of principal or
interest remains unpaid under the Notes, in every instance where
the Company receives any cash from, or any cash is made available
to it by, any event or source including but not limited to a
corporate partnering up-front payment of any nature, equity
financing or sale of assets, but specifically excluding (i) a sale
of accounts receivable, (ii) any sales or licenses of Company
products and/or services in what has heretofore been the ordinary
course of business, (iii) any bank financing, credit facility or
similar lending arrangement (including Senior Debt), and (iv) any
sale by Dialogos Incorporated ("Dialogos") of equity securities of
Dialogos, the Company shall immediately pay to the holders of the
Notes an amount equal to the lesser of (1) the total amount of
principal and interest remaining unpaid under the Notes and (2)
the total amount of cash received by the Company or made available
to it in such instance.
5.14. Subsequent Lenders. The Company agrees that it will not
enter into any arrangements with any bank, lender, financial
institution or any other Person which would either (i) permit such
bank, lender, financial institution or Person to assume the rights
of Provident Bank pursuant to the Subordination Agreement or (ii)
prevent the Company's compliance with its obligations set forth in
Section 5.13.
5.15. Dialogos Incorporated. In the event that Dialogos
sells any equity securities of Dialogos, the Company agrees to use
its best efforts to ensure that the use of the proceeds from such
sale will not have a detrimental impact on the results of
operations of the Company.
ARTICLE VI
EVENTS OF DEFAULT
6.01. Events of Default. If any of the following events
("Events of Default") shall occur and be continuing:
(a) The Company shall fail to pay any installment of
principal of any of the Notes when due; or
(b) The Company shall fail to pay any interest or
premium on any of the Notes when due and such failure shall
continue for five (5) business days; or
(c) Any representation or warranty made by the
Company in this Agreement or by the Company (or any officers of
the Company) in any certificate, instrument or written statement
contemplated by or made or delivered pursuant to or in connection
with this Agreement, shall prove to have been incorrect when made
in any material respect; or
(d) The Company, or any subsidiary shall fail to
perform or observe any other term, covenant or agreement contained
in this Agreement, the Notes, the Preferred Shares or the Warrants
on its part to be performed or observed and any such failure
remains unremedied for ten (10) business days after written notice
thereof shall have been given to the Company by any registered
holder thereof; or
(e) The Company or any subsidiary shall fail to pay
any Indebtedness for borrowed money (other than as evidenced by
the Notes) owing by the Company or such subsidiary (as the case
may be), or any interest or premium thereon, when due (or, if
permitted by the terms of the relevant document, within any
applicable grace period), whether such Indebtedness shall become
due by scheduled maturity, by required prepayment, by
acceleration, by demand or otherwise, or shall fail to perform any
term, covenant or agreement on its part to be performed under any
agreement or instrument (other than this Agreement or the Notes)
evidencing or securing or relating to any Indebtedness owing by
the Company or any subsidiary, as the case may be, when required
to be performed (or, if permitted by the terms of the relevant
document, within any applicable grace period), if the effect of
such failure to pay or perform is to accelerate, or to permit the
holder or holders of such Indebtedness, or the trustee or trustees
under any such agreement or instrument to accelerate, the maturity
of such Indebtedness, unless such failure to pay or perform shall
be waived by the holder or holders of such Indebtedness or such
trustee or trustees; or
(f) The Company or any subsidiary shall be involved
in financial difficulties as evidenced (i) by its admitting in
writing its inability to pay its debts generally as they become
due; (ii) by its commencement of a voluntary case under Title 11
of the United States Code as from time to time in effect, or by
its authorizing, by appropriate proceedings of its Board of
Directors or other governing body, the commencement of such a
voluntary case; (iii) by its filing an answer or other pleading
admitting or failing to deny the material allegations of a
petition filed against it commencing an involuntary case under
said Title 11, or seeking, consenting to or acquiescing in the
relief therein provided, or by its failing to controvert timely
the material allegations of any such petition; (iv) by the entry
of an order for relief in any involuntary case commenced under
said Title 11; (v) by its seeking relief as a debtor under any
applicable law, other than said Title 11, of any jurisdiction
relating to the liquidation or reorganization of debtors or to the
modification or alteration of the rights of creditors, or by its
consenting to or acquiescing in such relief; (vi) by the entry of
an order by a court of competent jurisdiction (a) finding it to be
bankrupt or insolvent, (b) ordering or approving its liquidation,
reorganization or any modification or alteration of the rights of
its creditors, or (c) assuming custody of, or appointing a
receiver or other custodian for, all or a substantial part of its
property; or (vii) by its making an assignment for the benefit of,
or entering into a composition with, its creditors, or appointing
or consenting to the appointment of a receiver or other custodian
for all or a substantial part of its property; or
(g) Any judgment, writ, warrant of attachment or
execution or similar process shall be issued or levied against a
substantial part of the property of the Company or any subsidiary
and such judgment, writ, or similar process shall not be released,
vacated or fully bonded within sixty (60) days after its issue or
levy;
then, and in any such event, the Purchaser or any other holder of
the Notes may, by notice to the Company, declare the entire unpaid
principal amount of the Notes, all interest accrued and unpaid
thereon and all other amounts payable under this Agreement to be
forthwith due and payable, whereupon the Notes, all such accrued
interest and all such amounts shall become and be forthwith due
and payable (unless there shall have occurred an Event of Default
under subsection 6.01(g) in which case all such amounts shall
automatically become due and payable), without presentment,
demand, protest or further notice of any kind, all of which are
hereby expressly waived by the Company.
6.02. Annulment of Defaults. Section 6.01 is subject to the
condition that, if at any time after the principal of any of the
Notes shall have become due and payable, and before any judgment
or decree for the payment of the moneys so due, or any thereof,
shall have been entered, all arrears of interest upon all the
Notes and all other sums payable under the Notes and under this
Agreement (except the principal of the Notes which by such
declaration shall have become payable) shall have been duly paid,
and every other default and Event of Default shall have been made
good or cured, then and in every such case the holders of seventy-
five percent (75%) or more in principal amount of all Notes then
outstanding may, by written instrument filed with the Company,
rescind and annul such declaration and its consequences; but no
such rescission or annulment shall extend to or affect any
subsequent default or Event of Default or impair any right
consequent thereon.
ARTICLE VII
COVENANTS OF THE MANAGING SHAREHOLDER
7.01 Tag-Along Rights. For the purposes of this Section
7.01 only, the term "Shares" shall mean and include all voting
securities of the Company now owned or hereafter acquired by
either (i) the Managing Shareholder or (ii) the Purchasers prior
to the termination of this Article VII.
(a) The Managing Shareholder agrees that if he (a
"Selling Shareholder") proposes to sell or transfer any of his
Shares (the "Tag-Along Securities"), and the amount of such Tag-
Along Securities together with all other Shares sold by Managing
Shareholder after the Note Closing Date exceeds 597,201, then such
Selling Shareholder shall provide written notice (the "Tag-Along
Offer Notice") of such intent to the Purchasers in the manner set
forth in this Section 7.01 (the date of receipt of such notice
being the "Tag-Along Notice Date"). The Tag-Along Offer Notice
shall identify the proposed transferee(s) (the "Tag-Along
Purchaser"), the number of Tag-Along Securities proposed to be
purchased by the Tag-Along Purchaser, the Tag-Along Ratio (as
defined in Section 7.01(b)(i)), the consideration offered per Tag-
Along Security (the "Tag-Along Offer Price") and any other
material terms and conditions of the proposed transfer (the
"Tag-Along Offer") and, in the case of a Tag-Along Offer in which
the Tag-Along Offer Price consists in part or in whole of
consideration other than cash, such information relating to such
consideration as the Purchasers may reasonably request in order to
evaluate such non-cash consideration. The Purchasers shall have
the right, exercisable as set forth below, to accept the Tag-Along
Offer to sell for up to the number of Shares determined pursuant
to Section 7.01(b). The Tag-Along Offer Price paid to any
Purchaser shall be not less than the highest price paid per Tag-
Along Security to any Selling Shareholder, which shall include any
payments to such Selling Shareholder for an agreement not to
compete or any consulting or other similar fees payable to such
Selling Shareholder (other than fees for actually anticipated
future services). Any Purchaser that wishes to accept the
Tag-Along Offer shall, within 30 days after the Tag-Along Notice
Date (the "Tag-Along Notice Period"), provide the Selling
Shareholder with written notice (a "Tag-Along Acceptance Notice")
specifying the number of Shares that the Purchaser wishes to sell,
and shall simultaneously provide a copy of such Tag-Along
Acceptance Notice to the Company.
Not less than ten days prior to the proposed date of any sale
pursuant to a Tag-Along Offer (the "Transfer Date"), which date
may not be earlier than 20 days after the termination of the Tag-
Along Notice Period, the Selling Shareholder shall notify the
Company and the Purchasers of the Transfer Date. Not less than
three days prior to the Transfer Date, the participating
Purchasers shall deliver to the Company in escrow (pending the
consummation of the sale pursuant to the Tag-Along Offer) their
duly endorsed certificates representing the Shares to be
transferred by the participating Purchasers pursuant to the
Tag-Along Offer, together with all other documents reasonably
required by the Company and/or the Tag-Along Purchaser to be
executed in connection with the sale of such Tag-Along Securities
pursuant to the terms of the Tag-Along Offer; provided, that each
participating Purchaser shall, as a condition to the sale of the
Tag-Along Securities, have the right to receive all documentation
(the "Transfer Documentation") from the Selling Shareholder
relating to the sale of the Tag-Along Securities at least ten days
prior to the consummation of such sale. Any material change in
the terms of the Tag-Along Offer (whether or not reflected in the
Transfer Documentation) will require the submission of a new Tag-
Along Offer Notice and the recommencement of compliance with all
of the other applicable provisions of this Section 7.01.
(b) (i) The Purchasers shall have the right to
sell (and the Selling Shareholder shall reduce the number of its
shares to be sold by a corresponding amount), pursuant to the
Tag-Along Offer, a number of shares equal to the product of the
total number of Tag-Along Securities offered to be purchased by
the Tag-Along Purchaser as set forth in such Tag-Along Offer
multiplied by a fraction (the "Tag-Along Ratio"), the numerator of
which shall be the aggregate number of Shares owned by such
Purchaser and the denominator of which shall be the aggregate
number of Shares owned at that time by the Selling Shareholder and
the participating Purchasers.
(ii) In no event may the Purchasers sell more
than the total number of Shares specified in such Purchasers' Tag-
Along Notice applicable to the relevant Tag-Along Offer. If, at
the termination of the Tag-Along Notice Period, any Purchaser
shall not have accepted the Tag-Along Offer, the Purchaser will be
deemed to have waived any and all of its rights under this Section
7.01 with respect to the sale of any of its Shares pursuant to
such Tag-Along Offer.
(c) The Selling Shareholder shall have 60 days from
the conclusion of the Tag-Along Notice Period in which to
consummate the sale contemplated by the Tag-Along Offer to the
Tag-Along Purchaser at the price and on the terms contained in the
Tag-Along Offer Notice. If, at the end of such 60-day period, the
Selling Shareholder has not completed the sale contemplated by the
Tag-Along Offer Notice, the right of the Selling Shareholder to
effect such sale shall terminate, and the Tag-Along Securities
subject to such proposed sale shall again be subject to all the
restrictions on sale or other disposition and other provisions
contained in this Agreement.
(d) Immediately after the consummation of the sale
of the Tag-Along Securities pursuant to the Tag-Along Offer, the
Selling Shareholder shall notify the participating Purchasers and
the Company thereof, shall remit to each of the participating
Purchasers their portion of the total sales price specified in the
Tag-Along Offer Notice, and shall furnish such other evidence of
such sale (including the time of completion) and the terms thereof
as may be reasonably requested by the Purchasers. The Company
shall, upon being notified of the consummation of such sale,
return to each participating Purchaser a new stock certificate, as
the case may be, for the balance of the Shares not sold as part of
the Tag-Along Securities, in accordance with each Purchasers
instructions.
(e) Notwithstanding anything contained in this
Section 7.01, there shall be no liability on the part of a Selling
Shareholder to any Purchaser if the sale of the Tag-Along
Securities is not consummated for whatever reason.
(f) No Purchaser shall be required to make any
representation or warranty in connection with the Tag-Along Offer
other than as to such Purchaser's ownership and authority to sell,
free of liens, claims and encumbrances, the Shares proposed to be
sold by it.
7.02 Termination. The covenants set forth in this Article
VII shall terminate and be of no further force or effect as to
each Purchaser when such Purchaser no longer holds at least 10% of
the aggregate principal amount of the Notes, 10% of the Preferred
Shares, 10% of the Warrant Shares or 10% of the Conversion Shares
issuable thereon, purchased hereby.
ARTICLE VIII
MISCELLANEOUS
8.01 Expenses. Each party hereto will pay its own expenses
in connection with the transactions contemplated hereby, whether
or not such transactions shall be consummated, provided, however,
that the Company shall pay the fees and disbursements of the
Purchasers' special counsel, Testa, Hurwitz & Thibeault, LLP, up
to a maximum of $75,000, in connection with such transactions and
any subsequent amendment, waiver, consent or enforcement thereof.
8.02 Survival of Agreements. All covenants, agreements,
representations and warranties made in any of the Transaction
Documents or in the Notes or the Warrants or any certificate or
instrument delivered to the Purchasers pursuant to or in
connection with any of the Transaction Documents or the Notes or
the Warrants, shall survive the execution and delivery of all of
the Transaction Documents, the Notes and the Warrants, the
issuance, sale and delivery of the Notes, Preferred Shares, the
Warrants and the Warrant Shares, and the issuance and delivery of
the Conversion Shares, and all statements contained in any
certificate or other instrument delivered by the Company hereunder
or thereunder or in connection herewith or therewith shall be
deemed to constitute representations and warranties made by the
Company.
8.03 Brokerage. Each party hereto will indemnify and hold
harmless the others against and in respect of any claim for
brokerage or other commissions relative to this Agreement or to
the transactions contemplated hereby, based in any way on
agreements, arrangements or understandings made or claimed to have
been made by such party with any third party.
8.04 Parties in Interest. All representations, covenants
and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so
expressed or not. Without limiting the generality of the
foregoing, all representations, covenants and agreements
benefiting the Purchasers shall inure to the benefit of any and
all subsequent holders from time to time of Preferred Shares,
Warrants, Warrant Shares or Conversion Shares.
8.05 Notices. All notices, requests, consents and other
communications hereunder shall be in writing and shall be
delivered in person, mailed by certified or registered mail,
return receipt requested, or sent by telecopier or telex,
addressed as follows:
(a) if to the Company, at 8805 Governors Hill Drive,
Suite 100, Cincinnati, Ohio 45249, Attention: General Counsel,
with a copy to Dinsmore & Shohl LLP, 255 Fifth Street, Suite 1900,
Cincinnati, Ohio 45202, Attention: Charles F. Hertlein, Jr.,
Esq.; and
(b) if to any Purchaser, at the address of such Purchaser set
forth in Exhibit 1.01, with a copy to Testa, Hurwitz & Thibeault,
LLP, 125 High Street, Boston, Massachusetts 02110, Attention:
Leslie E. Davis, Esq.; and
(c) if to the Managing Shareholder, at 8805 Governors Hill
Drive, Suite 100, Cincinnati, Ohio 45249, with a copy to Dinsmore
& Shohl LLP, 255 Fifth Street, Suite 1900, Cincinnati, Ohio
45202, Attention: Charles F. Hertlein, Jr., Esq.;
or, in any such case, at such other address or addresses as shall
have been furnished in writing by such party to the others.
8.06 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Ohio.
8.07 Entire Agreement. This Agreement and the other
Transaction Documents, including the Schedules and Exhibits hereto
and thereto, constitute the sole and entire agreement of the
parties with respect to the subject matter hereof. All Schedules
and Exhibits hereto and thereto are hereby incorporated herein and
therein by reference.
8.08 Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument.
8.09 Amendments. This Agreement may not be amended or
modified, and no provisions hereof may be waived, without the
written consent of the Company and the holders of at least two-
thirds of the outstanding shares of Common Stock issued or issu-
able upon conversion of the Preferred Shares and Warrant Shares,
taken as a group, and, with respect to Article VII only, with the
consent of the Managing Shareholder.
8.10 Severability. If any provision of this Agreement shall
be declared void or unenforceable by any judicial or
administrative authority, the validity of any other provision and
of the entire Agreement shall not be affected thereby.
8.11 Titles and Subtitles. The titles and subtitles used in
this Agreement are for convenience only and are not to be
considered in construing or interpreting any term or provision of
this Agreement.
8.12 Indemnification.
(a) The Company agrees to indemnify and hold
harmless the Purchasers and their affiliates, and their respective
partners, co-investors, officers, directors, employees, agents,
consultants, attorneys and advisers (each, an "Indemnified
Party"), from and against any and all actual losses, claims,
damages, liabilities, costs and expenses (including, without
limitation, environmental liabilities, costs and expenses and all
reasonable fees, expenses and disbursements of counsel), joint or
several (hereinafter collectively referred to as a "Loss"), which
may be incurred by or asserted or awarded against any Indemnified
Party in connection with or in any manner arising out of or
relating to any investigation, litigation or proceeding or the
preparation of any defense with respect thereto, arising out of or
in connection with or relating to the Original Agreement, this
Agreement, the other Transaction Documents or the transactions
contemplated hereby or thereby or any use made by the Company or
proposal to be made by the Company with the proceeds of the
Purchasers' purchase of the Notes pursuant to the Original
Agreement and the Preferred Shares, Warrant Shares and Conversion
Shares pursuant to this Agreement, whether or not such
investigation, litigation or proceeding is brought by the Company,
any of its subsidiaries, shareholders or creditors, an Indemnified
Party or any other person, whether or not any of the transactions
contemplated by the Original Agreement, this Agreement or the
other Transaction Documents are consummated, except to the extent
such Loss is found in a final judgment by a court of competent
jurisdiction to have resulted from such Indemnified Party's gross
negligence or willful misconduct. The Company agrees that no
Indemnified Party shall have any liability (whether direct or
indirect, in contract, tort or otherwise) to the Company or any of
its subsidiaries, shareholders or creditors for or in connection
with the transactions contemplated hereby, except to the extent
such liability is found in a final judgment by a court of
competent jurisdiction to have resulted from such Indemnified
Party's gross negligence or willful misconduct but in no event
shall an Indemnified Party be liable for punitive, exemplary or
consequential damages.
(b) An Indemnified Party shall give written notice to the
Company of any claim with respect to which it seeks
indemnification promptly (but in no event later than within thirty
(30) days) after the discovery by such parties of any matters
giving arise to a claim for indemnification pursuant to Section
8.12(a); provided that the failure of any Indemnified Party to
give notice as provided herein shall not relieve the Company of
its obligations under this Section 8.12, except to the extent that
the Company is actually prejudiced by such failure to give notice.
In case any such action or claim is brought against any
Indemnified Party, the Company shall be entitled to participate in
and, unless in the judgment of the Indemnified Party a conflict of
interest between such Indemnified Party and the Company may exist
in respect of such action or claim, to assume the defense thereof,
with counsel reasonably satisfactory to the Indemnified Party and
after notice from the Company to the Indemnified Party of its
election so to assume the defense thereof. If the Company elects
in writing to assume the defense of such action or claim, and does
so assume the defense of any such action or claim, the Company
shall not be liable to such Indemnified Party for any legal or
other expenses subsequently incurred by the latter in connection
with the defense thereof other than reasonable costs of
investigation. In any event, unless and until the Company elects
in writing to assume and does so assume the defense of any such
action or claim the Indemnified Party's reasonable costs and
expenses arising out of the defense, settlement or compromise of
any such action or claim shall be Losses subject to
indemnification hereunder. If the Company elects to defend any
such action or claim, then the Indemnified Party shall be entitled
to participate in such defense with counsel of its choice at its
sole cost and expense. The Company shall not be liable for any
settlement of any action or claim effected without its written
consent. Anything in this Section 8.12 to the contrary
notwithstanding, the Company shall not, without the Indemnified
Party's prior written consent, settle or compromise any claim or
consent to entry of any judgment in respect thereof that imposes
any future obligation on the Indemnified Party or that does not
include, as an unconditional term thereof, the giving by the
claimant or the plaintiff to the Indemnified Party, a release from
all liability in respect of such claim.
8.13 Remedies Cumulative. No remedy conferred in this
Agreement or the other Transaction Documents is intended to be
exclusive of any other remedy and each and every such remedy shall
be cumulative and shall be in addition to every other remedy given
hereunder or now or hereafter existing at law or in equity or
otherwise.
8.14 Remedies Not Waived. No course of dealing between the
Company and any Purchaser and no delay or failure in exercising
any rights hereunder or under any other Transaction Document shall
operate as a waiver of any of the rights of any Purchaser.
8.15 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings (such meanings
to be equally applicable to both the singular and plural forms of
the terms defined):
(a) "Affiliate" shall mean, with respect to any person, (i)
any person directly or indirectly controlling, controlled by, or
under common control with such person, (ii) if such person is a
partnership, any limited or general partner of such person, or any
limited or general partner of a partner of such person, (iii) if
such person is a limited liability company, any manager or member
of such limited liability company, and (iv) any combination of any
of the foregoing.
(b) "Benefit Arrangement" means each employment, severance or
other similar contract, arrangement or policy (written or oral)
and each plan or arrangement (written or oral) providing for
severance benefits, insurance coverage (including any self-insured
arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement
benefits or for deferred compensation, profit-sharing, bonuses,
stock options, stock appreciation rights or other forms of
incentive compensation or post-retirement insurance, compensation
or benefits which (i) is not an Employee Plan and (ii) covers any
employee or former employee of the Company.
(c) "Employee Plan" means each "employee benefit plan," as
such term is defined in Section 3(3) of ERISA, that (A)(i) is
subject to any provision of ERISA and (ii) is maintained or
contributed to by the Company, or (B)(i) is subject to any
provision of Title IV of ERISA and (ii) is maintained or
contributed to by any of the Company's ERISA Affiliates.
(d) "ERISA" means the Employee Retirement Income Security Act
of 1974, as amended.
(e) "ERISA Affiliate" of any entity means any other entity
that, together with such entity, would be treated as a single
employer under Section 414 of the Code.
(f) "Fully Diluted" shall mean including all outstanding
options, warrants and securities exchangeable for or convertible
into shares of Common Stock, and all commitments of the Company to
issue any of the foregoing.
(g) "Lien" means mortgage, deed of trust, pledge, lien,
security interest or other charge or encumbrance (including the
lien or retained security title of a conditional vendor) of any
nature.
(h) "Managing Shareholder" shall mean Richard A. Mahoney.
(i) "Multiemployer Plan" means each Employee Plan that is a
multiemployer plan, as defined in Section 3(37) of ERISA.
(j) "person" shall mean an individual, corporation, trust,
partnership, joint venture, unincorporated organization,
government agency or any agency or political subdivision thereof,
or other entity.
(k) "Senior Debt" means (i) all indebtedness of the Company
for money borrowed from banks or institutional lenders, including
any extensions, renewals, replacements or refinancings thereof,
whether outstanding on the date hereof or hereafter created or
incurred, which is not by its terms subordinate and junior to the
Notes and which is disclosed in the Company SEC Reports or is
permitted by this Agreement at the time it is created or incurred
and (ii) all indebtedness of the Company for money borrowed and
incurred to replace or refinance any of the indebtedness referred
to in item (i) above, where the security securing such
indebtedness is substantially the same security as that securing
the indebtedness being refinanced.
(l) "subsidiary" shall mean, as to the Company, any
corporation of which more than 50% of the outstanding stock having
ordinary voting power to elect a majority of the Board of
Directors of such corporation (irrespective of whether or not at
the time stock of any other class or classes of such corporation
shall have or might have voting power by reason of the happening
of any contingency) is at the time directly or indirectly owned by
the Company, or by one or more of its subsidiaries, or by the
Company and one or more of its subsidiaries.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Company and the Purchasers have exe-
cuted this Agreement as of the day and year first above written.
MEDPLUS, INC.
By: _____________________________
[Corporate Seal] Title:___________________________
Attest:
___________________________
Secretary
PURCHASERS:
CAHILL, WARNOCK STRATEGIC PARTNERS
FUND, L.P.
By: CAHILL, WARNOCK STRATEGIC PARTNERS, L.P.,
its General Partner
By:__________________________________
Title:_______________________________
STRATEGIC ASSOCIATES, L.P.
By: CAHILL, WARNOCK & COMPANY, LLC,
its General Partner
By:__________________________________
Title:_______________________________
DOUBLE BLACK DIAMOND II, LLC
By:__________________________________
Title:_______________________________
MANAGING SHAREHOLDER:
(For the purposes of Articles VII and VIII only)
____________________________________
Richard A. Mahone
EXHIBIT 1.01
Purchasers
Name and Address Amount of Notes Number of Preferred Number of Purchase Aggregate Purchase
of Purchaser Purchased Shares to be Purchased Warrants to be Price for Preferred
Purchased Shares and Purchase
Warrants
_________________________ ________________ ______________________ __________________ ___________________
Cahill Warnock Strategic
Partners, L.P.
c/o Cahill, Warnock &
Company, LLC
One South St., Ste 2150
Baltimore, MD 21202
Attn: Edward L. Cahill $ 1,895,000 2,192,494 668,905 $3,790,019.63
Strategic Associates, L.P.
c/o Cahill, Warnock &
Company, LLC
One South St., Ste 2150
Baltimore, MD 21202
Attn: Edward L. Cahill 105,000 121,484 37,064 210,001.37
Double Black Diamond II, LLC
50 California St., Ste 3200
San Francisco, CA 94111
Attn: Thomas G. McKinley 0 57,837 15,733 99,979.00
_________________________ ________________ ______________________ __________________ ___________________
_________________________ ________________ ______________________ __________________ ___________________
Total $ 2,000,000 2,371,815 721,702 $4,100,000.00
3
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