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EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
August 21, 1998, by and among CardioDynamics International Corporation, a
California corporation, with headquarters located at 0000 Xxxxx Xxxxx Xxxxx,
Xxxxx 000, Xxx Xxxxx, Xxxxxxxxxx 00000 (the "COMPANY"), and the investors listed
on the Schedule of Buyers attached hereto (individually, a "BUYER" and
collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 ACT");
B. The Company has authorized shares of the Company's
preferred stock, no par value per share, designated as Series A Convertible
Preferred Stock ("SERIES A PREFERRED STOCK") and the Company shall authorize in
accordance with the terms hereof the following series of the Company's preferred
stock, no par value per share: (i) Series B Convertible Preferred Stock ("SERIES
B PREFERRED STOCK"); and (ii) Series C Convertible Preferred Stock ("SERIES C
PREFERRED STOCK") (collectively, the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock are collectively referred to
herein as the "PREFERRED STOCK") each series of which shall be convertible into
shares of the Company's Common Stock, no par value per share (the "COMMON
Stock") (as converted, the "CONVERSION SHARES"), each in accordance with terms
substantially identical to those contained in the Company's Certificate of
Determination of the Series A Preferred Stock, in the form attached hereto as
Exhibit A (the "CERTIFICATE OF DETERMINATION"), provided that such Certificates
of Determination for the Series B Preferred Stock and Series C Preferred Stock
shall contain differing Fixed Conversion Prices (as shall be defined therein);
C. The Company has authorized the issuance of Common Stock
Purchase Warrants (the "WARRANTS"), to acquire shares of Common Stock (such
shares of Common Stock issued upon exercise of the Warrants are hereinafter
referred to as the "WARRANT SHARES");
D. The Buyers wish to purchase for $3 million, upon the terms
and conditions stated in this Agreement, an aggregate of 3,000 shares of Series
A Preferred Stock (the "INITIAL PREFERRED STOCK") in the respective amounts set
forth opposite each Buyer's name on the Schedule of Buyers; and to receive, in
consideration for such purchase, the Warrants, to purchase an aggregate of
123,000 shares of Common Stock, subject to adjustment as provided therein in the
form attached hereto as Exhibit B;
E. Subject to the terms and conditions set forth in this
Agreement, the Buyers have the right to purchase up to an aggregate of 3,000
shares of Series B Preferred Stock (the "ADDITIONAL PREFERRED STOCK") and the
Company has the right to cause the Buyers to purchase up to an aggregate of
3,000 shares of Series C Preferred Stock (the "PUT PREFERRED STOCK").
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The Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Warrant Shares, the Warrants and the Conversion Shares are
collectively referred to in this Agreement as the "SECURITIES"; and
F. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
a. Purchase of Series A Preferred Stock. Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7(a)
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company Series A Preferred Stock, in the respective amounts
set forth opposite each Buyer's name on the Schedule of Buyers (the "INITIAL
CLOSING"). Subject to the terms and conditions set forth in Section 1(c) and
satisfaction of the conditions set forth in Sections 6 and 7(b), at the option
of each Buyer, the Company shall issue and sell to each such Buyer and each such
Buyer shall purchase from the Company the Additional Preferred Stock at an
additional closing (the "ADDITIONAL CLOSINGS"). Subject to the terms and
conditions set forth in Section 1(d) and satisfaction of the conditions set
forth in Sections 6 and 7(c), the Company may require that each Buyer purchase
in the aggregate the Put Preferred Stock, equal to such Buyer's pro rata portion
of Series A Preferred Stock at an additional closing up to the number of shares
set forth opposite such Buyer's name on the Schedule of Buyers; provided,
however, that if a Buyer has already purchased an amount equal to the number of
shares set forth opposite such Buyer' s name on the Schedule of Buyers, the
Company may require the remaining Buyers to purchase in pro rata portions (the
"PUT CLOSING"). The Initial Closing, the Additional Closing and the Put Closing
are referred to in this Agreement as the "CLOSINGS." The per share purchase
price (the "PURCHASE PRICE") of each share of Preferred Stock at each of the
Closings shall be $1,000. On each Closing Date, the Company shall deliver to
each Buyer a stock certificate representing such number of shares of Preferred
Stock which such Buyer is then purchasing, duly executed on behalf of the
Company and registered in the name of such Buyer or its designee (the "STOCK
CERTIFICATES").
b. Initial Closing Date. The date and time of the
Initial Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Eastern
Daylight Time on August 21, 1998, subject to satisfaction (or waiver) of the
conditions to the Initial Closing set forth in Sections 6 and 7(a) below (or
such later date as is mutually agreed to by the Company and the Buyers). The
Initial Closing shall occur on the Initial Closing Date at the offices of
Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
c. Additional Closing Dates. The date and time of any
Additional Closing (the "ADDITIONAL CLOSING DATES") shall be, subject to
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7(b),
within 20 days of the receipt by the Company of a
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notice from any of the Buyers (with a copy of such notice being delivered by
such electing Buyer to the remaining Buyers) that such Buyer has elected to
purchase its pro rata share of the Additional Preferred Stock in an amount not
less than $500,000 (the "ADDITIONAL PREFERRED STOCK NOTICE"). The Additional
Preferred Stock Notice may only be delivered to the Company (x) on any day
during the period beginning the later of (i) 90 days from the date the
Registration Statement (as defined below) is declared effective and (ii) 180
days from the Initial Closing Date, and ending 360 days from the date the
Registration Statement is declared effective, and (y) if the Closing Bid Price
(as defined in the Certificate of Determination) of the Common Stock is greater
than the Fixed Conversion Price (as defined in the Certificate of Determination)
for ten (10) consecutive trading days. The Additional Preferred Stock Notice
shall include the amount and purchase price of the Additional Preferred Stock to
be purchased by the Buyer and the date selected by the Buyer for the Additional
Closing Date. The Fixed Conversion Price for such Additional Preferred Stock
shall be equal to 115% of the average closing price of the Common Stock on its
principal exchange or market for the ten (10) trading days immediately preceding
the Additional Closing Date. At the Additional Closing, the Company and the
Buyer shall enter into a registration rights agreement substantially identical
to (and pari passu with) the Registration Rights Agreement. The Additional
Closings shall occur on the respective Additional Closing Dates at the offices
of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx Xxxx, Xxx Xxxx 00000.
d. Put Closing Date. The date and time of the Put
Closing (the "PUT CLOSING Date") shall be, subject to notification of
satisfaction (or waiver) of the conditions set forth in Sections 6(a) and 7(c),
within 20 days of the receipt by the Holders of a notice from the Company that
the Company is requiring the Buyers to purchase their pro rata share of the Put
Preferred Stock (the "PUT PREFERRED STOCK NOTICE"). Subject to Section 1(e), the
Put Preferred Stock Notice may only be delivered to the Buyers (i) on any day
during the period beginning the later of (x) 90 days from the date the
Registration Statement is declared effective and (y) 180 days from the Initial
Closing Date, and ending 360 days from the date the Registration Statement is
declared effective, (ii) if during the period beginning on and including the
date which is 60 business days prior to the date of the Put Closing Date, the
Registration Statement covering the resale of the Conversion Shares and Warrant
Shares has been declared effective by the SEC and at all times has been
effective, (iii) if during the period beginning on the Initial Closing Date and
ending on and including the Put Closing Date, the Common Stock is listed on the
Nasdaq SmallCap Market, ("NASDAQ SMALLCAP"), the Nasdaq National Market, the New
York Stock Exchange or the American Stock Exchange and has not been suspended
from trading at any time during such period (excluding suspensions of not more
than 24 consecutive hours resulting from business announcements), has not been
delisted at any time during such period, nor is there any pending or threatened
delisting or suspension, (iv) if on each day during the period beginning on and
including the date which is 10 business days prior to the Put Closing Date and
ending on and including the Put Closing Date, the Closing Bid Price of the
Common Stock is not less than the Fixed Conversion Price for the Initial
Preferred Stock on the Initial Closing Date, (v) if during the period beginning
on the Initial Closing Date and ending on and including the Put Closing Date,
the Company shall have delivered Conversion Shares upon conversion of the Series
A Preferred Stock and Warrant Shares upon exercise of the Warrants to the Buyers
on a timely basis as set forth in the Certificate of Determination and the
Warrant, respectively, and (vi) if the
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Daily Dollar Volume (defined as the product of the number of shares traded on
such day and the Average Price (as reported by Bloomberg L.P.) for such day) for
each of the trading days of the 30 day period immediately preceding the date of
the Put Preferred Stock Notice is greater than $150,000. The Put Preferred Stock
Notice shall include the amount and purchase price of Put Preferred Stock to be
purchased pro rata by the Buyers and the date selected by the Company for the
Put Closing Date. The Fixed Conversion Price for such Put Preferred Stock shall
be equal to 115% of the average closing price of the Common Stock on its
principal exchange or market for the ten (10) trading days immediately preceding
the Put Closing Date. At the Put Closing, the Company and the Buyer shall enter
into a registration rights agreement substantially identical to (and pari passu
with) the Registration Rights Agreement. The Put Closing shall occur on the Put
Closing Date at the offices of Xxxxxxx Xxxx & Xxxxx LLP, 000 Xxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000. The Initial Closing Date, the Additional Closing Dates and
the Put Closing Date collectively are referred to in this Agreement as the
"CLOSING DATES".
e. Restriction on Additional Closing and Put Closing.
No Buyer shall be entitled to purchase such number of shares of Additional
Preferred Stock or be obligated to purchase such number of shares of Put
Preferred Stock if such purchase would result in such Buyer's aggregate holdings
of Additional Preferred Stock and Put Preferred Stock being in excess of the
respective number of shares set forth opposite such Buyer's name on the Schedule
of Buyers.
f. Form of Payment. On each of the Closing Dates,
each Buyer shall pay the Purchase Price to the Company for the Series A
Preferred Stock to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions provided to the Buyers at least two days prior to the Closing
Date.
g. Warrants. In consideration of the purchase of the
Initial Preferred Stock, the Company shall on the Initial Closing Date issue and
deliver to each Buyer, Warrants to acquire an aggregate of 41 shares of Common
Stock for each $1,000 face amount of Series A Preferred Stock purchased by such
Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to
only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring
the Preferred Stock and the Warrants and (ii) upon conversion of the Preferred
Stock and exercise of the Warrants, will acquire the Conversion Shares and
Warrant Shares, respectively, then issuable for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act and all applicable state blue sky laws; provided, however,
that by making the representations herein, such Buyer does not agree to hold any
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act and all applicable
state blue sky laws.
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b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c Reliance on Exemptions. Such Buyer understands that
the Preferred Stock and Warrants are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Preferred Stock and the Warrants.
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Series A Preferred Stock and the Warrants which have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Series A Preferred Stock and the Warrants or the fairness or suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Series A Preferred Stock and the
Warrants.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
(i) they have been subsequently registered thereunder and (ii) they are offered
for sale, sold, assigned and transferred in compliance with the prospectus
delivery requirements of the 1933 Act, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto) ("RULE 144"); and (ii) any sale of such
securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such
securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 0000 Xxx) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Preferred Stock and the
Warrants and, until such time as the sale of
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the Conversion Shares and the Warrant Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder (other than the Buyer) of any
Securities upon which it is stamped, if (i) upon a resale, any applicable
Security is registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of any of the Securities may be made without registration under the
1933 Act, or (iii) such holder provides the Company with reasonable assurances
that any of the Securities can be sold pursuant to Rule 144(k) under the 1933
Act. Each Buyer acknowledges, covenants and agrees to sell any of the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the 1933 Act, or (ii)
advice of counsel that such sale is exempt from registration required by Section
5 of the 1933 Act. In the event the above legend is removed from any of the
Securities, the Company may, upon reasonable advance notice to the holder,
require that the above legend be placed on any of the Securities that cannot
then be sold pursuant to an effective registration statement or Rule 144(k)
under the 1933 Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement has
been duly and validly authorized, executed and delivered on behalf of such Buyer
and is a valid and binding agreement of such Buyer enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that
country and/or state specified in the Schedule of Buyers.
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3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Buyers as set forth in this Section 3.
a. Organization and Qualification. The Company and
its subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly incorporated and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the business,
properties, operations, financial condition, results of operations or objective
prospects of the Company and its subsidiaries taken as a whole or on the
transaction contemplated hereby (a "MATERIAL ADVERSE EFFECT").
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement and the Registration Rights Agreement, to
issue, sell and perform its obligations with respect to the Series A Preferred
Stock and the Warrants in accordance with the terms hereof, the Certificate of
Determination and the Warrants, as applicable, and to issue the Conversion
Shares and the Warrant Shares upon conversion of the Series A Preferred Stock
and the exercise of the Warrants, respectively, in accordance with the
Certificate of Determination and the Warrants, respectively, (ii) the execution
and delivery of this Agreement and the Registration Rights Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Series A Preferred
Stock and the Warrants and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Series A Preferred Stock and
the Warrant Shares upon exercise of the Warrants have been duly authorized by
the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its shareholders, (iii) this
Agreement, the Registration Rights Agreement, the certificates for the Series A
Preferred Stock and the Warrants have been duly executed and delivered by the
Company, (iv) this Agreement, the Registration Rights Agreement, the
certificates for the Series A Preferred Stock and the Warrants constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to the Closing Date, the Certificate of Determination will have been filed
with the Secretary of State of the State of California and will be in full force
and effect, enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 50,000,000 shares of Common
Stock, of which as of August 19, 1998, 32,113,743 shares were issued and
outstanding and 18,000,000 shares of preferred stock,
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no par value, of which as of August 19, 1998, no shares were issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(c), no shares of
Common Stock or Preferred Stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in Schedule 3(c), as of the date hereof, (i) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement). Except as disclosed in Schedule 3(c), there are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of any of the Securities as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as in effect
on the date hereof (the "BYLAWS"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
d. Issuance of Securities. The Preferred Stock and
Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Certificate of
Determination and the Warrants, respectively. As of the date hereof, not less
than the aggregate of (i) 200% of the number of Conversion Shares issuable upon
conversion of all of the outstanding Preferred Stock and (ii) the Warrant Shares
issuable upon exercise of all of the Warrants, have been duly authorized and
reserved for issuance. Such Conversion Shares and Warrant Shares so reserved
shall be allocated for issuance upon conversion of the Preferred Stock and
exercise of the Warrants pro rata among the Buyers based on the number of
Preferred Stock held by such Buyer relative to the total number of outstanding
Preferred Stock. Subsequent to the date hereof, not less than the aggregate of
(i) 150% of the number of Conversion Shares issuable at any time upon conversion
of all the then outstanding shares of Preferred Stock and (ii) the number of
Warrant Shares issuable at such time upon exercise of all the then outstanding
Warrants shall be duly authorized and reserved for issuance. Upon conversion or
exercise in accordance with the applicable Certificate of Determination and the
Warrants, as applicable, the Conversion Shares and Warrant Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule
3(e), the execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the
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Warrants by the Company, the performance by the Company of its obligations under
the Certificate of Determination and the Warrants and the consummation by the
Company of the transactions contemplated hereby and thereby will not (i) result
in a violation of the Articles of Incorporation, any Certificate of
Determination, Preferences and Rights of any outstanding series of Preferred
Stock of the Company or Bylaws or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its subsidiaries is in violation of any
term of or in default under its Articles of Incorporation, any Certificate of
Determination, Preferences and Rights of any outstanding series of Preferred
Stock of the Company or Bylaws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order (collectively referred to as
the "MATERIAL CONTRACTS") or any statute, rule or regulation applicable to the
Company or its subsidiaries, except for any such violations or defaults that
would not have a Material Adverse Effect. A complete and accurate list of the
Material Contracts is set forth on Schedule 3(e) hereto. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance or regulation of any governmental entity
except for such violations that would not have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the 1933
Act and applicable blue sky laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental or regulatory or self-regulatory agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement, the Registration Rights Agreement or the Warrants or perform its
obligations under the Certificate of Determination in accordance with the terms
hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the listing
requirements of the Nasdaq SmallCap Market. The Company and its subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing or to delisting of the Common Stock by the Nasdaq SmallCap Market,
other than the price-per-share maintenance requirement.
f. SEC Documents; Financial Statements. Since
December 1, 1996, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company shall deliver to the Buyer or its representative
true and complete copies of the SEC Documents upon request. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
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promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, 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 light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not misleading. The Company has not provided and will not provide
to any Buyer any material non-public information which, according to applicable
law, rule or regulation should have been disclosed publicly by the Company but
which has not been so disclosed as of the date hereof.
g. Absence of Certain Changes. Except as expressly
set forth in Schedule 3(g) and the SEC Documents, since December 31, 1997, there
has been no change or development which has had or could have a Material Adverse
Effect on the business, properties, operations, financial condition, results of
operations or objective prospects of the Company and its subsidiaries taken as a
whole. The Company has not taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy law nor does the
Company or its subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or its subsidiaries or their respective directors or
officers, or the Common Stock, wherein an unfavorable decision, ruling or
finding would (i) have a Material Adverse Effect on the transactions
contemplated hereby or (ii) adversely affect the validity or enforceability of,
or the authority or ability of the Company to perform its obligations under,
this Agreement, the Registration Rights Agreement, the Warrants or any of the
documents contemplated herein.
i. Acknowledgment Regarding Buyers' Purchase of the
Preferred Stock. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a
11
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any of the Buyers or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to such Buyer's purchase of the Preferred Stock. The
Company further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its representatives.
j. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the 0000 Xxx) in connection with the offer or sale of any
of the Securities offered hereby.
k. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the National
Association of Securities Dealers Automated Quotations ("NASDAQ").
l. Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.
m. Intellectual Property Rights. Except as set forth
on Schedule 3(m), the Company and its subsidiaries own or possess adequate
rights or licenses to use all trademarks, trade names, service marks, service
xxxx registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights (collectively "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their
respective businesses as now conducted. Except as set forth on Schedule 3(m),
none of the Intellectual Property Rights or other intellectual property rights
have expired or terminated, or are expected to expire or terminate in the near
future. Except as set forth on Schedule 3(m), the Company and its subsidiaries
do not have any knowledge of any event, fact or circumstance relating to (i) any
infringement by the Company or its subsidiaries of any trademarks, trade names,
service marks, service xxxx registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others or (ii) any person or entity now infringing any Intellectual Property
Rights or other similar rights or any such development of similar or identical
trade secrets or technical information owned or used by the Company or any of
its subsidiaries and, except as set forth on Schedule 3(m), there is no claim,
action or proceeding being made or brought against, or to the Company's
knowledge,
12
being threatened against, the Company or its subsidiaries regarding any
trademarks, trade names, service marks, service xxxx registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets or other infringement; and except as
set forth on Schedule 3(m), the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property
Rights.
n. Environmental Laws. The Company and its
subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except for any non-compliance or lack of permits, licenses or
approvals that would not have a Material Adverse Effect.
o. Title. The Company and its subsidiaries own no
real property. The Company and its subsidiaries have good and valid title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(o) or to bank lenders or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
p. Insurance. Except as set forth on Schedule 3(p),
the Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as is
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such 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 at a cost that
would not have a Material Adverse Effect.
q. Regulatory Permits. Except as set forth on
Schedule 3(q), the Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
r. Internal Accounting Controls. The Company and each
of its subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the
13
Company's board of directors, 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 generally accepted
accounting principles 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.
s. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the reasonable judgment of the Company's officers has or is expected in
the future to have a Material Adverse Effect.
t. Tax Status. Except as set forth on Schedule 3(t),
the Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
u. Certain Transactions. Except as set forth on
Schedule 3(u) and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company (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 corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. S-3 Registration. The Company is currently
eligible to use Form S-3 for registration of the sale by the Buyers and any
other Investor of the Registrable Securities (as such terms are defined in the
Registration Rights Agreement) and the Company has filed and shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to obtain and maintain such eligibility for the use of Form S-3.
14
4. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Blue Sky. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date.
c. Reporting Status. Until the earlier of (i) the
date as of which the Investors (as that term is defined in the Registration
Rights Agreement) may sell all of the Conversion Shares and Warrant Shares
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors shall have sold
all the Conversion Shares and Warrant Shares and (B) none of the Series A
Preferred Stock or Warrants are outstanding (the "REGISTRATION PERIOD"), the
Company (x) shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, (y) shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination and (z) the
Company will use its best efforts to maintain its ability and eligibility to
register securities on Form S-3.
d. Use of Proceeds. The Company will use the proceeds
from the sale of the Series A Preferred Stock and Warrants for substantially the
same purposes in substantially the same amounts as indicated in Schedule 4(d).
The Company shall provide a Use of Proceeds Schedule prior to each of the
Additional Closings and the Put Closing identifying the use of the proceeds from
the sale of the Series B Preferred Stock and Series C Preferred Stock,
respectively, and provided further, that the Use of Proceeds Schedule for either
the Additional Closings or the Put Closing shall designate that the proceeds
from such closing shall be first used to satisfy any outstanding obligations of
the Bridge Loan (as defined below).
e. Financial Information. The Company agrees to send
the following to each Investor (as that term is defined in the Registration
Rights Agreement) during the Registration Period: (i) within five (5) days after
the filing thereof with the SEC, a copy of its Annual Reports on Form 10-KSB,
its Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any
registration statements or amendments filed pursuant to the 1933 Act; (ii)
within one (1) day after release thereof, copies of all press releases issued by
the Company or any of its subsidiaries; and (iii) copies of any notices and
other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders.
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than (i) 150% of the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and (ii) the Warrant
Shares, in the aggregate, upon conversion of the outstanding Preferred Stock and
the exercise of the Warrants, respectively, in accordance with
15
the terms of this Agreement and the Certificate of Determination. Such
Conversion Shares and Warrant Shares so reserved shall be allocated for issuance
upon conversion of the Preferred Stock and exercise of the Warrants pro rata
among the Buyers based on the number of Preferred Stock held by such Buyer
relative to the total number of outstanding Preferred Stock.
g. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon the Nasdaq SmallCap
Market ("NASDAQ SMALLCAP") (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, the
listing of all Conversion Shares and Warrant Shares from time to time issuable
under the terms of this Agreement, the Certificate of Determination and the
Warrants on each national securities exchange and automated quotation system
(including the Nasdaq National Market System), if any, upon which shares of
Common Stock are then listed. The Company shall promptly provide to each Buyer
copies of any notices it receives from the NASDAQ regarding the continued
eligibility of the Common Stock for listing on the Nasdaq SmallCap, except to
the extent that such notices would constitute material non-public information
which, according to applicable law, rule or regulation should have been
disclosed publicly by the Company but which has not been so disclosed as of such
date. The Company shall pay all fees and expenses in connection with satisfying
its obligations under this Section 4(g).
h. Expenses. Each of the Company and the Buyers shall
each pay its respective costs and expenses incurred by such party in connection
with the negotiation, investigation, preparation, execution, delivery and
performance of this Agreement or the Certificate of Determination, the Warrants
and the Registration Rights Agreement; provided, that at the Closing as the
Buyers may request, the Company shall reimburse the Buyers for Buyers'
documented attorneys' fees and expenses in connection with this Agreement or the
Certificate of Determination, the Warrants and the Registration Rights Agreement
up to an aggregate of $30,000.
i. Further Issuances of Securities.
(i) Right of First Refusal. If at any time
on or before the first anniversary of the Closing Date, the Company shall desire
to issue any security convertible, exchangeable or exercisable for Common Stock
or any other right to acquire any Common Stock (the "CONVERTIBLE SECURITIES")
pursuant to Section 4(2) of the 1933 Act or an offering under Regulation D or
Regulation S of the 1933 Act or in any other private placement (other than
pursuant to Company authorized stock option plans with employees, consultants or
directors of the Company), exclusive of issuances of Common Stock upon the
Buyers' conversion of the Preferred Stock or exercise of the Warrants, then the
Company shall first comply with the terms of this Section 4(i).
(ii) Notice Requirements. The Company shall
notify, or cause to be notified, the Buyers not less than thirty (30) calendar
days prior to the time the Company intends to consummate such issuance (the
"ISSUANCE NOTICE"). The Issuance Notice shall set forth all of the terms of such
proposed issuance.
16
(iii) Exercise of Right of First Refusal.
The Buyers shall have a right of first refusal to acquire such private-placement
Convertible Securities, which right may be exercised by the Buyers only by
delivery of a written notice to the Company (the "EXERCISE NOTICE"), within
twenty (20) business days following receipt of the Issuance Notice (the "REFUSAL
PERIOD"). The Exercise Notice shall state that the Buyers agree to purchase all
or any specified part of the proposed issuance of such securities on terms equal
as near as may be to the terms set forth in the Issuance Notice. The closing
under such right of first refusal shall occur within ten (10) business days
after the last day of the Refusal Period.
(iv) Right to Issue Securities. After
expiration of the Refusal Period, if the provisions of this Section 4(i) have
been complied with in all respects by the Company and no Exercise Notice has
been given, or if given, the Buyers have not agreed to purchase all of the
securities set forth in the Issuance Notice, the Company shall have the right
for forty-five (45) calendar days following the termination of the Refusal
Period to issue such securities, or any portion thereof not being purchased by
the Buyers, specified in the Issuance Notice on the terms described in the
Issuance Notice without further notice to the Buyers, but after such forty-five
(45) calendar days, no such issuance may be made without again giving notice to
the Buyers and complying with all of the requirements of this Section 4(i).
(v) The Company will not issue any Preferred
Stock other than to the Buyers as contemplated hereby or as otherwise
contemplated in the Certificate of Determination.
j. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares and Warrant Shares issuable
upon conversion of the Preferred Stock and exercise of the Warrants,
respectively, will increase in certain circumstances. The Company further
acknowledges and agrees that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Preferred Stock and exercise of the
Warrants, respectively, in accordance with this Agreement, the Certificate of
Determination, and the Warrants, as applicable, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company; provided, however, that the
Company shall not be obligated to issue, in the aggregate, more than that number
of shares of Common Stock (such amount to be proportionately and equitably
adjusted from time to time in the event of stock splits, stock dividends,
combinations, reverse stock splits, reclassification, capital reorganizations
and similar events relating to the Common Stock), that, upon conversion of the
Preferred Stock or exercise of the Warrants, would constitute a breach of the
Company's obligations under the rules or regulations of Nasdaq or any other
principal securities exchange or trading market upon which the Common Stock
becomes traded.
k. Low Trades of the Common Stock. So long as (i) a
Buyer or any of its affiliates beneficially owns any Preferred Stock, (ii) the
Company has not issued any publicly traded convertible securities and (iii) the
Company is not in default under the Certificate of Determination or the Warrants
for failing to effect any redemption pursuant to the terms of the Certificate of
Determination or conversion of any Preferred Stock pursuant to the Certificate
of Determination or issuance of Warrant Shares upon exercise of the Warrants,
such Buyer shall not
17
offer to sell any shares of Common Stock at a price that is less than the then
current bid price of the Common Stock on such principal exchange or market or
during any Valuation Period (as defined in the Certificate of Determination)
create for any day the low trade price for the Common Stock on its principal
exchange or market.
l. Filing of Form 8-K. The Company will promptly file
after each of the Closing Dates a Form 8-K with the SEC with respect to the
issuance of the Securities at such Closing and the transactions contemplated by
this Agreement and will provide a copy thereof to each of the Buyers promptly
after such filing. Such filings shall contain appropriate disclosure of the
terms and conditions of the issuance of the Securities and shall include as
exhibits forms of the Agreement, Warrants, Certificate of Determination and
Registration Rights Agreement.
m. No Trading of the Common Stock. Prior to the date
hereof, the Buyers have not sold any shares of Common Stock, issued any buy
orders for shares of Common Stock or have otherwise traded in the Common Stock.
n. Satisfaction of Bridge Loan. In the event a Call
Closing or Put Closing does not occur, or that such closings do not in the
aggregate provide sufficient funds to satisfy all of the Company's outstanding
obligations under the Promissory Note and Credit Agreement between Imperial Bank
and the Company, dated May 14, 1998 (the "BRIDGE LOAN") and terminate such
Bridge Loan, then the Company shall secure alternate financing (the "ALTERNATE
FINANCING") to satisfy such outstanding obligations of the Bridge Loan and
terminate such Bridge Loan; provided, however that the Alternate Financing must
not require the Company to make any payments of principal for a period of not
less than one year from the date of receipt of the Alternate Financing.
o. Acquisitions. So long as a Buyer or any of its
affiliates beneficially owns any Preferred Stock, the Company will not effect
any acquisition of any business, whether through acquisition of assets or
securities (a "NEW ACQUISITION"), unless the sum of the following calculation is
at least $1.00: (i) the amount of cash received subsequent to the date hereof
through the issuance of capital stock of the Company (excluding any cash which
may be received by the Company pursuant to this Agreement and received as a
result of securing the Alternate Financing), minus (ii) the cash which may be
used as all or a portion of the purchase price for a New Acquisition, plus (iii)
the earnings before interest, taxes, depreciation and amortization ("EBITDA") of
a New Acquisition for such New Acquisition's most recent four fiscal quarters
completed prior to the date on which the agreement for such acquisition is
entered into.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to
its transfer agent (in the form attached hereto as Exhibit D) to issue
certificates, or at a Buyer's request when the legend set forth in Section 2(g)
is not required, to electronically issue such shares (e.g., through DWAC or
DTC), registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares or Warrant Shares in such amounts as specified from time to
time by each Buyer to the Company upon conversion of the Series A Preferred
Stock or exercise of the Warrants, respectively (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of
18
the Conversion Shares and Warrant Shares under the 1933 Act and transfer of such
shares to a holder other than the Buyer, such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, the Certificate of Determination
and the Warrants. Nothing in this Section 5 shall affect in any way each Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of any of the Securities. If a Buyer provides the Company with an opinion
of reasonably satisfactory counsel, reasonably satisfactory in form and
substance to the Company, that registration of a resale by such Buyer of any of
the Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares or Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by such Buyer. The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Stock to each Buyer at the Closings is subject to the satisfaction, at
or before each of the Closing Dates, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company the
Purchase Price for the applicable Preferred Stock being purchased by such Buyer
at such Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of each of the Closing
Dates as though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Buyer at or prior to each of the Closing Dates.
19
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Stock at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
i. The Company shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to such
Buyer.
ii. The Certificate of Determination shall
have been executed by the Company and filed with the Secretary of State of the
State of California, and a copy marked as filed shall have been delivered to
such Buyer.
iii. The Common Stock shall be authorized
for trading on the Nasdaq SmallCap, Nasdaq National Market, New York Stock
Exchange or American Stock Exchange (collectively, the "Exchanges"), and trading
in the Common Stock on the applicable Exchange shall not have been suspended by
the SEC or the applicable Exchange and all of the Conversion Shares and Warrant
Shares issuable upon conversion of the Series A Preferred Stock or exercise of
the Warrants to be sold at the Initial Closing shall be listed upon the
applicable Exchange (subject to notice of issuance).
iv. The representations and warranties of
the Company shall be true and correct in all material respects (except to the
extent that any of such representations and warranties is already qualified as
to materiality in Section 3 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
Initial Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Initial Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer
of the Company, dated as of the Initial Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
v. Such Buyer shall have received the
opinion of the Company's counsel dated as of the Initial Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit E attached hereto.
vi. The Company shall have executed and
delivered to such Buyer the Stock Certificates (in such denominations as such
Buyer shall request) for the Series A Preferred Stock being purchased by such
Buyer at the Initial Closing and the Warrants.
vii. The Board of Directors of the Company
shall have adopted the resolutions in substantially the form of Exhibit F
attached hereto (the "RESOLUTIONS").
20
viii. As of the Initial Closing Date, the
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Series A Preferred
Stock and the exercise of the Warrants, at least an aggregate of (i) 200% of the
number of shares of Common Stock necessary to provide for the issuance of the
Conversion Shares assuming current conversion of all of the outstanding
Preferred Stock and (ii) the number of shares of Common Stock necessary to
provide for the issuance of the Warrant Shares assuming current conversion of
all of the outstanding Warrants.
ix. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
x. The Company shall have delivered to such
Buyer a certificate evidencing the incorporation and good standing of the
company and each subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date after August 1, 1998.
xi. The Company shall have delivered to such
Buyer a secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Articles of Incorporation and (C) By-laws, each as in
effect at the Initial Closing.
xii. The Company shall have delivered to
such Buyer a certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California as of a date after August 1, 1998.
xiii. The Company shall have executed the
Escrow Agreement, and shall have complied with all of the terms and provisions
contained therein.
xiv. The Company shall have delivered to
such Buyer such other documents relating to the transactions contemplated by
this Agreement as such Buyer or its counsel may reasonably request.
xv. The Company shall have an outstanding
balance under the Bridge Loan in an amount not in excess of $2,000,000 and that
the date upon which the Bridge Loan shall become fully due and payable shall be
a date not earlier than March 1, 1999.
xvi. The transactions contemplated hereby
shall not violate any law, regulation or order then in effect and applicable to
Buyers or the Company.
b. Additional Closing Dates. The obligation of each
Buyer hereunder to purchase the Additional Preferred Stock at each of the
Additional Closings is subject to the satisfaction, at or before the Additional
Closing Dates, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
21
i. The Certificate of Determination for each
of the Series A Preferred Stock and Series C Preferred Stock, as applicable,
shall be in full force and effect and shall not have been amended since their
respective Closing Dates, and a copy of each of them certified by the Secretary
of State of the State of California shall have been delivered to such Buyer. The
Certificate of Determination for the Series B Preferred Stock shall have been
executed by the Company and filed with the Secretary of State of the State of
California, and a copy thereof certified by the Secretary of State of the State
of California shall have been delivered to such Buyer (and containing a Fixed
Conversion Price equal to 115% of the average closing price of the Common Stock
on its principal exchange or market for the ten (10) trading days immediately
preceding the date of the Additional Closing).
ii. The Common Stock shall be authorized for
trading on one of the Exchanges, trading in the Common Stock shall not have been
suspended by the SEC or such Exchange and all of the Conversion Shares issuable
upon conversion of the Additional Preferred Stock to be sold at the Additional
Closing shall be listed upon such Exchange.
iii. The representations and warranties of
the Company shall be true and correct in all material respects (except to the
extent that any of such representations and warranties is already qualified as
to materiality in Section 3, in which case such representations and warranties
shall be true and correct without further qualification) as of the date when
made and as of the respective Additional Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement, the Registration Rights Agreement, the Warrant or the Certificate of
Determination to be performed, satisfied or complied with by the Company at or
prior to the respective Additional Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer of the Company, dated as
of such Additional Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer including, without
limitation, an update as of such Additional Closing Date regarding the
representation contained in Section 3(c) above.
iv. Such Buyer shall have received the
opinion of the Company's counsel dated as of such Additional Closing Date, in
form, scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit E attached hereto.
v. The Company shall have executed and
delivered to such Buyer the Stock Certificates (in such denominations as such
Buyer shall request) for the Additional Preferred Stock, being purchased by such
Buyer at the Additional Closing.
vi. The Board of Directors of the Company
shall not have amended the Resolutions.
vii. As of such Additional Closing Date, the
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Stock, a
number of shares of Common Stock equal to an aggregate of (i) at least 150% of
the number of shares of Conversion Shares which would be
22
issuable upon conversion in full of the then outstanding Preferred Stock,
including for such purposes the Additional Preferred Stock to be issued at such
Additional Closing and (ii) the number of Warrant Shares which would be issuable
upon exercise in full of the then outstanding Warrants.
viii. The Irrevocable Transfer Agent
Instructions, substantially identical to the form of Exhibit D, attached hereto,
shall have been delivered to and acknowledged in writing by the Company's
transfer agent.
ix. The Company shall have delivered to such
Buyer a certificate evidencing the incorporation and good standing of the
company and each subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within ten days of such Additional Closing Date.
x. The Company shall have delivered to such
Buyer a secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Articles of Incorporation and (C) By-laws, each as in
effect at the Additional Closing.
xi. The Company shall have delivered to such
Buyer a certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California within ten days of the Additional
Closing Date.
xii. The Company shall have delivered to
such Buyer a letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the
Additional Closing date.
xiii. The Company shall have executed and
delivered a registration rights agreement with regard to the Series B Preferred
Stock substantially identical to (and pari passu with) the Registration Rights
Agreement.
xiv. The Company shall have taken all
actions necessary so that the issuance of the Series B Preferred Stock will not
constitute a breach of the Company's obligations under the rules or regulations
of Nasdaq or any other principal securities exchange or trading market upon
which the Common Stock becomes traded.
xv. The Company shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
xvi. The transactions contemplated hereby
shall not violate any law, regulation or order then in effect and applicable to
Buyers or the Company.
c. Put Closing Date. The obligation of each Buyer
hereunder to purchase the Put Preferred Stock at the Put Closing is subject to
the satisfaction, at or before the Put Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
23
i. The Certificate of Determination for each
of the Series A Preferred Stock and the Series B Preferred Stock, as applicable,
shall be in full force and effect and shall not have been amended since their
respective Closing Dates, and a copy of each of them certified by the Secretary
of State of the State of California shall have been delivered to such Buyer. The
Certificate of Determination for the Series C Preferred Stock shall have been
executed by the Company and filed with the Secretary of State of the State of
California, and a copy thereof certified by the Secretary of State of the State
of California shall have been delivered to such Buyer (and containing a Fixed
Conversion Price equal to 115% of the average closing price of the Common Stock
on its principal exchange or market for the ten (10) trading days immediately
preceding the date of the Put Closing).
ii. The Common Stock shall be authorized for
trading on one of the Exchanges, trading in the Common Stock shall not have been
suspended by the SEC or such Exchange and all of the Conversion Shares issuable
upon conversion of the Put Preferred Stock to be sold at the Put Closing shall
be listed upon such Exchange.
iii. The representations and warranties of
the Company, including the absence of any Material Adverse Effect since the
Initial Closing Date, shall be true and correct in all material respects (except
to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Put Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement, the Registration Rights Agreement, the Warrant or the Certificate of
Determination to be performed, satisfied or complied with by the Company at or
prior to the respective Put Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
such Put Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by such Buyer including, without limitation, an
update as of such Put Closing Date regarding the representation contained in
Section 3(c) above.
iv. Such Buyer shall have received the
opinion of the Company's counsel dated as of such Put Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit E attached hereto.
v. The Company shall have executed and
delivered to such Buyer the Stock Certificates (in such denominations as such
Buyer shall request) for the Put Preferred Stock, being purchased by such Buyer
at the Put Closing.
vi. The Board of Directors of the Company
shall not have amended the Resolutions and shall have approved the issuance of
the Put Preferred Stock pursuant to resolutions in form and substance reasonably
satisfactory to Buyers.
vii. As of the Put Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Stock, a number of
shares of Common Stock equal to at least
24
150% of the number of shares of Common Stock which would be issuable upon
conversion or exercise in full of the then outstanding Series A Preferred Stock
and Warrants, as the case may be, including for such purposes the Put Preferred
Stock to be issued at such Put Closing.
viii. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D, attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
ix. The Company shall have delivered to such
Buyer a certificate evidencing the incorporation and good standing of the
company and each subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within ten days of such Put Closing Date.
x. The Company shall have delivered to such
Buyer a certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California within ten days of the Put Closing
Date.
xi. The Company shall have delivered to such
Buyer a secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Articles of Incorporation and (C) By-laws, each as in
effect at the Put Closing.
xii. The Company shall have delivered to
such Buyer a letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the Put
Closing date.
xiii. The Company shall have executed and
delivered a registration rights agreement with regard to the Series C Preferred
Stock substantially identical to (and pari passu with) the Registration Rights
Agreement.
xiv. The Company shall have satisfied the
financial conditions as identified on Exhibit H, attached hereto.
xv. The Company shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
xvi. The Company shall have taken all
actions necessary so that the issuance of the Series C Preferred Stock will not
constitute a breach of the Company's obligations under the rules or regulations
of Nasdaq or any other principal securities exchange or trading market upon
which the Common Stock becomes traded.
xvii. The aggregate of (i) the Conversion
Shares and Warrant Shares issued prior to the Put Closing and (ii) the
Conversion Shares and Warrant Shares which may be issued upon conversion or
exercise, as applicable, of the outstanding Securities (which shall include the
Put Preferred Stock to be issued) shall not exceed 10% of the outstanding Common
Stock of the Company as of the Initial Closing Date.
25
xviii. The transactions contemplated hereby
shall not violate any law, regulation or order then in effect and applicable to
Buyers or the Company.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of Securities and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "BUYER
INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "BUYER INDEMNIFIED
LIABILITIES"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) subject to Section 9(i), any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Certificate of Determination, the Warrants, the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Certificate of
Determination, the Warrants or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Buyer Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Buyer Indemnitees, any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Series A Preferred Stock and Warrants or the
status of such Buyer or holder of any of the Securities as an investor in the
Company. Promptly after receipt by a Buyer Indemnitee of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving the Buyer Indemnified Liabilities , such Buyer Indemnitee
shall deliver to the Company a written notice of the commencement thereof, and
the Company shall have the right to participate in, and, to the extent it so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel selected by the Company and
reasonably satisfactory to the Buyer Indemnitee; provided, however, that a Buyer
Indemnitee shall have the right to retain its own counsel with the fees and
expenses to be paid by the Company, if, in the reasonable opinion of counsel
retained by the Company, the representation by such counsel of the Buyer
Indemnitee and the Company would be inappropriate due to actual differing
interests between such Buyer Indemnitee and any other party represented by such
counsel in such proceeding. The Buyer Indemnitee shall cooperate fully with the
Company in connection with any negotiation or defense of any such action or
claim by the Company and shall furnish to the Company all information reasonably
available to the Buyer Indemnitee which relates to such action or claim. The
Company shall keep the Buyer Indemnitee fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. The
Company shall not be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided,
26
however, that the Company shall not unreasonably withhold, delay or condition
its consent. The Company shall not, without the consent of the Buyer Indemnitee,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Buyer Indemnitee of a release from all
liability in respect to such claim or litigation. Following indemnification as
provided for hereunder, the Company shall be subrogated to all rights of the
Buyer Indemnitee with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the Company within a reasonable time of the
commencement of any such action shall not relieve it of any liability to the
Buyer Indemnitee, except to the extent that the Company is prejudiced in its
ability to defend such action. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Buyer
Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which 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. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and
the documents referred to herein, supersede all other prior or contemporaneous
oral or written agreements between or among the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the Company and majority of the then outstanding Preferred Stock, but any
such waiver or amendment shall bind all Buyers and holders.
27
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) business days after being sent by U.S. certified mail, return
receipt requested, or (iv) one (1) business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
if to the Company:
CardioDynamics International Corporation
0000 Xxxxx Xxxxx Xxxxx
Xxxxx 000
Xxx Xxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Chief Financial Officer
with a copy to:
Xxxxxxx, Phleger & Xxxxxxxx LLP
000 Xxxx X Xxxxxx
Xxxxx 0000
Xxx Xxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxxxxx, Esq.
if to the Transfer Agent:
American Stock Transfer and Trust Company
00 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxxx Xxxxx
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to such Buyer's counsel as set forth on the
Schedule of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The Company
shall not assign this Agreement or any rights or
28
obligations hereunder without the prior written consent of the Buyers, except
pursuant to a Major Transaction (as defined in Section 3(c) of the Certificate
of Determination) with respect to which the Company is in compliance with
Section 3 of the Certificate of Determination. A Buyer may assign some or all of
its rights hereunder without the consent of the Company, provided, however, that
(i) any such assignment shall not release such Buyer from its obligations
hereunder unless such obligations are assumed by such assignee and the Company
has consented to such assignment and assumption and (ii) no Buyer may assign its
rights hereunder in a manner that would cause the offering of Securities
hereunder to be required to be registered under the 1933 Act.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the Buyers contained in Sections 3 and 2, respectively, shall
survive the Closing until two years after the Closing Date, including, without
limitation, all financial statements thereto. The agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
j. Publicity. Without the prior written consent of
the subject Buyer or Buyers, the Company will not, and will use reasonable
efforts to ensure that its officers, directors, employees and agents do not
disclose the name of any Buyer; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions as is required by
applicable law and regulations (although each Buyer shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof), but only to the
extent required by such law or regulation.
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Placement Agent. The Buyers shall be responsible
for the payment of the fees of AFO Capital Advisors, LLC relating to the
transactions contemplated hereby.
m. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
29
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
CARDIODYNAMICS INTERNATIONAL AGR HALIFAX FUND, LTD.
CORPORATION By: AG Ramius Partners, LLC
Investment Advisor
By: /s/ Xxxxxxx X. Xxxxx By: /s/ Xxxxxxx X. Xxxxxxx
--------------------------------- -----------------------------------
Name: Xxxxxxx X. Xxxxx Name: Xxxxxxx X. Xxxxxxx
Its: Chief Executive Title: Managing Officer
Officer
XXXXXXXX, L.P.
By: Xxxxxx, Xxxxxx & Co., L.P.
General Partner
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxx
Title: Chief Executive Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Xxxxxx, Xxxxxx & Co., L.P.
Investment Advisor
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxx
Title: Chief Executive Officer
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: Xxxxxx, Xxxxxx & Co., L.P.
General Partner
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxx
Title: Chief Executive Officer
RAPHAEL, L.P.
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxx
Title: Chief Executive Officer
30
RAMIUS FUND, LTD.
By: AG Partners, L.L.C.
Investment Advisor
By: /s/ Xxxx X. Xxxxxx
-----------------------------------
Name: Xxxx X. Xxxxxx
Title: Managing Officer
31
SCHEDULE OF BUYERS
Number of Maximum Aggregate
Shares of Number of Shares of
Series A Series B Preferred
Investor Address and Preferred Stock and Series C Investor's Advisors and
Investor Name Facsimile Number Stock and Preferred Stock Legal Counsel Address
--------------------------- ------------------------- Warrants Purchasable ---------------------------
------------- --------------------
AGR Halifax Fund, Ltd. c/o AG Ramius Partners, 1,500 Shares 1,500 Shares Xxxxxxx Xxxxx, Esq.
(Cayman Islands) LLC Xxxxxxx Xxxx & Xxxxx LLP
000 Xxxxx Xxxxxx, 00xx 61,500 000 Xxxxx Xxxxxx
Xxxxx Xxxxxxxx Xxx Xxxx, XX 00000
Xxx Xxxx, XX 00000 Phone: (000) 000-0000
Attn.: Xxxxxxx Xxxxxxx Fax: (000) 000-0000
Phone: (000) 000-0000
Fax: (000) 000-0000
x/x Xxxxxx Xxxxxx &
Xxxxxxxx, X.X. Co., L.P. 850 Shares 850 Shares Xxxxxxx Xxxxx, Esq.
(Cayman Islands) 000 Xxxx Xxxxxx, Xxxxxxx Xxxx & Xxxxx LLP
26th Floor 34,850 000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000 Warrants Xxx Xxxx, XX 00000
Attn: Xxxx Xxxx Phone: (000) 000-0000
Phone: (000) 000-0000 Fax: (000) 000-0000
Fax: (000) 000-0000
x/x Xxxxxx Xxxxxx &
XXX Xxxxxxxxx Xxxxxxxxxxx, Xx., X.X. 100 Shares 100 Shares Xxxxxxx Xxxxx, Esq.
Inc. 000 Xxxx Xxxxxx, Xxxxxxx Xxxx & Xxxxx LLP
(Cayman Islands) 26th Floor 4,100 000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000 Warrants Xxx Xxxx, XX 00000
Attn: Xxxx Xxxx Phone: (000) 000-0000
Phone: (000) 000-0000 Fax: (000) 000-0000
Fax: (000) 000-0000
x/x Xxxxxx Xxxxxx &
XX Xxxxx Xxxx Xx., X.X. 100 Shares 100 Shares Xxxxxxx Xxxxx, Esq.
International Partners, 000 Xxxx Xxxxxx, Xxxxxxx Xxxx & Xxxxx LLP
L.P. 26th Floor 4,100 000 Xxxxx Xxxxxx
(British Virgin Islands) Xxx Xxxx, XX 00000 Warrants Xxx Xxxx, XX 00000
Attn: Xxxx Xxxx Phone: (000) 000-0000
Phone: (000) 000-0000 Fax: (000) 000-0000
Fax: (000) 000-0000
00
x/x Xxxxxx Xxxxxx &
Xxxxxxx, X.X. Co., L.P. 150 Shares 150 Shares Xxxxxxx Xxxxx, Esq.
(Cayman Islands) 000 Xxxx Xxxxxx, Xxxxxxx Xxxx & Xxxxx LLP
26th Floor 6,150 000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000 Warrants Xxx Xxxx, XX 00000
Attn: Xxxx Xxxx Phone: (000) 000-0000
Phone: (000) 000-0000 Fax: (000) 000-0000
Fax: (000) 000-0000
c/o Xxxxxx Xxxxxx &
Ramius Fund, Ltd. Co., L.P. 300 Shares 300 Shares Xxxxxxx Xxxxx, Esq.
(Cayman Islands) 000 Xxxx Xxxxxx, Xxxxxxx Xxxx & Xxxxx LLP
26th Floor 12,300 000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000 Warrants Xxx Xxxx, XX 00000
Attn: Xxxx Xxxx Phone: (000) 000-0000
Phone: (000) 000-0000 Fax: (000) 000-0000
Fax: (000) 000-0000
33
SCHEDULE 3(a)
SUBSIDIARIES
Corporate Subsidiaries:
None.
34
SCHEDULE 3(c)
CAPITALIZATION
Pre-emptive Rights, Liens or Encumbrances:
None.
Stock Options:
Stock Options outstanding under the Company's 1995 Stock Option/Stock
Issuance Plan to officers, directors, and key
employees. 2,168,000
Stock Options outstanding to the Company's CEO, Xxxxxxx Xxxxx At $2.55
per share with vesting over four years commencing
March 23, 1998. 1,500,000
Stock Options outstanding to the Company's former CEO, Xxxxxxx
Xxxx at $0.50 per share with vesting tied to the Company's stock
attaining and holding specific market prices ranging from $5.00
to $9.00 per share 250,000
Warrants:
EVEREN Securities, Inc. at $3.56 per share 276,514
Ramius/Xxxxxx Xxxxxx/AFO Capital* 123,000
Imperial Bank at $3.00 per share 33,334
Imperial Bank at $2.00 per share* 15,000
--------------------------------------------------------------------------------
* To be issued as part of this financing
35
SCHEDULE 3(c)
CAPITALIZATION (CON'T)
Scrip, Rights to Subscribe, Calls or Commitments:
None
Securities or Rights Convertible into Shares of Stock:
CardioDynamics Holdings, LLC ("CDH") - In February 1995, the Company
entered into an agreement with a related party, CDH, a California limited
Liability company, for the purchase of the Company's common stock. In
exchange for the issuance of the shares, the Company issued a five-year
secured promissory note ("CDH Note"). At August [ ], 1998 the principal
amount of the note (Fifth Amended and Restated Secured Convertible
Promissory Note) is $25,000 and carries an interest rate of 7.5% with
interest payable quarterly through maturity at March 31, 2000. The Note
is secured by all assets of the Company including proceeds and products.
The note is currently convertible into shares of the Company's common
stock at $0.30 at CDH's option with predetermined annual conversion price
increases of 20% each March 31st.
Contracts, Commitments, Understandings or Arrangements for Issuance of
Additional Shares:
None.
Debt Securities:
CDH Note - See above. $25,000
Imperial Bank - Six month unsecured $4M term loan with
interest at Prime plus 1.0% (Currently 10.5%) $3,000,000
Unsecured $3 Million Private Line of Credit Agreement with
Co-Chairmen of the Company's Board of Directors at 10.0%.* $100
--------------------------------------------------------------------------------
* $1M to be drawn in conjunction with this financing
Registration Agreements:
Stock options - Xx. Xxxxx (see above)
Warrants - For each listed above
Triggered Anti-Dilution Provisions:
None.
36
SCHEDULE 3(e)
CONFLICTS
Violations or Conflicts:
None.
Material Contracts:
Employment Agreement, dated March 23, 1998, between the Company and
Xxxxxxx X. Xxxxx.
Private line of Credit Agreement, dated March 11, 1998, between Xxxxx X.
Xxxxxxx, Xxxxx X. Xxxxxxxx and the Company.
Promissory Note and Credit Agreement dated May 14, 1998, between Imperial
Bank and the Company.
Lease between AGBRI Xxxxx Xxxxx, LLC and the Company dated June 20, 1997.
1995 Stock Option/Stock Issuance Plan, as amended May 20, 1998.
Engagement Letter with EVEREN Securities, Inc. dated November 15, 1996.
37
SCHEDULE 3(g)
MATERIAL CHANGES
Material Adverse Change or Development:
The Company operating losses have impaired its liquidity.
38
SCHEDULE 3(h)
LITIGATION
Action, Suit, Proceeding, Inquiry or Investigation:
None.
39
SCHEDULE 3(m)
INTELLECTUAL PROPERTY
Patents:
The Company has seven issued U.S. patents and multiple international
patents and patent applications based on five of those. The Company's
outstanding U.S. patents are as follows:
NUMBER TITLE OF INVENTION ISSUE DATE EXPIRATION
------ ------------------ ---------- ----------
4191962 Low Cost Multi-Channel Recorder and Display 03/04/80 09/20/98
System for Medical and Other Applications
4343314 Non-Invasive Real Time Blood Pressure 08/10/82 08/11/00
Measurement System
4450527 Noninvasive Cardiac Output Monitor 05/25/84 06/29/02
4807638 Noninvasive Continuous Mean Arterial Blood 02/28/89 10/21/07
Pressure Monitor
4836214 Esophageal Electrode Array for Electrical 06/06/89 12/01/06
Bioimpedance Measurement
4870578 Diastolic Clamp for Bioimpedance Measuring 09/26/89 08/19/07
Device
5103828 System for Therapeutic Management of 04/14/92 04/14/09
Hemodynamic State of Patient
All of the Company's existing patents were issued prior to the
re-engineering of the products to a DSP-based system and development of
the XxxX.xxx. As such, several of the patents are not integral to the
design of BioZ. The Company also possesses proprietary software, which it
has strategically elected not to disclose through patents at this time.
40
SCHEDULE 3(m)
INTELLECTUAL PROPERTY (CON'T)
Infringement by Others:
The Company believes that Renaissance Technology, Inc., located in
Newtown, PA, may be infringing on patent #4450527 - Noninvasive Cardiac
Output Monitor. In 1996 the Company sent them written notice of the
possible infringement but has not chosen to file suit at this time.
Xx Xxxxxx, the founder of CDIC and former CEO, started a company called
Hemo Sapiens, located in Southern CA, which recently received FDA
approval on a TEB based Cardiac Output monitoring device. The Company
believes that Hemo Sapiens may be infringing on patents #4450527 -
Noninvasive Cardiac Output Monitor and #5103828 - System for Therapeutic
Management of Hemodynamic State of Patient. No action has yet been taken
to notify Hemo Sapiens of the possible infringement.
Trademarks:
The Company filed a trademark application for the rights to the
"CardioDynamics" name in January 1997. On September 2, 1997, the Patent
Office denied trademark registration because it was "merely descriptive
of the goods. However, lack of trademark registration does not preclude
the Company from using the "CardioDynamics" name.
The Company filed trademark applications for the rights to the names
BioZ, XxxX.xxx, XxxX.xxx, and DISQ on January 12, 1998. The Company is
awaiting the Patent's Office response to these applications
The Company filed a trademark application for the rights to the name
BioZ.sim on April 23, 1998. The Company is awaiting the Patent's Office
response to this application.
The Company has signed a trademark application for the rights to the name
Z MARC on August 17, 1998 and will be filing the application with the
Patent Office on or before August 28, 1998.
There can be no assurance that the Company will obtain any of the
registered trademarks applied for, or that another company's prior use of
the names may preclude the Company's use of such names.
41
SCHEDULE 3(o)
LIENS
Liens, Encumbrances and Defects:
Security interest in all assets securing the $25,000 CDH Note - See 3(c)
Leased Equipment Liens:
Inter-tel Leasing Inc. - Telephone System
Balboa Capital - Furniture, Computers & Software
Colonial Pacific Leasing - Furniture, Computers & Software
AT&T Capital Leasing - Computers & Software
42
SCHEDULE 3(p)
INSURANCE
Prudent and Customary Insurance Coverage:
No exceptions.
43
SCHEDULE 3(q)
REGULATORY PERMITS
Certificates, Authorizations and Permits:
The Company is in the process of applying for European CE Certification.
Until such time as the CE Certification is obtained, the Company is
precluded from offering its products for sale to Europe.
44
SCHEDULE 3(t)
TAX STATUS
Unpaid Taxes or Assessments:
None.
45
SCHEDULE 3(u)
CERTAIN TRANSACTION
Related Party Transactions:
CDH Note and related Security Agreement - See 3(c)
Rivertek Medical Systems, Inc. which is owned 100% by the Chief
Technology Officer of CDIC, Xxxxxx Xxxx and his wife, provides
engineering services to the Company and continues to be one of the
Company's largest vendors. In fiscal 1996 and fiscal 1997, the Company
paid $219,232 and $238,278, respectively, to Rivertek.
Unsecured $3 Million Private Line of Credit Agreement with the
Co-Chairmen of the Company's Board of Directors at 10.0%.*
On August 1, 1997, the Company entered into a Consulting Agreement with
Cam X. Xxxxxx, a Director of the Company, whereby Xx. Xxxxxx is paid a
monthly fee of $2,083 and received a one-time grant of 5,000 stock
options in exchange for providing consulting services to the Company.
----------
* $1M to be drawn in conjunction with this financing
46
SCHEDULE 4(d)
USE OF PROCEEDS
Use of Proceeds:
The net proceeds received by the Company from the initial sale of the
Preferred Stock is estimated to be approximately $2.9 million after
deducting fees and estimated expenses. The anticipated use of these funds
is as follows:
----------------------------------------------------------------------------------------------------
$1 million to $1.5 million To fund expansion of its direct sales force from 12 sales
representatives to as many as 30.
----------------------------------------------------------------------------------------------------
$400 thousand to $900 thousand For new product development; FDA compliance, and new product
clearance.
----------------------------------------------------------------------------------------------------
$1 million to $1.5 million Working capital requirements of planned revenue growth,
primarily inventory and accounts receivable.
----------------------------------------------------------------------------------------------------
The net proceeds received by the Company from the additional sale/Company
Put sale of Preferred Stock is estimated to be up to an additional
approximately $2.9 million after deducting fees and estimated expenses.
These funds will be used to repay up to $2 million on the Imperial Bank
bridge loan and $1 million on the unsecured private line of credit
agreement with the Co-Chairmen of the Company's Board of Directors.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in interest bearing, investment grade securities.
47
EXHIBIT H
FINANCIAL CONDITIONS*
Revenue Conditions:
Third Quarter ended August 31, 1998 $600,000
Fourth Quarter ended November 30, 1998 $750,000
Gross Profit Conditions:
Combined third and fourth quarter
gross profit $700,000
------------
* Revenue and gross profit to be calculated in accordance with Generally
Accepted Accounting Principles as reported in the Company's quarterly and
annual reports on Forms 10-QSB and 10-KSB.
