Senior Secured Note and Warrant Purchase Agreement
Exhibit
99.1
Senior
Secured Note and Warrant
Purchase
Agreement
THIS SENIOR SECURED NOTE AND WARRANT
PURCHASE AGREEMENT (“Agreement”) is made as of January 29, 2009, by and
among Patient Safety Technologies, Inc., a Delaware corporation (the
“Company”), and the lenders (each individually a “Lender,” and collectively the
“Lenders”) named on the Schedule of Lenders attached hereto (the “Schedule of
Lenders”). Capitalized terms not otherwise defined in this Agreement shall have
the meanings ascribed to them in Section 1 below.
WHEREAS, each of the Lenders intends
to provide certain Consideration to the Company as described for each Lender on
the Schedule of Lenders;
WHEREAS, the parties wish to provide
for the sale and issuance of such Notes and Warrants in return for the provision
by the Lenders of the Consideration to the Company; and
WHEREAS, the parties intend for the
Company to issue in return for the Consideration one or more Senior Secured
Notes and Warrants to purchase shares of the Company’s Equity
Securities.
NOW,
THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions.
“Action” shall have the meaning
ascribed to such term in Section 4.10.
“Affiliate” means any Person
that, directly or indirectly through one or more intermediaries, controls or is
controlled by or is under common control with a Person, as such terms are used
in and construed under Rule 405 under the Securities Act. With
respect to a Lender, any investment fund or managed account that is managed on a
discretionary basis by the same investment manager as such Lender will be deemed
to be an Affiliate of such Lender.
“Board of Directors” means the
board of directors of the Company.
“Closing” means the closing of
the transaction contemplated in Section 2.1.
“Closing Date” means the
Trading Day when all of the Transaction Documents have been executed and
delivered by the applicable parties thereto, and all conditions precedent to (i)
the Lender’s obligations to pay for the Notes and (ii) the Company’s obligations
to deliver the Notes have been satisfied or waived.
“Commission” means the
Securities and Exchange Commission.
“Common Stock” means the common
stock of the Company, par value $0.33 per share, and any other class of
securities into which such securities may hereafter be reclassified or changed
into.
“Common Stock Equivalents”
means any securities of the Company or the Subsidiary which would entitle the
holder thereof to acquire at any time Common Stock, including, without
limitation, any debt, preferred stock, rights, options, warrants or other
instrument that is at any time convertible into or exercisable or exchangeable
for, or otherwise entitles the holder thereof to receive, Common
Stock.
“Consideration” shall mean the
amount of money paid or previously issued debt of the Company exchanged by each
Lender pursuant to this Agreement as shown on the Schedule of
Lenders.
“Disclosure Schedules” shall
have the meaning ascribed to such term in Section 4.
“Equity Securities” shall mean
the Company’s Common Stock or any securities conferring the right to purchase
the Company’s Common Stock or securities convertible into, or exchangeable for
(with or without additional consideration), the Company’s Common Stock, except
any security granted, issued and/or sold by the Company to any director,
officer, employee or consultant of the Company in such capacity for the primary
purpose of soliciting or retaining their services.
“Evaluation Date” shall have
the meaning ascribed to such term in Section 4.18.
“Financing Round” shall mean
the next issuance of securities by the Company for cash or the exchange of debt
or both taking place after the Closing and prior to the Note’s maturity
date.
“Indebtedness” shall have the
meaning ascribed to such term in Section 4.27.
“Intellectual Property Rights”
shall have the meaning ascribed to such term in Section 4.15.
“Liens” means a lien, charge,
security interest, encumbrance, right of first refusal, preemptive right or
other restriction.
“Material Adverse Effect” shall
have the meaning assigned to such term in Section 4.1.
“Material Permits” shall have
the meaning ascribed to such term in Section 4.13.
“Noteholders Majority” shall
mean the majority of the outstanding principal of the Notes.
“Notes” shall mean the one or
more senior secured notes issued to each Lender pursuant to Section 2.1 below,
the form of which is attached hereto as Exhibit A.
“Person” means an individual or
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, limited liability company, joint stock company, government (or an
agency or subdivision thereof) or other entity of any kind.
“Proceeding” means an action,
claim, suit, investigation or proceeding (including, without limitation, an
informal investigation or partial proceeding, such as a deposition), whether
commenced or threatened.
“Required Approvals” shall have
the meaning ascribed to such term in Section 4.5.
“SEC Reports” shall have the
meaning ascribed to such term in Section 4.8.
“Securities” means the Notes,
the Warrants and the Underlying Shares.
“Security Agreement” shall mean
a certain Security Agreement entered, as of this date, by and between the
Company and the Lenders.
“Subsidiary” means the
subsidiary of the Company as set forth on Schedule 4.3 and shall, where
applicable, include any direct or indirect subsidiary of the Company formed or
acquired after the date hereof.
“Trading Day” means a day on
which the New York Stock Exchange is open for trading.
“Trading Market” means the
following markets or exchanges on which the Common Stock is listed or quoted for
trading on the date in question: the American Stock Exchange, the Nasdaq Capital
Market, the Nasdaq Global Market, the Nasdaq Global Select Market, the New York
Stock Exchange or the OTC Bulletin Board.
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“Transaction Documents” shall
mean this Agreement, the Notes, the Security Agreement, the Warrants, all
exhibits and schedules thereto and hereto and any other documents or agreements
executed in connection with the transactions contemplated
hereunder.
“Underlying Shares” means the
Company’s capital stock issued and issuable upon conversion of the Notes or upon
exercise of the Warrants.
“Warrants” means collectively,
the common stock purchase warrants delivered to the Lender within seven business
days from date of closing, which warrants have a term of exercise equal to five
years, provided the Note is not converted pursuant to section 3.1 hereto, in the
form of Exhibit B attached hereto.
2.0 Terms of
the Senior Secured Notes.
2.1 Issuance
of Senior Secured Notes. In return for the Consideration paid by each
Lender, the Company shall sell and issue to such Lender one or more Senior
Secured Notes. Each Note shall have a principal balance equal to that portion of
the Consideration, paid by such Lender for the Note, as set forth in the
Schedule of Lenders.
3.0 Conversion
Rights and Warrant. The Note may be convertible
into the Financing Round and the Lenders shall be entitled to the Warrant in
accordance to the following terms.
3.1 Conversion
of Notes. At the option of the Lender upon the Financing Round, and in
return for the Company’s receipt of the Note’s entire outstanding principal and
accrued interest, each Lender shall be entitled to convert any Note in its
possession into the Financing Round, which shall be determined (i) by dividing
the Note’s entire outstanding principal and accrued interest by the price of the
Company’s capital stock being issued pursuant to the Financing Round or (ii) by
exchanging the Note’s entire outstanding principal and accrued interest for the
principal amount of the Company’s debt being issued pursuant to the Financing
Round.
3.2 Warrants.
Each Lender shall receive a warrant to purchase shares of the Company’s Common
Stock in the form attached hereto as Exhibit B (the “Warrant”) for the number of
shares set forth next to the Lender’s name on the Schedule of
Lenders.
4.0 Representations
and Warranties of the Company. Except as set forth in the Disclosure
Schedules, which Disclosure Schedules shall be deemed a part hereof and shall
qualify any representation or otherwise made herein to the extent of the
disclosure contained in the corresponding section of the Disclosure Schedules,
the Company hereby makes the following representations and warranties to each
Lender:
4.1 Organization,
Good Standing and Qualification. Each of the Company and the
Subsidiary is an entity duly incorporated or otherwise organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation or organization (as applicable), with the requisite power and
authority to own and use its properties and assets and to carry on its business
as currently conducted. Neither the Company nor any Subsidiary is in
violation or default of any of the provisions of its respective certificate or
articles of incorporation, bylaws or other organizational or charter
documents. Each of the Company and the Subsidiary is duly qualified
to conduct business and is in good standing as a foreign corporation or other
entity in each jurisdiction in which the nature of the business conducted or
property owned by it makes such qualification necessary, except where the
failure to be so qualified or in good standing, as the case may be, could not
have or reasonably be expected to result in (i) a material adverse effect on the
legality, validity or enforceability of any Transaction Document, (ii) a
material adverse effect on the results of operations, assets, business,
prospects or condition (financial or otherwise) of the Company and the
Subsidiary, taken as a whole, or (iii) a material adverse effect on the
Company’s ability to perform in any material respect on a timely basis its
obligations under any Transaction Document (any of (i), (ii) or (iii), a
“Material Adverse Effect”) and no Proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing or seeking to revoke, limit or
curtail such power and authority or qualification.
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4.2 Authorization;
Enforcement. The Company has the requisite corporate power and authority
to enter into and to consummate the transactions contemplated by each of the
Transaction Documents and otherwise to carry out its obligations hereunder and
thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
action on the part of the Company and no further action is required by the
Company, the Board of Directors or the Company’s stockholders in connection
therewith other than in connection with the Required Approvals. Each
Transaction Document has been (or upon delivery will have been) duly executed by
the Company and, when delivered in accordance with the terms hereof and thereof,
will constitute the valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except (i) as limited by
general equitable principles and applicable bankruptcy, insolvency,
reorganization, moratorium and other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as limited by laws relating to
the availability of specific performance, injunctive relief or other equitable
remedies and (iii) insofar as indemnification and contribution provisions may be
limited by applicable law.
4.3 Subsidiaries. The
Company has one Subsidiary, SurgiCount Medical, Inc., a California
corporation. The Company owns, directly or indirectly, all of the
capital stock or other equity interests of the Subsidiary free and clear of any
Liens, and all of the issued and outstanding shares of capital stock of the
Subsidiary are validly issued and are fully paid, non-assessable and free of
preemptive and similar rights to subscribe for or purchase
securities.
4.4 No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
other transactions contemplated hereby and thereby do not and will not: (i)
conflict with or violate any provision of the Company’s or any Subsidiary’s
certificate or articles of incorporation, bylaws or other organizational or
charter documents, or (ii) conflict with, or constitute a default (or an event
that with notice or lapse of time or both would become a default) under, result
in the creation of any Lien upon any of the properties or assets of the Company
or any Subsidiary, or give to others any rights of termination, amendment,
acceleration or cancellation (with or without notice, lapse of time or both) of,
any agreement, credit facility, debt or other instrument (evidencing a Company
or Subsidiary debt or otherwise) or other understanding to which the Company or
any Subsidiary is a party or by which any property or asset of the Company or
any Subsidiary is bound or affected, or (iii) subject to the Required Approvals,
conflict with or result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected; except in the case of each of
clauses (ii) and (iii), such as could not have or reasonably be expected to
result in a Material Adverse Effect.
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4.5 Filings,
Consents and Approvals. The Company is not required to obtain
any consent, waiver, authorization or order of, give any notice to, or make any
filing or registration with, any court or other federal, state, local or other
governmental authority or other Person in connection with the execution,
delivery and performance by the Company of the Transaction Documents, other than
(i) a Current Report on Form 8-K disclosing the material terms of the
transactions contemplated hereby and attaching the Transaction Documents as
exhibits thereto, (ii) the filing of a Registration Statement, as may be
required by the Commission in connection with the issuance and sale of the
Underlying Shares, (iii) the notice and/or application(s) to each applicable
Trading Market for the issuance and sale of the Underlying Shares for trading
thereon, as may be required thereby, and (iv) the filing of Form D with the
Commission and such filings as are required to be made under applicable state
securities laws (collectively, the “Required Approvals”).
4.6 Issuance
of the Securities. The Securities are duly authorized and,
when issued and paid for in accordance with the applicable Transaction
Documents, will be duly and validly issued, fully paid and nonassessable, free
and clear of all Liens granted or imposed by the Company with respect to its
assets or business other than restrictions on transfer provided for in the
Transaction Documents. The Underlying Shares, when issued in
accordance with the terms of the Transaction Documents, will be validly issued,
fully paid and nonassessable, free and clear of all Liens imposed by the Company
other than restrictions on transfer provided for in the Transaction
Documents. The Company has authorized sufficient shares, or will have
authorized sufficient shares of Company stock within the next 120 days to allow
for the conversion of the Note as described in Section 3.1 and exercise of the
Warrant as described in section 3.2.
4.7 Capitalization. The
capitalization of the Company is as set forth on Schedule 4.7, which Schedule
4.7 shall also include the number of shares of Common Stock owned beneficially,
and of record, by Affiliates of the Company as of the date hereof. No
Person has any right of first refusal, preemptive right, right of participation,
or any similar right to participate in the transactions contemplated by the
Transaction Documents. Except as a result of the purchase and sale of
the Securities and as set forth on Schedule 4.7, there are no outstanding
options, warrants, scrip rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities, rights or obligations
convertible into or exercisable or exchangeable for, or giving any Person any
right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock or
Common Stock Equivalents. The issuance and sale of the Securities will not
obligate the Company to issue shares of Common Stock or other securities to any
Person (other than the Lenders) and will not result in a right of any holder of
Company securities to adjust the exercise, conversion, exchange or reset price
under any of such securities. All of the outstanding shares of capital stock of
the Company are validly issued, fully paid and nonassessable, have been issued
in compliance with all federal and state securities laws, and none of such
outstanding shares was issued in violation of any preemptive rights or similar
rights to subscribe for or purchase securities. No further approval
or authorization of any stockholder, the Board of Directors or others is
required for the issuance and sale of the Securities. There are no
stockholders agreements, voting agreements or other similar agreements with
respect to the Company’s capital stock to which the Company is a party or, to
the knowledge of the Company, between or among any of the Company’s
stockholders.
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4.8 SEC
Reports; Financial Statements. The Company has filed all
reports, schedules, forms, statements and other documents required to be filed
by the Company under the Securities Act and the Exchange Act, including pursuant
to Section 13(a) or 15(d) thereof, for the two years preceding the date hereof
(or such shorter period as the Company was required by law or regulation to file
such material) (the foregoing materials, including the exhibits thereto and
documents incorporated by reference therein, being collectively referred to
herein as the “SEC Reports”) on a timely basis (except for the Company’s Form
10-Form 10-K for the year ended December 31, 2006 and Form 10-Q’s for the
periods ended September 30, 2006 and March 31, 2007, which were not filed on a
timely basis) or has received a valid extension of such time of filing and has
filed any such SEC Reports prior to the expiration of any such
extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and none of the SEC Reports, when filed, contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the
SEC Reports comply in all material respects with applicable accounting
requirements and the rules and regulations of the Commission with respect
thereto as in effect at the time of filing. Such financial statements
have been prepared in accordance with United States generally accepted
accounting principles applied on a consistent basis during the periods involved
(“GAAP”), except as may be otherwise specified in such financial statements or
the notes thereto and except that unaudited financial statements may not contain
all footnotes required by GAAP, and fairly present in all material respects the
financial position of the Company and its consolidated Subsidiaries as of and
for the dates thereof and the results of operations and cash flows for the
periods then ended, subject, in the case of unaudited statements, to normal,
immaterial, year-end audit adjustments.
4.9 Material
Changes. Since the date of the latest audited financial
statements included within the SEC Reports, except as specifically disclosed in
a subsequent SEC Report filed prior to the date hereof, (i) there has been no
event, occurrence or development that has had or that could reasonably be
expected to result in a Material Adverse Effect, (ii) the Company has not
incurred any liabilities (contingent or otherwise) other than (A) trade payables
and accrued expenses incurred in the ordinary course of business consistent with
past practice and (B) liabilities not required to be reflected in the Company’s
financial statements pursuant to GAAP or disclosed in filings made with the
Commission, (iii) the Company has not altered its method of accounting, (iv) the
Company has not declared or made any dividend or distribution of cash, other
than dividends related to the Company’s Series A Preferred Stock, or other
property to its stockholders or purchased, redeemed or made any agreements to
purchase or redeem any shares of its capital stock and (v) the Company has not
issued any equity securities to any officer, director or Affiliate, except
pursuant to existing Company stock option plans, compensation arrangements, or
pursuant to a private placement of securities. The Company does not
have pending before the Commission any request for confidential treatment of
information. Except for the issuance of the Securities contemplated
by this Agreement or as set forth on Schedule 4.9, no event, liability or
development has occurred or exists with respect to the Company or its
Subsidiaries or their respective business, properties, operations or financial
condition, that would be required to be disclosed by the Company under
applicable securities laws at the time this representation is made or deemed
made that has not been publicly disclosed at least one Trading Day prior to the
date that this representation is made.
4.10
Litigation. Except
as described in Disclosure Schedule 4.10, there is no action, suit, inquiry,
notice of violation, proceeding or investigation pending or, to the knowledge of
the Company, threatened against or affecting the Company, any Subsidiary or any
of their respective properties before or by any court, arbitrator, governmental
or administrative agency or regulatory authority (federal, state, county, local
or foreign) (collectively, an “Action”) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, if there were an unfavorable
decision, have or reasonably be expected to result in a Material Adverse
Effect. Neither the Company nor any Subsidiary, nor any director or
officer thereof, is or has been the subject of any Action involving a claim of
violation of or liability under federal or state securities laws or a claim of
breach of fiduciary duty. There has not been, and to the knowledge of
the Company, there is not pending or contemplated, any investigation by the
Commission involving the Company or any current or former director or officer of
the Company. The Commission has not issued any stop order or other
order suspending the effectiveness of any registration statement filed by the
Company or any Subsidiary under the Exchange Act or the Securities
Act.
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4.11
Labor
Relations. No material labor dispute exists or, to the
knowledge of the Company, is imminent with respect to any of the employees of
the Company which could reasonably be expected to result in a Material Adverse
Effect. None of the Company’s or its Subsidiaries’ employees is a
member of a union that relates to such employee’s relationship with the Company
or such Subsidiary, and neither the Company nor any of its Subsidiaries is a
party to a collective bargaining agreement, and the Company and its Subsidiaries
believe that their relationships with their employees are good. No
executive officer, to the knowledge of the Company, is, or is now expected to
be, in violation of any material term of any employment contract,
confidentiality, disclosure or proprietary information agreement or
non-competition agreement, or any other contract or agreement or any restrictive
covenant in favor of any third party, and the continued employment of each such
executive officer does not subject the Company or any of its Subsidiaries to any
liability with respect to any of the foregoing matters. The Company
and its Subsidiaries are in compliance with all U.S. federal, state, local and
foreign laws and regulations relating to employment and employment practices,
terms and conditions of employment and wages and hours, except where the failure
to be in compliance could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
4.12
Compliance. Neither
the Company nor any Subsidiary (i) is in default under or in violation of (and
no event has occurred that has not been waived that, with notice or lapse of
time or both, would result in a default by the Company or any Subsidiary under),
nor has the Company or any Subsidiary received notice of a claim that it is in
default under or that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it is a party or by
which it or any of its properties is bound (whether or not such default or
violation has been waived), (ii) is in violation of any order of any court,
arbitrator or governmental body, or (iii) is or has been in violation of any
statute, rule or regulation of any governmental authority, including without
limitation all foreign, federal, state and local laws applicable to its business
and all such laws that affect the environment, except in each case as could not
have or reasonably be expected to result in a Material Adverse
Effect.
4.13
Regulatory
Permits. The Company and the Subsidiary possess all
certificates, authorizations and permits issued by the appropriate federal,
state, local or foreign regulatory authorities necessary to conduct their
respective businesses as described in the SEC Reports, except where the failure
to possess such permits could not reasonably be expected to result in a Material
Adverse Effect (“Material Permits”), and neither the Company nor any Subsidiary
has received any notice of proceedings relating to the revocation or
modification of any Material Permit.
4.14
Title to
Assets. The Company and the Subsidiary have good and
marketable title in fee simple to all real property owned by them and good and
marketable title in all personal property owned by them that is material to the
business of the Company and the Subsidiary, in each case free and clear of all
Liens, except for Liens as do not materially affect the value of such property
and do not materially interfere with the use made and proposed to be made of
such property by the Company and the Subsidiary and Liens for the payment of
federal, state or other taxes, the payment of which is neither delinquent nor
subject to penalties. Any real property and facilities held under
lease by the Company and the Subsidiary are held by them under valid, subsisting
and enforceable leases with which the Company and the Subsidiary are in
compliance.
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4.15
Patents
and Trademarks. The Company and the Subsidiary have, or have
rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, trade secrets, inventions, copyrights,
licenses and other intellectual property rights and similar rights necessary or
material for use in connection with their respective businesses as described in
the SEC Reports and which the failure to so have could have a Material Adverse
Effect (collectively, the “Intellectual Property Rights”). Neither
the Company nor any Subsidiary has received a notice (written or otherwise) that
any of the Intellectual Property Rights used by the Company or any Subsidiary
violates or infringes upon the rights of any Person. To the knowledge of the
Company, all such Intellectual Property Rights are enforceable and there is no
existing infringement by another Person of any of the Intellectual Property
Rights. The Company and its Subsidiaries have taken reasonable
security measures to protect the secrecy, confidentiality and value of all of
their intellectual properties, except where failure to do so could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
4.16
Insurance. The
Company and the Subsidiary are insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which the Company and the Subsidiary are
engaged, including, but not limited to, directors and officers insurance
coverage at least equal to the aggregate Subscription Amount. Neither
the Company nor any Subsidiary has any reason to believe that it will not be
able to renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary to
continue its business without a significant increase in cost.
4.17
Transactions
with Affiliates and Employees. Except as set forth in the SEC
Reports, none of the officers or directors of the Company and, to the knowledge
of the Company, none of the employees of the Company is presently a party to any
transaction with the Company or any Subsidiary (other than for services as
employees, officers and directors), including any contract, agreement or other
arrangement providing for the furnishing of services to or by, providing for
rental of real or personal property to or from, or otherwise requiring payments
to or from any officer, director or such employee or, to the knowledge of the
Company, any entity in which any officer, director, or any such employee has a
substantial interest or is an officer, director, trustee or partner, in each
case in excess of $60,000 other than for (i) payment of salary or consulting
fees for services rendered, (ii) reimbursement for expenses incurred on behalf
of the Company and (iii) other employee benefits, including stock option
agreements under any stock option plan of the Company.
4.18
Xxxxxxxx-Xxxxx;
Internal Accounting Controls. The Company is in material
compliance with all provisions of the Xxxxxxxx-Xxxxx Act of 2002 which are
applicable to it as of the Closing Date. The Company and the
Subsidiary maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management’s general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management’s general or specific
authorization, and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences. The Company has established disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the
Company and designed such disclosure controls and procedures to ensure that
information required to be disclosed by the Company in the reports it files or
submits under the Exchange Act is recorded, processed, summarized and reported,
within the time periods specified in the Commission’s rules and
forms. The Company’s certifying officers have evaluated the
effectiveness of the Company’s disclosure controls and procedures as of the end
of the period covered by the Company’s most recently filed periodic report under
the Exchange Act (such date, the “Evaluation Date”). The Company
presented in its most recently filed periodic report under the Exchange Act the
conclusions of the certifying officers about the effectiveness of the disclosure
controls and procedures based on their evaluations as of the Evaluation
Date. Since the Evaluation Date, there have been no changes in the
Company’s internal control over financial reporting (as such term is defined in
the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, the Company’s internal control over financial
reporting.
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4.19
Certain
Fees. No brokerage or finder’s fees or commissions are or will
be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, bank or other Person with respect to
the transactions contemplated by the Transaction Documents. The
Lenders shall have no obligation with respect to any fees or with respect to any
claims made by or on behalf of other Persons for fees of a type contemplated in
this Section that may be due in connection with the transactions contemplated by
the Transaction Documents.
4.20
Private
Placement. Assuming the accuracy of the Lenders’
representations and warranties set forth in Section 5, no registration under the
Securities Act is required for the offer and sale of the Securities by the
Company to the Lenders as contemplated hereby. The issuance and sale of the
Securities hereunder does not contravene the rules and regulations of the
Trading Market.
4.21
Investment
Company. The Company is not, and is not an Affiliate of, and immediately
after receipt of payment for the Securities, will not be or be an Affiliate of,
an “investment company” within the meaning of the Investment Company Act of
1940, as amended. The Company shall conduct its business in a manner
so that it will not become subject to the Investment Company Act of 1940, as
amended.
4.22
Registration
Rights. Except as disclosed on Disclosing Schedule 4.22, other
than each of the Lenders, no Person has any right to cause the Company to effect
the registration under the Securities Act of any securities of the
Company.
4.23
Listing
and Maintenance Requirements. The Common Stock is registered
pursuant to Section 12(b) or 12(g) of the Exchange Act, and the Company has
taken no action designed to, or which to its knowledge is likely to have the
effect of, terminating the registration of the Common Stock under the Exchange
Act nor has the Company received any notification that the Commission is
contemplating terminating such registration. The Company was delisted
from the American Stock Exchange LLC during 2007. Other than with
respect to such delisting and certain late filings of SEC Reports disclosed
above under Section 4.8, the Company has not, in the 12 months preceding the
date hereof, received notice from any Trading Market on which the Common Stock
is or has been listed or quoted to the effect that the Company is not in
compliance with the listing or maintenance requirements of such Trading Market.
The Company is, and has no reason to believe that it will not in the foreseeable
future continue to be, in compliance with all such listing and maintenance
requirements.
4.24
Tax
Status. Except for matters that would not, individually or in the
aggregate, have or reasonably be expected to result in a Material Adverse
Effect, the Company and the Subsidiary has filed all necessary federal, state
and foreign income and franchise tax returns and has paid or accrued all taxes
shown as due thereon, and the Company has no knowledge of a tax deficiency which
has been asserted or threatened against the Company or any
Subsidiary.
9
4.25
No
General Solicitation. Neither the Company nor any person acting on behalf
of the Company has offered or sold any of the Securities by any form of general
solicitation or general advertising. The Company has offered the
Securities for sale only to the Lenders and certain other “accredited investors”
within the meaning of Rule 501 under the Securities Act.
4.26
Foreign
Corrupt Practices. Neither the Company, nor to the knowledge
of the Company, any agent or other person acting on behalf of the Company, has
(i) directly or indirectly, used any funds for unlawful contributions, gifts,
entertainment or other unlawful expenses related to foreign or domestic
political activity, (ii) made any unlawful payment to foreign or domestic
government officials or employees or to any foreign or domestic political
parties or campaigns from corporate funds, (iii) failed to disclose fully any
contribution made by the Company (or made by any person acting on its behalf of
which the Company is aware) which is in violation of law, or (iv)
violated in any material respect any provision of the Foreign Corrupt Practices
Act of 1977, as amended.
4.27
Accountants. The
Company’s accounting firm is set forth on Schedule 4.31 of the Disclosure
Schedule. To the knowledge and belief of the Company, such accounting
firm (i) is a registered public accounting firm as required by the Exchange Act
and (ii) shall express its opinion with respect to the financial statements to
be included in the Company’s next Annual Report for the year ending December 31,
2008.
4.28
Seniority. As
of the Closing Date, no Indebtedness or other claim against the Company is
senior to the Notes in right of payment, whether with respect to interest or
upon liquidation or dissolution, or otherwise, other than indebtedness secured
by purchase money security interests (which is senior only as to underlying
assets covered thereby) and capital lease obligations (which is senior only as
to the property covered thereby).
4.29
No
Disagreements with Accountants and Lawyers. There are no
disagreements of any kind presently existing, or reasonably anticipated by the
Company to arise, between the Company and the accountants and lawyers formerly
or presently employed by the Company and the Company is current with respect to
any fees owed to its accountants and lawyers which could affect the Company’s
ability to perform any of its obligations under any of the Transaction
Documents.
4.30
Acknowledgment
Regarding Lenders’ Purchase of Securities. The Company
acknowledges and agrees that each of the Lenders is acting solely in the
capacity of an arm’s length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further
acknowledges that no Lender is acting as a financial advisor or fiduciary of the
Company (or in any similar capacity) with respect to the Transaction Documents
and the transactions contemplated thereby and any advice given by any Lender or
any of their respective representatives or agents in connection with the
Transaction Documents and the transactions contemplated thereby is merely
incidental to the Lenders’ purchase of the Securities. The Company
further represents to each Lender that the Company’s decision to enter into this
Agreement and the other Transaction Documents has been based solely on the
independent evaluation of the transactions contemplated hereby by the Company
and its representatives.
10
4.31
Regulation
M Compliance. The Company has not, and to its knowledge no one
acting on its behalf has, (i) taken, directly or indirectly, any action designed
to cause or to result in the stabilization or manipulation of the price of any
security of the Company to facilitate the sale or resale of any of the
Securities, (ii) sold, bid for, purchased, or paid any compensation for
soliciting purchases of, any of the securities of the Company, or (iii) paid or
agreed to pay to any Person any compensation for soliciting another to purchase
any other securities of the Company, other than, in the case of clauses (ii) and
(iii), compensation paid to the Company’s placement agent in connection with the
placement of the Securities.
4.32
Use
of Proceeds. Except as set forth on Schedule 4.37 attached
hereto, the Company shall use the net proceeds from the sale of the Securities
hereunder for working capital purposes, including growth and capital initiatives
of SurgiCount Medical, Inc., and repayment of existing liabilities.
5.0 Representations,
Warranties and Covenants of the Lenders. In connection with
the transactions provided for herein, each Lender hereby represents, warrants
and covenants to the Company that:
5.1 Authorization. This
Agreement constitutes such Lender’s valid and legally binding obligation,
enforceable in accordance with its terms, except as may be limited by (i)
applicable bankruptcy, insolvency, reorganization, or similar laws relating to
or affecting the enforcement of creditors’ rights and (ii) laws relating to the
availability of specific performance, injunctive relief or other equitable
remedies. Each Lender represents that it has full power and authority to enter
into this Agreement.
5.2 Accredited
Investor. Each Lender is an “accredited investor” within the
meaning of Rule 501 of Regulation D of the Securities and Exchange Commission
(the “SEC”), as presently in effect.
5.3 Restricted
Securities. Each Lender understands that the Warrants are
characterized as “restricted securities” under the federal securities laws
inasmuch as they are being acquired from the Company in a transaction not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Act only in certain
limited circumstances. Each Lender represents that it is familiar with SEC Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
5.4 Legends. It
is understood that the Securities may bear the following legend:
“THESE
SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, HYPOTHECATED, OR
OTHERWISE TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR
UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.”
5.5 Lender
Trading Restrictions. Lenders may not enter into short sales,
“derivative” transactions or hedging activities that may negatively impact the
market price of the Company’s publicly-traded securities until three trading
days following the public announcement of the closing of the Financing
Round.
6 Events of
Default Events of Default under this Agreement shall be the same as
under the Notes and the Security Agreement.
7.0 Miscellaneous.
7.1 Successors
and Assigns. Except as otherwise provided in each Transaction
Document, the terms and conditions of the Transaction Documents shall inure to
the benefit of and be binding upon the respective successors and assigns of the
parties, provided, however, that the Company may not assign its obligations
under the Transaction Documents without the written consent of the Noteholders
Majority. Nothing in the Transaction Documents, express or implied, is intended
to confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations or liabilities under or
by reason of this Agreement, except as expressly provided in the Transaction
Documents.
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7.2 Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of the Transaction Documents shall be governed by
and construed and enforced in accordance with the internal laws of the State of
California, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement and any other Transaction Documents (whether brought against a
party hereto or its respective affiliates, directors, officers, shareholders,
employees or agents) shall be commenced exclusively in the state and federal
courts sitting in the City of Los Angeles, County of Los Angeles. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of Los Angeles, County of Los Angeles for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper or is an inconvenient venue for such
proceeding. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof via registered or certified mail or
overnight delivery (with evidence of delivery) to such party at the address in
effect for notices to it under this Agreement and agrees that such service shall
constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way
any right to serve process in any other manner permitted by law. If
either party shall commence an action or proceeding to enforce any provisions of
the Transaction Documents, then the prevailing party in such action or
proceeding shall be reimbursed by the other party for its reasonable attorneys’
fees and other costs and expenses incurred with the investigation, preparation
and prosecution of such action or proceeding.
7.3 Execution. This
Agreement may be executed in two or more counterparts, all of which when taken
together shall be considered one and the same agreement and shall become
effective when counterparts have been signed by each party and delivered to the
other party, it being understood that both parties need not sign the same
counterpart. In the event that any signature is delivered by
facsimile transmission or by e-mail delivery of a “.pdf” format data file, such
signature shall create a valid and binding obligation of the party executing (or
on whose behalf such signature is executed) with the same force and effect as if
such facsimile or “.pdf” signature page were an original thereof.
7.4 Titles
and Subtitles. The titles and subtitles used in this Agreement
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
7.5 Notices. All
notices and other communications given or made pursuant hereto shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to
the party
to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent
during normal business hours of the recipient, if not so confirmed, then on the
next business day, (iii) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid or (iv) one (1) day
after deposit with a nationally recognized overnight courier,
12
specifying
next day delivery, with written verification of receipt. All communications
shall be sent to the respective parties at the following addresses (or at such
other addresses as shall be specified by notice given in accordance with this
Section 7.5):
If to the
Company:
00000
Xxxxx Xxxx Xxxxx, Xxxxx #000
Xxxxxxxx, XX 00000
Attention: Xxxx Xxx, Interim
CFO
If to
Lenders: At the respective addresses shown on the signature pages
hereto.
7.6 Finder’s
Fee. Each party represents that it neither is nor will be
obligated for any finder’s fee or commission in connection with this
transaction. Lender agrees to indemnify and to hold harmless the Company from
any liability for any commission or compensation in the nature of a finder’s fee
(and the costs and expenses of defending against such liability or asserted
liability) for which Lender or any of its officers, partners, employees or
representatives is responsible. The Company agrees to indemnify and hold
harmless Lender from any liability for any commission or compensation in the
nature of a finder’s fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its officers,
employees or representatives is responsible.
7.8 Entire
Agreement; Amendments and Waivers. This Agreement, the Notes,
the Warrants and the other documents delivered pursuant hereto constitute the
full and entire understanding and agreement between the parties with regard to
the subjects hereof and thereof. The Company’s agreements with each of the
Lenders are separate agreements, and the sales of the Notes and Warrants to each
of the Lenders are separate sales. Nonetheless, any term of this Agreement, the
Notes (except as to payment) or the Warrants may be amended and the observance
of any term of this Agreement, the Notes (except as to payment) or the Warrants
may be waived with the written consent of the Company and the Noteholders
Majority. Any waiver or amendment effected in accordance with this Section shall
be binding upon each party to this Agreement and any holder of any Note or
Warrant purchased under this Agreement at the time outstanding and each future
holder of all such Notes or Warrants.
7.9 Effect of
Amendment or Waiver. Each Lender acknowledges that by the
operation of Section 7.8 hereof, the Noteholders Majority will have the right
and power to diminish or eliminate all rights of such Lender under this
Agreement and each Note and Warrant issued to such Lender.
7.10 Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
7.11 Exculpation
Among Lenders. Each Lender acknowledges that it is not relying
upon any person, firm, corporation or stockholder, other than the Company and
its officers and directors in their capacities as such, in making its investment
or decision to invest in the Company. Each Lender agrees that no other Lender
nor the respective controlling persons, officers, directors, partners, agents,
stockholders or employees of any other Lender shall be liable for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase and sale of the Securities.
13
7.12 Waiver of
Jury Trial. TO THE EXTENT EACH
MAY LEGALLY DO SO, EACH PARTY HERETO HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION, CAUSE OF ACTION, OR PROCEEDING ARISING
UNDER OR WITH RESPECT TO THIS AGREEMENT, OR IN ANY WAY CONNECTED WITH, OR
RELATED TO, OR INCIDENTAL TO, THE DEALING OF THE PARTIES HERETO WITH RESPECT TO
THIS AGREEMENT, OR THE TRANSACTIONS RELATED THERETO, IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND IRRESPECTIVE OF WHETHER SOUNDING IN CONTRACT,
TORT, OR OTHERWISE. TO THE EXTENT EACH MAY LEGALLY DO SO, EACH PARTY HERETO
HEREBY AGREES THAT ANY SUCH CLAIM, DEMAND, ACTION, OR PROCEEDING SHALL BE
DECIDED BY A COURT TRIAL WITHOUT A JURY AND THAT EITHER PARTY HERETO MAY FILE AN
ORIGINAL COUNTERPART OR A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF ANY OTHER PARTY HERETO TO THE WAIVER OF ITS RIGHT TO
TRIAL BY JURY.
7.13
Payment
of Reasonable Legal Expenses. The Company will pay on demand all
reasonable legal expenses of the Lenders in direct connection with this
Agreement up to $10,000.
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LEFT BLANK]
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IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first
above written.
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By:
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||
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Name:
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Xxxxx
Xxxxx
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|
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Title:
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Chief
Executive Officer
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