EXHIBIT 4.1
SERIES C PREFERRED STOCK PURCHASE AGREEMENT
QUALMARK CORPORATION
TABLE OF CONTENTS
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SERIES C PREFERRED STOCK
PURCHASE AGREEMENT
This Series C Preferred Stock Purchase Agreement (the "Agreement") is
made and entered into as of the 27th day of March, 2002, by and between QUALMARK
CORPORATION, a Colorado corporation (the "Company"), and THE ▇▇▇▇▇ PARTNERSHIP
III, SBIC, LP, a Colorado limited partnership ("Purchaser").
RECITALS
A. The Company has authorized the issuance and sale of a total of 1,000
shares of Series C Convertible Preferred Stock of the Company, no par value per
share (the "Series C Shares"), and a warrant to purchase a certain number of
shares of Common Stock of the Company, no par value per share (the "Common
Stock"), pursuant to the form of warrant attached as Exhibit A hereto (the
"Warrant"), and has reserved a sufficient number of shares of Common Stock for
issuance upon conversion of the Series C Shares and upon exercise of the
Warrant.
B. Purchaser currently owns 571,013 shares of Series A Convertible
Preferred Stock of the Company, no par value per share (the "Series A Shares"),
and additional warrants to purchase 139,535 shares of Common Stock (the "Prior
Warrants").
C. As an inducement to Purchaser to enter into this Agreement and to
acquire the Series C Shares, the Company and Purchaser shall enter into an
agreement and plan of recapitalization (the "Exchange Agreement") providing for
the exchange of each of the Series A Shares held by Purchaser for one share of a
new series of preferred stock, Series B Convertible Preferred Stock (the "Series
B Shares"), of the Company.
D. The Company desires to sell the Series C Shares and the Warrant to
Purchaser, and Purchaser desires to purchase the Series C Shares and the
Warrant, pursuant to the terms and conditions contained herein.
AGREEMENT
NOW THEREFORE, in consideration of the mutual covenants, agreements,
conditions, representations, and warranties contained in this Agreement, the
Company and Purchaser hereby each agree as follows:
SECTION 1. PURCHASE AND SALE.
1.1 AUTHORIZATION OF SHARES. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized (i) the sale and issuance to
Purchaser of the Series C Shares and the Warrant; (ii) such shares of Common
Stock issuable upon conversion of the Series C Shares and the Series B Shares
and upon exercise of the Warrant (the "Conversion Shares"); and (iii) the
exchange of the Series A Shares for the Series B Shares pursuant to the terms of
the Exchange Agreement. The Series C Shares and the Series B Shares shall have
the rights,
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preferences, privileges and restrictions set forth in the Certificates of
Designation of the Company for each series, in the forms attached hereto as
Exhibit B and Exhibit C (the "Certificates of Designation"). Collectively, the
Series C Shares, the Series B Shares and the Conversion Shares are referred to
as the "Shares".
1.2 SALE AND PURCHASE. Subject to the terms and conditions hereof, at
the Closing (as described in Section 2 hereof) the Company hereby agrees to
issue and sell to Purchaser, and Purchaser agrees to purchase from the Company,
1,000 Series C Shares and the Warrant, at the purchase price of $1,000.00 per
share for the Series C Shares.
SECTION 2. CLOSING.
The closing of the sale and purchase of the Series C Shares and the
Warrant under this Agreement (the "Closing") shall take place at 9:00 a.m. on
the date hereof, at the offices of Faegre & ▇▇▇▇▇▇ LLP, ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or at such other time or place as the Company and
Purchaser may mutually agree (such date is hereinafter referred to as the
"Closing Date"). At the Closing, subject to the terms and conditions hereof, the
Company will deliver to Purchaser certificates representing the Series C Shares
and the Warrant to be purchased at the Closing by Purchaser against payment of
the purchase price therefor by check or wire transfer made payable to the order
of the Company.
SECTION 3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
Except as set forth on the Disclosure Schedule attached hereto as
Exhibit D, the Company hereby represents and warrants to Purchaser as follows:
3.1 ORGANIZATION, GOOD STANDING AND QUALIFICATION. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Colorado. The Company has all requisite corporate power and
authority to own and operate its properties and assets, to execute and deliver
this Agreement, the Exchange Agreement, the Warrant and the Amendment No. 1 to
Investor Rights Agreement in the form attached hereto as Exhibit E (the "Amended
Investor Rights Agreement") (collectively this Agreement, the Exchange
Agreement, the Amended Investor Rights Agreement, the Warrant and the
Certificates of Designation, the "Financing Documents"), to issue and sell the
Series C Shares, the Series B Shares and the Warrant and to carry out the
provisions of the Financing Documents, and to carry on its business as presently
conducted and as presently proposed to be conducted. The Company is duly
qualified and is authorized to do business and is in good standing in each
jurisdiction in which the nature of its activities and of its properties (both
owned and leased) makes such qualification necessary, except for those
jurisdictions in which failure to do so would not have a material adverse effect
on the Company or its business. The Company does not own, directly or
indirectly, equity securities of any other corporation, limited partnership,
limited liability company or other similar entity. The Company is not a
participant in any joint venture, partnership or similar arrangement. The
Company meets the eligibility requirements to use Form S-3 under the Securities
Act of 1933, as amended (the "Securities Act"), and is otherwise in compliance
with all applicable provisions of the Act and the Securities Exchange Act of
1934, as amended (the "Exchange Act").
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3.2 CAPITALIZATION. The authorized capital stock of the Company,
immediately prior to the Closing, will consist of (a) 15,000,000 shares of
Common Stock, 3,645,638 shares of which are issued and outstanding, 881,746
shares of which are reserved for future issuance to employees and consultants
upon exercise of options granted pursuant to the Company's option plan, 759,535
shares of which are reserved for exercise of existing warrants, and 692,951
shares of which are reserved for issuance upon conversion of the Series A
Shares; and (b) 2,000,000 shares of Preferred Stock, 692,951 shares of which are
designated Series A Shares. All issued and outstanding shares of the Common
Stock (i) have been duly authorized and validly issued, (ii) are fully paid and
nonassessable, and (iii) were issued in compliance with all applicable state and
federal laws concerning the issuance of securities. The rights, preferences,
privileges and restrictions of the Shares are as stated in the Certificates of
Designation and in the Amended and Restated Articles of Incorporation of the
Company (the "Articles"). The Conversion Shares have been duly and validly
reserved for issuance. Except as may be granted pursuant to the Financing
Documents, there are no outstanding options, warrants, rights (including
conversion or preemptive rights and rights of first refusal), proxy or
shareholders agreements, or agreements of any kind for the purchase or
acquisition from the Company of any of its securities. When issued in compliance
with the provisions of this Agreement, the Certificates of Designation, the
Exchange Agreement and the Articles, the Series C Shares, the Series B Shares
and the Conversion Shares will be validly issued, fully paid and nonassessable,
and will be free of any liens or encumbrances. A schedule describing the
capitalization of the Company as of the Closing is attached as Exhibit F hereto.
3.3 AUTHORIZATION. All corporate action on the part of the Company, its
officers, directors and shareholders necessary for the authorization of the
Financing Documents, the performance of all obligations of the Company hereunder
and thereunder at the Closing and the authorization, sale, issuance and delivery
of the Shares pursuant hereto and the Conversion Shares pursuant to the Articles
has been taken or will be taken prior to the Closing. The Financing Documents,
when executed and delivered, will be valid and binding obligations of the
Company enforceable against the Company in accordance with their terms, except
(i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application affecting enforcement of creditors' rights;
(ii) general principles of equity that restrict the availability of equitable
remedies; and (iii) to the extent that the enforceability of the indemnification
provisions in the Amended Investor Rights Agreement may be limited by applicable
laws. The sale of the Series C Shares and the Warrant, and the subsequent
issuance of the Conversion Shares upon conversion of the Series C Shares and
exercise of the Warrant, and the issuance of the Series B Shares pursuant to the
Exchange Agreement are not and will not be subject to any preemptive rights or
rights of first refusal that have not been properly waived or complied with.
3.4 FINANCIAL STATEMENTS. Purchaser has reviewed (i) the annual report
on Form 10-KSB of the Company for its most recent fiscal year filed under the
Exchange Act, and all quarterly reports subsequently filed on Form 10-QSBs and
(ii) the audited balance sheet of the Company as of December 31, 2001, (the
"Balance Sheet Date") together with the audited consolidated statements of
operations, audited consolidated statements of shareholders' equity, and audited
consolidated statements of cash flows of the Company for the twelve months then
ended, (the "Financial Statements"). The Financial Statements have been prepared
in accordance with
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GAAP and fairly present the financial condition and operating results of the
Company as of the dates and for the periods indicated therein. Except as set
forth in the Financial Statements, the Company has no material liabilities,
contingent or otherwise, other than (i) liabilities incurred in the ordinary
course of business after the Balance Sheet Date and (ii) obligations under
contracts and commitments incurred in the ordinary course of business and not
required under GAAP to be reflected in the Financial Statements, which, in both
cases, individually or in the aggregate, are not material to the financial
condition or operating results of the Company. Except as disclosed in the
Financial Statements, the Company is not a guarantor or indemnitor of any
indebtedness of any other person, firm or corporation. The Company knows of no
information or fact which has or would have a material adverse effect on the
financial condition, business or business prospects of the Company which has not
been disclosed to Purchaser. The Company maintains and will continue to maintain
a standard system of accounting established and administered in accordance with
GAAP. The accountants that have audited the Financial Statements are independent
certified public accountants as required by the Securities Act.
3.5 LIABILITIES. The Company has no material liabilities and, to the
best of its knowledge, the Company knows of no material contingent liabilities
not disclosed in the Financial Statements, except current liabilities incurred
in the ordinary course of business subsequent to the Balance Sheet Date which
have not been, either in any individual case or in the aggregate, materially
adverse.
3.6 CHANGES. Since the Balance Sheet Date, and excluding the
transactions contemplated by the Financing Documents, there has not been:
(a) Any change in the assets, liabilities, financial condition
or operations of the Company or any Subsidiary from that reflected in the
Financial Statements, other than changes in the ordinary course of business,
none of which individually or in the aggregate has had or is expected to have a
material adverse effect on such assets, liabilities, financial condition or
operations of the Company;
(b) Any resignation or termination of any key officers of the
Company; and the Company, to the best of its knowledge, does not know of the
impending resignation or termination of employment of any such officer;
(c) Any material change, except in the ordinary course of
business, in the contingent obligations of the Company by way of guaranty,
endorsement, indemnity, warranty or otherwise;
(d) Any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the properties, business or
prospects or financial condition of the Company;
(e) Any waiver by the Company of a valuable right or of a
material debt owed to it;
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(f) Any direct or indirect loans made by the Company to any
shareholder, employee, officer or director of the Company, other than advances
made in the ordinary course of business;
(g) Any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder of the Company;
(h) Any declaration or payment of any dividend or other
distribution of the assets of the Company;
(i) Any labor organization activity;
(j) Any debt, obligation or liability incurred, assumed or
guaranteed by the Company, except those for immaterial amounts and for current
liabilities incurred in the ordinary course of business;
(k) Any sale, assignment or transfer of any patents,
trademarks, copyrights, trade secrets or other intangible assets of the Company;
(l) Any change in any material agreement to which the Company
is a party or by which it is bound which materially and adversely affects the
business, assets, liabilities, financial condition, operations or prospects of
the Company, including compensation agreements with the Company's employees; or
(m) Any other event or condition of any character that, either
individually or cumulatively, has materially and adversely affected the
business, assets, liabilities, financial condition, operations or prospects of
the Company.
3.7 MATERIAL CONTRACTS.
(a) Except as set forth on Item 3.7 of the Disclosure
Schedule, the Company has no, and is not bound by any, contract, agreement,
lease, commitment, proposed transaction, judgment, order, writ or decree,
written or oral, absolute or contingent, other than (i) contracts for the
purchase of supplies and services that were entered into in the ordinary course
of business and that do not involve more than $10,000, and do not extend for
more than one year beyond the date hereof; (ii) sales contracts entered into in
the ordinary course of business; and (iii) contracts terminable at will by the
Company on no more than 30 days' notice without cost or liability to the Company
and that do not involve any employment or consulting arrangement and are not
material to the conduct of the Company's business. For the purpose of this
paragraph, employment and consulting contracts and contracts with labor unions,
and license agreements and any other agreements relating to the Company's
acquisition or disposition of patent, copyright, trade secret or other
proprietary rights or technology (other than standard end-user license
agreements) shall not be considered to be contracts entered into in the ordinary
course of business. Every contract disclosed on Item 3.7 of the Disclosure
Schedule (collectively, the "Material Contracts") is a legal, valid and binding
obligation, enforceable in accordance with its terms with respect to the Company
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and any other parties bound thereby, and true and complete copies of all
Material Contracts have been provided to Purchaser. The Company has not been
given notice that any other party is currently in breach of any of the terms of
any Material Contract. There is no default or event that, with notice or lapse
of time, or both, would conflict with or constitute a breach of any Material
Contract or would result in the creation or imposition of any lien or
encumbrance on the Company, or any of the Company's property. The Company has
not received notice that any party to any Material Contract intends to cancel,
amend or terminate any such agreement.
(b) The Company has not engaged in the past three months in
any discussion (i) with any representative of any corporation or corporations
regarding the consolidation or merger of the Company with or into any such
corporation or corporations; (ii) with any corporation, partnership, association
or other business entity or any individual regarding the sale, conveyance or
disposition of all or substantially all of the assets of the Company, or a
transaction or series of related transactions in which more than 50% of the
voting power of the Company is or was to be disposed; or (iii) regarding any
other form of acquisition, liquidation, dissolution or winding up of the
Company.
3.8 OBLIGATIONS TO RELATED PARTIES. There are no obligations of the
Company to officers, directors, shareholders or employees of the Company other
than (i) for payment of salary for services rendered since the commencement of
the Company's most recent payroll period; (ii) reimbursement for reasonable
expenses incurred on behalf of the Company; and (iii) for other standard
employee benefits made generally available to all employees (including stock
option agreements outstanding under any stock option plan approved by the Board
of Directors of the Company). Except as disclosed on the Disclosure Schedule
hereto, none of the officers, directors or shareholders of the Company, or any
members of their immediate families, are indebted to the Company or have any
direct or indirect ownership interest in any firm or corporation with which the
Company is affiliated or with which the Company has a business relationship, or
any firm or corporation which competes with the Company, except that officers,
directors and/or shareholders of the Company may own stock in publicly traded
companies which may compete with the Company. No officer, director or
shareholder, or any member of their immediate families, is, directly or
indirectly, interested in any Material Contract with the Company (other than
such contracts as relate to any such person's ownership of capital stock or
other securities of the Company). Except as may be disclosed in the Financial
Statements, the Company is not a guarantor or indemnitor of any indebtedness of
any other person, firm or corporation.
3.9 ASSETS. The Company has good and, with respect to real property,
marketable, title to all of its real and personal property, including all assets
reflected on the balance sheets included in the Financial Statements or acquired
by the Company since the Balance Sheet Date, all of which are in good operating
condition and free and clear of material restrictions on or conditions to
transfer or assignment, and free and clear of all liens, claims, mortgages,
pledges, charges, equities, easements, rights of way, covenants, conditions,
security interests, encumbrances or restrictions, except for liens for current
taxes or materialmen not yet due and payable or being contested in good faith.
Set forth on Item 3.9 of the Disclosure Schedule is a correct and complete list
of all real property owned by the Company, and a list (including the amount of
annual rents called for and a
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summary description of the leased property) of all leases under which the
Company is a lessee. The properties and leases listed on Item 3.9 of the
Disclosure Schedule are sufficient for the conduct of the Company's business as
now being and presently planned to be conducted. The Company holds a valid
leasehold interest in all leases listed on Item 3.9 of the Disclosure Schedule,
free of any liens, claims or encumbrances granted by the Company, except for
those described in the first sentence of this Section 3.9, and is not in default
under any such lease. The Company enjoys peaceful and undisturbed possession of
all premises owned by them, or leased to them from others, and does not occupy
any real property in material violation of any law, regulations or decree.
3.10 INTELLECTUAL PROPERTY.
(a) The Company owns exclusive right to all intellectual
property necessary to conduct its business as now being conducted and as planned
to be conducted, including all such rights relating to patents, trademarks,
service marks, copyrights, applications therefor, trade names, trade secrets,
export of technology and other information (collectively "Proprietary
Information").
(b) The Company possesses the exclusive commercial rights to
all Proprietary Information and the Proprietary Information is not subject to
any kind of lien, judgment or other encumbrance.
(c) True and complete copies of all papers relating to the
Proprietary Information have been made available to Purchaser, including all
patent application file histories, trademark and service ▇▇▇▇ application file
histories, copyright registration file histories, license and option negotiation
papers, purchase negotiation papers, and all licenses and agreements relating to
the Proprietary Information.
(d) There is no pending or, to the knowledge of the Company,
threatened claim or litigation against the Company relating to the Proprietary
Information.
(e) There is no pending or, to the knowledge of the Company,
threatened claim or litigation against the Company or the Proprietary
Information asserting the infringement or other violation of any intellectual
property rights of a third party.
(f) To the best of the Company's knowledge and belief, there
is no claim that can be asserted against a third party for infringement,
misappropriation, breach or otherwise relating to the Proprietary Information.
(g) The Company has entered into the confidentiality
agreements with all employees and consultants, and with other third parties who
have or are likely to have as part of their association with the Company
knowledge of the present Proprietary Information and any future information that
would be considered Proprietary Information hereunder, in the form attached
hereto as Exhibit G.
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(h) The Company, after reasonable investigation, is not aware
of any violation of the agreements identified in Paragraph (g).
(i) No shareholder, director, officer or employee of the
Company has any right, title or interest in or to any of the Proprietary
Information.
3.11 COMPLIANCE WITH OTHER INSTRUMENTS. The Company is not in violation
or default of any term of its Articles or Bylaws, or of any provision of any
mortgage, indenture, contract, agreement, instrument or contract to which it is
party or by which it is bound or of any judgment, decree, order, writ or, to its
knowledge, any statute, rule or regulation applicable to the Company which would
materially and adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. The execution, delivery, and
performance of and compliance with the Financing Documents, and the issuance and
sale of the Series C Shares, the Series B Shares and the Conversion Shares
pursuant thereto, will not, with or without the passage of time or giving of
notice, result in any such material violation, or be in conflict with or
constitute a default under any such term, or result in the creation of any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company or the suspension, revocation, impairment, forfeiture or
nonrenewal of any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or properties.
3.12 LITIGATION. There are no actions, suits, or legal, administrative
or other proceedings or investigations pending or, to the best of the Company's
knowledge, threatened before any court, agency or other tribunal to which the
Company is a party or against or affecting any of the property, assets,
businesses or financial condition of the Company. The Company is not in default
with respect to any order, writ, injunction or decree of any federal, state,
local or foreign court, department, agency or instrumentality to which it is a
party.
3.13 TAXES. The Company has timely filed all federal, state, county,
local and foreign tax returns and reports within the times and in the manner
prescribed by law and has paid (or made adequate provision in the Financial
Statements for) all taxes shown due on such returns, as well as all other
assessments and penalties which have become due and payable. The Company's
federal income and other tax returns have not been audited by the Internal
Revenue Service or any other taxing authority and no notice of audit has been
received. The Company has received no notice of any disputes, deficiency
assessments or proposed adjustments to taxes payable by the Company.
3.14 EMPLOYEES AND CONSULTANTS. Except as set forth on Item 3.14 of the
Disclosure Schedule, the Company has not entered into any arrangement with any
present or former employee that will result in any obligation of the Company to
make any payment to such employee upon termination. True and complete copies of
all written employment agreements with the key executive officers of the Company
listed on Item 3.14 of the Disclosure Schedule have been made available to
Purchaser prior to the Closing Date. To the Company's knowledge, no employee of
or consultant to the Company is in material violation of any term of any
employment contract or any other contract or agreement relating to the
relationship of any such employee or consultant with the Company. The Company
has not received notice that any executive officer intends to terminate his
employment with the Company, nor does the Company have any present intention to
terminate the
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employment of any executive officer. To the Company's knowledge, none of its
employees are obligated under any contract (including licenses, covenants, or
commitments of any nature) or other agreement, or subject to any judgment,
decree, or order of any court or administrative agency, that would interfere
with the use of his/her reasonable diligence to promote the interests of the
Company or that would conflict with the Company's business as proposed to be
conducted. Neither the execution nor delivery of this Agreement, nor the
carrying on of the Company's business by the employees of the Company, nor the
conduct of the Company's business as proposed, will, to the Company's knowledge,
conflict with or result in a breach of the terms, conditions or provisions of,
or constitute a default under, any contract, covenant or instrument under which
any of such employees is obligated, which conflict, breach or default would be
materially adverse to the Company.
3.15 EMPLOYEE BENEFITS MATTERS. The Company does not maintain or
contribute to any plan or arrangement that constitutes an "employee pension
benefit plan" as defined in Section 3(2) of ERISA, and is not obligated to
contribute to or accrue or pay benefits under any deferred compensation or
retirement funding arrangement.
3.16 REGISTRATION RIGHTS. Except as required pursuant to the Amended
Investor Rights Agreement, the Company is presently not under any obligation,
and has not granted any rights, to register any of the Company's presently
outstanding securities or any of its securities that may hereafter be issued.
3.17 GOVERNMENTAL APPROVALS/THIRD PARTY CONSENTS. All consents,
approvals or authorizations of, or registrations, qualifications, designations,
declarations or filings with any federal or state governmental authority, and
all consents, approvals or authorizations of any third party required in
connection with the execution of the Financing Documents and the performance of
the transactions contemplated hereby (including the issuance and sale of the
Shares and the Warrant) have been obtained by the Company. The Company has, or
has rights to acquire, all licenses, permits and other similar authority
necessary for the conduct of its business as now being conducted by it and as
planned to be conducted, the lack of which could materially and adversely affect
the operations or condition, financial or otherwise, of the Company, and it is
not in default in any material respect under any of such licenses, permits or
other similar authority.
3.18 COMPLIANCE WITH LAWS. (a) The Company has complied with and is in
compliance in all material respects with all foreign, federal, state and local
statutes, laws, ordinances, regulations, rules, judgments, orders and decrees
applicable to it and its assets, business and operations, and (b) the Company
has received no written notice of any claim of default under or violation of any
statute, law, ordinance, regulation, rule, judgment, order or decree except for
any such noncompliance or claim of default or violation, if any, which in the
aggregate do not and will not have a material adverse effect the property,
operations, financial condition or prospects of the Company.
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3.19 ENVIRONMENTAL MATTERS. The Company is in compliance in all
material respects with all environmental and occupational health and safety laws
and, to its knowledge, no material expenditures are or will be required in order
to comply with any such laws.
3.20 OFFERING VALID. Assuming the accuracy of the representations and
warranties of Purchaser contained in Section 4 hereof, the offer, sale and
issuance of the Shares and the Warrant will be exempt from the registration
requirements of the Securities Act and will have been registered or qualified
(or are exempt from registration and qualification) under the registration,
permit or qualification requirements of all applicable state securities laws.
3.21 ACCURACY OF INFORMATION FURNISHED. The Financing Documents, as
well as any exhibit, certificate, written statement, material or information
furnished by or on behalf of the Company pursuant thereto or in connection with
the transactions contemplated thereby to Purchaser, do not contain any untrue
statement of a material fact or omit to state any material fact that is
necessary to make the statements contained herein or therein not misleading.
3.22 INSURANCE. The Company has fire and casualty insurance policies
with coverage customary for companies similarly situated to the Company.
3.23 SMALL BUSINESS INVESTMENT COMPANY MATTERS. The Company shall
deliver to Purchaser a letter (the "SMALL BUSINESS SIDE LETTER") relating to the
Company's compliance with certain matters related to investments in the Company
by a small business investment company that is licensed by the U.S. Small
Business Administration.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF PURCHASER.
Purchaser makes the following representations and warranties to the
Company as to itself that:
4.1. REQUISITE POWER AND AUTHORITY. Purchaser is a corporation, limited
liability company or limited partnership duly organized, validly existing and in
good standing under the laws of the jurisdiction of its formation, and has all
requisite partnership or corporate power and authority to own its assets and
operate its business. Purchaser has all necessary corporate or partnership power
and authority under all applicable provisions of law to execute and deliver the
Financing Documents to which it is a party and to carry out their provisions.
All action on Purchaser's part required for the lawful execution and delivery of
the Financing Documents have been or will be effectively taken prior to the
Closing Date. Upon their execution and delivery, the Financing Documents to
which Purchaser is a party will be valid and binding obligations of Purchaser,
enforceable in accordance with their terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of general
application affecting enforcement of creditors' rights; (ii) general principles
of equity that restrict the availability of equitable remedies; and (iii) to the
extent that the enforceability of the indemnification provisions of the Amended
Investor Rights Agreement may be limited by applicable laws.
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4.2. INVESTMENT REPRESENTATIONS. Purchaser understands that the Shares
and the Warrant have not been registered under the Securities Act. Purchaser
also understands that the Shares and the Warrant are being offered and sold
pursuant to an exemption from registration contained in the Securities Act based
in part upon Purchaser's representations contained in this Agreement. Purchaser
hereby represents and warrants as follows:
(a) PURCHASER BEARS ECONOMIC RISK. Purchaser has substantial
experience in evaluating and investing in private placement transactions of
securities in companies similar to the Company so that it is capable of
evaluating the merits and risks of its investment in the Company and has the
capacity to protect its own interests. Purchaser must bear the economic risk of
this investment indefinitely unless the Shares or Warrant are registered
pursuant to the Securities Act, or an exemption from registration is available.
Purchaser understands that there is no assurance that any exemption from
registration under the Securities Act will be available and that, even if
available, such exemption may not allow Purchaser to transfer all or any portion
of the Shares or Warrant under the circumstances, in the amounts or at the times
Purchaser might propose.
(b) ACQUISITION FOR OWN ACCOUNT. Purchaser is acquiring the
Shares and the Warrant for Purchaser's own account for investment only, and not
with a view towards their distribution.
(c) PURCHASER CAN PROTECT ITS INTEREST. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in the Financing Documents.
(d) ACCREDITED INVESTOR. Purchaser represents that it is an
accredited investor within the meaning of Regulation D under the Securities Act.
(e) COMPANY INFORMATION. Purchaser has received and read the
Financial Statements and has had an opportunity to discuss the Company's
business, management and financial affairs with directors, officers and
management of the Company and has had the opportunity to review the Company's
operations and facilities. Purchaser also has had the opportunity to ask
questions of and receive answers from, the Company and its management regarding
the terms and conditions of this investment.
(f) RULE 144. Purchaser acknowledges and agrees that the
Shares and the Warrant must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Purchaser has been advised or is aware of the provisions of Rule 144
promulgated under the Securities Act, which permits limited resale of shares
purchased in a private placement subject to the satisfaction of certain
conditions, including, among other things: the availability of certain current
public information about the Company, the resale occurring not less than one
year after a party has purchased and paid for the security to be sold, the sale
being through an unsolicited "broker's transaction" or in transactions directly
with a market maker (as said term is defined under the Exchange Act) and the
number of shares being sold during any three-month period not exceeding
specified limitations.
11
(g) RESIDENCE. The office or offices of the Purchaser in which
its investment decision was made is located at the address or addresses of the
Purchaser as stated on the signature pages of this Agreement.
4.3 RESTRICTIVE LEGENDS. Purchaser agrees to the imprinting, so long as
required by law, of a legend on certificates representing all of the Shares to
the following effect:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH
ACT AND APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE
EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH LAWS."
SECTION 5. CONDITIONS TO CLOSING.
5.1 CONDITIONS TO PURCHASER'S OBLIGATIONS AT THE CLOSING. Purchaser's
obligations to purchase the Series C Shares and the Warrant at the Closing are
subject to the satisfaction, at or prior to the Closing, of the following
conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF
OBLIGATIONS. The representations and warranties made by the Company in Section 3
hereof shall be true and correct in all material respects as of the Closing Date
with the same force and effect as if they had been made as of such Closing Date,
and the Company shall have performed all obligations and conditions herein
required to be performed or observed by it on or prior to such Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and
issuance of the Series C Shares, the Series B Shares and the Warrant, and the
proposed issuance of the Conversion Shares, shall be legally permitted by all
laws and regulations to which Purchaser and the Company are subject.
(c) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Agreement and the Financing
Documents (except for such as may be properly obtained subsequent to the
Closing).
(d) FILING OF CERTIFICATES OF DESIGNATION. The Certificates of
Designation shall have been filed with the Secretary of State of the State of
Colorado at or prior to the Closing.
(e) CORPORATE DOCUMENTS. The Company shall have delivered to
Purchaser or its counsel, copies of all corporate documents of the Company as
Purchaser shall reasonably request.
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(f) RESERVATION OF CONVERSION SHARES. The Conversion Shares
issuable upon conversion of the Series C Shares and the Series B Shares and upon
exercise of the Warrant shall have been duly authorized and reserved for
issuance upon such conversion or exercise, as applicable.
(g) CERTIFICATES. The Company shall have delivered to
Purchaser:
(1) proof of filing of the Certificates of
Designation, and a certificate, as of the most recent practical date prior to
the Closing, of the Secretary of State of Colorado as to the Company's good
standing;
(2) a certificate of the Secretary of the Company
dated as of the Closing Date, certifying as to (i) the incumbency of officers of
the Company executing the Financing Documents and all other documents executed
and delivered in connection therewith; (ii) a copy of the Certificates of
Designation, in effect as of the Closing; (iii) a copy of the Bylaws of the
Company, in effect on the Closing Date; and (iv) a copy of the resolutions or
consents of the Board of Directors of the Company authorizing and approving the
Company's execution, delivery and performance of the Financing Documents; and
(3) a certificate, executed by the President and
Chief Executive Officer of the Company as of the Closing Date, certifying to the
fulfillment of all of the conditions of the Purchaser's obligations under this
Agreement, as set forth in this Section 5.1.
(h) AMENDED INVESTOR RIGHTS AGREEMENT. The Amended Investor
Rights Agreement substantially in the form attached hereto as Exhibit E shall
have been executed and delivered by the parties thereto.
(i) EXCHANGE AGREEMENT. The Exchange Agreement substantially
in the form attached hereto as Exhibit H shall have been executed and delivered
by the parties thereto.
(j) LEGAL OPINION. Purchaser shall have received from legal
counsel to the Company an opinion addressed to them, dated as of the Closing
Date, in substantially the form attached hereto as Exhibit I.
(k) PROCEEDINGS AND DOCUMENTS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing
hereby and all documents and instruments incident to such transactions shall be
reasonably satisfactory in substance and form to Purchaser and its special
counsel, and Purchaser and its special counsel shall have received all such
counterpart originals or certified or other copies of such documents as they may
reasonably request.
(l) DELIVERY OF SBA FORMS. The Company shall have delivered to
Purchaser the Small Business Side Letter on or prior to Closing, in form and
substance satisfactory to Purchaser.
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5.2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT THE CLOSING. The
Company's obligation to issue and sell the Series C Shares and the Warrant at
the Closing is subject to the satisfaction, at or prior to the Closing, of the
following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations
and warranties made by Purchaser in Section 4 hereof shall be true and correct
in all material respects at the Closing Date, with the same force and effect as
if they had been made on and as of said date.
(b) PERFORMANCE OF OBLIGATIONS. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
(c) FILING OF CERTIFICATES OF DESIGNATION. The Certificates of
Designation shall have been filed with the Secretary of State of the State of
Colorado.
(d) AMENDED INVESTOR RIGHTS AGREEMENT. The Amended Investor
Rights Agreement substantially in the form attached hereto as Exhibit E shall
have been executed and delivered by the parties thereto.
(e) EXCHANGE AGREEMENT. The Exchange Agreement substantially
in the form attached hereto as Exhibit H shall have been executed and delivered
by the parties thereto.
(f) CONSENTS, PERMITS, AND WAIVERS. The Company shall have
obtained any and all consents, permits and waivers necessary or appropriate for
consummation of the transactions contemplated by the Financing Documents (except
for such as may be properly obtained subsequent to the Closing).
SECTION 6. COVENANTS OF THE COMPANY FOR THE PERIOD FOLLOWING CLOSING.
Until the date upon which all Series C Shares held by Purchaser
(including any Conversion Shares) are no longer outstanding, the Company
covenants to Purchaser and agrees as follows:
6.1 USE OF PROCEEDS. The proceeds from the sale of the Series C Shares
to Purchaser pursuant to this Agreement shall be used by the Company for the
purposes set forth in Schedule 6.1 hereto.
6.2 MAINTENANCE OF CORPORATE STATUS. The Company shall maintain, and
shall cause each affiliate to maintain, its corporate or partnership existence
in good standing or effective under the laws of its jurisdiction of organization
and any other states or jurisdictions in which its failure to qualify as a
foreign corporation or entity would have a material adverse effect on its
operations or financial condition.
6.3 COMPLIANCE WITH GOVERNING DOCUMENTS. The Company shall comply, and
shall cause each affiliate to comply, in all material respects with its
Articles, Bylaws, Certificate of Designation or other governing documents.
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6.4 COMPLIANCE WITH LAWS, LICENSES AND PERMITS; NO INFRINGEMENT. The
Company shall comply with all applicable federal, state, local, foreign and
other laws, regulations and ordinances, and with all applicable federal, state,
local and foreign governmental licenses and permits necessary for conducting its
business, except to the extent that any noncompliance would not have a material
adverse effect upon the Company. The Company shall not knowingly engage in any
activities that infringe upon the intellectual property rights of any other
person, corporation, partnership or other entity which could have a material
adverse effect upon the Company.
6.5 DISCHARGE OF OBLIGATIONS. The Company shall pay and discharge all
taxes, assessments and governmental charges lawfully levied or imposed upon it
(in each case before they become delinquent and before penalties accrue), all
lawful claims for labor, materials, supplies and rents, and all other debts and
liabilities that if unpaid would by law be a lien or charge upon any of the
assets or properties of the Company or lead to suspension of the business of the
Company (except to the extent contested in good faith by the Company and for
which adequate reserves are established).
6.6 MAINTENANCE OF PROPERTIES. The Company shall maintain all real and
personal property used in the business of the Company in good operating
condition, and shall make all repairs, renewals, replacements, additions and
improvements to those properties as are necessary or appropriate in the ordinary
course of business.
6.7 MAINTENANCE OF PROPRIETARY INFORMATION. The Company shall maintain
all Proprietary Information, and all applications and registrations therefor
owned or held by the Company, in full force and effect, except as otherwise
determined in the ordinary course of business. The Company shall not encumber or
license others to use its Proprietary Information owned by it except in the
ordinary course of the Company's business, and shall maintain the
confidentiality and trade secret status of all proprietary information that is
confidential except where disclosure is necessary to obtain copyright
registrations or patents, or is necessary or desirable in the ordinary course of
the Company's business. The Company shall enter into and maintain a
Confidentiality Agreement, in the form attached at Exhibit G, with each employee
and, as appropriately modified, each consultant to the Company.
6.8 BOOKS AND RECORDS. The Company shall, and shall cause each
affiliate to, keep proper books of records and account, in which full and
correct entries shall be made of all financial transactions and the assets and
business of the Company and each affiliate, in accordance with generally
accepted accounting principles in effect from time to time. The Company shall
provide Purchaser with access to all such books and records and allow Purchaser
to make copies and abstracts thereof at reasonable times.
6.9 BOARD OF DIRECTORS. Immediately following the Closing Date, the
Company shall cause one director on the Company's Board of Directors (other than
▇▇▇▇▇ ▇▇▇▇▇) to resign and shall nominate and recommend to the shareholders of
the Company to fill such vacancy with a designee of Purchaser at the Company's
May 2002 annual meeting of shareholders. As long as Purchaser holds more than
25% of the Series C Shares acquired in this financing and the Series B shares
acquired in exchange for its Series A shares, or the Conversion Shares issuable
upon
15
conversion thereof, the Company shall nominate, and recommend that the
shareholders of the Company elect, at least two representatives designated by
Purchaser for election to the Board of Directors.
6.10 REGISTRATION OF SHARES. As soon as practicable after the Closing,
the Company shall prepare and submit a registration statement to the Securities
and Exchange Commission (the "SEC") which registration statement shall register
the Conversion Shares and the shares of common stock issuable upon exercise of
the Prior Warrant (collectively, the "Registrable Shares") for resale, provided
that if such registration statement is not declared effective by the SEC within
120 days after the Closing Date (the "Registration Deadline"), then the Company
shall pay to Purchaser an amount equal to $273.97 for each day after the
expiration of the Registration Deadline that the registration statement is not
declared effective for a period of up to 12 months.
SECTION 7. MISCELLANEOUS.
7.1 GOVERNING LAW. This Agreement shall be governed by the laws of the
State of Colorado as such laws are applied to agreements between Colorado
residents entered into and performed entirely in Colorado.
7.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Purchaser and the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
7.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time.
7.4 ENTIRE AGREEMENT. This Agreement, the Exhibits and Schedules
hereto, the other Financing Documents and the other documents delivered pursuant
hereto and thereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and no party shall be
liable or bound to any other in any manner by any representations, warranties,
covenants and agreements except as specifically set forth herein and therein.
7.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
7.6 AMENDMENT AND WAIVER. This Agreement may be amended or modified
only upon the written consent of the Company and the holders of at least
sixty-six percent (66%) of the Series C Shares (treated as if converted and
including any Conversion Shares into which the Series C Shares have been
converted that have not been sold).
16
7.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any party, upon any breach,
default or noncompliance by another party under the Financing Documents, shall
impair any such right, power or remedy, nor shall it be construed to be a waiver
of any such breach, default or noncompliance, or any acquiescence therein, or of
or in any similar breach, default or noncompliance thereafter occurring. It is
further agreed that any waiver, permit, consent or approval of any kind or
character on Purchaser's part of any breach, default or noncompliance under the
Financing Documents or any waiver on such party's part of any provisions or
conditions of the Financing Documents must be in writing and shall be effective
only to the extent specifically set forth in such writing. All remedies, either
under the Financing Documents, by law, or otherwise afforded to any party, shall
be cumulative and not alternative.
7.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified; (ii) when sent by confirmed facsimile if sent during
normal business hours of the recipient, if not, then on the next business day;
(iii) three (3) business days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or (iv) one (1) day after
deposit with a nationally recognized overnight courier, specifying next day
delivery, with written verification of receipt. All communications shall be sent
to the Company and to Purchaser at the addresses set forth on the signature
pages attached hereto or at such other address as the Company or Purchaser may
designate by ten (10) days advance written notice to the other party hereto.
7.9 EXPENSES. The Company hereby agrees to reimburse Purchaser for its
out-of-pocket expenses incurred in connection with the transactions contemplated
hereby (not to exceed $20,000), including all expenses incurred in connection
with its due diligence examination of the Company, the preparation and
negotiation of the Financing Documents, including the reasonable fees and
expenses of special counsel to Purchaser, consulting fees incurred and research
reports purchased, and travel and lodging expenses incurred in connection with
such due diligence investigation, and expenses incurred in connection with the
enforcement of rights and remedies of Purchaser hereunder and all other
documents evidencing the transactions contemplated herein.
7.10 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold Purchaser harmless against any loss, liability, damage or expense
(including reasonable legal fees and costs) which Purchaser may suffer, sustain
or become subject to as a result of or in connection with the breach by the
Company of any representation, warranty, covenant or agreement of the Company
contained in the Financing Documents.
7.11 INDEMNIFICATION BY THE PURCHASER. Purchaser agrees to indemnify
and hold the Company harmless against any loss, liability, damage or expense
(including reasonable legal fees and costs) which the Company may suffer,
sustain or become subject to as a result of or in connection with the breach by
such Purchaser of any representation, warranty, covenant or agreement of such
Purchaser contained in the Financing Documents.
17
7.12 TITLES AND SUBTITLES. The titles of the sections and subsections
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.13 COUNTERPARTS. This Agreement may be delivered via facsimile and
may be executed in any number of counterparts, each of which shall be an
original, but all of which together shall constitute one instrument.
7.14 BROKER'S FEES. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 7.14 being untrue.
7.15 ARBITRATION. The parties hereby covenant and agree that any legal
suit, dispute, claim, demand, controversy or cause of action of every kind and
nature whatsoever, known or unknown, fixed or contingent, that any party may now
have or at any time in the future claim to have based in whole or in part, or
arising from or out of or that in any way is related to the negotiations,
execution, interpretation or enforcement of this Agreement (collectively, the
"Disputes") shall be completely and finally settled by submission of any such
Disputes to arbitration under the rules of the American Arbitration Association
("AAA") then in effect. There shall be one arbitrator, and such arbitrator shall
be chosen by mutual agreement of the parties in accordance with AAA rules.
Unless the parties agree otherwise, the arbitration proceedings shall take place
in Boulder, Colorado. The arbitrator shall apply Colorado law to all issues in
dispute, in accordance with Section 7.1 above. Notice of demand for arbitration
shall be filed in writing with the other party to this Agreement and with the
AAA. In no event shall the demand for arbitration be made after the date when
institution of legal or equitable proceedings based on such Dispute would be
barred by the applicable statute of limitations. The findings of the arbitrator
shall be final and binding on the parties. Judgment on such award may be entered
in any court of competent jurisdiction, or application may be made to that court
for a judicial acceptance of the award and an order or enforcement, as the party
seeking to enforce that award may elect. The prevailing party in any such action
shall be entitled to receive from the losing party all reasonable costs and
expenses, including the reasonable fees of attorneys, accountants and other
experts, incurred by the prevailing party in investigating and prosecuting (or
defending) such action, together with any such fees which may be incurred in
enforcing any award of judgment.
7.16 EXCULPATION AMONG PURCHASER. Purchaser acknowledges that it is not
relying upon any person, firm or corporation, other than the Company and its
officers and directors, in making its investment or decision to invest in the
Company. Purchaser agrees that neither it nor its controlling persons, officers,
directors, partners, agents or employees shall be liable for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the Series C Shares, the Warrant and Conversion Shares.
18
7.17 PRONOUNS. All pronouns contained herein, and any variations
thereof, shall be deemed to refer to the masculine, feminine or neutral,
singular or plural, as the identity of the parties hereto may require.
SIGNATURE PAGES FOLLOW
19
IN WITNESS WHEREOF, the parties hereto have executed the
PREFERRED STOCK PURCHASE AGREEMENT as of the date set forth in the first
paragraph hereof.
COMPANY:
QUALMARK CORPORATION,
a Colorado corporation
By:
-----------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President and Chief Executive Officer
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
PURCHASER:
THE ▇▇▇▇▇ PARTNERSHIP III, SBIC, LP,
a Colorado limited partnership
By: ▇▇▇▇▇ Ventures, SBIC, LLC
Its: General Partner
By:
-----------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Treasurer
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
20
Preferred Stock Purchase Agreement
Signature Page
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
------- -----------
A Form of Warrant
B Certificate of Designation for Series B Convertible Preferred Shares
C Certificate of Designation for Series C Convertible Preferred Shares
D Disclosure Schedule
E Amendment No. 1 to Investor Rights Agreement
F Capitalization
G Form Employee Confidentiality Agreement
H Form of Exchange Agreement
I Form of Opinion of Faegre & ▇▇▇▇▇▇
21