Marketing Agreement - RSI Marketing LLC and RSI Systems Inc.
MARKETING AGREEMENT
THIS MARKETING AGREEMENT (the "Agreement") is entered into as of the
23rd day of February 2001, by and between RSI MARKETING, L.L.C., a limited
liability company, duly organized and existing pursuant to the laws of the State
of Nevada (hereinafter called "RSIM"), and RSI SYSTEMS, INC., a corporation duly
organized and existing pursuant to the laws of the State of Minnesota
(hereinafter called "RSIS").
W I T N E S S E T H:
WHEREAS, RSIS is a manufacturer and distributor of light weight
television quality video conferencing equipment; and
WHEREAS, RSIS needs to develop a significant product awareness for its
products through the promotion, merchandising and sale of its products and
services through various marketing channels; and
WHEREAS, RSIS desires to grant and assign to RSIM the exclusive
marketing rights to market its products and services under the terms and
conditions set forth herein.
NOW THEREFORE, for and in consideration of the mutual understandings,
covenants, promises and representations herein contained, and for other good and
valuable consideration the receipt and sufficiency of which is acknowledged and
stipulated by each party hereto, the parties hereto agree as follows:
DEFINITIONS
CHANGE IN CONTROL. As used herein, the term "Change in Control" shall
mean a change in control of the nature that would be required to be reported in
response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the
Securities Exchange Act of 1934, as amended, ("Exchange Act"); provided that,
without limitation, such a change of control also shall be deemed to have
occurred:
a. If any "person" (as such term is used in Sections 13(d) and
14(d)(2) of the Exchange Act) is or becomes the beneficial owner,
directly or indirectly by the acquisition, or otherwise, of securities
of RSIS representing fifty (50%) percent or more of the combined voting
power of RSIS's then outstanding securities; or
b. A sale of all or substantially all of the assets of RSIS,
other than to a subsidiary of RSIS; or
c. A merger or consolidation of RSIS, (other than (1) a
consolidation or merger effected to change the state of incorporation
of RSIS or (2) a consolidation or merger where either (i) the Company
or any of its subsidiaries is the surviving entity or (ii) the
shareholders of the RSIS prior to such consolidation or merger continue
to own at least a majority in total of the voting securities of the
surviving entity immediately following such consolidation or merger);
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END USER. As used herein, the term "End User" shall mean any person or
entity that is sold Product, either for such End User's internal purposes and/or
for further sale or lease to others.
GAAP. As used herein, the term "GAAP shall mean generally accepted
accounting principles, as in effect from time to time in the United States,
consistently applied.
GROSS RECEIPTS. As used herein, the term "Gross Receipts" shall mean
that portion of Gross Sales that is actually received by RSIS, in cash or its
equivalent.
GROSS SALES. As used herein, the term "Gross Sales" shall mean the
total compensation, monetary or otherwise, due to RSIS for any Product or any
service provided by RSIS to any customer, client, or End User, for which
commissions are payable pursuant to this Agreement. Gross Sales shall also
specifically include, without limitation, any amounts charged to the customer
for additional services in excess of the actual cost of Product sold at
wholesale or retail, as the case may be, but shall exclude charges for freight,
delivery, taxes, interest or insurance.
INTELLECTUAL PROPERTY RIGHTS. As used herein the term "Intellectual
Property Rights" means, collectively, all of the following worldwide intangible
legal rights pertaining directly and primarily to the business of RSIS or any of
its Products, including those existing or acquired by ownership, license or
other legal operation, whether or not filed, perfected, registered or recorded,
existing as of the date hereof in or to: (i) all patents, patent applications,
patent disclosures and related patent rights, including any and all
continuations, divisions, reissues, reexaminations, or extensions thereof which
have been filed, issued or acquired by RSIS as of the date hereof, and all
inventions conceived of or reduced to practice as of the date hereof (the
"Patent Rights"); (ii) all copyrights, whether or not registered, owned by RSIS
as of the date hereof, including all registrations and applications therefor and
all moral rights relating thereto (the "Copyright Rights"); (iii) all
trademarks, trade dress, trade names, logos, domain names, and service marks,
together with all translations, adaptations, derivations, and combinations
thereof and including all goodwill associated therewith, and all applications,
registrations, reservations, and renewals in connection therewith; whether or
not registered (the "Trademark Rights"); (iv) all trade secrets and know-how;
(v) all technology and other intellectual and proprietary rights; (vi) all
rights relating to the protection of the foregoing; and (vii) all rights to sue
or make any claims for any past, present or future infringement,
misappropriation or unauthorized use of the any of the foregoing rights and the
right to all income, royalties, damages and other payments that are now or may
hereafter become due or payable with respect to any of the foregoing rights,
including damages for past, present or future infringement, misappropriate or
unauthorized use thereof.
PERFORMANCE WARRANTS. As used herein, the term "Performance Warrants"
shall mean each individual warrant granted by RSIS to RSIM hereunder in
accordance with paragraph 4.2 A.
PRODUCT OR PRODUCTS. As used herein, the term "Product" or "Products"
shall mean all products and services offered for sale or lease by RSIS that are
currently owned or hereafter purchased, developed or otherwise offered for sale
or lease by RSIS. Product shall not include
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Intellectual Property Rights related to any product or service. Currently RSIS
offers products in the following two lines:
1. MediaPro 384 Series
2. Video Flyer Series
TARGET DATE. As used herein, the term "Target Date" shall mean the
guideline dates set forth in column B of the chart contained in paragraph
4.2(A)(i).
TERRITORY. As used herein, the term "Territory" shall mean North
America.
SECTION I
RETENTION OF MARKETING AGENT
1.1 APPOINTMENT. Subject to the terms, conditions, exclusions and
limitations set forth herein, RSIS hereby appoints RSIM as the exclusive
marketing agent to advertise, market, promote and sell the Product throughout
North America (the "Territory"), through all available channels, specifically
including without limitation, direct sales, direct mail, cold calling,
television media, print media, electronic media advertising, internet, cable and
wireless media channels.
1.2 COMMITMENT. RSIS hereby contracts with RSIM to provide, and RSIM
hereby agrees to render, marketing services to RSIS, its officers, directors,
managers, employees and such other persons and entities as RSIS may deem
necessary or desirable with regard to the sale of RSIS's Products. RSIS
recognizes RSIM's particular skill, experience, and expertise in providing
marketing services including the development of long-term goals and strategic
planning for the exploitation of RSIS's Products.
1.3 STATUS. RSIM is and shall remain an independent contractor in its
performance of this Agreement. Neither RSIM nor anyone directly or indirectly
engaged or employed by RSIM shall thereby become the agent, representative,
employee or servant of RSIS in the performance of the marketing services
hereunder, and neither RSIS, RSIM, nor their employees shall make any
representations to the contrary.
1.4 EXCLUSIVITY. During the term of the Agreement, RSIM shall have the
exclusive right to advertise, market, promote and sell the Product in the
Territory through all channels. Said exclusivity will remain in full force and
effect throughout the entire term of this Agreement. Nothing herein contained
shall prohibit RSIS from undertaking on its own account, any marketing it may
deem necessary. However, any association, group, organization, charity, entity,
demographic target, or other segment of the general populace so marketed shall
remain exclusive to RSIM and all Gross Sales generated from all sales, licensing
or leasing, without regard to who markets such group or makes such sale, shall
be included in the calculations of Gross Sales, Gross Sales Targets and Gross
Receipts hereunder. Notwithstanding the foregoing, RSIM shall not receive credit
for Gross Sales on any sale generated by existing RSIS resellers, OEM customers
and the single End User a definitive and complete list of which is attached
hereto as Schedule 1.4.
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SECTION II
DUTIES OF RSIM
2.1 MARKETING PLAN. RSIM shall develop and carryout a marketing
campaign as it deems necessary or advisable in its sole discretion. In this
regard, RSIM shall be solely responsible to develop sales and marketing
materials, develop demographic customer profiles, and coordinate sales and
marketing efforts through all available channels. In addition to the foregoing,
RSIM shall provide such advice, assistance, and any other marketing services as
RSIS and RSIM may agree from time to time during the term of this Agreement.
2.2 EXPENSES. RSIM shall bear all costs of the operation of its
business, including without limitation all office overhead, salaries, travel,
entertainment and employee benefits.
SECTION III
TERM OF AGREEMENT
3.1 TERM. The Term of this Agreement shall commence on the effective
date hereof and shall continue, unless otherwise terminated pursuant hereto, or
extended by mutual agreement of the Parties, until December 31, 2002 (the
"Termination Date"); provided however, notwithstanding any other provision of
this Agreement, this Agreement shall not be terminated as to RSIS's obligations
under Section IV of this Agreement.
SECTION IV
COMPENSATION
4.1 COMMISSIONS. Throughout the term of this Agreement RSIS will pay to
RSIM, without deduction for any taxes or similar assessment, commissions based
upon the Gross Sales of the business of RSIS as follows:
All Commission payments shall be made on the 10th day of each
month, in arrears, based upon the actual receipt of funds, on an
invoice-by-invoice basis, by RSIS from its clients and customers or any
other End User. All Commission payments hereunder shall be calculated
as follows:
A. For Products Sold. Commissions shall be calculated
pursuant to the Commission Schedule set forth on
Exhibit "A" attached hereto.
B. For Peripheral Equipment, Service and Telecom Network
Services Provided by RSIS. One half (1/2) of the
difference between the actual cost of such equipment
or network services provided by RSIS and the sales
price of such equipment, service or network services.
For the purposes of this paragraph 4.1B "Cost" shall
mean actual material, labor, overhead and payments to
third parties as determined in accordance with GAAP.
4.2 EQUITY INCENTIVE COMPENSATION. In recognition of the peculiar
skills to be contributed by RSIM to RSIS, and in addition to all commissions or
other compensation payable hereunder, RSIM shall be entitled to receive Equity
Incentive Compensation in such amounts and at such times as follows:
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A. PERFORMANCE WARRANTS. By the execution hereof, RSIS
irrevocably grants, sells, assigns, and conveys unto RSIM warrants to
purchase shares of RSIS's common stock, $.01 par value per share at the
exercise price of $.45 per share, with an exercise period of five years
(Performance Warrants) in the amount set forth in the chart contained
in the paragraph following immediately hereinbelow exercisable and not
subject to cancellation upon the achievement of the Gross Sales Targets
set forth in said chart. All Performance Warrants shall be identical in
form and substance to the Warrant, attached hereto as Exhibit "A," with
the exception of the number of shares and the expiration date.
(i) Upon the achievement of Gross Sales in the
amounts set forth hereinbelow, RSIS shall deliver the Warrant
evidencing the Performance Warrants issued on this date, to
RSIM in the corresponding amount for each Gross Sales Target
met.
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A B C
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Gross Sales Target Target Dates Number of Shares
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$ 2,500,000 on or before 12/31/01 500,000
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$ 5,000,000 on or before 12/31/02 500,000
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(ii) The foregoing warrants (Performance Warrants)
are independent of and in addition to each other grant
contained herein. If RSIM meets or exceeds all Gross Sales
Targets for each Target Date, the total number of shares for
which warrants shall be issued pursuant to this paragraph
4.2(A) will be 1,000,000 shares.
(iii) All Performance Warrants are irrevocably
granted by the execution of this Agreement and no further
action is necessary by RSIS in order for said warrants to be
issued. The obligation of RSIS to deliver the warrants is
unconditional and absolute upon the execution hereof. The sole
future event to occur prior to the delivery of each Warrant to
RSIM is the determination of the number of shares of each
warrant that may be cancelled. If RSIM fails to generate at
least seventy-five percent (75%) of either Gross Sales Target
for any period, RSIS may terminate the agreement and cancel
any unearned Warrants. If less than seventy-five percent (75%)
of any Gross Sales Target is achieved and this Agreement is
not cancelled, unearned Warrants for such Target period carry
forward only if double the deficiency from the prior year
Gross Sales Target is achieved in the next year. All warrants
will no longer be subject to cancellation upon attainment of
each Gross Sales Target. The Target Date is a guideline by
which performance may be measured, however, such dates are not
expiration dates for any warrant issued nor are such dates
maximum time constratins when any warrant shall be cancelled.
In this regard, the Gross Sales Targets shall be
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both cumulative and retroactive. If one or more of the Gross
Sales Targets are attained, all warrants issued therefor will
immediately be non-cancelable irrespective of the passage of
time or date. Similarly, if the Gross Sales Target for any one
period is not met before the Target Date, any warrants subject
to cancellation issued therefor shall not be cancelled in any
following period where any such deficiency in the Gross Sales
Target is attained in addition to attaining the Gross Sales
Target for such then current period.
PARTIAL CANCELLATION. All warrants are granted, issued and
sold to RSIM by virtue of the execution hereof by RSIS. Said warrants
shall be non-cancelable upon achievement of the Gross Sales Target
listed hereinabove. Notwithstanding the foregoing, if in any one year
period where the Gross Sales Target was not attained by the Target
Date, but Gross Sales totaled at least seventy-five percent (75%) of
such Gross Sales Target (i.e. 1,625,000 on or before December 31, 2001;
or 3,750,000 on or before December 31, 2002), then the Performance
Warrants granted hereby shall be non-cancelable in part. The number of
shares for which said warrants shall be non-cancelable will be the
ratio that the Gross Sales for the year ending on any such Target Date
bears to the Gross Sales Target for such date applied to the number of
warrant shares granted pursuant to each Performance Warrant for each
period. For example, if the Initial Gross Sales Credits for the
calendar year ending December 31, 2001 were $2,000,000 the first
Performance Warrant to purchase 500,000 shares of common stock with the
Target Date of December 31, 2001, would be non-cancelable for 400,000
shares. ($2,500,000 / 2,000,000 = .8 x 500,000 = 400,000). The
remaining portion of the warrant for 100,000 shares would carryover to
the following year pursuant to paragraph 4.2(A)(iii) hereinabove.
4.3 IMMEDIATE VESTING. All warrants shall automatically be issued in
their entirety not subject to cancellation upon (i) any sale, license, or other
disposition of all or substantially all of the assets (including intellectual
property) of the RSIS, or any reorganization, consolidation, or merger of RSIS
where the holders of RSIS's voting securities before the transaction
beneficially own less than 50% of the outstanding voting securities of the
surviving entity after the transaction or (ii) any of the events constituting a
Change in Control of RSIS shall occur.
SECTION V
REPORTING REQUIREMENTS AND
RIGHT TO AUDIT
5.1 Along with each Commission payment provided for herein, RSIS shall
deliver a written statement of account to RSIM, at its respective notice
addresses set forth herein or such other address as may from time to time be
specified by RSIM, listing the Gross Sales and Gross Receipts during such
period. Said statement shall be in such format and contain such information
sufficient to allow RSIM to reconcile and track its performance and the amount
of compensation it is entitled to hereunder. Said statement of account shall be
accompanied by payment in full of the amount of Commissions then due and owing
as well as any Equity Incentive Compensation that has vested as of such date.
5.2 RSIS shall keep complete and accurate records and books of accounts
containing all information required for the computation and verification of the
amounts reported or to be paid
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hereunder. RSIS further agrees, upon the request of RSIM, and on reasonable
notice to permit RSIM or any firm of independent accountants selected by RSIM,
to have access during ordinary working hours to such records as may be necessary
to audit with respect to any payment or report period ending prior to such
request, the correctness of any report or payment made under this Agreement, or
to obtain information as to the payments due for any such period in the case of
failure to report or make payment pursuant to the terms of this Agreement.
5.3 RSIS further agrees to cooperate with any such accountant and to
provide all information reasonably requested by such accountant. RSIM shall
deliver a true, correct, and complete copy of the accountant's written report to
RSIS within ten (10) business days of the receipt thereof. If the accountant
determines that RSIS has paid less than ninety-five percent (95%) of the sums
due during the period under review, RSIS shall be responsible for the fees of
the accountant; otherwise such fees shall be paid by RSIM. In the event it is
determined that RSIS has paid less than all amounts due hereunder, it shall pay
the deficiency within five (5) days after such determination. Additionally, if
RSIM would be entitled to any additional Warrants as a result of such audit,
RSIS shall immediately issue and deliver to RSIM a Warrant for such additional
shares within said five (5) day period.
SECTION VI
REPRESENTATIONS AND WARRANTIES
6.1 RSIS represents and warrants to RSIM, its subsidiaries and its
shareholders as follows:
a. DUE INCORPORATION AND QUALIFICATION. RSIS is a corporation
duly organized, validly existing and in good standing under the laws of
its jurisdiction of incorporation and has the corporate power and
authority to own, lease and operate its assets, properties and business
and to carry on its business as now being and as heretofore conducted.
RSIS is duly qualified as a foreign corporation to transact business
and is in good standing in each jurisdiction in which such
qualification or authorization is required by law and in which the
failure so to qualify or be authorized could have a material adverse
effect on the business, assets, operations or condition (financial or
otherwise) of RSIS taken as a whole.
b. AUTHORITY TO EXECUTE AND PERFORM AGREEMENTS. RSIS has the
full legal right and power and capacity required to enter into, execute
and deliver this Agreement and the other agreements, instruments and
documents contemplated hereby and to perform fully its obligations
hereunder. The Board of Directors of RSIS has duly and validly approved
the execution, delivery, and performance of this Agreement by RSIS. No
vote of the holders of the capital stock of RSIS is required for RSIS
to enter into and perform its obligations under this Agreement and any
other agreements contemplated hereby. This Agreement has been duly
executed, delivered by, and is the valid and binding obligation of
RSIS, enforceable in accordance with its terms, subject to the
qualifications that enforcement of the rights and remedies created
hereby is subject to bankruptcy, insolvency, reorganization, moratorium
and other laws of general application affecting the rights and remedies
of creditors. The execution and delivery of this Agreement by RSIS, the
consummation of the transactions contemplated hereby by RSIS and the
performance by RSIS of this Agreement in accordance with its terms and
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conditions will not, (i) violate any provision of the corporate
charter, by-laws or other corporate documents of RSIS as currently in
effect; (ii) require the approval or consent of any governmental or
regulatory body or any other person; or (iii) conflict with or result
in any breach or violation of any of the terms and conditions of, or
constitute (or with notice or lapse of time or both constitute) a
default under any federal, state, local or foreign statute, regulation,
order, judgment, writ, rule, regulation or decree applicable to RSIS or
by which RSIS's assets may be bound or affected, or any instrument,
option, lien, right, security interest, contract or other agreement to
which RSIS is a party or by which any property of RSIS may be bound or
subject.
c. OUTSTANDING CAPITAL STOCK OPTIONS OR OTHER RIGHTS. The
Capital Stock of RSIS consists of 15,000,000 shares of Common Stock,
.01 par value per share, of which 8,799,883 shares are currently issued
and outstanding. All of the aforesaid issued and outstanding shares are
duly authorized, validly issued, fully paid, and nonassessable. There
is no outstanding right, subscription, warrant, call, preemptive right,
option or other agreement of any kind to purchase or otherwise to
receive from RSIS any shares of the capital stock or any other security
of, or other proprietary interest in RSIS. Except as disclosed in
Schedule 6.1 (c), there is no outstanding security of any kind
convertible into such capital stock, security, or proprietary interest
and there is no agreement or understanding with respect to the voting
of the capital stock of RSIS.
d. ABILITY TO CONDUCT BUSINESS. RSIS owns all of the assets,
intellectual property and proprietary rights necessary to conduct its
current business and to continue to develop, market, distribute, use,
license and sell its Products and to otherwise conduct its business in
the manner in which the business is conducted by RSIS as of this date
and as it is presently proposed to be conducted by RSIS in the
foreseeable future.
e. INTEGRITY OF INTELLECTUAL PROPERTY None of the Intellectual
Property Rights is registered in the name of anyone other than RSIS and
no one other than RSIS has any interest therein or right thereto,
including the right to royalty or other payments.
SECTION VII
TERMINATION OF MARKETING AGENT
7.1 TERMINATION BY RSIS. This Agreement may be terminated by RSIS at
any time, upon notice to RSIM for "Cause." For this purpose, "Cause" is defined
as follows:
a. BREACH. A material violation by RSIM of its duties as a
marketing agent to RSIS, which are not remedied in a reasonable period
of time (not to exceed sixty (60) days) after receipt of written notice
from RSIS;
b. FAILURE TO MEET MINIMUM GROSS SALES TARGETS. RSIM shall
fail to achieve a minimum of seventy-five (75%) of the Gross Sales
Targets set forth in paragraph 4.2(A)(i) hereinabove on a cumulative
basis.
7.2 TERMINATION BY RSIM. RSIS acknowledges that its financial resources
available to be devoted to marketing are limited. RSIS is actively seeking to
raise additional capital in the amount of at least $1,500,000. In the event RSIS
is not successful in completing a transaction
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(including a transaction with RSIM, an affiliate of RSIM or Digital Investors,
L.L.C.) that results in a capital infusion of at least $1,500,000 on or before
August 31, 2001, RSIM may terminate this Agreement.
7.3 NOTICE OF TERMINATION. Any termination by RSIS shall be
communicated by written Notice of Termination to RSIM. For purposes of this
Agreement, a "Notice of Termination" shall mean a notice which shall indicate
the specific termination provision(s) in the Agreement relied upon and shall set
forth in reasonable detail the facts and circumstances claimed to provide a
basis for termination of the services of RSIM under the provision(s) so
indicated.
7.4 DATE OF TERMINATION. For purposes of this Agreement, "Date of
Termination" shall mean:
Sixty (60) days following receipt by RSIM of the written
Notice of Termination provided that if within thirty (30) days after
any written Notice of Termination is given, RSIM notifies RSIS that a
dispute exists concerning the termination the Date of Termination shall
be the date on which the dispute is finally determined by a binding and
final arbitration award or by a final judgment, order or decree of a
court of competent jurisdiction (the time for appeal therefrom having
expired and no appeal having been perfected); provided, however, that
RSIM's action is finally adjudicated or arbitrated in favor of RSIM and
against RSIS or RSIM's action is settled by written agreement of the
parties.
7.5 TERMINATION BY RSIS FOR CAUSE, RESIGNATION OR BY MUTUAL AGREEMENT.
If RSIM and RSIS mutually agree to the termination of this Agreement, if RSIM
voluntarily resigns, or RSIM is terminated by RSIS for Cause, then RSIM shall be
entitled to all compensation earned through the date of such resignation or
termination plus all Warrants earned pursuant to Section 4.2 of this Agreement,
if any, and all Commissions earned pursuant to Section 4.1 of this Agreement and
expense reimbursements, if any, from RSIS due under Section IV hereof.
7.6 TERMINATION FOR REASONS OTHER THAN TERMINATION BY RSIS FOR CAUSE,
RESIGNATION, OR MUTUAL AGREEMENT. If RSIS shall terminate RSIM's services
without Cause, then RSIS shall pay RSIM the following amounts and deliver to
RSIM the following Warrants:
a. A lump sum payment equal to the total Commissions earned by
RSIM in the six (6) month period immediately preceding any such
termination multiplied by the number of years, or portions thereof,
remaining under this contract, including all extensions;
b. All warrants issuable pursuant to every provision of this
agreement notwithstanding the achievement of any Gross Sales Target
amount or the close of any period specified by any Target Date
including all options that have not vested as of the date of
termination;
c. RSIS shall also pay all indemnity payments and all legal
fees and expenses incurred by RSIM as a result of such termination
(including all such fees and expenses, if
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any, incurred in contesting or disputing any such termination or in
seeking to obtain or enforce any right or benefit provided by this
Agreement); and
d. RSIM shall not be required to mitigate the amount of any
payment provided for in this section by seeking other employment or
otherwise.
7.7 TERMINATION. Notwithstanding the provisions of paragraph 7.5
hereinabove, either party shall have the right to terminate this Agreement with
immediate effect if the other party shall default in the performance of any of
its obligations hereunder and such default shall continue for a period of sixty
(60) days after receipt by the defaulting party of written notice of such
default. Additionally, if either party shall make a general assignment for the
benefit of creditors or shall become or be adjudicated a bankrupt, or shall
voluntarily file a petition in bankruptcy, or file an answer admitting the
material allegations of a petition filed against it for an adjudication in
bankruptcy, or shall, by reason of its insolvency, apply for or suffer the
appointment of a receiver of its property and assets and such receiver so
appointed shall not be discharged within one hundred twenty (120) days after his
appointment then in any such event the other party shall have the right
immediately to terminate this Agreement by written notice to such party
7.8 FORCE MAJEURE. Neither Party shall be deemed in default of its
obligations hereunder for failure to perform due to reasons of force majeure,
including, but not limited to acts of God, acts of public enemy, acts of the
government of any country or state or political subdivision or any department or
regulatory agency thereof or entity created thereby, quotas, embargoes, acts of
any person engaged in subversive activity or sabotage, fires, floods, explosions
or other catastrophes, epidemics, or quarantine restrictions, strikes or other
labor stoppages, slow downs or disputes, unavailability of equipment or
materials or any other cause beyond the control of such Party. The Party failing
to perform shall provide the other Party with prompt notices to the possibility
of such a cause of delay and shall use due diligence and all reasonable efforts
to avoid and cure any such cause preventing performance so as to resume
performance hereunder as soon as reasonably possible. Any suspension of
performance by reason of this paragraph 7.8 shall be limited to the Calendar
Quarter during which such cause exists. Force majeure shall not cause
termination due to failure to achieve minimum performance or attainment of Gross
Sales Targets, if any.
VIII
DUTIES OF RSIS
8.1 Throughout the term of this Agreement, RSIS shall maintain the
integrity of all Intellectual Property owned or developed by it with respect to
its business. In addition, RSIS shall also be responsible for the following:
a. ENHANCEMENT. RSIS shall be responsible for maintaining and
further developing all hardware and software necessary to create and
enhance the Product. RSIS shall be responsible for maintaining Product
integrity and upgrade the Product as needed to compete fairly with
market trends and further developments.
b. CUSTOMER SERVICE. On all sales, licenses or leases of
Product generated by or through the efforts of RSIM or otherwise, RSIS
shall provide and be responsible for
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customer service, including installation, consultation, billing
questions, returns and warranty inquiries. In order to provide
efficient customer service, RSIS shall provide toll free telephone
numbers, internet web page addresses and electronic mail account
addresses to RSIM, which RSIM may in turn provide to all potential
customers and clients. All warranty and inquiries and claims will be
handled in accordance with the provisions of RSIS's current policies
and procedures for such claims as may be amended by RSIS from time to
time.
c. NONINTERFERENCE. RSIS agrees that it will use all
reasonable efforts to aid RSIM in marketing the Product, including all
modifications and improvements made thereto, and any other or similar
product which it may develop, create, or invent, which falls within the
terms of this Agreement.
d. EXPENSES. RSIS shall bear all costs, incurred in marketing
the Product, including the cost of marketing materials; printing; video
production; trade show participation; and advertising. RSIM shall
conduct its duties and obligations created hereby consistent with RSIS'
Board approved plan for the forthcoming year, which shall be a minimum
of ten percent (10%) of projected sales for the year.
SECTION IX
REPORTING OBLIGATION
9.1 RSIM and RSIS hereby agree that RSIM shall only be responsible to,
and shall be required to report only to the Board of Directors of RSIS,
excluding directors who are appointed or elected as representatives of RSIM,
Digital Investors, L.L.C., or any "affiliate" or "associate" of either of RSIM
or Digital Investors, L.L.C.
X
LICENSE OF TRADEMARK
10.1 RSIS hereby grants to RSIM a non-exclusive, non-transferable right
and license to utilize all trademarks and trade names related to the Product for
the purpose of marketing and sale of the Product. The license rights granted
hereunder may be transferred by RSIM only with the prior written consent of
RSIS. RSIM agrees to use any such trade names and trademarks in all of its
advertising consistent with and upholding the quality and image of RSIS. Such
license shall terminate upon termination of this Agreement.
SECTION XI
GENERAL PROVISIONS
11.1 NOTICES. Any notice or other communication required or permitted
hereunder shall be deemed given if in writing and delivered personally,
telegraphed, telexed, sent by facsimile transmission or sent by certified,
registered or express mail, postage prepaid. Any such notice shall be deemed
given when so delivered personally or sent by overnight air courier or facsimile
transmission or, if mailed, two days after the date of deposit in the United
States mails, as follows:
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IF TO RSIM:
2620 S. Maryland Parkway, #309
Las Vegas, Nevada 89109
WITH A COPY TO:
Albert B. Greco, Jr.
2620 S. Maryland Parkway, #309
Las Vegas, Nevada 89109
Facsimile: 972-818-7343
IF TO RSIS:
5555 West 78th Street, Suite F
Minneapolis, Minnesota 55439
WITH A COPY TO:
Robert Ribeiro
Fredrikson & Byron
900 Second Avenue South
Suite 1100
Minneapolis, Minnesota 55402-3397
Any party may be given notice in accordance with this Section by any
other party at another address or person for receipt of notices, if such party
so designates such other person or address in writing in accordance with this
Section XI, paragraph 11.1.
11.2 ENTIRE AGREEMENT. This Agreement (including any schedules or
exhibits attached hereto) constitutes the entire understanding and agreement of
the parties hereto, and supersedes any and all prior understandings or other
agreements, either oral or in writing, if any, among such parties with respect
to the subject matter hereof and contains all of the covenants and agreements
between the parties with respect thereto. Each party to this Agreement
acknowledges that no representations, inducements, or agreements, oral or
otherwise, have been made by any party, or anyone acting on behalf of any party,
which are not embodied herein, and no other agreement, statement or promise not
contained in this Agreement shall be valid or binding. The parties hereto have
had an opportunity to consult with their respective attorneys concerning the
meaning and the import of this Agreement and each has read this Agreement, as
signified by their signatures below, and is executing the same for the purposes
and consideration herein expressed.
11.3 WAIVERS. No delay on the part of any party in exercising any
right, power, or privilege hereunder shall operate as a waiver thereof. Nor
shall any waiver on the part of any party of any such right, power or privilege,
nor any single or partial exercise of any such right, power or privilege,
preclude any further exercise thereof or the exercise of any other such right,
power or privilege. The rights and remedies of any party based upon, arising out
of or otherwise in respect of any inaccuracy in or breach of any representation,
warranty, covenant or agreement contained in this Agreement shall in no way be
limited by the fact that the act, omission, occurrence or other state of facts
upon which any claim of any such inaccuracy or breach is
12
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based may also be the subject matter of any other representation, warranty,
covenant or agreement contained in this Agreement (or in any other agreement
between the parties) as to which there is no inaccuracy or breach.
11.4 VARIATIONS IN PRONOUNS. Wherever the context shall so require, all
words herein in the male gender shall be deemed to include the female or neuter
gender and vice versa, all singular words shall include the plural, and all
plural words shall include the singular. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
11.5 EXHIBITS AND SCHEDULES. Any Exhibits and Schedules attached hereto
are a part this Agreement as fully as if set forth herein. All references herein
to Sections, subsections, clauses, Exhibits, and Schedules shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require. A reference to an article, section or exhibit will mean an article or
section in, or an exhibit to, this Agreement, unless otherwise explicitly set
forth. The titles and headings in this Agreement are for reference purposes only
and will not in any manner limit the construction of this Agreement. For the
purposes of such construction, this Agreement will be considered as a whole. The
terms "including" and "include" as used in this Agreement will be deemed to
include the phrase "without limitation."
11.6 ATTORNEY'S FEES AND COSTS. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorneys' fees, costs, and necessary
disbursements in addition to any other relief to which it may be entitled.
11.7 REPRESENTATION BY COUNSEL. Each party acknowledges that it has had
the opportunity to be represented by separate independent counsel in the
negotiation of this Agreement, that any such respective attorneys were of its
own choosing, that each authorized representative has read this Agreement and
that he understands its meaning and legal consequences to each party. The
Parties warrant and represent that they have consulted with their attorney of
choice concerning the execution, the meaning and the import of this Agreement,
and each has read this Agreement and fully understands the terms hereof as
signified by their signatures below, and are executing the same of their own
free will for the purposes and consideration herein expressed. The Parties
warrant and represent that they have had sufficient time to consider whether to
enter into this Agreement and that they are relying solely on their own judgment
and the advice of their own counsel in deciding to execute this Agreement. The
Parties warrant and represent that they have read this Agreement in its entirety
and have consulted with their attorney concerning the execution of this
Agreement. If any or all Parties have chosen not to seek alternative counsel,
said party or parties hereby acknowledge that he or they refrained from seeking
alternative counsel entirely of his or their own volition and with full
knowledge of the consequences of such a decision.
11.8 TAX CONSULTATION. Each Party acknowledges that it has had the
opportunity to and has consulted with their own separate independent accounting
and tax advisors in connection with the accounting and tax treatment for the
transactions contemplated hereby and the tax ramifications thereof. Each Party
shall bear all risk in connection with the accounting and tax treatment of the
transactions contemplated by this Agreement and no Party is relying on the other
Party in connection with the same.
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11.9 PRESUMPTION AGAINST SCRIVENER. Each party waives the presumption
that this Agreement is presumed to be in favor of the party which did not
prepare it, in case of a dispute as to interpretation.
11.10 CAPACITY. Each party represents and warrants that he has the
authority to enter into this Agreement either on his own behalf or in an
official capacity on behalf of a corporate party.
11.11 ABSENCE OF THIRD PARTY BENEFICIARY RIGHTS. No provisions of this
Agreement are intended, nor will be interpreted, to provide or create any third
party beneficiary rights or any other rights of any kind in any client,
customer, affiliate, partner or employee of any party hereto or any other person
or entity, unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
11.12 HEADINGS. The headings used in this Agreement are for
administrative purposes only and do not constitute substantive matter to be
considered in construing the terms and shall not affect the interpretation of
this Agreement.
11.13 FURTHER ASSURANCES. At any time and from time to time after the
date hereof, at the request of either Party, and without further consideration,
RSIM and RSIS will execute and deliver such other and further instruments and
documents, and take such other action as the other Party may reasonably deem
necessary, convenient or desirable in order to more effectively assist either
Party in exercising all rights with respect thereto, and carrying out the
business, duties, and obligations created by this Agreement.
11.14 PARTIAL INVALIDITY. Each part of this Agreement is intended to be
several. If any term, covenant, condition or provision hereof is illegal or
invalid or unenforceable for any reason whatsoever, such illegality, invalidity
or unenforceability shall not affect the legality, validity or enforceability of
the remaining parts of this Agreement and all such remaining parts hereto shall
not be impaired or invalidated in any way, but shall be legal, valid and
enforceable and have full force and effect as if the illegal, invalid,
unenforceable part has not been included.
11.15 LAW GOVERNING AGREEMENT. This Agreement is made and entered into
and is to be at least partially performed in Dallas County, Texas. It shall be
interpreted, construed and enforced and its construction and performance shall
be governed by the laws of the State of Texas applicable to agreements made and
to be performed entirely within such State without regard to principles of
conflicts of laws, except to the extent that Federal law may apply.
11.16 AMENDMENTS. This Agreement may not be modified, amended,
superceded, cancelled, renewed or extended, except in writing, signed by the
party or parties to be bound thereby or signed by their respective attorneys.
11.17 BINDING EFFECT AND ASSIGNMENT. 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, shareholders, successors, agents,
servants, employees, attorneys, and assigns. This Agreement and any rights
hereunder are not
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assignable except by operation of law or by RSIM to any of its affiliates. Any
other purported assignment shall be null and void. Notwithstanding the forgoing,
all Warrants issued hereunder shall be freely assignable in accordance with the
terms of each such Warrant
11.18 COUNTERPARTS. This Agreement may be executed in several
counterparts by one or more of the undersigned and all such counterparts so
executed shall together be deemed and constitute one final Agreement, as if one
document had been signed by all parties hereto; and each such counterpart shall
be deemed an original, binding the parties subscribed hereto and multiple
signature pages affixed to a single copy of this Agreement shall be deemed to be
a fully executed original Agreement. Several counterparts consisting of multiple
copies hereof each signed by less than all parties, but together signed by all
parties shall constitute and be deemed a fully executed original Agreement.
11.19 CORPORATE AUTHORITY. RSIS and RSIM represent and warrant to each
other that each has previously taken the necessary corporate action authorizing
the execution of this Agreement by their officer recited below.
11.20 INDEPENDENT CONTRACTORS. This Agreement shall not constitute RSIS
and RSIM as partners or joint ventures, nor shall RSIS or RSIM be the agent or
legal representative of the other. Each of RSIS and RSIM is an independent
contractor and neither shall make any representation to any other party to the
contrary.
IN WITNESS THEREOF, the undersigned have executed this Agreement
effective as of the date first above written.
RSI SYSTEMS, INC.
-------------------------------------
By: Richard Craven
Its: Chairman
RSI MARKETING, L.L.C.
-------------------------------------
By: Charles Gray
Its: Manager
15
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EXHIBIT "B"
FORM OF WARRANT
-----------------------------------------------------------------------
RSI SYSTEMS, INC.
Common Stock Purchase Warrant
Dated as of February 23, 2001
-----------------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION
RIGHTS AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN RSI SYSTEMS, INC., AND
THE HOLDERS SPECIFIED THEREIN.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Exercise of Warrant................................................................................ 1
1.1. Manner of Exercise........................................................................ 2
1.2. When Exercise Effective................................................................... 2
1.3. Delivery of Stock Certificates, etc....................................................... 2
1.4. Company to Reaffirm Obligations........................................................... 2
1.5. Payment by Application of Shares Otherwise Issuable....................................... 2
1.6. Tax Basis................................................................................. 2
2. Adjustment of Common Stock Issuable Upon Exercise.................................................. 3
2.1. General; Warrant Quantity................................................................. 3
2.2 Extraordinary Dividends and Distributions................................................. 3
2.3. Treatment of Stock Dividends, Stock Splits, etc........................................... 3
2.4. Computation of Consideration.............................................................. 4
2.5 Minimum Adjustment of Warrant Quantity.................................................... 4
2.6. Abandoned Dividend or Distribution........................................................ 4
3. Consolidation, Merger, etc......................................................................... 4
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc................ 4
3.2. Assumption of Obligations................................................................. 5
4. Other Dilutive Events.............................................................................. 5
5. No Dilution or Impairment.......................................................................... 6
6. Accountants' Report as to Adjustments.............................................................. 6
7. Financial and Business Information................................................................. 7
7.1. Filings................................................................................... 7
7.2. Notices of Corporate Action............................................................... 7
8. Registration of Common Stock....................................................................... 8
9. Restrictions on Transfer........................................................................... 8
9.1. Restrictive Legends....................................................................... 8
9.2. Transfers to Comply With the Securities Act............................................... 9
9.3. Termination of Restrictions............................................................... 9
10. Reservation of Stock, etc.......................................................................... 9
</TABLE>
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<TABLE>
<S> <C>
11. Registration and Transfer of Warrants, etc......................................................... 10
11.1. Warrant Register; Ownership of Warrants................................................... 10
11.2. Transfer of Warrants...................................................................... 10
11.3. Replacement of Warrants................................................................... 10
11.4. Adjustments To Warrant Quantity........................................................... 10
11.5 Fractional Shares......................................................................... 10
12. Definitions........................................................................................ 11
13. Remedies; Specific Performance..................................................................... 13
14. No Rights or Liabilities as Shareholder............................................................ 13
15. Notices............................................................................................ 14
16. Amendments......................................................................................... 14
17. Descriptive Headings, Etc.......................................................................... 15
18. Law Governing Agreement............................................................................ 15
19. Registration Rights Agreement...................................................................... 15
</TABLE>
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RSI SYSTEMS, INC.
Common Stock Purchase Warrant
Void After February 23, 2006
No. W-1 Minneapolis, Minnesota
February 23, 2001
RSI SYSTEMS, INC. (the "Company"), a Nevada corporation, for value
received, hereby certifies that RSI Marketing, L.L.C., a Nevada limited
liability company, or registered assigns (the "Holder"), is entitled to purchase
from the Company Five Hundred Thousand (500,000) shares of Common Stock of the
Company (the "Warrant Quantity") duly authorized, validly issued, fully paid and
nonassessable shares of common stock, par value $0.01 per share, of the Company
(the "Common Stock") at the purchase price per share of $0.45, at any time or
from time to time prior to 5:00 p.m. Central Standard time, on February 23, 2006
(the "Expiration Date"), all subject to the terms, conditions and adjustments
set forth below in this Warrant.
This Warrant is the Warrant (the "Warrant", such term to include any
such warrants issued in substitution therefor) originally issued in connection
with the Marketing Agreement, dated as of the date hereof, by and among the
Company and the Holder (as amended or otherwise modified from time to time, the
"Marketing Agreement"). The Warrant originally so issued evidences the right to
purchase a number of shares of Common Stock equal to the Warrant Quantity,
subject to adjustment as provided herein. Certain capitalized terms used in this
Warrant are defined in Section 12; references to an "Exhibit" are, unless
otherwise specified, to one of the Exhibits attached to this Warrant and
references to a "Section" are, unless otherwise specified, to one of the
Sections of this Warrant.
1. EXERCISE OF WARRANT.
1.1 MANNER OF EXERCISE. This Warrant may be exercised by the Holder, in
whole or in part, during normal business hours on any Business Day, by surrender
of this Warrant to the Company at its principal office, accompanied by the Form
of Subscription in substantially the form attached as Exhibit A to this Warrant
(or a reasonable facsimile thereof) duly executed by the Holder and accompanied
by payment, in cash, by wire transfer, certified or official bank check payable
to the order of the Company, or in the manner provided in Section 1.5 or Section
1.6 (or by any combination of such methods), in the amount obtained by
multiplying (a) the number of shares of Common Stock (adjusted as provided in
Sections 2 through 4) designated in such Form of Subscription by (b) $0.45, and
such Holder shall thereupon be entitled to receive such number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
(or Other Securities).
<PAGE>
1.2 WHEN EXERCISE EFFECTIVE. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the Person or Persons in whose name or
names any certificate or certificates for shares of Common Stock (or Other
Securities) shall be issuable upon such exercise, as provided in Section 1.3,
shall be deemed to have become the Holder or holders of record thereof.
1.3 DELIVERY OF STOCK CERTIFICATES, ETC. As soon as practicable after
each exercise of this Warrant, in whole or in part, and in any event within
three Business Days thereafter, the Company at its expense (including the
payment by it of any applicable transfer taxes) will cause to be issued in the
name of and delivered to the Holder hereof or, subject to Section 9, as such
Holder (upon payment by such Holder of any applicable transfer taxes) may
direct,
(a) a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares,
including, if the Company so elects, fractional shares, of Common Stock
(or Other Securities) to which such Holder shall be entitled upon such
exercise plus, at the discretion of the Company, in lieu of any
fractional share to which such Holder would otherwise be entitled, cash
in an amount equal to the same fraction of the Current Market Price per
share on the Business Day next preceding the date of such exercise, and
(b) in case such exercise is in part only, a new Warrant or
Warrants of like tenor, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock equal (without giving
effect to any adjustment thereof) to the number of such shares called
for on the face of this Warrant minus the number of such shares
designated by the Holder upon such exercise as provided in Section 1.1.
1.4 COMPANY TO REAFFIRM OBLIGATIONS. The Company will, at the time of
each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the shares of
Common Stock or Other Securities issued upon such exercise) to which such Holder
shall continue to be entitled after such exercise in accordance with the terms
of this Warrant, provided that if the Holder shall fail to make any such
request, such failure shall not affect the continuing obligation of the Company
to afford such rights to such Holder.
1.5 PAYMENT BY APPLICATION OF SHARES OTHERWISE ISSUABLE. Upon any
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of the
shares of Common Stock otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of shares on the
date of exercise over the portion of the payment required by Section 1.1
attributable to such shares shall be deemed to have been paid to the Company and
the number of shares issuable upon such exercise shall be reduced by such
specified number.
1.6 TAX BASIS. The Company and the Holder shall mutually agree as to
the tax basis of this Warrant for purposes of the Internal Revenue Code of 1986,
as amended (the "Code"),
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and the treatment of this Warrant under the Code by each of the Company and the
Holder shall be consistent with such agreement.
2. Adjustment of Common Stock Issuable Upon Exercise.
2.1 GENERAL; WARRANT QUANTITY. This Warrant initially evidences the
right to purchase a number of shares of Common Stock equal to the Warrant
Quantity, subject to adjustment as provided in this Section 2. The "Warrant
Price" shall be fixed at $0.45 per share of Common Stock received upon exercise
of this Warrant.
2.2 EXTRAORDINARY DIVIDENDS AND DISTRIBUTIONS. In case the Company at
any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other
securities or property or Options by way of dividend or spin-off,
reclassification, recapitalization or similar corporate rearrangement)
on the Common Stock other than (a) a dividend payable in Additional
Shares of Common Stock or (b) a regularly scheduled cash dividend
payable out of consolidated earnings or earned surplus, determined in
accordance with generally accepted accounting principles, then, in each
such case, subject to Section 2.8, the Warrant Quantity in effect
immediately prior to the close of business on the record date fixed for
the determination of holders of any class of securities entitled to
receive such dividend or distribution shall be increased, effective as
of the close of business on such record date, to an amount determined
by multiplying such Warrant Quantity by a fraction
(x) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, and
(y) the denominator of which shall be such Current Market
Price, less the amount of such dividend or distribution (as determined
in good faith by the Board of Directors of the Company) applicable to
one share of Common Stock,
provided that, in the event that the amount of such dividend as so determined is
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
shares of Common Stock at the time issuable to such Holder.
2.3 TREATMENT OF STOCK DIVIDENDS, STOCK SPLITS, ETC. In case the
Company at any time or from time to time after the date hereof shall declare or
pay any dividend on the Common Stock payable in Common Stock, or shall effect a
subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
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2.4 COMPUTATION OF CONSIDERATION. For the purposes of this Section 2,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment
of such consideration,
(i) insofar as it consists of cash, be computed at
the net amount of cash received by the Company, without
deducting any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the fair value
thereof at the time of such issue or sale, as determined in
good faith by the Board of Directors of the Company, and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such Additional Shares of Common Stock, all as determined
in good faith by the Board of Directors of the Company;
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 2.2, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
2.5 MINIMUM ADJUSTMENT OF WARRANT QUANTITY. If the amount of any
adjustment of the Warrant Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Warrant Quantity in effect
at the time such adjustment is otherwise so required to be made, such amount
shall be carried forward and adjustment with respect thereto made at the time of
and together with any subsequent adjustment which, together with such amount and
any other amount or amounts so carried forward, shall aggregate at least one
tenth (1/10) of one percent (1%) of such Warrant Quantity. All calculations
under this Warrant shall be made to the nearest one-hundredth of a share.
2.6 ABANDONED DIVIDEND OR DISTRIBUTION. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or other distribution (which results in an adjustment to the
Warrant Quantity under the terms of this Warrant) and shall, thereafter, and
before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Warrant Quantity by reason of the
taking of such record shall be reversed, and any subsequent adjustments, based
thereon, shall be recomputed.
3. Consolidation, Merger, etc.
3.1 ADJUSTMENTS FOR CONSOLIDATION, MERGER, SALE OF ASSETS,
REORGANIZATION, ETC. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the
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<PAGE>
Company shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Warrant
Quantity is provided in Section 2.2.1), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder, upon the exercise
hereof at any time after the consummation of such transaction, shall be entitled
to receive (at the aggregate Warrant Price in effect at the time of such
consummation for all Common Stock or Other Securities issuable upon such
exercise immediately prior to such consummation), in lieu of the Common Stock or
Other Securities issuable upon such exercise prior to such consummation, the
highest amount of securities, cash or other property to which such Holder would
actually have been entitled as a shareholder upon such consummation if such
Holder had exercised the rights represented by this Warrant immediately prior
thereto, subject to adjustments (subsequent to such consummation) as nearly
equivalent as possible to the adjustments provided for in Sections 2 through 4,
provided that if a purchase, tender or exchange offer shall have been made to
and accepted by the holders of more than 50% of the outstanding shares of Common
Stock, and if the Holder so designates in a notice given to the Company on or
before the date immediately preceding the date of the consummation of such
transaction, the Holder shall be entitled to receive the highest amount of
securities, cash or other property to which such Holder would actually have been
entitled as a shareholder if the Holder had exercised this Warrant prior to the
expiration of such purchase, tender or exchange offer and accepted such offer,
subject to adjustments (from and after the consummation of such purchase, tender
or exchange offer) as nearly equivalent as possible to the adjustments provided
for in Sections 2 through 4.
3.2 ASSUMPTION OF OBLIGATIONS. Notwithstanding anything contained in
the Warrant or in the Marketing Agreement to the contrary, the Company will not
effect any of the transactions described in clauses (a) through (d) of Section
3.1 unless, prior to the consummation thereof, each Person (other than the
Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), (b) the obligations of the Company under the
Registration Rights Agreement, and (c) the obligation to deliver to such Holder
such shares of stock, securities, cash or property as, in accordance with the
foregoing provisions of this Section 3, such Holder may be entitled to receive,
and such Person shall have similarly delivered to such Holder an opinion of
counsel for such Person, which counsel shall be reasonably satisfactory to such
Holder, stating that this Warrant shall thereafter continue in full force and
effect and the terms hereof (including, without limitation, all of the
provisions of this Section 3) shall be applicable to the stock, securities, cash
or property which such Person may be required to deliver upon any exercise of
this Warrant or the exercise of any rights pursuant hereto. .
4. OTHER DILUTIVE EVENTS. In case any event shall occur as to which the
provisions of Section 2 or Section 3 are not strictly applicable but the failure
to make any adjustment would
5
<PAGE>
not fairly protect the purchase rights represented by this Warrant in accordance
with the essential intent and principles of such Sections, then, in each such
case, the Company shall appoint a firm of independent certified public
accountants of recognized national standing (which may be the regular auditors
of the Company), which shall give their opinion upon the adjustment, if any, on
a basis consistent with the essential intent and principles established in
Sections 2 and 3, necessary to preserve, without dilution, the purchase rights
represented by this Warrant. Upon receipt of such opinion, the Company will
promptly mail a copy thereof to the Holder and shall make the adjustments
described therein.
5. NO DILUTION OR IMPAIRMENT. The Company will not, by amendment of its articles
of incorporation or through any consolidation, merger, reorganization, transfer
of assets, dissolution, issue or sale of securities or any other voluntary
action, avoid or seek to avoid the observance or performance of any of the terms
of this Warrant, but will at all times in good faith assist in the carrying out
of all such terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the Holder against dilution or
other impairment. Without limiting the generality of the foregoing, the Company
(a) shall not permit the par value of any shares of stock receivable upon the
exercise of this Warrant to exceed the amount payable therefor upon such
exercise, (b) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue fully paid and
nonassessable shares of stock, free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges on the exercise of the Warrants from
time to time outstanding, (c) will not take any action which results in any
adjustment of the Warrant Quantity if the total number of shares of Common Stock
(or Other Securities) issuable after the action upon the exercise of all of the
Warrants would exceed the total number of shares of Common Stock (or Other
Securities) then authorized by the Company's certificate of incorporation and
available for the purpose of issue upon such exercise, and (d) will not issue
any capital stock of any class which is preferred as to dividends or as to the
distribution of assets upon voluntary or involuntary dissolution, liquidation or
winding-up, unless the rights of the holders thereof shall be limited to a fixed
sum or percentage of par value or a sum determined by reference to a formula
based on a published index of interest rates, an interest rate publicly
announced by a financial institution or a similar indicator of interest rates in
respect of participation in dividends and to a fixed sum or percentage of par
value in any such distribution of assets.
6. ACCOUNTANTS' REPORT AS TO ADJUSTMENTS. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable upon
the exercise of this Warrant, the Company at its expense will promptly compute
such adjustment or readjustment in accordance with the terms of this Warrant and
cause independent certified public accountants of recognized national standing
(which may be the regular auditors of the Company) selected by the Company to
verify such computation (other than any computation of the fair value of
property as determined in good faith by the Board of Directors of the Company)
and prepare a report setting forth such adjustment or readjustment and showing
in reasonable detail the method of calculation thereof and the facts upon which
such adjustment or readjustment is based, including a statement of (a) the
consideration received or to be received by the Company for any Additional
Shares of Common Stock issued or sold or deemed to have been issued, (b) the
number of shares of Common Stock outstanding or deemed to be outstanding, and
(c) the Warrant Quantity in effect immediately prior to such issue or sale and
as adjusted and readjusted (if required by Section 2) on account thereof. The
Company will forthwith mail a copy of each such report to each Holder of a
Warrant and will, upon the written request at any time of any
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<PAGE>
Holder of a Warrant, furnish to such Holder a like report setting forth the
Warrant Quantity at the time in effect and showing in reasonable detail how it
was calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
7. FINANCIAL AND BUSINESS INFORMATION
7.1 FILINGS. During any period when the Company is a Public Company,
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its stockholders
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any registration statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which shares of Common
Stock are listed.
7.2 NOTICES OF CORPORATE ACTION. In the event of
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a regular
periodic dividend payable in cash out of earned surplus in an amount
not exceeding the amount of the immediately preceding cash dividend for
such period) or other distribution, or any right to subscribe for,
purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company or any consolidation or merger involving the Company and any
other Person, any transaction or series of transactions in which more
than 50% of the Voting Securities of the Company are transferred to
another Person or any transfer, sale or other disposition of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Common
Stock (or Other Securities) shall be entitled to exchange their shares of Common
Stock (or Other Securities) for the securities or other property deliverable
upon such reorganization, reclassification, recapitalization, consolidation,
merger, transfer, dissolution, sale, disposition, liquidation or winding-up.
Such notice shall be mailed at least 45 days prior to the date therein
specified.
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8. REGISTRATION OF COMMON STOCK. If any shares of Common Stock required to be
reserved for purposes of exercise of this Warrant require registration with or
approval of any governmental authority under any federal or state law (other
than the Securities Act) before such shares may be issued upon exercise, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such shares to be duly registered or approved, as the case may
be. At any such time as Common Stock is listed on any national securities
exchange, the Company will, at its expense, obtain promptly and maintain the
approval for listing on each such exchange, upon official notice of issuance,
the shares of Common Stock issuable upon exercise of the then outstanding
Warrants and maintain the listing of such shares after their issuance; and the
Company will also list on such national securities exchange, will register under
the Exchange Act and will maintain such listing of, any Other Securities that at
any time are issuable upon exercise of the Warrants, if and at the time that any
securities of the same class shall be listed on such national securities
exchange by the Company.
9. RESTRICTIONS ON TRANSFER.
9.1 RESTRICTIVE LEGENDS. Except as otherwise permitted by this Section
9, each Warrant (including each Warrant issued upon the transfer of any Warrant)
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH
THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION RIGHTS
AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN RSI SYSTEMS, INC., AND
THE HOLDERS SPECIFIED THEREIN."
Except as otherwise permitted by this Section 9, each certificate for Common
Stock (or Other Securities) issued upon the exercise of any Warrant, and each
certificate issued upon the transfer of any such Common Stock (or Other
Securities), shall be stamped or otherwise imprinted with a legend in
substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS OR
PURSUANT
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<PAGE>
TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF SUCH ACT
AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE CONDITIONS
SPECIFIED IN CERTAIN COMMON STOCK PURCHASE WARRANTS ISSUED BY RSI
SYSTEMS, INC., PURSUANT TO THE COMMON STOCK PURCHASE WARRANT, DATED
FEBRUARY 23, 2001, AND PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT
DATED THE DATE THEREOF, BY AND BETWEEN RSI SYSTEMS, INC. AND THE
HOLDERS SPECIFIED THEREIN. A COMPLETE AND CORRECT COPY OF THE FORM OF
SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE FOR
INSPECTION AT THE PRINCIPAL OFFICE OF RSI SYSTEMS, INC., OR AT THE
OFFICE OR AGENCY MAINTAINED BY RSI SYSTEMS, INC., AS PROVIDED IN SUCH
WARRANTS AND SUCH REGISTRATION RIGHTS AGREEMENT AND WILL BE FURNISHED
TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST AND WITHOUT
CHARGE."
9.2 TRANSFER TO COMPLY WITH THE SECURITIES ACT. Restricted Securities
may not be sold, assigned, pledged, hypothecated, encumbered or in any manner
transferred or disposed of, in whole or in part, except in compliance with the
provisions of the Securities Act and state securities or Blue Sky laws and the
terms and conditions hereof.
9.3 TERMINATION OF RESTRICTIONS. The restrictions imposed by this
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. RESERVATION OF STOCK, ETC. The Company shall at all times reserve and keep
available, solely for issuance and delivery upon exercise of the Warrants, the
number of shares of Common Stock (or Other Securities) from time to time
issuable upon exercise of all Warrants at the time outstanding. All shares of
Common Stock (or Other Securities) issuable upon exercise of any Warrants shall
be duly authorized and, when issued upon such exercise, shall be validly issued
and, in the case of shares, fully paid and nonassessable with no liability on
the part of the holders thereof, and, in the case of all securities, shall be
free from all taxes, liens, security interests, encumbrances, preemptive rights
and charges. The transfer agent for the Common Stock, which may be the Company
("Transfer Agent"), and every subsequent Transfer Agent for any shares of the
Company's capital stock issuable upon the exercise of any of the purchase rights
represented by this Warrant, are hereby irrevocably authorized and directed at
all times until the Expiration
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Date to reserve such number of authorized and unissued shares as shall be
requisite for such purpose. The Company shall keep copies of this Warrant on
file with the Transfer Agent for the Common Stock and with every subsequent
Transfer Agent for any shares of the Company's capital stock issuable upon the
exercise of the rights of purchase represented by this Warrant. The Company
shall supply such Transfer Agent with duly executed stock certificates for such
purpose. All Warrant certificates surrendered upon the exercise of the rights
thereby evidenced shall be canceled, and such canceled Warrants shall constitute
sufficient evidence of the number of shares of stock that have been issued upon
the exercise of such Warrants. Subsequent to the Expiration Date, no shares of
stock need be reserved in respect of any unexercised Warrant.
11. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
11.1 WARRANT REGISTER; OWNERSHIP OF WARRANTS. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by a Warrant Agent or the Company's transfer agent. The
Company shall be entitled to treat the registered Holder of any Warrant on the
Warrant Register as the owner in fact thereof for all purposes and shall not be
bound to recognize any equitable or other claim to or interest in such Warrant
on the part of any other Person, and shall not be affected by any notice to the
contrary, except that, if and when any Warrant is properly assigned in blank,
the Company may (but shall not be obligated to) treat the bearer thereof as the
owner of such Warrant for all purposes. Subject to Section 9, a Warrant, if
properly assigned, may be exercised by a new holder without a new Warrant first
having been issued.
11.2 TRANSFER OF WARRANTS. Subject to compliance with Section 9, if
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred.
11.3 REPLACEMENT OF WARRANTS. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4 ADJUSTMENTS TO WARRANT QUANTITY. Notwithstanding any adjustment in
the Warrant Quantity or in the number or kind of shares of Common Stock
purchasable upon exercise of this Warrant, any Warrant theretofore or thereafter
issued may continue to express the same number and kind of shares of Common
Stock as are stated in this Warrant, as initially issued.
11.5 FRACTIONAL SHARES. Notwithstanding any adjustment pursuant to
Section 2 in the number of shares of Common Stock covered by this Warrant or any
other provision of this
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<PAGE>
Warrant, the Company may, but shall not be required to, issue fractions of
shares upon exercise of this Warrant or to distribute certificates which
evidence fractional shares. In lieu of fractional shares, the Company shall make
payment to the Holder, at the time of exercise of this Warrant as herein
provided, in an amount in cash equal to such fraction multiplied by the Current
Market Price of a share of Common Stock on the date of Warrant exercise.
12. DEFINITIONS. As used herein, unless the context otherwise requires, the
following terms have the following respective meanings:
ADDITIONAL SHARES OF COMMON STOCK: All shares (including
treasury shares) of Common Stock issued or sold (or, pursuant to Section 2.2,
deemed to be issued) by the Company after the date hereof, whether or not
subsequently reacquired or retired by the Company, other than
(a) shares issued upon the exercise of the Warrant,
(b) such additional number of shares as may become issuable
upon the exercise of the Warrant by reason of adjustments required
pursuant to anti-dilution provisions applicable to the Warrant as in
effect on the date hereof,
(c) shares, warrants, options and other securities issued at
any time to the Holder or any Affiliate thereof.
AFFILIATE: Any person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the applicable person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
BUSINESS DAY: Any day other than a Saturday or a Sunday or a
day on which commercial banking institutions in the City of Nevada are
authorized by law to be closed. Any reference to "days" (unless Business Days
are specified) shall mean calendar days.
CODE: As defined in Section 1.6.
COMMISSION: The Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
COMMON STOCK: As defined in the introduction to this Warrant,
such term to include any stock into which such Common Stock shall have been
changed or any stock resulting from any reclassification of such Common Stock,
and all other stock of any class or classes (however designated) of the Company
the holders of which have the right, without limitation as to amount, either to
all or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any shares entitled to
preference.
COMPANY: As defined in the introduction to this Warrant, such
term to include any corporation, which shall succeed to or assume the
obligations of the Company hereunder in compliance with Section 3.
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CONVERTIBLE SECURITIES: Any evidences of indebtedness, shares
of stock (other than Common Stock) or other securities directly or indirectly
convertible into or exchangeable for Additional Shares of Common Stock.
EXCHANGE ACT: The Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
EXPIRATION DATE: As defined in the introduction to this
Warrant.
HOLDER: As defined in the introduction to this Warrant.
MARKET PRICE: On any date specified herein, the amount per
share of the Common Stock, equal to (a) the last reported sale price of such
Common Stock, regular way, on such date or, in case no such sale takes place on
such date, the average of the closing bid and asked prices thereof regular way
on such date, in either case as officially reported on the principal national
securities exchange on which such Common Stock is then listed or admitted for
trading, or (b) if such Common Stock is not then listed or admitted for trading
on any national securities exchange but is designated as a national market
system security by the NASD, the last reported trading price of the Common Stock
on such date, or (c) if there shall have been no trading on such date or if the
Common Stock is not so designated, the average of the closing bid and asked
prices of the Common Stock on such date as shown by the NASD automated quotation
system, or (d) if such Common Stock is not then listed or admitted for trading
on any national exchange or quoted in the over-the-counter market, the higher of
(x) the book value thereof as determined by any firm of independent public
accountants of recognized standing selected by the Board of Directors of the
Company as of the last day of any month ending within 60 days preceding the date
as of which the determination is to be made and (y) the fair value thereof (as
of a date which is within 20 days of the date as of which the determination is
to be made) determined in good faith by the Board of Directors of the Company.
NASD: The National Association of Securities Dealers, Inc.
OPTIONS: Rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Shares of Common Stock or
Convertible Securities.
OTHER SECURITIES: Any stock (other than Common Stock) and
other securities of the Company or any other Person (corporate or otherwise)
which the holders of the Warrants at any time shall be entitled to receive, or
shall have received, upon the exercise of the Warrants, in lieu of or in
addition to Common Stock, or which at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
PERSON: An individual, firm, partnership, corporation,
professional corporation, trust, joint venture, association, joint stock
company, limited liability company, unincorporated organization or any other
entity or organization, including a government or agency or political
subdivision thereof, and shall include any successor (by merger or otherwise) of
such entity.
REGISTRATION RIGHTS AGREEMENT: The Registration Rights
Agreement, dated the date hereof, by and between the Company and the holders
specified therein.
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RESTRICTED SECURITIES: (a) any Warrants bearing the applicable
legend set forth in Section 9.1, (b) any shares of Common Stock (or Other
Securities) issued or issuable upon the exercise of Warrants which are evidenced
by a certificate or certificates bearing the applicable legend set forth in such
Section, and (c) any shares of Common Stock (or Other Securities) issued
subsequent to the exercise of any of the Warrants as a dividend or other
distribution with respect to, or resulting from a subdivision of the outstanding
shares of Common Stock (or other Securities) into a greater number of shares by
reclassification, stock splits or otherwise, or in exchange for or in
replacement of the Common Stock (or Other Securities) issued upon such exercise,
which are evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section.
SECURITIES ACT: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
MARKETING AGREEMENT: As defined in the introduction to this
Warrant.
VOTING SECURITIES: Stock of any class or classes (or
equivalent interests), if the holders of the stock of such class or classes (or
equivalent interests) are ordinarily, in the absence of contingencies, entitled
to vote for the election of the directors (or persons performing similar
functions) of such business entity, even though the right so to vote has been
suspended by the happening of such a contingency.
WARRANT: As defined in the introduction to this Warrant.
WARRANT PRICE: As defined in Section 2.1.
WARRANT QUANTITY: As defined in the introduction to this
Warrant.
13. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates that there would be
no adequate remedy at law to the Holder of this Warrant in the event of any
default or threatened default by the Company in the performance of or compliance
with any of the terms of this Warrant and accordingly, the Company agrees that,
in addition to any other remedy to which the Holder may be entitled at law or in
equity, the Holder shall be entitled to seek to compel specific performance of
the obligations of the Company under this Warrant, without the posting of any
bond, in accordance with the terms and conditions of this Warrant in any court
of the United States or any State thereof having jurisdiction, and if any action
should be brought in equity to enforce any of the provisions of this Warrant,
the Company shall not raise the defense that there is an adequate remedy at law.
Except as otherwise provided by law, a delay or omission by the Holder hereto in
exercising any right or remedy accruing upon any such breach shall not impair
the right or remedy or constitute a waiver of or acquiescence in any such
breach. No remedy shall be exclusive of any other remedy. All available remedies
shall be cumulative.
14. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained in this Warrant
shall be construed as conferring upon the Holder hereof any rights as a
shareholder of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
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<PAGE>
15. NOTICES. Any notice or other communication required or permitted hereunder
shall be deemed given if in writing and delivered personally, telegraphed,
telexed, sent by facsimile transmission or sent by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered personally or sent by overnight air courier or facsimile transmission
or, if mailed, two days after the date of deposit in the United States mail, as
follows:
IF TO RSIM:
2620 S. Maryland Parkway, #309
Las Vegas, Nevada 89109
WITH A COPY TO:
ALBERT B. GRECO, JR.
2620 S. Maryland Parkway, #309
Las Vegas, Nevada 89109
Facsimile: 972-818-7343
IF TO RSIS:
5555 West 78th Street, Suite F
Minneapolis, Minnesota 55439
WITH A COPY TO:
Robert Ribeiro
Fredrikson & Byron
900 Second Avenue South
Suite 1100
Minneapolis, Minnesota 55402-3397
Facsimile (612) 347-7077
Any party may be given notice in accordance with this Section by any other party
at another address or person for receipt of notices, if such party so designates
such other person or address in writing in accordance with this Section 15. The
Company shall give Notice to any subsequent Holder at such address as it appears
in the Warrant Register.
All such notices and communications (and deliveries) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged, if telecopied; on the next Business
Day, if timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; provided, that the exercise of any
Warrant shall be effective in the manner provided in Section 1.
16. AMENDMENTS. This Warrant and any term hereof may not be amended, modified,
supplemented or terminated, and waivers or consents to departures from the
provisions hereof may not be given, except by written instrument duly executed
by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
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17. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant are for convenience
of reference only and shall not limit or otherwise affect the meaning of terms
contained herein. Unless the context of this Warrant otherwise requires: (1)
words of any gender shall be deemed to include each other gender; (2) words
using the singular or plural number shall also include the plural or singular
number, respectively; (3) the words "hereof", "herein" and "hereunder" and words
of similar import when used in this Warrant shall refer to this Warrant as a
whole and not to any particular provision of this Warrant, and Section and
paragraph references are to the Sections and paragraphs of this Warrant unless
otherwise specified; (4) the word "including" and words of similar import when
used in this Warrant shall mean "including, without limitation," unless
otherwise specified; (5) "or" is not exclusive; and (6) provisions apply to
successive events and transactions.
18. LAW GOVERNING AGREEMENT. This Agreement shall be interpreted, construed and
enforced and its construction and performance shall be governed by the laws of
the State of Minnesota without regard to principles of conflicts of laws, except
to the extent that Federal law may apply.
19. REGISTRATION RIGHTS AGREEMENT. The shares of Common Stock (and Other
Securities) issuable upon exercise of this Warrant (or upon conversion of any
shares of Common Stock issued upon such exercise) shall constitute Registrable
Securities (as such term is defined in the Registration Rights Agreement). Each
holder of this Warrant shall be entitled to all of the benefits afforded to a
holder of any such Registrable Securities under the Registration Rights
Agreement and such holder, by its acceptance of this Warrant, agrees to be bound
by and to comply with the terms and conditions of the Registration Rights
Agreement applicable to such holder as a holder of such Registrable Securities.
RSI SYSTEMS, INC.
------------------------------------
By: Richard Craven
Its: Chairman
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Exhibit A
FORM OF SUBSCRIPTION
[To be executed only upon exercise of Warrant]
To: RSI SYSTEMS, INC.
The undersigned registered holder of the within Warrant hereby irrevocably
exercises such Warrant for, and purchases thereunder, ________________*
shares of Common stock 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 delivered to
________________________________, whose address is __________________________
_____________________________________________________________________________
Dated: _____________________ ____________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
____________________________________________
(Street Address)
____________________________________________
(City) (State) Zip Code)
--------------------------
* Insert here the number of shares called for on the face of this Warrant
(or, in the case of a partial exercise, the portion thereof as to which
this Warrant is being exercised), in either case without making any
adjustment for Additional Shares of Common Stock or any other stock or
other securities or property or cash which, pursuant to the adjustment
provisions of this Warrant, may be delivered upon exercise. In the case
of partial exercise, a new Warrant or Warrants will be issued and
delivered, representing the unexercised portion of the Warrant, to the
holder surrendering the Warrant.
<PAGE>
Exhibit B
FORM OF ASSIGNMENT
[To be executed only upon assignment of Warrant]
For value received, the undersigned registered holder of the within Warrant
hereby sells, assigns and transfers unto ____________________________________
the right represented by such Warrant to purchase ___________________________
shares of Common Stock of RSI SYSTEMS, INC. to which such Warrant relates,
and appoints _______________________________________, Attorney to make such
transfer on the books of RSI SYSTEMS, INC., maintained for such purpose, with
full power of substitution in the premises.
Dated: _____________________ ____________________________________________
(Signature must conform in all respects to
the name of holder as specified on the face
of Warrant)
____________________________________________
(Street Address)
____________________________________________
(City) (State) Zip Code)
Signed in the presence of:
___________________________________
___________________________________
(printed name)