U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998
|_| Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from ______________ to ______________
Commission file number 0-20887
TELIDENT, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Minnesota 41-1533060
- --------------------------------------------- --------------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
10 Second Street NE, Suite 21 55413
- --------------------------------------------- --------------------------
Minneapolis, Minnesota (Zip Code)
(Address of principal executive offices)
(612) 623-0911
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed
Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X] No
[ ].
APPLICABLE ONLY TO CORPORATE ISSUERS
Number of shares outstanding of each of the issuer's classes of common
equity, as of November 13, 1998: i) 2,787,297 shares of Common Stock, par value
$.08 per share, ii) 37,500 shares of Series I Class A Convertible Preferred
Stock, par value $.08 per share, and iii) 400,000 shares of Series III
Convertible Preferred Stock, par value $.08 per share.
1
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TABLE OF CONTENTS
PART I FINANCIAL INFORMATION ................................................3
ITEM 1. Financial Statements ...............................................3
Condensed Balance Sheets (unaudited) as of September 30, 1998
and June 30, 1998 .......................................................3
Condensed Statements of Operations (unaudited) for the three months
ended September 30, 1998 and 1997........................................4
Statements of Shareholders' Equity (unaudited) for the three months
ended September 30, 1998 ................................................5
Condensed Statements of Cash Flows (unaudited) for the three months
ended September 30, 1998 and 1997........................................6
Notes to Consolidated Financial Statements...............................7
ITEM 2. Management Discussion and Analysis or Plan of Operation.............9
PART II OTHER INFORMATION ...................................................12
ITEM 2. Changes in Securities and Use of Proceeds..........................12
ITEM 6. Exhibits and Reports on Form 8-K...................................12
2
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PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
TELIDENT, INC.
CONDENSED BALANCE SHEETS
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, June 30,
1998 1998
---- ----
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,253,556 $ 258,875
Trade accounts receivable, net of allowance for doubtful
accounts of $30,000 at both dates 644,065 508,956
Inventories 291,595 285,708
Other 60,711 76,088
------------ ------------
Total current assets 2,249,927 1,129,627
FURNITURE AND OFFICE EQUIPMENT, less accumulated
depreciation of $312,955 and $291,955, respectively 203,550 209,435
INTANGIBLE ASSETS, less accumulated amortization of $182,086
and $159,386, respectively 266,972 289,672
OTHER ASSETS 41,635 83,055
------------ ------------
$ 2,762,084 $ 1,711,789
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable $ 189,742 $ 95,271
Trade accounts payable 145,770 168,069
Accrued expenses 129,135 118,123
Deferred revenue 28,187 21,053
Current portion of long-term debt 54,398 101,519
------------ ------------
Total current liabilities 547,232 504,035
LONG-TERM DEBT, less current portion 16,162 31,825
COMMITMENT AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, $.08 par value, 2,500,000 shares authorized
Series I Class A, cumulative dividend at an annual rate of the prime
rate plus 1%, convertible into common stock at the rate of one
common share for each preferred share, 37,500 shares outstanding
at both dates 3,000 3,000
Series III, cumulative dividend equal to the Series I Class A, if any,
convertible into common stock equal to the quotient of the per share
Purchase Price ($2.50) divided by the lessor of (ii) the Conversion
Price ($2.50) and (ii) 80% of the average of the closing bid price for
the shares of common stock on the ten trading days prior to notice of
conversion, 400,000 shares outstanding at September 30, 1998 32,000 --
Common stock, $.08 par value, 10,000,000 shares authorized,
2,787,297 and 2,786,657 shares outstanding, respectively 222,984 222,933
Additional paid-in capital 15,551,868 14,612,497
Accumulated deficit (13,611,162) (13,662,501)
------------ ------------
Total shareholders' equity 2,198,690 1,175,929
------------ ------------
$ 2,762,084 $ 1,711,789
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
3
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TELIDENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
------------------------------
1998 1997
---- ----
<S> <C> <C>
NET SALES $ 717,503 $ 504,798
COST OF SALES 185,537 163,830
----------- -----------
GROSS PROFIT 531,966 340,968
OPERATING EXPENSES:
Sales and marketing 142,715 178,572
Research and development 103,038 121,230
General and administrative 230,037 236,099
----------- -----------
Total operating expenses 475,790 535,901
----------- -----------
Income (loss) from operations 56,176 (194,933)
INTEREST INCOME 10,456 9,167
INTEREST EXPENSE (15,293) (12,069)
----------- -----------
NET INCOME (LOSS) 51,339 (197,835)
PREFERRED STOCK DIVIDENDS, INCLUDING $25,442 AND
$36,337 OF UNDECLARED AND UNPAID CUMULATIVE
DIVIDENDS, RESPECTIVELY (275,442) (348,837)
----------- -----------
NET LOSS APPLICABLE TO COMMON STOCK $ (224,103) $ (546,672)
=========== ===========
NET LOSS PER COMMON SHARE - BASIC AND DILUTED $ (0.08) $ (0.32)
=========== ===========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING -
BASIC AND DILUTED 2,787,142 1,735,417
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
4
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TELIDENT, INC.
CONDENSED STATEMENTS OF SHAREHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
Number of Amount of Number of Amount of Additional
Preferred Preferred Common Shares Common Paid-in Accumulated
Shares Issued Stock Issued Stock Capital Deficit
------------- ----- ------ ----- ------- -------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, June 30, 1998 37,500 $ 3,000 2,786,657 $222,933 $14,612,497 $(13,662,501)
Preferred stock issued in
private placement, net of
offering expenses of $30,178 400,000 32,000 -- -- 937,822 --
Common stock issued for
services -- -- 640 51 1,549 --
Net income -- -- -- -- -- 51,339
------- ------- --------- -------- ----------- ------------
BALANCE, September 30,
1998 437,500 $35,000 2,787,297 $222,984 $15,551,868 $(13,611.162)
======= ======= ========= ======== =========== ============
</TABLE>
See accompanying notes to condensed financial statements.
5
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TELIDENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
-------------
1998 1997
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 51,339 $ (197,835)
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Depreciation and amortization expense 43,700 31,800
Common stock issued for services 1,600 --
Changes in assets and liabilities:
Trade accounts receivable (135,109) (166,078)
Inventories (5,887) 59,870
Other assets 56,797 3,860
Trade accounts payable (22,299) 27,876
Accrued expenses and deferred revenue 18,146 (19,194)
----------- -----------
Net cash provided by (used in) operating activities 8,287 (259,701)
CASH FLOWS FROM INVESTING ACTIVITIES
Payments of patent and capitalized software costs -- (24,440)
Purchase of furniture and office equipment (15,115) (16,446)
----------- -----------
Net cash used in investing activities (15,115) (40,886)
CASH FLOWS FROM FINANCING ACTIVITIES
Net borrowings on notes payable 94,471 89,450
Payments of long-term debt (62,784) (111,625)
Proceeds from issuance of preferred stock, net 969,822 1,193,627
----------- -----------
Net cash provided by financing activities 1,001,509 1,171,452
NET INCREASE IN CASH AND CASH EQUIVALENTS 994,681 870,865
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 258,875 22,319
----------- -----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 1,253,556 $ 893,184
=========== ===========
Supplemental schedule of non-cash financing
activities
Common stock offset against note receivable $ -- $ 11,635
</TABLE>
See accompanying notes to condensed financial statements.
6
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12
TELIDENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The condensed financial statements included in this Form 10-QSB are
unaudited. However, in the opinion of Telident, Inc., (the "Company"), the
financial statements include all adjustments, consisting of normal recurring
adjustments, necessary for the fair presentation of the results of operations
and financial position for the interim periods.
The results of operations for the three month period ended September 30,
1998 do not necessarily indicate the results to be expected for the full year.
These statements should be read in conjunction with the Company's financial
statements and notes thereto, contained in the Company's Annual Report on Form
10-KSB for the year ended June 30, 1998.
2. INVENTORIES
Inventories are stated at the lower of cost or market using the first in,
first out method, and consisted of the following:
September 30, June 30,
1998 1998
---- ----
Raw materials $ 339,317 $ 325,804
Work in progress 3,959 1,876
Finished goods 38,319 48,028
Inventory reserve (90,000) (90,000)
------------- -------------
$ 291,595 $ 285,708
============ ============
3. SHAREHOLDERS' EQUITY
ISSUANCE OF SERIES III CONVERTIBLE PREFERRED STOCK - In August 1998, the
Company completed the sale of 400,000 shares of Series III Convertible Preferred
stock with two investors for $1,000,000 ($2.50 per share). The Company incurred
offering costs of $30,178 and will incur additional costs in the future as the
Company is required to register the shares with the Securities and Exchange
Commission. Each share of the Series III Convertible Preferred Stock is
convertible at the option of the holder into common stock. Upon any such
conversion, each share of Series III Preferred Stock shall be converted into a
number of fully paid and nonassessable shares (calculated as to each conversion
to the nearest 1/100th of a share) of common stock of the Company equal to the
quotient of (x) the per share purchase price (appropriately adjusted to reflect
stock splits, stock dividends, reorganizations, consolidations and similar
changes hereafter effected) of such share of Series III Preferred Stock, divided
by (y) the lessor of (i) the Conversion Price (as defined) and (ii) 80% of the
average of the closing bid price for the shares of common stock on the ten (10)
trading days prior to the date that the Company receives written notice of
conversion from a holder of such Series III Preferred Stock. The value of the
beneficial conversion feature, $250,000, was recorded as a deemed preferred
stock dividend on the date of issuance. These investors also received in the
aggregate warrants to
7
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purchase 400,000 shares of common stock. The warrants are exercisable at $3.125
per share and will expire two years from the closing date of this transaction.
The warrants may be called by the Company at a price of $4.38.
CUMULATIVE UNDECLARED DIVIDENDS - The Company has not paid dividends on
Series I preferred stock since March 31, 1997. At September 30, 1998, there are
$93,892 of cumulative undeclared dividends. The preferred stock dividends on the
statement of operations include the value assigned to the beneficial conversion
feature of the Series III and II preferred stock of $250,000 and $312,500 for
the three months ended September 30, 1998 and 1997, respectively. In April 1998,
all of the Company's Series II Class A Convertible Preferred Stock was converted
into 1,052,189 shares of common stock. As a result of the conversion, $334,500
of deemed dividends for the three months ended September 30, 1997 will not be
paid. If the conversion had taken place in July 1997, the Company's basic and
diluted loss per share for the three months ended September 30, 1997, would have
been ($0.13).
4. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 130 (SFAS 130) "Reporting
Comprehensive Income," which was adopted by the Company beginning July 1, 1998.
SFAS No. 130 requires the disclosure of comprehensive income and its components
in the general-purpose financial statements. The adoption by the Company of SFAS
No. 130 did not have a material effect on the Company's financial statements for
the three months ended September 30, 1998 or 1997. Total comprehensive income
(loss) for the three months ended September 30, 1998 and 1997, was $51,339 and
$(197,835), respectively.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of
an Enterprise and Related Information", which became effective for the Company
beginning July 1, 1998. SFAS No. 131 redefines how operating segments are
determined and requires disclosures of certain financial and descriptive
information about a company's operating segments. The adoption of SFAS No. 131
did not impact the Company's financial statements since the Company operates in
one segment.
8
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PART I - FINANCIAL INFORMATION
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
TELIDENT, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This discussion and analysis contains forward-looking terminology such as
"believes," "anticipates," "expects" and "intends," or comparable terminology.
Such statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from those projected. Potential purchasers
of the Company's securities are cautioned not to place undue reliance on such
forward-looking statements which are qualified in their entirety by the cautions
and risks described herein.
Telident, Inc. (the "Company") 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.
RESULTS OF OPERATIONS
For the three months ended September 30, 1998, the Company recorded net
income of $51,339 compared to a net loss of $197,835 for the same period in
fiscal 1998.
REVENUES
Revenues consist of equipment sales of the Company's hardware and software
systems for enhanced 911 service, mainly from Telident's Station Translation
System (STS) for PBX systems and packages of hardware and software applications
providing "total PBX 9-1-1 solutions." The Company also generates revenues from
services and extended warranty contracts.
Revenues for the three months ended September 30, 1998 were $717,503
compared to $504,798 for the same period in fiscal year 1998. The Company
increased revenues by focusing selling efforts on its core PBX 9-1-1 products
including its on-site notification software and 9-1-1 database software
applications. Software and systems sales increased after the Company introduced
new product packaging and pricing for customer installable PBX 9-1-1 solutions.
In addition, the Company began direct selling of its solutions through telephone
sales programs.
GROSS MARGIN
Gross margin for the three months ended September 30, 1998 increased to
74.1% compared to 67.5% for the same period in fiscal year 1998. This increase
resulted from increased shipments of the Company's core PBX 9-1-1 products,
software sales, and improved cost controls for resold products and installation
services.
9
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SALES AND MARKETING
Sales and marketing expenses for the three months ended September 30, 1998
decreased to $142,715 from $178,572 for the same period in fiscal year 1998.
This decrease resulted from the closing of several under-producing sales
offices, and a reduction in sales personnel and marketing expenses during fiscal
1998. The Company has shifted the focus of its selling efforts away from a field
sales force to direct marketing to end users and distributors. This strategy has
resulted in increased sales while at the same time decreasing the Company's
sales and marketing expenses.
RESEARCH AND DEVELOPMENT
Research and development expenses for the three months ended September 30,
1998 decreased to $103,038 from $121,230 during the same period in fiscal year
1998. This decrease was due to a reduction in personnel, decreased use of
consultants, and a concentrated focus on research and development efforts for
the Company's existing PBX 911 product line.
GENERAL AND ADMINISTRATIVE
General and administrative expenses for the three months ended September
30, 1998 decreased to $230,037 from $236,099 during the same period in fiscal
year 1998. This decrease was due to the Company's continuing focus on
controlling expenses.
INTEREST EXPENSE, NET OF INTEREST INCOME
Interest expense, net of interest income for the three months ended
September 30,1998 was $4,837 compared to $2,902 in the same period in fiscal
year 1998.
DIVIDENDS
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, if any, capital requirements and financial condition. The Company has
paid a cash dividend on its preferred stock in the past. No such dividend was
paid during the three months ended September 30, 1998, and currently the Company
has no intention to pay any such dividend. The Company instead plans to retain
all earnings, if any, to further the development of the business.
INFLATION
Inflation has not had a material impact on the Company's net sales or
results of operations.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1998, the Company had cash and cash equivalents of
$1,253,556 and accounts receivable of $644,065. During the three months ended
September 30, 1998 net cash provided by the Company's operating activities was
$8,287, due to profitable operations for the three months ended September 30,
1998. The Company used $15,115 of cash to purchase capital equipment. The
Company received $94,471 of cash due to net borrowings on its bank line of
10
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credit and used $62,784 to make payments on debt. The Company completed a sale
of preferred stock in August 1998 that resulted in net proceeds of $969,822.
The Company has relied on debt, equity capital and revenues to fund its
operations during the first three months of fiscal year 1999 and during prior
periods.
Based on its projected revenues and expenses, the Company believes that
cash and cash equivalents, the proceeds from an existing line of credit and its
collections from accounts receivable, will be adequate to fund the Company's
working capital requirements through December 31, 1999.
The Company had no material commitments for capital expenditures at
September 30, 1998.
YEAR 2000 COMPLIANCE
All Telident internal operating processes and systems are currently, or
will be, Year 2000 compliant. Telident has conducted a review of its operating
software requirements for Year 2000 compliance. The Company relies on PC's and
PC networks, and related third party software applications for its internal
processes. The Company believes that all Year 2000 dependencies have been
identified and appropriate software upgrades purchased or scheduled for update.
Senior management as well as the Company's Audit Committee has monitored the
Company's progress in this area. Based upon current expenditures and estimates,
the Company does not believe the costs of addressing the Year 2000 issue to be
material to the financial results or operations of the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "Accounting for Derivative Instruments and Hedging Activities." This
Statement requires companies to record derivatives on the balance sheet as
assets and liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivative and whether it qualifies for hedge accounting. This
Statement is effective for fiscal years beginning after June 15, 1999, with
earlier adoption encouraged. The Company has not yet determined the effects SFAS
No. 133 will have on its financial position or the result of its operations.
11
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In August 1998, the Company completed the sale of 400,000 shares of the
Company's Series III Convertible Preferred Stock to two investors for net
proceeds of $969,822. Based upon investment representations provided to the
Company by the investors, the Company believes that the foregoing transaction
was exempt under Section 4(2) of the Securities Act of 1933, as amended, and
Rule 506 of Regulation D promulgated thereunder. See also "Shareholders Equity"
note in the Notes to Condensed Financial Statements.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits
10.1 Warrant dated February 25, 1998, between Company and Mack
Traynor for the purchase of 100,000 shares of common stock.
10.2 Warrant dated June 13, 1998, between Company and Kenneth W.
Hager for the purchase of 25,000 shares of common stock.
10.3 Warrant dated June 13, 1998, between Company and Manchester
Companies, Inc. for the purchase of 25,000 shares of common
stock.
27 Financial Data Schedule.
b) The Company filed the following documents with the Commission
during the quarter for which this report is filed:
(1) The Company's Current Report on Form 8-K on August 19,1998
(File No. 20887) relating to the sale of 400,000 shares of
Series III Convertible Preferred Stock for $1,000,000.
12
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
TELIDENT, INC.
----------------------------------------------
(Registrant)
November 11, 1998 /s/ W. Edward McConaghay
- ---------------------------- -----------------------------------------------
Date W. Edward McConaghay, President and CEO
(Principal Executive Officer, Financial and
Accounting Officer)
13
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EXHIBIT INDEX
Exhibit Number Description
10.1 Warrant dated February 25, 1998, between Company and Mack Traynor
for the purchase of 100,000 shares of common stock.
10.2 Warrant dated June 13, 1998, between Company and Kenneth W. Hager
for the purchase of 25,000 shares of common stock.
10.3 Warrant dated June 13, 1998, between Company and Manchester
Companies, Inc. for the purchase of 25,000 shares of common
stock.
27 Financial Data Schedule
14
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
TELIDENT, INC.
DATED
FEBRUARY 25, 1998
THIS CERTIFIES THAT, for value received, Mack Traynor (the "Holder"),
or registered permitted assigns, is entitled to purchase from TELIDENT, INC.
(the "Corporation"), a corporation organized and existing under the laws of the
State of Minnesota, at the purchase price per share specified below (subject to
adjustment as noted below) at any time or from time to time from five (5) years
after the date hereof to and including the Termination Date (as hereinafter
defined) up to 100,000 fully paid and non-assessable shares of the Corporation's
Common Stock, par value $0.08 per share (the "Common Stock") (subject to
adjustment as noted below). This Warrant has been issued in connection with
efforts relating to a consulting agreement. For purposes of this Warrant,
"Termination Date" shall mean 5:00 P.M. Minneapolis time on the earlier of (i)
the seventh anniversary hereof and (ii) the date on which that certain
consulting agreement dated February 25, 1998 by and between the Corporation and
the Holder is terminated, unless extended as provided herein.
The purchase price shall be $1.188 per share (the "Purchase Price").
The Purchase Price shall be subject to adjustment as provided below.
The Holder may sell, transfer, assign or otherwise dispose of any of
its rights or obligations hereunder in accordance with applicable securities
laws.
This Warrant is subject to the following provisions, terms and
conditions.
1. This Warrant may be exercised by the Holder hereof, in whole or in
part, by written notice of exercise delivered to the Corporation thirty (30)
days prior to the intended date of exercise along with the surrender of this
Warrant (properly endorsed if required) at the principal office of the
Corporation and upon payment to it by wire transfer of the Purchase Price for
the number of shares of Common Stock which the Holder elects to purchase. The
Corporation agrees that the shares so purchased shall be and are 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 shall have been surrendered and
<PAGE>
payment made for such shares as aforesaid. Subject to the provisions of the next
succeeding paragraph, certificates for the shares of stock so purchased shall be
delivered to the Holder hereof within a reasonable time, not exceeding 10 days,
after the rights represented by this Warrant shall have been so exercised, and,
unless this Warrant has expired, a new Warrant representing the number of
shares, if any, with respect to which this Warrant shall not then have been
exercised shall also be delivered to the Holder hereof within such time.
2. The Corporation covenants and agrees that all shares which may be
issued upon exercise of the rights represented by this Warrant will, upon
issuance, be duly authorized and issued, fully paid and nonassessable.
3. The above provisions are subject to the following:
(a) The Purchase Price shall, from and after the date of issuance of
this Warrant, be subject to adjustment from time to time as hereinafter
provided. Upon each adjustment of the Purchase Price, the Holder of
this Warrant shall thereafter be entitled to purchase, at the Purchase
Price resulting from such adjustment, the number of shares obtained by
multiplying the Purchase Price in effect immediately prior to such
adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
(b) In case the Corporation shall at any time subdivide or combine its
outstanding shares of Common Stock into a greater number of shares, the
Purchase Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Purchase Price in effect immediately prior to
such combination shall be proportionately increased.
(c) If any capital reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger of the Corporation
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
the 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 thereafter 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 Corporation immediately theretofore purchasable and receivable
upon the exercise of the rights represented hereby, such shares of
stock,
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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 immediately theretofore
purchasable and receivable upon the exercise of the rights represented
hereby 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 Holder of
this Warrant to the end that the provisions hereof 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.
(d) The vesting of this Warrant shall be accelerated on achievement of
the following financial results:
(i) 60% of the Warrant shall vest according to the following
Revenue achievement. "Revenue" shall mean the annualized
revenue run-rate, measured quarterly.
(1) 20% shall vest when the Corporation's total
annual revenues exceed $10 million; (2) 20% shall
vest when the Corporation's total annual revenues
exceed $20 million; and (3) 20% shall vest when the
Corporation's total annual revenues exceed $30
million.
(ii) 40% of this Warrant shall vest according to the
achievement of the following price per share of the
Corporation's Common Stock.
(1) 20% shall vest when the price per share of the
Corporation's Common Stock is $4.00 at the close of
business; and (2) 20% shall vest when the price per
share of the Corporation's Common Stock is $6.00 at
the close of business.
(e) No fractional shares of Common Stock shall be issued upon the
exercise of this Warrant, but, instead of any fraction of a share which
would otherwise be issuable, the Corporation shall pay a cash
adjustment (which may be effected as a reduction of the amount to be
paid by the Holder hereof upon such exercise) in respect of such
fraction in an amount equal to the same fraction of the Market Price
per share of Common Stock as of the close of business on the date of
the notice required by paragraph 1 above. "Market Price" shall mean, if
the Common Stock is traded on a securities exchange or on the NASDAQ
SmallCap Market, the closing price of the Common Stock on such exchange
or the NASDAQ SmallCap Market, or, if the
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Common Stock is otherwise traded in the over-the-counter market, the
closing price, in each case averaged over a period of 20 consecutive
business days prior to the date as of which "Market Price" is being
determined. If at any time the Common Stock is not traded on an
exchange or the NASDAQ SmallCap Market, or otherwise traded in the
over-the-counter market, the "Market Price" shall be the fair value
thereof determined in good faith by the Board of Directors of the
Corporation as of a date which is within 15 days of the date as of
which the determination is to be made.
4. As used herein, the term "Common Stock" shall include shares
designated as Common Stock of the Corporation on the date of original issue of
this Warrant or, in the case of any reclassification of the outstanding shares
thereof, the stock, securities or assets provided for in paragraph 4(c) above.
5. This Warrant shall not entitle the Holder hereof to any voting
rights or other rights as a stockholder of the Corporation.
6. The Holder of this Warrant, by acceptance hereof, agrees to give
written notice to the Corporation before transferring this Warrant or
transferring any unregistered Common Stock issuable or issued upon the exercise
hereof of Holder's intention to do so, describing briefly the manner of any
proposed transfer of this Warrant or Holder's intention as to the disposition to
be made of shares of Common Stock issuable or issued upon the exercise hereof.
Holder shall also provide the Corporation with an opinion of counsel
satisfactory to the Corporation to the effect that the proposed transfer of this
Warrant or disposition of unregistered shares may be effected without
registration or qualification (under any Federal or State law) of this Warrant
or the shares of Common Stock issuable or issued upon exercise hereof. Upon
receipt of such written notice and opinion by the Corporation, Holder shall be
entitled to transfer this Warrant, or to exercise this Warrant in accordance
with its terms and dispose of the shares received upon such exercise or to
dispose of shares of Common Stock received upon the previous exercise of this
Warrant, provided that an appropriate legend respecting the aforesaid
restrictions on transfer and disposition may be endorsed on this Warrant or the
certificates for such shares.
7. Subject to the provisions of paragraph 6 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 at the principal office
of the Corporation of this Warrant properly endorsed. Each taker and holder of
this Warrant, by taking or holding the same, consents and agrees that the bearer
of this Warrant, when endorsed, may be treated by the Corporation and all other
persons dealing with this Warrant as the absolute owner hereof for any purpose
and as the person entitled to exercise the rights represented
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<PAGE>
by this Warrant, or to the transfer hereof on the books of the Corporation, any
notice to the contrary notwithstanding; but until such transfer on such books,
the Corporation may treat the registered Holder hereof as the owner for all
purposes.
8. The obligations contained herein shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
9. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law or the State of
Minnesota.
10. Any notice required to be given to the Corporation under the terms
of this Warrant shall be in writing and addressed to the Secretary of the
Corporation at One Main Street S.E., Suite 85, Minneapolis, MN 55414. All
notices shall be deemed to have been given or delivered upon: personal delivery;
five (5) days after deposit in the United States mail, certified or registered
(return receipt requested); or one (1) business day after deposit with a
nationally recognized overnight courier (prepaid).
IN WITNESS WHEREOF, the Corporation and the Holder have caused this
Warrant to be signed effective February 25, 1998.
HOLDER
/s/ Mack Traynor
------------------------
Mack Traynor
TELIDENT, INC.
/s/ Edward McConaghay
------------------------
By: Edward McConaghay
Its: President and CEO
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RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i) an opinion of
counsel reasonably satisfactory to the Corporation that such transfer may be
lawfully made without registration under the Federal Securities Act of 1933 and
all applicable state securities laws or (ii) such registration.
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FORM OF ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and
transfers unto ____________________________________________________________ this
Warrant, and appoints___________________________________________________ to
transfer this Warrant on the books of the Corporation with the full power of
substitution in the premises.
Dated: _____________, 199__
In the presence of:
----------------------------------------
(Signature must conform in all respects
to the name of the Holder as specified
on the face of this Warrant without
alteration, enlargement or any change
whatsoever)
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SUBSCRIPTION FORM
To Be Executed by the Holder of This Warrant if Holder
Desires to Exercise This Warrant in Whole or in Part:
To: Telident, Inc. (the "Corporation")
The undersigned _______________________________________________
Please insert Social Security or other
identifying number of Subscriber: _______________________
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, ______________ shares of the Common
Stock provided for therein and tenders payment herewith to the order of the
Corportion in the amount of $_________, such payment being made as provided on
the face of this Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: ___________________________________________________________
Address: ________________________________________________________
Deliver to:______________________________________________________
Address: ________________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated: __________________________
Name: __________________________
Note: The signature on this subscription form must correspond with the name as
written upon the face of this Warrant in every particular, without alteration or
enlargement or any change whatever.
8
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
TELIDENT, INC.
DATED
JUNE 13, 1998
THIS CERTIFIES THAT, for value received, KENNETH W. HAGER (the
"Holder") or registered permitted assigns is entitled to purchase from TELIDENT,
INC., (the "Corporation"), a corporation organized and existing under the laws
of the State of Minnesota, at the purchase price per share specified below
(subject to adjustment as noted below) at any time or from time to time from and
after the date hereof to and including the Termination Date (as hereinafter
defined) 25,000 fully paid and nonassessable shares of the Corporation's Common
Stock, par value $0.08 per share (the "Warrant Stock") (subject to adjustment as
noted below). This Warrant has been issued pursuant to an Engagement Agreement
dated June 13, 1998 (the "Engagement Agreement"), by and between the Corporation
and Manchester Financial Group, Inc. For purposes of this Warrant, "Termination
Date" shall mean 5:00 P.M. Minneapolis time on the fifth anniversary hereof
unless extended as provided herein.
The purchase price of the Warrant Stock upon exercise of the Warrant
shall be $2.688 per share (the "Purchase Price"). The Purchase Price shall be
subject to adjustment as provided below.
The Holder may sell, transfer, assign or otherwise dispose of any of
its rights or obligations hereunder in accordance with applicable securities
laws.
This Warrant is subject to the following provisions, terms and
conditions:
1. This Warrant may be exercised by the Holder hereof, in whole or in
part, by surrender of this Warrant (properly endorsed if required) at the
principal office of the Corporation and upon payment to it by wire transfer of
the Purchase Price for the number of shares of Warrant Stock which the Holder
elects to purchase. The Corporation agrees that the shares so purchased shall be
and are 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 shall have
been surrendered and payment made for such shares as aforesaid (the
"Determination Date"). Subject to the provisions of the next succeeding
paragraph, certificates for the Warrant Stock so purchased shall be delivered to
the Holder hereof within a reasonable time, not exceeding 10 days, after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the
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<PAGE>
number of shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to the Holder hereof within such time.
2. The Corporation covenants and agrees that the Warrant Stock will,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Corporation further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Corporation will at all
times have authorized and reserved for the purpose of issue or transfer upon
exercise of the rights evidenced by this Warrant, a sufficient number of shares
of Warrant Stock to provide for the exercise of the rights represented by this
Warrant.
3. The above provisions are, however, subject to the following:
(a) The Purchase Price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the Purchase Price, the
Holder of this Warrant shall thereafter be entitled to purchase, at the
Purchase Price resulting from such adjustment, the number of shares
obtained by multiplying the Purchase Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
(b) Except for (i) options to purchase shares of Common Stock
approved by the board of directors of the Corporation and shares of
Common Stock issued upon the exercise of such options and (ii) shares
of Common Stock issued upon conversion of the Series III Preferred
Stock or exercise of this Warrant or other warrants or rights to
purchase the securities of the Corporation outstanding as of the date
hereof, if and whenever the Corporation shall issue or sell any
additional shares of its Common Stock for a consideration per share
less than the Purchase Price in effect immediately prior to the time of
such issue or sale, then, forthwith upon such issue or sale, the
Purchase Price shall be reduced to such lesser price as is determined
by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance or
sale of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined in accordance
with this paragraph 3) for the issuance or sale of such additional
shares would purchase at the Purchase Price then in effect, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance or sale of such additional
shares.
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<PAGE>
(c) For the purposes of paragraph (b), the following
provisions (i) to (iii), inclusive, shall also be applicable:
(i) In case at any time the Corporation shall grant
(whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for
the purchase of, (aa) Common Stock or (bb) any obligations or
any shares of stock of the Corporation which are convertible
into or exchangeable for Common Stock (any of such obligations
or shares of stock being hereinafter called "Convertible
Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities
are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such rights or
options or upon conversion or exchange of such Convertible
Securities (determined by dividing (cc) the total amount, if
any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such rights or
options, plus, in the case of such rights or options which
relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (dd) the total maximum number of shares
of Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Purchase Price in
effect immediately prior to the time of the granting of such
rights or options on the date of such grant, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or
options shall (as of the date of granting of such rights or
options) be deemed to be outstanding and to have been issued
for such price per share. No further adjustments of the
Purchase Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise
of such rights or options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) In case the Corporation shall issue or sell
(whether directly or by assumption in a merger or otherwise)
any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (aa)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such
3
<PAGE>
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (bb) the total
maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Purchase Price in effect immediately
prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been
issued for such price per share, provided that if any such
issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any
option to purchase any such Convertible Securities for which
adjustments of the Purchase Price have been or are to be made
pursuant to other provisions of this paragraph (c), no further
adjustment of the Purchase Price shall be made by reason of
such issue or sale.
(iii) In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions, discounts or concessions paid
or allowed by the Corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be deemed to
be the fair value of such consideration as determined by the
Board of Directors of the Corporation, without deducting
therefrom any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or
options to purchase such Common Stock or Convertible
Securities shall be issued in connection with any merger or
consolidation in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be
deemed to be the fair value as determined by the Board of
Directors of the Corporation of such portion of the assets and
business of the non-surviving corporation or corporations as
such Board shall determine to be attributable to such Common
Stock, Convertible Securities, rights or options, as the case
may be. In the event of any consolidation or merger of the
Corporation in which the Corporation is not the surviving
corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for
4
<PAGE>
stock or other securities of any other corporation, the
Corporation shall be deemed to have issued a number of shares
of its Common Stock for stock or securities of the other
corporation computed on the basis of the actual exchange ratio
on which the transaction was predicated and for a
consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment
of the Purchase Price, the determination of the number of
shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such merger, conversion or sale, for
purposes of paragraph (g) below, shall be made after giving
effect to such adjustment of the Purchase Price.
(d) In case the Corporation shall (i) declare a dividend upon
the Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of Common
Stock, as described in paragraph (e) below) or Convertible Securities,
or in any rights or options to purchase Common Stock or Convertible
Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the Holder of this Warrant
upon the exercise hereof will be entitled to receive the number of
shares of Warrant Stock to which Holder shall be entitled upon such
exercise, and, in addition and without further payment therefor, each
dividend described in clause (i) above and each dividend or
distribution described in clause (ii) above which Holder would have
received by way of dividends or distributions if continuously since the
issuance of this Warrant, Holder (i) had been the record Holder of the
number of shares of Warrant Stock then received, and (ii) had retained
all dividends or distributions in stock or securities (including Common
Stock or Convertible Securities, or in any rights or options to
purchase any Common Stock or Convertible Securities) payable in respect
of such Warrant Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or indirectly from
such Warrant Stock. For the purposes of the foregoing, a dividend or
distribution other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or
earned surplus are charged an amount equal to the fair value of such
dividend or distribution as determined by the Board of Directors of the
Corporation.
(e) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Purchase Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Purchase Price in effect immediately prior to
such combination shall be proportionately increased.
5
<PAGE>
(f) If (i) the purchase price provided for in any right or
option referred to in clause (i) of paragraph (c), or (ii) the
additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c), or (iii) the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c)
are convertible into or exchangeable for Common Stock shall change at
any time (other than under or by reason of provisions designed to
protect against dilution), the Purchase Price then in effect shall
forthwith be increased or decreased to such Purchase Price which would
have been obtained had the adjustments made upon the issuance of such
rights, options or Convertible Securities been made upon the basis of
(i) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and the
total consideration received therefor, and (ii) the issuance at the
time of such change of any such options, rights or Convertible
Securities then still outstanding for the consideration, if any,
received by the Corporation therefor and to be received on the basis of
such changed price; and on the expiration of any such option or right
or the termination of any such right to convert or exchange such
Convertible Securities, the Purchase Price then in effect hereunder
shall forthwith be increased to such Purchase Price which would have
obtained had the adjustments made upon the issuance of such rights or
options or Convertible Securities been made upon the basis of the
issuance of the shares of Common Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such
Convertible Securities. If the purchase price provided for in any such
right or option referred to in clause (i) of paragraph (c) or the rate
at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c) are convertible into or exchangeable for Common
Stock shall decrease at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of
the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security,
the Purchase Price then in effect hereunder shall forthwith be
decreased to such Purchase Price as would have obtained had the
adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as
aforesaid.
(g) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the
Corporation 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 the 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
6
<PAGE>
sale, lawful and adequate provision shall be made whereby the Holder
hereof shall thereafter 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 Warrant Stock of the Corporation
immediately theretofore 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 immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby 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 Holder of this Warrant
to the end that the provisions hereof (including without limitation
provisions for adjustments 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 Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor
corporation (if other than the Corporation) 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 Holder appearing on the books of
the Corporation, the obligation to deliver to Holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase.
(h) In case any time:
(1) the Corporation shall declare any cash dividend
on its Common Stock or preferred stock at a rate in excess of
the rate of the last cash dividend theretofore paid;
(2) the Corporation 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 or preferred stock;
(3) the Corporation shall offer for subscription pro
rata to the Holders of its Common Stock or preferred stock any
additional shares of stock of any class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with, or sale of
all or substantially all of its assets to, another
corporation; or
7
<PAGE>
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give
written notice, by first-class mail, postage prepaid, addressed to the
registered Holder of this Warrant at the address of the Holder as shown
on the books of the Corporation, of the date on which (aa) the books of
the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (bb) 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 Corporation's transfer books are closed in respect
thereto.
(i) If any event occurs as to which in the opinion of the
Board of Directors of the Corporation the other provisions of this
paragraph 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of this Warrant or
of Warrant Stock in accordance with the essential intent and principles
of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as to protect such purchase
rights as aforesaid.
(j) No fractional shares of Warrant Stock shall be issued upon
the exercise of this Warrant, but, instead of any fraction of a share
which would otherwise be issuable, the Corporation shall pay a cash
adjustment (which may be effected as a reduction of the amount to be
paid by the Holder hereof upon such exercise) in respect of such
fraction in an amount equal to the same fraction of the Market Price
per share of Common Stock as of the close of business on the date of
the notice required by paragraph 1 above. "Market Price" shall mean, if
the Common Stock is traded on a securities exchange or on The NASDAQ
SmallCap Market, the closing price of the Common Stock on such exchange
or the NASDAQ SmallCap Market, or, if the Common Stock is otherwise
traded in the over-the-counter market, the closing price, in each case
averaged over a period of 20 consecutive business days prior to the
date as of which "Market Price" is being determined. If at any time the
Common Stock is not traded on an exchange or The NASDAQ SmallCap
Market, or otherwise traded in the over-the-counter market, the "Market
Price" shall be deemed to be the higher of (i) the book value thereof
as determined by any firm of independent public
8
<PAGE>
accountants of recognized standing selected by the Board of Directors
of the Corporation as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made, or
(ii) the fair value thereof determined in good faith by the Board of
Directors of the Corporation as of a date which is within 15 days of
the date as of which the determination is to be made.
4. As used herein, the term "Common Stock" shall include the
Corporation's presently authorized Common Stock and shall also include any
capital stock of any class of the Corporation 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
Corporation; provided that the shares purchasable pursuant to this Warrant shall
include shares designated as Common Stock of the Corporation on the date of
original issue of this Warrant or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph 3(g) above.
5. [Intentionally omitted]
6. This Warrant shall not entitle the Holder hereof to any voting
rights or other rights as a stockholder of the Corporation.
7. The Holder of this Warrant, by acceptance hereof, agrees to give
written notice to the Corporation before transferring this Warrant or
transferring any unregistered Warrant Stock issuable or issued upon the exercise
hereof of Holder's intention to do so, describing briefly the manner of any
proposed transfer of this Warrant or Holder's intention as to the disposition to
be made of shares of Common Stock issuable or issued upon the exercise hereof.
Holder shall also provide the Corporation with an opinion of counsel
satisfactory to the Corporation to the effect that the proposed transfer of this
Warrant or disposition of unregistered shares may be effected without
registration or qualification (under any Federal or State law) of this Warrant
or the shares of Common Stock issuable or issued upon the exercise hereof. Upon
receipt of such written notice and opinion by the Corporation, Holder shall be
entitled to transfer this Warrant, or to exercise this Warrant in accordance
with its terms and dispose of the shares received upon such exercise or to
dispose of shares of Common Stock received upon the previous exercise of this
Warrant, provided that an appropriate legend respecting the aforesaid
restrictions on transfer and disposition may be endorsed on this Warrant or the
certificates for such shares. The Holder and any assignee of the Holder shall be
entitled to the registration rights provided in Section 10 hereof.
8. Subject to the provisions of 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 at the principal office
of the Corporation of this Warrant
9
<PAGE>
properly endorsed. Each taker and Holder of this Warrant, by taking or holding
the same, consents and agrees that the bearer of this Warrant, when endorsed,
may be treated by the Corporation and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the person entitled
to exercise the rights represented by this Warrant, or to the transfer hereof on
the books of the Corporation, any notice to the contrary notwithstanding; but
until such transfer on such books, the Corporation may treat the registered
Holder hereof as the owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
Holder hereof at the principal office of the Corporation, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and purchase
the number of shares which may be subscribed for and purchased hereunder, each
of such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said Holder hereof at the time of
such surrender.
10. Incidental Registration. Each time during the two (2) year period
after the complete exercise by the Holder of the right to purchase shares under
this warrant that the Corporation 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 of any of its securities by it or
any of its security holders (other than a registration statement on a form that
does not permit the inclusion of shares by its security holders), the
Corporation will promptly give written notice of its determination to all record
holders of Warrant Stock not theretofore registered under the Securities Act and
sold. Upon the written request of a record holder of any shares of Warrant Stock
given within 30 days after receipt of any such notice from the Corporation, the
Corporation will, except as herein provided, cause all the shares of Warrant
Stock, the Purchaser or record holders of which have so requested registration
thereof, 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 Stock to be so registered; provided, however, that
nothing herein shall prevent the Corporation from, at any time, abandoning or
delaying any such registration initiated by it; provided further, however, that
if the Corporation determines not to proceed with a registration after the
registration statement has been filed with the Commission and the Corporation's
decision not to proceed is primarily based upon the anticipated public offering
price of the securities to be sold by the Corporation, the Corporation shall
promptly complete the registration for the benefit of those selling security
holders who wish to proceed with a public offering of their securities at the
Corporation's expense. If any registration pursuant to this Section 10 shall be
underwritten in whole or in part, the Corporation may require that the Warrant
Stock requested for inclusion pursuant to this Section 10 be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. In addition, the Holder may request that the
Warrant Stock requested for inclusion pursuant to this Section 10 be included in
the underwriting on the same terms and conditions as the
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<PAGE>
securities otherwise being sold through the underwriting. In the event that the
Warrant Stock requested for inclusion pursuant to this Section 10 would
constitute more than 25 % of the total number of shares to be included in a
proposed underwritten public offering, and if in the good faith judgment of the
managing underwriter of such public offering the inclusion of all of the Warrant
Stock originally covered by a request for registration would reduce the number
of shares to be offered by the Corporation or interfere with the successful
marketing of the shares of stock offered by the Corporation, the number of
shares of Warrant Stock otherwise to be included in the underwritten public
offering may be reduced pro rata (by number of shares) among the holders thereof
requesting such registration, provided, however, that after any such required
reduction the Warrant Stock to be included in such offering shall constitute at
least 25% of the total number of shares to be included in such offering.
(a) Registration Procedures. If and whenever the Corporation
is required by the provisions of Section 10 hereof to effect the registration of
Registrable Securities under the Securities Act, the Corporation will:
(i) prepare and file with the Commission a registration
statement (a "Registration Statement") with respect to such Registrable
Securities, 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 securities, not to
exceed nine months (subject to extension as set forth in the last
paragraph of this Section 10(a));
(ii) prepare and file with the Commission such amendments to
such Registration Statement and supplements to such Registration
Statement and the Prospectus contained therein (a "Prospectus") as may
be necessary to keep such Registration Statement effective for such
period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine months and to comply with the provision
of the Securities Act (subject to extension as set forth in the last
paragraph of this Section 10(a));
(iii) use its best efforts to register and qualify the
securities covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as such participating
holders may reasonably request in writing within 20 days following the
original filing of such Registration Statement, except that the
Corporation shall not for any purpose be required to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not
so qualified;
(iv) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such
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<PAGE>
Registration Statement has become effective or a supplement to any
Prospectus forming a part of such Registration Statement has been
filed;
(v) 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;
(vi) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such 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;
(vii) 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;
(viii) advise such holders (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed and,
with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by
the Commission or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement, (iv) of the
issuance by any state securities commission or other regulatory
authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state
securities or "blue sky" laws, and (v) of the happening of any event
which makes any statement made in a Registration Statement or related
Prospectus untrue or which requires the making of any changes in such
Registration Statement or Prospectus so that they will not 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, in light of the circumstances under which they were made, not
misleading. As
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<PAGE>
soon as practicable following expiration of the Suspension Period (as
defined below), the Corporation shall prepare and file with the
Commission and furnish a supplement or amendment to such Prospectus so
that, as thereafter deliverable to the purchasers of such Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(ix) furnish to such holders such number of copies of a
Prospectus, including a preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as they
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by them that are included in such
registration; and
(x) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter(s) of such
offering.
Upon receipt of any notice (a "Suspension Notice") by a Holder
from the Corporation of the happening of any event of the kind described in
Section 10(a)(viii), a Holder shall forthwith discontinue disposition of the
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 10(a)(viii) or until the Holder is
advised in writing (the "Advice") by the Corporation that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus, and,
if so directed by the Corporation, will, or will request any broker-dealer
acting as holder's agent to, deliver to the Corporation (at the Corporation
expense) all copies, other than permanent file copies then in the holder's or
broker-dealer's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; provided, however,
that in no event shall the period from the date on which the Holder receives a
Suspension Notice to the date on which the Holder receives either the Advice or
copies of the supplemented or amended Prospectus contemplated by Section
10(a)(viii), and any additional or supplemental filings incorporated therein by
reference (the "Suspension Period"), exceed 60 days.
(b) Expenses. With respect to a registration pursuant to this
Section 10, the Corporation 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 Corporation, fees and
disbursements of counsel for the underwriter or underwriters of such securities,
all internal Corporation expenses, all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdictions in which the
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<PAGE>
securities to be offered are to be registered or qualified, and the premiums and
other costs of policies of insurance against liability (if any) arising out of
such public offering. Fees and disbursements of counsel and accountants for the
selling security holders, underwriting discounts and commissions and transfer
taxes relating to the shares included in the offering by the 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.
(c) Indemnification. In the event that any Warrant Stock is
included in a Registration Statement under this Section 10:
(i) The Corporation will indemnify and hold harmless each
Holder of Registrable Securities which are included in a Registration
Statement pursuant to the provisions of this Section 10, its directors
and officers, and any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or
such underwriter within the meaning of the Securities Act, from and
against, and will reimburse such Holder and each such underwriter and
controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such Holder or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
Registration Statement, any Prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein 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 the Corporation will not be liable in any such
case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by such holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(ii) Each Holder of Registrable Securities which are included
in a Registration Statement pursuant to the provisions of this Section
10 will indemnify and hold harmless the Corporation, its directors and
officers, any controlling person and any underwriter from and against,
and will reimburse the Corporation, its directors and officers, any
controlling person and any underwriter with respect to, any and all
loss, damage, liability, cost or expense to which the Corporation or
any controlling person and/or any underwriter may become subject under
the Securities Act or otherwise, insofar as such
14
<PAGE>
losses, damages, liabilities, costs or expenses are caused by any
untrue or alleged untrue statement of any material fact contained in
such Registration Statement, any Prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein 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, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in strict conformity
with written information furnished by such Holder specifically for use
in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of paragraph (i) or (ii) of this Section 10(c) of
notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions such indemnified party will, if a
claim thereof is to be made against the indemnifying party pursuant to
the provisions of said paragraph (i) or (ii), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will relieve such indemnifying party of
liability, but only to the extent that such indemnifying party is
prejudiced with respect to a specific claim. In case such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have
the right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified
party, provided, however, if the defendants in any action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, or if
there is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the
indemnified party or parties shall have the right to select separate
counsel to participate in the defense of such action on behalf of such
indemnified party or parties. 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 pursuant to the provisions of said paragraph (i) or (ii) for any
legal or other expense subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the
15
<PAGE>
indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
(iv) if the indemnification provided for in paragraph (i) or
(ii) of this Section 10(c) shall be unavailable to hold harmless an
indemnified party in respect of any loss, damage, liability, cost or
expense under the Securities Act, then, and in each such case, the
indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, damage, liability, cost or
expense in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statement or omissions that
resulted in such loss, damage, liability, cost or expense as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission; provided that in no event shall any contribution under this
subsection (c) by any Holder exceed the gross proceeds from the
offering received by such indemnifying party. No person of entity
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent
misrepresentation.
(v) The obligations of the Corporation and the Holders under
this Section 10(c) will survive the completion of any offering of
Registrable Securities in a Registration Statement, and otherwise.
11. Additional Right to Convert Warrant.
a. The Holder of this Warrant shall have the right to require the
Corporation to convert this Warrant (the "Conversion Right") at any time after
it is exercisable, but prior to its expiration, into shares of Corporation
Common Stock as provided for in this Section 11. Upon exercise of the Conversion
Right, the Corporation shall deliver to the Holder (without payment by the
Holder of any Purchase Price) that number of shares of Corporation Common Stock
equal to the quotient obtained by dividing (x) the value of the Warrant at the
time the
16
<PAGE>
Conversion Right is exercised (determined by subtracting the aggregate Purchase
Price for the Warrant Stock in effect immediately prior to the exercise of the
Conversion Right from the aggregate Fair Market Value for the Warrant Stock
immediately prior to the exercise of the Conversion Right) by (y) the Fair
Market Value of one share of Corporation Common Stock immediately prior to the
exercise of the Conversion Right.
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 Corporation at the offices of the Corporation,
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 11(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Corporation will deliver to the Holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash in lieu of any fraction of a share, and
(iii) the Corporation will deliver to the Holder a new warrant representing the
number of shares, if any, with respect to which this Warrant shall not have been
exercised.
d. Fair Market Value of a share of Common Stock as of the Determination
Date shall mean:
i. If the Corporation's Common Stock is traded on an exchange
or is quoted on the NASDAQ SmallCap Market, then the last sale price
reported for the Determination Date, and
ii. If the Corporation's Common Stock is not traded on an
exchange or on the NASDAQ SmallCap Market but is traded on the
over-the-counter market, then the average of the bid and asked price
reported for the Determination Date.
12. The obligations contained herein shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
13. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
14. Any notice required to be given to the Corporation under the terms
of this Warrant shall be in writing and addressed to the Secretary of the
Corporation at 110 Second Street, N.E., Suite 212, Minneapolis, Minnesota 55414.
Any notice required to be given to
17
<PAGE>
the Holder shall be in writing and addressed to the Holder at 4235 Chimo East,
Deephaven, Minnesota 55391, or such other address as it may designate in writing
from time to time. All notices shall be deemed to have been given or delivered
upon: personal delivery; five (5) days after deposit in the United States Mail,
certified or registered (return receipt requested); one (1) business day after
deposit with a nationally recognized overnight courier (prepaid) or one (1)
business day after transmission by facsimile and receipt of confirmation of
receipt by sender.
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<PAGE>
IN WITNESS WHEREOF, the Corporation and the Holder have caused
this Warrant to be signed by their duly authorized officers as of June 13, 1998.
TELIDENT, INC.
/s/ W. Edward McConaghay
-------------------------------------------
W. Edward McConaghay,
President and Chief Executive Officer
HOLDER
/s/ Kenneth W. Hager
-------------------------------------------
Kenneth W. Hager
19
<PAGE>
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i) an
opinion of counsel reasonably satisfactory to the Corporation that such transfer
may be lawfully made without registration under the Federal Securities Act of
1933 and all applicable state securities laws or (ii) such registration.
20
<PAGE>
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________________________________________ this Warrant,
and appoints ___________________________________________________________________
to transfer this Warrant on the books of the Corporation with the full power of
substitution in the premises.
Dated: ____________________
In the presence of:
___________________________
----------------------------------------
(Signature must conform in all respects
to the name of the Holder as specified
on the face of this Warrant without
alteration, enlargement or any change
whatsoever)
21
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Holder of This Warrant if Holder
Desires to Exercise This Warrant in Whole or in Part (except pursuant to
cashless exercise):
To: Telident, Inc. (the "Corporation")
The undersigned ________________________________
Please insert Social Security or other
identifying number of Subscriber:
-----------------------
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, shares of the Common Stock provided for
therein and tenders payment herewith to the order of the Corporation in the
amount of $__________, such payment being made as provided on the face of this
Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: _______________________________________________________
Address: _______________________________________________________
Deliver to:_______________________________________________________
Address: _______________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated: _____________________
Signature ______________________________
Note: The signature on this Subscription
Form must correspond with the name as
written upon the face of this Warrant in
every particular, without alteration or
enlargement or any change whatever.
22
<PAGE>
CASHLESS EXERCISE FORM
To: Telident, Inc. (the "Corporation")
The undersigned ________________________________
Please insert Social Security or other
identifying number of Subscriber:
-----------------------
The undersigned hereby irrevocable elects a cashless exercise of the
right of purchase represented by the within Warrant for, and to purchase
thereunder, __________ shares of Common Stock.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: _______________________________________________________
Address: _______________________________________________________
Deliver to:_______________________________________________________
Address: _______________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated: _____________________
Signature ______________________________
Note: The signature on this Subscription
Form must correspond with the name as
written upon the face of this Warrant in
every particular, without alteration or
enlargement or any change whatever.
23
WARRANT
TO SUBSCRIBE FOR AND PURCHASE COMMON STOCK OF
TELIDENT, INC.
DATED
JUNE 13, 1998
THIS CERTIFIES THAT, for value received, MANCHESTER COMPANIES, INC.
(the "Holder") or registered permitted assigns is entitled to purchase from
TELIDENT, INC., (the "Corporation"), a corporation organized and existing under
the laws of the State of Minnesota, at the purchase price per share specified
below (subject to adjustment as noted below) at any time or from time to time
from and after the date hereof to and including the Termination Date (as
hereinafter defined) 25,000 fully paid and nonassessable shares of the
Corporation's Common Stock, par value $0.08 per share (the "Warrant Stock")
(subject to adjustment as noted below). This Warrant has been issued pursuant to
an Engagement Agreement dated June 13, 1998 (the "Engagement Agreement"), by and
between the Corporation and Manchester Financial Group, Inc. For purposes of
this Warrant, "Termination Date" shall mean 5:00 P.M. Minneapolis time on the
fifth anniversary hereof unless extended as provided herein.
The purchase price of the Warrant Stock upon exercise of the Warrant
shall be $2.688 per share (the "Purchase Price"). The Purchase Price shall be
subject to adjustment as provided below.
The Holder may sell, transfer, assign or otherwise dispose of any of
its rights or obligations hereunder in accordance with applicable securities
laws.
This Warrant is subject to the following provisions, terms and
conditions:
1. This Warrant may be exercised by the Holder hereof, in whole or in
part, by surrender of this Warrant (properly endorsed if required) at the
principal office of the Corporation and upon payment to it by wire transfer of
the Purchase Price for the number of shares of Warrant Stock which the Holder
elects to purchase. The Corporation agrees that the shares so purchased shall be
and are 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 shall have
been surrendered and payment made for such shares as aforesaid (the
"Determination Date"). Subject to the provisions of the next succeeding
paragraph, certificates for the Warrant Stock so purchased shall be delivered to
the Holder hereof within a reasonable time, not exceeding 10 days, after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the
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<PAGE>
number of shares, if any, with respect to which this Warrant shall not then have
been exercised shall also be delivered to the Holder hereof within such time.
2. The Corporation covenants and agrees that the Warrant Stock will,
upon issuance, be duly authorized and issued, fully paid and nonassessable. The
Corporation further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Corporation will at all
times have authorized and reserved for the purpose of issue or transfer upon
exercise of the rights evidenced by this Warrant, a sufficient number of shares
of Warrant Stock to provide for the exercise of the rights represented by this
Warrant.
3. The above provisions are, however, subject to the following:
(a) The Purchase Price shall, from and after the date of
issuance of this Warrant, be subject to adjustment from time to time as
hereinafter provided. Upon each adjustment of the Purchase Price, the
Holder of this Warrant shall thereafter be entitled to purchase, at the
Purchase Price resulting from such adjustment, the number of shares
obtained by multiplying the Purchase Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof
by the Purchase Price resulting from such adjustment.
(b) Except for (i) options to purchase shares of Common Stock
approved by the board of directors of the Corporation and shares of
Common Stock issued upon the exercise of such options and (ii) shares
of Common Stock issued upon conversion of the Series III Preferred
Stock or exercise of this Warrant or other warrants or rights to
purchase the securities of the Corporation outstanding as of the date
hereof, if and whenever the Corporation shall issue or sell any
additional shares of its Common Stock for a consideration per share
less than the Purchase Price in effect immediately prior to the time of
such issue or sale, then, forthwith upon such issue or sale, the
Purchase Price shall be reduced to such lesser price as is determined
by multiplying the Purchase Price in effect immediately prior thereto
by a fraction, the numerator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to the issuance or
sale of such additional shares and the number of shares of Common Stock
which the aggregate consideration received (determined in accordance
with this paragraph 3) for the issuance or sale of such additional
shares would purchase at the Purchase Price then in effect, and the
denominator of which shall be the number of shares of Common Stock
outstanding immediately after the issuance or sale of such additional
shares.
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<PAGE>
(c) For the purposes of paragraph (b), the following
provisions (i) to (iii), inclusive, shall also be applicable:
(i) In case at any time the Corporation shall grant
(whether directly or by assumption in a merger or otherwise)
any rights to subscribe for or to purchase, or any options for
the purchase of, (aa) Common Stock or (bb) any obligations or
any shares of stock of the Corporation which are convertible
into or exchangeable for Common Stock (any of such obligations
or shares of stock being hereinafter called "Convertible
Securities") whether or not such rights or options or the
right to convert or exchange any such Convertible Securities
are immediately exercisable, and the price per share for which
Common Stock is issuable upon the exercise of such rights or
options or upon conversion or exchange of such Convertible
Securities (determined by dividing (cc) the total amount, if
any, received or receivable by the Corporation as
consideration for the granting of such rights or options, plus
the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such rights or
options, plus, in the case of such rights or options which
relate to Convertible Securities, the minimum aggregate amount
of additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (dd) the total maximum number of shares
of Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Purchase Price in
effect immediately prior to the time of the granting of such
rights or options on the date of such grant, then the total
maximum number of shares of Common Stock issuable upon the
exercise of such rights or options or upon conversion or
exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such rights or
options shall (as of the date of granting of such rights or
options) be deemed to be outstanding and to have been issued
for such price per share. No further adjustments of the
Purchase Price shall be made upon the actual issue of such
Common Stock or of such Convertible Securities upon exercise
of such rights or options or upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities.
(ii) In case the Corporation shall issue or sell
(whether directly or by assumption in a merger or otherwise)
any Convertible Securities, whether or not the rights to
exchange or convert thereunder are immediately exercisable,
and the price per share for which Common Stock is issuable
upon such conversion or exchange (determined by dividing (aa)
the total amount received or receivable by the Corporation as
consideration for the issue or sale of such
3
<PAGE>
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (bb) the total
maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Purchase Price in effect immediately
prior to the time of such issue or sale, then the total
maximum number of shares of Common Stock issuable upon
conversion or exchange of all such Convertible Securities
shall (as of the date of the issue or sale of such Convertible
Securities) be deemed to be outstanding and to have been
issued for such price per share, provided that if any such
issue or sale of such Convertible Securities is made upon
exercise of any rights to subscribe for or to purchase or any
option to purchase any such Convertible Securities for which
adjustments of the Purchase Price have been or are to be made
pursuant to other provisions of this paragraph (c), no further
adjustment of the Purchase Price shall be made by reason of
such issue or sale.
(iii) In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for cash, the consideration received therefor
shall be deemed to be the amount received by the Corporation
therefor, without deduction therefrom of any expenses incurred
or any underwriting commissions, discounts or concessions paid
or allowed by the Corporation in connection therewith. In case
any shares of Common Stock or Convertible Securities or any
rights or options to purchase any such Common Stock or
Convertible Securities shall be issued or sold for a
consideration other than cash, the amount of the consideration
other than cash received by the Corporation shall be deemed to
be the fair value of such consideration as determined by the
Board of Directors of the Corporation, without deducting
therefrom any expenses incurred or any underwriting
commissions, discounts or concessions paid or allowed by the
Corporation in connection therewith. In case any shares of
Common Stock or Convertible Securities or any rights or
options to purchase such Common Stock or Convertible
Securities shall be issued in connection with any merger or
consolidation in which the Corporation is the surviving
corporation, the amount of consideration therefor shall be
deemed to be the fair value as determined by the Board of
Directors of the Corporation of such portion of the assets and
business of the non-surviving corporation or corporations as
such Board shall determine to be attributable to such Common
Stock, Convertible Securities, rights or options, as the case
may be. In the event of any consolidation or merger of the
Corporation in which the Corporation is not the surviving
corporation or in the event of any sale of all or
substantially all of the assets of the Corporation for
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stock or other securities of any other corporation, the
Corporation shall be deemed to have issued a number of shares
of its Common Stock for stock or securities of the other
corporation computed on the basis of the actual exchange ratio
on which the transaction was predicated and for a
consideration equal to the fair market value on the date of
such transaction of such stock or securities of the other
corporation, and if any such calculation results in adjustment
of the Purchase Price, the determination of the number of
shares of Common Stock issuable upon exercise of this Warrant
immediately prior to such merger, conversion or sale, for
purposes of paragraph (g) below, shall be made after giving
effect to such adjustment of the Purchase Price.
(d) In case the Corporation shall (i) declare a dividend upon
the Common Stock payable in Common Stock (other than a dividend
declared to effect a subdivision of the outstanding shares of Common
Stock, as described in paragraph (e) below) or Convertible Securities,
or in any rights or options to purchase Common Stock or Convertible
Securities, or (ii) declare any other dividend or make any other
distribution upon the Common Stock payable otherwise than out of
earnings or earned surplus, then thereafter the Holder of this Warrant
upon the exercise hereof will be entitled to receive the number of
shares of Warrant Stock to which Holder shall be entitled upon such
exercise, and, in addition and without further payment therefor, each
dividend described in clause (i) above and each dividend or
distribution described in clause (ii) above which Holder would have
received by way of dividends or distributions if continuously since the
issuance of this Warrant, Holder (i) had been the record Holder of the
number of shares of Warrant Stock then received, and (ii) had retained
all dividends or distributions in stock or securities (including Common
Stock or Convertible Securities, or in any rights or options to
purchase any Common Stock or Convertible Securities) payable in respect
of such Warrant Stock or in respect of any stock or securities paid as
dividends or distributions and originating directly or indirectly from
such Warrant Stock. For the purposes of the foregoing, a dividend or
distribution other than in cash shall be considered payable out of
earnings or earned surplus only to the extent that such earnings or
earned surplus are charged an amount equal to the fair value of such
dividend or distribution as determined by the Board of Directors of the
Corporation.
(e) In case the Corporation shall at any time subdivide its
outstanding shares of Common Stock into a greater number of shares, the
Purchase Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller
number of shares, the Purchase Price in effect immediately prior to
such combination shall be proportionately increased.
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(f) If (i) the purchase price provided for in any right or
option referred to in clause (i) of paragraph (c), or (ii) the
additional consideration, if any, payable upon the conversion or
exchange of Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c), or (iii) the rate at which any Convertible
Securities referred to in clause (i) or clause (ii) of paragraph (c)
are convertible into or exchangeable for Common Stock shall change at
any time (other than under or by reason of provisions designed to
protect against dilution), the Purchase Price then in effect shall
forthwith be increased or decreased to such Purchase Price which would
have been obtained had the adjustments made upon the issuance of such
rights, options or Convertible Securities been made upon the basis of
(i) the issuance of the number of shares of Common Stock theretofore
actually delivered upon the exercise of such options or rights or upon
the conversion or exchange of such Convertible Securities, and the
total consideration received therefor, and (ii) the issuance at the
time of such change of any such options, rights or Convertible
Securities then still outstanding for the consideration, if any,
received by the Corporation therefor and to be received on the basis of
such changed price; and on the expiration of any such option or right
or the termination of any such right to convert or exchange such
Convertible Securities, the Purchase Price then in effect hereunder
shall forthwith be increased to such Purchase Price which would have
obtained had the adjustments made upon the issuance of such rights or
options or Convertible Securities been made upon the basis of the
issuance of the shares of Common Stock theretofore actually delivered
(and the total consideration received therefor) upon the exercise of
such rights or options or upon the conversion or exchange of such
Convertible Securities. If the purchase price provided for in any such
right or option referred to in clause (i) of paragraph (c) or the rate
at which any Convertible Securities referred to in clause (i) or clause
(ii) of paragraph (c) are convertible into or exchangeable for Common
Stock shall decrease at any time under or by reason of provisions with
respect thereto designed to protect against dilution, then in case of
the delivery of Common Stock upon the exercise of any such right or
option or upon conversion or exchange of any such Convertible Security,
the Purchase Price then in effect hereunder shall forthwith be
decreased to such Purchase Price as would have obtained had the
adjustments made upon the issuance of such right, option or Convertible
Securities been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as
aforesaid.
(g) If any capital reorganization or reclassification of the
capital stock of the Corporation, or consolidation or merger of the
Corporation 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 the 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
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sale, lawful and adequate provision shall be made whereby the Holder
hereof shall thereafter 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 Warrant Stock of the Corporation
immediately theretofore 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 immediately theretofore purchasable and
receivable upon the exercise of the rights represented hereby 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 Holder of this Warrant
to the end that the provisions hereof (including without limitation
provisions for adjustments 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 Corporation shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof the successor
corporation (if other than the Corporation) 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 Holder appearing on the books of
the Corporation, the obligation to deliver to Holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, the Holder may be entitled to purchase.
(h) In case any time:
(1) the Corporation shall declare any cash dividend
on its Common Stock or preferred stock at a rate in excess of
the rate of the last cash dividend theretofore paid;
(2) the Corporation 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 or preferred stock;
(3) the Corporation shall offer for subscription pro
rata to the Holders of its Common Stock or preferred stock any
additional shares of stock of any class or other rights;
(4) there shall be any capital reorganization, or
reclassification of the capital stock of the Corporation, or
consolidation or merger of the Corporation with, or sale of
all or substantially all of its assets to, another
corporation; or
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<PAGE>
(5) there shall be a voluntary or involuntary
dissolution, liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give
written notice, by first-class mail, postage prepaid, addressed to the
registered Holder of this Warrant at the address of the Holder as shown
on the books of the Corporation, of the date on which (aa) the books of
the Corporation shall close or a record shall be taken for such
dividend, distribution or subscription rights, or (bb) 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 Corporation's transfer books are closed in respect
thereto.
(i) If any event occurs as to which in the opinion of the
Board of Directors of the Corporation the other provisions of this
paragraph 3 are not strictly applicable or if strictly applicable would
not fairly protect the purchase rights of the Holder of this Warrant or
of Warrant Stock in accordance with the essential intent and principles
of such provisions, then the Board of Directors shall make an
adjustment in the application of such provisions, in accordance with
such essential intent and principles, so as to protect such purchase
rights as aforesaid.
(j) No fractional shares of Warrant Stock shall be issued upon
the exercise of this Warrant, but, instead of any fraction of a share
which would otherwise be issuable, the Corporation shall pay a cash
adjustment (which may be effected as a reduction of the amount to be
paid by the Holder hereof upon such exercise) in respect of such
fraction in an amount equal to the same fraction of the Market Price
per share of Common Stock as of the close of business on the date of
the notice required by paragraph 1 above. "Market Price" shall mean, if
the Common Stock is traded on a securities exchange or on The NASDAQ
SmallCap Market, the closing price of the Common Stock on such exchange
or the NASDAQ SmallCap Market, or, if the Common Stock is otherwise
traded in the over-the-counter market, the closing price, in each case
averaged over a period of 20 consecutive business days prior to the
date as of which "Market Price" is being determined. If at any time the
Common Stock is not traded on an exchange or The NASDAQ SmallCap
Market, or otherwise traded in the over-the-counter market, the "Market
Price" shall be deemed to be the higher of (i) the book value thereof
as determined by any firm of independent public
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<PAGE>
accountants of recognized standing selected by the Board of Directors
of the Corporation as of the last day of any month ending within 60
days preceding the date as of which the determination is to be made, or
(ii) the fair value thereof determined in good faith by the Board of
Directors of the Corporation as of a date which is within 15 days of
the date as of which the determination is to be made.
4. As used herein, the term "Common Stock" shall include the
Corporation's presently authorized Common Stock and shall also include any
capital stock of any class of the Corporation 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
Corporation; provided that the shares purchasable pursuant to this Warrant shall
include shares designated as Common Stock of the Corporation on the date of
original issue of this Warrant or, in the case of any reclassification of the
outstanding shares thereof, the stock, securities or assets provided for in
paragraph 3(g) above.
5. [Intentionally omitted]
6. This Warrant shall not entitle the Holder hereof to any voting
rights or other rights as a stockholder of the Corporation.
7. The Holder of this Warrant, by acceptance hereof, agrees to give
written notice to the Corporation before transferring this Warrant or
transferring any unregistered Warrant Stock issuable or issued upon the exercise
hereof of Holder's intention to do so, describing briefly the manner of any
proposed transfer of this Warrant or Holder's intention as to the disposition to
be made of shares of Common Stock issuable or issued upon the exercise hereof.
Holder shall also provide the Corporation with an opinion of counsel
satisfactory to the Corporation to the effect that the proposed transfer of this
Warrant or disposition of unregistered shares may be effected without
registration or qualification (under any Federal or State law) of this Warrant
or the shares of Common Stock issuable or issued upon the exercise hereof. Upon
receipt of such written notice and opinion by the Corporation, Holder shall be
entitled to transfer this Warrant, or to exercise this Warrant in accordance
with its terms and dispose of the shares received upon such exercise or to
dispose of shares of Common Stock received upon the previous exercise of this
Warrant, provided that an appropriate legend respecting the aforesaid
restrictions on transfer and disposition may be endorsed on this Warrant or the
certificates for such shares. The Holder and any assignee of the Holder shall be
entitled to the registration rights provided in Section 10 hereof.
8. Subject to the provisions of 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 at the principal office
of the Corporation of this Warrant
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properly endorsed. Each taker and Holder of this Warrant, by taking or holding
the same, consents and agrees that the bearer of this Warrant, when endorsed,
may be treated by the Corporation and all other persons dealing with this
Warrant as the absolute owner hereof for any purpose and as the person entitled
to exercise the rights represented by this Warrant, or to the transfer hereof on
the books of the Corporation, any notice to the contrary notwithstanding; but
until such transfer on such books, the Corporation may treat the registered
Holder hereof as the owner for all purposes.
9. This Warrant is exchangeable, upon the surrender hereof by the
Holder hereof at the principal office of the Corporation, for new Warrants of
like tenor representing in the aggregate the right to subscribe for and purchase
the number of shares which may be subscribed for and purchased hereunder, each
of such new Warrants to represent the right to subscribe for and purchase such
number of shares as shall be designated by said Holder hereof at the time of
such surrender.
10. Incidental Registration. Each time during the two (2) year period
after the complete exercise by the Holder of the right to purchase shares under
this warrant that the Corporation 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 of any of its securities by it or
any of its security holders (other than a registration statement on a form that
does not permit the inclusion of shares by its security holders), the
Corporation will promptly give written notice of its determination to all record
holders of Warrant Stock not theretofore registered under the Securities Act and
sold. Upon the written request of a record holder of any shares of Warrant Stock
given within 30 days after receipt of any such notice from the Corporation, the
Corporation will, except as herein provided, cause all the shares of Warrant
Stock, the Purchaser or record holders of which have so requested registration
thereof, 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 Stock to be so registered; provided, however, that
nothing herein shall prevent the Corporation from, at any time, abandoning or
delaying any such registration initiated by it; provided further, however, that
if the Corporation determines not to proceed with a registration after the
registration statement has been filed with the Commission and the Corporation's
decision not to proceed is primarily based upon the anticipated public offering
price of the securities to be sold by the Corporation, the Corporation shall
promptly complete the registration for the benefit of those selling security
holders who wish to proceed with a public offering of their securities at the
Corporation's expense. If any registration pursuant to this Section 10 shall be
underwritten in whole or in part, the Corporation may require that the Warrant
Stock requested for inclusion pursuant to this Section 10 be included in the
underwriting on the same terms and conditions as the securities otherwise being
sold through the underwriters. In addition, the Holder may request that the
Warrant Stock requested for inclusion pursuant to this Section 10 be included in
the underwriting on the same terms and conditions as the
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<PAGE>
securities otherwise being sold through the underwriting. In the event that the
Warrant Stock requested for inclusion pursuant to this Section 10 would
constitute more than 25 % of the total number of shares to be included in a
proposed underwritten public offering, and if in the good faith judgment of the
managing underwriter of such public offering the inclusion of all of the Warrant
Stock originally covered by a request for registration would reduce the number
of shares to be offered by the Corporation or interfere with the successful
marketing of the shares of stock offered by the Corporation, the number of
shares of Warrant Stock otherwise to be included in the underwritten public
offering may be reduced pro rata (by number of shares) among the holders thereof
requesting such registration, provided, however, that after any such required
reduction the Warrant Stock to be included in such offering shall constitute at
least 25% of the total number of shares to be included in such offering.
(a) Registration Procedures. If and whenever the Corporation
is required by the provisions of Section 10 hereof to effect the registration of
Registrable Securities under the Securities Act, the Corporation will:
(i) prepare and file with the Commission a registration
statement (a "Registration Statement") with respect to such Registrable
Securities, 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 securities, not to
exceed nine months (subject to extension as set forth in the last
paragraph of this Section 10(a));
(ii) prepare and file with the Commission such amendments to
such Registration Statement and supplements to such Registration
Statement and the Prospectus contained therein (a "Prospectus") as may
be necessary to keep such Registration Statement effective for such
period as may be reasonably necessary to effect the sale of such
securities, not to exceed nine months and to comply with the provision
of the Securities Act (subject to extension as set forth in the last
paragraph of this Section 10(a));
(iii) use its best efforts to register and qualify the
securities covered by such Registration Statement under such state
securities or blue sky laws of such jurisdictions as such participating
holders may reasonably request in writing within 20 days following the
original filing of such Registration Statement, except that the
Corporation shall not for any purpose be required to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not
so qualified;
(iv) notify the security holders participating in such
registration, promptly after it shall receive notice thereof, of the
time when such
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Registration Statement has become effective or a supplement to any
Prospectus forming a part of such Registration Statement has been
filed;
(v) 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;
(vi) prepare and promptly file with the Commission and
promptly notify such holders of the filing of such 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;
(vii) 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;
(viii) advise such holders (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed and,
with respect to a Registration Statement or any post-effective
amendment, when the same has become effective, (ii) of any request by
the Commission or any state securities authority for amendments and
supplements to a Registration Statement and Prospectus or for
additional information after the Registration Statement has become
effective, (iii) of the issuance by the Commission of any stop order
suspending the effectiveness of a Registration Statement, (iv) of the
issuance by any state securities commission or other regulatory
authority of any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state
securities or "blue sky" laws, and (v) of the happening of any event
which makes any statement made in a Registration Statement or related
Prospectus untrue or which requires the making of any changes in such
Registration Statement or Prospectus so that they will not 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, in light of the circumstances under which they were made, not
misleading. As
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soon as practicable following expiration of the Suspension Period (as
defined below), the Corporation shall prepare and file with the
Commission and furnish a supplement or amendment to such Prospectus so
that, as thereafter deliverable to the purchasers of such Registrable
Securities, such Prospectus will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading;
(ix) furnish to such holders such number of copies of a
Prospectus, including a preliminary Prospectus, in conformity with the
requirements of the Securities Act, and such other documents, as they
may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by them that are included in such
registration; and
(x) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in
usual and customary form, with the managing underwriter(s) of such
offering.
Upon receipt of any notice (a "Suspension Notice") by a Holder
from the Corporation of the happening of any event of the kind described in
Section 10(a)(viii), a Holder shall forthwith discontinue disposition of the
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 10(a)(viii) or until the Holder is
advised in writing (the "Advice") by the Corporation that the use of the
Prospectus may be resumed, and has received copies of any additional or
supplemental filings which are incorporated by reference in the Prospectus, and,
if so directed by the Corporation, will, or will request any broker-dealer
acting as holder's agent to, deliver to the Corporation (at the Corporation
expense) all copies, other than permanent file copies then in the holder's or
broker-dealer's possession, of the Prospectus covering such Registrable
Securities current at the time of receipt of such notice; provided, however,
that in no event shall the period from the date on which the Holder receives a
Suspension Notice to the date on which the Holder receives either the Advice or
copies of the supplemented or amended Prospectus contemplated by Section
10(a)(viii), and any additional or supplemental filings incorporated therein by
reference (the "Suspension Period"), exceed 60 days.
(b) Expenses. With respect to a registration pursuant to this
Section 10, the Corporation 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 Corporation, fees and
disbursements of counsel for the underwriter or underwriters of such securities,
all internal Corporation expenses, all legal fees and disbursements and other
expenses of complying with state securities or blue sky laws of any
jurisdictions in which the
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securities to be offered are to be registered or qualified, and the premiums and
other costs of policies of insurance against liability (if any) arising out of
such public offering. Fees and disbursements of counsel and accountants for the
selling security holders, underwriting discounts and commissions and transfer
taxes relating to the shares included in the offering by the 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.
(c) Indemnification. In the event that any Warrant Stock is
included in a Registration Statement under this Section 10:
(i) The Corporation will indemnify and hold harmless each
Holder of Registrable Securities which are included in a Registration
Statement pursuant to the provisions of this Section 10, its directors
and officers, and any underwriter (as defined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or
such underwriter within the meaning of the Securities Act, from and
against, and will reimburse such Holder and each such underwriter and
controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such Holder or any such
underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, damages,
liabilities, costs or expenses are caused by any untrue statement or
alleged untrue statement of any material fact contained in such
Registration Statement, any Prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein 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 the Corporation will not be liable in any such
case to the extent that any such loss, damage, liability, cost or
expense arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity
with information furnished by such holder, such underwriter or such
controlling person in writing specifically for use in the preparation
thereof.
(ii) Each Holder of Registrable Securities which are included
in a Registration Statement pursuant to the provisions of this Section
10 will indemnify and hold harmless the Corporation, its directors and
officers, any controlling person and any underwriter from and against,
and will reimburse the Corporation, its directors and officers, any
controlling person and any underwriter with respect to, any and all
loss, damage, liability, cost or expense to which the Corporation or
any controlling person and/or any underwriter may become subject under
the Securities Act or otherwise, insofar as such
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losses, damages, liabilities, costs or expenses are caused by any
untrue or alleged untrue statement of any material fact contained in
such Registration Statement, any Prospectus contained therein or any
amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein 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, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in strict conformity
with written information furnished by such Holder specifically for use
in the preparation thereof.
(iii) Promptly after receipt by an indemnified party pursuant
to the provisions of paragraph (i) or (ii) of this Section 10(c) of
notice of the commencement of any action involving the subject matter
of the foregoing indemnity provisions such indemnified party will, if a
claim thereof is to be made against the indemnifying party pursuant to
the provisions of said paragraph (i) or (ii), promptly notify the
indemnifying party of the commencement thereof; but the omission to so
notify the indemnifying party will relieve such indemnifying party of
liability, but only to the extent that such indemnifying party is
prejudiced with respect to a specific claim. In case such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party shall have
the right to participate in, and, to the extent that it may wish,
jointly with any other indemnifying party similarly notified, to assume
the defense thereof, with counsel satisfactory to such indemnified
party, provided, however, if the defendants in any action include both
the indemnified party and the indemnifying party and the indemnified
party shall have reasonably concluded that there may be legal defenses
available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, or if
there is a conflict of interest which would prevent counsel for the
indemnifying party from also representing the indemnified party, the
indemnified party or parties shall have the right to select separate
counsel to participate in the defense of such action on behalf of such
indemnified party or parties. 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 pursuant to the provisions of said paragraph (i) or (ii) for any
legal or other expense subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation, unless (i) the indemnified party shall have employed
counsel in accordance with the proviso of the preceding sentence, (ii)
the
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indemnifying party shall not have employed counsel satisfactory to the
indemnified party to represent the indemnified party within a
reasonable time after the notice of the commencement of the action, or
(iii) the indemnifying party has authorized the employment of counsel
for the indemnified party at the expense of the indemnifying party.
(iv) if the indemnification provided for in paragraph (i) or
(ii) of this Section 10(c) shall be unavailable to hold harmless an
indemnified party in respect of any loss, damage, liability, cost or
expense under the Securities Act, then, and in each such case, the
indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, damage, liability, cost or
expense in such proportion as is appropriate to reflect the relative
fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the statement or omissions that
resulted in such loss, damage, liability, cost or expense as well as
any other relevant equitable considerations. The relative fault of the
indemnifying party and of the indemnified party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the
indemnified party and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission; provided that in no event shall any contribution under this
subsection (c) by any Holder exceed the gross proceeds from the
offering received by such indemnifying party. No person of entity
guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent
misrepresentation.
(v) The obligations of the Corporation and the Holders under
this Section 10(c) will survive the completion of any offering of
Registrable Securities in a Registration Statement, and otherwise.
11. Additional Right to Convert Warrant.
a. The Holder of this Warrant shall have the right to require the
Corporation to convert this Warrant (the "Conversion Right") at any time after
it is exercisable, but prior to its expiration, into shares of Corporation
Common Stock as provided for in this Section 11. Upon exercise of the Conversion
Right, the Corporation shall deliver to the Holder (without payment by the
Holder of any Purchase Price) that number of shares of Corporation Common Stock
equal to the quotient obtained by dividing (x) the value of the Warrant at the
time the
16
<PAGE>
Conversion Right is exercised (determined by subtracting the aggregate Purchase
Price for the Warrant Stock in effect immediately prior to the exercise of the
Conversion Right from the aggregate Fair Market Value for the Warrant Stock
immediately prior to the exercise of the Conversion Right) by (y) the Fair
Market Value of one share of Corporation Common Stock immediately prior to the
exercise of the Conversion Right.
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 Corporation at the offices of the Corporation,
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 11(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Corporation will deliver to the Holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash in lieu of any fraction of a share, and
(iii) the Corporation will deliver to the Holder a new warrant representing the
number of shares, if any, with respect to which this Warrant shall not have been
exercised.
d. Fair Market Value of a share of Common Stock as of the Determination
Date shall mean:
i. If the Corporation's Common Stock is traded on an exchange
or is quoted on the NASDAQ SmallCap Market, then the last sale price
reported for the Determination Date, and
ii. If the Corporation's Common Stock is not traded on an
exchange or on the NASDAQ SmallCap Market but is traded on the
over-the-counter market, then the average of the bid and asked price
reported for the Determination Date.
12. The obligations contained herein shall inure to the benefit of the
parties hereto and their respective successors and permitted assigns.
13. All questions concerning this Warrant will be governed and
interpreted and enforced in accordance with the internal law of the State of
Minnesota.
14. Any notice required to be given to the Corporation under the terms
of this Warrant shall be in writing and addressed to the Secretary of the
Corporation at 110 Second Street, N.E., Suite 212, Minneapolis, Minnesota 55414.
Any notice required to be given to
17
<PAGE>
the Holder shall be in writing and addressed to the Holder at 3650 IDS Center,
80 South Eighth Street, Minneapolis, Minnesota 55402, or such other address as
it may designate in writing from time to time. All notices shall be deemed to
have been given or delivered upon: personal delivery; five (5) days after
deposit in the United States Mail, certified or registered (return receipt
requested); one (1) business day after deposit with a nationally recognized
overnight courier (prepaid) or one (1) business day after transmission by
facsimile and receipt of confirmation of receipt by sender.
18
<PAGE>
IN WITNESS WHEREOF, the Corporation and the Holder have caused
this Warrant to be signed by their duly authorized officers as of June 13, 1998.
TELIDENT, INC.
/s/ W. Edward McConaghay
-------------------------------------------
W. Edward McConaghay,
President and Chief Executive Officer
MANCHESTER COMPANIES, INC.
By: /s/ Mark W. Sheffert
-------------------------------------------
Its: Chairman
-------------------------------------------
19
<PAGE>
RESTRICTION ON TRANSFER
The securities evidenced hereby may not be transferred without (i) an
opinion of counsel reasonably satisfactory to the Corporation that such transfer
may be lawfully made without registration under the Federal Securities Act of
1933 and all applicable state securities laws or (ii) such registration.
20
<PAGE>
FORM OF ASSIGNMENT
(TO BE SIGNED ONLY UPON ASSIGNMENT)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _____________________________________________________________ this Warrant,
and appoints ___________________________________________________________________
to transfer this Warrant on the books of the Corporation with the full power of
substitution in the premises.
Dated:_______________________________
In the presence of:
_____________________________________
----------------------------------------
(Signature must conform in all respects
to the name of the Holder as specified
on the face of this Warrant without
alteration, enlargement or any change
whatsoever)
21
<PAGE>
SUBSCRIPTION FORM
To Be Executed by the Holder of This Warrant if Holder
Desires to Exercise This Warrant in Whole or in Part (except pursuant to
cashless exercise):
To: Telident, Inc. (the "Corporation")
The undersigned ________________________________
Please insert Social Security or other
identifying number of Subscriber:
-----------------------
hereby irrevocably elects to exercise the right of purchase represented by this
Warrant for, and to purchase thereunder, _____ shares of the Common Stock
provided for therein and tenders payment herewith to the order of the
Corporation in the amount of $__________, such payment being made as provided on
the face of this Warrant.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: ___________________________________________________
Address: ___________________________________________________
Deliver to:___________________________________________________
Address: ___________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated: ______________________________
Signature_______________________________
Note: The signature on this Subscription
Form must correspond with the name as
written upon the face of this Warrant in
every particular, without alteration or
enlargement or any change whatever.
22
<PAGE>
CASHLESS EXERCISE FORM
To: Telident, Inc. (the "Corporation")
The undersigned ________________________________
Please insert Social Security or other
identifying number of Subscriber:
-----------------------
The undersigned hereby irrevocable elects a cashless exercise of the
right of purchase represented by the within Warrant for, and to purchase
thereunder, __________ shares of Common Stock.
The undersigned requests that certificates for such shares of Common
Stock be issued as follows:
Name: ___________________________________________________
Address: ___________________________________________________
Deliver to:___________________________________________________
Address: ___________________________________________________
and, if such number of shares of Common Stock shall not be all the shares of
Common Stock purchasable hereunder, that a new Warrant for the balance remaining
of the shares of Common Stock purchasable under this Warrant be registered in
the name of, and delivered to, the undersigned at the address stated above.
Dated: ______________________________
Signature_______________________________
Note: The signature on this Subscription
Form must correspond with the name as
written upon the face of this Warrant in
every particular, without alteration or
enlargement or any change whatever.
23
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-END> SEP-30-1998
<CASH> 1,254
<SECURITIES> 0
<RECEIVABLES> 674
<ALLOWANCES> 30
<INVENTORY> 292
<CURRENT-ASSETS> 2,250
<PP&E> 517
<DEPRECIATION> 313
<TOTAL-ASSETS> 2,762
<CURRENT-LIABILITIES> 547
<BONDS> 16
0
35
<COMMON> 223
<OTHER-SE> 1,941
<TOTAL-LIABILITY-AND-EQUITY> 2,762
<SALES> 717
<TOTAL-REVENUES> 717
<CGS> 186
<TOTAL-COSTS> 186
<OTHER-EXPENSES> 476
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15
<INCOME-PRETAX> 51
<INCOME-TAX> 0
<INCOME-CONTINUING> 51
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
