EXHIBIT 10.1
TELIDENT, INC.
STOCK PURCHASE AGREEMENT
April 13, 1998
FAMCO III LIMITED LIABILITY COMPANY
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SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
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▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
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:
1. 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.
2. 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").
3. 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
▇▇▇▇▇▇▇, Calamari & ▇▇▇▇▇▇▇ 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 ▇▇▇▇▇▇▇, Calamari & ▇▇▇▇▇▇▇ 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 held in escrow pursuant to the Escrow Agreement and the Proceeds
Agreement shall be released as provided therein.
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4. Restriction on Transfer of Securities.
4.1 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.
4.2 (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.
4.3 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.
4.4 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
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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.
5. Representations and Warranties by Company. Except as disclosed in
Exhibit 5 hereto, the Company represents and warrants to the Purchasers that:
5.1 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.
5.2 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.
5.3 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 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
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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.
5.4 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.
5.5 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.
5.6 Changes, Dividends, etc. Except for the transactions
contemplated by this Agreement, since December 31, 1997 the Company has not: (a)
incurred any debts, 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
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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.
5.7 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.
5.8 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 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.
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5.9 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.
5.10 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.
5.11 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 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,
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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.
5.12 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.
5.13 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.
5.14 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.
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5.15 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.
5.16 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.
5.17 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.
5.18 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.
5.19 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.
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5.20 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.
6. Representations and Warranties of Purchasers. Each of the Purchasers
represents and warrants for itself that:
6.1 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.
6.2 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 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.
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6.3 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.
6.4 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.
7. 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.
7.1 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.
7.2 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.
7.3 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.
7.4 Opinion of Company's Counsel. The Company shall have
delivered to each Purchaser an opinion of ▇▇▇▇▇▇ and ▇▇▇▇▇▇, 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 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
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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 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.
12
(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.
7.5 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.
7.6 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.
7.7 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.
7.8 Series II Preferred Stock Certificate of Designation. The
Company shall have filed with the Minnesota Secretary of State a termination of
the Certificate of Designation as to the Series II Preferred Stock which was
filed with the Minnesota Secretary of State on November 2, 1994.
13
7.9 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.
7.10 Aggregate Investment. The aggregate number of Preferred
Shares purchased hereunder by all Purchasers shall be 400,000.
7.11 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.
8. Covenants. The Company covenants and agrees that:
8.1 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.
8.2 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.
8.3 Furnishing of Financial Statements and Information. The
Company will deliver to each Purchaser:
(a) all of the Company's 10-QSB Reports as soon as
practicable after the filing of such Reports with the
Commission;
14
(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.
8.4 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.
8.5 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.
8.6 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.
8.7 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.
15
8.8 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.
9. The Preferred Shares.
9.1 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.
9.2 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.
10. The Warrants.
10.1 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.
10.2 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.
11. Registration of Stock.
11.1 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 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
16
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.
11.2 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 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
17
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.
11.3 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 Registration Statement has
become effective or a supplement to any Prospectus forming a
part of such Registration Statement has been filed;
18
(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 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
19
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 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.
20
11.4 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.
11.5 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 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,
21
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 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
22
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.
12. 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
performance by the Company of any of its covenants or agreements to be performed
under this Agreement.
23
13. 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.
14. 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 ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇, ▇▇. ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇, 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 ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, 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, ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇ ▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
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.
15. 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.
16. 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.
17. 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.
24
18. 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.
19. 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.
20. 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.
21. 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.
22. 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.
25
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. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
-------------------------------------
W. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, 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/ ▇▇▇▇ ▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇▇▇▇▇▇
Its: President
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: MG Advisers LLC
Its: General Partner
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇
---------------------------------
By: ▇▇▇▇▇▇ ▇▇▇▇▇
Its: Member
26
SCHEDULE 1
NAME OF NUMBER OF NUMBER OF
PURCHASER PREFERRED WARRANTS PURCHASE
SHARES PURCHASED PURCHASED PRICE
========================= ====================== =============== ==============
FAMCO III 200,000 200,000 $500,000
Limited Liability
Company
------------------------- ---------------------- --------------- --------------
Special Situations
Private Equity
Fund, L.P. 200,000 200,000 $500,000
========================= ====================== =============== ==============
27
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 ▇▇. ▇▇▇▇▇▇▇▇......................................... 12,500
Warrant dated August 1996 issued to ▇.▇. ▇▇▇▇▇▇▇▇...................................... 28,750
Warrant dated September 1997 issued to ▇▇. ▇▇▇▇▇▇▇▇.................................... 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
28
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 ▇▇▇▇ ▇▇▇▇▇▇▇................................ 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
=========
29
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 ▇▇. ▇▇▇▇▇▇▇▇......................................... 12,500
Warrant dated August 1996 issued to ▇.▇. ▇▇▇▇▇▇▇▇...................................... 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
30
Warrant dated September 1997 issued to ▇▇. ▇▇▇▇▇▇▇▇.................................... 12,500
Warrant dated July 1997 issued to Family Financial Strategies......................... 312,500
Warrant dated February 25, 1998 issued to ▇▇▇▇ ▇▇▇▇▇▇▇................................ 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
----------
31
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;
32
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;
33