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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
__________________
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
__________________
Date of Report (Date of earliest event reported): December 15, 1998
___________________
TRICORD SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-21366 41-1590621
(State of or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
2905 Northwest Boulevard, Suite 20,
Plymouth, Minnesota 55441
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code: (612) 557-9005
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ITEM 5. OTHER EVENTS.
On December 15, 1998, Tricord Systems, Inc. (the "Company") completed a
financing (the "Financing") pursuant to the terms of a Stock Purchase Agreement,
dated effective as of December 7, 1998 (the "Stock Purchase Agreement"), between
the Company and certain investors (the "Purchasers"). Pursuant to the Stock
Purchase Agreement, the Company sold to the Purchasers, and the Purchasers
purchased from the Company, an aggregate of 3,000,000 shares (the "Shares") of
the Company's common stock, par value $.01 per share ("Common Stock"), at a
purchase price of $1.00 per share, for an aggregate purchase price of
$3,000,000. In addition, for each share of Common Stock purchased, Purchasers
received warrants (the "Warrants") to purchase one additional share of Common
Stock at a price of $3.50 per share. The Warrants expire on December 15, 2003.
The Common Stock and Warrants were sold in a transaction exempt from the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and are therefore deemed to be "restricted securities" within
the meaning of Securities Act.
In connection with the Stock Purchase Agreement, the Company, the
Purchasers and John Mitcham, the Company's Chief Executive Officer, entered into
an Investors Agreement, dated effective as of December 7, 1998 (the "Investors
Agreement"). Among other provisions, the Investors Agreement (a) provides the
Purchasers with certain demand and "piggyback" registration rights; (b) provides
the Purchasers with certain rights of first refusal to acquire a pro-rata
portion of securities sold or issued by the Company in certain future private
placement financings; (c) provides the Purchasers with rights of co-sale in the
event that Mr. Mitcham desires to sell Voting Securities (as defined in the
Investors Agreement) under certain circumstances; and (d) provides that, as long
as Rod Canion (one of the Purchasers) or his immediate family members and trusts
and entities established for their benefit holds at least one-third of the
Voting Securities acquired in connection with the Financing, the Company will
use its best efforts to cause Mr. Canion (or his designee) to be elected to the
Board of Directors of the Company.
In connection with the Stock Purchase Agreement, each director and officer
of the Company entered into a lock-up agreement (collectively, the "Lock-Up
Agreements"), pursuant to which each such person agreed that, until the earlier
of June 30, 2000 or three months after the date on which the Company's storage
management software has been licensed for commercial use for 90 days, such
person will not, without the prior written consent of the Purchasers holding a
majority of the shares sold by the Company pursuant to the Stock Purchase
Agreement, and subject to certain exceptions, sell or otherwise dispose of
Common Stock or rights to acquire Common Stock, whether owned as of the date of
the Stock Purchase Agreement or subsequently acquired by such person.
Additional information regarding the Financing is contained in the Stock
Purchase Agreement and the Investors Agreement, copies of which are exhibits to
this Report and are incorporated herein by reference.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) FINANCIAL STATEMENTS OF BUSINESSES ACQUIRED.
2
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Not applicable.
(b) PRO FORMA FINANCIAL INFORMATION.
Not applicable.
(c) EXHIBITS.
10.1 Stock Purchase Agreement effective December 7, 1998 by and among
Tricord Systems, Inc. and the Purchasers, including exhibits
thereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TRICORD SYSTEMS, INC.
Dated: December 23, 1998 By /s/ John J. Mitcham
--------------------
John J. Mitcham
Chief Executive Officer
4
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Item Method of Filing
------- ---- ----------------
<S> <C> <C>
10.1 Form of Stock Purchase Agreement
effective December 7, 1998 by and
among Tricord Systems, Inc. and the
Purchasers, including exhibits
thereto............................. Filed herewith electronically
</TABLE>
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TRICORD SYSTEMS, INC.
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STOCK PURCHASE AGREEMENT
December 7, 1998
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<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
SECTION 1AUTHORIZATION AND SALE OF COMMON STOCK AND WARRANTS . . . . . . . . . . . .1
1.1 Authorization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
1.2 Sale of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 2CLOSING DATE; DELIVERY. . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.1 Closing. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Delivery . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
SECTION 3REPRESENTATIONS 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
SECTION 4REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS. . . . . . . . . . . . . .7
<PAGE>
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 5CONDITIONS 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 6CONDITIONS TO CLOSING BY THE COMPANY. . . . . . . . . . . . . . . . . . . 10
6.1 Representations. . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 7RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;COMPLIANCE
WITH SECURITIES ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
7.1 Restrictions on Transferability. . . . . . . . . . . . . . . . . . . . 10
7.2 Restrictive Legend . . . . . . . . . . . . . . . . . . . . . . . . . . 10
SECTION 8COVENANTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
8.1 Fulfillment of Closing Conditions. . . . . . . . . . . . . . . . . . . 11
8.4 Payment of Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . 12
8.5 Publicity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
SECTION 9MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.1 Governing Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.2 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.3 Successors and Assigns . . . . . . . . . . . . . . . . . . . . . . . . 12
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
</TABLE>
<PAGE>
EXHIBITS
<TABLE>
<S> <C> <C>
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
</TABLE>
<PAGE>
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").
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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 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
2
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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 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.
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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 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
4
<PAGE>
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 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
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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
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
6
<PAGE>
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.
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
7
<PAGE>
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:
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.
8
<PAGE>
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 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.
9
<PAGE>
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
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
10
<PAGE>
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:
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
11
<PAGE>
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 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
12
<PAGE>
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 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
13
<PAGE>
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 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 of 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
- -------------------
(*) The shares and Investor Warrants purchased by Mr. Canion will be
distributed as set forth on Exhibit A-1 to this Agreement.
<PAGE>
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. Levin 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>
<PAGE>
EXHIBIT A-1
Distribution of Mr. Canion's Shares and Investor Warrants
<TABLE>
<CAPTION>
Number Number of
Name of Shares Investor Warrants
---- --------- -----------------
<S> <C> <C>
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
</TABLE>
<PAGE>
EXHIBIT B
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933.
SUCH SECURITIES 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.
Warrant Certificate No._______
WARRANTS TO PURCHASE
______________ SHARES OF COMMON STOCK
TRICORD SYSTEMS, INC.
Incorporated under the laws
of the State of Delaware
This certifies that, for value received, ______________, the
registered holder hereof, or his or her registered assigns (the
"Warrantholder"), are entitled to purchase from Tricord Systems, Inc., a
Delaware corporation (the "Company"), at any time during the period
commencing as of December 15, 1998 and ending at 5:00 p.m., Houston, Texas
time, on December 15, 2003, at a purchase price per share of $3.50 (the
"Warrant Price"), the number of shares of common stock, par value $.01 per
share ("Common Stock"), of the Company set forth above (the "Shares"). In
case at any time the Company shall subdivide its outstanding shares of Common
Stock into a greater number of shares, the Warrant Price in effect
immediately prior to such subdivision will be proportionately reduced and the
number of Shares purchasable pursuant to the Warrants evidenced by this
certificate immediately prior to such subdivision will be proportionately
increased, and conversely, in case at any time the Company shall combine its
outstanding shares of Common Stock into a smaller number of shares, the
Warrant Price in effect immediately prior to such combination shall be
proportionately increased and the number of Shares purchasable upon the
exercise of the Warrants evidenced by this certificate immediately prior to
such combination shall be proportionately reduced.
The Warrants represented by this certificate may be exercised in
whole or in part by presentation of this Warrant certificate with the
Purchase Form attached hereto duly executed and simultaneous payment of the
Warrant Price at the principal office of the Company. Payment of such price
shall be made in immediately available funds or a certified or cashiers'
check or any combination thereof.
The Warrants represented by this certificate are issued under and
in accordance with the terms of a Stock Purchase Agreement, dated as of
December 7, 1998 (the "Stock Purchase Agreement"), between the Company and
certain Warrantholders party thereto and are subject to the terms and
provisions contained in the Stock Purchase Agreement.
-- 1 --
<PAGE>
The Warrantholder of the Warrants represented by this Warrant
Certificate has been granted certain registration rights with respect to the
Shares to be issued upon the exercise of one or more of the Warrants
evidenced hereby under and in accordance with the terms of an Investors
Agreement, dated as of December 7, 1998, between the Company and certain
Warrantholders party thereto.
Upon any partial exercise of the Warrants evidenced hereby, there
shall be signed and issued to the Warrantholder a new Warrant certificate in
respect of the Shares as to which the Warrants evidenced hereby shall not
have been exercised. These Warrants may be exchanged at the office of the
Company by surrender of this Warrant certificate properly endorsed for one or
more new Warrant certificates of the same aggregate number of Shares as here
evidenced by the Warrant or Warrants exchanged. No fractional shares of
Common Stock will be issued upon the exercise of rights to purchase
hereunder, but the Company will pay the cash value of any fraction upon the
exercise of one or more Warrants. These Warrants are transferable in the
manner and subject to the restrictions set forth or referred to in the Stock
Purchase Agreement. By acceptance hereof, the Warrantholder acknowledges
that the securities represented by this certificate have not been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and that
such securities may not be sold or transferred in the absence of such
registration or unless the Company receives an opinion of counsel or other
evidence reasonable to it that such sale or transfer is exempt from the
registration requirements of the Securities Act.
In case this certificate evidencing the Warrants is mutilated,
lost, stolen or destroyed, the Company will, at the request of the
Warrantholder, issue and deliver in exchange and substitution for and upon
cancellation of the mutilated certificate, or in lieu of and substitution for
the certificate lost, stolen or destroyed, a new Warrant certificate or
certificates of like tenor and representing an equivalent right or interest,
but only upon receipt of evidence satisfactory to the Company of such loss,
theft or destruction of such Warrant.
In case of any capital reorganization or reclassification of the
Common Stock of the Company or in case of any share exchange, consolidation
or merger of the Company with another corporation (other than a share
exchange, consolidation or merger in which the Company is the surviving
corporation and which does not result in any reclassification of or change in
the outstanding shares of Common Stock) or in case of any sale or conveyance
to another corporation of the property of the Company as an entirety or
substantially as an entirety, the Warrantholder will have the right
thereafter, during such period as this Warrant is exercisable and upon
payment of the Warrant Price, to purchase upon exercise of the Warrants
represented by this certificate the kind and amount of shares and other
securities and property that it would have owned or have been entitled to
receive after the happening of such reorganization, reclassification, share
exchange, consolidation, merger, sale or conveyance had the Warrants
evidenced by this certificate been exercised immediately prior to such
action. The provisions of this paragraph will similarly apply to successive
reorganizations, reclassifications, exchanges, consolidations, mergers, sales
or conveyances.
-- 2 --
<PAGE>
This Warrant certificate does not entitle any Warrantholder to any
of the rights of a stockholder of the Company.
TRICORD SYSTEMS, INC.
By:
--------------------------------------
Name:
Title:
Dated: December 15, 1998
-- 3 --
<PAGE>
TRICORD SYSTEMS, INC.
PURCHASE FORM
The undersigned hereby irrevocably elects to exercise the right of
purchase represented by the within Warrant certificate for, and to purchase
thereunder,_______ shares of Common Stock (the "Shares") provided for therein,
and requests that certificates for the Shares be issued in the name of:
______________________________________________
(Please print or type name, address and Social Security Number)
______________________________________________
______________________________________________
and, if said number of Shares shall not be all the Shares purchasable
thereunder, that a new Warrant certificate with respect to the balance of the
Shares purchasable under the within Warrant certificate be registered in the
name of the undersigned Warrantholder as below indicated and delivered to the
address stated below.
Dated:__________________
Name of Warrantholder:
(Please Print)
Address:___________________
___________________
Signature:_________________
Note: The above signature must correspond with the name as written upon the
face of this Warrant Certificate in every particular, without alteration or
enlargement or any change whatever.
-- 4 --
<PAGE>
EXHIBIT C
[Letterhead of Counsel to Tricord Systems, Inc.]
December __, 1998
[Names and Addresses of Purchasers]
Gentlemen:
This opinion is being furnished to you pursuant to Section 5.4 of
the Stock Purchase Agreement, dated as of December __, 1998 (the "Purchase
Agreement"), by and among Tricord Systems, Inc., a Delaware corporation (the
"Company"), and each of the persons or entities listed on the Schedule of
Purchasers attached thereto as Exhibit A (each a "Purchaser" and,
collectively, the "Purchasers"), relating to the issuance and sale by the
Company to the Purchasers of up to 4,000,000 shares (the "Shares") of the
Company's common stock, par value $.01 per share ("Common Stock"), and up to
4,000,000 Investor Warrants, each for the purchase of one share of Common
Stock (the "Investor Warrants"). Capitalized terms used but not defined
herein shall have the meaning assigned to such terms in the Purchase
Agreement.
[I][We] have examined the originals, or copies certified or
otherwise identified, of the Purchase Agreement, the Investors Agreement, the
Certificate of Incorporation and Bylaws of the Company, each as amended to
date, corporate records of the Company, including certain resolutions of the
Board of Directors of the Company, as furnished to [me][us] by the Company,
certificates of public officials and of representatives of the Company,
statutes and other instruments and documents, as a basis for the opinions
hereinafter expressed. In giving such opinions, we have relied upon
certificates, statements or other representations of officers or authorized
agents of the Company with respect to the accuracy of the material factual
matters contained in or covered by such certificates, statements or
representations.
We have assumed that all signatures on all documents examined by us
are genuine, that all documents submitted to us as originals are authentic
and complete, that all documents submitted to us as copies are true and
correct copies of the originals thereof and that all information submitted to
us was accurate and complete.
<PAGE>
[The Purchasers]-2-December__, 1998
Based upon [my][our] examination as aforesaid, and subject to the
assumptions, limitations, qualifications and exceptions hereinabove or
hereinafter set forth, [I][we] [am][are] of the opinion that:
1. The Company is a corporation duly incorporated and validly
existing in good standing under the laws of the State of Delaware with full
corporate power and authority to execute and deliver the Purchase Agreement,
the Investors Agreement and the Investor Warrants and to perform the actions
contemplated thereby.
2. The authorized capital stock of the Company and the number of
shares of the Company's capital stock outstanding as of the date hereof is as
stated in Section 3.4 of the Purchase Agreement.
3. The Shares have been duly authorized and, when issued in
compliance with the provisions of the Purchase Agreement, (a) will be validly
issued, fully paid and nonassessable, (b) will have the rights, preferences
and privileges described in the Charter and (c) will be free of any pledges,
liens, encumbrances, preemptive rights or restrictions except for
restrictions on transfer under federal and state securities laws and as set
forth in the Investors Agreement.
4. The Exercise Shares have been duly and validly reserved and,
when issued in compliance with the terms of the Investor Warrants, (a) will
be validly issued, fully paid and nonassessable, (b) will have the rights,
preferences and privileges described in the Charter and (c) will be free of
any pledges, liens, encumbrances, preemptive rights or restrictions except
for restrictions on transfer under federal and state securities laws and as
set forth in the Investors Agreement.
5. The Purchase Agreement, the Investors Agreement and the
Investor Warrants have each been duly authorized, executed and delivered by
the Company and each constitutes a valid and legally binding agreement of the
Company, enforceable against the Company in accordance with its respective
terms, except as that enforceability may be subject to the effect of (i) any
applicable bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium or other laws affecting creditors' rights generally and (ii)
general principles of equity (regardless of whether that enforceability is
considered in a proceeding in equity or at law).
<PAGE>
[The Purchasers]-3-December__, 1998
[Insert standard qualifications.]
Very truly yours,
<PAGE>
Exhibit D
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.
<PAGE>
"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.
"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
<PAGE>
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.
"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,
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<PAGE>
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.
"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
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<PAGE>
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;
(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
-5-
<PAGE>
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 number of shares proposed to be
included in such registration by such Other Holders. No Registrable Securities
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<PAGE>
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.
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<PAGE>
(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.
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
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<PAGE>
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 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
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<PAGE>
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).
(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
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<PAGE>
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 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;
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<PAGE>
(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;
(h) otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
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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
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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 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
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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 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
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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 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
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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 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
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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.
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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 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
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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 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
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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 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
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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 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
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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 elected to the
Board of Directors of the Company. The Company agrees that, in
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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.
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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.
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
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<PAGE>
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 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
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<PAGE>
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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<PAGE>
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/ Jesus 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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<PAGE>
/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 Gerdes
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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<PAGE>
/s/ Scott Caven
Scott Caven
/s/ Alfred L. Deaton
Alfred L. Denton III
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<PAGE>
Exhibit E
List of Key Officers and Directors
December 7, 1998
OFFICERS
John J. Mitcham, Chairman/CEO
J. David Cabello, Vice President and General Counsel
Kathleen Clark, Vice President Marketing
Dr. Alexander H. Frey, Vice President of Architecture
Charles E. Pearsall, Vice President Engineering
Jeff A. Stewart, Vice President and Controller
DIRECTORS
Yuval Almog
Tom R. Dillon
Fred G. Moore
Donald L. Lucas
<PAGE>
Exhibit F
Form of Lock-Up Agreement
December __, 1998
Tricord Systems, Inc. and
The Purchasers under that certain Stock Purchase
Agreement dated December 7, 1998
Re: Proposed Investment
Ladies and Gentlemen:
The undersigned, a stockholder and an officer and/or director of Tricord
Systems, Inc., a Delaware corporation (the "Company"), understands that under
that certain Stock Purchase Agreement dated December 7, 1998 (the
"Agreement") with the Company, the Purchasers have agreed, subject to certain
conditions (including the execution and delivery of this letter), to make an
investment in the Company's common stock, par value $.01 per share ("Common
Stock"), and certain Warrants of the Company.
In recognition of the benefit that such an investment will confer upon
the undersigned as a stockholder of the Company, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the undersigned agrees with each Purchaser named in the
Agreement that, during a period until the later of three months after the
Trigger Date (as defined in that Investors Agreement dated December __, 1998
between the Company and the Purchasers) or March 31, 2000, the undersigned
will not, without the prior written consent of Purchasers of a majority of
the Shares (as defined in the Agreement) sold by the Company pursuant to the
Agreement, (i) offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant for the sale of, or otherwise dispose of or transfer
any shares of Common Stock or any securities convertible into or exchangeable
or exercisable for Common Stock, whether now owned or hereafter acquired by
the undersigned or with respect to which the undersigned has or hereafter
acquires the power of disposition, or file any registration statement under
the Securities Act of 1933, as amended (the "Securities Act"), with respect
to any of the foregoing or (ii) enter into any swap or any other agreement or
any transaction that transfers, in whole or in part, directly or indirectly,
the economic consequence of ownership of Common Stock, whether any such swap
or transaction described in clause (i) or (ii) above is to be settled by
delivery of Common Stock or other securities, in cash or otherwise; provided,
however, that this agreement shall not prohibit (i) the assignment by the
undersigned to any wholly owned subsidiary or parent of, or to any
corporation or entity that is, within the
<PAGE>
meaning of the Securities Act, controlling, controlled by or under common
control with, the undersigned, (ii) the assignment to members of the
undersigned's immediate family and to trusts or entities established for the
benefit of the undersigned or his immediate family, or (iii) a bona fide
pledge to an institutional lender for money borrowed, provided, in each case,
that the transferee agree to be bound by the terms and conditions of this
agreement.
<PAGE>
Very truly yours,
Signature:___________________________
Name: _______________________________
