Stock Purchase Agreement - RSI Systems Inc. and Digital Investors LLC
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STOCK PURCHASE AGREEMENT
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BY AND BETWEEN
RSI SYSTEMS, INC.
AND
DIGITAL INVESTORS, L.L.C.
DATED AS OF FEBRUARY 23, 2001
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TABLE OF CONTENTS
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ARTICLE I PURCHASE AND SALE OF SHARES.............................................................................1
1.1 Purchase and Sale........................................................................................1
1.2 Purchase Price...........................................................................................1
1.3 The Closings.............................................................................................1
ARTICLE II REPRESENTATIONS AND WARRANTIES.........................................................................2
2.1 Representations and Warranties by the Company............................................................2
(a) Organization....................................................................................2
(b) Authorization; Enforcement......................................................................2
(c) Financial Statements............................................................................3
(d) Tax Returns and Audits..........................................................................3
(e) Changes, Dividends, Etc.........................................................................3
(f) Title to Properties and Encumbrances............................................................4
(g) Compliance With Applicable Laws or Other Instruments............................................4
(h) Securities Laws.................................................................................4
(i) Patents and Other Intangible Rights.............................................................5
(j) Capitalization..................................................................................5
(k) Issuance of Shares..............................................................................5
(l) No Conflicts....................................................................................5
(m) Consents and Approvals..........................................................................6
(n) Litigation; Proceedings.........................................................................6
(o) No Default or Violation.........................................................................6
(p) Insurance Coverage..............................................................................6
(q) No Brokers or Finders...........................................................................6
(r) Disclosure......................................................................................6
2.2 Representations and Warranties by the Investor...........................................................6
(a) Organization; Authority.........................................................................7
(b) Investment Intent...............................................................................7
(c) Investor Status.................................................................................7
(d) Experience of Investor..........................................................................7
(e) Ability of Investor to Bear Risk of Investment..................................................7
(f) Access to Information...........................................................................7
(g) Reliance........................................................................................7
(h) No Conflicts....................................................................................8
(i) Consents and Approvals..........................................................................8
(j) Litigation; Proceedings.........................................................................8
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ARTICLE III OTHER AGREEMENTS OF THE PARTIES.......................................................................8
3.1 Transfer Restrictions....................................................................................8
3.2 Repurchase of Shares.....................................................................................9
3.3 Filing of Reports........................................................................................9
3.4 Books of Accounts and Reserves...........................................................................9
3.5 Corporate Existence......................................................................................9
3.6 Appointment of Board Members.............................................................................9
3.7 Registration of the Shares by the Company...............................................................10
3.8 Special Meeting of Shareholders.........................................................................10
3.9 Conduct of Business.....................................................................................10
3.10 Reasonable Efforts......................................................................................11
3.11 Notice of Events........................................................................................11
ARTICLE IV CONDITIONS PRECEDENT TO CLOSING.......................................................................11
4.1 Conditions Precedent to the Obligation of the Investor to Purchase the Shares...........................11
(a) Performance by the Company.....................................................................11
(b) No Injunction..................................................................................11
(c) Legal Opinion..................................................................................11
(d) Required Approvals.............................................................................11
(e) Delivery of Stock Certificates.................................................................12
(f) Filing of Registration Statement...............................................................12
(h) Stock Voting Agreement.........................................................................12
(i) Qualification Under State Securities Laws......................................................12
(j) Representations and Warranties.................................................................12
(k) Certificate of Officers........................................................................12
(l) Legal Opinion..................................................................................12
4.2 Conditions Precedent to the Company's Obligations.......................................................12
(a) Performance by the Investor....................................................................12
(b) No Injunction..................................................................................13
(c) Required Approvals.............................................................................13
(d) Payment of Purchase Price......................................................................13
(e) Representations and Warranties.................................................................13
ARTICLE V TERMINATION............................................................................................13
5.1 Termination Rights......................................................................................13
5.2 Effect of Termination...................................................................................13
ARTICLE VI MISCELLANEOUS.........................................................................................13
6.1 Entire Agreement: Amendments............................................................................13
6.2 Notices.................................................................................................13
6.3 Amendment; Waivers......................................................................................14
6.4 Headings................................................................................................15
6.5 Successors and Assigns..................................................................................15
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6.6 No Third-Party Beneficiaries............................................................................15
6.7 Governing Law...........................................................................................15
6.8 Execution...............................................................................................15
6.9 Severability............................................................................................15
6.10 Expenses................................................................................................15
Signatures.......................................................................................................16
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement"), dated as of the 23rd
day of February, 2001, is by and between RSI Systems, Inc., a corporation
authorized and existing pursuant to the laws of the state of Minnesota (the
"Company"), and Digital Investors, L.L.C., a limited liability company
authorized and existing pursuant to the laws of the state of Nevada (the
"Investor").
W I T N E S S E T H:
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Investor and the
Investor desires to acquire 4,500,000 shares ("Shares") of the Company's common
stock, par value $0.01 per share (the "Common Stock ").
NOW, THEREFORE, in consideration of the mutual covenants contained in
this Agreement, the Company and the Investor agree as follows:
ARTICLE I
PURCHASE AND SALE OF SHARES
1.1 Purchase and Sale.
(a) Subject to the terms and conditions set forth herein, at the
First Closing (as defined below), the Company shall issue and sell to the
Investor and the Investor shall purchase from the Company 1,400,000 Shares.
(b) Subject to the terms and conditions set forth herein, at the
Second Closing (as defined below), the Company shall issue and sell to the
Investor and the Investor shall purchase from the Company 3,100,000 Shares.
1.2 Purchase Price. The purchase price per Share shall be $0.35.
1.3 The Closings.
(a) The closing of the purchase and sale of the first 1,400,000
Shares pursuant to Section 1.1(a) of this Agreement (the "First Closing") shall
take place at the offices of Fredrikson & Byron, P.A., 1100 International
Centre, 900 Second Avenue South, Minneapolis, Minnesota, on the date of
execution of this Agreement.
(b) The closing of the purchase and sale of the 3,100,000 Shares
pursuant to Section 1.1(b) of this Agreement (the "Second Closing") shall take
place at the offices of Fredrikson & Byron, P.A., 1100 International Centre, 900
Second Avenue South, Minneapolis, Minnesota;
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(i) within ten (10) days following the date on which
the Registration Statement as hereinafter defined is declared
effective by the Securities & Exchange Commission (the "SEC")
and receipt of the Required Approvals (as defined in Section
2.1(m)), or
(ii) if the Registration Statement as hereinafter
defined is not declared effective by the Securities & Exchange
Commission (the "SEC") and the Company does not receive the
Required Approvals (as defined in Section 2.1(m)) on or before
August 31, 2001, the Second Closing shall take place at the
option of (but not the obligation of) the Investor on or
before September 30,2001. In such event, the Stock Voting
Agreement attached hereto as Exhibit C shall be executed by
Investor and Messrs. Craven and Shaffer.
(c) Subject to satisfaction of the conditions contained in Section
4.2 of this Agreement, at both the First Closing and the Second Closing the
Company shall deliver to the Investor a stock certificate or certificates
registered in the name of the Investor for such number of Shares purchased by
the Investor against payment of the entire purchase price therefore by wire
transfer of immediately available funds.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties by the Company. The Company hereby
makes the following representations and warranties to the Investor:
(a) Organization. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of Minnesota,
and has the requisite corporate power and authority to own its properties and to
carry on its business in all material respects as it is now being conducted. 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 lease of its
property or the conduct of its business requires such qualification and the
failure to be so qualified would have a materially adverse effect on the
Company's business.
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by this Agreement and otherwise to carry out its obligations
hereunder. The execution and delivery of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary action on the part of the Company. This Agreement
has been duly executed by the Company and, when delivered or filed in accordance
with the terms hereof, will constitute the valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
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(c) Financial Statements. The financial statements included in the
Company's annual reports on Form 10-KSB for the years ended June 30, 1999 and
2000 and for the quarters ended September 30, 2000 and December 31, 2000: (a)
are in accordance with the books and records of the Company, (b) present fairly
the financial condition of the Company at the balance sheet dates and the
results of its operations for the periods therein specified, and (c) have, in
all material respects, been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior accounting
periods. Without limiting the generality of the foregoing, the balance sheet of
the Company at June 30, 2000 included in the Company's annual report on Form
10-KSB for the year ended June 30, 2000 and the balance sheet of the Company at
September 30, 2000 included in the Company's Report on Form 10-QSB for the
quarter ended September 30, 2000, each discloses all of the debts, liabilities
and obligations of any nature (whether absolute, accrued or contingent and
whether due or to become due) of the Company at June 30, 2000, and September 30,
2000, respectively, which in accordance with generally accepted accounting
principles would be required to be disclosed in each such balance sheet. To the
Company's knowledge, there are no material liabilities of the Company that are
not disclosed on such balance sheets.
(d) Tax Returns and Audits. All required federal, state and local
tax returns and appropriate extension requests of the Company have been filed,
and all federal, state and local taxes required to be paid with respect to such
returns have been paid or due provision for the payment thereof has been made.
The Company is not delinquent in any material respect in the payment of any such
tax or in the payment of any assessment or governmental charge. The Company has
not received notice of any tax deficiency proposed or assessed against it, and
it has not executed any waiver of any statute of limitations on the assessment
or collection of any tax.
(e) Changes, Dividends, Etc. Except for the transactions
contemplated by this Agreement, since June 30, 2000 and except as set forth in
the Company's reports filed under federal securities laws, the Company has not:
(i) incurred any material debts, obligations or liabilities, absolute, accrued
or contingent and whether due or to become due, except current liabilities
incurred in the ordinary course of business which (individually or in the
aggregate) will not materially and adversely affect the business, properties or
prospects of the Company; (ii) paid any material obligation or liability other
than, or discharged or satisfied any material liens or encumbrances other than
those securing, current liabilities, in each case in the ordinary course of
business; (iii) declared or made any payment to or distribution to its
shareholders as such, or purchased or redeemed any of its shares of capital
stock, or obligated itself to do so; (iv) mortgaged, pledged or subjected to
lien, charge, security interest or other encumbrance any of its material assets,
tangible or intangible, except in the ordinary course of business pursuant to
borrowing arrangements with financial institutions; (v) sold, transferred or
leased any of its material assets except in the ordinary course of business;
(vi) suffered any physical damage, destruction or loss (whether or not covered
by insurance) materially and adversely affecting the tangible properties,
business or prospects of the Company; (vii) encountered any labor difficulties
or labor union organizing activities; (viii) issued or sold any shares of
capital stock or other securities or granted any options (other than to
employees or directors), warrants, or other purchase rights with respect thereto
other than pursuant to this Agreement; (ix) made any acquisition or disposition
of any material assets or became involved in any other material transaction,
other than for fair value in the ordinary course of business; (x) materially
increased
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the compensation payable, or to become payable, to any of its directors or
employees, or made any material cash bonus payment or similar arrangement with
any directors or employees or increased the scope or nature of any fringe
benefits provided of its employees or directors; or (xi) agreed to do any of the
foregoing other than pursuant hereto. Except as set forth in the Company's
reports filed under the securities laws, there has been no material adverse
change in the financial condition, operations, results of operations, business
or prospects of the Company since June 30, 2000.
(f) Title to Properties and Encumbrances. The Company has good and
marketable title to all of the properties and assets that it purports to own,
except for property disposed of in the ordinary course of business since June
30, 2000, which properties and assets are not subject to any mortgage, pledge,
lease, lien, charge, security interest, encumbrance or restriction, except (a)
those which are shown and described on the June 30, 2000 balance sheet or the
notes thereto, (b) liens for taxes and assessments or other governmental charges
or levies not at the time due or in respect of which the validity thereof shall
currently be contested in good faith by appropriate proceedings, (c) statutory
liens that have arisen in the ordinary course of business, or (d) those which do
not materially affect the value of or interfere with the use made of such
properties and assets.
(g) Compliance With Applicable Laws or Other Instruments. To the
best of the Company's knowledge, the business and operations of the Company have
been and are being conducted in all material respects in accordance with all
applicable laws, rules and regulations of all governmental authorities, except
to the extent that any failure to so conduct its business would not result in
any material adverse change in the business, assets, liabilities, financial
condition, operations or prospects of the Company.
(h) Securities Laws. Based in part upon the representations of the
Investor set forth in Section 2.2 of this Agreement, no consent, authorization,
approval, permit or order of or filing with any governmental or regulatory
authority is required under current laws and regulations in connection with the
execution and delivery of this Agreement or the offer, issuance, sale or
delivery of the Shares, other than the qualification thereof, if required, under
applicable state securities laws, which qualification has been or will be
effected as a condition of these sales. The Company has not, directly or through
an agent, offered the Shares or any similar securities for sale to, or solicited
any offers to acquire such securities from, persons other than the Investor and
other accredited investors. Under the circumstances contemplated by this
Agreement, the offer, issuance, sale and delivery of the Shares will not, under
current laws and regulations, require compliance with the prospectus delivery or
registration requirements of the federal Securities Act of 1933, as amended (the
"Securities Act"). The Company has for the prior 12 months filed all reports or
other documentation that it is required to file by the federal Securities
Exchange Act of 1934, as amended (the "1934 Act"), any rules or regulations
promulgated thereunder, the applicable rules and regulations of the National
Association of Securities Dealers ("NASD"), and the information contained in
such reports or other documents, as of their respective filing dates, did not
make any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading.
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(i) Patents and Other Intangible Rights. The Company (a) owns or
has the right to use, free and clear of all material liens, claims and
restrictions, all patents, trademarks, service marks, trade names, copyrights,
licenses and rights with respect to the foregoing, used in the conduct of its
business as now conducted without infringing upon or otherwise acting adversely
to the right or claimed right of any person under or with respect to any of the
foregoing (except claimed rights by Lucent Technologies to the G.728
Algorithan), and, to the extent such right on the part of the Company is
non-exclusive, such non-exclusivity has no material adverse effect on the
business of the Company as currently conducted, (b) except as disclosed in the
Company's reports filed under the Securities Act or the 1934 Act, is not
obligated or under any liability whatsoever to make any payments of a material
nature by way of royalties, fees or otherwise to any owner of, licensor of, or
other claimant to, any patent, trademark, trade name, copyright or other
intangible asset, with respect to the use thereof or in connection with the
conduct of its business or otherwise, (c) owns or has the unrestricted right to
use all trade secrets, including know-how, customer lists, inventions, designs,
processes, computer programs and technical data necessary to the development,
operation and sale of all products and services sold or proposed to be sold by
it, free and clear of any rights, liens or claims of others, and (c) is not
using any confidential information or trade secrets of others.
(j) Capitalization. The authorized, issued and outstanding capital
stock of the Company is set forth in Schedule 2.1(j). Except as specifically
disclosed in Schedule 2.1(j), no shares of Common Stock of the Company are
entitled to preemptive or similar rights, nor is any holder of the Common Stock
of the Company entitled to preemptive or similar rights. Except as contemplated
pursuant to this Agreement or disclosed in Schedule 2.1(j), there are no
outstanding options, warrants or commitments of any character whatsoever
relating to, or, except as a result of the purchase and sale of the Shares
hereunder, Shares, rights or obligations convertible into or exchangeable for,
or giving any person any right to subscribe for or acquire any shares of Common
Stock of the Company, or contracts, commitments, understandings, or arrangements
by which the Company is bound to issue additional shares of the Company's Common
Stock, or Shares or rights convertible or exchangeable into shares of the
Company's Common Stock.
(k) Issuance of Shares. The Shares, when issued in accordance with
the terms hereof, shall be validly issued, fully paid and non-assessable.
(l) No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby do not and will not (i) conflict with or violate any
provision of its Articles of Incorporation or Bylaws; or (ii) subject to
obtaining the consents referred to in Section 2.1(m), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument to which the Company is a party; or (iii) result in a violation of
any law, rule, regulation, order, judgment, injunction, decree or other
restriction of any court or governmental authority to which the Company or its
assets is subject, or by which any property or asset of the Company is bound or
affected, except in the case of each of clauses (ii) and (iii), such conflicts,
defaults, terminations, amendments, accelerations, cancellations and violations
as could not reasonably be expected to, individually or in the
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aggregate, have or result in a material adverse effect on the results of
operations, assets or financial condition of the Company and its subsidiaries,
taken as a whole (a "Material Adverse Effect").
(m) Consents and Approvals. Except as specifically set forth in
Schedule 2.1(m), the Company is not required to obtain any consent, waiver,
authorization or order of, or make any filing or registration with, any court or
other federal, state, local or other governmental authority or other person in
connection with the execution, delivery and performance by the Company of this
Agreement, except where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or filing, would not
materially impair or delay the ability of the Company to effect either of the
First Closing or the Second Closing and to deliver to the Investor the Shares in
the manner contemplated hereby (together with the consents, waivers,
authorizations, orders, notices and filings referred to in Schedule 2.1(m), the
"Required Approvals").
(n) Litigation; Proceedings. There is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its properties
before or by any court, governmental or administrative agency or regulatory
authority (federal, state, county, local or foreign) which could reasonably be
expected to, individually or in the aggregate, have a Material Adverse Effect.
(o) No Default or Violation. The Company (i) is not in default
under or in violation of any indenture, loan or credit agreement or any other
agreement or instrument to which it is a party or by which it or any of its
properties is bound; and (ii) is not in violation of any order of any court,
arbitrator or governmental body, except as could not reasonably be expected to,
in any such case (individually or in the aggregate) have or result in a Material
Adverse Effect.
(p) Insurance Coverage. There are in full force policies of
insurance issued by insurers of recognized responsibility insuring the Company
and its properties and business against such losses and risks, and in such
amounts, as in the Company's best judgment, after advice from its insurance
broker, are acceptable for the nature and extent of such business and its
resources.
(q) No Brokers or Finders. No person, firm or corporation has or
will have, as a result of any act or omission of the Company, any right,
interest or valid claim against the Company or the Investor for any commission,
fee or other compensation as a finder or broker in connection with the
transactions contemplated by this Agreement.
(r) Disclosure. The Company has not knowingly withheld from the
Investor any material facts relating to the assets, business, operations,
financial condition or prospects of the Company. No representation or warranty
in this Agreement contains any untrue statement of a material fact or omits to
state any material fact required to be stated herein to make the statements
herein not misleading.
2.2 Representations and Warranties by the Investor. The Investor hereby
represents and warrants to the Company as follows:
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(a) Organization; Authority. Investor is a limited liability
company duly authorized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or formation, with the requisite power and
authority to enter into and to consummate the transactions contemplated by this
Agreement to which it is a party and otherwise to carry out its obligations
hereunder. The purchase by Investor of the Shares hereunder has been duly
authorized by all necessary action on the part of the Investor. This Agreement
has been duly executed and delivered by the Investor and constitutes the valid
and legally binding obligation of the Investor, enforceable against the Investor
in accordance with its terms, subject to bankruptcy, insolvency, fraudulent
transfer, reorganization, moratorium and similar laws of general applicability
relating to or affecting creditors' rights generally and to general principles
of equity.
(b) Investment Intent. Investor is acquiring the Shares for its
own account for investment purposes only and not with a view to or for
distributing or reselling such Shares or any part thereof or interest therein,
without prejudice, however, to Investor's right, subject to the provisions of
this Agreement, at all times to sell or otherwise dispose of all or any part of
such Shares pursuant to an effective registration statement under the Securities
Act and in compliance with applicable state securities laws or under an
exemption from such registration.
(c) Investor Status. At the time Investor was offered the Shares,
it was and, at the date hereof, it is, and at both the First Closing and the
Second Closing it will be, an "accredited investor" as defined in Rule
501(a)(1), (2), (3) or (4) under the Securities Act.
(d) Experience of Investor. Investor, either alone or together
with its representatives, has such knowledge, sophistication and experience in
business and financial matters so as to be capable of evaluating the merits and
risks of the prospective investment in the Shares, and has so evaluated the
merits and risks of such investment to its satisfaction.
(e) Ability of Investor to Bear Risk of Investment. On the date of
both the First Closing and the Second Closing, Investor is able to bear the
economic risk of an investment in the Shares and is able to afford a complete
loss of such investment.
(f) Access to Information. Investor acknowledges that it has been
afforded (i) the opportunity to ask such questions as it has deemed necessary
of, and to receive answers from, representatives of the Company concerning the
terms and conditions of the offering of the Shares, and the merits and risks of
investing in the Shares; (ii) access to information about the Company and the
Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment; and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to its
investment.
(g) Reliance. Investor understands and acknowledges that (i) the
Shares being offered and sold to the Investor in the First Closing are being
offered and sold without registration under the Securities Act in a private
placement that is exempt from the registration provisions of the Securities Act
under Section 4(2) of the Securities Act or Regulation D
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promulgated thereunder; and (ii) the availability of such exemption depends in
part on, and the Company will rely upon the accuracy and truthfulness of, the
foregoing representations and Investor hereby consents to such reliance.
(h) No Conflicts. The execution, delivery and performance of this
Agreement by Investor and the consummation by Investor of the transactions
contemplated hereby do not and will not (i) conflict with or violate any
provision of its certificate or articles of incorporation, bylaws, partnership
agreement or other governing instrument, as applicable (each as amended through
the date hereof), or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which Investor is subject (including foreign, federal and state
securities laws and regulations).
(i) Consents and Approvals. Investor is not required to obtain any
consent, waiver, authorization or order of, or make any filing or registration
with, any court or other foreign, federal, state, local or other governmental
authority or other person in connection with the execution, delivery and
performance by Investor of this Agreement.
(j) Litigation; Proceedings. There is no action, suit, notice of
violation, proceeding or investigation pending, or to the knowledge of Investor,
threatened against or affecting Investor before or by any court, governmental or
administrative agency or regulatory authority (federal, state, county, local or
foreign) which would adversely affect the legality, validity or enforceability
of this Agreement in any respect or adversely impair Investor's ability to
perform fully on a timely basis its obligations under this Agreement.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions.
(a) If Investor should decide to dispose of any of the Shares held
by it, Investor understands and agrees that it may do so only pursuant to an
effective registration statement under the Securities Act, to the Company or
pursuant to an available exemption from the registration requirements of the
Securities Act. In connection with any transfer of any Shares other than
pursuant to an effective registration statement or to the Company, the Company
may require the transferor thereof to provide to the Company a written opinion
of counsel experienced in the area of United States securities laws selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Shares under the Securities Act.
(b) Investor agrees to the imprinting, so long as is required by
this Section 3.1(b), of the following legend on the Shares issued in the First
Closing:
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED WITH THE
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY
STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE
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"SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
The Company makes no representation, warranty or agreement as to the
availability of any exemption from registration under the Securities Act with
respect to any resale of any Shares.
3.2 Repurchase of Shares. In the event that the Registration
Statement is not declared effective by the SEC by 5 P.M. CST on June 30, 2001,
the Company shall purchase from the Investor all 1,400,000 Shares at a price of
$.40 per share provided, however, that such repurchase shall not be required if
the Company has used all reasonable efforts to effect such registration and the
failure of the Registration Statement to have been declared effective on or
before June 30, 2001 is due to circumstances beyond the Company's control
including, but not limited to, delays at the SEC, in which case the Company
shall purchase from the Investor all 1,400,000 Shares at a price of $.40 per
share on or before August 31, 2001.
3.3 Filing of Reports. The Company will make timely filings of
such reports as are required to be filed by it with the Commission so that Rule
144 under the Securities Act or any successor provision thereto will be
available to the security holders of the Company who were otherwise able to take
advantage of the provisions of such Rule.
3.4 Books of Accounts and Reserves. The Company will keep books of
record and account in which full, true and correct entries are made of all of
its respective dealings, business and affairs, in accordance with generally
accepted accounting principles. The Company will employ certified public
accountants that are "independent" within the meaning of the accounting
regulations of the SEC.
3.5 Corporate Existence. The Company will maintain its corporate
existence in good standing and comply with all applicable laws and regulations
of the United States or of any state or political subdivision thereof and of any
government authority where failure to so comply would have a material adverse
impact on the Company or its business or operations.
3.6 Appointment of Board Members. The board of directors of the
Company (the "Board" or "Board of Directors") shall immediately following the
Second Closing appoint to the Board three individuals who are (a) nominated by
the Investor, and (b) reasonably acceptable to the members of the Board.
3.7 Registration of the Shares by the Company. After the First
Closing, the Company shall prepare and file with the SEC on or prior to April 2,
2001, a registration statement ("Registration Statement") under the Securities
Act of 1933, as amended (the "Act"), registering for resale the Shares
previously issued in the First Closing and the Shares to be issued in the Second
Closing. The Company shall use all reasonable efforts to have such Registration
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Statements declared effective on or prior to June 30, 2001. Investor shall
provide all information required in the Registration Statement regarding the
Investor and its affiliates.
3.8 Special Meeting of Shareholders. Promptly after the First
Closing, the Company shall call a special meeting of the Company's shareholders
("Special Meeting") to approve the issuance of the Shares to be issued to
Investor by the Company pursuant to this Agreement and to increase the Company's
authorized shares of Common Stock to permit the issuance of the Shares. The
Company shall prepare and file with the SEC, and mail to shareholders, proxy
materials soliciting shareholder proxies to vote in favor of the issuance of and
increase in the authorized Shares. The Board of Directors of the Company shall
recommend that shareholder vote in favor of such issuance and sale of the Shares
and increase in the Company's authorized shares. Investor shall provide all
information required regarding the Investor and its affiliates for use in such
proxy materials.
3.9 Conduct of Business. From the date hereof until the Second
Closing, except with the Investor's prior written consent, the Company shall
carry on its business in the ordinary course of business consistent with past
practice and shall use its reasonable commercial efforts to preserve intact its
business organization and relationships with third parties and, without limiting
the generality of the foregoing, the Company shall not:
(a) do or omit to do any act or thing which would cause any of the
representations and warranties set out in Section 2.1 to be untrue at the First
or Second Closing Date;
(i) make or authorize any material capital expenditures;
(ii) enter into any material contract outside the ordinary
course of business or amend or terminate any material contract to which
it is a party or exercise any renewal, expansion or other options
relating thereto other than in the ordinary course of business;
(iii) dispose, or agree or commit to dispose, of any material
assets out of the ordinary course of business;
(iv) make any material change in federal, estate or local tax
elections, or accounting methods, principles or practices, unless
required by law or by changes in GAAP; or
(v) merge or consolidate with any person, acquire any stock or
other ownership interest in any person or the assets of any business as
an entirety, or liquidate, dissolve or otherwise reorganize or seek
protection from creditors; or
(c) directly or indirectly, adopt, amend, modify, spin-off, transfer or
assume any of the Company's assets or liabilities; or
(d) amend, or permit the amendment of the articles of incorporation,
by-laws or other organizational documents of the Company, make any changes in
the capital structure of the Company, or issue or sell, or purchase, or agree to
issue, sell or purchase, any capital stock or securities of the Company, or
declare or pay any dividend or other distribution out of the
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Company. The Company shall be permitted to repay $200,000 loaned to the Company
on January 31, 2001 by Richard Craven. During the period from the date of this
Agreement to the Second Closing Date, the Company shall confer on a regular
basis with the Investor as to the business of the Company, and report
periodically on the general status of ongoing operations of the Company.
3.10 Reasonable Efforts. Each Party agrees to use with all due
dispatch its commercially reasonable best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary or advisable to
consummate and make effective as promptly as practicable the transactions
contemplated by this Agreement and to cooperate with the other Parties in
connection with the foregoing. Each Party further agrees not to undertake any
course of action inconsistent with the satisfaction of the conditions to Closing
set forth herein, and to do all such acts and take all such measures as may be
commercially reasonable to comply, and be in compliance, with the
representations, warranties, covenants and agreements contained in this
Agreement.
3.11 Notice of Events. From the date of this Agreement to the
Second Closing Date, the Company shall promptly notify in writing the Investor
of any fact which, if known at the date of this Agreement, would have been
required to be set forth or disclosed in or pursuant to this Agreement, or which
would or could result in the breach by the Company of any representation or
warranty or a breach of any convent or agreement in this Agreement.
ARTICLE IV
CONDITIONS PRECEDENT TO CLOSING
4.1 Conditions Precedent to the Obligation of the Investor to
Purchase the Shares. The obligation of the Investor hereunder to acquire and pay
for the Shares is subject to the satisfaction or waiver by Investor, at or
before the First Closing or the Second Closing, as the case may be, of each of
the following conditions:
(a) Performance by the Company. The Company shall have performed,
satisfied and complied in all material respects with all covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company;
(b) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement;
(c) Fairness Opinion. With respect to the First Closing, the
Company shall have received the favorable opinion of its investment banker as to
the fairness to the shareholders of the Company of the sale of the Shares
pursuant to this Agreement to the Investor;
(d) Required Approvals. With respect to the Second Closing, the
shareholders of the Company shall have approved the issuance and sale of the
Shares and the increase in the Company's authorized Shares at the Special
Meeting;
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(e) Delivery of Stock Certificates. The Company shall have
delivered to Investor the stock certificate(s) representing the Shares being
purchased registered in the name of Investor;
(f) Filing of Registration Statement. With respect to the Second
Closing, the Company shall have filed with the SEC the Registration Statement
and such Registration Statement shall have been declared effective by the SEC;
(g) With respect to the First Closing, Richard Craven shall have
converted to shares of Common Stock all outstanding indebtedness due to him from
the Company at a conversion ratio of $0.35 of indebtedness per share of Common
Stock except for $200,000 loaned to the Company on January 31, 2001, which loan
may be repaid pursuant to its terms;
(h) Stock Voting Agreement. With respect to the Second Closing,
the Investor, Richard F. Craven and Byron Shaffer shall have executed a Stock
Voting Agreement in the form attached hereto as Exhibit C, providing for the
voting by Messrs. Craven and Shaffer in favor of the three Board nominees of
Investor.
(i) Qualification Under State Securities Laws. All registrations,
qualifications, permits and approvals required under applicable state securities
laws for the lawful execution and delivery of this Agreement and the offer,
sale, issuance and delivery of the Shares to the Investor shall have been
obtained.
(j) Representations and Warranties. The representations and
warranties made by the Company contained in Section 2.1 of this Agreement shall
be true on and as of the First Closing and the Second Closing, as the case may
be, with the same effect as though such representations and warranties had been
made on and as of the First Closing or the Second Closing, as the case may be.
(k) Certificate of Officers. The Company shall have delivered to
the Investor a certificate, dated the date of the First Closing or the Second
Closing, as the case may be, executed by the Chief Executive Officer of the
Company and certifying to the satisfaction of the conditions specified in
Section 4.1(j).
(l) Legal Opinion. The Investor shall have received an opinion of
Fredrikson & Byron, legal counsel to the Company, as to the validity and
enforceability of this Agreement.
4.2 Conditions Precedent to the Company's Obligations. The
obligations of the Company hereunder are subject to the following conditions:
(a) Performance by the Investor. The Investor shall have
performed, satisfied and complied in all material respects with all covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Investor at or prior to the date of the First Closing
and the Second Closing, as the case may be;
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(b) No Injunction. No statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority of competent jurisdiction which
prohibits the consummation of any of the transactions contemplated by this
Agreement;
(c) Required Approvals. All Required Approvals shall have been
obtained;
(d) Payment of Purchase Price. The Investor shall have paid the
entire purchase price for the Shares purchased.
(e) Representations and Warranties. The representations and
warranties of the Investor contained in Section 2.2 of this Agreement shall be
true on and as of the First Closing and the Second Closing, as the case may be,
with the same effect as though such representations and warranties had been made
on and as of the date of the First Closing or the Second Closing, as the case
may be.
ARTICLE V
TERMINATION
5.1 Termination Rights. This Agreement may be terminated at any
time prior to the Second Closing:
(a) By the mutual consent of the Company and the Investor; or
(b) By either the Seller or the Buyer by a written notice to the
other if the Second Closing has not occurred on or prior to September 30, 2001
and the failure to complete the purchase and sale of the Shares herein provided
for on or before such date did not result from any breach of this Agreement by
the party seeking to terminate this Agreement.
5.2 Effect of Termination. In the event of termination of this
Agreement pursuant to Section 5.1, this Agreement shall terminate, and have no
further force or effect (except for this Section 5.2) and the transactions
contemplated hereby shall be abandoned without further action by the parties.
Except as otherwise provided herein, any such termination shall not, however,
relieve any party of any liability for breach of any covenant or obligation
under this Agreement.
ARTICLE VI
MISCELLANEOUS
6.1 Entire Agreement: Amendments. This Agreement, together with the
Exhibits and Schedules hereto, and the Registration Rights Agreement, contain
the entire understanding of the parties with respect to the subject matter
hereof and supersedes all prior agreements and understandings, oral or written,
with respect to such matters.
6.2 Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been received
(a) upon hand delivery (receipt acknowledged) or facsimile (with transmission
confirmation report) at the address or
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number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered on a business day after during normal business hours
where such notice is to be received); or (b) on the business day following the
date of mailing by express courier service, fully prepaid, addressed to such
address, or upon actual receipt of such mailing, whichever shall first occur.
The addresses for such communications shall be:
IF TO THE COMPANY:
RSI Systems, Inc.
5555 West 78th Street
Suite F
Minneapolis, MN 55439
Attn: Richard F. Craven
WITH COPIES TO:
Robert R. Ribeiro, Esq
Fredrikson & Byron, P.A.
900 Second Avenue South
Suite 1100
Minneapolis, MN 55402
Facsimile: (612) 347-7077
If to Investor:
Digital Investors, L.L.C.
2620 S. Maryland Parkway, #309
Las Vegas, Nevada 89109
WITH COPIES TO:
Albert B. Greco, Jr.
2620 S. Maryland Parkway, #309
Las Vegas, Nevada 89109
Facsimile: 972-818-7343
or such other address as may be designated in writing hereafter, in the same
manner, by such person.
6.3 Amendment; Waivers. No provision of this Agreement may be waived or
amended except in a written instrument signed, in the case of an amendment, by
both the Company and each Investor; or, in the case of a waiver, by the party
against whom enforcement of any such waiver is sought. No waiver of any default
with respect to any provision, condition or requirement of this Agreement shall
be deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission
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<PAGE>
of either party to exercise any right hereunder in any manner impair the
exercise of any such right accruing to it thereafter.
6.4 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
6.5 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
This Agreement and the terms, covenants, conditions, provisions, obligations,
undertakings, rights and benefits hereof, shall be binding upon, and shall inure
to the benefit of, the undersigned parties and their respective heirs,
executors, administrators, representatives, officers, directors, Company,
successors, agents, servants, employees, attorneys, and assigns. This Agreement
and any rights hereunder are freely assignable by Investor to the extent that
any such assignee satisfies the conditions of Section 2.2 (b), (c), (d) and (e)
hereinabove.
6.6 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
6.7 Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of Minnesota
without regard to the principles of conflicts of law thereof.
6.8 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
6.9 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affected or impaired thereby and the parties will attempt to agree
upon a valid and enforceable provision which shall be a reasonable substitute
therefor, and upon so agreeing, shall incorporate such substitute provision in
this Agreement.
6.10 Expenses. Each party hereto shall bear its own costs and expenses,
including legal and accounting fees and expenses, incurred by them, or at their
request or direction, in connection with the transactions contemplated
hereunder.
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IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed by its authorized representative and the Investor has caused this
Agreement to be executed by its authorized representative.
COMPANY:
RSI SYSTEMS, INC.
-----------------------------------
By: Richard Craven
Its: Chairman
INVESTOR:
DIGITAL INVESTORS, L.L.C.
----------------------------------
By: Louise Jones
Its: Manager
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SCHEDULES
<PAGE>
SCHEDULE 2.1(m)
1. Approval of the Company's shareholders of the issuance of the Shares
and an increase in the authorized Shares of the Company at a special
meting of shareholders.
2. Filing with and approval by the SEC of proxy materials in connection
with item 1. above.
3. Filing with and approval by the SEC of the Registration Statement.
4. Approvals by state securities authorities of the issuance and sale of
the Shares.
<PAGE>
EXHIBIT "C"
SHAREHOLDER VOTING AGREEMENT
THIS AGREEMENT, effective this 23rd day of February, 2001, by and
between Digital Investors, L.L.C., a limited liability company duly organized
and existing pursuant to the laws of the state of Nevada (the "Investor"),
Richard Craven ("Craven") and Byron Shaffer ("Shaffer") (Craven and Shaffer are
hereinafter sometimes individually referred to as a "Shareholder" and
collectively as the "Shareholders"), and RSI Systems, Inc., a corporation duly
organized and existing pursuant to the laws of the state of Minnesota (the
"Corporation").
INTRODUCTION
1. The Shareholders own an equity interest in the Corporation.
2. The Investor has purchased an equity interest in the Corporation and
has the right to nominate three (3) members to the Corporation's Board of
Directors.
3. The Investor, the Corporation, and the Shareholders have agreed to
certain matters with respect to ensuring that the shares of the capital stock of
the Corporation owned by the Shareholders will be voted in favor of Investors
nominees to the Corporation's Board.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants and promises contained herein, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
STOCK
1.1 STOCK SUBJECT TO AGREEMENT. All of the shares of common stock, par
value $0.01 per share, of the Corporation (the "Stock") owned by each of the
Shareholders are made subject to the terms and provisions of this Agreement. Any
additional Stock of the Corporation acquired by the Shareholders either by
purchase, dividend or otherwise, shall be subject to this Agreement.
Notwithstanding any other provision of this Agreement, this Agreement shall not
prohibit or restrict in any manner the right of either Shareholder at any time
to sell, transfer, pledge or otherwise dispose of any or all of the Stock owned
by such Shareholder in each case free of the voting agreements and proxy set
forth in this Agreement.
ARTICLE II
NUMBER OF BOARD MEMBERS
2.1 The Corporation hereby represents and warrants that it has taken
all requisite action (corporate or otherwise) to increase the authorized number
of directors of the Corporation to five (5) and to cause three individuals
selected by Active Management, L.L.C. to be duly elected to the Board of
Directors of the Corporation (the "Board"), effective as of the execution
hereof.
<PAGE>
ARTICLE III
ELECTION OF BOARD MEMBERS
3.1 From and at all times after the date hereof and until the
expiration of this Agreement, Craven and Schaffer agree that they will vote (or
cause to be voted) all shares of the Capital Stock of the Corporation now owned
or held or hereafter acquired by them, directly or indirectly, so that:
(i) each of the three (3) persons identified by
Investor or such other Person or Persons designated by
Investor,(together with such other designated Persons, being
referred to herein as the "Investor Representatives") as
Investor's nominees to the Corporation's Board of Directors,
at each election of the Corporation's; and
(ii) shall vote against any proposal to remove any
Investor Representative as a Director (except in the case of
any removal vote for cause).
In addition, the Corporation and the Shareholders shall take (or cause to be
taken) all other necessary or desirable actions to ensure that the Investor
Representatives are or remain as duly elected members of the Board. In no event
shall the Shareholders, the Corporation, the Board or any other Person (other
than Investor) have the power to remove the Investor Representatives from the
Board (other than for cause) without the prior written consent of the Investor.
In the event that the number of Directors constituting the entire Board of
Directors shall be increased by vote of the Board of Directors beyond five (5),
each of the Shareholders shall be entitled to vote freely for or against such
other Director(s) in his sole discretion. This voting agreement shall constitute
an irrevocable proxy during the term of this Shareholder Agreement. The voting
agreement and irrevocable proxy of the Shareholders set forth herein shall be
contingent upon the nominees of Investor being, in each case, reasonably
acceptable to the Shareholders.
3.2 In the event of the death, resignation or removal of any of the
Investor Representatives at any time, or in the event any of the Investor
Representatives shall not be elected to the Board at any election of directors
for any reason, the Corporation shall, upon the request of the Investor,
promptly (and in any event within five (5) days of such request) take such steps
as may be necessary or appropriate to cause another Person designated by the
Investor to become one of the Investor Representatives on the Board, including
increasing the size of the Board and/or filling the resulting vacancy with an
alternate Investor Representative. Such steps may include calling and holding,
in accordance with the Bylaws of the Corporation and applicable laws, a special
meeting of the Board or the shareholders of the Corporation or circulating a
written consent for execution by members of the Board and/or the shareholders.
To the extent that the Board delegates any of its duties to an executive
committee or other committee, the AM Representative shall, upon the request of
the Investor, be appointed to such committee.
3.3 The Agreement set forth in this Section 3 is intended to constitute
enforceable voting agreement within the scope of the General Corporation Law of
the State of Minnesota.
<PAGE>
ARTICLE IV
OBSERVATION RIGHTS
4.1 Without limiting any of the rights of the Investor in Article 3
hereinabove, if, at any time, less than three (3) Investor Representatives are
serving on the Board for any reason, the Investor shall receive notice of and be
entitled to have one (1) representative and one (1) advisor to such
representative (or, at the Investor's election, two (2) representatives) attend
as observers all meetings of the Board (except those portions thereof where
confidential and non-public information will be disclosed or discussed) and of
all committees thereof and at all meetings of the shareholders of the
Corporation. Notice of such meetings shall be given to the Investor in the same
manner and at the same time as to the members of the Board or such committees
(which in any event shall not be less than forty-eight (48) hours prior to such
meeting unless otherwise agreed to by the Investor in advance and in writing)
and at the same time as to the shareholders of the Corporation, as the case may
be. The Investor shall be provided with copies of (i) a meeting agenda, if any
is prepared, (ii) all information that is provided to the members of the Board
or such committees or to the shareholders of the Corporation (whether prior to,
at, or subsequent to any such meetings), as the case may be, at the same time as
such materials are provided to the members of the Board or such committee or to
the shareholders of the Corporation, as the case may be, and (iii) copies of the
minutes of all meetings of the Board and such committees and of all meetings of
shareholders concurrently with the distribution of such minutes to one or more
members of the Board or such committees or shareholders, as the case may be, but
in no event later than forty-five (45) days after each such meeting.
ARTICLE V
TERMINATION
5.1 TERMINATION. This Agreement shall terminate upon the occurrence of
any of the following events:
(a) The written agreement of all of the Shareholders and
the Investor;
(b) The liquidation or dissolution of the Corporation;
(c) Bankruptcy or receivership of the Corporation;
(d) The sale or other disposition by any of the
Shareholders of all or substantially all of such
Shareholder's Stock or the disposition by Investor
(or its assigns) of all or substantially all of
Investor's Stock;
(e) The Shareholder's death or disability of any
Shareholder; or
(f) The third anniversary of the date of this agreement.
<PAGE>
ARTICLE VI
MISCELLANEOUS
6.1 MODIFICATIONS. This Agreement may not be altered except by an
instrument in writing signed by all of the parties hereto.
6.2 SPECIFIC PERFORMANCE. It is further agreed that in view of the
inability to value the damages to the Investor or Shareholders which might arise
as a consequence of a breach of this Agreement by any party, each party shall be
entitled to the remedy of specific performance and the breaching party or
parties shall pay all reasonable costs, expenses and attorneys' fees incurred by
any non-breaching party pursuing their remedy of specific performance or money
damages.
6.3 SEVERABILITY. Whenever possible, each provision of this Agreement
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule of any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision and all other provisions of this Agreement shall be
enforceable in such jurisdiction as if such invalid, illegal or unenforceable
provision had never been contained herein.
6.7 BINDING AGREEMENT. This Agreement, and the restrictions and rights
granted hereunder, shall inure to the benefit of, and be binding and enforceable
upon, the parties hereto, their estates, personal representatives, heirs,
devisees, legatees, successors and permitted assigns. This Agreement shall be
governed by the laws of the State of Minnesota.
6.8 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by different parties on different counterparts. This Agreement
shall be effective and binding once one or more counterparts hereof are executed
by each party hereto. All counterparts of this Agreement shall be deemed to
constitute one and the same Agreement.
IN WITNESS WHEREOF, the parties hereto have entered into this Agreement
the day and year first written above.
DIGITAL INVESTORS, L.L.C.
---------------------------------------
By:
------------------------------
Its: Manager
---------------------------------------
By: Richard Craven
Its: Chairman
SHAREHOLDERS:
---------------------------------------
Richard Craven
---------------------------------------
Byron Shaffer