1
EXHIBIT 10.39
-------------
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
PURCHASE AGREEMENT
$4,500,000 Principal Amount of 12% Senior Subordinated Notes
Due 1999
Dated as of March 2, 1998
To the Purchasers named in Schedule 1 hereto:
The undersigned, Dental/Medical Diagnostic Systems, Inc., a
Delaware corporation (the "Company"), agrees with you as follows:
SECTION 1. DESCRIPTION OF NOTES; COMMITMENT; SALE AND PURCHASE AND
CONVERSION.
Section 1.1 Description of Notes. The Company has authorized the
issue and sale of $4,500,000 aggregate principal amount of its 12% Senior
Subordinated Notes due 1999 (the "Notes") to be dated the date of issue, to bear
interest from such date at the rate of 12% per annum, payable semi-annually, or
if any day on which such interest payment is due is not a Business Day, on the
next preceding Business Day, and to bear interest on overdue principal
(including any overdue required or optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any overdue
installment of interest at the Overdue Rate from the date such payment is due,
whether by acceleration or otherwise, until paid, to be expressed to mature on
the first anniversary of the date of issuance (the "Maturity Date") and to be
substantially in the form attached hereto as EXHIBIT A. Interest on the Notes
shall be computed on the basis of a 360-day year or twelve 30-day months. The
Notes are subject to prepayment in whole or in part or redemption at the option
of the Company at any time prior to their expressed Maturity Date on the terms
and conditions and in the amounts and with the premium, if any, set forth in
Section 3 of this Agreement. Each of the Notes is convertible into shares of
Common Stock of the Company, par value $.01 per share, (the "Conversion Shares")
only upon the terms and conditions set forth in Section 1.4 below. The term
"Notes" as used herein means the Notes delivered pursuant to this Agreement. The
terms that are capitalized herein shall have the meanings set forth in Section
10 hereof unless the context shall otherwise require.
Section 1.2 Description of Warrants. The Company has authorized
the issue and sale of 450,000 warrants (the "New Warrants") to purchase Common
Stock to be dated the Closing Date and to be substantially in the form attached
hereto as EXHIBIT B.
1
2
Section 1.3 Commitment; Sale and Purchase. The Notes and New
Warrants will be issued and sold pursuant to this Agreement between you and the
other Purchasers and the Company dated the date first above written for the
aggregate purchase price in cash of $4,500,000. The Notes and the New Warrants
delivered to you on the Closing Date (as defined below) will be delivered to you
in the form of a single registered Note for the full amount of your purchase
(unless different denominations are specified by you) and a single New Warrant
Certificate, registered in your name or in the name of such nominee as you may
specify and in the form attached hereto as EXHIBIT A, and EXHIBIT B. On the
terms and subject to the conditions set forth in this Agreement, each of the
Purchasers agrees to purchase at the Closing from the Company, the aggregate
amount of Notes and New Warrants allocated to each such Purchaser as set forth
on SCHEDULE 1 to this Agreement, for the purchase price set forth for each such
Purchaser on SCHEDULE 1. Upon execution of this Agreement, each Purchaser shall
deliver to the Escrow Account (as defined below) by wire transfer an amount
equal to the purchase price for the Notes and New Warrants being purchased by
each such Purchaser. The agreement to purchase Notes and New Warrants by the
Purchaser set forth in this Agreement is irrevocable by the Purchaser but will
not constitute an agreement between the Purchaser and the Company until this
Agreement is accepted and executed by the Company and, if not so accepted, the
agreement to deliver the Notes and Warrants and the obligations of the Purchaser
hereunder will terminate. All amounts received from the Purchasers by the
Company as the Purchase Price for the Notes and New Warrants shall be held in
trust in an escrow account ("Escrow Account") to be established by Troop
Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP its bank. All said amounts will be held in the
Escrow Account until the Closing shall have occurred.
Section 1.4 Conversion. Upon the occurrence of a Conversion
Event, each Note holder shall have the right, at such holder's option, to elect
to require the Company to convert, at a price per share equal to the Conversion
Price on the Conversion Date, a portion of the unpaid principal and accrued
interest of such holder's Note into a number of Conversion Shares which does not
exceed the Initial Conversion Allocation of such Note. If shareholder approval
is obtained for issuance of the Contingent Shares pursuant to Section 5.6, such
holder may elect to require the Company to convert, at a price per share equal
to the Conversion Price on the Conversion Date, up to the entire aggregate
unpaid principal and interest then due under any Note held by such holder, in
accordance with Section 7.3 of this Agreement. Fractional Shares of Common Stock
are not to be issued upon conversion, but, in lieu thereof, the Company will pay
a cash adjustment based on the Conversion Price. Except where cash payment is
required as an adjustment as described above, no interest, principal or premium,
if any, will be payable by the Company on any Note surrendered for conversion
subsequent to the Conversion Date. The election to convert shall be made by the
holder in accordance with the terms and provisions of Section 7.3 of this
Agreement. The Conversion Notice shall be accompanied by an executed Investment
Letter of the holder in the form attached hereto as EXHIBIT C. The Conversion
Shares are subject to Securities Laws and other restrictions as set forth in
Section 9.1 of this Agreement unless a current registration statement is in
effect under the Securities Act. The Company will issue to the holder of each
Note a replacement Note with respect to any amounts remaining due and payable to
the holder following any conversion as provided in Section 11.6.
2
3
Section 1.5 Closing; Escrow Account. Subject to satisfaction of
the conditions set forth in Section 2 below, the Closing of the purchase and
sale of the Notes and the New Warrants pursuant to this Agreement shall take
place at the offices of Troop Xxxxxxxxx Xxxxxxx & Xxxxxx, LLP, 00000 Xxxxxxxx
Xxxxxxxxx, Xxx Xxxxxxx, Xxxxxxxxxx 00000, on the third business day following
receipt by the Company of the permit or qualification issued by the Department
of Corporations of the State of California, as set forth in Sections 5.5 and
3.2(d) below, which in any event shall occur on or before March 22, 1998, or
such later date as the Company and you shall mutually agree. The date of such
Closing is hereinafter referred to as a "Closing Date." At the Closing, the
Company shall deliver to each Purchaser a certificate or certificates evidencing
the Notes and New Warrants purchased by such Purchaser, against delivery to the
Company from the Escrow Account of the Purchase Price therefor. Troop Xxxxxxxxx
Xxxxxxx & Xxxxxx is hereby instructed to deliver to the Company such amounts as
the Company shall instruct by written notice executed and delivered to Troop
Xxxxxxxxx Xxxxxxx & Xxxxxx by the President or Chief Financial Officer of the
Company and the parties, and may rely exclusively and without further
investigation upon such instructions.
SECTION 2. CLOSING CONDITIONS.
Section 2.1 Conditions to Your Obligation to Close. Your
obligation to purchase the Notes on the Closing Date shall be subject to the
satisfaction (or waiver by the Purchasers pursuant to Section 8 below) of the
following conditions on or before the Closing Date:
(a) The Company's representations and warranties contained
in Section 6 shall be true and correct in all material respects at and as of the
Closing Date.
(b) The Company shall have performed and complied in all
material respects with all agreements, covenants and conditions contained herein
which are required to be performed or complied with by the Company on or before
the Closing Date.
(c) Pursuant to an application filed therefor as provided
in Section 5.5 below, a permit shall have been issued under Section 25113 of the
California Corporations Code of 1968, as amended (the "California Code") by the
California Commissioner of Corporations pursuant to the Rules and Regulations
promulgated under the California Code.
Section 2.2 Conditions to the Company's Obligation to Close. The
Company's obligation to sell to you the Notes on the Closing Date shall be
subject to the satisfaction (or waiver by the company) of the following
conditions on or before the Closing Date:
(a) Your representations and warranties contained in
Section 6.2 shall be true and correct in all material respects at and as of the
Closing Date.
(b) The Company shall have received agreements from
Purchasers acceptable to the Company to purchase at least $3,000,000 in
principal amount of the Notes.
3
4
(c) No suit, action, proceeding or investigation shall
have occurred, be pending or threatened which would or seek to prevent or delay
beyond the date of the Closing the consummation of the transactions contemplated
by this Agreement.
(d) Pursuant to an application filed therefor as provided
in Section 5.5 below, a permit shall have been issued under Section 25113 of the
California Code by the California Commissioner of Corporations pursuant to the
Rules and Regulations promulgated under the California Code.
SECTION 3. PREPAYMENT OF NOTES. Except as described below in this Section 3, the
Notes will not be subject to prepayment and redemption by the Company prior to
the Maturity Date.
Section 3.1 Optional Prepayments. The Company shall have the
privilege at any time of prepaying the outstanding Notes, in whole or in part,
by payment of a redemption price in cash equal to 102% of the principal amount
of the Notes together with accrued and unpaid interest to the date fixed for
prepayment.
Section 3.2 Mandatory Prepayment. Promptly upon the occurrence of
a Liquidity Event and as a condition thereto, the Company shall prepay the
outstanding Notes, in whole and not in part, by payment in cash equal to 102% of
the principal amount of the Notes, plus accrued and unpaid interest thereon, if
any, to the date of such prepayment.
Section 3.3 Notice of Prepayments. The Company will give notice
of any prepayment of the Notes to each holder thereof, not less than 30 days nor
more than 60 days before the date fixed for such prepayment. Any notice of
prepayment hereunder shall specify (a) such date or approximate date, as the
case may be, for prepayment, (b) the subsection of this Agreement under which
the prepayment is to be made, (c) the aggregate principal amount of Notes to be
redeemed and (d) the accrued interest applicable to the prepayment. Such notice
of prepayment shall also certify all facts which are conditions precedent to any
such prepayment. Notice of prepayment having been so given, the aggregate
principal amount of the Notes specified in such notice, together with accrued
interest thereon shall become due and payable on the prepayment date.
Section 3.4 Direct Payment. Notwithstanding anything to the
contrary in this Agreement or the Notes, in the case of any Note owned by (or by
a nominee of) a holder that has given written notice to the Company requesting
that the provisions of this Section 3.4 shall apply, the Company will promptly
and punctually pay when due the principal thereof and premium, if any, and
interest thereon, without any presentment thereof, directly to such holder or
such nominee, at the address thereof set forth in Schedule I or at such other
address as such holder may from time to time designate in writing to the Company
or, if a bank account is designated in any written notice to the Company from
such holder, the Company will make such payments in immediately available funds
to such bank account, no later than 1:00 p.m., New York time, on the date due,
marked for attention as indicated, or in such other manner or to such other
account of such holder in any bank in the United States as such holder may from
time to time direct in writing. If for any reason
4
5
whatsoever the Company do not make any such payment by such 1:00 p.m.
transmittal time, such payment shall be deemed to have been made on the next
following Business Day and such payment shall bear interest at the Overdue Rate.
SECTION 4. SUBORDINATION.
Section 4.1 Notes Subordinated to Senior Indebtedness. The
Company and each of you, by your acceptance of the Notes, agrees that the
payment of the principal of, premium, if any, and interest on the Notes is
subordinated, to the extent and in the manner provided in this Section 4, to the
prior payment in full, in cash or cash equivalents, of all Senior Indebtedness.
This Section 4 shall constitute a continuing covenant to all persons who, in
reliance upon such provisions, become holders of, or continue to hold, Senior
Indebtedness, and such provisions are made for the benefit of the holders of
Senior Indebtedness, and such holders are made obligees hereunder and any one or
more of them may enforce such provisions.
As a holder of Notes you agree that whatever right, title and
interest, if any, that you have or may hereafter have in and to any assets
provided to secure the principal of or premium or interest on the Notes,
excluding the right to convert the Notes to Common Stock as provided in Section
1.4, shall at all times and in all respects be subject and subordinate to the
right, title and interest (including security interest) in any such assets, if
any, provided to secure the Senior Indebtedness unless and until the Senior
Indebtedness has been paid in full in cash or cash equivalent. You agree that
any and all right to set off any Indebtedness, obligation or liabilities you owe
to the Company against the principal of or premium, or interest on the Notes and
the right to assert any counterclaim in respect thereof is subject to the
subordination provisions of this Section 4 and shall not be asserted unless and
until the Senior Indebtedness has been paid in full in cash or cash equivalents
(or such payment has been duly provided for).
Section 4.2 No Payment on Notes in Certain Circumstances.
(a) No payment shall be made on account of principal of,
premium, liquidated damages or interest on the Notes (other than principal,
interest, premium or liquidated damages paid with Junior Securities) (i) upon
the maturity of any Senior Indebtedness by lapse of time, acceleration or
otherwise, unless and until all Senior Indebtedness shall first be paid in full,
in cash or cash equivalents, or duly provided for, or (ii) upon the happening of
any default in payment of any principal of, interest on or reimbursement
obligations in respect of any Senior Indebtedness when the same becomes due and
payable, unless and until such default shall have been cured or waived or shall
have ceased to exist.
(b) No direct or indirect payment or distribution by or on
behalf of the Company in respect of the Notes (other than principal, interest,
premium or liquidated damages paid with Junior Securities) shall be made if, at
the time of such payment or distribution there exists or would exist, without
regard to any grace period or lapse of time, (i) a default in the payment of any
obligations owing with respect to any Senior Indebtedness or (ii) any default
under Sections 7.1(g)
5
6
or 7.1(i) of this Agreement (collectively a "Payment or Bankruptcy Default"). In
addition, during the continuance of any other event of default with respect to
any Senior Indebtedness pursuant to which the maturity thereof may be
accelerated, (x) upon receipt by the Company and holders of the Notes of written
notice of such event of default and commencement of a "Payment Blockage Period"
(as defined below) from the Senior Lender, or (y) if such event of default
results from the failure to make any payment due with respect to the Notes, upon
the date of such failure, no such payment or distribution may be made by or on
behalf of the Company upon or in respect of the Notes for a period ("Payment
Blockage Period") commencing on the earlier of the date of receipt of such
notice or the date of such failure and ending 180 days thereafter (unless such
Payment Blockage Period shall be terminated by written notice to the holders of
the Notes from the Senior Lender). For all purposes of this Section 4.2(b), a
Payment Blockage Period may not be commenced by a holder of Senior Indebtedness
until the first Business Day immediately following the next scheduled interest
payment date on the Notes occurring after the expiration or termination of any
previous Payment Blockage Period. During any Payment Blockage Period or any
period commencing on the date of a Payment or Bankruptcy Default ("Monetary
Default or Bankruptcy Period") (unless such Monetary Default or Bankruptcy
Period or Payment Blockage Period shall be terminated by written notice to the
holders of the Notes from the Senior Lender), the holders of the Notes shall
not, directly or indirectly, xxx for, in whole or in part, any payment or
distribution in respect of the Note, foreclose on any assets of Company, or file
or otherwise commence any bankruptcy or insolvency proceeding against Company
unless the maturity of the Senior Indebtedness has been accelerated, and unless
the holders of the Notes have notified the holders of the Senior Indebtedness of
their intent to take any such action. Until all Senior Indebtedness is paid in
full, the holders of the Notes shall not accept or receive, directly or
indirectly, any prepayment of the principal indebtedness of the Notes, whether
by acceleration or otherwise, without the prior written consent of the Senior
Lender; provided, however, no consent shall be required in order to prepay the
Notes as contemplated by Section 3 hereof upon the occurrence of a Liquidity
Event. Except as otherwise prohibited by this Section 4.2, however, the holders
of Notes shall be entitled to receive regularly scheduled payments of interest
on, and regularly scheduled payments of principal of, the Notes. Notwithstanding
the foregoing, in the event the Notes mature (on the Maturity Date and not by
reason of acceleration) during any Monetary Default or Bankruptcy Period, in no
event shall such Monetary Default or Bankruptcy Period continue for more than
180 days after the Maturity Date of the Notes. Nothing in this Section 4.2(b)
shall impair or prohibit the holder's right to convert any Notes to Common Stock
as provided in Section 1.4 of this Agreement.
(c) If, notwithstanding the foregoing provisions of this
Section 4.2, any payment on account of principal of or interest, premium or
liquidated damages on the Notes (other than principal, interest, premium or
liquidated damages paid with Junior Securities) shall be made by or on behalf of
the Company and received by any holder of Notes, at a time when such payment was
prohibited by the provisions of this Section 4.2, then, unless and until such
payment is no longer prohibited by this Section 4.2, such payment shall be
received and held by such holder for the benefit of and shall be immediately
paid over to the Senior Lender for application to payment of all Senior Lender's
Indebtedness in full, and if any amounts remain, then to the holders of Senior
Indebtedness or their representatives, pro rata according to the respective
amounts of the Senior Indebtedness held
6
7
or represented by each, for application to the payment of all Senior
Indebtedness remaining unpaid to the extent necessary to pay all Senior
Indebtedness in full in cash or cash equivalents in accordance with its terms,
after giving effect to any other payment or distribution or provision therefor
to or for the holders of Senior Indebtedness, but only to the extent that, upon
notice from the Company to the holders of Senior Indebtedness that such
prohibited payment has been made, the holders of the Senior Indebtedness (or
their representative or representatives or a trustee) notify the Company and the
holders of Notes of the amounts then due and owing on the Senior Indebtedness,
if any, and only the amounts specified in such notice shall be paid to the
holders of Senior Indebtedness.
(d) The Company shall give written notice to each holder
of Notes of any default or event of default under, or any acceleration of, any
Senior Indebtedness promptly upon becoming aware thereof.
Section 4.3 Notes Subordinated to Prior Payment of All Senior
Indebtedness on Dissolution, Liquidation or Reorganization of the Company. Upon
any distribution of assets of the Company and upon any dissolution, winding up,
liquidation or reorganization of the Company (including, without limitation, in
bankruptcy, insolvency or receivership proceedings or upon any assignment for
the benefit of creditors):
(a) the holders of all Senior Indebtedness shall first be
entitled to receive payments of all Senior Indebtedness in full, in cash or cash
equivalents (or to have such payment duly provided for), before the holders of
the Notes are entitled to receive any payment on account of the principal of or
interest, premium or liquidated damages on the Notes (other than principal,
interest, premium or liquidated damages paid with Junior Securities);
(b) any payment or distribution of assets of the Company
of any kind or character, whether in cash, property or securities, to which the
holders of the Notes would be entitled except for the provisions of this Section
4, shall be paid by the liquidating trustee or agent or other person making such
a payment or distribution, directly to the holders of Senior Indebtedness or
their representatives, pro rata according to the respective amounts of Senior
Indebtedness held or represented by each, to the extent necessary to make
payment in full, in cash or cash equivalents, of all Senior Indebtedness
remaining unpaid after giving effect to any concurrent payment or distribution
or provision therefor to the holders of such Senior Indebtedness; and
(c) in the event that, notwithstanding the foregoing, any
payment or distribution of assets of the Company of any kind or character,
whether in cash, property or securities, shall be received by the holders of the
Notes on account of principal of or interest, premium or liquidated damages on
the Notes (other than principal, interest, premium or liquidated damages paid
with Junior Securities) before all Senior Indebtedness is paid in full, in cash
or cash equivalents, or provision made for its payment, such payment or
distribution shall be received and held for and shall be paid over to the
holders of the Senior Indebtedness remaining unpaid or unprovided for or their
representatives (pro rata according to the respective amounts of Senior
7
8
Indebtedness held or represented by each), for application to the payment of
such Senior Indebtedness until all such Senior Indebtedness shall have been paid
in full, in cash or cash equivalents, after giving effect to any other payment
or distribution or provision therefor to the holders of such Senior
Indebtedness, but only to the extent that, upon notice from the Company to the
holders of Senior Indebtedness that such prohibited payment has been made, the
holders of the Senior Indebtedness (or their representative or representatives
or a trustee) notify the Company of the amounts then due and owing on the Senior
Indebtedness, if any, and only the amounts specified in such notice shall be
paid to the holders of Senior Indebtedness.
The Company shall give prompt written notice to each holder of Notes of any
dissolution, winding up, liquidation, or reorganization of the Company or
assignment for the benefit of creditors by the Company. Issuance of Conversion
Shares upon a Conversion Event shall not be considered a "distribution" of
securities or a "payment" for purpose of this Section 4.3.
Section 4.4 Subrogation to Rights of Holders of Senior
Indebtedness.
(a) Subject to the payment in full in cash or cash
equivalents of all Senior Indebtedness (or due provision therefor), the holders
of Notes shall be subrogated to the rights of the holders of Senior Indebtedness
to receive payments or distributions of assets of the Company until all amounts
owing on the Notes shall be paid in full, in cash or cash equivalents, and for
the purpose of such subrogation no such payments or distributions to the holders
of Senior Indebtedness by or on behalf of the Company, or by or on behalf of the
holders of Notes by virtue of this Section 4, that otherwise would have been
made to the holders of the Notes shall, as between the Company, on the one hand,
and the holders of the Notes, on the other, be deemed to be payment by the
Company to or on account of the holders of the Notes, it being understood that
the provisions of this Section 4 are and are intended solely for the purpose of
defining the relative rights of the holders of Notes, on the one hand, and the
holders of Senior Indebtedness, on the other.
(b) If any payment or distribution to which the holders of
Notes would otherwise have been entitled but for the provisions of this Section
4 shall have been applied, pursuant to the provisions of this Section 4, to the
payment of amounts payable under the Senior Indebtedness, then the holders of
the Notes shall be entitled to receive from Senior Indebtedness any payments or
distributions received by such holder of Senior Indebtedness in excess of the
amount sufficient to pay all amounts payable under or in respect of the Senior
Indebtedness in full in cash or cash equivalents, after giving effect to any
other payment or distribution or provision therefor to or for the holders of
Senior Indebtedness. The holders of Senior Indebtedness by accepting such
payments or distributions shall be deemed to agree to the provisions of this
Section 4.
Issuance of Conversion Shares shall not be considered a
"distribution" or a "payment" for purposes of this Section 4.4.
8
9
Section 4.5 Obligations of the Company Unconditional.
(a) Nothing contained in this Section 4 or elsewhere in
this Agreement or in any Note is intended to or shall impair, as between the
Company, on the one hand, and the holders of the Notes, on the other, the
respective obligations of the Company, which are absolute and unconditional, to
pay to the holders of the Notes the principal, premium, if any, of and interest
on the Notes as and when the same shall become due and payable in accordance
with their terms, or is intended to or shall affect the relative rights of the
holders of the Notes and creditors of the Company other than the holders of the
Senior Indebtedness, nor shall anything herein or therein prevent any holder of
the Notes from exercising all remedies otherwise permitted by applicable law
upon default under this Agreement, subject to the rights, if any, under this
Section 4, of the holders of Senior Indebtedness in respect of cash, property or
securities of the Company received upon the exercise of any such remedy.
(b) Without limiting the foregoing, the failure to make a
payment on account of principal, premium, if any, or interest on the Notes by
reason of any provision of this Section 4 shall not be construed as preventing
the occurrence of a Default or an Event of Default.
(c) Upon any distribution of assets of the Company, the
holders of Notes shall be entitled to rely upon any order or decree made by any
court of competent jurisdiction in which such dissolution, winding up,
liquidation or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other person making any distribution to such
holders for the purpose of ascertaining the persons entitled to participate in
such distribution, the holders of the Senior Indebtedness and other Indebtedness
of the Company, the amount thereof or payable thereon, the amount or amounts
paid or distributed thereon and all other facts pertinent thereto or to this
Section 4.
Section 4.6 Subordination Rights Not Impaired. No right of any
present or future holders of any Senior Indebtedness to enforce subordination as
provided herein shall at any time in any way be prejudiced or impaired by any
act or failure to act on the part of the Company or by any noncompliance by the
Company with the terms of this Agreement. The terms of Section 4, the
subordination effected hereby and the rights of the holders of the Senior
Indebtedness created hereby shall not be affected by (a) any exercise or
non-exercise of any right, power or remedy under or in respect of any Senior
Indebtedness or any instrument, agreement or other documentation relating
thereto or any collateral relating thereto or (b) any waiver, forbearance,
compromise, consent, release, indulgence, delay or other action, inaction or
omissions, in respect of any Senior Indebtedness or any instrument, agreement or
other documentation relating thereto, including, without limitation, (i) the
taking or accepting of collateral as security for any or all of the Senior
Indebtedness or the release, surrender or exchange of any collateral now or
thereafter securing any or all of the Senior Indebtedness, or (ii) the
non-perfection of any security interest or lien securing any or all of the
Senior Indebtedness, whether or not any holder of any Note shall have had notice
or knowledge of any of the foregoing.
9
10
No course of dealing with holders of the Notes or delay by a
holder of the Senior Indebtedness in exercising any right or remedy hereunder or
in failing to exercise the same shall operate as a waiver thereof.
Section 4.7 Effectiveness of Subordination. This Section 4 shall
continue to be effective or be automatically reinstated, as the case may be, if
at any time payment of any of the Senior Indebtedness, in whole or in part, is
rescinded or must otherwise be restored or refunded by a holder of the Senior
Indebtedness as a preference, fraudulent conveyance or otherwise under any
Bankruptcy Law, all as though such payment had not been made.
Section 4.8 Proof of Claims in Bankruptcy. If the holder of any
Note does not file a proper claim or proof of claim of debt in the form required
in any bankruptcy, insolvency or similar proceeding prior to 5 days before the
expiration of the time to file such claim or claims, then the holders of the
Senior Indebtedness or their representatives are hereby authorized to file an
appropriate claim for and on behalf of the holder of such Notes; provided, that
the holders of Senior Indebtedness have provided written notice to the holder of
such Note of their intention to so file not less than 30 days before such
expiration.
SECTION 5. COMPANY'S COVENANTS.
Section 5.1 Limitation on Restricted Payments. So long as the
Notes shall remain outstanding, the Company shall not, directly or indirectly:
(a) declare or pay any dividend or make any distribution
on account of the Equity Interests of the Company or any Subsidiary (other than
(x) dividends or distributions payable in Capital Stock (other than Disqualified
Stock) of the Company (y) dividends or distributions payable by any Subsidiary
of the Company to the Company or any Wholly Owned Subsidiary of the Company or
(z) conversion of the Notes); or
(b) purchase, redeem or otherwise acquire or retire for
value any Equity Interest of the Company or any Subsidiary or other Affiliate of
the Company (other than the issuance of Common Stock upon exercise of the New
Warrants or the Existing Warrants, redemption or repurchase of the Existing
Warrants, issuance of the Conversion Shares upon conversation of the Notes, or
any such Equity Interest owned by the Company or any Wholly-Owned Subsidiary of
the Company).
Notwithstanding the foregoing, nothing in this Section 5.1 shall prevent the
sale of Equity Interests by DMD-UK, including without limitation a public
offering of Equity Interests in DMD-UK, or the repurchase, including repurchase
at a premium, of any Equity Interests of DMD-UK whether now outstanding or
issued in the future.
10
11
Section 5.2 Stay, Extension and Usury Laws. The Company covenants
(to the extent that it may lawfully do so) that it shall not at any time insist
upon, plead or in any manner whatsoever claim or take the benefit or advantage
of, any stay, extension or usury law wherever enacted, now or at any time
hereafter in force, that may affect the covenants or the performance of this
Agreement; and the Company (to the extent that it may lawfully do so) hereby
expressly waive all benefit or advantage of any such law and covenants that it
shall not, by resort to any such law, hinder, delay or impede the execution of
any power herein granted to the holders of the Notes but shall suffer and permit
the execution of every such power as though no such law has been enacted.
Section 5.3 Future Borrowings. So long as any of the Notes is
outstanding, the Company will not, and will not permit any of its Subsidiaries
to, make loans or advances to, or guarantee the obligations of any person,
including any Subsidiary, which is senior to the Notes, except for additional
borrowings from existing lenders of Senior Indebtedness.
Section 5.4 Presentation of Approval of Contingent Shares by
Shareholders. The Company shall, prior to the first anniversary of the date of
this Agreement, seek approval from the Company's shareholders sufficient to
authorize issuance of the Contingent Shares under applicable shareholder
approval requirements of (and the Company's agreements with) The NASDAQ Smallcap
Market and/or such other stock markets or national stock exchanges upon which
equity securities of the Company are now or hereafter listed or approved for
quotation. The obligation of the Company set forth in this paragraph shall
terminate upon repayment of the entire aggregate principal amount and all
interest accrued upon all of the Notes. The Company shall be required to seek
shareholder approval for issuance of the Contingent Shares on only one occasion
and, unless such approval is received, the Notes shall not be convertible into
any number of shares which exceeds the Initial Conversion Allocation
notwithstanding any provision of this Agreement to the contrary.
Section 5.5 Application for Qualification or Permit Under the
California Code. As soon as practicable after execution of this Agreement, the
Company will file with the California Department of Corporations an application
for such permits as may be required to obtain for the Notes an exemption from
the usury provisions of the Constitution of the State of California for the
Notes pursuant to the provisions of Section 25116 of the California Code. The
Company will use its best efforts to obtain such permits with respect to sale of
the Notes under the California Code.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Section 6.1 Representations of the Company. The Company
represents and warrants:
(a) The Company and each of its Subsidiaries is a
corporation, duly organized, validly existing and in good standing under the
laws of its state of incorporation. The Company and each of its Subsidiaries has
all the requisite power and authority to own or lease and operate its properties
and to carry on its business as in the manner and in the locations as presently
11
12
conducted except where the failure to do so would not have a Material Adverse
Effect upon the business or operations of the Company taken as a whole. The
Company and each of its Subsidiaries is duly licensed and qualified to do
business as a foreign corporation and is in good standing as a foreign
corporation in each jurisdiction, if any, in which the ownership of property or
the character of its activities is such as to require it to be so licensed or
qualified, except where the failure to be so licensed or qualified would not
have a Material Adverse Effect upon its business or operations;
(b) The Company and each of its Subsidiaries has all
requisite corporate power and authority to enter into and perform all of its
obligations under this Agreement and to carry out the transactions contemplated
hereby, and has duly and properly taken all actions necessary to authorize it to
enter into and perform its obligations under this Agreement and to consummate
the transactions contemplated hereby;
(c) The Company has obtained all necessary consents from
the Senior Lender under the Credit Agreements;
(d) This Agreement constitutes legal, valid and binding
obligation of the Company, enforceable in accordance with its terms, except for
the effect upon this Agreement of usury, bankruptcy, insolvency, reorganization,
moratorium and other similar laws relating to or affecting the rights of
creditors generally; and
(e) The authorized capital stock of the Company consists
of 20,000,000 shares of common stock, par value $0.01 per share, and 1,000,000
shares of Preferred Stock, par value $.01 per share. Of such capital stock,
5,115,777 shares of Common Stock are issued and outstanding, all of which have
been duly authorized and validly issued and are fully paid and nonassessable.
The Common Stock and Preferred Stock are duly authorized, validly issued, fully
paid and nonassessable, and have the rights, preferences and privileges
specified in the Restated Certificate of Incorporation of the Company (the
"Certificate"). There are no other shares of capital stock issued and
outstanding and no shares of treasury stock. Except for the New Warrants for the
purchase of the Warrant Shares to be issued in connection with the sale of the
Notes, for the Conversion Shares of Common Stock which may be, under certain
circumstances, issuable upon conversion of the Notes as provided in Section 1.4
of this Agreement, the Existing Warrants to purchase 3,850,000 shares of Common
Stock issued in connection with the Company's Initial Public Offering, options
to employees of the Company to purchase shares of the Company's Common Stock
issued pursuant to the Company's 1997 Stock Incentive Plan, and 183,701
additional options issued outside of such Plan, there are no outstanding
options, warrants, calls securities convertible into or exchangeable for any of
the Company's capital stock, or other rights, including, without limitation,
rights to demand registration or to sell in connection with any registration by
the Company under the Securities Act with respect to the issued capital stock of
the Company (other than pursuant to Section 9 of this Agreement), or to purchase
or subscribe for capital stock of the Company. There are no voting trust
agreements or other contracts, agreements arrangements, commitments, plans,
proxies or understandings restricting or otherwise relating to conveyance,
voting or dividend rights with
12
13
respect to the outstanding capital stock, including, without limitation, the
voting or transfer thereof. All of the issued and outstanding shares of the
Company's Subsidiaries are owned by the Company.
(f) The Company has filed with the SEC all forms, reports,
registration statements, proxy statements and other documents (collectively, the
"Company Reports") required to be filed by the Company under the Securities Act
and the Exchange Act, and the Rules and regulations promulgated thereunder (the
"Securities Laws") except failures to file which, individually or collectively,
do not have a Material Adverse Effect on Company. The Company has heretofore
made available to you true and complete copies of all Company Reports filed with
the SEC. As of their respective dates, or, in the case of registration
statements, as of their effective dates, all of the Company Reports, including
all exhibits and schedules thereto and all documents incorporated by reference
therein, (i) complied as to form in all material respects with the requirements
of the Securities Laws applicable thereto, and (ii) did not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. The Company has filed
with the Commission all documents and agreements which were required to be filed
as exhibits to the Company Reports, except failures to file, if any, which,
individually or collectively, do not have a Material Adverse Effect on Company.
The audited financial statements and unaudited interim financial statements of
the Company included or incorporated by reference in the Company Reports
(collectively, the "Company Financial Statements") have been prepared in
accordance with GAAP applied on a consistent basis (except as may be indicated
therein or in the notes thereto) and fairly present the financial position of
the Company as of and at the dates thereof and the results of operations and
cash flows for the periods then ended, subject in the case of the unaudited
interim financial statements, to normal, recurring year-end adjustments and any
other adjustments described therein, which were not and are not expected to be
material in amount or effect. Except as set forth or reflected in the Company
Financial Statement at September 30, 1997 or as set forth in the unaudited
balance sheets included in the Company Reports since that date, neither the
Company nor any of its Subsidiaries has any liabilities or obligations of any
kind or nature (whether accrued, absolute, contingent or otherwise) which would
be required to be reflected or reserved against in any balance sheet of the
Company or such Subsidiaries, or in the notes thereto, prepared in accordance
with GAAP consistently applied, except liabilities since September 30, 1997
either (i) in the ordinary course of business or (ii) which, individually or
collectively, would not have a Material Adverse Effect on Company.
(g) Except for a commission of 6%of the face amount of the
Notes issued by the Company hereunder payable by the Company from the proceeds
of the Notes in connection with the services of a licensed Broker/Dealer, the
Company has not dealt with any broker, finder, commission agent or other Person
in connection with the sale of the Notes or the Warrants and the transactions
contemplated by this Agreement, and the Company is not under any obligation to
pay any broker's fee, commission or financial advisory fee in connection with
such transactions.
13
14
Section 6.2 Representations of the Purchasers. You represent and
warrant to the Company as follows:
(a) If you are a corporation, partnership, trust or
limited liability company, you are duly organized or formed, validly existing
and, if applicable, in good standing under the laws of the State of your
formation and have all the requisite power and authority to own or lease and
operate your properties and to carry on your business as now conducted and as
proposed to be conducted.
(b) You have all requisite power and authority to perform
all of your obligations under this Agreement and to carry out the transactions
contemplated hereby. You have duly and properly taken all actions necessary to
authorize you to enter into and perform your obligations under this Agreement
and to consummate the transactions contemplated hereby. This Agreement
constitutes your legal, valid and binding obligations, enforceable in accordance
with its terms, except for the effect upon this Agreement of bankruptcy,
insolvency, reorganization, moratorium and other similar laws related to or
affecting the rights of creditors generally.
(c) You acknowledge that the Securities have not been
registered under the Securities Act nor qualified under any state securities or
blue sky laws in reliance upon exemptions from registration contained in those
respective laws, and that the Company's reliance upon such exemptions is based
in part upon your representations and warranties. You represent that:
(1) The Securities to be purchased by you
pursuant to this Agreement are being acquired by you solely for your own
account, for investment purposes only, and with no present intention of
distributing, selling or otherwise disposing of them.
(2) You are able to bear the economic risk of an
investment in the Securities acquired by you pursuant to this Agreement and can
afford to sustain a total loss on such investment.
(3) You (i) have a preexisting personal or business
relationship with the Company or its officers and/or directors, or (ii) are an
experienced and sophisticated investor, are able to fend for yourself in the
transactions contemplated by this Agreement, and has such knowledge and
experience in financial and business matters that you are capable of evaluating
the risks and merits of acquiring the Securities, or (iii) by reason of the
business or financial experience of your professional advisors who are
unaffiliated with the Company, can be reasonably assumed to have the capacity to
protect your own interests in connection with an investment in the Securities.
(4) You have not been formed or organized for the
specific purpose of acquiring the Securities.
14
15
(5) You have had, during the course of this transaction
and prior to your purchase of the Securities, the opportunity to ask questions
of, and receive answers from, the Company and its management concerning the
Company and the terms and conditions of this Agreement, and you hereby
acknowledge that you or your representatives have received all such information
as you consider necessary for evaluating the risks and merits of acquiring the
Securities and for verifying the accuracy of any information furnished to it or
to which it had access. You represent and warrant that the nature and amount of
the Securities you are purchasing is consistent with your investment objectives,
abilities and resources.
(6) An investment in the Notes and Warrants involves a
high degree of risk. You acknowledge that you have carefully considered (i) the
information contained in the Company Reports and the information set forth under
the captions "Risk Factors" and "Cautionary Statements and Risk Factors" set
forth therein, and (ii) the information entitled "Risk Factors Associated with
an Investment in Senior Subordinated Debt Securities" attached as EXHIBIT D
hereto.
(7) You are an "Accredited Investor" for purposes of
Regulation D promulgated by the Commission under the Securities Act. For the
purpose of this Agreement, an "Accredited Investor" means:
(i) Any bank as defined in Section
3(a)(2) of the Securities Act or any Savings and Loan Association or other
institution as defined in Section 3(a)(5)(A) of the Securities Act whether
acting in its individual or fiduciary capacity; any broker or dealer registered
pursuant to Section 15 of the Securities Exchange Act of 1934; any insurance
company as defined in Section 2(13) of the Securities Act; any investment
company registered under the Investment Company Act of 1940 or a business
development company as defined in Section 2(a)(48) of that Act; any Small
Business Investment Company licensed by the U.S. Small Business Administration
under Section 301(c) or (d) of the Small Business Investment Act of 1958; any
plan established and maintained by a State, its political subdivisions, or any
agency or instrumentality of a State or its political subdivisions, for the
benefit of its employees if such plan has total assets in excess of $5,000,000;
or any employee benefit plan within the meaning of the Employee Retirement
Income Security Act of 1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such Act, which is either a bank,
Savings and Loan Association, insurance company, or registered investment
advisor, or if the employee benefit plan has total assets in excess of
$5,000,000 or, if a self directed plan, with investment decisions made solely by
persons that are accredited investors;
(ii) Any private business development
company as defined in Section 202(a)(22) of the Investment Advisors Act of 1940;
(iii) Any organization described in Section
501(c)(3) of the Internal Revenue Code, corporation, Massachusetts or similar
business trust, or partnership, not
15
16
formed for the specific purpose of purchasing the security offered, with total
assets in excess of $5,000,000;
(iv) Any director, executive officer, or
general partner of the issuer of the securities being offered or sold, or any
director, executive officer, or general partner of a general partner of that
issuer;
(v) Any natural person whose individual
net worth, or joint net worth with that person's spouse, at the time of his
purchase exceeds $1,000,000;
(vi) Any natural person who had an
individual income in excess of $200,000 in each of the two most recent years or
joint income with that person's spouse in excess of $300,000 in each of those
years and who reasonably expects an income reaching the same level in the
current year;
(vii) Any trust, with total assets in excess
of $5,000,000, not formed for the specific purpose of acquiring the securities
offered, whose purchase is directed by a sophisticated person as described in
Rule 506(b)(2)(ii); and
(viii) Any entity in which all of the equity
owners are accredited investors;
(d) You understand that any Securities issued pursuant to
this Agreement constitute "restricted securities" under the federal securities
laws inasmuch as they are, or will be, acquired from the Company in transactions
not involving a public offering and accordingly may not, under such laws and
applicable regulations, be resold or transferred without registration under the
Securities Act or an applicable exemption from such registration. In this
connection, you acknowledge that Rule 144 of the Commission is not now, and may
not in the future be, available for resales of the Securities hereunder. Unless
the Securities are registered pursuant to Section 9, you further acknowledges
that the following securities legend shall be placed on any Securities issued to
you hereunder:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR STATE SECURITIES LAWS
AND NO TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A
SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM
THE REQUIREMENTS OF THE ACT.
16
17
(e) You acknowledge that any written Business Plan and any
projections in connection therewith delivered to you prior to the Closing with
respect to the Company or its business (the "Business Plan") are estimates of
future performance which are inherently inaccurate, and that information in the
Business Plan including such projections are not a guarantee of future
performance. The Business Plan includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933 ("Securities Act") and
Section 21E of the Exchange Act. All statements other than statements of
historical fact included in the Company Reports, including, without limitation,
the statements regarding the Company's strategies, plans, objectives and
expectations; the Company's ability to design, develop, manufacture and market
products; the ability of the Company's products to maintain commercial
acceptance; the Company's ability to achieve new product commercialization; the
anticipated growth of its target markets; its future operating results; and
other matters are all forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable at this time, it can give no assurance that such expectations will
prove to have been correct. Important factors that could cause actual results to
differ materially from the Company's expectations are set forth in the Company
Reports and the information set forth under the captions "Risk Factors," and
"Cautionary Statements and Risk Factors" therein, and EXHIBIT D to this
Agreement. All subsequent written and oral forward-looking statements
attributable to the Company or persons acting on its behalf are expressly
qualified in their entirety by the information set forth under the captions
"Risk Factors," and "Cautionary Statements and Risk Factors" therein, and
EXHIBIT D to this Agreement. You represent and agree that you are not relying on
the accuracy of the Business Plan in making an investment in the Securities.
SECTION 7. EVENTS OF DEFAULT AND REMEDIES THEREFOR.
Section 7.1 Events of Default. Any one or more of the following
shall constitute an "Event of Default" as the term is used herein:
(a) Default shall occur in the making of payment of the
principal of or interest on any Note (including, without limitation, pursuant to
Section 3.2) or the premium, if any, thereon at the expressed or Maturity Date
or at any date fixed for prepayment and, such default shall not have been
remedied or waived in writing within 5 days following receipt by the Company of
notice of such default from any holder; or
(b) Default shall occur in the observance or performance
of any provision of this Agreement and, provided such default is capable of
being cured, such default shall not have been remedied or waived in writing
within 30 days following receipt by the Company of notice of such default from
any holder of the Notes or the Company shall have materially breached any of the
representations or warranties contained herein; or
(c) Default or the happening of any event shall occur
under any indenture, agreement or other instrument under which any Senior
Indebtedness with an aggregate principal
17
18
amount of at least $100,000 (other than the Notes) of the Company may be issued
or outstanding and, as a result thereof, the maturity of any such Senior
Indebtedness has been accelerated; or
(d) Final judgment or judgments for the payment of money
(other than judgments as to which a reputable insurance company has accepted in
writing full liability) aggregating in excess of $250,000 is or are outstanding
against the Company or against any property or assets thereof and any one of
such judgments has remained unpaid, unvacated, unbonded or unstayed by appeal or
otherwise for a period of 90 days from the date of its entry; or
(e) The Company (i) becomes insolvent, (ii) is generally
not paying its debts as they become due, (iii) makes an assignment for the
benefit of creditors, (iv) applies for or consents to the appointment of a
custodian, trustee, liquidator, or receiver for the Company or for all or
substantially all of any of their respective property or (v) admits in writing
its inability to pay debts as the same become due; or
(f) A custodian, trustee, liquidator or receiver is
appointed for the Company or for all or substantially all of the property of any
of them and is not discharged within 90 days after such appointment; or
(g) Bankruptcy, reorganization, arrangement or insolvency
proceedings, or other proceedings for relief under any bankruptcy or similar law
or laws for the relief of debtors, are instituted by or against the Company and
are consented to or are not dismissed within 90 days after such institution.
Notwithstanding the foregoing, or any other provision of this
Agreement to the contrary, except as provided in Section 1.4 permitting
conversion of the Notes to Common Stock, so long as any Senior Indebtedness
remains outstanding, no holder of a Note nor any Purchasers shall seek to
enforce its rights under this Agreement prior to the time permitted under
Section 4 of this Agreement or other than in accordance with the provisions of
Section 4 of this Agreement.
Section 7.2 Notice to Holders. When any Event of Default has
occurred, or if the holder of any Note or of any other evidence of Indebtedness
of the Company gives any notice or takes any other action with respect to a
claimed default, including accelerating the maturity of the Notes under Section
7.3 below, the Company agree to give notice within three Business Days of such
event to all holders of the Notes then outstanding.
Section 7.3 Acceleration of Maturities; Notice of Acceleration or
Conversion. When any Event of Default described in Section 7.1 has happened and
is continuing, any holder of any Note may, by notice in writing sent in the
manner provided in Section 11 hereof to the Company, declare the entire
principal and all interest accrued on such Note to be, and such Note shall
thereupon become, forthwith due and payable, without any presentment, demand,
protest or other notice of any kind, all of which are hereby expressly waived by
the Company.
18
19
Alternatively, if such Event of Default is a Conversion Event,
such holder may, by notice in writing as provided in Section 11.9 ("Conversion
Notice") elect to convert a portion of the unpaid principal and accrued interest
of such holder's Note into a number of Conversion Shares which does not exceed
the Initial Conversion Allocation of such Note as provided in Section 1.4 of
this Agreement. If shareholder approval for issuance of Contingent Shares is
obtained as contemplated by Section 5.4, such holder my elect to require the
Company to convert, at a price per share equal to the Conversion Price on the
Conversion Date, up to the entire unpaid principal and interest then due under
any Note held by such holder. The Conversion Notice shall be delivered within
three hundred and sixty-five days of the date of the Conversion Event, and shall
specify the date for conversion, which shall not exceed 30 days from the date
such Conversion Notice is given. The Conversion Notice shall be accompanied by
an executed Investment Letter in the form attached hereto as EXHIBIT C. The
obligation of the Company to deliver the Conversion Shares shall be expressly
conditioned upon receipt of such Investment Letter.
Upon the Notes becoming due and payable as a result of any Event
of Default as aforesaid, the Company will forthwith pay to the holders of the
Notes the entire principal and interest (including interest, if any, accrued at
the Overdue Rate, and any interest accrued subsequent to an Event of Default
described in paragraphs (e), (f) or (g) of Section 7.1).
No course of dealing on the part of any holder of Notes nor any
delay or failure on the part of any holder of Notes to exercise any right shall
operate as a waiver of such right or otherwise prejudice such holders' rights,
powers and remedies. The Company further agree, to the extent permitted by law,
to pay to the holder or holders of the Notes all costs and expenses incurred by
them in enforcing their rights hereunder and under the Notes, including (without
limitation) in the collection of any amount due hereunder and under the Notes
upon any default hereunder or thereon, including the fees and expenses of such
holder's or holders' attorneys for all services rendered in connection
therewith.
Upon receipt of a Conversion Notice, the Company will deliver the
Conversion Shares and the holder shall tender the Note on the Conversion Date
unless another date for conversion is agreed to by the parties in writing.
Section 7.4 Rescission of Acceleration. The provisions of Section
7.3 are subject to the condition that if the principal of and accrued interest
on all or any outstanding Notes have been declared immediately due and payable
by reason of the occurrence of any Event of Default described in paragraphs (a)
through (h), inclusive, of Section 7.1, the holders of a majority in aggregate
principal amount of the Notes then outstanding may, by written instrument filed
with the Company, rescind and annul such declaration and the consequences
thereof, provided that at the time such declaration is annulled or rescinded:
(a) no judgment or decree has been entered for the payment
of any monies due pursuant to the Notes or this Agreement;
19
20
(b) all arrears of interest upon all the Notes and all
other sums payable under the Notes and under this Agreement (except any
principal, interest or premium, if any, on the Notes that has become due and
payable solely by reason of such declaration under Section 7.3) shall have been
duly paid; and
(c) each and every other Default and Event of Default shall
have been made good, cured or waived pursuant to Section 7.1;
and provided further, that no such rescission and annulment shall extend to or
affect any subsequent Default or Event of Default or impair any right consequent
thereto or the right of any holder to elect to convert any Note.
SECTION 8. AMENDMENTS, WAIVERS AND CONSENTS.
Section 8.1 Consent Required. Any term, covenant, agreement or
condition of this Agreement may, with the consent of the Company, be amended or
compliance therewith may be waived (either generally or in a particular instance
and either retroactively or prospectively), if the Company shall have obtained
the consent in writing of the holders of at least a majority in aggregate
principal amount of outstanding Notes; provided that without the written consent
of the holders of all of the Notes then outstanding, no such waiver,
modification, alteration or amendment shall be effective (a) which will change
the time of payment or reduce the principal amount thereof or change the rate or
interest thereon, or (b) which will change any of the provisions with respect to
optional prepayment or (c) which will change the percentage of holders of the
Notes required to consent to any such amendment, modification or waiver of any
of the provisions of this Section 8 or Section 7; and, provided further, that no
amendment, modification or waiver of any term, covenant or agreement of Section
9 of this Agreement may be made except as provided in Section 9. Any term,
covenant, agreement or condition of the New Warrant agreements may, with the
consent of the Company, be amended or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), if the Company shall have obtained the consent in writing of the
holders of at least a majority of the outstanding New Warrants. So long as any
Senior Indebtedness is outstanding under the Credit Agreement and the holders of
the Notes have no written agreement with such parties regarding subordination of
the Notes, the provisions of Section 7 may not be amended or waived without the
prior written consent of the Senior Lender or the holders of a majority in
principal amount of the Senior Indebtedness outstanding thereunder.
Section 8.2 Solicitation of Note holders. The Company will not
solicit, request or negotiate for or with respect to any proposed amendment,
modification or waiver of any of the provisions of this Agreement or the Notes
unless each holder of the Notes (irrespective of the amount of the Notes then
owned by it) shall be informed thereof by the Company and shall be afforded the
opportunity of considering the same and shall be supplied by the Company with
sufficient information to enable it to make an informed decision with respect
thereto. Executed or true and correct copies of any waiver effected pursuant in
the provisions of Section 8.1 of this Section 8.2 shall be delivered by the
Company to each holder of outstanding Notes forthwith
20
21
following the date on which the same shall have been executed and delivered by
the holder or holders of the requisite percentage of outstanding Notes. The
Company will not, directly or indirectly, pay or cause to be paid any
remuneration, whether by way of supplemental or additional interest, fee or
otherwise, to any holder of the Notes as consideration for or as an inducement
to the entering into by any holder of the Notes of any waiver or amendment of
any of the terms and provisions of this Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to the holders of all of the Notes
then outstanding.
Section 8.3 Effect of Amendment or Waiver. Any such amendment or
waiver shall apply equally to all of the holders of the Notes and shall be
binding upon them, upon each future holder of any Note and upon the Company,
whether or not such Note shall have been marked to indicate such amendment or
waiver. No such amendment or waiver shall extend to or affect any obligation not
expressly amended or waived or impair any right consequent thereon.
SECTION 9. REGISTRATION OF REGISTRABLE SECURITIES
Section 9.1 Registration.
(a) Warrant Shares. The Company shall use all reasonable
efforts following the Closing Date to effect the registration ("Warrant Share
Registration") of the Warrant Shares on Form S-3 under the Securities Act for
resale as expeditiously as reasonably possible by performing the following:
(1) The Company shall, as expeditiously as possible
following the Closing (but in any event within 45 days of Closing Date), prepare
and file with the Securities and Exchange Commission (the "Commission") a
registration statement with respect to the resale of the Warrant Shares. The
Company shall use all reasonable efforts to cause the registration statement to
become effective within 60 days of such filing and to remain effective for a
period ending on the earlier of (i) five years from the effective date of such
registration statement or (ii) the date on which, in the opinion Company
counsel, all remaining Warrant Shares held by the Purchasers hereunder may be
sold in any calendar quarter in unsolicited broker transactions without volume
limitation pursuant to Rule 144 promulgated under the Securities Act (or any
successor rule thereto). Your plan of distribution with respect to the Warrant
Shares shall be limited to the following: (i) transactions effected through
brokers, or (ii) negotiated transactions effected at such prices as may be
obtainable and as may be satisfactory to you;
(2) The Company shall prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to update and
keep such registration statement effective and to comply with the provisions of
the Securities Act with respect to the sale of all securities covered by such
registration statement. Notwithstanding anything else to the contrary contained
herein, the Company shall not be required to disclose any confidential
information concerning pending acquisitions not otherwise Act required to be
disclosed; and
21
22
(3) The Company shall furnish to the holders of the
Warrant Shares such number of copies of the final prospectus the holders may
reasonably request in order to facilitate the sale of the shares owned by such
holder. Holders of the Warrant Shares so registered shall comply with all
prospectus delivery requirements under the Securities Act.
(b) Conversion Shares. The Company shall use all reasonable
efforts following, or at the election of the Company prior to, the Conversion
Event, if any, to effect the registration ("Conversion Share Registration") on
Form S-3 or such other form as the Company may deem appropriate of the
Conversion Shares under the Securities Act for resale as expeditiously as
reasonably possible by performing the following:
(1) The Company shall, as expeditiously as possible
following, or at the election of the Company prior to, the Conversion Event (but
in any event within 45 days following the Conversion Event), prepare and file
with the Commission a registration statement with respect to the resale of the
Conversion Shares. The Company shall use all reasonable efforts to cause the
registration statement to become effective within 60 days of such filing and to
remain effective for a period ending on the earlier to occur of (i) three years
from the effective date of such registration statement, or (ii) the date on
which, in the opinion Company counsel, all remaining Conversion Shares held by
the Purchasers hereunder may be sold in any calendar quarter in unsolicited
broker transactions without volume limitation pursuant to Rule 144 promulgated
under the Securities Act (or any successor rule thereto). Your plan of
distribution with respect to the Conversion Shares shall be limited to the
following: (i) transactions effected through brokers, or (ii) negotiated
transactions effected at such prices as may be obtainable and as may be
satisfactory to you;
(2) The Company shall prepare and file with the
Commission such amendments and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to update and
keep such registration statement effective and to comply with the provisions of
the Securities Act with respect to the sale of all securities covered by such
registration statement. Notwithstanding anything else to the contrary contained
herein, the Company shall not be required to disclose any confidential
information concerning pending acquisitions not otherwise required to be
disclosed; and
(3) The Company shall furnish to the holders of the
Conversion Shares such number of copies of the final prospectus the holder may
reasonably request in order to facilitate the sale of the shares owned by such
holder. Holders of the Conversion Shares so registered shall comply with all
prospectus delivery requirements under the Securities Act.
(c) Allocation of Expenses. All expenses incurred by the
Company in complying with this Section 9.1, including, without limitation, all
registration and filing fees, printing expenses, and fees and disbursements of
counsel for Company, are herein called "Registration Expenses." All selling
commissions applicable to the sales of the Shares and all fees and disbursements
of counsel for any Purchaser are herein called "Selling Expenses." The
22
23
Company will pay all Registration Expenses in connection with registration
pursuant to Section 9.1. All Selling Expenses in connection with such
registration shall be borne by the holders and/or of the shares being
registered.
(d) Limitation. Notwithstanding anything to the contrary
contained in this Section 9.1, no person (as defined, for these purposes, in
Rule 144(a)(2) of the Commission) who then beneficially owns 1% or less of the
outstanding Common Stock of the Company may request that any of its shares of
Registrable Securities be included in any registration statement filed by the
Company pursuant to Section 9.1 unless, in the opinion of counsel for such
person, such person's intended disposition of Registrable Securities could not
be effected within 90 days of the date of said opinion without registration of
such shares under the Securities Act.
Section 9.2 Transfers of Shares After Registration. You agree
that you will not effect any disposition of any Securities registered pursuant
to Section 9.1 that would constitute a sale within the meaning of the Securities
Act except as contemplated in the registration statement by which the resale of
such securities is registered pursuant to Section 9.1 or as otherwise in
compliance with applicable securities laws and that you will promptly notify the
Company of any material changes in the information set forth in the registration
statement regarding you or your plan of distribution.
Section 9.3 Indemnification.
(a) Upon the registration of the Registrable Securities
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless each holder of Registrable Securities whose securities are
registered for resale thereunder pursuant to the provisions of Section 9.1 above
(a "Selling Holder") and each controlling person of any Selling Holder, if any
(within the meaning of the Securities Act) against any losses, claims, damages
or liabilities, joint or several (or actions in respect thereof), to which such
Selling Holder or controlling person may be subject under the Securities Act,
under any other statute or at common law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement (or alleged untrue statement) of any material fact
contained in the registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any summary prospectus issued in connection
with the securities being registered, or any amendment or supplement thereto, or
any other document used to sell the securities (including an illegal
prospectus), or (ii) any omission (or alleged omissions) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (iii) any violation by the Company of the Securities
Act or any state securities or blue sky laws, or any rule or regulation
promulgated under the Securities Act or any state securities or blue sky laws,
or any other law, applicable to the Company in connection with any such
registration and shall reimburse each such Selling Holder or controlling person
for any legal or other expenses reasonably incurred by such Selling Holder or
controlling person in connection with investigating or defending any
23
24
such loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to any Selling Holder or controlling person in any
such event to the extent that any such loss, claim, damage or liability arises
out of or is based upon any such untrue statement or omission made in such
registration statement, preliminary prospectus, summary prospectus, prospectus,
or amendment or supplement thereto, or any other document, in reliance upon and
in conformity with written information furnished to the Company by any such
Selling Holder or controlling person, specifically for use therein. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of such Selling Holder or controlling
person, and shall survive transfer of such securities by such Purchaser.
(b) Upon the registration of the Conversion Shares and/or
the Warrant Shares under the Securities Act pursuant to this Agreement, each
Selling Holder shall furnish to the Company in writing such information and
affidavits as the Company reasonably requests for use in connection with such
registration statement and agrees to indemnify and hold harmless the Company,
its directors and each controlling person (within the meaning of the Securities
Act) of the Company, if any, against any losses, claims, damages or liabilities,
joint or several (or actions in respect thereof), to which the Company, or any
director or controlling person may be subject under the Securities Act, under
any other statute or at common law, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon (i)
any untrue statement (or alleged untrue statement) of any material fact
contained in the registration statement under which the Registrable Securities
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any summary prospectus issued in connection
with any securities being registered, or any amendment or supplement thereto, or
any other document used to sell the securities (including an illegal
prospectus), or (ii) any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and shall reimburse the Company, any director and
controlling person for any legal or other expenses reasonably incurred by such
persons in connection with investigating or defending any such loss, claim,
damage, liability or action; in each case, to the extent, and only to the
extent, that such untrue statement or omission is contained in any information
or affidavit so furnished in writing by such Selling Holder. The indemnity
provided for herein shall survive transfer of such securities by said holder of
Registrable Securities.
(c) If the indemnification provided for in paragraph (a) or
(b) above is unavailable to an indemnified party in accordance with its terms in
respect of any losses, claims, damages or liabilities referred to therein, then
the indemnitor in lieu of indemnifying such indemnified party thereunder shall
contribute to the amount paid or payable by such indemnified party as a result
of such losses, claims, damages or liabilities, in such proportion as is
appropriate to reflect the relative fault of the indemnitor on the one hand and
of the indemnified parties on the other in connection with the statements or
omissions which resulted in such losses, claims, damages, or liabilities, as
well as any other relevant equitable considerations. The relative fault of the
indemnitor and of the indemnified parties shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or the omission to state
24
25
a material fact relates to information supplied by the indemnitor, or the
indemnified parties, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the other parties hereto agree that it would not
be just and equitable if contribution pursuant to this Section 9.3(c) were
determined by pro rata allocation or by any other method of allocation which
does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities or actions in
respect thereof referred to in the immediately preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. No person guilty of a
fraudulent misrepresentation (within the meaning of the Securities Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
(d) Promptly after receipt by an indemnified party under
paragraph (a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnitor under such paragraph, notify the indemnitor in writing of the
commencement thereof; but the omission so to notify the indemnitor shall not
relieve it from any liability which it may have to any indemnified party
otherwise than under such subsection or to the extent that it has not been
prejudiced as a proximate result of such failure. In case any action shall be
brought against any indemnified party, and it shall notify the indemnitor of the
commencement thereof, the indemnitor shall be entitled to participate therein
and, to the extent that it shall wish, to assume the defense thereof. Upon the
assumption by the indemnitor of the defense of such action, the indemnitor shall
not be liable to such indemnified party under this Section 9.3 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof.
Section 9.4 Amendment, Modification or Waiver of Section 9. Any
term, covenant, agreement or condition of this Section 9 may, with the consent
of the Company, be amended or compliance therewith may be waived (either
generally or in a particular instance and either retroactively or
prospectively), if the Company shall have obtained the consent in writing of the
holders of at least a majority in of the outstanding Registrable Securities,
provided that without the written consent of the holders of a majority of the
Conversion Shares then outstanding, no such waiver, modification, alteration or
amendment shall be effective (a) which will adversely affect the rights of the
Conversion Shares, or (b) which will change the percentage of holders of the
Conversion Shares required to consent to any such amendment, modification or
waiver of any of the provisions of this Section 9.
25
26
SECTION 10. INTERPRETATION OF AGREEMENT; DEFINITIONS.
Section 10.1 Definitions. Unless the context otherwise requires,
the terms hereinafter set forth when used herein shall have the following
meanings and the following definitions shall be equally applicable to both the
singular and plural forms of any of the term herein defined:
"Affiliate" means, with respect to any referenced Person, (i) any
Person or entity directly or indirectly controlling or controlled by or under
direct or indirect common control with such Person, (ii) any spouse or non-adult
child (including by adoption) of such Person, (iii) any relative other than a
spouse non-adult child (including by adoption), who has the same principal
residence of any such Person, (iv) any trust in which any such Persons described
in clause (i), (ii) or (iii) above has a beneficial interest and (v) any
corporation, partnership, limited liability company or other organization of
which any such Persons described in clause (i), (ii) or (iii) above, or any
trust described in clause (iv) above collectively owns more than fifty percent
(50%) of the equity of such entity.
"Applicable Law" means with respect to any Person any Federal,
state, local or foreign statute, law, code, ordinance, rule or regulation or any
judgment, decree, rule or order of any court or governmental agency or authority
applicable to such Person or any of its subsidiaries or any of their respective
properties or assets.
"BDI" means Bavarian Dental Instruments, Inc., a California close
corporation, and a Wholly-Owned Subsidiary of the Company.
"Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal, state or foreign law for the relief of debtors.
"Business Day" means any day other than a Saturday, Sunday,
statutory holiday or other day on which banks in New York or California are
authorized to close.
"Capital Stock" means any and all shares, interests,
participations, rights or other equivalents (however designated) of corporate
stock, including, without limitation, partnership interests and other indicia of
ownership of a business entity.
"Closing" means the closing of the sale and purchase of the Notes
and New Warrants on the Closing Date.
"Code" means the Internal Revenue Code of 1986, as amended, and
the regulations thereunder from time to time promulgated.
"Commission" or "SEC" means the Securities and Exchange
Commission, as from time to time constituted, created under the Exchange Act.
26
27
"Common Stock" means the Common Stock, par value $0.01 per share,
of the Company.
"Company" means the party named as such in the first paragraph of
this Agreement, until a successor replaces such Person in accordance with the
terms of this Agreement, and thereafter means such successor.
"Contingent Shares" means that number of shares of Common Stock
which would be issuable upon conversion at the Conversion Price on the
Conversion Date of all of the aggregate outstanding principal and accrued
interest due under all of the outstanding Notes, minus the Initial Conversion
Shares, which Contingent Shares are issuable only upon shareholder approval as
set forth in Section 5.4.
"Conversion Date" shall be the date specified in the Conversion
Notice, but will in any case occur on or before the 30th day after the
Conversion Notice is delivered by the Note holder as provided in Section 7.3, or
if such day is not a Business Day, the next Business Day thereafter.
"Conversion Event" shall mean the occurrence of an Event of
Default specified in Section 7.1(a) of this Agreement which shall not have been
remedied or waived in writing within 5 days following receipt by the Company of
notice of such default from any holder.
"Conversion Price" shall mean (i) if the Common Stock is quoted
on the Nasdaq System (but not on the Nasdaq National Market) or is regularly
quoted by a recognized securities dealer but selling prices are not reported, a
price per share of Common Stock which is equal to the average of the five lowest
closing bid prices on The Nasdaq SmallCap Market for the Common Stock for the
twenty consecutive trading days prior to the Conversion Date, multiplied by
eighty (80%) percent; or (ii) if the Common Stock is listed on any established
stock exchange or a national market system, including without limitation the
Nasdaq National Market, a price per share of Common Stock equal to the average
of the five lowest closing sales prices for such stock (or the closing bid, if
no sales were reported) as quoted on such system or exchange (or the exchange
with the greatest volume of trading in the Common Stock), as reported in the
Wall Street Journal or such other source as the Board of Directors deems
reliable for the twenty days prior to the Conversion Date, multiplied by eighty
(80%) percent.
"Conversion Shares" means the Initial Conversion Shares and any
Contingent Shares.
"Credit Agreements" means each of the (i) Revolving Credit Loan
and Security Agreement with respect to an aggregate principal amount of $500,000
by and between the Senior Lender and the Company dated as of March 7, 1997, as
amended by a First Modification to Loan and Security Agreement dated as of July
25, 1997, and a Second Modification to Loan and Security Agreement dated as of
December 10, 1997; (ii) the Revolving Credit Loan and Security Agreement with
respect to an aggregate of $1,500,000 between the Senior Lender and the Company
dated as of
27
28
December 10, 1997; and (iii) the Variable Rate-Single Payment Note of the
Company in aggregate principal amount of $500,000 dated as of December 10, 1997,
as modified by a First Modification on December 14, 1997, as the same may be
amended, extended, renewed or restated from time to time in accordance with the
terms thereof (which includes, without limitation, any (1) extension of the
maturity of all or any portion of the Indebtedness thereunder, (2) increases in
the amounts available to be borrowed thereunder, (3) addition of additional
Company obligations or security thereunder and (4) addition of additional
lenders and/or agents thereunder), and any agreement governing Indebtedness
incurred to refund or refinance the borrowing then outstanding or permitted to
be outstanding under such Credit Agreement.
"DMD" means Dental/Medical Diagnostic Systems, LLC, a California
limited liability company, and a Wholly-Owned Subsidiary of the Company.
"DMD-UK" means DMDS, Ltd, a company organized under the laws of
the United Kingdom, and a Wholly-Owned Subsidiary of the Company.
"Debt" means Indebtedness specified in clauses (i) through (iii),
inclusive, of the definition of "Indebtedness."
"Default" means any event or condition, the occurrence of which
would, with the lapse of time or the giving of notice, or both, constitute an
Event of Default.
"Disqualified Stock" means (a) in the case of the Company, any
Equity Interest that, (i) either by its terms or the terms of any security into
which it is convertible or for which it is exchangeable or otherwise is, or upon
the happening of an event or the passage of time would be, required to be
redeemed or repurchased (in whole or in part) prior to the final stated maturity
of the Notes or is redeemable (in whole or in part) at the option of the holder
thereof at any time prior to such final stated maturity or (ii) is convertible
into or exchangeable at the option of the issuer thereof or any other person for
debt securities or Disqualified Stock and (b) in the case of any other person,
any Equity Interest other than Capital Stock issued to the Company or to a
Wholly-Owned Subsidiary of the Company.
"Equity Interests" means Capital Stock or warrants, options or
other rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Equity Securities" means any stock or similar security,
transferrable shares, voting trust certificate or certificates of deposit for
stock, or any security convertible, with or without consideration into such a
security or carrying any warrant right to subscribe to or purchase such a
security; or any such warrant or right; or any put, call, straddle or other
option or privilege of buying such a security.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
28
29
"Existing Warrants" means the (i) 2,070,000 Redeemable Common
Stock Purchase Warrants for purchase of the Company's Common Stock sold by the
Company in its Public Offering, (ii) 1,600,000 Resale Warrants registered by the
Company for sale by the selling stockholders as set forth in the Company's
Prospectus dated May 9, 1997; and 180,000 Warrants for the purchase of the
Company's Common Stock issued to X.X. Xxxxxxxx & Co. Inc., underwriters of the
Public Offering.
"GAAP" means generally accepted accounting principles set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board.
"Hedging Obligations" means, with respect to any person, the
obligations of such person under (i) interest or currency rate swap agreements,
interest rate cap agreements and interest rate collar agreements and (ii) other
agreements or arrangements designed to protect such person against fluctuations
in interest rates or exchange rates.
"Indebtedness" of any person means (without duplication) (i) all
indebtedness of such person for borrowed money, (ii) all obligations of such
person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all obligations of such person to pay the deferred purchase price of property or
services (other than trade payables on customary terms incurred in the ordinary
course of business), (iv) all obligations, contingent or otherwise, of such
person under bankers' acceptance, letter of credit facilities and letter of
credit risk participation agreements and (v) all obligations of such person in
respect of Hedging Obligations.
"Initial Conversion Allocation" means, with respect to any Note,
a number of shares of Common Stock equal to (x) the number of Initial Conversion
Shares multiplied by (y) the percentage of the aggregate principal amount of all
Notes issued hereunder represented by the principal amount of such Note on the
date of this Agreement.
"Initial Conversion Shares" means the lesser of (i) 500,000
shares of Common Stock (subject to equitable adjustment for any stock split,
combination or similar event), or (ii) a number of shares which, together with
the Warrant Shares, equals 19.9% of the issued and outstanding shares of Common
Stock of the Company as of the date of the Conversion Event.
"Junior Securities" means (a) Capital Stock of the Company and
(b) any debt security of the Company subject to subordination provisions no less
favorable to the holders of Senior Indebtedness than the provisions of Section 4
hereof.
"Liquidity Event" means an offering or series of related
offerings by the Company of a class or classes of Common Stock or any security
convertible into Common Stock from which the Company receives gross proceeds of
$10,000,000 or more.
29
30
"New Warrants" means the 450,000 warrants for purchase of the
Company's Common Stock issued to the Purchasers as set forth on Schedule 1 of
this Agreement.
"Obligations" means all the obligations of the Company to pay and
perform their obligations under the Notes, together with all extensions,
amendments, restatements, modifications, supplements and renewals thereof, when
the same shall become due, whether at maturity, at a time fixed for payment, on
a date of required prepayment, by acceleration or otherwise, and shall include,
without limitation, any interest which accrues after the commencement of any
case, proceeding or other action relating to the bankruptcy, insolvency or
reorganization of the Company, whether or not a claim for post-filing or
post-petition interest is allowed in such proceeding.
"Overdue Rate" means the lesser of (a) the maximum interest rate
permitted by law and (b) 15%.
"Person" or "person" means an individual, partnership,
corporation, joint venture, association, joint stock company, trust or
unincorporated organization, and a government or agency or political subdivision
thereof, or any other entity.
"Preferred Stock" means the Series A Preferred Stock, par value
$0.01 per share, of the Company.
"Proceeding" means an action, claim, suit or proceeding
(including, without limitation, an investigation or partial proceeding, such as
a deposition).
"Public Offering" means the Company's public offering of Common
Stock on May 9, 1997.
"Registrable Shares" means the Warrant Shares issuable upon
exercise of the New Warrants and any Conversion Shares issued by the Company
upon conversion of any of the Notes.
"Registration Expenses" shall have the meaning set forth in
Section 9.1(c).
"Securities" means the Notes, the New Warrants, the Warrant
Shares and any Conversion Shares.
"Securities Act" means the Securities Act of 1933, as amended
from time to time.
"Securities Laws" shall have the meaning set forth in Section 6.1
of this Agreement.
"Selling Expenses" shall have the meaning set forth in Section
9.1(c).
30
31
"Senior Indebtedness" with respect to the Company means, subject
to clause (c) of the last sentence of this definition, Indebtedness of the
Company under the Credit Agreements and any premium, interest, fees or other
amounts payable thereon or in connection therewith, including, without
limitation, all loans, letters of credit, letter of credit guarantees and other
extensions of credit under the Credit Agreements, all commitment, facility and
other fees payable under the Credit Agreement and all expenses, reimbursements,
indemnities and other amounts payable by the Company under the Credit
Agreements, whether such Indebtedness, Debt, other indebtedness, obligations or
liabilities now exist or may hereafter arise or be incurred. Notwithstanding the
foregoing, Senior Indebtedness shall not include (a) in the case of each Note,
the other Notes, (b) amounts payable and other Indebtedness to trade creditors
or created, incurred, assumed or guaranteed in the ordinary course of business,
in connection with obtaining goods, materials or services, (c) any liability for
Federal, state, local or other taxes owed or owing and (d) the items described
in the first sentence of this definition so long as the holders of the Notes
have a written agreement with the Senior Lender or the holders of such
Indebtedness regarding subordination of the Notes.
"Senior Lender" means Comerica Bank-California or any successor
in interest thereto as lender of the Senior Indebtedness.
"Subsidiary" means the Company's Subsidiaries, DMD, BDI and
DMD-UK.
"Warrant Shares" means the shares of Common Stock issuable upon
exercise of the New Warrants.
"Wholly-Owned Subsidiary" means, with respect to any person, a
subsidiary all the Equity Interests of which (other than director's qualifying
shares) is owned by such person or another Wholly-Owned Subsidiary of such
person.
SECTION 11. MISCELLANEOUS.
Section 11.1 Governing Law. THIS AGREEMENT SHALL BE CONSTRUED,
INTERPRETED AND THE RIGHTS OF THE PARTIES DETERMINED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA (WITHOUT REGARD TO THE CONFLICT OF LAWS PROVISIONS
THEREOF).
Section 11.2 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
Section 11.3 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
31
32
Section 11.4 Negotiation of Agreement. Each of the parties
acknowledges that it has been represented by independent counsel of its choice
throughout all negotiations that have preceded the execution of this Agreement
and that it has executed the same with consent and upon the advice of said
independent counsel. Each party and its counsel cooperated in the drafting and
preparation of this Agreement and the documents referred to herein, and any and
all drafts relating thereto shall be deemed the work product of the parties and
may not be construed against any party by reason of its preparation.
Accordingly, any rule of law or any legal decision that would require
interpretation of any ambiguities in this Agreement against the party that
drafted it is of no applica tion and is hereby expressly waived. The provisions
of this Agreement shall be interpreted in a reasonable manner to effect the
intentions of the parties and this Agreement.
Section 11.5 Note Register. The Company shall cause to be kept at
its principal office a register for the registration and transfer of the Notes,
and the Company will register or transfer or cause to be registered or
transferred, as hereinafter provided and under such reasonable regulations as it
may prescribe, any Note issued pursuant to this Agreement.
At any time, and from time to time, the holder of any Note which
has been duly registered as hereinabove provided may transfer such Note upon
surrender thereof at the principal office of the Company duly endorsed or
accompanied by a written instrument of transfer duly executed by the holder of
such Note or its attorney duly authorized in writing.
The Person in whose name any Note shall be registered shall be
deemed and treated as the owner and holder thereof for all purposes of this
Agreement. Payment of or on account of the principal, premium, if any, and
interest on any Note shall be made to or upon the written order of such holder.
Section 11.6 Exchange of Notes. At any time and from time to
time, upon not less than ten days' notice to that effect given by the holder of
any Note initially delivered or of any Note substituted therefor pursuant to
Section 1.4, 11.5, this Section 11.6 or Section 11.7, and, upon surrender of
such Note at its office, the Company will deliver in exchange therefor, without
expense to the holder, Notes for the same aggregate principal amount as the then
unpaid or unconverted, as the case may be, principal amount of the Note so
surrendered, in the denomination of $1,000 or any amount in excess thereof as
such holder shall specify, dated as of the last date on which interest has been
paid on the Note so surrendered or, if such surrender is prior to the payment of
any interest thereon, then dated as of the date of issue, registered in the name
of such Person or Persons as may be designated by such holder, and otherwise of
the same form and tenor as the Notes so surrendered for exchange.
Section 11.7 Loss, Theft, Etc. of Notes. Upon receipt of evidence
satisfactory to the Company of the loss, theft, mutilation or destruction of any
Note, and in the case of any such loss, theft, or destruction upon delivery of a
bond or indemnity in such form and amount as shall be reasonably satisfactory to
the Company, or in the event of such mutilation upon surrender and cancellation
of the Note, the Company will make and deliver without expense to the holder
thereof,
32
33
a new Note, of like tenor, in lieu of such lost, stolen, destroyed or mutilated
Note. If a Purchaser or any subsequent holder is the owner of any such lost,
stolen or destroyed Note, then the affidavit of an authorized officer of such
owner, setting forth the fact of loss, theft or destruction shall be accepted as
satisfactory evidence thereof and no further indemnity shall be required as a
condition to the execution and delivery of the new Note other than the written
agreement of such owner to indemnify the Company.
Section 11.8 Expenses, Stamp and Other Taxes. Whether or not the
transactions herein contemplated shall be consummated, the Company agree to pay
directly all of your reasonable out-of-pocket expenses in connection with the
preparation, execution and delivery of the Agreement, including but not limited
to the reasonable charges and disbursements of your special counsel (if any),
duplicating and printing costs and charges for shipping the Notes adequately
insured to you at your home office or at such other place as you may designate,
and all such expenses relating to any amendments, waivers or consents pursuant
to the provisions of this Agreement (whether or not the same are actually
executed and delivered), including, without limitation, any amendments, waivers
or consents resulting from any work-out, restructuring or similar proceedings
relating to the performance by the Company of their obligations under this
Agreement and the Notes. The Company also agree that they will pay and save you
harmless against any and all liability with respect to stamp and other taxes, if
any, which may be payable or which may be determined to be payable in connection
with the execution and delivery of this Agreement or the Notes, whether or not
any Notes are then outstanding.
Section 11.9 Notices. All notices and other communications among
the parties shall be in writing and shall be deemed to have been duly given when
(i) delivered in person, or (ii) five (5) days after posting in the U.S. mail as
registered mail or certified mail, return receipt requested, or (iii) delivered
by telecopier and promptly confirmed by delivery in person or post as aforesaid
in each case, with postage prepaid, addressed as follows:
If to the Company, to:
Dental/Medical Diagnostic Systems, Inc.
000 X. Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Attention: Chief Financial Officer
Phone No.: (000) 000-0000
33
34
If to the Purchaser or any holder of a Note, to the address of
such Purchaser or holder set forth in Schedule I or the Note Register, as
applicable.
Section 11.10 Excess Interest. The Notes are expressly limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the unpaid principal balance thereof or otherwise, shall the amount
paid or agreed to be paid to any holder of a Note exceed the maximum legal rate
permissible under any law which a court of competent jurisdiction may deem
applicable thereto. If, for any circumstances whatsoever, fulfillment of any
provision of a Note, at the time performance of such provision shall be due,
shall involve transcending the maximum legal rate of interest prescribed by law
which a court of competent jurisdiction may deem applicable thereto, then, ipso
facto, the obligation to be fulfilled shall be reduced to the limit of such
maximum rate, and if from any circumstances any holder of a Note shall ever
receive as interest an amount which would exceed said maximum legal rate, such
amount which would be excessive interest shall be applied to the reduction of
the unpaid principal balance due under such Note and not to the payment of
interest; to the extent that such excessive amount exceeds the unpaid principal
balance thereon, such holder shall refund it to Company. In determining whether
excessive interest would be charged, to the extent permitted by applicable law
all sums paid or agreed to be paid to a holder of Note for the use, forbearance,
or detention of the indebtedness evidenced thereby outstanding from time to time
shall be prorated, amortized, allocated and spread from the date of disbursement
of the proceeds of such Note until payment in full of the unpaid principal sum
so that the actual rate of interest on account of such indebtedness is uniform
throughout the term thereof. This provision shall control every other provision
of this Agreement and the Notes.
Section 11.11 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms to the fullest extent permitted by law.
Section 11.12 Further Assurances. Each of the parties shall,
without further consideration, use reasonable efforts to execute and deliver
such additional documents and take such other action as the other parties, or
any of them may reasonably request to carry out the intent of this Agreement and
the transactions contemplated hereby.
Section 11.13 Successors and Assigns. This Agreement shall be
binding upon and all rights hereto shall inure to the benefit of the Company,
their successors and permitted assigns, and shall be binding upon and all rights
hereto shall inure to the benefit of the other parties hereto and their
respective heirs, successors and permitted assigns.
SECTION 11.14 ENTIRE AGREEMENT. THIS AGREEMENT, TOGETHER WITH THE
EXHIBITS AND SCHEDULES ATTACHED HERETO, EMBOD IES THE ENTIRE AGREEMENT AND
UNDERSTANDING OF THE PARTIES HERETO
34
35
IN RESPECT OF THE ACTIONS AND TRANSACTIONS CONTEMPLATED BY THIS
AGREEMENT.
Section 11.15 Counterparts. The execution hereof by you shall
constitute a contract between us for the uses and purposes hereinabove set
forth, and this Agreement may be executed in any number of counterparts, each
executed counterpart constituting an original but all together only one
agreement.
35
36
IN WITNESS WHEREOF, the undersigned have caused this Purchase
Agreement to be duly executed, as of the date first written above.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.,
A DELAWARE CORPORATION
By: /s/ XXXXXX X. XXXXXXX
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Financial Officer
AGREED, ACCEPTED AND CONSENTED TO:
COMERICA BANK-CALIFORNIA
By: /s/ XXXXX X. XXXXXXX
--------------------------
Name: Xxxxx X. Xxxxxxx
Title: Senior Vice President & Manager
36
37
PURCHASERS:
**
**
----------------------------------------
By: **
**
/s/ **
----------------------------------------
By: **
Its: **
**
/s/ **
----------------------------------------
By: **
**
/s/ **
----------------------------------------
By: **
Its: **
**
/s/ **
----------------------------------------
**
**
/s/ **
----------------------------------------
**
** CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
38
**
/s/ **
----------------------------------------
By: **
Its: **
**
/s/ **
----------------------------------------
By: **
**
By: /s/ **
------------------------------------------------
Name: **
---------------------------------------
Its: **
---------------------------------------
**
By: /s/ **
------------------------------------------------
Name: **
---------------------------------------
Its: **
---------------------------------------
**
/s/ **
---------------------------------
**
** CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
39
**
/s/ **
-------------------------------
**
/s/ **
-------------------------------
**
**
/s/ **
-------------------------------
**
** CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES
AND EXCHANGE COMMISSION
40
FORM OF NOTE
EXHIBIT A
TO PURCHASE AGREEMENT
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT") OR STATE SECURITIES LAWS AND NO TRANSFER
OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION THEREFROM WITH RESPECT
TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A SATISFACTORY OPINION OF
COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM THE REQUIREMENTS OF THE
ACT. PAYMENT ON THIS NOTE IS SUBORDINATED TO THE CLAIMS OF SENIOR LENDERS
PURSUANT TO THE TERMS OF A NOTE AND SECURITY AGREEMENT OF EVEN DATE HEREWITH.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
12% Senior Subordinated Note
Note Due 1999
No. N-____ __________, 1998
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC., a Delaware corporation (the "Company"),
for value received, hereby, promises to pay to ________________________ or
registered assigns on the ___ day of March, 1999 (the "Maturity Date") the
principal amount of _____________________________ DOLLARS ($______________) and
to pay interest (computed on the basis of a 360-day year of twelve 30-day
months) on the principal amount from time to time remaining unpaid hereon at the
rate of 12% per annum from the date hereof until maturity, payable
semi-annually. The Company agrees to pay interest on overdue principal
(including any overdue required or optional prepayment of principal) and
premium, if any, and (to the extent legally enforceable) on any overdue
installment of interest, at the Overdue Rate per annum from the date such
payment is due, whether by acceleration or otherwise, until paid.
Both the principal hereof and interest hereon are payable at the
principal office of the Company in Westlake Village, California, in coin or
currency of the United States of America which at the time of payment shall be
legal tender for the payment of public and private debts. If any amount of
principal, premium, if any, or interest on or in respect of this Note becomes
due and payable on any date which is not a Business Day, such amount shall be
payable on the next preceding Business Day.
This Note is one of the 12% Senior Subordinated Notes due 1999 of the
Company in the aggregate principal amount of $4,500,000 issued or to be issued
under and pursuant to the terms and provisions of the Note Agreement, dated as
of March 2 , 1998 (the "Note Agreement"), entered into by the Company with the
original Purchaser therein referred to and this Note and the
A-1
41
holder hereof are entitled equally and ratably with the holders of all other
Notes outstanding under the Note Agreement to all the benefits and security
provided for thereby or referred to therein, to which Note Agreement reference
is hereby made for the statement thereof. Capitalized terms used but not
otherwise deemed herein have the meaning given thereto in the Note Agreement.
This Note and the other Notes outstanding under the Note Agreement may
be declared due prior to their expressed maturity dates and certain prepayments
are required to be made thereon, all in the events, on the terms and in the
manner and amounts as provided in the Note Agreement. The Notes are not subject
to prepayment or redemption at the option of the Company prior to their
expressed maturity dates except on the terms and conditions and in the amounts
and with the premium, if any, set forth in the Note Agreement. This Note is
convertible to Common Stock of the Company at the election of the Note holder
subject to the limitations and on the terms and conditions set forth in the Note
Agreement.
This Note is registered on the books of the Company and is transferable
only by surrender thereof at the principal office of the Company duly endorsed
or accompanied by a written instrument or transfer duly executed by the
registered holder of this Note or its attorney duly authorized in writing.
Payment of or on account of principal, premium, if any, and interest on this
Note shall be made only to or upon the order in writing of the registered
holder.
This Note and said Note Agreement are governed by and construed in
accordance with the internal laws of California.
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.,
A DELAWARE CORPORATION
By: ___________________________________
Name: Xxxxxx X. Xxxxxxx
Title: Chief Financial Officer
A-2
42
FORM OF WARRANT
EXHIBIT B
TO PURCHASE AGREEMENT
THIS WARRANT AND THE SHARES OF COMMON STOCK PURCHASABLE HEREUNDER HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") OR STATE SECURITIES LAWS
AND NO TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN
EFFECTIVE REGIS TRATION STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A
SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT FROM
THE REQUIREMENTS OF THE ACT.
No. W-____ DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
WARRANT CERTIFICATE
The Warrants are part of a series of 450,000 warrants issued pursuant to
that certain Purchase Agreement dated March 2, 1998 by and between the Company,
the initial holder hereof and others (the "Purchase Agreement"). This
Certificate represents ____________ Warrants for the purchase of _______________
shares of Common Stock. A copy of the Purchase Agreement may be obtained by the
Holder at no charge from the Company at the Company's address set forth in
Section 9 below.
1. Warrant; Purchase Price
Each Warrant shall entitle the Holder initially to purchase one
share of Common Stock of the Company and the purchase price payable upon
exercise of the Warrants shall initially be $5.812 per share of Common Stock
(the "Purchase Price"). The shares of Common Stock issuable upon exercise of the
Warrant are sometimes referred to herein as the "Warrant Shares."
2. Exercise; Expiration Date
2.1 The Warrants are exercisable, at the option of the
Holder, in whole or in part at any time and from time to time commencing on May
15, 1998 (the "Commencement Date") and until the Expiration Date, upon surrender
of this Warrant Certificate to the Company together with a duly completed Notice
of Exercise substantially in the form attached hereto as EXHIBIT 1 and the
Investment Letter in the form attached hereto as EXHIBIT 2 and payment of the
Purchase Price, at the election of the Holder, either (i) in cash or (ii) by
receiving from the Company the number of Warrant Shares equal to (A) the number
of Warrant Shares as to which this Warrant is being exercised, minus (ii) the
number of Warrant Shares having an aggregate Fair Market Value as of the date
the Notice of Exercise is delivered (the "Determination Date") equal to the
aggregate Purchase Price for the number of Warrant Shares as to which this
Warrant is being exercised. For purposes hereof, Fair Market Value means, as of
the Determination Date, the value of the Common Stock determined as follows: (a)
if the Common Stock is listed on any established stock exchange or a national
market system, including without limitation the Nasdaq
X-0
00
Xxxxxxxx Xxxxxx, the Fair Market Value of a share of Common Stock shall be the
closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in the Common Stock) on the last market trading day
prior to the Determination Date, as reported in the Wall Street Journal or such
other source as the Board of Directors deems reliable; (b) if the Common Stock
is quoted on the Nasdaq System (but not on the Nasdaq National Market) or is
regularly quoted by a recognized securities dealer but selling prices are not
reported, the Fair Market Value of a share of Common Stock shall be the mean
between the bid and asked prices for the Common Stock on the last market trading
day prior to the Determination Date, as reported in the Wall Street Journal or
such other source as the Board of Directors deems reliable; or (c) in the
absence of an established market for the Common Stock, the Fair Market Value
shall be determined in good faith by the Board of Directors. In the case of
exercise of less than the entire Warrant represented by this Warrant
Certificate, the Company shall cancel the Warrant Certificate upon the surrender
thereof and shall execute and deliver a new Warrant Certificate for the balance
of such Warrant.
2.2 The term "Expiration Date" shall mean 5:00 p.m. New York
time on May 15, 2003, or if such day shall in the State of New York be a holiday
or a day on which banks are authorized to close, then 5:00 p.m. New York time
the next following day which in the State of New York is not a holiday or a day
on which banks are authorized to close.
3. Ownership
The Company may deem and treat the person in whose name this
Warrant is registered as the holder and owner hereof (notwithstanding any
notations of ownership or writing hereon made by anyone other than the Company)
for all purposes and shall not be affected by any notice to the contrary until
presentation of this Warrant for registration of transfer as provided in Section
7.
4. Reservation of Shares
The Company covenants that it will at all times reserve and keep
available out of its authorized capital stock, solely for the purpose of issue
upon exercise of the Warrant such number of shares of Common Stock as shall then
be issuable upon the exercise of all outstanding Warrants. The Company covenants
that all shares of capital stock which shall be issuable upon exercise of the
Warrants shall be duly and validly issued and fully paid and non-assessable and
free from all taxes, liens and charges with respect to the issue thereof, and
that upon issuance such shares shall be listed on each national securities
exchange, if any, on which the other shares of such outstanding capital stock of
the Company are then listed.
5. Adjustment of Number of Shares
Upon each adjustment of the Warrant Price as provided in Section
6, the Holder shall thereafter be entitled to purchase, at the Warrant Price
resulting from such adjustment, the number of shares (calculated to the nearest
tenth of a share) obtained by multiplying the Warrant Price in effect
immediately prior to such adjustment by the number of shares purchasable
B-2
44
pursuant hereto immediately prior to such adjustment and dividing the product
thereof by the Warrant Price resulting from such adjustment.
6. Adjustment of Warrant Price. The Warrant Price shall be subject
to adjustment from time to time as follows:
6.1 If, at any time during the Term of this Warrant, the
number of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of shares of
Common Stock, then, following the record date fixed for the determination of
holders of Common Stock entitled to receive such stock dividend, subdivision or
split-up, the Warrant Price shall be appropriately decreased so that the number
of shares of Common Stock issuable upon the exercise hereof shall be increased
in proportion to such increase in outstanding shares.
6.2 If, at any time during the Term of this Warrant, the
number of shares of Common Stock outstanding is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date for such
combination, the Warrant Price shall appropriately increase so that the number
of shares of Common Stock issuable upon the exercise hereof shall be decreased
in proportion to such decrease in outstanding shares.
6.3 In case, at any time during the Term of this Warrant,
the Company shall declare a cash dividend upon its Common Stock payable
otherwise than out of earnings or earned surplus or shall distribute to holders
of its Common Stock shares of its capital stock (other than Common Stock), stock
or other securities of other persons, evidences of indebtedness issued by the
Company or other persons, assets (excluding cash dividends and distributions) or
options or rights (excluding options to purchase and rights to subscribe for
Common Stock or other securities of the Company convertible into or exchangeable
for Common Stock), then, in each such case, immediately following the record
date fixed for the determination of the holders of Common Stock entitled to
receive such dividend or distribution, the Warrant Price in effect thereafter
shall be determined by multiplying the Warrant Price in effect immediately prior
to such record date by a fraction of which the numerator shall be an amount
equal to the difference of (x) the Current Market Price of one share of Common
Stock minus (y) the fair market value (as determined by the Board of Directors
of the Company, whose determination shall be conclusive) of the stock,
securities, evidences of indebtedness, assets, options or rights so distributed
in respect of one share of Common Stock, and of which the denominator shall be
such Current Market Price.
6.4 All calculations under this Section 6 shall be made to
the nearest cent or to the nearest one-tenth (1/10) of a share, as the case may
be.
6.5 For the purpose of any computation pursuant to this
Section 6, the Current Market Price at any date of one share of Common Stock
shall be deemed to be (a) if the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market, the Current Market Price of a share of Common Stock shall be
the closing sales price for such stock (or the closing bid, if no sales were
reported) as quoted on such system or exchange (or the exchange with the
greatest volume of
B-3
45
trading in the Common Stock) on the last market trading day prior to such date,
as reported in the Wall Street Journal or such other source as the Board of
Directors deems reliable; (b) if the Common Stock is quoted on the Nasdaq System
(but not on the Nasdaq National Market) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Current Market Price
of a share of Common Stock shall be the mean between the bid and asked prices
for the Common Stock on the last market trading day prior to such date, as
reported in the Wall Street Journal or such other source as the Board of
Directors deems reliable; or (c) in the absence of an established market for the
Common Stock, the Current Market Price shall be determined in good faith by the
Board of Directors.
6.6 Whenever the Warrant Price shall be adjusted as provided
in Section 6.5, the Company shall prepare a statement showing the facts
requiring such adjustment and the Warrant Price that shall be in effect after
such adjustment. The Company shall cause a copy of such statement to be sent by
mail, first class postage prepaid, to each Holder of this Warrant at its, his or
her address appearing on the Company's records. Where appropriate, such copy may
be given in advance and may be included as part of the notice required to be
mailed under the provisions of subsection 6.8 of this Section 6.
6.7 Adjustments made pursuant to shall be made on the date
such dividend, subdivision, split-up, combination or distribution, as the case
may be, is made, and shall become effective at the opening of business on the
business day next following the record date for the determination of
stockholders entitled to such dividend, subdivision, split-up, combination or
distribution.
6.8 In the event the Company shall propose to take any
action of the types described in subsections 6.1, 6.2, and 6.3 above of this
Section 6, the Company shall forward, at the same time and in the same manner,
to the Holder of this Warrant such notice, if any, which the Company shall give
to the holders of capital stock of the Company.
6.9 In any case in which the provisions of this Section 6
shall require that an adjustment shall become effective immediately after a
record date for an event, the Company may defer until the occurrence of such
event issuing to the Holder of all or any part of this Warrant which is
exercised after such record date and before the occurrence of such event the
additional shares of capital stock issuable upon such exercise by reason of the
adjustment required by such event over and above the shares of capital stock
issuable upon such exercise before giving effect to such adjustment exercise;
provided, however, that the Company shall deliver to such Holder a due xxxx or
other appropriate instrument evidencing such Holder's right to receive such
additional shares upon the occurrence of the event requiring such adjustment.
7. Securities Law Restrictions
7.1 Restricted Securities. The Holder understands that this
Warrant and the Warrant Shares constitute "restricted securities" under the
federal securities laws inasmuch as they are, or will be, acquired from the
Company in transactions not involving a public offering and accordingly may not,
under such laws and applicable regulations, be resold or transferred without
registration under the Securities Act or an applicable exemption from such
registration.
B-4
46
In this connection, the Holder acknowledges that Rule 144 of the Securities and
Exchange Commission (the "Commission") is not now, and may not in the future be,
available for resales of the Warrant and the Warrant Shares hereunder. Unless
the Warrant Shares are subsequently registered pursuant to Section 8, the Holder
further acknowledges that the securities legend on EXHIBIT 2 attached hereto
shall be placed on any Warrant Shares issued to the Holder upon exercise of this
Warrant.
7.2 Representations. By receipt of this Warrant, the Holder
makes the same representations with respect to the acquisition of this Warrant
as the Holder is required to make upon the exercise of this Warrant and
acquisition of the Warrant Shares as set forth in the Form of Investment Letter
attached as EXHIBIT 2 attached hereto.
7.3 Certification of Investment Purpose. Unless a current
registration statement under the Securities Act shall be in effect with respect
to the Warrant Shares, the Holder covenants and agrees that, at the time of
exercise hereof, it will deliver to the Company a written certification executed
by the Holder that the Warrant Shares are for the account of such Holder and
acquired for investment purposes only and that such securities are not acquired
with a view to, or for sale in connection with, any distribution thereof.
7.4 Transfer Mechanics. Subject to the provisions of
Sections 7.1 and 7.2 above, this Warrant and all rights hereunder are
transferable in whole or in part upon the books of the Company by the Holder
hereof in person or by duly authorized attorney, and a new Warrant or Warrants,
of the same tenor as this Warrant but registered in the name of the transferee
or transferees (and in the name of the Holder, if a partial transfer is
effected) shall be made and delivered by the Company upon surrender of this
Warrant duly endorsed, at the office of the Company referred to in Section 9
hereof.
7.5 Replacement. Upon receipt by the Company of evidence
reasonably satisfactory to it of the loss, theft or destruction, and, in such
case, of indemnity or security reasonably satisfactory to it, and upon surrender
of this Warrant if mutilated, the Company will make and deliver a new Warrant of
like tenor, in lieu of this Warrant; provided that if the Holder hereof is an
instrumentality of a state or local government or an institutional holder or a
nominee for such an instrumentality or institutional holder an irrevocable
agreement of indemnity by such Holder shall be sufficient for all purposes of
this Section 7, and no evidence of loss or theft or destruction shall be
necessary. This Warrant shall be promptly canceled by the Company upon the
surrender hereof in connection with any transfer or replacement. Except as
otherwise provided above, in the case of the loss, theft or destruction of a
Warrant, the Company shall pay all expenses, taxes and other charges payable in
connection with any transfer or replacement of this Warrant, other than stock
transfer taxes (if any) payable in connection with a transfer of this Warrant,
which shall be payable by the Holder. Holder will not transfer this Warrant and
the rights hereunder except in compliance with federal and state securities
laws.
8. Registration Rights
B-5
47
The holder of this Warrant has all the benefits, and by
accepting this warrant, assumes all of the obligations of a holder of Warrant
Shares under the Purchase Agreement.
9. Notices
Any notice or other document required or permitted to be given
or delivered to the Holder shall be delivered at, or sent by certified or
registered mail to, the Holder at the address of the Holder appearing on the
books of the Company or to such other address as shall have been furnished to
the Company in writing by the Holder. Any notice or other document required or
permitted to be given or delivered to the Company shall be delivered at, or sent
by certified or registered mail to, the Company at 000 X. Xxxxxxxx Xxxxxxxxx,
Xxxxx 000, Xxxxxxxx Xxxxxxx, XX 00000, or to such other address as shall have
been furnished in writing to the Holder by the Company. Any notice so addressed
and mailed by registered or certified mail shall be deemed to be given when so
mailed. Any notice so addressed and otherwise delivered shall be deemed to be
given when actually received by the addressee.
10. Amendment
This Warrant may be amended as set forth in Section 8 of the
Purchase Agreement dated as of March 2, 1998.
11. Governing Law
This Warrant Certificate shall be governed by and construed in
accordance with the laws of the State of California.
B-6
48
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed by its officers thereunto duly authorized and its corporate
seal to be affixed hereon, as of this ____ day of __________, 1998.
DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC.
By: ________________________________
Name: Xxxxxx X. Xxxxxxxxx
Title: Chairman, CEO, President
and Secretary
[SEAL]
Attest:
-------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Chief Financial Officer
B-7
49
EXHIBIT 1 TO WARRANT
NOTICE OF EXERCISE
The undersigned hereby irrevocably elects to exercise, pursuant
to Section 32 of the Warrant Certificate accompanying this Notice of Exercise,
_____________Warrants of the total number of Warrants owned by the undersigned
pursuant to the accompanying Warrant Certificate, and herewith makes payment of
the Purchase Price of such shares in full either in cash or by tendering
Warrants with a Fair Market Value equal to all or any part of the Purchase Price
with respect to the Warrants for which this notice is given, in accordance with
the terms of Section 2.1 of the Warrant Certificate.
------------------------------------
Name of Holder
------------------------------------
Signature
------------------------------------
Address:
--------------------------
CASH
--------------------------
Warrants Tendered - FMV
= $_______________________
divided by $5.812 (as adjusted)
= ________________________ Warrant Shares
B-8
50
EXHIBIT 2 TO WARRANT
To: DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
In connection with the purchase by the undersigned of
___________ shares of the Common Stock (the "Warrant Shares") of Dental/Medical
Diagnostic Systems, Inc, a Delaware corporation (the "Company"), upon exercise
of that certain Common Stock Warrant dated as of March __, 1998 the undersigned
hereby represents and warrants as follows:
The Warrant Shares to be received by the undersigned upon
exercise of the Warrant are being acquired for its own account, not as a nominee
or agent, and not with a view to resale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any participation
in, or otherwise distributing the same. The undersigned further represents that
it does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Warrant Shares. The undersigned believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Warrant Shares.
The undersigned understands that the Warrant Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with Commission Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
Without in any way limiting the representations set forth above,
the undersigned agrees not to make any disposition of all or any portion of the
Warrant Shares unless and until:
There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(i) The undersigned shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
requested, the undersigned shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require registration of such shares under the Act. The Company will not require
an opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
B-9
51
The undersigned understands the instruments evidencing the
Warrant Shares may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Dated: ____________, 1998
______________________________________
Name:_________________________________
Title:________________________________
B-10
52
FORM OF INVESTMENT LETTER
EXHIBIT C
TO FORM NOTE PURCHASE AGREEMENT
To: DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
In connection with the purchase by the undersigned of
___________ shares of the Common Stock (the "Conversion Shares") of
Dental/Medical Diagnostic Systems, Inc, a Delaware corporation (the "Company"),
upon conversion of that certain 12% Senior Subordinated Note due 1999, dated as
of __________, 1998, and appended hereto, the undersigned hereby represents and
warrants as follows:
The Conversion Shares to be received by the undersigned upon
conversion of the Note are being acquired for its own account, not as a nominee
or agent, and not with a view to resale or distribution of any part thereof, and
the undersigned has no present intention of selling, granting any participation
in, or otherwise distributing the same. The undersigned further represents that
it does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participation to such person or to any third
person, with respect to the Conversion Shares. The undersigned believes it has
received all the information it considers necessary or appropriate for deciding
whether to purchase the Stock.
The undersigned understands that the Conversion Shares are
characterized as "restricted securities" under the federal securities laws
inasmuch as they are being acquired from the Company in transactions not
involving a public offering and that under such laws and applicable regulations
such securities may be resold without registration under the Securities Act of
1933, as amended (the "Act"), only in certain limited circumstances. In this
connection, the undersigned represents that it is familiar with Commission Rule
144, as presently in effect, and understands the resale limitations imposed
thereby and by the Act.
Without in any way limiting the representations set forth above,
the undersigned agrees not to make any disposition of all or any portion of the
Conversion Shares unless and until:
There is then in effect a registration statement under the Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(i) The undersigned shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (ii) if
requested, the undersigned shall have furnished the Company with an opinion of
counsel, reasonably satisfactory to the Company that such disposition will not
require
C-1
53
registration of such shares under the Act. The Company will not require an
opinion of counsel for sales made pursuant to Rule 144 except in unusual
circumstances.
The undersigned understands the instruments evidencing the
Conversion Shares may bear the following legend:
THIS CERTIFICATE AND THE SHARES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED AND MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED UNLESS THERE IS
AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR THE COMPANY RECEIVES AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT.
Dated: _______________
______________________________________
Name:_________________________________
Title:________________________________
C-2
54
EXHIBIT D
RISK FACTORS ASSOCIATED WITH AN INVESTMENT IN SENIOR
SUBORDINATED DEBT SECURITIES
The Notes will be expressly subordinated in right of payment to all Senior
Indebtedness of the Company (but not its Subsidiaries). The Notes will not
contain any financial covenants or similar restrictions with respect to the
Company or its Subsidiaries and therefore, the holders of the Notes will have no
protection (other than rights upon Events of Default as described in Section 7
of the Note Purchase Agreement) from adverse changes in the Company's financial
condition. By reason of such subordination of the Notes, in the event of
insolvency, bankruptcy, liquidation, reorganization, dissolution or winding up
of the business of the Company or upon a default in payment with respect to any
indebtedness of the Company or an event of default with respect to such
indebtedness resulting in the acceleration thereof, the assets of the Company
will be available to pay the amounts due on the Notes only after all Senior
Indebtedness had been paid in full. The Notes will rank pari passu with other
unsecured obligations of the Company.
The Notes are obligations exclusively of Dental/Medical Diagnostic Systems, Inc.
and not of its Subsidiaries. Because certain of the operations of the Company
are currently conducted through its Subsidiaries, the cash flow and consequent
ability to service debt of the Company, including the Notes, are dependent, in
part, upon the earnings of its Subsidiaries and the distribution of those
earnings to or upon loans or on the payment of funds by those Subsidiaries to
the Company. The Subsidiaries are separate and distinct entities and have no
obligation, contingent or otherwise, to pay any amounts due pursuant to the
Notes or to make any funds available therefor, whether by dividends, loans, or
other payments. In addition, the payments of dividends and the making of loans
and advances to the Company by its Subsidiaries may be subject to statutory or
contractual restrictions, or contingent upon the earnings of those Subsidiaries
and are subject to various business considerations.
For the reasons set forth in the immediately preceding paragraph, the Notes will
be effectively subordinated to all indebtedness and liabilities, including
current liabilities and commitments under leases of the Company's Subsidiaries.
Any right of the Company to receive assets of any of its Subsidiaries upon
liquidation or reorganization of the Subsidiary (and the consequent right of the
holder of the Notes to participate in those assets) will be effectively
subordinated to the claims of that Subsidiary's creditors (including trade
creditors), except to the extent that the Company is itself recognized as a
creditor of such Subsidiary, in which case the claims of the Company would still
be subordinated to any security interest in the assets of such Subsidiary and
any of the indebtedness of such Subsidiary senior to that held by the Company.
As of February 24, 1998, Senior Indebtedness of the Company and indebtedness of
its Subsidiaries aggregated approximately $268,000.
D-1
55
SCHEDULE 1
PURCHASERS:
Aggregate Amount of Warrants
Name and Address Notes
---------------- ------------------- ---------------------
Note $ Amount Warrant Amount
---- -------- ------- ------
** N-1 $ 500,000 W-1 50,000
**
** N-2 $ 500,000 W-2 50,000
**
** N-3 $ 25,000 W-3 2,500
**
** N-4 $1,000,000 W-4 100,000
**
** N-5 $ 500,000 W-5 50,000
**
** N-6 $ 500,000 W-6 50,000
**
** N-7 $ 250,000 W-7 25,000
**
** N-8 $ 100,000 W-8 10,000
**
** N-9 $ 50,000 W-9 5,000
**
** N-10 $1,000,000 W-10 100,000
**
**CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION
X-0
00
Xxxxxxxxx Xxxxxx of Warrants
Name and Address Notes
---------------- ------------------- ---------------------
Note $ Amount Warrant Amount
---- -------- ------- ------
** N-11 $25,000 W-11 2,500
**
** N-12 $50,000 W-12 5,000
**
**
TOTAL 12 $4,5000,000 12 450,000
=========== =======
S-2
