EXHIBIT 3
TELIDENT, INC.
STOCK PURCHASE AGREEMENT
April 13, 1998
FAMCO III LIMITED LIABILITY COMPANY
000 Xxxxx Xxxxxxx 000
Xx. Xxxxx Xxxx, Xxxxxxxxx 00000
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
000 Xxxx 00xx Xxxxxx, 00xx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Gentlemen:
In consideration of the agreement of FAMCO III LIMITED LIABILITY COMPANY
("FAMCO") and SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P. ("Special
Situations Fund") (collectively, the "Purchasers") to purchase the Preferred
Shares and the Warrants (both as hereinafter defined), as provided for
herein, the undersigned Telident, Inc., a Minnesota corporation (the
"Company"), hereby agrees with the Purchasers as follows:
9. AUTHORIZATION OF SECURITIES. The Company proposes to (i)
authorize, issue and sell to Purchasers 400,000 series III convertible
preferred shares, to be issued pursuant to and be entitled to the benefits of
the provisions of a certificate of designation (the "Certificate of
Designation") substantially as set forth in Exhibit 1 hereto (the "Preferred
Shares"), and (ii) authorize and issue to Purchasers 400,000 warrants to
purchase shares of common stock of the Company, $.08 par value ("Common
Stock") substantially in the form of Exhibit 2 hereto (the "Warrants"). The
number of Preferred Shares and Warrants to be issued to each Purchaser shall
be set forth opposite their names on Schedule 1 hereto.
The term "Preferred Shares" as used herein shall mean the series III
convertible preferred shares issued to the Purchasers, and all preferred shares
of the Company issued in exchange or substitution therefor. The Preferred
Shares shall be convertible into shares of the Company's Common Stock (such
shares of Common Stock into which the Preferred Shares are convertible and all
shares of Common Stock of the Company issued in exchange or substitution
therefor being hereinafter sometimes referred to as the "Conversion Stock"),
all as set forth in the Certificate of Designation. The Preferred Shares
shall be subject in all respects to all of the provisions of the Certificate
of Designation.
The term "Warrants" as used herein shall mean the warrants issued to
Purchasers, and all warrants issued in exchange or substitution therefor.
The term "Warrant Stock" as used herein shall mean the shares of Common Stock
issuable upon exercise of the Warrants and all shares of Common Stock issued
in exchange or substitution therefor.
10. SALE AND PURCHASE OF SECURITIES. Subject to the terms and
conditions hereof, the Company agrees to sell to the Purchasers, and the
Purchasers agree to purchase from the Company, the Preferred Shares at a
purchase price of $2.50 per share (the "Per Share Purchase Price"). In
addition, Purchasers shall receive 400,000 Warrants exercisable at a price
per share of $3.125 (the "Warrant Exercise Price"). The aggregate purchase
price for the Preferred Shares and the Warrants shall be $1,000,000.00 (the
"Aggregate Purchase Price").
11. CLOSING. On the date hereof, the parties shall execute and deliver
to the other parties this Agreement, the Escrow Agreement (as defined below)
and the Proceeds Agreement (as defined below). In addition, within one (1)
business day after the date hereof, (i) the Company will deliver to
Manchester Companies, Inc. to be held in escrow the stock certificate
representing the Preferred Shares and the Warrant of FAMCO against
confirmation of receipt of the portion of the Aggregate Purchase Price to be
paid by FAMCO by wire transfer into the escrow account to be held in
accordance with the terms of that certain Escrow Agreement dated April 13,
1998 to be entered into by and among the Company, FAMCO, and Manchester
Companies, Inc. (the "Escrow Agreement"), substantially in the form of
Exhibit 3 attached hereto, and (ii) the Company will deliver to Xxxxxxx,
Calamari & Xxxxxxx to be held in escrow the stock certificate representing
the Preferred Shares and the Warrant of Special Situations Fund against
confirmation of receipt of the portion of the Aggregate Purchase Price to be
paid by Special Situations Fund by wire transfer into an escrow account with
Xxxxxxx, Calamari & Xxxxxxx to be held in accordance with the terms of that
certain Proceeds Agreement dated April 13, 1998 to be entered into by and
among the Company and such Special Situations Fund (the "Proceeds
Agreement"), substantially in the form of Exhibit 4 attached hereto.
The sale to, and purchase by, the Purchasers of the Preferred Shares and
the Warrants (the "Closing") shall occur one (1) business day after the
satisfaction of all of the conditions of closing set forth in Section 7 hereof,
but not later than May 8, 1998, or such other date as the Purchasers and the
Company shall mutually agree upon (the "Closing Date"). This Agreement shall
terminate on the earlier of (i) failure to satisfy all of such conditions by 5
p.m. New York time on May 8, 1998 or (ii) notification from NASDAQ as defined
below that the Company's Common Stock will not continue to be listed on the
NASDAQ SmallCap Market. Upon any such Closing or termination, the Aggregate
Purchase Price
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held in escrow pursuant to the Escrow Agreement and the Proceeds Agreement
shall be released as provided therein.
12. RESTRICTION ON TRANSFER OF SECURITIES.
12.1 RESTRICTIONS. The Preferred Shares and the Conversion
Stock, and the Warrants and the Warrant Stock, are transferable only (a) if
registered under the Securities Act of 1933, as amended (the "Securities
Act"), (b) pursuant to Rule 144 (or any similar rule then in effect) adopted
under the Securities Act, if such rule is available, and (c) pursuant to any
other legally available exemption from registration.
12.2 (a) LEGEND. Each certificate representing Preferred
Shares and each of the Warrants shall be endorsed with the following legend:
The securities evidenced hereby may not be transferred without (i) the
opinion of counsel satisfactory to the Company that such transfer may be
lawfully made without registration under the Federal Securities Act of
1933 and all applicable state securities laws or (ii) such registration.
Upon the conversion of any Preferred Shares or upon the exercise of any
Warrant, unless the Company receives an opinion of counsel from the holder of
such a security satisfactory to the Company to the effect that a sale,
transfer, assignment, pledge or distribution of the Conversion Stock or
Warrant Stock issuable upon such conversion or exercise may be made without
registration, or unless such Conversion Stock or Warrant Stock is being
disposed of pursuant to registration under the Securities Act and any
applicable state act, the same legend shall be endorsed on the certificate
evidencing such Conversion Stock or Warrant Stock.
(b) STOP TRANSFER ORDER. A stop transfer order shall be placed
with the Company's transfer agent preventing transfer of any of the
securities referred to in paragraph (a) above pending compliance with the
conditions set forth in any such legend.
12.3 REMOVAL OF LEGEND. Any legend endorsed on a certificate
or instrument evidencing a security pursuant to Section 4.2 hereof shall be
removed, and the Company shall issue a certificate or instrument without such
legend to the holder of such security, (a) in accordance with Section 4.2(a)
hereof, (b) if such security is being disposed of pursuant to registration
under the Securities Act and any applicable state acts or pursuant to Rule
144 or any similar rule then in effect, or (c) if such holder provides the
Company with an opinion of counsel satisfactory to the Company to the effect
that a sale, transfer, assignment, offer, pledge or distribution for value of
such security may be made without registration and that such legend is not
required to satisfy the applicable exemption from registration.
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12.4 REGISTER OF SECURITIES. The Company or its duly
appointed agent shall maintain a separate register for the Preferred Shares
and the Warrants in which it shall register the issuance and transfer of all
Preferred Shares and Warrants. All transfers of Preferred Shares and
Warrants shall be recorded on the register maintained by the Company or its
agent, and the Company shall be entitled to regard the registered holder of
such securities as the actual owner of the securities so registered until the
Company or its agent is required to record a transfer of such securities on
its register. The Company or its agent shall be required to record any such
transfer when it receives (a) the security to be transferred duly and
properly endorsed by the registered holder thereof or by its attorney duly
authorized in writing, and (b) the opinion of counsel referred to in Sections
4.2 and 4.3 hereof or evidence of compliance with the registration provisions
referred to in those Sections.
13. REPRESENTATIONS AND WARRANTIES BY COMPANY. Except as disclosed in
Exhibit 5 hereto, the Company represents and warrants to the Purchasers that:
13.1 ORGANIZATION, STANDING ETC. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Minnesota, and has the requisite corporate power and authority to
own its properties and to carry on its business in all material respects as
it is now being conducted. The Company has no subsidiaries. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and to issue the Preferred Shares, the Conversion Stock, the
Warrants and the Warrant Stock, and to otherwise perform its obligations
under this Agreement and the Warrants. The copies of the Articles of
Incorporation and Bylaws of the Company delivered to the Purchasers or their
agents prior to the execution of this Agreement are true and complete copies
of the duly and legally adopted Articles of Incorporation and Bylaws of the
Company in effect as of the date of this Agreement. The Company does not
have any direct or indirect equity interest in any other firm, corporation,
partnership, joint venture association or other business organization.
13.2 QUALIFICATION. The Company is duly qualified or licensed
as a foreign corporation in good standing in each jurisdiction wherein the
nature of its activities or of its properties owned or leased makes such
qualification or licensing necessary and failure to be so qualified or
licensed would have a material adverse impact on its business.
13.3 CORPORATE ACTS AND PROCEEDINGS. This Agreement has been
duly authorized by all necessary corporate action on behalf of the Company, and
will be duly executed and delivered by authorized officers of the Company. All
corporate action necessary for the authorization, creation, issuance and
delivery of the Preferred Shares, the Conversion Stock and the Warrant Stock,
and the execution and delivery of the Warrants, has been taken on the part of
the Company, or will be taken by the Company on or prior to the Closing Date.
This Agreement is, and each of the Warrants when executed and delivered
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pursuant to the terms of this Agreement will be, a valid and binding
agreement of the Company enforceable in accordance with its terms, except as
the enforceability thereof may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the enforcement of
creditors' rights generally, and except for judicial limitations on the
enforcement of the remedy of specific enforcement and other equitable
remedies.
13.4 FINANCIAL STATEMENTS. The unaudited balance sheet at
December 31, 1997 together with the related statements of operations,
stockholders' equity and cash flow for the quarter then ended contained in
the Company's 10-QSB Report filed with the Securities and Exchange Commission
(the "Commission") for the fiscal quarter ending December 31, 1997, and the
audited balance sheet at June 30, 1997, together with the related statements
of operations, stockholders' equity and cash flow for the year then ended,
contained in the Company's 10-KSB Report filed with the Commission for the
fiscal year ending June 30, 1997 (i) are in accordance with the books and
records of the Company, (ii) present fairly the financial condition of the
Company at December 31, 1997 and June 30, 1997, respectively, and the results
of its operations for the periods therein specified, and (iii) have, in all
material respects, been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior accounting
periods. Specifically, but not by way of limitation, each balance sheet or
notes thereto disclose all of the debts, liabilities and obligations of any
nature (whether absolute, accrued or contingent and whether due or to become
due) of the Company as of their respective dates which, individually or in
the aggregate, are material and which in accordance with generally accepted
accounting principles would be required to be disclosed in such balance
sheet, and the omission of which would, in the aggregate, have a material
adverse impact on the Company. The December 31, 1997 balance sheet includes
appropriate reserves for all taxes and other liabilities accrued at such date
but not yet payable.
13.5 TAX RETURNS AND AUDITS. All required federal, state and
local tax returns or appropriate extension requests of the Company have been
filed, and all federal, state and local taxes required to be paid with
respect to such returns have been paid or due provision for the payment
thereof has been made. The Company is not delinquent in the payment of any
such tax or in the payment of any assessment or governmental charge. The
Company has not received notice of any tax deficiency proposed or assessed
against it, and has not executed any waiver of any statute of limitations on
the assessment or collection of any tax. None of the Company's tax returns
has been audited by governmental authorities in a manner to bring such audits
to the Company's attention. The Company does not have any tax liabilities
except those reflected in the financial statements contained in its most
recent 10-QSB Report filed with the Commission for the period ending on
December 31, 1997 and those incurred in the ordinary course of business since
December 31, 1997.
13.6 CHANGES, DIVIDENDS, ETC. Except for the transactions
contemplated by this Agreement, since December 31, 1997 the Company has not:
(a) incurred any debts,
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obligations or liabilities, absolute, accrued or contingent and whether due
or to become due, except current liabilities incurred in the ordinary course
of business which (individually or in the aggregate) will not materially and
adversely affect the business, properties or prospects of the Company; (b)
paid any obligation or liability other than, or discharged or satisfied any
liens or encumbrances other than those securing, current liabilities, in each
case in the ordinary course of business; (c) declared or made any payment or
distribution to its stockholders as such, or purchased or redeemed any of its
shares of capital stock or other securities, or obligated itself to do so;
(d) mortgaged, pledged or subjected to lien, charge, security interest or
other encumbrance any of its assets, tangible or intangible, except in the
ordinary course of business; (e) sold, transferred or leased any of its
assets except in the ordinary course of business; (f) increased the
compensation payable to any of its officers or other employees, consultants
or representatives by greater than $10,000; (g) canceled or compromised any
debt or claim, or waived or released any right of material value; (h)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties, business or
prospects of the Company; (i) entered into any transaction other than in the
ordinary course of business; (j) issued or sold any shares of capital stock
or other securities or granted any options, warrants or other purchase rights
with respect thereto; (k) made any acquisition or disposition of any material
assets or become involved in any other material transaction, other than for
fair value in the ordinary course of business; or (l) agreed to do any of the
foregoing other than pursuant hereto. There has been no material adverse
change in the financial condition, operations, results of operations or
business of the Company since December 31, 1997.
13.7 TITLE TO PROPERTIES AND ENCUMBRANCES. The Company has
good and marketable title to all its owned properties and assets, and the
properties and assets used in the conduct of its business, which properties
and assets are not subject to any mortgage, pledge, lease, lien charge,
security interest, encumbrance or restriction, except Permitted Liens (as
hereinafter defined). "Permitted Liens" shall mean (a) liens for taxes and
assessments or governmental charges or levies not at the time due or in
respect of which the validity thereof shall currently be contested in good
faith by appropriate proceedings; and (b) liens in respect of pledges or
deposits under worker's compensation laws or similar legislation, carriers',
warehousemen's, mechanics', laborers' and materialmen's, landlord's and
statutory and similar liens, if the obligations secured by such liens are not
then delinquent or are being contested in good faith, and liens and
encumbrances incidental to the conduct of the business of the Company or any
subsidiary which were not incurred in connection with the borrowing of money
or the obtaining of advances or credits and which do not in the aggregate
materially detract from the value of its property or materially impair the
use thereof in the operation of its business.
13.8 LITIGATION; GOVERNMENTAL PROCEEDINGS. There are no legal
actions, suits, arbitrations or other legal, administrative or governmental
proceedings or investigations pending or, to the knowledge of the Company,
threatened against the
Page 24 of 87 Pages
Company, its properties, assets or business. The Company is not in default
with respect to any judgment, order or decree of any court or any
governmental agency or instrumentality.
13.9 COMPLIANCE WITH APPLICABLE LAWS AND OTHER INSTRUMENTS.
The business and operations of the Company have been and are being conducted
in accordance with all applicable laws, rules and regulations of all
governmental authorities. To the knowledge of the Company, neither the
execution nor delivery of, nor the performance of or compliance with, this
Agreement nor the consummation of the transactions contemplated hereby will
conflict with, or, with or without the giving of notice or passage of time,
result in any breach of, or constitute a default under, or result in the
imposition of any lien or encumbrance upon any asset or property of the
Company pursuant to, any applicable law, administrative regulation or
judgment, order or decree of any court or governmental body, any agreement or
other instrument to which the Company is a party or by which it or any of its
properties, assets or rights is bound or affected, and will not violate the
Articles of Incorporation or Bylaws of the Company. The Company is not in
violation of its Articles of Incorporation or its Bylaws nor, in violation
of, or in default under, any lien, indenture, mortgage, lease, agreement,
instrument, commitment or arrangement in any material respect. To the
knowledge of the Company all parties having material contractual arrangements
with the Company are in substantial compliance therewith and none are in
material default in any respect thereunder.
13.10 PREFERRED SHARES AND CONVERSION STOCK; WARRANT STOCK.
The Preferred Shares, when issued and paid for pursuant to the terms of this
Agreement, will be duly authorized, validly issued and outstanding, fully
paid, nonassessable and free and clear of all pledges, liens, encumbrances
and restrictions, except as set forth in Section 4 hereof, and the shares of
Conversion Stock and Warrant Stock issuable upon conversion of the Preferred
Shares or exercise of the Warrants have been reserved for issuance based upon
the initial Conversion Price or Warrant Exercise Price, and when issued upon
conversion or exercise will be duly authorized, validly issued and
outstanding, fully paid, nonassessable and free and clear of all pledges,
liens, encumbrances and restrictions, except as set forth in Section 4
hereof. The certificates representing the Preferred Shares to be delivered
by the Company hereunder, and the certificates representing the Conversion
Stock and Warrant Stock to be delivered upon the conversion of the Preferred
Shares or exercise of the Warrants, will be genuine, and the Company has no
knowledge of any fact which would impair the validity thereof. "Conversion
Price" shall mean such price at which the Preferred Shares are convertible
into Common Stock pursuant to the Certificate of Designation.
13.11 GOVERNMENTAL CONSENTS. Based in part upon the
representations and warranties contained in Section 6.1 hereof, no consent,
authorization, approval, permit or order of or filing with any governmental
or regulatory authority is required under current laws and regulations in
connection with the execution and delivery of this Agreement or the Warrants
or the offer, issuance, sale or delivery of the Preferred Shares or the offer
of the
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Conversion Stock or the Warrant Stock other than the qualification thereof,
if required, under applicable state securities laws, which qualification has
been or will be effected as a condition of these sales. Under the
circumstances contemplated hereby, the offer, issuance, sale and delivery of
the Preferred Shares, the Warrants, the Conversion Stock and the Warrant
Stock will not under current laws and regulations require compliance with the
prospectus delivery or registration requirements of the Securities Act.
13.12 CAPITAL STOCK. The authorized capital stock of the
Company consists of 12,500,000 shares, of which 10,000,000 are designated as
common shares, with a par value of $.08 per share (the "Common Stock"), and
2,500,000 are designated as preferred shares, with a par value of $.08 per
share ("Preferred Stock"). Of the 2,500,000 shares of authorized Preferred
Stock, 62,500 shares are designated Series I Convertible Preferred Stock
("Series I Preferred Stock") and 400,000 shares are designated as Series III
Convertible Preferred Stock ("Series III Preferred Stock"). In addition, the
Company has 127,600 shares of Common Stock reserved for issuance under its
1988 Stock Option Plan (the "Plan"). All outstanding shares of Common Stock
and Series I Preferred Stock have been duly authorized and validly issued and
are fully paid and nonassessable. Schedule 5.12A sets forth the Company's
currently outstanding, reserved, and committed capital stock, options, shares
reserved for issuance under the Plan, warrants, and the Company's 10%
Convertible Debentures issued in September 1992 and originally due October 1,
1995, and 10% Series B Debentures issued May 1993 and originally due May 1,
1996 (collectively, the "Debentures"). Except as set forth in Schedule
5.12A, the Company has no outstanding securities convertible into or
exchangeable for Common Stock or Preferred Stock, no contracts, rights,
options, warrants or other agreements or commitments to purchase or otherwise
acquire any shares of its capital stock or securities convertible into or
exchangeable therefor, or any shares reserved for issuance under stock
option, employee benefit or other plans or otherwise. Except as provided in
the Certificate of Designation or otherwise required by law, all shares of
capital stock of the Company vote as a single class on all matters submitted
to the Company's shareholders. Schedule 5.12B sets forth the Company's
outstanding, reserved, and committed capital stock, options, shares reserved
for issuance under the Plan, warrants, and Debentures after the Closing.
There currently are no shares of Series II Preferred Stock authorized and
available for issuance.
13.13 NO BROKERS OR FINDERS. No person, firm or corporation has
or will have, as a result of any act or omission of the Company, any right,
interest or valid claim against or upon the Company or any Purchaser for any
commission, fee or other compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated by this Agreement.
The Company will defend and indemnify and hold each Purchaser harmless against
any and all liability with respect to any such commission, fee or other
compensation which may be payable or determined to be payable in connection with
the transactions contemplated by this Agreement.
Page 26 of 87 Pages
13.14 REGISTRATION RIGHTS. Other than under this Agreement,
the Company has not agreed to register any of its authorized or outstanding
securities under the Securities Act.
13.15 REGISTRATION STATEMENT. To the knowledge of the Company,
there exist no facts or circumstances that would inhibit or delay the
preparation and filing of a registration statement on Form S-3 with respect
to the Preferred Shares, the Conversion Stock and the Warrant Stock.
13.16 NASDAQ. The Company's Common Stock is listed on The
Nasdaq SmallCap Market and, after giving effect to the transactions
contemplated by this Agreement, satisfies all applicable requirements of
NASDAQ for such listing, including, without limitation, all applicable
requirements of the Nasdaq Marketplace Rule 4300 Series (Qualification
Requirements for NASDAQ Stock Market Securities). The Company will use all
reasonable efforts to cause the Common Stock to continue to be so listed.
13.17 SEC REPORTS. The Company has timely filed all forms,
reports, statements (including proxy statements) and schedules with the
Commission required to be filed pursuant to the Securities and Exchange Act
of 1934 (the "Exchange Act") or other federal securities laws (the "SEC
Reports"). The SEC Reports complied in all material respects with all
applicable requirements of the Exchange Act or other federal securities laws
and did not (as of their respective filing dates) 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 made therein, in
light of the circumstances under which they were made, not misleading. The
audited and unaudited consolidated financial statements of the Company
included (or incorporated by reference) in the SEC Reports have been prepared
in accordance with generally accepted accounting principles applied on a
consistent basis and fairly present the financial position of the Company as
of the dates thereof and the results of its operations and changes in
financial position for the periods then ended, subject, in the case of the
unaudited financial statements, to normal year-end audit adjustments. The
Company has registration statements on file with the Commission which are set
forth on Schedule 5.17.
13.18 DISCLOSURE. The Company has not knowingly withheld from
the Purchasers any material facts relating to the assets, business,
operations, financial condition or prospects of the Company. No
representation or warranty in this Agreement or in any certificate, schedule,
statement or other document furnished or to be furnished to the Purchasers
pursuant hereto or in connection with the transactions contemplated hereby,
contains or will contain any untrue statement of a material fact or omits or
will omit to state any material fact required to be stated herein or therein
or necessary to make the statements herein or therein not misleading.
Page 27 of 87 Pages
13.19 CONSENTS. All consents, permits and waivers necessary
for the Company to perform its obligations under this Agreement have been
obtained and any necessary filings have been made, except for the filing of
the Certificate of Designation which shall be filed and effective prior to
the Closing.
13.20 ANTI-DILUTION SHARES. The issuance of the Preferred
Shares, the Conversion Stock, the Warrants and the Warrant Stock will not
result in the issuance of any additional shares of the capital stock of the
Company or any triggering of any other rights of first refusal or
anti-dilution, preemptive or similar rights contained in any options,
warrants, debentures, other securities or agreements or commitments of the
Company. All rights of first refusal, anti-dilution or similar rights with
respect to the issuance of the Preferred Shares, the Warrants, the Conversion
Stock and the Warrant Stock have been validly waived.
14. REPRESENTATIONS AND WARRANTIES OF PURCHASERS. Each of the
Purchasers represents and warrants for itself that:
14.1 INVESTMENT INTENT. The Preferred Shares being acquired
by each Purchaser hereunder are being purchased, and the Conversion Stock and
the Warrant Stock acquired by each Purchaser upon conversion of such
Preferred Shares or exercise of the Warrants will be acquired, for such
Purchaser's own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof within the meaning of the
Securities Act, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or pursuant to
registration as contemplated by Section 11 of this Agreement. Such Purchaser
understands that the Preferred Shares and the Conversion Stock, and the
Warrants and the Warrant Stock, have not been registered under the Securities
Act or any applicable state laws by reason of their issuance or contemplated
issuance in a transaction exempt from the registration and prospectus
delivery requirements of the Securities Act and such laws, and that the
reliance of the Company upon this exemption is predicated in part upon this
representation and warranty. Such Purchaser further understands that the
Preferred Shares and Conversion Stock, and the Warrants and the Warrant
Stock, may not be transferred or resold without (a) registration under the
Securities Act and any applicable state securities laws, or (b) an exemption
from the requirements of the Securities Act and applicable state securities
laws.
Such Purchaser understands that an exemption from such registration
is not presently available pursuant to Rule 144 promulgated under the
Securities Act, and that in any event such Purchaser may not sell any
securities pursuant to Rule 144 prior to the expiration of a one-year period
after such Purchaser has acquired the securities.
14.2 LOCATION OF PRINCIPAL OFFICE AND ACCESS TO COMPANY RECORDS.
The state in which each Purchaser's principal office is located is set forth in
Section 14 of this
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Agreement. Such Purchaser has been provided with documents requested by it,
and access to the Company's executive officers has been provided to such
Purchaser or to such Purchaser's qualified agents.
14.3 ACTS AND PROCEEDINGS. This Agreement has been duly
authorized by all necessary action on the part of such Purchaser, has been
duly executed and delivered by such Purchaser, and is a valid and binding
agreement upon the part of such Purchaser.
14.4 NO BROKERS OR FINDERS. No person, firm or corporation
has or will have, as a result of any act or omission by such Purchaser, any
right, interest or valid claim against the Company for any commission, fee or
other compensation as a finder or broker, or in any similar capacity, in
connection with the transactions contemplated by this Agreement. Such
Purchaser will defend and indemnify and hold the Company harmless against any
and all liability with respect to any such commission, fee or other
compensation which may be payable or determined to be payable as a result of
the actions of such Purchaser in connection with the transactions
contemplated by this Agreement.
15. CONDITIONS OF EACH PURCHASER'S OBLIGATION. The obligation to
purchase and pay for the Preferred Shares and the Warrants which each
Purchaser has agreed to purchase on the Closing Date is subject to the
fulfillment, or waiver by each Purchaser, prior to or on the Closing Date of
the following conditions.
15.1 NO ERRORS, ETC. The representations and warranties of
the Company under this Agreement shall be true in all material respects as of
the Closing Date with the same effect as though made on and as of the Closing
Date.
15.2 COMPLIANCE WITH AGREEMENT. The Company shall have
performed and complied with all agreements or conditions required by this
Agreement to be performed and complied with by it prior to or as of the
Closing Date.
15.3 CERTIFICATE OF OFFICER. The Company shall have delivered
to each Purchaser a certificate, dated as of the Closing Date, executed by
the President of the Company and certifying to the satisfaction of the
conditions specified in Sections 7.1, 7.2, 7.5 and 7.7 hereof.
15.4 OPINION OF COMPANY'S COUNSEL. The Company shall have
delivered to each Purchaser an opinion of Xxxxxx and Xxxxxx, P.A., counsel
for the Company, dated as of the Closing Date, to the effect that:
(a) The Company is a duly and validly organized and existing
corporation in good standing under the laws of the State of
Minnesota; has the corporate power and authority to enter into this
Agreement, the Escrow
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Agreement, the Proceeds Agreement and the Warrants, to issue and
sell the Preferred Shares, the Warrants, the Conversion Stock and
the Warrant Stock as contemplated by this Agreement, and to carry
out the provisions of this Agreement, the Escrow Agreement and the
Proceeds Agreement; and has the corporate power and authority to
own and hold its properties owned and leased and to carry on the
business in which it is engaged.
(b) Neither the execution nor delivery of, nor the
performance of or compliance with, the Agreement, the Escrow
Agreement or the Proceeds Agreement nor the consummation of the
transactions contemplated therein will violate the Articles of
Incorporation or Bylaws of the Company.
(c) To our knowledge, there are no legal actions, suits,
arbitration or other legal, administrative or governmental
proceedings or investigations pending or threatened against the
Company, except for the pending NASDAQ inquiry into the continued
listing of the Company's Common Stock on the NASDAQ SmallCap Market.
(d) This Agreement, the Warrants, the Escrow Agreement and
the Proceeds Agreement have been duly authorized, executed and
delivered by the Company, and are legal, valid and binding
agreements of the Company enforceable in accordance with their
respective terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization or
similar laws affecting the enforcement of creditors' rights
generally, and except for judicial limitations on the enforcement
of the remedy of specific performance and other equitable remedies.
(e) The Certificate of Designation, substantially in the form
set forth as Exhibit 1 hereto, has been duly adopted by all
necessary corporate action, and has been duly filed with the
Secretary of State of the State of Minnesota (no other or
additional filing or recording being necessary in order to perfect
the rights and privileges of the holders of the Preferred Shares).
(f) The Preferred Shares are entitled to the rights, preferences
and provisions of the Certificate of Designation, subject to any
limitations contained therein.
(g) The Preferred Shares have been duly authorized, validly
issued and delivered by the Company and are fully paid and
nonassessable. The Conversion Stock issuable upon conversion of the
Preferred Shares has been reserved for issuance, and when issued upon
conversion will be duly authorized, validly issued, fully paid and
nonassessable. The Warrant Stock
Page 30 of 87 Pages
issuable upon exercise of the Warrants has been reserved for
issuance, and when issued upon exercise will be duly authorized,
validly issued, fully paid and nonassessable.
(h) All corporate proceedings required by law or by the
provisions of this Agreement, the Escrow Agreement and the Proceeds
Agreement to be taken by the Board of Directors and the
stockholders of the Company on or prior to the Closing Date in
connection with the execution and delivery of this Agreement, the
Escrow Agreement, the Proceeds Agreement and the Warrants have been
duly and validly taken.
(i) Assuming the accuracy of the representations of the
Purchasers set forth in Section 6 hereof, the execution and
delivery of the Warrants, the offer, sale, issuance and delivery of
the Preferred Shares and the Warrants and the offer of the
Conversion Stock and the Warrant Stock to the Purchasers through
conversion or exercise by them of the Preferred Shares or the
Warrants under the circumstances contemplated by the Certificate of
Designation, the Warrants and this Agreement are exempt from the
registration and prospectus delivery requirements of the Securities
Act, and all registrations, qualifications, permits and approvals,
if any, required under applicable state securities laws for the
lawful execution and delivery of the Warrants and offer, sale,
issuance and delivery of the Preferred Shares, the Warrants, the
Conversion Stock and the Warrant Stock, have been obtained.
15.5 QUALIFICATION UNDER STATE SECURITIES LAWS. All
registrations, qualifications, permits or approvals required under applicable
state securities laws for the lawful execution and delivery of this Agreement
and the Warrants and the offer, sale, issuance and delivery of the Preferred
Shares and the Warrants shall have been obtained.
15.6 PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings and actions taken in connection with the transactions
contemplated hereby and all certificates, opinions, agreements, instruments
and documents mentioned herein or incident to any such transaction shall be
satisfactory in form and substance to each Purchaser and its counsel.
15.7 CONSENTS AND WAIVERS. The Company shall have obtained
any and all authorizations, consents, permits and waivers and made any
filings, including, without limitation, any filings with Nasdaq, necessary or
appropriate for consummation of the transactions contemplated by this
Agreement.
15.8 SERIES II PREFERRED STOCK CERTIFICATE OF DESIGNATION.
The Company shall have filed with the Minnesota Secretary of State a
termination of the Certificate of
Page 31 of 87 Pages
Designation as to the Series II Preferred Stock which was filed with the
Minnesota Secretary of State on November 2, 1994.
15.9 SERIES III PREFERRED STOCK CERTIFICATE OF DESIGNATION.
The Company shall have filed with the Minnesota Secretary of State the
Certificate of Designation and such Certificate of Designation shall have
become effective.
15.10 AGGREGATE INVESTMENT. The aggregate number of Preferred
Shares purchased hereunder by all Purchasers shall be 400,000.
15.11 NASDAQ APPROVAL. In connection with the pending NASDAQ
inquiry into the continued listing of the Common Stock, the Company shall
have received and provided to the Purchasers prior to 5 p.m. New York Time on
May 8, 1998, written notification from NASDAQ satisfactory to the Purchasers,
that the Company's Common Stock will continue to be listed on the NASDAQ
SmallCap Market.
16. COVENANTS. The Company covenants and agrees that:
16.1 CORPORATE EXISTENCE. The Company will maintain its
corporate existence in good standing, qualify and remain qualified in each
jurisdiction in which failure to so qualify would have a material adverse
impact on the Company or its business or operations, and comply with all
applicable laws and regulations of the United States or of any state or
states thereof or of any political subdivision thereof and of any
governmental authority where failure to so comply would have a material
adverse impact on the Company or its business or operations.
16.2 BOOKS OF ACCOUNT AND RESERVES. The Company will keep
books of record and account in which full, true and correct entries are made
of all of its and their respective dealings, business and affairs, in
accordance with generally accepted accounting principles. The Company will
employ certified public accountants selected by the Board of Directors of the
Company who are "independent" within the meaning of the accounting
regulations of the Commission, and have annual audits made by such
independent public accountants in the course of which such accountants shall
make such examinations, in accordance with generally accepted auditing
standards, as will enable them to give such reports or opinions with respect
to the financial statements of the Company as will satisfy the requirements
of the Commission in effect at such time with respect to certificates and
opinions of accountants.
16.3 FURNISHING OF FINANCIAL STATEMENTS AND INFORMATION. The
Company will deliver to each Purchaser:
Page 32 of 87 Pages
(a) all of the Company's 10-QSB Reports as soon as
practicable after the filing of such Reports with the Commission;
(b) all of the Company's 10-KSB Reports as soon as
practicable after the filing of such Reports with the Commission;
(c) as soon as practicable after the submission thereof to
the Company, copies of all reports and recommendations submitted by
independent public accountants in connection with any annual or
interim audit of the accounts of the Company or any of its
subsidiaries made by such accountants;
(d) as soon as practicable after the transmission thereof,
copies of all reports, proxy statements, registration statements
and notifications filed by it with the Commission pursuant to any
act administered by the Commission or furnished to stockholders of
the Company or to any national securities exchange or Nasdaq and,
as soon as practicable after the release thereof, copies of all
press releases and other information publicly distributed by the
Company; and
(e) as soon as practicable, such other financial data
relating to the business, affairs and financial condition of the
Company and any subsidiaries as is available to the Company and as
from time to time the Purchasers may reasonably request.
16.4 APPLICATION OF PROCEEDS. Unless otherwise approved by
the Purchasers, the Aggregate Purchase Price shall be used for working
capital purposes and expenses related to this transaction.
16.5 FILING OF REPORTS. The Company will file timely all SEC
Reports with the Commission required to be filed pursuant to the Exchange Act
or other federal securities laws. The SEC Reports shall comply in all
material respects with all applicable requirements of the Exchange Act and
will not (as of their respective filing dates) 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 made therein, in light
of the circumstances under which they were made, not misleading.
16.6 RESERVATION OF SHARES; AUTHORIZED SHARES. The Company
shall, from and at all times after the Closing, maintain a reserve of
authorized shares of Common Stock sufficient to cover the conversion of the
Preferred Shares and the issuance of the Warrant Stock.
Page 33 of 87 Pages
16.7 NASDAQ REQUIREMENTS. The Company shall use its best
efforts to continue to meet the requirements for the listing of its Common
Stock on The Nasdaq SmallCap Market.
16.8 SERIES III PREFERRED STOCK CERTIFICATE OF DESIGNATION.
The Company shall file prior to the Closing with the Minnesota Secretary of
State the Certificate of Designation and take such action to cause the
Certificate of Designation to become effective.
17. THE PREFERRED SHARES.
17.1 CONVERSION OF PREFERRED SHARES. Any holder of Preferred
Shares may, at its option, at any time and from time to time, convert such
Preferred Shares, or any thereof, into Conversion Stock at the rate and upon
the terms and conditions and subject to the adjustments set forth in the
Certificate of Designation.
17.2 STOCK FULLY PAID: RESERVATION OF SHARES. The Company
covenants and agrees that all Conversion Stock that may be issued upon
conversion of the Preferred Shares will, upon issuance in accordance with the
terms of the Certificate of Designation, be fully paid and nonassessable, and
that the issuance thereof shall not give rise to any preemptive rights on the
part of any person. The Company further covenants and agrees that the
Company will at all times have authorized and reserved a sufficient number of
shares of its Common Stock for the purpose of issue upon the conversion of
the Preferred Shares.
18. THE WARRANTS.
18.1 EXERCISE OF WARRANTS. For a period of two (2) years from
the Closing Date, any holder of any Warrants may, at its option, at any time
and from time to time, exercise such Warrants, or any portion thereof, upon
the terms and conditions and subject to the adjustments set forth in the
Warrants.
18.2 STOCK FULLY PAID; RESERVATION OF SHARES. The Company
covenants and agrees that all Warrant Stock that may be issued upon the
exercise of the Warrants will, upon issuance in accordance with the terms of
the Warrants, be fully paid and nonassessable, and that the issuance thereof
shall not give rise to any preemptive rights on the part of any person.
19. REGISTRATION OF STOCK.
19.1 REQUIRED REGISTRATION. Within 30 days of the Closing, the
Company shall prepare and file one registration statement under the Securities
Act (the "Resale Registration Statement") covering all of the shares of
Conversion Stock and Warrant Stock (collectively, the "Registrable Securities")
and shall use its best efforts (i) to cause such
Page 34 of 87 Pages
Resale Registration Statement to be declared effective by the Commission for
such Registrable Securities as soon as practicable thereafter and (ii) to
keep the Resale Registration Statement continuously effective until the
earliest of (x) the date on which the Purchasers no longer hold or have the
right to acquire any Registrable Securities or (y) the third anniversary of
the effective date of the Resale Registration Statement, or such earlier date
at which Rule 144(k) under the Securities Act (or any successor rule thereto)
enables each holder of Registrable Securities to sell all of its Registrable
Securities without restriction under the Securities Act.
19.2 INCIDENTAL REGISTRATION. Each time the Company shall
determine to proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed offer and
sale for cash of any of its securities by it or any of its security holders
(other than a registration statement on a form that does not permit the
inclusion of shares by its security holders), the Company will promptly give
written notice of its determination to all record holders of Purchased Stock
(as hereinafter defined). Upon the written request of a record holder of any
shares of Purchased Stock given within 30 days after receipt of any such
notice from the Company, the Company will, except as herein provided, cause
all the shares of Conversion Stock and Warrant Stock, the Purchasers or
record holders of which have so requested registration thereof, to be
included in such registration statement, all to the extent requisite to
permit the sale or other disposition by the prospective seller or sellers of
the Conversion Stock or Warrant Stock to be so registered; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning
or delaying any such registration initiated by it; provided further, however,
that if the Company determines not to proceed with a registration after the
registration statement has been filed with the Commission and the Company's
decision not to proceed is primarily based upon the anticipated public
offering price of the securities to be sold by the Company, the Company shall
promptly complete the registration for the benefit of those selling security
holders who wish to proceed with a public offering of their securities at the
Company's expense. If any registration pursuant to this Section 11.2 shall
be underwritten in whole or in part, the Company may require that the
Conversion Stock or Warrant Stock requested for inclusion pursuant to this
Section 11.2 be included in the underwriting on the same terms and conditions
as the securities otherwise being sold through the underwriters. In the event
that the Conversion Stock or Warrant Stock requested for inclusion pursuant
to this Section 11.2 would constitute more than 25 % of the total number of
shares to be included in a proposed underwritten public offering, and if in
the good faith judgment of the managing underwriter of such public offering
the inclusion of all of the Conversion Stock or Warrant Stock originally
covered by a request for registration would reduce the number of shares to be
offered by the Company or interfere with the successful marketing of the
shares of stock offered by the Company, the number of shares of Conversion
Stock and Warrant Stock otherwise to be included in the underwritten public
offering may be reduced pro rata (by number of shares) among the holders
thereof requesting such registration, provided, however, that after any such
required reduction the Conversion Stock and Warrant Stock to
Page 35 of 87 Pages
be included in such offering shall constitute at least 25% of the total
number of shares to be included in such offering. "Purchased Stock" shall
mean the Preferred Shares, the Conversion Stock, the Warrants, the Warrant
Stock, and the stock or other securities of the Company issued in a stock
split or reclassification of, or a stock dividend or other distribution on or
in substitution or exchange for, or otherwise in connection with, any of the
foregoing securities, or in a merger or consolidation involving the Company
or a sale of all or substantially all of the Company's assets.
19.3 REGISTRATION PROCEDURES. If and whenever the Company is
required by the provisions of Section 11.1 or 11.2 hereof to effect the
registration of Registrable Securities under the Securities Act, the Company
will:
(a) prepare and file with the Commission a registration statement
(a "Registration Statement") with respect to such Registrable
Securities, and use its best efforts to cause such Registration
Statement to become and remain effective for such period as may be
reasonably necessary to effect the sale of such securities, not to
exceed three years in the case of a registration pursuant to Section
11.1 and nine months in the case of a registration pursuant to Section
11.2 (subject to extension as set forth in the last paragraph of this
Section 11.3);
(b) prepare and file with the Commission such amendments to such
Registration Statement and supplements to such Registration Statement
and the Prospectus contained therein (a "Prospectus") as may be
necessary to keep such Registration Statement effective for such period
as may be reasonably necessary to effect the sale of such securities,
not to exceed three years in the case of a registration pursuant to
Section 11.1 and nine months in the case of a registration pursuant to
Section 11.2, and to comply with the provision of the Securities Act
(subject to extension as set forth in the last paragraph of this Section
11.3);
(c) use its best efforts to register and qualify the securities
covered by such Registration Statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may
reasonably request in writing within 20 days following the original
filing of such Registration Statement, except that the Company shall not
for any purpose be required to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified;
(d) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such
Page 36 of 87 Pages
Registration Statement has become effective or a supplement to any
Prospectus forming a part of such Registration Statement has been filed;
(e) notify such holders promptly of any request by the Commission
for the amending or supplementing of such Registration Statement or
Prospectus or for additional information;
(f) prepare and promptly file with the Commission and promptly
notify such holders of the filing of such amendment or supplement to
such Registration Statement or Prospectus as may be necessary to correct
any statements or omissions if, at the time when a Prospectus relating
to such securities is required to be delivered under the Securities Act,
any event shall have occurred as the result of which any such Prospectus
or any other prospectus as then in effect would include an untrue
statement of a material fact or omit to state any material fact
necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(g) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for that purpose and
promptly use its best efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued;
(h) advise such holders (i) when a Prospectus or any Prospectus
supplement or post-effective amendment has been filed and, with respect
to a Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the Commission or any
state securities authority for amendments and supplements to a
Registration Statement and Prospectus or for additional information
after the Registration Statement has become effective, (iii) of the
issuance by the Commission of any stop order suspending the
effectiveness of a Registration Statement, (iv) of the issuance by any
state securities commission or other regulatory authority of any order
suspending the qualification or exemption from qualification of any of
the Registrable Securities under state securities or "blue sky" laws,
and (v) of the happening of any event which makes any statement made in
a Registration Statement or related Prospectus untrue or which requires
the making of any changes in such Registration Statement or Prospectus
so that they will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. As soon as practicable
following expiration of the Suspension Period (as defined
Page 37 of 87 Pages
below), the Company shall prepare and file with the Commission and
furnish a supplement or amendment to such Prospectus so that, as
thereafter deliverable to the purchasers of such Registrable Securities,
such Prospectus will not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading;
(i) furnish to such holders such number of copies of a Prospectus,
including a preliminary Prospectus, in conformity with the requirements
of the Securities Act, and such other documents, as they may reasonably
request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration;
(j) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such offering;
and
(k) use its best efforts to secure the listing of the Registrable
Securities covered by a registration statement on the NASDAQ SmallCap
Market (or the principal exchange, market or system on which the
Company's Common Stock shall then be listed or traded).
Upon receipt of any notice (a "Suspension Notice") by a holder from
the Company of the happening of any event of the kind described in Section
11.3(h)(ii), (iii) or (v), a holder shall forthwith discontinue disposition
of the Registrable Securities pursuant to the Registration Statement covering
such Registrable Securities until receipt of the copies of the supplemented
or amended Prospectus contemplated by Section 11.3(h) or until the holder is
advised in writing (the "Advice") by the Company that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus,
and, if so directed by the Company, will, or will request any broker-dealer
acting as holder's agent to, deliver to the Company (at the Company expense)
all copies, other than permanent file copies then in the holder's or
broker-dealer's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; PROVIDED, HOWEVER,
that in no event shall the period from the date on which the holder receives
a Suspension Notice to the date on which the holder receives either the
Advice or copies of the supplemented or amended Prospectus contemplated by
Section 11.3(h), and any additional or supplemental filings incorporated
therein by reference (the "Suspension Period"), exceed 60 days. The period
during which the Company is required under this Agreement to keep any
Registration Statement filed pursuant to Section 11.1 or 11.2 effective shall
be extended by the number of days during a period that the Registration
Statement required to be filed under Section 11.1 of the
Page 38 of 87 Pages
Agreement is subject to a stop order or is otherwise not in effect or the
holder is advised that the prospectus included therein contains a material
misstatement or omission.
19.4 EXPENSES. Except as provided in this Section 11.4, with
respect to the registration pursuant to Section 11.1 hereof and with respect
to each inclusion of shares of Conversion Stock and Warrant Stock in a
Registration Statement pursuant to Section 11.2 hereof, the Company shall
bear all fees, costs and expenses except expenses of counsel and accountants
for the selling securities holders.
19.5 INDEMNIFICATION. In the event that any Conversion Stock
or Warrant Stock is included in a Registration Statement under Section 11.1
or 11.2 hereof:
(a) The Company will indemnify and hold harmless each holder of
Registrable Securities which are included in a Registration Statement
pursuant to the provisions of this Section 11, its directors, officers,
partners and affiliates, and any underwriter (as defined in the
Securities Act) for such holder and each person, if any, who controls
such holder or such underwriter within the meaning of the Securities
Act, from and against, and will reimburse such holder, director,
officer, partner and affiliate and each such underwriter and controlling
person with respect to, any and all loss, damage, liability, cost and
expense (including reasonable attorneys' fees) to which such holder,
director, officer, partner or affiliate or any such underwriter or
controlling person may become subject under the Securities Act or
otherwise, insofar as such losses, damages, liabilities, costs or
expenses (including reasonable attorneys' fees) are caused by any untrue
statement or alleged untrue statement of any material fact contained in
such Registration Statement, any Prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
provided, however, that the Company will not be liable in any such case
to the extent that any such loss, damage, liability, cost or expense
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission so made in conformity with
information furnished by such holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(b) Each holder of Registrable Securities which are included in a
Registration Statement pursuant to the provisions of this Section 11
will indemnify and hold harmless the Company, its directors and
officers, any controlling person and any underwriter from and against,
and will reimburse the Company, its directors and officers, any
controlling person and any
Page 39 of 87 Pages
underwriter with respect to, any and all loss, damage, liability, cost
or expense to which the Company or any controlling person and/or any
underwriter may become subject under the Securities Act or otherwise,
insofar as such losses, damages, liabilities, costs or expenses are
caused by any untrue or alleged untrue statement of any material fact
contained in such Registration Statement, any Prospectus contained
therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were
made, not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was so made in reliance upon and in strict
conformity with written information furnished by such holder
specifically for use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 11.5 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is
to be made against the indemnifying party pursuant to the provisions of
said paragraph (a) or (b), promptly notify the indemnifying party of the
commencement thereof; but the omission to so notify the indemnifying
party will relieve such indemnifying party of liability, but only to the
extent that such indemnifying party is prejudiced with respect to a
specific claim. In case such action is brought against any indemnified
party and it notifies the indemnifying party of the commencement
thereof, the indemnifying party shall have the right to participate in,
and, to the extent that it may wish, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, with counsel
satisfactory to such indemnified party, provided, however, if the
defendants in any action include both the indemnified party and the
indemnifying party and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, or if there is a conflict of
interest which would prevent counsel for the indemnifying party from
also representing the indemnified party, the indemnified party or
parties shall have the right to select separate counsel to participate
in the defense of such action on behalf of such indemnified party or
parties. After notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party pursuant to the
provisions of said paragraph (a) or (b) for any legal or other expense
subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation, unless (i)
the
Page 40 of 87 Pages
indemnified party shall have employed counsel in accordance with the
proviso of the preceding sentence, (ii) the indemnifying party shall not
have employed counsel satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after the notice of the
commencement of the action, or (iii) the indemnifying party has
authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party.
(d) If the indemnification provided for in paragraph (a) or (b) of
this Section 11.5 shall be unavailable to hold harmless an indemnified
party in respect of any loss, damage, liability, cost or expenses
(including reasonable attorneys' fees) under the Securities Act or
otherwise, then, and in each such case, the indemnifying party, in lieu
of indemnifying such indemnified party hereunder, shall contribute to
the amount paid or payable by such indemnified party as a result of such
loss, damage, liability, cost or expense in such proportion as is
appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection
with the statement or omissions that resulted in such loss, damage,
liability, cost or expenses (including reasonable attorneys' fees) as
well as any other relevant equitable considerations. The relative fault
of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
statement or omission; PROVIDED that in no event shall any contribution
under this subsection (d) by any holder exceed the gross proceeds from
the offering received by such indemnifying party. No person or entity
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and the holders under this
Section 11.5 will survive the completion of any offering of Registrable
Securities in a Registration Statement, and otherwise.
20. GENERAL INDEMNITY. The Company will indemnify and hold harmless the
Purchasers, and their respective officers, directors, general partners,
employees, agents and affiliates, from and against any and all claims,
liabilities, losses, damages and expenses (including reasonable attorneys' fees)
incurred by any of such indemnified parties in any way relating to, arising out
of or resulting from (i) the breach of any of the representations or warranties
made by the Company in this Agreement and (ii) the breach or the failure of
Page 41 of 87 Pages
performance by the Company of any of its covenants or agreements to be
performed under this Agreement.
21. CHANGES, WAIVERS, ETC. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated orally, but only by a
statement in writing signed by the Purchasers owning or having the right to
acquire 66.67% of the Conversion Stock and the Warrant Stock.
22. NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and
(a) if to FAMCO III, LIMITED LIABILITY COMPANY, addressed to 000
Xxxxx Xxxxxxx 000, Xx. Xxxxx Xxxx, Xxxxxxxxx 00000, or to such other
address as such holder may specify by written notice to the Company, or
(b) if to SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P., addressed
to 000 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx Xxxx 00000, or to
such other address as such holder may specify by written notice to the
Company, or
(c) if to the Company, addressed to the Company, Xxx Xxxx Xxxxxx
XX, Xxxxx 00, Xxxxxxxxxxx, Xxxxxxxxx 00000, attention President, or to
such other address as the Company may specify by written notice to the
Purchasers, and
(d) such notices and other communications shall for all purposes
of this Agreement be treated as being effective or having been given
upon: personal delivery; five (5) days after deposit in the United
States Mail, certified or registered (return receipt requested); one (1)
business day after deposit with a nationally recognized overnight
courier (prepaid) or one (1) business day after transmission by
facsimile and receipt of confirmation of receipt by sender.
23. SURVIVAL OF REPRESENTATIONS AND WARRANTIES, ETC. All
representations and warranties contained herein shall survive the execution
and delivery of this Agreement for a period of five (5) years.
24. PARTIES IN INTEREST. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be
enforceable by the respective successors and assigns of the parties hereto,
whether so expressed or not, and, in particular, shall inure to the benefit
of and be enforceable by the holder or holders at the time of any of the
Purchased Stock. The Company cannot assign this Agreement, or its rights or
obligations hereunder.
Page 42 of 87 Pages
25. HEADINGS. The headings of the Sections and paragraphs of this
Agreement have been inserted for convenience of reference only and do not
constitute a part of this Agreement.
26. CHOICE OF LAW. It is the intention of the parties that the laws of
Minnesota shall govern the validity of this Agreement, the construction of
its terms and the interpretation of the rights and duties of the parties.
27. COUNTERPARTS. This Agreement may be executed concurrently 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.
28. FURTHER INSTRUMENTS. From time to time, each party hereto will
execute and deliver such instruments and documents as may be reasonably
necessary to carry out the purposes and intent of this Agreement.
29. INTEGRATION; ENTIRE AGREEMENT. This Agreement, including and
incorporating all schedules and exhibits attached hereto, constitutes and
contains the entire agreement and understanding of the parties regarding the
subject matter of this Agreement and supersedes in its entirety any and all
prior agreements, whether written or oral, among the parties with respect to
the subject matter hereof.
30. SEVERABILITY. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, the remaining provisions of this
Agreement shall be unaffected thereby and shall remain in full force and
effect to the fullest extent permitted by law.
Page 43 of 87 Pages
If you are in agreement with the foregoing, please sign the form of
acceptance on the enclosed counterpart of this letter and return the same to
the undersigned, whereupon this letter shall become a binding contract among
you and the undersigned.
Very truly yours,
TELIDENT, INC.
/S/ W. Xxxxxx XxXxxxxxxx
-----------------------------------------
W. Xxxxxx XxXxxxxxxx, President and Chief
Executive Officer
The foregoing Agreement is hereby
accepted as of the date first above
written.
FAMCO III LIMITED LIABILITY COMPANY
By: Family Financial Strategies, Inc.
Its: Manager
By: /s/ Xxxx Xxxxxx
-------------------------
Xxxx Xxxxxx
Its: President
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: MG Advisers LLC
Its: General Partner
/s/ Xxxxxx Xxxxx
----------------------------
By: Xxxxxx Xxxxx
Its: Member
Page 44 of 87 Pages
SCHEDULE 1
----------------------------------------------------------------------------
NAME OF NUMBER OF NUMBER OF
PURCHASER PREFERRED WARRANTS PURCHASE
SHARES PURCHASED PURCHASED PRICE
----------------------------------------------------------------------------
FAMCO III Limited 200,000 200,000 $500,000
Liability
Company
----------------------------------------------------------------------------
Special Situations 200,000 200,000 $500,000
Private Equity
Fund, L.P.
----------------------------------------------------------------------------
Page 45 of 87 Pages
SCHEDULE 5.12A
CURRENTLY OUTSTANDING, RESERVED AND COMMITTED SECURITIES
CAPITAL STOCK OUTSTANDING, RESERVED OR UNDERLYING
SHARES ON A FULLY DILUTED BASIS
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,786,735
Series I Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 37,500
Series II Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,824,235
STOCK OPTIONS AND PLAN RESERVES
Stock Options issued pursuant to 1988 Stock Option Plan (the "Plan") . . 116,849
Remaining Shares reserved under the Plan . . . . . . . . . . . . . . . . .10,751
------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,600
WARRANTS
Warrant dated October 1995 issued to Okabena Partnership K . . . . . . . .37,500
Preemptive rights dated January 1996 issued to holders of 10% Series B
Convertible Debentures issued in May 1993. . . . . . . . . . . . . . . . . . .25
Warrants dated May 1996 issued to parties providing bridge financing . . .31,250
Warrant dated June 1996 issued to Xx. Xxxxxxxx . . . . . . . . . . . . . .12,500
Warrant dated August 1996 issued to X.X. Xxxxxxxx. . . . . . . . . . . . .28,750
Warrant dated September 1997 issued to Xx. Xxxxxxxx. . . . . . . . . . . .12,500
Warrants dated July 1997 issued to former holders of 10% Convertible
Debentures dated October 1992, and originally due October 1, 1995,
and 10% Series B Convertible Debentures dated May 1993, and
Page 46 of 87 Pages
originally due May 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . .97,475
Warrant dated July 1997 issued to Family Financial Strategies. . . . . . 312,500
Warrant dated February 25, 1998 issued to Xxxx Xxxxxxx . . . . . . . . . 100,000
-------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 632,500
DEBENTURES
10% Convertible Debentures dated October 1992, and originally
due October 1, 1995, and 10% Series B Convertible Debentures
dated May 1993, and originally due May 1, 1996,
all of which mature July 15, 1997
and the cumulative face value of which is $50,000. . . . . . . . . . . . . 3,157
-----
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,157
TOTAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,587,491
---------
---------
Page 47 of 87 Pages
SCHEDULE 5.12B
OUTSTANDING, RESERVED AND COMMITTED SECURITIES AFTER CLOSING
CAPITAL STOCK OUTSTANDING, RESERVED OR UNDERLYING
SHARES ON A FULLY DILUTED BASIS
Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,786,735
Series I Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . 37,500
Series II Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . 0
Series III Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . 400,000
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,224,235
STOCK OPTIONS AND PLAN RESERVES
Stock Options issued pursuant to 1988 Stock Option Plan (the "Plan") . . 116,849
Remaining Shares reserved under the Plan . . . . . . . . . . . . . . . . .10,751
------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 127,600
WARRANTS
Warrant dated October 1995 issued to Okabena Partnership K . . . . . . . .37,500
Preemptive rights dated January 1996 issued to holders of 10% Series B
Convertible Debentures issued in May 1993. . . . . . . . . . . . . . . . . . .25
Warrants dated May 1996 issued to parties providing bridge financing . . .31,250
Warrant dated June 1996 issued to Xx. Xxxxxxxx . . . . . . . . . . . . . .12,500
Warrant dated August 1996 issued to X.X. Xxxxxxxx. . . . . . . . . . . . .28,750
Warrants dated July 1997 issued to former holders of 10% Convertible
Debentures dated October 1992, and originally due October 1, 1995,
and 10% Series B Convertible Debentures dated May 1993, and
originally due May 1, 1996 . . . . . . . . . . . . . . . . . . . . . . . .97,475
Page 48 of 87 Pages
Warrant dated September 1997 issued to Xx. Xxxxxxxx. . . . . . . . . . . .12,500
Warrant dated July 1997 issued to Family Financial Strategies. . . . . . 312,500
Warrant dated February 25, 1998 issued to Xxxx Xxxxxxx . . . . . . . . . 100,000
Warrants dated April 1998 issued to FAMCO III Limited
Liability Company and Special Situations Private Equity Fund, L.P. . . . 400,000
-------
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,032,500
DEBENTURES
10% Convertible Debentures dated October 1992, and originally
due October 1, 1995, and 10% Series B Convertible Debentures
dated May 1993, and originally due May 1, 1996,
all of which mature July 15, 1997
and the cumulative face value of which is $50,000. . . . . . . . . . . . . 3,157
-----
Subtotal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,157
TOTAL SHARES OUTSTANDING OR RESERVED . . . . . . . . . . . . . . . . . 4,387,491
---------
---------
TOTAL SHARES AUTHORIZED. . . . . . . . . . . . . . . . . . . . . . . 12,500,000
Total Authorized Shares of Preferred Stock. . . . . . . . . . . . 2,500,000
Total Authorized Shares of Common Stock . . . . . . . . . . . . .10,000,000
----------
Page 49 of 87 Pages
SCHEDULE 5.17
REGISTRATION STATEMENTS ON FILE WITH THE COMMISSION
The Company currently has the following registration statements on file with
the Commission:
1. Final Prospectus, dated May 14, 1997 (Registration No. 333-99054);
2. Post-Effective Amendment No. 1 to Registration Statement on Form SB-2
on Form S-3, filed with the Commission on May 1, 1997 (Registration
No. 333-99054);
3. Final Prospectus, dated August 13, 1996 (Registration No. 33-04311);
4. Pre-Effective Amendment to Registration Statement on Form SB-2
(Registration No. 33-04311), filed with the Commission on August 8,
1996;
5. Pre-Effective Amendment to Registration Statement on Form SB-2
(Registration No. 33-04311), filed with the Commission on May 22,
1996;
6. Final Prospectus, dated April 16, 1996 (Registration No. 333-01804);
7. Pre-Effective Amendment to Registration Statement on Form SB-2
(Registration No. 333-01804), filed with the Commission on April 4,
1996;
8. Pre-Effective Amendment to Registration Statement on Form SB-2
(Registration No. 333-01804), filed with the Commission on February
29, 1996;
9. Final Prospectus, dated January 26, 1996 (Registration No. 33-99054);
10. Pre-Effective Amendment to Registration Statement on Form SB-2
(Registration No. 33-99054), filed with the Commission on January 16,
1996;
11. Pre-Effective Amendment to Registration Statement on Form SB-2
(Registration No. 33-99054), filed with the Commission on December 27,
1995;
Page 50 of 87 Pages
12. Pre-Effective Amendment to Registration Statement on Form SB-2
(Registration No. 33-99054), filed with the Commission on November 7,
1995.
13. Final Prospectus, dated November 25, 1991 (Registration No. 33-41513);
14. Pre-Effective Amendment to Registration Statement on Form S-1
(Registration No. 33-41513), filed with the Commission on November 25,
1991;
15. Pre-Effective Amendment to Registration Statement on Form S-1
(Registration No. 33-41513), filed with the Commission on November 18,
1991;
16. Pre-Effective Amendment to Registration Statement on Form S-1
(Registration No. 33-41513), filed with the Commission on October 15,
1991;
17. Pre-Effective Amendment to Registration Statement on Form S-1
(Registration No. 33-41513), filed with the Commission on July 1,
1991;
18. Post-Effective Amendment No. 2 to Registration Statement on Form S-18
(Registration No. 33-25922), filed with the Commission May 21, 1991;
19. Post-Effective Amendment No. 1 to Registration Statement on Form S-18
(Registration No. 33-25922), filed with the Commission May 21, 1991;
20. Final Prospectus, dated July 10, 1989 (Registration No. 33-25922);
21. Pre-Effective Amendment to Registration Statement on Form S-18
(Registration No. 33-25922), filed with the Commission on May 23,
1989;
22. Pre-Effective Amendment to Registration Statement on Form S-18
(Registration No. 33-25922), filed with the Commission on May 22,
1989;
23. Pre-Effective Amendment to Registration Statement on Form S-18
(Registration No. 33-25922), filed with the Commission on March 29,
1989;
24. Pre-Effective Amendment to Registration Statement on Form S-18
(Registration No. 33-25922), filed with the Commission on December 22,
1988;
Page 51 of 87 Pages
EXHIBIT 1
TELIDENT, INC.
CERTIFICATE OF DESIGNATION
OF SERIES III CONVERTIBLE PREFERRED STOCK
I, the undersigned, as President and Chief Executive Officer of
Telident, Inc., a Minnesota corporation (the "Corporation"), do hereby
certify that the Board of Directors of the Corporation unanimously resolved,
on April 8, 1998, to establish a class of Preferred Stock as permitted in
Article III of the Corporation's Articles of Incorporation, as amended, in
accordance with the following resolutions:
RESOLVED, that the officers of the Corporation be, and they hereby are,
authorized and directed to issue 400,000 shares of the Corporation's
Preferred Stock and Warrants to purchase 400,000 shares of Common Stock
of the Corporation to the Purchasers identified in that certain Stock
Purchase Agreement dated April 13, 1998 by and among the Corporation and
the Purchasers named therein (the "Stock Purchase Agreement"), in
consideration for which the Purchasers shall pay the Corporation
$1,000,000.00, such amount to be paid by wire transfer concurrently with
the issuance of the Corporation's stock certificates representing said
shares and the warrants.
FURTHER RESOLVED, that such shares of Preferred Stock shall be referred
to and designated as the Series III Convertible Preferred Stock of the
Corporation (the "Series III Preferred Stock") and shall have the
following relative rights and preferences:
ARTICLE 31.
TERMS OF THE SERIES III CONVERTIBLE PREFERRED STOCK:
1. VOTING PRIVILEGES.
a. GENERAL. Each holder of Series III Preferred Stock shall have that
number of votes on all matters submitted to the stockholders that is equal to
the number of shares of Common Stock into which such holder's shares of
Series III Preferred Stock are then convertible, as hereinafter provided.
Except as provided herein or as otherwise required by agreement or law, all
shares of capital stock of the Corporation shall vote as a single class on
all matters submitted to the stockholders.
b. NO CUMULATIVE VOTING. No holder of shares of Series III Preferred
Stock of the Corporation shall have any cumulative voting rights.
Page 52 of 87 Pages
c. MERGERS, CONSOLIDATIONS AND DISPOSITIONS OF ASSETS. Without the
affirmative vote or written consent of the holders (acting together as a
class) of 66.67% of the shares of Series III Preferred Stock at the time
outstanding, the Corporation shall not enter into any agreement or
understanding to (i) merge or consolidate the Corporation into or with
another corporation, (ii) merge or consolidate any other corporation into or
with the Corporation, (iii) effectuate a plan of exchange between the
Corporation and any other corporation, (iv) sell, transfer or dispose of all
or substantially all of the assets of the Corporation; (v) amend this
Certificate of Designation; or (vi) issue any shares of the Corporation's
capital stock which have rights and preferences greater than those of the
Series III Preferred Stock.
2. DIVIDENDS.
In the event any dividend or distribution is declared or made with
respect to outstanding shares of Common Stock or series I convertible
preferred stock, a comparable dividend or distribution must be simultaneously
declared or made with respect to the outstanding shares of Series III
Preferred Stock. In the event any dividend or distribution is declared or
made with respect to the Common Stock or the series I convertible stock, each
holder of shares of Series III Preferred Stock shall be paid such comparable
dividend or receive such comparable distribution on the basis of the number
of shares of Common Stock into which such holder's shares of such Series III
Preferred Stock are then convertible, as hereinafter provided.
Dividends on shares of capital stock of the Corporation shall be payable
only out of funds legally available therefor.
3. OTHER TERMS OF THE SERIES III PREFERRED STOCK.
a. LIQUIDATION PREFERENCE. In the event of an involuntary or
voluntary liquidation or dissolution of the Corporation at any time, the
holders of shares of Series III Preferred Stock shall be entitled to receive
out of the assets of the Corporation an amount equal to the Per Share
Purchase Price (appropriately adjusted to reflect stock splits, stock
dividends, reorganizations, consolidations and similar changes hereafter
effected), plus dividends unpaid and accumulated or accrued thereon. In the
event of either an involuntary or a voluntary liquidation or dissolution of
the Corporation payment shall be made to the holders of shares of Series III
Preferred Stock in the amounts herein fixed pari passu with series I
convertible preferred stock and before any payment shall be made or any
assets distributed to the holders of the Common Stock or any other class of
shares of the Corporation ranking junior to the Series III Preferred Stock
with respect to payment upon dissolution or liquidation of the Corporation.
If upon any liquidation or dissolution of the Corporation the assets
available for distribution shall be insufficient to pay the holders of all
outstanding shares of Series III Preferred Stock the full amounts to which
they respectively shall be
Page 53 of 87 Pages
entitled, the holders of such shares shall share pro rata in any such
distribution in proportion to the full amounts to which such holders would
otherwise be entitled.
Nothing hereinabove set forth shall affect in any way the right of each
holder of shares of Series III Preferred Stock to convert such shares at any
time and from time to time in accordance with subparagraph (2) below.
b. CONVERSION RIGHT. At the option of the holders thereof, all or any
portion of the shares of Series III Preferred Stock shall be convertible, at
the office of the Corporation (or at such other office or offices, if any, as
the Board of Directors may designate). Upon any such conversion, each share
of Series III Preferred Stock which a holder elects to convert shall be
converted into a number of fully paid and nonassessable shares (calculated as
to each conversion to the nearest 1/100th of a share) of Common Stock of the
Corporation equal to the quotient of (x) the Per Share Purchase Price
(appropriately adjusted to reflect stock splits, stock dividends,
reorganizations, consolidations and similar changes hereafter effected) of
such share of Series III Preferred Stock, divided by (y) the lesser of (i)
the Conversion Price (as hereinafter defined) or (ii) if the average of the
closing bid price for the shares of Common Stock (appropriately adjusted to
reflect stock splits, stock dividends, reorganizations, consolidations and
similar changes hereafter effected) on the ten (10) trading days prior to the
date that the Corporation receives written notice of conversion from such
holder of such Series III Preferred Stock (the"Average Price") is less than
the Per Share Purchase Price (appropriately adjusted to reflect stock splits,
stock dividends, reorganizations, consolidations and similar changes
hereafter effected), then 80% of such Average Price. The initial Conversion
Price shall be the Per Share Purchase Price; such Conversion Price shall be
subject to adjustment from time to time in certain instances as hereinafter
provided. The following provisions shall govern such right of conversion:
a. In order to convert shares of Series III Preferred Stock into
shares of Common Stock of the Corporation, the holder thereof shall
surrender at any office hereinabove mentioned the certificate or
certificates therefor, duly endorsed to the Corporation or in
blank, and give written notice to the Corporation at such office
that such holder elects to convert such shares. Shares of Series
III Preferred Stock shall be deemed to have been converted
immediately prior to the close of business on the day of the
surrender of such shares for conversion as herein provided, and the
person entitled to receive the shares of Common Stock of the
Corporation issuable upon such conversion shall be treated for all
purposes as the record holder of such shares of Common Stock at
such time. Within two (2) business days after delivery of a
conversion notice, the Corporation shall issue and deliver or cause
to be issued and delivered to the holder a certificate or
certificates for the number of shares of Common Stock of the
Corporation issuable upon such conversion. If the holder shall
elect to convert only a portion of the shares of Series III
Preferred Stock, the
Page 54 of 87 Pages
Corporation shall deliver, within two (2) business days of the
conversion notice, a new stock certificate representing the balance
of the shares represented by the surrendered certificate which
shall not have been converted.
b. Except for (i) options to purchase shares of Common Stock pursuant
to the Corporation's 1988 Stock Option Plan adopted by the
Corporation which are outstanding as of the date hereof and except
for shares of Common Stock issued upon the exercise of such options
granted pursuant to such plan and (ii) shares of Common Stock
issued upon conversion of the Series III Preferred Stock or
exercise of the Warrants issued to the holders of the Series III
Preferred Stock pursuant to the Stock Purchase Agreement or other
warrants, or rights to purchase or convert into securities of the
Corporation, outstanding as of the date hereof, if and whenever the
Corporation shall issue or sell any additional shares of its Common
Stock for a consideration per share less than the Conversion Price
in effect immediately prior to the time of such issue or sale,
then, forthwith upon such issue or sale, the Conversion Price shall
be reduced to such lesser price as is determined by multiplying the
Conversion Price in effect immediately prior thereto by a fraction,
the numerator of which shall be the sum of the number of shares of
Common Stock outstanding immediately prior to the issuance or sale
of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined in
accordance with this paragraph 2) for the issuance or sale of such
additional shares would purchase at the Conversion Price then in
effect, and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after the issuance or sale
of such additional shares.
For the purposes of this subparagraph (b), the following
provisions (1) to (3), inclusive, shall also be applicable:
(1) In case at any time the Corporation shall grant (whether
directly or by assumption in a merger or otherwise) any rights
to subscribe for or to purchase, or any options for the
purchase of, (a) Common Stock or (b) any obligations or any
shares of stock of the Corporation which are convertible into,
or exchangeable for, Common Stock (any of such obligations or
shares of stock being hereinafter called "Convertible
Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities
are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such rights or
options or upon conversion or exchange of such Convertible
Securities (determined by dividing (x) the total amount, if
any, received or receivable by the Corporation as
Page 55 of 87 Pages
consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such rights or
options, plus, in the case of such rights or options which
relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue of
such Convertible Securities and upon the conversion or
exchange thereof, by (y) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Conversion Price in
effect immediately prior to the time of the granting of such
rights or options, then the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of the total maximum
amount of such Convertible Securities issuable upon the
exercise of such rights or options shall (as of the date of
granting of such rights or options) be deemed to be
outstanding and to have been issued for such price per share.
No further adjustments of the Conversion Price shall be made
upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights or options
or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities.
(2) In case the Corporation shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible
Securities, whether or not the rights to exchange or convert
thereunder are immediately exercisable, and the price per
share for which Common Stock is issuable upon such conversion
or exchange (determined by dividing (x) the total amount
received or receivable by the Corporation as consideration for
the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange
thereof, by (y) the total maximum number of shares of Common
Stock issuable upon the conversion or exchange of all such
Convertible Securities) shall be less than the Conversion
Price in effect immediately prior to the time of such issue or
sale, then the total maximum number of shares of Common Stock
issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to
have been issued for such price per share, provided that if
any such issue or sale of such Convertible Securities is made
upon exercise of any rights to subscribe for or to purchase or
any option to purchase any such
Page 56 of 87 Pages
Convertible Securities for which adjustments of the Conversion
Price have been or are to be made pursuant to other provisions
of this subparagraph (b), no further adjustment of the
Conversion Price shall be made by reason of such issue or sale.
(3) In case any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the
amount received by the Corporation therefor, without deducting
therefrom any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or Convertible
Securities shall be issued or sold for a consideration other
than cash, the amount of the consideration other than cash
received by the Corporation shall be deemed to be the fair
value of such consideration as determined by the Board of
Directors of the Corporation, without deducting therefrom any
expenses incurred or any underwriting commissions, discounts
or concessions paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
such Common Stock or Convertible Securities shall be issued in
connection with any merger or consolidation in which the
Corporation is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Corporation of
such portion of the assets and business of the non-surviving
corporation or corporations as such Board shall determine to
be attributable to such Common Stock, Convertible Securities,
rights or options, as the case may be. In the event of any
consolidation or merger of the Corporation in which the
Corporation is not the surviving corporation or in the event
of any sale of all or substantially all of the assets of the
Corporation for stock or other securities of any other
corporation, the Corporation shall be deemed to have issued a
number of shares of its Common Stock for stock or securities
of the other corporation computed on the basis of the actual
exchange ratio on which the transaction was predicated and for
a consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment
of the Conversion Price, the determination of the number of
shares of Common Stock issuable upon conversion immediately
prior to such merger, conversion or sale, for
Page 57 of 87 Pages
purposes of subparagraph (f) below, shall be made after giving
effect to such adjustment of the Conversion Price.
c. In case the Corporation shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of
Common Stock, as described in subparagraph (d) below) or
Convertible Securities, or in any rights or options to purchase
Common Stock or Convertible Securities, or (ii) declare any other
dividend or make any other distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus, then
thereafter each holder of shares of Series III Preferred Stock upon
the conversion thereof will be entitled to receive the number of
shares of Common Stock into which such shares of Series III
Preferred Stock have been converted, and, in addition and without
payment therefor, each dividend described in clause (i) above and
each dividend or distribution described in clause (ii) above which
such holder would have received by way of dividends or
distributions if continuously since the issuance of such shares of
Series III Preferred Stock, such holder (i) had been the record
holder of the number of shares of Common Stock then received, and
(ii) had retained all dividends or distributions in stock or
securities (including Common Stock or Convertible Securities, or in
any rights or options to purchase any Common Stock or Convertible
Securities) payable in respect of such Common Stock or in respect
of any stock or securities paid as dividends or distributions and
originating directly or indirectly from such Common Stock. For the
purposes of the foregoing a dividend or distribution other than in
cash shall be considered payable out of earnings or earned surplus
only to the extent that such earnings or earned surplus are charged
an amount equal to the fair value of such dividend or distribution
as determined by the Board of Directors of the Corporation.
d. In case the Corporation shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares, the
Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Corporation shall be
combined into a smaller number of shares, the Conversion Price in
effect immediately prior to such combination shall be
proportionately increased.
e. If (i) the purchase price provided for in any right or option
referred to in clause (1) of subparagraph (b), or (ii) the
additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in clause (1) or
clause (2) of subparagraph (b), or (iii) the rate at which any
Convertible Securities referred to in clause (1) or clause (2) of
subparagraph (b) are
Page 58 of 87 Pages
convertible into or exchangeable for Common Stock, shall change at
any time (other than under or by reason of provisions designed to
protect against dilution), the Conversion Price then in effect
hereunder shall forthwith be increased or decreased to such
Conversion Price as would have been obtained had the adjustments
made upon the issuance of such rights, options or Convertible
Securities been made upon the basis of (a) the issuance of the
number of shares of Common Stock theretofore actually delivered
upon the exercise of such options or rights or upon the conversion
or exchange of such Convertible Securities, and the total
consideration received therefor, and (b) the issuance at the time
of such change of any such options, rights, or Convertible
Securities then still outstanding for the consideration, if any,
received by the Corporation therefor and to be received on the
basis of such changed price; and on the expiration of any such
option or right or the termination of any such right to convert or
exchange such Convertible Securities, the Conversion Price then in
effect hereunder shall forthwith be increased to such Conversion
Price as would have obtained had the adjustments made upon the
issuance of such rights or options or Convertible Securities been
made upon the basis of the issuance of the shares of Common Stock
theretofore actually delivered (and the total consideration
received therefor) upon the exercise of such rights or options or
upon the conversion or exchange of such Convertible Securities. If
the purchase price provided for in any right or option referred to
in clause (1) of subparagraph (b), or the rate at which any
Convertible Securities referred to in clause (1) or clause (2) of
subparagraph (b) are convertible into or exchangeable for Common
Stock, shall decrease at any time under or by reason of provisions
with respect thereto designed to protect against dilution, then in
case of the delivery of Common Stock upon the exercise of any such
right or option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect hereunder
shall forthwith be decreased to such Conversion Price as would have
obtained had the adjustments made upon the issuance of such right,
option or Convertible Security been made upon the basis of the
issuance of (and the total consideration received for) the shares
of Common Stock delivered as aforesaid.
f. If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the
Corporation with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be
effected in such a way that the holders of Common Stock shall be
entitled to receive stock, securities or assets with respect to or
in exchange for Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provision shall be made whereby the holders of
Series III Preferred Stock shall thereafter
Page 59 of 87 Pages
have the right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of the Common
Stock of the Corporation immediately theretofore receivable upon
the conversion of Series III Preferred Stock, such shares of stock,
securities or assets as may be issued or payable with respect to or
in exchange for a number of outstanding shares of such Common Stock
equal to the number of shares of such stock immediately theretofore
receivable upon the conversion of Series III Preferred Stock had
such reorganization, reclassification, consolidation, merger or
sale not taken place, plus all dividends unpaid and accumulated or
accrued thereon to the date of such reorganization,
reclassification, consolidation, merger or sale, and in any such
case appropriate provision shall be made with respect to the rights
and interests of the holders of Series III Preferred Stock to the
end that the provisions hereof (including without limitation
provisions for adjustments of the Conversion Price and of the
number of shares receivable upon the conversion of Series III
Preferred Stock) shall thereafter be applicable, as nearly as may
be in relation to any shares of stock, securities or assets
thereafter receivable upon the conversion of Series III Preferred
Stock. The Corporation shall not effect any such consolidation,
merger or sale, unless prior to the consummation thereof the
successor corporation (if other than the Corporation) resulting
from such consolidation or merger or the corporation purchasing
such assets shall assume by written instrument executed and mailed
to the registered holders of Series III Preferred Stock, at the
last addresses of such holders appearing on the books of the
Corporation, the obligation to deliver to such holders such shares
of stock, securities or assets as, in accordance with the foregoing
provisions, such holders may be entitled to receive.
g. In case at any time:
(1) the Corporation shall declare any cash dividend on its Common
Stock at a rate in excess of the rate of the last cash
dividend theretofore paid;
(2) the Corporation shall pay any dividend payable in stock upon
its Common Stock or make any distribution (other than regular
cash dividends) to the holders of its Common Stock;
(3) the Corporation shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of
any class or other rights;
(4) there shall be any capital reorganization, or reclassification
of the capital stock of the Corporation, or consolidation or
merger of the
Page 60 of 87 Pages
Corporation with, or sale of all or substantially all of its
assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give
written notice, by first-class mail, postage prepaid, addressed to
the registered holders of Series III Preferred Stock at the
addresses of such holders as shown on the books of the Corporation,
of the date on which (a) the books of the Corporation shall close
or a record shall be taken for such dividend, distribution or
subscription rights, or (b) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up
shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, as the case may be. Such written
notice shall be given at least 20 days prior to the action in
question and not less than 20 days prior to the record date or the
date on which the Corporation's transfer books are closed in
respect thereto.
h. If any event occurs as to which in the opinion of the Board of
Directors of the Corporation the other provisions of this paragraph
(2) are not strictly applicable or if strictly applicable would not
fairly protect the rights of the holders of Series III Preferred
Stock in accordance with the essential intent and principles of
such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to protect such
rights as aforesaid.
i. As used in this paragraph (2) the term "Common Stock" shall mean
and include the Corporation's presently authorized Common Stock and
shall also include any capital stock of any class of the
Corporation hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the holders
thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation; provided that the shares
receivable pursuant to conversion of shares of Series III Preferred
Stock shall include shares designated as Common Stock of the
Corporation as of the date of issuance of such shares of Series III
Preferred Stock, or, in case of any reclassification of the
outstanding shares thereof, the stock, securities or assets
provided for in subparagraph (f) above.
Page 61 of 87 Pages
j. No fractional shares of Common Stock shall be issued upon
conversion, but, instead of any fraction of a share which would
otherwise be issuable, the Corporation shall pay a cash adjustment
in respect of such fraction in an amount equal to the same fraction
of the Market Price per share of Common Stock as of the close of
business on the day of conversion. "Market Price" shall mean if
the Common Stock is traded on a securities exchange, The NASDAQ
National Market or The NASDAQ SmallCap Market, the closing price of
the Common Stock on such exchange, The NASDAQ National Market or
The NASDAQ SmallCap Market, or, if the Common Stock is otherwise
traded in the over-the-counter market, the closing price, in each
case averaged over a period of 20 consecutive business days prior
to the date as of which "Market Price" is being determined. If at
any time the Common Stock is not traded on an exchange, The NASDAQ
National Market or The NASDAQ SmallCap Market, or otherwise traded
in the over-the-counter market, the "Market Price" shall be deemed
to be the higher of (i) the book value thereof as determined by any
firm of independent public accountants of recognized standing
selected by the Board of Directors of the Corporation as of the
last day of any month ending within 60 days preceding the date as
of which the determination is to be made, or (ii) the fair value
thereof determined in good faith by the Board of Directors of the
Corporation as of a date which is within 15 days of the date as of
which the determination is to be made.
k. The holders of the Series III Preferred Stock shall be entitled to
the registration rights provided for in Section 11 of the Stock
Purchase Agreement.
l. Whenever the Conversion Price is adjusted, as provided herein, the
Corporation shall promptly, but in no event more than 3 days
following such adjustment, give each holder of Series III Preferred
Stock notice of such adjustment, certified by the chief financial
officer of the Corporation, setting forth the new Conversion Price,
the computation by which such adjustment was made and a brief
statement of the facts requiring such adjustment.
m. In the event that (i) (A) the Corporation shall fail for any reason
to deliver shares of Common Stock to a holder upon conversion of
the Series III Preferred Stock within the time period specified in
paragraph 2(a), or (B) the Corporation shall fail to remove any
restrictive legend on any certificates evidencing such shares of
Common Stock as and when required under Section 4.3 of the Stock
Purchase Agreement, and (ii) thereafter, such holder shall purchase
(in an open market transaction or otherwise) shares of Common Stock
to make delivery in satisfaction of a sale by such holder of (A)
all or part of the shares of Common Stock which such holder
anticipated receiving upon such conversion, or (B) all or a portion
of such unlegended shares of Common
Page 62 of 87 Pages
Stock, as the case may be (in each case, the "Sold Shares"), then
the Corporation shall pay to such holder (in addition to any other
remedies available to the holder) the amount by which (x) such
holder's total purchase price (including brokerage commissions, if
any) for the shares of Common Stock so purchased shall exceed (y)
the net proceeds received by such holder from the sale of the Sold
Shares. The Corporation shall make any payments required pursuant
to this paragraph (m) within five (5) days after the receipt of
written notice from a holder setting forth the calculation of the
amount due hereunder.
c. MANDATORY CONVERSION. The Series III Preferred Stock shall
automatically be converted into shares of Common Stock of the Corporation,
without any act by the Corporation or the holders of such Preferred Stock,
concurrently with the closing of any public offering by the Corporation of
shares of Common Stock of the Corporation registered under the Securities Act
of 1933, as amended, in which (1) the aggregate public offering price of the
securities sold for cash by the Corporation in the offering is at least
$5,000,000 or such lesser amount as may be approved by the holders of at
least 66.67% of the shares of Preferred Stock then outstanding, and (2) the
public offering price per share of Common Stock is at least $5.00 (as
adjusted from time to time to reflect stock splits, dividends,
recapitalizations, combinations or the like), or such lower amount as may be
approved by the holders of 66.67% of the shares of Preferred Stock then
outstanding.
d. DEFINITION. All capitalized terms not otherwise defined herein
shall have the definition ascribed to them in the Stock Purchase Agreement.
e. REMEDIES CUMULATIVE. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies
available, at law or in equity (including a decree of specific performance
and/or other injunctive relief), and nothing herein shall limit a holder's
right to pursue actual damages for any failure by the Corporation to comply
with the terms of this Certificate of Designation. The Corporation
acknowledges that a breach by it of its obligations under this Certificate of
Designation shall cause irreparable harm to the holders of the Series III
Preferred Stock and that the remedy at law for any such breach may be
inadequate. The Corporation agrees, in the event of any such breach or
threatened breach, that each holder shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without
the necessity of showing economic loss and without any bond or other security
being required.
FURTHER RESOLVED, that W. Xxxxxx XxXxxxxxxx, President of the
Corporation, be, and hereby is, authorized and directed to make and
execute a Certificate of Designation embracing the foregoing resolutions
and to cause such Certificate of Designation to be filed with the office
of the Secretary of State of the State of Minnesota.
Page 63 of 87 Pages
IN WITNESS WHEREOF, this Certificate of Designation is hereby executed
on behalf of the Corporation by W. Xxxxxx XxXxxxxxxx, its President, this
13th day of April, 1998, pursuant to Chapter 302A, Minnesota Statutes.
TELIDENT, INC.
By /s/ W. Xxxxxx XxXxxxxxxx
-------------------------------------------
W. Xxxxxx XxXxxxxxxx
Its: President and Chief Executive Officer
Page 64 of 87 Pages
EXHIBIT 2
WARRANTS
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
TELIDENT, INC.
DATED
APRIL 9, 1998
THIS CERTIFIES THAT, for value received, SPECIAL SITUATIONS PRIVATE
EQUITY FUND L.P. (the "Holder") or registered permitted assigns is entitled
to purchase from TELIDENT, INC., (the "Corporation"), a corporation organized
and existing under the laws of the State of Minnesota, at the purchase price
per share specified below (subject to adjustment as noted below) at any time
or from time to time from and after the date hereof to and including the
Termination Date (as hereinafter defined) 200,000 fully paid and
nonassessable shares of the Corporation's Common Stock, par value $0.08 per
share (the "Warrant Stock") (subject to adjustment as noted below). This
Warrant has been issued in connection with the purchase from the Corporation
of series III convertible preferred shares of the Corporation (the "Series
III Preferred Stock") pursuant to a Stock Purchase Agreement dated April 13,
1998 (the "Purchase Agreement"), by and among the Corporation, certain other
equity investors and the Holder. For purposes of this Warrant, "Termination
Date" shall mean 5:00 P.M. Minneapolis time on the second anniversary of the
Closing Date unless extended as provided herein. All capitalized terms not
otherwise defined herein shall have the meaning ascribed to them in the
Purchase Agreement.
The purchase price of the Warrant Stock upon exercise of the
Warrant shall be $3.125 per share (the "Purchase Price"). The Purchase Price
shall be subject to adjustment as provided below.
The Holder may sell, transfer, assign or otherwise dispose of any
of its rights or obligations hereunder in accordance with applicable
securities laws.
This Warrant is subject to the following provisions, terms and
conditions:
1. This Warrant may be exercised by the Holder hereof, in whole
or in part, by written notice of exercise delivered to the Corporation along
with the surrender of this Warrant (properly endorsed if required) at the
principal office of the Corporation and upon payment to it by wire transfer
of the Purchase Price for the number of shares of Warrant Stock which the
Holder elects to purchase. The Corporation agrees that the shares so
purchased shall be and are deemed to be issued to the Holder hereof as the
record owner of
Page 65 of 87 Pages
such shares as of the close of business on the date on which this Warrant
shall have been surrendered and payment made for such shares as aforesaid.
Subject to the provisions of the next succeeding paragraph, certificates for
the Warrant Stock so purchased shall be delivered to the Holder hereof within
a reasonable time, not exceeding two (2) days, after the rights represented
by this Warrant shall have been so exercised, and, unless this Warrant has
expired, a new Warrant representing the number of shares, if any, with
respect to which this Warrant shall not then have been exercised shall also
be delivered to the Holder hereof within such time.
2. Subject to the provisions of this Section 2, the Corporation
shall have the right to require the Holder to exercise this Warrant (the
"Call"), upon the Corporation's giving written notice to the Holder (the
"Call Notice"). The Call may be exercised at the option of the Corporation
at any time if the bid price of the Corporation's Common Stock on The NASDAQ
SmallCap Market (or such other market or exchange as such Common Stock may be
traded) has equaled or exceeded $4.375 per share (equitably adjusted to
reflect stock splits, stock dividends, reorganizations, consolidations and
similar changes hereafter effected) for a period of at least ten (10)
consecutive trading days immediately prior to the Call Notice. Upon receipt
of such Call Notice, the Holder (i) shall surrender this Warrant to the
Corporation together with payment of the Purchase Price for the number of
shares of Warrant Stock to be purchased on or before the fifteenth day
following the Corporation's giving of the Call Notice to the Holder, or (ii)
shall decline to exercise the Warrant, in whole or in part, whereupon the
Warrant shall immediately terminate with respect to any shares which the
Holder does not exercise. If Holder purchases less than all of the Warrant
Stock within such fifteen (15) day period, the Warrant shall immediately
terminate with respect to all shares of Warrant Stock not so purchased.
Notwithstanding anything to the contrary contained herein, the Corporation
cannot exercise the Call at any time that the Registration Statement required
to be filed under Section 11.1 of the Purchase Agreement is not effective.
Additionally, the 15-day period described herein shall be extended by the
number of days during a period that such Registration Statement is subject to
a stop order or is otherwise not in effect or the holder is advised that the
prospectus included therein contains a material misstatement or omission.
3. The Corporation covenants and agrees that, the Warrant Stock
will, upon issuance, be duly authorized and issued, fully paid and
nonassessable. The Corporation further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised,
the Corporation will, at all times have authorized and reserved for the
purpose of issue or transfer upon exercise of the rights evidenced by this
Warrant, a sufficient number of shares of Warrant Stock to provide for the
exercise of the rights represented by this Warrant.
4. The above provisions are, however, subject to the following:
Page 66 of 87 Pages
(a) The Purchase Price shall, from and after the date of issuance
of this Warrant, be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Purchase Price, the Holder of this
Warrant shall thereafter be entitled to purchase, at the Purchase Price
resulting from such adjustment, the number of shares obtained by multiplying
the Purchase Price in effect immediately prior to such adjustment by the
number of shares purchasable pursuant hereto immediately prior to such
adjustment and dividing the product thereof by the Purchase Price resulting
from such adjustment.
(b) Except for (i) options to purchase shares of Common Stock
pursuant to the Corporation's 1988 Stock Option Plan adopted by the
Corporation which are outstanding as of the date hereof and except for shares
of Common Stock issued upon the exercise of such options granted pursuant to
such plan and (ii) shares of Common Stock issued upon conversion of the
Series III Preferred Stock or exercise of this Warrant or other warrants or
rights to purchase the securities of the Corporation outstanding as of the
date hereof, if and whenever the Corporation shall issue or sell any
additional shares of its Common Stock for a consideration per share less than
the Purchase Price in effect immediately prior to the time of such issue or
sale, then, forthwith upon such issue or sale, the Purchase Price shall be
reduced to such lesser price as is determined by multiplying the Purchase
Price in effect immediately prior thereto by a fraction, the numerator of
which shall be the sum of the number of shares of Common Stock outstanding
immediately prior to the issuance or sale of such additional shares and the
number of shares of Common Stock which the aggregate consideration received
(determined in accordance with this paragraph 4) for the issuance or sale of
such additional shares would purchase at the Purchase Price then in effect,
and the denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance or sale of such additional shares.
(c) For the purposes of paragraph (b), the following provisions
(i) to (iii), inclusive, shall also be applicable:
(i) In case at any time the Corporation shall grant (whether
directly or by assumption in a merger or otherwise) any rights to
subscribe for or to purchase, or any options for the purchase of, (aa)
Common Stock or (bb) any obligations or any shares of stock of the
Corporation which are convertible into or exchangeable for Common Stock
(any of such obligations or shares of stock being hereinafter called
"Convertible Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities are
immediately exercisable, and the price per share for which Common Stock
is issuable upon the exercise of such rights or options or upon
conversion or exchange of such Convertible Securities (determined by
dividing (cc) the total amount, if any, received or receivable by the
Corporation as consideration for the granting of such rights or options,
plus the minimum aggregate amount of additional consideration payable to
the Corporation upon the exercise of such rights or options, plus, in
the case of such rights or options which relate to
Page 67 of 87 Pages
Convertible Securities, the minimum aggregate amount of additional
consideration, if any, payable upon the issue or sale of such
Convertible Securities and upon the conversion or exchange thereof, by
(dd) the total maximum number of shares of Common Stock issuable upon
the exercise of such rights or options or upon the conversion or
exchange of all such Convertible Securities issuable upon the exercise
of such rights or options) shall be less than the Purchase Price in
effect immediately prior to the time of the granting of such rights or
options on the date of such grant, then the total maximum number of
shares of Common Stock issuable upon the exercise of such rights or
options or upon conversion or exchange of the total maximum amount of
such Convertible Securities issuable upon the exercise of such rights or
options shall (as of the date of granting of such rights or options) be
deemed to be outstanding and to have been issued for such price per
share. No further adjustments of the Purchase Price shall be made upon
the actual issue of such Common Stock or of such Convertible Securities
upon exercise of such rights or options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible Securities.
(ii) In case the Corporation shall issue or sell (whether directly
or by assumption in a merger or otherwise) any Convertible Securities,
whether or not the rights to exchange or convert thereunder are
immediately exercisable, and the price per share for which Common Stock
is issuable upon such conversion or exchange (determined by dividing
(aa) the total amount received or receivable by the Corporation as
consideration for the issue or sale of such Convertible Securities, plus
the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the conversion or exchange thereof, by
(bb) the total maximum number of shares of Common Stock issuable upon
the conversion or exchange of all such Convertible Securities) shall be
less than the Purchase Price in effect immediately prior to the time of
such issue or sale, then the total maximum number of shares of Common
Stock issuable upon conversion or exchange of all such Convertible
Securities shall (as of the date of the issue or sale of such
Convertible Securities) be deemed to be outstanding and to have been
issued for such price per share, provided that if any such issue or sale
of such Convertible Securities is made upon exercise of any rights to
subscribe for or to purchase or any option to purchase any such
Convertible Securities for which adjustments of the Purchase Price have
been or are to be made pursuant to other provisions of this paragraph
(c), no further adjustment of the Purchase Price shall be made by reason
of such issue or sale.
(iii) In case any shares of Common Stock or Convertible Securities
or any rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for cash, the
consideration received therefor shall be deemed to be the amount
received by the Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions, discounts or
concessions paid
Page 68 of 87 Pages
or allowed by the Corporation in connection therewith. In case any
shares of Common Stock or Convertible Securities or any rights or
options to purchase any such Common Stock or Convertible Securities
shall be issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the Corporation shall
be deemed to be the fair value of such consideration as determined by
the Board of Directors of the Corporation, without deducting therefrom
any expenses incurred or any underwriting commissions, discounts or
concessions paid or allowed by the Corporation in connection therewith.
In case any shares of Common Stock or Convertible Securities or any
rights or options to purchase such Common Stock or Convertible
Securities shall be issued in connection with any merger or
consolidation in which the Corporation is the surviving corporation, the
amount of consideration therefor shall be deemed to be the fair value as
determined by the Board of Directors of the Corporation of such portion
of the assets and business of the non-surviving corporation or
corporations as such Board shall determine to be attributable to such
Common Stock, Convertible Securities, rights or options, as the case may
be. In the event of any consolidation or merger of the Corporation in
which the Corporation is not the surviving corporation or in the event
of any sale of all or substantially all of the assets of the Corporation
for stock or other securities of any other corporation, the Corporation
shall be deemed to have issued a number of shares of its Common Stock
for stock or securities of the other corporation computed on the basis
of the actual exchange ratio on which the transaction was predicated and
for a consideration equal to the fair market value on the date of such
transaction of such stock or securities of the other corporation, and if
any such calculation results in adjustment of the Purchase Price, the
determination of the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such merger, conversion or
sale, for purposes of paragraph (g) below, shall be made after giving
effect to such adjustment of the Purchase Price.
(d) In case the Corporation shall (i) declare a dividend upon the
Common Stock payable in Common Stock (other than a dividend declared to
effect a subdivision of the outstanding shares of Common Stock, as described
in paragraph (e) below) or Convertible Securities, or in any rights or
options to purchase Common Stock or Convertible Securities, or (ii) declare
any other dividend or make any other distribution upon the Common Stock
payable otherwise than out of earnings or earned surplus, then thereafter the
Holder of this Warrant upon the exercise hereof will be entitled to receive
the number of shares of Warrant Stock to which Holder shall be entitled upon
such exercise, and, in addition and without further payment therefor, each
dividend described in clause (i) above and each dividend or distribution
described in clause (ii) above which Holder would have received by way of
dividends or distributions if continuously since the issuance of this
Warrant, Holder (i) had been the record Holder of the number of shares of
Warrant Stock then received, and (ii) had retained all dividends or
distributions in stock or securities (including Common Stock or Convertible
Securities, or in any rights or options to purchase
Page 69 of 87 Pages
any Common Stock or Convertible Securities) payable in respect of such
Warrant Stock or in respect of any stock or securities paid as dividends or
distributions and originating directly or indirectly from such Warrant Stock.
For the purposes of the foregoing, a dividend or distribution other than in
cash shall be considered payable out of earnings or earned surplus only to
the extent that such earnings or earned surplus are charged an amount equal
to the fair value of such dividend or distribution as determined by the Board
of Directors of the Corporation.
(e) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Purchase Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Corporation shall be combined into a smaller number of
shares, the Purchase Price in effect immediately prior to such combination
shall be proportionately increased.
(f) If (i) the purchase price provided for in any right or option
referred to in clause (i) of paragraph (c), or (ii) the additional
consideration, if any, payable upon the conversion or exchange of Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c), or
(iii) the rate at which any Convertible Securities referred to in clause (i)
or clause (ii) of paragraph (c) are convertible into or exchangeable for
Common Stock shall change at any time (other than under or by reason of
provisions designed to protect against dilution), the Purchase Price then in
effect shall forthwith be increased or decreased to such Purchase Price which
would have been obtained had the adjustments made upon the issuance of such
rights, options or Convertible Securities been made upon the basis of (i) the
issuance of the number of shares of Common Stock theretofore actually
delivered upon the exercise of such options or rights or upon the conversion
or exchange of such Convertible Securities, and the total consideration
received therefor, and (ii) the issuance at the time of such change of any
such options, rights or Convertible Securities then still outstanding for the
consideration, if any, received by the Corporation therefor and to be
received on the basis of such changed price; and on the expiration of any
such option or right or the termination of any such right to convert or
exchange such Convertible Securities, the Purchase Price then in effect
hereunder shall forthwith be increased to such Purchase Price which would
have obtained had the adjustments made upon the issuance of such rights or
options or Convertible Securities been made upon the basis of the issuance of
the shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the exercise of such rights or options
or upon the conversion or exchange of such Convertible Securities. If the
purchase price provided for in any such right or option referred to in clause
(i) of paragraph (c) or the rate at which any Convertible Securities referred
to in clause (i) or clause (ii) of paragraph (c) are convertible into or
exchangeable for Common Stock shall decrease at any time under or by reason
of provisions with respect thereto designed to protect against dilution, then
in case of the delivery of Common Stock upon the exercise of any such right
or option or upon conversion or exchange of any such Convertible
Page 70 of 87 Pages
Security, the Purchase Price then in effect hereunder shall forthwith be
decreased to such Purchase Price as would have obtained had the adjustments
made upon the issuance of such right, option or Convertible Securities been
made upon the basis of the issuance of (and the total consideration received
for) the shares of Common Stock delivered as aforesaid.
(g) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the
Corporation with another corporation, or the sale of all or substantially all
of its assets to another corporation shall be effected in such a way that the
holders of Common Stock shall be entitled to receive stock, securities or
assets with respect to or in exchange for Common Stock, then, as a condition
of such reorganization, reclassification, consolidation, merger or sale,
lawful and adequate provision shall be made whereby the Holder hereof shall
thereafter have the right to purchase and receive, upon the basis and upon
the terms and conditions specified in this Warrant and in lieu of the shares
of the Warrant Stock of the Corporation immediately theretofore purchasable
and receivable upon the exercise of the rights represented hereby, such
shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such stock immediately theretofore
purchasable and receivable upon the exercise of the rights represented hereby
had such reorganization, reclassification, consolidation, merger or sale not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interests of the Holder of this Warrant to the end
that the provisions hereof (including without limitation provisions for
adjustments of the Purchase Price and of the number of shares purchasable
upon the exercise of this Warrant) shall thereafter be applicable, as nearly
as may be, in relation to any shares of stock, securities or assets
thereafter deliverable upon the exercise hereof. The Corporation shall not
effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the
Corporation) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume, by written instrument executed and
mailed to the registered Holder hereof at the last address of Holder
appearing on the books of the Corporation, the obligation to deliver to
Holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the Holder may be entitled to purchase.
(h) In case any time:
(1) the Corporation shall declare any cash dividend on its
Common Stock or preferred stock at a rate in excess of the rate of the
last cash dividend theretofore paid;
(2) the Corporation shall pay any dividend payable in stock
upon its Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock or preferred stock;
Page 71 of 87 Pages
(3) the Corporation shall offer for subscription pro rata to
the holders of its Common Stock or preferred stock any additional shares
of stock of any class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with, or sale of all or
substantially all of its assets to, another corporation; or
(5) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give written
notice, by first-class mail, postage prepaid, addressed to the registered
Holder of this Warrant at the address of the Holder as shown on the books of
the Corporation, of the date on which (aa) the books of the Corporation shall
close or a record shall be taken for such dividend, distribution or
subscription rights, or (bb) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up shall
take place, as the case may be. Such notice shall also specify the date as
of which the holders of Common Stock of record shall participate in such
dividend, distribution or subscription rights, or shall be entitled to
exchange their Common Stock for securities or other property deliverable upon
such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, as the case may be. Such written
notice shall be given at least 20 days prior to the action in question and
not less than 20 days prior to the record date or the date on which the
Corporation's transfer books are closed in respect thereto.
(i) If any event occurs as to which in the opinion of the Board of
Directors of the Corporation the other provisions of this paragraph 4 are not
strictly applicable or if strictly applicable would not fairly protect the
purchase rights of the Holder of this Warrant or of Warrant Stock in
accordance with the essential intent and principles of such provisions, then
the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid.
(j) No fractional shares of Warrant Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which would
otherwise be issuable, the Corporation shall pay a cash adjustment (which may
be effected as a reduction of the amount to be paid by the Holder hereof upon
such exercise) in respect of such fraction in an amount equal to the same
fraction of the Market Price per share of Common Stock as of the close of
business on the date of the notice required by paragraph 1 above. "Market
Price" shall mean, if the Common Stock is traded on a securities exchange,
the NASDAQ National Market or on The NASDAQ SmallCap Market, the closing
price of the Common Stock on
Page 72 of 87 Pages
such exchange, the NASDAQ National Market or the NASDAQ SmallCap Market, or,
if the Common Stock is otherwise traded in the over-the-counter market, the
closing price, in each case averaged over a period of 20 consecutive business
days prior to the date as of which "Market Price" is being determined. If at
any time the Common Stock is not traded on an exchange, the NASDAQ National
Market or The NASDAQ SmallCap Market, or otherwise traded in the
over-the-counter market, the "Market Price" shall be deemed to be the higher
of (i) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Corporation as of the last day of any month ending within 60 days preceding
the date as of which the determination is to be made, or (ii) the fair value
thereof determined in good faith by the Board of Directors of the Corporation
as of a date which is within 15 days of the date as of which the
determination is to be made.
(k) Whenever the number of shares purchasable upon the exercise of
this Warrant or the Purchase Price is adjusted, as provided herein, the
Corporation shall promptly, but in no event more than 3 days following such
adjustment, give the Holder notice of such adjustment, certified by the chief
financial officer of the Corporation, setting forth the number of shares
purchasable upon exercise of the Warrant and the Purchase Price, the
computation by which such adjustment was made and a brief statement of the
facts requiring such adjustment.
5. As used herein, the term "Common Stock" shall include the
Corporation's presently authorized Common Stock and shall also include any
capital stock of any class of the Corporation hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the Holders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution or winding
up of the Corporation; provided that the shares purchasable pursuant to this
Warrant shall include shares designated as Common Stock of the Corporation on
the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in paragraph 4(g) above.
6. So long as this Warrant remains outstanding, the Corporation
will not issue any additional capital stock of any class preferred as to
dividends or as to the distribution of assets upon voluntary or involuntary
liquidation, dissolution or winding up, unless the rights of the holders
thereof shall be limited to a fixed sum or percentage of par, liquidation or
redemption value in respect of participation in dividends and in the
distribution of such assets.
7. This Warrant shall not entitle the Holder hereof to any voting
rights or other rights as a stockholder of the Corporation.
Page 73 of 87 Pages
8. The Holder of this Warrant, by acceptance hereof, agrees to
give written notice to the Corporation before transferring this Warrant or
transferring any unregistered Warrant Stock issuable or issued upon the
exercise hereof of Holder's intention to do so, describing briefly the manner
of any proposed transfer of this Warrant or Holder's intention as to the
disposition to be made of shares of Common Stock issuable or issued upon the
exercise hereof. Holder shall also provide the Corporation with an opinion of
counsel satisfactory to the Corporation to the effect that the proposed
transfer of this Warrant or disposition of unregistered shares may be
effected without registration or qualification (under any Federal or State
law) of this Warrant or the shares of Common Stock issuable or issued upon
the exercise hereof. Upon receipt of such written notice and opinion by the
Corporation, Holder shall be entitled to transfer this Warrant, or to
exercise this Warrant in accordance with its terms and dispose of the shares
received upon such exercise or to dispose of shares of Common Stock received
upon the previous exercise of this Warrant, provided that an appropriate
legend respecting the aforesaid restrictions on transfer and disposition may
be endorsed on this Warrant or the certificates for such shares. The Holder
and any assignee of the Holder shall be entitled to the registration rights
provided in Section 11 of the Purchase Agreement.
9. Subject to the provisions of paragraph 8 hereof, this Warrant
and all rights hereunder are transferable, in whole or in part, by the Holder
hereof in person or by duly authorized attorney, upon surrender at the
principal office of the Corporation of this Warrant properly endorsed. Each
taker and holder of this Warrant, by taking or holding the same, consents and
agrees that the bearer of this Warrant, when endorsed, may be treated by the
Corporation and all other persons dealing with this Warrant as the absolute
owner hereof for any purpose and as the person entitled to exercise the
rights represented by this Warrant, or to the transfer hereof on the books of
the Corporation, any notice to the contrary notwithstanding; but until such
transfer on such books, the Corporation may treat the registered Holder
hereof as the owner for all purposes.
10. This Warrant is exchangeable, upon the surrender hereof by the
Holder hereof at the principal office of the Corporation, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and
purchase the number of shares which may be subscribed for and purchased
hereunder, each of such new Warrants to represent the right to subscribe for
and purchase such number of shares as shall be designated by said Holder
hereof at the time of such surrender.
11. The Holder of this Warrant and of the Warrant Stock issuable
or issued upon the exercise hereof shall be entitled to the registration
rights set forth in Section 11 of the Purchase Agreement.
12. The obligations contained herein shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns.
Page 74 of 87 Pages
13. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
14. Any notice required to be given to the Corporation under the
terms of this Warrant shall be in writing and addressed to the Secretary of
the Corporation at Xxx Xxxx Xxxxxx, X.X., Xxxxx 00, Xxxxxxxxxxx, Xxxxxxxxx
00000. Any notice required to be given to the Holder shall be in writing and
addressed to the Holder at 000 Xxxx 00xx Xxxxxx, 00xx Xxxxx, Xxx Xxxx, Xxx
Xxxx 00000, or such other address as it may designate in writing from time to
time. All notices shall be deemed to have been given or delivered upon:
personal delivery; five (5) days after deposit in the United States Mail,
certified or registered (return receipt requested); one (1) business day
after deposit with a nationally recognized overnight courier (prepaid) or one
(1) business day after transmission by facsimile and receipt of confirmation
of receipt by sender.
15. In the event that (i) (A) the Corporation shall fail for any
reason to deliver shares of Common Stock to a Holder upon any exercise of
this Warrant within the time period specified in Section 1 hereof, or (B) the
Company shall fail to remove any restrictive legend or any certificates
evidencing such shares of Common Stock as and when required under Section 4.3
of the Purchase Agreement and (ii) thereafter, such Holder shall purchase (in
an open market transaction or otherwise) shares of Common Stock to make
delivery in satisfaction of a sale by such Holder of (A) all or a portion of
the shares of Common Stock which such Holder anticipated receiving upon such
exercise, or (B) all or a portion of such unlegended shares of Common Stock,
as the case may be (in each case, the "Sold Shares"), then the Corporation
shall pay to such Holder (in addition to any other remedies available to the
Holder) the amount by which (x) such Holder's total purchase price (including
brokerage commissions, if any) for the shares of Common Stock so purchased
shall exceed (y) the net proceeds received by such Holder from the sale of
the Sold Shares. The Corporation shall make any payments required pursuant
to this paragraph 15 within five (5) business days after receipt of written
notice from the Holder setting forth the calculation of the amount due
hereunder.
16. The Termination Date of this Warrant shall be extended by the
number of days that any of the following events has occurred and is
continuing: (i) commencing ninety-one (91) days after the date hereof, the
Registration Statement required to be filed under Section 11.1 of the
Purchase Agreement is not effective, or (ii) such Registration Statement is
subject to a stop order or is otherwise not in effect or the Holder is
advised that the prospectus included therein contains a material misstatement
or omission.
Page 75 of 87 Pages
IN WITNESS WHEREOF, the Corporation and the Holder have caused this
Warrant to be signed by their duly authorized officers as of April 13, 1998.
TELIDENT, INC.
/s/ W. Xxxxxx XxXxxxxxxx
----------------------------------------------
By: W. Xxxxxx XxXxxxxxxx
Its: President and Chief Executive Officer
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: MG Advisers LLC
Its: General Partner
/s/ Xxxxxx Xxxxx
----------------------------------------------
By: Xxxxxx Xxxxx
Its: Member
Page 76 of 87 Pages
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i)
an opinion of counsel reasonably satisfactory to the Corporation that such
transfer may be lawfully made without registration under the Federal
Securities Act of 1933 and all applicable state securities laws or (ii) such
registration.
Page 77 of 87 Pages
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto
this Warrant, and appoints
to transfer this Warrant on the books of the Corporation with the full power
of substitution in the premises.
Dated:
In the presence of:
-----------------------------------------------------
(Signature must conform in all respects to the name of
the Holder as specified on the face of this Warrant
without alteration, enlargement or any change
whatsoever)
Page 78 of 87 Pages
SUBSCRIPTION FORM
To Be Executed by the Holder of This Warrant if Holder
Desires to Exercise This Warrant in Whole or in Part:
To: Telident, Inc. (the "Corporation")
The undersigned
----------------------------------
Please insert Social Security or other
identifying number of Subscriber:
---------------------------
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, _____ shares of the Common Stock
provided for therein and tenders payment herewith to the order of the
Corporation in the amount of $______, such payment being made as provided on
the face of this Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name:
--------------------------------------------------------------
Address:
--------------------------------------------------------------
Deliver to:
--------------------------------------------------------------
Address:
--------------------------------------------------------------
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance
remaining of the shares of Common Stock purchasable under this Warrant be
registered in the name of, and delivered to, the undersigned at the address
stated above.
Dated:
----------------
Signature
-------------------------------------------
Note: The signature on this Subscription
Form must correspond with the name as written
upon the face of this Warrant in every
particular, without alteration or enlargement
or any change whatever.
Page 79 of 87 Pages
EXHIBIT 3
ESCROW AGREEMENT
This Agreement is entered into this 13th day of April, 1998, by and
among Telident, Inc. (the "Company"), FAMCO III LIMITED LIABILITY COMPANY
(the "Purchaser"), and Manchester Companies, Inc. (the "Escrow Agent").
WHEREAS, the Company has undertaken to offer and sell to the Purchaser
in a private placement transaction shares of its series III convertible
preferred stock and warrants to purchase shares of its common stock (together
the "Securities"), pursuant to the terms of a Stock Purchase Agreement, dated
April 13, 1998 by and among the Company, the Purchaser and a certain other
investor (the "Purchase Agreement"); and
WHEREAS, as a condition of entering into the Purchase Agreement, the
Purchaser requires and the Company agrees to place in escrow with the Escrow
Agent the purchase price of the Securities (the "Purchase Price"), the stock
certificate representing the shares of Series III Preferred Stock (the "Stock
Certificate") and the warrant (the "Warrant") to be purchased by the
Purchaser; and
WHEREAS, the Company, the Purchaser and the Escrow Agent desire to enter
into an agreement with respect to the escrow of the Purchase Price, the Stock
Certificate and the Warrant.
NOW, THEREFORE, in consideration of the premises and agreements set
forth herein, the parties hereto agree as follows:
Q. ITEMS TO BE PLACED IN ESCROW. The Purchase Price, the Stock Certificate
and the Warrant shall be delivered to the Escrow Agent within one (1)
business day following the execution of the Purchase Agreement, and shall be
retained in escrow by the Escrow Agent in an account which allows the Escrow
Agent to individually account for funds received and any interest earned on
such funds (the "Escrow Account").
R. INVESTMENT OF FUNDS. All funds held by the Escrow Agent pursuant to
this Agreement shall constitute trust property for the purposes for which
they are held. The Escrow Agent shall invest all funds received from the
Company in an interest bearing account.
S. DISBURSEMENT OF FUNDS. Upon the Closing of the transaction set forth in
the Purchase Agreement resulting from the satisfaction of the conditions of
Closing in Section 7 thereof, the Purchaser shall cause the Escrow Agent
promptly to release (a) the Purchase Price to the Company and (b) the Stock
Certificate and the Warrant to the Purchaser. If the Closing does not occur
on or before May 8, 1998 (or such other later Closing Date as shall have been
mutually agreed upon pursuant to Section 3 of the Purchase Agreement) or if
the Purchaser
Page 80 of 87 Pages
receives notice on or before May 8, 1998, that the Company's Common Stock
will no longer continue to be listed on the NASDAQ SmallCap Market, then the
Purchaser shall cause the Escrow Agent promptly to release (y) the Purchase
Price, and any interest thereon, to the Purchaser, and (z) the Stock
Certificate and the Warrant to the Company, whereupon the Company will cancel
such Securities.
NAME OF PURCHASER PURCHASE PRICE
----------------- ----------------------------
FAMCO III Limited Liability Company $500,000
T. TERM OF ESCROW. The term of this escrow agreement (the "Term of
Escrow") shall commence as of the date of this Agreement and terminate at
5:00 p.m. New York time on May 8, 1998 (or such other later Closing Date as
shall have been mutually agreed upon pursuant to Section 3 of the Purchase
Agreement). Upon termination hereof, whether after extension or otherwise,
the Escrow Agent shall, without receipt of written notice from the Company,
disburse the funds in the Escrow Account to the Purchaser and the Stock
Certificate and the Warrant in the Escrow Account to the Company in the
manner and upon the terms directed in Section 3 hereof.
U. DUTY AND LIABILITY OF THE ESCROW AGENT; INDEMNIFICATION. The sole duty
of the Escrow Agent, other than as herein specified, shall be to receive the
Purchase Price and the Stock Certificate and the Warrant and hold them
subject to release, in accordance herewith, and the Escrow Agent shall be
under no duty to determine whether the Company is complying with requirements
of this Agreement. The Escrow Agent may conclusively rely upon and shall be
protected in acting upon any statement, certificate, notice, request,
consent, order or other document believed by it to be genuine and to have
been signed or presented by the Company. The Escrow Agent shall have no duty
or liability to verify any such statement, certificate, notice, request,
consent, order or other document, and its sole responsibility shall be to act
only as expressly set forth in this Agreement. The Escrow Agent shall be
under no obligation to institute or defend any action, suit or proceeding in
connection with this Agreement unless first indemnified to its satisfaction.
The Company and the Purchaser, jointly and severally, hereby indemnify and
hold harmless the Escrow Agent from and against any and all loss, liability,
cost, damage and expense, including, without limitation, reasonable
attorneys' fees, which the Escrow Agent may suffer or incur by reason of any
action, claim or proceeding brought against the Escrow Agent arising out of
or relating in any way to this Agreement or any transaction to which this
Agreement relates unless such action, claim or proceeding is the result of
the willful misconduct of the Escrow Agent. The Escrow Agent may consult
counsel in respect of any question arising under this Agreement and the
Escrow Agent shall not be liable for any action taken or omitted in good
faith upon advice of such counsel.
Page 81 of 87 Pages
V. BINDING AGREEMENT AND SUBSTITUTION OF ESCROW AGENT. The terms and
conditions of this Agreement shall be binding on the assigns, creditors or
transferees, or successors in interest, whether by operation of law or
otherwise, of the parties hereto. If, for any reason, the Escrow Agent named
herein should be unable or unwilling to continue as such Escrow Agent, then
the Company may substitute another escrow agent.
W. NOTICES. All notices, requests, demands, and other communications under
this Agreement shall be in writing and shall be deemed to have been duly
given (a) on the date of service if served personally on the party to whom
notice is to be given, (b) on the day of transmission if sent by facsimile
transmission to the facsimile number given below, and telephonic confirmation
of receipt is obtained promptly after completion of transmission, (c) on the
day after delivery to Federal Express or similar overnight courier or the
Express Mail service maintained by the U.S. Postal Service, or (d) on the
fifth day after mailing, if mailed to the party to whom notice is to be
given, by first class mail, registered or certified, postage prepaid, and
properly addressed, return receipt requested, to the party as follows:
If to the Company:
Telident, Inc.
Attention: W. Xxxxxx XxXxxxxxxx
Xxx Xxxx Xxxxxx, Xxxxx 00
Xxxxxxxxxxx, XX 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
If to Purchaser:
FAMCO III LIMITED LIABILITY COMPANY
000 Xxxxx Xxxxxxx 000
Xxxxx 000
Xx. Xxxxx Xxxx, Xxxxxxxxx 00000-0000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
If to the Escrow Agent:
Manchester Companies, Inc.
3650 IDS Center
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Facsimile: (000) 000-0000
Telephone: (000) 000-0000
Page 82 of 87 Pages
Any party may change its address for purposes of this paragraph by
giving the other party written notice of the new address in the manner set
forth above.
X. AMENDMENTS; WAIVERS. This Agreement may only be amended or modified,
and any of the terms, covenants, representations, warranties, or conditions
hereof may only be waived, by a written instrument executed by the parties
hereto, or in the case of a waiver, executed by the party waiving compliance.
Any waiver by any party of any condition, or of the breach of any provision,
term, covenant, representation or warranty contained in this Agreement, in
any one or more instances, shall not be deemed to be nor construed as further
or continuing waiver of any such condition, or of the breach of any other
provision, term, covenant, representation, or warranty of this Agreement.
Y. DEFINED TERMS. Any terms not defined herein shall have the meaning set
forth in the Purchase Agreement.
Page 83 of 87 Pages
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first above written.
TELIDENT, INC.
/s/ W. Xxxxxx XxXxxxxxxx
----------------------------------------------
By: W. Xxxxxx XxXxxxxxxx
Its: President and Chief Executive Officer
FAMCO III LIMITED LIABILITY COMPANY
----------------------------------------------
By: Family Financial Strategies, Inc.
Its: Manager
/s/ Xxxx Xxxxxx
----------------------------------------------
By: Xxxx Xxxxxx
Its: President
MANCHESTER COMPANIES, INC.
/s/ Xxxx X. Xxxxxxxx
----------------------------------------------
By: Xxxx X. Xxxxxxxx
Its: President
Page 84 of 87 Pages
EXHIBIT 5
REPRESENTATIONS AND WARRANTIES OF COMPANY
a. REPRESENTATION 5.6(a). The Company has a line of credit facility
with Norwest Bank Minnesota, N.A. This line of credit is secured by the
Company's inventory and accounts receivable.
b. REPRESENTATION 5.8. There is a pending NASDAQ inquiry into the
continued listing of the Company's Common Stock on the NASDAQ SmallCap Market.
c. REPRESENTATION 5.14. The following documents contain registration
rights provisions:
(1) 10% Series B Convertible Debenture issued by the Company in
connection with its May 1993 offering;
(2) Exercise, Conversion, Subscription and Purchase Agreement,
dated October 12, 1995, by and between the Company and Okabena
Partnership K ("Okabena");
(3) Warrant issued by the Company in connection with its April
1996 bridge financing;
(4) Warrant issued by the Company to X.X. Xxxxxxxx & Co. in
connection with its August 1996 public offering; and
(5) Stock Purchase Agreement, dated July 23, 1997, by and between
the Company and FAMCO III Limited Liability Company.
d. REPRESENTATION 5.16. The Company has received a letter from
Nasdaq, dated February 26, 1998, which provides that the Company's common
stock will be delisted on March 16, 1998. The Company has appealed this
decision.
e. REPRESENTATION 5.20. The following securities contain
anti-dilution provisions, and the holders of those securities have not waived
the rights they have pursuant to such provisions.
(1) Series C Warrant to purchase 37,500 shares of Common Stock,
exercisable at $16.00 per share of such stock, issued by the
Company to Okabena in October 1995. Okabena will not waive the
anti-dilution provisions contained in this warrant. The
anti-dilution provisions only adjust the price at which the Warrant
can be exercised and not the number of shares for which it can be
exercised.
(2) 10% Series B Convertible Debenture issued by the Company in
connection with its May 1993 offering. Such anti-dilution
provisions will not be waived by holders thereof. Such debentures
will be paid in July 1998.
Page 85 of 87 Pages
f. REPRESENTATION 5.20. The 10% Series B Convertible Debentures
issued by the Company in connection with its May 1993 offering contain
preemptive rights provisions. Such debentures will be paid in July 1998.
Page 86 of 87 Pages
