As filed with the Securities and Exchange Commission on May 22, 1996
Registration No. 333-________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
REGISTRATION STATEMENT
Under
The Securities Act of 1933
TELIDENT, INC.
(Exact name of Registrant as specified in its charter)
Minnesota
(State or other jurisdiction of
incorporation or organization)
3661
(Primary Standard Industrial
Classification Code Number)
41-1533060
(I.R.S. Employer Identification No.)
TELIDENT, INC.
One Main Street S.E., Suite 85
Minneapolis, Minnesota 55414
(612) 623-0911
(Name and address, including zip code, and telephone number including
area code, of Registrant's principal executive offices and
principal place of business.)
Michael J. Miller
TELIDENT, INC.
One Main Street S.E., Suite 85
Minneapolis, Minnesota 55414
(612) 623-0911
(Name, address, including zip code, and telephone
number, including, area code, of agent for
service of process)
Copies to
Lindley S. Branson Albert A. Woodward
Jeffrey C. Anderson Philip T. Colton
Gray, Plant, Mooty, Mooty & Bennett, P.A. Maun & Simon, PLC
3400 City Center 2000 Midwest Plaza Building West
33 South Sixth Street 801 Nicollet Mall
Minneapolis, MN 55402 Minneapolis, MN 80202
Approximate date of commencement of proposed sale to the public: As
soon as practicable after the effective date of this registration statement.
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of earlier effective registration
statement for the same offering. |_|
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. |_|
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. |_|
If any of the securities being registered on this form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933 check the following box. |X|
<TABLE>
<CAPTION>
Calculation of Registration Fee
- ---------------------------------------------------------------------------------------------------------------------
Proposed Maximum Proposed Maximum
Title of Each Class of Amount to be Offering Price Per Aggregate Offering Amount of
Securities Registered Share Price Registration Fee
---------- ---------- ----- ----- ----------------
<S> <C> <C> <C> <C>
Common Stock, $.02 par
value 1,150,000 Shs. (1) $ 5.00 (2) $ 5,750,000 (2) $ 1,983
Underwriter's Warrant 87,500 Wts. (3) 0.00 50 1
Common Stock, $.02 par
value 87,500 Shs. (4) 6.00 525,000 182
-----
2,166
=====
</TABLE>
(1) Includes 150,000 shares of Common Stock that the Underwriter has the
option to purchase to cover over-allotments, if any.
(2) Estimated solely for purposes of calculating the registration fee. In
accordance with Rule 457(c) of Regulation C, the estimated price is based
on the average of the high bid and asked prices for such stock in the
over-the-counter market for May 16, 1996.
(3) To be issued to the Underwriter, no fee is required pursuant to Rule
457(g).
(4) Shares issuable upon exercise of Underwriter's Warrants.
The Registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8, may
determine.
<TABLE>
<CAPTION>
TELIDENT, INC.
CROSS-REFERENCE SHEET
Item Number and Caption Heading in Prospectus
<C> <C>
1. Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.........................Outside Front Cover Page
2. Inside Front and Outside Back Cover Pages of
Prospectus.............................................Inside Front Cover Page
Available Information
3. Summary Information, Risk Factors......................Outside Front Cover Page
Prospectus Summary
Risk Factors
4. Use of Proceeds........................................Use of Proceeds
5. Determination of Offering Price........................Front Cover Page
6. Dilution...............................................*
7. Selling Security Holders...............................Principal and Selling Shareholders
8. Plan of Distribution...................................Underwriting
9. Legal Proceedings......................................*
10. Directors, Executive Officers, Promoters and
Control Persons........................................Management
11. Security Ownership of Certain Beneficial Owners
and Management.........................................Principal and Selling Shareholders
12. Description of Securities..............................Description of Securities
13. Interest of Named Experts and Counsel..................*
14. Disclosure of Commission Position on
Indemnification For Securities Act Liabilities.........Management
15. Organization Within Last Five Years....................*
16. Description of Business................................Prospectus Summary; Risk Factors; Business
17. Management's Discussion and Analysis or Plan of Management's Discussion and Analysis of Financial
Operation Condition and Results of Operations
18. Description of Property................................Business
19. Certain Relationships and Related
Transactions...........................................Certain Transactions
20. Market For Common Equity and Related Shareholder
Matters................................................Market for Common Stock and Related Shareholder
Matters
21. Executive Compensation.................................Management
22. Financial Statements...................................Financial Statements
23. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure....................*
</TABLE>
- -------------------------------
* Omitted from Prospectus because item inapplicable or answer is in the
negative.
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILLED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE LAWS OF SUCH STATE.
SUBJECT TO COMPLETION _______________, 1996
TELIDENT, INC.
1,000,000 SHARES OF COMMON STOCK
Of the 1,000,000 shares of Common Stock offered hereby, 875,000 shares
are being sold by Telident, Inc. ("Telident" or the "Company") and 125,000
shares are being sold by the Selling Shareholders. See "Principal and Selling
Shareholders." The Company will not receive any of the proceeds from the sale of
Common Stock by the Selling Shareholders.
The Company's Common Stock is traded in the over-the-counter market. On
_______________, 1996, the reported closing bid price of the Common Stock, as
reported by the National Quotations Bureau, was $_____ per share. See "Price
Range of Common Stock and Related Shareholder Matters." Application has been
made to have the Common Stock approved for quotation on the Nasdaq SmallCap
Market under the symbol "TLDT."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 7 HEREIN.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION NOR HAS THE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
Proceeds to Selling
Underwriting Proceeds to Company Shareholders (2)
Price to Public Discount (1) (2)
<S> <C> <C> <C> <C>
Per Share............... $ $ $ $
Total (3)............... $ $ $ $
</TABLE>
(1) The Company and the Selling Shareholders, on a pro rata basis, have
agreed to pay R. J. Steichen & Company, the Underwriter, a
non-accountable expense allowance equal to 2.5% of the gross proceeds
to the Company and Selling Shareholders. The Company has also agreed to
sell to the Underwriter for nominal consideration a five-year warrant
to purchase up to 87,500 shares of Common Stock exercisable at 120% of
the Price to Public per share (the "Underwriter's Warrants"). In
addition, the Company has agreed to indemnify the Underwriter against
certain liabilities. See "Underwriting."
(2) Before deducting estimated offering expenses, including the
non-accountable expense allowance described in Note l above, payable by
the Company of $_______ and payable by the Selling Shareholders of
$______.
(3) The Company has granted to the Underwriter a 30-day option to purchase
up to 150,000 additional shares solely to cover over-allotments, if
any. If all such additional shares are purchased, the total Price to
Public will be $________, the total Underwriting Discount will be
$________ and the total Proceeds to Company will be $________. See
"Underwriting."
The shares of Common Stock are being offered by the Underwriter on a
"firm commitment" basis, subject to prior sale, when, as and if delivered to and
accepted by it, and subject to approval of certain legal matters by counsel. The
Underwriter reserves the right to withdraw, cancel or modify such offer and to
reject any order in whole or in part. It is expected that delivery of the
certificates for the shares of Common Stock will be made against payment
therefor in Minneapolis, Minnesota, on or about ______________, 1996.
RJ
STEICHEN
& COMPANY
The date of this Prospectus is _______________, 1996.
- --------------------------------------------------------------------------------
Pictured clockwise are Telident's 911 products:
[PICTURES] The NCS(TM), ACS(TM) and STS(TM).
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITER MAY OVER-ALLOT OR
EFFECT TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ SMALLCAP MARKET.
SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
Page 3
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
MORE DETAILED INFORMATION AND FINANCIAL STATEMENTS APPEARING ELSEWHERE IN THIS
PROSPECTUS. ALL INFORMATION PRESENTED HEREIN ASSUMES THE UNDERWRITER'S
OVER-ALLOTMENT OPTION IS NOT EXERCISED. EXCEPT AS OTHERWISE NOTED, ALL
INFORMATION IN THIS PROSPECTUS HAS BEEN ADJUSTED TO REFLECT A ONE-FOR-TWO
REVERSE SPLIT OF THE COMMON STOCK AND PREFERRED STOCK TO BE EFFECTIVE JUNE 4,
1996.
Telident designs, manufactures and markets proprietary hardware and
software systems which provide the exact location of a 911 telephone call to the
emergency dispatcher who receives the call. The Company's systems provide
information which can shorten the response time to a 911 call, reduce the costs
associated with responses to incorrect locations and improve the safety of
individuals within a private branch exchange ("PBX") telephone system. In
addition, the Company manufactures and markets network hardware that provides
switching, selective routing and data interfacing capabilities to public and
private telephone networks and city, county and state government agencies.
Telident also provides these customers with a variety of emergency information
processing and management software systems.
The Company's products utilize existing Enhanced 911 ("E-911")
technology which automatically transmits both the callers telephone number and
address to the nearest emergency dispatcher or public safety answering point
("PSAP"). Currently over two-thirds of the telephone systems in the U.S. have
access to E-911 service. However, the E-911 service generally does not have the
ability to pinpoint a caller's location within a PBX system without equipment
such as that offered by the Company. Consequently, calls originating within a
PBX transmit only the main PBX telephone number and main address where the PBX
is physically located. Presently six states across the U.S. have adopted
legislation mandating the modification of PBX systems to make them fully
compatible with the E-911 system. Telident's patented systems create and manage
a sophisticated database of information to monitor 911 calls within a PBX system
and transmit the precise location, and generally the caller's name, to the PSAP
through the existing E-911 system.
The primary markets for Telident's systems and services include a wide
variety of PBX telephone system owners such as:
* Medium to Large Corporations * Colleges and Universities
* City, County and State Governments * Public Schools
* Apartment/Condominium buildings * Nursing/Retirement Homes
* Hotels and Motels * Hospitals and Clinics
According to Dataquest Incorporated, there are approximately 204,000
private telephone systems in the U.S. with approximately 58,000 of those systems
having more than 100 separate telephone lines. A January 1996 survey of the
National Emergency Number Association ("NENA") and the Association of Public
Communications Officers ("APCO") concludes that 5% of all 911 calls or
approximately eight million calls per year originate within a PBX system.
Telident is a Minnesota corporation with its executive offices located
at One Main Street S.E., Suite 85, Minneapolis, Minnesota 55414, telephone
number (612) 623-0911.
Page 4
<TABLE>
<CAPTION>
THE OFFERING
<S> <C>
Common Stock Offered By the Company........... 875,000 shares
Common Stock Offered By Selling
Shareholders............................... 125,000 shares
Common Stock to Be Outstanding After
This Offering.............................. 5,768,755 shares (1)
Use of Proceeds............................... Payment of outstanding bridge loans, redemption of Preferred Stock and
general corporate purposes.
Risk Factors.................................. Prospective investors should review carefully and consider the factors
described under "RISK FACTORS," including the Company's operating losses.
Proposed Nasdaq SmallCap Market symbol........ TLDT
</TABLE>
- --------------------
(1) Does not include (i) 1,189,215 shares reserved for issuance upon the
exercise of stock purchase warrants and options or the conversion of
the Company's outstanding convertible debentures and Preferred Stock;
(ii) an undetermined number of shares reserved for issuance upon
conversion of the Bridge Notes; and (iii) 87,500 shares subject to the
Underwriter's Warrant. See "Management - Stock Option Plan;" "Principal
and Selling Shareholders;" "Description of Securities;" "Description of
Bridge Financing;" and "Underwriting."
SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
STATEMENT OF OPERATIONS DATA:
9 MONTHS ENDED MARCH 31, YEARS ENDED JUNE 30,
------------------------ --------------------
1996 1995 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Net sales .................. $ 1,786,958 $ 1,203,398 $ 2,283,959 $ 1,191,661 $ 772,923
Cost of sales .............. 531,175 376,061 677,689 416,029 316,835
----------- ----------- ----------- ----------- -----------
Gross profit ............... 1,255,783 827,337 1,606,270 775,632 456,088
Total operating expense .... 2,119,166 1,560,195 2,148,313 2,051,954 2,071,797
----------- ----------- ----------- ----------- -----------
Loss from operations ....... (863,383) (732,858) (542,043) (1,276,322) (1,615,709)
Interest expense ........... (279,813) (261,038) (377,289) (355,427) (120,088)
----------- ----------- ----------- ----------- -----------
Net loss ................... $(1,143,196) $ (993,896) $ (919,332) $(1,631,749) $(1,735,797)
=========== =========== =========== =========== ===========
Net loss per common share .. $ (.28) $ (.30) $ (.28) $ (.52) $ (.58)
=========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding 4,256,602 3,578,510 3,630,442 3,140,901 3,037,981
=========== =========== =========== =========== ===========
</TABLE>
Page 5
BALANCE SHEET DATA:
March 31, 1996
--------------------------------------------
Actual As Adjusted (1)
---------------------
Current assets $ 1,429,785
Total assets 2,187,290
Current liabilities 1,629,161
Total liabilities 2,214,161
Accumulated deficit (8,633,720)
Shareholders' deficit (26,871)
Working capital (deficit) (199,376)
- --------------------
(1) Adjusted to give effect to the bridge financing in May 1996, the sale
of 875,000 shares offered hereby by the Company and the application of
the estimated net proceeds therefrom. See "Use of Proceeds,"
"Capitalization" and "Description of Bridge Financing."
Page 6
RISK FACTORS
An investment in the Common Stock offered hereby is highly speculative.
In addition to considering the other information set forth in this Prospectus,
prospective purchasers should carefully consider the following factors in
evaluating an investment in the Company.
OPERATING LOSSES; GOING CONCERN CONSIDERATIONS
The Company has incurred losses from operations since inception. Based
on current expense levels, the Company needs approximately $1,100,000 per
quarter in sales to break even. There can be no assurance that the Company will
be able to operate at a profit in the future. At March 31, 1996, the Company had
an accumulated deficit of $8,633,720. The independent auditor's report on the
Company's consolidated financial statements for the years ended June 30, 1995
and 1994, includes an explanatory paragraph relating to the Company's ability to
continue as a going concern.
NEED FOR ADDITIONAL CAPITAL
At March 31, 1996, the Company had a working capital deficit of
$199,376 and currently has outstanding $998,000 in 10% convertible debentures
due July 15, 1997 (the "Debentures") and $1,250,000 in bridge notes due the
earlier of 20 days after the effective date of this offering or six months after
the date of the Bridge Notes (the "Bridge Notes"). The Company has historically
supported its operations through placement of Debentures and notes and sales of
its Common Stock. The Company believes that the net proceeds of this offering
together with cash from operations will be adequate to fund the Company's
capital requirements through at least June 30, 1997. There is no assurance that
the Company will not need to obtain additional funding and, if needed, that any
such funding will be available, or, if available, that it will be available on
terms favorable to the Company and its shareholders.
DEPENDENCE ON KEY CUSTOMERS
Sales to two of the Company's customers amounted to 25% and 20% of
total product sales for the fiscal year ended June 30, 1995. These customers
also accounted for 24% and 19%, respectively, of the Company's accounts
receivable as of June 30, 1995. Similarly, in fiscal 1994, sales to two other
customers amounted to 19% and 11% of total product sales, respectively, and
accounted for 21% and 14% of the Company's accounts receivable as of June 30,
1994. In the first nine months of fiscal 1996, only one customer amounted to
more than 10% of sales and this customer amounted to 20% of total product sales
and accounted for 5% of accounts receivable as of March 31, 1996. Although this
customer has an agreement with the Company that provides for purchases of
approximately $2,400,000 during the period from April 1995 to June 1998
(approximately $650,000 of which had been purchased as of April 30, 1996), there
can be no assurance that this customer will continue to purchase the Company's
products, or as to the volume of those purchases. See "Business - Marketing;
Distribution."
QUARTERLY FLUCTUATIONS
Generally, the Company's business is not considered to be seasonal;
however, a significant percentage of the Company's sales are to value added
resellers such as companies that sell PBX equipment and not to the end users of
the Company's equipment. Although it is difficult to predict the actual impact,
the Company believes this may result in variations in quarter to quarter
operating results. The Company's quarterly operating results may fluctuate as a
result of a variety of factors, including the
Page 7
timing of orders from and shipments to customers, the length of the sales cycle,
new product introductions by the Company or its competitors, as well as due to
general economic conditions.
COLLECTION OF ACCOUNTS RECEIVABLE
As of March 31, 1996, 37% of the Company's accounts receivable were
over 180 days past due. While the Company has historically collected more than
99% of its accounts receivable, the Company's failure to collect substantially
all of its accounts receivable would adversely affect future earnings and
working capital. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Liquidity and Capital Resources."
USE OF PROCEEDS
A substantial portion of the net proceeds of this offering will be used
to pay principal and interest under the Bridge Notes issued in the bridge
financing which are not converted following this offering and redemption of
Preferred Stock. As a result, the Company will have only a portion of the
proceeds from this offering to meet its ongoing operating results and expansion
plans. The balance of the offering proceeds may be allocated to such uses as the
Company deems appropriate under the circumstances. See "Use of Proceeds" and
"Description of Bridge Financing."
DEPENDENCE ON NEW OR IMPROVED PRODUCTS; TECHNOLOGICAL CHANGES
In general, the communication products industry is subject to rapid and
significant technological changes and frequent introduction of new competitive
products. To respond to these expected changes and to improve or sustain the
marketability of its products, the Company will be required to commit
substantial investments in product improvement and development in order to
periodically enhance its existing products and successfully introduce new
products. There can be no assurance that the Company will either have the
resources required to make such investments or, assuming it has the required
resources, be able to respond adequately to changes in technology or changes in
the markets for its products. The development of new products or technologies by
other firms could have a material adverse effect on the Company's business. In
addition, to the extent that the Company seeks to develop new products, there
can be no assurance that such products will be successfully developed or, if
developed, that such products will be successfully introduced to the marketplace
and meet necessary regulatory requirements.
DEPENDENCE ON KEY PERSONNEL
The development and operation of the Company have depended and will
continue to depend on the efforts and skills of key management personnel.
Michael J. Miller, the Company's President and Chief Executive Officer, has been
instrumental to the Company's development and growth since September 1993. The
loss of his services, for any reason, would have a material adverse effect on
the Company's operations. The Company is dependent on the efforts and skills of
Mr. Miller and other key management personnel as well as its ability to attract
and retain other key employees in the future. The Company has not entered into
noncompete or employment agreements with, or purchased life insurance on, any of
its employees.
Page 8
COMPETITION
Although competition to the Company's products is presently limited,
there are many companies that provide equipment and services to the
telecommunication industries that are potential competitors of the Company.
These companies have substantially greater financial and marketing resources
than the Company. If any of these potential competitors began competing in the
E-911 business, the Company's prospects and profitability could be adversely
affected. See "Business Competition."
PRODUCT LIABILITY
The Company's business may expose it to potential liability inherent in
the manufacture of communication equipment. While the Company has $2,000,000 of
product liability insurance, there can be no assurance that this insurance will
ultimately prove adequate or that it can be maintained on an economical basis.
Product liability claims against the Company could have a material adverse
effect on the Company. The Company has never been named in a product liability
claim, and it is not aware of any threatened product liability claims.
PROTECTION OF INTELLECTUAL PROPERTY
The Company relies upon trade secrets and patents to protect its
proprietary technology. The Company requires its employees to execute
nondisclosure agreements to preserve its trade secrets. The Company's success
may depend on its ability to preserve its intellectual property and no assurance
can be given that others will not independently develop or acquire substantially
equivalent technologies or gain access to the Company's trade secrets.
Furthermore, there can be no assurance that the Company will ultimately be able
to protect meaningful rights to its trade secrets or that the scope of its
patent protection will exclude competitors or provide competitive advantages to
the Company.
SHARES ELIGIBLE FOR FUTURE SALE; REGISTRATION RIGHTS
Sales of significant amounts of Common Stock in the public market or
the perception that such sales will occur could adversely affect the market
price of the Common Stock or the future ability of the Company to raise capital
through an offering of its equity securities. Of the 5,768,755 shares of Common
Stock to be outstanding upon completion of this offering, 2,071,231 shares will
be eligible for immediate sale in the public market without restriction. In
addition, an aggregate of 3,131,842 of the outstanding shares are eligible for
immediate sale in the public market pursuant to existing effective registration
statements or Rule 144 under the Securities Act of 1933 (the "Securities Act").
Holders of 600,238 of these 3,131,842 shares of Common Stock have agreed that
they will not sell, directly or indirectly, any Common Stock without the prior
written consent of the Underwriter for a period of 180 days from the date of
this Prospectus. Certain security holders have the right, subject to certain
conditions, to participate in future Company registrations and to cause the
Company to register certain shares of Common Stock owned by them. See "Shares
Eligible for Future Sale."
BROKER-DEALER SALES OF COMPANY COMMON STOCK
The Company is currently subject to Securities and Exchange Commission
Rule l5g-9 which imposes certain sales practice requirements on brokers-dealers
who sell certain low-priced securities to persons other than established
customers. Prior to effecting transactions in the Company's Common Stock,
brokers-dealers are required to make a special suitability determination for the
purchaser and receive the purchaser's written agreement to the transaction prior
to the sale. Although the Common
Page 9
Stock is anticipated to be approved for quotation on the Nasdaq SmallCap Market,
there can be no assurance that it will remain eligible to be included on Nasdaq.
In this event, these regulations would continue to apply and many brokers may be
unwilling to engage in transactions in the Company's securities because of the
added disclosure requirements, thereby making it more difficult for purchasers
of Common Stock in this offering to dispose of their shares.
POSSIBLE DILUTIVE EFFECT OF OUTSTANDING OPTIONS, WARRANTS, CONVERTIBLE
DEBENTURES, BRIDGE NOTES AND PREFERRED STOCK
There are 1,189,215 shares of Common Stock reserved for issuance upon
the exercise of stock purchase warrants, options or the conversion of the
Debentures and Preferred Stock, at exercise or conversion prices currently
ranging from $1.00 to $6.62 per share. In addition, up to 50% of the Bridge
Notes are convertible into Common Stock within 15 days of this offering at a
price equal to 80% of the Price to Public in this offering. To the extent the
trading price of the Company's Common Stock at the time of exercise or
conversion of any such securities exceeds the exercise or conversion prices, any
such exercise or conversion will have a dilutive effect on the Company's
shareholders and could adversely affect the market price of the Company's Common
Stock.
AUTHORIZATION AND ISSUANCE OF PREFERRED STOCK
Telident is authorized to issue up to 2,500,000 shares of Preferred
Stock. The Board of Directors has the power to establish the dividend rates,
liquidation preferences, voting rights, redemption and conversion terms and
privileges with respect to any series of Preferred Stock. The issuance of any
shares of Preferred Stock having rights superior to those of Telident's Common
Stock may result in a decrease in the value or market price of the Common Stock
and could further be used by the Board as a device to prevent a change in
control of Telident. The Board's ability to issue Preferred Stock could also
deter parties from making a bid to acquire the Company and could result in
shareholders not receiving a premium for their shares. Holders of Preferred
Stock may have the right to receive dividends, certain preferences in
liquidation and conversion rights. As of March 3l, 1996, there were 200,000
shares of Series I Preferred Stock issued and outstanding. Series I Preferred
Stock has voting rights equal to the Company's Common Stock, except as may be
otherwise required by law. The Company does not have any present intention to
issue any other shares of Preferred Stock.
MARKET FOR THE COMPANY'S COMMON STOCK AND
RELATED SHAREHOLDER MATTERS
The number of record holders of the Company's Common Stock on March 31,
1996, was 294. The high and low bid prices for the Company's Common Stock as
reported by the National Quotation Bureau for the period from January 1, 1994,
are shown in the table below and have been adjusted to reflect a one-for-two
reverse stock split of the Common Stock to be effective June 4, 1996. These
quotations represent prices between dealers, and do not include retail markups,
markdowns or commissions, and may not represent actual transactions.
Page 10
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------------------------------
HIGH LOW
Bid Asked Bid Asked
--- ----- --- -----
1994
<S> <C> <C> <C> <C>
Quarter ended March 31 $ 3 1/4 $ 4 $ 2 1/2 $ 3 1/2
Quarter ended June 30 2 3/4 3 1/2 2 3
Quarter ended September 30 4 1/2 4 3/4 2 3/4 3 1/4
Quarter ended December 31 2 5/8 3 1/2 2 1/8 3
1995
Quarter ended March 31 2 2 5/8 1 5/8 2
Quarter ended June 30 4 1/2 5 1/4 3 1/2 4
Quarter ended September 30 4 1/2 5 1/2 3 1/2 4
Quarter ended December 31 9 9 3/4 3 7/8 4 1/8
1996
Quarter ended March 31 7 1/2 8 4 1/2 4 3/4
April 1 - May 15 5 7/8 6 3/8 4 7/8 5 3/8
</TABLE>
The Company has never paid a cash dividend on its Common Stock. The
payments of dividends, if any, in the future rest with the discretion of the
Board of Directors and will depend, among other things, upon the Company's
earnings, capital requirements, and financial condition.
USE OF PROCEEDS
The net proceeds to the Company from the sale of shares offered hereby
are estimated to be $_________ ($_________ if the Underwriter's over-allotment
option is exercised in full), after deducting the underwriting discount and
estimated offering expenses payable by the Company. The Company currently
intends to apply these proceeds approximately as follows:
Repayment of Bridge Notes and related interest............$1,280,000
Redemption of Preferred Stock and related dividends....... 320,000
Working capital...........................................
----------
Total............................................$
==========
PAYMENT OF BRIDGE NOTES AND INTEREST.
Approximately $1,280,000 of the net proceeds will be used to pay
principal and interest on the Bridge Notes, assuming none of the Bridge Notes
are converted into Common Stock. If some of the Bridge Notes are converted, the
net proceeds that would have been used to repay indebtedness under such Bridge
Notes will be used for general working capital purposes. The outstanding
principal and accrued interest on the Bridge Notes will be due and payable
within 20 days after the date of this Prospectus and bear interest at the rate
of 10% per annum. Up to 50% of the principal amount of the Bridge Notes are
convertible for a period of 15 days after the date of this Prospectus, at the
option of the holder thereof, into the Company's Common Stock at a conversion
price of 80% of the Price to Public. The proceeds from the Bridge Notes are
being used to market and continue development of the
Page 11
Company's products, for general working capital purposes and to repay
approximately $100,000 of indebtedness. See "Description of Bridge Financing."
REDEMPTION OF PREFERRED STOCK.
On June 30, 1994, Willis K. Drake, Richard L. Hencley and Warren S.
Tyler, directors of the Company, were issued a combined total of 250,000 voting
shares of Series I Convertible Preferred Stock ("Preferred Stock") at $4.00 per
share. The proceeds of the issuance of the Preferred Stock were utilized to pay
off an existing bank line of credit. While the Company is not required to do so,
the Company commenced redeeming shares of the Preferred Stock on May 31, 1995.
It is the Company's intent to redeem approximately 62,500 additional shares of
the Preferred Stock by June 30, 1997, and it expects, therefore, to use
approximately $320,000 of the net proceeds of this offering to redeem such
Preferred Stock and pay related dividends on the Preferred Stock. In the event
that the Company should determine not to redeem the Preferred Stock, the net
proceeds that would have been used to redeem the Preferred Stock will be used
for general working capital purposes. See "Description of Securities --
Preferred Stock."
WORKING CAPITAL.
Approximately $_________ of the net proceeds will be used for general
working capital purposes, including purchases of inventory, the payment of
salaries, and general and administrative activities. A significant portion of
the Company's sales are to companies that resell the Company's equipment in
conjunction with PBX equipment sold by such companies. In order to comply with
the expectations of its customers, Telident is required to maintain sufficient
inventories of raw materials and finished goods to enable it to fill orders
within a relatively short period of time. The Company expects, therefore, to
commit an increasing amount of its working capital to inventory purchases.
Pending the use of the net proceeds, the Company intends to invest such
funds in interest-bearing money market funds, short-term certificates of deposit
and United States governmental obligations. The described use of proceeds is
based upon management's assumptions concerning certain marketing, selling,
development, financial and other matters which may affect the Company in the
future. Proceeds from the sale of any shares pursuant to any exercise of the
Underwriter's over-allotment option will be used for general working capital
purposes.
Page 12
CAPITALIZATION
The following table sets forth the (i) unaudited short-term debt and
capitalization of the Company as of March 3l, 1996, (ii) pro forma short-term
debt and capitalization of the Company at March 31, 1996, as adjusted to give
effect to the issuance of the Bridge Notes, the payment of Debentures and
related interest with a portion of the net proceeds thereof, and the conversion
or extension of Debentures, and (iii) pro forma short-term debt and
capitalization of the Company at March 31, 1996, as further adjusted to reflect
the sale of the shares of Common Stock offered hereby and the application of net
proceeds therefrom (including the payment of all Bridge Notes):
<TABLE>
<CAPTION>
MARCH 31, 1996
--------------------------------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------------------- ------------------- -------------------
<S> <C> <C> <C>
SHORT-TERM DEBT:
Current liabilities (other than Debenture
principal) $ 666,161 $ 620,377 $ 620,377
Debentures payable (not including interest) (1) 963,000 -- --
Bridge Notes -- 1,250,000 --
--------------- -------------- --------------
Total short-term debt $ 1,629,161 $ 1,870,377 $ 620,377
=============== ============== ==============
LONG-TERM DEBT:
Debentures payable $ 585,000 $ 998,000 $ 998,000
--------------- -------------- --------------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred Stock, .02 par value; 2,500,000 shares
authorized;
200,000 shares outstanding; 137,500
shares pro forma as adjusted (2) $ 4,000 $ 4,000 $ 2,750
Common Stock, $.02 par value;
10,000,000 shares authorized;
4,727,089 shares issued and outstanding;
4,893,755 shares pro forma; and 5,768,755
shares pro forma as adjusted (1)(2)(3) 94,542 97,876 115,376
Additional paid-in capital 8,508,307 9,004,973 --
Accumulated deficit (8,633,720) (8,633,720) (8,633,720)
---------------- -------------- --------------
Total shareholders' equity (deficit) (26,871) 473,129 --
---------------- -------------- -------------
Total capitalization $ 558,129 $ 1,471,129 $ --
================ ============== ==============
</TABLE>
- --------------------
(1) The holders of the Debentures which were originally due on May l, 1996, were
given the option of either converting their Debentures into Common Stock at a
reduced conversion rate of $3.00 per share or extending the due date thereof to
July 15, 1997, in lieu of having them paid at May l, 1996. Those Debenture
holders who elected to extend the due date of their Debentures were granted a
warrant to purchase one share of Common Stock at $4.00 per share for each $8.00
principal amount of Debentures extended. The Warrants expire on July 15, 1997.
Holders of $500,000 principal amount of these Debentures elected to convert
their Debentures, holders of $413,000 principal amount agreed to extend the due
date of their Debentures and $50,000 principal amount of these Debentures were
redeemed. See "Certain Transactions."
(2) Adjusted to reflect a one-for-two reserve stock split of the Common Stock
and Preferred Stock to be effective June 4, 1996.
Page 13
(3) Excludes an aggregate of _________ shares of Common Stock issuable in
connection with outstanding options, warrants Debentures and Preferred Stock,
including 51,625 and 125,000 shares of Common Stock issuable upon exercise of
warrants issued in connection with the extension of the Debentures and the
Bridge Financing, respectively, an undetermined number of shares issuable upon
conversion of the Bridge Notes and 87,500 shares subject to the Underwriter's
Warrant. See "Management - Stock Option Plan"; "Principal and Selling
Shareholders"; "Description of Securities"; "Description of Bridge Financing";
and "Underwriting" for additional information regarding options and warrants.
PRO FORMA FINANCIAL STATEMENTS
On November 22, 1994, Telident acquired through a wholly-owned
subsidiary 100% of the common stock of Cantus Corporation. The total purchase
price was $316,000 and consisted of 210,525 shares of Telident Common Stock and
warrants representing the right to purchase 122,808 shares of Telident Common
Stock at an exercise price of $4.00 per share in exchange for $287,000 of
property and equipment, net of $474,000 of liabilities assumed.
Telident accounted for the acquisition under the purchase method
whereby the assets and liabilities of Cantus were recorded at their fair market
value as of the date of acquisition as estimated by management which
approximated net book value. The $503,000 excess purchase price over the fair
market value of tangible assets and liabilities acquired has been recorded as
goodwill.
Summarized below are the unaudited pro forma results of operations for
the year ended June 30, 1995, as if the Cantus acquisition had taken place at
the beginning of the year. All adjustments, which in the opinion of management,
are necessary for a fair pro forma presentation have been made in the following
pro forma consolidated financial statements. These financial statements are
intended to present consolidated results of operations for the period presented.
Had the acquisition actually taken place at the beginning of the period,
operating results may have differed from the pro forma results posted below and
accordingly, the pro forma results are not intended to be indicative of future
results.
<TABLE>
<CAPTION>
Historical
----------
Pro Forma
Telident Cantus(1) Adjustments Pro Forma
------------------ ----------- ---------
<S> <C> <C> <C> <C> <C>
Net sales $ 2,283,959 $ 148,173 $ (40,000)(2) $ 2,392,132
Cost of sales 677,689 59,676 (20,000)(2) 717,365
------------- ------------- -------------- -------------
Gross profit 1,606,270 88,497 (20,000) 1,674,767
------------- ------------- -------------- -------------
Operating expenses:
Sales and marketing 738,919 47,215 786,134
Research and development 479,475 40,889 520,364
General and administrative 929,919 42,833 26,000(3) 998,752
------------- ------------- ------------- -------------
Total operating expenses 2,148,313 130,937 26,000 2,305,250
------------- -------------- ------------- -------------
Loss from operations (542,043) (42,440) (46,000) (630,483)
Interest expense (377,289) (58,984) 50,000(4) (386,273)
-------------- -------------- ------------- --------------
Net loss $ (919,332) $ (101,424) $ 4,000 $ (1,016,756)
============== ============== ============= ==============
Net loss per share, primary and fully
diluted (5) $ (.28) $ (.02) $ 0.00 $ (.30)
============= ============= ============= =============
Weighted average number of common shares
outstanding(5) 3,630,442 5,195,651 (5,112,822)(6) 3,713,271
============= ============= ============== =============
</TABLE>
The following notes summarize the pro forma adjustments enumerated in
the unaudited pro forma financial information presented:
(1) For the period July 1, 1994 to November 22, 1994.
(2) Represents the elimination of sale of product by Telident to Cantus.
Page 14
(3) Represents the amortization of the excess purchase price, assuming the
purchase had occurred at the beginning of the period.
(4) Represents the elimination of interest expense on Cantus shareholder
debt, assuming the conversion of the Cantus shareholder debt to Cantus
common stock had occurred at the beginning of the period.
(5) Telident's net loss per share and weighted average number of shares
have been adjusted to reflect the one-for-two reverse stock split, to
be effective June 4, 1996.
(6) Represents the adjustment in the weighted average number of shares,
assuming the 210,525 shares of Common Stock had been issued at the
beginning of the period.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following table sets forth certain items from the statements of
operations for the nine-month periods ended March 31, 1996 and 1995, expressed
as: (i) percentages of net sales and (ii) percentage changes between periods.
<TABLE>
<CAPTION>
Nine months ended Percentage
March 31, Increase (Decrease)
------------------------------- -------------------
1996 1995
---- ----
<S> <C> <C> <C>
Net sales 100% 100% 48.5%
Cost of sales 29.7 31.2 41.2
----- -----
Gross profit 70.3 68.8 51.8
----- -----
Operating expenses:
Sales and marketing 35.4 43.0 22.1
Research and development 42.8 32.6 95.4
General and administrative 40.4 54.1 10.9
----- -----
Total operating expenses 118.6 129.7 35.8
----- -----
Loss from operations (48.3) (60.9) 17.8
Interest expense - net 15.7 21.7 7.2
----- -----
Net loss (64.0%) (82.6%) 15.0
======= =======
</TABLE>
NINE MONTHS ENDED MARCH 31, 1996 COMPARED TO NINE MONTHS ENDED MARCH 31, 1995
Revenues for the nine-month period of fiscal 1996 were $1,786,958
compared to $1,203,398 for the similar 1995 period, an increase of 48.5%.
Station Translation System ("STS") product sales accounted for 72.5% of the
sales in the 1996 nine-month period compared to 77.2% in the 1995 period. The
Company acquired Cantus Corporation in November 1994. Revenues attributable to
this acquisition during the nine-month period of fiscal 1996 amounted to 16.9%
of sales compared to 13.8% in the 1995 period. The Company's other products,
including the ANI Control System ("ACS") and the Network Control System ("NCS"),
collectively accounted for 10.6% of sales in the 1996 period compared to 9.0% of
sales in the 1995 period. The increase in total revenues for the 1996 nine-month
period was attributable to the increase in unit sales of the STS products
through Private Branch Exchange ("PBX") manufacturers and value-added resellers
and the contribution from the Cantus acquisition. At March 31, 1996, the Company
had a backlog of orders of two ACS units and thirty-seven STS units
(approximately $478,000 of revenues), which are expected to be shipped in the
fourth quarter of fiscal 1996.
Cost of sales, as a percentage of net sales, were 29.7% in the 1996
period compared to 31.2% for the 1995 period. Gross margin increased to 70.3%
for the 1996 period compared to 68.8% for the 1995 period due primarily to the
lower costs associated with volume purchasing.
Page 15
Total operating expenses increased $558,971 in the 1996 period compared
to the 1995 period. Sales and marketing expenses increased $114,188 in the 1996
period compared to the 1995 period. This increase was due to the addition of
three sales offices in Atlanta, San Francisco and Los Angeles, three sales
personnel and increased marketing materials.
Research and development expenses increased $373,715 in the 1996 period
compared to the 1995 period, due to the addition of a Vice President of
Operations, three software programmers (two as a result of the Cantus
acquisition), three engineers and the increased use of software consultants.
General and administrative expenses for the 1996 period increased
$71,068 compared to the similar 1995 period, due primarily to the amortization
of goodwill related to the Cantus acquisition.
Interest expense, net of interest income, increased $18,775 in the 1996
period compared to the 1995 period. The increase is due to the additional
borrowings required to fund the Company's operations. During the second quarter
of fiscal 1996, $684,000 of notes payable were converted into shares of the
Company's Common Stock, resulting in a decrease of $42,894 in interest expense
during the third quarter of fiscal 1996 compared to the third quarter of fiscal
1995. The Company expects to incur an interest charge of approximately $65,000
in the fourth quarter of fiscal 1996 in connection with the conversion of
Debentures at a reduced conversion price.
FISCAL YEAR COMPARISONS
The following table sets forth certain items in the statements of
operations expressed as (i) percentages of net sales for the years indicated and
(ii) percentage changes from the prior year:
<TABLE>
<CAPTION>
Percentage Increase
Fiscal Year Ended June 30, (Decrease)
------------------------------------------ ---------------------------------
1995 1994
1995 1994 1993 Over 1994 Over 1993
---- ---- ---- --------- ---------
<S> <C> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 91.7% 54.2%
Cost of sales 29.7 34.9 41.0 62.9 31.3
---- ---- ----
Gross profit 70.3 65.1 59.0 107.1 70.1
---- ---- ----
Operating expenses:
Sales and marketing 32.3 59.7 105.6 3.9 (12.9)
Research and development 21.0 54.0 90.5 (25.5) (8.0)
General and administrative
expenses 40.7 58.5 71.9 33.2 25.5
----- ----- ------
Total operating expenses 94.0 172.2 268.0 4.7 (1.0)
----- ------ ------
Loss from operations (23.7) (107.1) (209.0) (57.5) (21.0)
Interest expense, net 16.5 29.8 15.5 6.2 196.0
----- ------ ------
Net loss (40.2%) (136.9%) (224.5%) (43.7) (6.0)
======= ======== ========
</TABLE>
FISCAL 1995 COMPARED TO 1994.
The Company generated net sales in fiscal 1995 of $2,283,959 compared
with $1,191,661 for fiscal 1994, an increase of 91.7%. The increase in sales was
attributable to an increase in the volume of units sold,
Page 16
primarily through PBX manufacturers and value added resellers and the Cantus
acquisition. The STS products accounted for 73% of revenue in 1995 and 49% of
revenues in 1994. Fiscal 1995 revenues attributable to the acquisition of Cantus
Corporation in November of 1994 amounted to $414,288, or 18% of revenue for the
1995 period. The Company's other products, including the ACS and NCS accounted
for 9% of revenue in fiscal 1995 compared to 51% in fiscal 1994.
Cost of sales increased from $416,029 in fiscal 1994 to $677,689 during
fiscal 1995, or a 62.9% increase. This was primarily attributable to the
increase in sales. Gross profit increased to 70.3% of sales in fiscal 1995 from
65.1% in 1994 due to the higher percentage of sales of the STS product, which
has a higher profit margin than ACS and NCS products. In addition, the Company
has been able to lower costs through increased volume purchasing.
Operating expenses increased from $2,051,957 in fiscal 1994 to
$2,148,313 during fiscal 1995, an increase of $96,356 or 4.7%. Sales and
marketing expenses increased $28,064 in fiscal 1995, a 3.9% increase, due
primarily to additional commission expenses and the opening of a regional sales
office in Texas.
Research and development expenses decreased by $163,777 in fiscal 1995,
a 25.5% decrease, due to a reduction in the use of engineering consultants.
General and administrative expenses for fiscal 1995 increased $232,072 compared
to fiscal 1994, a 33.2% increase. The increase in administrative expenses is
comprised primarily of goodwill amortization from the Cantus acquisition
($76,000), miscellaneous ($47,000), legal and accounting fees ($28,000),
increases in administrative salaries ($26,000), board of director fees
($20,000), additional depreciation from new purchases ($15,000), increased rent
($10,000) and increased insurance premiums ($10,000).
Net interest expense increased in 1995 by $21,862 due to higher average
borrowings required to fund operations, as a result of continuing operating
losses.
FISCAL 1994 COMPARED TO 1993.
The Company generated net sales in fiscal 1994 of $1,191,661 compared
with $772,923 for fiscal 1993, an increase of 54%. While there was a slight
price increase during the year, the increase in sales was attributable to an
increase in the volume of units sold. The STS product accounted for 49% of the
sales in fiscal 1994 and 44% of the sales in fiscal 1993. All other sales in
1994 and 1993 consisted of the NCS and ACS products.
Cost of sales increased to $416,029 during fiscal 1994, from $316,835
in fiscal 1993 or a 31.3% increase. This was primarily attributable to the
increase in sales. Gross profit increased to 65.1% in fiscal 1994 from 59.0% in
1993 due to the higher percentage of sales of the STS product, which has a
higher profit margin than NCS and ACS products.
Operating expenses decreased to $2,051,954 during fiscal 1994, from
$2,071,797 in fiscal 1993 a decrease of $19,843 or 1.0%. Sales and marketing
expenses decreased $105,411 in fiscal 1994, a 12.9% decrease, due primarily to a
reduction in international sales and marketing activities.
Research and development expenses decreased by $56,184 in fiscal 1994,
an 8.0% decrease, due to a reduction in the use of engineering consultants.
General and administrative expenses for fiscal 1994 increased $141,752 compared
to fiscal 1993, a 25.5% increase. The increase in administrative expenses
relates primarily to new management personnel and increased travel expenses. In
fiscal 1994, the
Page 17
Company enhanced its management capabilities by hiring a President and Vice
President experienced in the telecommunications industry, in order to facilitate
the marketing and sales of its products.
Net interest expense increased in 1994 by $235,339 due to higher
average borrowings required to find its operations, as a result of its operating
losses.
INFLATION
Inflation has not had a material impact on the Company's net sales or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At March 31, 1996 the Company had cash of $150,765 and accounts
receivable of approximately $570,000. For the period ended March 31, 1996, net
cash used in the Company's operating activities was approximately $999,000,
consisting primarily of the Company's loss from operations ($1,143,000), an
increase in inventories ($197,000) and a reduction of trade accounts payable and
accrued expenses ($435,000), offset by a decrease in accounts receivable
($670,000). The Company invested approximately $185,000 in additional office
equipment and computers for the period ended March 31, 1996 in anticipation of
the expansion of both its sales offices and its operational facilities. Funds
required to finance the Company's operations, investments and payments of debt
during the first nine months of fiscal 1996, were provided by the sale of
689,705 shares of its Common Stock, resulting in net proceeds of $2,236,139. In
addition, $699,580 of notes payable (including $50,000 held by a director of the
Company) were converted into Common Stock at $3.00 to $4.00 per share, resulting
in the issuance of 209,068 shares. In February 1995, the Company obtained a
revolving line of credit with a bank providing advances up to $750,000. Advances
under the agreement are limited to 75% of eligible receivables ($254,117 at
March 31, 1996). The loan agreement also contains provisions requiring
compliance with certain financial covenants. The line of credit agreement was
renewed on February 3, 1996, and will expire on February 3, 1997, when all
outstanding amounts are due and payable. The agreement bears interest at the
bank's prime rate plus 7.5%. The note is secured by all of the Company's assets.
The Company has relied on debt and equity capital to fund its operating losses
during the first nine months of fiscal 1996 and prior periods.
As of March 31, 1996, 37% of the Company's accounts receivable were
over 180 days past due. The Company generally has not had difficulty collecting
its accounts receivable, historically collecting more than 99% of its
receivables. Failure to collect substantially all of the Company's accounts
receivable would adversely affect future earnings and working capital.
In May 1996, the Company raised $1,160,000, after payment of related
expenses, in the Bridge Financing, which consisted of Bridge Notes and Bridge
Warrants. See "Description of Bridge Financing."
Based on projected revenues and expenses, the Company believes that the
net proceeds of this offering together with cash from operations will be
adequate to fund the Company's working capital requirements through at least
June 30, 1997. However, current working capital levels are not adequate to
enable the Company to fund its operations, pay outstanding obligations or to
cover a decrease in projected revenues in the event that the Company's sales are
less than anticipated. There can be no assurance that additional funds will be
available, or, if available, available on terms acceptable to the Company. At
March 31, 1996, the Company had an accumulated deficit of $8,633,720 and a
shareholders' deficit of $26,871. The Company has no material commitments for
capital expenditures.
Page 18
RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB has issued Statement No. 121 (SFAS 121), Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.
This statement is effective for the Company's year ending June 30, 1997. SFAS
121 requires recognition of impairment of long-lived assets in the event the net
book value of such assets exceeds the future undiscounted cash flows
attributable to such assets. The Company does not expect the application of SFAS
121 to have a material affect on its financial statements for fiscal 1997.
In addition, the FASB has issued Statement No. 123 (SFAS 123),
Accounting for Stock-Based Compensation. This statement is effective for the
Company's year ending June 30, 1996. SFAS 123 establishes a fair value-based
method of accounting for stock-based compensation plans and encourages, but does
not require, entities to adopt that method in place of APB Opinion No. 25,
Accounting for Stock Issued to Employees, which uses an intrinsic value-based
accounting method. The Company does not intend to adopt SFAS 123 in measuring
expenses. However, the Company must present pro forma net income (loss) and
related per share amounts as if SFAS 123 had been adopted, and such pro forma
amounts are expected to reflect higher amounts of expenses than amounts reported
in the financial statements.
Page 19
BUSINESS
INTRODUCTION
Telident designs, manufactures and markets proprietary hardware and
software systems which provide the exact location of a 911 telephone call to the
emergency dispatcher who receives the call. The Company's systems provide
information which can speed the response time to a 911 call, reduce the costs
associated with responses to incorrect locations and improve the safety of
individuals within a private branch exchange ("PBX") telephone system. In
addition, the Company manufactures and markets network hardware that provides
switching, selective routing and data interfacing capabilities to public and
private telephone networks and city, county and state government agencies.
Telident also provides these customers with a variety of emergency information
processing and management software systems.
The Company's products utilize existing Enhanced 911 ("E-911")
technology which automatically transmits both the callers telephone number and
address to the nearest emergency dispatcher or public safety answering point
("PSAP"). Currently over two-thirds of the telephone systems in the U.S. have
access to E-911 service. However, the E-911 service generally does not have the
ability to pinpoint a caller's location within a PBX system without equipment
such as that offered by the Company. Consequently, calls originating within a
PBX transmit only the main PBX telephone number and main address where the PBX
is physically located. Presently six states across the U.S. have adopted
legislation mandating the modification of PBX systems to make them fully
compatible with the E-911 system. Telident's patented systems create and manage
a sophisticated database of information to monitor 911 calls within a PBX system
and transmit the precise location, and generally the caller's name, to the PSAP
through the existing E-911 system.
MARKET OVERVIEW
The development of the emergency response telephone network, 911, began
in the late 1960's under the direction of AT&T in conjunction with Bell Labs.
The 911 network was designed using the fundamental theory that each caller could
be identified by the specific pair of wires connecting the caller with the
telephone company. This design theory mirrored the long distance routing network
that AT&T had previously developed. This design theory has created the 911
incompatibility problem that exists with PBX systems today. PBX systems share
multiple connections (pairs of wires), and the ability to pinpoint the caller
behind a business telephone system is lost to the network. The designers of the
Enhanced 911 network may not have envisioned the popularity and deployment of
PBX systems in the United States. Throughout the 1970's, 911 systems were
deployed with voice transmission only. In response to public demand for more
precise information as to the callers location, development of the Enhanced 911
network began in the early 1980's. However, widespread use of PBX systems did
not begin until after the breakup of AT&T in 1983.
According to Dataquest, Inc. it is estimated that there are
approximately 204,000 private telephone systems installed in the United States
today. The line size composition of the installed base of the private business
telephone system is illustrated as follows:
Page 20
NUMBER OF LINES
PER NUMBER OF
PRIVATE TELEPHONE INSTALLED BASE MARKET
SYSTEM SYSTEMS SHARE
------ ------- -----
1 - 8 7,300 3.6%
9 - 24 8,700 4.3%
25 - 48 50,000 24.4%
49 - 100 80,700 39.4%
101 - 400 48,800 23.8%
401 - 1000 6,100 3.0%
1000+ 3,100 1.5%
------------------- ------------
204,700 100.0%
Generally, the greater number of lines found within the PBX, the more likely the
occurrence of a 911 event. The Company believes that systems greater than 100
lines are the best prospects for the Telident STS product. This market segment
represents approximately 28% of the installed base of systems or approximately
58,000 systems. Factors other than line size affecting a buying decision
include, the application of the system (i.e. residential facilities, multiple
floors, multiple buildings) and the presence of detached workgroups. Detached
workgroups are departments within the company that use the private business
telephone service that are physically located apart from the main location.
The target market for Telident's NCS and ACS products are counties and
cities that have basic 911 (voice only) or no 911 capability. Telident believes
that these characteristics are most commonly found in counties with populations
of less than one million and cities with populations of less than one hundred
thousand.
STRATEGY
The Company was formed in 1983 to develop and market electronic
equipment for the telephone communications industry. Between 1983-85, Telident
developed the Status Recognition Unit System I (the "SRU1"), a system which
permits operating telephone companies to increase dedicated phone services
capabilities. Based on a review of the market for the SRU1, Telident determined
that there was a significant market opportunity for products, based on the
technology of the SRU1, which could expand the capabilities, safety and
reliability of emergency 911 service systems. Since 1989, the Company's goal has
been to become a leading designer of systems which enable precise identification
of the location of 911 callers within a PBX system and state-of-the-art hardware
and software for the 911 public safety market.
To achieve this goal, the Company provides its customers with a total
E-911 solution, providing the hardware, software and service components to meet
their emergency 911 information needs. For example, the Company provides PBX
users: (i) equipment (the STS) required to enable the PBX to be
Page 21
compatible with E-911 service; (ii) software and services, ShadowMAXTM and
the ALI Service Bureau, which enable PBX users to maintain the required
database; and (iii) additional products, such as the TraxOSNTM software which
expands the capabilities of a PBX system utilizing the STS so that it
automatically provides the precise location of the caller within the network to
both the appropriate PSAP and to on-site personnel, such as security guards.
To distribute its products, Telident's strategy is to develop national
distribution capabilities designed to provide sales support for its E-911
products and services and future products as they may be developed or acquired
and to develop distribution relationships with major distributors of PBX
equipment and services and telephone companies. The Company currently has
offices in Minneapolis, Minnesota; Chicago, Illinois, Dallas, Texas; Atlanta,
Georgia, and San Francisco and Los Angeles, California. Telident has
distribution agreements with Fujitsu Business Communications Systems, Ericsson
GE Mobile Communications, Inc., Siemens-Rolm, Intecom and Sprint/United
Telephone and has joint marketing agreements with Pacific Bell and BellSouth.
PRODUCTS
911 STS (STATION TRANSLATION SYSTEM)
The 911 STS is a product designed for use with PBX systems. A PBX is a
switching center maintained by an organization, such as an apartment complex,
university, office building or government office complex, where calls to and
from phone locations are routed to their destination. The 911 STS is designed to
provide for the automatic identification for 911 purposes of the location of all
callers within the PBX area. The STS provides automatic identification to the
PSAP of the location of the caller within a PBX system. The Company has
satisfactorily tested the compatibility of the STS with the PBX equipment of
nine manufacturers, who account for over 90% of domestic PBX sales. Over 600 STS
units have been sold in a total of 32 states and one province in Canada.
Suggested retail price of a system is between $11,000 and $25,000.
The Company has developed a software program to enhance the 911 STS,
called Trax OSN(TM). With Trax OSN, the STS will provide automatic
identification to the PSAP of the location of the caller within a PBX system and
simultaneously will provide "on-site notification" of the call to a location
within the organization, such as a security desk. To date, the Company has sold
more than 25 Trax OSN systems. Suggested retail price of this software is $3,500
per system.
In 1995 Telident, in conjunction with Unimax Systems Corporation,
introduced a new database maintenance product for Windows, called ShadowMAX(TM).
ShadowMAX eases the process of database updates by looking at daily changes and
comparing them to the previous day's database. This process generates a list of
transactions which are packaged and sent to the ALI (Automatic Location
Identification) database and STS database for updates. To date, the Company has
sold more than 25 ShadowMAX systems. Suggested retail price of this software is
approximately $5,000 per system.
The Company also offers a service called ALI Service Bureau, whereby
Telident establishes and maintains the database required for a PBX user to
provide E-911 service utilizing the STS. The Company is currently providing this
service to more than 25 customers who pay set-up and monthly maintenance fees
based on the size and complexity of the database.
Page 22
911 NCS (NETWORK CONTROL SYSTEM)
During 1989, Telident began development of the 911 NCS. The NCS is a
microprocessor-based unit that selectively routes a 911 call originated from any
station in the 911 service area to the correct PSAP designated to serve the
originating station. Because NCS units can be distributed throughout the
telephone network, Telident believes trunking costs can be minimized for the
telephone operating company and Enhanced 911 service which is often taken for
granted in large metropolitan areas may more readily be made available to rural
America.
Today, the 911 selective routing function generally is accomplished
within switch equipment which is not dedicated to 911 and which is typically
located in large metropolitan areas. Enhanced 911 service to rural America is
difficult to provide due to the network trunking routes from the rural area to
the selective router (the switch equipment) and back. In rural areas, the
Company believes the lower cost of the NCS compared to the cost of software
upgrades for central switches or installing new digital central office switches,
and the ability to reduce trunking cost by distributing the selective router
(the NCS) throughout the network should enable rural telcos (telephone
companies) to expand E-911 services to all of their customers.
The NCS may also be used to enable central office switches to interface
with one another in order to direct 911 calls from one central switch area to
another while maintaining the ability to automatically identify the address or
location of the caller for the PSAP operator. The Telident NCS is compatible
with both the central office switch equipment and the PSAP equipment generally
in place today. The NCS has been designed to accommodate future enhancements
within the 911 network. There are 31 NCS units in operation providing E-911
service to over two million people in 41 counties.
The basic NCS system, which sells for approximately $45,000, is
comprised of 16 input trunk interface circuits and 8 output trunk interface
circuits. Equipment prices do not include special applications software and do
not include installation. The system is expandable through modules of one
circuit increments. The Company has expanded the port capacity of the basic 16
input x 8 output NCS to an optional size of 32 input x 15 output for larger
systems.
911 ACS (ANI CONTROL SYSTEM)
The ACS, or ANI Control System, located at the PSAP, will take an
incoming 911 call and deliver the voice portion of the call to the PSAP
operator's telephone and the telephone signaling portion (which contains the
incoming caller's telephone number) to a database where the caller's location
can be obtained and relayed to the PSAP operator. The Company currently has 57
units in operation. Suggested retail price of a basic 911 ACS is between $5,000
and $10,000.
PUBLIC SAFETY ANSWERING POINT SOFTWARE
The Company designs, develops and provides PSAP systems and solutions
for the 911 environment and Computer Aided Dispatch software to improve the
efficiency of the entire dispatch operation. In addition, the Company has
developed video imaging software and systems. To date, the Company has sold more
than 150 packages of such software. Suggested retail price for these software
packages is between $15,000 and $50,000.
Page 23
BUSINESS ACQUISITION
In fiscal 1994, Telident decided to expand its focus from a product
company to a solution company, selling not only hardware, but software and
service components to meet the emergency information needs of its growing
customer base. By offering a total solution approach, Telident has positioned
itself as a leader in providing 911 solutions to the marketplace. To enhance its
software capabilities, Telident acquired Cantus Corporation, a software
development company, during November 1994, and integrated Cantus's 911 software
products into Telident's product lines. At the time of the acquisition, Cantus's
assets totaled $275,000, including approximately $112,000 of accounts
receivable, $60,000 in work in progress, $41,000 in inventory and $47,000 in bid
deposits. Telident also acquired Cantus's proprietary software products. For
additional information regarding the terms of this acquisition, see Note 10 of
the Notes to Consolidated Financial Statements for the year ended June 30, 1995.
MARKETING; DISTRIBUTION
The Company markets its 911 products through distribution agreements
with major PBX manufacturers; PBX distributors; local, state and national public
safety agencies; service providers, including certain of the regional Bell
operating companies and major independent telcos; major telephone equipment
manufacturers; and manufacturers' representatives. Potential customers for these
products include the PBX manufacturers, public service agencies, colleges and
universities, businesses with multi-story or multi-building facilities, regional
Bell operating companies, the military, computer-aided dispatch manufacturers,
system integrators, independent telcos, telco consulting and engineering firms,
government agencies, and telephone switch manufacturers. To date, the Company
has sold approximately 700 units nationwide through distributors or directly.
End users of the Company's products include:
* Aegon, USA * Mercer Island, Washington
* Arizona State University School District
* City of Aurora, Colorado * City of Minneapolis, Minnesota
* Bloomington, Minnesota * North Memorial Medical Center,
School District Minneapolis, Minnesota
* Ecolab, Inc. * Sun City West, Arizona
* Eddie Bauer * Telluride Ski Resort
* GE-Rescom * City of Tempe, Arizona
* Keystone Ski Resort * Texas A&M University
* Mare Island Navel Yard, California * University of British Columbia
A knowledge of existing telephone system central office switching
equipment and operations is required in the development of applications for the
Company's products. Therefore, the Company's sales persons need technical
support from senior application engineers to properly evaluate customer
requirements. As of March 31, 1996, the Company employed a Vice President of
Sales and Marketing, and eight sales personnel, all of whom have had significant
prior employment experience in the telephone industry.
E-911 regulatory issues, such as the actions of the Federal
Communications Commission (FCC), and the Public Utilities Commission (PUC) in
the 50 states and other various state legislatures affect potential markets for
the Company's products, particularly its NCS and STS products. For example,
Colorado, Texas, Illinois, Vermont, Washington and Mississippi have passed state
laws mandating (to various degrees) the modification of PBX systems to make them
fully compatible with the E-911 system. These actions favorably impact the
market for the STS product. Similarly, in September 1994, the FCC issued a
Notice of Proposed Rule Making (the publication for comment of a rule the FCC
intends to promulgate), the original comment period for which ended in March
1995, which, if implemented, could mandate that every new PBX sold nationwide
and certain existing PBX's comply with E-911 system requirements.
Page 25
The market for the NCS product is sensitive to the structure of
telephone company tariffs (rates approved by state agencies) for E-911 services,
which vary from state to state. It is also sensitive to various state funding
mechanisms for E-911 services. There are 15 states where payment for E-911
network services are at the county level. Counties usually experience a
significant financial advantage by purchasing the NCS. Therefore, NCS marketing
will continue to concentrate on those states where the tariff and funding
mechanisms are more favorable.
The Company has made significant efforts to develop marketing
relationships with, and is selling products to, major telephone companies as
well as the principal PBX manufacturers. The Company has currently signed
distribution agreements with Fujitsu Business Communications Systems, Ericsson
GE Mobile Communications, Inc., Siemens-Rolm, Intecom, and Sprint/United
Telephone. The Company also has joint marketing agreements with Pacific Bell and
BellSouth. The Company's distributors generally provide service for the
Company's equipment which they sell. The Company intends to continue to further
develop these and other distribution relationships.
Fujitsu Business Communications Systems of Anaheim, California, a
leading supplier of private business telephone systems throughout the world,
with sales offices in most major cities in the United States, has an agreement
with the Company that provides for the purchase of 600 STS units for
approximately $2,400,000 between April 1995 and June 1998 (approximately
$650,000 of which had been purchased as of April 30, 1996). The Ericsson GE
Mobile Communication, Inc., Siemens-Rolm, Intecom and Sprint Local
Telecommunication Division agreements do not require any minimum purchases.
The Company provides product sales and service literature, conducts
direct mailings and engages in an active public relations campaign to generate
public and buyer awareness of its products, in order to help pull sales through
the PBX suppliers. A network of sales branch offices is being developed in high
potential markets where PBX suppliers have a strong presence. The Company
currently has offices in Minneapolis, Minnesota, Chicago, Illinois, Dallas,
Texas, Atlanta, Georgia and San Francisco and Los Angeles, California and has an
agreement with an independent manufacturers' representative whose territory
covers Oregon and Washington.
Net sales to Fujitsu Business Communications accounted for 20% of total
sales in the first nine months of fiscal 1996. Net sales in fiscal 1995 to
Digital Techniques, Inc. and Fujitsu Business Communications amounted to 25% and
20%, respectively, of total product sales. Net sales in fiscal 1994 to
Emergitech, Inc. and 9-1-1 Systems, Inc. amounted to 19% and 11%, respectively,
of total product sales. The loss of Fujitsu Business Communications could have a
material adverse affect on the Company's business.
PRODUCT DEVELOPMENT
The Company maintains an engineering department to design and develop
new products for the telephone industry and to support developments of new
application software to broaden applications of its products. As of March 31,
1996, the Company employed Vice Presidents of Advanced Engineering, Product
Management and Operations, a materials manager, two electrical engineers, three
manufacturing technicians and two software programmers. During the nine months
ended March 31, 1996 and fiscal 1995 and 1994, the Company spent $765,527,
$479,475 and $643,252, respectively, on Company sponsored research and product
development.
Page 25
As applications are developed for the product lines, new operating
specifications for these applications will require the Company to design new
interface boards. In addition, each application will require that a set of
computer software be developed to satisfy that specific application. Portions of
these programs are expected to form a library which can be used in a number of
applications.
MANUFACTURING
Telident conducts final assembly and testing along with receiving and
shipping of its products. The Company subcontracts all of its equipment
subassembly fabrication to local manufacturers and assembly houses who are
equipped and qualified to perform this work and produce high quality printed
circuit board assembly products. The Company is not dependent on any one of its
subcontractors. The component electronic parts required for assembly of the
Company's products are available from a number of different sources. Due to
anticipated future growth, the Company is currently considering a turnkey
assembly for cost-effective and efficient deliveries of product.
COMPETITION
The Company is aware of one competitor, which markets a product which
competes with the Company's STS product. This product is more expensive than the
STS product and the Company believes it is only compatible with AT&T and
Northern Telecom PBX equipment. The Company's STS product is compatible with
over 90% of the equipment for PBX vendors in the United States. The Company's
NCS and ACS products are designed to be competitive with more costly solutions
offered by other manufacturers. There are many equipment companies serving the
telecommunication industry, such as AT&T and Northern Telecom, which are
well-established in the marketplace and which have substantially greater access
to financial, technical and personnel resources than the Company, which are
potential competitors of the Company. In addition, the telecommunications
industry is subject to rapid technological change and there can be no assurance
that the Company will be able to react and adapt to these changes, or that
developments by competitors will not render the Company's products obsolete.
The Company competes on the basis of product features and cost. The
attractiveness of the Company's products to end users depends, to some extent,
on the tariffs filed by local or regional telcos. In addition, Telident and its
customers depend upon the good faith cooperation of local telcos in the
installation and operation of Telident's products. If the local tariff
environment is not favorable to the Company's products or the local telcos are
uncooperative, sale of the Company's products will be impaired.
PATENTS AND PROPRIETARY INFORMATION
The Company has obtained United States patents on its STS, and SRU1
designs which expire on August 10, 2010 and December 12, 2005, respectively. The
Company has applied for international patents with respect to the STS design.
However, there can be no assurance as to the degree of protection which the
patents will afford the Company. The Company intends to continue to seek patents
on its products when appropriate. In addition, the Company protects its trade
secrets by, among other things, maintaining nondisclosure and confidentiality
agreements with its employees.
REGULATIONS
The United States Federal Communications Commission ("FCC") requires
that certain communication devices be tested by a certified facility prior to
receiving FCC approval. Testing is
Page 26
designed to demonstrate that devices will not cause harmful interference to
telephone communications. In addition, certain jurisdictions may require that
the Company's products meet Underwriters' Laboratory ("UL") requirements. The
Company's equipment meets both FCC and UL requirements.
EMPLOYEES
At March 31, 1996, the Company had 31 employees, including six
administrative, nine sales and marketing, nine operations, and seven research
and development personnel.
PROPERTIES
The Company leases approximately 12,000 square feet of office and final
assembly space at a monthly rental of approximately $12,000. The lease expires
on March 3l, 1998. The Company considers these offices suitable for its needs
for the duration of the lease term.
Page 27
MANAGEMENT
The directors and executive officers of Telident are as follows:
<TABLE>
<CAPTION>
Director
Name Since Age Positions With The Company
---- ----- --- --------------------------
<S> <C> <C> <C>
Mark W. Sheffert 1990 49 Chairman of the Board of Directors
Michael J. Miller 1993 46 President and Director
Kevin B. Erdman -- 42 Vice President Sales and Marketing
Thomas P. Jensen -- 44 Vice President Customer Support
John F. Kromer -- 34 Vice President Finance and Chief Financial
Officer
Martin D. Moody -- 48 Vice President Advanced Engineering
Scott R. Anderson June 1995 55 Director
Willis K. Drake 1988 73 Director
Richard L. Hencley 1988 68 Director
Robert N. Kisch 1990 73 Director
John Sagan 1990 75 Director
Warren S. Tyler 1988 65 Director
</TABLE>
- ----------------------
Mark W. Sheffert - Mr. Sheffert has been Chairman of the Board of
Directors of the Company since May 1994. He is President of Manchester
Companies, Inc., a private investment and management consulting firm formed in
1993. From 1990 to 1993, he served as managing partner of Sheffert & Wein, Inc.,
a management consulting firm. From September, 1982, to October, 1989, Mr.
Sheffert served in various executive positions with First Bank System,
Minneapolis, Minnesota, including Chairman and CEO, First Trust Company, FBS
Mortgage Company, FBS Card Services, Inc., and FBS Insurance. Mr. Sheffert
currently is serving on the board of directors of Kahler Corporation, Periscope
Communications, Inc., Combined Financial Group, Inc., Triad Financial Services,
Inc., and Children's Heartlink.
Michael J. Miller - Mr. Miller became President and CEO of Telident on
September l, 1993. Prior to that time, he served for five years as President and
CEO of Information and Communications Services, Inc. (ICSI), a wholly owned
subsidiary of Hickory Tech Corporation based in Mankato, Minnesota. ICSI is a
multifaceted telecommunications holding company which has business
telecommunications systems distribution, software development, and
telecommunication product manufacturing. Mr. Miller has a bachelor's degree in
finance and accounting, a master's degree in business administration, and is a
certified public accountant. He was invited to sit as a Visiting Fellow with the
Aspen Institute, a long-range planning and strategy consortium in the
communications industry.
Kevin B. Erdman - Mr. Erdman was named Vice President of Sales and
Marketing in March 1995. He joined Telident in July l994 as National Director of
STS Sales, responsible for marketing and selling the STS solution into the
public and private PBX markets. From 1991 to 1993, Mr. Erdman was responsible
for business development and strategic planning for Dataserv, Inc., a $150
million computer
Page 28
network services and software development subsidiary of Bell South. After
leaving Dataserv, and prior to joining the Company, Mr. Erdman was
self-employed. From 1988 until 1991, Mr. Erdman was employed by the Clifton
Group, a financial services company.
Thomas P. Jensen - Mr. Jensen was named Vice President of Customer
Support in March 1995. He was Director of Product Management from July 1994 to
March 1995, and National Sales Manager from March 1993 to July 1994. Mr. Jensen
has 20 years of experience in telecommunications, including working for an
equipment manufacturer, ADC Telecommunications (1980 to 1987), MCI (1987 to
1990), and operations manager for a county government Dakota County, MN (1990 to
1992), and Fujitsu Business Communication Systems (1992 to March 1993). He
received a bachelor's degree in Engineering from the University of Minnesota and
a master's degree in Business Administration - Finance and Marketing, from the
University of St. Thomas. In addition, he is on the Board of Directors for the
Minnesota Telecommunications Association, Board of Advisors for Dakota County
Technical College, Technology Council for Minnesota School Districts, and is an
adjunct lecturer at the University of St. Thomas.
John F. Kromer - Mr. Kromer was named Vice-President and Chief
Financial Officer of Telident in October of 1994. He was the Controller of the
Company from June 1992 to October 1994. From August 1988 to June 1992, he
worked in the transportation industry for Transport Corporation of America,
Inc., a company with revenues of approximately $100 million. He was responsible
for overseeing the accounting functions and management reporting of the company.
He is a licensed CPA in the state of Minnesota and is a member of both the
American Institute of Certified Public Accountants and the Minnesota Society of
CPA's.
Martin D. Moody - Mr. Moody has been a Vice President of Telident since
August 1989. He was the Director of Engineering of the Company from November
1988 to August 1989. Prior to November 1988, Mr. Moody was Vice President of
Operations of Aetrium, Inc., a manufacturer of integrated circuit handling
equipment. Mr. Moody was responsible for Aetrium's operations and new product
introductions. Mr. Moody developed a system of concurrent engineering, which
allowed all divisions to interface during product development and
implementation, as well as implementing a Quality Assurance Program. Mr. Moody
held the position of Product Manager, Special Engineering at Micro Component
Technology, Inc. from 1982 to 1986. Prior to that he was engineer in charge of
telecommunications for Control Data at the NASA/Langley site in Virginia.
Scott R. Anderson - Mr. Anderson joined the Telident Board of Directors
in July, 1995. Mr. Anderson is President and Chief Executive Officer of North
Memorial Health Care in Robbinsdale, Minnesota. He has been associated with
North Memorial since August of 1964, serving 17 years as Executive Vice
President, and since 1981 in the position of President and Chief Executive
Officer. During his career he has served as a member of many committees and
boards, both locally and nationally, and has served as chairman of the board of
the following organizations: Metropolitan Healthcare Council (Council of
Hospital Corporations), Health Employers, Inc., Healthcare Education and
Research Foundation and Medical Alley. He currently serves as a director of
EMPI, Inc.
Willis K. Drake - Mr. Drake has been a private investor over the last
seven years. He served as Chairman of the Board of Directors of Telident from
1989 to August 1993. Mr. Drake spent the early years of his career with Univac
in a sales and marketing capacity. He later became a founder of Control Data
Corporation. In 1969, he became founder, Chairman and President of Data Card
Corporation, a manufacturer of high-performance embossing/encoding equipment for
the plastic card industry. When he retired in 1983. DataCard had sales in excess
of $100 million. Since his retirement, Mr. Drake has
Page 29
used his entrepreneurial, management, marketing and technical experiences to
assist a variety of companies. He serves as a director of Analysts International
Corporation, Digi International, U-Ship, Inc. and Innovex, Inc.
Richard L. Hencley - Mr. Hencley has been a private investor since May
l994. He served as Chairman of the Board of Telident from August 1993 to May
1994. Prior to that, he served as President and CEO of the Company from February
1989 to August 1993, and as Vice President of Operations from 1988 to February
1989. Prior to that time, Mr. Hencley was Senior Vice President and a member of
the Board of Directors of Micro Component Technology, Inc. ("MCT"), a
manufacturer of integrated circuit testing and handling equipment, which
position he held for more than five years. Prior to joining MCT, Mr. Hencley was
Senior Vice President of Corporate Programs and one of the founders of Data Card
Corporation. Mr. Hencley serves as a member of the Board of Directors of Turtle
Mountain Corporation, Teleproducts Corporation, and Minnesota Project
Innovation.
Robert N. Kisch - Mr. Kisch has been a private investor since 1966. Mr.
Kisch began his management career as a Senior Design Engineer for Engineering
Research Associates, the predecessor to Univac and Control Data. In 1957, Mr.
Kisch was among the founding group of engineers who formed Control Data. Mr.
Kisch retired in 1966 from the position of Vice President and General Manager of
the Computer Division.
John Sagan - Mr. Sagan is a private investor and since 1986 has been
President of John Sagan Associates, a financial planning group. Prior to that
time, Mr. Sagan was Vice President and Treasurer of Ford Motor Company. He is
also past Chairman of the Board of the Federal Reserve Bank of Chicago and past
Chairman of the Board of Trustees of Ohio Wesleyan University. Mr. Sagan is a
member of the boards of directors for SBCM Derivative Products, LTD, and
Chartwell Reinsurance Co. He is also a trustee of the YMCA Foundation of
Detroit, the United Methodist Foundation, the Fund for Henry Ford Hospital and
Oakwood Hospital of Dearborn, Michigan.
Warren S. Tyler - Mr. Tyler was Senior Vice President of Finance and
Administration of the Company from 1988 to November 1994. From 1983 to the
present, Mr. Tyler has been President of Incor Corporation (formerly Renartler,
Inc.), a management consulting firm specializing in capitalizing and financing
businesses. From 1973 to 1982, Mr. Tyler served as Vice President of Inn
Management, Inc., a management firm for the hospitality industry, responsible
for the operations of up to 26 motels/hotels operated privately and through
various franchises. Mr. Tyler was responsible for financing the acquisition of
new properties, as well as financing operations of the parent corporation.
John Sagan, Scott Anderson, Willis Drake, and Robert Kisch serve on the
Board's Compensation Committee; and John Sagan, Richard Hencley, Mark Sheffert,
and Warren Tyler serve on the Board's Audit Committee.
DIRECTOR COMPENSATION
All directors of the Company are elected for a term of one year and
hold office until the next Annual Meeting of Shareholders. The officers of the
Company, who are elected at the Annual Meeting of the Board of Directors, hold
office until their successors are chosen and qualified or until death,
resignation or removal. Directors who are not employees of the Company are paid
director's fees of $750 per quarter plus $500 for each meeting attended and
issued a 1,000 share stock option with an exercise price equal to the mean
between the bid and ask price of the Common Stock as of the annual meeting date.
The Chairman of the Board is paid $1,000 per month for services performed in
that
Page 30
function, and the Chairman of the Audit and Compensation Committees are each
paid $1,000 annually. In addition, the Chairman of the Board is issued a 10,000
share stock option with an exercise price equal to the mean between the bid and
ask price of the Common Stock as of the annual meeting. Directors can elect to
take the fee in cash or in shares of the Company's Common Stock.
EXECUTIVE OFFICER COMPENSATION
The following table sets forth the compensation for Michael J. Miller,
the only officer of the Company who received compensation of $100,000 or more
during each of Telident's last two fiscal years. Mr. Miller's employment with
the Company began on September 1, 1993.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Annual Compensation Long-Term Compensation
------------------------------------- --------------------------------
Awards Payouts
---------------------- -------
Other Restricted All Other
Annual Stock Options/ LTIP Compen-
Name and Principal Fiscal Salary Bonus Compensation Award(s) SARS Payouts sation
Position Year ($) ($) ($) ($) (#) ($) ($)
-------- ---- --- --- --- --- --- --- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Michael J. Miller 1994 $125,000 $10,000 --- --- 105,000 --- ---
President and CEO
1995 $125,000 --- --- --- 7,500 --- ---
</TABLE>
STOCK OPTION PLAN
The Telident, Inc. Stock Option Plan (the "Plan"), as amended, provides
for the granting of stock options for up to 675,000 shares of Common Stock to
certain employees, officers and directors of the Company. Options that qualify
as "incentive stock options" within the meaning of Section 422 of the Internal
Revenue Code of 1986 and options that do not qualify as such "incentive stock
options" ("nonstatutory stock options") may be granted under the Plan. The Plan
is administered by the Board of Directors, which determines the employees,
officers and directors who are to receive options, the type of option to be
granted, and the number of shares subject to each option. Options may not be
granted under the Plan after December 12, 1998. Incentive stock options may not
be granted with a purchase price less than the fair market value of the Common
Stock on the dates the options are granted (or, for persons who own more than
10% of the Company's outstanding voting stock, with a purchase price less then
110% of such fair market value). Nonstatutory stock options may not be granted
with a purchase price less than 85% of the fair market value for the Common
Stock on the dates the options are granted. Aside from the maximum number of
shares of Common Stock reserved for issuance under the Plan, there is no minimum
or maximum number of shares which may be subject to options granted to an
individual under the Plan. However, the aggregate fair market value (determined
as of the time the option is granted) of shares of Common Stock with respect to
which incentive stock options become exercisable for the first time by the
optionee under the Plan during any calendar year may not exceed $100,000.
Options may not be transferred other than by will or the laws of descent and
distribution and during the lifetime of an optionee may be exercised only by the
optionee.
Page 31
The term of each option, which is fixed by the Board of Directors, may
not exceed ten years from the date the option is granted (except that the term
may not exceed five years for incentive stock options granted to persons who own
more than 10% of the Company's outstanding voting stock). As of March 31, 1996
options for an aggregate of 353,650 shares at exercise prices from $1.00 to
$6.62 per share had been granted under the Plan. The following table sets forth
information regarding option grants in fiscal 1995 to Michael J. Miller, the
only officer of the Company who received compensation of $100,000 or more during
the year.
<TABLE>
<CAPTION>
OPTION GRANTS IN FISCAL 1995 AND OPTION VALUES AT JUNE 30, 1995
Value of
Number of Unexercised
Percent of Unexercised in-the-Money
Options Total Options Options at June Options at June
Granted Granted to Exercise or 30, 1995 30, 1995
(No. of Employee's in Price Expiration (Exercisable/ (Exercisable/
Name Shares) Fiscal 1995 (Per Share) Date Unexercisable) Unexercisable)
---- ------- ----------- ----------- ---- -------------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Michael J. Miller, 7,500 8% $2.00 3/8/02 42,000/ $52,500/
CEO* 70,500 $93,750
</TABLE>
* Mr. Miller did not exercise any options in fiscal 1995. During fiscal
1996, Mr. Miller exercised options for 9,000 shares at an exercise
price of $2.62.
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION
The Company's Articles of Incorporation limit the liability of its
directors to the fullest extent permitted by the Minnesota Business Corporation
Act. Specifically, directors of the Company will not be personally liable for
monetary damages for breach of fiduciary duty as directors, except liability for
(i) any breach of the duty of loyalty to the Company or its shareholders, (ii)
acts or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) dividends or other distributions of corporate
assets that are in contravention of certain statutory or contractual
restrictions, (iv) violations of certain Minnesota securities laws, or (v) any
transaction from which the director derives an improper personal benefit.
Minnesota Statutes Section 302A.521 provides that a Minnesota business
corporation shall indemnify any director, officer, employee or agent of the
corporation made or threatened to be made a party to a proceeding, by reason of
the former or present official capacity (as defined) of the person, against
judgments, penalties, fines, settlements and reasonable expenses incurred by the
person in connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.52l contains detailed terms regarding
such right of indemnification and reference is made thereto for a complete
statement of such indemnification rights.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Company pursuant to the foregoing provisions, or otherwise, the Company has
been advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is,
Page 32
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses incurred or
paid by a director, officer or controlling person of the Company in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Company will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
CERTAIN TRANSACTIONS
During fiscal 1993, the following directors participated in a 10%
Convertible Debenture offering by the Company: Willis K. Drake - $100,000; and
John Sagan - $25,000. These Debentures had an original due date of October 1,
1995. On September 30, 1995, Mr. Drake and Mr. Sagan agreed to extend the due
date for their Debentures to July 15, 1997. In consideration for this extension,
Mr. Drake received Warrants to purchase 12,500 shares of Common Stock
exercisable at $4.00 per share until July 15, 1997, and 2,500 shares of Common
Stock, and Mr. Sagan received Warrants to purchase 3,125 shares of Common Stock
exercisable at $4.00 per share until July 15, 1997, and 625 shares of Common
Stock. As of February 5, 1996, Mr. Drake had exercised his warrants through
$50,000 of debt reduction. Mr. Sagan also exercised his warrants resulting in
$12,500 of proceeds to the Company. The Debentures are convertible into Common
Stock at the rate of $3.96 per share.
During fiscal 1994, the Company issued 1,100 units of its securities,
each unit consisting of $100 principal amount of its 10% convertible debentures
due May 1, 1996 and one stock purchase warrant representing the right to
purchase 25 shares of Common Stock at $6.00 per share during the three-year
period ending May 1, 1996. The following directors participated in this
Debenture offering: Willis K. Drake - $75,000; and John Sagan - $25,000. In
addition, Mssrs. Drake and Sagan received 18,750 and 6,250 stock purchase
warrants. As of February 6, 1996, Mr. Drake had exercised his warrants through
$75,000 of debt reduction. Mr. Sagan also exercised his warrants resulting in
$25,000 of proceeds to the Company. On April 4, 1996, the Company offered these
Debenture holders the option to extend the Debentures until July 15, 1997. As an
incentive to extend, the Debenture holders were offered additional warrants to
purchase Common Stock at $4.00 per share until July 15, 1997. As of April 30,
1996, Mr. Drake and Mr. Sagan had extended their Debentures until July 15, 1997,
and will receive Warrants to purchase 9,375 and 3,125 shares of Common Stock,
respectively.
During fiscal 1994 and 1995, the following directors loaned the Company
an aggregate of $498,500 and $120,000, respectively: Willis K. Drake - $473,500
in 1994 and $45,000 in 1995; Warren S. Tyler - $25,000 in 1994; John Sagan -
$50,000 in 1995; and Robert N. Kisch - $25,000 in 1995. The loans paid interest
at 10% per annum. At the beginning of fiscal 1994, Mr. Drake and Mr. Tyler also
had outstanding loans to the Company of $275,000 and $65,000, respectively. Mr.
Drake's $45,000 loan in 1995 was made in connection with a note financing by the
Company in the aggregate principal amount of $240,000. As part of this
financing, the note holders were issued an aggregate of 30,000 shares of Common
Stock, 5,625 shares of which were issued to Mr. Drake, as additional
consideration for the making of such loans.
As of the date of this Prospectus, all of the above loans have been
repaid as follows: Mr. Drake - $756,834 during fiscal 1994, 1995 and the first
nine months of fiscal 1996 by issuance of an aggregate of 189,209 shares of
Common Stock at $4.00 per share and payment of $36,666 in fiscal 1996; Mr. Tyler
- - $25,000 in fiscal 1994 through the exercise of a stock option for 22,500
shares of Common Stock at
Page 33
$1.00 per share and payment of $2,500 and $65,000 on June 30, 1994, by issuance
of 16,250 shares of Common Stock at $4.00 per share; Mr. Sagan - $50,000 in
fiscal 1995; and Mr. Kisch - $25,000 in fiscal 1995 by issuance of 6,250 shares
of Common Stock at $4.00 per share.
On June 30, 1994, Willis K. Drake, Richard L. Hencley, and Warren S.
Tyler, directors of the Company, were issued a combined total of 250,000 (83,333
1/3 each) voting shares of Series I convertible cumulative preferred stock at
$4.00 per share, resulting in proceeds to the Company of $1,000,000, which was
utilized to pay off the existing bank line of credit. These shares pay a yearly
dividend at the rate of 1% over the prime rate from time to time of National
City Bank of Minneapolis and are redeemable at the Company's option. The prime
rate of National City Bank of Minneapolis was 8 1/4% on March 31, 1996,
respectively. On each of May 31, September 20 and November 30, 1995, and
February 29, 1996, the Company redeemed 12,500 shares of Preferred Stock pro
rata from these shareholders. In addition, these individuals received dividend
payments in the aggregate of $95,899 and $65,187 for the fiscal year ended June
30, 1995 and the nine months ended March 31, 1996, respectively.
As of June 30, 1994, Manchester Financial, an investment banking firm,
of which Mark Sheffert, Chairman of the Board, is president, was paid $50,000
and was granted stock purchase warrants representing the right to acquire 50,000
shares of Common Stock at an exercise price of $2.00 per share, for services
related to the restructuring of the Company's bank debt, related party debt,
issuance of preferred stock, and development of a warrant exercise program.
It is Telident's policy that any transaction involving the Company and
an affiliated party be ratified by a majority of independent outside members of
the Company's Board of Directors who do not have an interest in the transaction
and that any such transaction be on terms no less favorable to the Company or
its affiliates than those that are generally available from an unaffiliated
party. The Company's Board of Directors believes that each of the foregoing
transactions were on as favorable terms to the Company as could have been
obtained from unaffiliated persons.
Page 34
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth, as of May 21, 1996, the number of
shares of the Company's Common Stock and the percentage of the outstanding
Common Stock owned by all shareholders who own beneficially five percent or more
of the outstanding shares of Common Stock, by each director of the Company, the
Selling Shareholders and by all officers and directors as a group. Unless
otherwise indicated, each named beneficial owner has sole or joint with spouse
voting and investment power with respect to all shares.
<TABLE>
<CAPTION>
Name and Address of Beneficial Owner, Percentage
Name of Director, Identity Amount Amount ----------
of Group, Name of Selling Beneficially which may Before After
Shareholders(2) Owned (1) be Sold Offering Offering
--------------- --------- ------- -------- --------
<S> <C> <C> <C> <C>
Drake, Willis K. 530,623 62,500 10.6% 7.9%
Okabena Partnership K 395,833 none 8.1 6.9
Tyler, Warren S. 222,682 31,250 4.5 3.3
Hencley, Richard L. 221,385 31,250 4.5 3.3
Sheffert, Mark 63,511 none 1.3 1.1
Sagan, John 69,649 none 1.4 1.2
Kisch, Robert N. 67,024 none 1.4 1.2
Miller, Michael J. 53,000 none 1.1 .9
Anderson, Scott R. 2,500 none * *
All Officers and Directors as a group
(13 persons) 1,314,522 125,000 21.6 17.1
</TABLE>
- --------------
*Less than 1/10 of one percent.
(1) Includes options, warrants and convertible securities representing the
right to acquire within 60 days of the date of this Prospectus shares
of the Company's Common Stock as follows: Mr. Drake - 133,859 shares;
Mr. Tyler - 66,917 shares; Mr. Hencley - 66,917 shares; Mr. Sheffert -
56,125 shares; Mr. Sagan - 22,877 shares; Mr. R.N. Kisch - 6,125
shares; Mr. Miller - 39,000 shares; and all officers and directors as
group (13 persons) - 452,318 shares. Messrs. Drake, Hencley and Tyler
each own 66,667 shares or 33 1/3% of the Series I Convertible Preferred
Stock.
(2) Address of Messrs. Drake, Tyler and Hencley is 4530 West 77th Street,
Suite 198, Minneapolis, Minnesota 55435. Address of Okabena Partnership
K is 5140 Norwest Center, 90 South Seventh Street, Minneapolis,
Minnesota 55402. Address of Mr. Sheffert is IDS Center, Suite 3650,
Minneapolis, Minnesota 55402. Address of Mr. Sagan is 22149 Long
Boulevard, Dearborn, Michigan 48124. Address of Mr. Kisch is P.O. Box
22701, Robbinsdale, Minnesota 55422. Address of Mr. Miller is the
Company's address. Address of Mr. Anderson is 3300 Oakdale Avenue
North, Robbinsdale, Minnesota 55422.
Page 35
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company is authorized to issue up to 10,000,000 shares of Common
Stock, $.02 par value. As of May 21, 1996, 4,898,138 shares of Common Stock were
issued and outstanding. All shares of Common Stock have equal voting rights and,
when validly issued and outstanding, have one vote per share in all matters to
be voted upon by shareholders. The shares of Common Stock have no preemptive,
subscription, conversion or redemption rights and may be issued only as fully
paid and nonassessable shares. Cumulative voting in the election of directors is
not allowed, which means that the holders of a majority of the outstanding
shares represented at any meeting at which a quorum is present will be able to
elect all the directors if they choose to do so and, in such event, the holders
of the remaining shares will not be able to elect any directors. On liquidation
of the Company each common shareholder is entitled to receive a pro rata share
of the Company's assets available for distribution to common shareholders.
Holders of shares of Common Stock are entitled to dividends when, as
and if declared by the Board of Directors out of funds legally available
therefor. The Company has not paid any dividends on its Common Stock and intends
to retain earnings, if any, to finance the development and expansion of its
business. Future dividend policy is subject to the discretion of the Board of
Directors and will depend upon a number of factors, including earnings, capital
requirements and the financial condition of the Company.
OPTIONS AND WARRANTS
The Company has issued options and warrants in addition to the Bridge
Warrants which grant to the holders thereof the right to purchase an aggregate
of 612,195 shares of the Common Stock at a weighted average exercise price of
$3.39 per share. These options and warrants are exercisable at various times
through March 2003. In connection with the Bridge Financing described below, the
Company issued Bridge Warrants representing the right to acquire up to 125,000
shares of Common Stock at a price equal to 80% of the Price to Public. These
warrants expire in May 2001. An aggregate of 553,650 shares subject to
outstanding options and warrants are subject to effective registration
statements under the Securities Act and the additional 125,000 shares subject to
the Bridge Warrants have registration rights.
The number of shares issuable upon exercise of the options and warrants
and the exercise prices are subject to equitable adjustment upon the occurrence
of certain events such as stock splits, stock dividends and recapitalizations.
The Company may redeem the warrants representing the right to acquire up to
258,545 of the shares subject to the warrants upon payment to the holders
thereof of $.10 per warrant to be redeemed; provided, however, that the fair
market value of the Company's Common Stock is at the time of the giving of
notice of such redemption at least $7.00 per share. The Company must give
written notice of the date set by the Company for such redemption at least 30
days prior to such date.
CONVERTIBLE DEBENTURES
At May 21, 1996, $998,000 principal amount of the Company's 10%
Convertible Debentures due July 15, 1997, was outstanding. The Debentures are
convertible into shares of Common Stock at $3.96 per share.
Page 36
PREFERRED STOCK
The Company is authorized to issue up to 2,500,000 shares of Preferred
Stock in series to be designated by the Board of Directors. There currently are
200,000 shares of Series I Convertible Preferred Stock, $.02 per share par
value, issued and outstanding. The Series I Convertible Preferred Stock is
convertible into an equal number of shares of Common Stock at the option of the
holder and is redeemable at the option of the Company at $4.00 per share plus
accrued dividends. Dividends on the Preferred Stock are cumulative and the
dividend rate is 1% over the prime rate from time to time of National City Bank
of Minneapolis. This Preferred Stock has voting rights equal to the Company's
Common Stock except as may be otherwise required by law. These shares of
Preferred Stock have no preemptive or subscription rights.
No additional shares of Preferred Stock are expected to be issued by
the Company in the immediate future; however, the Board may use its authority to
issue Preferred Stock to effect the business purposes of the Company. Material
provisions concerning the terms of any series of Preferred Stock such as
dividend rate, conversion features and voting rights, will be determined by the
Board of Directors of the Company at the time of such issuance. The ability of
the Board to issue Preferred Stock also could be used by the Company as a means
of resisting a change of control of the Company and, therefore, could be
considered an "anti-takeover" device.
MINNESOTA ANTITAKEOVER LAW
Section 302A.671 of the Minnesota Business Corporation Act applies,
with certain exceptions, to any acquisition of voting stock of the Company (from
a person other than the Company, and other than in connection with certain
mergers and exchanges to which the Company is a party) resulting in the
beneficial ownership of 20% or more of the voting stock of the shareholders of
the Company prior to its consummation. In general, shares acquired in the
absence of such approval are denied voting rights and are redeemable at their
then market value by the Company within 30 days after the acquiring person has
failed to give a timely information statement to the Company or the date the
shareholders voted not to grant voting rights to the acquiring person's shares.
Section 302A.673 of the Minnesota Business Corporation Act generally
prohibits any business combination by the Company, or any subsidiary of the
Company, with any shareholder which purchases 10% or more of the Company's
voting shares (an "interested shareholder") within four years following such
interested shareholder's share acquisition date, unless the business combination
is approved by a committee of all the disinterested members of the board of
directors of the Company before the interested shareholder's share acquisition
date.
The foregoing provisions may have the effect of preventing a change in
control of the Company, thereby denying shareholders the opportunity to sell
shares in such transactions.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Norwest Bank
of Minnesota, N.A.
Page 37
DESCRIPTION OF BRIDGE FINANCING
In May 1996, the Company completed a Bridge Financing consisting of the
issuance of 50 Bridge Units. Each Bridge Unit consisted of a $25,000 principal
amount Bridge Notes and Bridge Warrants to purchase 2,500 shares of the
Company's Common Stock. The Bridge Financing resulted in $1,250,000 of principal
amount of Bridge Notes outstanding and the issuance of Bridge Warrants to
purchase 125,000 shares of Common Stock.
BRIDGE NOTES
The Bridge Notes were not issued pursuant to an indenture, and no
trustee was retained to enforce any of the obligations represented by the Bridge
Notes. The Bridge Notes bear interest from the date of issue at ten percent
annually, payable at maturity. The Bridge Notes are payable in full, with
interest, at the earlier of 20 days after the date of this Prospectus or six
months after the date of the Bridge Notes.
The Bridge Notes are unsecured debt obligations of the Company.
Accordingly, holders of a security interest in the Company's assets would have
prior claim to such assets in the event of the dissolution or liquidation of the
Company. Principal and interest payments on the Bridge Notes are subordinated to
the prior payment of any obligations of the Company to financial institutions
representing indebtedness for borrowed money.
A maximum of $625,000, representing 50% of the principal amount of the
Bridge Notes, is convertible, at the option of the holders thereof, into the
Company's Common Stock for a period of l5 days after the effective date of this
offering. The conversion price is equal to 80% of the Price to Public.
BRIDGE WARRANTS
Each Bridge Warrant entitles the holders thereof to purchase one share
of Common Stock beginning with the completion of this offering, but, in any
case, not later than 12 months after issuance of the Bridge Notes. The Bridge
Warrants expire in May 2001. The initial exercise price of the Bridge Warrants
will be equal to 80% of the Price to Public.
The Bridge Warrants provide for the automatic adjustment of the number
of shares issuable upon exercise of the Warrants, and of the exercise price, in
certain events, including stock dividends, stock splits, distributions of Common
Stock, reorganizations, reclassifications, subdivisions and combinations of the
Common Stock, and the merger, consolidation or sale of all or substantially all
of the assets of the Company.
REGISTRATION RIGHTS
The bridge loan agreements pursuant to which the Bridge Notes and
Bridge Warrants were issued (the "Bridge Loan Agreements") provide that the
Company is obligated to register the resale of the stock issued upon conversion
of the Bridge Notes and exercise of Bridge Warrants pursuant to the Securities
Act within 12 months of the issuance of the Bridge Notes or one month after the
Warrants become exercisable, whichever is later. The holders of such securities
also have the right to include Conversion Stock and Warrant Stock in certain
registration statements filed by the Company.
Page 38
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, R.J.
Steichen & Company (the "Underwriter") has agreed to purchase an aggregate of
1,000,000 shares of the Common Stock from the Company and the Selling
Shareholders at the Price to Public set forth on the cover page of this
Prospectus, less the underwriting discount.
The Underwriting Agreement provides that the obligations of the
Underwriter are subject to certain conditions precedent and that the Underwriter
will purchase all of the shares of the Common Stock offered hereby if any of
such shares are purchased.
The Company and the Selling Shareholders have been advised by the
Underwriter that the Underwriter proposes to offer the shares of Common Stock to
the public at the initial public offering price set forth on the cover page of
this Prospectus and to certain dealers at such price less a concession not in
excess of $_______ per share. The Underwriter may allow, and such dealers may
reallow, a concession not in excess of $________ per share to certain other
dealers. After the initial public offering, the offering price and other selling
terms may be changed by the Underwriter.
The Company has granted to the Underwriter an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 150,000
additional shares of Common Stock at the public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriter may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriter will offer such additional shares on the same terms as those on
which the 1,000,000 shares are being offered.
The Company and the Selling Shareholders have agreed to pay, on a pro
rata basis, the Underwriter a nonaccountable expense allowance of 2.5% of the
aggregate offering price of the shares offered hereby, including the shares sold
by the Selling Shareholders, as well as any shares purchased pursuant to the
over-allotment option.
The Company has agreed to issue to the Underwriter, for nominal
consideration, a warrant (the "Underwriter's Warrant") to purchase 87,500 shares
of Common Stock of the Company at a price per share equal to 120% of the Price
to Public. The Underwriter's Warrant is exercisable commencing one year from the
date of this Prospectus until five years after such date. The Underwriter's
Warrant also provides certain demand and participatory rights to require
registration under the Securities Act of the shares purchasable upon exercise of
the Underwriter's Warrant. The Underwriter's Warrant is not transferable except
in accordance with NASD and federal and state securities regulations. Any
profits realized by the Underwriter upon the sale of the Underwriter's Warrant
or the Common Stock issuable upon exercise thereof may be deemed to constitute
additional underwriting compensation.
The Company and the Underwriter have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling the Company pursuant
to such indemnification provisions, the Company has been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Shareholders of the Company, holding in the aggregate 862,204 shares of
Common Stock (600,238 of which may be immediately sold) and holders of options,
warrants, Debentures and Preferred Stock to purchase or convert into an
additional 452,318 shares have agreed not to offer, sell or otherwise dispose,
or directly or indirectly cause or permit the offer, sale or other disposition,
of any Common Stock of the Company owned of record or beneficially and of which
such shareholder has the power to control the disposition for a period of 180
Page 39
days after the date of this Prospectus without the prior consent of the
Underwriter. See "Shares Eligible for Future Sale."
The Underwriter has advised the Company that it does not intend to
confirm sales to any account over which it exercises discretionary authority.
SHARES ELIGIBLE FOR FUTURE SALE
Upon the completion of this Offering, the Company will have 5,768,755
shares of Common Stock outstanding, assuming no exercise of currently
outstanding options or warrants or conversion of any of the Bridge Notes,
Preferred Stock or Debentures. Of these shares, 2,071,231 shares may be freely
traded without restriction or further registration under the Securities Act,
unless held by an "affiliate" of the Company as that term is defined in Rule 144
under the Securities Act. The remaining 3,697,524 shares held by existing
shareholders were issued and sold by the Company in reliance on exemptions from
the registration requirements of the Securities Act ("Restricted Shares"). The
Restricted Shares may be sold in the public market only if registered, or
pursuant to an exemption from registrations such as Rule 144 or 144(k) under the
Securities Act. As of the date of this Prospectus, 3,131,842 Restricted Shares
were included in existing registration statements under the Securities Act or
had been held for at least two years and were subject to resale pursuant to Rule
144 and such Restricted Shares are eligible for immediate sale. Holders of
600,238 of such Restricted Shares have entered into lock-up agreements under
which they have agreed not to offer, sell or otherwise dispose, or directly or
indirectly cause or permit the offer, sale or other disposition, of any Common
Stock of the Company owned of record or beneficially and of which such
shareholder has the power to control the disposition for a period of 180 days
after the date of this Prospectus, without the prior written consent of the
Underwriter (the "Lock-Up Agreement"). In addition, ________ shares of Common
Stock subject to outstanding options, warrants, Debentures, Preferred Stock or
Bridge Notes and Bridge Warrants were subject to effective registration
statements under the Securities Act or had certain registration rights. Of these
shares, 452,318 shares were subject to the Lock-Up Agreement.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner, except as affiliate) is
entitled to sell in "broker's transaction" or to market makers, within any
three-month period, a number of shares that does not exceed the greater of (i)
one percent of the number of shares of Common Stock then outstanding
(approximately 57,688 shares immediately after this offering) or (ii) the
average weekly trading volume of the Common Stock during the four calendar weeks
preceding the required filing of a Form 144 with respect to such sale. Sales
under Rule 144 are generally subject to certain manner of sale provisions and
notice requirements and to the availability of current public information about
the Company. Under Rule 144(k), a person who is not deemed to have been an
affiliate of the Company at any time during the 90 days preceding a sale, and
who has beneficially owned the shares proposed to be sold for at least three
years, is entitled to sell such shares without having to comply with the manner
of sale, public information, volume limitation or notice provisions of Rule 144.
The Securities and Exchange Commission has recently proposed reducing
the initial Rule 144 holding period to one year and the Rule 144(k) holding
period to two years. There can be no assurance
Page 40
as to when or whether such rule changes will be enacted. If enacted, such
modification will have a material effect on the time when shares of the
Company's Common Stock become eligible for resale.
LEGAL MATTERS
The validity of the issuance of the shares of Common Stock offered
hereby will be passed upon for the Company and the Selling Shareholders by the
firm of Gray, Plant, Mooty, Mooty & Bennett, P.A., Minneapolis, Minnesota.
Certain legal matters will be passed upon for the Underwriter by Maun & Simon,
PLC, Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company for the fiscal years ended June
30, 1995 and 1994 and the financial statements of Cantus Corporation for the
year ended December 31, 1993 included in this Prospectus and elsewhere in the
Registration Statement have been audited by McGladrey & Pullen, LLP, independent
accountants, as set forth in their reports which are included elsewhere in this
Prospectus and in the Registration Statement upon the authority of that firm as
experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith files
reports and other information with the Securities and Exchange Commission.
Reports and other information filed by the Company with the Commission may be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street N.W., Washington,
D.C. 20549, and inspected at the Commission's regional offices at Room 7 World
Trade Center, New York, New York 10048 and Suite 1400, 500 West Madison Street,
Chicago, Illinois 60661. Copies of such material can also be obtained from the
Public Reference Section of the Commission, 450 Fifth Street N.W., Washington,
D.C. 20549, at prescribed rates.
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act of 1933, with
respect to the securities offered hereby. This Prospectus omits certain
information included in such Registration Statement. For further information
about the Company and its securities, reference is made to such Registration
Statement and to the exhibits filed as part thereof or otherwise incorporated
therein. Each summary in this Prospectus of information included in the
Registration Statement or any exhibit thereto is qualified in its entirety by
this reference to such information or exhibit.
The Company furnishes to its shareholders annual reports containing
financial statements audited by an independent public accounting firm after the
end of each fiscal year. In addition, the Company will furnish to its
shareholders quarterly reports for the first three quarters of each fiscal year
containing unaudited financial and other information after the end of each
fiscal quarter, upon written request to the Vice President-Finance of the
Company.
Page 41
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
Page
TELIDENT, INC. AND CONSOLIDATED SUBSIDIARIES:
March 31, 1996
- --------------
<S> <C>
Consolidated Balance Sheet as of March 31, 1996......................................................... F-3
Consolidated Statements of Operations
for the nine-month periods ended March 31, 1996 and 1995............................................... F-4
Consolidated Statements of Shareholders' Deficit for the nine-month period
ended March 31, 1996................................................................................... F-5
Consolidated Statements of Cash Flows
for the nine-month periods ended March 31, 1996 and 1995............................................... F-6
Notes to Unaudited Consolidated Financial Statements.................................................... F-7
June 30, 1995 and 1994
- ----------------------
Independent Auditor's Report............................................................................ F-9
Consolidated Balance Sheets............................................................................. F-10
Consolidated Statements of Operations................................................................... F-11
Consolidated Statements of Shareholders' Deficit........................................................ F-12
Consolidated Statements of Cash Flows................................................................... F-13
Notes to Consolidated Financial Statements.............................................................. F-14
</TABLE>
F-1
<TABLE>
<CAPTION>
CANTUS CORPORATION (a Predecessor Company)
<S> <C>
Independent Auditor's Report............................................................................ F-23
Balance Sheets as of December 31, 1993 and as
of September 30, 1994 and 1993........................................................................ F-24
Statements of Operations for the year ended December 31, 1993 and for
the nine-month periods ended September 30, 1994 and 1993.............................................. F-25
Statements of Shareholders' Deficit for the year ended December 31, 1993 and for
the nine-month periods ended September 30, 1994 and 1993.............................................. F-26
Statements of Cash Flows for the year ended December 31, 1993 and for
the nine-month periods ended September 30, 1994 and 1993.............................................. F-27
Notes to financial statements........................................................................... F-28
</TABLE>
F-2
<TABLE>
<CAPTION>
TELIDENT, INC.
CONSOLIDATED BALANCE SHEET
March 31, 1996
(UNAUDITED)
ASSETS
<S> <C>
Current assets :
Cash $ 150,765
Trade accounts receivable, net of allowance for doubtful
accounts of $40,000 :
Billed 556,331
Unbilled 13,798
Inventories, net of reserve for obsolescence of $15,000 643,391
Other 65,500
-----------
Total current assets 1,429,785
Furniture and office equipment, less accumulated
depreciation of $111,047 259,837
Patents, less accumulated amortization of $50,015 51,703
Other assets 85,742
Goodwill, net of accumulated amortization of $142,409 360,223
-----------
$ 2,187,290
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 347,803
Accrued expenses 144,189
Deferred revenue 14,757
Notes payable - bank 63,708
Notes payable - related parties 4,223
Notes payable - others 45,697
Debentures and interest payable - related parties 117,160
Debentures and interest payable - others 891,624
-----------
Total current liabilities 1,629,161
-----------
Debentures payable - related parties 125,000
Debentures payable - others 460,000
-----------
Total liabilities 2,214,161
-----------
Commitments
Shareholders' deficit:
Preferred stock, $.02 par value, convertible
into common stock at the rate of
one common share for each preferred
share, 2,500,000 shares authorized,
200,000 shares outstanding 4,000
Common stock, $.02 par value, 10,000,000
shares authorized, 4,727,089
shares outstanding 94,542
Additional paid-in capital 8,508,307
Accumulated deficit (8,633,720)
-----------
(26,871)
-----------
$ 2,187,290
===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-3
TELIDENT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Nine months ended
March 31,
--------------------------
1996 1995
----------- -----------
Net sales $ 1,786,958 $ 1,203,398
Cost of sales 531,175 376,061
----------- -----------
Gross profit 1,255,783 827,337
----------- -----------
Operating expenses:
Sales and marketing 631,664 517,476
Research and development 765,527 391,812
General and administrative 721,975 650,907
----------- -----------
Total operating expenses 2,119,166 1,560,195
----------- -----------
Loss from operations (863,383) (732,858)
Interest expense - others (239,956) (233,871)
Interest expense - related parties (39,857) (27,167)
----------- -----------
Net loss $(1,143,196) $ (993,896)
=========== ===========
Net loss per common share, primary
and fully diluted $ (.28) $ (.30)
=========== ===========
Weighted average number of
common shares outstanding 4,256,602 3,578,510
=========== ===========
See accompanying notes to interim consolidated financial statements.
F-4
<TABLE>
<CAPTION>
TELIDENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
(UNAUDITED)
Number Amount of Amount of Additional
Price per of shares Preferred Common paid-in Accumulated
share issued stock Stock capital deficit
----- ------ ----- ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Balance June 30, 1995 4,050,950 $ 4,750 $ 76,269 $ 5,804,629 $(7,490,524)
July, 1995 - exercise of options $ 2.88 9,000 -- 180 25,740 --
July, 1995 - exercise of warrants $ 4.00 7,500 -- 150 29,850 --
August, 1995 - conversion of debt $ 4.00 35,167 -- 703 123,296 --
August, 1995 - exercise of options $ 3.50 38,750 -- 775 134,850 --
September, 1995 - exercise of warrants $ 4.00 10,750 -- 215 42,785 --
September, 1995 - exercise of options $ 1.00 23,750 -- 475 23,275 --
September, 1995 - preferred stock redemption $ 4.00 (12,500) (250) -- (49,750) --
October, 1995 - common stock issued in connection
with notes payable $2.50-4.00 9,875 -- 198 28,052 --
October, 1995 - exercise of options $ 1.00 14,668 -- 293 14,375 --
October, 1995 - conversion of debt $3.00-4.00 141,250 -- 2,825 427,175 --
October, 1995 - issuance of common stock $ 3.00 200,000 -- 4,000 596,000 --
October, 1995 - exercise of warrants $ 4.00 106,250 -- 2,125 422,875 --
November, 1995 - preferred stock redemption $ 4.00 (12,500) (250) -- (49,750) --
Common stock issued to directors for services $4.00-5.00 4,991 -- 100 16,150 --
Jan, 1996 - conversion of debt $3.96-4.00 32,651 -- 653 129,347 --
Jan, 1996 - conversion of warrants, net of
expenses of $45,139 $4.00-5.32 261,294 -- 5,226 854,022 --
Feb, 1996 - exercise of preemptive rights $3.00-4.00 7,243 -- 145 22,533 --
Feb, 1996 - exercise of options $2.00-4.38 10,500 -- 210 27,790 --
Feb, 1996 - preferred stock redemption $ 4.00 (12,500) (250) -- (49,750) --
Preferred stock dividends -- -- -- (65,187) --
Net loss -- -- -- -- (1,143,196)
----------- -------- ---------- ----------- -----------
Balance March 31, 1996 4,927,089 $ 4,000 $ 94,542 $ 8,508,307 $(8,633,720)
=========== ======== ========== =========== ===========
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-5
<TABLE>
<CAPTION>
TELIDENT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Nine months ended
December 31,
1996 1995
----------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(1,143,196) $(993,896)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation expense 38,166 19,275
Amortization expense 141,756 93,251
Common stock issued for services 16,250 44,000
Common Stock issued in connection with notes payable
and recorded as interest expense -- 36,000
Changes in assets and liabilities:
Decrease in receivables 670,564 5,014
(Increase) decrease in inventory (196,915) 96,091
Increase in other assets (90,322) (3,873)
Decrease in trade accounts payable (254,622) (13,542)
Increase (decrease) in accrued expenses (180,576) 68,965
----------- ---------
Net cash used in operating activities (998,895) (648,715)
----------- ---------
Cash flows from investing activities:
Payments for patent costs (9,701) (7,304)
Purchase of furniture and office equipment (184,936) (47,592)
Acquisition of Cantus (cash acquired) -- 11,321
----------- ---------
Net cash used in investing activities (194,637) (43,575)
----------- ---------
Cash flows from financing activities:
Payments on related party borrowing (98,827) (66,281)
Borrowings from related parties -- 95,000
Payments on notes payable-bank (2,287,143) (264,773)
Borrowings from notes payable-bank 1,698,716 350,427
Payments on borrowings from others (171,145) (3,276)
Borrowings from others -- 201,000
Proceeds from issuance of common stock 2,236,139 406,504
Preferred stock dividends (65,187) (62,425)
Preferred stock redemption (150,000) --
Issuance of debentures - others -- 33,000
----------- ---------
Net cash provided by financing activities 1,162,553 689,176
----------- ---------
Net decrease in cash for the period (30,979) (3,114)
Cash, beginning of period 181,744 7,107
----------- ---------
Cash, end of period $ 150,765 $ 3,993
=========== =========
Supplemental schedule of non-cash financing activities:
Conversion of notes payable to common stock $ 684,000 $ 194,195
=========== =========
Common stock issued for services $ 16,250 $ 44,000
=========== =========
Common stock issued for Business acquisition $ -- $ 315,788
=========== =========
</TABLE>
See accompanying notes to interim consolidated financial statements.
F-6
TELIDENT, INC.
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
March 31, 1996
INTERIM REPORTING
The interim consolidated financial statements are unaudited; however,
in the opinion of the Company, the interim statements include all adjustments,
consisting of normal recurring adjustments, necessary for the fair statement of
the results and balances for the interim periods. The consolidated results of
operations for the nine-month period ended March 31, 1996, do not necessarily
indicate the results to be expected for the full year.
INVENTORIES
Inventories are stated at the lower of cost or market using the first
in, first out method, and consisted of the following:
March 31, 1995
------------------
Raw materials $ 391,913
Work in progress 169,440
Finished goods 97,038
Inventory reserve (15,000)
------------------
$ 643,391
==================
LOSS PER COMMON SHARE
Loss per common share is computed by dividing the net loss (less the
preferred stock dividend) by the weighted average number of shares of Common
Stock outstanding during the year. Common Stock equivalents such as options or
warrants were not included in the calculation as their effect on amounts
reported would be antidilutive.
MAJOR CUSTOMERS
Sales during the first nine months of fiscal 1996, to one of the
Company's customers amounted to 19.7% of total product sales. Sales during the
first nine months of fiscal 1995, to two of the Company's customers amounted to
18% and 15% of total product sales.
SUBSEQUENT EVENTS
Subsequent to March 31, 1996, holders of $500,000 principal amount of
the Company's 10% Convertible Debentures due May 1, 1996 have elected to convert
their Debentures into 166,666 shares of the Company's Common Stock, holders of
$413,000 principal amount of such Debentures have agreed to extend the due date
of their Debentures to July 15, 1997, and holders of $50,000 principal amount of
such Debentures have indicated that they want their Debentures paid on the due
date. As an incentive to cause the Debentures to be converted or to have the due
date extended to July 15, 1997, the Company temporarily reduced the conversion
price of the Debentures from $3.96 to $3.00 per share and agreed to issue a
warrant representing the right to acquire one share of Common Stock at a warrant
exercise price of $4.00 per share for every $8.00 principal amount of the
Debentures so extended. The Company expects to incur an interest charge of
approximately $65,000 in the fourth quarter of fiscal 1996 in connection with
the conversion of Debentures at a reduced conversion rate.
In May 1996, the Company raised $1,160,000, after payment of related
expenses, in the Bridge Financing, which consisted of Bridge Notes and Bridge
Warrants.
F-7
Effective June 4, 1996, the Company will effect a one-for-two reverse
stock split for all common and preferred shares. The effect of this reverse
stock split has been retroactively reflected in the financial statements and
notes for all periods presented. Amounts restated included shares, prices and
net loss per share amounts.
F-8
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
and Shareholders of
Telident, Inc.
Minneapolis, Minnesota
We have audited the accompanying consolidated balance sheets of Telident, Inc.
and subsidiaries, as of June 30, 1995 and 1994, and the related consolidated
statements of operations, shareholders' deficit, and cash flows for the years
then ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Telident, Inc. and
subsidiaries, as of June 30, 1995 and 1994, and the results of their operations
and their cash flows for the years then ended in conformity with generally
accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 1 to the
consolidated financial statements, the Company has convertible debentures
payable totaling approximately $2.1 Million, which are due during fiscal 1996.
While the Company believes it has sufficient working capital and financing
available to fund operations, the Company does not currently have sufficient
working capital or existing sources of financing to retire these obligations if
they are not converted by the debenture holders. In addition, there is no
assurance that the holders will convert the debentures into common stock. These
circumstances raise substantial doubt about the Company's ability to continue as
a going concern. Management's plans in regard to these matters are discussed in
Note 1. The accompanying consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty
McGLADREY & PULLEN, LLP
St. Paul, Minnesota
August 11, 1995 (May 14, 1996
as to Notes 8 and 11)
F-9
<TABLE>
<CAPTION>
TELIDENT, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30,
ASSETS (Note 5) 1995 1994
----------- -----------
<S> <C> <C>
Current assets :
Cash $ 181,744 $ 7,107
Trade accounts receivable, net of allowance for doubtful accounts of $40,000
and $20,000, respectively (Note 9):
Billed 1,050,998 580,933
Unbilled 189,695 153,380
Inventories, net of reserve for obsolescence of $15,000 and $10,000, respectively
446,476 392,251
Other 54,170 25,447
----------- -----------
Total current assets 1,923,083 1,159,118
Furniture and office equipment, less accumulated depreciation of $73,103 and
$44,790, respectively 113,067 89,893
Patents, less accumulated amortization of $41,015 and $25,602, respectively 51,002 59,111
Other assets 64,113 161,343
Goodwill, net of accumulated amortization of $67,016 (Note 10) 435,616 --
----------- -----------
$ 2,586,881 $ 1,469,465
=========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Trade accounts payable $ 602,425 $ 501,338
Accrued expenses 227,739 206,309
Deferred revenue 61,167 --
Notes payable - bank (Note 5) 652,135 --
Notes payable - related parties (Note 3) 178,050 260,867
Notes payable - others (Note 5) 340,841 --
Debentures and interest payable - related parties (Note 3) 246,770 9,240
Debentures and interest payable - others (Notes 6 and 8) 1,882,630 64,175
----------- -----------
Total current liabilities 4,191,757 1,041,929
----------- -----------
Debentures payable - related parties (Notes 3 and 6) -- 235,000
Debentures payable - others (Notes 6 and 8) -- 1,760,000
----------- -----------
Total liabilities 4,191,757 3,036,929
----------- -----------
Commitments (Note 4)
Shareholders' deficit (Notes 3 and 8):
Preferred stock, $.02 par value, convertible into common stock at the rate of
one common share for each preferred share, 2,500,000 shares
authorized, 237,500 and 250,000 shares outstanding, respectively 4,750 5,000
Common stock, $.02 par value, 10,000,000 shares authorized, 3,813,450
and 3,344,748 shares outstanding, respectively 76,269 66,895
Additional paid-in capital 5,804,629 4,931,833
Accumulated deficit (7,490,524) (6,571,192)
----------- -----------
(1,604,876) (1,567,464)
----------- -----------
$ 2,586,881 $ 1,469,465
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-10
<TABLE>
<CAPTION>
TELIDENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years ended June 30,
1995 1994
----------- -----------
<S> <C> <C>
Net sales (Note 9) $ 2,283,959 $ 1,191,661
Cost of sales 677,689 416,029
----------- -----------
Gross profit 1,606,270 775,632
----------- -----------
Operating expenses:
Sales and marketing 738,919 710,855
Research and development 479,475 643,252
General and administrative 929,919 697,847
----------- -----------
Total operating expenses 2,148,313 2,051,954
----------- -----------
Loss from operations (542,043) (1,276,322)
Interest expense - related parties (41,933) (56,615)
Interest expense - others (335,356) (298,812)
----------- -----------
Net loss $ (919,332) $(1,631,749)
=========== ===========
Net loss per common share $ (.28) $ (.52)
=========== ===========
Weighted average number of
common shares outstanding 3,630,442 3,140,901
=========== ===========
</TABLE>
F-11
<TABLE>
<CAPTION>
TELIDENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' DEFICIT
Number Amount of
Price per of shares Preferred
share issued stock
------------- -------------- -------------
<S> <C> <C> <C>
Balance, June 30, 1993 6,251,165 $ --
Retroactive restatement of a 1 for 2
reverse stock split (Note 11) (3,125,582) --
Common stock issued to directors for services $3.10-4.26 1,328 --
Common stock issued for services $2.60 15,000 --
March, 1994 - exercise of options $1.00 22,000 --
April, 1994 - exercise of warrants $1.00-1.20 27,462 --
June, 1994 - conversion of debt $4.00 153,375 --
June, 1994 - preferred stock issued
to directors $4.00 250,000 5,000
Net loss -- --
-------------- -------------
Balance, June 30, 1994 3,594,748 5,000
Common stock issued to directors for services $2.12-4.38 13,594 --
Common stock issued for services $2.00 5,000 --
July, 1994 - exercise of warrants $1.20 16,666 --
August, 1994 - exercise of warrants (including
conversion of $158,334 of related party debt to
exercise warrants for 39,584 shares of common stock)
net of expenses of $50,000 $4.00 148,585 --
November, 1994 - Business acquisition $1.50 210,525 --
January, 1995 - common stock issued in connection with
notes payable $1.20 30,000 --
January, 1995 - conversion of debt $2.24 16,250 --
April, 1995 - exercise of options $1.00 26,832 --
May, 1995 - preferred stock redemption $4.00 (12,500) (250)
June, 1995 - exercise of warrants $4.00 1,250 --
Preferred stock dividends -- --
Net loss -- --
-------------- -------------
Balance, June 30, 1995 4,050,950 $ 4,750
============== =============
</TABLE>
(Wide table continued from above.)
<TABLE>
<CAPTION>
Additional
Amount of paid-in Accumulated
Common Stock capital deficit
-------------- --------------- ---------------
<S> <C> <C> <C>
Balance, June 30, 1993 $ 62,512 $ 3,291,716 $ (4,939,443)
Retroactive restatement of a 1 for 2
reverse stock split (Note 11) -- -- --
Common stock issued to directors for services 26 4,974 --
Common stock issued for services 300 38,700 --
March, 1994 - exercise of options 440 21,560 --
April, 1994 - exercise of warrants 549 9,451 --
June, 1994 - conversion of debt 3,068 610,432 --
June, 1994 - preferred stock issued
to directors -- 955,000 --
Net loss -- -- (1,631,749)
-------------- --------------- ---------------
Balance, June 30, 1994 66,895 4,931,833 (6,571,192)
Common stock issued to directors for services 272 33,728 --
Common stock issued for services 100 9,900 --
July, 1994 - exercise of warrants 333 19,667 --
August, 1994 - exercise of warrants (including
conversion of $158,334 of related party debt to
exercise warrants for 39,584 shares of common stock)
net of expenses of $50,000 2,972 541,366 --
November, 1994 - Business acquisition 4,211 311,577 --
January, 1995 - common stock issued in connection with
notes payable 600 35,400 --
January, 1995 - conversion of debt 325 35,536 --
April, 1995 - exercise of options 536 26,296 --
May, 1995 - preferred stock redemption -- (49,750) --
June, 1995 - exercise of warrants 25 4,975 --
Preferred stock dividends -- (95,899) --
Net loss -- -- (919,332)
-------------- --------------- ---------------
Balance, June 30, 1995 $ 76,269 $ 5,804,629 $ (7,490,524)
============== =============== ===============
</TABLE>
See accompanying notes to consolidated financial statements.
F-12
<TABLE>
<CAPTION>
TELIDENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended June 30,
Cash flows from operating activities: 1995 1994
----------- -----------
<S> <C> <C>
Net loss $ (919,332) $(1,631,749)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense 32,419 17,400
Amortization expense 150,447 67,579
Common stock issued for services 44,000 44,000
Common stock issued in connection with notes payable
and recorded as interest expense 36,000 --
Changes in assets and liabilities, net of effects of Cantus acquisition:
(Increase) in trade accounts receivable (401,170) (354,599)
(Increase) decrease in inventories (12,021) 218,518
(Increase) in other assets (2,998) (109,091)
Increase (decrease) in trade accounts payable (47,392) 60,013
Increase in accrued expenses and deferred revenue 83,091 149,465
----------- -----------
Net cash used in operating activities (1,036,956) (1,538,464)
----------- -----------
Cash flows from investing activities:
Payments of patent costs (7,304) (33,304)
Purchases of furniture and office equipment (46,634) (45,700)
Acquisition of Cantus (cash acquired) (Note 10) 11,321 --
----------- -----------
Net cash used in investing activities (42,617) (79,004)
----------- -----------
Cash flows from financing activities:
Borrowings from related party debt 120,000 498,500
Payments on related party borrowing (60,000) --
Borrowings from others 223,074 --
Payments on borrowings from others (5,936) --
Net proceeds from issuance of preferred stock -- 960,000
Preferred stock redemption (50,000) --
Preferred stock dividends (95,899) --
Proceeds from issuance of common stock 437,836 32,000
Issuance of debentures - related parties -- 110,000
Issuance of debentures - others 33,000 985,000
Net borrowings (payments) on bank line of credit 652,135 (1,000,000)
----------- -----------
Net cash provided by financing activities 1,254,210 1,585,500
----------- -----------
Net increase (decrease) in cash for the year 174,637 (31,968)
Cash, beginning of year 7,107 39,075
----------- -----------
Cash, end of year $ 181,744 $ 7,107
=========== ===========
Supplemental disclosure of cash flow information:
Interest paid $ 324,738 $ 196,443
=========== ===========
Supplemental schedule of non-cash investing and financing activities:
Common stock issued for services $ 44,000 $ 44,000
=========== ===========
Conversion of notes payable to common stock $ 35,861 $ 613,500
=========== ===========
Conversion of notes payable to common stock through warrants $ 158,334 $ --
=========== ===========
Common stock issued in connection with Cantus Acquisition $ 315,788 $ --
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-13
TELIDENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - DESCRIPTION OF BUSINESS ACTIVITIES/GOING CONCERN:
Telident, Inc. (the Company) was organized in July 1983. The Company is a
designer and manufacturer of hardware and software for the Enhanced 911 (E-911)
marketplace. The Company provides enhancements to telephone systems (PBX's), as
well as providing Public Safety Answering Point systems and alternative
selective routing equipment for the 911 marketplace throughout the United
States. In addition, the Company provides ongoing support services to its
customers under separate hardware and software maintenance agreements.
The consolidated financial statements were prepared on a going concern basis,
which contemplates the realization of assets and the satisfaction of liabilities
in the normal course of business. In 1995, the Company had a net loss of
$919,332 and at June 30, 1995, had a shareholders' deficit of $1,604,876. While
the Company believes it has sufficient working capital and financing available
for operations, continuation as a going concern is dependent upon the Company's
ability to retire the convertible debentures payable or convert them into common
stock as these debentures become due during the Company's year ending June 30,
1996.
The Company, throughout fiscal 1995, continued to address its capital needs, and
was able to:
* Generate a 92% increase in sales over 1994, while holding expenses
virtually constant.
* Generate $411,000 through the exercise of warrants.
* Convert $194,000 of debt into common stock.
* Generate significant sales growth during the fourth quarter of its fiscal
year ended June 30, 1995. o Improve annual gross profit margins from 65%
to 70% of sales.
* Establish a $750,000 revolving line of credit for working capital needs.
* Establish several significant multi-year distribution agreements.
The Company, subsequent to its fiscal year ended June 30, 1995, has been
actively negotiating with debenture holders regarding conversion or extension of
the debentures. If the debenture holders are unable or unwilling to convert or
extend the debentures payable, the Company will be required to obtain additional
debt or equity capital. However, there is no assurance that the Company will be
able to raise such additional capital. Therefore, there continues to be
substantial doubt about its ability to continue as a going concern.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, Telident Europe, LTD, and Cantus Corporation.
During fiscal years 1995 and 1994, Telident Europe, LTD had no significant
activity. All intercompany balances and transactions have been eliminated in
consolidation.
Cash
The Company maintains cash in bank accounts which at times may exceed federally
insured limits. The Company has not experienced any losses in such accounts.
F-14
Inventories
Inventories are stated at the lower of cost (first in, first out method), or
market, and consisted of the following:
June 30,
-------------------------------
1995 1994
---------- -----------
Raw materials $ 236,014 $ 145,781
Work in progress 136,529 151,413
Finished goods 88,933 105,057
Reserve for inventory obsolescence (15,000) (10,000)
---------- -----------
$ 446,476 $ 392,251
========== ===========
Furniture and Office Equipment
Furniture and office equipment are stated at cost. Depreciation is provided
using the straight-line method over estimated useful lives of seven years.
Patents
Patents consist of unamortized registration costs for protection of the
Company's technology. The Company amortizes the patent costs on a straight-line
basis over its estimated useful life of five years.
Other Assets
Other assets consisted of the following:
June 30,
-------------------
1995 1994
-------- --------
Deferred costs on discounted
warrant offering $ -- $ 50,000
Deferred financing costs, net 62,713 98,543
Other, net 1,400 12,800
-------- --------
$ 64,113 $161,343
======== ========
Deferred costs consist of fees related to a discounted warrant offering, which
were netted against the proceeds of the warrant exercise in fiscal 1995.
Financing costs consist of unamortized fees related to debt offerings. The
Company amortizes financing costs over the estimated life of the related debt
instruments.
Goodwill
Cost in excess of assets acquired, is being amortized over its estimated life of
five years using the straight-line method. The Company reviews its goodwill
periodically to determine potential impairment by comparing the carrying value
of the goodwill with expected future net cash flows provided by operating
activities of the business. Should the sum of the expected future net cash flows
be less than the carrying value, the Company would determine whether an
impairment loss would be measured by comparing the amount by which the carrying
value exceeds the fair value of the goodwill. To date, management has determined
that no impairment of goodwill exists.
F-15
Warranty Liability
The Company guarantees that products sold shall meet published specifications.
The Company will repair or replace, at its own expense, any such products that
fail to meet specifications. The warranty period is generally 12 months from
date of shipment by the Company. Management has estimated the cost of such
warranty work and recognizes the expense when the accompanying revenue is
recognized.
Postretirement Benefits
The Company does not currently provide postretirement benefits.
Revenue Recognition
The Company recognizes product revenue upon shipment or, when applicable,
installation. Unbilled receivables represent amounts due to the Company for
equipment shipped, which due to billing terms, has not been invoiced to the
customer.
Deferred Revenue
Deferred revenue primarily represents payments received for ongoing customer
support to be provided by the Company. These revenues are recognized over the
period for which the related services are provided.
Research and Development
The costs of Company-sponsored research and development are expensed as
incurred.
Income Taxes
Deferred taxes are provided on an asset and liability method whereby deferred
tax assets are recognized for deductible temporary differences, and operating
loss or tax credit carryforwards and deferred tax liabilities are recognized for
taxable temporary differences. Temporary differences are the variances between
the amounts of assets and liabilities recorded for income tax and financial
reporting purposes. Deferred tax assets are reduced by a valuation allowance to
reflect the possibility that some portion or all of the deferred tax assets may
not be realized.
A valuation allowance has been established to fully offset the net deferred tax
asset of approximately $3.1 Million, and $2.7 Million at June 30, 1995 and 1994,
respectively. The deferred tax asset at June 30, 1995 is comprised of the
following components: net operating loss carryforwards and tax credits of
$3,030,000; goodwill amortization of $20,000; and other of $50,000. The deferred
tax asset of June 30, 1994 is comprised of the following components: net
operating loss carry forwards and tax credits of $2,700,000. The valuation
allowance of $3.1 Million at June 30, 1995 increased by $400,000 during fiscal
1995 and $700,000 during fiscal 1994. Upon achieving profitability and
demonstrating that the realization of existing loss carryforwards and deferred
tax assets is more likely than not, an asset equal to all or a portion of the
estimated tax benefit of existing loss carryforwards and other temporary
differences may be recognized on the Company's balance sheet. Deferred tax
assets and liabilities are adjusted for the effects of changes in tax laws and
rates on the date of enactment. No income tax expense was incurred in the fiscal
years ending June 30, 1995 or 1994.
Loss Per Common Share and Supplementary Loss Per Share
Loss per common share is computed by dividing the net loss (less the preferred
stock dividend) by the weighted average number of shares of common stock
outstanding during the year. Common stock equivalents such as options or
warrants were not included in this calculation as their effect on amounts
reported would be antidilutive.
F-16
Assuming the June, 1994 conversion of debt had taken place at the beginning of
fiscal 1994, the Company would have had a primary loss per share of $(.48) for
the year ended June 30, 1994.
Assuming the conversion of debt during fiscal 1995 had taken place at the
beginning of fiscal 1995, the Company's primary loss per share would have
remained unchanged.
NOTE 3 - RELATED PARTY TRANSACTIONS:
During fiscal 1994 and 1993, certain board members purchased $110,000 and
$125,000, respectively, of the 10% convertible debentures through a private
offering. These debentures mature during fiscal 1996. At June 30, 1995 and 1994,
these debentures, and associated accrued interest in the aggregate were $246,770
and $244,240, respectively.
During fiscal 1995 and 1994, certain board members loaned the Company $120,000
and $498,500, respectively. These demand notes are secured by all of the
Company's assets and subordinated to the bank's security interest. The
underlying notes bear interest at the bank base rate plus 1.5%. On June 30,
1994, $613,500 of the notes payable were converted into common stock at $4.00
per share, resulting in the issuance of 153,375 shares. On September 30, 1994,
$158,334 of the notes payable were converted into common stock at $4.00 per
share, resulting in the issuance of 39,584 shares. At June 30, 1995 and 1994,
remaining demand notes payable and related accrued interest were $178,050 and
$260,867, respectively.
During fiscal 1995 and 1994, certain members of the Company's Board of Directors
received shares of the Company's common stock in lieu of cash remuneration for
Director services, resulting in the issuance of 13,595 and 1,328 shares,
respectively. The fair market values assigned to these shares at issuance were
$34,000 and $5,000, respectively, and were charged to expense in the respective
years.
During fiscal 1995 and 1994, the Company paid $31,780 and $28,832, respectively,
for office rent and office expenses for certain of its directors. The Company
was directly reimbursed for these amounts by the directors.
On June 30, 1994, three of the Company's officers/directors were issued 250,000
voting shares of Series I convertible cumulative preferred stock at $4.00 per
share, resulting in proceeds to the Company of $1,000,000, which was utilized to
pay off the bank line of credit. These shares pay a yearly dividend at 1% over
the prime rate and are redeemable at the Company's option at $4.00 per share.
During fiscal 1995, the Company redeemed 12,500 shares. All dividends due with
respect to the preferred stock have been paid in full as of June 30, 1995.
An investment banking firm, of which a Company director is a principal, earned
$50,000 and was granted stock purchase warrants representing the right to
acquire 50,000 shares of the Company's Common Stock at an exercise price of
$2.00 per share for services related to the restructuring of the Company's bank
and related party debt, issuance of preferred stock, and the development of a
warrant exercise program. See Note 2 - Other assets.
F-17
NOTE 4 - LEASE COMMITMENTS:
The Company leases its office space. The following is a schedule of the minimum
lease payments under the lease for the years ending June 30:
1996 $81,000
1997 $81,000
1998 $61,000
Rent expense incurred was $73,800 and $66,200, respectively, during the years
ended June 30, 1995 and 1994.
NOTE 5 - NOTES PAYABLE:
Notes payable - bank
In February, 1995, the Company obtained a revolving line of credit with a bank
providing advances up to $750,000. Advances under the agreement are limited to
75% of eligible receivables ($657,000 at June 30, 1995). The loan agreement also
contains provisions requiring compliance with certain financial covenants. The
line of credit agreement expires on February 3, 1996, when all outstanding
amounts are due and payable. Borrowings under this agreement were $652,135 as of
June 30, 1995. The agreement bears interest at the bank's base rate plus 7.5%.
The note is secured by all of the Company's assets.
During 1994, the Company had a line of credit with a bank providing for advances
up to $1,000,000. Borrowings outstanding under this agreement were $1,000,000
for all of fiscal 1994. The effective interest rate during 1994 was 8.6%. On
June 30, 1994, the Company paid off the $1,000,000 line of credit in connection
with the issuance of preferred stock. Accordingly the line of credit agreement
was terminated.
Notes payable - others
During fiscal 1995, the Company generated $195,000 from the issuance of notes
payable. The unsecured notes have a maturity of six months and bear interest at
the rate of 10% annually. As of August 11, 1995 $145,000 of the debt was
converted into 36,250 shares of common stock and $50,000 has been repaid. In
November 1994, the Company assumed $187,666 of notes payable related to a
business acquisition. The notes bear interest at the rate of 9% annually and are
due in fiscal 1996. At June 30, 1995, notes payable-others and related accrued
interest were $340,841.
NOTE 6 - DEBENTURES PAYABLE:
Debentures payable including accrued interest consisted of the following:
June 30,
------------------------------
1995 1994
------------- ------------
10% debentures: Principal payable $ 2,028,000 $ 1,995,000
Accrued interest payable 101,400 73,415
------------- ------------
$ 2,129,400 $ 2,068,415
Less current maturities (2,129,400) (73,415)
------------- ------------
Long-term maturities $ - $ 1,995,000
============= ============
F-18
The debentures have a maturity schedule as follows:
October 1995 $ 585,000
May 1996 1,443,000
--------------
Total $ 2,028,000
==============
In October 1992, the Company issued 5,850 units of 10% convertible debentures,
each unit consisting of $100 principal amount due October 1, 1995 and one stock
purchase warrant representing the right to purchase 25 shares of common stock at
$6.00 per share during the three-year period ending October 1, 1995. The 10%
debentures are convertible into common stock of the Company until maturity,
unless previously redeemed at the option of the Company, at a conversion price
of $4.00 per share. After January 15, 1993, interest is payable semi-annually.
If the Company fails to make a semi-annual interest payment, 25% of the holders
may declare the debentures as due and payable.
In May, 1993, the Company issued, via a private placement, 7,500 units of 10%
Series B convertible debentures. Each unit consisted of $100 principal amount
due May 1, 1996 and one stock purchase warrant representing the right to
purchase 25 shares of common stock at $6.00 per share during the three-year
period ending May 1, 1996. The 10% debentures are convertible into common stock
of the Company until maturity, unless previously redeemed at the option of the
Company, at a conversion price of $4.00 per share. After July 15, 1993, interest
is payable semi-annually. If the Company fails to make a semi-annual interest
payment, 25% of the holders may declare the debentures as due and payable. As of
June 30, 1995, the Company had issued the 7,500 units available in addition to
the overallotment of 2,500 units, resulting in total proceeds of $1,000,000.
In August, 1993, and July, 1994, the Company issued, via a private placement,
4,100 units and 330 units, respectively, of 10% Series B-1 convertible
debentures, each unit consisting of $100 principal amount due May 1, 1996 and
one stock purchase warrant representing the right to purchase 25 shares of
common stock at $6.00 per share during the three-year period ending May 1, 1996.
The 10% debentures are convertible into common stock of the Company until
maturity, unless previously redeemed at the option of the Company, at a
conversion price of $4.00 per share. After January 1, 1994, interest is payable
semi-annually. If the Company fails to make a semi-annual interest payment, 25%
of the holders may declare the debentures as due and payable. The warrants may
be redeemed by the Company at $.10 per warrant at the Company's option, anytime
after the market value of the Company's stock exceeds $7.00 per share.
NOTE 7 - INCOME TAXES AND CARRYFORWARDS:
At June 30, 1995, the Company has available net operating loss (NOL) and
research and development tax credit carryforwards. Realization of these
carryforwards may be subject to provisions of IRC Section 382, which limits the
utilization of net operating losses if more than 50 percent of the Company's
ownership changes within a three year period. These NOL's expire as follows:
Net Operating Tax Credit
- ----------------------------- -------------------- ----------------
Expiration Dates Loss
1999-2004 $ 429,500 $ 9,900
2005 620,000 16,900
2006 1,065,000 37,000
2007 954,500 35,000
2008 1,629,500 46,000
F-19
2009 1,623,800 47,000
2010 900,000 25,000
---------------- ----------------
$ 7,222,300 $ 216,800
================ ================
NOTE 8 - STOCK ISSUANCE ARRANGEMENTS:
The Company has sold, via a private placement, a total of 20,280 debenture units
at $100 per unit. See Note 6 - Debentures Payable. Each unit consisted of $100
principal of a convertible debenture and a common stock purchase warrant which
entitled the holder to purchase 25 shares of common stock at $6.00 per share.
The warrants may be redeemed by the Company at a price of $.10 per warrant at
the Company's option, any time after the market value of the Company's common
stock exceeds $7.00 per share.
During fiscal 1994, a consultant earned 15,000 shares of common stock for
services performed throughout fiscal 1994. The estimated fair value of common
stock at the time services were provided of $39,000 was recorded as an expense
and an increase of $150 to common stock and $38,850 to additional paid-in
capital.
During fiscal 1995, an officer and director of the Company earned 5,000 shares
of common stock as a bonus for services performed throughout fiscal 1995. The
estimated fair value of common stock at the date of the award was $10,000, and
was recorded as an expense and an increase of $50 to common stock and $9,950 to
additional paid-in capital. In September 1994, and June 1994, $158,334 and
$613,500 of notes payable to related parties were converted into common stock at
$4.00 per share; resulting in the issuance of 39,584 and 153,375 shares,
respectively.
In November, 1994, the Company acquired all of the outstanding shares of common
stock of Cantus Corporation. The Cantus stockholders, in exchange for all the
outstanding stock of Cantus Corporation, received 210,525 shares of Telident
common stock and warrants representing the right to acquire 122,808 shares of
Telident common stock at an exercise price of $4 per share. See Note 10 -
Business Acquisition.
During fiscal 1995, the Company generated $240,000 from the issuance of notes
payable. The notes have a maturity of six months and pay interest at the rate of
10% annually. As additional consideration, recorded as interest expense in
fiscal 1995, the Company issued 30,000 shares of common stock to the note
holders. A director participated in the note issuance and also received 5,625
shares of common stock.
A summary of the Company's outstanding common stock warrants as of June 30, 1995
is as follows:
<TABLE>
<CAPTION>
Common Stock Number of Price Per Expiration
Warrants Shares Share Date
--------------- ------------ ------------ -------------
<S> <C> <C> <C> <C>
Outstanding at June 30, 1993 410,295 $1.00-6.00 May, 1996
Warrants issued in May, 1993 private placement 6,850 (1) 171,250 6.00 May, 1996
Warrants issued in August, 1993 private
placement 4,100 (1) 102,500 6.00 May, 1996
Warrants exercised (27,462) (27,462) 1.00-1.20
Warrants canceled (8,998) (8,998) 1.00
Warrants issued for June, 1994 investment
banking fee 50,000 50,000 2.00 Jul, 1997
---------- ------------
Outstanding at June 30, 1994 697,585 1.00-6.00
Warrants issued in July, 1994 private placement 330 (1) 8,250 6.00 May, 1996
Warrants exercised (166,501) 1.00-1.20
Warrants canceled (84,334) (84,334) 1.00
Warrants issued for November, 1994 Acquisition 122,808 122,808 4.00 Jan, 1997
---------- ------------
Outstanding at June 30, 1995 577,808 $1.00-6.00
========== =========
</TABLE>
F-20
(1) Each warrant in debenture offering entitles holder to purchase 25 shares
of common stock.
The Company has a stock option plan, which provides for the granting of options
to certain employees, officers and directors of the Company to purchase up to a
maximum of 675,000 shares of common stock. The options vest over a five year
period and expire seven years after being granted, except in the case of
directors who vest 50% on the date of grant and the remainder over a two year
period. Canceled options are available for future grant under the plan.
A summary of the changes in shares under option is as follows:
Option Price
Per Share Options
---------------- -----------------
Outstanding at June 30, 1993 $ 1.00 - 5.00 286,500
Granted 3.50-4.76 219,500
Canceled 1.00 - 4.76 (68,500)
Exercised 1.00 (22,000)
---------------- -----------------
Outstanding at June 30, 1994 $ 1.00 - 5.00 415,500
Granted 2.00 - 4.38 97,250
Canceled 1.00 - 4.76 (59,500)
Exercised 1.00 (26,832)
---------------- -----------------
Outstanding at June 30, 1995 $ 1.00 - 5.00 426,418
================ ================
Exercisable at June 30, 1995 $ 1.00 - 5.00 179,350
================ ================
NOTE 9 - MAJOR CUSTOMERS:
Sales in fiscal 1995 to two of the Company's customers amounted to 24.6% and
19.6% of total product sales and accounted for 23.7% and 19%, respectively, of
accounts receivable as of June 30, 1995.
Sales in fiscal 1994 to two of the Company's customers amounted to 19.4% and
11.0% of total product sales and accounted for 21% and 14%, respectively, of
accounts receivable as of June 30, 1994.
NOTE 10 - BUSINESS ACQUISITION:
On November 22, 1994, pursuant to an acquisition agreement, the Company acquired
all of the outstanding shares of common stock of Cantus Corporation, a company
engaged in the development of software which provides customer specific
solutions for communication needs. The Cantus stockholders, in exchange for all
the outstanding stock of Cantus, received 210,525 shares of Telident common
stock and warrants representing the right to acquire 122,808 shares of Telident
common stock at an exercise price of $4 per share. The acquisition has been
accounted for as a purchase, and the results of Cantus' operations since the
date of acquisition are included in the financial statements.
The purchase price of the Cantus common stock exceeded the net Cantus
liabilities assumed by $502,632, which has been treated as excess cost
(goodwill). A summary of the net assets acquired and liabilities assumed in
connection with the acquisition is as follows:
F-21
Fair value of assets acquired:
Current assets $ 278,483
Furniture and equipment 8,959
----------------
Fair value of assets acquired $ 287,442
Less liabilities assumed:
Accounts payable and accruals $ (170,377)
Deferred revenue (116,242)
Long-term debt (187,666)
-----------------
Net liabilities assumed at fair value (186,844)
Excess of cost over net liabilities
assumed (goodwill) 502,632
----------------
Total net acquisition cost - value assigned
to Telident common stock issued $ 315,788
================
The following unaudited, condensed pro forma results of operations for the
fiscal years ended June 30, 1995 and 1994 were derived by combining the
operations of Telident, Inc. and Cantus Corporation. The pro forma information
assumes the acquisition occurred as of the beginning of the respective periods
after giving effect to certain adjustments, including write-down of goodwill and
the elimination of intercompany sales transactions. The pro forma results have
been prepared for comparative purposes only and do not purport to indicate the
results of operations which would actually have occurred had the combination
been in effect on the dates indicated or which may occur in the future.
Proforma (Unaudited)
-----------------------------------------
1995 1994
---------------- ----------------
Net revenues $ 2,392,132 $ 1,501,394
Net loss (1,016,756) (2,109,894)
Loss per common share $ (.30) $ (.62)
NOTE 11 - REVERSE STOCK SPLIT:
On May 14, 1996, the Company's Board of Directors approved a 1 for 2 reverse
stock split for all common and preferred shares, effective as of June 4, 1996.
The effect of this reverse stock split has been retroactively reflected in the
financial statements and notes for all periods presented. Amounts restated
included shares, prices and shares in stock issuance arrangements (Note 8) and
net loss per share amounts.
F-22
INDEPENDENT AUDITOR'S REPORT
To the Shareholders and Board of Directors
Cantus Corporation
Bloomington, Minnesota
We have audited the accompanying balance sheet of Cantus Corporation as of
December 31, 1993, and the related statements of operations, shareholders'
deficit, and cash flows for the year then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principals used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Cantus Corporation as of
December 31, 1993, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
McGLADREY & PULLEN, LLP
St. Paul, Minnesota
January 10, 1995
F-23
<TABLE>
<CAPTION>
CANTUS CORPORATION
BALANCE SHEETS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, --------------------------
1993 1994 1993
------------ ----------- -----------
(UNAUDITED)
ASSETS
<S> <C> <C> <C>
CURRENT ASSETS:
Cash $ 18,316 $ 6,058 $ 6,119
Accounts receivable, net of allowance for 88,350 82,908 99,422
doubtful accounts of $20,000
Notes receivable from shareholders 6,967
Inventories 23,541 41,029 13,019
Other assets 3,473 60,035 20,547
Bid deposits 30,995 46,643 64,825
----------- ----------- -----------
Total Current Assets 171,642 236,673 203,932
Furniture and Equipment, net of accumulated depreciation
of $77,100, $83,148 and $74,812, respectively 13,048 9,634 15,337
----------- ----------- -----------
$ 184,690 $ 246,307 $ 219,269
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Demand notes payable to shareholders (Note 3) $ 1,566,642 $ 1,795,012 $ 1,487,471
Other demand notes payable (Note 4) 54,579 49,561 59,579
Accounts payable 103,533 163,157 92,950
Accrued expenses
Accrued interest on demand notes payable 580,335 737,756 532,582
to shareholders
Other 17,952 27,664 26,338
Deferred revenue 88,806 111,028 73,981
----------- ----------- -----------
Total current liabilities 2,411,847 2,884,178 2,272,901
----------- ----------- -----------
COMMITMENTS (Note 5)
SHAREHOLDERS' DEFICIT:
Common stock, $.01 par value; 6,500,000 shares 51,957 51,957 51,957
authorized; 5,195,651 shares outstanding (Note 6)
Additional paid-in capital 394,440 394,440 394,440
Accumulated deficit (2,673,554) (3,084,268) (2,500,029)
----------- ----------- -----------
Total shareholders' deficit (2,227,157) (2,637,871) (2,053,632)
----------- ----------- -----------
Total liabilities and shareholders' deficit $ 184,690 $ 246,307 $ 219,269
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-24
<TABLE>
<CAPTION>
CANTUS CORPORATION
STATEMENTS OF OPERATIONS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, -----------------------
1993 1994 1993
----------- ----------- --------
(UNAUDITED)
<S> <C> <C> <C>
SALES $ 457,849 $ 350,639 $415,907
----------- ----------- --------
COSTS AND EXPENSES:
Cost of sales 228,820 170,606 174,347
Research and development 108,686 115,208 99,395
Marketing, general and administrative 361,769 309,307 243,989
----------- ----------- --------
699,275 595,121 517,731
----------- ----------- --------
Operating loss (241,426) (244,482) (101,824)
----------- ----------- --------
INTEREST EXPENSE:
Stockholders (Note 3) 181,966 161,473 133,313
Other 10,028 4,759 4,926
----------- ----------- ----------
191,994 166,232 138,239
----------- ----------- ----------
Net loss $ (433,420) $ (410,714) $(240,063)
=========== =========== ==========
NET LOSS PER SHARE $ (0.08) $ (0.08) $ (0.05)
=========== =========== ==========
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING 5,195,651 5,195,651 5,195,651
=========== =========== ===========
</TABLE>
See notes to financial statements.
F-25
<TABLE>
<CAPTION>
CANTUS CORPORATION
STATEMENT OF SHAREHOLDERS' DEFICIT
COMMON STOCK ADDITIONAL
---------------------- PAID-IN- ACCUMULATED
SHARES AMOUNT CAPITAL DEFICIT TOTAL
-------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balances, December 31, 1992 5,195,651 $ 51,957 $ 394,440 $(2,240,134) $(1,793,737)
Net loss -- -- -- (433,420) (433,420)
--------- ----------- ----------- ----------- -----------
Balances, December 31, 1993 5,195,651 $ 51,957 $ 394,440 $(2,673,554) $(2,227,157)
Net loss (unaudited) -- -- -- (410,714) (410,714)
--------- ----------- ----------- ----------- -----------
Balances, September 30, 1994
(unaudited) 5,195,651 $ 51,957 $ 394,440 $(3,084,268) $(2,637,871)
=========== =========== =========== =========== ===========
</TABLE>
- -----------------
See notes to financial statements.
F-26
<TABLE>
<CAPTION>
CANTUS CORPORATION
STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
YEAR ENDED SEPTEMBER 30,
DECEMBER 31, ----------------------
1993 1994 1993
--------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(433,420) $(410,714) $(240,063)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation 9,155 6,047 6,866
Changes in assets and liabilities:
Decrease in receivables 113,565 12,409 40,413
Increase in inventories (15,891) (17,488) (5,369)
(Increase) Decrease in prepaid expenses
and other current assets 29,941 (72,210) 26,118
Increase in accounts payable
and accrued expenses 182,486 226,757 127,704
Increase (Decrease) in deferred revenue (6,591) 22,222 (21,417)
--------- --------- ---------
Net cash used in operating activities (120,755) (232,977) (65,748)
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Notes receivable advances (6,967) -- --
Purchase of furniture and equipment -- (2,633) --
--------- --------- ---------
Net cash used in investing activities (6,967) (2,633) --
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from demand notes payable to shareholders 150,239 228,352 71,068
Net payments on demand notes payable (5,000) (5,000) --
--------- --------- ---------
Net cash provided by financing activities 145,239 223,352 71,068
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 17,517 (12,258) 5,320
CASH:
Beginning 799 18,316 799
--------- --------- ---------
Ending $ 18,316 $ 6,058 $ 6,119
========= ========= =========
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ -- $ -- $ --
========= ========= =========
</TABLE>
See notes to financial statements.
F-27
CANTUS CORPORATION
NOTES TO FINANCIAL STATEMENTS
Note 1. Nature of Business and Significant Accounting Policies
Interim Reporting: The interim financial statements are unaudited; however, in
the opinion of the Company, the interim statements include all adjustments,
consisting of normal recurring adjustments, necessary for the fair statement of
the results and balances for the interim periods. The statements of operations
for the nine-month periods ended September 30, 1994 and 1993 do not necessarily
indicate the results to be expected from the full year. These statements should
be read in conjunction with the Company's December 31, 1993 audited financial
statements and notes thereto, contained elsewhere in this prospectus.
Nature of business: Cantus Corporation (the Company) was organized in March of
1985. The Company develops, manufactures and provides public safety management
and automation solutions primarily involving 911 systems and other computer
telecommunication systems. The Company sells its products primarily to public
safety agencies throughout the United States. In addition, the Company also
provides ongoing support services to its customers under separate maintenance
agreements.
Inventories: Inventories are stated at the lower of cost (first-in, first-out
method) or market. Inventories are comprised primarily of purchased components.
Bid deposits: In connection with proposing on certain projects, the Company is
required to post performance bonds. Accordingly, the Company records the
deposits associated with these performance bonds as assets. Upon completion of
the proposal process or completion of the project, the deposits are returned to
the Company.
Furniture and equipment: Furniture and equipment are stated at cost.
Depreciation is provided using the straight-line method over the estimated
useful lives of five to seven years.
Deferred revenue: Deferred revenue represents billings and customer prepayments
for services to be performed by the Company. These revenues are recognized as
income in the period in which the services are completed.
Revenue recognition: The Company recognizes product revenue on the later of the
date of shipment or upon completion of installation.
Warranty liability: The Company guarantees that products sold shall meet
published specifications. The Company will repair or replace, at its own
expense, any such products that fail to meet specifications. The warranty period
is generally 12 months from date of shipment by the Company. Management has
estimated the cost of such warranty work and recognizes the expense when the
related revenue is recognized.
Loss per common share: Loss per common share is computed by dividing the net
loss by the weighted average number of shares of common stock outstanding during
the period.
Income taxes: The Company has elected to be taxed under sections of the federal
(Subchapter S) and state income tax laws, which provide that in lieu of
corporation income taxes, the shareholders separately account for their pro rata
shares of the Company's items of income, deductions, losses and credits. As a
result of this election, no income taxes have been recognized in the
accompanying financial statements.
No pro forma tax provisions have been presented as the net losses would not be
affected if the Company was subject to corporate income taxes.
Note 2: Going Concern Considerations
The accompanying financial statements have been prepared on a going-concern
basis. However, as of December 31, 1993, the Company had suffered losses which
aggregate $2,673,554. In addition, the Company had incurred substantial
reductions in working capital during 1993, and at December 31, 1993, the Company
had a working capital deficit of $2,240,205. Furthermore, the Company had a
F-28
shareholders' deficit of $2,227,157 and was insolvent. In order for the Company
to realize its investments in its assets and meet its obligations when due, it
must obtain additional capital, arrange for adequate financing or attain a level
of operation which will provide a sustained positive cash flow.
During 1994, the Company continued to incur significant losses and was unable to
generate any positive cash flow from operations. To fund its working capital
needs, the Company continued to borrow additional funds from its major
shareholder under a demand note agreement as described in Note 3. In the opinion
of management, these resources were adequate to allow the Company to continue as
a going concern through November 22, 1994, the date the Company was acquired by
Telident, Inc. (Telident) as described in Note 6.
Note 3. Transactions With Shareholders
The Company has entered into five separate demand note agreements with
shareholders under which the Company had borrowed a total of $1,487,471,
$1,566,642 and $1,795,012 as of September 30, 1993, December 31, 1993 and
September 30, 1994, respectively. The agreement with the majority shareholder is
secured by substantially all assets of the Company and bears interest at 9
percent per annum. The Company may, at the discretion of the majority
shareholder, borrow additional funds. At September 30, 1993, December 31, 1993
and September 30, 1994, the Company had $1,381,737, $1,460,908, and $1,689,279
respectively, outstanding under the majority shareholder agreement. The
remaining agreements are unsecured and bear interest ranging from 12 to 13
percent per annum.
Note 4. Demand Note Payable
The Company also has unsecured demand notes agreements with four other
individuals which are personally guaranteed by the shareholders of the Company.
These agreements bear interest ranging from 9.25 to 12 percent per annum.
Note 5. Commitments
The Company leases its office and manufacturing facility under a three-year
operating lease. Future annual minimum lease commitments under this lease are
approximately $21,600 in fiscal years 1994 and 1995, and $5,400 in fiscal year
1996. Total rent expense was $23,487 for fiscal year 1993.
Note 6. Sale of the Company
On November 22, 1994, pursuant to an acquisition agreement, Telident acquired
all of the outstanding shares of common stock of the Company. The agreement
required that all the Company's shareholder debt, as well as accrued interest
(together totaling approximately $2,450,000), be converted to Company common
stock at the time of closing. Accordingly, approximately 16,700,600 shares of
Company common stock were issued to the shareholders. The Company's common
shareholders received 210,525 shares of Telident common stock and warrants
representing the right to acquire 122,808 shares of Telident common stock at an
exercise price of $4 per share for all the Company's outstanding stock.
F-29
[GRAPHIC]
Flow Chart:
DORMITORY A \ DORMITORY B \ DORMITORY C
123 ----- 234 ----- 345
OAK ST. / OAK ST. / OAK ST.
|
|
| MEDICAL BUILDING A
\|/ ----- 200 MAPLE STREET
BUSINESS \ STATE UNIV. |
BUILDING ----- MAIN ----- |
100 ELM ST / ADMINISTRATION |
BUILDING ----- MEDICAL BUILDING B
500 PINE BLVD. 300 MAPLE STREET
|
|
|
PBX PHONE
EXCHANGE
|
|
TELIDENT 911 PRODUCTS
|
|
| \ STATE UNIV. DORMITORY A
--------------------- ROOM 6211 3RD FLOOR
/ EXT. 211
E-911 DISPATCH CENTER
If a fire broke out in a multi-building complex with a PBX telephone system,
and someone dialed 9-1-1 from the burning building, the E9-1-1 dispatch center
would show the building address of the corporate headquarters (or the main
billing address).
The Telident 9-1-1 STS (tm), with its patented technology, transmits the precise
location of the call, thereby shortening the response time, reducing costs
associated with responses to incorrect locations, and improving the safety of
individuals within a PBX telephone system.
================================================================================
NO DEALER, SALESMAN, SELLING SHARE- HOLDER, OR ANY OTHER PERSON HAS
BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE ANY INFORMATION OR TO
MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF
GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY, THE UNDERWRITER OR THE SELLING
SHAREHOLDER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE CIRCUMSTANCES OF THE COMPANY OR THE FACTS SET FORTH HEREIN
SINCE THE DATE HEREOF OR THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
TABLE OF CONTENTS
Page
Prospectus Summary
Risk Factors
Market for the Company's
Common Stock and
Related Shareholder Matters
Use of Proceeds
Proforma Financial Statements
Management's Discussion and
Analysis of Financial Condition
and Results of Operations
Business
Management
Certain Transactions
Principal and Selling Shareholders
Description of Securities
Description of Bridge Financing
Underwriting
Shares Eligible for Future Sale
Legal Matters
Experts
Available Information
Index to Financial Statements
1,000,000 SHARES
OF COMMON STOCK
TELIDENT, INC.
_____________________
P R O S P E C T U S
_____________________
R.J. Steichen & Company
_______________, 1996
================================================================================
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Minnesota Statutes Section 302A.521 provides that a Minnesota business
corporation shall indemnify any director, officer, employee or agent of the
corporation made or threatened to be made a party to a proceeding, by reason of
the former or present official capacity (as defined) of the person, against
judgments, penalties, fines, settlements and reasonable expenses incurred by the
person in connection with the proceeding if certain statutory standards are met.
"Proceeding" means a threatened, pending or completed civil, criminal,
administrative, arbitration or investigative proceeding, including one by or in
the right of the corporation. Section 302A.521 contains detailed terms regarding
such right of indemnification and reference is made thereto for a complete
statement of such indemnification rights.
Article IX of the Company's Restated Articles of Incorporation
eliminates certain personal liability of the director of the Company for
monetary damages for certain breaches of directors' fiduciary duties.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
<TABLE>
<CAPTION>
Payable by
Payable by Selling
Company Shareholders
<S> <C> <C>
SEC registration fee $ 1,895 $ 271
NASD fee 1,000 --
Nasdaq listing fee 10,000 --
Blue Sky filing fees, legal fees and expenses 15,000 --
Printing expenses 50,000 --
Underwriter's non-accountable expense allowance 109,375 15,625
Fees and expenses of counsel for the Company 40,000 --
Fees and expenses of accountants for the Company 30,000 --
Transfer Agent and Registrar fees 5,000 --
Miscellaneous 10,730 --
=================== ====================
Total $ 273,000 $ 15,896
=================== ====================
</TABLE>
All of the above expenses other than the SEC, NASD and Nasdaq fees, are
estimated.
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
In May 1993 and August 1993, the Company sold in a private placement to
20 accredited and 6 nonaccredited investors 14,100 debenture units at
$100 per unit for total consideration of $1,410,000. Each unit
consisted of $100 principal of a convertible debenture, bearing
interest at 10% and due May 1, 1996, and a common stock purchase
warrant which entitled the holder to purchase 25 shares of Common Stock
of the Company at $6.00 per share. The securities, which were taken for
investment and were subject to appropriate transfer restrictions, were
not registered under the Securities Act of 1933, as amended (the "Act)
in reliance upon Section 4(2) thereof and Regulation D promulgated
thereunder.
In November 1993, the Company issued to a consultant for services
performed between July 1, 1993 and November of 1993, 15,000 shares of
Common Stock. These services were valued at
II-1
$39,000. The shares, which were taken for investment and were subject
to appropriate transfer restrictions, were not registered under the Act
in reliance upon Section 4(2) thereof.
In April 1994 and July 1994, the Company issued a total of 44,128
shares of Common Stock upon the exercise of outstanding warrants for
total consideration of $30,000. The shares, which were taken for
investment and were subject to appropriate transfer restrictions, were
not registered under the Act in reliance upon Section 4(2) thereof.
In June, 1994, the Company issued warrants to purchase up to 50,000
shares of the Company's Common Stock to one accredited investor in
exchange for investment banking services at an exercise price of $2.00
per share. The securities, which were taken for investment and were
subject to appropriate transfer restrictions, were not registered under
the Act in reliance upon Section 4(2) thereof.
In June, 1994, the Company sold 250,000 shares of Series I Convertible
Preferred Stock to three accredited investors for total consideration
of $1,000,000. The Company has subsequently redeemed 50,000 shares of
this Preferred Stock at $4.00 per share. The shares, which were taken
for investment and were subject to appropriate transfer restrictions,
were issued without registration under the Act in reliance upon Section
4(2) thereof.
On June 30, 1994, the Company issued to two accredited investors
153,375 shares of the Company's Common Stock upon conversion of certain
outstanding indebtedness totaling $613,500. On September 30, 1994, one
of these investors converted additional indebtedness in the amount of
$158,334 resulting in the issuance of an additional 39,583 shares of
Common Stock. The shares, which were taken for investment and were
subject to appropriate transfer restrictions, were issued without
registration under the Act in reliance upon Section 4(2) thereof.
Between August 1994 and October 1995, holders of warrants that
comprised part of the debenture units exercised those warrants to
purchase 274,335 shares of the Company's Common Stock at the reduced
exercise price of $4.00 per share. The Company received total
consideration of $1,097,338 (less $50,000 of expenses) including debt
reduction of $158,334. The shares, which were taken for investment and
were subject to appropriate transfer restrictions, were not registered
under the Act in reliance upon Section 4(2) thereof.
In November 1994, the Company issued 210,525 shares of its Common Stock
and warrants to purchase an additional 122,808 shares of the Company's
Common Stock to the stockholders of Cantus Corporation (10 persons) in
connection with the acquisition of all of the outstanding capital stock
of Cantus Corporation by the Company. The shares were acquired for
investment purposes and were subject to appropriate transfer
restrictions and were issued without registration under the Act in
reliance upon Section 4(2) thereof.
In January 1995, the Company issued 30,000 shares of Common Stock to 7
accredited and 3 nonaccredited investors as additional consideration
for making certain short-term loans totaling $240,000 to the Company.
In August of 1995, holders of $124,000 of this debt converted it to
Common Stock of the Company at $4.00 per share, resulting in the
issuance of 35,167 shares of Common Stock. The shares, which were taken
for investment and were subject to appropriate transfer restrictions,
were issued without registration under the Act is reliance upon Section
4(2) thereof.
In January, 1995, the Company issued 16,250 shares of its Common Stock
to a creditor in satisfaction of a $35,861 account payable. The shares,
which were taken for investment and
II-2
were subject to appropriate transfer restrictions, were issued without
registration under the Act in reliance upon Section 4(2) thereof.
On June 30, 1995, 5,000 shares of the Company's Common Stock were
issued to one officer and director as a bonus for services rendered.
The shares, which were taken for investment and were subject to
appropriate transfer restrictions, were issued without registration
under the Act in reliance upon Section 4(2) thereof.
During fiscal 1996 (through January 1996), and in fiscal 1995, fiscal
1994, and fiscal 1993 certain members of the Company's Board of
Directors received shares of the Company's Common Stock in lieu of cash
remuneration for Director services of $16,250, $34,000, $5,000 and
$5,500 respectively, resulting in the issuance of 4,991, 13,594, 1,328,
and 1,381 shares, respectively. The shares, which were taken for
investment and were subject to appropriate transfer restrictions, were
not registered under the Act in reliance upon Section 4(2) thereof.
Effective October 1, 1995, Debentures which were originally due on
October 1, 1995 were given the option of either converting their
Debentures into Common Stock at a reduced conversion rate of $3.00 per
share or extending the due date thereof to July 15, 1997 in lieu of
having them paid at October 1, 1995. In consideration for extending
their Debentures, debenture holders were granted a warrant to purchase
one share of Common Stock at $4.00 per share for each $8.00 principal
amount of Debentures extended, at the purchase price of the Warrants
issued in connection with the placement of such Debentures reduced to
$4.00 per share and, for those Debenture holders who had previously
exercised their Warrants, issuance of additional shares of Common Stock
(aggregating 4,250 shares). The securities were taken for investment
and were subject to appropriate transfer restrictions, were not
registered under the Act in reliance upon Section 4(2) thereof.
On October 13, 1995, the Company sold, in a private placement to a
single accredited investor, a Unit consisting of 200,000 shares of the
Company's Common Stock and a Series C, Common Stock Purchase Warrant to
purchase up to 150,000 shares of the Company's Common Stock at $4.00
per share for aggregate consideration of $600,000. In addition, this
investor was the holder of $400,000 of 10% convertible debentures which
were converted into Common Stock of the Company at $3.00 per share,
resulting in the issuance of 133,333 shares of Common Stock. The
securities, which were taken for investment and were subject to
appropriate transfer restrictions, were not registered under the Act in
reliance upon Section 4(2) thereof and Regulation D promulgated
thereunder.
On January 4, 1996, the Company gave notice of redemption for 476,433
outstanding Common Stock warrants. 261,294 warrants were exercised,
resulting in $904,387 in proceeds. In addition, a director exercised
12,500 warrants through $50,000 of debt reduction. The securities,
which were taken for investment and were subject to appropriate
transfer restrictions, were not registered under the Securities Act of
1933, as amended (the "Act) in reliance upon Section 4(2) thereof.
The holders of the Debentures which were originally due on May 1, 1996,
were given the option of either converting their Debentures into Common
Stock at a reduced conversion rate of $3.00 per share or extending the
due date thereof to July 15, 1997, in lieu of having them paid at May
1, 1996. Those Debenture holders who elected to extend the due date of
their Debentures were granted a Warrant to purchase one share of Common
Stock at $4.00 per share for each $8.00 principal amount of Debentures
extended. The Warrants expire on July 15, 1997. Holders of $500,000
principal amount of these Debentures elected to convert their
Debentures and holders of $413,000 principal amount agreed to extend
the due date of their Debentures. The securities,
II-3
which were taken for investment and were subject to appropriate
transfer restrictions, were not registered under the Act in reliance
upon Section 4(2) thereof.
During May 1996, the Company sold 50 Units of its securities, each Unit
consisting of $25,000 principal amount of unsecured Bridge Notes with
Warrants to purchase 2,500 shares of Common Stock. The Units were sold
to an aggregate of 32 accredited investors. Commission of 6% and a
non-accountable expense allowance of $5,000 was paid to R.J. Steichen &
Company in connection with the placement of the Units. The securities,
which were taken for investment and were subject to appropriate
transfer restrictions, were issued without registration under the Act
in reliance upon Section 4(2) thereof and Regulation D promulgated
thereunder.
II-5
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
<TABLE>
<CAPTION>
(a) Exhibits
<S> <C>
1.1 Form of Underwriting Agreement -- filed herewith
1.2 Form of Selected Dealer Agreement -- filed herewith
3.1 Articles of Incorporation, as amended, of the Company -- filed herewith.
3.2 Bylaws, as amended, of the Company (2)
4.1 Specimen form of the Company's Common Stock certificate -- filed herewith
4.2 Form of Warrant issued pursuant to October, 1992 Unit offering(2)
4.2 Form of Debenture issued pursuant to October, 1992 Unit offering(2)
4.3 Form of Warrant issued pursuant to May, 1993 Unit offering(2)
4.4 Form of Debenture issued pursuant to May, 1993 Unit offering(2)
4.5 Subscription and Purchase Agreement dated as of August 23, 1993 between
Registrant and Okabena Partnership K(2)
4.6 Conversion, Exercise, Subscription and Purchase Agreement dated as of October 13,
1995 between Registrant and Okabena Partnership K(5)
4.7 Form of Warrant issued pursuant to October 1995 Unit offering(5)
4.8 Certificate of Designation of Series I Convertible Preferred Stock(2)
4.9 Promissory Note and Security Agreement dated January 11, 1993 between Registrant
and Willis K. Drake(2)
4.10 Promissory Note and Security Agreement dated February 3, 1995 between Registrant
and Norwest Credit, Inc.(3)
4.11 Form of Bridge Loan Agreement, including form of Promissory Note and Warrant
Agreement -- filed herewith
4.12 Telident, Inc. Stock Option Plan of 1988, Form of Incentive Stock Option
Agreement and Form of Nonstatutory Stock Option Agreement (1)
4.13 Form of Warrant Issued pursuant to May 1996 Debenture Extension -- filed herewith
4.14 Form of Underwriter's Warrant -- filed herewith
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A. -- filed herewith.
10.1 Fujitsu Business Communications Distributor Agreement(3)
10.2 Cantus Corporation Acquisition Agreement(4)
21 Subsidiaries of the Company(3)
23.1 Consent of McGladrey & Pullen, LLP. -- filed herewith.
23.2 Consent of McGladrey & Pullen LLP -- filed herewith.
23.3 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A. -- See Exhibit 5.1.
24.1 Power of Attorney (included on signature page of this Registration).
27 Financial Data Schedule -- filed herewith.
</TABLE>
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-18 Reg. No. 33-25922C.
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1994.
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1995.
(4) Incorporated herein by reference to the Company's Current Report on
Form 8-K dated December 6, 1994.
(5) Incorporated herein by reference to the Company's Registration
Statement on Form SB-2 Reg. No. 33-99054.
II-5
ITEM 28. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against
public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid
by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
(b) The issuer will:
(1) File, during any period in which it offers or sells
securities, a post effective amendment to this registration
statement to:
(i) Include any prospectus required by Section 10(a)(3)
of the Securities Act of 1933;
(ii) Reflect in the prospectus any facts or events which,
individually or together, represent a fundamental
change in the information in the registration
statement;
(iii) Include any additional or changed material
information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each
post-effective amendment as a new registration statement of
the securities offered, and the offering of the securities at
that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration
any of the securities that remain unsold at the end of the
offering.
(c) The issuer will:
(1) For determining any liability under the Securities Act, treat
the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A
and contained in a form of prospectus filed by the small
business issuer under Rule 424(b)(1), or (4), or 497(h) under
the Securities Act as part of this registration statement as
of the time the Commission declared it effective.
(2) For determining any liability under the Securities Act, treat
each post-effective amendment that contains a form of
prospectus as a new registration statement for the securities
offered in the registration statement, and that offering of
the securities at that time as the initial bona fide offering
of those securities.
II-7
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form SB-2 and authorized this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Minneapolis, State of Minnesota, on May 21, 1996.
TELIDENT, INC.
By /s/ Michael J. Miller
Michael J. Miller, President
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Michael J. Miller and John F. Kromer, and
each of them, his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution for him and in his name, place, and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement and to file the same, with all
exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full powers and authority to do and perform each and
every act and thing requisite or necessary to be done in and about the premises,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents or their or
his substitute or substitutes, may lawfully do or cause to be done by virtue
hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities and
on the dates stated:
<TABLE>
<S> <C> <C>
/s/ Michael J. Miller President and Director May 21, 1996
Michael J. Miller (Principal Executive Officer)
/s/ John F. Kromer Vice President Finance and May 21, 1996
John F. Kromer Chief Financial Officer
(Principal Financial and
Principal Accounting Officer)
/s/ Mark W. Sheffert Director May 21, 1996
Mark W. Sheffert
/s/ Scott R. Anderson Director May 21, 1996
Scott R. Anderson
/s/ Willis K. Drake Director May 21, 1996
Willis K. Drake
/s/ Richard L. Hencley Director May 21, 1996
Richard L. Hencley
II-7
/s/ Robert N. Kisch Director May 21, 1996
Robert N. Kisch
/s/ John Sagan Director May 21, 1996
John Sagan
/s/ Warren S. Tyler Director May 21, 1996
Warren S. Tyler
</TABLE>
II-8
<TABLE>
<CAPTION>
INDEX TO EXHIBITS
EXHIBIT NO. TITLE OF EXHIBIT PAGE
<S> <C>
1.1 Form of Underwriting Agreement -- filed herewith
1.2 Form of Selected Dealer Agreement -- filed herewith
3.1 Articles of Incorporation, as amended, of the Company -- filed herewith
3.2 Bylaws, as amended, of the Company (2).
4.1 Specimen form of the Company's Common Stock certificate -- filed herewith
4.2 Form of Warrant issued pursuant to October, 1992 Unit offering(2)
4.2 Form of Debenture issued pursuant to October, 1992 Unit offering(2)
4.3 Form of Warrant issued pursuant to May, 1993 Unit offering(2)
4.4 Form of Debenture issued pursuant to May, 1993 Unit offering(2)
4.5 Subscription and Purchase Agreement dated as of August 23, 1993
between Registrant and Okabena Partnership K(2)
4.6 Conversion, Exercise, Subscription and Purchase Agreement dated
as of October 13, 1995 between Registrant and Okabena Partnership
K-- (5)
4.7 Form of Warrant issued pursuant to October 1995 Unit offering (5)
4.8 Certificate of Designation of Series I Convertible Preferred
Stock (2)
4.9 Promissory Note and Security Agreement dated January 11, 1993
between Registrant and Willis K. Drake (2)
4.10 Promissory Note and Security Agreement dated February 3, 1995
between Registrant and Norwest Credit, Inc.(3)
4.11 Form of Bridge Loan Agreement, including form of Promissory Note
and Warrant -- filed herewith
4.12 Telident, Inc. Stock Option Plan of 1988, Form of Incentive Stock
Option Agreement and Form of Nonstatutory Stock Option Agreement(1)
4.13 Form of Warrant Issued pursuant to May 1996 Debenture Extention -- filed herewith
4.14 Form of Underwriter's Warrant -- filed herewith
5.1 Opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A. -- filed
herewith
10.1 Fujitsu Business Communications Distributor Agreement (3)
10.2 Cantus Corporation Acquisition Agreement (4)
21 Subsidiaries of the Company (3)
23.1 Consent of McGladrey & Pullen, LLP. -- filed herewith.
23.2 Consent of McGladrey & Pullen LLP -- filed herewith.
23.3 Consent of Gray, Plant, Mooty, Mooty & Bennett, P.A. -- See
Exhibit 5.1.
24.1 Power of Attorney (included on signature page of this
Registration).
27 Financial Data Schedule -- filed herewith.
</TABLE>
II-9
(1) Incorporated herein by reference to the Company's Registration
Statement on Form S-18 Reg. No. 33-25922C.
(2) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1994.
(3) Incorporated herein by reference to the Company's Annual Report on Form
10-KSB for the year ended June 30, 1995.
(4) Incorporated herein by reference to the Company's Current Report on
Form 8-K dated December 6, 1994.
(5) Incorporated herein by reference to the Company's Registration
Statement on Form SB-2 Reg. No. 33-99054.
II-10
1,000,000 SHARES COMMON STOCK
TELIDENT, INC.
UNDERWRITING AGREEMENT
May ___, 1996
R.J. Steichen & Company
1100 Midwest Plaza East
800 Marquette Avenue
Minneapolis, Minnesota 55402
Dear Ladies and Gentlemen:
Telident, Inc., a Minnesota corporation (the "Company"), and the
persons listed on Schedule I (collectively, the "Selling Shareholders"), hereby
confirm their agreement to sell to R.J. Steichen & Company (the "Underwriter"),
an aggregate of 1,000,000 shares of authorized common stock, $.01 par value per
share, of the Company (the "Common Stock"), of which 875,000 shares are
authorized but unissued shares offered by the Company and 125,000 shares are
offered by the Selling Shareholders. Such 1,000,000 shares of Common Stock are
collectively referred to in this Agreement as the "Firm Shares." The Company
also hereby confirms its agreement to sell to the Underwriter an aggregate of up
to 150,000 additional shares of Common Stock upon the request of the Underwriter
solely for the purpose of covering overallotments. Such additional shares are
referred to in this Agreement as the "Option Shares." The Firm Shares and the
Option Shares are collectively referred to herein as the "Shares." Further, the
Company hereby confirms its agreement to issue to the Representative warrants
for the purchase of 87,500 shares as described in Section 6 hereof (the
"Underwriter's Warrants"), assuming purchase by the Underwriter of the Firm
Shares. The shares issuable upon exercise of the Underwriter's Warrants are
referred to as the "Warrant Shares." The obligations of the Company and each
Selling Shareholder hereunder are several and not joint.
1. Representations and Warranties of the Company. The Company
represents and warrants to and agrees with the Underwriter and the Selling
Shareholders as follows:
(a) A registration statement on Form SB-2 with respect to the
Shares has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "1933 Act")
and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "SEC") thereunder and has been
filed with the SEC under the 1933 Act. The Company has filed such
amendments to the registration statement and such amended preliminary
prospectuses as may have been required to be filed to the date hereof.
If the Company has elected not to rely upon Rule 430A, the Company has
prepared and will promptly file an amendment to the registration
statement and an amended prospectus (provided the Representative has
consented to such filing). If the Company has elected to rely upon Rule
430A, it will prepare and timely file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the
prospectus in reliance upon Rule 430A. Copies of such registration
statement and each pre-effective amendment thereto, and each related
preliminary prospectus have been delivered by the Company to the
Representative. Such registration statement, as amended or
supplemented, including all prospectuses included as a part thereof,
financial schedules, exhibits, the information (if any) deemed to be
part thereof pursuant to Rules 430A and 434 under the 1933 Act and any
registration statement filed pursuant to Rule 462 under the 1933 Act,
is herein referred to as the "Registration Statement." The term
"Prospectus" as used herein shall mean the final prospectus, as amended
or supplemented, included as a part of the Registration Statement on
file with the SEC when it becomes effective; provided, however, that if
a prospectus is filed by the Company pursuant to Rules 424(b) and 430A
or a term sheet is filed by the Company pursuant to Rule 434 under the
1933 Act, the term "Prospectus" as used herein shall mean the
prospectus so filed pursuant to Rules 424(b) and 430A and the term
sheet so filed pursuant to Rule 434. The term "Preliminary Prospectus"
as used herein means any prospectus, as amended or supplemented, used
prior to the Effective Date (as defined in Section 4(a) hereof) and
included as a part of the Registration Statement, including any
prospectus filed with the SEC pursuant to Rule 424(a).
(b) Neither the SEC nor any state securities division has
issued any order preventing or suspending the use of any Preliminary
Prospectus, or issued a stop order with respect to the offering of the
Shares or requiring the recirculation of a Preliminary Prospectus and,
to the best knowledge of the Company, no proceeding for any such
purpose has been initiated or threatened. Each part of the Registration
Statement, when such part became or becomes effective, each Preliminary
Prospectus, on the date of filing with the SEC, and the Prospectus and
any amendment or supplement thereto, on the date of filing thereof with
the SEC and on any Closing Date (as defined in Section 3 hereof), as
the case may be, conformed or will conform in all material respects
with the requirements of the 1933 Act and the Rules and Regulations and
the securities laws ("Blue Sky laws") of the states where the Shares
are to be sold (the "States") and contained or will contain all
statements that are required to be stated therein in accordance with
the 1933 Act, the Rules and Regulations and the Blue Sky laws of the
States. When the Registration Statement became or becomes effective and
when any post-effective amendments thereto shall become effective, the
Registration Statement did not and will not contain any 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 were made, not misleading.
Neither any Preliminary Prospectus, on the date of filing thereof with
the SEC, nor the Prospectus or any amendment or supplement thereto, on
the date of filing thereof with the SEC and on the First and Second
Closing Dates, contained or will contain any untrue statement of a
material fact or omit to state a material fact necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; provided, however, that none of the
representations and warranties in this Subsection 1(b) shall apply to
statements in, or omissions from, the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriter, as identified
in Section 12 herein, specifically for use in the preparation of the
Registration Statement, Preliminary Prospectus or the Prospectus, or
any amendment or supplement thereto or by a Selling Shareholder
expressly for the use in the preparation of answers therein to Items 7
and 11 of Form SB-2. There is no contract or other document of the
Company of a character required by the 1933 Act or the Rules and
Regulations to be described in the Registration Statement or
Prospectus, or to be filed as an exhibit to the Registration Statement,
that has not been described or filed as required. The descriptions of
all such contracts and documents or references thereto are correct and
include the information required under the 1933 Act and the Rules and
Regulations.
(c) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Minnesota, with full corporate power and authority, to own, lease
and operate its properties and conduct its business as described in the
Registration Statement and Prospectus. The Company is duly qualified to
do business as a foreign corporation in good standing in each
jurisdiction in which the ownership or lease of its properties, or the
conduct of its business, requires such qualification and in which the
failure to be qualified or in good standing would have a material
adverse effect on the business of the Company. The Company has all
necessary and material authorizations, approvals and orders of and from
all governmental regulatory officials and bodies to own its properties
and to conduct its business as described in the Registration Statement
and Prospectus, and is conducting its business in substantial
compliance with all applicable material laws, rules and regulations of
the jurisdictions in which it is conducting business. The Company holds
all material licenses, certificates, permits, authorizations, approvals
and orders of and from all state, federal and other governmental
regulatory officials and bodies necessary to own its properties and to
conduct its business as described in the Registration Statement and
Prospectus, or has obtained waivers from any such applicable
requirements from the appropriate state, federal or other regulatory
authorities. All such licenses, permits, approvals, certificates,
consents, orders and other authorizations are in full force and effect,
and the Company has not received notice of any proceeding or action
relating to the revocation or modification of any such license, permit,
approval, certificate, consent, order or other authorization which,
individually or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might materially and adversely affect the
conduct of the business or the condition, financial or otherwise, or
the earnings, affairs or business prospects of the Company.
(d) The Company has no subsidiaries and is not affiliated with
any other Company or business entity, except as disclosed in the
Prospectus.
(e) The Company is not in violation of its Articles of
Incorporation or Bylaws. The Company is not in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any bond, debenture, note or other evidence of
indebtedness or in any contract, indenture, mortgage, loan agreement,
joint venture or other agreement or instrument to which the Company is
a party or by which the Company or its properties are bound, and there
does not exist any state of facts which constitutes an event of default
on the part of the Company or which, with notice or lapse of time or
both, would constitute such an event of default. The Company is not, to
the best of its knowledge, in violation of any law, order, rule,
regulation, writ, injunction or decree of any government, governmental
instrumentality or court, domestic or foreign, which violation is
material to the business of the Company.
(f) The Company has full requisite power and authority to
enter into this Agreement. This Agreement has been duly authorized,
executed and delivered by the Company and will be a valid and binding
agreement on the part of the Company, enforceable in accordance with
its terms, if and when this Agreement shall have become effective in
accordance with Section 9, except as enforceability may be limited by
the application of bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally and by judicial limitations
on the right of specific performance and except as the enforceability
of the indemnification or contribution provisions hereof may be
affected by applicable federal or state securities laws. The
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under or result in
the creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company pursuant to, (i) any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note,
agreement or other evidence of indebtedness, lease, contract or other
agreement or instrument to which the Company is a party or by which the
property or assets of the Company is bound, (ii) the Company's Articles
of Incorporation or Bylaws or (iii) any statute or any order, rule or
regulation of any court, governmental agency or body having
jurisdiction over the Company. No consent, approval, authorization or
order of any court, governmental agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except such as may be required under the 1933 Act, the
Rules and Regulations, the Blue Sky laws, the rules and regulations of
the National Association of Securities Dealers, Inc. ("NASD") and the
rules and regulations of Nasdaq.
(g) Except as is otherwise expressly stated in the
Registration Statement or Prospectus, there are no actions, suits or
proceedings pending before any court or governmental agency, authority
or body to which the Company is a party or of which the business or
property of the Company is the subject which might result in any
material adverse change in the condition (financial or otherwise),
business or prospects of the Company, materially and adversely affect
its properties or assets or prevent consummation of the transactions
contemplated by this Agreement; and, to the best of the Company's
knowledge, no such actions, suits or proceedings are threatened except
as is otherwise expressly stated in the Registration Statement or
Prospectus. The Company is not aware of any facts which would form the
basis for the assertion of any material claim or liability which are
not disclosed in the Registration Statement or the Prospectus or
adequately reserved for in the financial statements which are a part
thereof, except for such claims or liabilities which are not currently
expected to have a material adverse effect on the condition (financial
or otherwise) or the earnings, affairs or business prospects of the
Company. All pending legal or governmental proceedings to which the
Company is a party or to which any of its property is subject, which
are not described in the Registration Statement and the Prospectus,
including ordinary routine litigation incidental to the business, are,
considered in the aggregate, not material to the Company.
(h) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus and the reverse stock
split described in the Prospectus has occurred. The outstanding Common
Stock of the Company is duly authorized, validly issued, fully paid and
nonassessable. The Shares conform in substance to all statements
relating thereto contained in the Registration Statement and
Prospectus. The Shares to be sold by the Company hereunder have been
duly authorized and, when issued and delivered pursuant to this
Agreement, will be validly issued, fully paid and nonassessable and
will conform to the description thereof contained in the Prospectus. No
preemptive rights or similar rights of any security holders of the
Company exist with respect to the issuance and sale of the Shares by
the Company. Except as disclosed in the Prospectus, the Company has no
agreement with any security holder which gives such security holder the
right to require the Company to register under the 1933 Act any
securities of any nature owned or held by such person either in
connection with the transactions contemplated by this Agreement or
after a demand for registration by such holder. Upon payment for and
delivery of the Shares pursuant to this Agreement, the Underwriter will
acquire the Shares, free and clear of all liens, encumbrances or
claims. The certificates evidencing the Shares will comply as to form
with all applicable provisions of the laws of the State of Minnesota.
Except as set forth in any part of the Registration Statement, the
Company does not have outstanding any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
convertible into, or any contracts or commitments to issue or sell, any
Common Stock or other securities of the Company, or any such warrants,
convertible securities or obligations.
(i) The Underwriter's Warrants and the Warrant Shares have
been duly authorized. The Underwriter's Warrants, when issued and
delivered to the Representatives, will constitute valid and binding
obligations of the Company in accordance with their terms, except as
enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of
creditors generally and by judicial limitations on the right of
specific performance. The Warrant Shares when issued in accordance with
the terms of this Agreement and pursuant to the Underwriter's Warrants,
will be validly issued, fully paid and nonassessable and subject to no
preemptive rights or similar rights on the part of an person or entity.
A sufficient number of shares of Common Stock of the Company have been
reserved for issuance by the Company upon exercise of the Underwriter's
Warrants.
(j) McGladrey & Pullen, LLP, whose reports appear in the
Registration Statement and Prospectus, are independent accountants
within the meaning of the 1933 Act and the Rules and Regulations. The
financial statements of the Company, together with the related notes,
forming part of the Registration Statement and Prospectus (the
"Financial Statements"), fairly present the financial position and the
results of operations of the Company at the respective dates and for
the respective periods to which they apply. The Financial Statements
are accurate, complete and correct and have been prepared in accordance
with the 1933 Act, the Rules and Regulations and generally accepted
accounting principles ("GAAP"), consistently applied throughout the
periods involved, except as may be otherwise stated therein. The
summaries of the Financial Statements and the other financial and
statistical data and related notes set forth in the Registration
Statement and the Prospectus are (i) accurate and correct and fairly
present the information purported to be shown thereby as of the dates
and for the periods indicated on a basis consistent with the audited
financial statements of the Company and (ii) in compliance in all
material respects with the requirements of the 1933 Act and the Rules
and Regulations. The Financial Statements are based upon and consistent
with the financial statements and other reports filed by the Company
with the SEC, except for inconsistencies attributable solely to
differences between GAAP and regulatory accounting principles.
(k) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and at any
Closing Date, except as is otherwise disclosed in the Registration
Statement or Prospectus, there has not been:
(i) any change in the capital stock or long-term debt
(including any capitalized lease obligation), or increase in
the short-term debt of the Company;
(ii) any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of
the Company;
(iii) any adverse change, or any development
involving a material adverse change, in or affecting the
business, business prospects, properties, assets, patents or
patent applications (including those of the Company and those
relating to devices or technologies licensed to the Company),
management, financial position, stockholders' equity, results
of operations or general condition of the Company;
(iv) any material transaction entered into by the
Company;
(v) any material obligation, direct or contingent,
incurred by the Company, except obligations incurred in the
ordinary course of business that, in the aggregate, are not
material; or
(vi) any dividend or distribution of any kind
declared, paid or made on the Company's capital stock.
(l) Except as is otherwise disclosed in the Registration
Statement or Prospectus, the Company has good and marketable title to
all of the property, real and personal, described in the Registration
Statement or Prospectus as being owned by the Company, free and clear
of all liens, encumbrances, equities, charges or claims, except as do
not materially interfere with the uses made and to be made by the
Company of such property or as disclosed in the Financial Statements.
Except as is otherwise disclosed in the Registration Statement or
Prospectus, the Company has valid and binding leases to the real and
personal property described in the Registration Statement or Prospectus
as being under lease to the Company, except as to those leases which
are not material to the Company or the lack of enforceability of which
would not materially interfere with the use made and to be made by the
Company of such leased property.
(m) The Company has filed all necessary federal and state
income and franchise tax returns and paid all taxes shown as due
thereon. The Company is not in default in the payment of any taxes and
has no knowledge of any tax deficiency which might be asserted against
it which would materially and adversely affect the Company's business
or properties.
(n) No labor disturbance by the employees of the Company
exists or, to the best of the Company's knowledge, is imminent which
could reasonably be expected to have a material adverse effect on the
conduct of the business, operations, financial condition or income of
the Company.
(o) Except as disclosed in the Prospectus:
(i) The Company owns or possesses the unrestricted
rights to use all patents, copyrights, trademarks, trade
secrets and proprietary rights or information necessary for
the development, manufacture, operation and sale of all
products and services sold or proposed to be sold by the
Company and for the conduct of its present or intended
business as described in the Prospectus. There are no pending
legal, governmental or administrative proceedings relating to
patents, copyrights, trademarks or proprietary rights or
information to which the Company is a party or to which any
property of the Company is subject and no such proceedings
are, to the best of the Company's knowledge, threatened or
contemplated against the Company by any governmental agency or
authority or others. The Company has not received any notice
of conflict with asserted rights of others. The Company is not
using any confidential information or trade secrets of any
third party without such party's consent.
(ii) The Company does not infringe upon the right or
claimed rights of any person under or with respect to any of
the intangible rights listed in the preceding subsection. The
Company is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to
any owner of, licensor of, or other claimant to, any patent,
trademark, trade name, copyright or other intangible asset,
with respect to the use thereof or in connection with the
conduct of its business or otherwise, except as disclosed in
the Registration Statement.
(p) The Company intends to apply the proceeds from the sale of
the Shares by it to the purposes and substantially in the manner set
forth in the Prospectus.
(q) The Company has no defined benefit pension plan or other
pension benefit plan, except for its 401(K) Plan which has no benefit
obligations and has not been funded, which is intended to comply with
the provisions of the Employee Retirement Income Security Act of 1974
as amended from time to time, except as disclosed in the Registration
Statement.
(r) To the best of the Company's knowledge, no person is
entitled, directly or indirectly, to compensation from the Company or
the Underwriter for services as a finder in connection with the
transactions contemplated by this Agreement.
(s) The conditions for use of a Registration Statement on Form
SB-2 for the distribution of the Shares have been satisfied with
respect to the Company.
(t) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its
directors, officers, stockholders, or others) which has constituted or
is designed to, or which might reasonably be expected to, cause or
result in stabilization or manipulation, as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act") or otherwise, of the
price of any security of the Company to facilitate the sale or resale
of the Shares.
(u) The Company has not sold any securities in violation of
Section 5(a) of the 1933 Act.
(v) The Company maintains insurance, which is in full force
and effect, of the types and in the amounts adequate for its business
and in line with the insurance maintained by similar companies and
businesses.
(w) The Company hereby represents that it has complied and
will comply with all provisions of Florida Statutes Section 517.075
(Ch. 92-198 and Rule 3EER92-1 of the Rules of the Florida Department of
Banking and Finance, Division of Securities) copies of which are
attached hereto. Neither the issuer, nor any affiliate thereof, does
business with the government of Cuba or with any person or affiliate
located in Cuba.
(x) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or
specific authorizations and (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with GAAP.
(y) All material transactions between the Company and its
shareholders who beneficially own more than 5% of any class of the
Company's voting securities have been accurately disclosed in the
Prospectus, and the terms of each such transaction are fair to the
Company and no less favorable to the Company than the terms that could
have been obtained from unrelated parties.
(z) The Company has obtained a written agreement from each of
the officers and directors of the Company and certain other
stockholders of the Company that such person will not, without the
prior written consent of the Underwriter, during the 180-day period
commencing on the effective date of the Registration Statement (the
"Lockup Period) (i) sell, transfer or otherwise dispose of, or agree to
sell, transfer or otherwise dispose of any shares of Common Stock of
the Company beneficially held by the officer or director during the
Lockup Period, (ii) sell, transfer or otherwise dispose of or agree to
sell, transfer or otherwise dispose of any options, rights, warrants or
other securities exercisable or convertible into shares of Common Stock
of the Company beneficially held by the officer or director during the
Lockup Period, or (iii) sell or grant, or agree to sell or grant,
options, rights, warrants or other securities exercisable or
convertible into any such shares of Common Stock; provided, however,
that the foregoing does not prohibit gifts by donees who agree to be
bound by the restrictions set forth in the lockup agreement or
transfers by will or the laws of descent.
(aa) The Common Stock of the Company has been approved by
Nasdaq for trading on its SmallCap MarketSM following effectiveness of
the Registration Statement subject to official notice of issuance.
(b) The Company has timely filed all documents and amendments
to previously filed documents required to be filed by it pursuant to
the 1934 Act and the rules and regulations of the SEC thereunder. Each
such document conformed in all material respects with the requirements
of the 1934 Act and contained all information required to be stated
therein in accordance with the 1934 Act. No part of any such document
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading. True copies of each of the documents
incorporated by reference, if any, into each Preliminary Prospectus and
the Prospectus have been delivered by the Company to the
Representative. To the best of the Company's knowledge, the executive
officers and directors of the Company and stockholders who hold more
than 5% of the Company's outstanding Common Stock, have made, and are
current with, all filings, if any, that are required under the 1934
Act.
2. Representations and Warranties of the Selling Shareholders. Each of
the Selling Shareholders, severally and not jointly, represent and warrant to
the Underwriter as follows:
(a) Such Selling Shareholder has duly executed and delivered a
power of attorney (the "Power of Attorney"), in the form heretofore
delivered to the Underwriter or its counsel, appointing
__________________________ and ______________________ and each of them
as such Selling Shareholder's attorneys-in-fact (the
"Attorneys-in-Fact") with authority to perform this Agreement on behalf
of such Selling Shareholder. Such Selling Shareholder has duly executed
and delivered a letter of transmittal and custody agreement (the
"Custody Agreement"), in the form heretofore delivered to the
Underwriter, with the Company's transfer agent, Norwest Bank Minnesota,
N.A. as custodian (the "Custodian"). The certificates in negotiable
form for the Shares to be sold by such Selling Shareholder pursuant to
this Agreement have been deposited with the Custodian pursuant to the
Custody Agreement for the purpose of delivery pursuant to this
Agreement. The Power of Attorney grants the Attorneys-in-Fact the power
to receive certificates in negotiable form for the Shares for the
purpose of delivery pursuant to this Agreement. Such Selling
Shareholder has full legal right, power and authority to enter into
this Agreement, the Custody Agreement and the Power of Attorney and to
sell, assign, transfer and deliver to the Underwriter the Shares to be
sold by such Selling Shareholder hereunder. No consent, approval,
authorization or other order is required for the execution and delivery
of this Agreement, the Custody Agreement and the Power of Attorney by
such Selling Shareholder or the consummation by such Selling
Shareholder of the transactions contemplated by this Agreement, the
Custody Agreement and the Power of Attorney, except for compliance with
the Act and the state securities laws applicable to the public offering
of the Shares by the Underwriter. This Agreement, the Custody Agreement
and the Power of Attorney have been duly authorized, executed and
delivered by or on behalf of such Selling Shareholder and constitute
valid and binding agreements of such Selling Shareholder and are
enforceable against such Selling Shareholder in accordance with the
terms hereof and thereof, except as rights to indemnity and
contribution hereunder may be limited by applicable laws and except as
limited by applicable bankruptcy, insolvency, reorganization and other
laws effecting creditors' rights and by general principles of equity.
Such Selling Shareholder agrees that the Shares to be sold by such
Selling Shareholder on deposit with the Custodian are for the benefit
of, coupled with, and subject to the interests of the Underwriter
hereunder, that the arrangements made for such custody and the
appointment of Attorneys-in-Fact are to that extent irrevocable, and
that the obligations of such Selling Shareholder hereunder shall not be
terminated except as provided in this Agreement, the Custody Agreement
and the Power of Attorney, by any act of the Selling Shareholder, by
operation of law or otherwise, whether by death or incapacity or by the
occurrence of any other event. Except as provided in the Power of
Attorney and the Custody Agreement, if such Selling Shareholder shall
die or become incapacitated or if any other event shall occur before
delivery of such Shares hereunder, the certificates for the Shares to
be sold by such Selling Shareholder deposited with the Custodian shall
be delivered by the Custodian in accordance with this Agreement as if
such death, incapacity or other event had not occurred, regardless of
whether the Custodian or the Attorneys-in-Fact shall have received
notice thereof.
(b) Such Selling Shareholder at the First Closing Date will
have good and valid title to the portion of the Shares to be sold by
such Selling Shareholder, free of any liens, encumbrances, equities and
claims, other than restrictions on transfer under the 1933 Act or under
state securities laws, and full right, power and authority to effect
the sale and delivery of such of the Shares and upon the delivery of
and payment for such of the Shares pursuant to this Agreement, good and
valid title thereto, free of any liens, encumbrances, equities and
claims, will be transferred to the Underwriter.
(c) The consummation by such Selling Shareholder of the
transactions herein contemplated and the fulfillment of the terms
hereof will not result in a breach of any of the terms and provisions
of, or constitute a default under, any indenture, mortgage, deed of
trust or other agreement or instrument to which such Selling
Shareholder is a party or to which any of the property or assets of
such Selling Shareholder are subject, or of any order, rule or
regulation applicable to such Selling Shareholder of any court or of
any regulatory body or administrative agency or other governmental body
having jurisdiction over such Selling Shareholder or the property or
assets of such Selling Shareholder.
(d) Such Selling Shareholder has not taken and will not take,
directly or indirectly, any actions designed to, or which has
constituted, or which might reasonably be expected to cause or result
in, stabilization or manipulation of the price of the Common Stock of
the Company.
(e) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus thereof, the
Prospectus or any amendment or supplement thereto are made in reliance
upon and in conformity with written information with respect to such
Selling Shareholder furnished to the Company by the Selling Shareholder
expressly for use therein, such Preliminary Prospectus and the
Registration Statement did not, and the Prospectus and any further
amendments or supplements to the Registration Statement and the
Prospectus will not, when they become effective or are filed with the
SEC, as the case may be, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(f) Such Selling Shareholder is disposing of the Shares held
and to be sold by such Selling Shareholder for such Selling
Shareholder's own account and is not selling such Shares, directly or
indirectly, for the benefit of the Company or the Underwriter and no
part of the proceeds of such sale received by such Selling Shareholder
will inure, either directly or indirectly, to the benefit of the
Company or the Underwriter, other than as described in the Registration
Statement and Prospectus.
3. Purchase, Sale, Delivery and Payment.
(a) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company and the Selling Shareholders agree to
issue and sell to the Underwriter, and the Underwriter agrees, to
purchase from the Company and the Selling Shareholders, the Firm Shares
at $____________ per Share. The obligation of the Underwriter to the
Company shall be to purchase from the Company 875,000 Firm Shares which
are to be sold by the Company as set forth herein. The obligation of
the Underwriter to each Selling Shareholder shall be to purchase from
such Selling Shareholder the number of Firm Shares which are to be sold
by such Selling Shareholder as set forth in Schedule I hereto.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth,
the Company hereby grants an option to the Underwriter to purchase the
Option Shares (not to exceed an aggregate of fifteen percent (15%) of
the total number of Firm Shares to be sold by the Company and the
Selling Shareholders) at the same purchase price as the Firm Shares for
use solely in covering any overallotments made by the Underwriter in
the sale and distribution of the Firm Shares. The option granted
hereunder may be exercised at any time (but not more than once) within
thirty (30) days after the Effective Date (as defined in Section 5(a)
hereof) upon notice (confirmed in writing) by the Underwriter to the
Company setting forth the aggregate number of Option Shares as to which
the Underwriter is exercising the option and the date on which
certificates for such Option Shares are to be delivered. The option
granted hereby may be canceled by the Underwriter as to the Option
Shares for which the option is unexercised at any time prior to the
expiration of the 30-day period upon notice to the Company.
(c) The Company and the Custodian will deliver the Firm Shares
to the Underwriter at the offices of Maun & Simon, PLC, unless some
other place is agreed upon, at 10:00 A.M., Minneapolis time, against
payment of the purchase price at the same place, on the third full
business day after trading the Shares has commenced (but not more than
ten (10) full business days after the date the Registration Statement
is declared effective), or such earlier time as may be agreed upon
between the Underwriter and the Company. Such time and place is herein
referred to as the "First Closing Date."
(d) The Company will deliver the Option Shares being purchased
by the Underwriter to the Underwriter at the offices of Maun & Simon,
PLC, set forth in Section 3(c) above, unless some other place is agreed
upon, at 10:00 A.M., Minneapolis time, against payment of the purchase
price at the same place, on the date determined by the Underwriter and
of which the Company has received notice as provided in Section 3(b),
which shall not be earlier than two nor later than three (3) full
business days after the exercise of the option as set forth in Section
3(b), or at such other time not later than ten (10) full business days
thereafter as may be agreed upon by the Underwriter and the Company,
such time and date being herein referred to as the "Second Closing
Date." The First and Second Closing Dates are collectively referred to
herein as the "Closing Date."
(e) Certificates for the Shares to be delivered will be
registered in such names and issued in such denominations as the
Underwriter shall request of the Company at least two (2) full business
days prior to the First Closing Date or the Second Closing Date, as the
case may be. The certificates will be made available to the Underwriter
in definitive form for the purpose of inspection and packaging at least
24 hours prior to each respective Closing Date.
(f) Payment for the Shares shall be made, against delivery to
the Underwriter or its designated agent, of certificates for the Shares
by wire transfer to a designated account of the Company for the Shares
sold by it and to the designated accounts of the Selling Shareholders
for the Shares to be sold by each.
(g) The Underwriter will make a public offering of the Shares
directly to the public (which may include selected dealers who are
members in good standing with the NASD or foreign dealers not eligible
for membership in the NASD but who have agreed to abide by the
interpretation of the NASD's Board of Governor's with respect to
free-riding and withholding) as soon as the Underwriter deem
practicable after the Registration Statement becomes effective at the
Price to Public set forth in Section 3(a) above, subject to the terms
and conditions of this Agreement and in accordance with the Prospectus.
Such concessions from the public offering price may be allowed selected
dealers of the NASD as the Underwriter determines, and the Underwriter
will furnish the Company with such information about the distribution
arrangements as may be necessary for inclusion in the Registration
Statement. It is understood that the public offering price and
concessions may vary after the initial public offering. The Underwriter
shall offer and sell the Shares only in jurisdictions in which the
offering of Shares has been duly registered or qualified, or is exempt
from registration or qualification, and shall take reasonable measures
to effect compliance with applicable state and local securities laws.
(h) On the First Closing Date, the Company shall issue and
deliver to the Underwriter the Underwriter Warrants against payment by
the Underwriter of the purchase price therefor of $50.
4. Further Agreements of the Company and the Selling Shareholders. The
Company, and where specifically referenced herein the Selling Shareholders,
hereby covenant and agree with the Underwriter as follows:
(a) If the Registration Statement has not become effective
prior to the date hereof, the Company will use its best efforts to
cause the Registration Statement and any subsequent amendments thereto
to become effective as promptly as possible. The Company will notify
the Underwriter promptly, after the Company shall receive notice
thereof, of the time when the Registration Statement, or any subsequent
amendment thereto, has become effective or any supplement to the
Prospectus has been filed. Following the execution and delivery of this
Agreement, the Company will prepare, and timely file or transmit for
filing with the SEC in accordance with Rules 430A, 424(b) and 434, as
applicable, copies of the Prospectus, or, if necessary, a
post-effective amendment to the Registration Statement (including the
Prospectus), in which event, the Company will take all necessary action
to have such post-effective amendment declared effective as soon as
possible. The Company will notify the Underwriter promptly upon the
Company's obtaining knowledge of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceedings for that purpose and will
use its best efforts to prevent the issuance of any stop order and, if
a stop order is issued, to obtain as soon as possible the withdrawal or
lifting thereof. The Company will promptly prepare and file at its own
expense with the SEC any amendments of, or supplements to, the
Registration Statement or the Prospectus which may be necessary in
connection with the distribution of the Shares by the Underwriter.
During the period when a Prospectus relating to the Shares is required
to be delivered under the 1933 Act, the Company will promptly file any
amendments of, or supplements to, the Registration Statement or the
Prospectus which may be necessary to correct any untrue statement of a
material fact or any omission to state any material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company will notify the Underwriter
promptly of the receipt of any comments from the SEC regarding the
Registration Statement or Prospectus or request by the SEC for any
amendment thereof or supplement thereto or for any additional
information. The Company will not file any amendment of, or supplement
to, the Registration Statement or Prospectus, whether prior to or after
the Effective Date, which shall not previously have been submitted to
the Underwriter and its counsel a reasonable time prior to the proposed
filing or to which the Underwriter shall have reasonably objected.
(b) The Company has used and will continue to use its best
efforts to register or qualify the Shares for sale under the securities
laws of such jurisdictions as the Underwriter may designate and the
Company will file such consents to service of process or other
documents necessary or appropriate in order to effect such registration
or qualification. In each jurisdiction in which the Shares shall have
been registered or qualified as above provided, the Company will
continue such registrations or qualifications in effect for so long as
may be required for purposes of the distribution of the Shares;
provided, however, that in no event shall the Company be obligated to
qualify to do business as a foreign corporation in any jurisdiction in
which it is not now so qualified or to take any action which would
subject it to the service of process in suits, other than those arising
out of the offering or sale of the Shares in any jurisdiction where it
is not now so subject. In each jurisdiction where any of the Shares
shall have been so qualified, the Company will file such statements and
reports as are or may be reasonably required by the laws of such
jurisdiction to continue such qualification in effect. The Company will
notify the Underwriter immediately of, and confirm in writing, the
suspension of qualification of the Shares or the threat of such action
in any jurisdiction. The Company will use its best efforts to qualify
or register its Common Stock for sale in nonissuer transactions under
(or obtain exemptions from the application of) the securities laws of
such states designated by the Underwriter (and thereby permit
market-making transactions and secondary trading in its Common Stock in
such states), and will comply with such securities laws and will
continue such qualifications, registrations and exemptions in effect
for a period of five (5) years after the date hereof.
(c) The Company will furnish to the Underwriter, as soon as
available, copies of the Registration Statement (one of which will be
signed and which shall include all exhibits), each Preliminary
Prospectus, the Prospectus and any amendments or supplements to such
documents, including any prospectus prepared to permit compliance with
Section 10(a)(3) of the 1933 Act, all in such quantities as the
Underwriter may from time to time reasonably request prior to the
printing of each such document. The Company specifically authorizes the
Underwriter and all dealers to whom any of the Shares may be sold by
the Underwriter to use and distribute copies of such Preliminary
Prospectuses and Prospectuses in connection with the sale of the Shares
as and to the extent permitted by the federal and applicable state and
local securities laws.
(d) For as long as the Company has more than 100 beneficial
owners, but in no event more than five (5) years after the Effective
Date, the Company will mail as soon as practicable to the holders of
its Common Stock substantially the following documents, which documents
shall be in compliance with this Section if they are in the form
prescribed by the 1934 Act:
(i) within forty-five (45) days after the end of the
first three quarters of each fiscal year, copies of the
quarterly unaudited statement of profit and loss and quarterly
unaudited balance sheets of the Company and any material
subsidiaries; and
(ii) within ninety (90) days after the close of each
fiscal year, appropriate financial statements as of the close
of such fiscal year for the Company and any material
subsidiary which shall be certified to by a nationally
recognized firm of independent certified public accountants in
such form as to disclose the Company's financial condition and
the results of its operations for such fiscal year.
(e) For as long as the Company has more than 100 beneficial
owners, but in no event more than five (5) years after the Effective
Date, the Company will furnish to the Underwriter (i) concurrently with
furnishing such reports to its shareholders, the reports described in
Section 4(d) hereof; (ii) as soon as they are available, copies of all
other reports (financial or otherwise) mailed to security holders; and
(iii) as soon as they are available, copies of all reports and
financial statements furnished to, or filed with, the SEC, the NASD,
any securities exchange or any state securities commission by the
Company. During such period, the foregoing financial statements shall
be on a consolidated basis to the extent that the accounts of the
Company and any subsidiary or subsidiaries are consolidated and shall
be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(f) The Company will not, without the prior written consent of
the Underwriter, which consent shall not be unreasonably withheld, sell
or otherwise dispose of any capital stock or securities convertible or
exercisable into capital stock of the Company (other than pursuant to
currently outstanding options and warrants) during the 180-day period
following the Effective Date. Prior to the Closing Date, the Company
will not repurchase or otherwise acquire any of its capital stock or
declare or pay any dividend or make any distribution on any class of
its capital stock.
(g) Subject to the proviso set forth below, the Company shall
be responsible for and pay all costs and expenses incident to the
performance of the obligations of the Company and the Selling
Shareholders under this Agreement including, without limiting the
generality of the foregoing, (i) all costs and expenses in connection
with the preparation, printing and filing of the Registration Statement
(including financial statements and exhibits), Preliminary Prospectuses
and the Prospectus and any amendments thereof or supplements to any of
the foregoing; (ii) the issuance and delivery of the Shares, including
taxes, if any; (iii) the cost of all certificates representing the
Shares; (iv) the fees and expenses of the Transfer Agent for the
Shares; (v) the fees and disbursements of counsel for the Company; (vi)
all fees and other charges of the independent public accountants of the
Company; (vii) the cost of furnishing and delivering to the Underwriter
and dealers participating in the offering copies of the Registration
Statement (including appropriate exhibits), Preliminary Prospectuses,
the Prospectus and any amendments of, or supplements to, any of the
foregoing; (viii) the NASD filing and quotation fees; and (ix) the fees
and disbursements, including filing fees and all accountable fees and
expenses of counsel for the Company incurred in registering or
qualifying the Shares for sale under the laws of such jurisdictions
upon which the Underwriter and the Company may agree; provided,
however, that the Company and the Selling Shareholders shall, severally
on a pro rata basis in accordance with the number of Shares to be sold
by each, pay a non-accountable expense allowance to the Underwriter
equal to 2.5% of the gross proceeds of the Offering and the Selling
Shareholders will pay the fees and expenses of any separate counsel
retained by them in connection with the transaction contemplated
hereby. The Underwriter hereby acknowledges receipt of a $10,000
advance from the Company against the Underwriter's non-accountable
expense allowance referred to in the preceding sentence. In the event
this Agreement is terminated by the Underwriter pursuant to Section 9
or for any reason beyond the Underwriter's control or through no fault
of the Underwriter or by the Company, the Company and the Selling
Shareholders shall be obligated to pay, on a pro rate basis in
accordance with the number of Shares that would have been sold by each,
to the Underwriter the greater of the $10,000 non-refundable deposit
paid at the time of the execution of the letter of intent or all of its
actual accountable out-of-pocket expenses, including fees of its
counsel, not to exceed $20,000. In the event this Agreement is
terminated by the Underwriter for any reason within its control,
including but not limited to, an opinion of the NASD regarding the
compensation arrangement of the Underwriter, the Company shall be
obligated to pay the Underwriter only the $10,000 non-refundable
deposit paid at the time of the execution of the letter of intent.
(h) The Company and the Selling Shareholders will not take,
and the Company will use its best efforts to cause each of its officers
and directors not to take, directly or indirectly, any action designed
to or which might reasonably be expected to cause or result in the
stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
(i) The Company will use its best efforts to obtain and
maintain the quotation of its Common Stock on the Nasdaq SmallCap
MarketSM.
(j) For a period of at least three (3) years after the
Effective Date, the Company will continue to file with the SEC all
reports and other documents as may be required by the 1933 Act, the
Rules and Regulations and the 1934 Act.
(k) The Company will apply the proceeds from the sale of the
Shares substantially in the manner set forth in the Prospectus.
(l) Prior to or as of the First Closing Date, the Company
shall have performed each condition to closing required to be performed
by it pursuant to Section 4 hereof.
(m) Other than as permitted by the 1933 Act and the Rules and
Regulations, the Company will not distribute any prospectus or other
offering material in connection with the Offering.
5. Conditions of the Underwriter's Obligations. The obligation of the
Underwriter to purchase and pay for the Shares as provided herein shall be
subject to the accuracy of the representations and warranties of the Company and
the Selling Shareholders, in the case of the Firm Shares as of the date hereof
and the First Closing Date (as if made on and as of the First Closing Date) and
in the case of the Option Shares, as of the date hereof and the Second Closing
Date (as if made on and as of the Second Closing Date), to the performance by
the Company and the Selling Shareholders of their obligations hereunder, and to
the satisfaction of the following additional conditions on or before the First
Closing Date in the case of the Firm Shares and on or before the Second Closing
Date in the case of the Option Shares:
(a) The Registration Statement shall have become effective not
later than 5:00 P.M. Minneapolis time, on the first full business day
following the date of this Agreement, or such later date as shall be
consented to in writing by the Underwriter (the "Effective Date"). If
the Company has elected to rely upon Rule 430A, the information
concerning the price of the Shares and price-related information
previously omitted from the effective Registration Statement pursuant
to Rule 430A shall have been transmitted to the SEC for filing pursuant
to Rule 424(b) within the prescribed time period, and prior to the
Closing Date the Company shall have provided evidence satisfactory to
the Underwriter of such timely filing (or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the 1933 Act and the Rules and
Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or, to the knowledge of the Company or the Underwriter,
threatened by the SEC or any state securities commission or similar
regulatory body. Any request of the SEC for additional information (to
be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter and their legal counsel. The NASD, upon review of the terms
of the Offering, shall not have objected to the terms of the
Underwriter's participation in the Offering.
(b) The Underwriter shall not have advised the Company that
the Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to
be stated therein or is necessary to make the statements contained
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that this Section 5(b) shall not apply
to statements in, or omissions from, the Registration Statement or
Prospectus, or any amendment thereof or supplement thereto, which are
based upon and conform to written information furnished to the Company
by the Underwriter specifically for use in the preparation of the
Registration Statement or the Prospectus, or any such amendment or
supplement.
(c) Subsequent to the date as of which information is given
the Registration Statement and Prospectus, there shall not have
occurred any change, or any development involving a prospective change,
which materially and adversely affects the business or properties of
the Company and which, in the reasonable opinion of the Underwriter,
materially and adversely affects the market for the Shares.
(d) The Underwriter and the Selling Shareholders shall have
received the opinion of Gray, Plant, Mooty, Mooty & Bennett, P.A.,
counsel for the Company, dated as of such respective Closing Date and
satisfactory in form and substance to the Underwriter and its counsel,
to the effect that:
(i) The Company has been duly incorporated and is
validly existing in good standing under the laws of the State
of Minnesota with the requisite corporate power to own, lease
and operate its properties and conduct its business as
described in the Prospectus; and is duly qualified to do
business as a foreign corporation in good standing in all
jurisdictions where the ownership or leasing of its properties
or the conduct of its business requires such qualification and
in which the failure to be so qualified or in good standing
would have a material adverse effect on its business and the
activities of the Company. The Company has no subsidiaries.
(ii) The number of authorized and, to the best of
such counsel's knowledge, the number of issued and outstanding
shares of capital stock of the Company are as set forth in the
Prospectus, the reverse stock split described in the
Prospectus was effected in accordance with law and all such
capital stock has been duly authorized and is validly issued,
fully paid and nonassessable. Upon delivery of and payment for
the Shares hereunder, the Underwriter will acquire the Shares
free and clear of all liens, encumbrances or claims. To the
best knowledge of such counsel's knowledge, no preemptive
rights, contractual or otherwise, of securities holders of the
Company exist with respect to the issuance or sale of the
Shares by the Company pursuant to this Agreement or to the
issuance of Warrant Shares upon exercise of the Underwriter's
Warrants. To the best of such counsel's knowledge, no rights
to require registration of shares of Common Stock or other
securities of the Company exist which may be exercised in
connection with the filing of the Registration Statement. The
Shares, Underwriter's Warrants and Warrant Shares conform as
to matters of law in all material respects to the description
of these securities made in the Prospectus and such
description accurately sets forth the material legal
provisions thereof required to be set forth in the Prospectus.
(iii) The Shares have been duly authorized and, upon
delivery to the Underwriter against payment therefor, will be
validly issued, fully paid and nonassessable.
(iv) The certificates evidencing the Shares comply as
to form with the applicable provisions of the laws of the
State of Minnesota.
(v) The Underwriter's Warrants have been duly
authorized, executed and delivered by the Company and are the
valid and binding obligations of the Company, enforceable in
accordance with their terms, except as enforceability may be
limited by the application of bankruptcy, insolvency,
moratorium, or other laws of general application affecting the
rights of creditors generally and by judicial limitations on
the right of specific performance and other equitable
remedies, and except as the enforceability of indemnification
or contribution provisions hereof may be limited by federal or
state securities laws. The Warrant Shares when issued in
accordance with the terms of this Agreement and pursuant to
the Underwriter's Warrants will be validly issued, fully paid
and nonassessable. A sufficient number of shares of Common
Stock has been reserved for issuance upon exercise of the
Underwriter's Warrants.
(vi) The Registration Statement has become and is
effective under the 1933 Act, the Prospectus has been filed as
required by Rule 424(b), if necessary and, to the best
knowledge of such counsel, no stop orders suspending the
effectiveness of the Registration Statement have been issued
and no proceedings for that purpose have been instituted or
are pending or contemplated under the 1933 Act.
(vii) To the best of such counsel's knowledge, there
are no material legal or governmental proceedings of a
character required by the 1933 Act and the Rules and
Regulations to be described or referred to in the Registration
Statement or Prospectus that are not described or referred to
therein. All pending legal or governmental proceedings, if
any, to which the Company is a party or to which any of its
property is subject which are not described in the
Registration Statement and the Prospectus, including ordinary
routine litigation incidental to the business, are, considered
in the aggregate, not material to the Company.
(viii) No authorization, approval or consent of any
governmental authority or agency is necessary in connection
with the issuance and sale of the Shares as contemplated under
this Agreement, except such as may be required and obtained
under the 1933 Act or under state or other securities laws in
connection with the purchase and distribution of the Shares by
the Underwriter.
(ix) The Registration Statement, when it became
effective, the Prospectus and any amendments thereof or
supplements thereto, (other than the financial statements and
supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no
opinion) on the date of filing or the date thereof, complied
as to form in all material respects with the requirements of
the 1933 Act and the Rules and Regulations.
(x) This Agreement has been duly authorized, executed
and delivered by, and is a valid and binding agreement of the
Company, enforceable in accordance with its terms, except as
enforceability may be limited by the application of
bankruptcy, insolvency, moratorium or similar laws affecting
the rights of creditors generally and judicial limitations on
the right of specific performance and except as the
enforceability of indemnification or contribution provisions
hereof may be limited by federal or state securities laws.
(xi) To the best of such counsel's knowledge, the
execution, delivery and performance of this Agreement and the
consummation of the transactions described herein will not
result in a violation of, or a default under, the terms or
provisions of (A) any material bond, debenture, note,
contract, lease, license, indenture, mortgage, deed of trust,
loan agreement, joint venture or other agreement or instrument
to which the Company is a party or by which the Company or any
of its properties are bound, or (B) any material law, order,
rule, regulation, writ, injunction, or decree known to such
counsel of any government, governmental agency or court having
jurisdiction over the Company or any of its properties.
In expressing the foregoing opinion, as to matters of fact
relevant to conclusions of law, counsel may rely, to the extent that
they deem proper, upon certificates of public officials and of the
officers of the Company, provided that copies of such officers'
certificates are attached to the opinion.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that, although such counsel
cannot guarantee the accuracy, completeness or fairness of any of the
statements contained in the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto in connection with such
counsel's representation, investigation and due inquiry of the Company
in the preparation of the Registration Statement, Prospectus and any
amendment thereof or supplement thereto, nothing has come to the
attention of such counsel which causes them to believe that the
Registration Statement, Prospectus, or any amendment thereof or
supplement thereto (other than the financial statements and supporting
financial and statistical data included or incorporated therein, as to
which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading;
provided, however, that such opinion of counsel does not require any
statement concerning statements in, or omissions from, the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto,
which are based upon and conform to written information furnished to
the Company by the Underwriter specifically for use in the preparation
of the Registration Statement, Prospectus, or any such amendment or
supplement.
(e) The Underwriter shall have received the opinion of Gray,
Plant, Mooty, Mooty & Bennett, P.A., counsel for the Selling
Shareholders, dated as of such respective Closing Date and satisfactory
in form and substance to the Underwriter and its counsel, to the effect
that:
(i) This Agreement, the Custody Agreement and the
Power of Attorney have been duly executed, authorized and
delivered on behalf of the Selling Shareholders and are legal,
valid and binding obligations of the Selling Shareholders,
enforceable against them in accordance with the terms of such
agreements, except as enforceability may be limited by the
application of bankruptcy, insolvency, moratorium, or similar
laws affecting the rights of creditors generally and judicial
limitations on the right of specific performance and except as
the enforceability of indemnification or contribution
provisions hereof may be limited by federal or state
securities laws.
(ii) To such counsel's knowledge, the Selling
Shareholders have full legal right, power and authority to
sell their portion of the Shares, and any approval required by
laws (other than as required by federal or state securities
laws as to which counsel need express no opinion) to sell,
assign, transfer and deliver the portion of the Shares to be
sold by the Selling Shareholders has been obtained.
(iii) To such counsel's knowledge, upon delivery and
payment of the Shares to be sold by the Selling Shareholders
hereunder, the Underwriter will acquire all rights such
Selling Shareholder has or had power to transfer in such
Shares, free and clear of all adverse claims as defined in the
Minnesota Uniform Commercial Code, assuming for purposes of
this opinion that the Underwriter is a good faith purchasers
for value without notice of any adverse claim.
In expressing the foregoing opinion, as to matters of fact
relevant to conclusions of law, counsel may rely, to the extent that
they deem proper, upon certificates of public officials and of the
Selling Shareholders.
(f) The Underwriter shall have received from Maun & Simon,
PLC, its counsel, such opinion or opinions as the Underwriter may
reasonably require, dated as of each closing date and satisfactory in
form and substance to the Underwriter, with respect to the sufficiency
of corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby, and the Company
shall have furnished to said counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters.
In connection with such opinion, as to matters of fact relevant to
conclusions of law, such counsel may rely, to the extent that they deem
proper, upon representations or certificates of public officials and of
responsible officers of the Company.
(g) The Underwriter, the Company and the Selling Shareholders
shall have received letters, dated the date hereof and as of each
Closing Date, from McGladrey & Pullen, LLP, independent public
accountants, substantially similar to the form set forth in Appendix A
hereto.
(h) The Underwriter shall have received from the Company a
certificate, dated as of each closing date, of the principal executive
officer and the principal financial or accounting officer of the
Company to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct as if made on and as of
each closing date. The Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at, or prior to, such date.
(ii) No stop order suspending the effectiveness of
the Registration Statement has been issued and no proceeding
for that purpose has been instituted or is pending or to the
best knowledge of such officers contemplated under the 1933
Act.
(iii) Neither the Registration Statement nor the
Prospectus nor any amendment thereof or supplement thereto
included any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, and,
since the effective date of the Registration Statement, there
has occurred no event required to be set forth in an amended
or supplemented prospectus which has not been so set forth;
provided, however, that such certificate does not require any
representation concerning statements in, or omissions from,
the Registration Statement or Prospectus, or any amendment
thereof or supplement thereto, which are based upon and
conform to written information furnished to the Company by the
Underwriter specifically for use in the preparation of the
Registration Statement or the Prospectus, or any such
amendment or supplement.
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, and except as contemplated or referred to in the
Prospectus, no event has occurred that should have been set
forth in an amendment or supplement to Registration Statement
or the Prospectus which has not been so set forth and the
Company has not incurred any direct or contingent liabilities
or obligations material to the Company, or entered into any
material transactions, except liabilities, obligations or
transactions in the ordinary course of business, and there has
not been any change in the capital stock or long-term debt of
the Company, (including any capitalized lease obligations),
any material increase in the short-term debt of the Company,
any material adverse change in the financial position, net
worth or results of operations of the Company or declaration
or payment of any dividend.
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company has not sustained any material loss
of, or damage to, its properties, whether or not insured.
(vi) Except as is otherwise expressly stated in the
Registration Statement and Prospectus, there are no material
actions, suits or proceedings pending before any court or
governmental agency, authority or body, or, to the best of
their knowledge, threatened, to which the Company is a party
or of which the business or property of the Company is the
subject.
(i) The Underwriter shall have received, dated as of each
closing date, from the Secretary of the Company a certificate of
incumbency certifying the names, titles and signatures of the officers
authorized to execute the resolutions of the Board of Directors of the
Company authorizing and approving the execution, delivery and
performance of this Agreement, a copy of such resolutions to be
attached to such certificate, certifying that such resolutions and the
Articles of Incorporation of the Company and the Bylaws of the Company
have been validly adopted and have not been amended or modified.
(j) Each Selling Shareholder shall have executed the Power of
Attorney and Custody Agreement in form and substance satisfactory to
the Underwriter providing for the deposit with the Custodian named
therein of all Shares to be sold by such Selling Shareholder and for
the execution by the Attorneys-in-Fact named therein of this Agreement
and all related agreements as attorney-in-fact on behalf of each
Selling Shareholder.
(k) The Underwriter shall have received from each of the
Selling Shareholders a certificate, dated as of each Closing Date, to
the effect that the representations and warranties of such Selling
Shareholder set forth in Section 2 of this Agreement are true and
correct as of such date and the Selling Shareholder has complied with
all the agreements and satisfied all the conditions on the part of such
Selling Shareholder to be performed or satisfied at or prior to such
date.
(l) In addition, at each closing, the Company shall have
delivered to the Underwriter an opinion, satisfactory to the
Underwriter, of _____________________ ________________________________,
special intellectual property counsel for the Company, dated as such
respective Closing Date, and satisfactory in form and substance to the
Underwriter and its counsel, to the effect that:
(i) To the best of such counsel's knowledge, except
as described in the Prospectus, there are no United States
patents of third parties which are infringed by the
manufacture, use or sale of the products or processes
currently made, used or sold by the Company.
(ii) To the best of such counsel's knowledge, and
except as stated below, there are no legal, governmental or
administrative proceedings pending or threatened against the
Company that relate to patents, trademarks or other
intellectual property, except for pending or proposed United
States and foreign patent applications.
(iii) To the best of such counsel's knowledge, after
due inquiry, the Company has not received any notice of
conflict with the asserted rights of others in respect of any
trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights,
licenses, inventions, trade secrets, patents, patent
applications, know-how, or similar rights, nor of any
threatened actions with respect thereto, which, if determined
adversely to the Company, would individually or in the
aggregate have a material adverse effect on the general
affairs, financial position, net worth or results of
operations of the Company.
(iv) To the best of such counsel's knowledge, after
due inquiry, the Company owns, possesses or is licensed under
all such material trademarks, trademark applications,
trademark registrations, service marks, service mark
registrations, copyrights, patents, patent applications and
licenses as are described in the Prospectus and which are
necessary for the Company's present or planned future business
as described in the Prospectus.
In expressing the foregoing opinion, as to matters of fact
relevant to conclusions of law, counsel may rely, to the extent that
they deem proper, upon certificates of public officials and of the
officers of the Company, provided that copies of such officers'
certificates are attached to the opinion.
In addition to the matters set forth above, such opinion shall
also include a statement to the effect that, although such counsel
cannot guarantee the accuracy, completeness or fairness of any of the
statements regarding intellectual property matters contained in the
Registration Statement, Prospectus, or any amendment thereof or
supplement thereto in connection with such counsel's representation of
the Company in connection with intellectual property matters and in
preparation of the intellectual property portions of the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto,
nothing has come to the attention of such counsel which causes them to
believe that the intellectual property portions of the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto
(other than the financial statements and supporting financial and
statistical data included or incorporated therein, as to which such
counsel need express no opinion) contains an untrue statement of a
material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; provided,
however, that such opinion of counsel does not require any statement
concerning statements in, or omissions from, the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto,
which are based upon and conform to written information furnished to
the Company by the Underwriter specifically for use in the preparation
of the Registration Statement, Prospectus, or any such amendment or
supplement.
(m) The Underwriter shall have received a written agreement
from each of the officers and directors of the Company and certain
other stockholders of the Company that such person will not, without
the prior written consent of the Underwriter during the Lockup Period
(i) sell, transfer or otherwise dispose of, or agree to sell, transfer
or otherwise dispose of any shares of Common Stock of the Company
beneficially held by the officer or director during the Lockup Period,
(ii) sell, transfer or otherwise dispose of or agree to sell, transfer
or otherwise dispose of any options, rights, warrants or other
securities exercisable or convertible into shares of Common Stock of
the Company beneficially held by the officer or director during the
Lockup Period, or (iii) sell or grant, or agree to sell or grant,
options, rights, warrants or other securities exercisable or
convertible into to any such shares of Common Stock; provided, however,
that the foregoing does not prohibit gifts to donees who agree to be
bound by the restrictions set forth in the lockup agreement or
transfers by will or the laws of descent, and the Underwriter will not
unreasonably withhold consent to a sale of shares of Common Stock if
necessary to pay federal or state taxes.
(n) Neither the Company nor the Selling Shareholders shall
have failed to have performed any of their agreements herein contained
and required to be performed at or prior to the First Closing Date or
the Second Closing Date, as the case may be.
(o) The Shares shall have been registered or qualified for
sale or exempt from such registration or qualification under the
securities laws of such jurisdictions as designated by the Underwriter
such qualifications or exemptions shall continue in effect to and
including the First Closing Date or the Second Closing Date, as the
case may be.
(p) The Company and the Selling Shareholders shall have
furnished to the Underwriter, dated as of the date of the Closing Date,
such further certificates and documents as the Underwriter shall have
reasonably required.
(q) All such opinions, certificates, letters and documents
will be in compliance with the provisions hereof only if they are
reasonably satisfactory to the Underwriter and its legal counsel. All
statements contained in any certificate, letter, or other document
delivered pursuant hereto by, or on behalf of, the Company or the
Selling Shareholders shall be deemed to constitute representations and
warranties of the Company and the Selling Shareholders, respectively.
(r) The Underwriter may waive in writing the performance of
any one or more of the conditions specified in this Section 5 or extend
the time for their performance.
(s) If any of the conditions specified in this Section 5 shall
not have been fulfilled when and as required by this Agreement to be
fulfilled, this Agreement and all obligations of the Underwriter
hereunder may be canceled at, or at any time prior to, each Closing
Date by the Underwriter. Any such cancellation shall be without
liability of the Underwriter to the Company and shall not relieve the
Company or any of the Selling Shareholders of their obligations under
Section 4(g) hereof. Notice of such cancellation shall be given to the
Company and the Selling Shareholders at the address specified in
Section 11 hereof in writing, or by telegraph or telephone confirmed in
writing.
5A. Conditions to Obligations of the Selling Shareholders. The
obligations of the Selling Shareholders hereunder are subject to the conditions
that on the First Closing Date there shall be furnished and addressed to the
Selling Shareholders the opinion of counsel set forth in Section 5(d), the
opinion of counsel set forth in Section 5(l), the certificate of officers set
forth in Section 5(h) and a letter, dated the date hereof and the First Closing
Date, from McGladrey & Pullen, LLP, independent public accountants,
substantially similar to the form set forth in Appendix A hereto, modified in a
manner satisfactory to the Selling Shareholders and their counsel to conform to
the requirements of SAS 72 and SAS 76.
6. Underwriter's Warrants. On the First Closing Date, the Company shall
sell to the Underwriter for $50 the Underwriter's Warrants, which shall first
become exercisable one year after the Effective Date and shall remain
exercisable for a period of four (4) years thereafter. The Underwriter's
Warrants shall be subject to certain transfer restrictions and shall be in
substantially the form filed as an exhibit to the Registration Statement and
attached as Appendix B hereto.
7. Indemnification.
(a) The Company hereby agrees to indemnify and hold harmless
the Underwriter and each Selling Shareholder and each person, if any,
who controls the Underwriter within the meaning of Section 15 of the
1933 Act against any losses, claims, damages or liabilities, joint or
several, to which the Underwriter or Selling Shareholder or each such
controlling person may become subject, under the 1933 Act, the 1934
Act, the common law or otherwise, insofar as such losses, claims,
damages or liabilities (or judicial or governmental actions or
proceedings in respect thereof) arise out of, or are based upon, (i)
any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, or
the omission or alleged omission to state in the Registration Statement
or any amendment thereof a 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; (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus if used prior to the Effective
Date of the Registration Statement or in the Prospectus (as amended or
as supplemented, if the Company shall have filed with the SEC any
amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company
or based upon written information furnished by the Company filed in any
jurisdiction in order to qualify the Shares under, or exempt the Shares
or the sale thereof from qualification under, the securities laws of
such jurisdiction, or the omission or alleged omission to state in such
application or statement a 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 the
Company will reimburse the Underwriter, each Selling Shareholder and
each such controlling person for any legal or other expenses reasonably
incurred by the Underwriter, Selling Shareholder or controlling person
(subject to the limitation set forth in Section 7(c) hereof) in
connection with investigating or defending against any such loss,
claim, damage, liability or action; provided, however, that the Company
will not be liable in any such case to the extent that any such loss,
claim, damage or liability arises out of, or is based upon, an untrue
statement, or alleged untrue statement, omission or alleged omission,
made in reliance upon and in conformity with written information
furnished to the Company by, or on behalf of, the Underwriter or any
Selling Shareholder specifically for use in the preparation of the
Registration Statement or any such post-effective amendment thereof,
any such Preliminary Prospectus or the Prospectus or any such amendment
thereof or supplement thereto, or in any application or other statement
executed by the Company or the Underwriter filed in any jurisdiction in
order to qualify the Shares under, or exempt the Shares or the sale
thereof from qualification under, the securities laws of such
jurisdiction; and provided further that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to
any untrue statement, alleged untrue statement, omission or alleged
omission made in any Preliminary Prospectus but eliminated or remedied
in the Prospectus, such indemnity agreement shall not inure to the
benefit of the Underwriter if the person asserting any loss, claim,
damage or liability purchased the Shares from the Underwriter which are
the subject thereof (or to the benefit of any person who controls the
Underwriter), if a copy of the Prospectus was not sent or given to such
person with, or prior to, the written confirmation of the sale of such
Shares to such person. This indemnity agreement is in addition to any
liability which the Company may otherwise have.
(b) The Underwriter severally, but not jointly, agrees to
indemnify and hold harmless each of the Selling Shareholders, the
Company, each of the Company's directors, each of the Company's
officers who has signed the Registration Statement and each person who
controls the Company or a Selling Shareholder within the meaning of
Section 15 of the 1933 Act against any losses, claims, damages or
liabilities to which the Selling Shareholders, Company or any such
director, officer, or controlling person may become subject, under the
1933 Act, the 1934 Act, the common law, or otherwise, insofar as such
losses, claims, damages, or liabilities (or judicial or governmental
actions or proceedings in respect thereof) arise out of, or are based
upon, (i) any untrue statement or alleged untrue statement of a
material fact contained in the Registration Statement or any amendment
thereof, or the omission or alleged omission to state in the
Registration Statement or any amendment thereof, a material fact
required to be stated therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus if
used prior to the Effective Date of the Registration Statement or in
the Prospectus (as amended or as supplemented, if the Company shall
have filed with the SEC any amendment thereof or supplement thereto),
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; or (iii) any untrue statement or alleged untrue
statement of a material fact contained in any application or other
statement executed by the Company, the Selling Shareholders or by the
Underwriter and filed in any jurisdiction in order to qualify the
Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement
a 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; in each case to the extent, but only the extent,
that such untrue statement, alleged untrue statement, omission or
alleged omission, was made in reliance upon and in conformity with
written information furnished to the Company by, or on behalf of, the
Underwriter specifically for use in the preparation of the Registration
Statement or any such post effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other statement
executed by the Company or by the Underwriter and filed in any
jurisdiction; and the Underwriter will reimburse any legal or other
expenses reasonably incurred by the Company or Selling Shareholder or
any such director, officer or controlling person in connection with
investigating or defending against any such loss, claim, damage,
liability or action. This indemnity agreement is in addition to any
liability which the Underwriter may otherwise have.
(c) Each Selling Shareholder severally, but not jointly,
agrees to indemnify and hold harmless the Underwriter, the Company,
each of the Company's directors, each of the Company's officers who has
signed the Registration Statement and each person who controls the
Company or the Underwriter within the meaning of Section 15 of the 1933
Act against any losses, claims, damages, or liabilities to which the
Underwriter, the Company or any such director, officer, or controlling
person may become subject, under the 1933 Act, the 1934 Act, the common
law, or otherwise, insofar as such losses, claims, damages, or
liabilities (or judicial or governmental actions or proceedings in
respect thereof) arise out of, or are based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in
the Registration Statement or any amendment thereof, or the omission or
alleged omissions to state in the Registration Statement or any
amendment thereof, a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any
untrue statement or alleged untrue statement of a material fact
contained in any Preliminary Prospectus if used prior to the Effective
Date of the Registration Statement or in the Prospectus (as amended or
as supplemented, if the Company shall have filed with the SEC any
amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the
Company, the Selling Shareholders or by the Underwriter and filed in
any jurisdiction in order to qualify the Shares under, or exempt the
Shares or the sale thereof from qualification under, the securities
laws of such jurisdiction, or the omission or alleged omission to state
in such application or statement a 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; in each case
to the extent, but only the extent, that such untrue statement, alleged
untrue statement, omission or alleged omission, was made in reliance
upon and in conformity with written information furnished to the
Company by, or on behalf of, any Selling Shareholder specifically for
use in the preparation of the Registration Statement or any such post
effective amendment thereof, any such Preliminary Prospectus or the
Prospectus or any such amendment thereof or supplement thereto, or in
any application or other statement executed by the Company or by the
Underwriter and filed in any jurisdiction; and provided further that
the foregoing indemnity agreement is subject to the condition that,
insofar as it relates to any untrue statement, alleged untrue
statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated or remedied in the Prospectus, such indemnity
agreement shall not inure to the benefit of the Underwriter if the
person asserting any loss, claim, damage or liability purchased the
Shares from the Underwriter which are the subject thereof (or to the
benefit of any person who controls the Underwriter), if a copy of the
Prospectus was not sent or given to such person with, or prior to, the
written confirmation of the sale of such Shares to such person due to
no fault of any Selling Shareholder; and each Selling Shareholder will
reimburse any legal or other expenses reasonably incurred by the
Company, the Underwriter or any such director, officer or controlling
person in connection with investigating or defending against any such
loss, claim, damage, liability or action. This indemnity agreement is
in addition to any liabilty which the Selling Shareholders may
otherwise have.
(d) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified
party will, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify in writing the
indemnifying party of the commencement thereof. The omission so to
notify the indemnifying party will not relieve it from any liability
under this Section 7 as to the particular item for which
indemnification is then being sought, unless such omission so to notify
prejudices the indemnifying party's ability to defend such action. In
case any such action is brought against any indemnified party and the
indemnified party notifies an indemnifying party of the commencement
thereof, the indemnifying party will be entitled to participate therein
and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof,
with counsel who shall be reasonably satisfactory to such indemnified
party; and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under
this Section 7 for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof other
than reasonable costs of investigation; provided, however, that if, in
the reasonable judgment of the indemnified party, it is advisable for
such parties and controlling persons to be represented by separate
counsel, any indemnified party shall have the right to employ separate
counsel to represent it and all other parties and their controlling
persons who may be subject to liability arising out of any claim in
respect of which indemnity may be sought by the Underwriter against the
Company and the Selling Shareholders, by the Selling Shareholders
against the Company hereunder, or by the Company and the Selling
Shareholders against the Underwriter hereunder, in which event the fees
and expenses of such separate counsel shall be borne by the
indemnifying party and paid as incurred. Any such indemnifying party
shall not be liable to any such indemnified party on account of any
settlement of any claim or action effected without the prior written
consent of such indemnifying party.
8. Contribution.
(a) If the indemnification provided for in Section 7 is
unavailable under applicable law to any indemnified party in respect of
any losses, claims, damages or liabilities referred to therein, then
each indemnifying party, in lieu of indemnifying such indemnified
party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Underwriter from the
offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company, the
Selling Shareholders and the Underwriter in connection with the
statements or omissions which resulted in such losses, claims, damages
or liabilities, as well as any other relevant equitable considerations.
The Company, the Selling Shareholders and the Underwriter agree that
contribution determined by per capita allocation would not be
equitable. The respective relative benefits received by the Company,
the Selling Shareholders and the Underwriter, shall be deemed to be in
the same proportion (A) in the case of the Company, as the total price
paid to the Company for the Shares by the Underwriter (net of
underwriting discount received but before deducting expenses) bears to
the aggregate public offering price of the Shares, (B) in the case of
each Selling Shareholders, as the total price paid to such Selling
Shareholder by the Underwriter (net of underwriting discount and
nonaccountable expense allowance but before deducting other offering
expenses) bears to the aggregate public offering price of the Shares,
and (C) in the case of the Underwriter, as the aggregate underwriting
discount received by them bears to the aggregate public offering price
of the Shares, in each case as reflected in the Prospectus. The
relative fault of the Company, the Selling Shareholders and the
Underwriter shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or a Selling Shareholder or by the
Underwriter and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be
deemed to include any legal or other fees or expenses reasonably
incurred by such party in connection with investigating or defending
any action or claim. Notwithstanding the provisions of this Section 8,
the Underwriter shall not be required to contribute any amount in
excess of the amount by which the total price at which the Shares
underwritten by it were offered to the public exceeds the amount of any
damages which the Underwriter has otherwise been required to pay by
reason of any untrue or alleged untrue statement or omission or alleged
omission in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto. No Selling
Shareholder shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares sold by such
Selling Shareholder were offered to the public exceeds the amount of
any damages which such Selling Shareholder has otherwise been required
to pay by reason of any untrue or alleged untrue statement or omission
or alleged omission in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendments or supplements thereto. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the 1933 Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. For
purposes of this Section 8, each person who controls the Underwriter
within the meaning of the 1933 Act or the 1934 Act shall have the same
rights to contribution as the Underwriter, each person who controls the
Company and each person who controls a Selling Shareholder within the
meaning of the 1933 Act or the 1934 Act shall have the same rights to
contribution as the Company or such Selling Shareholder and each
officer of the Company who shall have signed the Registration Statement
and each director of the Company shall have the same rights to
contribution as the Company.
(b) Promptly after receipt by a party to this Agreement of
notice of the commencement of any action, suit or proceeding, such
person will, if a claim for contribution in respect thereof is to be
made against another party (the "Contributing Party"), notify the
Contributing Party of the commencement thereof, but the omission so to
notify the Contributing Party will not relieve the Contributing Party
from any liability which it may have to any party other than under this
Section 8, unless such omission so to notify prejudices the
Contributing Party's ability to defend such action. Any notice given
pursuant to Section 7 hereof shall be deemed to be like notice
hereunder. In case any such action, suit or proceeding is brought
against any party, and such person notifies a Contributing Party of the
commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing
Party similarly notified.
9. Effective Date of This Agreement and Termination.
(a) This Agreement shall become effective when the Underwriter
releases the initial public offering of the Firm Shares for sale to the
public. The Underwriter shall notify the Company and the Selling
Shareholders immediately after any action has been taken which causes
this Agreement to become effective. Until this Agreement is effective,
it may be terminated by the Company or the Underwriter by giving notice
as hereinafter provided, except that the provisions of Section 4(g) and
Sections 7, 8 and 9 shall at all times be effective. For purposes of
this Agreement, the release of the initial public offering of the Firm
Shares for sale to the public shall be deemed to have been made when
the Underwriter releases, by facsimile or otherwise, firm offers of the
Firm Shares to securities dealers or release for publication a
newspaper advertisement relating to the Firm Shares, whichever occurs
first.
(b) Until the First Closing Date, this Agreement may be
terminated by the Underwriter, at its option, by giving notice to the
Company, if (i) the Company shall have sustained a loss by fire, flood,
accident or other calamity which is material with respect to the
business of the Company; the Company shall have become a party to
material litigation, not disclosed in the Registration Statement or the
Prospectus; or the business or financial condition of the Company shall
have become the subject of any material litigation, not disclosed in
the Registration Statement or the Prospectus; or there shall have been,
since the respective dates as of which information is given in the
Registration Statement or the Prospectus, any material adverse change
in the general affairs, business, key personnel, capitalization,
financial position or net worth of the Company, whether or not arising
in the ordinary course of business, which loss or change, in the
reasonable judgment of the Underwriter, shall render it inadvisable to
proceed with the delivery of the Shares, whether or not such loss shall
have been insured; (ii) trading in securities generally on the New York
Stock Exchange, American Stock Exchange, Nasdaq National Market, Nasdaq
SmallCap Market or the over-the-counter market shall have been
suspended or minimum prices shall have been established on such
exchange by the SEC or by such exchanges or markets; (iii) a general
banking moratorium shall have been declared by federal, New York or
Minnesota authorities; (iv) there shall have been such a material
adverse change in general economic, monetary, political or financial
conditions, or the effect of international conditions on the financial
markets in the United States shall be such that, in the judgment of the
Underwriter, makes it inadvisable to proceed with the delivery of the
Shares; (v) the enactment, publication, decree or other promulgation of
any federal or state statute, regulation, rule or order of either of
any court or other governmental authority which, in the judgment of the
Underwriter, materially and adversely affects or will materially and
adversely affect the business or operations of the Company; (vi) there
shall be a material outbreak of hostilities or material escalation and
deterioration in the political and military situation between the
United States and any foreign power, or a formal declaration of war by
the United States of America shall have occurred; (vii) the Company
shall have failed to comply with any of the provisions of this
Agreement on its part to be performed on or prior to such date or if
any of the conditions, agreements, representations or warranties of the
Company shall not have been fulfilled within the respective times
provided for in this Agreement; or (viii) the Company is no longer
registered under the 1934 Act. Any such termination shall be without
liability of any party to any other party, except as provided in
Sections 7 and 8 hereof; provided, however, that the Company and the
Selling Shareholders shall remain obligated to pay costs and expenses
to the extent provided in Section 4(g) hereof.
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 9, it shall notify the Company promptly by telegram or
telephone, confirmed by letter sent to the address specified in Section
11 hereof. If the Company shall elect to prevent this Agreement from
becoming effective, it shall notify the Underwriter promptly by
telegram or telephone, confirmed by letter sent to the address
specified in Section 11 hereof.
10. Survival of Indemnities, Contribution Agreements, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8, respectively, the
representations and warranties of the Company and the Selling Shareholders set
forth in Sections 1 and 2 hereof respectively and the covenants of the Company
and the Selling Shareholders set forth in Section 4 hereof shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Selling Shareholders, the Underwriter, the Company, any of
its officers and directors, or any controlling person referred to in Sections 7
and 8, and shall survive the delivery of and payment for the Shares. The
aforesaid indemnity and contribution agreements shall also survive any
termination or cancellation of this Agreement. Any successor of any party or of
any such controlling person, or any legal representative of such controlling
person or the Selling Shareholders, as the case may be, shall be entitled to the
benefit of the respective indemnity and contribution agreements.
11. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to Underwriter
or any of the Underwriter, shall be mailed, delivered or telegraphed and
confirmed, to R.J. Steichen & Company, 1100 Midwest Plaza East, 801 Nicollet
Mall, Suite 1100, Minneapolis, Minnesota 55402 Attention: Patrick M. Sidders,
Senior Vice President and Managing Director, with a copy to Philip T. Colton,
Esq., Maun & Simon, PLC, 2000 Midwest Plaza Building West, 801 Nicollet Mall,
Minneapolis, Minnesota 55402; or, if sent to the Company, shall be mailed,
delivered or telegraphed and confirmed, to Telident, Inc., One Main Street S.E.,
Suite 85, Minneapolis, Minnesota 55414, Attention: Michael J. Miller,
President/CEO, with a copy to Lindley S. Branson, Esq., Gray, Plant, Mooty,
Mooty & Bennett, P.A., 3400 City Center, 33 South Sixth Street, Minneapolis,
Minnesota 55402-3796.
12. Information Furnished by the Underwriter and the Selling
Shareholders. The statements set forth in the last paragraph on the cover page,
the stabilization legend on the inside front cover and the statements under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the only written information furnished by, or on behalf of, the
Underwriter specifically for use with reference to the Underwriter referred to
in Section 1(b) and Section 7 hereof. The statements regarding the number of
shares owned and to be sold by the Selling Shareholders and the related
footnotes under the caption "Principal and Selling Shareholders" in any
Preliminary Prospectus and in the Prospectus constitute the written information
furnished by, or on behalf of, the Selling Shareholders specifically for use in
preparation of the Registration Statement as contemplated by Section 2(e) and
Section 7(c) hereof.
13. Parties. This Agreement shall inure to the benefit of and be
binding upon the Selling Shareholders, the Underwriter and the Company, their
respective successors and assigns, and the officers, directors and controlling
persons referred to in Sections 7 and 8. Nothing expressed in this Agreement is
intended or shall be construed to give any person or corporation, other than the
parties hereto, their respective successors and assigns, and the controlling
persons, officers and directors referred to in Sections 7 and 8 any legal or
equitable right, remedy, or claim under, or in respect of, this Agreement or any
provision herein contained, this Agreement and all conditions and provisions
hereof being intended to be and being for the sole and exclusive benefit of the
parties hereto and their respective executors, administrators, successors,
assigns and such controlling persons, officers and directors, and for the
benefit of no other person or corporation. No purchaser of any Shares from the
Underwriter shall be construed a successor or assign merely by reason of such
purchase.
14. Governing Law. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
15. Counterparts. This Agreement may be execute in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one Agreement.
If the foregoing is in accordance with the Underwriter's understanding
of this agreement, kindly sign and return to the Company the enclosed
counterpart of this Agreement, whereupon it will become a binding agreement
between the Company and each of the several Underwriter in accordance with its
terms.
Very truly yours,
TELIDENT, INC.
By:__________________________________
Its:______________________________
R.J. STEICHEN & COMPANY "SELLING SHAREHOLDERS"
By:_______________________________ ______________________________________
Patrick M. Sidders Willis K. Drake
Its: Senior Vice President
& Managing Director ______________________________________
Warren S. Tyler
______________________________________
Richard L. Hencley
By:___________________________________
_________________, Attorney-in-Fact
SCHEDULE I
Name of Selling Shareholder Number of Firm Shares
1. Willis K. Drake
2. Warren S. Tyler
3. Richard L. Hencley _____________
TOTAL: 125,000
=======
APPENDIX A
FORM OF COMFORT LETTER OF MCGLADREY & PULLEN, LLP
(1) They are independent public accountants with respect to the Company
within the meaning of the Securities Act of 1933, as amended (the "1933 Act").
(2) In their opinion, the financial statements of the Company included
in the Registration Statement which are stated therein to have been examined by
them comply as to form in all material respects with the applicable accounting
requirements of the 1933 Act and the related published rules and regulations.
(3) On the basis of specified procedures (but not an audit in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company responsible for financial and accounting matters
as to transactions and events subsequent to the date of the financial statements
included in the Prospectus, a reading of minutes of meetings of the stockholders
and directors of the Company since the date of the financial statements included
in the Prospectus and other procedures as specified in such letter, nothing came
to their attention which caused them to believe that (a) at a specified date not
more than five (5) days prior to the date thereof in the case of the first
letter and not more than two (2) business days prior to the date thereof in the
case of the second and third letters, there was any change in the capital stock,
long-term debt, or short-term debt (other than normal payments) of the Company,
or any material decrease in net current assets or stockholders' equity, as
compared with amounts shown on the latest balance sheet of the Company included
in the Registration Statement; or (b) for the period from the date of such
balance sheet to a date not more than five (5) days prior to the date thereof in
the case of the first letter and not more than two (2) business days prior to
the date thereof in the case of the second letter, there were any material
decreases in working capital, long-term debt or total stockholders' equity,
except for changes or decreases which the Prospectus discloses, have occurred or
may occur, or which are set forth in such letter.
(4) They have carried out specified procedures, which have been agreed
to by the Underwriter, with respect to certain information in the Prospectus
specified by the Underwriter, and on the basis of such procedures, they have
found such information to be in agreement with the accounting records of the
Company or with material derived from such records.
_______ SHARES COMMON STOCK
____________________________
SELECTED DEALER AGREEMENT
_________________, 1996
___________________________
___________________________
___________________________
___________________________
Ladies and Gentlemen:
Registration under the Securities Act of 1933, as amended, (the "1933
Act") of this issue, described in the enclosed Prospectus, has become effective.
The Underwriter is offering certain of the Shares for purchase as principal by a
selected list of dealers (herein collectively referred to as "Selected
Dealers").
Public Offering Price: As set forth in the Prospectus.
Selected Dealers $____ per Share, payable as set forth below.
Concession:
Reallowance: Not in excess of $____ per Share may be
reallowed as a selling concession to dealers,
but only as permitted by the Rules of Fair
Practice of the National Association of
Securities Dealers, Inc. ("NASD").
Confirmation of Orders: All orders are subject to confirmation and
allotment by us. We reserve the right to
reject any order, or to allot less than the
amount applied for.
Delivery and Payment: At the office of R.J. Steichen & Company at
such time and on such day as we may advise
you. Payment is to be made at the public
offering price, less the Selected Dealers
concession, by a certified or official bank
check payable to the order of
________________________ in Clearing House
funds against delivery of certificates. If
you are a member of, or clear through a
member of, the Depository Trust Company (the
"DTC"), we may, in our discretion, make
delivery through the facilities of the DTC.
Dealings During Life Shares ordered by Selected Dealers, when
of this Agreement: confirmed by us, may be immediately
reoffered to the public in conformity with
the terms of offering set forth in the
Prospectus. As stated in the Prospectus, we
may engage in transactions for the purposes
of stabilizing the price of the Shares.
Stabilization, if commenced, may be
discontinued at any time.
Termination of this This Agreement shall terminate at 5:00 P.M.,
Agreement: Minneapolis time, 45 days after the public
offering of these Shares unless extended in
our discretion for a period or periods not
to exceed in the aggregate 45 days; but we
may terminate this Agreement whether or not
extended, at any time without prior notice.
These Shares are offered by us for delivery when, as, and if issued to
and accepted by us and subject to the terms hereof, to our right at any time to
vary the offering price, concessions and terms of the offering and to withdraw,
cancel, or modify this offer without notice.
You are not authorized to act as agent for us or otherwise act in our
behalf in offering these Shares to the public or otherwise, or to give any
information or to make any representation not contained in the Prospectus.
Nothing herein contained will constitute the Selected Dealers and us a
partnership, association, or other separate entity, but you shall be responsible
for your share of any liability or expense based on any claim to the contrary.
We shall not be under any liability to you, except for obligations expressly
assumed in this Agreement, and no obligations on our part shall be implied
hereby or inferred herefrom, but nothing in this paragraph shall be deemed to
relieve us of any liability imposed under the 1933 Act.
By your acceptance hereof, you agree: (1) to take up and pay for the
Shares ordered by and confirmed to you; (2) in reoffering the same, to comply
with the terms of this Agreement; (3) upon our request, to advise us of the
amount of Shares purchased from us remaining and unsold by you and to resell to
us such number of unsold Shares as we may request at the public offering price
less the amount of the Selected Dealers concession; (4) that you will not offer
or sell the Shares in any jurisdiction except those with respect to which we
have advised you that such offers or sales will be permissible under the state
securities or Blue Sky laws of the respective jurisdictions (notwithstanding any
information furnished or any action taken in connection therewith, we shall have
no obligation or responsibility with respect to the registration or
qualification of the Shares in any jurisdiction or the right of any Selected
Dealer to sell or advertise them therein) and that in the event that you sell
any Shares in jurisdictions where the Shares have not been registered or
qualified you will accept sole responsibility for any curative measures with
respect to, or liability arising from, such sales; (5) that you will not engage
in stabilizing the price of the Shares or, until completion of your
participation in the distribution, in bidding for or purchasing or attempting to
induce others to purchase, directly or indirectly, any of the Shares; and (6)
notwithstanding the termination of this Agreement, to bear your proper
proportion of any tax, liability or other claims in connection herewith imposed
at any time against you alone, with other Selected Dealers, or with the
Underwriter, and a like share of any expenses of resisting such claims.
It is assumed that Shares sold by you will be effectively placed for
investment. You agree to pay us upon demand an amount equal to the Selected
Dealers concession as to any Shares purchased by you hereunder which, prior to
the termination of this Agreement, we may Purchase or contract to purchase for
our account or which may be delivered against purchase contracts made prior to
the termination of this Agreement and, in addition, we may charge you with any
broker's commission and transfer tax paid in connection with such purchase or
contract to purchase. Certificates for Shares delivered on such repurchases need
not be the identical certificates originally purchased.
You, by your confirmation below, represent that neither you nor any of
your directors, officers, partners, "persons associated with" you (as defined in
the Bylaws of the NASD) nor, to your knowledge, any "related person" (as defined
by the NASD in its Interpretation with Respect to the Review of Corporate
Financing, as amended) has participated or intend to participate in any
transaction or dealing (including with the Company) as to which documents or
information are required to be filed with the NASD pursuant to such
Interpretation or its Statement of Policy Concerning Venture Capital and Other
Investments, as amended, and as to which such documents or information have not
been so filed in a timely manner; and that the Company is not an "affiliate" of
yours, nor is any director, officer or holder of five percent (5%) or more of
the voting securities of the Company a "Person associated with" you (as such
terms are defined in the Bylaws of the NASD).
You agree that you will not sell to any account over which you exercise
discretionary authority any of the Shares which you purchase.
On becoming a Selected Dealer, and in offering and selling the Shares,
you agree to comply with all the applicable requirements of the 1933 Act and the
rules and regulations thereunder, and any applicable state securities laws.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act") relating to the distribution of
Preliminary and final prospectuses for securities of an issuer (whether or not
the issuer is subject to the reporting requirements of Section 13 or 15(d) of
the 1934 Act) and confirm that you have complied and will comply therewith. You
confirm that you are in compliance with Rule 15c3-1 under the 1934 Act and the
Securities and Exchange Commission's uniform net capital rules thereunder, and
you will continue to be in compliance during your participation in this
offering.
You represent that you are either (1) a member in good standing of the
NASD who agrees to comply with all applicable rules of the NASD, including
without limitation, the NASD's Interpretation with Respect to Free Riding and
Withholding and Sections 8, 24, 25, and 36 of Article III of the NASD's Rules of
Fair Practice; or (2) a foreign dealer not eligible for membership in the NASD
who hereby agrees to make no sales within the United States, its territories, or
its possessions, nor to persons who are citizens thereof or residents therein,
and in making other sales to comply with the NASD Interpretation mentioned above
and Sections 8, 24 and 36 of Article III as if you were an NASD member and to
comply with Section 25 of such article as that section applies to a nonmember
foreign dealer.
Very truly yours,
R.J. STEICHEN & COMPANY
By:_______________________________________
Its:_______________________________________
ACCEPTANCE
We confirm our agreement to purchase _________ Shares of the above
issue subject to all the terms and conditions set forth in the Agreement. We
acknowledge receipt of the Prospectus and no other statements, written or oral.
We further state that in purchasing the Shares we have relied upon the
Prospectus and upon no other statement whatsoever, written or oral.
Dated: ______________________, 1996
______________________________________________________
Print corporate name or firm name of selected dealer
______________________________________________________
Signature of authorized official or partner
______________________________________________________
Print name of person signing
______________________________________________________
Print title of person signing
Address:
______________________________________________________
______________________________________________________
Exhibit 3.1
RESTATED
ARTICLES OF INCORPORATION
OF
TELIDENT. INC.
I, the undersigned, as President of Telident, Inc., a Minnesota
corporation, do hereby certify that the shareholders of the corporation have
unanimously resolved to amend and restate the Articles of Incorporation in
accordance with the following resolution:
RESOLVED, That the Articles of Incorporation of this corporation be
amended and restated in their entirety as follows:
ARTICLE I
The name of this corporation shall be Telident, Inc.
ARTICLE II
The location and address of this corporation's registered office in
this state shall be 4510 West 77th Street, Edina, Minnesota 55435.
ARTICLE III
The total authorized number of shares of this corporation is Ten
Million (10,000,000) shares, all of which shall be shares of common stock of the
par value of one cent ($.01) per share.
ARTICLE IV
Shareholders shall have no rights of cumulative voting.
ARTICLE V
Shareholders shall have no rights, preemptive or otherwise, to acquire
any part of any unissued shares or other securities of this corporation or of
any rights to purchase shares or other securities of this corporation before the
corporation may offer them to other persons.
ARTICLE VI
The name and address of the incorporator of this corporation is:
Clarence L. Wolfe
4510 West 77th Street
Suite 199
Edina, Minnesota 55435
ARTICLE VII
The Board of Directors of this corporation shall consist of three
directors or such other number of directors as shall be fixed in the manner
provided in the By-Laws of this corporation. A director of the corporation shall
not be personally liable to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director, except for (i) liability
based on a breach of the duty of loyalty to the corporation or the shareholders;
(ii) liability for acts or omissions not in good faith or that involve
intentional misconduct or a knowing violation of law; (iii) liability based on
the payment of an improper dividend or an improper repurchase of the
corporation's stock under Section 559 of the Minnesota Business Corporation Act
(Minnesota Statutes, Chap. 302A) or; (iv) liability for any transaction from
which the director derived an improper personal benefit. If Chapter 302A, the
Minnesota Business Corporation Act hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the corporation in addition to the limitation on personal liability
provided herein, shall be limited to the fullest extent permitted by the amended
Chapter 302A, the Minnesota Business Corporation Act. Any repeal or modification
of this Article by the shareholders of the corporation shall be prospective only
and shall not adversely affect any limitation on the personal liability of a
director of the corporation existing at the time of such repeal or modification.
ARTICLE VIII
Any action required or permitted to be taken at a meeting of the Board
of Directors may be taken by written action signed by all of the directors then
in office, unless the action is one which need not be approved by the
shareholders, in which case such action shall be effective if signed by the
number of directors that would be required to take the same action at a meeting
at which all directors were present.
FURTHER RESOLVED, That Clarence L. Wolfe, the President of this
corporation, be, and hereby is, authorized and directed to make and
execute Articles of Amendment embracing the foregoing resolution and to
cause such Articles of Amendment to be filed and recorded in the manner
required by law.
I FURTHER CERTIFY that the foregoing Amendment and Restatement has been
adopted pursuant to chapter 302A, Minnesota Statutes.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 13th day of
December, 1988.
/s/ Clarence L. Wolfe
Clarence L. Wolfe
President
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
TELIDENT, INC.
I, the undersigned, as President of Telident, Inc., a Minnesota
corporation, do hereby certify that the shareholders of the corporation have
approved an amendment to the corporation's Articles of Incorporation in
accordance with the following resolutions:
RESOLVED, That Article III of the Articles of Incorporation of this
corporation be amended as follows:
ARTICLE III
The total number of shares of all classes of stock that the
corporation shall be authorized to issue is twenty-five million
(25,000,000) shares, divided into the following: (i) five million
(5,000,000) shares of Preferred Stock, of the par value of $.0l per
share; and (ii) twenty million (20,000,000) shares of Common Stock, of
the par value of $.01 per share. A description of the respective
classes of stock and a statement of the designations, preferences,
limitations and relative rights of such classes of stock and the
limitations on or denial of the voting rights of the shares of such
classes of stock are as follows:
A. Preferred Stock
l. Issuance in Series. The Preferred Stock may be
divided into and issued in one or more series. The Board of
Directors is hereby vested with authority from time to time to
establish and designate such series and, within the
limitations prescribed by law or set forth herein, to fix and
determine the relative rights and preferences of the shares of
any series so established, but all shares of Preferred Stock
shall be identical except as to the following relative rights
and preferences, as to which there may be variations between
different series: (a) the rate of dividend; (b) the price at
and the terms and conditions on which shares may be redeemed;
(c) the amount payable upon shares in the event of involuntary
liquidation; (d) the amount payable upon shares in the event
of voluntary liquidation; (e) sinking fund provisions, if any,
for the redemption or purchase of shares; (f) the terms and
conditions on which shares may be converted, if the shares of
any series are issued with the privilege of conversion; and
(g) voting rights. The Board of Directors shall exercise such
authority by the adoption of a resolution or resolutions as
prescribed by law.
2. Dividends. The holders of each series of Preferred
Stock at the time outstanding shall be entitled to receive,
when and as declared to be payable by the Board of Directors,
out of any funds legally available for the payment thereof,
dividends at the rate theretofore fixed by the Board of
Directors for such series of Preferred Stock.
3. Preferred Dividends Cumulative. Dividends on all
Preferred Stock, regardless of series, shall be cumulative. No
dividend shall be declared on any series of Preferred Stock
for any dividend period unless all dividends accumulated for
all prior dividend periods shall have been declared or shall
then be declared at the same time upon all Preferred Stock
then outstanding. No dividend shall be declared on any series
of Preferred Stock unless a dividend for the same period shall
be declared at the same time upon all Preferred Stock
outstanding at the time of such declaration in like proportion
to the divided rate then declared. No dividend shall be
declared or paid on the Common Stock unless full dividends on
all Preferred Stock then outstanding for all past dividend
periods and for the current dividend period shall have been
declared and the corporation shall have paid such dividends or
shall have set apart a sum sufficient for the payment thereof.
4. Preferences on Liquidation. In the event of any
dissolution, liquidation or winding up of the corporation,
whether voluntary or involuntary, the holders of each series
of the then outstanding Preferred Stock shall be entitled to
receive the amount fixed for such purpose in the resolution or
resolutions of the Board of Directors establishing the
respective series of Preferred Stock that might then be
outstanding together with a sum equal to the amount of all
accumulated and unpaid dividends thereon at the dividend rate
fixed therefor in the aforesaid resolution or resolutions.
After such payment to such holders of Preferred Stock, the
remaining assets and funds of the corporation shall be
distributed pro rata among the holders of the Common Stock. A
consolidation, merger or reorganization of the corporation
with any other corporation or corporations or a sale of all or
substantially all of the assets of the corporation shall not
be considered a dissolution, liquidation or winding up of the
corporation within the meaning of these provisions.
5. Redemption. The whole or any part of the
outstanding Preferred Stock or the whole or any part of any
series thereof may be called for redemption and redeemed at
any time at the option of the corporation, subject to and in
accordance with such terms and conditions as shall be set
forth in the resolutions of the Board of Directors
establishing the respective series of Preferred Stock. The
holders of the particular shares of the Preferred Stock so to
be redeemed shall be entitled to receive, at the time of
redemption of such shares, the redemption price fixed for such
shares in the resolution or resolutions of the Board of
Directors establishing the particular series of which such
shares are a part together with a sum equal to the amount of
all accumulated and unpaid dividends thereon to the date fixed
for redemption at the dividend rate fixed for such shares in
the aforesaid resolution or resolutions.
B. Common Stock
1. Dividends. Subject to all the rights of the
Preferred Stock or any series thereof and on the conditions
set forth in Part A of this Article III or in any resolution
of the Board of Directors providing for the issuance of any
series of Preferred Stock, the holders of the Common Stock
shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available therefor,
dividends payable in cash, stock or otherwise.
2. Voting Rights. Each holder of Common Stock shall
be entitled to one vote for each share held.
3. Issuance. The shares of Common Stock may be issued
from time to time at the option and discretion of the Board of
Directors of the corporation for such consideration as may be
fixed from time to time by the Board of Directors in
compliance with the Minnesota Business Corporation Act, and
shares so issued, the full consideration for which has been
paid or delivered, shall be deemed fully paid stock and the
holder of such shares shall not be liable for any further
payment thereon.
4. Miscellaneous. Each and every share of Common
Stock shall be equal and without preference or without
classification as between such shares of stock, and none of
such shares of stock shall, in the hands of any person
whomsoever, be liable, or render such person liable, to pay
any assessment or any obligation or payment on account of the
debts or obligations of the corporation.
FURTHER RESOLVED, That Michael J. Miller, the President of this corporation, be,
and hereby is, authorized and directed to make and execute Articles of Amendment
embracing the foregoing resolution and to cause such Articles of Amendment to be
filed with the office of the Secretary of State of the State of Minnesota.
I FURTHER CERTIFY that the foregoing amendment has been adopted
pursuant to chapter 302A, Minnesota Statutes.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 30th day of
June, 1994.
/s/ Michael J. Miller
Michael J. Miller
President, Telident, Inc.
ARTICLES OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
TELIDENT, INC.
The undersigned, Michael J. Miller, as President of Telident, Inc., a
corporation organized and existing under the laws of the State of Minnesota,
does hereby certify that, pursuant to actions taken by the Board of Directors on
May 14, 1996, pursuant to Sections 302A.139 and 302A.402 of the Minnesota
Business Corporation Act, the following resolutions were duly adopted by the
Board of Directors, amending the first paragraph of Article III of the Articles
of Incorporation of the corporation as follows:
RESOLVED, That the first paragraph of Article III (Sections A and B
thereof not being amended or otherwise changed) of the Articles of
Incorporation of this corporation be amended (such amendment not
adversely affecting the rights or preferences of the holders of
outstanding shares of any class or series and not resulting in the
percentage of authorized shares of the corporation which were unissued
prior to the change exceeding the percentage of such shares that are
unissued after the change) to effect a one-for-two reverse stock split
as follows:
"ARTICLE III
"The total number of shares of all classes of stock that the
corporation shall be authorized to issue is twelve million five hundred
thousand (12,500,000) shares, divided into the following: (i) two
million five hundred thousand (2,500,000) shares of Preferred Stock, of
the par value of $.02 per share; and (ii) ten million (10,000,000)
shares of Common Stock, of the par value of $.02 per share. A
description of the respective classes of stock and a statement of the
designations, preferences, limitations and relative rights of such
classes of stock and the limitations on or denial of the voting rights
of the shares of such classes of stock are as described in Sections A
and B of this Article III.
"Effective June 4, 1996, (i) each two (2) issued and
outstanding shares of Common Stock of this corporation shall be
combined into one (1) share of validly issued, fully paid and
nonassessable share of Common Stock and (ii) the authorized shares of
Series I Convertible Preferred Stock of this corporation shall be
250,000 shares with a "Stated Value" of $4.00 per share and each two
(2) issued and outstanding shares of the Series I Convertible Preferred
Stock of this corporation shall be combined into (1) share of validly
issued, fully paid and nonassessable share of Series I Convertible
Preferred Stock. Each person at that time holding of record any issued
and outstanding share of Common Stock or Series I Convertible Preferred
Stock, as the case may be, shall receive upon surrender thereof to the
corporation's authorized agency a stock certificate or certificates to
evidence and represent the number of shares of post reverse stock split
Common Stock or Series I Convertible Preferred Stock to which the
stockholder is entitled after this reverse split; provided, however,
that this corporation shall not issue fractional shares of Common Stock
or Series I Convertible Preferred Stock, as the case may be, in
connection with this reverse stock split, but, in lieu thereof, this
corporation shall make a cash payment at the rate of $___ for each
share (prior to this reverse stock split) of Common Stock and shall
make a cash payment at the rate of $2.00 for each share (prior to the
reverse stock split) of Series I Convertible Preferred Stock to the
holders thereof who would otherwise be entitled to receive fractional
shares except for the provisions hereof upon surrender of certificates
representing those shares to the corporation's authorized agency. The
ownership of such fractional interests shall not entitle the holders
thereof to any voting, dividend or other right except the right to
receive payment therefor as described above."
FURTHER RESOLVED, that the President of the corporation be, and he
hereby is, authorized and directed to file Articles of Amendment of the
Articles of Incorporation of this corporation embodying the foregoing
resolution and to cause the same to be filed with the Secretary of
State of the State of Minnesota in accordance with the laws of the
State of Minnesota.
IN WITNESS WHEREOF, the undersigned has hereunto subscribed his name as
President of the corporation pursuant to the foregoing resolutions this 3rd day
of June, 1996.
TELIDENT, INC.
By
Michael J. Miller
President
COMMON STOCK COMMON STOCK
NUMBER SHARES
[BOX TO FILL IN NUMBER] [BOX TO FILL IN SHARES]
SEE REVERSE SIDE
FOR CERTAIN DEFINITIONS
-----------------------
CUSIP 879931 10 3
-----------------------
TELIDENT, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF MINNESOTA
THIS CERTIFIES THAT
is the owner and registered holder of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK,
OF THE PAR VALUE OF $.02 PER SHARE, OF
TELIDENT, INC.
transferable only on the books of the corporation by the holder hereof in person
or by a duly authorized attorney upon surrender of this certificate properly
endorsed. This Certificate is not valid unless countersigned by the Transfer
Agent and Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated:
/s/ John F. Kromer [COMPANY SEAL] /s/ Michael J. Miller
SECRETARY PRESIDENT
Countersigned and Registered:
NORWEST BANK MINNESOTA, N.A.
(Minneapolis, Minnesota) Transfer Agent and Registrar
By
Authorized Signature
- --------------------------------------------------------------------------------
The following abbreviations, when used in the inscription on the face of this
certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM - as tenants in common UTMA - _______ Custodian ________
TEN ENT - as tenants by entireties (Cust) (Minor)
JT TEN - as joint tenants with right under Uniform Transfer to Minors
of survivorship and not as Act _____________________________
tenants in common (State)
Additional abbreviations may also be used though not in the above list.
- --------------------------------------------------------------------------------
FOR VALUE RECEIVED ___________ HEREBY SELL, ASSIGN AND TRANSFER UNTO
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
______________________________________
_______________________________________________________________________________
PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS INCLUDING POSTAL ZIP CODE OF ASSIGNEE
_______________________________________________________________________________
_______________________________________________________________________________
______________________________________________________________________ SHARES OF
THE CAPITAL STOCK REPRESENTED BY THE WITHIN CERTIFICATE, AND DO HEREBY
IRREVOCABLY CONSTITUTE AND APPOINT ____________________________________ ATTORNEY
TO TRANSFER THE SAID STOCK ON THE BOOKS OF THE WITHIN-NAMED CORPORATION WITH
FULL POWER OF SUBSTITUTION IN THE PREMISES.
DATED ___________________________________________
___________________________________________
NOTICE: The signature to this assignment
must correspond with the name as written
upon the face of the certificate in every
particular without alteration or enlargement
or any change whatever.
SIGNATURE GUARANTEED
RR# ____________
APPENDIX A
BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT (the "Agreement") dated as of _________
1996, by and between Telident, Inc., a Minnesota corporation (the "Company"),
and _______________________ (the "Investor"), a resident of the State of
_____________________.
RECITALS:
(a) Whereas, the Company needs financing for its operations until such
time as it can complete a debt or equity financing; and
(b) Whereas, the Investor desires to lend funds to the Company on the
terms and conditions set forth in this Agreement; and
(c) Whereas, other investors may lend funds to the Company on terms and
conditions equivalent to those set forth in this Agreement ("Other Investors")
and in the Confidential Private Offering Memorandum dated April 30, 1996 (the
"Memorandum")
Accordingly, in consideration of the foregoing, the mutual promises set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Loan/Promissory Note. The Investor agrees to lend to the Company
$______________, and the Company agrees to deliver and issue to the Investor a
promissory note, in the form attached hereto as Appendix B (the "Note"), in such
amount. The delivery of the Note shall be made concurrently with delivery of
funds to the Company in the amount set forth above. The principal amount of the
Note shall bear interest from the date thereof at the rate of ten percent (10%)
per annum.
2. Warrants. In consideration of the loan, the Company shall issue to
the Investor, concurrently with delivery of the Note, a warrant, in the form
attached hereto as Appendix C (the "Warrant"), to purchase five thousand (5,000)
shares of Common Stock of the Company for each twenty-five thousand dollars
($25,000) of principal amount of the Note. Investors subscribing for less than
$25,000 shall receive a Warrant to purchase 1,000 shares of Common Stock for
each $5,000 in the principal amount of the Note. The Warrant shall have an
exercise price equal to eighty percent (80%) of the per share price to public
("Price to Public") of a public offering by the Company yielding gross proceeds
to the Company of at least $3,500,000 or such larger amount as is necessary to
meet the Nasdaq Small-Cap Market asset and net worth requirements (a "Public
Offering"). In the event a Public Offering is not completed within one year from
the date hereof, the exercise price for the Warrant shall be $2.10. The Warrant
shall be exercisable to purchase Common Stock commencing at the earlier of the
completion of the Public Offering or twelve (12) months from the date of the
Notes and terminating five (5) years from the date of issuance of the Notes. The
shares of Common Stock issuable upon exercise of the Warrants are referred to
hereinafter as the "Warrant Shares.
3. Repayment. All outstanding principal and accrued interest on the
Note shall be due and payable at the earlier of the date six (6) months from the
date of the Notes, or twenty (20) days after a public offering of the Company's
common stock becomes effective, which due date may be extended for an additional
six (6) months upon the Company's prior written notice to the Investor;
provided, however, that the Note shall be payable in full prior to either such
six month date upon the Company's completion of a Public Offering. The Note may
be prepaid in whole or in part at any time and from time to time without premium
or penalty as provided in the Note. In the event Other Investors lend funds to
the Company, all prepayments shall be applied to the original aggregate
principal amount of the Note and all notes issued to Other Investors, prorata,
and shall be applied first to the payment of any costs of collection, then to
the payment of accrued interest, and thereafter to principal.
4. Conversion of Note. The Investor shall have the option to convert
50% of the principal amount of the Note to shares of Common Stock of the Company
at a conversion price equal to 80% of the per share Price to Public in a Public
Offering completed within twelve (12) months of the issuance of the Note. This
option is be exercised on or before the fifteenth (15th) day following the
effectiveness of the Public Offering.
5. Representations and Warranties of the Company. The Company
represents and warrants to the Investor that:
(a) This Agreement has been duly authorized by all necessary corporate
action on behalf of the Company, has been duly executed and delivered by an
authorized officer of the Company, and is a valid and binding agreement on the
part of the Company. All corporate action necessary to the authorization,
issuance, and delivery of the Note, the Warrant, and the Warrant Shares, and the
shares to be delivered upon conversion of the Note (the "Conversion Shares") has
been taken on or prior to the date hereof.
(b) The Company is duly organized, validly existing and in good
standing, and possesses all requisite corporate power and authority to own and
lease its assets and property and carry on its business in all material respects
as such business is now conducted.
(c) The Warrant Shares and the Conversion Shares have been reserved for
issuance and, when issued upon exercise of the Warrant or conversion of the
Note, will be duly authorized, validly issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens, encumbrances and
restrictions.
(d) The financial information included in the Memorandum is complete
and correct in all material respects.
(e) There are no legal actions, suits, arbitrations, or other legal,
administrative, or governmental proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company or its property or
business.
(f) The Company owns or has the exclusive right to use, free and clear
of all liens, claims, and restrictions, all patents, patent applications,
licenses, trademarks, service marks, trade names, copyrights, trade secrets,
software licenses, or similar intellectual property rights necessary for use in
the conduct of its business and, to the best of the Company's knowledge, it does
not infringe upon intellectual property rights of another and has not received
any notice of conflicts with the asserted intellectual property rights of
others.
(g) Except as reflected in Offering Memorandum, the Company has no
material indebtedness.
6. Representations and Warranties of the Investors. The Investor
represents and warrants to the Company as follows:
(a) The Investor has had the opportunity to ask questions of and
receive answers from the Company, or an agent of the Company, concerning the
terms and conditions of the investment and the business and affairs of the
Company, and to obtain any additional information necessary to verify such
information, as the Investor considers necessary or advisable in order to form a
decision concerning an investment in the Company.
(b) The Note, the Warrant, the Warrant Shares, and the Conversion
Shares (collectively, the "Securities") are being acquired for investment for
the Investor's own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof. The Investor understands that
these Securities have not been registered under the Securities Act of 1933, as
amended (the "Securities Act"), or any state securities laws by reason of the
contemplated issuance in transactions exempt from the registration requirements
of the Securities Act and applicable state securities laws and that the reliance
of the Company and others upon these exemptions is predicated in part upon this
representation by the Investor. The Investor further understands that the
Securities may not be transferred or resold without registration under the
Securities Act and any applicable state securities laws, or an exemption from
the requirements of the Securities Act and applicable state securities laws.
(c) The Investor's principal residence is as described on Page l
hereof.
(d) The Investor has carefully reviewed the Memorandum.
(e) The Investor is able to bear the loss of the entire investment in
the Note, the Warrant, the Conversion Shares and the Warrant Shares without any
material adverse effect on the Investor's financial position or prospects, and
the Investor has such knowledge and experience of financial and business matters
to be capable of evaluating the merits and risks of the investment to be made
pursuant to this Agreement. Without limiting the foregoing, the Investor
understands that the securities offered hereby are highly speculative, involve a
high degree of risk and immediate substantial dilution, and should be purchased
by persons who can afford the loss of their entire investment. The Investor has
carefully considered the risks and speculative factors described under "Risk
Factors" in the Memorandum.
(f) The Investor is (check all that apply):
_____ (i) A natural person whose individual net worth
(assets less liabilities), or joint net worth with
his or her spouse, exceeds $1,000,000.
_____ (ii) A natural person whose individual income was in
excess of $200,000, or whose joint income with his or
her spouse was in excess of $300,000, each of the two
most recent years, and who has a reasonable
expectation of reaching the same income level for the
current year.
_____ (iii) A bank, insurance company, registered
investment company, business development company,
small business investment company, or employee
benefit plan.
_____ (iv) A savings and loan association, credit union, or
similar financial institution, or a registered broker
or dealer.
_____ (v) A private business development company.
_____ (vi) An organization described in Section 501 (c)(3)
of the Internal Revenue Code with assets in excess of
$5,000,000.
_____ (vii) A corporation, Massachusetts or similar
business trust, or partnership with assets in excess
of $5,000,000.
_____ (viii) A trust with assets in excess of $5,000,000.
_____ (ix) A director or an executive officer of the
Company.
_____ (x) An entity in which all of the equity' owners are
accredited investors. If exemption is claimed all
equity owners must complete and execute Bridge Loan
Agreement. (Not available for an Irrevocable Trust).
____ (xi) A self-directed IRA, Keogh, or similar plan of
which the individual directing the investments
qualifies as an "accredited investor" under one or
more items (i)-(x), above. Also check the item(s)
(i)-(x) which applies.
(g) This Agreement has been duly authorized by all necessary action on
the part of the Investor, has been duly executed and delivered by the Investor,
and is a valid and binding agreement of the Investor.
(h) If the Investor is an entity, the Investor was not organized for
the specific purpose of acquiring the Note, the Warrant, the Conversion shares
or the Warrant Shares.
(i) Investor is NOT subject to backup withholding provisions of Section
3406(a)(i)(C) of the Internal Revenue Code of 1986, as amended (note: you are
subject to backup withholding if (i) you fail to furnish your Social Security
number or taxpayer identification number herein; (ii) the Internal Revenue
Service notifies the Company that you furnished an incorrect Social Security
number or taxpayer identification number; (iii) you are notified that you are
subject to backup withholding; or (iv) you fail to certify that you are not
subject to backup withholding or fail to certify your Social Security number or
taxpayer identification number).
(j) Relationship to Brokerage Firms. (Please answer the following
questions by checking the appropriate response:)
(1) ____ YES ____NO: Are you a director, officer, partner, branch
manager, registered representative, employee, shareholder of,
or similarly related to or employed by, a brokerage firm? (IF
YES, please contact the Company to provide additional
information before your subscription can be considered.)
(2) ____ YES ____ NO: Is your spouse, father, mother,
father-in-law, mother-in-law, or any of your brothers,
sisters, brothers-in-law, sisters-in-law or children, or any
relative which you support, a director, officer, partner,
branch manager, registered representative, employee,
shareholder of or similarly related to or engaged by, a
brokerage firm? (IF YES, please contact the Company to provide
additional information before your subscription can be
considered.)
(3) ____ YES ____ NO: Do you own voting securities of any
brokerage firm? (IF YES, please contact the Company to provide
additional information before your subscription can be
considered.)
(4) ____ YES ____ NO: If the undersigned is an entity, is any
director, officer, partner or five percent (5%) owner of the
undersigned also a director, officer, partner, branch manager,
registered representative, employee, shareholder of, or
similarly related to or employed by, a brokerage firm? (IF
YES, please contact the Company to provide additional
information before your subscription can be considered.)
7. Other.
(a) This Agreement and the rights and obligations of the parties
hereunder shall not be assignable, in whole or in part, by any
party without the prior written consent of the other party.
(b) This Agreement, including the appendices attached hereto,
constitutes the entire agreement of the parties relative to
the subject matter hereof and supersedes any and all other
agreements and understandings, whether written or oral,
relative to the matters discussed herein.
(c) This Agreement shall be construed and enforced in accordance
with the laws of the State of Minnesota.
(d) This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
executed as of the date set forth above.
INVESTOR:
- --------------------------- ---------------------------
Telephone Number
- --------------------------- ---------------------------
Signature(s), if joint Taxpayer ID Number(s)
- --------------------------- ---------------------------
Print Name(s) Social Security Numbers(s)
- ---------------------------
Address TELIDENT, INC.
- --------------------------- ---------------------------
City State Zip By: John F. Kromer
Its: Chief Financial Officer
CERTIFICATE OF SIGNATORY
(To be completed if Investor is an entity)
I _________________________, am the _________________________ of
_________________________ (the "Entity").
I certify that I am empowered and duly authorized by the Entity to
execute and carry out the terms of the Bridge Loan Agreement and to purchase and
hold the Note and the Warrant and certify further that the Bridge Loan Agreement
has been duly and validly executed on behalf of the Entity and constitutes a
legal and binding obligation of the Entity.
_______________________ 1996.
IN WITNESS WHEREOF, I have set my hand this _____ day of _________________, 1996
_________________________
Signature
_________________________
Print Name
APPENDIX B
PROMISSORY NOTE
THIS NOTE IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET
FORTH AT THE BOTTOM OF THE LAST PAGE HEREOF
$________________
Minneapolis, Minnesota
________________ 1996.
FOR VALUE RECEIVED, the undersigned, Telident, Inc. (the "Company"), promises to
pay to the order of (the "Holder"), at Holder's address specified in the Bridge
Loan Agreement referred to below, or such other place as the Holder may
designate in writing from time to time, the principal sum of ____________
($_________), in lawful money of the United States, together with simple
interest from the date hereof on the unpaid principal balance outstanding from
time to time at the rate of ten percent (10%) per annum (calculated on the basis
of the actual number of days elapsed and a 360 day year). All outstanding
principal and accrued interest on this Note shall be due and payable at the
earlier of the date six months from the date of the Note or twenty (20) days
after a Public Offering (as defined in the Bridge Loan Agreement) of the
Company's Common Stock yielding gross proceeds to the Company of at least
$3,500,000 or such larger amount as is necessary to meet the Nasdaq Small-Cap
market asset and net worth requirements (the "Public Offering") becomes
effective.
1. Bridge Loan Agreement. This Note has been issued pursuant to
and is subject to the terms and provisions of a Bridge Loan
Agreement (the "Agreement"), dated as of , 1996, between the
Company and the Holder, and this Note and the Holder are
entitled to all the benefits provided for in the Agreement.
The provisions of the Agreement are incorporated herein by
reference with the same force and effect as if fully set forth
herein.
2. Prepayment. This Note may be prepaid in whole or in part at
any time and from time to time without premium or penalty;
provided, however, that the Company shall give the Holder not
less than ten (10) days advance written notice of its
intention to make any such prepayment. All prepayments on this
Note and all notes issued to Other Investors (as defined in
the Agreement) shall be applied to this Note and such other
notes pro rata on the basis of the proportion that the
original principal amount of this Note and each other note
bears to the aggregate original principal amount of all such
notes, and in the case of this Note, such prepayments shall be
applied first to the payment of any costs of collection that
may be due hereunder, then to the payment of accrued interest,
and the balance shall be applied to principal.
3. Extension. In the event that the Public Offering has not been
completed at the maturity date, this Note may be extended for
a period of six (6) months at the option of the Company. This
Note will bear interest at ten percent (10%) per annum during
such period. Principal and interest on this Note shall be due
and payable on the date of the final maturity of this Note.
4. Notification of Public Offering. The Company shall notify the
Holder of the effectiveness of the registration statement
relating to the public offering of its equity securities
within five (5) days after such date (the "Effective Date").
Such notice shall be accompanied by notification that this
Note will be paid in full twenty (20) days after such
Effective Date and of the rights to conversion set forth in
Section 5(a) below.
5. Conversion at the Option of the Holder.
(a) After Completion of Public Offering Fifty percent
(50%) of the original principal amount of this Note
may be converted, at the option of the Holder, into
the Company's common stock, $0.01 par value
("Conversion Shares"), for a period of fifteen (15)
days after the Effective Date of the registration
statement relating to a Public Offering of the
Company's equity securities which is effective on or
before twelve (12) months from the date of the Notes.
The conversion price (the "Conversion Price") for
such purposes shall be equal to eighty percent (80%)
of the per share price to public in the Public
Offering.
(b) Manner of Conversion. To convert this Note into
shares of the Company's Common Stock, the Holder
shall (i) surrender this Note, at the principal
office of the Company, duly endorsed in blank, and
(ii) give written notice to the Company substantially
in the form attached hereto as Schedule I that it
elects to convert fifty percent (50%) or less of the
original principal balance pursuant to Section 5(a)
of this Note, which notice shall specify the portion
hereof to be converted. As promptly as possible
thereafter, the Company shall issue and deliver to
the Holder certificates representing the number of
its shares of Common Stock into which this Note has
been converted. Thereupon, this Note, or the portion
hereof converted, shall be deemed to have been
satisfied and discharged, and the shares of Common
Stock into which this Note shall be so converted
shall be fully paid and non-assessable shares. In the
event of a conversion pursuant to Section 5(a), the
Company shall deliver to the Holder with such
certificates payment in full for the remaining
principal and interest due on this Note.
(c) Registration of Conversion Shares. Conversion Shares
shall have the rights with respect to registration
under the Securities Act of 1933, as amended, as are
set forth in the Warrant of even date which is
concurrently delivered to the Holder.
6. Investment Intent. Other than pursuant to registration under
federal and any applicable state securities laws or an
exemption from such registration, the availability of which
the Company shall determine in its sole discretion, this Note
may not be sold, pledged, or otherwise disposed of unless the
Company has received from the transferee hereof such
representations and agreements as the Company shall determine
in its sole discretion may be necessary to permit such
transfer. The Holder, by acceptance hereof, agrees to give
written notice to the Company before transferring this Note of
the Holder's intention to do so, describing the manner of any
proposed transfer. Within thirty (30) days after receiving'
such written notice, the Company shall notify the Holder as to
whether such transfer may be effected and of the conditions to
any such transfer.
7. Notices. All demands and notices to be given hereunder shall
be delivered or sent by certified mail, return receipt
requested; in the case of the Company, addressed to its
corporate headquarters, One Main Street S.E., Minneapolis,
Minnesota 55414, and in the case of the Holder, addressed to
the address written above, in either case, until a new address
shall have been substituted by like notice.
IN WITNESS WHEREOF, the Company has caused this Note to be executed on
its behalf by its duly authorized officer on the day and year first above
written.
TELIDENT, INC.
_________________________________
By: John F. Kromer
Its: Chief Financial Officer
THIS NOTE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
THE "ACT"), OR UNDER APPLICABLE STATE SECURITIES LAWS. THIS NOTE HAS BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, ASSIGNED,
TRANSFERRED, PLEDGED, ENCUMBERED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AND SUCH STATE LAWS OR PURSUANT
TO AN EXEMPTION FROM REGISTRATION UNDER THE ACT AND SUCH STATE LAWS, THE
AVAILABILITY OF WHICH IS TO BE ESTABLISHED TO THE SATISFACTION OF THE COMPANY
WHOSE AUTHORIZED OFFICER HAS SIGNED THIS NOTE ABOVE.
SCHEDULE 1
NOTICE OF EXERCISE
FOR
BRIDGE LOAN NOTES
To Be Executed By the Registered Note Holder if It/
She/He Desires to Convert the Within Note
The undersigned hereby exercises the right to convert $__________
principal amount of the Note (such amount not to exceed 50% of the principal
amount of the Note) into shares of Telident, Inc. Common Stock at the Conversion
Price of $_______ per share in effect at that date. Certificates for such shares
shall be issued in the name of and delivered to the undersigned, unless
otherwise specified by written instructions, signed by the undersigned and
accompanying this Notice.
Dated: ___________________ Name of Note Holder:
___________________________________
(Please print)
Address of Note Holder:
___________________________________
___________________________________
Tax Identification No. Or
Social Security No. Of Note Holder:
___________________________________
Signature(s) ______________________
___________________________________
Note: The above signature(s) should
correspond exactly with the name(s)
of the Note Holder as it appears on
the first page of the Note.
APPENDIX C
WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
TELIDENT, INC.
Dated: _________, 1996
This certifies that, in consideration of having provided certain bridge
financing to Telident, Inc., a Minnesota corporation (the "Company"), on
____________, 1996, and for other good and valuable consideration, [Name of
Investor]_________________ ,(circle one): an individual, a corporation, a
partnership, a limited liability company, a trust (the "Warrant Holder"), is
entitled to subscribe for and purchase from the Company, at any time after
[date], 1996, and prior to the expiration hereof, up to _____________ shares of
the Company's Common Stock at the Purchase Price set forth herein, subject to
adjustment as hereinafter set forth.
1. Definitions. For the purposes of this Warrant the following terms shall
have the following meanings:
"Commission" shall mean the Securities and Exchange
Commission, or any other federal agency then
administering the Securities Act.
"Company" shall mean Telident, Inc., a Minnesota corporation,
and any corporation which shall succeed to, or assume,
the obligations of said corporation hereunder.
"Common Stock" shall mean the shares of Common Stock of the
Company, $0.01 par value.
"Conversion Shares" shall mean any shares of Common Stock
issued upon conversion of the Promissory Note delivered
to the initial holder of this Warrant concurrently with
the delivery of this Warrant.
"Other Securities" shall mean any stock (other than Common
Stock) or other securities of the Company which the
Warrant Holder at any time shall be entitled to
receive, or shall have received, upon the exercise of
the Warrants, in lieu of or in addition to Common
Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of
Common Stock or Other Securities.
"Purchase Price" shall mean either: (i) in the event the
Company completes a public offering of its Common Stock
yielding gross proceeds to the Company of at least
$3,500,000 or such larger amount as is necessary to
meet the Nasdaq Small-Cap Market assets and net worth
requirements (the "Public Offering"), before the date
twelve (l2) months after the date hereof, eighty
percent (80%) of the price per share to public ("Price
to Public") in the Public Offering; or (ii) in the
event the Company does not complete a Public Offering
prior to such date, $2.10. The Purchase Price is
subject to adjustment as hereinafter provided.
"Securities Act" shall mean the Securities Act of 1933, as
amended, and the rules and regulations of the
Commission thereunder, as in effect at the time.
"Subscription Form" shall mean the subscription forms attached
hereto.
"Transfer" shall mean any sale, assignment pledge, or other
disposition of any Warrants and/or Warrant Shares, or
of any interest in either thereof, which would
constitute a sale thereof within the meaning of Section
2(3) of the Securities Act.
"Warrant Shares" shall mean the shares of Common Stock
purchased or purchasable by the Warrant Holder upon the
exercise of the Warrants pursuant to Section 2 hereof.
"Warrant Holder" shall mean the holder or holders of the
Warrants or any related Warrant Shares.
"Warrants" shall mean the Warrants (including this Warrant),
identical as to terms and conditions and date,
evidencing the right to purchase initially an aggregate
of 200,000 shares, if the minimum is sold, and 250,000
shares, if the maximum is sold, of Common Stock, and
all Warrants issued in exchange, transfer or
replacement thereof.
All terms used in this Warrant which are not defined in Section 1
hereof have the meanings respectively set forth elsewhere in this Warrant.
2. Exercise of Warrant, Issuance of Certificate and Payment for Warrant
Shares. The rights represented by this Warrant may be exercised at any time
beginning with completion of the Public Offering, but in any event not later
than twelve (12) months after the issuance of the Warrants, until the expiration
hereof, by the Warrant Holder, in whole or in part (but not as to any fractional
share of Common Stock), by: (a) delivery to the Company of a completed
Subscription Form, (b) surrender to the Company of this Warrant properly
endorsed and signature guaranteed, and (c) delivery to the Company of a
certified or cashier's check made payable to the Company in an amount equal to
the aggregate Purchase Price of the shares of Common Stock being purchased, at
its principal office or agency in Minnesota (or such other office or agency of
the Company as the Company may designate by notice in writing to the holder
hereof). The Company agrees and acknowledges that the shares of Common Stock so
purchased shall be deemed to be issued to the holder hereof as the record owner
of such shares as of the close of business on the date on which this Warrant,
properly endorsed, and the Subscription Form shall have been surrendered and
payment made for such shares as aforesaid. Upon receipt thereof, the Company
shall, as promptly as practicable, and in any event within fifteen (15) days
thereafter, execute or cause to be executed and deliver to the Warrant Holder a
certificate or certificates representing the aggregate number of shares of
Common Stock specified in said Subscription Form. Each stock certificate so
delivered shall be in such denomination as may be requested by the Warrant
Holder and shall be registered in the name of the Warrant Holder or such other
name as shall be designated by the Warrant Holder. If this Warrant shall have
been exercised only in part, the Company shall, at the time of delivery of said
stock certificate or certificates, deliver to the Warrant Holder a new Warrant
evidencing the rights of such holder to purchase the remaining shares of Common
Stock covered by this Warrant. The Company shall pay all expenses, taxes, and
other charges payable in connection with the preparation, execution, and
delivery of stock certificates pursuant to this Section 2, except that, in case
any such stock certificate or certificates shall be registered in a name or
names other than the name of the Warrant Holder, funds sufficient to pay all
stock transfer taxes which shall be payable upon the execution and delivery of
such stock certificate or certificates shall be paid by the Warrant Holder to
the Company at the time of delivering this Warrant to the Company as mentioned
above.
3. Ownership of this Warrant. The Company may deem and treat the
registered Warrant Holder as the holder and owner hereof (notwithstanding any
notations of ownership or writing made hereon by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary, until
presentation of this Warrant for transfer as provided herein and then only if
such transfer meets the requirements of Section 5.
4. Exchange, Transfer and Replacement. Subject to Section 5 hereof,
this Warrant is exchangeable upon the surrender hereof by the Warrant Holder to
the Company at its office or agency described in Section 2 hereof for new
Warrants of like tenor and date representing in the aggregate the right to
purchase the number of shares purchasable hereunder, each of such new Warrants
to represent the right to purchase such number of shares (not to exceed the
aggregate total number purchasable hereunder) as shall be designated by the
Warrant Holder at the time of such surrender. Subject to Section 5 hereof, this
Warrant and all rights hereunder are transferable, in whole or in part, upon the
books of the Company by the Warrant Holder in person or by duly authorized
attorney, and a new Warrant of the same tenor and date as this Warrant, but
registered in the name of the transferee, shall be executed and delivered by the
Company upon surrender of this Warrant, duly endorsed, at such office or agency
of the Company. Upon receipt by the Company of evidence reasonably satisfactory
to it of the loss, theft, destruction, or mutilation of this Warrant, and, in
the case of loss, theft, or destruction, of indemnity or security reasonably
satisfactory to it, and upon surrender and cancellation of this Warrant, if
mutilated, the Company will make and deliver a new Warrant of like tenor, in
lieu of this Warrant. This Warrant shall be promptly canceled by the Company
upon the surrender hereof in connection with any exchange, transfer, or
replacement. The Company shall pay all expenses, taxes (other than stock
transfer taxes), and other charges payable in connection with the preparation,
execution, and delivery of Warrants pursuant to this Section 4.
5. Restrictions on Transfer. Notwithstanding any provisions contained
in this Warrant to the contrary, neither this Warrant nor the Warrant Shares
shall be transferable except upon the conditions specified in this Section 5,
which conditions are intended, among other things, to ensure compliance with the
provisions of the Securities Act in respect of the transfer of this Warrant or
such Warrant Shares. The holder of this Warrant agrees that such holder will not
transfer this Warrant or the related Warrant Shares (a) prior to delivery to the
Company of an opinion of counsel selected by the Warrant Holder and reasonably
satisfactory to the Company, stating that such transfer is exempt from
registration under the Securities Act, or (b) until registration of such
Warrants and/or Warrant Shares under the Securities Act has become effective and
continues to be effective at the time of such transfer. An appropriate legend
may be endorsed on the Warrants and certificates representing the Warrant Shares
evidencing these restrictions.
6. Antidilution Provisions. The rights granted hereunder are subject to
the following:
(a) Stock Splits, Dividends and Reverse Splits. In case at any
time subsequent to the date of the Warrant the Company shall subdivide
its outstanding shares of Common Stock into a greater number of shares
or declare a dividend payable in Common Stock, the Purchase Price in
effect immediately prior to such subdivision or dividend shall be
proportionately reduced and the number of Warrant Shares purchasable
pursuant to this Warrant immediately prior to such subdivision or
dividend shall 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 Purchase Price in effect
immediately prior to such combination shall be proportionately
increased and the number of Warrant Shares purchasable upon the
exercise of this Warrant immediately prior to such combination shall be
proportionately reduced. Except as provided in this paragraph (a), no
adjustment in the Purchase Price and no change in the number of Warrant
Shares so purchasable shall be made pursuant to this Section 6 as a
result of or by reason of any such subdivision, dividend or
combination.
(b) Reorganization, Reclassification, Consolidation, Merger or
Sale. If any capital reorganization or reclassification or merger of
the Company with another corporation, or the sale of all or
substantially all of its assets to another corporation, shall be
effected in such a way that holders of shares of Common Stock shall be
entitled to receive Common Stock, Other Securities or assets with
respect to or in exchange for shares of Common Stock, then, as a
condition of such reorganization, reclassification, consolidation,
merger or sale, lawful and adequate provision shall be made whereby the
Warrant Holder shall thereafter have the right to purchase and receive
upon the basis and upon the terms and conditions specified in the
Warrants and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of
the Warrants such shares of Common Stock, Other Securities or assets as
may be issued or payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number of shares of
Common Stock immediately theretofore purchasable and receivable upon
the exercise of the Warrants had such reorganization, reclassification,
consolidation, merger or sale not taken place, and in any such case
appropriate provision shall be made with respect to the rights and
interests of the Warrant Holder so that the provisions of the Warrants
(including, without limitation, provisions for adjustment of the
Purchase Price and the number of shares purchasable upon the exercise
of the Warrants) shall thereafter be applicable, as nearly as may be,
in relation to any shares of Common Stock, Other Securities or assets
thereafter deliverable upon the exercise of the Warrants.
(c) If any event occurs as to which, in the sole opinion of
the Board of Directors of the Company, the other provisions of this
Warrant are not strictly applicable or if strictly applicable would not
fairly protect the rights of the holder of this Warrant in accordance
with the essential intent and principles of such provisions, then the
Board of Directors shall make such adjustment in the application of
such provisions as may be necessary, in the sole judgment of such
Board, in accordance with such essential intent and principles, to
protect such rights as aforesaid.
7. Special Agreements of the Company.
(a) Will Reserve Shares. The Company will reserve and set
apart and have at all times the number of shares of authorized but
unissued Common Stock deliverable upon the exercise of the Warrants,
and it will have at all times any other rights or privileges provided
for herein sufficient to enable it at any time to fulfill all of its
obligations hereunder.
(b) Will Avoid Certain Actions. The Company will not, by
amendment of its Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, issue or
sale of securities or otherwise, avoid or take any action which would
have the effect of avoiding the observance or performance hereunder by
the Company, but will at all times in good faith assist in carrying out
of all the provisions of the Warrants and in taking all such actions as
may be necessary or appropriate in order to protect the rights of the
Warrant Holder against dilution or other impairment.
8. Provisions for Registration. The holders thereof shall have the
following rights regarding registration of Warrant Shares and Conversion Shares,
as the case may be.
(a) Required Registration. The Company shall use its best
efforts to cause a registration statement under the Securities Act
relating to any Warrant Shares or Conversion Shares which the holders
desire to be included in such registration statement, to be prepared
and filed with the Commission and to be declared effective by the
Commission within twelve (12) months of the issuance of the Warrants or
one (1) month following the date the Warrants first become exercisable,
whichever is later. If in the good faith judgment of the managing
underwriter of a public offering of the Company's securities which is
to be concluded at or about the time that the aforementioned
registration statement is to be declared effective by the Commission,
the sale of any of the shares subject to such registration statement
would interfere with the successful marketing of the shares of stock
offered by the Company, the effective date for such registration
statement may be delayed for a period of up to ninety (90) days at the
request of such underwriter. All Warrant Shares covered by such
registration statement shall be converted into Common Stock prior to
the effectiveness of such registration statement. The Company shall
include in such registration statement such Warrant Shares and
Conversion Shares for which it has received written requests to
register by the record holders thereof within fifteen (15) days after
the Company's written notice to such holders of the intended filing
date for such registration statement. The Company shall be obligated to
prepare, file and cause to become effective only one (1) registration
statement pursuant to this Section 8(a).
(b) Incidental Registration. Each time the Company shall
determine to proceed with the actual preparation and filing of a
registration statement under the Securities Act in connection with the
proposed offer and sale for cash of any of its Common Stock by it
(except for the Public Offering and any registration on Form S-4 or S-8
Registration Statements or successor forms thereto), the Company will
give written notice of its determination to all record holders of
Warrants and Warrant Shares and Conversion Shares. Upon the written
request of a record holder given within fifteen (15) days after receipt
of any such notice from the Company, the Company will, except as herein
provided, cause all such Warrant Shares and Conversion Shares for which
registration has been requested, to be included in such registration
statement, all to the extent requisite to permit the sale or other
disposition by the prospective seller or sellers of the Warrant Shares
and Conversion Shares to be so registered; provided, however, that (a)
all such Warrant Shares to be so registered shall be converted prior to
sale pursuant to the effectiveness of such registration statement; (b)
nothing herein shall prevent the Company from, at any time, abandoning
or delaying any such registration initiated by it; and (c) if the
Company determines not to proceed with a registration after the
registration statement has been filed with the Commission and the
Company's decision not to proceed is primarily based upon the
anticipated public offering price of the securities to be sold by the
Company, the Company shall promptly complete the registration for the
benefit of those selling security holders who wish to proceed with a
public offering of their securities and who bear all expenses in excess
of $25,000 incurred by the Company as the result of such registration
after the Company has decided not to proceed. If any registration
pursuant to this Section shall be underwritten in whole or in part, the
Company may require that the Warrant Shares and Conversion Shares
requested for inclusion pursuant to this Section be included in the
underwriting on the same terms and conditions as the securities
otherwise being sold through the underwriters. If in the good faith
judgment of the managing underwriter of such public offering the
inclusion of all of the Warrant Shares and Conversion Shares originally
covered by a request for registration would reduce the number of shares
to be offered by the Company or interfere with the successful marketing
of the shares of stock offered by the Company, the number of Warrant
Shares and Conversion Shares otherwise to be included in the
underwritten public offering may be reduced pro rata among the holders
thereof and any other selling shareholders participating in such
registration to a number that the managing underwriter believes will
not adversely affect the sale of shares by the Company. Those
securities which are thus excluded from the underwritten public
offering, and any other Common Stock owned by such holders, shall be
withheld from the market by the holders thereof for a period, not to
exceed one hundred eighty (180) days, which the managing underwriter
reasonably determines is necessary in order to effect the underwritten
public offering.
(c) Registration Procedures. If and whenever the Company is
required by the provisions of Sections 8(a) or 8(b) to effect the
registration of any Warrant Shares or Conversion Shares under the
Securities Act, the Company will:
(1) Prepare and file with the Commission a registration
statement with respect to such Warrant Shares and
Conversion Shares, and use its best efforts to cause
such registration statement to become and remain
effective for such period as may be reasonably
necessary to effect the sale of such Warrant Shares
and Conversion Shares, not to exceed 180 days;
(2) Prepare and file with the Commission any amendments
to such registration statement and supplements to the
prospectus contained therein as may be necessary to
keep such registration statement effective for such
period as may be reasonably necessary to effect the
sale of such Warrant Shares and Conversion Shares,
not to exceed 180 days;
(3) Furnish to the security holders participating in such
registration and to the underwriters of the Warrant
Shares and Conversion Shares being registered, such
reasonable number of copies of the registration
statement, preliminary prospectus, final prospectus
and such other documents as such security holders and
underwriters may reasonably request in order to
facilitate the public offering of such Warrant Shares
and Conversion Shares;
(4) Use its best efforts to register or qualify the
Warrant Shares and Conversion Shares covered by such
registration statement under the state securities or
blue sky laws of such jurisdictions as such
participating holders may reasonably request within
ten (10) days following the original filing of such
registration statement, except that the Company shall
not for any purpose be required to execute a general
consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction
wherein it is not so qualified;
(5) Notify the security holders participating in such
registration, promptly after it shall receive notice
thereof, of the time when such registration statement
has become effective or a supplement to any
prospectus forming a part of such registration
statement has been filed;
(6) Notify such holders promptly of any request by the
Commission for the amending or supplementing of such
registration statement or prospectus or for
additional information;
(7) Prepare and file with the Commission, promptly upon
the request of any such holders, any amendments or
supplements to such registration statement or
prospectus which, in the opinion of counsel for such
holders (and concurred in by counsel for the
Company), is required under the Securities Act or the
rules and regulations thereunder in connection with
the distribution of the Warrant Shares or Conversion
Shares by such holder;
(8) Prepare and promptly file with the Commission and
promptly notify such holders of the filing of any
amendment or supplement to such registration
statement or prospectus as may be necessary to
correct any statements or omissions if, at the time
when a prospectus relating to such securities is
required to be delivered under the Securities Act,
any event shall have occurred as the result of which
any such prospectus or any other prospectus as then
in effect would include an untrue statement of a
material fact or omit to state any material fact
necessary to make the statements therein, in the
light of the circumstances in which they were made,
not misleading;
(9) Advise such holders, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance
of any stop order by the Commission suspending the
effectiveness of such registration statement or the
initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its
withdrawal if such stop order should be issued; and
(10) Not file any amendment or supplement to such
registration statement or prospectus to which a
majority in interest of such holders shall have
reasonably objected on the grounds that such
amendment or supplement does not comply in all
material respects with the requirements of the
Securities Act or the rules and regulations
thereunder, after having been furnished with a copy
thereof at least five (5) business days prior to the
filing thereof, unless in the opinion of counsel for
the Company the filing of such amendment or
supplement is reasonably necessary to protect the
Company from any liabilities under any applicable
federal or state law and such filing will not violate
applicable law.
(d) Expenses. With respect to any registration pursuant to
Section 8(a) and with respect to each inclusion of securities in a
registration statement pursuant to Section 8(b) (except as otherwise
provided in Section 8(b) with respect to registrations terminated by
the Company), the Company shall bear the following fees, costs and
expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees
and disbursements of counsel for the underwriter or underwriters of
such securities (if the Company and/or selling security holders are
required to bear such fees and disbursements), all internal Company
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and all legal fees and
disbursements and other expenses of complying with state securities or
blue sky laws of any jurisdictions in which the securities to be
offered are to be registered or qualified. Fees and disbursements of
counsel and accountants for the selling security holders, underwriting
discounts and commissions and transfer taxes for selling security
holders and any other expenses incurred by the selling security holders
not expressly included above shall be borne by the selling security
holders.
(e) Copies of Prospectus: Amendments of Prospectus. The
Company will furnish the holders of the Warrant Shares and Conversion
Shares with a reasonable number of copies of any prospectus or offering
circular and one copy of the registration statement included in such
filings and will amend or supplement the same as required during the
180 day period following the effective date of the registration
statement, provided, that the expenses of any amendment or supplement
made or filed more than 180 days after the effective date of the
registration statement, at the request of holders of the Warrant Shares
and Conversion Shares, shall be borne by such holders.
(f) Conditions of the Company's Obligations. It shall be a
condition of the Company's obligation to register the Warrant Shares
and Conversion Shares hereunder that each holder thereof agrees to
cooperate with the Company in the preparation and filing of any such
registration statement, or in its efforts to establish that the
proposed sale is exempt under the Securities Act, as to any proposed
distribution. It shall also be a condition of the Company's obligations
under this Agreement that, in the case of the filing of any
registration statement, and to the extent permissible under the
Securities Act, and controlling precedent thereunder, the Company and
each holder provide cross-indemnification agreements to each other in
customary scope covering the accuracy and completeness of the
information furnished by each.
9. Notices. Any notice or other document required or permitted to be
given or delivered to the Warrant Holder shall be delivered or sent by certified
mail to the Warrant Holder at the last address shown on the books of the Company
maintained for the registry and transfer of the Warrants. Any notice or other
document required or permitted to be given or delivered to the Company shall be
delivered or sent by certified or registered mail to the principal office of the
Company.
10. No Rights as Shareholders: Limitation of Liability. This Warrant
shall not entitle any holder hereof to any of the rights of a shareholder of the
Company. No provisions hereof, in the absence of affirmative action by the
holder hereof to purchase shares of Common Stock, and no mere enumeration herein
of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Purchase Price or as a shareholder of the
Company whether such liability is asserted by the Company or by creditors of the
Company.
11. Governing Law. This Warrant shall be governed by, and construed and
enforced in accordance with, the laws of the State of Minnesota.
12. Miscellaneous. This Warrant and any provision hereof may be
changed, waived, discharged, or terminated only by an instrument in writing
signed by the party (or any predecessor in interest thereof) against which
enforcement of the same is sought. The headings in this Warrant are for purposes
of reference only and shall not affect the meaning or construction of any of the
provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
a duly authorized officer, and to be dated as of the ___ day of _________, 1996.
TELIDENT, INC.
By: John F. Kromer
Its: Chief Financial Officer
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR UNDER THE SECURITIES LAWS
OF ANY OTHER STATE AND MAY NOT BE TRANSFERRED WITHOUT (I) THE OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH TRANSFER MAY LAWFULLY BE MADE WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OR THE SECURITIES LAWS OF ANY APPLICABLE
STATE OR (II)) SUCH REGISTRATION."
FULL SUBSCRIPTION FORM
To Be Executed By the Registered Warrant Holder if It/
She/He desires to Exercise in Full the Within Warrant
The undersigned hereby exercises the right to purchase the ____________ shares
of Common Stock covered by the within Warrant at the date of this subscription
and herewith makes payment of the sum of $______________ representing the
Purchase Price of $____________ per share in effect at that date. Certificates
for such shares shall be issued in the name of and delivered to the undersigned,
unless otherwise specified by written instructions, signed by the undersigned
and accompanying this subscription.
Dated: ______________
Signature: __________________________________
Address: ___________________________________
___________________________________
Tax Identification No. Or Social
Security No. Of Warrant Holder:
___________________________________
PARTIAL SUBSCRIPTION FORM
To Be Executed By the Registered Warrant Holder if It/ She/He
Desires to Exercise Only Part of the Within Warrant
The undersigned hereby exercises the right to purchase ______________
shares of the total shares of Common Stock covered by the within Warrant at the
date of this subscription and herewith makes payment of the sum of
$_____________ representing the Purchase Price of $____________ per share in
effect at this date.
Certificates for such shares and a new Warrant of like tenor and date
for the balance of the shares not subscribed for (if any) shall be issued in the
name of and delivered to the undersigned, unless otherwise specified by written
instructions, signed by the undersigned and accompanying this subscription.
Dated: ______________
Signature: __________________________________
Address: ___________________________________
___________________________________
Tax Identification No. Or Social
Security No. Of Warrant Holder:
___________________________________
NO. ____ WARRANT TO
PURCHASE ____ SHARES
WARRANT TO PURCHASE COMMON STOCK OF
TELIDENT, INC.
VOID AFTER JULY 15, 1997
THIS CERTIFIES THAT for value received, _______________ is entitled,
subject to the terms and conditions hereinafter set forth, to purchase from
TELIDENT, INC., a Minnesota corporation (the "Company"), __________________
fully paid and non-assessable shares of Common Stock of the Company (herein
called the "Common Stock"), upon presentation and surrender of this Warrant with
the Subscription Form duly executed, at any time before the earlier of July 15,
1997 or the "Redemption Date" set forth in paragraph 9 hereof, at the principal
office of the Company or at such other office as shall have theretofore been
designated by the Company by notice pursuant hereto and upon payment therefor of
the Purchase Price, in lawful money of the United States of America, determined
as set forth below.
This Warrant is subject to the following terms and conditions:
1. The purchase rights represented by this Warrant are exercisable at the
option of the holder hereof, in whole at any time, or in part from time
to time (but not as to a fractional share of Common Stock). In the case
of the purchase of less than all the shares purchasable under this
Warrant, the Company shall cancel this Warrant upon the surrender
hereof and shall execute and deliver a new Warrant of like tenor for
the balance of the shares purchasable hereunder.
2. The purchase price for each share of Common Stock purchasable pursuant
to the exercise of this Warrant shall be Two Dollars ($2.00) per share,
such price being sometimes hereinafter referred to as the "Base
Purchase Price". The Base Purchase Price, and from time to time the
number of shares of Common Stock subject to purchase hereunder are
subject to adjustment in certain circumstances provided for below, and
the Base Purchase Price, as it may be adjusted from time to time, is
hereinafter referred to as the "Purchase Price".
(a) In case the Company shall at any time hereafter subdivide or
combine the outstanding shares of Common Stock or declare a
dividend payable in Common Stock, the Purchase Price of this
Warrant in effect immediately prior to the subdivision,
combination or record date for such dividend payable in Common
Stock, the Purchase Price of this Warrant in effect immediately
prior to the subdivision, combination or record date for such
dividend payable in Common Stock shall forthwith be
proportionately increased, in the case of combination, or
decreased, in the case of subdivision or dividend payable in
Common Stock, and each share of Common Stock purchasable upon
exercise of dividing the then current Purchase Price by the
Purchase Price as adjusted after the subdivision, combination, or
dividend payable in Common Stock.
(b) No fractional shares of Common Stock are to be issued upon the
exercise of the Warrant, but the Company shall pay a cash
adjustment in respect to any fraction of a share which would
otherwise be issuable in an amount determined as set forth in
paragraph 5 hereof.
(c) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company
with another corporation, or the sale of all or substantially all
of its assets to another corporation shall be effected in such a
way that holders of Common Stock shall be entitled to receive
stock securities or assets with respect to or in exchange for
Common Stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and
adequate provision shall be made whereby the holder hereof shall
hereafter have the right to purchase and receive upon the basis
and upon the terms and conditions specified in this Warrant and in
lieu of the shares of the Common Stock of the Company purchasable
and receivable upon the exercise of the rights represented hereby,
such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such
stock purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification,
consolidation, merger or sale not taken made with respect to the
rights and interests of the holder of this Warrant to the end that
the provisions hereof (including without limitation provisions for
adjustment of the Purchase Price and of the number of shares
purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the
exercise hereof. The Company shall not effect any such
consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger, or the corporation
purchasing such assets shall assume by written instrument executed
and mailed to the registered holder hereof at the last address of
such holder appearing on the books of the Company, the obligation
to deliver to such holder such shares of stock, securities or
assets as, in accordance with the foregoing provisions, such
holder may be entitled to purchase.
(d) Upon any adjustment of the Purchase Price, then and in each such
case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered holder of
this Warrant at the address of such holder as shown on the books
of the Company, which notice shall state the Purchase Price
resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the
exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is
based.
3. In case at any time:
(a) The Company shall declare any cash dividend on its Common Stock at
a rate in excess of the rate of the last cash dividend theretofore
paid;
(b) The Company shall pay any dividend payable in stock upon its
Common Stock or make any distribution (other than regular cash
dividends) to the holders of its Common Stock;
(c) The Company shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or
other rights;
(d) There shall be any capital reorganization, or reclassification of
the capital stock of the Company or consolidation or merger of the
Company with, or sales of all or substantially all of its assets
to, another corporation; or
(e) There shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company; then, in any one or more of said
cases, the Company shall give written notice, by first class mail,
postage prepaid, addressed to the holder of this Warrant at the
address of such holder as shown on the books of the Company, of
the date on which (1) the books of the Company shall close or a
record shall be taken for such dividend, distribution or
subscription rights, or (2) such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding
up shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of Common Stock of record
shall participate in such dividend, distribution or subscription
rights, or shall be entitled to exchange their Common Stock for
securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution,
liquidation, or winding up, as the case may be. Such written
notice shall be given at least 20 days prior to the action in
question and not less than 20 days prior to the record date or the
date on which the Company's transfer books are closed in respect
thereto.
4. If any event occurs as to which, in the sole opinion of the Board of
Directors of the Company, the other provisions of this Warrant are not
strictly applicable or if strictly applicable would not fairly protect
the rights of the holder of this Warrant in accordance with the
essential intent and principles of such provisions, then the Board of
Directors shall make such adjustment in the application of such
provisions as may be necessary, in the sole judgment of such Board, in
accordance with such essential intent and principles, to protect such
rights as aforesaid.
5. Exercise of this Warrant shall be made by the surrender hereof by the
holder hereof to the Company at its principal office together with (i)
the attached Subscription Form designating the number of shares of
Common Stock being purchased, (ii) a certified check or cash in payment
for such shares and (iii) a letter of transmittal setting forth the
computation of the amount of said payment. The Company shall thereafter
promptly (in any event within twenty-five (25) business days after such
exercise) issue certificates for the number of shares of the Common
Stock of the Company purchased at the Purchase Price in effect at the
time of such exercise. The holder of this Warrant shall be deemed to be
the record owner of such shares of Common Stock as of the close of
business on the date of such exercise. No adjustment in respect of
interest or dividends shall be made upon such exercise. The holder of
this Warrant shall not be entitled to receive a fractional share, but
in lieu thereof the Company shall pay in cash an amount equal to the
market value of such fractional share if the Common Stock has a market
value, or if not, the book value of such fractional share. The Company
shall thereupon cancel this Warrant; and in the event that less than
the entire number of shares purchasable are purchased, shall issue a
new Warrant for the number not so purchased.
6. The Company covenants and agrees that all shares which may be issued
upon the exercise of this Warrant will, upon issuance, be duly and
validly authorized and issued, fully paid and nonassessable, and free
from all taxes, liens and charges with respect to the issue thereof;
and without limiting the generality of the foregoing, the Company
covenants and agrees that it will, from time to time, take all such
action as may be requisite to assure that the par value or stated value
per share of the Common Stock to be acquired upon the exercise of this
Warrant is at all times equal to or less than the then effective
Purchase Price per share of the Common Stock issuable pursuant to
exercise of this Warrant. The Company further covenants and agrees that
during the period within which this Warrant may be reserved for the
purpose of the issue upon exercise of this Warrant a sufficient number
of shares of its Common Stock to provide for such exercise.
7.(a) The holder of this Warrant represents that he is acquiring this
Warrant and the shares of Common Stock issuable hereunder for the
purpose of investment and not with a view to or for sale in
connection with any distribution thereof. The holder of this Warrant
and the holder of any shares of Common Stock issued upon exercise
hereof, by his acceptance hereof, agrees that he will notify the
Company in writing before selling or otherwise disposing of this
Warrant or any shares of Common Stock issued to him upon exercise
hereof, describing briefly the nature of any such sale or other
disposition, and no such sale or other disposition shall be made
unless and until (i) the Company has received an opinion of counsel
reasonably acceptable to it that no registration (or perfection of an
exemption) under the Securities Act of 1933 (which Act, as amended,
and together with any similar Federal statute in force in the future,
is hereinafter referred to as the "Securities Act") is required with
respect to such sale or disposition (which opinion may be conditioned
upon the transferee's assuming the Warrant holder's obligation under
this paragraph 7) or (ii) an appropriate registration statement with
respect to such Warrant or such Common Stock, or both, has been filed
with the Securities and Exchange Commission (the "Commission") and
declared effective by the Commission. The Company may require that
this Warrant and certificates representing shares of Common Stock
issued upon exercise hereof be stamped or imprinted with an
appropriate legend reflecting the foregoing restrictions. For the
purposes of this paragraph 7, the term "Securities" shall include
this Warrant and the shares of common Stock issued or issuable upon
the exercise hereof.
(b) The restrictions imposed by this paragraph 7 on the transfer of the
Securities shall terminate as to any portion of the Securities when:
(i) Such portion of the Securities shall have been effectively
registered under the Securities Act and sold by the holder
thereof in accordance with such registration or exemption; or
(ii) Written opinions to the effect that such a registration is no
longer required or necessary under any Federal or State law or
regulation of governmental authority shall have been received
from legal counsel for the Company and counsel for the holder
of such portion of the Securities; or, if a favorable opinion
is obtained from holder's counsel, and counsel for the Company
declines to render such an opinion, upon the holder's
undertaking to indemnify the Company, on terms satisfactory to
the Company, against all liability or loss the Company may
sustain in connection with such transfer; or
Whenever the restrictions imposed by this paragraph 7 shall terminate,
as provided above, any holder of the Securities as to which such
restrictions shall have terminated shall be entitled to receive
promptly from the Company, without expense to him, a new certificate,
not bearing the restrictive legend referred to in clause (a) hereof.
8. This Warrant is exchangeable, upon the surrender hereof by the holder
at the principal office of the Company, for new warrants of like tenor
and date representing in the aggregate the right to purchase the number
of shares purchasable hereunder, each of such new Warrants to represent
the right to purchase such number of shares as shall be designated by
said holder at the time of such surrender. Subject to paragraph 7
hereof, this Warrant and all rights hereunder are transferable in whole
or in part by the holder hereof, in person or by duly authorized
attorney, upon surrender of this Warrant duly endorsed, at the
principal office of the Company.
9. Subject to the terms hereof, the Company may at any time redeem this
Warrant, at its discretion, upon payment to the holder hereof of $.05
per Warrant to be redeemed; provided, however, that the fair market
value as defined below, of the Company's Common Stock is at the time of
the giving of notice of such redemption as provided herein be at least
$3.50 per share. The Company shall have given written notice of the
date set by the Company for such redemption (the "Redemption Date") at
least 30 days prior to the Redemption Date. The Redemption Date shall
be the expiration date for the Warrant provided that the Company
tenders on the Redemption Date payment of the redemption price for the
Warrants to be redeemed. Following the Redemption Date, the Warrants
shall be deemed to have expired and the holders thereof shall have no
rights with respect thereto, except the right to receive payment of the
redemption price upon the surrender of this Warrant certificate.
For the purpose of any computation of the fair market value of the
Company's Common Stock hereunder, the fair market value per share of
the Common Stock at any date shall be (i) the average of the mean of
the closing bid and asked prices of the Common Stock for any 10
consecutive trading days commencing not more than 30 trading days
before the relevant date, as reported in the Wall Street Journal (or,
if not so reported, as otherwise reported by the National Association
of Securities Dealers, Inc. (the "NASD"), the NASD's Automated
Quotation System ("NASDAQ") or the National Quotation Bureau), or, (ii)
in the event the Common Stock is listed on a stock exchange or on the
NASDAQ National Market System (or other national market system), the
fair market value per share shall be the average of the closing prices
on the exchange or on the NASDAQ National Market System (or other
national market system), as the case may be, for any 10 consecutive
trading days commencing not more than 30 trading days before the
relevant date, as reported in the Wall Street Journal (or, if not so
reported, as otherwise reported by the stock exchange, NASDAQ or other
national market system).
10. Upon the receipt by the Company of evidence reasonably satisfactory to
it of the loss, theft, destruction or mutilation of this Warrant, and,
in case of loss, theft or destruction, of indemnity or security
reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and
deliver a new Warrant of like tenor, in lieu of this Warrant.
11. All notices, requests, consents and other communications hereunder
shall be in writing and shall be deemed to have been made when
delivered or mailed first-class postage prepaid or delivered to a
telegraph office for transmission:
(a) If to the holder of this Warrant at such address as may have been
furnished by such holder to the Company in writing; and
(b) If to the Company at such address as may have been furnished by
the Company to the holder of this Warrant in writing.
12. This Warrant shall be binding upon any successors or assigns of the
Company.
13. This Warrant shall be construed in accordance with and governed by the
laws of the State of Minnesota.
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and delivered as of the date set forth below by one of its officers thereunto
duly authorized.
Dated: May 1, 1996
TELIDENT, INC.
By
John F. Kromer
Vice President of Finance
& Chief Financial Officer
SUBSCRIPTION FORM
TO BE SIGNED ONLY UPON EXERCISE OF WARRANT
The undersigned holder of the within Warrant, hereby irrevocably elects to
exercise the purchase right represented by such Warrant for, and to purchase
thereunder, ________________ of the shares of Common Stock of TELIDENT, INC. to
which such Warrant relates and herewith makes payment of $______________,
therefor in cash or by certified check and requests that the certificates for
such shares be issued in the name of, and be delivered to, ___________________,
the address for which is set forth below the signature of the undersigned.
Dated:
____________________________
(Signature)
____________________________
____________________________
(Address)
- --------------------------------------------------------------------------------
TO BE SIGNED ONLY UPON TRANSFER OF WARRANT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ____________________________________________ the right to purchase shares
of Common Stock of TELIDENT, INC. to which the within Warrant relates and
appoints _______________, attorney, to transfer said right on the books of
TELIDENT, INC. with full power of substitution in the premises.
Dated:
____________________________
(Signature)
____________________________
____________________________
(Address)
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED
FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT,
OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
WARRANT
TO PURCHASE _______________ SHARES OF COMMON STOCK
OF
TELIDENT, INC.
THIS CERTIFIES THAT, for good and valuable consideration, R.J. Steichen
& Company (the "Underwriter"), or its registered assigns, is entitled to
subscribe for and purchase from Telident, Inc., a Minnesota corporation (the
"Company"), at any time after ________________, 1997, to and including
______________, 2001, _______________________ (____________) fully paid and
nonassessable shares of the Common Stock of the Company at the price of
$____________ (120% of the Public Offering Price) per share (the "Warrant
Exercise Price"), subject to the antidilution provisions of this Warrant.
Reference is made to this Warrant in the Underwriting Agreement dated
__________________, 1996, by and between the Company and the Underwriter. The
shares which may be acquired upon exercise of this Warrant are referred to
herein as the "Warrant Shares." As used herein, the term "Holder" means the
Underwriter, any party who acquires all or a part of this Warrant as a
registered transferee of the Underwriter, or any record holder or holders of the
Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. As used herein, the term "Common Stock" means and includes the
Company's presently authorized common stock $____________ par value, and shall
also include any capital stock of any class of the Company hereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the rights
of the Holders thereof to participate in dividends or in the distribution of
assets upon the voluntary or involuntary liquidation, dissolution, or winding up
of the Company.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise: Transferability.
(a) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant along
with a check in payment of the Warrant Exercise Price for such shares.
(b) Until exercisable, this Warrant may not be sold, assigned,
hypothecated, or otherwise transferred, other than by will or pursuant to the
operation of law, except to a person who is an officer of the Underwriter.
Further, this Warrant may not be sold, transferred, assigned, hypothecated or
divided into two or more Warrants of smaller denominations, nor may any Warrant
shares issued pursuant to exercise of this Warrant be transferred, except as
provided in Section 7 hereof.
2. Exchange and Replacement. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Underwriter shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Such Holder shall also provide the Company with written representations from the
Holder and the proposed transferee satisfactory to the Company regarding the
transfer or, at the election of the Company, an opinion of counsel reasonably
satisfactory to the Company to the effect that the proposed transfer of this
Warrant or disposition of shares may be effected without registration or
qualification (under any Federal or State law) of this Warrant or the Warrant
Shares. Upon receipt of such written notice and either such representations or
opinion by the Company, such Holder shall be entitled to transfer this Warrant,
or to exercise this Warrant in accordance with its terms and dispose of the
Warrant Shares, all in accordance with the terms of the notice delivered by such
Holder to the Company, provided that an appropriate legend, if any, respecting
the aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant or the certificates for the Warrant Shares. Nothing herein, however,
shall obligate the Company to effect registrations under federal or state
securities laws, except as provided in Section 9. If registrations are not in
effect and if exemptions are not available when the Holder seeks to exercise the
Warrant, the Warrant exercise period will be extended, if need be, to prevent
the Warrant from expiring, until such time as either registrations become
effective or exemptions are available, and the Warrant shall then remain
exercisable for a period of at least 30 calendar days from the date the Company
delivers to the Holder written notice of the availability of such registrations
or exemptions. The Holder agrees to execute such documents and make such
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company, or the registrations made, for
the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof except for all taxes, liens and changes imposed by the Holder. The
Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant a sufficient
number of shares of Common Stock to provide for the exercise of the rights
represented by this Warrant.
5. Antidilution Adjustments. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company payable in
Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by reclassification
or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this Subsection shall be made to the
nearest cent or to the nearest 1/100 of a share, as the case may be. In the
event that at any time as a result of an adjustment made pursuant to this
Subsection, the Holder of any Warrant thereafter surrendered for exercise shall
become entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so receivable
Upon exercise of any Warrant shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section 5.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a
party, 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, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which such Holder would have owned or
have been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale, or conveyance had such Warrant been converted
immediately prior to the effective date of such consolidation, merger, statutory
exchange, sale, or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of any Holders of
the Warrant, to the end that the provisions set forth in this Section shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock and other securities and property thereafter
deliverable on the exercise of the Warrant. The provisions of this Subsection
shall similarly apply to successive consolidations, mergers, statutory
exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel to the Company and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and make such
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company for the transfer or disposition
of the Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such Warrant
Shares described in the written notice given pursuant to this Section 7 may not
be effected without registration or qualification of this Warrant or such
Warrant Shares the Company shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the closing sale price reported by Nasdaq National Market or any national
securities exchange or, if none, the average of the last reported closing bid
and asked prices on any national securities exchange or quoted in Nasdaq
SmallCap Market, or if not listed on a national securities exchange or quoted in
Nasdaq SmallCap Market, the average of the last reported closing bid and asked
prices as reported by Metro Data Company, Inc. from quotations by market makers
in such Common Stock on the Minneapolis-St. Paul local over-the-counter market.
9. Registration Rights.
(a) If at any time after ___________________, 1997 and prior to the end
of the two-year period following complete exercise of this Warrant or
_______________, 2003, whichever occurs earlier, the Company proposes to
register under the 1933 Act (except by a Form S-4 or Form S-8 Registration
Statement or any successor forms thereto) or qualify for a public distribution
under Section 3(b) of the 1933 Act, any of its securities, it will give written
notice to all Holders of this Warrant, any Warrants issued pursuant to Section 2
and/or Section 3(a) hereof, and any Warrant Shares of its intention to do so
and, on the written request of any such Holder given within twenty (20) days
after receipt of any such notice (which request shall specify the interest in
this Warrant or the Warrant Shares intended to be sold or disposed of by such
Holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such Warrant
Shares, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement proposed to
be filed by the Company; provided, however, that nothing herein shall prevent
the Company from, at any time, abandoning or delaying any registration. If any
registration pursuant to this Section 9(a) is underwritten in whole or in part,
the Company may require that the Warrant Shares requested for inclusion pursuant
to this Section 9(a) be included in the underwriting on the same terms and
conditions as the securities otherwise being sold through the underwriters. If a
greater number of Warrant Shares is offered for participation in the proposed
offering than in the reasonable opinion of the managing underwriter of the
proposed offering can be accommodated without adversely affecting the proposed
offering, then the amount of Warrant Shares proposed to be offered by such
Holders for registration, as well as the number of securities of any other
selling shareholders participating in the registration, shall be proportionately
reduced to a number deemed satisfactory by the managing underwriter.
(b) Further, on a one-time basis during the four-year period commencing
___________________, 1997, upon request by the Holder or Holders of a majority
in interest of this Warrant, of any Warrants issued pursuant to Section 2 and/or
Section 3(a) hereof, and of any Warrant Shares, the Company will promptly take
all necessary steps to register or qualify, under the 1933 Act and the
securities laws of such states as the Holders may reasonably request, such
number of Warrant Shares issued and to be issued upon conversion of the Warrants
requested by such Holders in their request to the Company, provided, however,
that the Company shall not for any purpose be required to execute a general
consent to service of process or to qualify to do business as a foreign
corporation in any jurisdiction wherein it is not so qualified. In addition,
upon the receipt of such request, the Company shall promptly give written notice
to all other record Holders of the Warrant Shares not theretofore registered
under the Securities Act and sold that such registration is to be effected. The
Company shall include in such registration statement such Warrant Shares for
which it has received written requests to register by such other record Holders
within 30 days after the delivery of the Company's written notice to such other
record Holders. The Company shall be obligated to prepare, file and cause to
become effective only one registration statement pursuant to this Section 9(b)
and to pay all costs and expenses associated with such registration statement as
provided in Section 9(c). The Company shall keep effective and maintain any
registration, qualification, notification, or approval specified in this
Paragraph (b) for a period of one hundred twenty (120) days.
(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public offering, and legal fees and disbursements
and other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified. Fees
and disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders.
(d) The Company hereby indemnifies each of the Holders of this Warrant
and of any Warrant Shares, and the officers and directors, if any, who control
such Holders, within the meaning of Section 15 of the 1933 Act, against all
losses, claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) 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 except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or alleged untrue statement, omission or alleged omission
contained in information furnished in writing to the Company by such Holder
expressly for use therein.
10. Additional Right to Convert Warrant.
(a) The Holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time after it is
exercisable, but prior to its expiration into shares of Company Common Stock as
provided for in this Section 10. Upon exercise of the Conversion Right with
respect to a particular number of shares subject to this Warrant (the "Converted
Warrant Shares"), the Company shall deliver to the Holder (without payment by
the Holder of any Warrant Exercise Price) that number of shares of Company
Common Stock equal to the quotient obtained by dividing (x) the Conversion Value
(as defined herein) by (y) the Fair Market Value (as defined in paragraph (d)
below) of one share of Company Common Stock immediately prior to the exercise of
the Conversion Right. The "Conversion Value" of the Converted Warrant Shares
shall be determined by subtracting the aggregate Warrant Exercise Price of the
Converted Warrant Shares from the aggregate fair market value (as defined in
paragraph (d) below) of the Converted Warrant Shares. Notwithstanding anything
in this paragraph 10 to the contrary, the Conversion Right cannot be exercised
with respect to a number of Converted Warrant Shares having a Conversion Value
below $100. No fractional shares shall be issuable upon exercise of the
Conversion Right, and if the number of shares to be issued in accordance with
the foregoing formula is other than a whole number, the Company shall pay to the
holder of this Warrant an amount in cash equal to the fair market value of the
resulting fractional share.
(b) The Conversion Right may be exercised by the Holder, at any time or
from time to time after it is exercisable, prior to its expiration, on any
business day by delivering a written notice in the form attached hereto (the
"Conversion Notice") to the Company at the offices of the Company exercising the
Conversion Right and specifying (i) the total number of shares of Common stock
the Holder will purchase pursuant to such conversion and (ii) a place and date
not less than one or more than 20 business days from the date of the Conversion
Notice for the closing of such purchase.
(c) At any closing under Section 10(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the warrant
shall not have been exercised.
(d) Fair Market Value of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the Nasdaq National Market, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date,
(ii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market but is traded on the Nasdaq
SmallCap Market or other over-the-counter market, then the average
closing bid and asked prices reported for the ten (10) business days
immediately preceding the Determination Date, and
(iii) If the Company's Common Stock is not traded on an
exchange or on the Nasdaq National Market, Nasdaq SmallCap Market or
other over-the-counter market, then the price established in good faith
by the Board of Directors.
(e) In the event the Conversion Right would, at any time this Warrant
remains outstanding, be deemed by the Company's independent certified public
accountants to give rise to a material change to the Company's earnings for
financial reporting purposes, then the Conversion Right shall automatically
terminate upon the Company's written notice to the holder of this Warrant of
such adverse accounting treatment and an opinion of such independent certified
public accountants, in a form reasonably satisfactory to such holder, as to such
adverse accounting treatment.
IN WITNESS WHEREOF, Telident, Inc. has caused this Warrant to be signed
by its duly authorized officer and this Warrant to be dated __________________,
1996.
"Company"
Telident, Inc.
By________________________________________
Its_______________________________________
TO: TELIDENT, INC.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, __________________ of the shares issuable upon the exercise
of such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
__________________________________________
(Print Name)
Please insert social security
or other identifying number
of registered Holder of
certificate (_____________) Address:
__________________________________________
__________________________________________
Date: ____________ __________________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _______________________________ the right to purchase the
securities of Telident, Inc. to which the within Warrant relates and appoints
______________________, attorney, to transfer said right on the books of
Telident, Inc. with full power of substitution in the premises.
Dated:___________ ______________________________
(Signature)
Address:
______________________________
______________________________
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
TO: TELIDENT, INC.
The undersigned hereby irrevocably elects a cashless exercise of the
right of purchase represented by the within Warrant Certificate for, and to
purchase thereunder, _______________ shares of Common Stock, as provided for in
Section 10 therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name__________________________
(Please print name)
Address___________________________________
Social Security No.________________
Signature_________________________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares shall not be all the shares purchasable
under the within Warrant Certificate, a new Warrant Certificate is to be issued
in the name of said undersigned for the balance remaining of the shares
purchasable thereunder rounded up to the next higher number of shares.
Exhibit 5.1
GRAY, PLANT, MOOTY, MOOTY & BENNETT, P.A.
3400 City Center, 33 South Sixth Street
Minneapolis, Minnesota 55402-3796
JEFFREY C. ANDERSON
612 343-2866
May 20, 1996
Telident, Inc.
One Main Street SE, Suite 85
Minneapolis, MN 55414
RE: TELIDENT, INC.
REGISTRATION STATEMENT ON FORM SB-2
OUR FILE NO. 328790/66373
Dear Sir or Madam:
We are securities counsel for Telident, Inc., a Minnesota corporation
(the "Company") in connection with the filing with the Commission of a
Registration Statement on Form SB-2 (the "Registration Statement") for
registration of 1,150,000 shares of common stock of the Company, $0.02 par value
("Common Stock"); 87,500 underwriter's warrants for the purchase of Common Stock
("Warrants"); and 87,500 shares of Common Stock issuable upon exercise of the
Warrants.
We are admitted to practice only in the State of Minnesota and have
examined and are familiar with such documents and corporate records of the
Company as we have deemed necessary and appropriate for the purpose of rendering
the following opinion. Based on the foregoing and the Company's representation
that an amendment to its Articles of Incorporation will be filed to effect a
one-for-two reverse stock split, as described in the Registration Statement,
prior to the effective date of the Registration Statement, we are of the opinion
that:
When the shares of Common Stock (up to a maximum of 1,237,500 shares)
and the Warrants (up to a maximum of 87,500 Warrants) are issued by the
Company pursuant to the Registration Statement, such securities will,
when sold pursuant to the Registration Statement, be validly issued,
fully paid and nonassessable.
We hereby consent to the use of this opinion as an exhibit to the
Registration Statement and to the reference to our firm under the caption "Legal
Matters" in the Registration Statement and Prospectus.
Very truly yours,
GRAY, PLANT, MOOTY,
MOOTY & BENNETT, PA
By /s/ Jeffrey C. Anderson
Jeffrey C. Anderson
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the use in this Registration Statement on Form SB-2 of our
report dated January 10, 1995 relating to the financial statements of Cantus
Corporation, as of and for the year ended December 31, 1993 and to the
reference to our Firm under the caption "Experts" in the Prospectus.
St. Paul, Minnesota McGLADREY & PULLEN, LLP
May 20, 1996
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to use in this Registration Statement on Form SB-2 of our
report dated August 11, 1995 (May 14, 1996 as to Notes 8 and 11) relating to
the consolidated financial statements of Telident, Inc., as of and for the years
ended June 30, 1995 and 1994, (which report contained an explanatory paragraph
discussing the Company's ability to continue as a going concern) and to the
reference to our Firm under the caption "Experts" in the Prospectus.
St. Paul, Minnesota McGLADREY & PULLEN, LLP
May 20, 1996
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