THE FOLLOWING ITEMS WERE THE SUBJECT OF
A FORM 12B-25 AND ARE INCLUDED HEREIN: ALL ITEMS.
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
|X| ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
OR
|_| TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
COMMISSION FILE NUMBER: 0-27106
RSI SYSTEMS, INC.
(Name of small business issuer in its charter)
MINNESOTA 41-176721
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7400 METRO BOULEVARD
MINNEAPOLIS, MN 55439
(Address of principal executive offices and zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (612) 896-3020
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
Check 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 for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes |X| No |_|
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB for any
amendment to this Form 10-KSB. |_|
The Company's revenues for its most recent fiscal year were $1,625,720.
On October 1, 1996, the Company had 4,751,015 shares of common stock, $.01 par
value, outstanding, and the aggregate market value of the common stock as of
that date (based on the average of the closing bid and asked prices as of that
date as reported by the Nasdaq SmallCap Market), excluding outstanding shares
beneficially owned by directors and officers, was approximately $15,069,471.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format (check one): Yes ______; No _X_
PART I
This Form 10-KSB contains certain forward-looking statements. For
this purpose, any statements contained in this Form 10-KSB that are not
statements of historical fact may be deemed to be forward-looking statements.
Without limiting the foregoing, words such as "may," "will," "expect,"
"believe," "anticipate," "estimate" or "continue" or the negative or other
variations thereof or comparable terminology are intended to identify
forward-looking statements. These statements by their nature involve substantial
risks and uncertainties, and actual results may differ materially depending on a
variety of factors, including those set forth in the section below entitled
"Certain Important Factors."
ITEM 1. DESCRIPTION OF BUSINESS
(a) BUSINESS DEVELOPMENT
RSI Systems, Inc. (the "Company" or "RSI") designs, develops and
markets telecommunications products for video conferencing, collaborative
computing and high-speed data transfer. The Company's first product, the
ERIS(TM) Visual Communications System (the "Eris System"), consisting of a
peripheral device and application software, enables personal computer users to
engage in "desktop conferencing" -- the ability of two PC users to conduct a
video conference and simultaneously view and work on documents such as
spreadsheets, diagrams or reports ("document collaboration") and transfer
computer files from one user to the other.
The Company was incorporated under the laws of Minnesota on December
21, 1993. Following the establishment of a business infrastructure, which
included the further development of the Eris System and implementation of
marketing strategies, the first beta unit of the Company's ERIS System was
produced in October 1994 and the first production unit was shipped in February
1995.
On July 25, 1995 the Company conducted a public offering of its
common stock, par value $.01 per share (the "Common Stock"). With the net
proceeds from the public offering, including proceeds from the exercise of the
underwriter's overallotment option (approximately $7,400,000), the Company has
funded further research and development related to the enhancement of the ERIS
System, has commenced development of new products and product enhancements and
expanded the Company's sales and marketing activities. In September 1996, the
Company completed a private placement of 1,500,000 shares of Common Stock,
resulting in net proceeds to the Company of approximately $4,005,000.00.
During fiscal 1996 and early fiscal 1997, the Company refocused its
product development, marketing and distribution strategies, and is in the
process of altering its manufacturing processes to allow it to leverage the
feedback it has received from its customers to enable the Company to develop and
distribute products more quickly and cost-effectively. The Company has also made
certain changes to its management team.
(b) BUSINESS OF THE COMPANY
PRODUCTS
The Company's first product, the Eris System, consists of a
peripheral device and application software. The Eris System is a self-contained,
"plug and play" peripheral with an integrated, full duplex speakerphone,
requiring only a personal computer and a video camera to be fully operable. The
Eris System can be used with either Macintosh or Windows-based computers.
The list price of the Eris System is $3,995, which includes the Eris
peripheral, either Macintosh or Windows application software, a user manual and
cabling. Customers may use their own videocamera or purchase a videocamera from
the Company. The Company offers for sale videocameras from various suppliers
which connect with the Eris Systems. The principal suppliers for these
videocamera peripherals are Sony, Canon and Video Lab.
The Company believes that the Eris System is easier to install than
most desktop conferencing systems on the market today because, unlike desktop
conferencing systems manufactured by others which are "embedded" in the host
computer, the Eris Systems is a peripheral device. Also, as a peripheral device,
the Eris System can be moved between different computers and can be easily
transported. Finally, users do not need the newest computer model to effectively
use the system because the processing power is located in the peripheral. The
Eris System is connected to the host computer by an industry standard SCSI or
PCMCIA port -- high speed data ports also used to connect external hard disks
and other devices.
The Eris System allows users to share any window from any application
or share the complete contents of the monitor which may contain many windows.
Users can collaborate on documents in real time while continuing to converse. If
both users have an Eris System, the sender of a document can edit the shared
document while the other party to the conference may highlight portions of that
document for discussion purposes. In addition to document collaboration, files
can be transferred during video and audio conversations. If only one user to the
conference has an Eris System, however, document sharing and collaboration is
not possible due to the lack of international standards for data communications.
The Eris System peripheral is equipped to provide users with a number
of options depending on their specific requirements. The Eris System can be
easily configured with external monitors, microphones and speakers to compete
directly with larger and more expensive rollabout systems. Also, to record both
video and audio, a VCR can be connected to the "video out" port to record the
video conference. Finally, a standard POTS (plain old telephone service) jack
enables the user to attach a telephone to carry on a more private conversation.
The Eris System can communicate with any other standards-based video
conferencing system which is compatible with the standards that the Eris System
meets. The system supports both NTSC (United States) and PAL (international)
video standards. In addition, the Eris System meets the H.320 standards
developed by the International Telecommunications Union ("ITU"), a United
Nations standards organization, for video and audio communications and fully
conforms to all Integrated Services Digital Network ("ISDN") BRI protocols. The
Eris System also supports international ISDN networks and ISDN switch types,
including EuroISDN in Europe, NTT in Japan and ISDN systems in Australia.
PRODUCT DEVELOPMENT
The Company has continued its product development efforts during the
last fiscal year. The Company currently believes that new segments of the video
conferencing market are emerging which will be more receptive to the Company's
technology. Originally the Company believed that the marketplace was segmented
into medium and large permanently installed department systems, and desktop
computer-based systems. The Company now believes that the marketplace is
shifting to the following segmentation: (a) large permanently installed room
systems; (b) medium to large permanently installed department systems; (c) small
or medium sized MOBILE workgroup systems; and (d) private office computer-free
and computer-based systems. The Company is focusing its efforts on the small or
medium sized mobile workgroup systems and the private office computer-free and
computer-based systems.
In September 1996, the Company announced its new COMPUTER-FREE(TM)
ROLL-AROUND 1000 system (previously developed under the name WGS2000 Workgroup
Rollaround System). This roll-about system package comes complete with all the
devices necessary to provide immediate high-quality ISDN-based video
conferencing without the need for a personal computer. A computer can be
integrated with the system, however, to provide additional functionality if
desired. The Eris ROLL-AROUND 1000 carries a list price of $10,995, which
includes a sturdy, locking rolling cabinet/stand; the Eris computer-free
peripheral; a 20-inch Sony color TV/monitor; a Canon VCC-1 pan/tilt and zoom
color camera; the US Robotic conference room speaker microphone controller;
cabling; and an instruction manual. The computer-free Eris ROLL-AROUND 1000
system does not require the addition of a Macintosh or personal computer for
operation. This dramatically simplifies the use of the system as well as
lowering the initial equipment costs. The portability allows organizations to
bring video conferencing to the point of need.
To address the private office opportunity, the Company has extended
its computer-free strategy to include the standalone credenza/desktop system
called the ERIS/PROFESSIONAL 1000, which was as also released in September 1996.
This system is targeted at workers, managers, and executives who wish to have a
simple, high-quality, competitively priced video conferencing system available
for immediate access. The system connects directly to a color TV/monitor and is
controlled by a simple touch-tone telephone handset. The unique ERIS
computer-free software does not require the user to have any knowledge of
computers or computer skills for operation. One can achieve rapid video
conferencing merely by pushing a button and following the prompts on the screen.
The list price for this system is $7,495, which includes the ERIS computer-free
system peripheral; software; a 9-inch Sony TV/monitor; a stand; a Sony camera;
touch-tone telephone handset; cabling; and an instruction manual. A personal
computer or Macintosh can be added to the system to provide additional
functionality.
Also announced in September 1996 was the third computer-free product:
the ERIS/PORTABLE 1000 (previously developed under the name WGS2000 Portable
Workgroup System). It extends the computer-free theme and is targeted at hotels,
conference centers and larger organizations that are looking to keep control of
the video conferencing components. The system's list price is $7,495, which
includes the ERIS computer-free system peripheral; software; a TV/monitor;
a Sony camera; microphone; handset controller; cabling; an instruction manual
and a locking case. The locking case allows for the system to be preset-up,
cabled and ready for use. This system can be carried or placed on a cart and
rolled to a conference room or site for use. The group or organization will have
access to computer-free video conferencing merely by removing the top and
plugging the system into an ISDN line. A personal computer or Macintosh can be
added to the system to provide additional functionality.
Each of the foregoing products has at its core the existing
Eris System hardware. The Company is also developing its next version of
hardware which will be the core of a new family of video conferencing products,
the "Champion" products. The Champion products will feature a more integrated
compression/decompression ("codec") chip set, more flexible telephone network
interconnection capabilities, increasing wide area connection potential, up to
384 Kbps capability, enhanced audio support, higher resolution and quality video
output, data transfer capability within the unit and infrared remote control
capability. The Company intends to launch the new Champion product family in
late October 1996 at the Telecon convention in Anaheim, California. The Company
intends to commence commercial sales of Champion products in early 1997.
The ITU is currently in the process of establishing standards
(generally referred to as the T.120 standards) which will enable manufacturers
to offer standards-based video conferencing systems capable of conducting
document collaboration and file transfer with other standards-based video
conferencing systems. The first generation of the T.120 standards have been
promulgated and the Company is currently working with another entity to develop
software for the Eris System that incorporates the first generation of the T.120
standards. The development of this software began in May 1996 and is expected to
be completed in the fourth quarter of calendar 1996.
In July and August 1995 the Company abandoned its intention to
develop and market a version of the Eris System that would permit desk-top
conferencing over POTS lines due to re-evaluation of the effects on the market
of the release of ITU Standard HDOT 324.
The Company has delayed the development of an enhanced version of its
software which will allow users to video conference with multiple remote users
of standards-based systems via AT&T's Worldworx(TM) service for multipoint video
conferencing. The Company's software has been enhanced, however, to work with
many other multipoint video conferencing service providers.
During the fiscal years ended June 30, 1996 and June 30, 1995, the
Company's expenditures for research and development were $1,540,416 and
$1,383,365, respectively. See "Management's Discussion and Analysis of Financial
Condition and Results of Operation."
SALES AND DISTRIBUTION
The Company has recently altered the focus of its distribution
strategy for its existing ERIS and new Champion products. This strategy will
incorporate a four-tiered distribution approach.
The first tier of the Company's distribution strategy is direct
sales. Until recently the Company did not enter into any type of direct selling
activities for the Eris product, which meant that all sales were funneled
through independent dealers and distributors. The Company is now entering into
direct sales relationships with selected regional and national accounts because
of the simplicity, ease of operation, and proven reliability of the Eris
product. This approach is providing the Company with a number of benefits,
including a decrease in extended larger system sale cycles, and the opportunity
to test first-hand responsiveness of clients to the product and new potential
features and capability requests. As the other tiers of the Company's
distribution strategy mature, the Company will move away from the direct selling
strategy to reduce its sales expense.
The second tier of the Company's distribution strategy is targeted at
consultants and system integrators. These two groups offer significant
opportunity to the Company in the long-term by providing access into medium to
larger organizations which may have a need for video conferencing. General and
market specific consultants are being targeted and provided with information and
education on video conferencing and the Company's systems. Compensation will be
offered to these individuals if they provide leads for follow-up by direct
sales, make recommendations or remarket the product.
There are principally two types of system integrators: computer
network integrators and telecommunication network integrators. Both of these
types of integrators are being targeted by the Company to resell products to
integrate into existing networks. Since many integrators already have a strong
user base in place, the Company believes that they will be receptive to
providing both a computer-based and computer-free self-contained peripheral,
such as Eris, to increase their revenue while providing functionality to their
customer/users.
The third tier is the value-added reseller or dealer. Throughout
North America hundreds of these types of dealers currently exist, providing
computers, video conferencing systems, audiovisual equipment and selected office
automation systems into various geographic markets. These dealers typically sell
within an area which they can cover with same day service and support. Some of
these dealers are generalists, selling to all types of organizations, while
others are specialists, targeting only specific marketplaces such as law,
accounting or education. The Company currently has relationships with 33 dealers
who market the Company's products throughout North America. The Company intends
to expand this dealer network to a minimum of 50 by its third quarter of fiscal
year 1997.
The fourth and final tier of distribution for the Company is
international. Currently, the Asian marketplace for video conferencing is
rapidly expanding. Because of the costs related to travel throughout the Pacific
Rim, it is realistic for organizations of all sizes to look for more economical
methods to communicate. Video conferencing has become such a method. RSI has
established 10 master distribution/dealers throughout the Pacific Rim, and will
have in place substantive distribution in all Asian countries by the end of the
second quarter of fiscal 1997. It is anticipated that this distribution as well
as the unique capabilities of its computer-based and computer-free systems will
allow for significant sales opportunity in the international marketplace.
Effective September 20, 1996, the Company entered into an exclusive
distribution relationship with Canon Trading USA ("Canon"), pursuant to which
Canon will act as a distributor for the Company in Japan for a period of three
years, subject to earlier termination under certain circumstances. Under the
agreement, Canon will purchase the Company's Eris video conferencing system to
create a Japanese version of the Eris computer-based system to sell through its
sales force. Canon is reportedly the largest reseller of Macintosh systems in
the world, and the Eris System provides it with a video conferencing peripheral
to attach directly to an Apple Macintosh. Canon also resells a significant
amount of Windows-based personal computers, and the Eris system, being
cross-platform, can also be attached directly to a PC. The Company has also
granted Canon a non-exclusive world-wide license to use and copy the Company's
product documentation, its software/firmware and the service software.
The Company is currently reestablishing its European distribution
operation in a more cost effective manner. The operation will mirror the
approach used by the Company in Asia. RSI has already established 13
distributors in Europe. The Company will continue to expand its new master
distributor strategy to select a primary distributor for each European country.
The Company appointed a director of European sales in October 1996, who will be
directly responsible for developing the master distributors and their efforts to
create sub-distributors and, ultimately, sell product in their countries.
COMPETITION
The desktop conferencing equipment market is highly competitive and
the Company believes that competition will intensify as more organizations with
significant telecommunications capabilities enter the marketplace. Many of the
Company's competitors have greater financial, technical, marketing and sales
resources than the Company, including AT&T Corporation, PictureTel Corporation,
Apple Computer, Inc. and Intel Corporation, all offering computer-based
teleconferencing systems. The Company believes, however, that the Company's Eris
peripheral strategy still remains unique in the marketplace and its
cross-platform flexibility and simplicity of attachment provide competitive
advantages.
There are fewer competitors in the computer-free teleconferencing
market. The Company has chosen to target this as an area of growth in part
because there are currently fewer competitors. In this market segment,
simplicity, quality of image and return on investment are driving the purchase
decision rather than computer functionality. The Company's new family of
computer-free systems offers a significant sales opportunity for RSI.
Competition is currently limited to Tanberg Industrier AS ("Tanberg"). Tanberg's
system does not require a computer and has a different configuration than the
Eris System. The Company believes that over time there will be more computerless
types of systems being announced into the marketplace as manufacturers become
aware of the sales potential.
The Company also faces competition from manufacturers and developers
of "roll-about" video conferencing systems, such as PictureTel Corporation, Vtel
Corp., British Telecom, NEC and Compression Labs, Incorporated. RSI, however,
believes that it will continue to remain a viable competitive option to the
other manufacturers because the Company offers both computer-based and
computer-free roll-about capability at generally lower price points.
The Company intends to compete based upon product quality,
functionality and return on investment. With its computer-based systems it will
focus primarily on functionality and simplicity of integration to both PC and
Mac-based systems. For its computer-free systems, the Company will focus
onsimplicity of operation, quality of image and return on investment.
MANUFACTURING
Currently, the Eris System is being manufactured under contract by
Lucent Technologies (formerly AT&T) Custom Manufacturing Services ("Lucent").
Lucent provides substantially all parts, purchasing and materials inventory,
manufactures and tests the product for the Company and also ships products to
the Company's customers directly from its production facility. Although raw
materials purchasing services are provided by Lucent, alternate suppliers have
been identified by the Company for most components. Major components for which
the Company depends on a single source include the AT&T AVP(TM) compression chip
set manufactured by AT&T Microelectronics and two programmable logic cell array
integrated circuits manufactured by Xilinx Corporation. If these components
become unavailable to the Company, the Company would experience serious delays
to redesign the Eris Systems to accommodate similar components from other
vendors. The Company does not have a contract with Xilinx Corporation. Lucent
purchases the circuits used in the Eris System directly from Xilinx Corporation.
Lucent has agreed to warrant to end-users and the Company that all
products are free from defects in material and workmanship for one year and also
warrants to the Company that all products conform to the Company's written
specifications.
Lucent has agreed to provide the Company with an additional 690 units
under the agreement, after which the Company's agreement with Lucent will
terminate. Through October 1996, 228 of these units have been delivered to the
Company. The Company believes that the remaining 462 units will be delivered to
RSI by the end of 1996.
On September 10, 1996 a new manufacturing agreement was finalized
between the Company and Altron, Inc. for the manufacture of the Eris video
conferencing unit. This manufacturer will provide substantially the same
services to the Company as Lucent has provided in the past. Pursuant to its
agreement with the Company, Altron warrants that all products will be free from
defects in material and workmanship for fifteen (15) months from packaging slip
date if Altron ships to the Company, or for twelve (12) months from the date the
Company ships to the customer, whichever comes first.
The Company regularly upgrades and enhances its software. To date,
the Company has supplied upgrades to its customers free of charge, but it
intends to charge customers for substantive upgrades in the future.
INTELLECTUAL PROPERTY; ROYALTY AGREEMENTS
The Company's success is dependent in part on its proprietary
information, technology and know-how. The Company relies on a combination of
patents, trade secrets, copyrights and confidentiality agreements to establish
and protect its proprietary rights. The Company's U.S. design patent application
for the Eris System, originally filed in October 1994, was granted in May 1996.
The Company is in the process of amending its U.S. utility patent application
for the Eris System, originally filed in September 1994, to narrow and refocus
the Company's claims. The Company is unable to predict which utility claims for
its Eris System patent application will be allowed, if any, whether a utility
patent will be issued or, if a utility patent is issued for the Eris System, how
long such process will take. The Company also applied for various foreign
patents relating to the Eris System, none of which have been granted to date.
The Company filed a trademark application for its intent to use the
mark "Eris" in August 1994, and the certificate of registration was issued on
August 27, 1996. The Company was also issued certificates of registration for
the "Eris" trademark in Australia on July 1, 1996, Germany on January 2, 1996,
and Great Britain on January 26, 1996. The Company was also issued a certificate
of registration for the "Eris" trademark in France on August 13, 1996, but the
owner of the "Iris" trademark has challenged the Company's "Eris" trademark.
This matter is still pending and no further action has been taken. The Company
also has applications to register the "Eris" trademark pending in Canada, Italy,
and Japan.
With respect to its technical employees and consultants, the Company
requires these employees to sign an agreement which obligates them to keep
confidential certain trade secrets and information of the Company and to assign
to the Company any inventions arising from their work for the Company, as
permitted by law. Depending on the responsibilities of a particular employee,
the Company may also consider having such an employee sign a non-compete
agreement.
The software which is part of the Eris System carries a standard
license agreement for the end user. The software license agreement is included
in the Eris manual and grants the purchaser a non-exclusive and non-transferable
license to use the software program which is part of the Eris System.
The Company entered into a license agreement with DSP Software
Engineering, Inc. ("DSPSE") on February 2, 1996. Pursuant to the agreement,
DSPSE granted to the Company a non-exclusive, non-transferable license to use
and modify specific DSPSE components in the creation of the Company's stand
alone video conferencing systems, subject to certain limitations. License fees
payable by the Company include an initial licensing fee of $60,000 for the right
to develop a stand alone video conferencing system and an additional $30,000
upon production. In addition to these licensing and production fees, the Company
is required to pay a royalty of $40.00 on each of the first 1,000 video
conferencing systems (VC Systems) sold, $4.75 for the following 9,000 VC Systems
sold, $6.25 for the following 90,000 VC Systems sold and $5.10 for each VC
System sold in excess of 100,000. Sales of the related VC Systems are
anticipated to begin in fiscal year 1997.
On March 8, 1996 the Company entered into an agreement with Future
Labs, Inc. to license a computer software program from Future Labs known as
TALKSHOW, which is a multipoint version of the TALKSHOW document conferencing
software program. Pursuant to the agreement, Future Labs granted the Company a
non-transferable, non-exclusive license to distribute TALKSHOW in connection
with the sale of the Company's line of Windows and Macintosh application
software, provided that the Company makes no separate or additional charges for
TALKSHOW. The Company agreed to include a copy of TALKSHOW with each shipment of
its Window and Macintosh application software, and to pay Future Labs a royalty
for each copy of TALKSHOW that the Company duplicates and distributes. The
amount of the royalty fee is based on the volume of systems sold by the Company,
with the fee ranging from $62 (1 to 2,000 systems sold) to $12 (over 20,000
systems sold). The agreement provides for a first year minimum royalty
commitment of $100,000. Sales of the Eris Systems containing the software per
this royalty agreement are anticipated to begin in fiscal year 1997.
The Company also pays royalties to certain organizations as a result
of their respective contributions to the development of the Eris System. Worrell
Design Inc., Eden Prairie, Minnesota, performed industrial design services for
the Company and receives a 1-1/2% royalty of the net payments to the Company up
to 5,000 systems, 1% for the next 5,000 systems and 1/2% for the following 5,000
systems. Pursuant to a license agreement with Link Technology Inc., Holland,
Pennsylvania, which provided certain ISDN software used in Eris System, the
Company pays a royalty of $25 on each of the first 10,000 systems sold, $15 on
each system over 10,000 up to 50,000 and $8 on each system sold in excess of
50,000.
APPROVALS AND CERTIFICATIONS
Government and telephone carrier approvals, as well as safety
certifications, are a key requirement for electronic systems that use the
telephone network. In the United States, the Eris System has been certified by
the FCC as a Class A (Business) device. The Company has received certification
from Underwriters Laboratories Inc. ("UL") that the Eris System complies with
the applicable requirements for U.S. and Canadian Listing. The Company has also
received telephone and safety certifications for its Eris System in the
following countries: Australia, New Zealand, the European Union, Japan, Taiwan,
Hong Kong, Singapore and Malaysia. Because each of the Roll-Around 1000, the
Portable 1000 and the Professional 1000 have at their core the Eris System
hardware, new certifications and approvals are not needed before these products
are sold.
Before introduction of the Champion products, the Company will need
to undergo a similar certification process. The Company believes that such
certifications and approvals will take approximately two to six months. Although
the Company has obtained FCC Class A certification and other approvals for its
Eris System, the Company cannot predict whether it will obtain necessary
approvals and certifications for future products or whether applicable law or
regulations might change in a way adverse to the Company's ability to sell its
products in a particular country.
EMPLOYEES
At October 1, 1996, the Company had 21 full-time employees, of whom 6
were employed in sales, marketing and customer support, 9 in product development
and 6 in administration and finance.
None of the Company's employees is represented by a labor union. The
Company believes its employee relations are good.
CERTAIN IMPORTANT FACTORS
In addition to the factors identified above, there are several
important factors that could cause the Company's actual results to materially
differ from those anticipated by the Company or which are reflected in any
forward-looking statements of the Company. These factors, and their impact on
the success of the Company's operations and its ability to achieve its goals,
include the following, as well as those listed in the "Risk Factors" section of
the Company's Registration Statement on Form SB-2 (File No. 33-93240C):
(1) The history of operating losses experienced by the Company since
its inception and the expectation that the Company will continue to incur
additional operating losses and net losses over the next year.
(2) The ability of the Company to achieve market acceptance of the
computer-based Eris systems, the computer-free Eris systems, i.e., PROFESSIONAL
1000, PORTABLE 1000, and ROLL-AROUND 1000, and when fully developed, the new
Champion family of products.
(3) The impact of competition at the workgroup, office, desktop, both
PC and computer-free market segments, and other segments of the overall market
for video conferencing equipment.
ITEM 2. DESCRIPTION OF PROPERTY
The Company leases approximately 4,190 square feet of space at its
headquarters in Edina, Minnesota under a lease agreement. This lease expires May
31, 1998. Rent payments under the lease for fiscal year ending June 30, 1996
were approximately $73,000. The Company believes its current space is sufficient
for its current and anticipated needs. The Company also leases office space in
California pursuant to a lease which expires October 22, 1996. The Company paid
approximately $3,000 in fiscal year 1996 to rent this space. The Company also
spent $10,000 in fiscal year 1996 to lease office space in Australia. This lease
expired on February 13, 1996, but the Company continued to rent space through
June 1996 on a month-to-month basis. Finally, the Company paid $12,222 in fiscal
year 1996 to lease office space for its subsidiary in the United Kingdom. The
subsidiary has ceased operations and there are no future lease obligations.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any legal or administrative
proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Since July 25, 1995 (the date of the Company's initial public
offering of Common Stock), the Company's Common Stock has been traded in the
over-the-counter market and is quoted on the Nasdaq SmallCap Market System. The
following table sets forth, for the calendar quarters indicated, the high and
low bid prices for the Company's Common Stock as reported by Nasdaq. Such
quotations represent interdealer prices, without retail markup, markdown or
commission, and do not necessarily represent actual transactions.
HIGH LOW
1995
Third Quarter (FROM JULY 25, 1995) 9.750 8.750
Fourth Quarter 9.750 9.000
1996
First Quarter 9.750 9.250
Second Quarter 9.750 7.825
Third Quarter (THROUGH SEPTEMBER 30, 1996) 8.375 4.00
As of October 1, 1996, there were (a) 4,751,015 shares of Common
Stock outstanding, held of record by approximately 160 persons, (b) outstanding
options to purchase an aggregate of 363,500 shares of Common Stock, and (c)
outstanding warrants to purchase an aggregate of 712,500 shares of Common Stock.
The Company has not declared or paid any cash dividends on its Common Stock
since its inception and does not intend to pay any dividends for the foreseeable
future.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Company was organized on December 21, 1993, and it designs,
develops and markets telecommunications products for video conferencing,
collaborative computing and high-speed data transfer. During the first half of
the fiscal year ended June 30, 1996, the Company's activities were primarily
directed to completion of the development of the Eris System, while during the
second half of fiscal 1996 the Company's activities included sales and sales
support of the Eris System and new product development. During the fiscal year
ended June 30, 1995, the Company's activities were directed to development of
the Eris System and implementation of its marketing strategies. The Company also
began developing its distribution network in fiscal 1995. The following
discussion covers the fiscal years ended June 30, 1996 and 1995.
RESULTS OF OPERATION
FISCAL YEAR 1996 COMPARED TO FISCAL YEAR 1995
Net Sales. For 1996, net sales increased 606.8% to $1,625,720 from
$229,998 in 1995. Sales are derived primarily from the sale of the Eris System,
but also includes sales of cameras and other supplies used with the Eris System.
The first production unit was shipped in February 1995. Fiscal 1996 therefore
represents the first full year of unit sales, while 1995 had only 5 months of
sales.
Gross Profit (Loss). Gross loss was $(396,980) for 1996 compared to a
gross profit of $51,336 or 22.3% of net sales for 1995. The 1996 gross loss
resulted from the termination of the third party manufacturing agreement with
Lucent. As part of the termination agreement, the Company has agreed to purchase
from Lucent any remaining component inventory after Lucent has manufactured 690
completed Eris Systems. During 1996, the Company recognized an impairment charge
to value the related inventory at the lower of cost or market. The Company
intends to utilize this component inventory with its new contract manufacturer,
Altron, Inc.
Research and Development Expenses. Research and development expenses
were $1,540,416 or 94.8% of net sales for 1996 compared to $1,383,365 or 601.5%
of net sales for the same period last year. The decrease as a percentage of
sales was due entirely to the higher sales volume in 1996 as discussed above.
Actual dollar spending during 1996 was higher than the previous year due
to the Company continuing to modify the Eris System for market acceptability in
the United States and internationally, and development expenditures related to
new products to be released by the Company in fiscal year 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $3,121,796 or 192.0% of net sales for 1996 compared
to $1,180,365 or 513.2% of net sales for 1995. The percentage decrease was
primarily due to the higher sales volume in 1996 as discussed above. Actual
dollar spending during 1996 was higher than the same period last year primarily
due to an increased sales force, and thus increased salaries and commissions, to
correspond with the introduction of product sales beginning in late 1995 and
extending through 1996. General and administrative salaries and related costs
also increased to correspond with the expanding business during 1996.
Interest Income and Interest Expense. Interest income was $180,521
for 1996 compared to $14 for the previous year. The increase in 1996 was due to
increased cash and cash equivalents available to the Company throughout 1996
from the Company's public offering in July 1995. Interest expense was $154 for
1996 compared to $5,705 for the same period last year. The decrease in 1996 was
primarily due to the conversion to equity of a convertible note payable which
was outstanding for most of 1995 and for none of 1996.
Net Operating Loss Carryforwards. The Company has net operating loss
carryforwards for financial and federal income tax reporting purposes of
approximately $6,500,000, which can be used to offset taxable income in future
years. Sales of the Company's equity during 1996 and 1995 have caused changes in
ownership under Section 382 of the Internal Revenue Code of 1996, which limits
the use of the Company's net operating loss carryforwards existing as of the
date of the ownership change. It is not anticipated that any limitation would
have a material adverse effect on the Company.
FISCAL YEAR 1995 COMPARED TO FISCAL YEAR 1994
The Company realized total net sales of $229,998 during the year
ended June 30, 1995. Cost of goods sold totaled $178,662 for this period,
resulting in a gross profit of $51,336 or 22.3% of net sales. The Company
incurred research and development expenses of $1,383,365 during this period,
while it continued to refine the Eris System and increase its technical staff.
These expenses related to personnel, contract engineering costs, tooling and
start up manufacturing expenses associated with the development and initial
production of the Eris System. General operating expenses for the year ended
June 30, 1995 were $1,180,365, including expenses related to the Company's
initial sales and marketing efforts. The Company also incurred $5,691 of net
interest expense for the year ended June 30, 1995.
During the period from inception (December 21, 1993) through June 30,
1994, the Company commenced the development of the Eris System and established a
business infrastructure which included leasing office space, acquiring furniture
and equipment and recruiting personnel. The Company had no sales during this
period, and incurred $246,158 in research and development expenses and $222,982
in general and administrative expenses, resulting in a loss of $(470,829).
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents totaled $1,032,921 at June 30, 1996,
compared to $59,499 at June 30, 1995. The Company's working capital was
$2,345,828 at June 30, 1996 compared to a working capital deficit of $(6,528) at
June 30, 1995.
Cash flows used in operating activities of $6,037,203 during 1996
were primarily due to a net loss of $(4,878,825), increases in accounts
receivable and inventories due to increases in net sales and a decrease in
accounts payable as a result of part of the proceeds from the initial public
offering being used to settle outstanding accounts payable.
Cash flows used in investing activities of $458,604 during 1996 were
due to capital additions to property and equipment.
Cash flows provided by financing activities of $7,469,229 during 1996
were due to proceeds from the issuance of common stock, primarily the Company's
initial public offering which generated net proceeds of $7,408,180.
On September 30, 1996, the Company completed a private offering of
1,500,000 shares of Common Stock at $3.00 per share, resulting in net proceeds
to the Company of approximately $4,005,000. The Company is also negotiating a
line of credit with a bank but no agreement has been reached.
The Company believes that the funds generated by the private
placement will be sufficient to cover cash needs until cash produced from sales
exceeds operating expenses, although there can be no assurance that this will
ever occur. Management plans to increase sales and improve operating results
include: offering new product configurations, expanding distribution of products
through a direct sales force and an expanded dealer network, and enhancing
dealer support services. In addition, the Company has initiated a product rental
program. In the event sales do not materialize at the expected rates, management
would conserve cash by reducing administrative expenses as well as product
development and sales and marketing efforts. To the extent that the Company
requires cash in excess of the funds generated by the private placement or
future operations, management would seek additional financing, but no formal
arrangements have been made in this regard and no assurance can be made that any
such financing would be available on favorable terms or at all.
NEW ACCOUNTING PRONOUNCEMENTS.
For fiscal year 1997, the Company is required to adopt the provisions
of Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS No. 121") and Statement of Financial Accounting Standards No. 123,
"Accounting for Stock Based Compensation" ("SFAS No. 123"). SFAS No. 121
prescribes accounting and reporting standards when circumstances indicate that
the carrying amount of an asset may not be recoverable. Initial application of
SFAS No. 121 is not expected to result in recognition of a cumulative effect of
a change in accounting principle by the Company. Under SFAS No. 123, companies
are permitted to adopt a new method of accounting for stock compensation awards
which is based on recognition of a charge equal to the estimated fair value of
the award on the date of the grant. Alternatively, companies may continue using
the methodology specified in Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" to account for stock based
compensation, with expanded disclosure in the notes to the financial statements
of the pro forma effects on net earnings and earnings per share, assuming
application of the new accounting method outlined in SFAS No. 123. The Company
plans to implement the disclosure requirements for SFAS No. 123 in fiscal year
1997 and retain its current accounting method for stock-based employee
compensation.
ITEM 7. FINANCIAL STATEMENTS.
RSI SYSTEMS, INC.
Consolidated Financial Statements
June 30, 1996 and 1995
INDEPENDENT AUDITORS' REPORT
The Stockholders and Board of Directors
RSI Systems, Inc.:
We have audited the accompanying consolidated balance sheets of RSI Systems,
Inc. and subsidiary as of June 30, 1996 and 1995, and the related consolidated
statements of operations, stockholders' equity and cash flows for the years then
ended and the period from December 21, 1993 (inception) through June 30, 1994.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of RSI Systems, Inc.
and subsidiary as of June 30, 1996 and 1995, and the results of their operations
and their cash flows for the years then ended and the period from December 21,
1993 (inception) through June 30, 1994, in conformity with generally accepted
accounting principles.
/S/ KPMG PEAT MARWICK LLP
Minneapolis, Minnesota
September 30, 1996
<TABLE>
<CAPTION>
RSI SYSTEMS, INC.
Consolidated Balance Sheets
June 30, 1996 and 1995
Assets 1996 1995
---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,032,921 59,499
Accounts receivable, net of allowance for doubtful
accounts of $49,000 in 1996 and $12,000 in 1995 524,433 71,358
Inventories (note 4) 1,744,222 1,176,304
Prepaid expenses 184,658 39,917
------------ ----------
Total current assets 3,486,234 1,347,078
------------ ----------
Property and equipment:
Furniture and equipment 619,807 166,021
Leasehold improvements 4,818 0
Less accumulated depreciation (168,282) (33,591)
Net property and equipment 456,343 132,430
Other assets 316,000 248,500
Less accumulated amortization (239,919) (180,294)
------------ ----------
Net other assets 76,081 68,206
------------ ----------
$ 4,018,658 1,547,714
============ ==========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable 278,820 1,196,118
Accrued expenses (note 8) 861,586 157,488
------------ ----------
Total current liabilities 1,140,406 1,353,606
------------ ----------
Stockholders' equity (note 11):
Common stock, par value $.01 per share, authorized 10,000,000 shares;
3,251,015 and 1,841,015 issued and outstanding at
June 30, 1996 and 1995, respectively 32,510 18,410
Additional paid-in capital 10,214,252 2,691,623
Foreign currency translation adjustment 28,400 2,160
Accumulated deficit (7,396,910) (2,518,085)
------------ ----------
Total stockholders' equity 2,878,252 194,108
------------ ----------
Commitments and contingencies (notes 6 and 9)
$ 4,018,658 1,547,714
============ ==========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
RSI SYSTEMS, INC.
Consolidated Statements of Operations
For the years ended June 30, 1996 and 1995 and the period
from December 21, 1993 (inception) through June 30, 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Net sales $ 1,625,720 229,998 0
Cost of goods sold (2,022,700) 178,662 0
----------- ---------- --------
Gross profit (loss) (396,980) 51,336 0
Research and development 1,540,416 1,383,365 246,158
Selling, general and administrative 3,121,796 1,180,365 222,982
----------- ---------- --------
Operating loss (5,059,192) (2,512,394) (469,140)
Interest income (expense):
Interest income 180,521 14 1,821
Interest expense (154) (5,705) (3,510)
----------- ---------- --------
Interest income (expense), net 180,367 (5,691) (1,689)
----------- ---------- --------
Net loss $(4,878,825) (2,518,085) (470,829)
=========== ========== ========
Loss per share $ (1.56) (1.31) (0.29)
=========== ========== =========
Weighted average shares and common
share equivalents outstanding 3,127,189 1,928,098 1,646,915
=========== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
RSI SYSTEMS, INC.
Consolidated Statements of Stockholders' Equity (Deficit)
For the years ended June 30, 1996 and 1995 and the period from
December 21, 1993 (inception) through June 30, 1994
Additional
Common stock paid-in
Shares Amount capital
------ ------ -------
<S> <C> <C> <C>
Common stock sold to a director [note 11(a)] 600,000 $ 6,000 344,000
Common stock warrant sold to employee/
director [note 11(a)] 100,000 1,000 49,000
Common stock warrant issued to employee/director
[note 11(b)] 0 0 49,500
Common stock warrant sold to employee/director 0 0 100
Net loss for period from inception
through June 30, 1994 0 0 0
--------- ----------- ---------
Balances at June 30, 1994 700,000 7,000 442,600
Common stock sold to employee/director [note 11(a)] 260,000 2,600 107,900
Common stock sold to a director [note 11(a)] 50,000 500 49,500
Common stock sold to a separate corporation
[note 11(a)] 21,112 211 20,901
Common stock warrants issued to directors
[note 9(d)] 0 0 151,000
Common stock issued in private placements
[note 11(a)] 721,015 7,210 2,126,340
Common stock warrants issued to employees/
directors [note 11(b)] 0 0 165,000
Common stock warrant sold to employee/director 0 0 100
Conversion of note payable to common stock (note 5) 88,888 889 99,111
Reclassification of S-corporation accumulated deficit
to additional paid-in capital [note 11(d)] 0 0 (470,829)
Foreign currency translation adjustment 0 0 0
Net loss for the year ended June 30, 1995 0 0 0
--------- ----------- ---------
Balances at June 30, 1995 1,841,015 18,410 2,691,623
Common stock sold in public offering [note 11(a)] 1,383,750 13,838 7,394,342
Exercises of stock options 26,250 262 60,737
Common stock warrants issued to directors [note 9(d)] 0 0 67,500
Common stock warrant issued to underwriter 0 0 50
Foreign currency translation adjustment 0 0 0
Net loss for the year ended June 30, 1996 0 0 0
--------- ----------- ----------
Balances at June 30, 1996 3,251,015 $ 32,510 10,214,252
========= =========== ==========
</TABLE>
(WIDE TABLE CONTINUED FROM ABOVE)
<TABLE>
<CAPTION>
Foreign
currency
translation Accumulated
adjustment deficit Total
----------- ----------- -----
<S> <C> <C> <C>
Common stock sold to a director [note 11(a)] 0 0 350,000
Common stock warrant sold to employee/
director [note 11(a)] 0 0 50,000
Common stock warrant issued to employee/director
[note 11(b)] 0 0 49,500
Common stock warrant sold to employee/director 0 0 100
Net loss for period from inception
through June 30, 1994 0 (470,829) (470,829)
====== ========== ==========
Balances at June 30, 1994 0 (470,829) (21,229)
Common stock sold to employee/director [note 11(a)] 0 0 110,500
Common stock sold to a director [note 11(a)] 0 0 50,000
Common stock sold to a separate corporation
[note 11(a)] 0 0 21,112
Common stock warrants issued to directors
[note 9(d)] 0 0 151,000
Common stock issued in private placements
[note 11(a)] 0 0 2,133,550
Common stock warrants issued to employees/
directors [note 11(b)] 0 0 165,000
Common stock warrant sold to employee/director 0 0 100
Conversion of note payable to common stock (note 5) 0 0 100,000
Reclassification of S-corporation accumulated deficit
to additional paid-in capital [note 11(d)] 0 470,829 0
Foreign currency translation adjustment 2,160 0 2,160
Net loss for the year ended June 30, 1995 0 (2,518,085) (2,518,085)
------ ---------- ----------
Balances at June 30, 1995 2,160 (2,518,085) 194,108
Common stock sold in public offering [note 11(a)] 0 0 7,408,180
Exercises of stock options 0 0 60,999
Common stock warrants issued to directors [note 9(d)] 0 0 67,500
Common stock warrant issued to underwriter 0 0 50
Foreign currency translation adjustment 26,240 0 26,240
Net loss for the year ended June 30, 1996 0 (4,878,825) (4,878,825)
------ ---------- ----------
Balances at June 30, 1996 28,400 (7,396,910) 2,878,252
====== ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
<TABLE>
<CAPTION>
RSI SYSTEMS, INC.
Consolidated Statements of Cash Flows
For the years ended June 30, 1996 and 1995 and the period from
December 21, 1993 (inception) through June 30, 1994
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(4,878,825) (2,518,085) (470,829)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation and amortization 194,316 191,056 22,829
Common stock warrant issued to employees 0 165,000 49,500
Foreign currency translation adjustment 26,240 2,160 0
Changes in operating assets and liabilities:
Accounts receivable (453,075) (71,358) 0
Inventories (567,918) (1,222,104) 0
Prepaid expenses (144,741) (39,367) (550)
Other assets 0 0 (2,500)
Accounts payable (917,298) 1,147,490 48,628
Accrued liabilities 704,098 199,708 3,580
---------- --------- -------
Net cash used in operating activities (6,037,203) (2,145,500) (349,342)
---------- --------- -------
Cash flows from investing activities:
Additions to furniture and equipment (458,604) (133,953) (27,068)
---------- --------- -------
Net cash used in investing activities (458,604) (133,953) (27,068)
---------- --------- -------
Cash flows from financing activities:
Proceeds from issuance of common stock 7,469,179 2,315,162 400,000
Proceeds from issuance of warrants 50 100 100
---------- --------- -------
Net cash provided by financing activities 7,469,229 2,315,262 400,100
---------- --------- -------
Increase in cash and cash equivalents 973,422 35,809 23,690
Cash and cash equivalents at beginning of period 59,499 23,690 0
---------- --------- -------
Cash and cash equivalents at end of period $ 1,032,921 59,499 23,690
=========== ========= =======
Supplemental disclosure of cash flow information:
Cash paid during the period for interest $ 154 5,716 2,935
=========== ========= =======
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During fiscal year 1996, warrants to purchase shares of common stock were
issued in connection with letters of credit obtained by the Company
which were guaranteed by two stockholders/directors. The estimated
value of the warrants ($67,500) was capitalized related to this
transaction [note 9(d)].
During fiscal year 1995, the Company's note payable was converted into
88,888 shares of common stock (note 5).
During fiscal year 1995, warrants to purchase shares of common stock were
issued in connection with letters of credit obtained by the Company
which were guaranteed by two stockholders/directors. The estimated
value of the warrants ($151,000) was capitalized related to this
transaction [note 9(d)].
During fiscal year 1995, the Company issued warrants to two
employees/directors of the Company for the purchase of 33,000 shares
each of Company common stock. On the date of issuance, the Company
recorded $165,000 as compensation expense related to these warrants
[note 11(b)].
During fiscal year 1994, the Company purchased equipment and
teleconferencing codec in exchange for a $100,000 note payable. The
Company capitalized $5,000 of equipment and $95,000 of computer
software related to this transaction (note 5).
See accompanying notes to consolidated financial statements.
RSI SYSTEMS, INC.
Notes to Consolidated Financial Statements
June 30, 1996 and 1995
(1) DESCRIPTION OF BUSINESS
RSI Systems, Inc. (the Company) designs, develops and markets
telecommunications products for videoconferencing, collaborative
computing and high-speed data transfer. The Company was
incorporated in Minnesota on December 21, 1993. Shipments of the
Company's first product, the Eris Visual Communications System
(the Eris System), began in February 1995. Prior to that time, the
Company was considered a development stage enterprise.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
the Company and its wholly owned subsidiary located in the
United Kingdom, RSI Systems, Limited. All intercompany
accounts and transactions are eliminated in consolidation.
(b) CASH AND CASH EQUIVALENTS
The Company considers investments in highly-liquid debt
securities having an initial maturity of three months or
less to be cash equivalents. Cash equivalents amounted to
$1,005,692 and $0 at June 30, 1996 and 1995, respectively.
(c) INVENTORIES
Inventories are stated at the lower of cost or market using the
first in first out (FIFO) method.
(d) PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is
provided using the straight-line method over their estimated
useful lives which range from three to seven years.
(e) OTHER ASSETS
Other assets consist of purchased teleconferencing codec,
capitalized financing costs and organization costs. The
teleconferencing codec is being amortized on a straight-line
basis over three years, capitalized financing costs are
being amortized on a straight-line basis over the terms of
the related letters of credit [see note 9(d)] and
organization costs are being amortized on a straight-line
basis over five years.
(f) WARRANTY ACCRUAL
The Company's product carries a one year warranty from a third
party custom manufacturer [see note 9(d)]. The cost to the
Company for this warranty is included in the total
manufacturing costs charged by the third party custom
manufacturer to the Company for each unit produced.
(g) REVENUE RECOGNITION
TheCompany recognizes revenue from system sales upon shipment.
Post sale customer support costs are insignificant and are
expensed as incurred.
(h) RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations when
incurred.
(i) INCOME TAXES
The Company accounts for income taxes in accordance with
Statement of Financial Accounting Standards No. 109,
ACCOUNTING FOR INCOME TAXES (FAS No. 109). Under the asset
and liability method of FAS No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences
attributable to differences between the financial statement
carrying amount of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to
taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under
FAS No. 109, the effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income
in the period that includes the enactment date. Deferred tax
assets are subject to a valuation allowance based on the
estimated realization of these assets.
(j) TRANSLATION OF FOREIGN CURRENCIES
Assets and liabilities of RSI Systems, Limited are translated
at the rate of exchange in effect on the balance sheet date;
income and expenses are translated at the average rates of
exchange prevailing during the reporting period. The related
translation adjustments are reflected in the foreign
currency translation adjustment section of the consolidated
balance sheet. Foreign currency transaction gains or losses
are included in net loss.
(k) LOSS PER COMMON SHARE
Loss per common share is determined by dividing the net loss by
the weighted average number of shares of common stock and
common share equivalents outstanding. For the 10-month
period ended April 30, 1995, and the period from December
21, 1993 (inception) through June 30, 1994, (the financial
statement periods included in the initial public offering
prospectus) common share equivalents result, under
Securities and Exchange Commission rules, from shares sold
or options and warrants granted within twelve months prior
to the date of an initial public offering at a per share
price less than that of the initial public offering ($6.25
per share). Common share equivalents outstanding for the
period from May 1, 1995 to June 30, 1995 and for the year
ended June 30, 1996 are not included in the loss per common
share calculation as their effect would be antidilutive.
Accordingly, 1,534,627 shares relating to shares sold and
options and warrants granted have been treated as common
share equivalents and resulted in 0, 576,684, and 1,135,921
additional common share equivalents outstanding for the
periods ended June 30, 1996, 1995, and 1994, respectively.
(l) USE OF ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of financial statements,
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from these
estimates.
(3) LIQUIDITY AND GOING CONCERN
On September 30, 1996, the Company completed a private offering of
its common stock. The Company received $4,005,000, net of offering
costs, in exchange for 1,500,000 shares of common stock ($3.00 per
share). The Company has not registered the common stock offered
pursuant to this private placement and, accordingly, these shares
are restricted until such registration occurs. The Company has
agreed to file a registration statement with the Securities and
Exchange Commission within 90 days after the final closing of the
sale of shares in this private placement. The Company is also
negotiating a line of credit with a bank but no agreement has been
reached.
The Company believes the funds generated by the private placement will
be sufficient to cover needs until cash from sales exceeds
operating expenses. Management plans to increase sales and improve
operating results include; offer new product configurations,
expand distribution of products through a direct sales force and
an expanded dealer network, and enhance dealer support services.
In addition, the Company plans to initiate a product rental
program beginning in October 1996. In the event sales do not
materialize at the expected rates, management would conserve cash
by reducing administrative expenses as well as product development
and sales and marketing efforts.
(4) INVENTORIES
Inventories consisted of the following at June 30:
1996 1995
---- ----
Components $ 303,615 652,041
Work in process 952,456 150,851
Finished goods 488,151 373,412
------------ ---------
$ 1,744,222 1,176,304
============ =========
(5) CONVERTIBLE NOTE PAYABLE
In December 1993, the Company purchased equipment and
teleconferencing codec (a data compression and decompression
hardware and software product) from VideoLabs, Inc. (VideoLabs) in
exchange for a convertible note payable. The 7% convertible note
was secured by all of the assets purchased.
In May 1995, VideoLabs exercised its right of conversion under the
terms and conditions of the convertible note payable. The
conversion resulted in VideoLabs receiving 88,888 shares of the
Company's common stock in exchange for the $100,000 convertible
note payable.
(6) LEASES
The Company leases office space and various equipment under
noncancelable operating leases. Future minimum rental payments due
under noncancelable operating leases are as follows:
Fiscal year ending June 30:
1997 $ 108,983
1998 102,898
1999 18,125
Total rental expense was $136,680 and $30,561 for the years
ended June 30, 1996 and 1995, respectively, and $11,100 for the
period from December 21, 1993 (inception) to June 30, 1994.
(7) RELATED PARTIES
As discussed in note 5, the Company purchased certain assets from
VideoLabs. One of the Company's directors is also a director of
VideoLabs. This same director holds ownership interests in both
VideoLabs and the Company. The Company purchases cameras from
VideoLabs and sells them as optional equipment with the Company's
Eris System. During the years ended June 30, 1996 and 1995, the
Company's purchases from VideoLabs totaled approximately $57,140
and $25,000, respectively.
A former officer of the Company is associated with an engineering
firm that rendered services to the Company. The Company paid the
engineering firm approximately $187,000 during the period in which
the individual was an officer of the Company [from December 21,
1993 (inception) through August 1994].
(8) ACCRUED EXPENSES
Accrued expenses consisted of the following at June 30:
1996 1995
---- ----
Severance [note 9(c)] $ 225,590 0
Inventory commitment [note 9(d)] 382,192 0
Miscellaneous, other 253,804 157,488
----------- -------
$ 861,586 157,488
=========== =======
(9) COMMITMENTS AND CONTINGENCIES
(a) ROYALTY AGREEMENTS
During 1996, the Company entered into a royalty agreement with
a software development company. Pursuant to the agreement,
the Company is to pay a royalty fee ranging from 25% (1 to
2,000 systems sold) to 5% (over 20,000 systems sold) of unit
list price depending on the volume of systems sold. The
agreement provides for a first year minimum royalty
commitment of $100,000. Sales of Eris Systems containing the
software per this royalty agreement are anticipated to begin
in fiscal year 1997.
During 1994, the Company entered into royalty agreements with
two vendors who contributed to the design and development of
the Company's Eris System. Under one agreement, the Company
paid a royalty of approximately $46,000. Under the agreement
with the second vendor, the Company is obligated to pay a
l-1/2% royalty to the vendor on net sales for up to 5,000
systems, 1% royalty for the next 5,000 systems and 1/2%
royalty for the following 5,000 systems.
(b) SOFTWARE LICENSE AGREEMENTS
During 1996, the Company entered into a software license
agreement with a software development company. Pursuant to
the agreement, in addition to upfront licensing and
production fees, the Company is to pay a royalty fee of $40
on each of the first 1,000 Video Conferencing Systems (VC
Systems) sold, $4.75 for the following 9,000 VC Systems,
$6.25 for the following 90,000 VC Systems and $5.10 for each
VC System sold in excess of 100,000. Sales of the related VC
Systems is anticipated to begin in fiscal year 1997.
During 1994, the Company entered into a software license
agreement with a separate software development company.
Pursuant to the agreement, the Company is to pay a royalty
fee of $25 on each of the first 10,000 systems sold, $15 on
each system over 10,000 up to 50,000 and $8 on each system
sold in excess of 50,000 for certain software used in the
Eris System.
(c) EMPLOYMENT AGREEMENTS
In July 1996, the Company entered into a two-year employment
agreement with the Company's President and Chief Executive
Officer. Pursuant to the agreement, the officer will receive
an annual salary of $150,000. The agreement provides for
payment to the officer of up to twelve month's salary and
benefits in the event of termination without cause or the
Company's breach of a material term of the agreement.
During fiscal year 1995, the Company entered into employment
agreements with four officers. During fiscal year 1996,
three of these officers either resigned from the Company or
their employment was terminated by the Company. Based on
either the termination clause of the original employment
agreements or a separate termination letter between the
officer and the Company, the Company provided for severance
payments to these three officers at June 30, 1996. One of
the three officers formed a new company in which the Company
obtained a 20% ownership position as part of the seperation
settlement. On September 13, 1996, the fourth officer also
resigned from the Company.
(d) MANUFACTURING AGREEMENT
During 1996 and 1995, the Eris System was manufactured by a
third party custom manufacturer (the Manufacturer). The
Manufacturer provided substantially all parts and
manufacturing supplies for the Company's product.
On August 9, 1996, the Company and the Manufacturer terminated
the manufacturing agreement. Pursuant to this termination
agreement, the Manufacturer has agreed to produce, and the
Company has agreed to purchase, 690 completed Eris System
units. In addition, upon the completion of the 690 units,
the Company has agreed to purchase from the Manufacturer any
remaining component inventory. During the year ended June
30, 1996, the Company recognized an impairment charge to
value the related inventory at the lower of cost or market.
The Company intends to utilize this component inventory with
their new contract manufacturer.
On August 28, 1996, the Company entered into a new
manufacturing agreement with another third party custom
manufacturer.
At June 30, 1995, the Company had outstanding, irrevocable bank
letters of credit totaling $1,250,000. The letters of credit
could be drawn upon through September 1995 by the
Manufacturer. The letters of credit were guaranteed by two
stockholders/directors and collateralized by all corporate
assets, as defined in the underlying promissory notes.
Warrants to purchase a total of 225,000 shares of common
stock at $1 to $2 per share were issued as consideration for
these guarantees. The estimated value of the warrants was
capitalized and amortized over the terms of the letters of
credit.
In May 1996, the Company also obtained irrevocable bank letters
of credit totaling $600,000. The letters of credit could be
drawn upon through May 1997 by the Manufacturer. The letters
of credit were also guaranteed by the same two
stockholders/directors and collateralized by assets pledged
by the two stockholders/directors. Warrants to purchase a
total of 15,000 shares of common stock at $8.00 per share
were issued as consideration for these guarantees. The terms
of the warrants provide that if, during the one year term of
the letter of credit, the Company secures additional
financing pursuant to a private placement or registered
secondary offering of securities the warrant exercise price
will be reduced to the price at which such securities are
offered to investors. Based on the private placement
discussed in note 14(b), the exercise price of the 15,000
warrants was reduced to $3 per share. The estimated value of
the warrants was capitalized and is being amortized over the
terms of the letters of credit.
(e) DISTRIBUTOR, DEALER, AND MANUFACTURER REPRESENTATIVE AGREEMENTS
The Company has entered into distributor or dealer agreements
with several companies. Each distributor or dealer has
minimum purchase obligations. The term of each agreement is
one year, renewable for additional one-year periods.
Distributors and dealers receive discounts ranging from 20%
to 40% depending upon the number of systems ordered from the
Company.
The Company has also entered into manufacturer representative
agreements. The term of each agreement is one year and may
be terminated for nonperformance. The manufacturer
representatives receive a 6% commission on net sales, as
defined by the agreements.
(10) INCOME TAXES
The Company originally elected the provisions of Subchapter S of the
Internal Revenue Code. Accordingly, the Company's taxable loss
was passed through to its stockholders to be included in their
individual income tax returns. Effective July 1, 1994, the
Company's S-corporation status was revoked, as requested by the
Company [see note 11(d)]. The Company began operating as a
Subchapter C corporation beginning July 1, 1994.
At June 30, 1996, the Company has approximately $6,500,000 of net
operating loss carryforwards and $60,000 of tax credit
carryforwards for federal income tax purposes, which begin to
expire in 2010. Section 382 of the Internal Revenue Code of 1986
limits the use of the Company's net operating loss carryforwards
as of the date of a more than 50% change in ownership. As a
result the public offering discussed at note 11(a), a Section 382
ownership change occurred. As a result, the use of the net
operating loss carryforward in any one year is limited to
approximately $700,000.
The provision for income taxes differs from the expected tax benefit
computed by applying the federal corporate tax rate for the two
year period ended June 30, 1996 and 1995 is as follows:
1996 1995
---- ----
Expected federal benefit 34% 34
State taxes, net 6 6
Change in valuation allowance (40) (40)
--- ---
Actual tax benefit 0% 0
=== ===
The tax effect of items which comprise a significant portion of
deferred tax assets as of June 30, 1996 and 1995 is as follows:
1996 1995
---- ----
Deferred tax assets:
Net operating loss carryforwards $ 2,640,000 1,008,000
Other 352,000 11,000
Valuation allowance (2,992,000) (1,019,000)
-------------- ----------
Net deferred tax asset $ 0 0
============== ==========
A valuation allowance is provided when there is some likelihood
that all or a portion of a deferred tax asset may not be
recognized. The net deferred assets at June 30, 1996 and 1995,
are fully offset by a valuation allowance. The valuation
allowance is reviewed annually.
(11) CAPITAL STOCK
(a) SALES OF COMMON STOCK
Effective July 25, 1995, the Company offered 1,200,000 shares
of common stock for sale to the public through an
underwriter at a price of $6.25 per share. Net proceeds to
the Company from the public offering, including the
underwriters over-allotment option of 183,750 shares, was
$7,408,180. The proceeds are being used to fund continued
research and development, expand sales and marketing
activities, purchase capital equipment and for other general
corporate purposes, including working capital to finance
accounts receivable and inventory.
During the year ended June 30, 1995, the Company had two
private offerings of its common stock. The Company received
$520,000 in exchange for 260,000 shares of common stock
($2.00 per share) from the first private offering and
$1,613,550 in exchange for 461,015 shares of common stock
($3.50 per share) from the second private offering. The
above amounts include shares sold to directors of the
Company of 117,500 shares and 80,000 shares, respectively.
During the year ended June 30, 1995, the Company received $500
from an employee/director of the Company for 100,000 shares
of Company common stock [see note 11(b)]. The Company also
sold common stock at fair market value to employees and
directors and received $160,000 for 210,000 shares of
Company common stock ($.50 to $3.50 per share).
In August 1994, the Company also sold common stock at fair
market value and received $21,112 from a separate
corporation for 21,112 shares of Company common stock
($1.00 per share).
During the period from December 21, 1993 through June 30, 1994,
the Company sold common stock at fair market value to an
employee and to a director and received $400,000 for 700,000
shares of Company common stock ($.50 to $1.00 per share).
(b) STOCK WARRANTS
In July 1995, in connection with the Company's initial public
offering, the Company issued warrants to the underwriter for
the purchase of 122,500 shares of Company common stock. Such
warrants have a five-year term and are exercisable at $7.50
per share.
In May 1995, a director surrendered, to the Company, the right
to purchase 66,000 shares at $1.00 per share of Company
common stock. At the same time, the Company issued warrants
to two employees/directors of the Company for the purchase
of 33,000 shares each of Company common stock. Such warrants
have a five-year term and are exercisable at $1.00 per
share. On the date of issuance, the Company recorded
$165,000 as compensation expense, representing the
difference between the exercise price and the estimated fair
market value of the warrants.
In February 1994, the Company issued warrants to an
employee/director of the Company for the purchase of 100,000
shares of Company common stock. Such warrants had a five
year term and were exercisable at $.005 per share. The
difference between the exercise price and the estimated fair
market value of the warrants was recorded as compensation
expense during the period ended June 30, 1994. As discussed
at note 11(a), these warrants were exercised in October
1994.
Also in February 1994, the Company issued warrants to another
employee/director of the Company for the purchase of 100,000
shares of Company common stock. Such warrants terminate at
the earlier of December 31, 1999 or upon the voluntary
resignation of the employee prior to January 1, 1996 and are
exercisable at $.50 per share.
In April 1994, the Company issued warrants to a separate
corporation for the purchase of 100,000 shares of Company
common stock. Such warrants have a five-year term and are
exercisable at $.50 per share.
Additional warrants were issued in conjunction with
guarantees on standby letters of credit [see note 9(d)].
(c) STOCK OPTIONS
The Company has a stock plan which permits the granting of
stock options, including incentive stock options as defined
under Section 422 of the Internal Revenue Code of 1986,
nonqualified stock options and restricted stock. The
exercise price for options granted under the stock plan
shall be at a price determined at the sole discretion of the
compensation committee of the Company's board of directors
provided, however, that incentive stock options granted
under the plan shall be granted at exercise prices equal to
the fair market value on the date of grant (110% for a
stockholder holding 10% or more of the outstanding shares of
common stock).
The Company has reserved 400,000 shares of common stock for
issuance under the plan. 86,500 shares remained available at
June 30, 1996. Options issued become exercisable ratably
over the first four years from the grant date and certain
options are subject to accelerated vesting based upon
individual employment agreements. 79,375 and 0 shares were
exercisable at June 30, 1996 and 1995, respectively.
A summary of changes in common stock options during the year
ended June 30, 1996 is as follows:
Price
Shares per share
------ ---------
Outstanding at June 30, 1995 242,500 $ 2.20-6.25
Granted 71,000 6.25-9.25
Exercised (26,250) 2.20-3.50
Cancelled (33,750) 2.20-3.50
------- -------------
Outstanding at June 30, 1996 253,500 $ 2.20-9.25
======= =============
(d) TERMINATION OF S-CORPORATION STATUS
Effective July 1, 1994, the Company's S-corporation status was
revoked, as requested by the Company. In accordance with
Securities and Exchange Commission rules, the Company's
accumulated deficit of $470,829 as of the termination of the
S-corporation election was reclassified against additional
paid-in capital.
(e) STOCK SPLIT
On September 9, 1994, the Company effected a two-for-one stock
split. All share and per share data for prior periods
presented have been restated to reflect the stock split.
(f) UNDESIGNATED COMMON STOCK
In June 1995, the Company authorized 5,000,000 undesignated
shares of common stock.
(12) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate
the fair values of financial instruments:
CASH AND CASH EQUIVALENTS
The carrying amount approximates fair value because of the short
maturity of those instruments.
(13) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company's net sales, loss from operations, and total assets
summarized by geographical area is as follows:
1996 1995
---- ----
Net sales:
United States $ 1,399,947 217,518
U.K. subsidiary 225,773 12,480
-------------- ----------
Total $ 1,625,720 229,998
============== ==========
Loss from operations:
United States $ (4,303,030) (2,375,157)
U.K. subsidiary (756,162) (137,327)
-------------- ----------
Total $ (5,059,192) (2,512,394)
============= ==========
Total assets:
United States $ 4,762,040 1,677,001
U.K. subsidiary 272,391 43,373
Eliminations (1,015,773) (172,660)
-------------- ----------
Total $ 4,018,658 1,547,714
============== =========
(14) MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK
Sales to three unaffiliated customers aggregated approximately 32% of
net sales in fiscal 1996. In addition, accounts receivable from
these three unaffiliated customers aggregated approximately 45% of
total accounts receivable as of June 30, 1996. Historically, the
Company has not experienced write-offs related to these major
customers, and no such losses are expected related to the balances
of accounts receivable due from these customers as of June 30,
1996.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS; COMPLIANCE
WITH SECTION 16(A) OF THE EXCHANGE ACT
(A) EXECUTIVE OFFICERS AND DIRECTORS
Information concerning Executive Officers and Directors of the Company
in the Company's 1996 Proxy Statement under the caption "Election of Directors"
is incorporated herein by reference.
(B) SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The information under the caption "Section 16(a) Beneficial Ownership
Reporting Compliance" in the Company's 1996 Proxy Statement is incorporated
herein by reference.
ITEM 10. EXECUTIVE COMPENSATION
The information under the caption "Executive Compensation" in the
Company's 1996 Proxy Statement is incorporated herein by reference.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information under the caption "Security Ownership of Certain
Beneficial Owners and Management" in the Company's 1996 Proxy Statement is
incorporated herein by reference.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information under the caption "Certain Relationships and Related
Transactions" in the Company's 1996 Proxy Statement is incorporated herein by
reference.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS. See Exhibit Index at page 14, which is incorporated
herein by reference. Exhibits that cover management contracts or
compensatory plans or arrangements are marked with an
asterisk(*) in the Exhibit Index.
(b) REPORTS ON FORM 8-K. The Company filed no reports on Form 8-K
during the fourth quarter of fiscal 1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: October 15, 1996 RSI SYSTEMS, INC.
By: /s/ Donald C. Lies
------------------------
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on October 15, 1996.
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints
Donald C. Lies as his true and lawful attorney-in-fact and agent, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any or all amendments to this Annual
Report on Form 10-KSB and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorney-in-fact and agent, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all said attorney in-fact
and agent, or his substitute or substitutes, may lawfully do or cause to be done
by virtue thereof.
SIGNATURE TITLE
/s/ Richard J. Braun Chairman of the Board
- ---------------------------------------
Richard J. Braun
/s/ Donald C. Lies Director, President, Chief
- ---------------------------------------
Donald C. Lies Executive Officer (principal
executive, financial and
accounting officer)
/s/ William J. Brummond Director
- ---------------------------------------
William J. Brummond
/s/ Richard F. Craven Director
- ---------------------------------------
Richard F. Craven
Director
- ---------------------------------------
Byron G. Shaffer
/s/ Dennis A. Leese Vice Chairman of the Board
- ---------------------------------------
Dennis A. Leese
/s/ David W. Stassen Director
- ---------------------------------------
David W. Stassen
<TABLE>
<CAPTION>
RSI SYSTEMS, INC.
EXHIBIT INDEX TO
FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 1996
Item No. Title of Document Method of Filing
- -------------------- ------------------------------------------- ----------------------------------------------------
<C> <C> <C>
3.1 Articles of Incorporation, as amended Filed as Exhibit 3.1 to the Form SB-2 Registration
Statement of the Company, File No. 33-93240C, (the
"SB-2 Registration Statement") and incorporated
herein by reference
3.2 Bylaws, as amended Filed as Exhibit 3.2 to the SB-2 Registration
Statement and incorporated herein by reference.
10.1 1994 Stock Plan * Filed as Exhibit 10.5 to the SB-2 Registration
Statement and incorporated herein by reference.
10.2 Form of Distribution Agreement Filed as Exhibit 10.3 to the SB-2 Registration
Statement and incorporated herein by reference.`
10.3 Form of Manufacturers' Representative Filed as Exhibit 10.4 to the SB-2 Registration
Agreement Statement and incorporated herein by reference.
10.4 Employment Agreement between the Company Filed as Exhibit 10.5 to the SB-2 Registration
and Dennis A. Leese* Statement and incorporated herein by reference.
10.5 Employment Agreement between the Company Filed as Exhibit 10.6 to the SB-2 Registration
and Douglas S. Clapp* Statement and incorporated herein by reference.
10.6 Employment Agreement between the Company Filed as Exhibit 10.7 to the SB-2 Registration
and William J. Brummond* Statement and incorporated herein by reference.
10.7 Employment Agreement between the Company Filed as Exhibit 10.8 to the SB-2 Registration
and Bryan R. Gray* Statement and incorporated herein by reference.
10.8 Form of Inventions, Confidential Filed as Exhibit 10.2 to the SB-2 Registration
Information and Non-Competition Statement and incorporated herein by reference.
Agreement
10.9 Letter of Credit Agreement, dated Filed as Exhibit 10.13 to the SB-2 Registration
September 19, 1994 Statement and incorporated herein by reference.
10.10 Letter of Credit Agreement, dated Filed as Exhibit 10.14 to the SB-2 Registration
December 13, 1994, as amended Statement and incorporated herein by reference.
10.11 Link Technology Inc. Source Code Software Filed as Exhibit 10.15 to the SB-2 Registration
License Agreement Statement and incorporated herein by reference.
10.12 Design Royalty Agreement between the Filed as Exhibit 10.16 to the SB-2 Registration
Company and Worrell Design Inc. Statement and incorporated herein by reference.
10.13 Development agreement between the Company Filed as Exhibit 10.17 to the SB-2 Registration
and ZH Computer Inc., with a supplement Statement and incorporated herein by reference.
10.14 OEM Agreement with NBSI, dated March 17, Filed as Exhibit 10.18 to the SB-2 Registration
1995 Statement and incorporated herein by reference.
10.15 License Agreement with DSP Software Filed herewith electronically.
Engineering, Inc. dated February 1, 1996
10.16 Manufacturing Agreement with Lucent Filed herewith electronically.
Technologies, Inc. dated August 9, 1996
10.17 Addendum to License Agreement with Link Filed herewith electronically.
Technology, Inc. dated April 29, 1996
10.18 International Distributor Agreement with Filed herewith electronically.
Canon Trading USA dated September 20, 1996
10.19 OEM Agreement with Future Labs, Inc. Filed herewith electronically.
dated March 8, 1996
10.20 Employment Agreement between the Company Filed herewith electronically.
and Donald Lies*
10.21 Manufacturing Agreement with Altron, Inc. Filed herewith electronically.
dated August 28, 1996
10.22 Separation Agreement and Release between Filed herewith electronically.
Company and Douglas S. Clapp dated May 1,
1996*
10.23 Selling Agency Agreement with Miller Filed herewith electronically.
Johnson & Kuehn Incorporated dated August
22, 1996
10.24 Shareholder Agreement dated April 30, 1996 Filed herewith electronically.
21.1 Subsidiary of the Registrant Filed herewith electronically.
23.1 Consent of KPMG Peat Marwick LLP Filed herewith electronically.
24.1 Power of Attorney Included in signature page of this Registration
Statement and incorporated herein by reference
27.1 Financial Data Schedule Filed herewith electronically.
</TABLE>
* Denotes an exhibit that covers management contracts or compensatory plans or
arrangements.
The exhibits referred to in this Exhibit Index will be supplied to a
shareholder at a charge of $.25 per page upon written request directed to
Secretary, RSl Systems, Inc. at the executive offices of the Company.
LICENSE AGREEMENT DSP Software Engineering, Inc.
This License Agreement (the "Agreement") is dated as of the Effective Date (as
defined below), and is entered into by DSP Software Engineering, Inc., a
Massachusetts corporation having its principal place of business at 175
Middlesex Turnpike, Bedford, MA 01730 ("DSPSE") and the following Developer (the
"Developer"):
RSI Systems, Inc.
Company Name
Advanced Engineering
Department Name
One Corporate Plaza, 7400 Metro Boulevard, #475
Address
Edina, MN 55439
City, [State or Territory], Country, Postal Code
DSPSE is the owner of the component(s) and related documentation described in
Exhibit A to this Agreement, and Developer desires to use each component and
incorporate all or portions of each component into the Developer Product, as
defined in Section 1.1. Each party agrees to the terms and conditions set forth
in this Agreement. The parties have caused this Agreement to be executed by
their duly authorized representatives:
DSP SOFTWARE ENGINEERING, INC.
/s/ Joseph V. Della Morte
By
Joseph V. Della Morte
Name
President
Title
21 November 1995
- -----------------------------------------------------
Date
DEVELOPER
/s/ Marti Miller
By
Marti Miller
Name
VP Engineering
Title
2-1-96
------
Date
Marti Miller
"Attention" person for legal notices, if any
Accepted and agreed to with respect to applicable Sections
DISTRIBUTOR
Company Name
Address
City, [State or Territory], Country, Postal Code
By
Name
Title
Date
1. DEFINITIONS
1.1. "Department" means the development group, named above, responsible
for integrating all or a portion of a Component into the Developer
Product.
1.2. "Developer Product" means any executable software created by
Developer in which either (i) all or any portion, or (ii) any
translation or derivative of all or any portion, of a Component is
embedded.
1.3. "Distributor" means either the entity designated as the Distributor
on the signature page of this Agreement, or, if no entity is so
designated, the DSPSE.
1.4. "Documentation" means the DSPSE user manuals, programmers' guides,
system guides and/or related publications which are supplied to
Developer by DSPSE for purposes of facilitating Developer's use of
each Component.
1.5. "Effective Date" means the later date of signature of this Agreement
by Distributor or Developer.
1.6. "Component" means the component(s) listed on Exhibit A of this
Agreement, as well as any enhancements, new releases, updates or
other modifications to each such component which Developer may
receive from Distributor under the same component name or names
during the term of this Agreement.
1.7. "Proprietary Information" is defined in Section 4.2 below.
1.8. "Reseller" means each recipient of the rights which Developer is
permitted to sublicense by Section 2.2 below, other than an end-user
not otherwise involved in the marketing, distribution or further
sublicensing of the Developer Product.
2. GRANT OF LICENSE
2.1. DSPSE grants to Developer, and Developer hereby accepts from DSPSE,
a non-exclusive, non-transferable license to use and modify each
Component to create the Developer Product, subject to the following
limitations:
(i) all development work shall be performed exclusively by the
Department or by an independent contractor otherwise permitted
by this Agreement, and the Component shall be used exclusively
for such purposes;
(ii) the Developer shall not permit any source code or object code
to leave the Department, and access to any such code shall be
strictly limited to persons requiring such access in order to
create the Developer Product; only executable code as embedded
in or integrated with the Developer Product may be permitted
to leave the Department;
(iii) the Developer must add significant value to each Component, so
that the Developer Product does not consist primarily of any
Component(s) merely repackaged and resold in nearly identical
form to, or performing only the same important functions of,
the Component(s) as delivered to the Developer;
(iv) as embedded into or integrated with the Developer Product,
each Component shall be usable solely to further the
functionality of the Developer Product;
(v) Developer's use of each Component shall be strictly limited to
the Developer Product(s) specifically listed in Exhibit A of
this Agreement.
The foregoing shall not be deemed to prohibit the reproduction of
the Developer Product at locations other than the Department.
2.2. DSPSE grants to Developer, and Developer hereby accepts from DSPSE,
a non-exclusive, non-transferable license to copy, market,
distribute and sublicense each Component to end-users solely in
executable code form and as embedded in or integrated with the
Developer Product. Developer may sublicense to its Resellers its
right to market and distribute any Component, solely in executable
form as embedded in or integrated with the Developer Product, to
end-users as provided for above; provided, that no Reseller shall be
granted rights in violation of or in excess of Articles 4, 5 and 6
and Sections 10.1, 10.2 and 10.11 of this Agreement. Developer may
use independent contractors in its development of the Developer
Product, provided that all such contractors given access to any
Component undertake in writing the obligations of Developer under
Articles 2 and 4.
2.3. Notwithstanding anything contained in this Agreement to the
contrary, Developer agrees that the grant of the license rights
above is subject to the additional terms and conditions, if any,
listed on Exhibit A which shall control and supersede any
inconsistent terms of this Agreement.
2.4. Upon the execution and delivery of this Agreement, and the
Distributor's receipt of a purchase order for the Component(s) which
references the full amount of the license fee, if any, listed on
Exhibit A for the Component(s) (the "License Fee"), the Distributor
shall endeavor to promptly deliver each of the Component(s) and
Documentation to Developer.
2.5. In addition to the rights granted by Section 2.1 and 2.2, Developer
may make copies of each Component, provided that any such copy is
either created as a reasonably necessary step in the creation of the
Developer Product or is created solely for archival purposes.
Developer may copy the Documentation but only for use within the
Department for permitted development purposes. No Component or
Documentation may be distributed or disclosed, in any way, to any
person or entity outside of the Department, except to independent
contractors in the manner contemplated by this Agreement, or
otherwise as expressly permitted by the terms of this Agreement.
Developer shall not remove any trademark or copyright notice which
appears on any Documentation or in any Component. All Developer
Products delivered to Resellers and end-users shall include such
notices, in embedded form, in the Developer Product.
3. LICENSE AND ROYALTY FEES
3.1. Developer shall pay to Distributor the License Fee within thirty
(30) days of the invoice date;
3.2. The Royalty payments (the "Royalty"), if any, specified on Exhibit A
shall be paid to Distributor as follows:
(i) during each calendar quarter, including the calendar quarter
in which the Effective Date occurs, the Royalty amount will
accrue for each unit of any Developer Product that is
manufactured and shipped by Developer during such quarter,
regardless of whether such unit is ever sold, licensed or
transferred by a Reseller to any end-user or other third party
during such quarter or thereafter;
(ii) within 30 days after the end of each calendar quarter during
which Royalties have accrued and/or during which Royalties
have been paid or remain outstanding, Developer shall submit
to the Distributor the report required by Section 7.1(ii)
below, together with the full Royalty amount payable with
respect to the quarter just ended.
3.3. The License Fee and Royalty, if any, are exclusive of any federal,
state, municipal or other governmental taxes, duties, excise taxes
or tariffs (collectively "Taxes") now or hereinafter imposed on the
sale, transportation, import, export, or use of any Component or
Documentation, all of which shall be paid by Developer unless
Developer shall have provided an exemption certificate acceptable to
DSPSE and Distributor and the applicable taxing authority. Should an
audit of either party by governmental authorities result in a claim
that such charges are due, Developer shall reimburse Distributor for
any such charges, together with interest, penalties and other costs,
other than those arising from DSPSE's or Distributor's failure to
make timely payment of Taxes, promptly following written request
therefor by Distributor.
4. PROPRIETARY INFORMATION
4.1. As between DSPSE and Developer, all title and other ownership rights
(including all patent, copyright and trade secret rights) in each
Component and any portion thereof which is embedded in, or
integrated with the Developer Product, and in any enhancements or
modifications of any Component that sequentially execute between the
entry and exit points of such Component, which may be created by
Developer, whether or not so embedded or integrated, shall remain in
DSPSE. Subject to the rights of DSPSE in the Component and any
portions of Component and any such enhancements or modifications
which are so embedded or integrated, Developer shall own all right,
title and interest in the derivative work represented by any
Developer Product that it develops.
4.2. It is expressly understood and agreed that each Component, including
but not limited to the proprietary software (in whatever form), and
Documentation constitute valuable proprietary products and trade
secrets of DSPSE embodying substantial creative effort and
confidential information, ideas and expressions (collectively
"Proprietary Information") which require protection against
unauthorized use, transfer, reproduction, or disclosure. Developer
agrees that it will protect all Proprietary Information with at
least the same degree of care as it uses to protect its own most
confidential, unclassified information, will make no use of any
Confidential Information except as permitted by this Agreement, will
allow access thereto only by its employees who have agreed to abide
by the confidentiality terms of this Agreement, and only as required
for the use of the Proprietary Information as specifically permitted
by this Agreement, and shall not transfer the Proprietary
Information or any portion thereof to any third party except as
specifically permitted by this Agreement. Developer shall be
responsible for its employees, agents, representatives, independent
contractors and Resellers complying with the terms of this
Agreement.
4.3. Upon termination of this Agreement, Developer shall delete all
copies of the Proprietary Information in any form from its system
files and storage media, shall destroy or return to DSPSE all
printed copies of the Proprietary Information, shall terminate all
use of the Proprietary Information and each Component and deliver to
DSPSE all storage media owned by DSPSE then in Developer's
possession. Within thirty (30) days after such termination,
Developer shall certify in writing to DSPSE that Developer and each
of its Resellers has complied with its obligations under this
subsection. Notwithstanding the foregoing, Developer may continue to
sell or use all inventory of any Developer Product which exists on
the date of such termination.
4.4. Developer shall promptly notify DSPSE of any infringement of DSPSE's
proprietary rights in the Confidential Information or unauthorized
disclosure of any Confidential Information that comes to Developer's
attention.
4.5. Developer acknowledges that a material violation of the
confidentiality undertakings of this Article 4 by Developer could
result in substantial and irreparable damage to DSPSE if DSPSE could
not take immediate action to prevent further disclosure of DSPSE's
valuable intellectual property and other Proprietary Information,
and that DSPSE would not have an adequate remedy at law to
compensation it for any such breach. Accordingly, Developer consents
(without limiting the right of DSPSE to any other remedy) to the
entry of an injunction by any court of competent jurisdiction
against any threatened or continuing material breach of this
Article.
5. LIMITED WARRANTY
5.1. DSPSE warrants that each Component, as delivered to Developer, will
substantially perform in accordance with the specification sheet
published by DSPSE for such Component at the time of delivery to
Developer, however, DSPSE does not warrant that the use of any
Component will be uninterrupted or error-free. Developer's exclusive
remedy and DSPSE's sole liability under this warranty shall be for
DSPSE to attempt, through reasonable efforts, to correct any
material nonconformity, if such failure is reported to DSPSE within
90 days of the date of such delivery ("Warranty Period"), if
Developer has provided DSPSE (upon DSPSE's request) with such
information as DSPSE reasonably requests to enable DSPSE to
reproduce the defect in question; provided, that if DSPSE is unable
to correct any such failure in a Component within a reasonable time,
DSPSE may, at its sole option, refund to Developer the License Fee
paid for such Component and the Royalty amounts, if any, that DSPSE
received for any related Developer Products for which Developer can
document that it has had to provide refunds, solely because of such
defect. Upon such payment, this Agreement may be terminated by DSPSE
at its election as to such Component.
5.2. For one year from the Effective Date, Distributor will provide to
Developer, free of charge, all updates of each Component that are
released by DSPSE to the general public solely as a "bug fix".
5.3. DSPSE warrants that each Component, as delivered to Developer, does
not infringe any copyright or trade secret. DSPSE will defend at its
expense and indemnify Developer with respect to any motion brought
against Developer to the extent that it is based on a breach of the
foregoing warranty, and DSPSE will pay any costs and damages finally
awarded against Developer, or any settlement finally paid with the
consent of DSPSE (which consent shall not be unreasonably withheld)
by Developer, and reimburse Developer for attorney's fees reasonably
incurred in connection therewith, provided that Developer notifies
that DSPSE promptly in writing of such claim and allows DSPSE to
fully control the defense of such claim. The foregoing is further
conditioned on the following:
(i) DSPSE shall have no liability of indemnity with respect to,
nor any obligation to defend or reimburse Developer with
respect to legal fees relating to, any action or claim based
upon the interpretation, conformance with, or development of
Component that substantially complies with any industry
recognized standard, which such claim is based upon or would
not arise but for such interpretation, conformance or
compliance.
(ii) Should any Component or any portion thereof become, or in
DSPSE's opinion by likely to become, the subject of any claim
of infringement, DSPSE shall at its option
(a) procure for Developer the right to continue exercising
its rights hereunder with respect to such Component,
(b) replace or modify such Component to make it
noninfringing, or
(c) terminate the license granted hereunder and refund to
Developer a pro rata portion of the License Fee paid by
the Developer, calculated on the basis of a three year
period from the date of this Agreement and actual date
upon which Developer was no longer able to use the
Product as a result of such alleged infringement.
(iii) DSPSE shall have no liability for any claim of infringement
based upon:
(a) use or combination of any portion of any Component with
any products not supplied by DSPSE (including without
limitation the Developer Product), if such infringement
would not have occurred without such use or combination;
(b) use or marketing of any Component by Developer, or use,
distribution or licensing of the Developer Product by
Developer, after having been given notice, or having a
reason to believe, that such Component infringes a
copyright of a third party, unless prompt written notice
has been given to DSPSE; or
(c) use of other than the latest unmodified version of any
Component delivered to Developer by Distributor or
DSPSE, if the infringement would have been avoided by
the use of such version.
(iv) Any limitation on Developer's remedies in this Agreement shall
not apply with respect to Developer's rights under the terms
set forth under this Section 5.3. In no event will DSPSE be
liable for any claim against Developer by any party except as
provided in this Section 5.3.
(v) Notwithstanding anything herein to the contrary, this Section
5.3 states the entire liability of DSPSE, and the sole
recourse of Developer, with respect to infringements of
copyrights and trade secrets.
5.4. The warranty provided herein extends only to Developer and not to
any Reseller or end-user of the Developer Product. Developer shall
indemnify DSPSE for any expenses incurred by DSPSE, directly or
indirectly (including without limitation attorneys' fees, settlement
costs and court costs), as a result of any claim or action by any
third party arising out of or resulting from the Developer Product,
except to the extent that the same relates solely to any defect in
the embedded Component; provided, that this indemnification
obligation shall not apply with respect to any expenses, claims or
damages that are finally adjudicated by a court of competent
jurisdiction to have been caused by the gross negligence or willful
misconduct of DSPSE. Developer will defend at its expense any such
claim or action brought against DSPSE and Developer will pay any
costs and damages finally awarded against DSPSE in any action that
are attributable to such claim, and reimburse DSPSE for reasonable
attorneys' fees reasonably incurred in connection therewith,
provided that DSPSE notifies Developer promptly in writing of such
claim, allows Developer to fully control the defense of such claim
and does not agree to any settlement of such claim without
Developer's written consent.
5.5. The warranty set forth above is exclusive and is in lieu of all
other warranties of DSPSE. NO OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING BUT NOT LIMITED TO THE WARRANTIES OF MERCHANTABILITY AND
FITNESS FOR ANY PARTICULAR PURPOSE ARE MADE BY DSPSE. IN NO EVENT
WILL DSPSE BE LIABLE FOR ANY DAMAGES CAUSED BY DEVELOPER'S FAILURE
TO PERFORM ITS OBLIGATIONS HEREUNDER, OR FOR ANY LOST PROFITS OR ANY
OTHER INCIDENTAL OR CONSEQUENTIAL DAMAGES, REGARDLESS OF THE FORM OF
ACTION, WHETHER IN CONTRACT OR IN TORT, INCLUDING NEGLIGENCE, EVEN
IF DSPSE HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. Such
warranty shall not be deemed to have failed of its essential purpose
so long as DSPSE is making good faith efforts to correct defects
under the terms of the warranty, or has made the refunds or
replacements provided for by this Agreement. The warranty set forth
herein allocates risks of Component nonconformity, and DSPSE's
prices reflect the allocations of such risk.
5.6. DSPSE's entire liability and Developer's sole and exclusive remedy
for any claim concerning performance or nonperformance by DSPSE,
pursuant to or in any way related to the subject matter of this
Agreement, or for damages for any causes whatsoever and regardless
of the form of action, whether in contract or in tort including
negligence, or any other legal theory, shall be actual damages up to
the amount of the aggregate payments actually made to DSPSE, or
which DSPSE has received through Distributors, as the case may be,
hereunder in the most recent twelve (12) months prior to such
damages occurring.
6. MAINTENANCE AND SUPPORT
6.1. Developer shall be entitled to five (5) free hours of telephone
support from Distributor for each Component, as delivered to
developer, that it licenses pursuant hereto during Distributor's
normal business hours during the first six months following the
Effective Date. To the extent that Developer has not requested and
received a full five hours of telephone support in such time period,
Distributor may, but shall not be required, to provide the balance
of such five hours of telephone support thereafter. Developer is not
entitled to any free support for any Component that has been
modified such that it is not identically as delivered. Developer may
purchase support, as available from Distributor or DSPSE, for any
modified Component at Distributor's or DSPSE's then current
consulting rate.
6.2. Subject to availability, Developer may purchase additional telephone
support or on site support from Distributor at Distributor's then
current rates. All reasonable travel expenses incurred by
Distributor to provide such on site support, if any, shall be paid
for by Developer promptly following its receipt of reasonable
documentation therefor.
6.3. Developer may purchase a one year maintenance contract ("Maintenance
Contract") for each Component from DSPSE for 10% of the then current
list License Fee for such Component. A Maintenance Contract:
(i) Extends the obligation provided by Section 6.1 for an
additional twelve (12) months;
(ii) Entitles Developer to an additional five (5) hours of
telephone support for such Component; and
(iii) Entitles Developer to receive any revised or updated versions
of such Component that are released by DSPSE to the general
public.
7. AUDITS AND REPORTS
7.1. If and only if Exhibit A hereto requires Developer to pay a Royalty
to Distributor then:
(i) During the term of this Agreement, Developer shall use its
best efforts to maintain accurate and sufficiently detailed
records of its production of each Developer Product so as to
enable DSPSE or Distributor to verify the accuracy of the
payments that Distributor receives pursuant to such Section
3.2;
(ii) Developer shall, together with each payment required under
Section 3.2, submit to Distributor a report reasonably
supporting the calculation of such payment;
(iii) Developer agrees that if at any time either DSPSE or
Distributor believes that a material underpayment of Royalties
has occurred, then either such entity or the representatives
of either shall have the right, upon ten (10) days' prior
written notice, to examine Developer's related books and
records, for the purpose of verifying the accuracy of the
Royalty payments and their accompanying reports. The party
conducting such audit shall bear the cost and expense of any
such audit; provided, however, that if any audit reveals that
there has been an underpayment to Distributor of more than 5%
of the amount properly payable, then the full cost and expense
of such audit shall be paid for by Developer and the amount of
such underpayment shall be forwarded immediately to
Distributor.
8. TERM AND TERMINATION
8.1. This Agreement shall commence as of the Effective Date and continue
indefinitely unless terminated in accordance with this Article 8.
8.2. This Agreement shall terminate upon the first to occur of:
(i) The expiration of thirty (30) days after the giving of notice
by the non-breaching party of a material breach of any of the
provisions of this Agreement, provided that such breach is not
cured within such thirty (30) day period. The parties agree
that any breach of Article 4 is inherently incurable and shall
give DSPSE the right to terminate this Agreement immediately;
(ii) By written notice of either party if the other, without curing
the condition within thirty (30) days of the event, ceases
doing business as a going concern, becomes insolvent, makes an
assignment for the benefit of creditors, admits in writing its
inability to pay its debts as they become due, files a
voluntary petition in bankruptcy, is subject to an involuntary
petition in bankruptcy which is not dismissed with ten (10)
days, is adjudicated bankrupt or insolvent, or files or has
filed against it a petition seeking any reorganization,
arrangement or composition, under any present or future
statute, law or regulation.
8.3. Notwithstanding anything contained herein to the contrary, all
licenses of the Developer Product acquired by end-users which
conform to the terms of this Agreement, shall survive termination of
this Agreement if granted in good faith during the term of this
Agreement. All provisions of this Agreement regarding
indemnification, warranty, liability and limits thereon, records
retention and audit, and confidentiality and/or protection of
proprietary rights and trade secrets shall survive termination
hereof.
8.4. Termination of this Agreement, shall not relieve either of the
parties of their respective obligations to pay any monies due or
which become due as of or subsequent to the date of termination.
9. DEVELOPER PRODUCT MARKETING LITERATURE
9.1. Use of any of the trademarks or trade names of DSPSE, including
without limitation a designation that such trademarks or trade names
are the property of DSPSE, on any sales promotion, advertising, news
release, stationary or other media produced by or for Developer, may
only be done as required by Section 2.5 above or otherwise with the
prior consent of DSPSE which consent will not be unreasonably
withheld.
10. GENERAL
10.1. Developer shall not export the Developer Product, except in
compliance with all applicable U.S. and foreign export and import
laws and regulations. Developer shall be solely responsible for
compliance with and the obtaining of all export licenses which may
be required.
10.2. The trademarks under which DSPSE markets each Component and its
constituent parts are the exclusive property of DSPSE. This
Agreement gives Developer no rights therein, except the restricted
license to reproduce such trademarks as provided in Section 2.5 and
9.1.
10.3. Notices: All notices shall be in writing and deemed given and
received when delivered in person, by telex or facsimile, or by
commercial air courier service. Notices shall be addressed to each
party at its address set forth above, or such other address as the
recipient may have specified by earlier notice to the sender. In
addition, notice to DSPSE shall be to the attention of Distribution
Manager; notice to Developer shall be to the attention of the
person, if any, designated on the signature page of this Agreement
to receive legal notices.
10.4. Assignment; Successors: This Agreement shall not be assigned by
either party without the advance written consent of the other, which
consent both parties agree will not be unreasonably withheld;
provided, however, that DSPSE may assign this Agreement in its
entirety to a successor, to all or a substantial portion of its
business or, to a purchaser of all of DSPSE's rights in any
Component. This Agreement shall be binding upon and inure to the
benefit of the parties, their successors and permitted assigns.
10.5. Entire Agreement: This Agreement constitutes the entire Agreement
between the parties with respect to its subject matter; except as
provided herein, all prior agreements, representations, statements,
negotiations and undertakings, with respect to such subject matter
are terminated and superseded hereby.
10.6. Independent Contractors: This parties shall at all times be
independent contractors with respect to each other in carrying out
this Agreement.
10.7. Amendments: No amendment to this Agreement shall be effective unless
it is in writing and signed by a duly authorized representative of
each party.
10.8. Headings Not Controlling: Headings used in this Agreement are for
reference only and shall not be deemed a part of this Agreement.
10.9. Consent to Breach Not Waiver: No term or provision hereof shall be
deemed waived and no breach excused, unless such waiver or consent
shall be in writing and signed by the party claimed to have waived
or consented. Any consent by any party to, or waiver of, a breach by
the other, whether express or implied, shall not constitute a
consent to, waiver of, or excuse for any other different or
subsequent breach.
10.10.Severability: In the event any provision of this Agreement is held
illegal, void or unenforceable, to any extent, in whole or in part,
as to any situation or person, the balance shall remain in effect
and the provision in question shall remain in effect as to all other
persons or situations, as the case may be.
10.11.Restrictive Rights Legends: If Developer is acquiring any Component
on behalf of any unit or agency of the U.S. Government, the
following shall apply:
(i) For units of the Department of Defense, use, duplication or
disclosure by the Government is subject to restrictions as set
forth in subparagraph (c)(1)(ii) of the Rights in Technical
Data and Computer Software Clause at DFAR 252.277*7013;
(ii) For any other unit or agency use, reproduction or disclosure
is subject to the restrictions set forth in subparagraphs (a)
through (d) of the Commercial Computer Software * Restricted
Rights clause at FAR 52.227 * 19, and the limitations set
forth in DSPSE's standard commercial agreement for this
software. Contractor/manufacturer is DSP Software Engineering,
Inc., 165 Middlesex Turnpike, Bedford, MA 01730.
10.12.Governing Law: This Agreement shall be deemed to have been made in
the Commonwealth of Massachusetts, and shall be governed by and
construed in accordance with the laws of the Commonwealth of
Massachusetts, exclusive of its rules governing choice of law and
conflict of laws.
PART I. MANUFACTURING AND PAYMENT FOR FINISHED
GOODS AND EXCESS INVENTORY
1. RSI will pay $50,000 immediately upon the signing of this agreement. The
detail of this amount is outlined in the attached Exhibit A.
2. RSI will agree to the following schedule of payments to be applied towards
excess inventory. August: 10: $50,000, September 1, October 1, November 1:
$128,177.75, December 1: $78,177.75. (The $50,000 is included as part of
the $212,040.74). Carrying charges will be applied to the remaining
balance as detailed below.
3. CMS agrees to assemble and test 690 units and deliver yield to RSI. These
shipments should be made on a weekly basis to RSI's corporate facility
upon finished production. Quantities may be adjusted due to yield.
4. RSI agrees to provide the following parts for production;
Gasket (8560-0225-93)
Switch Insulator (RKS025-A)
Pots Hole Plug (RKS023-B)
Label (RKS028-A)
The SCSI cable (45874) is not included in the assembly price of $244.09.
5. RSI will pay for the finished units one day after receipt of the units (as
shipped on a completed basis) at our facility. Upon receipt of the payment
described in item 1 above, RSI will have paid for 512 PCA kits. Lucent
agrees that the first 512 units shipped as finished goods will be built
with the PCAs already paid for by RSI. The remaining 178 PCA kits will be
billed to RSI upon final assembly as finished product. The units will be
in new and operable condition upon shipment. RSI will test each unit to
verify its functionality. CMS will be immediately notified in writing of
the serial number of those units that do not pass this test or do not
function according to the manufacturing specifications. Provided that RSI
performs an identical test as that supplied to Lucent and that failure is
a result of material or workmanship defects, CMS agrees to, at its option
to either repair, replace or provide a refund of the original price
consistent with the manufacturing agreement.
5. RSI will pay carrying charges on the excess inventory as billed on Invoice
No. 013251, Part 2, starting effective August 10, 1996. Carrying charges
of 1&1/2% will be applied to the unpaid balance. This charge will be due
and payable monthly with the payment described in item 2 above.
6. Because Lucent has requested and RSI has agreed to absolve them from any
future manufacturing commitments for the Eris product, Lucent agrees to
return all RSI CFE to RSI corporate headquarters within 10 days of the
finalization of this agreement. Please see attached Exhibit B of current
inventory of CFEs. Such returned amount shall be minus any mutually agreed
to amount of CFE remaining at CMS for use in rework or repair needs.
7. Upon completion and delivery of the final units, RSI agrees to pay Lucent
Technologies (CMS) for any remaining parts inventory as audited by RSI
that is in working condition. Such audit will be conducted using standard
audit procedures for this type of audit. Lucent agrees to ship all parts
inventory to RSI or a location designated by RSI upon receipt of payment.
PART II. WARRANTY AND REPAIR
1. Lucent (CMS) agrees to comply with the warranty and the contract and
return to RSI the 74 Eris units currently under repair, as provided in
RSI's invoice No. 00000277, which meet the manufacturing specifications.
Upon full execution of this agreement, and no later than September 1, 1996
a mutually agreed to schedule for production and repair will be finalized
by the parties. Schedule will be determined upon receipt of additional
test equipment detailed in Part II, Item 3.
2. If Lucent is unable to repair any of these units, RSI shall receive credit
in accordance with the terms of the warranty within 30 days.
3. RSI agrees to provide a total of two final test sets and two stack
testers. Furthermore, RSI agrees to mutually agreed upon and reasonable
on-site representation to assist Lucent test personnel in identifying and
resolving the test issues that exist. Such on-site representation shall be
up to fifteen business days.
4. Lucent will make every effort to produce all units to the manufacturing
and testing specifications provided by RSI. However, if after expending
all reasonable efforts a unit still does not pass test, RSI will be called
in to define the problem. If the RSI trouble shooting determines the cause
for failure, Lucent will repair the unit to specification. If RSI cannot
determine the cause for failure the unit will deemed accepted by RSI.
5. CMS will credit RSI for $9,023.35 (Exhibit A, Part IV) for those parts
already provided by RSI as listed in Exhibit D.
6. CMS will purchase the Chassis (RKS001-E) from RSI for $20.75. Upon receipt
of the remaining product that will be provided by RSI in the completion of
the 690 finished units, Lucent agrees to credit RSI for this furnished
material upon shipment of the completed units.
Agreed and Accepted:
Lucent Technologies Inc. RSI Systems Inc.
BY: /s/ J.T. Dixon BY: /s/ Donald C. Lies
J.T. Dixon
TITLE: CMS Vice President TITLE: President & CEO
DATE: August 9, 1996 DATE: August 9, 1996
BY: /s/ J.P. Gerrish
J.P. Gerrish
TITLE: Chief Financial Officer, CMS
DATE: August 9, 1996
ADDENDUM TO
SOURCE CODE SOFTWARE LICENSE AGREEMENT
This ADDENDUM to the Source Code Software License Agreement (AGREEMENT)
effective June 28, 1994 between Link Technology, Inc. having a principal place
of business at 23 Crescent Drive, Holland, Pennsylvania 18966 (LINK TECHNOLOGY),
and RSI Systems, Inc. having a principal place of business at suite 475, 7400
Metro Blvd., Edina, Minnesota 55439 (LICENSEE) is entered into effective the
date last signed by the parties.
WITNESSETH
Whereas, LINK TECHNOLOGY and LICENSEE have previously entered into the
AGREEMENT and LICENSEE desires to license additional LICENSED SOFTWARE from LINK
TECHNOLOGY under the terms and conditions of the AGREEMENT;
Now therefore, the parties agree as follows:
1.0 LICENSED SOFTWARE
LINK TECHNOLOGY agrees to add the LICENSED SOFTWARE described in the attached
letter dated March 12, 1996 (LETTER) to the AGREEMENT for an additional LICENSE
FEE of Eighteen Thousand Dollars ($18,000), payable per the terms described in
the LETTER.
2.0 RELATED SERVICES
LICENSEE will pay LINK TECHNOLOGY for its travel expenses associated with any
required testing support at LICENSEE's facility in Edina as jointly agreed upon
by LICENSEE and LINK TECHNOLOGY.
3.0 SUPPORT
LINK TECHNOLOGY will provide support for the LICENSED SOFTWARE described in the
LETTER in the manner outlined in Exhibit B of the AGREEMENT for no additional
charge beyond that described in Exhibit B of the AGREEMENT.
4.0 EFFECT OF ADDENDUM
This ADDENDUM is solely intended to add the LICENSED SOFTWARE set forth herein
under the stated terms and conditions and the remainder of the AGREEMENT is
unchanged.
In Witness Whereof, the parties hereto signify their assent to the
terms and conditions set forth by their signatures below.
LINK TECHNOLOGY LICENSEE
By: /s/ Jeffrey A. Ramsey By: /s/ Marti Miller
Print Name: Jeffrey A. Ramsey Print Name: Marti Miller
Title: President Title: VP Engineering
Date: 3/29/96 Date: 4/29/96
LINK TECHNOLOGY
23 Crescent Drive * Holland, PA 18966 * (215) 357-3354 * FAX (215) 357-1670
March 12, 1996
VISIT OUR INTERNET WEB SITE AT HTTP://LINKISDN.INTER.NET/LINKISDN/
Mr. Marty Miller
RSI Systems
1 Corporate Plaza
7400 Metro Blvd.
Edina, MN 55439
via facsimile 612-896-3020
Dear Mr. Miller:
Thank you for your continued interest in our products and services. Per your
request, I am pleased to provide you with this quotation for porting our ISDN
protocol software to the ISDN subsystem of your next generation video CODEC.
We would require a consulting arrangement to adapt our ISDN protocol software to
the specific hardware architecture for your CODEC. We would also require that
one fully functional prototype adapter be delivered to Link Technology before
any software integration with your CODEC can begin. The prototype adapter should
come equipped with the following:
1. populated motherboard adapter with bootstrap, configuration and
diagnostic software that will initialize the 68332 microprocessor and
its required setup and other configuration, along with supporting a
bootstrap protocol to allow additional RAM based programs to be loaded
from the PC via the system interface (this may be SCSI); motherboard
also contains at least two DDLC (MC145488) controllers; technical
documentation is also to accompany the hardware describing the software
download procedures, diagnostics, hardware configuration relating to
software initialization, etc.;
2. populated with sufficient system RAM to allow software testing and
debugging;
3. populated S/T interface daughterboard containing the MC145574 and its
required ISDN circuitry, along with any required DDLC (MC145488)
device(s);
4. populated U interface daughterboard containing the MC145572 and its
required ISDN circuitry, along with any required DDLC (MC145488)
device(s);
5. ancillary software to link and locate executable programs for test and
debug purposes, along with project MAKE files and one copy of the
compiler tools and relevant documentation used (the compiler tools and
relevant documentation should be delivered to Link Technology at the
start of the project).
The following is an itemized list of tasks that have been identified for this
project. Please note that the following is subject to change if project
requirements change.
<TABLE>
<CAPTION>
TASK DESCRIPTION FEE (US DOLLARS)
<S> <C> <C>
DDLC Driver Design, code and unit test MC145488 DDLC device driver using $6,000
C&UT 68332 motherboard (possibly also using Motorola evaluation
adapter(s))
ISDN and S/T System software integration and test with S/T daughterboard, $6,000
device driver I&T MC145574 and MC145488 device drivers and 68332 motherboard
ISDN and U device System software integration and test with U daughterboard, $3,000
driver I&T MC145572 and MC145488 device drivers and 68332 motherboard
System software RSI specific documentation of system software and all $3,000
documentation device drivers
</TABLE>
All source code to the 68332 based ISDN protocol software, including the device
driver software for the MC145572, MC145574 and MC145488 devices will be
delivered to RSI Systems under the same terms and conditions as the existing
source code software license agreement. An addendum will be added to cover the
additional software components (I will supply you with a draft addendum if you
choose to go forward with this project). This work will also result in a
multi-port version of the ISDN protocol software being delivered to RSI Systems.
The previous tasks will take approximately eight weeks to complete. The
development of the MC145488 device driver can precede the receipt of functioning
hardware and can cut the total time down by approximately two weeks. Further
reductions of the task delivery dates may be achieved by obtaining evaluation
adapters from Motorola which contain the 68332 and the MC145488. Link Technology
already possesses evaluation adapters with the MC145572 and MC145574 ISDN
transceivers. After the completion of the ISDN AND S/T DEVICE DRIVER I&T task,
this software will be delivered to RSI Systems and the first installment of
Twelve Thousand Dollars ($12,000) will be due. After the completion of the ISDN
AND U DEVICE DRIVER I&T task, this software will be delivered to RSI Systems and
the second installment of Three Thousand Dollars ($3,000) will be due. After the
completion of the SYSTEM SOFTWARE DOCUMENTATION task, the final release of
software and documentation will be delivered to RSI Systems and the third and
final installment of Three Thousand Dollars ($3,000) will be due. Please note
that if any of the tasks are delayed due to hardware related problems found
during our testing, we will at such a time jointly discuss how we should proceed
and additions to the cost and schedule for those affected tasks may be required.
Additional support for items such as design reviews of the CODEC hardware will
be provided to RSI Systems, at your option, on a time-and-expenses basis at a
daily billing rate of $600. All pre-approved travel and living expenses related
to this project will be billed to RSI System at cost. All payments will be made
with NET-30 terms.
I request that you hold in strict confidence the information contained in this
letter. Please note that this proposal is valid for sixty days from the date of
this letter (if you need more time for your decision please let me know). Thank
you for the opportunity to provide you with this quotation and I look forward to
discussing this matter further with you and RSI Systems.
Sincerely,
/s/ J.A. Ramsey
Jeffrey A. Ramsey
President
cc: File
CONTAINS LINK TECHNOLOGY CONFIDENTIAL INFORMATION. DISCLOSURE RESTRICTED.
INTERNATIONAL DISTRIBUTOR AGREEMENT
THIS AGREEMENT is made between RSI Systems, Inc., a Minnesota, USA corporation
("RSI"), and Canon Trading USA, a California, USA Corporation ("Distributor")
and shall be effective as of September 20, 1996.
BACKGROUND
RSI is in the business of manufacturing and marketing video communication
products for use in video conferencing applications. Distributor is in the
business of acting as a distributor in the territory described on Exhibit B
("the territory"). RSI desires to enter into a distribution agreement with
Distributor for the purpose of developing a market for certain of RSI's products
in the territory, on the terms and conditions set forth in this agreement. "As a
result, RSI desires to appoint Distributor to market the products on an
exclusive basis in the Territory and understands and acknowledges that
Distributor will be doing so through Distributor's sub- distributor, Canon Sales
Co., Inc., who will market the Products in the Territory, under
Sub-distributor's private label and serial numbers, to end-users directly or
through its dealers".
TERMS AND CONDITIONS
NOW THEREFORE, in consideration of the mutual promises contained herein, the
parties hereto agree as follows:
1. Products. The term "products" shall mean those products of RSI listed on
Exhibit A. This list of Products may be changed from time to time by mutual
agreement of the parties, provided, however, that RSI shall retain the sole
right to make alterations in, or to discontinue the manufacture of, any of the
Products, or to discontinue the sale of any Product in any territory, including
the Territory, at any time without incurring any obligation to Distributor.
Distributor acknowledges that RSI may produce certain products that it will not
include on Exhibit A.
2. Exclusive Distributorship
2.1 Subject to the terms and conditions contained herein, RSI grants to
the Distributor, and the Distributor hereby accepts appointment as Exclusive
Distributor of Products in the territory.
2.2 Although it is not RSI's intention to compete with Distributor for
orders in the Territory, nothing contained herein shall prohibit or restrict RSI
from selling directly or through other outlets if Distributor is unable or
unwilling to sell and service customers or areas of the Territory, or if a
customer refuses to do business with Distributor. RSI may sell to such customer
directly or through others without liability to Distributor, provided that
Distributor has confirmed in writing its unwillingness or inability to sell and
service, or the customer's unwillingness to do business with Distributor.
2.3 Distributor will not solicit orders for the Products from customers
located outside the Territory through any means, including advertising.
3. Scope of Work. RSI will manufacture, or cause to be manufactured, and deliver
the Products and Spare Parts, and will accept and fill Distributor's Purchase
Orders subject to the terms and conditions of this Agreement. Unless otherwise
agreed upon by the parties, RSI and its subcontractors will provide all of the
mechanical and electronic engineering design, manufacturing technology, labor,
material and facilities necessary for its production of the Products and Spare
Parts.
4. Distributor Not Made An Agent. Each of the parties is an independent
contractor and nothing contained herein shall be deemed or construed to create
the relationship of an agency, partnership, joint venture, franchise or any
other association or relationship between the parties except that of an
exclusive distributor. Neither party shall have any authority to bind the other
party in any respect.
5. Ordering & Adjustment.
5.1 Purchase Orders. Distributor will order Products and Spare Parts
through Purchase Orders. Within seven (7) days of receipt of Purchase Orders,
RSI will confirm delivery dates. RSI shall ship or caused to be shipped, the
Products and Spare Parts to meet those delivery dates.
Distributor's Purchase Orders will be deemed accepted by RSI when RSI
accepts them in writing; RSI accepts them orally and confirms them in writing or
RSI actually ships, or causes to be shipped, Product. No additional or different
provisions than those in this Agreement proposed by RSI or Distributor will
apply unless expressly agreed to in writing by both parties. Distributor and RSI
hereby give notice of their objection to any such additional or different terms
proposed by the other.
5.2 Buffer Inventory
RSI will supply Distributor with a recommended Spare Parts stocking list
which will be utilized by Distributor as a guide in meeting its stocking
requirements.
RSI agrees to hold a mutually established quantity of Product and Spare
Parts for emergency stocking purposes. Distributor may draw on these inventories
without restriction until the quantities are exhausted.
RSI agrees to rotate this inventory on a first in first out basis.
Within sixty (60) days of termination of this Agreement, Distributor agrees to
purchase the Product and Spare Parts held in these buffer inventories.
5.3 Adjustments and Rescheduling
(a) Increases/Decreases. Notwithstanding Section 5.1, Distributor may
adjust Products and Spare Parts quantities under Purchase Orders upon the
consent of RSI, which consent shall not be unreasonably withheld.
(b) Rescheduling. Distributor may reschedule the delivery date of
undelivered Product, without charge, provided notice is given at least thirty
(30) days prior to the original delivery date and the extent of the rescheduling
does not exceed ninety (90) days.
(c) IN NO EVENT WILL DISTRIBUTOR BE LIABLE FOR ANY INCIDENTAL OR
CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO ANY LOST PROFIT, ARISING OUT
OF ANY ADJUSTMENT OR RESCHEDULING OF PURCHASE ORDERS IN CONFORMITY WITH THE
PROVISIONS OF SECTIONS OF SECTIONS 5.3 (a) AND 5.3 (b) ABOVE.
5.4 All orders of Distributor for Products shall be subject to such
reasonable allocation as, in the reasonable judgment of RSI, may be equitable in
the event of any shortages of any Products at any time.
6. Delivery, Carrier & Risk of Loss.
6.1 Shipment of Products; Payment of Shipping Costs. Distributor will
arrange for shipment of the Products through a carrier designated by
Distributor. Distributor will have the right to modify such designation from
time to time, as deemed necessary or appropriate by Distributor, in
Distributor's sole and absolute discretion. In the event no carrier is
designated by Distributor, RSI will select a common surface carrier at its
discretion.
6.2 Passage of Title and Risk of Loss. Title and risk of loss or damage
to the Products or Spare Parts will pass to Distributor upon receipt by
Distributor's designated carrier or the RSI selected common carrier at the FOB
point.
6.3 Delivery Date. RSI will deliver, or caused to be delivered,
Purchase Order quantities to the FOB point on or before the date for delivery as
confirmed in accordance with Section 5.1 herein. TIME AND DATE OF DELIVERY ARE
OF THE ESSENCE FOR ALL PURCHASES UNDER THIS AGREEMENT. RSI will pay Distributor
the difference in costs associated with expedited freight in the event Purchase
Order quantities are not delivered to the FOB point by such date.
6.4 Failure to Meet Delivery Date. If RSI fails to meet Distributor's
delivery schedule on all or any part of any Purchase Order and does not provide
Distributor with written assurance of delivery within ten (10) days of the
Purchase Order delivery date, or RSI fails to so deliver within such time
period, then Distributor, without prejudice to any other rights or remedies
available to Distributor under law or otherwise, may terminate such or any part
of such Purchase Order and procure, upon such terms and in such manner as
Distributor may deem appropriate, the Product covered by such Purchase Order. In
such event, Distributor's sole liability to RSI shall be limited to payment for
items delivered to and accepted by Distributor at the expiration of the ten (10)
day period described above. With respect to the portion of such Purchase Order
not terminated, if any, the unit price will not change and RSI will otherwise
continue performance under this Agreement.
7. Pricing.
7.1 Prices. Subject to the terms and conditions of this Agreement, RSI
agrees to deliver the Products and Spare Parts at the prices set forth in
Exhibit "A", the Product and Price Schedule. Prices for Products and Spare Parts
are FOB RSI's Minneapolis, MN warehouse (the "FOB Point"). Such prices may not
be increased during the initial term of this Agreement, and may only be
modified thereafter, as follows: After the Initial Term of this Agreement, RSI
may increase prices at any time upon sixty (60) days notice; provided RSI will
honor each order made or mailed by Distributor before such price change becomes
effective at the price in effect when such order was made or mailed.
7.2 Most Favored Customer Pricing. RSI hereby warrants that at no time
will the prices charged Distributor exceed the prices offered other customers
for similar products, quantities and delivery requirements under similar terms
and conditions. In the event RSI provides prices and/or terms for the Products
or Spare Parts more favorable than those set forth herein to another of such
customers, Distributor will be entitled to a reduction and/or amendment
retroactive to the date such prices and/or terms have been made available to
such other customer.
8. Spare Parts.
8.1 Purchase. Notwithstanding any expiration of the term of this
Agreement, Distributor or a Distributor designated third party will be able to
purchase Spare Parts beginning at the date of initial production of the Product
or implementation of a design change, and extending for a period of three (3)
years after the last shipment of the respective Product under this Agreement.
Such purchases will be governed by the applicable terms and conditions set forth
in this Agreement. Notwithstanding the foregoing, however, for the three (3)
year period after the last shipment of the respective Product under this
Agreement, RSI may make a comparable substitute for the Spare Parts for the
Products available where Spare Parts are no longer available.
9. Inspection. Products and Spare Parts purchased pursuant to this Agreement may
be subject to inspection at the FOB Point, within a reasonable time after
delivery, but in no event more than forty-five (45) days after receipt by
Distributor's sub-distributor. Distributor will reject and notify RSI of
defective or nonconforming Products and Spare Parts and, to the extent
reasonably feasible, the nature of the defect. If Distributor does not expressly
reject Products and/or Spare Parts within such forty-five (45) days, such
Products and Spare Parts will be deemed accepted by Distributor; except that any
such acceptance will not relieve RSI from any responsibility or liability it may
have with respect to Epidemic Failures as hereinafter defined.
10. RSI'S Responsibilities.
10.1 RSI will provide the Product documentation to Distributor upon the
Effective Date of this Agreement, including, without limitation, final repair
parts lists and service manuals. RSI will also provide such other documentation
necessary to assist Distributor or an approved third party in the preparation of
materials for servicing, repairing and inspection of the Products. Any printed
material will be in English on reproducible materials, and available to
Distributor.
10.2 Training. RSI will, at its cost and expense, provide initial
training for the Products. Distributor will have the right to purchase
additional training as required during the term of this Agreement on such terms
and conditions as RSI and the distributor mutually agree upon.
10.3 Software/Diagnostics. As such time as RSI ceases to support the
Products, RSI will provide three (3) copies of service software which will
include the following: (a) Burn-in; (b) System test; (c) Diagnostics; and (d)
Microcode. Such software/diagnostics will be supplied in machine readable format
with compilation instructions. Update to all such software/diagnostics shall be
provided to Distributor as and when developed by RSI.
10.4 License Rights. RSI hereby grants to Distributor a non-exclusive,
world-wide right and license to use and copy, solely for purposes of this
Agreement: (a) the documentation delivered pursuant to this Section 10; (b)
Software/Firmware; and (c) the service software. Distributor will not remove
RSI's copyright notice from any RSI material copied pursuant to this Section 10.
RSI hereby grants to Distributor the right to sublicense the license rights set
forth in this Section 10.4 to Distributor's authorized repair facilities,
subject to the requirements of Section 19.3. The license rights set forth in
this Section 10 will survive any termination or expiration of this Agreement.
10.5 RSI will offer to any and all Distributor repair source or third
party repair vendors Spare Parts for the Products at the prices offered to
Distributor.
11. Distributor Responsibilities. In addition to the duties and responsibilities
outlined elsewhere in this Agreement, Distributor agrees as follows:
11.1 Distributor shall devote its best efforts to promote the sale of
Products in the Territory. Distributor shall provide its customers with all
necessary and appropriate training and support regarding the use of the
Products. Distributor will also set up Products for its customers and train its
customers to properly operate and maintain Products. Distributor will fulfill
these responsibilities throughout the Territory using its own personnel.
11.2 Distributor shall retain, or subcontract with, expert service
personnel qualified to promptly provide repair service and technical support to
customers, and to offer RSI feedback respecting the quality and reliability of
Products. When Distributor makes repairs which are covered by RSI's warranty
described in Section 14.1, RSI will provide any required replacement parts at
its expense.
11.3 Distributor shall cooperate with RSI in regard to all of RSI's
commercially reasonable sales activities related to the products. Such
cooperation shall include attendance at and assistance with trade shows, and
other marketing events when reasonable requested by RSI.
11.4 Distributor shall promptly furnish to RSI any information which
RSI may determine necessary or appropriate (including such details as RSI may
request) to ascertain current or potential sales of the Products in the
Territory. Distributor further agrees to inform RSI promptly of any change in
market conditions in the Territory which Distributor reasonably believes might
affect current or potential sales of Products in the Territory.
11.5 Distributor shall maintain an inventory of Products sufficient to
enable Distributor to fill customer orders.
11.6 Distributor shall cooperate with RSI in responding to customer
complaints concerning the Products and shall take such action to promptly
resolve such complaints as may be reasonably requested by RSI.
11.7 Distributor shall not, in any way, alter Products, except by prior
written approval of RSI.
11.8 All costs, including salaries, payroll taxes, severance pay and
other expenses incurred by Distributor in connection with its performance under
this Agreement shall be borne solely by Distributor.
12. Term of Agreement and Termination.
12.1 This Agreement will come into force on the Effective Date and will
remain in effect for a period of three (3) years (the "Initial Term") unless
earlier terminated by either party pursuant to this Section 12. Upon expiration
of the Initial Term, the Agreement will automatically be renewed for successive
one (1) year periods unless either party notifies the other in writing of its
intent not to renew at least ninety (90) days in advance of the
expiration/renewal date.
12.2 Either party may suspend its performance and/or terminate this
Agreement immediately upon written notice at any time if:
(a) The other party is in material breach of any warranty, term,
condition or covenant of this Agreement other than those
contained in Section 21 and fails to cure that breach within
thirty (30) days after written notice of that breach;
(b) The other party is in material breach of any warranty, term,
condition or covenant of Section 21; provided, however, that
the other party has ten (10) days after written notice of that
breach within which it may discuss said breach with the first
party prior to termination; or
(c) The other party: (i) becomes insolvent; (ii) fails to pay its
debts or perform its obligations in the ordinary course of
business as they mature; (iii) admits in writing its
insolvency or inability to pay its debts or perform its
obligations as they mature; or (iv) makes an assignment for
the benefit of creditors.
12.3 The following terms apply to any termination under this Agreement:
(a) Immediately upon any termination of this Agreement, RSI shall,
to the extent and at times specified by Distributor, stop all
work on outstanding Purchase Orders, incur no further direct
cost, and protect all property in which Distributor has or may
acquire an interest.
(b) Except as provided in Section 11, immediately upon any
termination of this Agreement, each party will return to the
other party or, pursuant to the other party's written
instructions, destroy all materials in its possession
containing Confidential Information of the other party.
Returned Confidential Information materials shall be shipped
freight collect.
(c) If this Agreement and any Purchase Orders issued hereunder are
terminated by Distributor, the Distributor, in addition to any
other rights provided herein, may require RSI to transfer
title and deliver to Distributor any completed Products. RSI
will protect and preserve for Distributor's benefit such
property in the possession of RSI, provided, however, that
Distributor has paid to RSI all invoices then due and owing.
12.4 In the event of termination of this agreement, whether upon the
expiration of its term or pursuant to the provisions of this Article 12, neither
party shall be liable to the other for compensation, reimbursement or damages on
account of the loss of prospective profits, or on account of expenditures,
investments, leases, employee termination pay or other commitments or expenses
relating to its business or good will.
12.5 In the event of termination, Distributor agrees to advise RSI of
the status of all its efforts pertaining to the sale of the Products in the
Territory.
12.6 Upon termination of this Agreement for any reason, RSI or its
nominee shall have the option of purchasing all or any portion of the Products
held by Distributor on the date of termination which are new, non-obsolete, and
in salable condition, by giving notice to Distributor within 30 days after the
termination date except such Products for which Distributor has open but
unfilled orders. The price of such Products shall be the price paid to RSI by
Distributor for such Products.
12.7 Notwithstanding anything contained herein to the contrary,
Sections 8, 10.3, 10.4, 10.5, 12.3, 14, 15, 16, 17, 18, 19.1, 21 and 28 of this
Agreement shall survive termination of this Agreement and shall remain in full
force and effect.
12.8 It is expressly understood and agreed that the right of
termination set forth in this Article 12 is absolute, and that the parties have
considered the possibility of such termination and the possibility of loss and
damage resulting therefrom, in making expenditures pursuant to the performance
of this Agreement. It is the express intent and agreement of the parties that
neither shall be liable to the other for damages or otherwise by reason of the
termination of this Agreement as hereinabove provided.
12.9 The parties expressly agree that they notice periods in this
Section 12 are reasonable under the contemplated circumstances.
13. Waiver of Breach. The waiver or failure of either party to enforce the terms
of this Agreement in one instance shall not constitute a waiver of said party's
rights under this Agreement with respect to other violations. No waiver of any
of the terms of this Agreement shall be binding unless it is in writing.
14. Warranty.
14.1 (a) Liens, Materials and Workmanship. RSI warrants that the
Products and Spare Parts purchased and delivered hereunder: (i) will be free and
clear of all liens and encumbrances; (ii) with respect to hardware (Products and
Spare Parts), will be free from defects in design, materials, workmanship and
construction under normal use and service for a period of one (1) year from
delivery to the Sub-distributor not to exceed fifteen (15) months from the date
of manufacture; and (iii) with respect to firmware and software used in
connection with the Products and Spare Parts ("Software/Firmware"), will be in
substantial accordance with the documentation supplied to Distributor and free
from defects which substantially affect system performance.
(b) General Representations. RSI represents and warrants to Distributor
that: (i) it has the power and authority to enter into this Agreement; (ii) to
the best of RSI's knowledge, the Products and Spare Parts can be efficiently
manufactured; (iii) it is the owner or authorized licenser of the
software/firmware and all portions thereof and that it has a right to grant
Distributor a license for its use and possession without violating the rights of
any third party; (iv) in connection with the manufacture of the Products and
Spare Parts, there will be no infringement of any patent, copyright, trade
secret, mask work right or other proprietary right of any third party; and (v)
each of RSI's employees, subcontractors or agents involved in the manufacture of
the Products and Spare Parts will have signed an agreement with RSI (that is no
less restrictive than Distributor's standard proprietary rights and
non-disclosure agreement) agreeing to keep in confidence Distributor's
Confidential Information.
14.2 Epidemic Failures. RSI will, at Distributor's option, promptly
repair or replace Products or Spare Parts delivered under this Agreement or
accept return of the same for full credit, which exhibit Epidemic Failures
within fifteen (15) months of the date of manufacture. RSI will take action,
immediately after Distributor's notification of an Epidemic Failure situation,
to correct the cause and will inform Distributor in ten (10) working days of
such action. In addition, RSI will be responsible for the costs identified in
Section 14.3. Epidemic Failure means defects in manufacturing and/or design
deficiencies of the same root cause, including but not limited to use of
defective components or maladjustment's whether occurring during manufacture,
packing or shipment, affecting Products or Spare Parts when the failure rate is
in excess of three percent (3%) of the Products or Spare Parts delivered within
any two (2) month period.
14.3 Freight and Incidental Costs. The responsibility for costs
associated with freight and other items for defective or nonconforming Products
and Spare Parts required to be corrected, repaired or replaced pursuant to
Section 14.2 above will be borne according to the following table:
TYPE OF RETURN INCIDENTAL COSTS* FREIGHT IN** FREIGHT OUT***
Warranty (14.1) RSI RSI: up to 90 days RSI: up to 90 days
from date of shipment from date of shipment
of product to Canon of product to Canon
Epidemic (14.2) RSI RSI: up to 180 days RSI: up to 180 days
from date of shipment from date of shipment
of product to Canon of product to Canon
The Distributor, Sub-Distributor or Customer would be responsible for
payment of freight in or out beyond the liability for Warranty and Epidemic
stated herein.
* "Incidental Costs" include, but are not limited to, reasonable costs for labor
for diagnostics, Part removal and replacement and repair costs of Distributor
and Distributor's service provider(s).
** "Freight In" includes freight from Distributor's service provider(s) to
Distributor and from Distributor to RSI or RSI's repair centers/vendors.
*** "Freight Out" includes freight from RSI or RSI's repair centers/vendors to
Distributor. In the case of Epidemic Failures, Freight Out shall also include
freight from Distributor directly to Distributor's customers or to Distributor's
service provider(s) as appropriate.
Notwithstanding the foregoing, where Product or Spare Parts are returned
to RSI under warranty (paragraph 14.1) or Epidemic Failure (paragraph 14.2), and
are not defective, RSI will bear all Freight and Incidental costs as set forth
herein.
In addition, where Product is returned under a claim of warranty or
Epidemic Failure and is defective because of a "caused failure" (supported by
RSI written documentation to that effect) such as blown fuses or component
damage from environmental causes, RSI will make repairs as authorized in writing
by Distributor, subject to RSI's good faith determination as to whether the
Product is repairable. RSI will make the aforesaid written documentation
available to Distributor upon its written request. Should the parties mutually
agree that the incidence of caused failure is such that charges should be
assessed for repair, a fee for such repair, will be mutually agreed upon.
14.4 Repair/Replacement by RSI. Upon rejection of Product by
Distributor, after inspection, Distributor agrees to obtain a return
authorization number from RSI prior to returning any Product or defective Spare
Part. Distributor will return the defective item, to the RSI facility designated
from time to time by RSI, together with a statement describing the defect.
Distributor's cost of labor to inspect and remove defective parts to install
replacement parts, will be borne solely by RSI. Product found not to be
defective will be returned to Distributor with a written report of RSI's
findings.
14.5 Repair/Replacement by Distributor. Distributor or its authorized
repair facilities may repair defective Products and Spare Parts if it is deemed
by Distributor and RSI to be the most time and cost effective approach. In such
event, Distributor will promptly submit to RSI in writing, to the extent
available, the serial numbers and date code of the defective Products or Spare
Part units, the date Distributor received the defective unit, the nature of the
defects found, the date of repair of the defective units by Distributor or its
authorized repair facility, and the quantity of Spare Parts utilized by
Distributor in the repair. Distributor will send to RSI the defective Products
or Spare Parts, or parts removed therefrom. RSI will provide Distributor with
the necessary replacement parts at no cost, and reimburse the costs stated in
this Section 14.
15. General Indemnities.
15.1 RSI's General Indemnity. RSI agrees to defend any proceeding or
action brought by a third party against Distributor to the extent based on a
claim that any of the Products caused property damage or personal injury due to
the acts or failure to act of RSI. RSI agrees to indemnify Distributor for any
losses, damages or reasonable expenses, including legal expenses and counsel
fees, arising from such acts or failures to act. RSI's obligation to so defend
and indemnify Distributor is contingent on Distributor's compliance with Section
15.3.
15.2 Distributor's General Indemnity. Distributor agrees to defend any
proceeding or action brought by a third party against RSI to the extent based on
a claim resulting from the acts or failure to act of Distributor in marketing
the Products, including but not limited to warranties made by Distributor or its
agents regarding the Product; and Distributor agrees to indemnify and hold RSI
harmless from any losses, damages, or reasonable expenses, including legal
expenses and counsel fees, arising from such acts or failures to act.
Distributor's obligation to so defend and indemnify RSI is contingent on RSI's
compliance with Section 15.3.
15.3 Notice/Defense. Each party shall promptly notify the other party
of any claim, demand, proceeding or suit of which the other party becomes aware
which may give rise to a right of defense or indemnification pursuant to this
Section ("Claim"). Notice of any Claim which is a legal proceeding, by suit or
otherwise, must be provided to the indemnifying party within thirty (30) days of
first learning of such proceeding. Notice shall include an offer to tender the
defense of the Claim to the indemnifying party. The indemnifying party, if its
accept such tender, shall be entitled to take over sole control of the defense
of the Claim. That control shall include the right to take any and all actions
necessary to completely and finally resolve the Claim by settlement or
compromise. Upon acceptance of tender, the indemnified party shall cooperate
with the indemnifying party with respect to such defense and settlement, and the
indemnifying party will pay expenses reasonably incurred by the indemnified
party in providing such cooperation, except that the indemnifying party shall
not be required to pay the indemnified party for everyday operating expenses
incurred in the ordinary course of doing business. In the event a claim is
settled, both parties agree not to publicize the settlement and will make every
effort to ensure the settlement agreement contains a non-disclosure provision.
16. Limitation of Liability.
EXCEPT AS SET FORTH IN SECTION 18 AND 15, IN NO EVENT SHALL EITHER PARTY BE
LIABLE TO THE OTHER FOR ANY SPECIAL, INDIRECT, INCIDENTAL, OR CONSEQUENTIAL
DAMAGES OF ANY KIND, INCLUDING BUT NOT LIMITED TO LOSS OF PROFITS OR DAMAGES TO
BUSINESS REPUTATION, WHETHER IN AN ACTION FOR CONTRACT, STRICT LIABILITY OR TORT
(INCLUDING NEGLIGENCE) OR OTHERWISE, AND WHETHER OR NOT THE OTHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGE AND NOTWITHSTANDING THE FAILURE OF
ESSENTIAL PURPOSE OF ANY REMEDY.
17. Trademarks and Trade Names.
17.1 Neither party will, without the other party's prior written
consent, use any trademarks, service marks, trade names, logos or other
commercial or product designations of the other party, for any purpose, except
as are incidental only to the sale of Products by Distributor and the right to
use such Products by Distributor's customers. Whenever Distributor shall make
reference to its relationship with RSI, whether in advertising or otherwise,
Distributor shall describe its relationship only as a distributor of the
Products. Any other use by Distributor of RSI's trade name and/or trademark or
any other trade names or trademarks associated with the Products must be
previously approved in writing by a duly authorized officer of RSI. Distributor
shall not register RSI's trade name or trademark or any other trade names or
trademarks associated with the Products in the Territory.
17.2 Distributor shall not remove, cover, change, or add to the labels
affixed by RSI to Products without first receiving RSI's written approval.
18. Proprietary Rights Indemnity.
18.1 Indemnity. RSI represents to Distributor that the Products, Spare
Parts, Documentation, Software/Firmware and service software (provided by RSI
hereunder) will not infringe any patent, copyright, trademark right, trade
secret, mask work right or other proprietary right of any third party. RSI will,
at its expense and at Distributor's request, defend or settle any claim or
action brought against Distributor, and Distributor's subsidiaries, affiliates,
directors, officers, employees, agents, independent contractors and customers,
to the extent it is based on a claim that the Products, Spare Parts,
Documentation and/or service software provided under this Agreement infringes or
violates any patent, copyright, trademark, trade secret, mask work right or
other proprietary right of a third party, and RSI shall indemnify and hold
Distributor harmless from and against any costs, damages and fees reasonably
incurred by Distributor and/or its customers, including but not limited to, fees
of attorneys and other professionals, that are attributable to such claim;
provided that: (a) Distributor gives RSI reasonably prompt notice in writing of
any such suit and permits RSI, through counsel of its choice, to answer the
charge of infringement and defend such claim or suit; (b) Distributor provides
RSI information, assistance and authority, at RSI's expense, to enable RSI to
defend such suit; and (c) RSI will not be responsible for any settlement made by
Distributor without RSI's written permission. In the event Distributor agrees to
settle the suit, RSI agrees not to publicize the settlement nor to permit the
party claiming infringement to publicize the settlement without first obtaining
Distributor's written permission. Without prejudice to the generality of the
foregoing, RSI's indemnity obligations under this Section 16 include any claim
or action there (i) infringement is attributable to the incorporation or
combination of one or more of Distributor's components into the Product, and
(ii) such claim or action could not have been avoided by incorporating or
combining some other component which would have been an infringement but for a
license being grated, then RSI will obtain a license allowing incorporation or
combining of Distributor's component as part of the Product is possible at
Distributor's expense.
18.2 Duty to Correct. Notwithstanding Section 15.1, should the
products, Spare Parts, Documentation, Software/Firmware or service software
become the subject of a claim of infringement of a third party's proprietary
right, RSI will, at RSI's expense: (a) procure for Distributor the past right to
sue and sell/license and the future right to continue to use and sell/license
the Products, Spare Parts, Documentation or service software; (b) replace or
modify the Products, Spare Parts, Documentation or service software to make such
non-infringing, provided that the same function is performed by the replacement
or modified Product, Spare Part, Documentation or service software to
Distributor satisfaction; or (c) if the past and future rights to continue to
use and sell/license cannot be procured or the Product, Spare Part,
Documentation or service software cannot be replaced or modified at reasonable
expense, reimburse Distributor for the total amount paid under this Agreement.
19. Licenses, Approvals and Registration of Products, Compliance with Laws.
19.1 Distributor agrees to use its best efforts to obtain promptly from
the proper authorities in the Territory, all registrations, licenses, and
approvals required for the import, sale and distribution by Distributor of the
Products in the Territory. Distributor shall promptly send a copy of any such
registration or license to RSI. Upon termination of this Agreement, except for
RSI's breach, Distributor agrees to use reasonable efforts to assign and to
transfer to RSI any and all such registrations and/or registration rights for
the Products in the Territory which are not in the name of RSI and to take any
and all such necessary steps to effectuate such assignment and transfer, or if
such assignment and transfer is not possible, to use its reasonable efforts to
obtain in RSI's name, all licenses and approvals which may be necessary for the
import and sale of the Products in the Territory. All such efforts in this
Section 16.1 shall be at RSI's sole cost and expense.
19.2 Distributor shall comply with all applicable laws and regulations
of the Territory pertaining to the importation, distribution, sales and
marketing of the Products in the Territory and in any manner otherwise
pertaining to performance by Distribution of its obligations under this
Agreement.
19.3 Agency Approvals; Product Safety. All regulatory approvals and
certifications pertaining to the Territory will be obtained by RSI. RSI will
provide sample units at RSI's expense and bear all other costs reasonably
related to any re-certifications required as a result of changes in the
Products. Product safety requirements will be complied with by RSI as required
for the Products.
20. Appointment of Subdistributors. Distributor may, without the prior written
approval of RSI, appoint any subdistributors in the Territory in connection with
the performance of this Agreement.
21. Confidential Information. Each party will protect the other's Confidential
Information from unauthorized dissemination and use with the same degree of care
that each such party uses to protect its own like information, but at a minimum,
with a reasonable degree of care. Neither party will use the other's
Confidential Information for purposes other than those necessary to perform this
Agreement and only employees of the receiving party who have a need to know such
Confidential Information shall have access thereto. Neither party will disclose
to third parties the other's Confidential Information without the prior written
consent of the other party.
22. Force Majeure. Neither party will be liable for delay or failure to perform
caused by acts which are beyond the reasonable control of the party so affected,
including, but not limited to, governmental acts or directives (official or
unofficial); strikes (legal or illegal); acts of God; war (declared or
undeclared); insurrection; riot or civil commotion; fires, flooding or water
damage; explosions; embargoes; imposition of countervailing duties or
surcharges; or significant governmental actions or regulations which affect the
cost of the Product. The delayed party will give the other party written notice
of such force majeure promptly and in any event, within fifteen (15) days of
discovery. With respect to any delays in delivery of the part of RSI, once any
cause of delay is removed, RSI will make every reasonable effort to meet the
schedules which had previously been agreed upon the parties. The delayed party's
time for performance or cure under this section shall be extended for a period
equal to the duration of the cause or 90 days, whichever is less.
23. Notice. All notices under this Agreement shall be in writing, and may be
delivered by hand or sent by facsimile transaction or registered mail, return
receipt requested. Notices sent by mail shall be deemed received on the date of
receipt indicated by the return verification provided by the national postal
service involved. Notices sent by facsimile transaction shall be deemed received
the day on which sent, and shall be conclusively presumed to have been received
in the event that the sender's copy of the transmission contains the "answer
back" of the other party's facsimile transmission. Notices shall be given, or
sent to the parties at the following addresses:
If to Distributor: Canon Trading USA, Inc.
15955 Alton Parkway
Irvine, CA 92718-3616
Atten: Brian (Masami) Minezaki
If to RSI: RSI Systems, Inc.
7400 Metro Blvd. Suite 475
Edina, MN 55439 USA
Atten: Donald Lies
Any party hereto may designate any other address for notices given it hereunder
by written notice to the other party given at least ten (10) days prior to the
effective date of such change.
24. Entire Contract. This Agreement, including all Exhibits, constitutes the
entire agreement between the parties with respect to the subject matter hereof,
and supersedes and replaces all prior or contemporaneous understanding or
agreements, written or oral, regarding such subject matter. No amendment to or
modification of this Agreement shall be binding unless in writing and signed by
a duly authorized representative of both parties. No provision contained on the
reverse side of any Purchase Order form or any provision of any RSI
acknowledgment form will be effective. Except for the Purchase Order-specified
quantities and delivery dates specified on the face of the Distributor's
Purchase Orders, the terms governing the manufacture, delivery, acceptance and
payment for the Products and Spare Parts will be governed by the terms and
conditions of this Agreement. In the case of conflict between this Agreement and
any Purchase Order, the terms of this Agreement will prevail.
25. Assignability: Change in Ownership. This Agreement is personal to
Distributor and, except as permitted in this Agreement, may not be sold,
assigned, or transferred without the written consent of RSI. Distributor shall
promptly notify RSI, where an entity purchases a controlling interest in it
(more than 50% of the outstanding shares). In such event, or in the event of the
sale by the Distributor of that portion of the business operation which includes
all or most of the Products, where RSI has not consented to that change or sale,
then this Agreement may be terminated at any time thereafter by RSI upon written
notice given at least sixty (60) days in advance of the effective date of
termination. RSI may assign this Agreement to any subsidiary or division
controlled by it, or to an entity purchasing a substantial portion of the
business operation which includes all or most of the Products.
26. Severability. In the event that any provision of this Agreement is held
invalid by the final judgment of any court of competent jurisdiction, the
remaining provisions shall remain in full force and effect as if such invalid
provision had not been included herein.
27. Remedies. In recognition of the irreparable harm that a violation of
obligations under this Agreement would cause the other, each party, their
respecture agrees that in addition to any other relief afforded by law, an
injunction against such violation may be issued against it and every other
person concerned thereby, it being understood that both damages and an
injunction shall be proper modes of relief and are not to be considered mutually
exclusive remedies.
28. Disclosure of Agreement. Except as required by law or governmental
regulation, neither party shall disclose this Agreement or the contents thereof
to any third party without the prior written consent of the other, such consent
not to be unreasonably withheld. Press releases, exhibitions, or advertising of
any kind using any trademarks, trade names, model designations, or corporate
names of either party and regarding this Agreement may not be made without the
express prior written consent of the other party.
29. U.N. Convention Excluded. The U.N. Convention of Contracts for the
International Sale of Goods shall not apply to this Agreement.
30. Language. This Agreement may be translated into any language but it shall be
construed and interpreted in English.
31. Applicable Law and Forum Selection. Except as altered or expanded by this
Agreement, the substantive law (and not the law of conflicts) of the state of
Minnesota U.S.A., shall govern this Agreement in all respects as to the
validity, interpretation, construction and enforcement of this Agreement and all
aspects of the relationship between the parties to this Agreement.
32. Notwithstanding the foregoing, RSI reserves the right to bring suit against
Distributor for moneys due RSI in the courts of Distributor's jurisdiction, or
where Distributor has assets.
33. Survival. All representations or warranties made in this Agreement and all
terms and provisions hereof intended to be observed and performed after the
termination hereof, shall survive such termination and continue thereafter, in
full force and effect.
IN WITNESS WHEREOF, the parties have hereunto set their hands and seal as of the
day and year first above written.
CANON TRADING USA, INC. RSI SYSTEMS, INC.
____________________________________ ____________________________________
Signature (Date) Signature (Date)
____________________________________ Donald C. Lies President
Name Title Name Title
EXHIBIT A
THE PRODUCT AND PRICE SCHEDULE
Product: The RSI ERIS 1000 Video Conferencing System for direct connection and
use exclusively with personal computer (PC) or Apple Macintosh (Mac).
Includes standard accessories of microphone with stand, SCSI cable,
Software (latest/current version at the time of the shipment), User
manual.
Price: US $1,850 FOB RSI Systems' Warehouse, Minneapolis, Minnesota
Payment: 32 days after the invoice date.
EXHIBIT B
TERRITORY
The territory covered by this agreement is the country of Japan.
EXHIBIT C
WARRANTY AND SERVICE POLICIES
1. Sub-distributor's Inspection Rights
Notwithstanding Distributor's inspection rights in Section 9 of the Agreement,
Sub-distributor may conduct its own inspection of the Product and Spare Parts
upon receipt. Sub-distributor will notify RSI when a Product or Spare Part is
found defective and RSI will assign a Return Material Authorization (RMA)
number. Every three (3) months during the term of this Agreement,
Sub-distributor will return to RSI the defective Products and Spare Parts
accumulated and assigned an RMA number.
2. Buffer Inventory of Replacement Product
RSI will make available to Sub-distributor additional units of product for use
as buffer inventory totaling no less than 5% of the total quantity of such
order. As such, this buffer inventory will be invoiced to Sub-distributor under
the following terms:
Price to be the same as that in Exhibit A. Payment terms granted to be
90 days from date of invoice. These terms shall allow Distributor,
Sub-distributor to rotate their buffer inventory for resale and to accommodate
any product exchanges or warranty activities that might occur. In the event that
Sub-distributor notifies RSI that the buffer inventory levels in this Section 2
are insufficient to meet demand, RSI may deliver to Sub-distributor such
additional units of buffer inventory under the payment terms and conditions
outlined herein as may be reasonably requested by Sub-distributor.
3. Labeling of Product
RSI will be responsible for affixing Sub-distributor's name/logo and serial
number in a permanent manner to each unit of Product ordered. Sub-distributor
will provide RSI with the artwork for the name/logo to be affixed.
Sub-distributor will also provide RSI with serial numbers with each order of
Product.
4. End-User Support, Service and Maintenance
4.1 Defective Product; Notification
Except in an emergency, Sub-distributor will notify Distributor when it becomes
aware of defective Product or Spare Parts and Distributor will obtain an RMA
from RSI. In an emergency, however, Sub-distributor may obtain an RMA directly
from RSI.
4.2 Shipment of Returned Product
Freight and incidental costs for Product returned by Sub-distributor pursuant to
an RMA will be borne by RSI in accordance with Section 14.3 of the Agreement.
RSI will also bear freight and incidental costs for additional buffer inventory
ordered pursuant to Section 2 above.
4.3 Modifications to Products and Spare Parts
RSI may modify the Products or Spare Parts upon thirty (30) days prior written
notice to Distributor specifying in detail all engineering or design changes to
be made. Modifications to Products or Spare parts related to product safety and
government regulations, however, may be made without such notice provided that
RSI notifies Distributor promptly after such modification is implemented.
4.4 Service Plan
RSI and Sub-distributor will discuss implementation of a Service Plan by
Sub-distributor on mutually agreeable terms pursuant to which Sub-distributor
will perform warranty and out of warranty service on the Products.
FUTURELABS INC.
OEM PURCHASE AGREEMENT
This agreement is made as of this 8th day of March, 1996, between FUTURE LABS, a
California corporation located at 5150 El Camino Real, Suite E21, Los Altos, CA
94022 (hereinafter referred to as "FUTURELABS") and RSI Systems, Inc., located
at 7400 Metro Boulevard, Suite 475, Edina MN 55439 (hereinafter referred to as
OEM).
This agreement is made in view of the following facts:
A. FUTURELABS is in the business of developing and marketing computer
software programs. One of its programs which is owned by FUTURELABS is a program
known as TALKSHOW, which is a multipoint version of the TALKSHOW document
conferencing software program. The software version of the TALKSHOW conferencing
software for Windows is hereinafter referred to in this Agreement as TALKSHOW.
B. OEM is in the business of manufacturing, marketing and distributing
hardware and/or software and related products. OEM's line of Windows and
Macintosh application software is hereinafter referred to as the PRODUCT.
C. OEM desires to license TALKSHOW from FUTURELABS for sale with the
PRODUCT, in order to facilitate the sale of the PRODUCT, and FUTURELABS is
willing to grant such license pursuant to the terms and conditions of this
Agreement. OEM COMMITS TO INCLUDE A COPY OF TALKSHOW WITH EACH AND EVERY
SHIPMENT OF ITS PRODUCT. Other OEM line of conferencing products may be included
upon mutual agreement between FUTURELABS and OEM during the term of this
agreement.
NOW, THEREFORE, in consideration of the promises and conditions hereinafter
contained, the parties hereto agree as follows:
1. GRANT OF LICENSE: FUTURELABS hereby grants to OEM a non-transferable,
non-exclusive license to distribute TALKSHOW in connection with OEM's
distribution of the PRODUCT, on the terms and conditions of this Agreement.
2. DELIVERY OF TALKSHOW: Upon the signing of this Agreement, FUTURELABS will
deliver to OEM a 3 1/2" floppy diskette containing TALKSHOW, plus a 3 1/2"
diskette containing the text of the current documentation for TALKSHOW.
3. OWNERSHIP OF TALKSHOW: OEM acknowledges that the entire right, title and
interest in TALKSHOW, and all materials relating to TALKSHOW, including, without
limitation, any patents, copyrights, trademarks, and trade secrets shall at all
times belong to FUTURELABS, subject to the license granted in this Agreement.
4. TALKSHOW UPDATES: FUTURELABS may, but is not obliged to, update TALKSHOW from
time to time to provide additional enhancements and capabilities beyond those
which presently exist. OEM shall be notified promptly by FUTURELABS of any such
updates and shall have the right to acquire any updated material relating to
TALKSHOW without additional charge during the period commencing with the
effective date of this Agreement and expiring two years thereafter.
5. MULTIPLE COPIES: In consideration of the fees to be payable by OEM to
FUTURELABS under this Agreement, FUTURELABS hereby grants OEM the right to make
copies of TALKSHOW for use in connection with its marketing of the PRODUCT and
FUTURELABS agrees to supply the required quantities of production units or
serial numbers for the production and distribution of TALKSHOW.
6. NO TRANSFER OF LICENSE: OEM does not have the right to sell or otherwise
transfer its copies of TALKSHOW or the license granted by this Agreement, except
with the prior express written consent of FUTURELABS in each circumstance,
except as hereinafter provided. However, in the event of a merger or
reorganization of OEM into a different branch or division or different corporate
entity such that the successor entity is a continuation of existence, then such
transfer is permitted by this Agreement.
7. CONSPICUOUS LABELS AND MARKINGS: In the event OEM makes copies of TALKSHOW,
each copy made of TALKSHOW shall bear a conspicuous label or other marking
indicating that the material comprising TALKSHOW is the property of FUTURELABS
and may not be used or duplicated except as permitted by this Agreement. OEM
shall include FUTURELABS' standard form license agreement with each copy of
TALKSHOW.
8. PROPRIETARY RIGHTS OF FUTURELABS: OEM agrees that TALKSHOW is proprietary
information of FUTURELABS. OEM shall exercise due diligence to protect and
preserve in confidence all of this proprietary information and shall not
disclose or publish this information or use this information for any purposes
other than for the purposes permitted by this contract.
9. WAIVER AND DISCLAIMER OF WARRANTIES: FUTURELABS makes no warranty of any
kind, express or implied, including without limitation, any warranties of
merchantability and/or fitness for a particular purpose. FUTURELABS shall not be
liable for any damages, whether direct, indirect, special or consequential
arising from a failure of TALKSHOW to operate in the manner desired by OEM. OEM
agrees that the program is not "consumer goods" for the purposes of any Federal
or State warranty laws. FUTURELABS shall not be liable to OEM or to any of its
customers for any damages to data or property which may be caused directly or
indirectly by use of TALKSHOW. OEM waives any implied warranty or the benefit of
any law which implies a warranty inconsistent with this waiver. OEM agrees to
indemnify FUTURELABS against any claim, including legal fees, with regard to any
allegation of breach of such warranties or of any such damage.
10. NON-EXCLUSIVE LICENSE: The license granted by this Agreement is not
exclusive and FUTURELABS reserves the right license this TALKSHOW to other
persons and entities, at the sole discretion of FUTURELABS.
11. REMEDIES FOR TALKSHOW DEFECTS: In the event of any defect in TALKSHOW, OEM
shall notify FUTURELABS in writing as to such defect or defects. FUTURELABS
agrees to make good faith efforts to remedy and correct, without charge, any
failure of TALKSHOW to meet its specifications. FUTURELABS may at its option
refund the purchase price paid by OEM and not have any further liabilities.
12. OWNERSHIP OF COPYRIGHTS: OEM acknowledges that FUTURELABS retains all
ownership and rights to TALKSHOW, including copyrights, in addition to those
rights specifically granted in this Agreement. Furthermore, FUTURELABS shall own
and have those rights, including copyrights, to any modification to TALKShow
which it may develop hereafter.
13. COPYRIGHT NOTICES: In the event OEM makes any copies of TALKSHOW, then any
copy (and all copies) of TALKSHOW shall contain the following copyright notice:
TALKSHOW (tm) (C) Copyright 1993-1996, FUTURE LABS, INC.
All Rights Reserved
In the event OEM makes a copy of TALKSHOW on a floppy diskette, the label on
said disk shall contain the above notice. In the event any copy of TALKSHOW is
made on any form of electronic media, the visual or screen depiction of TALKSHOW
which is initially displayed shall contain the above notice as a clearly visible
portion thereof.
14. DISTRIBUTION: OEM may distribute TALKSHOW together with its distribution of
the PRODUCT; provided that OEM shall make no separate or additional charge for
TALKSHOW. OEM may also sell stand-alone copies of TALKSHOW directly to its
pre-existing end-users. These copies of TALKSHOW will be accounted for under the
normal licensing fees agreed to in paragraphs 16 and 17 of this Agreement. OEM
agrees to provide all media, manuals, and other supplies needed for
distribution.
15. ADVERTISING: FUTURELABS assigns to OEM a non-exclusive license to utilize
FUTURELABS' trademarks, name, and logo in any advertising or other information
in connection with OEM's distribution of TALKSHOW. However, OEM is required to
provide to FUTURELABS a copy of the mechanical art and copy text of any
advertisement including TALKSHOW prior to publication. Any name or mark of
FUTURELABS' may be used in any literature, promotion, or work only with
FUTURELABS' prior written consent. OEM may only use FUTURELABS' name or mark in
connection with the promotion of TALKSHOW pursuant to this Agreement.
16. LICENSING FEES: In consideration of the rights granted by this Agreement,
OEM agrees to pay FUTURELABS a license fee (royalty) for each copy of TALKShow
that OEM duplicates and distributes. OEM agrees to the following fee structure:
ROYALTY SCHEDULE:
See Exhibit C for current OEM Royalty Schedule. OEM pricing will range from a
75% to 95% discount from suggested list price based on product takedown and
current list price.
NON-REFUNDABLE PREPAID ROYALTY AMOUNT: 25% of first year estimated volume;
minimum $25,000.
Disks and documentation fees are not included in the per copy royalty schedule
for TALKSHOW. At OEM's option, FUTURELABS will provide, at FUTURELABS cost of
goods, diskettes (not to exceed current cost of $1.15 each) and documentation
(not to exceed current cost of $6 per unit for manuals excluding retail box
packaging; $8 per copy including box.)
MINIMUM ORDER REQUIREMENT: 100 units for shipment to one location.
Product shipped to OEM will be the responsibility of the OEM.
MINIMUM FIRST YEAR COMMITMENT: $100,000
17. PAYMENT TERMS: OEM shall pay FUTURELABS within 30 days of receipt of
TALKSHOW product. In the event that OEM elects to do its own disk and
documentation production, OEM shall pay FUTURELABS within 30 days of receipt of
TALKSHOW serial numbers.
18. WARRANTY OF TITLE: FUTURELABS warrants to OEM that is the owner of TALKSHOW
and that is has full power to grant the right set forth in this Agreement.
FUTURELABS agrees to indemnify OEM against any claim, including legal fees, with
regard to any allegations of breach of such warranties or of violation of such
rights as set forth in Section 23g.
19. TERMS OF AGREEMENT: EXTENSION: This agreement shall become effective for an
initial period that begins on the effective date and expires one year from the
end of the quarter (ending March 31st, June 30th, September 30th or December
31st) during which the effective date occurs. Unless OEM notifies FUTURELABS (or
FUTURELABS notifies OEM) in writing at least 60 days before the expiration date
established in this section that OEM or FUTURELABS does not wish renewal, this
agreement shall be renewed automatically for an additional one year period and
shall continue to be renewed in such a manner from year to year.
20. TERMINATION: OEM may terminate this Agreement and its licenses to reproduce
and distribute TALKSHOW at any time for its convenience on thirty (30) days
written notice to FUTURELABS. FUTURELABS may terminate this Agreement and the
licenses contained in it at any time on thirty (30) days written notice to OEM
if OEM ceases to distribute TALKSHOW or fails to submit a royalty report for a
period of one hundred twenty (120) days or more. No such termination shall
entitle OEM to a refund of any pre-paid or minimum royalties that are paid or
become due prior to the effective date of the termination. Either party may
terminate this Agreement on thirty (30) days' written notice, for material
breach, unless the breach is corrected within the thirty (30) days.
21. ASSIGNABILITY: The rights granted by this Agreement shall inure to the
successors and assigns of both parties; provided however, that the rights
granted to OEM shall apply only to distribution of the PRODUCT and reasonable
modifications of the PRODUCT in the normal course of business.
22. ARBITRATION: If any dispute shall arise under this Agreement and the parties
cannot in good faith resolve such dispute, it shall be resolved in the State of
California, according to the rules of the American Arbitration Association. Any
judgment resulting from such arbitration shall be entitled to enforcement by any
Court of law.
23. MISCELLANEOUS:
a. Damages: Injunctive Relief: OEM agrees that if any unauthorized program copy
is made by OEM of the subject computer program, or if the computer program is
used in violation of this contract, FUTURELABS shall have the right to obtain an
injunction against OEM against the unauthorized copying or use, in addition to
any other rights and remedies to which FUTURELABS may be entitled. In addition
to obtaining such equitable or injunctive relief, FUTURELABS shall be entitled
to recover from OEM all of FUTURELABS reasonable attorney's fees in protecting
FUTURELABS' rights under this Agreement, and any other rights and remedies to
which FUTURELABS is entitled.
b. Construction: If any provision of this contract is alleged to be invalid or
unenforceable, the provision shall be construed to have the broadest
interpretation that would make it valid and enforceable.
c. Entire Agreement: This contract is the entire Agreement between the parties
as to its subject matter, and there are no other contracts, oral or written, as
to that subject matter, express or implied. This contract may be modified only
in a writing signed by the parties hereto.
d. Governing Laws: The validity and interpretation of this contract shall be
governed by the laws of the State of California except for its conflict of law
rules to the extent such rules would apply to the laws of another jurisdiction.
The Federal or State Courts located in the State of California shall have the
jurisdiction to hear any dispute under this contract. Service of process against
OEM may be made by first class mail, sent to OEM at the address set forth above.
e. Notices: Except as set forth in 23d, any notice required by this contract
shall be effective upon its delivery in person, or upon mailing by certified
mail, postage prepaid, to the other party at the address noted above, or at any
other address that shall have been communicated to the other party under this
paragraph.
f. No Waiver: A failure or delay by either party in exercising any right of
power under this Agreement shall not operate as a waiver or a right of that
power.
g. Patents and Copyrights: FUTURELABS will defend any action brought against
OEM, based on any claim that TALKSHOW, when reproduced and distributed as
provided for by this Agreement, infringes any US trademark, secret, copyright or
patent. FUTURELABS will hold harmless and pay any award against OEM based on
such infringement only if OEM notifies FUTURELABS promptly in writing of the
claim and OEM permits FUTURELABS to control the defense and to agree to any
settlement. FUTURELABS shall have no liability if the alleged infringement
arises from the licensing of other than a current unaltered release of TALKSHOW.
If it appears likely that TALKSHOW may be infringing, FUTURELABS may at its
option procure the right for OEM to continue using TALKSHOW or provide OEM with
a similar non-infringing copy at FUTURELABS' expense or return to OEM all fees
paid to FUTURELABS by OEM and terminate this Agreement without further
liability. If FUTURELABS provides a replacement copy, OEM shall be responsible
for locating and destroying any infringing copy and replacing them with the
non-infringing one.
h. Reverse engineering: OEM shall not, and shall not assist others to reverse
engineer, reverse compile, or disassemble, any of the licensed TALKSHOW
Software, or any portion of the foregoing. Notwithstanding the foregoing, OEM
shall notify FUTURELABS if OEM becomes aware of any person or entity attempting
to reverse engineer, reverse compile, or disassemble the licensed TALKSHOW
software, or any portion of the foregoing.
i. Termination of License upon Breach: If OEM breaches this Agreement, in
addition to the remedies specified above, OEM's license to sell/bundle TALKSHOW
software shall terminate immediately. Upon termination of this agreement, except
as expressly provided herein, (i) the rights and licenses granted to OEM
pursuant to this Agreement automatically terminate, and (ii) OEM shall, within
thirty (30) days, ship to FUTURELABS and purge from any system or storage media
all items in its possession proprietary to FUTURELABS, including but not limited
to all copies of the licensed TALKSHOW Software, and (iii) an officer of OEM
shall certify in writing to FUTURELABS that all copies of TALKSHOW,
Documentation and Confidential Information of FUTURELABS have been returned to
FUTURELABS or destroyed.
j. Authority: The undersigned agent of OEM represents and warrants that this
contract represents the duly authorized and lawful obligation of OEM and that
the consents, authorizations and approvals necessary for the validity of this
Agreement have been obtained.
k. Support Services: OEM will provide customer support services directly to its
customers. FUTURELABS will provide technical support services to OEM. FUTURELABS
will provide technical support to OEM for standard licensed TALKSHOW at no
charge. For technical support specific to the OEM's integration of TALKSHOW with
its system, FUTURELABS will provide eight (8) hours at no charge. Thereafter,
such technical support will be made available to OEM at a rate of $150 per hour.
l. Limitation of Liability: OEM ACKNOWLEDGES AND AGREES THAT THE FEES WHICH
FUTURELABS IS CHARGING HEREUNDER DO NOT INCLUDE ANY CONSIDERATION FOR ASSUMPTION
BY FUTURELABS OF THE RISK OF OEM'S CONSEQUENTIAL OR INCIDENTAL DAMAGES ARISING
OUT OF THE TRANSACTIONS CONTEMPLATED BY THIS AGREEMENT. ACCORDINGLY, THE
LIABILITY OF FUTURELABS FOR ANY MATTER INCLUDING, WITHOUT LIMITATION, BREACH OF
ANY WARRANTY, OR ANY OTHER MATTER UNDER THIS AGREEMENT, SHALL IN NO EVENT EXCEED
THE FEES RECEIVED BY FUTURELABS FROM OEM PURSUANT TO THIS AGREEMENT. IN NO EVENT
SHALL FUTURELABS BE LIABLE FOR COSTS OR PROCUREMENT OF SUBSTITUTE GOODS OR
SERVICES, LOSS OF USE, DATA, OR PROFITS, BUSINESS INTERRUPTION, OR ANY SPECIAL
INCIDENTAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, OR RELIANCE DAMAGES, OR ANY
DAMAGES ARISING OUT OF ANY PERSONAL INJURY, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY WHETHER CONTRACT, STRICT LIABILITY, OR TORT (INCLUDING NEGLIGENCE OR
OTHERWISE), ARISING IN ANY WAY OUT OF THIS AGREEMENT, EVEN IF ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE.
m. Taxes and Assessments: OEM shall indemnify and hold FUTURELABS harmless from
all taxes, assessments, or other governmental impositions of any nature
whatsoever which may levied upon or with respect to the Products by the
government of the Territory or any political subdivision thereof, after their
delivery to OEM or Ultimate User, together with all taxes, assessments, or other
charges imposed by any taxing authority of Territory occasioned by OEM's sales
of the Products in the Territory. FUTURELABS shall indemnify and hold OEM
harmless from all sales taxes of any nature, excepting that import duty,
tariffs, etc., relating to the export of the Products, which are the
responsibility of the OEM, which may levied upon the Products by the government
of the United States.
IN WITNESS WHEREOF, the parties hereby execute this Agreement as of the date set
forth above.
FUTURELABS, INC. RSI Systems, Inc.
Signed: /s/ John Chua Signed: /s/ Marti Miller
By: John Chua By: Marti Miller
Title: President Title: VP Engineering
Exhibit C
OEM ROYALTY SCHEDULE
Effective March 1, 1996
TALKShow v3.1
Standard Version
Unit Volume Consumption over 3 years
Units 1 - 2,000 (.25 x List) $ 62 + (A)
Units 2001 - 10,000 (.15 x List) $ 37 + (A)
Units 10,001 - 20,000 (.075 x List) $ 19 + (A)
Units 20,001 + (.05 x List) $ 12 + (A)
(A)
1. Above royalties are exclusive of media or manuals. Labeled disks are
available at $1.15 each; manuals are $6 each. Shrinkwrap service is available at
$0.85 each.
2. Minium order: 100 units shipped to one location in one shipment.
July 1, 1996
Mr. Donald Lies
9425 Toledo Avenue South
Bloomington, MN 55437
Dear Don:
This letter will serve to confirm our agreement and understanding
regarding the terms of your employment by RSI Systems, Inc. ("RSI").
You will be employed by RSI as RSI's President and Chief Executive
Officer. We are offering you employment on the following terms and conditions.
1. TITLE. RSI hereby employs you, and you hereby accept employment, as the
President and Chief Executive Officer of RSI. As RSI's Chief Executive
Officer, you will report to the Chairman of the Company's Board of
Directors.
2. DUTIES. You must devote your full time and best efforts to the
performance of those duties and responsibilities associated with the
positions of President and Chief Executive Officer in a company of
RSI's size, as that size may evolve during the term of this agreement,
and as determined by RSI's Board of Directors.
3. TERM OF EMPLOYMENT. The term of this Agreement is for a period of two
years commencing as of July 1, 1996 and ending on June 30, 1998, unless
sooner terminated in accordance with the terms of this Agreement. If
your employment continues beyond this original term, it will continue
"at will" and may be terminated by either you or RSI at any time
without reason or cause. If RSI elects to so terminate this Agreement,
neither you nor RSI will thereafter have any further obligations under
this Agreement.
4. COMPENSATION AND OTHER BENEFITS. RSI must pay and provide the following
compensation and other benefits to you:
4.1. Base Salary. RSI will pay you a base salary of $12,500 per
month, payable in accordance with RSI's normal payroll
practices. At the beginning of each fiscal year during your
employment, your base salary will be reviewed and you will
receive such increases as may be deemed appropriate by the
Board of Directors, based upon your performance.
4.2. Fringe Benefits. You are entitled to participate in all fringe
benefit programs maintained by RSI which are available to its
executive officers upon the same terms as all other executive
officers except that you will
(A) receive a $650 per month car allowance; and
(B) be entitled, at your option,
(1) to participate in either RSI's health plan;
or
(2) request that RSI pay the premiums for the
health plan your were participating in
immediately prior to July 1, 1996.
4.3. Incentive Plan; Stock Option Plan. You are entitled to
participate in RSI's management incentive plan and, as a key
employee, you are eligible to receive stock option grants
under RSI's Stock Plan. Whether and to what extent you are
granted any incentive compensation or stock options during the
terms of this Agreement is, and will continue to be, subject
to the discretion of RSI's Board of Directors.
5. DEATH; DISABILITY. This Agreement will terminate in the event of your
death or disability. You will be deemed disabled if, for a period of 90
consecutive days in any six month period or 120 days in any twelve
month period, you are unable, by reason of physical or mental illness
or injury, to fully perform your duties under this Agreement. The
existence of such a continuous period of disability may only be
determined by RSI's Board of Directors in its reasonable discretion.
6. TERMINATION FOR CAUSE; RESIGNATION.
6.1. Salary and Benefits. If, prior to the expiration of the term
of this Agreement, your employment is terminated for "Cause",
or if you resign your employment, you will be paid your base
salary through the date of termination. Upon any such
termination for Cause or resignation, you will not be entitled
to receive any base salary or benefits for any period after
the termination date except for the right to receive benefits
which have become vested under any plan.
6.2. "Cause". For purposes of this Agreement, "Cause" means any of
the following:
(A) The failure or neglect by you to materially perform
your duties and responsibilities assigned to you from
time to time by the Board of Directors or to comply
with any material policy or directive of RSI which is
in effect from time to time; provided you have
received written notice of the same and fail to cure
any such deficiency within a period of 30 days after
receipt of that notice;
(B) Any gross or willful conduct which is materially
harmful to RSI, including but not limited to, conduct
which is inconsistent with federal or state laws
respecting harassment of, or discrimination against,
any of RSI's employees, provided you have received
written notice of the same and fail to immediately
cease such conduct upon receipt of that notice;
(C) A material breach of your fiduciary responsibilities
to RSI, including without limitation embezzlement or
misappropriation of RSI funds or property;
(D) Your conviction of, or guilty plea or nolo contendere
plea to, a felony or any crime involving fraud or
misrepresentation; or
(E) Any act or omission on your part which constitutes a
failure to comply with a material provision of this
Agreement, provided you have received written notice
of the same and fail to cure any such deficiency
within a period of 30 days after receipt of that
notice.
7. TERMINATION WITHOUT CAUSE; RESIGNATION DUE TO BREACH OF AGREEMENT.
7.1. Events. RSI may terminate this Agreement, at any time without
Cause, upon 30 days written notice to you, and you may
terminate this Agreement if RSI breaches any material term of
this Agreement and does not cure the same within 30 days after
receipt of written notice from you. If RSI should
substantially reduce your salary (other than as part of any
overall plan which is applicable to you to the same extent as
to other senior executives of RSI), or require you to relocate
outside the Minneapolis metropolitan area, any such action
will be considered a material breach of this Agreement for
purposes of the preceding sentence.
7.2. Salary and Benefits. If, prior to the expiration of the term
of this Agreement, either RSI or you terminate your employment
under the provisions of Section 7.1, you will be entitled to
receive, and RSI must continue to pay you, in accordance with
its normal payroll practices, your base salary for the lesser
of (i) a period of 12 months or (ii) the remaining term of
this Agreement and, during such lesser period, must continue
to pay that portion of the monthly premium previously paid by
RSI for health, life, and any other insurance previously
provided for your benefit by RSI.
8. CONFIDENTIAL INFORMATION.
8.1. Non-Disclosure. You agree not to directly or indirectly use or
disclose "Confidential Information" for the benefit of anyone
other than RSI, either during or after your employment by RSI.
In this regard, you must not directly or indirectly render
services to any person or business organization in connection
with the design, development, manufacturing, marketing or sale
of any product where your service would involve the use or
disclosure of Confidential Information. You must not disregard
your obligations of confidence by using any trade secret or
other Confidential Information to guide you in a search of
publications or other publicly available information,
selecting a series of items of knowledge from unconnected
sources and fitting them together to claim that you did not
violate any undertakings set forth in this Agreement.
8.2. "Confidential" Information. "Confidential Information" means
information not generally known, including trade secrets,
about RSI's methods, processes, and products, including but
not limited to, information relating to such matters as
computer software and hardware technology, research and
development, manufacturing methods, processes, techniques,
chemical composition of materials, applications for particular
technologies, materials or designs, vendor names, customer
lists, management systems, and sales and marketing plans. All
information disclosed to you or to which you have access
during your employment which you have a reasonable basis to
believe is Confidential Information or which is treated by RSI
as Confidential Information, will be presumed to be
Confidential Information.
9. INVENTIONS AND COPYRIGHTS.
9.1. Ownership. You agree that all Inventions made during your
employment by RSI are the exclusive property of RSI unless
released to you in writing by the President of RSI.
"Invention" means any invention, discovery, improvement,
concept or idea, whether patentable or not (including those
which may be subject to copyright protection), including but
not limited to computer software and hardware technology,
machines, devices, processes, methods, techniques and
formulae, generated, conceived or reduced to practice by you
alone or in conjunction with others, during or after working
hours, while employed by RSI.
9.2. Assistance. You further agree that you will:
(A) Promptly and fully disclose and describe all
Inventions in writing to an officer of, or anyone
else designated by, RSI; such disclosure must
include, if requested, a detailed report of the
procedures employed and the results achieved by you;
and
(B) Give RSI all assistance it requires to perfect,
protect and use its worldwide rights to Inventions,
including, but not limited to, signing all documents,
doing all things and supplying all information that
RSI may deem necessary or desirable to: (i) transfer
or record the transfer of your entire right, title
and interest in Inventions to RSI, and (ii) enable
RSI to obtain and maintain patent, copyright or
trademark protection for Inventions anywhere in the
world.
9.3. Post Employment. The obligations of this paragraph will
continue beyond the termination of your employment with
respect to Inventions conceived or made by you during the
period of your employment.
9.4. Exclusions. Section 9.1 does not apply to any invention for
which no equipment, supplies, facility or trade secret
information of RSI was used and which was developed entirely
on your own time, and (1) which does not relate (a) directly
to the business of RSI, or (b) to RSI's actual or demonstrably
anticipated research or development; or (2) which does not
result from any work performed by you for RSI.
10. RESTRICTIONS ON EMPLOYMENT.
10.1. Non-Competition. You agree that during your employment by RSI
and for a period two years immediately following the
termination of such employment, you will not directly or
indirectly render services (including consulting or research)
to any person or business organization that is engaged in the
design, development, assembly, manufacture, marketing or sale
of a Competitive Product. However, you may work for a
competitor of RSI whose business is diversified (and which has
separate and distinct divisions) provided (i) that such
employment does not include any responsibilities for, or in
connection with, a Competitive Product for the two-year period
of this restriction, (ii) that such employment will not at any
time involve the use or disclosure of Confidential
Information, and (iii) that RSI receives written assurances
satisfactory to it from such competitor and you that your
employment will not violate the two conditions described in
this sentence and that such competitor has received a copy of
this Agreement.
10.2. Non-Solicitation. In addition to observing the restrictions
contained in Section 10.1, if you are or have been employed by
RSI in a primarily sales or marketing capacity, you must not,
for a period of two years after the termination of your
employment, render services, directly or indirectly, to any
person or business organization in connection with the sale,
marketing, or promotion of any Competitive Product to any
person or business organization which was a customer on whom
you called or whose account you supervised on behalf of RSI,
at any time during the last 12 months of your employment by
RSI.
10.3. Loyalty. You further agrees that during your employment with
RSI you will not plan, organize or engage in any business
involving the design, development, manufacture, marketing or
sale of any Competitive Product or conspire with others to do
so.
10.4. Other Employees. You also agree that during your employment
and for two years thereafter, you will not solicit or employ
any RSI employee, either directly or indirectly, for
employment by any person or business organization to engage in
any activity prohibited by any agreement between such employee
and RSI.
10.5. Competitive Product. "Competitive Product" means any product,
process or service (including any component thereof or
research to develop information useful in connection with a
product or service) that is being designed, developed,
assembled, manufactured, marketed or sold by anyone other than
RSI and which is of the same general type, performs similar
functions, competes with or is used for the same purposes as a
RSI Product.
10.6. Insolvency. In the event that RSI ceases to conduct its
business for a period of more than 180 days, makes an
assignment for the benefit of its creditors, or in the event
of the bankruptcy (either voluntary or involuntary) of RSI,
then you may, upon ten days prior written notice to RSI,
terminate your employment with RSI and the provisions of this
Section 10 will be of no force or effect with respect to you.
10.7. Special Circumstance. If RSI does not pay you the base salary
described in Section 7.2 when you are entitled to receive such
payments, you will not be bound by the provisions of Sections
10.1 and 10.2 of this Agreement. If you violate the provisions
of Section 8, 9, or 10 of this Agreement, RSI will not
thereafter be required to make any further payments to you
under Section 7.2 and you must repay to RSI all such payments
previously received by you.
11. REMEDIES. RSI and you acknowledge that RSI will suffer irreparable harm if
you breach any of the provisions of Sections 9 or 10, of this Agreement, either
during or after its term. Accordingly, RSI will be entitled to enforce the
covenants contained in those sections by an injunction enjoining or restraining
you, and any other person concerned, from any such violation, it being
understood that both damages and an injunction will be proper modes of relief
and are not to be considered as alternative remedies.
12. SURVIVAL OBLIGATIONS. The obligations of the parties under Sections 9, 10,
11, 12, 13, 14 and 15 and under any other section which by its terms is intended
to continue in effect after the termination of this Agreement will survive the
termination, for any reason, of this Agreement or your employment hereunder and
will remain in full force and effect.
13. NOTICES. All notices and other communications under this Agreement must be
in writing and will be deemed given if personally delivered by hand or mailed by
registered or certified mail, return receipt requested, postage prepaid, to the
party entitled or required to receive the same, as follows:
13.1. If to RSI, to the attention of the Chairman of RSI's Board of
Directors, at its principal business office.
13.2. If to Donald Lies, at his residence address as it then appears
on the records of RSI.
or at such other address as either party may designate to the opposite party by
notice similarly given. Notice will be deemed to have been given upon receipt
thereof in the case of delivery by hand and upon the date of receipt indicated
on the return receipt in the case of mail.
14. ARBITRATION. All disputes or claims arising out of or in any way related to
this Agreement, or the breach thereof, including the making of this Agreement,
must be submitted to and determined by final and binding arbitration under the
Rules of the American Arbitration Association. Arbitration proceedings may be
initiated by either of us upon notice to the other and to the American
Arbitration Association, and must be conducted by three arbitrators under the
Rules of the American Arbitration Association in Minneapolis, Minnesota, unless
we agree to have the arbitration proceedings conducted by a single arbitrator.
If we are unable to agree upon the person or persons to serve as arbitrators
within 30 days of delivery of the list of proposed arbitrators by the American
Arbitration Association, then, at the request of either of us, the three
arbitrators must be selected at the discretion of the American Arbitration
Association.
15. GENERAL. This Agreement represents the entire agreement between us and
supersedes all previous communications, representations, understandings and
agreements, either oral or written, between us with respect to your employment
by RSI. No modifications of this Agreement or waiver of its terms will be
binding upon either of us unless in writing, signed by both of us. This
Agreement will enure to the benefit of, be binding upon, and be enforceable
against us, our respective heirs, legal representatives, successors and assigns.
This Agreement must be governed and construed under the substantive laws of the
State of Minnesota, without regard to the laws or rules of any jurisdiction with
respect to conflict of laws. The waiver or failure of either of us to enforce
the terms of this Agreement in one instance will not constitute a waiver of that
party's rights under this Agreement with respect to other violations. If any
portion of this Agreement is held invalid by the final judgment of any court of
competent jurisdiction, the remaining provisions will remain in full force and
effect as if such invalid provision had not been included in this Agreement.
If this letter accurately sets forth our agreement and understanding
with respect to the terms of your employment by RSI, will you please so indicate
by executing two copies of this letter in the space provided below for that
purpose and returning one copy to me for our files.
Sincerely,
RSI SYSTEMS, INC.
By /s/ R.J. Braun
Richard J. Braun, Chairman of the Board
/s/ Donald Lies
Donald Lies
ALTRON MANUFACTURING AGREEMENT
This agreement is effective as of 8-28-96, between Altron, Inc. (The Seller)
having its principle place of business at 6700 Industry Avenue N.W., Anoka, MN
and RSI Systems, Inc., One Corporate Plaza 7400 Metro Blvd. Suite 475, Edina, MN
(The Buyer).
I. SCOPE OF AGREEMENT
Seller shall sell and Buyer may order and purchase under the terms and
conditions of this agreement for the products listed below. For purposes of this
agreement, "product" shall mean and be limited to those parts or components that
are manufactured for Buyer by Seller as listed below and any mutually agreed
modifications to those previously defined parts or components. This agreement
prevails over any additional, conflicting or inconsistent terms and conditions
appearing on any standard quotation, purchase order, acknowledgment, invoice or
other form used by the parties in connection with this agreement.
Part Number Part Description
Complete Assembly ERIS Video Conferencing Unit
II. TERMS OF PURCHASE
The Buyer's purchase orders and any other specially negotiated terms and
conditions set forth on the purchase order shall govern each purchase
transaction.
A. Buyer will place purchase orders consistent in prices and delivery per the
quotation referencing the parts or components in consideration within the
confines if this agreement. Seller will acknowledge all purchase orders
within 15 days of Seller's receipt of Buyer's order. Sellers acknowledgment
will confirm all prices, terms and specify a delivery date.
B. Buyer may at any time request that delivery of a product be rescheduled to a
date earlier than the originally scheduled date. Seller shall use all
reasonable efforts to accommodate such requests without charge to buyer
unless Seller incurs additional costs directly related to the rescheduling
activity.
C. If possible, Buyer will provide Seller with a forecast of the quantities of
products that the Buyer anticipates purchasing during the term of the
agreement. This forecast shall be non binding and utilized for planning
purposes only. Seller will not be obligated to purchase raw material based
on this forecast unless excess quantities are purchased due to minimum
purchase quantities or packaging designs that require that specific
quantities must be purchased.
D. Seller will purchase for incorporation into the product components that are
custom to Buyer's technical applications. Seller and Buyer will agree to
meet to discuss custom components lead times and liability. Any agreements
arising from these discussions shall be documented in writing and signed by
both parties. Unless otherwise specifically agreed upon, the terms regarding
the purchase of custom components contained herein shall apply. Buyer will
also assume fiscal responsibility for all remaining material resulting from
design changes, part obsolesce and/or order cancellation.
III. PRICING
A. Seller warrants that all prices are comparable to those prices offered to
Seller's other customers for similar products in like quantities. The prices
applicable to purchase orders placed under this agreement are specified in
each quotation referencing the products described in section "T" of this
agreement.
B. Pricing can be reviewed during the times of a revision, significant quantity
change and/or on a scheduled quarterly basis. At the time of one of these
events the Seller and Buyer will discuss any changes in materials or
processes that may warrant price adjustments. If a price adjustment is
mutually agreed upon, the Seller will provide the Buyer with a new quotation
including the new price with an effective date being established and agreed
upon.
IV. PACKAGING
A. Seller shall package all products in accordance with Buyer packaging
specifications.
B. Deliveries will be made as specified below:
FOB: Altron dock
V. DELIVERY TITLE AND RISK OF LOSS
A. The Seller will make shipments by UPS or Federal Express with delivery
charges FOB Seller's dock.
B. All of the Buyers materials are insured while in transit in our vehicle and
while in our facility.
C. Seller will notify the Buyer as soon as the Seller is aware that the
scheduled delivery date cannot be met.
VI. QUALITY ASSURANCE AND ACCEPTANCE
A. Supplier will strive to achieve a 95% or better first pass yield through
Buyer's production processes and ensure the products are not defective in
material and conform to Buyer's specifications.
B. Seller will manufacture all material to a workmanship standard defined and
agreed upon by the Buyer and Seller. The workmanship standard for this
material is: ANSI/IPC.
C. Any product which the Buyer reasonably determines does not conform to, or is
defective may be rejected back to the Seller for repair or replacement
provided the Buyer notifies the Seller of the rejection and the reasons for
rejection.
D. Payment of invoice does not constitute acceptance of a product.
E. Seller shall be responsible for all workmanship problems caused be the
Seller only if Seller is notified prior to any corrective action taken by
the Buyer.
F. On a monthly basis, Seller and Buyer shall meet to review Mutual performance
metrics, including but not limited to product assembly quality, on time
delivery and component quality.
VII. ENGINEERING CHANGES
A. Buyer may make and Seller shall incorporate engineering changes or other
modifications to products. Any such changes affecting costs and production
schedules shall be negotiated by Buyer and Seller prior to implementation.
B. Any excess materials generated as a result of engineering change orders
will be the liability of Buyer.
VIII. WARRANTY
The Seller represents and warrants that on the date of shipment to the Buyer, it
will convey good title and the assemblies will be free from defects in material
and workmanship for fifteen (15) months from packing slip date, or twelve (12)
months from date Buyer ships to customers, whichever comes first. This warranty
is void if assemblies have been subject to abuse, accident, alteration, neglect,
unauthorized repair, or any act not considered proper operation.
Additionally, the Seller will pass through any third party supplier warranty of
a product part, material or component that is used in the turnkey manufacture of
the Buyer's product.
IX. TOOLING AND TEST EQUIPMENT
A. Seller expressly agrees that all tools identified below are the property and
assets of buyer. Seller shall not assign, lease, license, pledge, loan
mortgage or otherwise part with possession or the right to posses tools.
Seller shall allow no claims, encumbrances or liens with respect to tools
and shall not state or imply to any third party that Seller is the owner of
tools.
B. Seller shall, to Buyer's reasonable satisfaction, provide storage, security
and maintenance services and facilities necessary to keep all tools secured
and in good working order.
C. Seller shall use tools for the sole purpose of producing products to be sold
by Seller to Buyer. Seller agrees not to use tools for any other purpose.
D. Buyer may at any time inspect tools and Seller's facilities to assure Buyer
of Seller's compliance with these provisions.
X. PROPERTY RIGHTS
Product designs and specifications are the sole and exclusive property of Buyer.
Except as specifically set forth in this agreement Seller has no rights with
respect to product designs and specifications. This clause shall survive any
termination or expiration of this agreement.
XI. TAXES
Unless Buyer furnishes a valid exemption certificate, Buyer will bear all sales
and use properly imposed by federal, state, municipal or other local authorities
in respect to purchases under this agreement.
XII. EXCLUSIVITY
Seller represents and warrants that it shall not provide the products covered by
this agreement to any third party. This clause shall survive any termination or
expiration of this agreement.
XIII. CONFIDENTIAL INFORMATION
During the performance of its obligations under this agreement, Seller and its
employees may have access to information which is considered confidential or
trade secret by Buyer. Details of confidentiality will be covered by the Buyer's
Confidential Information Agreement.
Seller shall not disclose to any third party any pricing or product information
relating to this agreement. Seller shall not publicize or otherwise make known
to any third party any information relating to this agreement without prior
written consent of Buyer.
XX. TERMINATION
A. Either party may terminate this agreement upon 30 days written notice if the
other party fails to comply with any material term of this agreement. The
party not in compliance will have 30 days to cure any failure and avoid
termination. The party not in compliance will provide written proof of
corrective action. Upon termination, the obligations of the parties will
cease except for Seller's obligation to deliver products ordered by Buyer
prior to the termination and still required by Buyer and Buyer' s obligation
to pay for all products accepted under this agreement.
B. Buyer may terminate this agreement upon 30 days written notice. Upon such
termination, Buyer shall remain liable for Seller's burdened material costs
for products ordered, work in progress, excess material resulting from
packaging constraints and or engineering changes. Seller shall provide Buyer
with documentation of and an invoice for such costs. Buyer shall pay such
invoice within 30 days of receipt. Payment of such invoice shall be Buyer's
sole liability upon termination of this agreement.
Upon termination of this agreement, the obligations of the parties shall cease
except for:
i. Seller's obligation to deliver products ordered by Buyer prior to the
termination, and
ii. Buyer's obligation to pay for all products accepted under the agreement.
XXI. COMPLIANCE WITH LAWS AND REGULATIONS
Seller will comply with all applicable federal, state and local laws, rules and
regulations.
XXII. GENERAL PROVISIONS
A. This document and its exhibits contain the entire agreement between the
parties relating to the subject matter contained herein. All prior or
contemporaneous agreement, written or oral, between the parties regarding
the products and services are superseded by this agreement. This agreement
may not be modified except by written document signed by an authorized
representative of each party.
B. Product pricing, lead-times, and other unique and product specific related
criteria will be governed by a purchase order referencing specific
assemblies or assembly characteristics.
C. Neither part shall be liable for delays or defaults due to fire, windstorm,
riot, act of God, act of the public enemy, or, except for defaults or delay
by subcontractors other similar unforeseeable cause beyond the reasonable
control and without the fault of negligence of the party incurring such
delay. Seller will notify Buyer in writing of the existence of such cause
within five days after the commencement of the delay or default.
Seller: Altron Inc. Buyer: RSI Inc.
By: /s/ Alan C. Phillips By: /s/ Donald C. Lies
Name: Alan C. Phillips Name: Donald C. Lies
Title: President Title: President
Date: 8-29-96 Date: 9-10-96
SEPARATION AGREEMENT AND RELEASE
This Separation Agreement and Release ("Agreement") is entered into by
and between RSI Systems, Inc. (the "Company") and Douglas S. Clapp ("Employee")
effective as of May 1, 1996.
RECITALS
Douglas S. Clapp was a founder of the Company and has been an officer
of the Company since its inception. Effective as of May 1, 1996, Employee will
resign as an officer and employee of the Company to begin another business
recently incorporated under the EyeNet Videoconferencing, Inc. ("EyeNet"). In
consideration of his covenants hereunder and his release of claims against the
Company, its successors, assigns, subsidiaries, present and former directors,
officers, shareholders, employees and agents, in their individual and official
capacities, set forth hereunder, the Company hereby wishes to make provision for
certain payments and other benefits to be paid to Employee.
AGREEMENT
NOW THEREFORE, the parties agree as follows:
1. Company. Company as used herein, means RSI Systems, Inc., its
successors and assigns, and its subsidiaries.
2. Employee. Employee, as used herein, means Douglas S. Clapp and
anyone who has or obtains legal rights or claims through him.
3. Resignation. Effective as of May 1, 1996, Employee will resign as
an officer and employee of the Company.
4. Severance Payments. Employee will be paid his salary through April
30, 1996. For the period beginning May 1, 1996, the Company shall pay to
Employee the following severance payments in accordance with the Company's
standard payroll practices as if he were still employed. Such payments will be
equal to a gross amount of $120,000 per year ("Compensation") and will be paid
over a 12 month period ending April 30, 1997 ("Severance Period"). These
payments shall be subject to normal withholdings, taxes and other deductions
required by law.
5. Benefits.
(a.) INSURANCE BENEFITS. In the period from May 1, 1996,
through October 30, 1997, provided that Employee
timely executes the necessary documents to continue
such insurance as required by state and federal law
(and the Company agrees to provide such documents to
Employee in a timely manner), Employee and his
dependents can elect to be covered under COBRA.
During the severance period, from May 1, 1996,
through April 30, 1997, the Company will assume and
pay for COBRA insurance coverage of Employee and his
dependents. For the six-month period through October
30, 1997, all premiums for COBRA insurance coverage
shall be the responsibility of Employee.
(b.) PENSION AND PROFIT SHARING. Employee's vested account
balance under the Company's 401(k) Plan and Trust
shall be distributed to or at the direction of
Employee pursuant to the terms of the 401(k) Plan and
Employee's election thereunder. Payments made to
Employee pursuant to the provisions of this Agreement
shall not be deemed compensation for purposes of
accruing benefits under the Company's 401 (k) Plan.
There shall be no further accruals to Employee's
401(k) account after April 30, 1996.
(c.) CAR ALLOWANCE. Employee will continue to receive a
car allowance of $600 per month through the Severance
Period.
(d.) OFFICE FURNITURE. For a period of six months, RSI
will provide access to the current computer
equipment, Eris units, cameras and other equipment as
listed on the attached Exhibit A. and office
furniture located at RSI offices or at his home
office. Any preapproved expenses related to RSI
activities will be assumed by RSI; any expenses
related to EyeNet activities will be paid by EyeNet.
6. Stock Options. Employee has the following incentive stock options:
7000 shares at an exercise price of $2.20 per share. Employee will have the
right to exercise such options through July 31, 1996. Employee acknowledges that
all right to unvested options terminate as of May 1, 1996, the effective date of
his resignation.
7. Confidential Information and Non-Solicitation. Employee agrees that
he will not:
(a.) Disclose, directly or indirectly, or utilize for
his own benefit or for the benefit of any other
person, firm, corporation or other entity, for any
purpose whatsoever, any confidential information
or trade secrets of the Company;
(b.) Contact current customers of the Company regarding
any aspect of the Company's business or enter into
discussions concerning the development of a future
business relationship with Employee, if the
business relationship to be developed involves any
business of the type the Company is currently
conducting, without the knowledge and written
consent of the Company; or
(c.) Directly or indirectly, either as an individual
for his own account or on behalf of any other
person or persons, corporation, partnership or
other entity, contact or solicit any employees of
the Company and/or its subsidiaries for any
purpose related to the hiring of such employees.
8. Non-Competition. Employee acknowledges that he is subject to a
restrictive covenant described in Section 10.1 of an Employment Agreement with
the Company dated July 10, 1995. Employee agrees to abide by the terms of such
restrictive covenant with the understanding that Employee has incorporated
EyeNet Videoconferencing, Inc., a business which will be engaged in the
development of internet videoconferencing capability. The Company will be a
significant shareholder of EyeNet Videoconferencing, Inc. Pursuant to a
Shareholders Agreement which will be signed concurrently with this Agreement,
and agrees that the participation of Employee in such business shall not be
deemed to be a Competitive Product, as defined in Section 10.5 of the aforesaid
Employment Agreement, or a competitive activity, as described in Section 10.1 of
the aforesaid Employment Agreement.
Employee agrees that the restrictions contained in paragraphs 7 and 8
of this Agreement are reasonable and he acknowledges that his violation of any
of the provisions of paragraphs 7 and 8 will irreparably injure the Company and
cause damages to the Company that cannot be measured. Employee agrees that, in
addition to any other relief or remedies afforded by law or in equity, if he
breaches paragraphs 7 or 8 of this Agreement, the Company shall be entitled as a
matter of right to injunctive relief, plus payment by Employee of its reasonable
cost and attorney's fees incurred by the Company in enforcing paragraphs 7 and
8.
9. Consulting Services. For and in consideration of the benefits
provided to Employee herein, Employee agrees for a period of one year to be
available on reasonable notice and for reasonable periods of time to assist RSI
on RSI-related business matters. RSI acknowledges, however, that Employee is
under no obligation to contribute specific amounts of his time to RSI projects
on the understanding that Employee will, in good faith, respond to reasonable
request for his consulting services. No additional compensation of any kind will
be payable to Employee for consulting services provided to the Company.
10. Mutual Release of Claims. Employee hereby releases and forever
discharges the Company, and its present or former directors, officers,
shareholders, employees and agents, whether in their individual or official
capacities, of and from any and all actions or causes of action, suits, debts,
claims, complaints, contracts (expressed or implied), controversies, agreements,
promises, damages, claims for attorney's fees, judgments, cost, disbursements,
severance, compensation, vacation pay and other benefits (except as specifically
provided for in this Agreement), known or unknown, in law or equity, Employee
ever had, now has, or shall have as of the date of this Agreement relating in
any manner to Employee's employment and/or resignation as an officer or employee
of the Company, including, but not limited to, any alleged violation of any
federal, state, or local law, regulation or ordinance prohibiting discrimination
or other unlawful activity on the basis of race, color, creed, marital status,
sex, age, religion, national origin, sexual orientation, sexual harassment,
disability, or any other basis (whether arising under Title VII of the Civil
Rights Act, 42 U.S.C. 2000e et seq., the Age Discrimination in Employment Act,
29 U.S.C. 621 et seq., the Americans With Disabilities Act, 42 U.S.C. 12101 et
seq., the Minnesota Human Rights act, Minn. Stat. 363.01 et seq., or elsewhere),
or any alleged obligation created by statute or by common law contract or tort
theory. Employee affirms that as a current or former employee he has not caused
or permitted, and hereby waives any and all rights to receive any financial
benefits other than those provided herein, to be filed any charge, complaint, or
action against Company and agrees that he will not cause or permit to be filed
any charge, complaint or action and that he will not participate with any other
party in the filing of any charge, complaint or action on the basis of his
employee status.
The Company hereby releases and forever discharges the Employee from
any and all actions or causes of action, suits, debts, damages, claims for
attorneys' fees, judgments, and cost known or unknown in law or equity the
Company ever had, now has or shall have as of the date of the Agreement relating
in any manner to Employee's employment and or resignation as an employee.
11. Notification of Rights Pursuant to the Federal Age Discrimination
in Employment Act (29 U.S.C. 621-634) and Minnesota Human Rights Act (Minn.
Stat. Ch. 363). Employee agrees that he is hereby notified that the federal Age
Discrimination in Employment Act provides that he is entitled to wait 21 days to
sign this Agreement. The 21-day period shall begin the day following the day on
which Employee receives the Agreement. Employee acknowledges that the purpose of
the 21-day period is to provide Employee adequate time to consider whether the
terms of this Agreement are acceptable to him. Employee is also hereby notified
of his right to rescind his release of claims arising under the Federal Age
Discrimination in Employment Act within 7 calendar days of his signing of this
Agreement. Employee is further notified of his right to rescind his release of
claims arising under the Minnesota Human Rights Act within 15 calendar days of
his signing of this Agreement. In order to be effective, Employee's rescission
must be in writing and delivered by hand or mail to:
RSI Systems, Inc.
One Corporate Plaza
7400 Metro Blvd. Suite 475
Edina, MN 55439
Attention: President
If delivered by mail, the rescission must be postmarked within the
required period, properly addressed to RSI Systems, Inc. As set forth above, and
sent by certified mail, return receipt requested. Employee understands that if
he rescinds his release of claims as provided for in this paragraph, Employee
will not receive, and will have to return to Company, all benefits and payments
provided for in this Agreement.
12. Confidentiality. The parties agree specifically that the contents
and terms of this Agreement shall remain confidential except as required by
applicable law or regulation (including of the Securities and Exchange
Commission or of the Nasdaq National Market). However, Employee shall be
entitles to discuss the matters contained herein with his legal and financial
advisors, business associates, and his immediate family, provided they also
agree to keep this Agreement confidential. Provided further that Company shall
be entitled to discuss the matters contained herein with its legal and financial
advisers and its management employees on a need to know basis.
13. Non-Disparagement. Each party agrees not to disparage in any
manner the other party.
14. Non-Admission. This Agreement is intended to resolve disputed
claims. Nothing in this Agreement shall be construed as an admission by Company
or Employee of any liability or unlawful conduct whatsoever. The Company and
Employee specifically deny any liability or unlawful conduct.
15. Assignment. The obligations of Employee under this Agreement may
not be assigned by Employee. However, in the event of Employee's mental or
physical disability, incapacitation or death, all remaining payments shall
continue to be made to Employee's spouse, or in the event of the death of
Employee's spouse, the payments will be made to Employee's children in equal
shares.
This Agreement may be assigned by Company, provided, however, that all
payments hereunder shall be come immediately due and owing and paid in full as a
condition to said assignment. The Company's rights and obligations under this
Agreement will inure to the benefit and be binding upon the Company's successors
and assigns.
16. Severability. If a court rules that any part of this Agreement is
not enforceable, that part may be modified by the court to make it enforceable.
The parties expressly agree that the restrictions contained in paragraphs 7 and
8 are reasonable and should be enforced to the maximum extent and scope
possible. If for any reason the releases given by the Employee to the Company
above are determined to be unenforceable, all payments and compensation paid to
Employee under this Agreement shall be returned to the Company and no further
payments will be made to Employee pursuant to this Agreement.
17. Governing Law. Any disputes arising under this Agreement shall be
governed by the laws of the State of Minnesota.
18. Acknowledgment of Reading and Understanding: Consultation with
Counsel: Period to Consider Agreement. Employee, by signing this Agreement,
acknowledges and agrees that he has carefully read and understood all provisions
of this Agreement and that he has entered into this Agreement knowingly and
voluntarily. Employee further acknowledges that he has consulted with counsel
before signing this Agreement. Employee also acknowledges that Company informed
him that he has 21 days from the receipt of this Agreement to consider whether
its terms are acceptable to him and that he has had the benefit of the 21-day
period. Employee acknowledges and agrees that he has not relied on any
representations or statements by Company, whether oral or written, other than
the express statements of this Agreement, in executing this Agreement. If
Employee chooses to sign and return this Agreement to the Company before the
expiration of the 21-day period, he represents that he has done so on his own
volition and under advice of counsel and that he has chosen to waive the
benefits of such 21-day period.
19. Full Agreement. This Agreement contains the full agreement of the
parties with respect to the subject matter hereof and may not be modified,
altered, or changed in any way except by written agreement signed by both
parties. Except as expressly stated in this Agreement, the parties agree that,
other than the Shareholder Agreement entered into concurrently with this
Agreement, this Agreement supersedes and terminates any and all oral and written
prior agreements and understandings between the parties.
RSI Systems, Inc.
Dated: May 1, 1996 By /s/ Dennis A. Leese
Its CEO
Dated: 5/1/96 /s/ Douglas S. Clapp
Douglas S. Clapp
RSI SYSTEMS, INC.
SELLING AGENCY AGREEMENT
MAXIMUM OFFERING: 2,000,000 SHARES OF COMMON STOCK
MINIMUM OFFERING: 1,000,000 SHARES OF COMMON STOCK
Miller Johnson & Kuehn Incorporated Minneapolis, Minnesota
5500 Wayzata Boulevard August 22, 1996
Suite 800 - 8th Floor
Minneapolis, MN 55416
Gentlemen:
The undersigned, RSI Systems, Inc., (the "Company") hereby confirms
its agreement with you (the "Selling Agent") as follows:
1. DESCRIPTION OF OFFERING. The Company proposes to offer and sell
shares (the "Shares") of its common stock, $.01 par value per share (the "Common
Stock"), to private, accredited investors through you, as its exclusive agent
(the "Offering"), such Offering for a minimum of 1,000,000 shares (the "Minimum
Offering") and a maximum of 2,000,000 shares (the "Maximum Offering"). The
Shares will be sold at a per share price of $3.00. Purchases will be made
pursuant to a Subscription Agreement between the Company and each investor, the
form of which will be provided by the Company and acceptable to Selling Agent
(the "Subscription Agreement").
2. APPOINTMENT OF AGENT. On the basis of the warranties,
representations and agreements of the parties hereto, the Company hereby
appoints the Selling Agent, and the Selling Agent hereby accepts such
appointment, to act as the Company's exclusive agent in connection with the
offer and sale of the Shares to private investors, on a best efforts basis. The
Selling Agent will use its best efforts to sell the Shares, but there is no
commitment by the Selling Agent to purchase or sell all or any of the Shares.
The Selling Agent may utilize the services of sub-agents, but the use of
sub-agents shall not increase the compensation payable by the Company hereunder.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Selling Agent as follows:
(a) The Company will prepare a disclosure document or package
consisting of a description of the Offering, intended use of the
proceeds from the Offering, recent developments and risk factors
regarding the Company, and other information including the Company's
prospectus dated July 25, 1995, the Company's quarterly report on Form
10-QSB for each of the fiscal quarters ended after June 30, 1995, and
the Company's press releases released since January 1, 1996 (which,
together with any supplements or amendments thereto including any
documents incorporated by reference therein is herein defined as the
"Disclosure Package") with respect to the Shares which will (i) fairly
present all material information regarding the Company; and (ii) will
not include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances
under which they were made. The Company will also prepare and file a
Form D, if applicable, with the Securities and Exchange Commission
(the "Commission"). The Disclosure Package and Form D will be subject
to your approval, which will not be unreasonably withheld. The Company
has not taken, or omitted to take, any action and will not take, or
omit to take, any action which would have the result of making the
exemptions from registration provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Securities Act") or
Regulation D thereunder unavailable for the offer and sale of the
Shares. The Company and the Selling Agent shall mutually determine
whether to issue a press release under Rule 135 of the Securities Act
and the contents of such release.
(b) As of the commencement date of the Offering and until and
as of the date of any Closing (as hereinafter defined), the Disclosure
Package will (i) fairly present all material information regarding the
Company; and (ii) not include any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances under which they were made; provided, that the
representations and warranties in this paragraph shall not apply to
statements or omissions made in reliance upon written information
furnished to the Company by the Selling Agent expressly for use in
preparation of the Disclosure Package.
(c) The financial statements (including all related schedules
and notes) set forth in the Disclosure Package will fairly present the
financial condition and results of operations of the Company as of the
dates and for the periods indicated; such statements will have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods indicated; and, in the
event the Disclosure Package shall include a report of a public
accountant, such report shall be by an independent public accountant
within the meaning of the Securities Exchange Act of 1934, as amended
(the "Exchange Act") and the rules and regulations promulgated
thereunder.
(d) The Company is duly incorporated and validly existing as a
corporation in good standing under the laws of the State of Minnesota,
with power and authority to own its properties and conduct its business
as described in the Disclosure Package. The Company has one
wholly-owned subsidiary, RSI Systems Limited (the "Subsidiary") which
is duly organized and validly existing under the laws of the United
Kingdom. The Company is not otherwise affiliated with any other company
or business entity, except as explicitly stated in the Disclosure
Package.
(e) The Company is duly qualified to do business as a foreign
corporation and is in good standing in all states or jurisdictions in
which the ownership or leasing of its property or the conduct of its
business requires such qualification and the failure to be so qualified
would have a material, adverse effect on the Company's business.
(f) The Company has full legal power, right and authority to
enter into this Agreement and the Agent's Warrant (as defined herein).
This Agreement and such Agent's Warrant have been duly authorized, and
this Agreement has been and as of the date of Closing such Agent's
Warrant will be executed and delivered on behalf of the Company and
this Agreement is, and such Agent's Warrant when delivered will be, the
valid and binding obligation of the Company, subject, as to
enforcement, to applicable bankruptcy, insolvency, reorganization,
moratorium and other laws affecting the rights of creditors generally,
to the exercise of judicial discretion as to the availability of
equitable remedies such as specific performance and injunction and
subject, as to enforcement of the indemnification provisions, to
limitations under applicable securities laws.
(g) Except as set forth in the Disclosure Package, the Company
and the Subsidiary have all licenses, certificates, permits and other
approvals from governmental and regulatory authorities necessary for
the conduct of its business as it is currently being carried on and as
will be described in the Disclosure Package, except those which would
not have a material adverse effect on the Company and the Subsidiary,
taken as a whole, if not obtained.
(h) Except as set forth in the Disclosure Package, the Company
owns or possesses all assets, patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service mark
registrations, copyrights, licenses, inventions, trade secrets and
rights necessary for the conduct of its business as it is currently
being carried on and has not received any notice of conflict with the
asserted rights of others in respect thereof. To the Company's
knowledge, and except as will be set forth in the Disclosure Package or
except as will not have a material adverse effect on the Company, no
name which the Company uses and no other aspect of the business of the
Company involves or gives rise to any infringement of any patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service mark registrations, copyrights, licenses,
inventions, trade secrets or other similar rights of others.
(i) Since the date of the Disclosure Package and other than as
herein or therein contemplated (i) neither the Company nor the
Subsidiary has incurred any material liabilities or obligations,
contingent or otherwise, not in the ordinary course of business, (ii)
neither the Company nor the Subsidiary has paid or declared any
dividend or other distribution with respect to its outstanding capital
stock, (iii) there has not been any change in the capital stock or any
material increase in the long-term debt of the Company or the
Subsidiary, or any issuance of shares of capital stock of the Company
or the Subsidiary or of options, warrants, or rights to purchase
capital stock of the Company or the Subsidiary, except for issuances of
capital stock upon exercise of warrants, options or convertible
securities outstanding as of the date of the Disclosure Package and
grants of options pursuant to the Company's existing stock option plans
for which shares have been reserved for issuance, (iv) no material loss
or damage (whether or not insured) to the property of the Company or
the Subsidiary has been sustained, (v) no material legal or
governmental proceeding, domestic or foreign, affecting the Company,
the Subsidiary or the transactions contemplated by this Agreement has
been instituted or, to the best of the Company's knowledge, threatened,
and (vi) there has not been any material adverse change in the
business, condition (financial or otherwise) or properties of the
Company.
(j) Neither the Company nor the Subsidiary is in breach,
default or violation of, and the consummation of the transactions
herein contemplated will not result in any breach of any of the terms
or conditions of, or constitute a default or violation under, (i) its
Certificate of Incorporation, By-Laws or other governing document, (ii)
any material indenture, agreement or other instrument to which the
Company or the Subsidiary is now a party, or (iii) any law or any
order, rule or regulation applicable to the Company or the Subsidiary
of any court or of any federal or state regulatory body or
administrative agency having jurisdiction over the Company or the
Subsidiary or their property, except for such breaches, defaults or
violations which would not have a material adverse effect on the
Company and the Subsidiary, taken as a whole.
(k) No approval, authorization, consent or order of any
governmental or public board or body or self-regulatory organization,
other than in connection with or in compliance with the provisions of
the Securities Act, the Exchange Act and the securities laws of various
jurisdictions, is legally required for the sale of the Shares by the
Company.
(l) The Shares, when issued and delivered to the purchasers
against payment therefor in accordance with the Subscription Agreement,
will conform in all material respects to all statements made in
relation thereto contained in the Disclosure Package, and will be
validly issued, fully paid and non-assessable.
(m) Except as set forth in the Disclosure Package, there are
no pending, or to the Company's knowledge, threatened or contemplated
actions, suits or proceedings before or by any court or governmental
agency, authority or body, or any arbitrator, which are not ordinary,
routine and incidental to the business of the Company or which might
reasonably be expected to result in any material adverse change in the
business condition (financial or otherwise) or properties of the
Company.
(n) The Disclosure Package sets forth as of the date thereof
the authorized capital stock of the Company, the number of shares which
are issued and outstanding and the number of shares reserved for
issuance upon exercise of options, warrants, rights and convertible
instruments and there has been no material change in such amounts as of
the date hereof. All outstanding shares of capital stock have been duly
authorized, validly issued, are fully paid and nonassessable and have
been issued pursuant to valid registrations under, or valid exemptions
from, the registration requirements of, the Securities Act and
applicable state blue sky laws. The capital stock of the Company shall
conform in all material respects to the description thereof contained
in the Disclosure Package.
(o) The Company has good and marketable title, free and clear
of all liens, encumbrances and equities, and of all charges or claims,
to all of the real and personal property owned by it, except liens,
encumbrances and equities, and charges or claims, which are not
material and do not materially affect the value of such property or
interfere with the conduct of its business and has valid and binding
leases to all of the real and personal property described in the
Disclosure Package as under lease to it with such exceptions as do not
materially interfere with the conduct of its business.
(p) The Company has filed all federal, state and foreign
income and franchise tax returns due prior to the date hereof and the
date of the Closing and has paid all taxes, interest and penalties
shown as due thereon; and the Company has not received notice of any
material tax deficiency asserted against the Company.
(q) The Company has all requisite power and authority to
issue, sell and deliver the Shares in accordance with and upon the
terms set forth in this Agreement. The Company has duly taken all
required action for the due and proper authorization, issuance, sale
and delivery of the Shares. No preemptive rights of security holders of
the Company exist with respect to the issuance and sale of the Shares
by the Company. No security holder of the Company possesses any
registration rights except as disclosed in the Disclosure Package.
(r) In retaining and using the proceeds from the sale of the
Shares, the Company will not be required to register as an "Investment
Company" under the Investment Company Act of 1940, as amended.
(s) Neither the Company, nor to its knowledge, any of its
predecessors, any affiliated issuer nor any of the Company's directors,
officers, beneficial owners of 10% or more of any class of its equity
securities or other affiliates nor any promoter of the Company, is
subject to any of the disabilities enumerated in Exhibit E hereto and
the representations and warranties contained therein are true and
correct.
(t) Other than as contemplated by this Agreement, the Company
has not incurred any liability for any finder's or broker's fee or
agent's commission in connection with the execution and delivery of
this Agreement or the consummation of the transactions contemplated
hereby.
(u) On or prior to the Closing (as hereinafter defined) the
Company will file a notice for the listing of the Shares offered hereby
on the Nasdaq SmallCap Market.
(v) The Company is subject to the reporting requirements of
the Securities Act and the Exchange Act and (i) has timely filed all
reports and statements required to be filed thereunder in the 12 month
period prior to the date hereof and (ii) each report and statement was
true and complete in all material respects as of their respective
dates.
4. FURTHER AGREEMENTS OF THE COMPANY. The Company covenants and agrees
as follows:
(a) The Company will promptly deliver to the Selling Agent and
its counsel a number of copies of the Disclosure Package and each
amendment or supplement thereto as may reasonably be requested by the
Selling Agent. The Selling Agent is authorized on behalf of the
Company to use and distribute copies of the Disclosure Package in
connection with the sale of the Shares as, and to the extent,
permitted by this Agreement and Federal and applicable state
securities laws.
(b) The Company will promptly notify the Selling Agent, by
telephone and in writing of (i) the issuance of any stop order
suspending the sale of securities of the Company, or of the
institution or notice of intended institution of any action or
proceeding for that purpose and (ii) any other communication directed
to and received by the Company by any public authority relating to the
possible suspension of the qualification of the offer and sale of the
securities of the Company in any state.
(c) Until the Closing (as hereinafter defined) of the Maximum
Offering or the earlier termination of this Agreement, if any event
relating to or affecting the Company, or of which the Company shall be
advised in writing by the Selling Agent, shall occur as a result of
which it is necessary, in the opinion of counsel for the Company or
the Selling Agent, to supplement or amend the Disclosure Package in
order to make the Disclosure Package not misleading in light of the
circumstances existing at the time it is delivered to a purchaser of
the Shares, the Company will forthwith prepare an amended or
supplemented Disclosure Package (in form satisfactory to counsel for
the Selling Agent) so that the amended or supplemented Disclosure
Package will not contain any untrue statement of a material fact or
omit to state any material fact necessary in order to make the
statements therein, in the light of the circumstances existing at the
time the Disclosure Package is delivered to such purchaser, not
misleading.
(d) The Company shall pay, or cause to be paid, all expenses
incident to the performance of its obligations under this Agreement,
including all expenses incident to the delivery of the Shares; the
fees and expenses of counsel and accountants for the Company; the cost
of filing the Form D and amendments thereto; and the cost of all blue
sky filings, including legal expenses related thereto. The payment of
all such fees and expenses shall not be conditioned upon the sale of
any Shares. The Company shall also pay to the Selling Agent a
nonaccountable expense allowance equal to 1% of the gross proceeds
from the sale of the Shares and the fees and expenses of counsel to
the Selling Agent.
(e) The Company will apply the net proceeds from the sale of
the Shares substantially in the manner set forth in the Disclosure
Package.
(f) For a period of three years from the date hereof, the
Company will furnish to the Selling Agent (i) within 100 days after the
end of each fiscal year, a copy of the Company's annual report on Form
10-KSB or Form 10-K, including audited financial statements, together
with a report thereon of its independent public accountants, and (ii)
within 55 days after the end of each of the first three quarters of
each fiscal year, the Company's quarterly report on Form 10-QSB or
Form 10-Q, including quarterly condensed financial statements of the
Company.
(g) During the three-year period following the final Closing
(as defined herein), if the Company intends to engage an underwriter,
selling agent or placement agent in connection with any financing, the
Company shall notify you in writing of such intention and the proposed
terms of sale and you shall have the right of first refusal to act in
that capacity in accordance with the following provisions. The Company
shall thereafter promptly furnish you with such information concerning
the business, condition and prospects of the Company as you may
reasonably request. If, within twenty (20) days of the receipt of such
notice of intention or a statement of terms, you do not accept in
writing such offer to act as underwriter, selling agent or placement
agent with respect to such financing upon the terms proposed, the
Company shall be free to negotiate with other underwriters, selling
agents or placement agents with respect to any such financing and to
effect the same on such proposed terms. Before the Company shall accept
any proposal on terms which are materially more adverse to the Company
or are materially more favorable to the underwriter, selling agent or
placement agent than such proposed terms, your preferential right shall
be reinstated and the same procedure with respect to such notified
proposal as provided above shall be adopted. The failure by you to
exercise this right of first refusal in any particular instance shall
not affect in any way such right with respect to any subsequent
financing undertaken by the Company during the three-year period.
Notwithstanding the foregoing, the provisions of this subsection shall
not apply if the Company engages an underwriter, selling agent or
placement agent to regional stature, such as Piper Jaffray or Dain
Bosworth, or of national stature, provided, however, that in such event
the Company will use reasonable, good-faith efforts to have the Selling
Agent included as a co-managing underwriter, selling agent or placement
agent.
(h) For a period of twelve months from the final Closing (as
defined herein), the Company shall not sell any securities, or rights
to purchase or acquire securities, except after consultation with the
Selling Agent or except that it may issue options to purchase shares of
its common stock pursuant to its existing stock option plans and shares
of its common stock issuable upon the exercise of options, warrants,
and convertible securities outstanding on the date hereof.
(i) The Company shall use its diligent, good faith efforts to
register the resale of the Shares in accordance with the provisions of
Exhibit A attached hereto.
5. OFFERING PERIOD. Subject to applicable law, the Selling Agent shall
commence the offer and sale of the Shares to investors on or as soon as is
reasonably practicable following the date hereof and, unless otherwise
terminated hereunder shall continue to offer and sell the Shares to investors
until the earlier of (i) the date on which all of the Shares are sold, (ii)
September 30, 1996 (unless extended up to 60 days by the Company and the Selling
Agent at their discretion and without notice to investors); (iii) such earlier
date as the Selling Agent and the Company mutually agree to terminate the
offering; or (iv) on such date as the Company or the Selling Agent terminates
its obligations under this Agreement as provided in Section 10 hereof.
"Termination Date," as used herein, shall refer to the date on which the
offering is terminated in accordance with the preceding sentence. In the event
of any such termination, the parties shall have no further obligations to each
other except (i) as set forth in Section 4(d) hereof and (ii) with respect to
provisions which survive termination of this Agreement.
6. DELIVERY: PAYMENT AND CLOSING.
(a) A closing of the sale of Shares shall be held as soon as
practicable after the Minimum Offering has been sold at a mutually
agreeable time at the offices of Leonard, Street and Deinard
Professional Association, Minneapolis. Minnesota, unless some other
time and place is mutually agreed upon by the Company and the Selling
Agent. Additional closings may be held from time to time until the
maximum number of Shares are sold (in any such case, a "Closing.")
(b) All checks and other funds received by the Selling Agent
in subscription for the Shares shall be held by Selling Agent in
accordance with Rule 15c2-4 under the Exchange Act until the Closing
of the sale of such Shares. If the Minimum Offering has not been
subscribed for on or before August 31, 1996 (unless extended up to 60
days by the Company and the Selling Agent), then all sums so held
shall be returned to the subscribers thereof, without interest or
deduction. All subscriptions are subject to the reasonable approval of
the Company.
7. CONDITIONS TO CLOSING. The obligation of the Selling Agent to close
the Offering shall be conditioned upon the satisfaction of the following at each
Closing:
(a) The receipt by the Selling Agent of an opinion of
counsel to the Company, substantially to the effect of Exhibit B
hereto.
(b) The receipt by the Selling Agent of a certificate of the
President and Chief Financial Officer of the Company, stating that the
representations and warranties contained in Section 3 hereof are true
and correct in all respects as of the date of the Closing, that the
Company has performed all of its agreements and obligations to be
performed under this Agreement and that the Disclosure Package, as of
the date of Closing, contains all material statements which are
required to be made therein, does not include any untrue statement of
a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made,
substantially in the form attached hereto as Exhibit C, and acceptable
to the Selling Agent.
(c) The receipt by the Selling Agent of a certificate of the
Secretary of the Company substantially in the form attached hereto as
Exhibit D; and acceptable to the Selling Agent.
(d) The receipt by the Selling Agent of a certificate of the
Company substantially in the form attached hereto as Exhibit E, and
acceptable to the Selling Agent.
(e) The receipt by Selling Agent of the commissions and
warrants referred to in Section 8 hereof.
(f) Such other documents, opinions and certificates as the
Selling Agent may reasonably request.
The obligation of the Company to close the Offering shall be
conditioned upon the satisfaction of the following at each closing:
(a) At each Closing, the receipt by the Company of payment
in full of the proceeds from the sale of the Shares.
(b) The receipt by the Company of executed copies of all
Subscription Agreements received by the Selling Agent from subscribers
acceptable to the Selling Agent (it being understood that the Selling
Agent and the Company have the right to reject any subscriptions in
whole or in part), for review and acceptance by the Company.
(c) The receipt by the Company of a certificate of the Selling
Agent substantially in the form attached hereto as Exhibit G, and
acceptable to the Company.
8. SALES COMMISSIONS.
(a) At each Closing, and conditioned thereon, the Selling
Agent shall receive from the Company as a commission 10% of the gross
proceeds received from the sale of the Shares at such Closing. The
commissions shall be payable to or upon the order of the Selling Agent
in immediately available Minneapolis funds and may, at the option of
the Selling Agent, be netted against the gross proceeds to be
delivered by the Selling Agent to the Company.
(b) If, during the period commencing on the Termination Date,
as defined herein, and ending on the first anniversary thereof, the
Company shall sell any securities (including, but not limited to,
shares of common stock, debentures or warrants) to any purchaser who
was contacted by the Selling Agent in connection with the offer and
sale of the Shares, the Selling Agent shall be entitled to receive upon
the sale of such securities a commission consisting of a cash amount
equal to 10% of the purchase price paid for such securities by such
purchaser. Upon any termination of this Agreement, the Selling Agent
will provide the Company with a list of persons and entities whom the
Selling Agent contacted.
(c) At each Closing, for the sum of $50.00 the Selling Agent
shall receive a warrant (the "Agent's Warrant") to purchase a number of
shares of the Company's common stock equal to 10% of the number of
Shares which have been sold at such Closing, in the form of Exhibit F
hereto with an exercise price per share equal to the per share price
paid by investors at such Closing. The Agent's Warrant shall be
exercisable for a period of ten years from the date of the Closing
subject to the exceptions contained therein.
9. INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless the Selling
Agent, and each person who controls (as such term is defined by Rule
405 under the Securities Act) the Selling Agent within the meaning of
the Securities Act, against any losses, claims, damages or liabilities,
joint and several, to which the Selling Agent or such controlling
persons may become subject, under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the
Disclosure Package, or any amendment or supplement thereto, or any
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Selling Agent and each such
controlling person for any legal or other expenses reasonably incurred
by such Selling Agent or such controlling person (including in
settlement of any litigation, if such settlement is effected with the
written consent of the Company) in connection with investigating or
defending any such loss, claim, damage, liability or action; provided,
however, that the Company will not be liable in any such case to the
extent that such loss, claim, damage or liability arises out of or is
based upon any untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the
Selling Agent specifically for use in the preparation of the Disclosure
Package or any additions or supplements thereto. This indemnity
agreement will be in addition to any liability which the Company may
otherwise have.
(b) The Selling Agent will indemnify and hold harmless the
Company, each person who controls (as such term is defined under Rule
405 under the Securities Act) the Company within the meaning of the
Securities Act, each of its directors, and each of its officers,
against any losses, claims, damages or liabilities, joint and several,
to which the Company, any such controlling person, director or officer
may become subject, under the Securities Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in the Disclosure
Package, or any amendment or supplement thereto, or arise out of or are
based upon the omission or the alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement
or omission or alleged omission is made in the Disclosure Package or
any additions or supplements thereto, or such amendment or such
supplement, in reliance upon and in conformity with written information
furnished to the Company by the Selling Agent specifically for use in
the preparation thereof; and will reimburse the Company, any such
controlling person, director or officer for any legal or other expenses
reasonably incurred by them (including in settlement of any litigation,
if such settlement is effected with the written consent of the Selling
Agent) in connection with investigating or defending any such loss,
claim, damage, liability or action. This indemnity agreement will be in
addition to any liability which the Selling Agent may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section of notice of the commencement of any action by a third party,
such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section, notify each
indemnifying party in writing of the commencement thereof. The
indemnification provided for in this Section 9 shall not be available
to any party who fails to so notify each indemnifying party to the
extent that the indemnifying party to whom notification was not given
was unaware of the action to which the notification would have related
and was prejudiced by the failure to notify; provided, however, that
the omission to so notify each indemnifying party will not relieve any
indemnifying party from any liability which it may have to any
indemnified party otherwise than under this section. In case any such
action is brought against any indemnified party, and it seeks or
intends to seek indemnity from an indemnifying party and notifies an
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate in, and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel chosen by the indemnifying
party and reasonably satisfactory to the indemnified party; provided,
however, if the defendants in any such action (including any impleaded
parties) include both the indemnified party and the indemnifying party
and the indemnified party shall have reasonably concluded that there
may be a conflict between the positions of the indemnifying party and
the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel (but the indemnifying
party shall not be liable for the expenses of more than one such
separate counsel), to assume such legal defenses and to otherwise
participate in the defense of such action on behalf of such indemnified
party or parties. Upon receipt of notice from the indemnifying party to
such indemnified party of its election so to assume the defense of such
action and approval by the indemnified party of counsel, the
indemnifying party will not be liable to such indemnified party under
this section for any legal or other expenses subsequently incurred by
such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed separate counsel in
connection with the assumption of legal defenses in accordance with the
above proviso or (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent
the indemnified party within a reasonable time after notice of
commencement of the action, in each of which cases the fees and
expenses of counsel shall be at the expense of the indemnifying party.
In no event shall any indemnifying party be liable in respect of any
amounts paid in settlement of any action unless the indemnifying party
shall have approved the terms of such settlement.
(d) As an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding as to which
indemnification hereunder is sought, commencing on the one hundred
eightieth day after the service of a summons and complaint on an
indemnified party with respect to an action for which indemnification
is sought, the indemnifying party will reimburse the indemnified party
on a monthly basis for all reasonable legal fees or other reasonable
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the indemnifying party's obligation to
reimburse the indemnified party for such expenses and the possibility
that such payments might later be held to have been improper by a court
of competent jurisdiction. To the extent that any such interim
reimbursement payment is ultimately held to have been improper, the
indemnified party shall promptly return it to the party or parties that
made such payment, together with interest, determined on the basis of
the base rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Norwest Bank
Minnesota, N.A., ("Prime Rate"). Any such required interim
reimbursement payments which are not made to the indemnified party
within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request.
(e) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in Sections
9(a) or 9(b) is for any reason held, by a court of competent
jurisdiction, to be unenforceable as to any party entitled to
indemnity, the Company and the Selling Agent, or any controlling
person of the foregoing, shall contribute to the aggregate losses,
claims, damages and liabilities (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit or proceeding or any claims asserted)
to which the Company and the Selling Agent, or any controlling person
of the foregoing, may be subject (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company,
on the one hand, and the Selling Agent on the other from the offering
contemplated hereby or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in
clause (i) above but also the relative fault of the Company, on the
one hand, and of the Selling Agent on the other in connection with the
statements or omissions which resulted in such loss, claim, damage,
liability or expense, as well as any other relevant equitable
considerations. The relative benefits received by the Company, on the
one hand, and the Selling Agent on the other shall be deemed to be in
the same proportion as the total net proceeds from the offering
(before deducting expenses) received by the Company bear to the total
sales commissions received by the Selling Agent. The relative fault of
the Company, on the one hand, and of the Selling Agent on the other
shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission
or alleged omission to state a material fact relates to information
supplied by the Company or by the Selling Agent and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No person guilty of
fraudulent misrepresentation or guilty of misstating or
misrepresenting a material fact or failing to state a material fact
shall be entitled to contribution, as to any liability arising from
such fraudulent misrepresentation or omission, from any person who was
not guilty of such fraudulent or other misrepresentation or omission.
10. TERMINATION. Each party hereto shall have the right to terminate
its obligations under this Agreement by giving notice to the other party as
hereinafter specified at any time on or prior to the Closing if such other party
shall have failed, refused or been unable, at or prior to the Closing, to
perform any material agreement on its part to be performed; if there shall have
been a breach of any material warranty or representation of such other party
contained herein, or because any other material conditions of the terminating
party's obligations set forth herein are not fulfilled. Any such termination
shall be without liability of any party to any other party, except for the
Company's obligations to pay its expenses under Section 4(d) hereof.
11. REPRESENTATIONS AND AGREEMENTS TO SURVIVE. The respective
covenants, agreements, representations and warranties of the Company and the
Selling Agent hereunder, as set forth in, or made pursuant to this Agreement,
shall remain in full force and effect regardless of any investigation made by or
on behalf of any such party or any of its directors or officers or any
controlling person, and shall survive delivery of and payment for the Shares for
the statutory statute of limitations time period; and the indemnification
agreements contained in Section 9 shall also survive any termination of this
Agreement.
12. NOTICES. Except as otherwise expressly provided in this Agreement
or duly noticed hereunder, all notices and other communications hereunder shall
be in writing and, if given to the Selling Agent, shall be mailed, delivered or
telegraphed and confirmed to Miller Johnson & Kuehn Incorporated, 5500 Wayzata
Boulevard, Suite 800 - 8th Floor, Minneapolis, Minnesota 55416, Attention: Paul
R. Kuehn, with a copy to its counsel, Leonard, Street and Deinard, 150 South
Fifth Street, Suite 2300, Minneapolis, Minnesota 55402, Attention: John C. Kuehn
or, if given to the Company, shall be mailed, delivered or telegraphed and
confirmed to RSI Systems, Inc., 7400 Metro Boulevard, Suite 475, Edina,
Minnesota 55439, Attention: President with a copy to its counsel, Mark A.
Kimball, Oppenheimer Wolff & Donnelly, Plaza VII, Suite 3400, 45 South Seventh
Street, Minneapolis, Minnesota 55402.
13. MISCELLANEOUS. This Agreement shall inure to the benefit of and be
binding upon the successors of the Selling Agent and of the Company. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person or corporation, other than the parties hereto and their
successors, and the controlling persons and directors and officers referred to
in Section 9 hereof, any legal or equitable right, remedy or claim under or in
respect to this Agreement or any provision hereof. The term "successors" shall
not include any purchaser of the Shares merely by reason of such purchase. No
subrogee of a benefited party shall be entitled to any benefits hereunder.
If the foregoing expresses our agreement with you, kindly confirm by
signing the acceptance on the enclosed counterpart hereof and return the same to
us, whereupon this letter and your acceptance shall become and constitute a
binding agreement between the Company and the Selling Agent in accordance with
its terms.
Very truly yours,
RSI SYSTEMS, INC.
By /s/ Donald C. Lies
Its President
The terms set forth in the foregoing Selling Agency Agreement between
RSI Systems, Inc. and Miller Johnson & Kuehn Incorporated are hereby accepted
and confirmed.
MILLER, JOHNSON & KUEHN INCORPORATED
By /s/ Paul R. Kuehn
its President
Exhibit A
REGISTRATION RIGHTS
1. Required Registration.
As soon as practicable but in no event later than the ninetieth day
after the final Closing, the Company shall file a Registration Statement under
the Securities Act covering the resale of the Shares purchased by purchasers of
Shares from the Company pursuant to that certain Selling Agency Agreement dated
August 22, 1996 between the Company and Miller, Johnson & Kuehn (the
"Investors"), and will diligently proceed to use its diligent, good faith
efforts to have such Registration Statement become effective with the Securities
and Exchange Commission (the "Commission") as soon as possible thereafter.
2. Registration - General Provisions.
(a) Whenever the Company is required to effect the
registration of Shares under the Securities Act, the Company will:
(i) Prepare and file with the Commission a
registration statement with respect to such securities, and
use its diligent, good faith efforts to cause such
registration statement to become effective and remain
effective until the earlier of the date on which (i) all
Shares have been sold by the Investors or (ii) the Shares may
be sold by the Investors without restriction pursuant to Rule
144(k) under the Securities Act;
(ii) prepare and file with the Commission such
amendments to such registration statement and supplements to
the prospectus contained therein as may be necessary to keep
such registration statement effective for the period required
by Section 2(a)(i) above;
(iii) provide Investors counsel with reasonable
opportunities to review and comment on, and otherwise
participate in, the preparation of such registration
statement;
(iv) furnish to the Investors participating in such
registration and to the underwriters of the securities being
registered such reasonable number of copies of the
registration statement, preliminary prospectus, final
prospectus and such other documents as the Investors and
underwriters may reasonably request in order to facilitate the
public offering of such securities;
(v) use its diligent, good faith efforts to register
or qualify the securities covered by such registration
statement under such state securities or blue sky laws of such
jurisdictions as any such Investor may reasonably request,
except that the Company shall not for any purpose be required
to execute a general consent to service of process (which
shall not include a "Uniform Consent to Service of Process" or
other similar consent to service of process which relates only
to actions or proceedings arising out of or in connection with
the sale of securities, or out of a violation of the laws of
the jurisdiction requesting such consent) or to qualify to do
business as a foreign corporation in any jurisdiction wherein
it is not so qualified;
(vi) notify the Investors, promptly after it shall
receive notice thereof, of the time when such registration
statement has become effective or a supplement to any
prospectus forming a part of such registration statement has
been filed;
(vii) notify the Investors promptly of any request by
the Commission for the amending or supplementing of such
registration statement or prospectus or for additional
information;
(viii) prepare and file with the Commission, promptly
upon the request of any Investor, any amendments or
supplements to such registration statement or prospectus
which, in the opinion of counsel for such Investor (and
concurred in by counsel for the Company), is required under
the Securities Act or the rules and regulations thereunder in
connection with the distribution of the Shares by such
Investor;
(ix) prepare and promptly file with the Commission
and promptly notify the Investors of the filing of such
amendment or supplement to such registration statement or
prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities
Act, any event shall have occurred as the result of which
any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact
or omit to state any material fact necessary to make the
statements therein, in the light of the circumstances in
which they were made, not misleading;
(x) advise the Investors, and the Investors' counsel,
if any, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance of any stop order by the
Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding
for that purpose and promptly use its best efforts to prevent
the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued;
(xi) not file any amendment or supplement to such
registration statement or prospectus to which a majority in
interest of the Investors shall have reasonably objected on
the grounds that such amendment or supplement does not comply
in all material respects with the requirements of the
Securities Act or the rules and regulations thereunder, after
having been furnished with a copy thereof at least five
business days prior to the filing thereof, unless in the
opinion of counsel for the Company the filing of such
amendment or supplement is reasonably necessary to protect the
Company from any liabilities under any applicable federal or
state law and such filing will not violate applicable law; and
(xii) at the request of any such Investor, furnish on
the effective date of the registration statement and, if such
registration includes an underwritten public offering, at the
closing provided for in the underwriting agreement: (i)
opinions, dated such respective dates, of the counsel
representing the Company for the purposes of such
registration, addressed to the underwriters, if any, and to
the Investor or Investors making such request, covering such
matters as such underwriters may reasonably request; and (ii)
letters, dated such respective dates, from the independent
certified public accountants of the Company, addressed to the
underwriters, if any, and to the Investor or Investors making
such request, covering such matters as such underwriters or
Investors making such request may reasonably request.
(b) The Company shall pay all Registration Expenses (as
defined below) in connection with the inclusion of Shares in any
Registration Statement, or application to register or qualify Shares
under state securities laws, filed by the Company hereunder, other than
as set forth herein. For purposes of this Agreement, the term
"Registration Expenses" means the filing fees payable to the
Commission, any state agency and the National Association of Securities
Dealers, Inc.; the fees and expenses of the Company's legal counsel and
independent certified public accountants in connection with the
preparation and filing of the Registration Statement (and all
amendments and supplements thereto) with the Commission; and all
expenses relating to the printing of the Registration Statement,
prospectuses and various agreements executed in connection with the
Registration Statement. Notwithstanding the foregoing, the Investors
will pay the fees and expenses of any legal counsel the Investors may
engage, as well as the Investors' proportionate share of any custodian
fees or commission or discounts which may be payable to any
underwriter.
(c) The Investors acknowledge that there may occasionally be
times when the Company must suspend the use of the prospectus forming a
part of the Registration Statement, when there exists material
non-public information relating to the Company (including, but not
limited to, an acquisition, merger, recapitalization, consolidation,
reorganization or similar transaction (or negotiations with respect
thereto)) which in the reasonable opinion of the Company's Board of
Directors should not be disclosed. Accordingly, the Company may suspend
resales pursuant to such Registration Statement for a period not to
exceed ninety (90) days in any twelve (12) month period if the Company
has been advised by counsel and the Board of Directors reasonably
concurs that the information the Board reasonably believes should not
be disclosed is material and therefore the prospectus forming a part of
the Registration Statement is not current. Each Investor agrees that it
shall not sell any Shares pursuant to said prospectus during the period
commencing at the time at which the Company gives the Investor notice
of the suspension of the use of such prospectus and ending at the time
the Company gives the Investor notice that the Investor may thereafter
effect sales pursuant to such prospectus. The Investors shall comply
with the applicable provisions of the Securities Act and of such other
securities or blue sky laws as may be applicable in connection with the
use of such prospectus forming a part of the Registration Statement.
(d) The Company hereby indemnifies the holder of the Shares,
its officers and directors, and any person who controls such holder
within the meaning of Section 15 of the Securities Act of 1933, against
all losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in any registration statement,
prospectus, notification or offering circular (and as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto) or any preliminary prospectus or caused by any
omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of
the circumstances under which they were made except insofar as such
losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to
the Company by such holder expressly for use therein, and each such
holder severally agrees that it will indemnify and hold harmless the
Company and each of its officers who signs such registration statement
and each of its directors and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act of 1933
with respect to losses, claims, damages or liabilities which are caused
by any material untrue statement or omission contained in information
furnished in writing to the Company by such holder expressly for use
therein.
Exhibit F
FORM OF COMMON STOCK WARRANT
To Purchase __________
Shares of Common Stock of
RSI Systems, Inc.
______________ 1996
THE SECURITIES EVIDENCED BY THIS CERTIFICATE WERE ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED, PLEDGED,
HYPOTHECATED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SAID ACT OR AN OPINION OF COUNSEL (WHICH SHALL BE
IN FORM AND SUBSTANCE SATISFACTORY TO THE COMPANY) THAT SUCH REGISTRATION IS NOT
REQUIRED.
THIS CERTIFIES THAT, in consideration for $50.00 and other valuable
consideration, Miller, Johnson & Kuehn, Incorporated ("MJK") or its registered
assigns is entitled to subscribe for and purchase from RSI Systems, Inc. (the
"Company"), a Minnesota corporation, at any time after the date hereof to and
including the Expiration Date (as defined in Section 1 hereof),
_____________ (___________) fully paid and nonassessable shares of the Company's
Common Stock, $.01 par value, at a price of $_______ per share:
This Warrant is subject to the following provisions, terms and
conditions:
1. Expiration: Exercise: Transferability.
(a) This Warrant may be exercised in whole or in part, at any
time after the date hereof to and including the Expiration Date. As used herein
"Expiration Date" shall mean _______, 2006.
(b) The rights represented by this Warrant may be exercised by
the holder hereof, in whole or in part (but not as to a fractional share of
stock), by written notice of exercise in the form appended hereto delivered to
the Company on or prior to the Expiration Date, ten (10) days prior to the
intended date of exercise and by the surrender of this Warrant (properly
endorsed if required) at the principal office of the Company and upon payment to
it in full by certified or bank check or wire transfer of the purchase price for
such shares.
(c) This Warrant may be transferred subject to the following
conditions: (i) during the first year after the date of this Warrant, it may not
be sold, transferred, assigned or hypothecated except to persons who are (x)
both officers and shareholders of MJK, or (y) both officers and employees of
MJK, and (ii) after such period, the Warrant shall be transferable without
restriction, but subject to the opinion of counsel as provided by paragraph 7
herein that such transfer is not in violation of federal or state securities
laws.
2. Issuance of Shares. The Company agrees that the shares purchased
hereby shall be and are deemed to be issued to the record holder hereof as of
the close of business on the date on which this Warrant shall have been
exercised by surrender of the Warrant and payment for the shares. Subject to the
provisions of the next succeeding paragraph, certificates for the shares of
stock so purchased shall be delivered to the holder hereof within a reasonable
time, not exceeding ten (10) days after the rights represented by this Warrant
shall have been so exercised, and, unless this Warrant has expired a new Warrant
representing the number of shares, if any, with respect to which this Warrant
shall not then have been exercised shall also be delivered to the holder hereof
within such time.
Notwithstanding the foregoing, however, the Company shall not
be required to deliver any certificate for shares of stock upon exercise of this
Warrant, except in accordance with the provisions, and subject to the
limitations, of paragraph 7 hereof.
3. Covenants of Company. The Company covenants and agrees that all
shares which may be issued upon the exercise of the rights represented by this
Warrant will upon receipt of payment therefor upon issuance, be duly authorized
and issued, fully paid, nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, and, without limiting the generality of the
foregoing, the Company covenants and agrees that it will from time to time take
all such action as may be required to assure that the par value per share of the
common stock is at all times equal to or less than the then effective purchase
price per share of the common stock issuable pursuant to this Warrant. The
Company further covenants and agrees that, during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its common stock to provide for the exercise of the rights
represented by this Warrant.
4. Anti-Dilution Adjustments. The above provisions are, however,
subject to the following:
(a) In case the Company shall at any time hereafter subdivide
or combine the outstanding shares of common stock or declare a dividend payable
in common stock, the exercise price of this Warrant in effect immediately prior
to the subdivision, combination or record date for such dividend payable in
common stock shall forthwith be proportionately increased, in the case of
combination, or decreased, in the case of subdivision or dividend payable in
common stock. Upon each adjustment of the exercise price, the holder of this
Warrant shall thereafter be entitled to purchase, at the exercise price
resulting from such adjustment, the number of shares obtained by multiplying the
exercise price immediately prior to such adjustment by the number of shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the exercise price resulting from such adjustment.
(b) No fractional shares of common stock are to be issued upon
the exercise of this Warrant, but the Company shall pay a cash adjustment in
respect of any fraction of a share which would otherwise be issuable in an
amount equal to the same fraction of the market price per share of common stock
on the day of exercise as determined in good faith by the Company.
(c) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of common stock
shall be entitled to receive stock, securities or assets with respect to or in
exchange for common stock, then, as a condition of such reorganization,
reclassification, consolidation, merger or sale, lawful and adequate provision
shall be made whereby the holder hereof shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of common stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of outstanding shares of
such common stock equal to the number of shares of such stock immediately
theretofore purchasable and receivable upon the exercise of the rights
represented hereby had such reorganization, reclassification, consolidation,
merger or sale not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of the holder of this
Warrant to the end that the provisions hereof (including without limitation
provisions for adjustments of the Warrant purchase price and of the number of
shares purchasable upon the exercise of this Warrant) shall thereafter be
applicable, as nearly as may be, in relation to any shares of stock, securities
or assets thereafter deliverable upon the exercise hereof. The Company shall not
effect any such consolidation, merger or sale unless prior to the consummation
thereof the successor corporation (if other than the Company) resulting from
such consolidation or merger, or the corporation purchasing such assets, shall
assume by written instrument executed and mailed to the registered holder hereof
at the last address of such holder appearing on the books of the Company, the
obligation to deliver to such holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be entitled to
purchase.
Notwithstanding any language to the contrary set forth in this
paragraph 4 (c), if an occurrence or event described herein shall take place in
which the shareholders of the Company receive cash for their shares of common
stock of the Company and a successor corporation or corporation purchasing
assets shall survive the transaction then, at the election of the record holder
hereof, such corporation shall be obligated to purchase this Warrant (or the
unexercised part hereof) from the record holder without requiring the holder to
exercise all or part of the Warrant. If such corporation refuses to so purchase
this Warrant then the Company shall purchase the Warrant for cash. In either
case the purchase price shall be the amount per share that shareholders of the
outstanding common stock of the Company shall receive as a result of the
transaction multiplied by the number of shares covered by the Warrant, minus the
aggregate exercise price of the Warrant. Such purchase shall be closed within 60
days following the election of the holder to sell this Warrant.
(d) Upon any adjustment of the Warrant purchase price, then,
and in each such case, the Company shall give written notice thereof, by first
class mail, postage prepaid, addressed to the registered holder of this Warrant
at the address of such holder as shown on the books of the Company, which notice
shall state the Warrant purchase price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at such price
upon the exercise of this Warrant, setting forth in reasonable detail the method
of calculation and the facts upon which such calculation is based.
(e) If any event occurs as to which in the good faith
determination of the Board of Directors of the Company the other provisions of
this paragraph 4 are not strictly applicable or if strictly applicable would not
fairly protect the purchase rights of the holder of this Warrant or of common
stock in accordance with the essential intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid.
5. Common Stock. As used herein, the term "common stock" shall mean
and include the Company's presently authorized shares of common stock and shall
also include any capital stock of any class of the Company hereafter authorized
which shall not be limited to a fixed sum or percentage in respect of the rights
of the holders thereof to participate in dividends or in the distribution,
dissolution or winding up of the Company; provided that the shares purchasable
pursuant to this Warrant shall include shares designated as common stock of the
Company on the date of original issue of this Warrant or, in the case of any
reclassification of the outstanding shares thereof, the stock, securities or
assets provided for in Section 4 above.
6. No Voting Rights. This Warrant shall not entitle the holder hereof
to any voting rights or other rights as a stockholder of the Company.
7. Transfer of Warrant or Resale of Shares. In the event the holder of
this Warrant desires to transfer this Warrant, or any common stock issued upon
the exercise hereof, the holder shall provide the Company with a written notice
describing the manner of such transfer in the form appended hereto and an
opinion of counsel (reasonably acceptable to the Company) that the proposed
transfer may be effected without registration or qualification (under any
Federal or State law), whereupon such holder shall be entitled to transfer this
Warrant or to dispose of shares of common stock received upon the previous
exercise hereof in accordance with the notice delivered by such holder to the
Company; provided, that an appropriate legend may be endorsed on this Warrant or
the certificates for such shares respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel satisfactory to the Company to
prevent further transfers which would be in violation of Section 5 of the
Securities Act, as amended (the "Securities Act").
If, in the opinion of counsel referred to in this paragraph 7,
the proposed transfer or disposition described in the written notice given
pursuant to this paragraph 7 may not be effected without registration or
qualification of this Warrant or the shares of common stock issued upon the
exercise hereof, the Company shall promptly give written notice thereof to the
holder hereof, and such holder will limit its activities in respect to such
proposed transfer or disposition as, in the opinion of such counsel, are
permitted by law.
8. Registration Rights.
(a) If the Company proposes to claim an exemption under
Section 3(b) for a public offering of any of its securities or to register under
the Securities Act (except by a claim of exemption or registration statement on
Form S-8 or Form S-4 or any form that does not permit the inclusion of shares by
its security holders) any of its securities, it will give written notice to all
registered holders of Warrants, and all registered holders of shares of common
stock acquired upon the exercise of Warrants (the "Common Shares") of its
intention to do so and, on the written request of any such registered holders
given within twenty (20) days after receipt of any such notice, the Company will
use its best efforts to cause all Common Shares which such holders shall have
requested the registration or qualification thereof, to be included in such
notification or registration statement proposed to be filed by the Company;
provided, however, that nothing herein shall prevent the Company from, at any
time, abandoning or delaying any such registration initiated by it. If any such
registration shall be underwritten in whole or in part, the Company may require
that the shares requested for inclusion pursuant to this section be included in
the underwriting on the same terms and conditions as the securities otherwise
being sold through the underwriters. In the event that, in the good faith
judgment of the managing underwriter of such public offering, the inclusion of
all of the shares originally covered by a request for registration would reduce
the number of shares to be offered by the Company or interfere with the
successful marketing of the shares of stock offered by the Company, the number
of shares otherwise to be included pursuant to this Section in the underwritten
public offering may be proportionately reduced to a number deemed satisfactory
by the managing underwriter. Those shares which are thus excluded from the
underwritten public offering shall be withheld from the market for a period, not
to exceed 90 days from the effective date of the registration statement, which
the managing underwriter reasonably determines is necessary in order to effect
the underwritten public offering. All expenses of such offering, except the fees
of special counsel to such holders and brokers' commissions or underwriting
discounts payable by such holders, shall be borne by the Company.
(b) Further, on one occasion only upon request by the holders
of Warrants and/or the holders of shares issued upon the exercise of the
Warrants who collectively (i) have the right to purchase at least 50% of the
shares subject to the Warrants, (ii) hold directly at least 50% of the shares
purchased under the Warrants, or (iii) have the right to purchase or hold
directly an aggregate of at least 50% of the shares purchasable or purchased
under the Warrants, the Company will promptly take all necessary steps, at the
option of such holders, to register or qualify the sale of the Warrants or such
shares by the holders thereof, under the Securities Act (and, upon the request
of such holders, under Rule 415 thereunder) and such state laws as such holders
may reasonably request; provided that (i) such request must be made by the
Expiration Date; (ii) such request may not be made until at least one (1) year
after the date of this Warrant; and (iii) the Company may delay the filing of
any registration statement requested pursuant to this section to a date not more
than ninety (90) days following the date of such request if in the opinion of
the Company's principal investment banker at the time of such request such a
delay is necessary in order not to adversely affect financing efforts then
underway at the Company or if in the opinion of the Company such a delay is
necessary or advisable to avoid disclosure of material nonpublic information.
The costs and expenses directly related to any registration requested pursuant
to this section, including but not limited to legal fees of the Company's
counsel, audit fees, printing expense, filing fees and fees and expenses
relating to qualifications under state securities or blue sky laws incurred by
the Company shall be borne entirely by the Company; provided, however, that the
persons for whose account the securities covered by such registration are sold
shall bear the expenses of underwriting commissions applicable to their shares
and fees of their legal counsel. If the holders of Warrants and the holders of
shares of common stock underlying the Warrants are the only persons whose shares
are included in the registration pursuant to this section, such holders shall
bear the expense of inclusion of audited financial statements in the
registration statement which are not dated as of the Company's normal fiscal
year or are not otherwise prepared by the Company for its own business purposes.
The Company shall keep effective and maintain any registration, qualification,
notification or approval specified in this paragraph for the period specified in
paragraph (c)(i) below, and from time to time shall amend or supplement, at the
holder's expense, the prospectus or offering circular used in connection
therewith to the extent necessary in order to comply with applicable law.
If, at the time any written request for registration
is received by the Company pursuant to this Section 8(b), the Company has
determined to proceed with the actual preparation and filing of a registration
statement under the Securities Act in connection with the proposed offer and
sale for cash of any of its securities by it or any of its security holders,
such written request shall be deemed to have been given pursuant to Section 8(a)
hereof rather than this Section 8(b), and the rights of the holders of Warrants
and or shares issued upon the exercise of the Warrants covered by such written
request shall be governed by Section 8(a) hereof.
The managing underwriter of an offering registered
pursuant to this Section 8(b), if any, shall be selected by the holders of a
majority of the Warrants and/or shares issued upon the exercise of the Warrants
for which registration has been requested and shall be reasonably acceptable to
the Company. Without the written consent of the holders of a majority of the
Warrants and/or shares issued upon the exercise of the Warrants for which
registration has been requested pursuant to this Section 8(b), neither the
Company nor any other holder of securities of the Company may include securities
in such registration if in the good faith judgment of the managing underwriter
of such public offering the inclusion of such securities would interfere with
the successful marketing of the Warrants and/or shares issued upon the exercise
of the Warrants or require the exclusion of any portion of the Warrants and/or
shares issued upon the exercise of the Warrants to be registered. Subject to the
preceding sentence, shares to be excluded from an underwritten public offering
shall be selected in the manner provided in Section 8(a) hereof.
(c) If and whenever the Company is required by the provisions
of Sections 8(a) or 8(b) hereof to effect the registration of Warrants and/or
shares issued upon the exercise of the Warrants under the Securities Act, the
Company will:
(i) Prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement with respect to such securities, and use
its diligent, good faith efforts to cause such registration statement to become
and remain effective until the earlier of the date on which all the securities
have been sold or the date the securities may be sold without restriction
pursuant to Rule 144(k) under the Securities Act;
(ii) prepare and file with the Commission such amendments to such
registration statement and supplements to the prospectus contained therein as
may be necessary to keep such registration statement effective for the period
required by Section 8(c)(i) above;
(iii) provide security holders' counsel with reasonable opportunities
to review and comment on, and otherwise participate in, the preparation of such
registration statement;
(iv) furnish to the security holders participating in such
registration and to the underwriters of the securities being registered such
reasonable number of copies of the registration statement, preliminary
prospectus, final prospectus and such other documents as such security holders
and underwriters may reasonably request in order to facilitate the public
offering of such securities;
(v) use its diligent, good faith efforts to register or qualify the
securities covered by such registration statement under such state securities or
blue sky laws of such jurisdictions as such participating holders may reasonably
request in writing within 30 days following the original filing of such
registration statement, except that the Company shall not for any purpose be
required to execute a general consent to service of process or to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(vi) notify the security holders participating in such registration,
promptly after it shall receive notice thereof, of the time when such
registration statement has become effective or a supplement to any prospectus
forming a part of such registration statement has been filed;
(vii) notify such holders promptly of any request by the Commission
for the amending or supplementing of such registration statement or prospectus
or for additional information;
(viii) prepare and file with the Commission, promptly upon the request
of any such holders, any amendments or supplements to such registration
statement or prospectus which, in the opinion of counsel for such holders (and
concurred in by counsel for the Company), is required under the Securities Act
or the rules and regulations thereunder in connection with the distribution of
the Warrants or shares by such holder;
(ix) prepare and promptly file with the Commission and promptly notify
such holders of the filing of such amendment or supplement to such registration
statement or prospectus as may be necessary to correct any statements or
omissions if, at the time when a prospectus relating to such securities is
required to be delivered under the Securities Act, any event shall have occurred
as the result of which any such prospectus or any other prospectus as then in
effect would include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein, in the light of the
circumstances in which they were made, not misleading;
(x) advise such holders, promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by the Commission
suspending the effectiveness of such registration statement or the initiation or
threatening of any proceeding for that purpose and promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if such
stop order should be issued;
(xi) not file any amendment or supplement to such registration
statement or prospectus to which a majority in interest of such holders shall
have reasonably objected on the grounds that such amendment or supplement does
not comply in all material respects with the requirements of the Securities Act
or the rules and regulations thereunder, after having been furnished with a copy
thereof at least five business days prior to the filing thereof, unless in the
opinion of counsel for the Company the filing of such amendment or supplement is
reasonably necessary to protect the Company from any liabilities under any
applicable federal or state law and such filing will not violate applicable law;
and
(xii) at the request of any such holder, furnish on the effective date
of the registration statement and, if such registration includes an underwritten
public offering, at the closing provided for in the underwriting agreement: (i)
opinions, dated such respective dates, of the counsel representing the Company
for the purposes of such registration, addressed to the underwriters, if any,
and to the holder or holders making such request, covering such matters as such
underwriters and holder or holders may reasonably request; and (ii) letters,
dated such respective dates, from the independent certified public accountants
of the Company, addressed to the underwriters, if any, and to the holder or
holders making such request, covering such matters as such underwriters and
holder or holders may reasonably request.
(d) The Company shall pay all Registration Expenses (as
defined below) in connection with the inclusion of Shares in any Registration
Statement, or application to register or qualify Shares under state securities
laws, filed by the Company hereunder, other than as set forth herein. For
purposes of this Agreement, the term "Registration Expenses" means the filing
fees payable to the Commission, any state agency and the National Association of
Securities Dealers, Inc.; the fees and expenses of the Company's legal counsel
and independent certified public accountants in connection with the preparation
and filing of the Registration Statement (and all amendments and supplements
thereto) with the Commission; and all expenses relating to the printing of the
Registration Statement, prospectuses and various agreements executed in
connection with the Registration Statement. Notwithstanding the foregoing, the
security holders will pay the fees and expenses of any legal counsel such
holders may engage, as well as the holders' proportionate share of any custodian
fees or commission or discounts which may be payable to any underwriter.
(e) The holders of Warrants and/or the holders of shares
issued upon the exercise of the Warrants acknowledge that there may occasionally
be times when the Company must suspend the use of the prospectus forming a part
of the Registration Statement, when there exists material non-public information
relating to the Company (including, but not limited to, an acquisition, merger,
recapitalization, consolidation, reorganization or similar transaction (or
negotiations with respect thereto)) which in the reasonable opinion of the
Company's Board of Directors should not be disclosed. Accordingly, the Company
may suspend resales pursuant to such Registration Statement for a period not to
exceed ninety (90) days in any twelve (12) month period if the Company has been
advised by counsel and the Board of Directors reasonably concurs that the
information the Board reasonably believes should not be disclosed is material
and therefore the prospectus forming a part of the Registration Statement is not
current. Each such holder agrees that it shall not sell any Shares pursuant to
said prospectus during the period commencing at the time at which the Company
gives the holder notice of the suspension of such prospectus and ending at the
time the Company gives the holder notice that the holder may thereafter effect
sales pursuant to such prospectus. Each such holder shall comply with the
applicable provisions of the Securities Act and of such other securities or blue
sky laws as may be applicable in connection with the use of such prospectus
forming a part of the Registration Statement.
(f) The Company hereby indemnifies the holder of this Warrant
and of any common stock issued or issuable hereunder, its officers and
directors, and any person who controls such Warrant holder or such holder of
common stock within the meaning of Section 15 of the Securities Act, against all
losses, claims, damages and liabilities caused by any untrue statement of a
material fact contained in any registration statement, prospectus, notification
or offering circular (and as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto) or any preliminary prospectus
or caused by any omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading except
insofar as such losses, claims, damages or liabilities are caused by any untrue
statement or omission contained in information furnished in writing to the
Company by such Warrant holder or such holder of common stock expressly for use
therein, and each such holder by its acceptance hereof severally agrees that it
will indemnify and hold harmless the Company and each of its officers who signs
such registration statement and each of its directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
with respect to losses, claims, damages or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such holder expressly for use therein.
9. Additional Right to Convert Warrant.
(a) If at any time the shares to be issued upon exercise of
this Warrant cannot be immediately sold pursuant to an effective registration
under the Securities Act, the holder of this Warrant shall have the right to
require the Company to convert this Warrant (the "Conversion Right") at any time
prior to its expiration into shares of Common Stock as provided for in this
Section 9. Upon exercise of the Conversion Right, the Company shall deliver to
the holder (without payment by the holder of any Exercise Price) that number of
shares of Common Stock equal to the quotient obtained by dividing (x) the value
of the Warrant at the time the Conversion Right is exercised (determined by
subtracting the aggregate Exercise Price for the Warrant Shares in effect
immediately prior to the exercise of the Conversion Right from the aggregate
Fair Market Value for the Warrant Shares immediately prior to the exercise of
the Conversion Right) by (y) the Fair Market Value of one share of Common Stock
immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at
any time or from time to time, prior to its expiration, on any business day by
delivering a written notice in the form attached hereto (the "Conversion
Notice") to the Company at the offices of the Company exercising the Conversion
Right and specifying (i) the total number of shares of Common Stock the
Warrantholder will purchase pursuant to such conversion and (ii) a place and
date not less than one nor more than 20 business days from the date of the
Conversion Notice for the closing of such purchase.
(c) At any closing under Section 9(b) hereof, (i) the holder
will surrender the Warrant and (ii) the Company will deliver to the holder a
certificate or certificates for the number of shares of Common Stock issuable
upon such conversion, together with cash, in lieu of any fraction of a share,
and (iii) the Company will deliver to the holder a new warrant representing the
number of shares, if any, with respect to which the warrant shall not have been
exercised.
(d) "Fair Market Value" means, with respect to the Company's
Common Stock, as of any date:
(i) if the Common Stock is listed or admitted to
unlisted trading privileges on any national securities exchange or is not so
listed or admitted but transactions in the Common Stock are reported on the
NASDAQ National Market System, the reported closing price of the Common Stock on
such exchange or by the NASDAQ National Market System as of such date (or, if no
shares were traded on such day, as of the next preceding day on which there was
such a trade); or
(ii) if the Common Stock is not so listed or admitted
to unlisted trading privileges or reported on the NASDAQ National Market System,
and bid and asked prices therefor in the over-the-counter market are reported by
the NASDAQ system or National Quotation Bureau, Inc. (or any comparable
reporting service), the mean of the closing bid and asked prices as of such
date, as so reported by the NASDAQ System, or, if not so reported thereon, as
reported by National Quotation Bureau, Inc. (or such comparable reporting
service); or
(iii) if the Common Stock is not so listed or
admitted to unlisted trading privileges, or reported on the NASDAQ National
Market System, and such bid and asked prices are not so reported by the NASDAQ
system or National Quotation Bureau, Inc. (or any comparable reporting service),
such price as the Company's Board of Directors determines in good faith in the
exercise of its reasonable discretion.
IN WITNESS WHEREOF, RSI Systems, Inc. has caused this Warrant to be
executed by its duly authorized officers and this Warrant to be dated as
of__________________, 1996.
RSI SYSTEMS, INC.
By ________________________________
EXERCISE FORM
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
RSI SYSTEMS, INC.
The undersigned, the holder of the within warrant, hereby irrevocably
elects to exercise the purchase right represented by such warrant for, and to
purchase thereunder ________________ shares of the Common Stock, $.01 par
value, of RSI Systems, Inc. and herewith makes payment of $___________________
therefor, and requests that the certificates for such shares be issued in the
name of _______________________________________ and be delivered to
________________________________________________________________________
whose address is _________________________________________________________.
Dated: _________________ ___________________________________________________
(Signature must conform in all respects to the name
of holder as specified on the face of the warrant)
(Address)
(City - State - Zip)
ASSIGNMENT FORM
(TO BE SIGNED ONLY UPON TRANSFER OF THE WARRANT)
For value received, the undersigned hereby sells, assigns and
transfers unto those individuals listed on Exhibit A, attached hereto, the right
represented by the within warrant to purchase the number of shares opposite
their names on the attached Exhibit A of Common Stock, $.01 par value, of RSI
Systems, Inc. to which the within warrant relates, and appoints
______________________ attorney to transfer said right on the books of RSI
Systems, Inc., with full power of substitution in the premises.
Dated: ____________ MILLER, JOHNSON & KUEHN,
INCORPORATED
5500 Wayzata Blvd.
Suite 800 - 8th Floor
Minneapolis, MN 55416
By________________________________
In the presence of:
____________________________
____________________________
CONVERSION NOTICE
(TO BE SIGNED ONLY UPON EXERCISE OF CONVERSION RIGHT
SET FORTH IN SECTION 9 OF THE WARRANT)
TO RSI SYSTEMS, INC.:
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the Conversion Right set forth in Section 9 of such Warrant
and to purchase ________________ shares of the Common Stock, of RSI Systems,
Inc. The closing of this conversion shall take place at the offices of the
undersigned on _______________________. Certificates for the shares to be
delivered at the closing shall be issued in the name of __________________ whose
address is ____________________________________________________.
Dated: _________________ _________________________________________
(Signature must conform in all respects to the
name of holder as specified on the face of the Warrant)
(Address)
SHAREHOLDER AGREEMENT
EFFECTIVE DATE: 4/30, 1996
PARTIES:
RSI Systems, Inc.
7400 Metro Boulevard, #475
Edina, Minnesota 55439 "RSI"
Douglas S. Clapp
4312 Branson Street
Edina, Minnesota 55424 "Clapp"
Paul Kuehn
Miller, Johnson & Kuehn
5500 Wayzata Boulevard, Suite #800
Minneapolis, Minnesota 55416 "Kuehn"
David Johnson
Miller, Johnson & Kuehn
5500 Wayzata Boulevard, Suite #800
Minneapolis, Minnesota 55416 "Johnson"
Eldon C. Miller
Miller, Johnson & Kuehn
5500 Wayzata Boulevard, Suite #800
Minneapolis, Minnesota 55416 "Miller"
Stanley D. Rahm
Miller, Johnson & Kuehn
5500 Wayzata Boulevard, Suite #800
Minneapolis, Minnesota 55416 "Rahm"
Karthik Iyer
5621 Minnetonka Boulevard, #107
St. Louis Park, Minnesota 55416 "Iyer"
RECITALS
A RSI, Clapp, Kuehn, Johnson, Miller, Rahm and Iyer have agreed to
purchase an aggregate of 1,000,000 shares of the Common Stock of EyeNet
Videoconferencing, Inc. ("EyeNet") pursuant to this Shareholder
Agreement (the "Agreement"). RSI is a Minnesota corporation and Clapp,
Kuehn, Johnson, Miller, Rahm and Iyer are individual shareholders.
EyeNet was formed as a Minnesota corporation in order to develop an
internet video conferencing business.
B Clapp has recently resigned as an officer of RSI to serve as the
President and Chief Executive Officer of EyeNet. The execution of this
Agreement and the undertaking of the commitments hereunder is subject
to the execution of a Separation Agreement between RSI and Clapp.
C The Parties hereto have agreed to form, capitalize and operate EyeNet
pursuant to the following terms and conditions.
ARTICLE 1
SCOPE OF EYENET BUSINESS
The business purpose of EyeNet will be to fund, develop and market
internet video conferencing capability.
ARTICLE 2
INITIAL CAPITALIZATION
A. At the Closing of this Agreement, the Board of Directors will cause
EyeNet to issue the following shares of Common Stock to the
shareholders:
Clapp 375,000 shares
RSI 200,000 shares
Johnson 120,000 shares
Kuehn 120,000 shares
Iyer 105,000 shares
Miller 40,000 shares
Rahm 40,000 shares
All stock issued pursuant to this Agreement will be restricted stock
subject to an appropriate securities legend.
Johnson and Kuehn will each contribute $45,000 to EyeNet and Miller and
Rahm will each contribute $15,000 to EyeNet. Clapp has agreed to serve
as EyeNet's President and Chief Executive Officer. Iyer has agreed to
serve as a consultant to EyeNet pursuant to the terms and conditions of
a consulting agreement which will be signed concurrently with the
Agreement. RSI has agreed to a Separation Agreement with Clapp which
will be signed concurrently with this Agreement.
B. In addition to 200,000 shares of Common Stock of EyeNet, RSI will be
granted a two-year warranty in the form of the warrant attached hereto
to purchase 20% of the offering or offerings of $1,080,000 of EyeNet
equity securities (the "Offering Securities") conducted subsequent to
the issuance of the 1,000,000 shares issued pursuant to this Agreement.
The exercise price per share of the warrant shall be the average price
per share paid for the Offering Securities. (For example, assume that
EyeNet sells 600,000 shares of Common Stock for $1.00 per share and
then sells 500,000 shares for $2.00 per share. All of the 600,000
shares would be subject to the warrant and 240,000 shares of the second
offering would be subject to the warrant. The exercise price of the
warrant would be $1.29 per share.) The warrant will not cover stock
options to directors, employees or consultants of EyeNet.
ARTICLE 3
MANAGEMENT
C. EyeNet's initial Board of Directors shall be comprised of Dennis Leese
("Leese"), Kuehn, Johnson and Clapp. All parties to this Agreement
agree to vote their respective stock in EyeNet so as to elect such four
directors. RSI shall have the right to designate one director to the
EyeNet's Board of Directors and Kuehn, Johnson and Clapp shall each
have the right to serve as a director of the Company until (i) they are
no longer shareholders; or (ii) EyeNet becomes a public company
registered under the Securities Act of 1933. Leese will be the
designated director of RSI.
D. The Bylaws of the Company will provide that the Board of Directors may
be increased up to seven directors by a majority vote of the Board of
Directors.
E. All decisions of the EyeNet Board of Directors shall require a vote of
a majority of the directors constituting a quorum.
F. The Company's initial officers will be Clapp and Johnson serving as
President/Chief Executive Officer and Secretary, respectively. All
officers of the corporation will serve at the discretion of the Board
of Directors.
ARTICLE 4
GENERAL
G. Any dispute arising out of or relating to this Agreement or the breach
of it shall be discussed between the disputing parties in a good-faith
effort to arrive at a mutual settlement of any such controversy. If,
notwithstanding, such dispute cannot be resolved, such dispute shall be
settled by arbitration in accordance with the rules of the American
Arbitration Association in the City of Minneapolis, and judgment upon
the award may be entered in any court having jurisdiction of the
controversy. The costs of the proceedings shall be shared equally by
the disputing parties.
H. Any notice or other communication required or permitted hereunder shall
be in writing and shall be deemed to have been given (i) when received,
if personally delivered, (ii) three days after the date deposited, if
placed in the U.S. Mail for delivery by registered or certified mail,
return receipt requested, postage prepaid, (iii) one day after the day
deposited, if delivered by Federal Express or similar overnight
courier, and (iv) when receipt is acknowledged, if transmitted by
facsimile, in each case addressed to the parties at the addresses set
forth at the beginning of this Agreement. Addresses may be changed by
written notice given pursuant to this section.
I. This Agreement and the relations between the parties hereunder shall be
governed by and construed and enforced in accordance with the laws of
the State of Minnesota.
J. This Agreement shall be binding upon the parties hereto and their
respective heirs, personal representatives, successors, and assigns and
shall continue in full force and effect unless and until terminated by
the written mutual agreement of all parties hereto. Nothing in this
Agreement, express or implied, is intended to confer on any person
other than the parties to this Agreement or their respective heirs,
representatives, successors, or assigns, any rights, remedies,
obligations, or liabilities under or by reason of this Agreement. This
Agreement, and the rights and obligations of the parties hereunder, may
not be assigned except by RSI to a subsidiary of RSI, and in such event
RSI shall guarantee the full payment and performance of any such
subsidiary's obligations hereunder pursuant to a written guaranty in
form and substance satisfactory to the EyeNet Board.
K. Each of the individual shareholders and RSI has full power and
authority to enter into and deliver this Agreement and all other
documents or agreements contemplated to be entered into pursuant to the
terms of this Agreement and to perform his or its obligations hereunder
and thereunder. RSI has taken all requisite corporate action
authorizing it to enter into this Agreement and to consummate the
transactions contemplated herein to be performed by it. This Agreement
constitutes the legal, valid and binding obligation of each of the
individual shareholders and RSI, enforceable in accordance with the
terms hereof. The individual shareholders and RSI are not subject to
any charter, mortgage, lien, lease, agreement, contract, instrument,
law, rule, regulation, order, judgment or decree, or any other
restriction of any kind or character that would prevent the
consummation of the transactions contemplated in this Agreement.
RSI SYSTEMS, INC.
By: /s/ Dennis A. Leese /s/ Douglas S. Clapp
Title: CEO Douglas S. Clapp
/s/ Paul P. Kuehn /s/ David Johnson
Paul Kuehn David Johnson
/s/ Eldon C. Miller /s/ Stanley D. Rahm
Eldon C. Miller Stanley D. Rahm
/s/ Karthik Iyer
Karthik Iyer
Exhibit 21.1
SUBSIDIARY OF RSI SYSTEMS, INC.
Subsidiaries Jurisdiction of Incorporation
RSI Systems Limited United Kingdom
The subsidiary is 100%-owned directly by RSI Systems, Inc. The
financial statements of such subsidiary is included in the Consolidated
Financial Statements of RSI Systems, Inc.
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
RSI Systems Inc.:
We consent to incorporation by reference in the registration statement
(Commission File number 33-95912) on Form S-8 of RSI Systems, Inc. of our report
dated September 30, 1996, relating to the consolidated balance sheets of RSI
Systems, Inc. and subsidiary as of June 30, 1996 and 1995 and the related
consolidated statements of operations, stockholders' equity, and cash flows for
the years then ended and the period from December 31, 1993 (inception) through
June 30, 1994, which report appears in the June 30,1996 annual report on Form
10-KSB of RSI Systems, Inc.
/s/ KPMG Peat Marwick LLP
Minneapolis, Minnesota
October 15, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENS OF RSI SYSTEMS, INC. AS OF JUNE 30, 1996 AND
1995 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> JUN-30-1996
<CASH> 1,032,921
<SECURITIES> 0
<RECEIVABLES> 573,433
<ALLOWANCES> 49,000
<INVENTORY> 1,744,222
<CURRENT-ASSETS> 3,486,234
<PP&E> 624,625
<DEPRECIATION> 168,282
<TOTAL-ASSETS> 4,018,658
<CURRENT-LIABILITIES> 1,140,406
<BONDS> 0
0
0
<COMMON> 32,510
<OTHER-SE> 2,845,742
<TOTAL-LIABILITY-AND-EQUITY> 4,018,658
<SALES> 1,625,720
<TOTAL-REVENUES> 1,625,720
<CGS> 2,022,700
<TOTAL-COSTS> 2,022,700
<OTHER-EXPENSES> 4,662,212
<LOSS-PROVISION> 37,000
<INTEREST-EXPENSE> 154
<INCOME-PRETAX> (4,878,825)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,878,825)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (4,878,825)
<EPS-PRIMARY> (1.56)
<EPS-DILUTED> (1.56)
</TABLE>
