<PAGE>
================================================================================
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended March 31, 1997
--------------
Commission File Number 1-2982
------
ANCOR COMMUNICATIONS, INCORPORATED
----------------------------------
(Exact name of small business issuer as specified in its charter)
Minnesota 41-1569659
--------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6130 Blue Circle Drive Minnetonka, Minnesota 55343
-----------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's Telephone number, including area code (612) 932-4000
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or 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 [_]
10,571,863
----------
(Number of shares of common stock of the
registrant outstanding as of May 9, 1997)
================================================================================
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED
MARCH 31, 1997
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
- ------ ---------------------
ITEM 1: FINANCIAL STATEMENTS
Balance Sheets as of March 31, 1997 (unaudited)
and December 31, 1996 3
Statements of Operations for the three
month periods ended March 31, 1997
and 1996 (unaudited) 4
Statements of Cash Flows for the three
month periods ended March 31, 1997
and 1996 (unaudited) 5
Notes to Financial Statements 6
ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS 7
PART II - OTHER INFORMATION 10
- ------- -----------------
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
-----------------------------
ANCOR COMMUNICATIONS, INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
------------- -------------
ASSETS (Unaudited)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $8,339,690 $ 507,041
Short-term investments 0 1,003,530
Accounts receivable 3,239,893 4,019,000
Inventories (Note 2) 2,606,980 2,695,961
Other current assets 250,518 336,734
-------------- --------------
Total current assets 14,437,081 8,562,266
Equipment, net of accumulated
depreciation 3,198,628 2,838,116
Patents, Prepaid Royalties, and Other Assets,
net of accumulated amortization 226,292 247,754
Capitalized software development costs
net of accumulated amortization 566,015 614,188
-------------- --------------
TOTAL ASSETS $18,428,016 $12,262,324
============== ==============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current maturities of long-term debt $ 46,460 $ 61,923
Accounts payable 1,617,601 1,752,258
Accrued liabilities 338,416 364,064
-------------- --------------
Total current liabilities 2,002,478 2,178,245
Long-term Debt, less current maturities 167,460 177,382
Shareholders' Equity (Note 3)
Preferred stock, par value $.01 per share,
authorized 5,000,000 shares; issued and outstanding
Series A, 170 shares in 1997 and 174 shares in 1996 $2 $2
Series B, 855 shares in 1997 and none issued in 1996 $9 --
Common stock, par value $.01 per share,
authorized 20,000,000 shares; issued and outstanding
10,448,653 Shares in 1997 and 10,407,687 shares in 1996 104,487 104,077
Additional paid-in capital 35,220,018 27,071,820
Accumulated deficit (19,066,437) (17,269,202)
------------- --------------
Total shareholders' equity 16,258,078 9,906,697
------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,428,016 $12,262,324
============= ==============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
STATEMENT OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------------------
1997 1996
------------- -------------
<S> <C> <C>
Net Sales $1,802,778 $1,415,766
Cost of Sales 1,093,068 764,501
------------- -------------
Gross Profit 709,710 651,265
Operating Expenses
Selling, general and administrative 1,501,996 773,657
Research and development 1,023,373 742,619
------------- -------------
Total operating expenses 2,525,370 1,516,276
------------- -------------
Operating loss (1,815,660) (865,011)
Other income (expense)
Interest expense (2,599) (30,797)
Other, net 21,025 39,021
------------- -------------
Net Loss ($1,797,234) ($856,787)
============= =============
Net loss per common share ($0.18) ($0.10)
============= =============
Weighted average common and
common equivalent shares
outstanding 10,430,948 8,274,442
============= =============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------------------
1997 1996
------------ -------------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net loss ($1,797,234) ($856,787)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 219,620 66,805
Changes in current assets and liabilities:
Accounts receivable 779,107 (404,668)
Inventories 88,981 (563,427)
Other current assets 86,216 6,267
Accounts payable (134,656) 122,985
Accrued liabilities (25,648) (68,550)
------------ -------------
Net cash used in operating activities (783,614) (1697,375)
------------ -------------
CASH FLOW FROM INVESTING ACTIVITIES:
Purchases of equipment (558,670) (304,468)
Short-term investments 1,003,530 (7,834,063)
Decrease in other assets 48,173 0
------------ -------------
Net cash provided by (used in) investing
activities 493,033 (8,138,531)
------------ -------------
FLOW FROM FINANCING ACTIVITIES:
Loan repayments (25,385) (9,077)
Proceeds from preferred stock issuance 7,995,808 9,579,000
Proceeds from common stock issuance
and exercise of options 152,808 14,508
-------------- -------------
Net cash provided by financing activities 8,123,230 9,584,431
-------------- -------------
Net increase (decrease) in cash 7,832,649 (251,475)
Cash, at beginning of period 507,041 251,475
-------------- -------------
Cash, at end of period $8,339,690 $0
============== =============
Supplemental Schedule of Noncash Investing and Financing Activities:
Equipment acquired under capital lease $0 $ 60,000
============== ==============
</TABLE>
See Notes to Financial Statements
5
<PAGE>
ANCOR COMMUNICATIONS, INCORPORATED
NOTES TO FINANCIAL STATEMENTS
March 31, 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information.
In the opinion of management, the interim financial statements include all
adjustments necessary for a fair presentation of the results of operations for
the interim periods presented. Operating results for the three months ended
March 31, 1997 are not necessarily indicative of the operating results to be
expected for the year ending December 31, 1997
Net loss per common share is computed based upon the weighted average number of
common shares outstanding during the year. Common equivalent shares, consisting
of options, warrants and convertible preferred stock for all periods, were not
included in the computation as their effect was antidilutive. However, the 8 and
5 percent premium earned by the preferred shareholders in 1997 was added to the
net loss for computation purposes.
Certain information and footnote disclosures normally included in financial
statements in accordance with generally accepted accounting principles have been
condensed or omitted.
NOTE 2 - INVENTORIES
Inventories at March 31, 1997 and December 31, 1996 consisted of:
<TABLE>
<CAPTION>
1997 1996
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Raw materials $ 1,475,006 $ 753,147
Work in process 0 437,023
Finished goods consigned to customers and others 542,150 625,222
Finished goods 589,824 880,569
-----------------------------------------
$ 2,606,980 $ 2,695,961
=========================================
</TABLE>
NOTE 3 - EQUITY FINANCING
In March 1997, the Board of Directors designated 900 shares of the Company's
authorized preferred stock as Series B Preferred Stock. This stock has a stated
value and liquidation preference of $10,000 per share, with an 5 percent per
annum conversion premium. The holders of Series B Preferred Stock are not
entitled to vote or to receive dividends.
On March 24, 1997, the Company sold 855 shares of Series B Preferred Stock
through a private placement at its stated value of $10,000 per share. Total net
proceeds from this private placement were $7,995,808, after reduction for
commissions and issuance costs of $554,192. In conjunction with the transaction,
the placement agent was granted a five year warrant to purchase 105,556 shares
of common stock at $4.86 per share. In addition, the investors have a right to
receive warrants to purchase common stock equal to 20% of their original
investment not converted to common stock as of March 24, 1998, divided by the
conversion price then in effect, with an exercise price equal to 115% of the
average closing bid price for five days ending on the one year anniversary date.
The Series B Preferred Stock outstanding on March 24, 1999, automatically
converts into common stock at the applicable conversion rate.
6
<PAGE>
ITEM 2
------
MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND 1996.
The following table sets forth, for the periods indicated, certain statements of
operations data as a percentage of net sales.
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
---------------------
1997 1996
---- ----
<S>
Net Sales <C> <C>
Cost of Goods Sold 100.0% 100.0%
60.6 54.0
Gross Profit
39.4 46.0
Operating Expenses:
Selling, general & admin.
Research & development 83.3 54.6
56.8 52.5
Total operating expenses
140.1 107.1
Operating loss
(100.7) (61.1)
Other income (expense)
Interest expense
Other, net (0.1) (2.2)
1.2 2.8
----- -----
Net Loss
(99.7)% (60.5)%
</TABLE> ===== =====
Net Sales Net sales for the first quarter 1997 increased by $387,012
---------
(27%) from 1996 to $1,802,778. This increase in net sales is due primarily to a
significant increase in net sales to an international customer as a result of
increased market acceptance of the Company's Fibre Channel products. Net sales
to all international customers increased from $18,000 in first quarter 1996 to
$1,247,000 in the same period 1997, representing 69% of net sales for the
quarter. The market acceptance of the Company's products is attributable to the
breadth of the Company's product offering for switches and adapters and the
Company's ability to deliver complete Fibre Channel networking solutions for
different connectivity environments.
7
<PAGE>
The first quarter 1997 net sales increase was partially offset by the recording
of a reserve against sales of $368,000 during the first quarter of 1997 for
possible future product returns and customer stock rotation. The Company does
not generally provide customers with a right of return at the date of sale;
however, in response to significant pressures from the marketplace, the Company
has allowed product returns in the past from certain customers as a marketing
concession to stimulate a positive impression of the Company and its products in
the marketplace. Resellers have incorrectly anticipated the configuration
needed by end user equipment purchasers and have requested that purchased but
unused product be exchanged for the product needed to meet the end user
requirements. In addition, certain end users have required that they deal with
Company directly versus the reseller, which has resulted in credits issued to
the resellers. As a result of all of these factors, the Company increased its
net sales return reserve during the quarter to $250,000 ($500,000 gross sales
less the estimated value of product to be returned).
Gross Profit. Gross profit in the first quarter of 1997 increased to
-------------
$709,710, or 39.4% of sales, from $651,265, or 46.0% of sales, in the first
quarter of 1996. While the increase in gross profit dollars was attributable to
increased sales, the decrease in gross profit percentage is attributable to the
differing mix of adapters and switches. First quarter 1997 net sales included
approximately double the number of adapters shipped in first quarter 1996. The
proportionately greater number of lower margin adapters brought down the gross
profit percentage.
Operating Expense. The Company's operating expenses for the first quarter
------------------
of 1997 were approximately $2,525,000, or 140.1% of net sales, compared to
approximately $1,516,000, or 107.1% of net sales, in the first quarter of 1996.
The increase in operating expenses is due to an increase in the number of
employees, increased development costs for the network products, increased
promotion costs and increased selling expenses as sales volume increases. The
number of employees in the first quarter 1997 was 30% greater than the first
quarter of 1996, resulting in personnel and related expenses $478,000 greater in
first quarter 1997 as compared with first quarter 1996. Additionally, the
Company's ongoing aggressive commitment to front end spending for marketing and
sales tactics resulted in $258,000 greater advertising and marketing expenses in
first quarter 1997 as compared with first quarter 1996.
Other Income (Expense). Because the Company repaid in June 1996 a $1.5
-----------------------
million note payable, interest expense decreased to $2,599 in first quarter 1997
from $30,797 in the same period 1996. Interest income of $21,025 and $39,021 in
the first quarters of 1997 and 1996, respectively, was earned from the
investment of the net proceeds of preferred stock offerings occurring in March
of each year.
Net Loss The Company's net loss increased to approximately $1,797,000, or
--------
$0.18 per share in first quarter 1997, compared to a net loss of $857,000, or
$0.10 per share in first quarter 1996. The greater net loss is primarily
attributable to greater operating expenses
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES.
- --------------------------------
The Company's cash, cash equivalents and short-term investments were
approximately $8,340,000 as of March 31, 1997, compared to approximately
$1,511,000 as of December 31, 1996. Cash flows used in operating activities
totaled approximately $784,000, primarily due to the operating loss, as offset
by net collections of accounts receivable. Cash flows provided by investing
activities totaled approximately $493,000 as a result of the liquidation of
short-term investments, offset by equipment purchases which included upgrades of
engineering desktop systems and continued internal construction of testing and
tooling equipment for the next generation of Fibre Channel switching products.
During the quarter, the Company completed a private placement transaction by
selling 855 shares of Series B 5% Preferred Stock which provided net proceeds of
approximately $8,000,000. In conjunction with the transaction, the placement
agent was granted a five year warrant to purchase 105,556 shares of common stock
at $4.86 per share. In addition, the investors have a right to receive warrants
to purchase common stock equal to 20% of their original investment not converted
to common stock as of March 24, 1998, divided by the conversion price then in
effect, with an exercise price equal to 115% of the average closing bid price
for five days ending on the one year anniversary date. The Company believes
that the capital received from the private placement will provide adequate
liquidity to fund growth, operations, and capital expenditures for 1997.
9
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
(a.) None.
(b.) None.
(c.) On March 24, 1997, the Company completed a private placement
of $8,550,000 of Series B Preferred Stock. The Securities
were privately sold to accredited investors by Dunwoody
Brokerage Services, Inc. ("Dunwoody"). As consideration for
its services, Dunwoody received a fee equal to 6% of the
gross proceeds, plus a five-year warrant to purchase 105,556
shares of Common Stock at a price per share equal to $4.86.
The securities were sold pursuant to Rule 506 under
Regulation D.
The Series B Preferred Stock is convertible into Common
Stock of the Company at the lower of $4.86 per share or 85%
of the average closing bid price of the five trading days
prior to conversion (the "variable conversion price"),
provided, however, that if the variable conversion price
would be less than $2.835, then the conversion price is
equal to the lower of $2.835 or X% of the five-day average
closing bid price, where
X = 97% in the fifth month following the closing
X = 94% in the sixth month following the closing
X = 91% in the seventh month following the closing
X = 88% in the eighth month following the closing
X = 95% in the ninth month following the closing
Item 3 Defaults Upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Securities Holders.
None.
Item 5. Other Information.
None.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a.) Exhibits
4.1 /a/ Loan and Warrant Purchase Agreement, dated as of June
24, 1992, between Ancor Communications, Incorporated
and International Business Machines Incorporated.
4.2 /a/ Agreement and Amendment to Loan and Warrant Purchase
Agreement, dated March 10, 1994, by and among Ancor
Communications, Incorporated, International Business
Machines Corporation and IBM Credit Corporation.
4.3 /b/ Second Amendment to Loan and Warrant Purchase Agreement
dated April 25, 1994, by and among Ancor
Communications, Incorporated, International Business
Machines Corporation and IBM Credit Corporation.
4.4 /a/ Shareholders Agreement, dated as of June 24, 1992,
among Ancor Communications, Incorporated, International
Business Machines Incorporated and the shareholders of
the Company named on the signature page thereto.
4.5 /c/ Representative's Warrant.
4.6 /a/ Form of Warrant issued November 8, 1993.
4.7 /f/ Form of Warrant issued April 28, 1995.
4.8/ g/ Form of Warrant issued to Andcor Human Resources on
August 28, 1995.
4.9/ g/ Form of Warrant issued to John G. Kinnard & Company on
October 23, 1995.
4.10 /h/ Certificate of Designation of Series A Preferred Stock.
4.11 /h/ Form of Warrant issued to Swartz Investments, Inc. on
March 7, 1996.
4.12 /j/ Form of Warrant issued to Dunwoody Brokerage Services,
Inc. on March 24, 1997.
11
<PAGE>
4.13 /j/ Form of Warrant to be issued to Purchasers of the
Company's Series B Preferred Stock.
4.14 /j/ Certificate of Designation of Series B Preferred Stock.
10.1 /a/ Form of Promissory Note, dated June 24, 1992, made by
Ancor Communications, Incorporated in favor of IBM
Credit Corporation in connection with the Loan and
Warrant Purchase Agreement referenced in Exhibit 4.2
above.
10.2 /a/ Ancor Communications, Incorporated 1990 Stock Option
Plan.
10.3 /a/ Ancor Communications, Incorporated 1994 Long-Term
Incentive and Stock Option Plan.
10.4 /a/ Employment Agreement, dated January 1, 1994, between
Ancor Communications, Incorporated and Dale C. Showers.
10.5 /a/ Employment Agreement, dated January 1, 1994, between
Ancor Communications, Incorporated and Stephen C.
O'Hara.
10.6 /a/ Employment Agreement, dated June 30, 1992, between
Ancor Communications, Incorporated and Terry M.
Anderson.
10.7 /a/ Employment Agreement, dated June 30, 1992, between
Ancor Communications, Incorporated and Robert S.
Cornelius.
10.8 /a/ Sublease, dated March 29, 1988, by and between Anderson
Cornelius and Unisys Corporation, formerly known as
Burroughs Corporation.
10.9 /a/ Sublease, Amendment Agreement, dated March 8, 1989, by
and between Anderson Cornelius and Unisys Corporation,
formerly known as Burroughs Corporation.
10.10 /a/ Sublease, Amendment Agreement, dated August 31, 1992,
by and between the Company and Unisys Corporation,
formerly known as Burroughs Corporation.
10.11 /a/ Development and License Agreement between the Company
and International Business Machines Corporation dated
June 4, 1992, as amended on February 8, 1993, May 10,
1993 and October 5, 1993 (a request for confidentiality
of certain portions of this agreement has been
granted).
12
<PAGE>
10.12 /c/ Underwriting Agreement.
10.13 /d/ Amendment No. 1 to Employment Agreement dated November
4, 1994 between the Company and Dale C. Showers
amending the Employment Agreement dated January 1, 1994
between the Company and Mr. Showers filed as exhibit No
10.4
10.14 /e/ Form of Change of Control Agreement dated January 1,
1995 between the Company and each of Lee B. Lewis,
Timothy W. Donaldson and William F. Walker.
10.15 /f/ Agency Agreement between the Company and John G.
Kinnard and Company, Incorporated dated April 20, 1995.
10.16 /g/ Agency Agreement between the Company and John G.
Kinnard & Company, Inc. dated October 23, 1995.
10.17 /g/ Ancor Communications, Inc. 1995 Employee Stock Purchase
Plan.
10.18 /g/ Ancor Communications, Inc. Non-Employee Director Stock
Option Plan.
10.19 /h/ Form of Subscription Agreement between the Company and
Purchasers of the Company's Series A Preferred Stock
(March 1996).
10.20 /h/ Registration Rights Agreement dated March 7, 1996
between the Company, Swartz Investments, Inc. and
Purchasers of the Company's Series A Preferred Stock.
10.21 /h/ Letter Agreement between the Company and Swartz
Investments, Inc. dated February 1996.
10.22 /i/ Separation and General Release Agreement between the
Company and William F. Walker.
10.23 /j/ Form of Subscription Agreement between the Company and
Purchasers of the Company's Series B Preferred Stock
(March 1997).
13
<PAGE>
10.24 /j/ Registration Rights Agreement dated March 24, 1997
between the Company, Swartz Investments, Inc. and
Purchasers of the Company's Series B Preferred Stock.
27.1 /j/ Financial Data Schedule.
_________________________
/a/ Incorporated by reference to the Company's Registration Statement on form
SB-2 filed March 11, 1994.
/b/ Incorporated by reference to Amendment No. 2 to the Company's Registration
Statement on form SB-2 Filed April 28, 1994.
/c/ Incorporation by reference to the Company's Form 10-QSB filed for the
quarterly period ended March 31, 1994.
/d/ Incorporated by reference to the Company's Form 10-QSB filed for the
quarterly period ended September 30, 1994.
/e/ Incorporated by reference to the Company's Form 10-KSB filed for the fiscal
year ended December 31, 1994.
/f/ Incorporated by reference to the Company's form 10-QSB filed for the
quarterly period ended March 31, 1995.
/g/ Incorporated by reference to the Company's form 10-QSB filed for the
quarterly period ended September 30, 1995.
/h/ Incorporated by reference to the Company's Form 10-KSB filed for the fiscal
year ended December 31, 1995.
/i/ Incorporated by reference to the Company's form 10-QSB filed for the
quarterly period ended March 31, 1996.
/j/ Included herewith.
(b.) Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
----------
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANCOR COMMUNICATIONS, INCORPORATED
----------------------------------
Dated: May 14, 1997 By / S/ Calvin G. Nelson
------------------------
Calvin G. Nelson
President
Dated: May 14, 1997 By /S/ Lee B. Lewis
-------------------
Lee B. Lewis
Vice President &
Chief Financial Officer
15
<PAGE>
Exhibit 4.12
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF UNLESS (i) A REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME
EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS AVAILABLE IN CONNECTION
WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
"N" SHARES
- -----------
WARRANT TO PURCHASE COMMON STOCK
OF
ANCOR COMMUNICATIONS, INCORPORATED
THIS CERTIFIES that Dunwoody Brokerage Services, Inc. or any subsequent
holder ("Holder") hereof, has the right to purchase from ANCOR COMMUNICATIONS,
INCORPORATED, a Minnesota corporation (the "Company"), not more than "N" (as
defined below) fully paid and nonassessable shares of the Company's Common
Stock, $.01 par value ("Common Stock"), at a price equal to the Exercise Price
(as defined in Section 3 below), subject to adjustment as provided herein, at
any time on or before 5:00 p.m., Atlanta, Georgia time, on March 21, 2002. For
purposes hereof, "N" shall equal 6% of the Amount Placed, divided by the Fixed
Conversion Price, where "Amount Placed" shall mean the total dollar amount of
Series B Preferred Stock issued by the Company in its offering of Series B
Preferred Stock closing on or about March 21, 1997 and "Fixed Conversion Price"
shall have the meaning ascribed to it in the Company's Certificate of
Designation of Series B Preferred Stock.
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
-----------------
This Warrant shall be deemed to be issued on March 21, 1997 ("Date of
Issuance").
2. Exercise.
---------
(a) Manner of Exercise. This Warrant may be exercised as to all or any
lesser number of full shares of Common Stock covered hereby upon surrender of
this Warrant, with the Exercise Form attached hereto as Exhibit A ("Exercise
Form") duly executed, together with the full Exercise Price (as defined in
Section 3) for each share of Common
1
<PAGE>
Stock as to which this Warrant is exercised, at the office of the Company, Ancor
Communications, Incorporated, 6130 Blue Circle Drive, Minnetonka, MN 55343,
Attention: President, Telephone No. (612) 932-4000, Facsimile No. (612) 932-
4037, or at such other office or agency as the Company may designate in writing,
by overnight mail, with an advance copy of the Exercise Form by facsimile (such
surrender and payment of the Exercise Price hereinafter called the "Exercise").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant, Exercise Form and
full Exercise Price are received by the Company within five (5) business days
thereafter. The original Warrant, Exercise Form and full Exercise Price must be
received within five (5) business days of the Date of Exercise, or the exercise
may, at the Company's option, be considered void. Alternatively, the Date of
Exercise shall be defined as the date the original Exercise Form is received by
the Company, if Holder has not sent advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise and, as soon as practical after the Date of Exercise, the Holder hereof
shall be entitled to receive Common Stock certificates representing the number
of shares purchased upon such Exercise, and if this Warrant is not exercised in
full, the Holder shall be entitled to receive a new Warrant or Warrants
(containing terms identical to this Warrant) representing any unexercised
portion of this Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such shares of Common Stock. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company.
3. Payment of Warrant Exercise Price.
----------------------------------
The "Exercise Price" shall equal the Fixed Conversion Price (as defined in
the Company's Certificate of Designation of Series B Preferred Stock).
Payment of the Exercise Price may be made by either of the following, or a
combination thereof, at the election of Holder:
(i) Cash Exercise: cash, certified check or cashiers check or wire
transfer; or
(ii) Cashless Exercise: surrender of this Warrant at the principal office
of the Company together with notice of cashless election, in which event the
Company shall issue Holder a number of shares of Common Stock computed using the
following formula:
X = Y (A-B)/A
2
<PAGE>
where: X = the number of shares of Common Stock to be issued to Holder.
Y = the number of shares of Common Stock for which this Warrant is being
exercised.
A = the Market Price of one (1) share of Common Stock (for purposes of
this Section 3(ii), the "Market Price" shall be defined as the average closing
price of the Common Stock for the five (5) trading days prior to the Date of
Exercise of this Warrant (the "Average Closing Price"), as reported by Nasdaq or
if the Common Stock is not traded on Nasdaq, the average closing price on the
primary market for the Common Stock. If the Common Stock is/was not traded
during the five (5) trading days prior to the Date of Exercise, then the closing
price for the last publicly traded day shall be deemed to be the closing price
for any and all (if applicable) days during such five (5) trading day period.
B = the Exercise Price.
For purposes of Rule 144 and sub-section (3)(ii) thereof, it is intended,
understood and acknowledged that the Common Stock issuable upon exercise of this
Warrant in a cashless exercise transaction shall be deemed to have been acquired
at the time this Warrant was issued to the extent permitted by applicable law.
Moreover, it is intended, understood and acknowledged that the holding period
for the Common Stock issuable upon exercise of this Warrant in a cashless
exercise transaction shall be deemed to have commenced on the date this Warrant
was issued to the extent permitted by applicable law.
4. Transfer and Registration.
--------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the portion of this Warrant
transferred, and the Holder of this Warrant shall be entitled to receive a new
Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitute "Registrable Securities" under that certain Registration
Rights Agreement dated on or about March 21, 1997 by and between the Company and
Dunwoody Brokerage Services, Inc. and, accordingly, has the benefit of the
registration rights pursuant to that agreement.
5. Anti-Dilution Adjustments.
--------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
3
<PAGE>
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been Exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any time
effect a recapitalization, reclassification or other similar transaction of such
character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute to Holders
of Common Stock cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or preceding year) then, in any such case, the Holder of
this Warrant shall be entitled to receive, upon exercise of this Warrant, with
respect to each share of Common Stock issuable upon such Exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such
Holder would have been entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had this Warrant been
Exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such Exercise Price reduced by the value of such distribution
applicable to one share of Common Stock (such value to be determined by the
Board in its discretion) and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
assets (a "Corporate Change"), then this Warrant shall be assumed by the
acquiring entity or any affiliate thereof and thereafter this Warrant shall be
exerciseable into such class and type of securities or other assets as the
Holder would have received had the Holder exercised this Warrant immediately
prior to such Corporate
4
<PAGE>
Change; provided, however, that Company may not affect any Corporate Change
unless it first shall have given thirty (30) business days notice to the Holder
hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the Exercise Price per share specified in the first paragraph
of this Warrant, until the occurrence of an event stated in subsection (a), (b)
or (c) of this Section 5 and thereafter shall mean said price as adjusted from
time to time in accordance with the provisions of said subsections. No such
adjustment under this Section 5 shall be made unless such adjustment would
change the Exercise Price at the time by $.01 or more; provided, however, that
all adjustments not so made shall be deferred and made when the aggregate
thereof would change the Exercise Price at the time by $.01 or more. No
adjustment made pursuant to any provision of this Section 5 shall have the
effect of increasing the total consideration payable upon Exercise of this
Warrant in respect of all the Common Stock as to which this Warrant may be
exercised. Notwithstanding anything to the contrary contained herein, the
Exercise Price shall not be reduced to an amount below the par value of the
Common Stock.
(f) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 5,
the Holder of this Warrant shall, upon Exercise of this Warrant, become entitled
to receive shares and/or other securities or assets (other than Common Stock)
then, wherever appropriate, all references herein to shares of Common Stock
shall be deemed to refer to and include such shares and/or other securities or
assets; and thereafter the number of such shares and/or other securities or
assets shall be subject to adjustment from time to time in a manner and upon
terms as nearly equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
---------------------
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall be disregarded and the number of shares of Common
Stock issuable upon conversion shall be the next higher number of shares.
7. Reservation of Shares.
----------------------
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefore as herein above provided) as shall be sufficient for Exercise of this
Warrant. The Company covenants and agrees that upon Exercise of this Warrant,
all shares of Common Stock issuable upon such Exercise shall be duly and validly
issued, fully paid, nonassessable and not subject to preemptive rights, rights
of first refusal or similar rights of any person or entity.
5
<PAGE>
8. Restrictions on Transfer.
-------------------------
(a) Registration or Exemption Required. This Warrant and the Common
Stock issuable on Exercise hereof have not been registered under the Securities
Act of 1933, as amended, and may not be sold, transferred, pledged, hypothecated
or otherwise disposed of in the absence of registration or the availability of
an exemption from registration under said Act. All shares of Common Stock issued
upon Exercise of this Warrant shall bear an appropriate legend to such effect,
if applicable.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
days, and shall deliver to the assignee(s) designated by Holder a Warrant or
Warrants of like tenor and terms for the appropriate number of shares.
(c) Investment Intent. The Warrant and Common Stock issuable upon
conversion are intended to be held for investment purposes and not with an
intent to distribution, as defined in the Act.
9. Benefits of this Warrant.
-------------------------
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and the Holder of this Warrant any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the Holder of this Warrant.
10. Applicable Law.
---------------
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the state of Minnesota, without
giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
----------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
6
<PAGE>
12. Notice or Demands.
------------------
Notices or demands pursuant to this Warrant to be given or made by the
Holder of this Warrant to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, Ancor Communications, Incorporated, 6130 Blue Circle Drive, Minnetonka,
MN 55343, Attention: President, Telephone No. (612) 932-4059, Facsimile No.
(612) 932-4037. Notices or demands pursuant to this Warrant to be given or made
by the Company to or on the Holder of this Warrant shall be sufficiently given
or made if sent by certified or registered mail, return receipt requested,
postage prepaid, and addressed, Attn: Holder, address: c/o Dunwoody Brokerages
Services, Inc., 8309 Dunwoody Place, Atlanta, Georgia 30350, until another
address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
_____ day of ___________________, 1997.
ANCOR COMMUNICATIONS,
INCORPORATED
By:
---------------------------------
Print Name:
---------------------------------
Title:
---------------------------------
7
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: ___________________.
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of ANCOR COMMUNICATIONS,
INCORPORATED, a Minnesota corporation, evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of such Common Stock, except in accordance with the provisions of Section 8
of the Warrant, and consents that the following legend may be affixed to the
stock certificates for the Common Stock hereby subscribed for, if such legend is
applicable:
"The securities represented hereby have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), or any
provincial or state securities law, and may not be sold, transferred,
pledged, hypothecated or otherwise disposed of until either (i) a
registration statement under the Securities Act and applicable provincial
or state securities laws shall have become effective with regard thereto,
or (ii) an exemption from registration under the Securities Act or
applicable provincial or state securities laws is available in connection
with such offer, sale or transfer."
The undersigned requests that stock certificates for such shares be issued,
and a warrant representing any unexercised portion hereof be issued, pursuant to
the Warrant in the name of the Registered Holder and delivered to the
undersigned at the address set forth below:
Dated:
________________________________________________________________________________
Signature of Registered Holder
________________________________________________________________________________
Name of Registered Holder (Print)
________________________________________________________________________________
Address
________________________________________________________________________________
________________________________________________________________________________
8
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of ANCOR COMMUNICATIONS,
INCORPORATED evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint _______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: ______________________________
Signature
Fill in for new Registration of Warrant:
___________________________________
Name
___________________________________
Address
_________________________________________
Please print name and address of assignee
(including zip code number)
________________________________________________________________________________
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
________________________________________________________________________________
9
<PAGE>
Exhibit 4.13
THIS WARRANT AND THE SECURITIES RECEIVABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR ANY STATE SECURITIES LAW, AND MAY NOT BE SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF OR EXERCISED UNLESS (i) A REGISTRATION
STATEMENT UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS SHALL
HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (ii) AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
_______SHARES
WARRANT TO PURCHASE COMMON STOCK
OF
ANCOR COMMUNICATIONS, INCORPORATED
THIS CERTIFIES that ________________ or any subsequent ("Holder") hereof,
has the right to purchase from ANCOR COMMUNICATIONS, INCORPORATED, a Minnesota
corporation (the "Company"), up to ______ fully paid and nonassessable shares of
the Company's Common Stock, $.01 par value ("Common Stock"), subject to
adjustment as provided herein, at a price equal to the Exercise Price as defined
in Section 3 below, at any time beginning on the Date of Issuance and ending at
5:00 p.m., New York, New York time, on the date that is two (2) years following
the Date of Issuance (as defined below).
The Holder of this Warrant agrees with the Company that this Warrant is
issued and all rights hereunder shall be held subject to all of the conditions,
limitations and provisions set forth herein.
1. Date of Issuance.
-----------------
This Warrant shall be deemed to be issued on March __, 1998 ("Date of
Issuance").
2. Exercise.
---------
(a) Manner of Exercise. This Warrant may be exercised, beginning on the
Date of Issuance, as to all or any lesser number of full shares of Common Stock
covered hereby upon surrender of this Warrant, with the Exercise Form attached
as Exhibit A ("Exercise Form") duly executed, together with the full Exercise
Price (as defined in Section 3) for each share of Common Stock as to which this
Warrant is exercised, at the office of the Company, Ancor Communications,
Incorporated, 6130 Blue Circle Drive, Minnetonka, MN 55343; Attention:
President, Telephone No. (612) 932-4000, Facsimile No. (612)
1
<PAGE>
932-4037, or at such other office or agency as the Company may designate in
writing, by overnight mail, with an advance copy of the Exercise Form by
facsimile (such surrender and payment of the Exercise Price hereinafter called
the "Exercise of this Warrant").
(b) Date of Exercise. The "Date of Exercise" of the Warrant shall be
defined as the date that the advance copy of the Exercise Form is sent by
facsimile to the Company, provided that the original Warrant, Exercise Form and
full Exercise Price are received by the Company as soon as practicable
thereafter. Alternatively, the Date of Exercise shall be defined as the date the
original Exercise Form is received by the Company, if Holder has not sent
advance notice by facsimile.
(c) Cancellation of Warrant. This Warrant shall be canceled upon its
Exercise, and, as soon as practical after the Date of Exercise, the Holder
hereof shall be entitled to receive Common Stock certificates representing the
number of shares purchased upon such Exercise, and if this Warrant is not
exercised in full, the Holder shall be entitled to receive a new Warrant or
Warrants (containing terms identical to this Warrant) representing any
unexercised portion of this Warrant in addition to such Common Stock.
(d) Holder of Record. Each person in whose name any Warrant for shares of
Common Stock is issued shall, for all purposes, be deemed to have become the
Holder of record of such shares on the Date of Exercise of this Warrant,
irrespective of the date of delivery of such shares of Common Stock. Nothing in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a shareholder of the Company.
3. Payment of Warrant Exercise Price.
----------------------------------
The Exercise Price ("Exercise Price") shall equal one hundred fifteen
percent (115%) of the average Closing Bid Price for the five (5) trading days
ending on the date that is one (1) year after the date of the Last Closing of
the Offering (the "One Year Anniversary Date"). As used herein, the terms "Last
Closing" and "Offering" shall have the meanings ascribed to them in the
Regulation D Subscription Agreement entered into between the Company and the
original Holder hereof on or about March 19, 1997 and the term "Closing Bid
Price" shall have the meaning ascribed to it in the Certificate of Designation
of Series B Preferred Stock of Ancor Communications, Incorporated.
Payment of the Exercise Price shall be made by cash, certified check or
cashiers check or wire transfer.
4. Transfer and Registration.
--------------------------
(a) Transfer Rights. Subject to the provisions of Section 8 of this
Warrant, this Warrant may be transferred on the books of the Company, in whole
or in part, in person or by attorney, upon surrender of this Warrant properly
endorsed. This Warrant shall be canceled upon such surrender and, as soon as
practicable thereafter, the person to whom such transfer is made shall be
entitled to receive a new Warrant or Warrants as to the
2
<PAGE>
portion of this Warrant transferred, and the Holder of this Warrant shall be
entitled to receive a new Warrant or Warrants as to the portion hereof retained.
(b) Registrable Securities. The Common Stock issuable upon the exercise of
this Warrant constitute "Registrable Securities" under that certain Registration
Rights Agreement dated on or about March 19, 1997 between the Company and
certain investors and, accordingly, has the benefit of the registration rights
pursuant to that agreement.
5. Anti-Dilution Adjustments.
--------------------------
(a) Stock Dividend. If the Company shall at any time declare a dividend
payable in shares of Common Stock, then the Holder hereof, upon Exercise of this
Warrant after the record date for the determination of Holders of Common Stock
entitled to receive such dividend, shall be entitled to receive upon Exercise of
this Warrant, in addition to the number of shares of Common Stock as to which
this Warrant is Exercised, such additional shares of Common Stock as such Holder
would have received had this Warrant been Exercised immediately prior to such
record date and the Exercise Price will be proportionately adjusted.
(b) Recapitalization or Reclassification. If the Company shall at any
time effect a recapitalization, reclassification or other similar transaction of
such character that the shares of Common Stock shall be changed into or become
exchangeable for a larger or smaller number of shares, then upon the effective
date thereof, the number of shares of Common Stock which the Holder hereof shall
be entitled to purchase upon Exercise of this Warrant shall be increased or
decreased, as the case may be, in direct proportion to the increase or decrease
in the number of shares of Common Stock by reason of such recapitalization,
reclassification or similar transaction, and the Exercise Price shall be, in the
case of an increase in the number of shares, proportionally decreased and, in
the case of decrease in the number of shares, proportionally increased. The
Company shall give the Warrant Holder the same notice it provides to holders of
Common Stock of any transaction described in this Section 5(b).
(c) Distributions. If the Company shall at any time distribute to Holders
of Common Stock cash, evidences of indebtedness or other securities or assets
(other than cash dividends or distributions payable out of earned surplus or net
profits for the current or preceding year) then, in any such case, the Holder of
this Warrant shall be entitled to receive, upon exercise of this Warrant, with
respect to each share of Common Stock issuable upon such Exercise, the amount of
cash or evidences of indebtedness or other securities or assets which such
Holder would have been entitled to receive with respect to each such share of
Common Stock as a result of the happening of such event had this Warrant been
Exercised immediately prior to the record date or other date fixing shareholders
to be affected by such event (the "Determination Date") or, in lieu thereof, if
the Board of Directors of the Company should so determine at the time of such
distribution, a reduced Exercise Price determined by multiplying the Exercise
Price on the Determination Date by a fraction, the numerator of which is the
result of such
3
<PAGE>
Exercise Price reduced by the value of such distribution applicable to one share
of Common Stock (such value to be determined by the Board in its discretion) and
the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities or other assets of the Company or
another entity or there is a sale of all or substantially all the Company's
assets (a "Corporate Change"), then this Warrant shall be exerciseable into such
class and type of securities or other assets as the Holder would have received
had the Holder exercised this Warrant immediately prior to such Corporate
Change; provided, however, that Company may not affect any Corporate Change
unless it first shall have given thirty (30) business days notice to the Holder
hereof of any Corporate Change.
(e) Exercise Price Adjusted. As used in this Warrant, the term "Exercise
Price" shall mean the purchase price per share specified in Section 3 of this
Warrant, until the occurrence of an event stated in subsection (a), (b) or (c)
of this Section 5, and thereafter shall mean said price as adjusted from time to
time in accordance with the provisions of said subsection. No such adjustment
under this Section 5 shall be made unless such adjustment would change the
Exercise Price at the time by $.01 or more; provided, however, that all
adjustments not so made shall be deferred and made when the aggregate thereof
would change the Exercise Price at the time by $.01 or more. No adjustment made
pursuant to any provision of this Section 5 shall have the effect of increasing
the Exercise Price. The number of shares of Common Stock subject hereto shall
increase proportionately with each decrease in the Exercise Price.
(f) Adjustments: Additional Shares, Securities or Assets. In the event that
at any time, as a result of an adjustment made pursuant to this Section 5, the
Holder of this Warrant shall, upon Exercise of this Warrant, become entitled to
receive shares and/or other securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or other securities or assets shall
be subject to adjustment from time to time in a manner and upon terms as nearly
equivalent as practicable to the provisions of this Section 5.
6. Fractional Interests.
---------------------
No fractional shares or scrip representing fractional shares shall be
issuable upon the Exercise of this Warrant, but on Exercise of this Warrant, the
Holder hereof may purchase only a whole number of shares of Common Stock. If, on
Exercise of this Warrant, the Holder hereof would be entitled to a fractional
share of Common Stock or a right to acquire a fractional share of Common Stock,
such fractional share shall
4
<PAGE>
be disregarded and the number of shares of Common Stock issuable upon conversion
shall be the next higher number of shares.
7. Reservation of Shares.
----------------------
The Company shall at all times reserve for issuance such number of
authorized and unissued shares of Common Stock (or other securities substituted
therefor as herein above provided) as shall be sufficient for Exercise of this
Warrant. The Company covenants and agrees that upon Exercise of this Warrant,
all shares of Common Stock issuable upon such Exercise shall be duly and validly
issued, fully paid, nonassessable and not subject to preemptive rights, rights
of first refusal or similar rights of any person or entity.
8. Restrictions on Transfer.
-------------------------
(a) Registration or Exemption Required. This Warrant has been issued
in a transaction exempt from the registration requirements of the Act by virtue
of Regulation D. The Warrant and the Common Stock issuable upon exercise of the
Warrant may not be sold except pursuant to an effective registration statement
or an exemption to the registration requirements of the Act and applicable state
laws.
(b) Assignment. Assuming the conditions of (a) above regarding
registration or exemption have been satisfied, the Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part. Holder
shall deliver a written notice to Company, substantially in the form of the
Assignment attached hereto as Exhibit B, indicating the person or persons to
whom the Warrant shall be assigned and the respective number of warrants to be
assigned to each assignee. The Company shall effect the assignment within ten
(10) days, and shall deliver to the assignee(s) designated by Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of shares.
9. Benefits of this Warrant.
-------------------------
Nothing in this Warrant shall be construed to confer upon any person
other than the Company and the Holder of this Warrant any legal or equitable
right, remedy or claim under this Warrant and this Warrant shall be for the sole
and exclusive benefit of the Company and the Holder of this Warrant.
5
<PAGE>
10. Applicable Law.
---------------
This Warrant is issued under and shall for all purposes be governed by
and construed in accordance with the laws of the state of Minnesota, without
giving effect to conflict of law provisions thereof.
11. Loss of Warrant.
----------------
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
shall execute and deliver a new Warrant of like tenor and date.
12. Notice or Demands.
------------------
Notices or demands pursuant to this Warrant to be given or made by the Holder of
this Warrant to or on the Company shall be sufficiently given or made if sent by
certified or registered mail, return receipt requested, postage prepaid, and
addressed, until another address is designated in writing by the Company, Ancor
Communications, Incorporated, 6130 Blue Circle Drive, Minnetonka, MN 55343,
Attention: President, Telephone No. (612) 932-4059, Facsimile No. (612) 932-
4037. Notices or demands pursuant to this Warrant to be given or made by the
Company to or on the Holder of this Warrant shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, to the address of the Holder set forth in the Company's
records, until another address is designated in writing by Holder.
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
______ day of ______, 1998.
ANCOR COMMUNICATIONS, INCORPORATED
By:
-----------------------------------
Print Name:
-----------------------------------
Title:
-----------------------------------
6
<PAGE>
EXHIBIT A
EXERCISE FORM
TO: ANCOR COMMUNICATIONS, INCORPORATED
The undersigned hereby irrevocably exercises the right to purchase
____________ of the shares of Common Stock of ANCOR COMMUNICATIONS,
INCORPORATED, a Minnesota corporation (the "Company"), evidenced by the attached
Warrant, and herewith makes payment of the Exercise Price with respect to such
shares in full, all in accordance with the conditions and provisions of said
Warrant.
1. The undersigned agrees not to offer, sell, transfer or otherwise dispose of
any of Common Stock obtained on exercise of the Warrant, except in accordance
with the provisions of Section 8(a) of the Warrant.
2. The undersigned requests that stock certificates for such shares be issued
free of any restrictive legend, and a warrant representing any unexercised
portion hereof be issued, pursuant to the Warrant in the name of the Registered
Holder and delivered to the undersigned at the address set forth below:
Dated:
________________________________________________________________________________
Signature of Registered Holder
________________________________________________________________________________
Name of Registered Holder (Print)
________________________________________________________________________________
Address
7
<PAGE>
EXHIBIT B
ASSIGNMENT
(To be executed by the registered Holder
desiring to transfer the Warrant)
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons below named the right to
purchase _______ shares of the Common Stock of ANCOR COMMUNICATIONS,
INCORPORATED evidenced by the attached Warrant and does hereby irrevocably
constitute and appoint _______________________ attorney to transfer the said
Warrant on the books of the Company, with full power of substitution in the
premises.
Dated: ______________________________
Signature
Fill in for new Registration of Warrant:
- -----------------------------------------
Name
- -----------------------------------------
Address
- -----------------------------------------
Please print name and address of assignee
(including zip code number)
- --------------------------------------------------------------------------------
NOTICE
The signature to the foregoing Exercise Form or Assignment must correspond to
the name as written upon the face of the attached Warrant in every particular,
without alteration or enlargement or any change whatsoever.
- --------------------------------------------------------------------------------
8
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Exhibit 4.14
CERTIFICATE OF DESIGNATION OF
SERIES B PREFERRED STOCK
OF
ANCOR COMMUNICATIONS, INCORPORATED
It is hereby certified that:
1. The name of the Company (hereinafter called the "Company") is Ancor
Communications, Incorporated, a Minnesota corporation.
2. The articles of incorporation of the Company (the "Articles of
Incorporation") authorize the issuance of Five Million (5,000,000) shares of
preferred stock, $.01 par value per share, One Thousand One Hundred (1,100) of
which have previously been designated as Series A Preferred Stock, and expressly
vests in the Board of Directors of the Company the authority provided therein to
issue any or all undesignated preferred shares in one or more series and by
resolution or resolutions to establish the designation and number and to fix the
relative rights and preferences of each series to be issued.
3. The Board of Directors of the Company, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a series of preferred stock to be designated as "Series B Preferred
Stock":
RESOLVED, that Nine Hundred (900) of the Four Million Nine Hundred Ninety
Eight Thousand Nine Hundred (4,998,900) authorized but undesignated shares of
preferred stock of the Company shall be designated Series B Preferred Stock,
$.01 par value per share, and shall possess the rights and preferences set forth
below:
Section 1. Designation and Amount. Nine Hundred (900) shares of the
Company's authorized but undesignated preferred stock shall be designated as
Series B Preferred Stock (the "Series B Preferred Stock") par value $.01 per
share. The Series B Preferred Stock shall have a stated value of Ten Thousand
Dollars ($10,000) per share (the "Original Series B Issue Price"), with a five
percent (5%) per annum accretion rate as set forth herein.
Section 2. Rank. The Series B Preferred Stock shall rank: (i) junior to
the Company's Series A Preferred Stock and any other class or series of capital
stock of the Company hereafter created specifically ranking by its terms senior
to the Series B Preferred Stock (collectively, the "Senior Securities"); (ii)
prior to all of the Company's Common Stock, $.01 par value per share ("Common
Stock"); (iii) prior to any class or series of capital stock of the Company
hereafter created specifically ranking by its terms junior to any Series B
Preferred Stock (collectively, with the Common Stock, "Junior Securities"); and
(iv) on parity with any class or series of capital stock of the Company
hereafter created specifically ranking by its terms on parity with the Series B
Preferred Stock ("Parity Securities") in each case as to distributions of
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<PAGE>
assets upon liquidation, dissolution or winding up of the Company, whether
voluntary or involuntary (all such distributions being referred to collectively
as "Distributions").
Section 3. Dividends. The Series B Preferred Stock will bear no
dividends, and the holders of the Series B Preferred Stock ("Holders") shall not
be entitled to receive dividends on the Series B Preferred Stock.
2
<PAGE>
Section 4. Liquidation Preference.
-----------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company ("Liquidation Event"), either voluntary or involuntary, the Holders of
shares of Series B Preferred Stock shall be entitled to receive, immediately
after any distributions to Senior Securities required by the Company's Articles
of Incorporation or any certificate of designation, and prior in preference to
any distribution to Junior Securities but in parity with any distribution to
Parity Securities, an amount per share equal to the sum of (i) the Original
Series B Issue Price for each outstanding share of Series B Preferred Stock and
(ii) an amount equal to five percent (5%) of the Original Series B Issue Price
per annum for the period that has passed since the date that, in connection with
the consummation of the purchase by Holder of shares of Series B Preferred Stock
from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series B Preferred Stock (such
amount being referred to herein as the "Premium"). If upon the occurrence of
such event, and after payment in full of the preferential amounts with respect
to the Senior Securities, the assets and funds available to be distributed among
the Holders of the Series B Preferred Stock and Parity Securities shall be
insufficient to permit the payment to such Holders of the full preferential
amounts due to the Holders of the Series B Preferred Stock and the Parity
Securities, respectively, then the entire assets and funds of the Company
legally available for distribution shall be distributed among the Holders of the
Series B Preferred Stock and the Parity Securities, pro rata, based on the
respective liquidation amounts to which the Holders of each such series are
entitled by the Company's Articles of Incorporation and any certificate(s) of
designation relating thereto.
(b) Upon the completion of the distribution required by subsection
4(a), if assets remain in this Company, they shall be distributed to holders of
Junior Securities in accordance with the Company's Articles of Incorporation
including any duly adopted certificate(s) of designation.
(c) A sale, conveyance or disposition of all or substantially all of
the assets of the Company shall be deemed to be a liquidation, dissolution or
winding up within the meaning of this Section 4; provided further that, a
consolidation, merger, acquisition, or other business combination of the Company
with or into any other Company or Companies or the effectuation by the Company
of a transaction or series of related transactions in which more than fifty
percent (50%) of the voting power of the Company is disposed of shall not be
treated as a liquidation, dissolution or winding up within the meaning of this
Section 4, but instead shall be treated pursuant to Section 5(e)(iii) hereof.
The Company shall not effect any transaction described in this subsection 4(c)
unless it first gives thirty (30) days prior notice of such transaction, during
which time the Holder shall be entitled to immediately convert any or all of its
shares of Series B Preferred Stock into Common Stock at the Conversion Price, as
defined below, then in effect, which conversion shall not be subject to the
conversion restrictions set forth in Section 5(a), including but not limited to
the, the Soft Floor Price, the Modified Variable Conversion Price and the
Conversion Quotas, each as defined below.
Section 5. Conversion. The record Holders of this Series B Preferred
Stock shall have conversion rights as follows (the "Conversion Rights"):
3
<PAGE>
(a) Right to Convert. Subject to the restrictions set forth
below, each record Holder of Series B Preferred Stock shall be entitled (at
the times and in the amounts set forth below) to convert (in multiples of
one preferred share) any or all of the shares of Series B Preferred Stock
held by such Holder at any time beginning on the date that is five (5)
months following the date of the last closing of a purchase and sale of
Series B Preferred Stock that occurs pursuant to the offering of the Series
B Preferred Stock by the Company which in no event shall be later than
March 31, 1997 (the "Last Closing Date"), at the office of the transfer
agent for the Series B Preferred Stock (the "Transfer Agent"), into that
number of fully-paid and non-assessable shares of Common Stock of the
Company calculated in accordance with the following formula (the
"Conversion Rate"):
Number of shares issued upon conversion of one share of Series B Preferred
Stock =
(.05) (N/365) (10,000) + 10,000
-------------------------------
Conversion Price
where,
. N = the number of days between (i) the date that, in connection with the
consummation of the initial purchase of the shares of Series B Preferred
Stock from the Company, the escrow agent first had in its possession funds
representing full payment for the shares of Series B Preferred Stock for
which conversion is being elected, and (ii) the applicable Date of
Conversion (as defined in Section 5(b)(iv) below) for the shares of Series
B Preferred Stock for which conversion is being elected, and
. Conversion Price = the lesser of (x) 120% of the average Closing Bid
Price, as that term is defined below, for the 5 trading days ending on
March 21, 1997 (the "Fixed Conversion Price"), or (y) .85 times the average
Closing Bid Price, as that term is defined below, of the Company's Common
Stock for the five (5) trading days immediately preceding the date of
Conversion, as defined below (the "Variable Conversion Price");
Beginning on the date that is five (5) months after the Last Closing Date,
if the Variable Conversion Price, calculated as set forth above, would be less
than seventy percent (70%) of the average Closing Bid Price for the five (5)
trading days ending on March 21, 1997 (the "Soft Floor Price"), then the
Variable Conversion Price shall instead be calculated as follows ("Modified
Variable Conversion Price"):
Modified Variable Conversion Price = the lesser of (i) the Soft Floor
Price or (ii) X% of the average Closing Bid Price, as that term is
defined below, of the Company's Common Stock for the five (5) trading
days immediately preceding the Date of Conversion, as defined below,
where "X" equals:
4
<PAGE>
Number of Months
<TABLE>
<CAPTION>
After the Last Closing Date "X"
--------------------------- ---
<S> <C>
5 months to 6 months 97%
6 months and 1 day to 7 months 94%
7 months and 1 day to 8 months 91%
8 months and 1 day to 9 months 88%
9 months and 1 day, and after 85%
</TABLE>
Allowed Conversion Amounts.
---------------------------
Conversions At the Fixed Conversion Price:
The Holder shall be entitled to convert, at the Fixed
Conversion Price, any or all of the shares of Series B Preferred Stock held by
such Holder at any time beginning on the date that is five (5) months following
the Last Closing Date.
Conversions At Below the Fixed Conversion Price:
At any time beginning on the date that is five (5) months
following the Last Closing Date, the Holder shall be entitled to convert, at a
Conversion Price that is less than the Fixed Conversion Price, up to twenty
percent (20%) of the aggregate number of shares of Series B Preferred Stock
initially issued to such Holder. In addition, for each one (1) month period
which expires after the date that is five (5) months after the Last Closing Date
(each a "Monthly Period"), the Holder shall accrue the right to convert into
Common Stock an additional twenty percent (20%) of the aggregate number of
shares of Series B Preferred Stock initially issued to such Holder at a
Conversion Price that is less than the Fixed Conversion Price (the number of
shares that may be converted at any given time at a Conversion Price that is
less than the Fixed Conversion Price, in the aggregate, is referred to
hereinafter as the "Conversion Quota." In the event that Holder elects not to
convert its full Conversion Quota during any Monthly Period, the unconverted
amount shall be carried forward and added to the Conversion Quota, and
thereafter each Holder may, from time to time, convert any portion of the
Conversion Quota at a Conversion Price that is less than the Fixed Conversion
Price; provided that, the Holder shall not be entitled to convert, at a
Conversion Price that is less than the Fixed Conversion Price, more than one-
third (1/3) of the aggregate number of shares of Series B Preferred Stock
initially issued to such Holder in any rolling thirty (30) day period.
Subsequent to the date that is ten (10) months following the Last Closing Date,
there shall be no restrictions on the number of shares of Preferred Stock that
may be converted into Common Stock at a Conversion Price that is less than the
Fixed Conversion Price. Notwithstanding the above, there shall be no
restrictions on the number of shares of Preferred Stock that may be converted
into Common Stock at a Conversion Price that is less than the Fixed Conversion
Price from and after (i) the time the Company files its Form 10-Q for the
quarter ending March 31, 1997, if the Company's balance of cash and marketable
securities at the end of such period as reported in such 10-Q is less than Seven
Million Dollars ($7,000,000 U.S.), or (ii) the time the Company
5
<PAGE>
files its Form 10-Q for the quarter ending June 30, 1997, if the Company's
balance of cash and marketable securities at the end of such period as reported
in such 10-Q is less than Five Million Dollars ($5,000,000 U.S.), or (iii) the
time the Company files its Form 10-Q for the quarter ending September 30, 1997,
if the Company's balance of cash and marketable securities at the end of such
period as reported in such 10-Q is less than Three Million Dollars ($3,000,000
U.S.).
For purposes hereof, the term "Closing Bid Price" shall mean the closing bid
price of the Company's Common Stock as reported by the Nasdaq Small Cap Market,
or if not traded on the Nasdaq Small Cap Market, the closing bid price on the
over the counter market, the principal national securities exchange or the
National Market System on which the Common Stock is so traded and if not
available, the mean of the high and low prices on the over the counter market,
including but not limited to the Bulletin Board or the Pink Sheets, the
principal national securities exchange or the National Market System on which
the Common Stock is so traded.
(b) Mechanics of Conversion. In order to convert Series B Preferred
Stock into full shares of Common Stock, the Holder shall (i) fax, on or prior to
11:59 p.m., New York City time (the "Conversion Notice Deadline") on the date of
conversion, a copy of the fully executed notice of conversion ("Notice of
Conversion") to the Company's designated transfer agent (the "Transfer Agent")
for the Series B Preferred Stock stating that the Holder elects to convert,
which notice shall specify the date of conversion, the number of shares of
Series B Preferred Stock to be converted, the applicable conversion price and a
calculation of the number of shares of Common Stock issuable upon such
conversion and (ii) surrender or cause to be surrendered to a common courier,
for delivery to the office of the Transfer Agent, the original certificates
representing the Series B Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed for transfer together with a copy of the Notice of
Conversion; provided, however, that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon such conversion
unless either the Preferred Stock Certificates are delivered to the Transfer
Agent as provided above, or the Holder notifies the Company that such
certificates have been lost, stolen or destroyed (subject to the requirements of
subparagraph (i) below). In the event that the Preferred Stock Certificates or
Notice of Conversion are inadvertently delivered to the Company, the Company
will forward such documents to the Transfer Agent as soon as reasonably
practicable and conversions made pursuant to such delivery shall be valid. In
the case of a dispute as to the calculation of the Conversion Rate, the Transfer
Agent shall promptly issue to the Holder the number of shares of Common Stock
that are not disputed and shall submit the disputed calculations to the
Company's outside accountant via facsimile within three (3) days of receipt of
holder's Notice of Conversion. The Company shall cause the accountant to perform
the calculations and notify Company and Holder of the results no later than
forty-eight (48) hours from the time it receives the disputed calculations.
Accountant's calculation shall be deemed conclusive absent manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the
Company of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company and its Transfer
Agent, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Company shall execute and deliver new
Preferred Stock
6
<PAGE>
Certificate(s) of like tenor and date. However, Company shall not be obligated
to re-issue such lost or stolen Preferred Stock Certificates if Holder
contemporaneously requests Company to convert such Series B Preferred Stock into
Common Stock.
(ii) Delivery of Certificate Upon Conversion. The Company
shall use its best efforts to, or cause its Transfer Agent to, no later than the
close of business on the second (2nd) business day and, in any event, no later
than the close of business on the third (3rd) business day (the "Deadline")
after receipt by the Transfer Agent of all necessary documentation duly executed
and in proper form required for conversion, including the original Preferred
Stock Certificates to be converted (or after provision for security or
indemnification in the case of lost, stolen, destroyed or mutilated
certificates, if required) and a copy of the Notice of Conversion, issue and
surrender, to a common courier for either overnight or (if delivery is outside
the United States) two (2) day delivery to the Holder at the address of the
Holder as shown on the stock records of the Company or another address provided
in writing by Holder a certificate for the number of shares of Common Stock to
which the Holder shall be entitled as aforesaid.
(iii) No Fractional Shares. If any conversion of the Series
B Preferred Stock would create a fractional share of Common Stock or a right to
acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon conversion,
shall be the next higher number of shares.
(iv) Date of Conversion. The date on which conversion
occurs (the "Date of Conversion") shall be deemed to be the date set forth in
such Notice of Conversion, provided that the advance copy of the Notice of
Conversion is faxed to the Transfer Agent at or before 11:59 p.m., New York City
time, on the Date of Conversion. The person or persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record Holder or Holders of such shares of Common Stock on the
Date of Conversion. If the original Preferred Stock Certificates representing
the Series B Preferred Stock to be converted are not received by the Transfer
Agent within fifteen (15) business days after the Date of Conversion (and Holder
has not notified the Company of a legitimate reason for delay in delivery) or if
the facsimile of the Notice of Conversion is not received by the Transfer Agent
prior to the Conversion Notice Deadline, the Notice of Conversion, at the
Company's option, may be declared null and void. Notwithstanding the above, if
the Holder inadvertently faxes its Notice of Conversion to the Company instead
of the Transfer Agent, the Company will forward such documents to the Transfer
Agent as soon as reasonably practicable, and such delivery shall not entitle the
Company to declare the Notice of Conversion null and void.
(c) Reservation of Stock Issuable Upon Conversion. The Company
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all then outstanding
Series B Preferred Stock; and if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of Series B Preferred Stock, the Company will
immediately take
7
<PAGE>
such corporate action as may be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be sufficient
for such purpose.
(d) Automatic Conversion.
(i) Termination Date and Automatic Conversion. Each
share of Series B Preferred Stock outstanding on the date which is two (2) years
after the Last Closing Date or, if not a business day, the first business day
thereafter ("Termination Date"), subject to extension as set forth in subsection
(ii) below, automatically shall either (i) be converted ("Automatic Conversion")
into Common Stock on such date at the Conversion Price in effect on the
Termination Date, and the Termination Date shall be deemed the Date of
Conversion with respect to such conversion or, at the Company's option, (ii) be
redeemed ("Automatic Redemption") by the Company for cash in an amount equal to
the Redemption Price at Company's Election (as defined in Section 6 below) of
the shares of Series B Preferred Stock being redeemed. If the Company elects to
redeem the Series B Preferred Stock, the Company shall send to the Holders of
outstanding Series B Preferred Stock notice (the "Automatic Redemption Notice")
on or before the fifth (5th) day immediately preceding the Termination Date, via
facsimile, of its intent to effect an Automatic Redemption of the outstanding
Series B Preferred Stock. If the Company does not send such notice to Holder on
or before such date, an Automatic Conversion shall be deemed to have occurred.
If an Automatic Conversion occurs, the Company and the Holders shall follow the
applicable conversion procedures set forth in this Certificate of Designation;
provided, however, that the Holders are not required to send the Notice of
Conversion contemplated by Section 5(b). If the Company elects to redeem the
Series B Preferred Stock, each Holder of outstanding Series B Preferred Stock
shall send its certificates representing the Series B Preferred Stock to the
Company within five (5) days after the later of (i) the date of receipt of the
Automatic Redemption Notice from the Company or (ii) the Termination Date, and
the Company shall pay the applicable Redemption Price by certified check to each
respective Holder within five (5) days of the receipt of such certificates. The
Company shall not be obligated to deliver the redemption price unless the
certificates representing the Series B Preferred Stock are delivered to the
Company, or, in the event one or more certificates have been lost, stolen,
mutilated or destroyed, unless the Holder has complied with Section 5(b)(i). If
the Company elects to redeem under this Section 5(d) and the Company fails to
pay the Holders the redemption price within five (5) days of the Termination
Date as required by this Section 5(d), then an Automatic Conversion shall be
deemed to have occurred and, upon receipt of the Preferred Stock Certificates,
the Company shall deliver to the Holders the certificates representing the
number of shares of Common Stock to which the Holders would have been entitled
upon Automatic Conversion in accordance with Section 5(b)(ii).
(ii) Extension of Termination Date. Notwithstanding the
above, in the event that the sum of (i) the aggregate number of trading days
during which the Company is unable to issue shares of Common Stock to a Holder
upon a conversion because an insufficient number of shares of Common Stock are
reserved and authorized (an "Authorization Delay"), plus (ii) the aggregate
number of trading days after the date that is five (5) months after the Last
Closing Date during which sales of Common Stock cannot be made pursuant to the
Registration Statement (as defined in the Registration Rights Agreement between
the Holders and the
8
<PAGE>
Company, dated on or about March 21, 1997) (regardless of the reason, but
including without limitation, the Company's failure to have the Registration
Statement declared effective by the SEC or the suspension of the effectiveness
of the Registration Statement in accordance with Section 6 of such Registration
Rights Agreement) (a "Registration Lapse", together with an Authorization Delay,
referred to as the "Aggregate Delay"), in the aggregate, exceeds twenty (20)
trading days, then the Termination Date shall be extended by the total number of
trading days of the Aggregate Delay (a "Termination Extension"). The Company
shall provide notice to the Holders and to the Transfer Agent, in writing, of
the existence and amount of any Termination Extension (and of the new
Termination Date) by the tenth (10th) day of the month following any month in
which a Termination Extension accrues.
(e) Adjustment to Conversion Rate.
(i) Adjustment to Fixed Conversion Price, and Soft Floor Price
Due to Stock Split, Stock Dividend, Etc. If, prior to the conversion of all of
the Series B Preferred Stock, the number of outstanding shares of Common Stock
is increased by a stock split, stock dividend, or other similar event, the Fixed
Conversion Price and the Soft Floor Price shall each be proportionately reduced,
or if the number of outstanding shares of Common Stock is decreased by a
combination or reclassification of shares, or other similar event, the Fixed
Conversion Price, and Soft Floor Price shall each be proportionately increased.
(ii) Adjustment to Variable Conversion Price. If, at any time
when any shares of the Series B Preferred Stock are issued and outstanding, the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, or other similar event, which event shall have
taken place during the reference period for determination of the Conversion
Price for any conversion of the Series B Preferred Stock, then the Variable
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event for
all five (5) trading days immediately preceding the Date of Conversion.
(iii) Adjustment Due to Merger, Consolidation, Etc. If, prior to
the conversion of all Series B Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Company shall
be changed into the same or a different number of shares of the same or another
class or classes of stock or securities of the Company or another entity (each a
"Business Combination Event"), then the Holders of Series B Preferred Stock
shall thereafter have the right to receive upon conversion of Series B Preferred
Stock, upon the basis and upon the terms and conditions specified herein and in
lieu of the shares of Common Stock immediately theretofore issuable upon
conversion, such stock, securities and/or other assets which the Holder would
have been entitled to receive in such transaction had the Series B Preferred
Stock been converted immediately prior to such transaction, and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the Holders of the Series B Preferred Stock to the end that the provisions
hereof (including, without limitation, provisions for the adjustment of the
Conversion Price and of the number of shares issuable upon conversion of the
Series B Preferred Stock) shall thereafter be applicable, as nearly as may be
9
<PAGE>
practicable in relation to any securities thereafter deliverable upon the
exercise hereof. The Company shall not effect any transaction described in this
subsection 5(e)(iii) unless (a) it first gives thirty (30) days prior notice of
such merger, consolidation, exchange of shares, recapitalization,
reorganization, or other similar event (during which time the Holder shall be
entitled to convert its shares of Series B Preferred Stock into Common Stock
without the conversion restrictions of Section 5(a), including but not limited
to the, the Soft Floor Price, the Modified Variable Conversion Price and the
Conversion Quotas) and (b) the resulting successor or acquiring entity (if not
the Company) assumes by written instrument the obligations of the Company under
this Certificate of Designation including this subsection 5(e)(iii).
Notwithstanding the above, in the event that the Company enters into a Business
Combination Event with a privately held company within one (1) year after the
Last Closing Date, and the shares of Common Stock issuable upon conversion of
Series B Preferred Stock are not covered, during the thirty (30) day period
preceding such Business Combination Event, for resale by a current and effective
registration statement, the Holder shall have the option, in lieu of the above,
to receive from the Company a sum of money equal to the "Redemption Price At
Company's Election", as defined in Section 6(b)(i) below.
(iv) No Fractional Shares. If any adjustment under this Section
5(e) would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be the next
lower number of shares.
Section 6. Redemption by Company.
(a) Company's Right to Redeem Upon Receipt of Notice of Conversion.
If (i) the Conversion Price of the Company's Common Stock is less than the Soft
Floor Price (as defined in Section 5(a)) and (ii) the Company provides the
Holder with at least two (2) business days advance notice, in writing, that the
Company intends to redeem, in cash, any Series B Preferred Stock submitted for
conversion during a subsequent specified period of time (a "Period of Redemption
Upon Conversion"), then at the time of receipt of a Notice of Conversion
pursuant to Section 5, during a Period of Redemption Upon Conversion, the
Company shall redeem in whole such Series B Preferred Stock submitted for
conversion, immediately prior to and in lieu of conversion ("Redemption Upon
Receipt of Notice of Conversion").
(i) Redemption Price Upon Receipt of a Notice of Conversion. The
redemption price per share of Series B Preferred Stock under this Section 6(a)
shall be calculated in accordance with the following formula ("Redemption
Rate"):
- "Redemption Rate" =
[[(.05)(N/365) (10,000)] + 10,000] x Closing Bid Price on Date of Conversion
---------------------------------------
Conversion Price
where,
10
<PAGE>
"N", "Closing Bid Price", "Date of Conversion", and "Conversion Price"
shall have the same meanings as defined in Section 5(a).
(ii) Mechanics of Redemption Upon Receipt of Notice of
Conversion. During any Period of Redemption Upon Conversion, the Company shall
effect redemptions by giving notice of the Redemption Rate applicable to such
redemption, by facsimile, by 5:00 p.m. New York City time the next business day
following receipt of a Notice of Conversion from a Holder, and the Company shall
provide a copy of such redemption notice by overnight or 2-day courier, to (A)
the Holder of the Series B Preferred Stock submitted for conversion at the
address and facsimile number of such Holder appearing in the Company's register
for the Series B Preferred Stock and (B) the Company's Transfer Agent.
(b) Company's Right to Redeem at its Election. At any time,
commencing one (1) year after the Last Closing, the Company shall have the
right, in its sole discretion, to redeem ("Redemption at Company's Election"),
from time to time, any or all of the Series B Preferred Stock; provided (i)
Company shall first provide thirty (30) days advance written notice as provided
in subparagraph 6(b)(ii) below (which can be given beginning on the three
hundred thirty-fifth (335th) day after the Last Closing), and (ii) that the
Company shall only be entitled to redeem Series B Preferred Stock having an
aggregate Stated Value (as defined below) of at least One Million Dollars
($1,000,000). If the Company elects to redeem some, but not all, of the Series
B Preferred Stock, the Company shall redeem a pro-rata amount from each Holder
of the Series B Preferred Stock.
(i) Redemption Price At Company's Election. The "Redemption Price
At Company's Election" shall be calculated as a percentage of Stated Value, as
that term is defined below, of the Series B Preferred Stock redeemed pursuant to
this Section 6(b), which percentage shall vary depending on the date of delivery
of the Notice of Redemption at Company's Election (as defined below), and shall
be determined as follows:
<TABLE>
<CAPTION>
Date of Delivery of Notice of Redemption at Company's Election % of Stated Value
- -------------------------------------------------------------- -----------------
<S> <C>
12 months to 18 months following Last Closing Date 130%
18 months and 1 day and after 125%
</TABLE>
For purposes hereof, "Stated Value" shall mean the original principal
amount of Preferred Stock being redeemed, plus the unpaid five percent (5%) per
annum accretion being redeemed pursuant to this Section 6(b).
(ii) Mechanics of Redemption at Company's Election. The Company
shall effect each such redemption by giving at least thirty (30) days prior
written notice ("Notice of Redemption At Company's Election") to (A) the Holders
of the Series B Preferred Stock selected for redemption, at the address and
facsimile number of each such Holder appearing in the Company's Series B
Preferred stock register and (B) the Transfer Agent, which Notice of Redemption
At Company's Election shall be deemed to have been delivered one (1) business
day after the Company's mailing (by overnight or 2-day courier, with a copy by
facsimile) of such Notice of Redemption At Company's Election. Such Notice of
Redemption At Company's
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Election shall indicate (i) the number of shares of Series B Preferred
Stock that have been selected for redemption, (ii) the date which such
redemption is to become effective (the "Date of Redemption At Company's
Election") and (iii) the applicable Redemption Price At Company's Election, as
defined in (b)(i) above. Notwithstanding the above, Holder may convert into
Common Stock, prior to the close of business on the Date of Redemption at
Company's Election, any Series B Preferred Stock which it is otherwise entitled
to convert.
(c) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to effect any redemption or begin
any redemption procedure (including the delivery of any notice required by this
Section 6) under Section 6(a) or Section 6(b) unless it has:
(i) the full amount of the redemption price in cash, available in
a demand or other immediately available account in a bank or similar financial
institution; or
(ii) immediately available credit facilities, in the full amount
of the redemption price with a bank or similar financial institution; or
(iii) an agreement with any underwriter willing to purchase from
the Company a sufficient number of shares of stock to provide proceeds necessary
to redeem any stock that is not converted prior to redemption; or
(iv) a combination of the items set forth in (i), (ii) and (iii)
above, aggregating the full amount of the redemption price.
(d) Payment of Redemption Price.
Each Holder submitting Preferred Stock being redeemed under this
Section 6 shall send its Series B Preferred Stock Certificates so redeemed to
the Transfer Agent, and the Company shall pay the applicable redemption price to
that Holder by certified check within five (5) business days of the Transfer
Agent's receipt of Preferred Stock Certificates representing the Series B
Preferred Stock to be redeemed. The Company shall not be obligated to deliver
the redemption price unless the Preferred Stock Certificates so redeemed are
delivered to the Transfer Agent, or, in the event one or more certificates have
been lost, stolen, mutilated or destroyed, the Holder has complied with Section
5(b)(i).
(e) Blackout Period. Notwithstanding the foregoing, the Company may
not either send out a redemption notice or effect a redemption pursuant to this
Section during a Blackout Period (defined as a period during which the Company's
officers or directors would not be entitled to buy or sell stock because of
their holding of material non-public information). In the event the Company
initiates a redemption during a Blackout Period without having first made public
material non-public information, the Company shall disclose the non-public
information that resulted in the Blackout Period, and no redemption shall be
effected until at least ten (10) days after such disclosure.
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Section 7. Voting Rights. The Holders of the Series B Preferred Stock
shall have no voting power whatsoever, and no Holder of Series B Preferred Stock
shall vote or otherwise participate in any proceeding in which actions shall be
taken by the Company or the shareholders thereof or be entitled to notification
as to any meeting of the shareholders except as otherwise provided by the
Minnesota Business Corporation Act ("Minnesota Law").
Notwithstanding the above, Company shall provide Holder with notification
of any meeting of the shareholders regarding any major corporate events
affecting the Company. In the event of any taking by the Company of a record of
its shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire any share of any class or any other
securities or property, or to receive any other right, or for the purpose of
determining shareholders who are entitled to vote in connection with any
proposed sale, lease or conveyance of all or substantially all of the assets of
the Company, or any proposed liquidation, dissolution or winding up of the
Company, the Company shall mail a notice to Holder, at least ten (10) days prior
to the record date specified therein, of the date on which any such record is to
be taken for the purpose of such dividend, distribution, right or other event,
and a brief statement regarding the amount and character of such dividend,
distribution, right or other event to the extent known at such time.
To the extent that under Minnesota Law the vote of the Holders of the
Series B Preferred Stock, voting separately as a class, is required to authorize
a given action of the Company, the affirmative vote or consent of the Holders of
at least a majority of the shares of the Series B Preferred Stock represented at
a duly held meeting at which a quorum is present or by written consent of a
majority of the shares of Series B Preferred Stock (except as otherwise may be
required under Minnesota Law) shall constitute the approval of such action by
the class. To the extent that under Minnesota Law the Holders of the Series B
Preferred Stock are entitled to vote on a matter with holders of Common Stock,
voting together as one class, each share of Series B Preferred Stock shall be
entitled to a number of votes equal to the number of shares of Common Stock into
which it is then convertible using the record date for the taking of such vote
of stockholders as the date as of which the Conversion Price is calculated.
Holders of the Series B Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Company's by-
laws and applicable statutes.
Section 8. Protective Provision. So long as shares of Series B Preferred
Stock are outstanding, the Company shall not without first obtaining the
approval (by vote or written consent, as provided by Minnesota Law) of the
Holders of at least seventy-five percent (75%) of the then outstanding shares of
Series B Preferred Stock, and at least seventy-five percent (75%) of the then
outstanding Holders:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock or any other securities of the Company so as to affect
adversely the Series B Preferred Stock;
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(b) create any new class or series of stock having a preference over
or on parity with the Series B Preferred Stock with respect to Distributions (as
defined in Section 2 above) or increase the size of the authorized number of
Series B Preferred Stock;
(c) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended); or
(d) issue any additional shares of the Series B Preferred Stock after
the Last Closing Date.
In the event Holders of at least seventy five percent (75%) of the then
outstanding shares of Series B Preferred Stock and at least seventy five percent
(75%) of the then outstanding Holders agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series B Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series B Preferred
Stock, then the Corporation will deliver notice of such approved change to the
Holders of the Series B Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change
(notwithstanding the holding requirements set forth in Section 5(a) hereof), or
continue to hold their shares of Series B Preferred Stock subject to the altered
rights, preferences or privileges.
Section 9. Status of Redeemed or Converted Stock. In the event any shares
of Series B Preferred Stock shall be redeemed or converted pursuant to Section 5
or Section 6 hereof, the shares so converted or redeemed shall be canceled,
shall return to the status of authorized but unissued Preferred Stock of no
designated series, and shall not be issuable by the Company as Series B
Preferred Stock.
Section 10. Preference Rights. Nothing contained herein shall be
construed to prevent the Board of Directors of the Company from issuing one (1)
or more series of Preferred Stock with dividend and/or liquidation preferences
junior to the dividend and liquidation preferences of the Series B Preferred
Stock.
Section 11. Events of Default. Upon the occurrence of and during the
continuation of an Event of Default (as defined below) and upon delivery of a
notice of acceleration by any Holder, the Company shall pay to the Holder by
certified check within five (5) days of Holder's surrender of its Preferred
Stock Certificates, an amount (the "Acceleration Payment") equal to one hundred
thirty percent (130%) of the Stated Value of the Holder's outstanding Series B
Preferred Stock to the date of payment and all other amounts payable hereunder
shall immediately become due and payable, all without demand, presentment, or
notice, all of which hereby are expressly waived, together with all costs,
including, without limitation, reasonable legal fees and expenses, of
collection, and the Holder shall be entitled to exercise all other rights and
remedies available at law or equity.
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If the Company fails to pay any amounts due pursuant to this Section 11
within five (5) business days of such amounts being due and payable, then the
Holder shall have the right at any time, so long as the Company remains in
default, to require the Company, upon written notice, to immediately issue, in
lieu of such amounts, the number of shares of Common Stock of the Company equal
to the amounts owed by Company to the Holder divided by the Conversion Price
then in effect without the conversion restrictions of Section 5(a), including
but not limited to the Soft Floor Price, the Modified Variable Conversion Price
and the Conversion Quotas) on the date the Company issues shares pursuant to
this Section 11.
The Company shall be required promptly upon its knowledge of an Event of
Default hereunder to give notice of such Event of Default to all Holders of
Series B Preferred Stock.
An "Event of Default" shall mean the following:
(a) Conversion. If the Company fails to issue shares of Common Stock
to any Holder upon exercise by such Holder of the Conversion Rights of the
Holder in accordance with the terms of this Certificate of Designation, or fails
to remove any restrictive legend on any certificate for any shares of Common
Stock issued to a Holder upon conversion of any Preferred Stock as and when
required by this Certificate of Designation or any Subscription Agreement by and
between Company and Holders and any such failure shall continue uncured for ten
(10) business days;
(b) Breach of Covenant. If the Company breached any material covenant
or other material term or condition of this Certificate of Designation or any
Subscription Agreement by and between Company and Holder (including the failure
to have enough stock available for issuance upon conversion), and such breach
continues for a period of thirty (30) days after written notice thereof to the
Company from the Holder;
(c) Breach of Representations and Warranties. Any representation or
warranty of the Company made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, any Subscription Agreement by and between
Company and Holder), shall be false or misleading in any material respect when
made;
(d) Receiver or Trustee. The Company or any subsidiary of the Company
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for a substantial part of
its property or business; or such a receiver or trustee shall otherwise be
appointed;
(e) Judgments. Any money judgment, writ or similar process shall be
entered or filed against the Company or any subsidiary of the Company or any of
its property or other assets for more than One Million Dollars ($1,000,000), and
shall remain unvacated, unbonded or unstayed for a period or twenty (20) days
unless otherwise consented to by the Holder, which consent will not be
unreasonably withheld; or
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(f) Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief or debtors shall be instituted by or against the Company or any
subsidiary of the Company.
Section 12. Future Offering of Securities. In the event that in a capital
raising transaction, the Company, after the date of this Certificate, issues any
Common Stock or debt or equity securities convertible into Common Stock
(collectively referred to hereinafter as "Future Equity") and such shares of
Common Stock are or will become freely tradable on or prior to six (6) months
following the Last Closing Date pursuant to a registration statement or pursuant
to an exemption from the registration requirements of the Securities Act of
1933, the Holders of the outstanding Series B Preferred Stock shall have the
right, on the date of the closing of such Future Equity transaction and at any
time thereafter, to convert any or all of its outstanding Series B Preferred
Stock into Common Stock pursuant to the terms of this Certificate of Designation
(without the conversion restrictions of Section 5(a), including but not limited
to the Soft Floor Price, the Modified Variable conversion Price and the
Conversion Quotas)).
Signed on , 1997
--------------------
------------------------------------------
Stephen C. O'Hara, Chief Executive Officer
Attest:
- --------------------------
Lee B. Lewis, Secretary
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<PAGE>
Exhibit 10.23
ANCOR COMMUNICATIONS, INCORPORATED
REGULATION D SUBSCRIPTION AGREEMENT
THE SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED WITH THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE OR OTHER SECURITIES AUTHORITIES. THEY
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT OR AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF FEDERAL AND
STATE SECURITIES LAWS.
THIS SUBSCRIPTION AGREEMENT DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, ANY OF THE SECURITIES DESCRIBED
HEREIN BY OR TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. THESE SECURITIES HAVE NOT BEEN RECOMMENDED
BY ANY FEDERAL OR STATE SECURITIES AUTHORITIES, NOR HAVE SUCH AUTHORITIES
CONFIRMED THE ACCURACY OR DETERMINED THE ADEQUACY OF THIS DOCUMENT. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
INVESTMENT IN THESE SECURITIES INVOLVES A HIGH DEGREE OF RISK. SUBSCRIBERS
MUST RELY ON THEIR OWN ANALYSIS OF THE INVESTMENT AND ASSESSMENT OF THE
RISKS INVOLVED. SEE THE RISK FACTORS SET FORTH IN THE ATTACHED DISCLOSURE
DOCUMENTS AS EXHIBIT E.
SEE ADDITIONAL LEGENDS AT SECTION 9.
THIS SUBSCRIPTION AGREEMENT ("Subscription Agreement") is made as of
the 21st day of March 1997, by and between Ancor Communications, Incorporated, a
corporation duly incorporated and existing under the laws of the State of
Minnesota (the "Company"), and the subscriber executing this Subscription
Agreement ("Subscriber").
THE PARTIES HEREBY AGREE AS FOLLOWS:
This Regulation D Securities Subscription Agreement (the "Subscription
Agreement") is executed by the undersigned Subscriber in connection with the
offer and purchase by the undersigned for Series B Preferred Stock, $.01 par
value (the "Preferred Stock") of the Company. The Preferred Stock is being
offered at a purchase price of Ten Thousand Dollars ($10,000), U.S., per share,
in minimum subscription amounts of at least fifteen (15) shares ($150,000), and
increments of five (5) shares ($50,000) in excess thereof, with a minimum
offering amount of Eight Hundred (800) shares of Preferred Stock, or Eight
Million Dollars ($8,000,000) (the "Minimum Amount"), and up to a maximum amount
of Nine Hundred (900) shares of Preferred Stock, or Nine Million Dollars
($9,000,000) (the "Maximum Amount") (collectively, the "Offering"). The terms of
the Preferred Stock, including the terms on which the Preferred Stock
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may be converted into common stock, $.01 par value of the Company (the "Common
Stock"), are set forth in the Certificate of Designation of Series B Preferred
Stock (the "Certificate of Designation"), in substantially the form attached
hereto as Exhibit A. The solicitation of this Subscription and, if accepted by
the Company, the offer and sale of the Preferred Stock, are being made in
reliance upon the provisions of Regulation D ("Regulation D") promulgated under
the Securities Act of 1933 (the "Act"). The Preferred Stock and the Common Stock
issuable upon conversion thereof, together with the Subscriber Warrants (as
defined in Section 5.11 below) and the Common Stock issuable upon exercise of
the Subscriber Warrants (collectively, the "Conversion Shares"), are sometimes
referred to herein collectively as the "Securities."
It is agreed as follows:
1. Offering
1.1 Offer to Subscriber; Purchase Price and Closing; and Placement Fees.
--------------------------------------------------------------------
Subject to satisfaction of the conditions to closing set forth in Section
1.2 below, the Subscriber hereby agrees to subscribe for and purchase Preferred
Stock, for the aggregate purchase price in the amount set forth in Section 10 of
this Subscription Agreement, in accordance with the terms and conditions of this
Subscription Agreement. The closing of a sale and purchase of Preferred Stock as
to each Subscriber (the "Closing") shall be deemed to occur when this
Subscription Agreement has been executed by both the Subscriber and the Company,
full payment for the Preferred Stock shall have been made by the Subscriber, by
wire transfer to the Company's designated escrow account for this Offering (the
"Escrow Account") established pursuant to the Escrow Agreement and Instructions
(the "Escrow Agreement") by and among the Company, First Union National Bank of
Georgia (the "Escrow Agent") and the Placement Agent (as defined in the
following paragraph), the Subscriber has executed an Acknowledgment ("10-K
Acknowledgment") in the Form of Exhibit J hereto stating that the Subscriber has
reviewed and accepts the Company's Form 10-K for the year ended December 31,
1996 and the conditions to Subscriber's obligations set forth in Section 1.2
have been satisfied.
The parties hereto acknowledge that Dunwoody Brokerage Services, Inc. is acting
as placement agent ("Placement Agent") for this Offering and will be compensated
by the Company in cash and warrants to purchase Common Stock of the Company.
Placement Agent has acted solely as placement agent in connection with the
Offering by the Company of the Preferred Stock pursuant to this Subscription
Agreement. The information and data contained in the Disclosure Documents (as
defined in Section 2.2.4 below) have not been subjected to independent
verification by Placement Agent, and no representation or warranty is made by
Placement Agent as to the accuracy or completeness of the information contained
in the Disclosure Documents.
1.2 Conditions to Subscriber's Obligations. The Subscriber's obligations
hereunder are conditioned upon all of the following:
(a) the following documents have been deposited with the Escrow
Agent: the 10-K Acknowledgment (executed by the Subscriber), in
substantially the Form attached hereto as Exhibit J, the
Registration Rights Agreement,
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substantially in the form attached hereto as Exhibit B (executed
by the Company), the Opinion of Counsel, substantially in the
form attached hereto as Exhibit C (signed by Company's counsel),
Irrevocable Instructions to Transfer Agent, substantially in the
form attached hereto as Exhibit D (executed by the Company and
the Transfer Agent), and the Certificate of Designation,
substantially in the form attached hereto as Exhibit A (together
with evidence showing that it has been filed with the Secretary
of State of Minnesota);
(b) the certificates representing the Preferred Stock for which the
Subscriber has subscribed have been deposited with the Escrow
Agent;
(c) the Company's Common Stock is currently being actively traded on
the Nasdaq Small Cap Market;
(d) other than as described in the Disclosure Documents (if
applicable), there have been no material adverse changes in the
Company's business prospects or financial condition since the
date of the last balance sheet included in the Disclosure
Documents including but not limited to incurring material
liabilities;
(e) the representations and warranties of the Company are true and
correct in all material respects on the Closing date as if made
on such date, and the Company shall deliver a certificate, signed
by an officer of the Company to such effect, to the Escrow Agent;
(f) the Minimum Amount and corresponding subscription agreements
accepted by the Company have been received by the Escrow Agent;
and
(g) the Company shall have reserved for issuance upon conversion of
the Preferred Stock and exercise of the Subscriber Warrants a
sufficient number of shares of Common Stock which number of
shares shall initially be equal to at least Three Million Five
Hundred Thousand (3,500,000) shares.
2. Representations, Warranties and Covenants of the Subscriber.
Subscriber hereby represents and warrants to and covenants and agrees with the
Company as follows:
2.1 Accredited Investor. Subscriber hereby represents and warrants
to the Company that it is an accredited investor, as defined in Rule 501 of
Regulation D, and has checked the applicable box set forth in Section 10 of this
Subscription Agreement.
2.2 Investment Experience; Access to Information; Independent
---------------------------------------------------------
Investigation.
- --------------
2.2.1 Access to Information. The Subscriber or its
professional advisor has been granted the opportunity to ask questions of and
receive answers from representatives of
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<PAGE>
the Company, its officers, directors, employees and agents concerning the terms
and conditions of this Offering, the Company and its business and prospects, and
to seek any additional information which the Subscriber or its professional
advisor deems necessary to verify the accuracy of the information received.
2.2.2 Reliance on Own Advisors. The Subscriber has relied on
the advice of, or has consulted with, its own personal tax, investment, legal or
other advisors and has not relied on the Company or any of its affiliates,
officers, directors, attorneys, accountants or any affiliates of any thereof and
each other person, if any, who controls any of the foregoing, within the meaning
of Section 15 of the Act for any tax or legal advise, other than reliance on
information in the Disclosure Documents and on the legal opinion delivered in
connection with the Closing.
2.2.3 Capability to Evaluate. The Subscriber has such knowledge
and experience in financial and business matters that it is capable of
evaluating the merits and risks of the prospective investment, which are
substantial, including without limitation those set forth in the Disclosure
Documents (as defined in Section 2.2.4 below).
2.2.4 Disclosure Documents. The Subscriber, in making its
investment decision to subscribe for the Securities hereunder, represents that
(a) it has received and had an opportunity to review (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1996 (the "Form 10-K") or,
if it has not yet received and reviewed the Form 10-K, acknowledges that this
Agreement may be revoked by Subscriber anytime prior to the execution by
Subscriber of a 10-K Acknowledgment in the form of Exhibit J hereto, (the "10-K
Acknowledgment"), pursuant to Section 7.1(b) hereof, (ii) Risk Factors, attached
as Exhibit E, (iii) Capitalization Schedule, attached as Exhibit F, and (iv) Use
of Proceeds, attached as Exhibit G, (b) it has (subject to the caveat in
subsection 2.2.4(a)(i) above regarding the Form 10-K) read, reviewed, and relied
solely on the documents described in (a) above, the Company's representations
and warranties and other information in this Subscription Agreement, including
the Exhibits, any other written information prepared by the Company which has
been specifically provided to the Subscriber in connection with this Offering
and is designated as a Disclosure Document (together, the "Disclosure
Documents"), and an independent investigation made by it and its
representatives, if any; (c) it has, prior to the date of this Subscription
Agreement, been given an opportunity to review material contracts and documents
of the Company which have been filed as exhibits to the Company's filings under
the Act and the Securities Exchange Act of 1934, as amended (the "Exchange Act")
and has had an opportunity to ask questions of and receive answers from the
Company's officers and directors; and (d) has not based its decision to invest
on any oral representation of the Company, Placement Agent or any other person,
nor any written representation or assurance from the Company other than those
contained in the Disclosure Documents or incorporated herein or therein. Also,
the Subscriber has not based its decision to invest upon statements made in the
analyst report dated on or about February 17, 1997 sent to Subscriber by
Placement Agent. Subscriber acknowledges that the Analyst Report was not
prepared by the Company and that the Company does not confirm or endorse any
information contained therein, and does not make any representation or warranty
with regard to the contents thereof, and disclaims any responsibility to comment
on, correct or update any information contained therein.
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2.2.5 Investment Experience; Fend for Self. Subscriber has
substantial experience in investing in securities of companies in the
development stage and has made investments in securities other than those of the
Company. Subscriber acknowledges that it is able to fend for itself in the
transaction contemplated by this Subscription Agreement, that it has the ability
to bear the economic risk of its investment pursuant to this Subscription
Agreement and that it is an "Accredited Investor" by virtue of the fact that it
meets the subscriber qualification standards set forth in Section 2.1 above.
Subscriber has not been organized for the purpose of investing in securities of
the Company, although such investment is consistent with its purposes. The
Subscriber's commitment to potentially illiquid investments is reasonable in
relation to such person's net worth.
2.3 Exempt Offering Under Regulation D.
-----------------------------------
2.3.1 Investment; No Distribution. The Subscriber is acquiring
the Securities solely for the Subscriber's own account for investment purposes
as a principal and not with a view to immediate resale or distribution of all or
any part thereof; provided, however, that Subscriber does not agree to hold the
Securities for any minimum or specific term (except as otherwise required by the
Certificate of Designation and this Agreement) and reserves the right to dispose
of the Securities at any time in accordance with or pursuant to an effective
registration statement or an exemption under the Act. The Subscriber is aware
that there are legal and practical limits on the Subscriber's ability to sell or
dispose of the Securities and, therefore, that the Subscriber must bear the
economic risk of the investment for an indefinite period of time and has
adequate means of providing for the Subscriber's current needs and possible
personal contingencies and has need for only limited liquidity of this
investment. The Subscriber's commitment to potentially illiquid investments is
reasonable in relation to the Subscriber's net worth.
2.3.2 No General Solicitation. The Securities were not offered
to the Subscriber through, and the Subscriber is not aware of, any form of
general solicitation or general advertising, including, without limitation, (i)
any advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over television or radio, and
(ii) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising.
2.3.3 Restricted Securities. Subscriber understands that the
Preferred Stock is and the Subscriber Warrants and the Conversion Shares will
be, characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may not be transferred or resold without registration under the
Act or pursuant to an exemption therefrom. In this connection, Subscriber
represents that it is familiar with Rule 144 under the Act, as presently in
effect, and understands the resale limitations imposed thereby and by the Act.
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<PAGE>
2.3.4 Disposition. Without in any way limiting the
representations set forth above, Subscriber further agrees not to sell, transfer
or otherwise dispose of all or any portion of the Securities unless and until:
(a) There are then in effect registration statements under the
Act and any applicable state securities laws covering such proposed
disposition and such disposition is made in accordance with such
registration statements; or
(b) (i) Subscriber shall have notified the Company of the
proposed disposition and shall have furnished the Company with a
detailed statement of the circumstances surrounding the proposed
disposition, and (ii) if reasonably requested by the Company,
Subscriber shall have furnished the Company with an opinion of
counsel, in form and substance customary for similar transactions,
that such disposition will not require registration of the Securities
under the Act or any applicable state securities laws. It is agreed
that the Company will not require opinions of counsel for transactions
made pursuant to Rule 144.
2.4 Due Authorization.
------------------
2.4.1 Authority. The person executing this Subscription
Agreement, if executing this Subscription Agreement in a representative or
fiduciary capacity, has full power and authority to execute and deliver this
Subscription Agreement and each other document included herein for which a
signature is required in such capacity and on behalf of the subscribing
individual, partnership, trust, estate, corporation or other entity for whom or
which the person executing this Subscription Agreement is executing this
Subscription Agreement. The Subscriber has reached the age of majority (if an
individual) according to the laws of the state in which he or she resides.
2.4.2 Due Authorization. If the Subscriber is a corporation, the
Subscriber is duly and validly organized, validly existing and in good tax and
corporate standing as a corporation under the laws of the jurisdiction of its
incorporation with full power and authority to purchase the Securities to be
purchased by it and to execute and deliver this Subscription Agreement.
2.4.3 Partnerships. If the Subscriber is a partnership, the
representations, warranties, agreements and understandings set forth above are
true with respect to all partners in the Subscriber (and if any such partner is
itself a partnership, all persons holding an interest in such partnership,
directly or indirectly, including through one or more partnerships), and the
person executing this Subscription Agreement has made due inquiry to determine
the truthfulness of the representations and warranties made hereby.
2.4.4 Representatives. If the Subscriber is purchasing in a
representative or fiduciary capacity, the above representations and warranties
shall be deemed to have been made on behalf of the person or persons for whom
the Subscriber is so purchasing.
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3. Acknowledgments The Subscriber is aware that:
3.1 Risks of Investment. The Subscriber recognizes that an investment
in the Company involves certain risks, including the potential loss of the
Subscriber's investment therein. The Subscriber recognizes that the Disclosure
Documents and this Subscription Agreement and the exhibits hereto do not purport
to contain all the information which would be contained in a registration
statement under the Act;
3.2 No Government Approval. No federal or state agency has passed
upon the Securities or made any finding or determination as to the fairness of
this transaction;
3.3 No Registration. The Securities have not been registered under
the Act or any applicable state securities laws in reliance upon exemptions from
the registration requirements of such laws, and may not be sold, pledged,
assigned or otherwise disposed of in the absence of an effective registration
statement for the Securities and any component thereof under the Act or unless
an exemption from such registration is available;
3.4 No Assurances of Registration. There can be no assurance that any
registration statement will become effective at the scheduled time or ever. The
Subscriber acknowledges that it may be required to bear the economic risk of the
Subscribers' investment for an indefinite period of time.
3.5 Exempt Transaction. The Subscriber understands that the Preferred
Stock is being offered and sold in reliance on specific exemptions from the
registration requirements of federal and state law and that the representations,
warranties, agreements, acknowledgments and understandings set forth herein are
being relied upon by the Company in determining the applicability of such
exemptions and the suitability of the Subscriber to acquire the Preferred Stock.
3.6 Legends. It is understood that the certificates evidencing the
Preferred Stock and, subject to the terms of Section 5.9 below, the Conversion
Shares shall bear the following legend:
"The securities represented hereby have not been registered under the
Securities Act of 1933, or applicable state securities laws, nor the
securities laws of any other jurisdiction. They may not be sold or
transferred in the absence of an effective registration statement
under those securities laws or an opinion of counsel, in form and
substance customary for similar transactions, that the sale or
transfer is pursuant to an exemption to the registration requirements
of those securities laws."
3.7 Missouri Residents. If a Missouri resident, I hereby represent
that (i) I understand that the Securities are not registered under the Missouri
Securities Act and may be disposed of only through a licensed broker-dealer and
(ii) I have been advised that it is a felony to sell securities in violation of
the Missouri Securities Act.
7
<PAGE>
4. Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Subscribers (which
shall be true at the signing of this Subscription Agreement, as of Closing), and
agrees with the Subscribers that:
4.1 Organization, Good Standing, and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota, USA and has all requisite corporate power and
authority to carry on its business as now conducted and as proposed to be
conducted. The Company is duly qualified to transact business and is in good
standing in each jurisdiction in which the failure to so qualify would have a
material adverse effect on the business or properties of the Company. The
Company is not the subject of any pending, threatened or, to its knowledge,
contemplated investigation or administrative or legal proceeding by the Internal
Revenue Service, the taxing authorities of any state or local jurisdiction, or
the Securities and Exchange Commission, or any state securities commission, or
any other governmental entity, which have not been disclosed in the reports
referred to in Section 2.2 above.
4.2 Corporate Condition. The Company's condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the Company. Other than as described in the
Disclosure Documents (if applicable), there have been no material adverse
changes in the Company's business prospects or financial condition since the
date of the last balance sheet included in the Disclosure Documents. The
financial statements contained in the Disclosure Documents have been prepared in
accordance with generally accepted accounting principles, consistently applied
(except as otherwise permitted by Regulation S-X of the Exchange Act), and
fairly present the financial condition of the Company as of the dates of the
balance sheet included therein and the consolidated results of its operations
and cash flows for the period then ended. Without limiting the foregoing, there
are no material liabilities, contingent or actual, that are not disclosed in the
Disclosure Documents (other than liabilities incurred by the Company in the
ordinary course of its business, consistent with its past practice, after the
period covered by the Disclosure Documents). The Company has paid all material
taxes which are due, except for taxes which it reasonably disputes. There is no
material claim, litigation, or administrative proceeding pending or, to the best
of the Company's knowledge, threatened against the Company, except as disclosed
in the Disclosure Documents. The Disclosure Documents do not contain any untrue
statement of a material fact and do not omit to state any material fact required
to be stated therein necessary to make the statements contained therein not
misleading in the light of the circumstances under which they were made.
4.3 Authorization. All corporate action on the part of the Company
by its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Subscription Agreement, the performance of all
obligations of the Company hereunder and the authorization, issuance and
delivery of the Preferred Stock being sold hereunder and the issuance (and
reservation for issuance) of the Conversion Shares have been taken, and this
Subscription Agreement, the Certificate of Designation, the Irrevocable
Instructions to Transfer Agent, the Escrow Agreement, the Subscriber Warrants
and the Registration Rights Agreement constitute valid and legally binding
obligations of the Company, enforceable in accordance with their
8
<PAGE>
terms. The Company has obtained all consents and approvals required for it to
execute, deliver and perform each agreement referenced in the previous sentence.
4.4 Valid Issuance of Preferred Stock and Common Stock. The Preferred
Stock, when issued, sold and delivered in accordance with the terms hereof, for
the consideration expressed herein, will be validly issued, fully paid and
nonassessable and, based in part upon the representations of the Subscriber in
this Subscription Agreement and the Placement Agent in the Placement Agent
Agreement ("Placement Agent Agreement") between the Company and the Placement
Agent, will be issued in compliance with all applicable U.S. federal and state
securities laws. The Common Stock issuable upon conversion of the Preferred
Stock, when issued in accordance with the terms of the Certificate of
Designation, and the Common Stock issuable upon exercise of the Subscriber
Warrants, when issued in accordance with the terms of the Subscriber Warrants,
shall be duly and validly issued and outstanding, fully paid and nonassessable,
and based in part on the representations and warranties of Subscriber of the
Preferred Stock and the Placement Agent in the Placement Agent Agreement, will
be issued in compliance with all applicable U.S. federal and state securities
laws. The Preferred Stock, the Subscriber Warrants and the Conversion Shares
will be issued free of any preemptive rights. The Company currently has at least
Three Million Five Hundred Thousand (3,500,000) Conversion Shares reserved for
issuance upon conversion of the Preferred Stock and upon exercise of the
Subscriber Warrants.
4.5 Compliance with Other Instruments. The Company is not in
violation or default of any provisions of its Articles of Incorporation or
Bylaws as amended and in effect on and as of the date of this Subscription
Agreement or of any provision of any instrument or contract to which it is a
party or by which it is bound or, to its knowledge, of any provision of any
federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company, any of which singularly or in the
aggregate would have a material adverse affect on the Company's business or
prospects, except as described in the Disclosure Documents. The execution,
delivery and performance of this Subscription Agreement and the other agreements
entered into in conjunction with the Offering and the consummation of the
transactions contemplated hereby and thereby will not result in any violation or
be in conflict with or constitute, with or without the passage of time and
giving of notice, either a default under any such provision, instrument or
contract or an event which results in the creation of any lien, charge or
encumbrance upon any assets of the Company, any of which singularly or in the
aggregate would have a material adverse affect on the Company's business or
prospects, except as described in the Disclosure Documents.
4.6 Reporting Company. The Company is subject to the reporting
requirements of the Exchange Act has a class of securities registered under
Section 12 or Section 15 of the Exchange Act, and has filed all reports required
by the Exchange Act since the date the Company first became a reporting company.
4.7 Capitalization. The capitalization of the Company as of
December 31, 1996, is, and the capitalization as of the Closing, after taking
into account the Offering of the Securities contemplated by this Subscription
Agreement and all other share issuances occurring
9
<PAGE>
prior to this Offering, will be, as set forth in the capitalization table and
the pro-forma capitalization table of the Company set forth in Exhibit F.
4.8 Use of Proceeds. As of the date hereof, the Company expects to
use the proceeds from this Offering (less fees and expenses) for the purposes
and in the approximate amounts set forth as Exhibit G hereto. These purposes and
amounts are estimates and are subject to change.
4.9 Intellectual Property. The Company has valid, unrestricted and
exclusive patents, trademarks, trademark registrations, trade names, copyrights,
know-how, technology and other intellectual property necessary to the conduct of
its business as set forth on Exhibit H. Company has granted such licenses or has
assigned or otherwise transferred a portion of (or all of) such valid,
unrestricted and exclusive patents, trademarks, trademark registrations, trade
names, copyrights, know-how, technology and other intellectual property
necessary to the conduct of its business as set forth on Exhibit H. Company has
been granted licenses, know-how, technology and/or other intellectual property
necessary to the conduct of its business as set forth on Exhibit H. To the best
of Company's knowledge, the Company is not infringing on the intellectual
property rights of any third party, nor is any third party infringing on the
Company's intellectual property rights nor has the Company received any notice
from any third party alleging such infringement by the Company. There are no
restrictions in any agreements, licenses, franchises, or other instruments which
preclude the Company from engaging in its business as presently conducted.
4.10 No Rights of Participation. No person or entity, including, but
not limited to, current or former shareholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, or any similar right to participate in
the financing contemplated by this Subscription Agreement which has not been
either complied with or waived.
4.11 Termination Date of Offering. In no event shall the last
closing ("Last Closing") of a sale and purchase of a Preferred Stock occur later
than March 31, 1997, which date can be extended by up to ten (10) days upon
written approval by the Company and Placement Agent.
4.12 Underwriter's Fees and Rights of First Refusal. The Company is
not obligated to pay any compensation or other fees, costs or related
expenditures in cash or securities to any underwriter, broker, agent or other
representative other than the Placement Agent in connection with this Offering.
5. Covenants of the Company
5.1 Independent Auditors. The Company shall, until at least two (2)
years after the date of the Last Closing, maintain as its independent
auditors an accounting firm authorized to practice before the SEC.
10
<PAGE>
5.2 Corporate Existence and Taxes. The Company shall, until at least
the earlier of (i) the date that is two (2) years after the Last Closing or (ii)
the conversion or redemption of all of the Preferred Stock purchased pursuant to
this Subscription Agreement and the exercise of all Subscriber Warrants issued
in connection with the Offering, maintain its corporate existence in good
standing (provided, however, that the foregoing covenant shall not prevent the
Company from entering into any merger or corporate reorganization as long as the
surviving entity in such transaction, if not the Company, assumes the Company's
obligations with respect to the Preferred Stock and the Subscriber Warrants) and
shall pay all its taxes when due except for taxes which the Company disputes.
5.3 Registration Rights. The Company will grant Subscriber the
registration rights covering the Conversion Shares on the terms of the
Registration Rights Agreement (substantially in the form of Exhibit B).
5.4 Notification of Last Closing by Company. Within five (5)
business days after the Last Closing, the Company shall notify the Subscriber in
writing that the Last Closing has occurred, the date of the Last Closing, the
dates that the subscribers are entitled to convert their Preferred Stock, the
Fixed Conversion Price and the Minimum Conversion Price, as those terms are
defined in the Certificate of Designation, and the name and telephone number of
an administrative contact person at the Company whom the Subscriber may contact
regarding information related to conversion of the Preferred Stock as
contemplated by the Certificate of Designation.
5.5 Capital Raising Limitations; Rights of First Refusal.
5.5.1 Capital Raising Limitations. The Company shall not issue
any debt or equity securities for cash in private capital raising transactions
("Future Offerings") in excess of an aggregate of Three Million ($3,000,000)
Dollars for a period beginning on the date hereof and ending One Hundred Eighty
(180) days after the Last Closing without obtaining the prior written approval
of Subscribers holding a majority of the purchase price of Preferred Stock then
outstanding.
5.5.2 Subscriber's 180 Day Right of First Refusal. The Company
will not conduct any Future Offerings for a period beginning on the date hereof
and ending One Hundred Eighty (180) days after the Last Closing without
delivering to the Subscribers holding outstanding Preferred Stock, at least
seven (7) days prior to the closing of such issuance, written notice describing
the proposed issuance and the terms upon which such securities are being issued,
and providing the Subscriber the option during such seven (7) day period to
purchase the securities being offered in the Future Offerings on the same terms
as contemplated by such Future Offerings and in the amount set forth below (the
limitations referred to in this and the immediately preceding sentence are
collectively referred to as the "Capital Raising Limitation").
5.5.3 Amount of Subscriber's Right of First Refusal. The amount
of securities which a Subscriber is entitled to purchase in such a Future
Offering shall be a number obtained by multiplying the aggregate amount of
securities being offered in the Future Offering by a fraction, the numerator of
which is the purchase price of the Preferred Stock purchased by
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<PAGE>
the Subscriber pursuant to this Subscription Agreement and the denominator of
which is the aggregate dollar amount of Preferred Stock placed in this Offering.
5.5.4 Exceptions to the Capital Raising Limitation. The Capital
Raising Limitation shall not apply to any borrowing by the Company from a
commercial bank or issuances of securities in connection with a merger,
consolidation or purchase or sale of assets, or in connection with or as part of
the same transaction as a joint venture or other acquisition or disposition of a
business, a product or a license by the Company or exercise of options by
employees, consultants or directors or any transaction with a strategic
corporate partner. The Capital Raising Limitation also shall not apply to the
issuance of securities upon exercise or conversion of the Company's options,
warrants, or other convertible securities outstanding as of the date of the Last
Closing of this Offering, or to the grant of additional options or warrants, or
the issuance of additional securities, under any Company stock option, or
restricted stock plan. Additionally, the Capital Raising Limitation shall not
apply to any public offerings undertaken by the Company.
5.6 Financial 10-K Statements, Etc. and Current Reports on Form 8-K.
The Company shall provide Subscriber with copies of its annual reports on Form
10-K, quarterly reports on Form 10-Q and current reports on Form 8-K for as long
as the Preferred Stock may remain outstanding, unless such documents are
available through the Electronic Data Gathering and Retrieval ("EDGAR") system
of the Securities and Exchange Commission.
5.7 Opinion of Counsel. Subscribers shall, upon purchase of the
Preferred Stock pursuant to this Subscription Agreement, receive an opinion
letter from Dorsey & Whitney LLP, counsel to the Company, in substantially the
form attached hereto as Exhibit C.
5.8 Payments for Late Conversion or Failure to Reserve Authorized but
Unissued Common.
(a) Payments for Late Conversion. The Company understands that
a delay in the issuance of the Conversion Shares (a "Late Conversion")
later than the Deadline, as defined in the Certificate of Designation
(the "Deadline") could result in economic loss to the Holder. As
compensation to the holder of the Preferred Stock (the "Holder") for
such loss, the Company agrees to pay Holder, at Holder"s election in
lieu of Acceleration Payments (as defined below), for late issuance
("Late Conversion Payments") of Conversion Shares upon Conversion in
accordance with the following schedule (where "No. Business Days Late"
is defined as the number of business days beyond the Deadline):
<TABLE>
<CAPTION>
Late Payment For
Each Share of Preferred
No. Business Days Late Stock Being Converted
---------------------- -----------------------
<S> <C> <C>
1 $ 50
2 $100
3 $150
4 $200
5 $250
6 $300
7 $350
8 $400
9 $450
10 $500
>10 $500 + $100 for each
Business Day Late beyond 10 days
</TABLE>
12
<PAGE>
In the event of a Late Conversion, Subscriber may elect to
receive Late Conversion Payments under this Section in lieu of
Acceleration Payments, if applicable, under Section 11 of the
Certificate of Designation ("Acceleration Payments"). If Subscriber
elects to receive Late Conversion Payments under this Section,
Subscriber will not be entitled to request Acceleration Payments under
the Certificate of Designation with respect to the shares of Preferred
Stock for which Late Conversion Payments were received, and agrees
that such rights with respect to such late conversion will be waived
by acceptance of Late Conversion Payments hereunder. If Subscriber
receives Acceleration Payments for a Late Conversion, Subscriber shall
not be entitled to Late Conversion Payments under this Section for
such Late Conversion.
To the extent that the failure of the Company to issue the
Conversion Shares pursuant to this Section 5.8 is due to the
unavailability of authorized but unissued shares of Common Stock, the
provisions of subsection 5.8(a) shall not apply but instead the
provisions of subsection 5.8(b) shall apply.
The Company shall pay any late payments to Holder incurred under
this Section by certified check within seven (7) business days from
the date of issuance of Conversion Shares. Nothing herein shall limit
the Holder's right to pursue actual damages for the Company's failure
to issue and deliver Conversion Shares to the Subscriber in accordance
with the terms of the Certificate of Designation.
(b) Payments for Failure to Reserve Authorized but Unissued
Common Stock. Beginning on the date that is five (5) months after the
Last Closing, assuming that the Closing Bid Price of the Company's
Common Stock is less than the Soft Floor Price (as defined in the
Certificate of Designation), the Company shall calculate the number of
Conversion Shares issuable upon conversion of all outstanding
Preferred Stock then eligible for conversion under Section 5 of the
Certificate of Designation and upon exercise of all Subscriber
Warrants then eligible for exercise as of the end of such month. The
Company shall provide each Holder with a copy of such calculation
within five (5) business days after the last business day of the month
for which such calculation was made. The calculation shall be made
assuming a Conversion Price (the "Assumed Conversion Price") equal to
eighty five percent (85%) of the average Closing Bid Price for the
twenty (20) trading days ending on the last trading day of the month
13
<PAGE>
in which the calculation was made. If, based upon such calculation,
the Company does not have at least one hundred twenty five percent
(125%) of the number of Conversion Shares necessary to effect, in
full, a conversion of all the outstanding Preferred Stock then
eligible for conversion under Section 5 of the Certificate of
Designation at the Assumed Conversion Price and an exercise of all
Subscriber Warrants then eligible for exercise, (referred to as a
"Conversion Shortfall", the date of such default being referred to
herein as the "Conversion Shortfall Date") authorized and reserved but
unissued, the Company shall take immediate action to promptly
authorize and reserve a sufficient number of Conversion Shares such
that the total number of Conversion Shares so authorized and reserved
is equal to one hundred and fifty percent (150%) of the number of
Conversion Shares required to effect, in full, a conversion of the all
outstanding Preferred Stock under Section 5 of the Certificate of
Designation at the Assumed Conversion Price as of the Conversion
Shortfall Date and an exercise of all Subscriber Warrants then
eligible for exercise. If, at any time a Holder or Holders of
Preferred Stock submits a Notice of Conversion (as defined in the
Certificate of Designation) and the Company does not have sufficient
authorized but unissued Conversion Shares available to effect, in
full, a conversion of the Preferred Stock under Section 5 of the
Certificate of Designation (referred to as a "Conversion Default", the
date of such default being referred to herein as the "Conversion
Default Date"), the Company shall issue to such Holder(s), pro rata,
all of the Conversion Shares which are available, and the Notice of
Conversion as to any shares of Preferred Stock requested to be
converted but not converted (the "Unconverted Preferred Conversion
Shares") shall become null and void. The Company shall provide notice
of such Conversion Default ("Notice of Conversion Default") to all
Holders of outstanding Preferred Stock, by facsimile, within one (1)
business day of such default (with the original delivered by overnight
or two (2) day courier). No Holder may submit a Notice of Conversion
after receipt of a Notice of Conversion Default until the date
additional Conversion Shares are authorized by the Company. The
Company will take immediate action to authorize an appropriate number
of additional shares as soon as practicable.
If the Company is unable to cure the Conversion Shortfall within
seventy five (75) days, or if the Company is unable to cure the Conversion
Default within seventy-five (75) days, then the Company agrees to pay to all
Holders of outstanding Preferred Stock payment ("Conversion Default Payments")
for a Conversion Default in the amount of (N/365) X .24 X the initial issuance
price of the outstanding Preferred Stock held by each Holder, where N = the
number of days from the Conversion Shortfall Date (or Conversion Default Date,
as applicable) to the date (the "Authorization Date") that the Company
authorizes a sufficient number of Conversion Shares to effect conversion of all
remaining Shares of Preferred Stock. The Company shall send notice
("Authorization Notice") via facsimile, with a copy by overnight or two (2) day
courier, to all Holders of outstanding Preferred Stock that additional
Conversion Shares have been authorized, the Authorization Date and the amount of
Holder's accrued Conversion Default Payments. The accrued Conversion Default
Payments for each calendar month shall be paid in cash or shall be convertible
into Common Stock at the Conversion Rate (as defined in the Certificate of
Designation) then in effect, at the Holder's
14
<PAGE>
option, payable as follows: (i) in the event Holder elects to take such payment
in cash, cash payments shall be made to each Holder of outstanding Preferred
Stock by the fifth (5th) day of the following calendar month or (ii) in the
event Holder elects to take such payment in stock, the Holder may convert such
payment amount into Common Stock at the Conversion Rate at anytime after the
fifth (5th) day of the calendar month following the month the Authorization
Notice was received, until the automatic conversion date set forth in the
Certificate of Designation.
Nothing herein shall limit Holder's right to pursue actual damages for
the Company's failure to maintain a sufficient number of authorized Conversion
Shares.
5.9 Resale of Common Stock. The Subscriber agrees that it will only
sell shares of Common Stock issued upon Conversion of the Preferred Stock
pursuant to the Registration Statement or an available exemption and agrees to
deliver a prospectus in connection with any sale made pursuant to the
Registration Statement. Conversion Shares shall be issued to transferees thereof
without restrictive legend upon the terms set forth in the Irrevocable
Instructions to Transfer Agent. In addition, the Company will, or will instruct
the Transfer Agent to, remove the restrictive legend from Conversion Shares
provided the Conversion Shares are eligible for resale pursuant to Rule 144(k)
and the Holder thereof makes the representations necessary for counsel to the
Company to issue a legal opinion to that effect.
5.10 The Company's Instructions to Transfer Agent. Company will issue
to its Transfer Agent an irrevocable instruction letter (the "Irrevocable
Instructions to Transfer Agent") substantially in the form of Exhibit D. The
Company hereby agrees that it will not unilaterally terminate its relationship
with the Transfer Agent for any reason, without the consent of the Holders of
seventy-five percent (75%) of interest of the then outstanding Preferred Stock
prior to the earlier of (i) the conversion or redemption of all of the Preferred
Stock or (ii) the date which is two (2) years after the Last Closing Date. In
the event the Company's agency relationship with the Transfer Agent should be
terminated for any other reason prior to the earlier of (i) the conversion or
redemption of all of the Preferred Stock or (ii) the date which is two (2) years
after the Last Closing Date, the Company's Transfer Agent shall agree to
continue acting as transfer agent pursuant to the terms of the Irrevocable
Instructions to Transfer Agent until such time that a successor transfer agent
(i) is appointed by the Company; (ii) is approved by seventy-five percent (75%)
of the Subscribers of outstanding Preferred Stock; and (iii) executes and agrees
to be bound by the terms of the Irrevocable Instructions to Transfer Agent.
5.11 Subscriber Warrants. On the date that is one (1) year after the
date of the Last Closing (the "One Year Anniversary Date"), each Subscriber
shall be entitled to receive warrants ("Subscriber Warrants"), substantially in
the form attached hereto as Exhibit K, to purchase a number of shares of Common
Stock of the Company equal to twenty percent (20%) of the aggregate purchase
price of the Subscriber's Preferred Stock which is outstanding and unconverted
as of the One Year Anniversary Date, divided by the Conversion Price then in
effect at an exercise price per share equal to one hundred fifteen percent
(115%) of the average Closing Bid Price for the five (5) trading days ending on
the One Year Anniversary Date, with a two (2) year term.
15
<PAGE>
6. Miscellaneous
6.1 Representations and Warranties Survive the Closing; Severability.
The Subscriber's and the Company's representations and warranties shall survive
the Closing of the transaction notwithstanding any due diligence investigation
made by or on behalf of the party seeking to rely on such representations and
warranties. In the event that any provision of this Subscription Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Subscription Agreement shall continue in full force
and effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Subscription
Agreement to any party.
6.2 Successors and Assigns. The terms and conditions of this
Subscription Agreement shall inure to the benefit of and be binding upon the
respective successors and assigns of the parties. Nothing in this Subscription
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Subscription
Agreement, except as expressly provided in this Subscription Agreement.
Subscriber may assign its rights hereunder, in connection with any private sale
of the Preferred Stock of such Subscriber, so long as, as a condition precedent
to such transfer, the transferee executes an acknowledgment agreeing to be bound
by the applicable provisions of this Subscription Agreement in a form acceptable
to the Company and provides an original of such acknowledgment to the Company.
6.3 Governing Law. This Subscription Agreement shall be governed by
and construed under the laws of the State of Minnesota without respect to
conflict of laws.
6.4 Execution in Counterparts Permitted. This Subscription Agreement
may be executed in any number of counterparts, each of which shall be
enforceable against the parties actually executing such counterparts, and all of
which together shall constitute one (1) instrument.
6.5 Titles and Subtitles; Gender. The titles and subtitles used in
this Subscription Agreement are used for convenience only and are not to be
considered in construing or interpreting this Subscription Agreement. The use in
this Subscription Agreement of a masculine, feminine or neither pronoun shall be
deemed to include a reference to the others.
6.6 Written Notices, Etc. Any notice, demand or request required or
permitted to be given by the Company or the Subscriber pursuant to the terms of
this Subscription Agreement shall be in writing and shall be deemed given when
delivered personally, or by facsimile (with a hard copy to follow by two (2) day
courier), addressed to the parties at the addresses and/or facsimile telephone
number of the parties set forth at the end of this Subscription Agreement or
such other address as a party may request by notifying the other in writing.
6.7 Expenses. Each of the Company and the Subscriber shall pay all
costs and expenses that it respectively incurs with respect to the negotiation,
execution, delivery and performance of this Subscription Agreement.
16
<PAGE>
6.8 Entire Agreement; Written Amendments Required. This Subscription
Agreement, the Certificate of Designation, the Preferred Stock certificates, the
Registration Rights Agreement, the Irrevocable Instructions to Transfer Agent,
the Escrow Agreement and the other documents delivered pursuant hereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Subscription Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such amendment,
waiver, discharge or termination is sought.
6.9 Arbitration. Any controversy or claim arising out of or related
to this Subscription Agreement or the breach thereof, shall be settled by
binding arbitration in New York, New York in accordance with the Expedited
Procedures (Rules 53-57) of the Commercial Arbitration Rules of the American
Arbitration Association (AAA). A proceeding shall be commenced upon written
demand by Company or any Subscriber to the other. The arbitrator(s) shall enter
a judgment by default against any party which fails or refuses to appear in any
properly noticed arbitration proceeding. The proceeding shall be conducted by
one (1) arbitrator, unless the amount alleged to be in dispute exceeds two
hundred fifty thousand dollars ($250,000), in which case three (3) arbitrators
shall preside. The arbitrator(s) will be chosen by the parties from a list
provided by the AAA, and if they are unable to agree within ten (10) days, the
AAA shall select the arbitrator(s). The arbitrators must be experts in
securities law and financial transactions. The arbitrators shall assess costs
and expenses of the arbitration, including all attorneys' and experts' fees, as
the arbitrators believe is appropriate in light of the merits of the parties'
respective positions in the issues in dispute. Each party submits irrevocably to
the jurisdiction of any state court sitting in New York County, New York or to
the United States District Court for the Southern District of New York for
purposes of enforcement of any discovery order, judgment or award in connection
with such arbitration. The award of the arbitrator(s) shall be final and binding
upon the parties and may be enforced in any court having jurisdiction. The
arbitration shall be held in such place as set by the arbitrator(s) in
accordance with Rule 55.
7. Subscription and Wiring Instructions; Irrevocability.
7.1 Subscription.
(a) Wire transfer of Subscription Funds. Subscriber shall send its
signed Subscription Agreement by facsimile to Placement Agent at
(770) 640-7150, and send its subscription funds by wire transfer,
to the Escrow Agent as follows:
First Union National Bank
ABA No. 053000219
Account No. 465946
ATTN: Claire Moore
17
<PAGE>
Ref: Ancor Communications, Incorporated/Dunwoody Brokerage
Services, Inc.
A/C: 3072235744
SWIFT Code: FUNBUS33
Contact: Nicole Stefanini
Telephone: (404) 827-7326
Fax: (404) 827-7305
(b) Revocable Subscription. The Company hereby acknowledges and
agrees, that this Subscription Agreement is revocable and that
the Subscriber is entitled to cancel, terminate or revoke this
Subscription Agreement at any time prior to the later of (i) the
date the Subscriber executes the 10-K Acknowledgment or (ii) the
Company's acceptance hereof.
(c) Company's Right to Reject Subscription. This Subscription
Agreement shall be accepted by the Company when the Company
countersigns this Subscription Agreement. The Subscriber hereby
confirms that the Company has full right in its sole discretion
to accept or reject the subscription of the Subscriber, in whole
or in part, provided that, if the Company decides to reject such
subscription, the Company must do so promptly and in writing. In
the case of rejection, the Company will promptly return any
rejected payments and (if rejected in whole) copies of all
executed subscription documents (including without limitation
this Subscription Agreement) to Subscriber (with any earned
interest).
7.2 Acceptance of Subscription. In the case of acceptance of the
Subscriber's subscription, ownership of the number of securities being purchased
hereby will pass to the Subscriber upon the Closing.
7.3 Subscriber to Forward Original Signed Subscription Agreement to
Company. Subscriber agrees to courier to Company its original inked signed
Subscription Agreement within two (2) days after faxing said signed agreement to
Placement Agent.
8. Indemnification.
The Company agrees to indemnify and hold harmless Subscriber and each of
its officers, directors, employees and agents, and each person who controls
Subscriber within the meaning of the Act or the Exchange Act (each, an
"Indemnified Party") against any losses, claims, damages or liabilities, joint
or several, to which it, they or any of them, may become subject and not
otherwise reimbursed arising from or due to any untrue statement of a material
fact or the omission to state any material fact required to be stated in order
to make the statements not misleading in any representation or warranty made by
the Company contained in this Subscription Agreement or in any statements
contained in the Disclosure Documents.
Promptly after receipt by an Indemnified Party of notice of the
commencement of any action pursuant to which indemnification may be sought, such
Indemnified Party will, if a claim
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in respect thereof is to be made against the other party (hereinafter
"Indemnitor") under this Section 8, deliver to the Indemnitor a written notice
of the commencement thereof and the Indemnitor shall have the right to
participate in and to assume the defense thereof with counsel reasonably
selected by the Indemnitor, provided, however, that an Indemnified Party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of such counsel to be paid by the Company, if representation of such
Indemnified Party by the counsel retained by the Indemnitor would be
inappropriate due to actual or potential conflicts of interest between such
Indemnified Party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the Indemnitor within a
reasonable time of the commencement of any such action, if prejudicial to the
Indemnitor's ability to defend such action, shall relieve the Indemnitor of any
liability to the Indemnified Party under this Section 8, but the omission to so
deliver written notice to the Indemnitor will not relieve it of any liability
that it may have to any Indemnified Party other than under this Section 8 to the
extent it is prejudicial.
9. Certain Additional Legends and Information.
FOR FLORIDA RESIDENTS:
THE SECURITIES REFERRED TO HEREIN WILL BE SOLD TO, AND ACQUIRED BY,
THE HOLDER IN A TRANSACTION EXEMPT UNDER SECTION 517.061 OF THE FLORIDA
SECURITIES ACT. THE SECURITIES HAVE NOT BEEN REGISTERED UNDER SAID ACT IN THE
STATE OF FLORIDA. IN ADDITION, ALL FLORIDA RESIDENTS SHALL HAVE THE PRIVILEGE OF
VOIDING THE PURCHASE WITHIN THREE (3) DAYS AFTER THE FIRST TENDER OF
CONSIDERATION IS MADE BY SUCH SUBSCRIBER TO THE ISSUER, AN AGENT OF THE ISSUER,
OR AN ESCROW AGENT OR WITHIN THREE DAYS AFTER THE AVAILABILITY OF THAT PRIVILEGE
IS COMMUNICATED TO SUCH PURCHASER, WHICHEVER OCCURS LATER.
FOR NEW HAMPSHIRE RESIDENTS:
NEITHER THE FACT THAT A REGISTRATION STATEMENT OR AN APPLICATION FOR A
LICENSE HAS BEEN FILED WITH THE STATE OF NEW HAMPSHIRE NOR THE FACT THAT A
SECURITY IS EFFECTIVELY REGISTERED OR A PERSON IS LICENSED IN THE STATE OF NEW
HAMPSHIRE CONSTITUTES A FINDING BY THE SECRETARY OF STATE THAT ANY DOCUMENT
FILED UNDER RSA 421-B IS TRUE, COMPLETE AND NOT MISLEADING. NEITHER ANY SUCH
FACT NOR THE FACT THAT AN EXEMPTION OR EXCEPTION IS AVAILABLE FOR A SECURITY OR
A TRANSACTION MEANS THAT THE SECRETARY OF STATE HAS PASSED IN ANY WAY UPON THE
MERITS OR QUALIFICATIONS OF, OR RECOMMENDED OR GIVEN APPROVAL TO, ANY PERSON,
SECURITY, OR TRANSACTION. IT IS UNLAWFUL TO MAKE, OR CAUSE TO BE MADE, TO ANY
PROSPECTIVE PURCHASER, CUSTOMER OR CLIENT ANY REPRESENTATION INCONSISTENT WITH
THE PROVISIONS OF THIS PARAGRAPH.
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[INTENTIONALLY LEFT BLANK]
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10. Number of Shares and Purchase Price. Subscriber subscribes for
_________ Shares of Preferred Stock (in the amount of $10,000 per Share) against
payment by wire transfer in the amount of $___________________ ("Purchase
Price").
11. Accredited Investor. The Subscriber is (check applicable box):
(a) [_] a corporation, business trust, or partnership not formed for the
specific purpose of acquiring the securities offered, with total
assets in excess of $5,000,000.
(b) [_] any trust, with total assets in excess of $5,000,000, not formed
for the specific purpose of acquiring the securities offered,
whose purchase is directed by a sophisticated person who has such
knowledge and experience in financial and business matters that
it is capable of evaluating the merits and risks of the
prospective investment.
(c) [_] an individual, who
[_] is a director, executive officer or general partner of the issuer
of the securities being offered or sold or a director, executive
officer or general partner of a general partner of that issuer.
[_] has an individual net worth, or joint net worth with that
person's spouse, at the time of its purchase exceeding
$1,000,000.
[_] had an individual income in excess of $200,000 in each of the two
most recent years or joint income with that person's spouse in
excess of $300,000 in each of those years and has a reasonable
expectation of reaching the same income level in the current
year.
(d) [_] an entity each equity owner of which is an entity described in
a - b above or is an individual who could check one (1) of the
first three (3) boxes under subparagraph (c) above.
(e) [_] other [specify]__________________________________________________
The undersigned acknowledges that this Subscription Agreement and the
subscription represented hereby shall not be effective unless accepted by the
Company as indicated below.
IN WITNESS WHEREOF, the undersigned Subscriber does represent and certify under
penalty of perjury that the foregoing statements are true and correct and that
Subscriber has by the following signature(s) executed this Subscription
Agreement.
Dated this ____ day of _____________, 1997.
- ------------------------------------ ---------------------------------------
Your Signature PRINT EXACT NAME IN WHICH YOU WANT
THE SECURITIES TO BE REGISTERED
DELIVERY INSTRUCTIONS:
- ------------------------------------ ----------------------
Name: Please Print Please type or print address where your
security is to be delivered
- ------------------------------------ ATTN.:
Title/Representative Capacity --------------------------------
(if applicable)
- ------------------------------------ ---------------------------------------
Name of Company You Represent Street Address
(if applicable)
- ------------------------------------ ---------------------------------------
Place of Execution of this City, State or Province, Country,
Subscription Agreement Offshore Postal Code
---------------------------------------
Phone Number (For Federal Express) and
Fax Number (re: Notice)
THIS SUBSCRIPTION IS ACCEPTED BY THE COMPANY ON THE ____ DAY OF
_______________________, 1997.
ANCOR COMMUNICATIONS, INCORPORATED
By:
------------------------------------------
Stephen C. O'Hara, Chief Executive Officer
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NOTICE OF CONVERSION AND RESALE
(To be Executed by the Registered Holder
in order to Convert the Preferred Stock)
The undersigned hereby irrevocably elects to convert _____________ shares of
Series B Preferred Stock, represented by stock certificate No(s).
________________ (the "Preferred Stock Certificates") into shares of common
stock ("Common Stock") of Ancor Communications, Incorporated (the "Company")
according to the conditions of the Certificate of Designation of Series B
Preferred Stock, as of the date written below [in connection with the resale of
the underlying Common Stock unless otherwise indicated below]. If shares are to
be issued in the name of a person other than the undersigned, the undersigned
will pay all transfer taxes payable with respect thereto and is delivering
herewith such certificates. No fee will be charged to the Holder for any
conversion, except for transfer taxes, if any. A copy of each of the Preferred
Stock Certificates being converted is attached hereto or shall be delivered as
soon as practicable. The undersigned agrees to deliver a Prospectus in
connection with any sale made pursuant to the Registration Statement, as
provided in Section 5.10 of the Subscription Agreement.
____ Check here if this conversion is not being made in connection with the
resale of the Common Stock.
Date of Conversion:_________________
Applicable Conversion Price:___________
Number of Shares of
Common Stock to be Issued:____________
Signature:__________________________
Name:_____________________________
Address: ___________________________
* No shares of Common Stock will be issued until the original Series B Preferred
Stock Certificate(s) to be converted and the Notice of Conversion are received
by the Company's designated Transfer Agent for the Series B Preferred Stock
("Transfer Agent"). The Holder shall (i) fax, on or prior to 11:59 p.m., New
York City time, on the date of conversion, a copy of this completed and fully
executed Notice of Conversion to the Company at the office of the Transfer Agent
that the Holder elects to convert and (ii) surrender or cause to be surrendered,
to a common courier for either
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<PAGE>
overnight or two (2) day delivery to the office of the Transfer Agent, the
original Series B Preferred Stock Certificate(s) representing the Series B
Preferred Stock being converted, duly endorsed for transfer. The Transfer Agent
shall issue shares of Common Stock and surrender them to a common courier for
delivery to the shareholder, no later than three (3) business days following
receipt by the Transfer Agent of this Notice of Conversion and the original
Series B Preferred Stock Certificate(s) to be converted, duly endorsed for
transfer, all in accordance with the terms of the Certificate of Designation and
the Subscription Agreement, and shall make payments (if required) for the number
of business days such issuance and delivery is late, if any, pursuant to the
terms of the Subscription Agreement.
EXHIBIT I
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Exhibit 10.24
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT ("Agreement") is entered into as of
March 21st, 1997, by and among Ancor Communications, Incorporated, a corporation
duly incorporated and existing under the laws of the State of Minnesota
("Company"), Dunwoody Brokerage Services, Inc., a Georgia corporation
("Dunwoody") and the subscribers (hereinafter referred to as "Subscribers") to
the Company's offering ("Offering") of up to Nine Million Dollars ($9,000,000)
of Series B Convertible Preferred Stock (the "Preferred Stock") pursuant to the
Regulation D Subscription Agreement between the Company and each of the
Subscribers ("Subscription Agreement").
1. Definitions. For purposes of this Agreement:
(a) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933 (the "Act"), and
pursuant to Rule 415 under the Act or any successor rule, and the declaration or
ordering of effectiveness of such registration statement or document;
(b) For purposes hereof, the term "Registrable Securities" means the
shares of the Company's Common Stock together with any capital stock issued in
replacement of, in exchange for or otherwise in respect of such Common Stock
(the "Common Stock"), issuable or issued upon (i) conversion of the Preferred
Stock, (ii) exercise of the warrants to purchase Common Stock to be issued to
the Subscribers in connection with the Offering (the "Subscriber Warrants") and
(iii) exercise of the Warrant to purchase Common stock issued to Dunwoody in
connection with the Offering (the "Placement Agent Warrant", together with the
Subscriber Warrants, collectively referred to as the "Warrants"), by Dunwoody or
any subsequent Holder of the Warrant or portion thereof.
Notwithstanding the above:
1. Common Stock which would otherwise be deemed to be Registrable
Securities shall not constitute Registrable Securities if those shares
of Common Stock may be resold in a public transaction without volume
limitations without registration under the Act, including without
limitation, pursuant to Rule 144 under the Act; and
2. any Registrable Securities resold in a public transaction shall
cease to constitute Registrable Securities.
(c) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock which have been
issued or are issuable upon conversion of the Preferred Stock and exercise of
the then outstanding Warrants at the time of such determination;
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(d) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any permitted assignee thereof;
(e) The term "Initiating Holders" means (i) one or more holders of
Registrable Securities obtained or obtainable upon conversion of at least Fifty
(50) shares of Preferred Stock; and
(f) The term "Due Date" means the date which is five (5) months after
the Last Closing (as defined in the Subscription Agreement) of the Offering.
EXHIBIT B
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2. REQUIRED REGISTRATION.
(a) The Company shall use its best efforts to file, within sixty (60)
days after the Last Closing of the Offering and shall in any event file, within
ninety (90) days after the Last Closing of the Offering, a registration
statement ("Registration Statement") on Form S-3 (or other suitable form, at the
Company's discretion, but subject to the reasonable approval of Subscribers),
covering the resale of all shares of Registrable Securities then outstanding or
issuable upon conversion of all then outstanding Preferred Stock or upon
exercise of the Warrants. Such Registration Statement shall initially cover the
number of shares issuable upon exercise of the Placement Agent Warrant plus at
least Three Million Five Hundred Thousand (3,500,000) shares of Common Stock and
shall cover, to the extent allowed by applicable law, such additional
indeterminate number of shares of Common Stock as are required to effect
conversion of the Preferred Stock due to fluctuations in the price of the
Company's Common Stock. The Company shall use best efforts to have the
Registration Statement declared effective as soon as possible. In the event that
the Company determines, which determination shall be made by the Company within
five (5) business days after the last business day of each month after the Due
Date or is notified at any time by a Holder, that the Registration Statement
does not cover a sufficient number of shares of Common Stock to effect the
resales of a number of shares of Common Stock equal to one hundred twenty five
percent (125%) of the number of shares of Common Stock issuable to each
Subscriber upon conversion of all outstanding Preferred Stock then eligible for
conversion, at the Assumed Conversion Price (as defined in the Subscription
Agreements) then in effect (based upon the average closing price of the
Company's Common Stock for the twenty (20) trading days prior to such
calculation) and upon exercise of all the outstanding Warrants (a "Registration
Shortfall"), the Company shall, within five (5) business days, amend the
Registration Statement or file a new Registration Statement (an "Amended" or
"New" Registration Statement, respectively), as appropriate, to add such number
of additional shares as would be necessary to effect the resales of a number of
shares of Common Stock equal to one hundred fifty percent (150%) of the number
of shares of Common Stock issuable to each Subscriber upon conversion of all
outstanding Preferred Stock then eligible for conversion, at the Assumed
Conversion Price (as defined in the Subscription Agreement) then in effect
(based upon the average closing price of the Company's Common Stock for the
twenty (20) trading days prior to such calculation) and upon exercise of all the
outstanding Warrants. If the Registration Statement is not filed within ninety
(90) days after the Last Closing of the Offering, Company shall pay the
Subscribers an amount equal to one and one-half percent (1 1/2%) per month of
the aggregate amount of outstanding Preferred Stock held by Subscriber, accruing
daily until the Registration Statement is filed, payable in Common Stock, as set
forth below ("Late Filing Payment"). If the Registration Statement is not
declared effective by the Due Date, or if any Amended or New Registration
Statement required to be filed hereunder is not declared effective within three
(3) calendar months of the date it is required to be filed, the Company shall
pay the Subscribers an amount equal to one and one-half percent (1 1/2%) per
month of the aggregate amount of outstanding Preferred Stock held by Subscriber,
accruing daily until the Registration Statement or a registration statement
filed pursuant to Section 3 of this Agreement is declared effective (the "Late
Registration Payment"). Any Late Filing Payment or Late Registration Payment
shall be payable in Common Stock, as follows:
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<PAGE>
Upon conversion of each share of Preferred Stock, the Company shall issue
to the Subscriber the number of shares of Common Stock determined as set
forth in Section 5(a) of the Certificate of Designation, plus an additional
number of shares of Common Stock attributable to such share of Preferred
Stock (the "Additional Shares") determined as set forth below:
Additional Shares = Late Registration Payment + Late Filing Payment
-----------------------------------------------
Conversion Price
4
<PAGE>
; provided that, if the Registration Statement is not declared effective within
two (2) months after the Due Date, or if any Amended or New Registration
Statement required to be filed hereunder is not effective within four (4) months
of the date it is required to be filed, any Late Filing Payment or Late
Registration Payment not previously paid in Additional Shares shall be payable,
in cash by a cashiers check, at the option of the Holder (upon written request
of such Holder, referred to as a "Cash Payment Request"), no later than ten (10)
days after the end of (i) the month in which the Company receives the Holder's
Cash Payment Request and (ii) any subsequent month(s) for which such amounts
accrue (unless the Holder notifies the Company otherwise, in writing). With
respect to the Preferred Stock, "Conversion Price" has the definition ascribed
to it in the Certificate of Designation.
Such Additional Shares shall also be deemed "Registrable Securities" as defined
herein. The Company covenants to use its best efforts to use Form S-3 for the
registration required by this Section during all applicable times contemplated
by this Agreement.
(b) The Registration Statement shall be prepared as a "shelf"
registration statement under Rule 415, and shall be maintained effective until
all Registrable Securities cease to exist.
(c) The Company represents that it is presently eligible to effect the
registration contemplated hereby on Form S-3 and will use its best efforts to
continue to take such actions as are necessary to maintain such eligibility.
3. Piggyback Registration. If the Registration Statement described
in Section 2 is not effective by the Due Date, and if (but without any
obligation to do so) the Company proposes to register (including for this
purpose a registration effected by the Company for shareholders other than the
Holders) any of its Common Stock under the Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely for the sale of securities to participants in a Company stock plan or a
registration on Form S-4 promulgated under the Act or any successor or similar
form registering stock issuable upon a reclassification, upon a business
combination involving an exchange of securities or upon an exchange offer for
securities of the issuer or another entity), the Company shall, at such time,
promptly give each Holder written notice of such registration (a "Piggyback
Registration Statement"). Upon the written request of each Holder given by fax
within ten (10) days after mailing of such notice by the Company, the Company
shall cause to be included in such registration statement under the Act all of
the Registrable Securities that each such Holder has requested to be registered
("Piggyback Registration") to the extent such inclusion does not violate the
registration rights of any other securityholder of the company granted prior to
the date hereof; nothing herein shall prevent the Company from withdrawing or
abandoning the registration statement prior to its effectiveness. The election
of initiating Holders to participate in a Piggyback Registration Statement shall
not impact the amount payable to investors pursuant to Section 2(a) herein
except that the Late Registration Payment shall cease to accrue as of the date
of effectiveness of the Piggyback Registration Statement.
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<PAGE>
4. Limitation on Obligations to Register.
(a) In the case of a Piggyback Registration on an underwritten public
offering by the Company, if the managing underwriter determines and advises in
writing that the inclusion in the registration statement of all Registrable
Securities proposed to be included would interfere with the successful marketing
of the securities proposed to be registered by the Company, then the number of
such Registrable Securities to be included in the registration statement, to the
extent such Registrable Securities may be included in such Piggyback
Registration Statement shall be allocated among all Holders who had requested
Piggyback Registration pursuant to the terms hereof, in the proportion that the
number of Registrable Securities which each such Holder, including Dunwoody,
seeks to register bears to the total number of Registrable Securities sought to
be included by all Holders, including Dunwoody.
(b) In the event the Company believes that shares sought to be
registered under Section 2 or Section 3 by Holders do not constitute
"Registrable Securities" by virtue of Section 1(b) of this Agreement, and the
status of those shares as Registrable Securities is disputed, the Company shall
provide, at its expense, an Opinion of Counsel, reasonably acceptable to the
Holders of the Securities at issue (and satisfactory to the Company's transfer
agent to permit the sale and transfer) that those securities may be sold
immediately, without volume limitation, without registration under the Act, by
virtue of Rule 144 or similar provisions.
5. Obligations of the Company. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become effective.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers 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 Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders of
the Registrable Securities covered by such registration statement, provided that
the Company shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
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(e) 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 of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) As promptly as practicable after becoming aware of such event,
notify each Holder of Registrable Securities of the happening of any event of
which the Company has knowledge, as a result of which the prospectus included in
the registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, and subject to Section 6 use its best
efforts promptly to prepare a supplement or amendment to the registration
statement to correct such untrue statement or omission, and deliver a number of
copies of such supplement or amendment to each Holder as such Holder may
reasonably request.
(g) Provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC, and the date or dates when the Registration
Statement is no longer effective.
(h) Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of Company's pertinent financial and
other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
(i) Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC if so requested by Holder in writing.
6. Black Out. In the event that, during the time that the
Registration Statement is effective, the Company reasonably determines, based
upon advice of counsel, that due to the existence of material non-public
information, disclosure of such material non-public information would be
required to make the statements contained in the Registration Statement not
misleading, and the Company has a bona fide business purpose for preserving as
confidential such material non-public information, the Company shall have the
right to suspend the effectiveness of the Registration Statement, and no Holder
shall be permitted to sell any Registrable Securities pursuant thereto, until
such time as such suspension is no longer advisable; provided, however, that
such time shall not exceed a period of one hundred twenty (120) days. As soon
as such suspension is no longer advisable, the Company shall, if required,
promptly, but in no event later than the date the Company files any documents
with the Securities and Exchange Commission ("SEC") referencing such material
information, file with the SEC an amendment to the Registration Statement
disclosing such information and use its best efforts to have such amendment
declared effective as soon as possible.
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In the event the effectiveness of the Registration Statement is
suspended by the Company pursuant hereto, the Company shall promptly notify all
Holders whose securities are covered by the Registration Statement of such
suspension, and shall promptly notify each such Holder as soon as the
effectiveness of the Registration Statement has been resumed. The Company shall
be entitled to effect no more than one such suspension during the one (1) year
period following the Last Closing.
7. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement with
regard to each selling Holder that such selling Holder shall furnish to the
Company such information regarding Holder, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required to effect the registration of its Registrable Securities or to
determine that registration is not required pursuant to Rule 144 or other
applicable provision of the Act.
8. Expenses. All expenses other than underwriting discounts and
commissions and fees and expenses of counsel to the selling Holders incurred in
connection with registrations, filings or qualifications pursuant hereto,
including (without limitation) all registration, filing and qualification fees,
printers' and accounting fees, fees and disbursements of counsel for the
Company, shall be borne by the Company.
9. Indemnification. In the event any Registrable Securities are
included in a Registration Statement or a Piggyback Registration statement under
this Agreement:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the officers and directors of each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Act or the
Securities Exchange Act of 1934, as amended (the "1934 Act"), against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements or
omissions: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, or (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, and the Company will reimburse each such Holder, officer
or director, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, officer, director, underwriter or
controlling person.
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<PAGE>
(b) To the extent permitted by law, each selling Holder, severally
and not jointly, will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Act, any
underwriter and any other Holder selling securities in such registration
statement or any of its directors or officers or any person who controls such
Holder, against any losses, claims, damages, or liabilities (joint or several)
to which the Company or any such director, officer, controlling person, or
underwriter or controlling person, or other such Holder or director, officer or
controlling person may become subject, under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any statement or
omission in each case to the extent (and only to the extent) that such statement
or omission is made in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration
statement; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company and any such director, officer, controlling
person, underwriter or controlling person, other Holder, officer, director, or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 9, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party shall
have the right to retain its own counsel, with the reasonably incurred fees and
expenses of one such counsel to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential conflicting
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
9, but the omission so to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(d) In the event that the indemnity provided in paragraph (a) or (b)
of this Section 9 is unavailable to or insufficient to hold harmless an
indemnified party for any reason, the Company and each Holder agree to
contribute to the aggregate claims, losses, damages and liabilities (including
legal or other expenses reasonably incurred in connection with investigating or
defending same) (collectively "Losses") to which the Company and one or more of
the Holder
9
<PAGE>
may be subject in such proportion as is appropriate to reflect the relative
fault of the Company and the Holders in connection with the statements or
omissions which resulted in such Losses. Relative fault shall be determined by
reference to whether any alleged untrue statement or omission relates to
information provided by the Company or by the Holders. The Company and the
Holders agree that it would not be just and equitable if contribution were
determined by pro rata allocation or any other method of allocation which does
not take account of the equitable considerations referred to above.
Notwithstanding the provisions of this paragraph (d), no person guilty of
fraudulent misrepresentation (within the meaning of Section 10(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. For purposes of this Section 9,
each person who controls a Holder of Registrable Securities within the meaning
of either the Securities Act or the Exchange Act and each director, officer,
partner, employee and agent of a Holder shall have the same rights to
contribution as such holder, and each person who controls the Company within the
meaning of either the Act or the Exchange Act and each director of the Company,
and each officer of the Company who has signed the registration statement, shall
have the same rights to contribution as the Company, subject in each case to the
applicable terms and conditions of this paragraph (d).
(e) The obligations of the Company and Holders under this Section 9
shall survive the redemption and conversion, if any, of the Preferred Stock, the
completion of any offering of Registrable Securities in a Registration Statement
under this Agreement, and otherwise.
10. Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration, the
Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
11. Amendment of Registration Rights. Any provision of this
Agreement may be amended and the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the Holders of
a majority of the Registrable Securities provided that the amendment treats all
Holders equally. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each Holder, each future Holder, and the
Company.
12. Notices. All notices required or permitted under this Agreement
shall be made in writing signed by the party making the same, shall specify the
section under this Agreement pursuant to which it is given, and shall be
addressed if to (i) the Company at: Ancor Communications, Incorporated, 6130
Blue Circle Drive, Minnetonka, Minnesota, 55343 Telephone No. (612) 932-4059,
Facsimile No. (612) 932-4037 and (ii) the Holders at their
10
<PAGE>
respective last address as the party as shown on the records of the Company. Any
notice, except as otherwise provided in this Agreement, shall be made by fax and
shall be deemed given at the time of transmission of the fax.
13. Termination. This Agreement shall terminate on the date all
Registrable Securities cease to exist; but without prejudice to (i) the parties'
rights and obligations arising from breaches of this Agreement occurring prior
to such termination (ii) other indemnification obligations under this Agreement.
14. Assignment. No assignment, transfer or delegation, whether by
operation of law or otherwise, of any rights or obligations under this Agreement
by the Company or any Holder, respectively, shall be made without the prior
written consent of the majority in interest of the Holders or the Company,
respectively; provided that the rights of a Holder may be transferred to a
subsequent holder of the Holder's Registrable Securities (provided such
transferee shall provide to the Company, together with or prior to such
transferee's request to have such Registrable Securities included in a Piggyback
Registration, a writing executed by such transferee agreeing to be bound as a
Holder by the terms of this Agreement); and provided further that the Company
may transfer its rights and obligations under this Agreement to a purchaser of
all or a substantial portion of its business if the obligations of the Company
under this Agreement are assumed in connection with such transfer, either by
merger or other operation of law (which may include without limitation a
transaction whereby the Registrable Securities are converted into securities of
the successor in interest) or by specific assumption executed by the transferee.
15. Governing Law. This Agreement shall be governed by and construed
in accordance with the laws of the State of Minnesota applicable to agreements
made in and wholly to be performed in that jurisdiction, except for matters
arising under the Act or the Securities Exchange Act of 1934, which matters
shall be construed and interpreted in accordance with such laws.
16. Execution in Counterparts Permitted. This Agreement may be
executed in any number of counterparts, each of which shall be enforceable
against the parties actually executing such counterparts, and all of which
together shall constitute one (1) instrument.
[INTENTIONALLY LEFT BLANK]
11
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of this
20th day of March, 1997.
ANCOR COMMUNICATIONS, INCORPORATED
By:
-------------------------------------
Stephen C. O'Hara, President
Address: Ancor Communications, Incorporated
6130 Blue Circle Drive
Minnetonka, Minnesota 55343
Telephone No. (612) 932-4059
Facsimile No. (612) 932-4037
DUNWOODY BROKERAGE SERVICES, INC.
By:
------------------------------------
Robert L. Hopkins, President
Address: 8309 Dunwoody Place
Atlanta, GA 30350
Telephone: (770) 640-0011
Facsimile: (770) 993-1324
INVESTOR(S)
----------------------------------------
Investor's Name
By:
-------------------------------------
(Signature)
Address:
----------------------------------------
----------------------------------------
----------------------------------------
12
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