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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934*
Tricord Systems, Inc.
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(Name of Issuer)
Common stock, par value $ 0.01 per share
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(Title of Class of Securities)
89612110
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(CUSIP Number)
Joseph R. Canion
5 Post Oak Park, Suite 1655
Houston, Texas 77027
713-871-8400
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(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
December 15, 1998
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(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of (S)(S) 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box [ ].
Note: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See (S) 240.13d-7(b) for other
parties to whom copies are to be sent.
*The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
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CUSIP No. 89612110
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(1) Name of Reporting Person
S.S. or I.R.S. Identification Nos. of Above Person
Joseph R. Canion, ###-##-####
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(2) Check the Appropriate Box if a Member of a Group (See Instructions)
(a) [ ]
(b) [ ]
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(3) SEC Use Only
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(4) Source of Funds (See Instructions)
PF
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(5) Check if Disclosure of Legal Proceedings is Required Pursuant to Items
2(d) or 2(e)
[ ]
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(6) Citizenship or Place of Organization
United States of America
Number of (7) Sole Voting Power 4,281,500
Shares Bene- ____________________________________
ficially (8) Shared Voting Power 0
Owned by ____________________________________
Each Report- (9) Sole Dispositive Power 4,281,500
ing Person ____________________________________
With (10) Shared Dispositive Power 0
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(11) Aggregate Amount Beneficially Owned by Each Reporting Person
4,281,500
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(12) Check if the Aggregate Amount in Row (11) Excludes Certain Shares (See
Instructions)
[ ]
- ------------------------------------------------------------------------------
(13) Percent of Class Represented by Amount in Row (11)
20.5%
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(14) Type of Reporting Person (See Instructions)
IN
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ITEM 1. SECURITY AND ISSUER
The class of securities to which this statement relates is the common
stock, par value $0.01 per share (the "Common Stock"), of Tricord Systems, Inc.,
a Delaware corporation (the "Issuer"). The address of the principal executive
offices of the Issuer is 2905 Northwest Boulevard, Suite 20, Plymouth, Minnesota
55441.
ITEM 2. IDENTITY AND BACKGROUND
This statement is filed by Joseph R. Canion. The business address of
Mr. Canion is 5 Post Oak Park, Suite 1655, Houston, Texas 77027. Mr. Canion is
a citizen of the United States of America, and his principal occupation and
employment is as the Chairman of Insource Technology Corp. During the last five
years, Mr. Canion has not (i) been convicted in any criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) been a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
and as a result of such proceeding was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting or mandating
activities subject to, federal or state securities laws or finding any violation
with respect to such laws.
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION
During November 1998, Mr. Canion spent $184,062.50 of his personal
funds (excluding commission expenses) to acquire 281,500 shares of Common Stock
in open market purchases. On December 15, 1998, Mr. Canion spent $2,000,000 of
his personal funds to acquire 2,000,000 shares of Common Stock and warrants to
acquire an additional 2,000,000 shares of
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Common Stock (at a purchase price of $3.50 per share) pursuant to a Stock
Purchase Agreement, dated as of December 7, 1998 (the "Stock Purchase
Agreement"), by and among the Issuer, Mr. Canion and the other investors party
thereto (the "Other Investors"). Mr. Canion did not borrow any of the funds used
to purchase any of the shares of Common Stock reported on this statement.
ITEM 4. PURPOSE OF TRANSACTION
Mr. Canion acquired the shares of Common Stock reported on this
statement solely for investment purposes. Mr. Canion does not presently have
any plans or proposals that relate to or would result in: (a) the acquisition by
any person of additional securities of the Issuer, or the disposition of
securities of the Issuer; (b) an extraordinary corporate transaction, such as a
merger, reorganization or liquidation, involving the Issuer or any of its
subsidiaries; (c) a sale or transfer of a material amount of assets of the
Issuer or any of its subsidiaries; (d) any material change in the present
capitalization or dividend policy of the Issuer; (e) any other material change
in the Issuer's business or corporate structure; (f) changes in the Issuer's
charter, bylaws or instruments corresponding thereto or other actions which may
impede the acquisition of control of the Issuer by any person; (g) causing a
class of securities of the Issuer to be delisted from a national securities
exchange or to cease to be authorized to be quoted in an inter-dealer quotation
system of a registered national securities association; (h) a class of equity
securities of the Issuer becoming eligible for termination of registration
pursuant to Section 12(g)(4) of the Securities Exchange Act of 1934, as amended;
or (i) any action similar to any of those enumerated above.
Under the terms of an Investors Agreement, dated as of December 7,
1998 (the "Investors Agreement"), by and among the Issuer, Mr. Canion and the
Other Investors, executed in
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conjunction with the Stock Purchase Agreement, the Issuer has agreed to use its
best efforts to cause either (i) Mr. Canion or (ii) such other person, selected
by a majority in interest of the holders of voting securities of the Issuer
owned by Mr. Canion, his immediate family and any trusts or entities established
for their benefit, as nominee (the "Canion Nominee") to be elected to the Board
of Directors of the Issuer (the "Board"). The Canion Nominee will have the
option of choosing when to accept such election. In the meantime, and pending
acceptance of such election, the Canion Nominee will receive all notices and
other information and be permitted to attend all meetings he would receive or be
permitted to attend as a member of the Board, but will not be permitted to vote
and will not have any of the duties or liabilities of a member of the Board. The
foregoing description of the Investors Agreement and the nomination rights
thereunder is qualified in its entirety by reference to the Investors Agreement,
the full text of which is filed as an Exhibit hereto and incorporated herein by
reference.
ITEM 5. INTEREST IN SECURITIES OF THE ISSUER
As of December 15, 1998, Mr. Canion was the beneficial owner of an
aggregate of 4,281,500 shares of Common Stock (approximately 20.5% of the shares
outstanding on such date). An aggregate of 2,000,000 of such shares are subject
to warrants to purchase that are exercisable as of the date of this statement at
a purchase price of $3.50 per share. Mr. Canion has the sole power to vote and
dispose of the shares of Common Stock reported on this statement.
During November 1998, Mr. Canion acquired 281,500 shares of Common
Stock in the following open market transactions:
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Date Number of Shares Purchase Price Per Share
- ---- ---------------- ------------------------
11/5/98 15,000 $0.46875
11/5/98 20,000 $0.46875
11/5/98 25,000 $0.50
11/6/98 5,000 $0.50
11/9/98 20,000 $0.53125
11/9/98 20,000 $0.5625
11/10/98 45,000 $0.5625
11/11/98 5,000 $0.59375
11/11/98 12,000 $0.625
11/12/98 5,000 $0.65625
11/12/98 10,000 $0.6875
11/12/98 15,000 $0.71875
11/12/98 10,000 $0.75
11/12/98 30,000 $0.875
11/13/98 2,500 $1.00
11/13/98 10,000 $1.00
11/18/98 3,000 $0.8125
11/18/98 9,000 $0.875
11/19/98 20,000 $0.875
On December 15, 1998, Mr. Canion acquired 2,000,000 shares of Common
Stock and warrants to purchase up to an additional 2,000,000 shares of Common
Stock (at a purchase price of $3.50 per share) pursuant to the Stock Purchase
Agreement in exchange for total aggregate consideration of $2,000,000.
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ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF THE ISSUER
On December 15, 1998, pursuant to the terms of the Stock Purchase
Agreement, (i) Mr. Canion purchased 2,000,000 shares of Common Stock and
warrants to purchase an additional 2,000,000 shares of Common Stock (at a
purchase price of $3.50 per share) from the Issuer for aggregate consideration
of $2,000,000 and (ii) the Other Investors purchased 1,000,000 shares of Common
Stock and warrants to purchase an additional 1,000,000 shares of Common Stock
(at a purchase price of $3.50 per share) from the Issuer for aggregate
consideration of $1,000,000. The foregoing description of the Stock Purchase
Agreement and the transactions consummated thereunder is qualified in its
entirety by reference to the Stock Purchase Agreement, the full text of which is
filed as an Exhibit hereto and incorporated herein by reference.
In conjunction with the execution of the Stock Purchase Agreement, the
Issuer, Mr. Canion and the Other Investors executed the Investors Agreement.
Subject to certain limitations, the Investors Agreement provides that (i) Mr.
Canion and the Other Investors may request that the Issuer prepare and file a
registration statement with the Securities and Exchange Commission (the
"Commission") covering the sale of all or a portion of the shares of Common
Stock owned by Mr. Canion and the Other Investors and/or (ii) Mr. Canion and the
Other Investors may request that the Issuer include in any registration
statement filed by the Issuer with the Commission (either for its own account or
the account of another security holder) shares of Common Stock owned by Mr.
Canion and the Other Investors.
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The Investors Agreement further provides that, subject to certain
limitations, Mr. Canion and the Other Investors have the right to purchase any
such investor's pro rata share of offerings made by the Issuer of its voting
securities on or after the date of the Investors Agreement.
The Investors Agreement further provides that, subject to certain
limitations, Mr. Canion and the Other Investors have the right to participate in
any sale of any voting securities of the Issuer held by John J. Mitcham, the
Issuer's President and Chief Executive Officer, in the event Mr. Mitcham
receives a bona fide third party offer to purchase such securities.
The foregoing descriptions of the Investors Agreement and the
registration rights, rights of first refusal and co-sale rights thereunder are
qualified in their entirety by reference to the Investors Agreement, the full
text of which is filed as an Exhibit hereto and incorporated herein by
reference.
ITEM 7. MATERIAL TO BE FILED AS EXHIBITS
Exhibit 1 -- Stock Purchase Agreement, dated as of December 7,
1998, by and among the Issuer, Mr. Canion and the
Other Investors.
Exhibit 2 -- Investors Agreement, dated as of December 7, 1998,
by among the Issuer, Mr. Canion and the Other
Investors.
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After reasonable inquiry and to the best of his knowledge and belief,
the undersigned certifies that the information set forth in this statement is
true, complete and correct.
Date: December 23, 1998.
/s/ Joseph R. Canion
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Joseph R. Canion
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EXHIBIT 1
TRICORD SYSTEMS, INC.
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STOCK PURCHASE AGREEMENT
December 7, 1998
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TABLE OF CONTENTS
Page
SECTION 1
AUTHORIZATION AND SALE OF COMMON STOCK AND WARRANTS..................... 1
1.1 Authorization...................................................... 1
1.2 Sale of Securities................................................. 1
SECTION 2
CLOSING DATE; DELIVERY.................................................. 1
2.1 Closing............................................................ 1
2.2 Delivery........................................................... 1
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................... 2
3.1 Organization and Standing: Charter and Bylaws...................... 2
3.2 Corporate Power.................................................... 2
3.3 Subsidiaries....................................................... 2
3.4 Capitalization..................................................... 2
3.5 Authorization...................................................... 3
3.6 Financial Statements............................................... 3
3.7 Material Liabilities............................................... 3
3.8 Title to Properties and Assets: Liens: etc......................... 3
3.9 Compliance with Other Instruments, None Burdensome, etc............ 4
3.10 Litigation, etc.................................................... 4
3.11 Employees; Proprietary Information Agreement....................... 4
3.12 Registration Rights................................................ 4
3.13 Governmental Consent, etc.......................................... 4
3.14 Offering........................................................... 5
3.15 Brokers or Finders................................................. 5
3.16 Patents, Trademarks, etc........................................... 5
3.17 Taxes.............................................................. 5
3.18 Material Contracts and Commitments................................. 6
3.19 Related-Party Transaction.......................................... 6
3.20 Environmental and Safety Laws...................................... 6
3.21 Manufacturing and Marketing Rights................................. 6
3.22 Employee Benefit Plans............................................. 6
3.23 Insurance.......................................................... 7
3.24 Minute Book........................................................ 7
3.25 Dividends.......................................................... 7
3.26 Indebtedness....................................................... 7
3.27 Qualified Small Business Stock..................................... 7
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SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS........................ 7
4.1 Experience; Accredited Investor.................................... 8
4.2 Investment......................................................... 8
4.3 Rule 144........................................................... 8
4.4 No Federal or State Approval....................................... 8
4.5 Access to Data..................................................... 8
4.6 Authorization...................................................... 8
SECTION 5
CONDITIONS TO CLOSING BY THE PURCHASERS................................. 9
5.1 Representations and Warranties Correct............................. 9
5.2 Covenants.......................................................... 9
5.3 Compliance Certificate............................................. 9
5.4 Opinion of Company's Counsel....................................... 9
5.5 Investors Agreement................................................ 9
5.6 Lock-Up Agreements................................................. 9
5.7 Proceedings and Documents; Legal Matters........................... 9
5.8 Good Standing Certificate.......................................... 10
5.9 Secretary's Certificate............................................ 10
SECTION 6
CONDITIONS TO CLOSING BY THE COMPANY.................................... 10
6.1 Representations.................................................... 10
SECTION 7
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT.......................................... 10
7.1 Restrictions on Transferability.................................... 10
7.2 Restrictive Legend................................................. 10
SECTION 8
COVENANTS............................................................... 11
8.1 Fulfillment of Closing Conditions.................................. 11
8.4 Payment of Expenses................................................ 12
8.5 Publicity.......................................................... 12
SECTION 9
MISCELLANEOUS........................................................... 12
9.1 Governing Law...................................................... 12
9.2 Survival........................................................... 12
9.3 Successors and Assigns............................................. 12
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9.4 Entire Agreement; Amendment........................................ 12
9.5 Notices, etc....................................................... 13
9.6 Delays or Omissions................................................ 13
9.7 Severability....................................................... 13
9.8 Titles and Subtitles............................................... 14
9.9 Counterparts....................................................... 14
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EXHIBITS
A - Schedule of and Signature Page for Purchasers
A-1 - Distribution of Mr. Canion's Shares and Investor Warrants
B - Form of Investor Warrants
C - Form of Opinion of Counsel to the Company
D - Form of Investors Agreement
E - List of Key Officers, Directors and Employees
F - Form of Lock-Up Agreement
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STOCK PURCHASE AGREEMENT
This Agreement is entered into effective as of December 7, 1998 by and
among Tricord Systems, Inc., a Delaware corporation (the "Company"), and each of
the persons and entities listed on the Schedule of and Signature Page for
Purchasers attached hereto as Exhibit A (each a "Purchaser" and, collectively,
the "Purchasers").
SECTION 1
AUTHORIZATION AND SALE OF COMMON STOCK AND WARRANTS
1.1 AUTHORIZATION. The Company has authorized the sale and issuance of up
to 4,000,000 shares (the "Shares") of its common stock, par value $.01 per share
("Common Stock"), at the Closing (as hereinafter defined) and up to 4,000,000
Investor Warrants, each for the purchase of one share of Common Stock (the
"Investor Warrants"), having the terms set out in the form of warrant
certificate attached hereto Exhibit B. The Investor Warrants are sometimes
herein referred to herein as the "Warrants." The Warrants and the Shares are
sometimes herein referred to together as the "Securities."
1.2 SALE OF SECURITIES. Subject to the terms and conditions hereof, the
Company will severally issue and sell to the Purchasers, and the Purchasers will
severally buy from the Company, the number of shares of Common Stock and the
number of Investor Warrants for the aggregate purchase price set forth opposite
such Purchaser's name on the Schedule of Purchasers. The Company's agreements
with each of the Purchasers are separate agreements, and the sales of the
Securities to each of the Purchasers are separate sales.
SECTION 2
CLOSING DATE; DELIVERY
2.1 CLOSING.
Closing Date. The closing of the purchase and sale of the Securities
hereunder shall be held at the offices of Baker & Botts, L.L.P., One Shell
Plaza, 910 Louisiana, Houston, Texas, on or prior to December 18, 1998 (the
"Closing"), or at such other time and place upon which the Company and the
Purchasers acquiring in the aggregate more than 50% of such shares of Common
Stock to be sold pursuant to the terms hereto mutually agree upon orally or in
writing (the date of the Closing is hereinafter referred to as the "Closing
Date").
2.2 DELIVERY. At the Closing, the Company will deliver to each Purchaser
(a) a certificate or certificates, registered in such Purchaser's name
representing the number of shares of Common
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Stock, and (b) a warrant certificate registered in such Purchaser's name
representing the number of Warrants, each in the amounts set forth opposite such
Purchaser's name on the Schedule of Purchasers, against payment of the purchase
price therefor, by check payable to the Company or wire transfer per the
Company's instructions.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth on the disclosure schedule prepared by the Company and
delivered to the Purchasers, dated as of the date hereof (the "Disclosure
Schedule"), the Company represents and warrants to each Purchaser both as of the
date hereof and again as of the Closing as follows:
3.1 ORGANIZATION AND STANDING: CHARTER AND BYLAWS. The Company is a
corporation duly organized, existing and in good standing under the laws of the
State of Delaware. The Company has all requisite corporate power and authority
to own and operate its properties and assets, and to carry on its business as
presently conducted. The Company currently is qualified to do business as a
foreign corporation in each jurisdiction where the failure to be so qualified
would have a material adverse affect on the Company's properties and business as
now conducted or its financial condition. The Company has furnished to
Purchasers a true, correct and complete copy of its Bylaws as in full force and
effect on the date hereof and a true, correct and complete copy of the Company's
Certificate of Incorporation, as amended (the "Charter"), as in full force and
effect on the date hereof.
3.2 CORPORATE POWER. The Company has and will have at the Closing Date
all requisite corporate power and authority to execute and deliver this
Agreement and the Investors Agreement (as defined in Section 5.5 hereof), to
sell and issue the Securities hereunder, to issue the Common Stock issuable upon
exercise of the Warrants (the "Exercise Shares") and to carry out and perform
its obligations under the terms of this Agreement and the Investors Agreement
referred to in Section 5.5 below.
3.3 SUBSIDIARIES. The Company has no subsidiaries and does not otherwise
own or control, directly or indirectly, any equity interest in any corporation,
partnership, association or business entity.
3.4 CAPITALIZATION. The authorized capital stock of the Company consists
of 32,750,677 shares, 27,000,000 of which are designated as Common Stock,
2,043,966 of which are designated as series C convertible preferred stock, $.01
par value ("Series C Preferred Stock"), 706,711 of which are designated as
series D convertible preferred stock ("Series D Preferred Stock"), 2,500,000 of
which is undesignated stock, $.01 par value ("Undesignated Stock") and 500,000
shares which are designated as series A junior preferred stock, $.01 par value
("Series A Junior Preferred Stock"). As of December 1, 1998, there are
14,748,929 shares of Common Stock outstanding, and there are no shares of Series
C Preferred Stock, Series D Preferred Stock, Undesignated Stock or Series A
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Junior Preferred Stock outstanding. The outstanding shares of the Company's
capital stock have been duly authorized and validly issued, and are fully paid
and nonassessable. As of the date hereof, the Company has reserved 4,000,000
shares of Common Stock for issuance upon exercise of the Investor Warrants. As
of December 1, 1998, 919,535 shares of Common Stock were available for issuance
under the Tricord Systems, Inc. 1998 Stock Incentive Plan and the Tricord
Systems, Inc. 1998 Non-Employee Director Stock Plan.
3.5 AUTHORIZATION. All corporate action on the part of the Company, its
directors and its stockholders necessary for the authorization, execution,
delivery and performance of this Agreement, the Investors Agreement and the
Warrants by the Company, the authorization, sale, issuance and delivery of the
Securities and the Exercise Shares and the performance of all of the Company's
obligations hereunder has been taken or will have been taken prior to the
Closing. This Agreement, the Investors Agreement and the Warrants, when
executed and delivered by the Company, shall constitute valid and binding
obligations of the Company, enforceable in accordance with their terms. Except
as set forth in Section 3.4, (i) no subscription, warrant, option or other right
to purchase or acquire any shares of any class of capital stock of the Company
or securities convertible into such capital stock is authorized or outstanding,
and (ii) there is no commitment of the Company to issue any such shares,
warrants, options or other such rights or securities. The Shares, when issued
in compliance with the provisions of this Agreement, will be validly issued,
fully paid and nonassessable; the Exercise Shares have been duly and validly
reserved and, when issued in compliance with the provisions of the Warrants,
will be validly issued, fully paid and nonassessable; and the Shares and the
Exercise Shares will be free of any pledges, liens, encumbrances, preemptive
rights or restrictions except for restrictions on transfer under federal and
state securities laws as set forth herein and as set out in the Investors
Agreement.
3.6 FINANCIAL STATEMENTS. The Company has delivered to each Purchaser its
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1998, June 30,
1998, and September 30, 1998, and its Annual Report on Form 10-K for the year
ended December 31, 1997 (collectively referred to as the "SEC Reports" and the
financial statements contained therein are collectively referred to as the
"Financial Statements"). The Financial Statements are complete and correct in
all material respects and fairly present the Company's financial position as of
their respective dates and the Company's results of operations for the periods
presented therein.
3.7 MATERIAL LIABILITIES. As of the Closing, the Company has no
liabilities or obligations, absolute or contingent (individually or in the
aggregate) in excess of $50,000, except for liabilities and obligations set
forth on the face of the most recent balance sheet included in the Financial
Statements.
3.8 TITLE TO PROPERTIES AND ASSETS: LIENS: ETC. Except (i) as reflected
in the Financial Statements, (ii) for liens for current taxes not yet
delinquent, or (iii) for liens imposed by law and incurred in the ordinary
course of business for obligations not past due, none of which, individually or
in the aggregate, materially interferes with the use of such property, the
Company has good and marketable title to its property and assets free and clear
of all mortgages, liens, claims and
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encumbrances. With respect to the property and assets it leases, the Company is
in compliance with such leases and, to the best of its knowledge, holds a valid
leasehold interest free of any liens, claims or encumbrance, subject to the
exceptions enumerated in clauses (i)-(iii) above.
3.9 COMPLIANCE WITH OTHER INSTRUMENTS, NONE BURDENSOME, ETC. The Company
is not in violation of any provision of its Charter or Bylaws, or to the best of
its knowledge in any material respect of any term or provision of any mortgage,
indebtedness, lease, indenture, contract, agreement, license, instrument,
judgment or decree (collectively, the "Instruments"), and to the best of its
knowledge is not in violation of any order, statute, rule or regulation
applicable to the Company where such violation would materially and adversely
affect the Company or any of its properties or assets. The execution, delivery
and performance of and compliance with this Agreement, the Warrants and the
Investors Agreement, and the issuance of the Shares, the Warrants and the
Exercise Shares, have not resulted and will not result (i) in any material
violation of, or conflict with, or constitute a material default under, the
Company's Charter or Bylaws or any Instrument or (ii) in the creation of, any
mortgage, pledge, lien, encumbrance or charge upon any of the properties or
assets of the Company; and there is no such violation or default which
materially and adversely affects the business of the Company or any of its
properties or assets.
3.10 LITIGATION, ETC. There are no actions, suits, proceedings or
investigations pending or, to the best of the Company's knowledge, threatened
against the Company or its properties before any court or governmental agency.
The foregoing includes, without limitation, actions pending or threatened
involving the prior employment of any of the Company's employees, their use in
connection with the Company's business of any information, process or technique
allegedly proprietary to any of their former employers, or their obligations
under any agreement with prior employers. There is no action, suit, proceeding
or investigation initiated by the Company currently pending or which the Company
intends to initiate.
3.11 EMPLOYEES; PROPRIETARY INFORMATION AGREEMENT. To the best of the
Company's knowledge, no employee of the Company is in violation of any term of
any employment contract, patent disclosure agreement or any other contract,
agreement, order or decree relating to the relationship of such employee with
the Company or any other party because of the nature of the business conducted
or to be conducted by the Company. To the best of the Company's knowledge, each
officer and employee of or consultant to the Company has executed a
confidentiality and inventions assignment agreement in favor of the company or
an employment or consulting agreement with the Company containing equivalent
provisions, each of which, to the best of the Company's knowledge, is
unbreached, valid binding and enforceable against such individual.
3.12 REGISTRATION RIGHTS. Except as set forth in the Investors Agreement,
the Company is not under any contractual obligation to register (as defined in
the Investors Agreement) any of its currently outstanding securities or any of
its securities which may hereafter be issued.
3.13 GOVERNMENTAL CONSENT, ETC. No consent, approval or authorization of
or designation, declaration or filing with any governmental authority on the
part of the Company is
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required in connection with the valid execution and delivery of this Agreement,
or the offer, sale or issuance of the Shares and the Exercise Shares, or the
consummation of any other transaction contemplated hereby, except such filings
as have been made prior to the Closing, except any notices of sale required to
be filed with the Securities and Exchange Commission under Regulation D of the
Securities Act of 1933, as amended (the "Securities Act"), or such post-closing
filings as may be required under applicable state securities laws, which will be
timely filed within the applicable periods therefor.
3.14 OFFERING. Subject to the accuracy of the Purchasers' representations
in Section 4 hereof, the offer, sale, issuance and delivery of the Shares, the
Warrants and the Exercise Shares, as provided in the Agreement, are transactions
exempt from the registration requirements of Section 5 of the Securities Act and
all applicable state securities laws.
3.15 BROKERS OR FINDERS. The Company has not incurred, and will not
incur, directly or indirectly, as a result of any action taken by the Company,
any liability for brokerage or finders' fees or agents' commissions or any
similar charge in connection with this Agreement.
3.16 PATENTS, TRADEMARKS, ETC. The Company owns and possesses or is
licensed under or can obtain a license (on terms which will not materially and
adversely affect its business) to, all patents, patent applications, licenses,
trademarks, service names, trade names, inventions and copyrights employed in
the operation of its business as now conducted and as proposed to be conducted
with no known infringement of or conflict with the rights of others respecting
any of the same. The Disclosure Schedule contains a complete list of patents
and pending patent applications of the Company. Except for agreements with its
own employees or consultants and standard end-user license agreements and except
as set forth in the Disclosure Schedule, there are no outstanding options,
licenses, or agreements of any kind relating to the foregoing, nor is the
Company bound by or a party to any option, license, or agreement of any kind
with respect to the patents, trademarks, service marks, trade names, copyrights,
trade secrets, licenses, information, and proprietary rights and processes of
any other person or entity. The Company has not received any communication
alleging that it has violated or, by conducting its business as proposed, would
violate any of the patents, trademarks, service names, trade names, inventions,
copyrights or trade secrets or other proprietary rights of any other person or
entity, nor is the Company aware of any basis for the foregoing. The Company is
not aware that any of its employees or consultants is 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 such employee's or
consultant's best efforts to promote the interests of the Company or that would
conflict with the Company's business as currently conducted or as proposed to be
conducted.
3.17 TAXES. The Company has filed all tax returns that are required to
have been filed on or before the Closing with all federal, state, county, local,
foreign and other governmental agencies or instrumentalities, except where the
failure to do so would not have a material adverse effect upon the business of
the Company. The Company has paid or established adequate reserves for all
5
<PAGE>
income, franchise and other taxes, assessments, governmental charges, penalties,
interest and fines shown as due and payable by it on such returns on or before
the Closing. There is no pending dispute with any taxing authority relating to
any of such returns, and the Company has no knowledge of any proposed liability
for any tax to be imposed upon the properties or assets of the Company for which
there is not an adequate reserve reflected on the face of the most recent
balance sheet included in the Financial Statements.
3.18 MATERIAL CONTRACTS AND COMMITMENTS. Copies of the contracts,
mortgages, indentures, agreements, instruments, leases and transactions to which
the Company is a party or by which it is bound (including purchase orders placed
by the Company) which involve obligations of, or payments to, the Company in
excess of $50,000 and all agreements between the Company and its officers,
directors, consultants and employees (the "Material Contracts"), have been
delivered to the Purchasers and are set forth on the Disclosure Schedule. To
the best of the Company's knowledge, all of the Material Contracts are valid,
binding and in full force and effect by and against the Company in all material
respects and enforceable by the Company in accordance with their respective
terms except as such enforcement is subject to the effect of (i) any applicable
bankruptcy, insolvency, reorganization or other laws relating to or affecting
creditors' rights generally and (ii) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
The Company is not in default under any of such Material Contracts. To the best
of the Company's knowledge, no other party to any of the Material Contracts is
in default thereunder.
3.19 RELATED-PARTY TRANSACTION. No employee, officer or director of the
Company or member of his or her immediate family is indebted to the Company, nor
is the Company indebted (or committed to make loans or extend or guarantee
credit) to any of them, except for certain reimbursable business expenses
incurred in the ordinary course of business and not in excess of $10,000 in the
aggregate.
3.20 ENVIRONMENTAL AND SAFETY LAWS. To the best of the Company's
knowledge, the Company is not in violation in any material respect of any
applicable statute, law, or regulation relating to the environment or
occupational health and safety, and no material expenditures are or will be
required in order to comply with any such existing statute, law or regulation.
3.21 MANUFACTURING AND MARKETING RIGHTS. The Company has not granted
rights to manufacture, produce, assemble, license, market or sell its TSMS
Products (as hereinafter defined) to any other person and is not bound by any
agreement that affects the Company's exclusive right to develop, manufacture,
assemble, distribute, market or sell its TSMS Products.
3.22 EMPLOYEE BENEFIT PLANS. The Company currently maintains employee
medical, dental and life insurance plans but, except as set forth on the
Disclosure Schedule, is not otherwise a party to or bound by any currently
effective employment contract, deferred compensation agreement, bonus plan,
incentive plan, profit sharing plan, retirement agreement, or other employee
compensation agreement.
6
<PAGE>
3.23 INSURANCE. The Company has in full force and effect fire and
casualty insurance policies to the extent and in the manner customary for
companies in similar businesses similarly situated.
3.24 MINUTE BOOK. The minute books of the Company previously provided to
the Purchasers contain a complete summary of all meetings and actions of the
Company's Board of Directors and stockholders since the time of incorporation
and accurately reflect all transactions referred to in such minutes in all
material respects.
3.25 DIVIDENDS. On or after January 1, 1996, the Company has not declared
or paid any dividends, or authorized or made any distribution upon or with
respect to any class or series of its capital stock.
3.26 INDEBTEDNESS. All loans and noncontingent indebtedness in excess of
$50,000 incurred by the Company are set forth on the Disclosure Schedule setting
forth the name of the creditor, all amounts owing, including principal and
interest, and when such indebtedness is due and owing. The Company is not in
default of any of its obligations to any creditor.
3.27 QUALIFIED SMALL BUSINESS STOCK. The Company covenants that so long
as any of the Shares or the Exercise Shares are held by a Purchaser (or a
transferee in whose hands such shares are eligible to qualify as "Qualified
Small Business Stock" as defined in Section 1202(c) of the Internal Revenue Code
of 1986, as amended (the "Code")), it will use its reasonable efforts (including
complying with all applicable filing or reporting requirements imposed by the
Code on issuers of Qualified Small Business Stock) to cause such shares to
qualify as Qualified Small Business Stock; provided, however, that "reasonable
efforts" as used in this Section 3.28 shall not be construed to require the
Company to operate its business in a manner which would adversely affect its
business, limit its future prospects or alter the timing or resource allocation
related to its planned operations or financing activities. The Company shall
comply with the reporting requirements of Section 1202(d)(1)(C) of the Code and
any related Treasury Regulations. In addition, within a reasonable time (which
shall not exceed 30 days) after any Purchaser delivers to the Company a written
request therefor, the Company shall deliver to such Purchaser a written
statement informing the Purchaser whether, to the Company's knowledge, such
Purchaser's interest in the Company constitutes Qualified Small Business Stock.
The Company's obligation to furnish a written statement pursuant to this Section
3.28 shall continue notwithstanding the fact that a class of the Company's
securities may be traded on an established securities market.
SECTION 4
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby severally represents and warrants to the Company with
respect to the purchase of the Securities as of the date hereof and again as of
the Closing, as to himself only, as follows:
7
<PAGE>
4.1 EXPERIENCE; ACCREDITED INVESTOR. He has experience in evaluating and
investing in private placement transactions of securities in companies similar
to the Company so that he is capable of evaluating the merits and risks of his
investment in the Company and has the capacity to protect his own interests.
Further, he recognizes that an investment in the Company is highly speculative
and involves significant risks (including those identified in the SEC Reports)
including a complete loss of such investment. In addition, he is an "accredited
investor" as such term is defined in Rule 501(a) of the Securities Act.
4.2 INVESTMENT. He is acquiring the Securities for investment for his
own account, not as a nominee or agent, and not with the view to, or for resale
in connection with, any distribution thereof and, if Purchaser is not a natural
person, it was not formed solely for purposes of making this investment. He
understands that the Securities to be purchased and the Exercise Shares have not
been, and will not be, registered under the Securities Act or qualified under
applicable blue sky or other state securities laws by reason of specific
exemptions from the registration provisions of the Securities Act and the
qualification provisions of applicable blue sky and other state securities laws,
the availability of which depends upon, among other things, the bona fide nature
of the investment intent and the accuracy of such Purchaser's representations as
expressed herein. In acquiring the Securities, he is acting on his own behalf
and is not acting together with any other person or entity (including any other
Purchasers) for the purpose of acquiring, holding, voting or disposing of the
Securities within the meaning of Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act").
4.3 RULE 144. He acknowledges that the Securities must be held
indefinitely unless subsequently registered under the Securities Act or unless
an exemption from such registration is available. He is aware of the provisions
of Rule 144 promulgated under the Securities Act which permit limited resale of
shares purchased in a private placement subject to the satisfaction of certain
conditions.
4.4 NO FEDERAL OR STATE APPROVAL. He understands that no Federal or
state agency has passed upon the Securities or made any finding or determination
as to the fairness of the investment or any recommendation or endorsement of the
Securities.
4.5 ACCESS TO DATA. He has had an opportunity to discuss the Company's
business, management and financial affairs with its management and has had the
opportunity to review the Company's facilities. He also has had opportunity to
ask questions of officers of the Company. His taking advantage of any such
opportunity however, does not limit or modify the representations and warranties
of the Company in Section 3 hereof or the right of any of the Purchasers to rely
thereon.
4.6 AUTHORIZATION. This Agreement and the Investors Agreement when
executed and delivered by such Purchaser, will constitute valid and legally
binding obligations of the Purchaser, enforceable in accordance with their
terms, except as such enforcement is subject to the effect of (i) any
applicable bankruptcy, insolvency, reorganization or other laws relating to or
affecting
8
<PAGE>
creditors' rights generally, and (ii) general principles of equity (regardless
of whether such enforceability is considered in a proceeding in equity or at
law).
SECTION 5
CONDITIONS TO CLOSING BY THE PURCHASERS
The Purchasers' obligations to purchase the Securities at the Closing are,
at the option of the Purchasers, subject to the fulfillment of the following
conditions:
5.1 REPRESENTATIONS AND WARRANTIES CORRECT. 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 effect as though such
representations and warranties had been made on the Closing Date except to the
extent any such representation specifically references an earlier date.
5.2 COVENANTS. All covenants, agreements and conditions contained in this
Agreement to be performed by the Company on or prior to the Closing Date shall
have been performed or complied with.
5.3 COMPLIANCE CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate executed by the Chief Executive Officer of the Company,
dated the Closing Date, and certifying, among other things, to the fulfillment
of the conditions specified in Sections 5.1 and 5.2 of this Agreement.
5.4 OPINION OF COMPANY'S COUNSEL. The Purchasers shall have received from
Oppenheimer Wolff & Donnelly LLP, counsel to the Company, an opinion addressed
to the Purchasers, dated the Closing Date, in form and substance satisfactory to
the Purchasers, substantially in the form of Exhibit C.
5.5 INVESTORS AGREEMENT. The Purchasers and the Company shall have
entered into an investors agreement providing for, among other things, certain
registration rights, rights of first offer, rights of co-sale and information
rights, substantially in the form attached hereto as Exhibit D (the "Investors
Agreement").
5.6 LOCK-UP AGREEMENTS. The key officers, directors and employees of the
Company listed on Exhibit E shall have each entered into a lock-up agreement
with the Company but for the benefit of, and enforceable by, the Purchasers,
substantially in the form attached as Exhibit F.
5.7 PROCEEDINGS AND DOCUMENTS; LEGAL MATTERS. All corporate and other
proceedings in connection with the transactions contemplated at the Closing, and
all documents incident thereto, shall be reasonably satisfactory in form and
substance to the Purchasers. All material matters of a legal nature which
pertain to this Agreement, the Warrants and the Investors Agreement and the
9
<PAGE>
transactions contemplated hereby and thereby, shall be reasonably approved by
the Purchasers on advice of counsel.
5.8 GOOD STANDING CERTIFICATE. The Company shall have delivered to the
Purchasers a Certificate dated as of a recent date issued by the Secretary of
State of Delaware the effect that the Company is legally existing and in good
standing.
5.9 SECRETARY'S CERTIFICATE. The Company shall have delivered to the
Purchasers a certificate executed by the Secretary of the Company dated as of
the Closing, certifying as to (a) the directors and stockholder resolutions
authorizing the transactions contemplated by this Agreement; (b) the Charter of
the Company; (c) the Bylaws of the Company; (d) the incumbency of the Chief
Executive Officer, President and Secretary of the Company; and (e) such other
matters as the Purchasers may reasonably request.
SECTION 6
CONDITIONS TO CLOSING BY THE COMPANY
The Company's obligation to sell and issue the Securities at the Closing
is, at the option of the Company, subject to the fulfillment as of the Closing
Date of the following conditions:
6.1 REPRESENTATIONS. The representations made by the Purchasers in
Section 4 hereof shall be true and correct in all material respects on the
Closing Date with the same effect as though such representations and warranties
had been made on the Closing Date except to the extent any such representation
specifically references an earlier date.
SECTION 7
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
7.1 RESTRICTIONS ON TRANSFERABILITY. The Securities and the Exercise
Shares referred to herein are "Restricted Securities" and shall not be sold,
assigned, transferred or pledged except upon the conditions specified in this
Section 7, which conditions are intended to be in compliance with the provisions
of the Securities Act. Each Purchaser will cause any proposed purchaser,
assignee, transferee, or pledgee of the Securities or such Exercise Shares held
by such Purchaser to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Section 7.
7.2 RESTRICTIVE LEGEND. Each certificate representing (i) the Common
Stock, (ii) the Warrants, (iii) the Exercise Shares, and (iv) any other
securities issued in respect of the Securities upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall be
stamped or otherwise imprinted with a legend in the following form:
10
<PAGE>
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY
NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR UNLESS THE COMPANY RECEIVES AN OPINION
OF COUNSEL OR OTHER EVIDENCE REASONABLY ACCEPTABLE TO
IT THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SAID ACT.
Each Purchaser consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Securities in order
to implement the restrictions on transfer established in this Section 7.
The Company agrees to cause new certificates to be issued without any
such legend to any Purchaser and such notation to be removed upon request by
such Purchaser when reasonable in light of the then general practice under the
Securities Act.
SECTION 8
COVENANTS
8.1 FULFILLMENT OF CLOSING CONDITIONS. The Company and each Purchaser
agrees to use its commercially reasonable best efforts to cause the fulfillment
of the closing conditions (to the extent, in whole or in part, within its or his
direct or indirect control) set forth in Sections 5 and 6 hereof.
8.2 USE OF PROCEEDS. The Company agrees to use the proceeds it receives
from the sale of the Securities to the Purchasers exclusively to finance the
development of (i) the Company's software used to RAID data objects and create
the opportunity to manage storage as a single pool of shared resources on a
network (such software referred to herein as "TSMS Products") and (ii)
controller board products related thereto.
8.3 AGREEMENT BY PURCHASERS. Each Purchaser hereby severally agrees not
to take any of the following actions without the advance approval of the Board
of Directors of the Company:
(a) No Purchaser shall, directly or indirectly, offer, sell or
otherwise transfer any Securities or Exercise Shares except pursuant to a
bona fide public offering registered under the Securities Act, Rule 144
under the Securities Act or other transaction that effects a broad
distribution of such Securities and Exercise Shares and that, to the best
of the Purchaser's knowledge, would not result in such acquiring party or
related group of persons to such acquiring party beneficially owning more
than 3% of the combined voting power of the then outstanding securities of
the Company ordinarily having the right to vote at elections of directors
("Voting Securities"); provided, however, that this provision shall not
prohibit (i) the assignment by a Purchaser to any wholly owned subsidiary
or parent of, or to any
11
<PAGE>
corporation or entity that is, within the meaning of the Securities Act,
controlling, controlled by or under common control with, any such
Purchaser, (ii) the assignment to members of the Purchaser's immediate
family and to trusts or entities established for the benefit of the
Purchaser or his immediate family, or (iii) a bona fide pledge to an
institutional lender for money borrowed, provided, in each case, that the
transferees agree to be bound by the terms and conditions of this Section.
(b) No Purchaser shall solicit proxies or become a "participant" in a
"solicitation" (as such terms are defined in Regulation 14A under the
Exchange Act) in opposition to the recommendation of the majority of the
directors of the Company with respect to the election of directors.
8.4 PAYMENT OF EXPENSES. The Company agrees to pay all of the Purchasers'
reasonable fees and expenses, including attorneys' fees, incurred by each such
Purchaser relating to or arising out of the consummation of the transactions
contemplated by this Agreement.
8.5 PUBLICITY. The Company and each Purchaser agrees not to issue any
press release or make any public announcement with respect to this Agreement or
the transactions contemplated hereby unless the prior written consents of the
other parties hereto have been obtained, which consents shall not be
unreasonably withheld; provided however, that the Company may make any public
disclosure it believes in good faith is required by applicable law or any
listing or trading agreement concerning its publicly-traded securities (in which
case it will use its best efforts to advise the Purchasers prior to making such
disclosure).
SECTION 9
MISCELLANEOUS
9.1 GOVERNING LAW. This Agreement shall be governed and construed in all
respects in accordance with the laws of the State of Texas as applied to
agreements made and performed in Texas by residents of the State of Texas.
9.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Purchasers and the closing
of the transactions contemplated hereby for a period of two years.
9.3 SUCCESSORS AND ASSIGNS. Except as otherwise 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.
9.4 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the other documents
delivered pursuant hereto at the Closing constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof, and no party shall be liable or
12
<PAGE>
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought; provided, however, that holders of a
majority of the Shares and Exercise Shares issued and issuable hereunder may
waive, modify or amend, on behalf of all such holders, any provisions hereof.
9.5 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing (or in the form of a telex or telecopy
(confirmed in writing) to be given only during the recipient's normal business
hours unless arrangements have otherwise been made to receive such notice by
telex or telecopy outside of normal business hours) and shall be mailed by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, or telex or telecopy (as provided above) addressed (a) if to a
Purchaser, at such address as such Purchaser shall have furnished to the Company
in writing or (b) if to any other holder of any Securities, at such address as
such holder shall have furnished the Company in writing or, until any such
holder so furnishes an address to the Company, then to the address of the last
holder of such Securities who has so furnished an address to the Company or (c)
if to the Company, sent to its principal executive offices and addressed to the
attention of the Chief Executive Officer, or at such other address as the
Company shall have furnished to the Purchasers.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid or, if
by telex or telecopy, when received and confirmed in the manner provided above.
9.6 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or
omission to exercise any right, power or remedy accruing to any holder of any
Securities, upon any breach or default of the Company under this Agreement shall
impair any such right, power or remedy of such holder nor shall it be construed
to be a waiver of any such breach or default, or an acquiescence therein, or of
or in any similar breach or default thereafter occurring; nor shall any waiver
of any single breach or default be deemed a waiver of any other breach or
default theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach or
default under this Agreement, or any waiver on the part of any holder of any
provisions or conditions of this Agreement, must be in writing and shall be
effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
holder, shall be cumulative and not alternative.
9.7 SEVERABILITY. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
invalid, unenforceable or void, this Agreement shall continue in full force and
effect without said provision. In such event, the parties
13
<PAGE>
shall negotiate, in good faith, a legal, valid and enforceable substitute
provision which most nearly effects the intent of the parties in entering into
this Agreement.
9.8 TITLES AND SUBTITLES. The titles and subtitles used in this Agreement
are used for convenience only and are not considered in construing or
interpreting this Agreement.
9.9 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
14
<PAGE>
The foregoing agreement is hereby executed as of the date first above
written.
TRICORD SYSTEMS, INC.
By: /s/ John J. Mitcham
-----------------------------------------
Name: John J. Mitcham
----------------------------------
Title: President, Chief Executive Officer
----------------------------------
15
<PAGE>
EXHIBIT A
Schedule of and Signature Page for Purchasers
<TABLE>
<CAPTION>
Number Number of Aggregate
Name Signature of Shares Investor Warrants Purchase Price
---- --------- --------- ----------------- --------------
<S> <C> <C> <C> <C>
Joseph Rodney Canion/*/ /s/ J. R. Canion 2,000,000 2,000,000 $2,000,000.00
------------------------
Jesus David Cabello /s/ David Cabello 250,000 250,000 $ 250,000.00
------------------------
Timothy Harris /s/ Timothy Harris 250,000 250,000 $ 250,000.00
------------------------
Kathleen Clark /s/ Kathleen Clark 50,000 50,000 $ 50,000.00
------------------------
Lewis J. Schrock /s/ Lewis Schrock 50,000 50,000 $ 50,000.00
------------------------
Donald L. Lucas Profit
Sharing Trust DTD 1-1-
84, by Donald L. Lucas
as successor trustee /s/ Donald Lucas 75,000 75,000 $ 75,000.00
------------------------
Richard M. Lucas
Cancer Foundation, by
Donald L. Lucas, as
Chairman of the Board /s/ Donald Lucas 75,000 75,000 $ 75,000.00
------------------------
Gurdes Huff
Investments, by Larry
Gurdes /s/ Larry Gurdes 75,000 75,000 $ 75,000.00
------------------------
</TABLE>
- --------------------------
/*/ The shares and Investor Warrants purchased by Mr. Canion will be
distributed as set forth on Exhibit A-1 to this Agreement.
16
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Jack & Nancy
Dinerstein Family
Investment Partnership
Ltd., by Jack Dinerstein /s/ Jack Dinerstein 25,000 25,000 $ 25,000.00
------------------------
James Braniff III /s/ James Braniff III 25,000 25,000 $ 25,000.00
------------------------
Joseph M. Schwartz /s/ Joseph M. Schwartz 25,000 25,000 $ 25,000.00
------------------------
Will Levin /s/ William D. Leven 25,000 25,000 $ 25,000.00
------------------------
James Easterling /s/ James Easterling 25,000 25,000 $ 25,000.00
------------------------
Scott Caven /s/ Scott Caven 25,000 25,000 $ 25,000.00
------------------------
Alfred L. Deaton III /s/ Alfred L. Deaton III 25,000 25,000 $ 25,000.00
------------------------
</TABLE>
17
<PAGE>
EXHIBIT A-1
Distribution of Mr. Canion's Shares and Investor Warrants
Number Number of
Name of Shares Investor Warrants
---- --------- -----------------
Joseph Rodney Canion 1,500,000 1,500,000
Candace Canion Dickerson Trust 100,000 100,000
Noelle Canion Courson Trust 100,000 100,000
Laura Camille Canion Trust 100,000 100,000
Rodney Scott Canion Trust 100,000 100,000
James Ross Canion Trust 100,000 100,000
<PAGE>
EXHIBIT 2
INVESTORS AGREEMENT
THIS INVESTORS AGREEMENT is entered into effective as of December 7, 1998
by and among Tricord Systems, Inc., a Delaware corporation (the "Company"), the
entities and individuals listed as "Investors" on the signature pages hereto
(each an "Investor" and, collectively, the "Investors") and John Mitcham (the
"Major Holder").
RECITALS
WHEREAS, the Company and the Investors are parties to that certain Stock
Purchase Agreement dated as of December 7, 1998 (the "Purchase Agreement")
providing for the sales by the Company and the purchases by the Investors of
shares of the Company's Common Stock, $.01 par value (the "Common Stock"), and
certain warrants (the "Warrants") to acquire shares of Common Stock as described
therein; and
WHEREAS, the sales of the Common Stock and Warrants to the Investors is
conditioned upon granting the rights set forth herein to the respective
Investors;
NOW THEREFORE, in consideration of the foregoing, the parties agree as
follows:
SECTION 1
DEFINITIONS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"BOARD" means the Board of Directors of the Company.
"CHANGE IN CONTROL" means the occurrence after the closing of the
transactions under the Purchase Agreement of either or both of the following
events: (i) a transaction or series of transactions occur (other than related to
or resulting from the Purchase Agreement) in which, or as a result of which, the
ownership of 50% or more of the outstanding shares of Common Stock is changed,
or (ii) the Incumbent Directors of the Company cease to constitute a majority of
the Board.
"COMMISSION" means the Securities and Exchange Commission of the United
States or any other U.S. federal agency at the time administering the Securities
Act.
"COMMON STOCK" means the common stock of the Company, par value $.01 per
share.
<PAGE>
"EXEMPT ISSUANCES" means
(i) the sale or issuance of Voting Securities pursuant to an effective
registration statement under the Securities Act,
(ii) the sale or issuance of shares of Common Stock to officers, directors
and employees of, and consultants and advisors to, the Company pursuant to stock
grants, option plans, purchase plans or other compensatory benefit contracts,
programs or arrangements approved by the Board or upon exercise of options or
warrants granted to such parties pursuant to any such plan or arrangement,
(iii) shares of Common Stock issued upon exercise of Warrants or upon
exercise or conversion of any options, warrants or rights to acquire shares of
Common Stock outstanding on the date hereof,
(iv) Voting Securities issued pursuant to any merger, consolidation or
acquisition involving the Company or in connection with a Recapitalization,
(v) Voting Securities issued in connection with any acquisition of a third
parties' assets, products, technology or other rights, and
(vi) Voting Securities issued in connection with research and development
partnerships, OEM or distribution arrangements, licensing or collaborative
arrangements or similar transactions, in each case approved by the Board.
"HOLDER" means each of the Investors, and their transferees as permitted by
Section 2.10 hereof, holding Registrable Securities or securities convertible
into or exercisable for Registrable Securities (such as the Warrants).
"INCUMBENT DIRECTORS" of the Company means any individuals who are members
of the Board on the effective date of this Agreement and any individual who
subsequently becomes a member of the Board whose election, or nomination for
election by the Company's stockholders, was approved by a vote of at least a
majority of the Incumbent Directors (either by specific vote or by approval of
the Company's proxy statement in which such individual is named as a nominee for
director without objection to such nomination).
"INVESTORS' NOMINEE" means Rod Canion or such other person selected by a
majority in interest of the holders of Voting Securities owned by Mr. Canion,
his immediate family and any trusts or entities established for their benefit.
"OTHER HOLDERS" means holders of Company securities, other than Holders,
proposing to distribute their securities pursuant to a registration under this
Agreement.
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"PRO RATA PORTION" means, for purposes of Section 3 hereof, the amount of
Company Offered Securities multiplied by a fraction, the numerator of which
shall equal the number of shares of Common Stock issued, or issuable upon
exercise of Warrants, then held by a Holder, and the denominator of which shall
equal the aggregate number of shares of Common Stock issued or issuable upon
exercise of Warrants then outstanding.
"RECAPITALIZATION" means any stock split, stock dividend, stock
combination, recapitalization or similar event.
The terms "REGISTER," "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (and all applicable blue sky or other
securities laws), and the declaration or ordering of the effectiveness of such
registration statement (and qualification or compliance with such laws).
"REGISTRABLE SECURITIES" means (i) the Common Stock, (ii) the Common Stock
issued or issuable upon exercise of the Warrants, and (iii) any shares of Common
Stock issued or issuable in respect of such Common Stock upon any
Recapitalization, in each case, held by Holders; provided, however, that
Registrable Securities shall not include (i) shares that have been sold to the
public either pursuant to a registration statement or Rule 144 under the
Securities Act or (ii) shares sold in a transaction in which the registration
rights conferred by this Agreement are not transferred as provided in Section
2.10 hereof.
"REGISTRATION EXPENSES" means all expenses, other than Selling Expenses,
incurred by the Company in complying with Section 2 hereof, including, without
limitation, all registration, qualification, listing and filing fees, printing
expenses, escrow fees, fees and disbursements of counsel for the Company and one
counsel for the Investors as a group selected by holders of at least a majority
of the Registrable Securities proposed to be included in such registration, blue
sky fees and expenses and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the Company).
"SECURITIES ACT" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"SELLING EXPENSES" means all underwriting discounts, selling commissions
and stock transfer taxes applicable to the securities registered by Holders.
"SELLING MAJOR HOLDER" means each Major Holder who desires to sell,
transfer, assign or otherwise dispose of any Voting Securities.
"SELLING HOLDER" means each Holder who holds Registrable Securities
included in a registration statement under the Securities Act pursuant to this
Agreement.
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"TSMS PRODUCTS" means the Company's software that enables the management of
data storage as a single pool of shared resources on a network.
"TRANSFER" means any transfer, sale, assignment, conveyance, pledge,
mortgage, donation, change of legal record or beneficial ownership, issuance or
other disposal or delivery.
"TRIGGER DATE" means the date upon which TSMS Products have been licensed
directly by the Company, or an OEM on behalf of the Company, for commercial use
for a period of 90 days and for which revenues have been received based on one
or more arm's-length transactions.
"VOTING SECURITIES" means the Common Stock, any other securities of the
Company entitled to vote in the election of directors of the Company, any
securities convertible into or exchangeable for such securities, and any
options, warrants or other rights to purchase such securities (including the
Warrants).
SECTION 2
REGISTRATION RIGHTS
2.1 Demand Registration.
(a) Request for Registration. In case the Company shall receive from
Rod Canion or his permitted transferee under Section 2.10 (the "Demanding
Holder") a written request that the Company effect any registration with respect
to not less than 33% of the then outstanding Registrable Securities (a
"Registration Notice") held by him and all his permitted transferees, the
Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its reasonable best efforts to
effect such registration as described in Section 2.6 as may be so requested and
as would permit or facilitate the sale and distribution of all or such portion
of such Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any Holder joining in such
request as are specified in a written request received by the Company within 20
days after receipt of such written notice from the Company.
Notwithstanding the foregoing, the Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 2.1:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already subject
to service in such jurisdiction;
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(B) Prior to the earliest of (i) six months after the Trigger Date,
(ii) a Change in Control, or (iii) June 30, 2000;
(C) During the period starting with the date 60 days prior to the
Company's estimated date of filing of, and ending on the date 90 days
immediately following the effective date of any registration statement
pertaining to securities of the Company sold by the Company, provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective, and provided, further, that the
Company may not, pursuant to this Section 2.1(a)(ii)(C) whether included herein
or incorporated into Section 2.3, delay implementation of a demand for
registration more than once in any 12-month period;
(D) If the Company shall furnish to the Demanding Holder a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board it would be seriously detrimental to the Company or its
stockholders for registration statements to be filed in the near future, then
the Company's obligation to use its best efforts to file a registration
statement shall be deferred for a period not to exceed 90 days from the receipt
of the request to file such registration by the Demanding Holder, provided,
however, that the Company cannot, pursuant to this Section 2.1(a)(ii)(D) whether
included herein or incorporated into Section 2.3, utilize this right more than
once in any 12-month period; or
(E) After the Company has effected two registrations pursuant to this
Section 2.1, and such registrations have been declared or ordered effective.
(b) Underwriting. In the event that a registration pursuant to
Section 2.1 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 2.1(a)(i). In such event, the right of any Holder to registration
pursuant to Section 2.1 shall be conditioned upon such Holder's participation in
the underwriting arrangements required by this Section 2.1, and the inclusion of
such Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders and Other Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Holders of at least a majority of the
Registrable Securities proposed to be included in such registration, but subject
to the reasonable approval of the Company. Notwithstanding any other provision
of this Section 2.1, if the managing underwriter advises the Company in writing
that marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders and Other Holders,
and the number of shares that may be included in the registration and
underwriting shall be allocated, first, among all Holders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities held
by such Holders at the time of filing the registration statement and, second,
among the Other Holders in proportion to the
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number of shares proposed to be included in such registration by such Other
Holders. No Registrable Securities or other securities excluded from the
underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. To facilitate the allocation of shares in
accordance with the above provisions, the Company or the underwriters may round
the number of shares allocated to any holder to the nearest 100 shares.
If any Holder or Other Holder disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Demanding Holder. The Registrable
Securities and/or other securities so withdrawn shall also be withdrawn from
registration.
(c) The Company shall not register securities for sale for its own
account in any registration requested pursuant to this Section 2.1 unless
permitted to do so by the written consent of Holders who hold at least two-
thirds of the Registrable Securities as to which registration has been requested
or unless the underwriter shall indicate in writing to the Demanding Holder that
the inclusion of the shares to be sold for the account of the Company will not
adversely affect the registration, the price of the shares to be sold and the
number of shares to be sold for the account of the Holders. The Company may not
cause any other registration of securities for sale for its own account (other
than a registration of securities in a Rule 145 transaction or with respect to
an employee benefit plan) to be initiated after a registration requested
pursuant to this Section 2.1 and to become effective less than 90 days after the
effective date of any registration requested pursuant to this Section 2.1.
2.2 Piggyback Registration.
(a) Notice of Registration. If at any time, or from time to time, the
Company shall determine to register any of its securities, either for its own
account or the account of any security holder or holders, other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Rule 145 transaction, the Company will:
(A) promptly give to each Holder written notice thereof; and
(B) include in such registration (and any related qualification
under Blue Sky laws or other compliance), and in any underwriting involved
therein, all the Registrable Securities specified in a written request or
requests, made within 20 days after receipt of such written notice from the
Company, by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 2.2(a). In such event the right of any Holder to
registration pursuant to Section 2.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
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All Holders proposing to distribute their securities through such
underwriting shall, together with the Company and Other Holders, enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 2.2, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit or eliminate the Registrable Securities and other
securities to be included in such registration by Holders and Other Holders.
The Company shall so advise all Holders and Other Holders, and the number of
shares that may be included in the registration and underwriting by all Holders
and Other Holders shall be allocated among them, as nearly as practicable,
first, among the Holders in proportion to the respective amounts of Registrable
Securities held by such holders at the time of filing of the registration
statement, and, second, among the Other Holders in proportion to the number of
shares proposed to be included in such registration by such Other Holders. To
facilitate the allocation of shares in accordance with the above provisions, the
Company may round the number of shares allocated to any Holder or Other Holder
to the nearest 100 shares.
If any Holder or Other Holder disapproves of the terms of any such
underwriting, such person may elect to withdraw therefrom by written notice to
the Company and the managing underwriter. Any securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 2.2
prior to the effectiveness of such registration whether or not any Holder has
elected to include Registrable Securities in such registration.
2.3 Registration on Form S-3.
(a) Request for Registration. If any Holder or Holders request that
the Company file a registration statement on Form S-3 under the Securities Act
(or any successor form to Form S-3) for a public offering of shares of the
Registrable Securities with the reasonably anticipated aggregate price to the
public of at least $1,000,000, and the Company is a registrant entitled to use
Form S-3 to register the Registrable Securities for such an offering, the
Company shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form and to cause such Registrable
Securities to be qualified in such jurisdictions as the Holder or Holders may
reasonably request. The substantive provisions and limitations of Sections
2.1(a) (other than Section 2.1(a)(ii)(E)) and 2.1(b) shall be applicable to each
registration initiated under this Section 2.3 involving an underwriting.
(b) Limitations. If, at any time during which a registration
statement remains effective as provided in this Section 2.3, an event occurs
that would have given the Company the right to delay a demand registration
pursuant to Section 2.1(a)(ii)(C) or (D) had such a registration been requested
(without regard to the 12-month period referred to therein), the
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Company may provide written notice to the Selling Holders, in which case the
Selling Holders shall keep the fact and subject matter of such notice
confidential and shall suspend all sales of Registrable Securities pursuant to
such registration statement until the earlier of (i) termination of the event
giving rise to the right to suspend such sales, or (ii) the end of the period
set forth in Section (a)(ii)(C) or (D), whichever is applicable. Such period
shall be referred to as a "Black-Out Period," and the Company shall not be
entitled to implement more than one such Black-Out Period during any 12-month
period.
(c) The Company shall not register securities for sale for its own
account in any registration requested pursuant to this Section 2.3 unless
permitted to do so by the written consent of Holders who hold at least two-
thirds of the Registrable Securities as to which registration has been requested
or unless the underwriter shall indicate in writing to the initiating Holders
that the inclusion of the shares to be sold for the account of the Company will
not adversely affect the registration, the price of the shares to be sold and
the number of shares to be sold for the account of the Holders. The Company may
not cause any other registration of securities for sale for its own account
(other than a registration of securities in a Rule 145 transaction or with
respect to an employee benefit plan) to be initiated after a registration
requested pursuant to this Section 2.3 and to become effective less than 90 days
after the effective date of any registration requested pursuant to this Section
2.3.
2.4 Limitations on Subsequent Registration Rights. From and after the
date hereof, the Company will not, without the prior written consent of Holders
of a majority of the then outstanding Registrable Securities, enter into any
agreement with respect to its securities which is inconsistent with, or grants
rights superior or pari passu to, the registration rights granted under this
Section 2; provided, however, that (a) the Company may grant piggyback
registration rights to subsequent purchasers of the Company's securities if such
piggyback registration rights are pari passu or subordinate to the piggyback
registration rights granted to Holders pursuant to Section 2.2 hereof, and (b)
such purchasers shall agree to lockup restrictions identical to those imposed on
the Holders pursuant to Section 2.11 hereof.
2.5 Expenses of Registration.
(a) Registration Expenses. The Company shall bear all Registration
Expenses incurred in connection with all registrations pursuant to Sections 2.1,
2.2 and 2.3. In the event the Demanding Holder causes the Company to withdraw
or abandon a registration statement filed with the Commission or, following an
effective registration pursuant to Section 2.1 hereof, does not sell Registrable
Securities, then all Registration Expenses in respect of such registration shall
be borne, at the Demanding Holder's option, either by the Demanding Holder or by
the Company (in which case, if borne by the Company, such withdrawn or abandoned
registration shall be deemed to be an effective registration for purposes of
Section 2.1(a)(ii)(E) hereof).
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(b) Selling Expenses. Unless otherwise stated, all Selling Expenses
directly relating to securities registered on behalf of the Holders and Other
Holders shall be borne by the Holders and Other Holders pro rata on the basis of
the number of shares so registered.
2.6 Registration and Qualification. If and whenever the Company is
required to use its best efforts to effect the registration of any Registrable
Securities under the Securities Act pursuant to this Agreement, the Company will
as promptly as is practicable and in good faith:
(a) prepare and file with the Commission, as soon as practicable, and
use its best efforts to cause to become effective, a registration statement
under the Securities Act relating to the Registrable Securities to be offered on
such form as the initiating Holders, or if not filed pursuant to Section 2.1 or
2.3 hereof, the Company, determines and for which the Company then qualifies;
(b) prepare and file with the Commission such amendments (including
post-effective amendments) and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
until the earlier of such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition set forth in
such registration statement or the expiration of 135 days after such
registration statement becomes effective; provided that: (i) such 135-day period
shall be extended in the case of a registration pursuant to Section 2.1 or 2.3
hereof for such number of days that equals the number of days elapsing from (A)
the date the written notice contemplated by Section 2.6(f) hereof is given by
the Company to (B) the date on which the Company delivers to the Selling Holders
the supplement or amendment contemplated by Section 2.6(f) hereof; (ii) such
135-day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the
request of the Company or an underwriter of Common Stock (or other securities)
of the Company; and (iii) in the case of any registration of Registrable
Securities on Form S-3 which are intended to be offered on a continuous or
delayed basis, such 135-day period shall be extended, if necessary, to keep the
registration statement effective until all such Registrable Securities are sold,
provided that Rule 415, or any successor rule under the Securities Act, permits
an offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective amendment
that (A) includes any prospectus required by Section 10(a)(3) of the Securities
Act or (B) reflects facts or events representing a material or fundamental
change in the information set forth in the registration statement, the
incorporation by reference of information required to be included in (A) and (B)
above to be contained in periodic reports filed pursuant to Section 13 or 15(d)
of the Exchange Act in the registration statement;
(c) furnish to the Selling Holders and to any underwriter of
Registrable Securities such number of conformed copies of such registration
statement and of each such
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amendment and supplement thereto (in each case including exhibits), such number
of copies of the prospectus included in such registration statement (including
each preliminary prospectus and any summary prospectus), in conformity with the
requirements of the Securities Act, such documents incorporated by reference in
such registration statement or prospectus, and such other documents, as the
Selling Holders or such underwriter may reasonably request, and, if requested, a
copy of any and all transmittal letters or other correspondence to, or received
from, the Commission or any other governmental agency or self regulatory body or
other body having jurisdiction (including any domestic or foreign securities
exchange) relating to such offering;
(d) make every reasonable effort to obtain the withdrawal of any order
suspending the effectiveness of such registration statement at the earliest
possible moment;
(e) if requested by a Selling Holder, use its best efforts to furnish
to each Selling Holder a "comfort" or "special procedures" letter addressed to
each Selling Holder and any underwriters and signed by the independent public
accountants who have audited the Company's financial statements included in such
registration statement, in each such case covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) and with respect to events subsequent to the date of such financial
statements as are customarily covered in accountants' letters delivered to
underwriters in underwritten public offerings of securities and such other
matters as the Selling Holders may reasonably request;
(f) immediately notify the Selling Holders in writing (i) at any time
when a prospectus relating to a registration hereunder is 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, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
(ii) of any request by the Commission or any other regulatory body or other body
having jurisdiction for any amendment of or supplement to any registration
statement or other document relating to such offering, and in either such case
(i) or (ii) at the request of a Selling Holder prepare and furnish to such
Selling Holders a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not 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, in light of the
circumstances under which they are made, not misleading;
(g) cause the listing of all such Registrable Securities covered by
such registration statement on each securities exchange and inter-dealer
quotation system on which similar securities issued by the Company are then
listed or quoted and to pay all fees and expenses in connection therewith;
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(h) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
securities holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, but not more than 18 months,
beginning with the first month after the effective date of the Registration
Statement, which earnings statement shall satisfy the provisions of Section
11(a) of the Securities Act; and
(i) prepare and file such forms, prosecute such registrations, obtain
such qualifications and comply with all requirements of all state or foreign
governmental or other agencies having jurisdiction under blue sky or other
securities laws and regulations.
2.7 Indemnification; Contribution.
(a) By Company. To the extent permitted by law, the Company will
indemnify each Selling Holder, each of its officers and directors, partners and
legal counsel, and each person controlling such Selling Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions or proceedings in respect thereof),
including any of the foregoing incurred in settlement of any litigation,
commenced or threatened, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any registration
statement, prospectus, offering circular or other document, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Company of the Securities Act or
any rule or regulation promulgated under the Securities Act applicable to the
Company in connection with any such registration, qualification or compliance,
and the Company will reimburse each such Selling Holder, each of its officers,
directors, partners and legal counsel, and each person controlling such Selling
Holder, each such underwriter and each person who controls any such underwriter,
for any legal and any other expenses reasonably incurred in connection with
investigating, preparing, settling or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by an instrument duly executed by such
Selling Holder, controlling person or underwriter and stated to be specifically
for use therein or such Selling Holder's failure to deliver a copy of the
registration statement or prospectus or any amendment thereto after the Company
has furnished such Selling Holder with a sufficient number of copies of the
same.
(b) By Selling Holders. To the extent permitted by law, each Selling
Holder will indemnify the Company, each of its directors, officers and legal
counsel, each underwriter, if
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any, of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other Selling Holder, each of its
officers, directors and partners, and each person controlling such Selling
Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions or proceedings in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Selling Holders, such officers, directors, partners, legal
counsel, persons, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating, settling or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Selling Holder and stated to be specifically for use
therein. Notwithstanding the foregoing, the liability of each Selling Holder
under this subsection (b) shall be limited in an amount equal to the net
proceeds of the shares sold by such Selling Holder, unless such liability arises
out of or is based on willful misconduct by such Selling Holder.
(c) Procedure for Indemnification. Each party indemnified under
subsection (a) or (b) of this Section 2.7 (the "Indemnified Party") shall,
promptly after receipt of actual notice of any claim or the commencement of any
action against such Indemnified Party in respect of which indemnity may be
sought notify the party required to provide indemnification (the "Indemnifying
Party") in writing of the claim or the commencement thereof, provided that the
failure of the Indemnified Party to notify the Indemnifying Party shall not
relieve the Indemnifying Party from any liability which it may have to an
Indemnified Party on account of the indemnity agreement contained in subsection
(a) or (b) of this Section 2.7, unless the Indemnifying Party was materially
prejudiced by such failure, and in no event shall relieve the Indemnifying Party
from any other liability which it may have to such Indemnified Party. If any
such claim or action shall be brought against an Indemnified Party, it shall
notify the Indemnifying Party thereof and the Indemnifying Party shall be
entitled to participate therein, and, to the extent that it wishes, jointly with
any other similarly notified Indemnifying Party, to assume the defense thereof
with counsel reasonably satisfactory to the Indemnified Party. After notice
from the Indemnifying Party to the Indemnified Party of its election to assume
the defense of such claim or action, the Indemnifying Party shall not be liable
(except to the extent the proviso to this sentence is applicable, in which event
it will be so liable) to the Indemnified Party under this Section 2.7 for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof other than reasonable costs of
investigation; provided that each Indemnified Party shall have the right to
employ separate counsel to represent it and assume its defense (in which case,
the Indemnifying Party shall not represent it) if (i) upon the advice of
counsel, the representation of both parties by the same counsel would be
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inappropriate due to actual or potential differing interests between them, or
(ii) in the event the Indemnifying Party has not assumed the defense thereof
within 10 days of receipt of notice of such claim or commencement of action, and
in which case the fees and expenses of one such separate counsel shall be paid
by the Indemnifying Party. The Indemnifying Party shall not, in connection with
any proceeding or related proceedings in the same jurisdiction, be liable for
the fees and expenses of more than one firm for all such Indemnified Parties,
unless conflicting interests of the Indemnified Parties make the retention of
one firm on behalf of all of them unreasonable. If any Indemnified Party
employs such separate counsel it will not enter into any settlement agreement
which is not approved by the Indemnifying Party, such approval not to be
unreasonably withheld. If the Indemnifying Party so assumes the defense
thereof, it may not agree to any settlement of any such claim or action as the
result of which any remedy or relief, other than monetary damages for which the
Indemnifying Party shall be responsible hereunder, shall be applied to or
against the Indemnified Party, without the prior written consent of the
Indemnified Party which consent shall not be unreasonably withheld. In any
action hereunder as to which the Indemnifying Party has assumed the defense
thereof with counsel reasonably satisfactory to the Indemnified Party, the
Indemnified Party shall continue to be entitled to participate in the defense
thereof with counsel of its own choice, but, except as set forth above, the
Indemnifying Party shall not be obligated hereunder to reimburse the Indemnified
Party for the costs thereof. Each Indemnified Party shall furnish such
information regarding itself or the claim in question as an Indemnifying Party
may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) Contribution. If the indemnification provided for in this Section
2.7 shall for any reason be unavailable to an Indemnified Party in respect of
any loss, claim, damage or liability, or any action in respect thereof, referred
to therein, then each Indemnifying Party shall, in lieu of indemnifying such
Indemnified Party, contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, claim, damage or liability, or action in respect
thereof, in such proportion as shall be appropriate to reflect the relative
fault of the Indemnifying Party on the one hand and the Indemnified Party on the
other with respect to the statements or omissions which resulted in such loss,
claim, damage or liability, or action in respect thereof, as well as any other
relevant equitable considerations. The relative fault shall be determined by
reference to whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party on the one hand or the Indemnified Party on
the other, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such statement or omission,
but not by reference to any Indemnified Party's stock ownership in the Company.
In no event, however, shall a Selling Holder be required to contribute in excess
of the amount of the net proceeds received by such Selling Holder in connection
with the sale of Registrable Securities in the offering which is the subject of
such loss, claim, damage or liability. The amount paid or payable by an
Indemnified Party as a result of the loss, claim, damage or liability, or action
in respect thereof referred to above in this subsection (d) shall be deemed to
include, for purposes of this paragraph, any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating, settling or
defending any such action or claim. No person guilty
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of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
(e) Conflicts. Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with an underwritten public offering are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control. With respect to a registration pursuant to Section
2.1, no Selling Holder shall be obligated to execute any underwriting agreement
creating greater indemnification or contribution obligations on him than those
required of such Selling Holder under this Section 2.7, and failure of the
Company to negotiate an underwriting agreement that does meet the foregoing
standard shall be a breach of the Company's obligations to register the shares
hereunder.
2.8 Information by Selling Holder. Selling Holders including any
Registrable Securities in any registration shall promptly furnish to the Company
such information regarding such Selling Holders as shall be necessary to enable
the Company to comply with the provisions hereof in connection with any
registration referred to in this Agreement.
2.9 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission which may at any time permit the
sale of the Restricted Securities to the public without registration, after such
time as a public market exists for the Common Stock of the Company, the Company
agrees to use its reasonable best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements); and
(c) Furnish to any Holder forthwith upon written 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 and other information in the possession of or reasonably
obtainable by the Company as such Holder may reasonably request in writing in
availing itself of any rule or regulation of the Commission allowing such Holder
to sell any such securities without registration.
2.10 Transfer of Registration Rights. The rights to cause the Company to
register securities granted to Holders under Sections 2.1, 2.2 and 2.3 as the
case may be, may be assigned
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only concurrent with the sale or transfer of Registrable Securities and only in
connection with (i) the assignment by a Holder to any wholly owned subsidiary or
parent of, or to any corporation or entity that is, within the meaning of the
Securities Act, controlling, controlled by or under common control with, any
such Holder, (ii) the assignment to members of the Holder's immediate family and
to trusts or entities established for the benefit of the Holder or his immediate
family, or (iii) in connection with the sale or transfer of at least 1% of the
total outstanding shares of Registrable Securities (subject to adjustment for
any stock dividend, stock split, subdivision, combination or other
recapitalization of the Company). Notwithstanding the foregoing, such rights may
only be assigned provided that all of the following additional conditions are
satisfied: (a) such assignment is effected in accordance with applicable
securities laws; (b) such assignee agrees in writing to become subject to the
terms of this Agreement; and (c) the Company is given written notice by such
Holder of such assignment, stating the name and address of the assignee and
identifying the Registrable Securities with respect to which such rights are
being assigned.
2.11 Lockup Agreement. Each Investor and each Major Holder agrees that,
if, in connection with an underwritten public offering of the Company's
securities, the Company or the underwriters managing the offering so request, he
shall not sell, make any short sale or loan, grant any option for the purchase
of or otherwise dispose of any Company securities (other than those included in
the registration) other than intra-family transfers and transfers to trusts or
entities established for the benefit of him or his immediate family, without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time (not to exceed 180 days) from the effective date of such
registration as may be requested by the Company or the underwriters; provided
that each other officer and each other director of the Company also agrees to
such restrictions. This Section 2.11 shall also be binding on all Holders and
on all transferees or assignees of Registrable Securities or securities held by
the Major Holders, whether or not such persons are entitled to registration
rights pursuant to Section 2.10.
2.12 No Registration of Warrants. Nothing in this Section 2 shall be
deemed to require the Company to register any Warrants, it being understood that
the registration rights granted hereby relate only to the shares of Common Stock
underlying such Warrants.
2.13 Termination. The right of any Holder to effect registration of its
Registrable Securities pursuant to Section 2.1, 2.2 or 2.3 shall terminate, with
respect to each Holder, upon the seventh anniversary of the date hereof. The
respective indemnities, representations and warranties of the Investors and the
Company shall survive such termination.
2.14 Acknowledgment of Other Registration Rights. The Company and the Major
Holder hereby notify the Investors, and the Investors hereby acknowledge receipt
of notice, of the existence of certain registration rights held by Sequent
Computer Systems, Inc. with respect to shares of Common Stock issuable pursuant
to a Warrant For Purchase of Shares of Common Stock, dated December 18, 1992
(the "Sequent Warrant"), as granted by the Company on such
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date. The Company hereby represents to the Investors that the terms of the
Sequent Warrant are as stated in the Sequent Warrant, a copy of which has been
provided to the Investors.
SECTION 3
RIGHT OF FIRST REFUSAL
3.1 Company Offer. Subject to the terms and conditions contained in this
Section 3, the Company hereby grants to each Investor the right to purchase all
or any part of his Pro Rata Portion of any Voting Securities (other than Exempt
Issuances) which the Company intends to sell or issue after the date hereof.
The Company shall give each Investor 20 days' prior written notice (the "Company
Offer"), delivered or mailed as provided in Section 7.4, of the Company's
intention to sell or issue any Voting Securities (the "Company Offered
Securities"), other than an Exempt Issuance, stating the proposed price per
Voting Security, the number of Voting Securities offered and the other material
terms of such proposed sale or issuance and the Investor's respective record
ownership of Voting Securities. Such notice shall include a representation to
the Investors that the Company has a good faith intention to sell such Voting
Securities to such person on the terms specified. A Company Offer shall
constitute an offer by the Company, irrevocable for 20 days, to sell or issue to
each Investor all or any part of such Investor's Pro Rata Portion of the Company
Offered Securities on the same terms as specified in the Company Offer or, if
such terms provide for consideration other than cash, for cash in an amount
equal to the fair market value of such noncash consideration (as determined in
good faith by the Board) if the parties cannot mutually agree upon such value.
3.2 Acceptance of Company Offer. Within 20 days after receipt of a
Company Offer, each Investor may elect to provide written notice to the Company
(a "Section 3 Acceptance Notice") that such Investor has elected to purchase all
or a part of his Pro Rata Portion of the Company Offered Securities. If such
Investor fails to give a Section 3 Acceptance Notice by the end of such 20-day
period, such Investor shall be deemed to have elected not to purchase any of the
Company Offered Securities. In addition, in such notice an Investor who elects
to purchase all of his Pro Rata Portion may also elect to purchase his pro rata
share (with others who so elect) of the Pro Rata Portions of other Investors who
do not elect to purchase all of their Pro Rata Portions.
3.3 Closing. The closing of any sale or issue of Company Offered
Securities to an Investor pursuant to this Section 3 shall take place at such
time and on such terms as may be provided for by the terms of such sale of
Voting Securities. At any such closing, the Company shall deliver to such
Investor certificate(s) representing the Company Offered Securities being
issued, registered in the name of such Investor or its nominee, against payment
of the applicable purchase price by check or wire transfer of same day funds.
3.4 Sale to Third Parties. If the Investors in the aggregate do not elect
to purchase all of the Company Offered Securities, the Company shall have the
right to sell and issue the Company Offered Securities not purchased by the
Investors at not less than the price stated in the
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Company Offer and otherwise on terms and conditions that are not materially more
favorable than those set forth in the Company Offer on or before the 90th day
following the expiration of the 20-day period in Section 3.2 hereof (subject to
extension to comply with applicable securities and other applicable laws and
regulations related to the sale and issuance of the Company Offered Securities
to such third party). If the Company Offered Securities have not been sold and
issued within such period, then the Company may not sell or issue any Company
Offered Securities unless it provides the Investors with a new Company Offer
pursuant to Section 3.1 hereof.
3.5 Continuing Rights.
(a) The election or non-election to participate in a Company Offer
shall not adversely affect an Investor's right to participate in subsequent
Company Offers pursuant to this Section 3.
(b) To the extent that an Investor does not elect to purchase his Pro
Rata Portion of the Company Offered Securities in connection with any particular
Company Offer, he shall have the prior right to acquire more than his then Pro
Rata Portion in any subsequent Company Offer so as to permit him (even though at
the different price of the later Company Offer) to restore or move toward
restoring his proportionate ownership of Common Stock (including shares to be
issued on exercise of Warrants) as in effect on the date hereof; provided,
however, that this should not increase the total number of Company Offered
Securities that may be purchased by Investors. Reasonable allocations and
procedures shall be instituted by the Company to achieve this goal.
3.6 Termination of Right of First Refusal. The rights of the Investors
under this Section 3 shall terminate upon the fifth anniversary of the date
hereof.
3.7 Transfer. The right of first offer set forth in this Section 3.3 may
not be assigned or transferred, except that (i) such right is assignable by each
Investor to any wholly owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Securities Act, controlling,
controlled by or under common control with, any such Investor, (ii) such right
is assignable between and among any of the Investors, and (iii) such right is
assignable to members of the Investor's immediate family and to trusts or
entities established for the benefit of the Investor or his immediate family.
SECTION 4
RIGHT OF CO-SALE
4.1 Rights of Co-Sale. In the event that any Selling Major Holder
desires, at any time, to sell, transfer, assign or otherwise dispose of any
Voting Securities (whether now held or hereafter acquired), and receives a bona
fide offer from a third party to purchase such Voting Securities (the "Major
Holder Offered Securities"), then, unless such Selling Major Holder
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became a Selling Major Holder subsequent to and as a result of the death of a
prior Major Holder, such Selling Major Holder shall give each Holder 20 days'
prior written notice (the "Major Holder Offer"), delivered or mailed as provided
in Section 7.4, of the Selling Major Holder's intention to sell, transfer,
assign or otherwise dispose of such Voting Securities (the "Major Holder Offered
Securities"), stating the proposed price per Voting Security, the number of
Voting Securities offered and the other material terms of such proposed sale.
Such notice shall include a representation to the Holders that a person has made
a bona fide offer to consummate such Major Holder Offer and the Selling Major
Holder has a good faith intention to sell such Voting Securities to such person
on the terms specified. Each Holder shall have the right, exercisable upon
written notice to the Selling Major Holder within 20 days after receipt by such
Holder of the Major Holder Offer, to participate in the sale of Major Holder
Offered Securities pursuant to the specified terms and conditions of the Major
Holder Offer. To the extent a Holder exercises such right of participation in
accordance with the terms and conditions set forth below, the number of Major
Holder Offered Securities which the Selling Major Holder may sell pursuant to
the Major Holder Offer shall be correspondingly reduced. The right of
participation of each Holder shall be subject to the following terms and
conditions:
(a) Each Holder may sell all or any part of that number of Common
Stock then held by such Holder equal to the product obtained by multiplying (i)
the aggregate number of Major Holder Offered Securities covered by the Major
Holder Offer by (ii) a fraction, the numerator of which shall be the number of
shares of Common Stock then held by such Holder, and the denominator of which
shall be the aggregate number of shares of Common Stock then held by the Selling
Major Holder and all Holders. For purposes of this subsection (a) and making
such computation, each Holder and the Selling Major Holder shall be deemed to
own the number of shares of Common Stock which are issuable upon exercise of
Warrants and exercise or conversion of all other classes or series of the
Company's securities exercisable or convertible into Common Stock then held by
such Holder.
(b) Each Holder may effect its participation in the sale by delivering
to the Selling Major Holder for transfer to the purchase offeror one or more
certificates, properly endorsed for transfer, which represent the number of
shares of Common Stock or other securities which such Holder elects to sell
pursuant to this Section 4.
4.2 Deliveries; Required Sale. The security certificate(s) which the
Holder delivers to the Selling Major Holder pursuant to Section 4.1 shall be
transferred by the Selling Major Holder to the purchase offeror in consummation
of the sale of the Major Holder Offered Securities pursuant to the terms and
conditions specified in the Major Holder Offer, and the Selling Major Holder
shall concurrently therewith remit to each Holder that portion of the sale
proceeds to which such Holder is entitled by reason of its participation in such
sale. To the extent that any purchase offeror prohibits such assignment or
otherwise refuses to purchase shares or other securities from a Holder
exercising its rights of co-sale hereunder, the Selling Major Holder shall not
sell to such purchase offeror any Major Holder Offered Securities unless
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and until, simultaneously with such sale and on the same terms, the Major Holder
shall purchase such shares or other securities from such Holder.
4.3 Permitted Transfers.
(a) Intra-Family Transfers. The Major Holder may transfer any shares
to the following without complying with the provisions of this Section 4: (i)
to a member of his immediate family; or (ii) to a trust or entity established
for the benefit of the Major Holder or his immediate family. No such transfer
of shares shall be effective unless and until the transferee shall have executed
such documentation, in form and substance reasonably satisfactory to the
Company, evidencing agreement by the transferee to be bound by the provisions of
this Section 4 as a Major Holder.
(b) Exempt Transactions. The participation rights set forth in this
Section 4 shall not apply to any transfer of shares pursuant to a registration
statement declared effective under the Securities Act, to market transactions
(whether under Rule 144 or otherwise) or to any transfer of shares in any merger
or sale approved by the Board if all stockholders of the Company have the right
to participate in such merger or sale on the same terms.
4.4 Continuing Rights. The exercise or non-exercise of the rights of the
Holders hereunder to participate in one or more sales of Company securities made
by the Selling Major Holder shall not adversely affect their rights to
participate in subsequent sales of Company securities by the Selling Major
Holder pursuant to this Section 4.
4.5 Legends; Stop Transfers. Each certificate representing shares of
stock now or hereafter owned by the Major Holders or issued to any permitted
transferee thereof, shall be endorsed with the legend specified in Section 7.1.
The Major Holder agrees that the Company may or may instruct its transfer agent
to impose transfer restrictions on the shares represented by certificates
bearing the legend referred to in Section 7.1 above to enforce the provisions of
this Agreement and the Company agrees to promptly do so. The legend shall be
removed upon termination of this Agreement.
4.6 Termination of Rights. The rights and obligations of the Major Holder
under this Section 4 shall terminate upon the fifth anniversary of the date
hereof.
SECTION 5
BOARD NOMINEE
5.1 Nominee to the Board of Directors. From and after the Closing (as
defined in the Purchase Agreement), and for so long as Rod Canion, his immediate
family and trusts and entities established for their benefit hold at least 33%
of the Voting Securities acquired hereunder as of the date hereof, the Company
will use its best efforts to cause the Investors' Nominee to be
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elected to the Board of Directors of the Company. The Company agrees that, in
submitting to the Company's stockholders the names and nominees for election as
director, it will nominate the Investors' Nominee and use its best efforts to
cause such person to be elected as a director. The Investors' Nominee shall have
the option of choosing when to accept election, which choice may be effected by
his written notice to any member of the Board of Directors. In the meantime, and
pending his acceptance, and provided that he executes an appropriate
confidentiality agreement, he shall receive all notices and other information
and be permitted to attend all meetings he would receive or be permitted to
attend as a member of the Board, but shall not be permitted to vote and shall
not have any of the duties or liabilities of a member of the Board.
The Company shall adopt whatever By-law amendments may be necessary from
time to time to permit the Company to so elect the Investors' Nominee.
5.2 Reimbursement of Expenses. The Company shall reimburse the Investors'
Nominee for the reasonable out-of-pocket expenses incurred by him to the same
extent it reimburses members of the Board, and at least for his expenses to
attend meetings of the Board and all other expenses approved in advance by the
Company, whether or not he has actually chosen to accept election as a member of
the Board. Upon election to the Board of Directors, the Investors' Nominee will
be compensated in the same manner as other directors.
5.3 Indemnification. Upon the election of the Investor's Nominee to the
Board of Directors, the Company shall promptly enter into an indemnification
agreement with the Investors' Nominee, in the same form as other directors have
entered into; shall indemnify and hold harmless (and exculpate) the Investors'
Nominee against any and all liabilities and claims against him as a result of
his affiliation with the Company to the fullest extent permitted by law; and
shall provide to the Investors' Nominee liability insurance to the greatest
extent made available to any other member of the Board.
SECTION 6
INFORMATION RIGHTS
The Company hereby covenants and agrees that it will promptly deliver the
following reports and other information to each Holder:
6.1 A copy of each filing with the Commission by the Company and a copy of
each press release issued by the Company.
6.2 A copy of the periodic internal financial reports presented to the
Board, to the extent any such holder agrees to sign a confidentiality agreement
in the form presented by the Company and to abide by the Company's stock trading
policies.
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<PAGE>
SECTION 7
MISCELLANEOUS
(a) Governing Law. This Agreement will be governed by and construed
in accordance with the laws of the State of Delaware without regard to any
principles of conflicts of law that, if applied, might require or permit the
application of the laws of a different jurisdiction.
7.1 Legends.
Each certificate representing Securities held by the Major Holders
shall be endorsed with the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RIGHTS AND RESTRICTIONS CONTAINED IN AN INVESTORS AGREEMENT DATED AS
OF _______________, 1998 A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE CORPORATION."
7.2 Amendment and Waivers. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and (i) the consent of holders of at least
two-thirds of the then-outstanding Registrable Securities, voting as a class, if
such amendment or waiver would adversely effect the terms and conditions of
Section 2 or 6 of this Agreement, (ii) the Major Holder's Consent, if such
amendment or waiver would adversely effect the terms and conditions of Section 4
of this Agreement, or adversely effect the rights of the Major Holder in a
manner different than for Holders, or (iii) the consent of holders of at least
two-thirds of the Common Stock, issued or issuable upon exercise of the
Warrants, held by the Investors, voting as a class, if such amendment or waiver
would adversely effect the terms and conditions of Section 3 or 5 of this
Agreement, and, in each of (i), (ii) and (iii) above, the consents referred to
above would also be required where the rights of any of the forgoing classes are
adversely affected by such amendment or waiver. Any amendment or waiver
effected in accordance with this paragraph will be binding upon the Company,
each Investor and each future holder of Registrable Securities.
7.3 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegally
invalid, unenforceable or void, this Agreement shall continue in full force and
effect without said provision. In such event, the parties shall negotiate, in
good faith, a legal, valid and binding substitute provision which most nearly
effects the intent of the parties in entering into this Agreement.
7.4 Notices. All notices and other communications required or permitted
hereunder shall be in writing (or in the form of a telex or telecopy (confirmed
in writing) to be given only during the recipient's normal business hours unless
arrangements have otherwise been made to
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receive such notice by telex or telecopy outside of normal business hours) and
shall be mailed by registered or certified mail, postage prepaid, or otherwise
delivered by hand, messenger, or telex or telecopy (as provided above) addressed
(a) if to an Investor, at such other address as such Investor shall have
furnished to the Company in writing or (b) if to any other holder of any
Preferred Stock or Common Stock issued upon conversion thereof, at such address
as such holder shall have furnished the Company in writing or, until any such
holder so furnishes an address to the Company, then to and at the address of the
last holder of such shares who has so furnished an address to the Company or (c)
if to the Company, one copy should be sent to its principal executive offices
and addressed to the attention of the Corporate Secretary, or at such other
address as the Company shall have furnished to the Investors.
Each such notice or other communication shall for all purposes of this
Agreement be treated as effective or having been given when delivered if
delivered personally, or, if sent by mail, at the earlier of its receipt or 72
hours after the same has been deposited in a regularly maintained receptacle for
the deposit of the United States mail, addressed and mailed as aforesaid, or,
if by telex or telecopy pursuant to the above, when received.
7.5 Facsimile Signatures. Any signature page delivered by a fax machine
or telecopy machine shall be binding to the same extent as an original signature
page, with regard to any agreement subject to the terms hereof or any amendment
thereto. Any party who delivers such a signature page agrees to later deliver
an original counterpart to any party which requests it.
7.6 Conflict with Certificate of Incorporation or Bylaws. It is expressly
agreed that whether or not the Certificate of Incorporation or Bylaws of the
Company fully incorporate the provisions hereof, or any of them, the parties'
rights and obligations shall be governed by this Agreement which shall prevail
in the event of any ambiguity or inconsistency between this Agreement and the
Certificate of Incorporation or Bylaws.
7.7 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together will constitute one and the same instrument.
7.8 Headings and Subheadings. The headings and subheadings used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
7.9 Termination. Except as otherwise provided herein, this Agreement
shall terminate on the tenth anniversary of the date hereof.
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IN WITNESS WHEREOF, the parties have executed this Investors Agreement
as of the date first above written.
TRICORD SYSTEMS INC.
By: /s/ John J. Mitcham
-------------------
Name: John J. Mitcham
Title: President, Chief Executive Officer
MAJOR HOLDER:
/s/ John J. Mitcham
-------------------
JOHN MITCHAM
INVESTORS:
/s/ Joseph Rodney Canion
------------------------
Joseph Rodney Canion
/s/ David Cabello
-----------------
Jesus David Cabello
/s/ Timothy Harris
------------------
Timothy Harris
/s/ Kathleen Clark
------------------
Kathleen Clark
/s/ Lewis Schrock
-----------------
Lewis J. Schrock
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/s/ Donald L. Lucas
-------------------
Donald L. Lucas Profit
Sharing Trust DTD 1-18-84,
by Donald L. Lucas,
as Successor Trustee
/s/ Donald M. Lucas
-------------------
Richard M. Lucas
Cancer Foundation,
by Donald L. Lucas,
as Chairman of the Board
/s/ Larry Gurdes
----------------
Gurdes Huff Investments,
by Larry Gurdes
/s/ Jack Dinerstein
-------------------
Jack & Nancy Dinerstein
Family Investment
Partnership LTD,
by Jack Dinerstein
/s/ James Braniff III
---------------------
James Braniff III
/s/ Joseph M. Schwarz
---------------------
Joseph M. Schwartz
/s/ William Leven
-----------------
Will Levin
/s/ James Easterling
--------------------
James Easterling
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/s/ Scott Caven
---------------
Scott Caven
/s/ Alfred L. Deaton
--------------------
Alfred L. Denton III
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