SECURITIES PURCHASE AGREEMENT
Systems, Inc., a Minnesota corporation (the "COMPANY"), and each of the
purchasers set forth on the signature pages hereto (individually, a "PURCHASER"
and, collectively, the "PURCHASERS").
WHEREAS, the Company proposes to issue and sell to the Purchasers
shares (individually, a "SHARE" and, collectively, the "SHARES") of common
stock, without par value, of the Company (the "COMMON STOCK") and to issue
warrants (the "WARRANTS"), substantially in the form of Exhibit A hereto, to
purchase shares of Common Stock (the "WARRANT SHARES");
WHEREAS, the Company proposes to issue and sell for cash an aggregate
of up to 9,000,000 Shares and to issue Warrants to purchase up to 9,000,000
shares of Common Stock in two or more closings (each, a "CLOSING");
WHEREAS, the First Closing shall relate to the sale of 2,500,000 Shares
and Warrants, any Interim Closings (which shall be deemed part of the First
Closing) shall relate to an aggregate of up to 2,000,000 Shares and Warrants and
the Second Closing (each as defined in Section 1(b) shall relate to up to
4,500,000 Shares and Warrants;
WHEREAS, the Company proposes to issue and sell at the First Closing,
in consideration of the cancellation of certain indebtedness, an additional
104,000 Shares and Warrants to purchase 104,000 shares of Common Stock as
provided in Section 1(c)(ii) hereof; and
WHEREAS, the Company, among other things, has agreed to provide certain
registration rights under the Securities Act of 1933 (the "SECURITIES ACT") and
the rules and regulations promulgated thereunder with respect to the Shares and
the Warrant Shares.
NOW THEREFORE, in consideration of the above recitals and the mutual
covenants set forth herein, the parties hereto agree as follows:
1. Sale of Stock and Delivery of Warrants; Closings.
(a) Purchase and Sale. Subject to the terms and conditions hereof, the
Company shall issue and sell to each of the Purchasers, and each Purchaser,
severally, shall purchase from the Company, with respect to the First Closing
and the Second Closing (each as defined below), the number of Shares set forth
on such Purchaser's signature page hereto at a purchase price of $0.56 per
Share; provided, however, that the purchase price per Share shall be $0.50 with
respect to (i) the Shares purchased by Special Situations Private Equity Fund,
L.P., Special Situations Fund III, L.P. and Special Situations Cayman Fund, L.P.
(collectively, the "FUNDS"), and (ii) the 104,000 Shares to be delivered as
provided in Section 1(c)(ii) hereof to the Purchasers designated as noteholders
on the signature pages hereto. The Company shall deliver to each Purchaser, at
each Closing, Warrants for such number of Warrant Shares as shall be equal to
the number of Shares being purchased by such Purchaser at such Closing. Each
Purchaser's obligation to purchase Shares is separate and distinct from that of
each other Purchaser, and no Purchaser shall be required to purchase more than
the number of Shares specifically set forth on such Purchaser's signature page.
A Purchaser that shall purchase Shares in an Interim Closing or in the Second
Closing, but not the First Closing, shall become a Purchaser by executing a copy
of this Agreement after the First Closing, but prior to such Interim or Second
Closing, as the case may be.
(b) Closings.
(i) Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7, the first Closing (the "FIRST CLOSING")
of the purchase and sale of Shares shall occur with respect to up to
2,604,000 Shares and Warrants to purchase up to 2,604,000 shares of
Common Stock at the offices of Xxxxxxx, Calamari & Xxxxxxx, 000 Xxxx
Xxxxxx, Xxx Xxxx, Xxx Xxxx, at 10:00 A.M. on November 14, 1997, or such
later date as may be mutually agreed upon by the parties.
(ii) Subject to the satisfaction (or waiver) of the conditions
set forth in Sections 6 and 7, a Closing or Closings (each, an "INTERIM
CLOSING") of the purchase and sale of up to an aggregate of 2,000,000
Shares and Warrants to purchase up to 2,000,000 shares of Common Stock
may be held during the period (the "INTERIM PERIOD") from November 15,
1997, through and including November 21, 1997. Such Interim Closing or
Interim Closings shall occur at the offices of
Xxxxxxxxxxx Xxxxx & Xxxxxxxx at 10:00 A.M. on such date or dates during
the Interim Period as may be mutually agreed upon by the Company and
the Purchasers in any such Closing. The Shares that shall be sold and
the Warrants that shall be delivered at any Interim Closing shall be
deemed to have been purchased and sold in the First Closing.
(iii) Subject to the satisfaction (or waiver) of the
conditions set forth in Sections 6, 7 and 8, the second Closing (the
"SECOND CLOSING") of the purchase and sale of Shares shall occur at the
offices of Xxxxxxx, Calamari & Xxxxxxx with respect to up to 4,500,000
Shares and Warrants to purchase up to 4,500,000 shares of Common Stock
within fifteen days following satisfaction or waiver of each of the
conditions set forth in Sections 6, 7 and 8. The Company shall give
each Purchaser at least fifteen days prior written notice of the date
and time of the Second Closing.
(iv) Notwithstanding anything to the contrary contained
herein, the First Closing in no event shall occur later than November
14, 1997, and the Second Closing in no event shall occur later than
January 30, 1998.
(v) The date of each Closing shall be hereinafter referred to
as a "CLOSING DATE."
(c) Delivery.
(i) Except as provided in Section 1(c)(ii), the Company shall,
at each Closing, deliver to each Purchaser a stock certificate
representing the Shares purchased by such Purchaser and Warrants for
the Warrant Shares to be delivered to such Purchaser, against payment
of the purchase price therefor by check, payable to the order of the
Company, or by wire transfer of immediately available funds to the
Company in accordance with the Company's wiring instructions.
(ii) At the First Closing, the Company shall deliver to the
Purchasers designated as noteholders on the signature pages hereto
stock certificates representing an aggregate of 104,000 Shares and
Warrants to purchase 104,000 shares of Common Stock, in the respective
denominations listed on the signature pages hereto, against delivery
of, and in full satisfaction and discharge of, those certain promissory
notes, dated October 1, 1997, issued by the Company in
favor of such Purchasers in the aggregate principal
amount of $52,000.
2. Representations and Warranties of Purchasers. Each of the
Purchasers (except with respect to Section 2(i) which relates only to
the Purchaser named therein) represents and warrants, severally, to the
Company as follows:
(a) Authorization. The Purchaser has the necessary power and
authority to execute and deliver this Agreement and to perform its
obligations hereunder. The execution and delivery of, and the
performance under, this Agreement by the Purchaser will not conflict
with any rule, regulation, judgment or agreement applicable to the
Purchaser.
(b) Investment Purpose. The Purchaser is purchasing the Shares
and acquiring the Warrants, and will purchase the Warrant Shares
(together with the Shares and the Warrants, the "SECURITIES"), for
investment purposes only and not with a present view to, or for sale in
connection with, a distribution thereof within the meaning of the
Securities Act. The Purchaser understands that it must bear the
economic risk of this investment indefinitely, unless the Securities
are registered pursuant to the Securities Act and any applicable state
securities or blue sky laws or an exemption from such registration is
available. Notwithstanding anything in this Section 2(b) to the
contrary, the Purchaser, by making the representations herein, does not
agree to hold the Securities for any minimum or other specific term and
reserves the right to dispose of such Securities at any time in
accordance with or pursuant to registration or an exemption therefrom
under the Securities Act and any applicable state securities or blue
sky laws.
(c) Reliance On Exemptions. The Purchaser understands that the
Securities are being offered and sold in reliance upon specific
exemptions from the registration requirements of Federal and state
securities laws and that the Company is relying upon the truth and
accuracy of the representations and warranties of the Purchaser set
forth herein in order to determine the availability of such exemptions
and the eligibility of the Purchaser to acquire the Securities.
(d) Information. The Purchaser has been furnished all
documents relating to the business, finances and operations of the
Company which the Purchaser requested from the Company. The Purchaser
has been afforded the opportunity to ask questions of the Company's
representatives concerning the Company in making the decision to
purchase the Shares and acquire the Warrants, and such questions have
been answered to its satisfaction. The Purchaser acknowledges having
received a copy of the Company's Private Placement Memorandum, dated
October 24, 1997, as amended by the supplement thereto dated November
10, 1997, including the Exhibits thereto, relating to the offer and
sale of the Securities (as supplemented, the "MEMORANDUM"). However,
neither the foregoing nor any other due diligence investigation
conducted by the Purchaser or on its behalf shall limit, modify or
affect the representations and warranties of the Company in Section 3
of this Agreement or the right of the Purchaser to rely thereon.
(e) Governmental Review. The Purchaser understands that no
Federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the
Securities.
(f) Purchaser's Qualifications. The Purchaser is an
"accredited investor" as defined in Rule 501 under Regulation D of the
Securities Act ("REGULATION D"). The Purchaser is capable of evaluating
the merits and risks of an investment in the Securities and is
financially capable of bearing a total loss of the investment made
pursuant to this Agreement.
(g) Restrictions on Transfer. The Purchaser understands that
it may not transfer any of the Securities unless such Securities are
registered under the Securities Act or unless an exemption from
registration and qualification requirements are available under the
Securities Act and applicable state securities laws. The Purchaser
understands that certificates representing the Shares, the Warrants and
the Warrant Shares shall bear the following, or a substantially
similar, legend until such time as they have been registered under the
Securities Act or otherwise may be sold under Rule 144 under the
Securities Act ("RULE 144"):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR UNDER ANY
STATE SECURITIES LAWS. THESE SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR ASSIGNED EXCEPT AS PERMITTED UNDER THE ACT AND
APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR
EXEMPTION THEREFROM. UNLESS THE SECURITIES ARE SOLD PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT, THE ISSUER OF THESE
SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND
SUBSTANCE SATISFACTORY TO THE ISSUER TO
THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN
COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES
LAWS.
(h) Residence. The Purchaser is a resident of the jurisdiction
set forth under its name on its signature page hereto.
(i) Investment Company. Special Situations Fund III, L.P. is
registered as an "investment company" under the Investment Company Act
of 1940.
3. Representations and Warranties of Company. Except as set
forth on the Schedule of Exceptions attached hereto as Exhibit B, the
Company represents and warrants to each Purchaser as follows:
(a) Organization and Good Standing. The Company is a
corporation duly organized, validly existing and in good standing under
the laws of the State of Minnesota, and has all necessary corporate
power and authority to own or lease its assets and to carry on its
business as now being conducted and presently proposed to be conducted.
The Company is duly qualified to do business as a foreign corporation
and is in good standing in each jurisdiction in which its ownership or
leasing of assets, or the conduct of its business, makes such
qualification necessary, except where the failure to be so qualified
would not have a material adverse effect on the Company. The Company
has no subsidiaries and no equity interests in any corporation,
partnership, joint venture or other entity.
(b) Requisite Power and Authorization. The Company has all
necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, including without
limitation the issuance of the Securities. Except for approval by the
stockholders of the Company of the Amendment (as defined in Section
5(k) below), which approval will be required prior to the Second
Closing, all corporate action of the Company required for the execution
and delivery of this Agreement and the Warrants and issuance and
delivery of the Securities has been duly and effectively taken, and no
further actions, authorizations or consents, including, without
limitation, any consents of the stockholders of the Company, are
required. Each of this Agreement and the Warrants constitutes the valid
and binding obligation of the Company, enforceable against the Company
in accordance with its terms, except (i) as limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other laws of
general application affecting enforcement of creditor's rights, (ii) as
limited by general principles of equity that
restrict the availability of equitable remedies and (iii) as the
indemnity provisions of Section 4(f) of this Agreement may be limited
by law. The Shares, when issued, delivered and paid for in compliance
with the provisions of this Agreement, will be validly issued, fully
paid and non-assessable, free and clear of any and all liens, charges,
claims or encumbrances. The Warrant Shares, if and when issued,
delivered and paid for in compliance with the provisions of this
Agreement and the Warrants will be validly issued, fully paid and
non-assessable, free and clear of any and all liens, charges, claims or
encumbrances. The Company has reserved a sufficient number of shares of
Common Stock necessary for issuance of the Shares and the Warrant
Shares at the First Closing and, prior to the Second Closing, will have
reserved a sufficient number of shares of Common Stock necessary for
issuance of the Shares and the Warrant Shares at the Second Closing.
(c) SEC Documents. Since March 16, 1995, the Company has filed
with the Securities and Exchange Commission (the "SEC") all reports,
statements, schedules and other documents (collectively, the "SEC
DOCUMENTS") required to be filed by it pursuant to the Securities Act
and the Securities Exchange Act of 0000 (xxx "XXXXXXXX XXX"). Since
October 1, 1996, all SEC Documents required to be filed were timely
filed. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the
SEC promulgated thereunder, and none of the SEC Documents, at the time
they were filed with the SEC, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. As of
their respective dates, the financial statements included in the SEC
Documents (the "FINANCIAL STATEMENTS") complied as to form in all
material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto. Except
(i) as may be indicated in the notes to the Financial Statements or
(ii) in the case of the unaudited interim statements, as permitted by
Form 10- QSB under the Exchange Act, the Financial Statements have been
prepared in accordance with U.S. generally accepted accounting
principles consistently applied and fairly present in all material
respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal
recurring year-end adjustments and footnotes). Except as set forth in
the Financial Statements filed with the SEC prior to the date hereof or
the Memorandum, the Company does
not have any liabilities, whether absolute, contingent or otherwise,
other than (i) liabilities incurred in the ordinary course of business
subsequent to the date of such Financial Statements and (ii)
obligations under contracts and commitments incurred in the ordinary
course of business and not required under generally accepted accounting
principles to be reflected in such Financial Statements, which
liabilities and obligations referred to in clauses (i) and (ii),
individually or in the aggregate, are not material to the financial
condition or operating results of the Company.
(d) Capitalization. The capitalization of the Company as of
the date hereof is set forth on Schedule 3(d), including (i) the
authorized capital stock, (ii) the number of shares issued and
outstanding, (iii) the number of shares reserved for issuance pursuant
to stock option, employee benefit or other plans, (iv) the number of
shares reserved for issuance or issuable pursuant to securities
exercisable for, or convertible into or exchangeable for, any shares of
Common Stock, (v) the number of outstanding securities convertible into
or exchangeable for any shares of the Company's capital stock, (vi) the
number of shares of Common Stock reserved for issuance with respect to
the sale of the Shares and (vii) the number of shares reserved for
issuance upon exercise of the Warrants. All outstanding shares of
capital stock have been duly authorized and validly issued and are
fully paid and non-assessable. Except as set forth on Schedule 3(d),
the Company has (i) no outstanding securities convertible into or
exchangeable for any shares of capital stock of the Company, (ii) no
rights, options, warrants, calls or other agreements or commitments of
any nature whatsoever relating to the purchase or other acquisition of
any shares of its capital stock or securities convertible into or
exchangeable for any shares of it capital stock or (iii) no shares of
its capital stock reserved for issuance.
(e) No Conflicts. Neither the execution, delivery and
performance by the Company of this Agreement nor the consummation of
the transactions contemplated hereby has constituted or resulted in, or
will constitute or result in, a default under or breach or violation of
any term or provision of the Articles of Incorporation or bylaws of the
Company or material contracts to which the Company is a party or
Federal or state laws, rules or regulations, writs, orders, judgments
or decrees which are applicable to the Company or its assets.
(f) Consents. No approval, consent, order, authorization or
other action by, or notice to or filing with, any governmental
authority or regulatory agency or any
other person or entity, and no lapse of a waiting period, is required
in connection with the execution, delivery or performance by the
Company of this Agreement, the issuance and delivery of any of the
Securities or any other transactions contemplated hereby, except for
(i) the filing of a Form D with the SEC, (ii) filings required under
applicable state "blue sky" laws (which shall be duly filed and
effective prior to each Closing if so required under such laws) and
(iii) the filing of an amendment to the Company's Articles of
Incorporation as set forth in Section 8(a) hereof.
(g) No Material Adverse Change. Since December 31, 1996, the
business of the Company has been operated in the ordinary course and
substantially consistent with past practice, and, except as disclosed
in the Memorandum, there has not been any material adverse change in
the business, assets, financial condition, results of operations,
affairs or prospects of the Company (a "MATERIAL ADVERSE CHANGE").
Since December 31, 1996, and except as disclosed in the Memorandum, the
Company has not (i) paid any obligation or liability or discharged or
satisfied any liens or encumbrances other than in the ordinary course
of business; (ii) declared or made any payment or distribution to its
stockholders or purchased or redeemed any of its shares of capital
stock or other securities; (iii) mortgaged, pledged or subjected to any
lien, charge or other encumbrance any of its assets, tangible or
intangible, except in the ordinary course of business; (iv) sold,
transferred or leased any of its assets except for fair value in the
ordinary course of business; (v) increased the annual compensation
payable to any of its officers or other employees, consultants or
representatives by greater than $10,000; (vi) cancelled or compromised
any debt or claim, or waived or released any right of material value;
(vii) entered into any transaction other than in the ordinary course of
business; (viii) issued or sold any shares of capital stock or other
securities or granted any options, warrants or other purchase rights
with respect thereto that are not disclosed on Schedule 3(d); or (ix)
agreed to do any of the foregoing (other than pursuant hereto).
(h) Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company's knowledge, currently
threatened against the Company or any of its directors or officers, in
their capacities as such, (i) that questions the validity of this
Agreement or the issuance of the Securities, or the right of the
Company to enter into this Agreement or to consummate the transactions
contemplated hereby, or (ii) that might result, either individually or
in the aggregate, in any Material Adverse Change or in any change in
the current equity ownership of
the Company. The Company is not a party or subject to the provisions of
any order, writ, injunction, judgment, stipulation or decree of any
court, administrative agency, commission, regulatory authority, other
government agency or instrumentality.
(i) No Default. The Company is not in violation of or default
under any provision of its Articles of Incorporation or bylaws or other
constituent documents or in default (or, with notice or the lapse of
time, would be in default) under any material agreement, contract,
commitment or instrument to which it is a party or by which it or its
properties or assets is bound or affected. To the Company's knowledge,
no third party is in material default under or in material breach or
violation of any material contract, commitment or instrument to which
the Company is a party or by which any of its properties or assets are
bound or affected.
(j) Compliance with Laws. The Company is in compliance with
all laws (including, without limitation, environmental laws),
ordinances, rules and regulations, judgments, decrees or orders of any
regulatory authority or other governmental or administrative body or
instrumentality, whether domestic or foreign. The Company has not
during the past three years received any notice relating to any
violation or potential violation of applicable law or regulations.
(k) Title. The Company has good and marketable title to all
real and personal property owned by it which is material to the
business of the Company, in each case free and clear of all liens,
encumbrances and defects. Any property, real or personal, held under
lease by the Company is held by it under valid and enforceable leases.
(l) Intellectual Property. The Company owns, or possesses
adequate and enforceable rights to use, all patents, patent
applications, trademarks, trademark applications, trade names, service
marks, copyrights, copyright applications, licenses, permits, know-how
(including trade secrets and other unpatented and/or unpatentable
proprietary or confidential information, systems or procedures) and
other similar rights and proprietary knowledge (collectively, the
"INTANGIBLES") necessary for the conduct of its business. To the
Company's knowledge, the Company has not infringed, nor does it
currently infringe, nor is it in conflict with any right of any other
person with respect to any Intangibles. To the knowledge of the
Company, no person is infringing on or violating the Intangibles owned
or used by the Company.
(m) Registration Rights. The only registration rights,
including piggyback rights, granted (or agreed to be granted) to any
person or entity other than the Purchasers are set forth on the
Schedule of Exceptions. None of the registration rights disclosed on
the Schedule of Exceptions are senior in priority to the registration
rights provided for in this Agreement. All of the registration rights
(including, without limitation, any piggyback rights which would have
permitted the registration of any shares under the registration
statement to be filed pursuant to Section 4 of this Agreement) have
been satisfied in full by the registration on Form S-3 indicated on
such Schedule or have been waived until January 1, 2001.
(n) OTC Bulletin Board. The Common Stock is traded by means of
the National Association of Securities Dealers, Inc. (the "NASD") OTC
Bulletin Board(R) service (the "OTCBB"). The issuance and sale of the
Securities will not, when issued and sold in accordance with this
Agreement and the Warrants, as the case may be, violate any Rule of the
NASD applicable to the Company or the Common Stock. The Company has not
received notification, written or oral, that the Company has failed to
satisfy any requirement of the NASD relating to the trading of the
Common Stock in the OTCBB.
(o) Registration Statement. The Company is currently eligible
to register the resale of its Common Stock under the Securities Act
pursuant to a registration statement on Form SB-2. There exist no facts
or circumstances that would inhibit or delay the preparation and filing
of a registration statement on Form SB-2 with respect to the Shares and
the Warrant Shares.
(p) No Misrepresentation. No representation or warranty by the
Company in this Agreement (including any Exhibit or Schedule hereto)
and no statements of the Company contained in any document (including
without limitation any SEC Document), certificate, schedule or other
information furnished or to be furnished by or on behalf of the Company
pursuant to this Agreement or in connection with the transactions
contemplated hereby, including without limitation the Memorandum,
contains or shall contain any untrue statement of material fact or
omits or shall omit to state a material fact required to be stated
therein or necessary in order to make such statements, in light of the
circumstances under which they were made, not misleading. Except for
the transactions contemplated hereby, and except as disclosed in the
Memorandum, no event or circumstance has occurred or exists with
respect to the Company or its business, affairs, assets, properties,
prospects, operations or financial condition which has not been
publicly
disclosed, but which, under applicable law, rule or regulation, would
be required to be disclosed by the Company in a registration statement
filed on the date hereof by the Company under the Securities Act with
respect to the primary issuance of the Company's securities. The
Company has delivered true and complete copies of all documents
requested by the Purchasers.
(q) Anti-Dilution and Other Shares. No stockholder of the
Company or other person or entity has any preemptive right of
subscription or purchase or contractual right of first refusal or
similar right with respect to any of the Securities which has not been
waived. Issuance of the Securities will not result in the issuance of
any additional shares of Common Stock or the triggering of other
anti-dilution or similar rights contained in any options, warrants,
debentures or other securities or agreements of the Company.
Consummation of the transactions contemplated by the agreements set
forth as Exhibit D and the transactions contemplated by Schedule 6(j)
shall not trigger any anti-dilution or similar rights or price or other
adjustments which have not been waived. All of the transactions set
forth on Schedule 6(j) are reflected in the agreements included as
Exhibit D hereto.
(r) No Brokers or Finders. No person or entity has or will
have, as a result of any act or omission by the Company, any right,
interest or valid claim against 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.
(s) Acknowledgment of Dilution. The number of Warrant Shares
issuable upon exercise of the Warrants may increase in certain
circumstances, including when the bid price of the Common Stock
declines. The Company acknowledges that its obligation to issue Warrant
Shares upon exercise of the Warrants in accordance with the terms of
the Warrants is absolute and unconditional, regardless of the dilution
that such issuance may have on the ownership interests of other
stockholders. The Company acknowledges that issuance of the Securities
will result in substantial dilution to existing stockholders of the
Company. Taking the foregoing into account, the Board of Directors has
determined that the issuance of the Shares and the Warrants hereunder
and the consummation of the other transactions contemplated hereby are
in the best interests of the Company and its stockholders.
(t) Independent Committee. A duly authorized committee of the
Board of Directors of the Company comprised solely of "disinterested
directors" as defined in Section
302A.673 of the Minnesota Business Corporation Act has unanimously
approved this Agreement and the Warrants and the transactions
contemplated hereby.
(u) Issuing Public Corporation. The Company has at least 50
"shareholders". For purposes hereof, a "shareholder" means a person
registered on the books or records of the Company or its transfer agent
or registrar, as the case may be, as the owner of whole or fractional
shares of Common Stock.
(v) Change of Control Payments. Neither the execution,
delivery and performance by the Company of this Agreement or the
Warrants nor the consummation of any of the transactions contemplated
hereby shall require any payment by the Company, in cash or kind, under
any agreement, plan, policy, commitment or other arrangement. There are
no agreements, plans, policies, commitments or other arrangements with
respect to any compensation, benefits or consideration which will be
materially increased, or the vesting of benefits of which will be
materially accelerated, as a result of the execution and delivery of
this Agreement or the Warrants or the occurrence of any of the
transactions contemplated hereby. There are no payments or other
benefits, the value of which will be calculated on the basis of any of
the transactions contemplated by this Agreement.
4. Registration Rights.
(a) Definitions. For purposes of this Section 4:
(i) "Register", "registered" and "registration" refer
to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act,
including a registration statement pursuant to Rule 415 and
Rule 416 under such Act (or any successor rules), and the
declaration or ordering of effectiveness of such registration
statement by the SEC.
(ii) "Registrable Securities" means the Shares and
all shares of Common Stock issued or issuable as Warrant
Shares, and any shares of Common Stock issued or issuable,
from time to time (with any adjustments), as a distribution
on, in exchange for or otherwise with respect to the Shares or
Warrant Shares.
(iii) "Holder" means any person owning of record
Registrable Securities or any assignee of record of such
Registrable Securities to whom rights under this Section 4
have been assigned in accordance with Section
9(e) of this Agreement and, as the case may be, the terms of
the Warrants.
(b) Shelf Registration.
(i) The Company, within 30 days following each
Closing Date, shall file a shelf registration statement under
the Securities Act on Form SB-2 (or, if not available, on such
Form as is then available to effect a registration of all
Registrable Securities, subject to the consent of the
Purchasers holding a majority of the Registrable Securities)
covering, and shall obtain all such qualifications and
compliances as may be required and as would permit the sale
and distribution of, all Registrable Securities issued (or, in
the case of Warrant Shares, issuable) at each respective
Closing, and shall use its best efforts to secure the
effectiveness of such registration statements no later than 90
days following each respective Closing Date. The requirement
to register securities sold at the Second Closing may be
satisfied by amending the shelf registration statement which
shall have been filed pursuant to this Section 4(b) with
respect to securities sold at the First Closing.
(ii) The Company shall pay all expenses incurred in
connection with any registration, qualification and compliance
(excluding underwriters' and brokers' discounts and
commissions), including, without limitation, all filing,
registration and qualification fees, printer and accounting
fees and reasonable fees and disbursements of one counsel for
the selling Holder or Holders and of counsel for the Company.
(iii) The Company shall use its best efforts to cause
the registration statement or statements filed pursuant to
this Section 4(b) to remain effective until the earlier of (A)
the date on which all Registrable Securities shall have been
sold or (B) the date on which all Registrable Securities, in
the opinion of counsel to Special Situations Private Equity
Fund, L.P., may be sold immediately to the public in any
single three-month period pursuant to Rule 144.
(c) Piggyback Registrations.
(i) The Company shall be required to notify a Holder
in writing at least 20 days prior to the Company's filing of
any registration statement under the Securities Act for
purposes of effecting an underwritten public offering of
Common Stock (including, without limitation, registration
statements
relating to secondary offerings of Common Stock), and shall
afford a Holder an opportunity to include in such registration
statement all or any part of the Registrable Securities then
held by such Holder. A Holder desiring to include all or any
part of its Registrable Securities shall, within 15 days after
receipt of the above-described notice from the Company, notify
the Company in writing as to the number of Registrable
Securities to be included in such registration statement. If a
Holder shall decide not to include all of its Registrable
Securities in such registration statement, such Holder
nevertheless shall continue to have the right to include any
Registrable Securities in any subsequent registration
statement or statements as may be filed by the Company with
respect to underwritten public offerings of Common Stock, in
each instance upon the terms and conditions set forth herein.
The right to registration of Registrable Securities under this
Section 4(c) shall not be construed to limit in any way the
obligation of the Company to register the Registrable
Securities under Section 4(b).
(ii) The right of a Holder to include Registrable
Securities in a registration pursuant to this Section 4(c)
shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein.
If less than all securities of Holders or other persons (other
than the Company) included in a request for registration can
be included in a registration based on the good faith
determination of the managing underwriter, the allocation
among such Holders and other persons will be on a pro rata
basis according to the relation that the number of Registrable
Securities owned by each such Holder and the number of shares
of Common Stock owned by each such other person bears to the
total number of shares of Common Stock outstanding. If any
Holder shall disapprove of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice
to the Company delivered at least five business days prior to
the effective date of the registration statement. The Company
shall exclude from the registration any Registrable Securities
so withdrawn.
(iii) Notwithstanding the other provisions of this
Section 4(c), (A) the Company shall not be required to include
any Registrable Securities in any registration under Section
4(c) for any Holder who shall be able to sell all of such
Holder's Registrable Securities during
a three-month period, beginning on the date such notice shall
be received by such Holder, pursuant to Rule 144 (or any
similar rule or regulation); (B) the Company shall not be
required to give such notice with respect to, or to include
Registrable Securities in, any such registration which shall
be primarily (1) a registration of a stock option plan or
other employee benefit plan or of securities issued or
issuable pursuant to any such plan, or (2) a registration of
securities proposed to be issued in exchange for securities or
assets of, or in connection with a merger or consolidation
with, another corporation; and (C) the Company may, in its
sole discretion, withdraw any such registration statement and
abandon the proposed offering in which any such Holder shall
have requested to participate.
(iv) The Company shall pay all expenses incurred in
connection with a piggyback registration pursuant to this
Section 4(c) (excluding underwriters' and brokers' discounts
and commissions), including, without limitation, all filing,
registration and qualification fees, printer and accounting
fees and reasonable fees and disbursements of one counsel for
the selling Holder or Holders and of counsel for the Company.
(d) Obligations of the Company. Whenever required to effect
the registration of any Registrable Securities under this Agreement,
the Company shall, as expeditiously as possible:
(i) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to
become effective.
(ii) Prepare and file with the SEC such amendments
and supplements to such registration statement and the
prospectus included therein as may be necessary to keep the
registration statement effective and comply with the
provisions of the Securities Act with respect to the
disposition of all Registrable Securities covered by such
registration statement for the period set forth in Section
4(b)(iii).
(iii) Furnish to each Holder (1) promptly after
filing with the SEC, one copy of such registration statement
and any amendments thereto, including each prospectus
contained therein, (2) on the date of effectiveness of such
registration statement or amendment, a notice that such
registration statement or amendment has been declared
effective and (3) such
number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the
Securities Act, and all amendments thereto, and such other
documents as any Holder may reasonably request, in order to
facilitate the disposition of the Registrable Securities owned
by such Holder which shall have been included in such
registration statement. In the case of a registration
statement to be filed pursuant to Section 4(b), the Company
also shall furnish to the Funds each letter written by or on
behalf of the Company to the SEC or the staff of the SEC and
each correspondence therefrom.
(iv) Use its best efforts to register and qualify the
Registrable Securities covered by such registration statement
under any applicable securities or "blue sky" laws of such
states and jurisdictions as shall be reasonably requested by
any Holder, and maintain the effectiveness of such
registrations and qualifications, provided, that the Company
shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a
general consent to service of process in any such states or
jurisdictions.
(v) Notify each Holder of Registrable Securities
included in such registration statement, at any time when a
prospectus relating thereto shall be required to be delivered
under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration
statement shall include an untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in
the light of the circumstances then existing, and, upon such
notice, the Company shall promptly correct such misstatement
or omission and deliver to each Holder copies of the corrected
prospectus.
(vi) Take all reasonable actions required to prevent
the entry of any stop order issued or threatened by the SEC or
any state regulatory authority with respect to any
registration statement covering Registrable Securities, and
notify each Holder of any such stop order or take all
reasonable actions to remove it if entered.
(vii) Permit one counsel designated by the Holders to
review such registration statement and all amendments and
supplements thereto in a reasonable period of time prior to
their filing with the SEC, and not file any document in a form
to which such counsel shall reasonably object.
(e) Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to Section
4(b) or Section 4(c) that a selling Holder shall furnish to the Company
such information regarding such Holder, the Registrable Securities held
by such Holder and the intended method of disposition of such
Securities as reasonably shall be required to effect the registration
of the Registrable Securities.
(f) Indemnification. In the event that any Registrable
Securities shall be included in a registration statement under this
Agreement:
(i) To the extent permitted by law, the Company shall
indemnify and hold harmless each Holder, the partners,
stockholders, officers and directors of each Holder, any
underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the
Exchange Act (each, an "INDEMNIFIED PERSON") against any joint
or several losses, claims, damages, liabilities or expenses
(together with actions, proceedings or inquiries by any
regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "CLAIMS") to which any of
them may become subject insofar as such Claims arise out of or
are based upon (i) any untrue statement or alleged untrue
statement of a material fact contained in a registration
statement or the omission or alleged omission to state therein
a material fact required to be stated therein, or necessary to
make the statements therein not misleading, (ii) any untrue
statement or alleged untrue statement of a material fact
contained in any preliminary prospectus if used prior to the
effective date of such registration statement, or contained in
the final prospectus (as amended or supplemented, if the
Company shall file any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state
therein any material fact necessary to make the statements
made therein, in light of the circumstances under which the
statements therein were made, not misleading, or (iii) any
violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any state securities law or
any rule or regulation thereunder relating to the offer or
sale of the Registrable Securities (the matters in the
foregoing clauses (i) through (iii) being, collectively,
called "VIOLATIONS"). The Company shall reimburse each
Indemnified Person for any reasonable legal or other expenses
(promptly as such expenses shall be incurred and shall be due
and payable)
incurred by such Indemnified Person in connection with
investigating or defending any such Claim. The indemnification
agreement contained in this Section 4(f)(i) shall not apply
(i) to a Claim arising out of or based upon a Violation which
shall occur in reliance upon and in conformity with
information furnished in writing to the Company by such
Indemnified Person expressly for use in such registration
statement or any such amendment or supplement thereto; (ii) to
amounts paid in settlement of any Claim if such settlement
shall be effected without the prior written consent of the
Company; and (iii) for the benefit of any Indemnified Person,
with respect to any prospectus, if the untrue statement or
omission of material fact in any prospectus shall have been
corrected on a timely basis and the Indemnified Person shall
have failed to utilize such corrected prospectus. This
indemnity shall remain in full force and effect regardless of
any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable
Securities by the Purchasers pursuant to Section 9.
(ii) In connection with any registration statement in
which a Holder shall participate, such Holder, severally and
not jointly, shall indemnify and hold harmless the Company,
each of its directors, each of its officers who shall sign the
registration statement, its employees and agents and each
person, if any, who controls the Company within the meaning of
the Securities Act or the Exchange Act, any underwriter and
any other stockholder selling securities pursuant to such
registration statement or any of its directors or officers or
any person who controls such underwriter or stockholder within
the meaning of the Securities Act or the Exchange Act (each,
an "INDEMNIFIED PARTY") against any Claim to which any of them
may become subject, under the Securities Act, the Exchange Act
or otherwise, insofar as such Claim shall arise out of or
shall be based upon any Violation, in each case to the extent
(and only to the extent) that such Violation shall occur in
reliance upon and in conformity with written information
furnished to the Company by such Holder expressly for use in
connection with such registration statement. Such Holder shall
reimburse the Indemnified Party for any reasonable legal or
other reasonable expenses (promptly as such expenses shall be
incurred and shall be due and payable) incurred in connection
with investigating or defending any such Claim. The indemnity
agreement contained in this Section 4(f)(ii) shall not apply
to amounts paid in settlement of any Claim if such settlement
shall be
effected without the prior written consent of such Holder;
and, provided, further, that the total amounts payable by a
Holder under this Section 4(f)(ii) shall not exceed the
aggregate proceeds (net of discounts or commissions) actually
received by such Holder upon the sale of such Holder's
Registrable Securities included in such registration
statement. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this
Section 4(f)(ii) shall not inure to the benefit of any person
or entity if the untrue statement or omission of material fact
in any prospectus shall have been corrected on a timely basis
and such person or entity shall have failed to utilize such
corrected prospectus.
(iii) Promptly after receipt by an Indemnified Person
or Indemnified Party (the "INDEMNITEE") under this Section
4(f) of notice of the commencement of any action (including,
without limitation, any governmental action), such Indemnitee,
if a claim in respect thereof shall be made against any
indemnifying party under this Section 4(f), shall deliver to
the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall be entitled to
participate therein, and, to the extent it shall desire, to
assume the defense thereof, with counsel mutually satisfactory
to the Indemnitee, after which the indemnifying person shall
not be liable to such Indemnitee for any legal expenses
subsequently incurred by such Indemnitee in connection with
the defense thereof; provided, however, that an Indemnitee
shall have the right to retain its own counsel, with fees and
expenses to be paid by the indemnifying party, if the
indemnifying party shall have failed to assume the defense of
any such action or if, in the reasonable opinion of counsel
retained by the indemnifying party, representation of such
Indemnitee by the counsel retained would be inappropriate due
to actual or potential differing interests between such
Indemnitee and any other party represented by such counsel in
such action. No indemnifying person shall be responsible for
paying the fees and expenses of more than one separate counsel
for all Indemnitees. Failure to deliver written notice to the
indemnifying party within a reasonable time of the
commencement of any action, if the indemnifying party shall be
materially prejudiced thereby, shall relieve such indemnifying
party of liability, but only to the extent that such
indemnifying party shall be prejudiced with respect to a
specific claim. An indemnifying party shall not, without the
prior written consent of the Indemnitee, settle or compromise
or consent to the entry of a judgment in any pending or
threatened claim,
action, suit or proceeding in respect of which indemnification
may be sought hereunder unless such settlement, compromise or
consent shall include an unconditional release of such
Indemnitee from all liability arising out of such claim,
action, suit or proceeding.
(iv) If the indemnification provided for in Sections
4(f)(i) or 4(f)(ii) hereof shall be held by a court of
competent jurisdiction to be unavailable to an Indemnitee in
respect of any liability under the Securities Act, then, and
in each such case, the indemnifying party, in lieu of
indemnifying such Indemnitee hereunder, shall to the extent
permitted by applicable law contribute to the amount paid or
payable by such Indemnitee as a result of such loss,
liability, claim, damage or expense in such proportion as
shall be appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the Indemnitee on
the other in connection with the Violation that resulted in
such loss, liability, claim, damage or expense as well as any
other relevant equitable considerations. The relative fault of
the indemnifying party and of the Indemnitee shall be
determined by a court of law by reference to, among other
things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a
material fact shall have related to information supplied by
the indemnifying party or by the Indemnitee and the parties'
relative intent, knowledge, access to information and
opportunity to correct or prevent such statement, alleged
statement, omission or alleged omission; provided, that, in no
event, shall any contribution under this Section 4(f)(iv) by
any Holder exceed the proceeds (net of discounts or
commissions) from the offering received by such Holder. No
person or entity guilty of fraudulent misrepresentation
(within the meaning of Section 11 of the Securities Act) shall
be entitled to contribution from any person or entity who
shall not have been guilty of such fraudulent
misrepresentation.
(g) Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the SEC which may at any
time permit the sale of the Registrable Securities to the public
without registration, while a public market shall exist for the Common
Stock of the Company, the Company shall:
(i) Make and keep public information available, as
those terms are understood and defined in Rule 144,
at all times while the Company shall be reporting under the
Exchange Act;
(ii) Use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the
Company under the Securities Act and the Exchange Act; and
(iii) So long as a Holder shall own any Registrable
Securities, furnish to the Holder forthwith upon request a
written statement by the Company as to its compliance with the
reporting requirements of Rule 144, the Securities Act and the
Exchange Act, a copy of the most recent annual or quarterly
report of the Company and such other reports and documents of
the Company as a Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing a Holder
to sell any such Securities without registration.
(h) Default Shares.
(i) In the event that the registration statement
required to be filed pursuant to Section 4(b) relating to the
Shares and the Warrant Shares underlying the Warrants
delivered at the First Closing shall not be declared effective
by the SEC within 90 days from the date of the First Closing,
the Company shall issue and deliver, free of charge and
without cost, to the Purchasers (i) within 10 days of such
ninetieth day, certificates representing a number of fully
paid, non-assessable shares of Common Stock equal to the
aggregate of 2% of the Shares and the Warrant Shares issued or
issuable with respect to the First Closing (with additional
shares issued pursuant to this Section 4(h) referred to as
"DEFAULT SHARES") and (ii) within 10 days of the last date of
each additional 30-day period in which such registration
statement shall not have been declared effective by the SEC,
additional certificates representing a number of fully paid,
non-assessable shares of Common Stock equal to the aggregate
of 2% of such Shares and Warrant Shares and any issued Default
Shares;
(ii) In the event that the registration statement
required to be filed pursuant to Section 4(b) relating to the
Shares and the Warrant Shares underlying the Warrants
delivered at the Second Closing shall not be declared
effective by the SEC within 90 days from the date of the
Second Closing, the Company shall issue and deliver, free of
charge and without cost, to the Purchasers (i) within 10 days
of such ninetieth day, certificates representing a number of
fully paid, non-
assessable shares of Common Stock equal to the aggregate of 2%
of the Shares and the Warrant Shares issued or issuable with
respect to the Second Closing and (ii) within 10 days of the
last date of each additional 30-day period in which such
registration statement shall not have been declared effective
by the SEC, additional certificates representing a number of
fully paid, non-assessable shares of Common Stock equal to the
aggregate of 2% of such Shares and Warrant Shares and any
issued Default Shares. The obligation of the Company to issue
shares of Common Stock under this Section 4(h)(ii) is separate
and distinct from its obligation under Section 4(h)(i) and
shall be cumulative and in addition to its obligation under
Section 4(h)(i).
(iii) Any Default Shares shall be allocated pro rata
among the Purchasers based on the number of Shares purchased
by each under this Agreement. Any and all shares of Common
Stock issued and delivered by the Company pursuant to this
Section 4(h) shall constitute "Registrable Securities," and
the Company shall be required to register them under the
Securities Act in accordance with the provisions of this
Agreement.
(iv) The remedies provided for in this Section 4(h)
shall be in addition to any other remedies available to the
Purchasers under this Agreement, at law or in equity.
5. Covenants of the Company. The Company hereby covenants
that:
(a) Exchange Act Filings. The Company shall use its best
efforts to file in a timely manner all reports and other documents
required to be filed by it under the Exchange Act, and, promptly upon
filing, deliver copies of such reports to each Purchaser. The Company
shall not terminate its status as an issuer required to file reports
under the Exchange Act even if the Exchange Act or the rules and
regulations promulgated thereunder would permit such termination.
(b) Authorized Shares. The Company shall, from and at all
times after the First Closing, maintain a reserve of authorized shares
of Common Stock sufficient to cover the issuance of the Warrant Shares
underlying Warrants sold at such Closing. The Company shall, from and
at all times after the Second Closing, maintain a reserve of authorized
shares of Common Stock sufficient to cover the issuance of all Warrant
Shares.
(c) Use of Proceeds. The Company shall use the proceeds from
the sale of the Securities substantially as set forth in the
Memorandum.
(d) Trading Requirements; Market Makers. The Company shall use
its best efforts to continue to meet any requirements or take any
actions necessary for trading of the Common Stock in the OTCBB. So long
as there are any Warrants outstanding, the Company shall use its best
efforts to arrange for or maintain at least two market makers to
register with the NASD as such with respect to the Common Stock.
(e) Management and Other Rights. So long as Purchasers own or
have the right to acquire an aggregate of 5% or more of the then
outstanding shares of Common Stock, the Company shall, at no time, have
(i) outstanding shares of Common Stock and/or (ii) shares of Common
Stock issuable upon the exercise, exchange or conversion of outstanding
rights, options, warrants and other securities, or issuable under any
other commitments or agreements, in each case, which shares were issued
or are issuable by the Company to management, other employees,
directors or consultants as compensation and which shares exceed, in
the aggregate, the greater of (x) 1,242,000 or (y) 12.5% of the then
outstanding shares of Common Stock.
(f) Financial Information. The Company shall promptly deliver
the following reports to the Funds, until such time as they shall have
transferred or sold all of their Securities: (i) upon filing with the
SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on
Form 10-Q, its proxy statements and any Current Reports on Form 8-K,
and (ii) upon release, copies of all press releases issued by the
Company.
(g) Grant of Registration Rights. For a period of three years
from the First Closing, the Company shall not grant or issue to any
person or entity any registration or similar rights.
(h)Certain Legal Expenses. The Company shall pay to Xxxxxxx,
Calamari and Xxxxxxx, counsel to the Purchasers, at each Closing, its
accrued and unpaid fees as of each Closing Date relating to the
negotiation and documentation of this Agreement and other documents and
transactions contemplated hereby in an aggregate amount not to exceed
$40,000.
(i) Removal of Legends. Any legend endorsed on a certificate
pursuant to Section 2(g) and any related stop transfer instructions
with respect to any Securities shall
be removed, and the Company shall issue promptly a certificate without
such legend to the holder thereof, if (i) such Securities shall be
registered under the Securities Act, (ii) such legend may be properly
removed under the terms of Rule 144 or (iii) such holder shall provide
the Company with an opinion of counsel, reasonably satisfactory to the
Company, to the effect that a sale, transfer or assignment of such
Securities may be made pursuant to Rule 144(k).
(j) No Integrated Offerings. The offer and sale of the
Securities, when taken into account with prior sales by the Company of
securities, shall not require the registration under the Securities Act
of any such securities, and the Company shall not make any offers or
sales of any security that would require such registration.
(k) Stockholder Meeting. The Board of Directors of the Company
shall (i) call and hold a special meeting of the stockholders, as soon
as practicable after the date of this Agreement, in order to approve an
amendment to the Company's Articles of Incorporation (the "AMENDMENT")
to increase the total number of authorized shares of Common Stock to an
aggregate of 75,000,000 and (b) if approved, promptly file the
Amendment with the Minnesota Secretary of State. The Company shall
notify promptly the Funds of the approval or disapproval of such
amendment by the stockholders and the filing of the Amendment.
(l) Certain Corporate Actions. So long as Purchasers own or
have the right to acquire an aggregate of 20% or more of the then
outstanding shares of Common Stock, the Company shall not, without the
prior written consent of the Funds (provided that any of the Funds then
own or have the right to acquire any shares of Common Stock) and any
director of the Company designated by Xxxxxx, Xxxxxxx & Xxxxx
Incorporated ("MJK") pursuant to Section 5(r) of this Agreement, (i)
effect any reclassification, capital reorganization or other change of
outstanding shares of capital stock of the Company, (ii) merge,
consolidate or enter into any other business combination of the Company
with or into another entity (other than a merger of a wholly owned
subsidiary, in which merger the Company shall be the surviving entity),
(iii) sell, lease or otherwise dispose of all or substantially all of
its assets or (iv) liquidate, dissolve or wind-up the Company.
(m) Future Issuances. The Company shall not grant or issue (i)
any additional shares of Common Stock, (ii) options, warrants or other
rights exercisable for, convertible into or exchangeable for Common
Stock or (iii) enter into any other commitments or agreements which
call
for the issuance of any of the foregoing until the earlier of (x) the
amendment of the Company's Articles of Incorporation as set forth in
the Amendment or (y) the expiration of all Warrants.
(n) Future Offerings. So long as Purchasers own or have the
right to acquire an aggregate of 20% or more of the then outstanding
shares of Common Stock, the Company shall not, for a period of three
years from the date hereof, sell any Common Stock, any securities
convertible into or exchangeable or exercisable for Common Stock or any
rights, options, warrants or other agreements or commitments
convertible into or exercisable or exchangeable for Common Stock for a
purchase price, or having a conversion price or exercise price, per
share of Common Stock of less than $1.00 (after taking into account any
stock splits, stock dividends or capital reorganizations), without the
prior written consent of the Funds (provided that any of the Funds then
own or have the right to acquire any shares of Common Stock) and any
director of the Company designated by MJK pursuant to Section 5(r) of
this Agreement.
(o) Senior Securities. So long as Purchasers own or have the
right to acquire an aggregate of 20% or more of the then outstanding
shares of Common Stock, the Company shall not, without the prior
written consent of the Funds (provided that any of the Funds then own
or have the right to acquire any shares of Common Stock) and any
director of the Company designated by MJK pursuant to Section 5(r) of
this Agreement, issue or create any class of equity security having
liquidation rights senior to the Common Stock (a "SENIOR SECURITY") or
any securities convertible into or exercisable or exchangeable for a
Senior Security.
(p) Modification of Rights. So long as Purchasers own or have
the right to acquire an aggregate of 20% or more of the then
outstanding shares of Common Stock, the Company shall not effect any
amendment of outstanding options, warrants, notes or other rights or
securities convertible into or exercisable or exchangeable for Common
Stock (collectively, "RIGHTS") if the amendment would result in an
increase in the number of shares issuable with respect to such Rights
or would reduce the exercise price, conversion price or similar
variable with respect to such Rights.
(q) Option Cash Payments. The Company shall not, by reason of
the sale of the Securities or the consummation of the transactions
contemplated hereby, elect to make any cash payments pursuant to its
discretionary authority under Section 9.3 of the Company's 1993 Stock
Option Plan.
(r) Board Representation. So long as Purchasers own or have
the right to acquire 20% or more of the then outstanding shares of
Common Stock, the Company shall maintain the number of directors
comprising the Board of Directors at five directors. So long as the
Funds, individually or in the aggregate, shall own 2.5% of the then
outstanding shares of Common Stock, the Company shall cause, at all
times, one director on the Board to be a nominee designated by the
Funds. For a period of three years from the date of the First Closing,
the Company shall cause, at all times, one director on the Board to be
a nominee designated by MJK, which nominee shall be mutually
satisfactory to MJK and the Company.
(s) Payment of Director Notes. The Company shall, within five
business days of the First Closing, pay any Convertible Promissory
Note, dated October 1, 1997, in the amount of $5,775 which a director
shall have elected to be repaid pursuant to an agreement of directors
in the form set forth as part of Exhibit D hereto.
6. Conditions to Obligations of the Purchasers at Each
Closing. The obligation of each Purchaser to purchase the Shares set
forth on such Purchaser's signature page at each Closing shall be
subject to the fulfillment on or prior to each Closing Date of the
following conditions, any of which may be waived by such Purchaser:
(a) Certificates. The Company shall have delivered to each
Purchaser a duly executed certificate representing the Shares and the
Warrants issuable to such Purchaser.
(b) Trading. The Common Stock shall be trading on the OTCBB.
(c) Representations and Warranties; Performance of
Obligations. The representations and warranties of the Company set
forth in this Agreement shall be true and correct when made, and shall
be true and correct on each Closing Date with the same force and effect
as if they had been made on and as of said Date, except for
representations and warranties made as of a specific date which shall
be true and correct as of such date. The Company shall have performed,
satisfied and complied with all obligations and conditions required to
be performed or observed by it under this Agreement on or prior to each
Closing Date.
(d) Consents and Waivers. The Company shall have made all
filings and obtained any and all consents (including, without
limitation, all governmental or regulatory consents), approvals or
authorizations, permits
and waivers necessary or appropriate for consummation of the
transactions contemplated by this Agreement. The Company shall have
received with respect to the issuance of the Shares, the Warrants, the
Warrant Shares and the Default Shares, valid and binding waivers
relating to all preemptive rights, rights of first refusal or similar
rights. The Company shall have received with respect to the issuance of
the Shares, the Warrants, the Warrant Shares and any Default Shares
valid waivers of any anti-dilution or other adjustments.
(e) No Litigation or Legislation. No statute, rule,
regulation, decree, ruling or injunction shall have been enacted or
entered, and no litigation, proceeding, government inquiry or
investigation shall be pending, which challenges, prohibits or
restricts, or seeks to prohibit or restrict, the consummation of the
transactions contemplated by this Agreement or the other agreements
referred to herein, or restricts or impairs the ability of the
Purchasers to own an equity interest in the Company.
(f) Compliance Certificate. The Company shall have delivered
to the Purchasers a certificate, executed by the Chairman of the Board
or Chief Executive Officer of the Company, dated as of each Closing
Date, certifying to the fulfillment of the conditions set forth in
Sections 6(b), 6(c), 6(d), 6(e), 6(h) and 6(j) such other matters as
the Purchasers shall reasonably request.
(g) Opinion of Counsel. The Purchasers shall have received
from Xxxxxxxxxxx Xxxxx & Xxxxxxxx, counsel to the Company, an opinion
addressed to the Purchasers, dated as of each Closing Date, in
substantially the form attached hereto as Exhibit C.
(h) No Material Adverse Change. There shall not have occurred
since the execution hereof any Material Adverse Change.
(i) Aggregate Investment. The aggregate number of Shares
purchased hereunder by all Purchasers shall be not less than 4,000,000
and not greater than 4,500,000 and the aggregate number of Warrants
issued hereunder by all Purchasers shall be not less than 4,000,000 and
not greater than 4,500,000. A minimum of 1,500,000 of such Shares shall
be purchased by Purchasers other than the Funds. The 104,000 Shares to
be purchased and the 104,000 Warrants to be acquired by certain
noteholders and delivered as set forth in Section 1(c)(ii) shall not be
included for purposes of determining if the conditions set forth in
this Section 6(i) shall be satisfied. Pursuant to Section 1(b)(ii), any
Shares that shall be sold and Warrants that shall be
delivered at any Interim Closing shall be deemed purchased and
delivered at the First Closing and shall not be included for purposes
of determining if the conditions set forth in this Section 6(i) shall
be satisfied with respect to the Second Closing.
(j) Certain Agreements. Agreements, substantially in the forms
of Exhibit D hereto, shall have been executed and shall be in full
force and effect, and the transactions set forth on Schedule 6(j) shall
have been consummated. In connection with the conversion of the "7/97
Bridge Loan Investors" as described on Schedule 6(j), the July Bridge
Notes (as defined on Schedule 6(j)) shall have been cancelled.
(k) Director Resignations; Number. All directors other than
Messrs. Xxxxx and Xxxxxx shall have resigned from the Board of
Directors of the Company, and the number of directors comprising the
Board shall have been set at five. The vacancies resulting from such
resignations shall have been filled by the appointment as directors of
Xxxxx Xxxxxxx and the nominees of the Funds and MJK.
(l) Additional Documents. The Company shall have delivered to
the Purchasers such other certificates, documents and instruments as
they may reasonably request in connection with the transactions
contemplated hereby.
7. Conditions to Obligation of the Company at Each Closing.
The obligation of the Company to sell and issue the Shares and the
Warrants to the Purchasers at each Closing shall be subject to the
fulfillment on or prior to each Closing Date of the following
conditions, any of which may be waived by the Company:
(a) Purchase Price. Each Purchaser shall have delivered the
purchase price for the Shares to be purchased by such Purchaser
hereunder.
(b) Representations and Warranties. The representations and
warranties made by the Purchasers in this Agreement shall be true and
correct when made, and shall be true and correct on each Closing Date
with the same force and effect as if they had been made on and as of
said date.
(c) No Litigation or Legislation. No statute, rule,
regulation, decree, ruling or injunction shall have been enacted or
entered, and no litigation, proceeding, government inquiry or
investigation shall be pending, which challenges, prohibits, restricts,
or seeks to prohibit or restrict, the consummation of the transactions
contemplated
by this Agreement or the other agreements referred to herein, or
restricts or impairs the ability of the Purchaser to own an equity
interest in the Company.
8. Conditions to Second Closing. The obligation of each
Purchaser to purchase Shares at the Second Closing as set forth on such
Purchaser's signature page, and the obligation of the Company to sell
and issue such Shares and Warrants, shall be subject to the fulfillment
on or prior to such Closing of the following conditions:
(a) Amendment of Articles of Incorporation. The Amendment
shall have been approved by the stockholders of the Company as required
by law and the Articles of Incorporation and the Bylaws of the Company,
and stockholders other than the Purchasers (the "NON-PURCHASER
STOCKHOLDERS") holding a majority of all shares held by Non- Purchaser
Stockholders shall have voted to approve the Amendment. The Company
shall have filed the Amendment with the Secretary of State of the State
of Minnesota, and such Amendment shall have become effective.
(b) Milestones. The Company shall have attained, no later than
January 15, 1998, the following milestones: (i) the Company's net
revenues recorded on its books and records (determined in accordance
with generally accepted accounting principles consistently applied)
derived from the sale of existing or new systems during the period from
October 1, 1997, through January 15, 1998, shall be at least $200,000;
(ii) the Company shall have executed letters of intent and/or sales
contracts, each with a minimum value of $5,000, with at least five new
(excluding current or previous) customers for the sale of any existing
or new systems during the period from October 1, 1997 through January
15, 1998; and (iii) the Company shall have made generally available for
sale a commercially marketable entry level cardiac cath lab product
designed to support the data requirements of the American College of
Cardiology, with a sales price range of $5,000-$15,000.
9. Miscellaneous.
(a) Survival. The representations and warranties of the
Company and the agreements and covenants set forth in this Agreement
shall survive each Closing notwithstanding any due diligence
investigation conducted by or on behalf of any Purchaser. The Company
shall indemnify and hold harmless each Purchaser and each of such
Purchaser's officers, directors, employees, partners, members, agents
and affiliates for any loss, damage or expenses (including reasonable
counsel fees) arising as a result of or related to any breach or
alleged breach by the Company of any of its
representations or covenants set forth in this Agreement, including
advancement of expenses as they are incurred.
(b) Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York. Each of
the Company and the Purchasers irrevocably consent to the exclusive
jurisdiction of the United States Federal courts, located in New York
County, New York, in any suit or proceeding based on or arising under
this Agreement and irrevocably agree that all claims in respect of such
suit or proceeding may be determined in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Service of process on the
Company mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the right of any Purchaser to
serve process in any manner permitted by law.
(c) Finder's Fee. Each party shall indemnify and hold the
other harmless from any liability for any commission or compensation in
the nature of a finders' fee (and the costs and expenses of defending
against such liability or asserted liability) for which such party or
any of its officers, partners, employees or representatives shall be
responsible.
(d) Further Assurances. Each party, whether prior to or after
the Closing, shall execute, acknowledge and deliver all such other
instruments and documents, and shall take all such other actions, as
may be reasonably requested by any other party for the purpose of
effecting and evidencing the consummation of the transactions
contemplated by this Agreement.
(e) Successors. This Agreement shall be binding upon and inure
to the benefit of the successors and permitted assigns of the parties
hereto; provided, however, that the rights of any Purchaser hereunder
may be transferred in connection with a transfer by such Purchaser of
all or part of the Securities in accordance with the terms of this
Agreement or the terms of the Warrants, as the case may be, in a
private transaction exempt from registration under the Securities Act.
Any transferee of any of the Securities to whom rights are transferred
in such a private transaction, other than an affiliate of the
Purchaser, shall be required, as a condition precedent to acquiring
such Securities, to agree in writing to be bound by all the terms and
conditions of this Agreement. A Purchaser may not assign its rights
under this Agreement in connection with the sale of Shares or Warrant
Shares
pursuant to a registration statement under the Securities Act or under
Rule 144.
(f) Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(g) Entire Agreement. This Agreement, including and
incorporating all Schedules and all Exhibits hereto and referred to
herein, and the Warrants constitute and contain the entire agreement
and understanding of the parties regarding the subject matter of this
Agreement and supersede any and all prior negotiations, correspondence,
understandings and agreements, written or oral, among the parties with
respect to the subject matter hereof.
(h) Notices. All notices required to be given hereunder shall
be in writing and shall be given by personal delivery, facsimile
transmission, nationally recognized overnight carrier (prepaid) or
registered or certified mail, postage prepaid with return receipt
requested. Notices shall be addressed, if to the Company, at its
principal corporate offices located at 0000 Xxxxx Xxxxxxxxx,
Xxxxxxxxxxx, Xxxxxxxxx 00000, facsimile No. (000) 000-0000, Attention:
Chief Executive Officer and, if to a Purchaser, to the address set
forth on such Purchaser's signature page. Notices delivered personally
shall be deemed given as of actual receipt; notices sent via facsimile
transmission shall be deemed given as of one business day following
receipt by the sender of written confirmation of transmission thereof;
notices sent via overnight courier shall be deemed given as of one
business day following sending; and notices mailed shall be deemed
given as of five business days after proper mailing. A party may change
his or its address by written notice in accordance with this Section
9(h).
(i) Amendments and Waivers. Except as otherwise provided
herein, no provision of this Agreement may be waived or amended other
than by an instrument in writing signed by the Company and Purchasers
owning or having the right to acquire 51% of the Shares and the Warrant
Shares.
(j) Severability. If one or more provisions of this Agreement
shall be held to be unenforceable under applicable law, such provisions
shall be excluded from this Agreement to the extent unenforceable and
the balance of this Agreement shall be unaffected thereby and shall
remain in full force and effect to the fullest extent permitted by law.
(k) Expenses. Except as otherwise provided herein, the parties
hereto shall pay their own costs and expenses.
(l) Publicity. The parties shall consult with each other, to
the extent practicable, as to the form and content of any press
releases and other third party communications or disclosures relating
to this Agreement or the transactions contemplated hereby, and shall
use reasonable efforts, acting in good faith, to agree upon disclosure
which shall be satisfactory to the parties hereto. The Purchasers
acknowledge that the Company intends to report the completion of the
transactions contemplated hereby on a Form 8-K to be filed with the
SEC, including the filing of this Agreement and all Exhibits and
Schedules hereto with the SEC.
(m) Headings. The headings of this Agreement are for
convenience of reference and shall not form a part of, or affect the
interpretation of, this Agreement.
(n) Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any
provision hereof be enforced by, any other person.
(o) Voting Covenant. Each of the Purchasers covenants that it
shall vote all shares of Common Stock owned by it to approve the
Amendment which shall be submitted to the stockholders of the Company
pursuant to Section 5(k).
(p) Termination of Covenants. Except as otherwise provided in
Section 5, the covenants of the Company set forth in Section 5 of this
Agreement shall terminate at such time as the Purchasers shall not own
any securities issued pursuant to this Agreement or the Warrants.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first above written.
LIFERATE SYSTEMS, INC.
By:_________________________________
Name:_______________________________
Title:______________________________
[INVESTOR]
By:_________________________________
Name:_______________________________
Title:______________________________
Address:____________________________
____________________________
____________________________
Facsimile No:_______________________
Residence:__________________________
SUBSCRIPTION AMOUNT FOR FIRST CLOSING:
Number of Shares x ($0.56) ____________
Number of Warrants ____________
TOTAL PURCHASE PRICE $
============
SUBSCRIPTION AMOUNT FOR INTERIM CLOSING:
Number of Shares x ($0.56) ____________
Number of Warrants ____________
TOTAL PURCHASE PRICE $
============
SUBSCRIPTION AMOUNT FOR SECOND CLOSING:
Number of Shares x ($0.56) ____________
Number of Warrants ____________
TOTAL PURCHASE PRICE $
============
[NOT PART OF AGREEMENT]
EXHIBITS AND SCHEDULES TO
SECURITIES PURCHASE AGREEMENT
DATED NOVEMBER 14, 1997 BETWEEN
LIFERATE SYSTEMS, INC. AND
THE PURCHASERS
EXHIBIT OR SCHEDULE SUBJECT REFERENCE IN AGREEMENT
Exhibit A Form of Warrant to Purchase Recitals
Common Stock of the
Company
Exhibit B Schedule of Exceptions Sections 3(c),(m),(q),(r)
and (v)
Exhibit C Opinions of Counsel to the Section 6(g)
Company
Exhibit D Certain Required Modification Section 6(j)
Agreements
Schedule 3(d) Capitalization Section 3(d)
Schedule 6(j) Transactions Affecting Section 6(j)
Capitalization and Certain
Existing Rights
