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EXHIBIT 10.45
EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT
BETWEEN
DENTAL/MEDICAL DIAGNOSTIC SYSTEMS, INC.
AND
THE INVESTORS SIGNATORY HERETO
EXCHANGEABLE PREFERRED STOCK AND WARRANTS PURCHASE AGREEMENT dated as of
February 24, 2000 (the "Agreement"), between the Investors signatory hereto
(each an "Investor" and together the "Investors"), and Dental/Medical Diagnostic
Systems, Inc., a corporation organized and existing under the laws of the State
of Delaware (the "Company").
WHEREAS, the parties desire that, upon the terms and subject to the
conditions contained herein, the Company shall issue and sell to the Investors,
and the Investors shall purchase in the aggregate, (i) up to $2,750,000 Stated
Value of Exchangeable Preferred Stock (as defined below) and (ii) Warrants (as
defined below) to purchase up to 275,000 shares of the Common Stock (as defined
below) at 100% of the Market Price on the Closing Date for such Common Stock and
Warrants to purchase up to 550,000 shares of the Common Stock at $3.50.
WHEREAS, such investments will be made in reliance upon the provisions
of Section 4(2) ("Section 4(2)") and/or 4(6) of the United States Securities Act
and/or Regulation D ("Regulation D") and the other rules and regulations
promulgated thereunder (the "Securities Act"), and/or upon such other exemption
from the registration requirements of the Securities Act as may be available
with respect to any or all of the investments in securities to be made
hereunder.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
CERTAIN DEFINITIONS
Section 1.1. "Capital Shares" shall mean the Common Stock and any shares of any
other class of common stock whether now or hereafter authorized, having the
right to participate in the distribution of earnings and assets of the Company.
Section 1.2. "Capital Shares Equivalents" shall mean any securities, rights, or
obligations that are convertible into or exchangeable for or give any right to
subscribe for any Capital Shares of the Company or any Warrants, options or
other rights to subscribe for or purchase Capital Shares or any such convertible
or exchangeable securities.
Section 1.3. "Certificate of Designations" shall mean the Certificate of
Designations setting forth the terms of the Exchangeable Preferred Stock in the
form of Exhibit A hereto.
Section 1.4. "Closing" shall mean the closing of the purchase and sale of the
Exchangeable Preferred Stock and Warrants pursuant to Section 2.1.
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Section 1.5. "Closing Date" shall mean the date on which all conditions to the
Closing have been satisfied (as defined in Section 2.1 (b) hereto) and the
Closing shall have occurred.
Section 1.6. "Common Stock" shall mean the Company's common stock, $0.01 par
value per share.
Section 1.7. "Damages" shall mean any loss, claim, damage, judgment, penalty,
deficiency, liability, costs and expenses (including, without limitation,
reasonable attorney's fees and disbursements and reasonable costs and expenses
of expert witnesses and investigation).
Section 1.8. "Effective Date" shall mean the date on which the SEC first
declares effective a Registration Statement registering the resale of the
Registrable Securities as set forth in the Registration Rights Agreement.
Section 1.9. "Escrow Agent" shall have the meaning set forth in the Escrow
Agreement.
Section 1.10. "Escrow Agreement" shall mean the Escrow Agreement in
substantially the form of Exhibit D hereto executed and delivered
contemporaneously with this Agreement.
Section 1.11. "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated thereunder.
Section 1.12. "Exchange Shares" shall mean the shares of Common Stock issuable
upon exchange of the Exchangeable Preferred Stock and any shares of Common Stock
issued as dividends upon the Exchangeable Preferred Stock.
Section 1.13. "Exchangeable Preferred Stock" shall mean the up to $2,750,000
Stated Value (2,750 shares) of Series B Exchangeable Preferred Stock, as
described in the Certificate of Designations to be issued to the Investors
pursuant to this Agreement.
Section 1.14. "Legend" shall mean the legend set forth in Section 9.1.
Section 1.15. "Market Price" on any given date shall mean the average of any
three (3) closing bid prices on the Principal Market (as reported by Bloomberg
L.P.) of the Common Stock selected by the Investor during the thirty (30)
Trading Day period ending on the Trading Day immediately prior to the date for
which the Market Price is to be determined.
Section 1.16. "Material Adverse Effect" shall mean any effect on the business,
operations, properties, prospects, stock price or financial condition of the
Company that is material and adverse to the Company and its subsidiaries and
affiliates, taken as a whole, and/or any condition, circumstance, or situation
that would prohibit or otherwise interfere with the ability of the Company to
enter into and perform any of its obligations under this Agreement, the
Registration Rights Agreement, the Escrow Agreement, the Certificate of
Designations or the Warrants in any material respect.
Section 1.17. "Outstanding" when used with reference to shares of Common Stock
or Capital Shares (collectively the "Shares"), shall mean, at any date as of
which the number of such Shares is to be determined, all issued and outstanding
Shares, and shall include all such Shares issuable in respect of outstanding
scrip or any certificates representing fractional interests in such Shares;
provided, however, that "Outstanding" shall not mean any such Shares then
directly or indirectly owned or held by or for the account of the Company.
Section 1.18. "Person" shall mean an individual, a corporation, a partnership, a
limited liability company, an association, a trust or other entity or
organization, including a government or political subdivision or an agency or
instrumentality thereof.
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Section 1.19. "Principal Market" shall mean the American Stock Exchange, the New
York Stock Exchange, the NASDAQ National Market, or the NASDAQ Small-Cap Market,
whichever is at the time the principal trading exchange or market for the Common
Stock, based upon share volume.
Section 1.20. "Purchase Price" shall mean the Stated Value per share of
Exchangeable Preferred Stock, as defined in the Certificate of Designations.
Section 1.21. "Registrable Securities" shall mean the Exchange Shares and the
Warrant Shares until (i) the Registration Statement has been declared effective
by the SEC, and all Exchange Shares and Warrant Shares have been disposed of
pursuant to the Registration Statement, (ii) all Exchange Shares and Warrant
Shares have been sold under circumstances under which all of the applicable
conditions of Rule 144 (or any similar provision then in force) under the
Securities Act ("Rule 144") are met, (iii) all Exchange Shares and Warrant
Shares have been otherwise transferred to holders who may trade such shares
without restriction under the Securities Act, and the Company has delivered a
new certificate or other evidence of ownership for such securities not bearing a
restrictive legend or (iv) such time as, in the opinion of counsel to the
Company, all Exchange Shares and Warrant Shares may be sold without any time,
volume or manner limitations pursuant to Rule 144(k) (or any similar provision
then in effect) under the Securities Act.
Section 1.22. "Registration Rights Agreement" shall mean the agreement regarding
the filing of the Registration Statement for the resale of the Registrable
Securities, entered into between the Company and the Investor as of the Closing
Date in the form annexed hereto as Exhibit C.
Section 1.23. "Registration Statement" shall mean a registration statement on
Form S-3 (if use of such form is then available to the Company pursuant to the
rules of the SEC and, if not, on such other form promulgated by the SEC for
which the Company then qualifies and which counsel for the Company shall deem
appropriate, and which form shall be available for the resale by the Investors
of the Registrable Securities to be registered thereunder in accordance with the
provisions of this Agreement, the Registration Rights Agreement and in
accordance with the intended method of distribution of such securities), for the
registration of the resale by the Investor of the Registrable Securities under
the Securities Act.
Section 1.24. "Regulation D" shall have the meaning set forth in the recitals of
this Agreement.
Section 1.25. "SEC" shall mean the Securities and Exchange Commission.
Section 1.26. "Section 4(2)" and "Section 4(6)" shall have the meanings set
forth in the recitals of this Agreement.
Section 1.27. "Securities Act" shall have the meaning set forth in the recitals
of this Agreement.
Section 1.28. "SEC Documents" shall mean the Company's Annual Report on Form
10-KSB for the fiscal year ended December 31, 1998 and each report, proxy
statement or registration statement filed by the Company with the SEC pursuant
to the Exchange Act or the Securities Act since the filing of such Annual Report
through the date hereof, and shall include each Company press release which is
specifically identified in the Disclosure Letter referenced in the preamble to
Article IV.
Section 1.29. "Shares" shall have the meaning set forth in Section 1.16.
Section 1.30. "Stated Value" shall have the meaning set forth in the Certificate
of Designations.
Section 1.31. "Trading Day" shall mean any day during which the Principal Market
shall be open for business.
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Section 1.32. "Warrants" shall mean the Warrants substantially in the form of
Exhibit B-1 to be issued to the Investors hereunder at the rate of one Warrant
for each $10.00 invested in the Closing, exercisable at the Market Price on the
Closing Date (the "B-1 Warrants") and the Warrants substantially in the form of
Exhibit B-2 to be issued to the Investors hereunder at the rate of one B-2
Warrant for each $5.00 invested in the Closing, exercisable at $3.50 per share
(the "B-2 Warrants").
Section 1.33. "Warrant Shares" shall mean all shares of Common Stock or other
securities issued or issuable pursuant to exercise of the Warrants.
ARTICLE II
PURCHASE AND SALE OF EXCHANGEABLE PREFERRED STOCK AND WARRANTS
Section 2.1. Investment.
(a) Upon the terms and subject to the conditions set forth herein, the
Company agrees to sell, and the Investors agree, severally and not jointly, to
purchase the Exchangeable Preferred Stock together with the Warrants at the
Purchase Price. On the Closing Date, the Investors shall purchase up to Two
Million Seven Hundred Fifty Thousand Dollars ($2,750,000) Stated Value (2,750
shares), but in no event less than One Million Five Hundred Thousand $1,500,000
Stated Value (1,500 shares), of Exchangeable Preferred Stock as follows:
(i) Upon execution and delivery of this Agreement, each
Investor shall deliver to the Escrow Agent immediately
available funds in their proportionate amount of the
Purchase Price as set forth on the signature pages hereto,
and the Company shall deliver the Exchangeable Preferred
Stock certificates and the Warrants to the Escrow Agent,
in each case to be held by the Escrow Agent pursuant to
the Escrow Agreement.
(ii) Upon satisfaction of the conditions set forth in Section
2.1(b), the Closing ("Closing") shall occur at the offices
of the Escrow Agent at which the Escrow Agent (x) shall
release the Exchangeable Preferred Stock and the Warrants
to the Investors and (y) shall release the Purchase Price,
pursuant to the terms of the Escrow Agreement.
(b) The Closing is subject to the satisfaction, or waiver by the party
to be benefited thereby, of the following conditions:
(i) acceptance and execution by the Company and by the
Investors, of this Agreement and all Exhibits hereto;
(ii) delivery into escrow by each Investor of immediately
available funds in the amount of the Purchase Price of the
Exchangeable Preferred Stock, and the Warrants, as more
fully set forth in the Escrow Agreement (as a condition to
the Company's obligations);
(iii) all representations and warranties of the Investors
contained herein shall remain true and correct as of the
Closing Date (as a condition to the Company's
obligations);
(iv) all representations and warranties of the Company
contained herein shall remain true and correct as of the
Closing Date and the Disclosure Letter shall reveal no
Material Adverse Effect (as a condition to the Investors'
obligations);
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(v) the Company shall have obtained all permits and
qualifications required by any state for the offer and
sale of the Exchangeable Preferred Stock and Warrants, or
shall have the availability of exemptions therefrom;
(vi) the sale and issuance of the Exchangeable Preferred Stock
and the Warrants hereunder, and the proposed issuance by
the Company to the Investors of the Common Stock
underlying the Exchangeable Preferred Stock and the
Warrants upon the exchange or exercise thereof shall be
legally permitted by all laws and regulations to which the
Investors and the Company are subject and there shall be
no ruling, judgment or writ of any court prohibiting the
transactions contemplated by this Agreement;
(vii) delivery of the original fully executed Exchangeable
Preferred Stock certificates and Warrants certificates to
the Escrow Agent;
(viii) delivery to the Escrow Agent of an opinion of Troop
Xxxxxxx Xxxxxx Xxxxxxx & Xxxxx, LLP, counsel to the
Company, in the form of Exhibit E hereto;
(ix) delivery to the Escrow Agent of the Irrevocable
Instructions to Transfer Agent in the form attached hereto
as Exhibit F;
(x) delivery to the Escrow Agent of the Registration Rights
Agreement; and
(xi) delivery to the Escrow Agent of the written agreements of
each officer and director of the Company addressed to the
Investors, agreeing to vote all shares of Common Stock
over which they have voting control in favor of a
shareholder proposal permitting the issuance of a number
of Exchange Shares in excess of 19.9% of the number of
shares of Common Stock issued and outstanding on the
Closing Date.
Section 2.2. Liquidated Damages.(a) The Company understands that a delay in the
issuance of the Exchange Shares beyond four (4) Trading Days after delivery by
an Investor of an Exchange Notice could result in economic loss to the Investor.
As compensation to the Investor for such loss, the Company agrees to pay late
payments to the Investor for late issuance of shares of Common Stock upon
exchange in accordance with the following schedule (where "No. Trading Days
Late" is defined as the number of Trading Days beyond four (4) Trading Days from
the date of receipt by the Company of the Exchange Notice):
No. Trading Days Xxxx Xxxx Payment For Each
$5,000 of Liquidation Preference
Amount Being Exchanged
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1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Trading Day
Late beyond 10 days
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The Company shall pay any payments incurred under this Section in immediately
available funds upon demand. Nothing herein shall limit the Investor's right to
pursue injunctive relief and/or actual damages for the Company's failure to
issue and deliver Common Stock to the Investor, including, without limitation,
the Investor's actual losses occasioned by any "buy-in" of Common Stock
necessitated by such late delivery. Furthermore, in addition to any other
remedies which may be available to the Investor, in the event that the Company
fails for any reason to effect delivery of such shares of Common Stock within
five Trading Days the date of receipt of the Exchange Notice, the holder will be
entitled to revoke the relevant Exchange Notice by delivering a notice to such
effect to the Company whereupon the Company and the holder shall each be
restored to their respective positions immediately prior to delivery of such
Exchange Notice.
The parties hereto acknowledge and agree that the sums payable pursuant to the
foregoing paragraph and pursuant to the Registration Rights Agreement shall
constitute liquidated damages and not penalties. The parties further acknowledge
that (a) the amount of loss or damages likely to be incurred is incapable or is
difficult to precisely estimate, (b) the amounts specified in such Sections bear
a reasonable proportion and are not plainly or grossly disproportionate to the
probable loss likely to be incurred by the Investors in connection with the
failure by the Company to timely cause the registration of the Registrable
Securities and (c) the parties are sophisticated business parties and have been
represented by sophisticated and able legal and financial counsel and negotiated
this Agreement at arm's length.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF INVESTOR
Each Investor, severally and not jointly, represents and warrants to the Company
that:
Section 3.1. Intent. The Investor is entering into this Agreement for its own
account and not with a view to or for sale in connection with any distribution
of the Common Stock. The Investor has no present arrangement (whether or not
legally binding) at any time to sell the Exchangeable Preferred Stock, the
Warrants, any Exchange Shares or Warrant Shares to or through any person or
entity except in compliance with the Securities Act or an exemption therefrom;
provided, however, that by making the representations herein, the Investor does
not agree to hold such securities for any minimum or other specific term and
reserves the right to dispose of the Exchange Shares and Warrant Shares at any
time in accordance with federal and state securities laws applicable to such
disposition.
Section 3.2. Sophisticated Investor. The Investor is a sophisticated investor
(as described in Rule 506(b)(2)(ii) of Regulation D) and an accredited investor
(as defined in Rule 501 of Regulation D), and Investor has such experience in
business and financial matters that it has the capacity to protect its own
interests in connection with this transaction and is capable of evaluating the
merits and risks of an investment in the Exchangeable Preferred Stock, the
Warrants and the underlying Common Stock. The Investor acknowledges that an
investment in the Exchangeable Preferred Stock, the Warrants and the underlying
Common Stock is speculative and involves a high degree of risk.
Section 3.3. Authority. This Agreement and each agreement attached as an Exhibit
hereto which is required to be executed by Investor has been duly authorized and
validly executed and delivered by the Investor and is a valid and binding
agreement of the Investor enforceable against it in accordance with its terms,
subject to applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application.
Section 3.4. Not an Affiliate. The Investor is not an officer, director or
"affiliate" (as that term is defined in Rule 405 of the Securities Act) of the
Company.
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Section 3.5. Absence of Conflicts. The execution and delivery of this Agreement
and each agreement which is attached as an Exhibit hereto and executed by the
Investor in connection herewith, and the consummation of the transactions
contemplated hereby and thereby, and compliance with the requirements hereof and
thereof by the Investor, will not violate any law, rule, regulation, order,
writ, judgment, injunction, decree or award binding on Investor or (a) violate
any provision of any indenture, instrument or agreement to which Investor is a
party or is subject, or by which Investor or any of its assets is bound; (b)
conflict with or constitute a material default thereunder; (c) result in the
creation or imposition of any lien pursuant to the terms of any such indenture,
instrument or agreement, or constitute a breach of any fiduciary duty owed by
Investor to any third party; or (d) require the approval of any third-party
(which has not been obtained) pursuant to any material contract, agreement,
instrument, relationship or legal obligation to which Investor is subject or to
which any of its assets, operations or management may be subject.
Section 3.6. Disclosure; Access to Information. The Investor has received all
documents, records, books and other publicly available information pertaining to
Investor's investment in the Company that have been requested by the Investor.
The Company is subject to the periodic reporting requirements of the Exchange
Act, and the Investor has reviewed copies of all SEC Documents deemed relevant
by Investor.
Section 3.7. Manner of Sale. At no time was Investor presented with or solicited
by or through any leaflet, public promotional meeting, television advertisement
or any other form of general solicitation or advertising.
Section 3.8. No Brokers. The Investor has not employed any investment banker,
broker, finder, or intermediary in connection with the transactions contemplated
by this Agreement who will seek a fee from the Company. The Investor agrees to
indemnify and hold harmless the Company from and against any and all liabilities
to any person claiming brokerage commissions or finder's fees on account of
services purported to have been rendered on behalf of the Investor in connection
with this Agreement or the transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and Warrants to the Investors that, except as set forth
in a Disclosure Letter prepared by the Company and delivered to the Investor
concurrent with the execution of this Agreement (which Disclosure Letter may be
updated by the Company at any time prior to Closing) (the "Disclosure Letter"):
Section 4.1. Organization of the Company. The Company is a corporation duly
incorporated and existing in good standing under the laws of the State of
Delaware and has all requisite corporate authority to own its properties and to
carry on its business as now being conducted. The Company does not have any
subsidiaries and does not own more that fifty percent (50%) of or control any
other business entity except as set forth in the SEC Documents. The Company is
duly qualified and is in good standing as a foreign corporation to do business
in every jurisdiction in which the nature of the business conducted or property
owned by it makes such qualification necessary, other than those in which the
failure so to qualify would not have a Material Adverse Effect.
Section 4.2. Authority. (i) The Company has the requisite corporate power and
corporate authority to enter into and perform its obligations under this
Agreement, the Registration Rights Agreement, the Escrow Agreement, and the
Warrants and to issue the Exchangeable Preferred Stock, the Exchange Shares, the
Warrants and the Warrant Shares pursuant to their respective terms, (ii) the
execution, issuance and delivery of this Agreement, the Registration Rights
Agreement, the Escrow Agreement, the Certificate of Designations, the
Exchangeable Preferred Stock certificates and the Warrants by the Company and
the consummation by it of the transactions contemplated hereby have been duly
authorized by all necessary corporate action and no further consent or
authorization of the Company or its Board of Directors or stockholders is
required, and (iii) this Agreement, the Registration Rights Agreement, the
Escrow Agreement, the Exchangeable Preferred Stock certificates and the Warrants
have been duly executed and delivered by the Company and at the Closing shall
constitute valid and binding obligations of the Company enforceable against the
Company in accordance with their terms, except as such enforceability may be
limited by applicable bankruptcy, insolvency, or similar laws relating to, or
affecting generally the enforcement of, creditors' rights and remedies or by
other equitable principles of general application. The Company has duly and
validly authorized and reserved for issuance shares of Common Stock sufficient
in number for the exchange of the Exchangeable Preferred Stock and for the
exercise of the Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Exchange
Shares. The Company further acknowledges that its obligation to issue Exchange
Shares upon exchange of the Exchangeable Preferred Stock and Warrant Shares upon
exercise of the Warrants in accordance with this Agreement and the Certificate
of Designations is absolute and unconditional regardless of the dilutive effect
that such issuance may have on the ownership interests of other stockholders of
the Company and notwithstanding the commencement of any case under 11 U.S.C.
Section 101 et seq. (the "Bankruptcy Code"). The Company shall not seek judicial
relief from its obligations hereunder except pursuant to the Bankruptcy Code. In
the event the Company is a debtor under the Bankruptcy Code, the Company hereby
waives to the fullest extent permitted any rights to relief it may have under 11
U.S.C. Section 362 in respect of the exchange of the Exchangeable Preferred
Stock and the exercise of the Warrants. The Company agrees, without cost or
expense to the Investors, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. Section 362.
Section 4.3. Capitalization. The authorized capital stock of the Company
consists of 20,000,000 shares of Common Stock, $0.01 par value per share, of
which 6,394,998 shares are issued and outstanding as of September 30, 1999 and
1,000,000 shares of preferred stock, par value $0.01 per share, 2,000 of which
have
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been designated series A and are issued and outstanding prior to the Closing.
The Company has duly and validly designated 2,750 shares of its preferred stock
as Series B Exchangeable Preferred Stock. Except for (i) outstanding options and
warrants as set forth in the SEC Documents and (ii) as set forth in the
Disclosure Schedule, there are no outstanding Capital Shares Equivalents nor any
agreements or understandings pursuant to which any Capital Shares Equivalents
may become outstanding. The Company is not a party to any agreement granting
registration or anti-dilution rights to any person with respect to any of its
equity or debt securities. All of the outstanding shares of Common Stock of the
Company have been duly and validly authorized and issued and are fully paid and
non-assessable.
Section 4.4. Common Stock. The Company has registered its Common Stock pursuant
to Section 12(b) or (g) of the Exchange Act and is in full compliance with all
reporting requirements of the Exchange Act, and the Company is in compliance
with all requirements for the continued listing or quotation of its Common
Stock, and such Common Stock is currently listed or quoted on, the Principal
Market. As of the date hereof, the Principal Market is the Nasdaq SmallCap
Market and the Company has not received any notice regarding, and to its
knowledge there is no threat, of the termination or discontinuance of the
eligibility of the Common Stock for such listing.
Section 4.5. SEC Documents. The Company has made available to the Investors true
and complete copies of the SEC Documents. The Company has not provided to the
Investors any information that, according to applicable law, rule or regulation,
should have been disclosed publicly prior to the date hereof by the Company, but
which has not been so disclosed. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act, and
rules and regulations of the SEC promulgated thereunder and the SEC Documents
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents complied in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC or other
applicable rules and regulations with respect thereto at the time of such
inclusion. Such financial statements have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto or (ii) in the case of unaudited interim
statements, to the extent they exclude footnotes or may be condensed or summary
statements) and fairly present in all material respects the financial position
of the Company as of the dates thereof and the results of operations and cash
flows for the periods then ended (subject, in the case of unaudited interim
statements, to normal year-end audit adjustments). Neither the Company nor any
of its subsidiaries has any material indebtedness, obligations or liabilities of
any kind (whether accrued, absolute, contingent or otherwise, and whether due or
to become due) that would have been required to be reflected in, reserved
against or otherwise described in the financial statements or in the notes
thereto in accordance with GAAP, which was not fully reflected in, reserved
against or otherwise described in the financial statements or the notes thereto
included in the SEC Documents or was not incurred in the ordinary course of
business consistent with the Company's past practices since the last date of
such financial statements.
Section 4.6. Exemption from Registration; Valid Issuances. Subject to the
accuracy of the Investors' representations in Article III, the sale of the
Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant
Shares will not require registration under the Securities Act and/or any
applicable state securities law. When issued and paid for in accordance with the
Warrants and validly exchanged in accordance with the terms of the Exchangeable
Preferred Stock, the Exchange Shares and the Warrant Shares will be duly and
validly issued, fully paid, and non-assessable. Neither the sales of the
Exchangeable Preferred Stock, the Exchange Shares, the Warrants or the Warrant
Shares pursuant to, nor the Company's performance of its obligations under, this
Agreement, the Registration Rights Agreement, the Escrow Agreement, the
Certificate of Designations or the Warrants will (i) result in the creation or
imposition by the Company of any liens, charges, claims or other encumbrances
upon the Exchangeable Preferred Stock, the
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Exchange Shares, the Warrants or the Warrant Shares or, except as
contemplated herein, any of the assets of the Company, or (ii) entitle the
holders of Outstanding Capital Shares to preemptive or other rights to subscribe
for or acquire the Capital Shares or other securities of the Company. The
Exchangeable Preferred Stock, the Exchange Shares, the Warrants and the Warrant
Shares shall not subject the Investors to personal liability to the Company or
its creditors by reason of the possession thereof.
Section 4.7. No General Solicitation or Advertising in Regard to this
Transaction. Neither the Company nor any of its affiliates nor, to the knowledge
of the Company, any person acting on its or their behalf (i) has conducted or
will conduct any general solicitation (as that term is used in Rule 502(c) of
Regulation D) or general advertising with respect to the sale of the
Exchangeable Preferred Stock or the Warrants, or (ii) made any offers or sales
of any security or solicited any offers to buy any security under any
circumstances that would require registration of the Exchangeable Preferred
Stock, the Exchange Shares, the Warrants or the Warrant Shares under the
Securities Act.
Section 4.8. No Conflicts. The execution, delivery and performance of this
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby, including without limitation the issuance of and payment of
dividends upon the Exchangeable Preferred Stock, the Exchange Shares, the
Warrants and the Warrant Shares do not and will not (i) result in a violation of
the Company's Certificate of Incorporation or By-Laws or (ii) conflict with, or
constitute a material default (or an event that with notice or lapse of time or
both would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any material agreement, indenture or
instrument, or any "lock-up" or similar provision of any underwriting or similar
agreement to which the Company is a party, or (iii) result in a violation of any
federal, state or local law, rule, regulation, order, judgment or decree
(including federal and state securities laws and regulations) applicable to the
Company or by which any material property or asset of the Company is bound or
affected, nor is the Company otherwise in violation of, conflict with or default
under any of the foregoing (except in each case for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations as would
not have, individually or in the aggregate, a Material Adverse Effect). The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental entity, except for possible
violations that either singly or in the aggregate would not have a Material
Adverse Effect. The Company is not required under any Federal, state or local
law, rule or regulation to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency in order
for it to execute, deliver or perform any of its obligations under this
Agreement or issue and sell the Exchangeable Preferred Stock or the Warrants in
accordance with the terms hereof (other than any SEC, Principal Market or state
securities filings that may be required to be made by the Company subsequent to
the Closing, any registration statement that may be filed pursuant hereto, and
any shareholder approval required by the rules applicable to companies whose
common stock trades on the Principal Market); provided that, for purposes of the
representation made in this sentence, the Company is assuming and relying upon
the accuracy of the relevant representations and agreements of the Investors
herein.
Section 4.9. No Material Adverse Change. Since September 30, 1999, no Material
Adverse Effect has occurred or exists with respect to the Company, except as
disclosed in the SEC Documents.
Section 4.10. No Undisclosed Events or Circumstances. Since September 30, 1999,
no material event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, prospects, operations or financial
condition, which has not been publicly announced or disclosed in the SEC
Documents.
Section 4.11. No Integrated Offering. Other than pursuant to an effective
registration statement under the Securities Act, or pursuant to the issuance or
exercise of employee stock options, or pursuant to its discussion with the
Investors in connection with the transactions contemplated hereby, the Company
has not issued, offered or sold the Exchangeable Preferred Stock, the Warrants
or any shares of Common Stock
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(including for this purpose any securities of the same or a similar class as the
Exchangeable Preferred Stock, the Warrants or Common Stock, or any securities
exchangeable into or exercisable for the Exchangeable Preferred Stock or Common
Stock or any such other securities) within the six-month period next preceding
the date hereof, and the Company shall not permit any of its directors, officers
or affiliates directly or indirectly to take, any action (including, without
limitation, any offering or sale to any Person of the Exchangeable Preferred
Stock, Warrants or shares of Common Stock), so as to make unavailable the
exemption from Securities Act registration being relied upon by the Company for
the offer and sale to Investors of the Exchangeable Preferred Stock (and the
Exchange Shares) or the Warrants (and the Warrant Shares) as contemplated by
this Agreement.
Section 4.12. Litigation and Other Proceedings. Except as disclosed in the SEC
Documents, there are no lawsuits or proceedings pending or, to the knowledge of
the Company, threatened, against the Company or any subsidiary, nor has the
Company received any written or oral notice of any such action, suit, proceeding
or investigation, which could reasonably be expected to have a Material Adverse
Effect. Except as set forth in the SEC Documents, no judgment, order, writ,
injunction or decree or award has been issued by or, to the knowledge of the
Company, requested of any court, arbitrator or governmental agency which could
result in a Material Adverse Effect.
Section 4.13. No Misleading or Untrue Communication. The Company and, to the
knowledge of the Company, any person representing the Company, or any other
person selling or offering to sell the Exchangeable Preferred Stock or the
Warrants in connection with the transaction contemplated by this Agreement, have
not made, at any time, any oral communication in connection with the offer or
sale of the same which contained any untrue statement of a material fact or
omitted to state any material fact necessary in order to make the statements, in
the light of the circumstances under which they were made, not misleading.
Section 4.14. Material Non-Public Information. The Company has not disclosed to
the Investors any non-public information it believes to be material that (i) if
disclosed, would reasonably be expected to have a material effect on the trading
price of the Common Stock and (ii) according to applicable law, rule or
regulation, should have been disclosed publicly by the Company prior to the date
hereof but which has not been so disclosed.
Section 4.15. Insurance. The Company and each subsidiary maintains property and
casualty, general liability, workers' compensation, environmental hazard,
personal injury and other similar types of insurance with financially sound and
reputable insurers that is adequate, consistent with industry standards and the
Company's historical claims experience. The Company has not received notice
from, and has no knowledge of any threat by, any insurer (that has issued any
insurance policy to the Company) that such insurer intends to deny coverage
under or cancel, discontinue or not renew any insurance policy presently in
force.
Section 4.16. Tax Matters.
(a)The Company and each subsidiary has filed all Tax Returns which it is
required to file under applicable laws; all such Tax Returns are true and
accurate and has been prepared in compliance with all applicable laws; the
Company has paid all Taxes due and owing by it or any subsidiary (whether or not
such Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor or
other third parties; and since December 31, 1998, the charges, accruals and
reserves for Taxes with respect to the Company (including any provisions for
deferred income taxes) reflected on the books of the Company are adequate to
cover any Tax liabilities of the Company if its current tax year were treated as
ending on the date hereof.
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(b) No claim has been made by a taxing authority in a jurisdiction where
the Company does not file tax returns that the Company or any subsidiary is or
may be subject to taxation by that jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending or
being conducted with respect to the Company or any subsidiary; no information
related to Tax matters has been requested by any foreign, federal, state or
local taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by the
Company or any subsidiary from any foreign, federal, state or local taxing
authority. There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to Section 7121 of the Internal Revenue Code or any
predecessor provision thereof or any similar provision of state, local or
foreign law; or (B) has not agreed to or is required to make any adjustments
pursuant to Section 481 (a) of the Internal Revenue Code or any similar
provision of state, local or foreign law by reason of a change in accounting
method initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting method, or
has any application pending with any taxing authority requesting permission for
any changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue Code
during the applicable period specified in Section 897(c)(1)(A)(ii) of the
Internal Revenue Code.
(c) The Company has not made an election under Section 341(f) of the
Internal Revenue Code. The Company is not liable for the Taxes of another person
that is not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6
(or comparable provisions of state, local or foreign law), (B) as a transferee
or successor, (C) by contract or indemnity or (D) otherwise. The Company is not
a party to any tax sharing agreement. The Company has not made any payments, is
obligated to make payments or is a party to an agreement that could obligate it
to make any payments that would not be deductible under Section 280G of the
Internal Revenue Code.
(d) For purposes of this Section 4.16:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits,
sales or use, transfer, registration, excise, utility,
environmental, communications, real or personal property, capital
stock, license, payroll, wage or other withholding, employment,
social security, severance, stamp, occupation, alternative or
add-on minimum, estimated and other taxes of any kind whatsoever
(including, without limitation, deficiencies, penalties,
additions to tax, and interest attributable thereto) whether
disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and
including any amendment thereof.
Section 4.17. Property. Neither the Company nor any of its subsidiaries owns any
real property. Each of the Company and its subsidiaries has good and marketable
title to all personal property owned by it, free and clear of all liens,
encumbrances and defects except such as do not materially affect the value of
such property and do not materially interfere with the use made and proposed to
be made of such property by the Company; and to the Company's knowledge any real
property and buildings held under lease by the Company as tenant are held by it
under valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and intended to be made of such
property and buildings by the Company.
Section 4.18. Intellectual Property. Each of the Company and its subsidiaries
owns or possesses adequate and enforceable rights to use all patents, patent
applications, trademarks, trademark applications, trade
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names, service marks, copyrights, copyright applications, licenses, know-how
(including trade secrets and other unpatented and/or unpatentable proprietary or
confidential information, systems or procedures) and other similar rights and
proprietary knowledge (collectively, "Intangibles") necessary for the conduct of
its business as now being conducted. To the Company's knowledge, except as
disclosed in the SEC Documents neither the Company nor any of its subsidiaries
is infringing upon or in conflict with any right of any other person with
respect to any Intangibles. Except as disclosed in the SEC Documents, no adverse
claims have been asserted by any person to the ownership or use of any
Intangibles and the Company has no knowledge of any basis for such claim.
Section 4.19. Internal Controls and Procedures. The Company maintains books and
records and internal accounting controls which provide reasonable assurance that
(i) all transactions to which the Company or any subsidiary is a party or by
which its properties are bound are executed with management's authorization;
(ii) the recorded accounting of the Company's consolidated assets is compared
with existing assets at regular intervals; (iii) access to the Company's
consolidated assets is permitted only in accordance with management's
authorization; and (iv) all transactions to which the Company or any subsidiary
is a party or by which its properties are bound are recorded as necessary to
permit preparation of the financial statements of the Company in accordance with
U.S. generally accepted accounting principles.
Section 4.20. Payments and Contributions. Neither the Company, any subsidiary,
nor any of its directors, officers or, to its knowledge, other employees has (i)
used any Company funds for any unlawful contribution, endorsement, gift,
entertainment or other unlawful expense relating to political activity; (ii)
made any direct or indirect unlawful payment of Company funds to any foreign or
domestic government official or employee; (iii) violated or is in violation of
any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv)
made any bribe, rebate, payoff, influence payment, kickback or other similar
payment to any person with respect to Company matters.
Section 4.21. No Misrepresentation. The representations and warranties of the
Company (when read in conjunction with the Disclosure Letter) contained in this
Agreement, any schedule, annex or exhibit hereto, do 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.
ARTICLE V
COVENANTS OF THE INVESTORS
Each Investor, severally and not jointly, covenants with the Company
that:
Section 5.1. Compliance with Law. The Investor's trading activities with respect
to shares of the Company's Common Stock will be in compliance with all
applicable state and federal securities laws, rules and regulations and rules
and regulations of the Principal Market on which the Company's Common Stock is
listed.
Section 5.2. No Short Sales. The Investor and its affiliates shall not engage in
short sales of the Company's Common Stock (as defined in applicable SEC and NASD
rules) so long as the Investor holds any unconverted shares of Exchangeable
Preferred Stock.
Section 5.3. No Sales Prior to May 15, 2000. The Investor shall not sell any
Exchange Shares prior to May 15, 2000, regardless of whether the Effective Date
shall have occurred prior to such date.
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ARTICLE VI
COVENANTS OF THE COMPANY
Section 6.1. Registration Rights. The Company shall cause the Registration
Rights Agreement to remain in full force and effect and the Company shall comply
in all material respects with the terms thereof.
Section 6.2. Reservation of Common Stock. As of the date hereof, the Company has
reserved and the Company shall continue to reserve and keep available at all
times, free of preemptive rights, shares of Common Stock for the purpose of
enabling the Company to issue the Exchange Shares and the Warrant Shares
pursuant to any exchange of the Exchangeable Preferred Stock or exercise of the
Warrants. The number of shares so reserved from time to time, as theretofore
increased or reduced as hereinafter provided, may be reduced by the number of
shares actually delivered pursuant to any exchange of the Exchangeable Preferred
Stock or exercise of the Warrants and the number of shares so reserved shall be
increased or decreased to reflect potential increases or decreases in the Common
Stock that the Company may thereafter be obligated to issue by reason of
adjustments to the Warrants.
Section 6.3. Listing of Common Stock. The Company hereby agrees to maintain the
listing of the Common Stock on a Principal Market, and as soon as reasonably
practicable following the Closing to list the Exchange Shares and the Warrant
Shares on the Principal Market. The Company further agrees, if the Company
applies to have the Common Stock traded on any other Principal Market, it will
include in such application the Exchange Shares and the Warrant Shares, and will
take such other action as is necessary or desirable in the opinion of the
Investors to cause the Exchange Shares and Warrant Shares to be listed on such
other Principal Market as promptly as possible. The Company will take all action
to continue the listing and trading of its Common Stock on a Principal Market
(including, without limitation, maintaining sufficient net tangible assets) and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the Principal Market and shall provide
Investors with copies of any correspondence to or from such Principal Market
which questions or threatens delisting of the Common Stock, within three (3)
Trading Days of the Company's receipt thereof, until the Investors have disposed
of all of their Registrable Securities. The Company agrees to present a proposal
for stockholder approval at the next annual meeting of stockholders to permit
the Company to issue a number of Exchange Shares and Warrant Shares which is in
excess of 19.9% of the number of the Company's issued and outstanding shares of
Common Stock on the Closing Date, with the recommendation of the Board of
Directors that such proposal be approved, unless at the date of such meeting,
less than two percent (2%) of the Exchangeable Preferred Stock remains issued
and outstanding. If such proposal is not approved, the Company shall either (i)
voluntarily de-list its Common Stock from any Principal Market which requires
such approval or (ii) redeem any un-exchanged Exchangeable Preferred Stock
pursuant to Section 7 of the Certificate of Designations, within five (5)
Trading Days of such vote.
Section 6.4. Exchange Act Registration. The Company will cause its Common Stock
to continue to be registered under Section 12(b) or (g) of the Exchange Act,
will use its best efforts to comply in all respects with its reporting and
filing obligations under the Exchange Act, and will not take any action or file
any document (whether or not permitted by the Exchange Act or the rules
thereunder) to terminate or suspend such registration or to terminate or suspend
its reporting and filing obligations under said Act until the Investors have
disposed of all of their Registrable Securities.
Section 6.5. Legends. The certificates evidencing the Registrable Securities
shall be free of legends, except as set forth in Article IX.
Section 6.6. Corporate Existence; Conflicting Agreements. The Company will take
all steps necessary to preserve and continue the corporate existence of the
Company. The Company shall not enter into any
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agreement, the terms of which agreement would restrict or impair the right or
ability of the Company to perform any of its obligations under this Agreement or
any of the other agreements attached as exhibits hereto or under the Certificate
of Designations.
Section 6.7. Consolidation; Merger. The Company shall not, at any time after the
date hereof, effect any merger or consolidation of the Company with or into, or
a transfer of all or substantially all of the assets of the Company to, another
entity (a "Consolidation Event") unless the resulting successor or acquiring
entity (if not the Company) assumes by written instrument or by operation of law
the obligation to deliver to the Investors such shares of stock and/or
securities as the Investors are entitled to receive pursuant to this Agreement
and the Certificate of Designations.
Section 6.8. Issuance of Exchangeable Preferred Stock and Warrant Shares. The
sale of the Exchangeable Preferred Stock and the Warrants and the issuance of
the Warrant Shares pursuant to exercise of the Warrants and the Exchange Shares
upon exchange of the Exchangeable Preferred Stock shall be made in accordance
with the provisions and requirements of Section 4(2), 4(6) or Regulation D and
any applicable state securities law. The Company shall make any necessary SEC
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Investors as required by all applicable laws, and
shall provide a copy thereof to the Investors promptly after such filing.
Section 6.9. Limitation on Future Financing. The Company agrees that it will not
enter into any sale of its securities for cash at a discount to the then-current
bid price of its Common Stock until 180 days after the effective date of the
Registration Statement except for any sales (i) of Common Stock for gross
proceeds of up to $4,000,000 at a discount of up to 10% or any equity line of
credit, (ii) pursuant to any underwritten public offering of Common Stock and/or
warrants to purchase Common Stock, (iii) pursuant to any presently existing
employee benefit plan which plan has been approved by the Company's
stockholders, (iv) pursuant to any compensatory plan for a full-time employee or
key consultant, (v) pursuant to a private placement in which the purchasers are
not given any registration rights, (vi) pursuant to any transaction with The
Endeavour Capital Fund, S.A., or (vii) with the prior approval of a majority in
interest of the Investors, which will not be unreasonably withheld, in
connection with a strategic partnership or other business transaction, the
principal purpose of which is not simply to raise money. Further, the Investors
shall have a right of first offer, exercisable within five (5) Trading Days of
notice from the Company setting forth the principal terms of any such
transaction, to elect to participate, pro-rata, in such subsequent transaction
in the case of (i) and (v) above.
Section 6.10. Pro-Rata Redemption. The Company agrees that if it shall mandate
the exchange of any of the Exchangeable Preferred Stock, that it shall make such
exchange pro-rata among all Investors in proportion their respective initial
purchases of such securities pursuant to this Agreement.
ARTICLE VII
SURVIVAL; INDEMNIFICATION
Section 7.1. Survival. The representations and warranties (when read in
conjunction with the Disclosure Letter) and covenants made by each of the
Company and each Investor in this Agreement, the annexes, schedules and exhibits
hereto and in each instrument, agreement and certificate entered into and
delivered by them pursuant to this Agreement, shall survive the Closing and the
consummation of the transactions contemplated hereby. In the event of a breach
or violation of any of such representations, warranties or covenants, the party
to whom such representations, warranties or covenants have been made shall have
all rights and remedies for such breach or violation available to it under the
provisions of this Agreement, irrespective of any investigation made by or on
behalf of such party on or prior to the Closing Date.
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Section 7.2. Indemnity. (a) The Company hereby agrees to indemnify and hold
harmless the Investors, their respective Affiliates and their respective
officers, directors, partners and members (collectively, the "Investor
Indemnitees"), from and against any and all Damages, and agrees to reimburse the
Investor Indemnitees for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of legal counsel), in each case promptly as
incurred by the Investor Indemnitees and to the extent arising out of or in
connection with:
(i) any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties (when read in conjunction
with the Disclosure Letter) contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate
entered into or delivered by the Company pursuant to this Agreement; or
(ii) any failure by the Company to perform in any material
respect any of its covenants, agreements, undertakings or obligations
set forth in this Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement; or
(iii) any action instituted against the Investors, or any of
them, by any stockholder of the Company who is not an Affiliate of an
Investor, with respect to any of the transactions contemplated by this
Agreement.
(b) Each Investor, severally and not jointly, hereby agrees to indemnify
and hold harmless the Company, its Affiliates and their respective officers,
directors, partners and members (collectively, the "Company Indemnitees"), from
and against any and all Damages, and agrees to reimburse the Company Indemnitees
for reasonable all out-of-pocket expenses (including the reasonable fees and
expenses of legal counsel), in each case promptly as incurred by the Company
Indemnitees and to the extent arising out of or in connection with any
misrepresentation, omission of fact, or breach of any of the Investor's
representations or warranties contained in this Agreement, the annexes,
schedules or exhibits hereto or any instrument, agreement or certificate entered
into or delivered by the Investor pursuant to this Agreement.
Section 7.3. Notice. Promptly after receipt by either party hereto seeking
indemnification pursuant to Section 7.2 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party from whom indemnification pursuant to Section
7.2 is being sought (the "Indemnifying Party") of the commencement thereof; but
the omission to so notify the Indemnifying Party shall not relieve it from any
liability that it otherwise may have to the Indemnified Party, except to the
extent that the Indemnifying Party is actually prejudiced by such omission or
delay. In connection with any Claim as to which both the Indemnifying Party and
the Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees,
out-of-pocket costs and expenses, (y) the Indemnified Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate
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legal counsel in circumstances other than as described in clauses (x), (y) or
(z) above, the fees, costs and expenses of such legal counsel shall be borne
exclusively by the Indemnified Party. Except as provided above, the Indemnifying
Party shall not, in connection with any Claim in the same jurisdiction, be
liable for the fees and expenses of more than one firm of legal counsel for the
Indemnified Party (together with appropriate local counsel). The Indemnifying
Party shall not, without the prior written consent of the Indemnified Party
(which consent shall not unreasonably be withheld), settle or compromise any
Claim or consent to the entry of any judgment that does not include an
unconditional release of the Indemnified Party from all liabilities with respect
to such Claim or judgment.
Section 7.4. Direct Claims. In the event one party hereunder should have a claim
for indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association as set forth in
Article X. Judgment upon any award rendered by any arbitrators may be entered in
any court having competent jurisdiction thereof.
ARTICLE VIII
DUE DILIGENCE REVIEW; NON-DISCLOSURE OF NON-PUBLIC INFORMATION.
Section 8.1. Due Diligence Review. Subject to Section 8.2, the Company shall
make available for inspection and review by the Investors, advisors to and
representatives of the Investors (who may or may not be affiliated with the
Investors and who are reasonably acceptable to the Company), any underwriter
participating in any disposition of the Registrable Securities on behalf of the
Investors pursuant to the Registration Statement, any such registration
statement or amendment or supplement thereto or any blue sky, Nasdaq or other
filing, all SEC Documents and other filings with the SEC, and all other publicly
available corporate documents and properties of the Company as may be reasonably
necessary for the purpose of such review, and cause the Company's officers,
directors and employees to supply all such publicly available information
reasonably requested by the Investors or any such representative, advisor or
underwriter in connection with such Registration Statement (including, without
limitation, in response to all questions and other inquiries reasonably made or
submitted by any of them), prior to and from time to time after the filing and
effectiveness of the Registration Statement for the sole purpose of enabling the
Investors and such representatives, advisors and underwriters and their
respective accountants and attorneys to conduct initial and ongoing due
diligence with respect to the Company and the accuracy of the Registration
Statement.
Section 8.2. Non-Disclosure of Non-Public Information.
(a) The Company shall not disclose non-public information it believes to
be material to the Investors, advisors to or representatives of the Investors
unless prior to disclosure of such information the Company identifies such
information as being non-public information and provides the Investors, such
advisors and representatives with the opportunity to accept or refuse to accept
such non-public information for review. Other than disclosure of any comment
letters received from the SEC staff with respect to the Registration Statement,
the Company may, as a condition to disclosing any non-public information
hereunder, require the Investors' advisors and representatives to enter into a
confidentiality agreement in form and content reasonably satisfactory to the
Company and the Investors.
(b) Nothing herein shall require the Company to disclose material
non-public information to the Investors or their advisors or representatives,
provided, however, that notwithstanding anything herein to the contrary, the
Company will, as hereinabove provided, promptly notify the advisors and
representatives of the Investors and, if any, underwriters, of any event or the
existence of any circumstance (without any obligation
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to disclose the specific event or circumstance) of which it becomes aware,
constituting material non-public information (whether or not requested of the
Company specifically or generally during the course of due diligence by such
persons or entities), which, if not disclosed in the prospectus included in the
Registration Statement would cause such prospectus to include a material
misstatement or to omit a material fact required to be stated therein in order
to make the statements, therein in light of the circumstances in which they were
made, not misleading. Nothing contained in this Section 8.2 shall be construed
to mean that such persons or entities other than the Investors (without the
written consent of the Investors prior to disclosure of such information as set
forth in Section 8.2(a)) may not obtain non-public information in the course of
conducting due diligence in accordance with the terms of this Agreement and
nothing herein shall prevent any such persons or entities from notifying the
Company of their opinion that based on such due diligence by such persons or
entities, that the Registration Statement contains an untrue statement of a
material fact or omits a material fact required to be stated in the Registration
Statement or necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
ARTICLE IX
LEGENDS; TRANSFER AGENT INSTRUCTIONS
Section 9.1. Legends. Unless otherwise provided below, each certificate
representing Registrable Securities will bear the following legend or equivalent
(the "Legend"):
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
U.S. SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR ANY OTHER
APPLICABLE SECURITIES LAWS AND HAVE BEEN ISSUED IN RELIANCE UPON AN EXEMPTION
FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH OTHER
SECURITIES LAWS. NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN
MAY BE SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED, OR OTHERWISE DISPOSED
OF, EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO A TRANSACTION THAT IS EXEMPT FROM SUCH REGISTRATION.
Section 9.2. Transfer Agent Instructions. Upon the execution and delivery
hereof, the Company is issuing to the transfer agent for its Common Stock (and
to any substitute or replacement transfer agent for its Common Stock upon the
Company's appointment of any such substitute or replacement transfer agent)
instructions substantially in the form of Exhibit F hereto. Such instructions
shall be irrevocable by the Company from and after the date hereof or from and
after the issuance thereof to any such substitute or replacement transfer agent,
as the case may be.
Section 9.3. No Other Legend or Stock Transfer Restrictions. No legend other
than the one specified in Section 9.1 has been or shall be placed on the share
certificates representing the Registrable Securities and no instructions or
"stop transfer orders," "stock transfer restrictions," or other restrictions
have been or shall be given to the Company's transfer agent with respect thereto
other than as expressly set forth in this Article IX.
Section 9.4. Investors' Compliance. Notwithstanding anything contained in this
Agreement to the contrary, each Investor shall comply with all applicable
federal and state securities laws upon resale of the Common Stock.
ARTICLE X
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CHOICE OF LAW; ARBITRATION
Section 10.1. Governing Law/Arbitration. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York applicable to
contracts made in New York by persons domiciled in New York City and without
regard to its principles of conflicts of laws. Any dispute under this Agreement
shall be submitted to arbitration under the American Arbitration Association
(the "AAA") in New York City, New York, and shall be finally and conclusively
determined by the decision of a board of arbitration consisting of three (3)
members (hereinafter referred to as the "Board of Arbitration") selected
according to the rules governing the AAA. The Board of Arbitration shall meet on
consecutive business days in New York City, New York, and shall reach and render
a decision in writing (concurred in by a majority of the members of the Board of
Arbitration) with respect to the amount, if any, which the losing party is
required to pay to the other party in respect of a claim filed. In connection
with rendering its decisions, the Board of Arbitration shall adopt and follow
the laws of the State of New York unless the matter at issue is the corporation
law of the company's state of incorporation, in which event the corporation law
of such jurisdiction shall govern such issue. To the extent practical, decisions
of the Board of Arbitration shall be rendered no more than thirty (30) calendar
days following commencement of proceedings with respect thereto. The Board of
Arbitration shall cause its written decision to be delivered to all parties
involved in the dispute. Any decision made by the Board of Arbitration (either
prior to or after the expiration of such thirty (30) calendar day period) shall
be final, binding and conclusive on the parties to the dispute, and entitled to
be enforced to the fullest extent permitted by law and entered in any court of
competent jurisdiction. The Board of Arbitration shall be authorized and is
hereby directed to enter a default judgment against any party failing to
participate in any proceeding hereunder within the time periods set forth in the
AAA rules. The non-prevailing party to any arbitration (as determined by the
Board of Arbitration) shall pay the expenses of the prevailing party, including
reasonable attorney's fees, in connection with such arbitration. Any party shall
be entitled to obtain injunctive relief from a court in any case where such
relief is available. The non-prevailing party to any injunctive proceeding (as
determined by the court) shall pay the expenses of the prevailing party,
including reasonable attorney's fees, in connection with such injunctive
proceeding.
ARTICLE XI
ASSIGNMENT
Section 11.1. Assignment. Neither this Agreement nor any rights of the Investors
or the Company hereunder may be assigned by either party to any other person.
Notwithstanding the foregoing, (a) the provisions of this Agreement shall inure
to the benefit of, and be enforceable by, any permitted transferee of any of the
Exchangeable Preferred Stock or Warrants purchased or acquired by any Investor
hereunder with respect to the Exchangeable Preferred Stock or Warrants held by
such person, and (b) upon the prior written consent of the Company, which
consent shall not unreasonably be withheld or delayed, each Investor's interest
in this Agreement may be assigned at any time, in whole or in part, to any other
person or entity (including any Affiliate of the Investor) who agrees to make
the representations and warranties contained in Article III and who agrees to be
bound by the terms of this Agreement.
ARTICLE XII
NOTICES
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Section 12.1. Notices. All notices, demands, requests, consents, approvals, and
other communications required or permitted hereunder shall be in writing and,
unless otherwise specified herein, shall be (i) hand delivered, (ii) deposited
in the mail, registered or certified, return receipt requested, postage prepaid,
(iii) delivered by reputable air courier service with charges prepaid, or (iv)
transmitted by facsimile, addressed as set forth below or to such other address
as such party shall have specified most recently by written notice. Any notice
or other communication required or permitted to be given hereunder shall be
deemed effective (a) upon hand delivery or delivery by facsimile, with accurate
confirmation generated by the transmitting facsimile machine, at the address or
number designated below (if delivered on a business day during normal business
hours where such notice is to be received), or the first business day following
such delivery (if delivered other than on a business day during normal business
hours where such notice is to be received) or (b) on the first business day
following the date of sending by reputable courier service, fully prepaid,
addressed to such address, or (c) upon actual receipt of such mailing, if
mailed. The addresses for such communications shall be:
If to the Company: Dental/Medical Diagnostic Systems, Inc.
000 Xxxxx Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxx Xxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx, President
Telephone: 000-000-0000
Facsimile: 000-000-0000
with a copy to (shall not constitute Xxxxxx Xxxxxxxx, Esq.
notice): Troop Xxxxxxx Xxxxxx Xxxxxxx & Xxxxx, LLP
0000 Xxxxxxx Xxxx Xxxx, 00xx Xxxxx
Xxx Xxxxxxx, XX 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
if to the Investors: As set forth on the signature pages hereto
with a copy to: Xxxxxx X. Xxxxx, Esq.
(shall not constitute notice) Xxxxxxx Xxxxxx & Green, P.C.
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Either party hereto may from time to time change its address or facsimile number
for notices under this Section 12.1 by giving written notice of such changed
address or facsimile number to the other party hereto as provided in this
Section 12.1.
ARTICLE XIII
MISCELLANEOUS
Section 13.1. Counterparts/ Facsimile/ Amendments. This Agreement may be
executed in multiple counterparts, each of which may be executed by less than
all of the parties and shall be deemed to be an original instrument which shall
be enforceable against the parties actually executing such counterparts and all
of which together shall constitute one and the same instrument. Except as
otherwise stated herein, in lieu
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of the original documents, a facsimile transmission or copy of the original
documents shall be as effective and enforceable as the original. This Agreement
may be amended only by a writing executed by all parties.
Section 13.2. Entire Agreement. This Agreement, the agreements attached as
Exhibits hereto, which include, but are not limited to the Certificate of
Designations, the Warrants, the Escrow Agreement, and the Registration Rights
Agreement, set forth the entire agreement and understanding of the parties
relating to the subject matter hereof and supersedes all prior and
contemporaneous agreements, negotiations and understandings between the parties,
both oral and written relating to the subject matter hereof. The terms and
conditions of all Exhibits to this Agreement are incorporated herein by this
reference and shall constitute part of this Agreement as is fully set forth
herein.
Section 13.3. Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that such severability shall be ineffective if
it materially changes the economic benefit of this Agreement to any party.
Section 13.4. Headings. The headings used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
Section 13.5. Number and Gender. There may be one or more Investors parties to
this Agreement, which Investors may be natural persons or entities. All
references to plural Investors shall apply equally to a single Investor if there
is only one Investor, and all references to an Investor as "it" shall apply
equally to a natural person.
Section 13.6. Reporting Entity for the Common Stock. The reporting entity relied
upon for the determination of the trading price or trading volume of the Common
Stock on any given Trading Day for the purposes of this Agreement shall be
Bloomberg, L.P. or any successor thereto. The written mutual consent of the
Investors and the Company shall be required to employ any other reporting
entity.
Section 13.7. Replacement of Certificates. Upon (i) receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of a certificate representing the Exchangeable Preferred Stock or any
Exchange Shares or Warrants or any Warrant Shares and (ii) in the case of any
such loss, theft or destruction of such certificate, upon delivery of an
indemnity agreement or security reasonably satisfactory in form to the Company
(which shall not exceed that customarily charged by the Company's transfer
agent) or (iii) in the case of any such mutilation, on surrender and
cancellation of such certificate, the Company at its expense will execute and
deliver, in lieu thereof, a new certificate of like tenor.
Section 13.8. Fees and Expenses. Each of the Company and the Investors agrees to
pay its own expenses incident to the performance of its obligations hereunder,
except that the Company shall pay the fees, expenses and disbursements of
Xxxxxxx, Xxxxxx & Green, P.C. counsel to the investors, in an amount equal to
$15,000 all as set forth in the Escrow Agreement.
Section 13.9. Publicity. The Company agrees that it will not issue any press
release or other public announcement of the transactions contemplated by this
Agreement without the prior consent of the Investors, which shall not be
unreasonably withheld nor delayed by more than two (2) Trading Days from their
receipt of such proposed release. No release shall name the Investors without
their express consent.
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Section 13.10. Consent. By their execution of this Agreement, the undersigned
Investors each consent, in their capacity as holders of the Company's Series A
Exchangeable Preferred Stock, to the transactions contemplated by this
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Purchase
Agreement to be executed by the undersigned, thereunto duly authorized, as of
the date first set forth above.
DENTAL/MEDICAL DIAGNOSTIC
SYSTEMS, INC.
By: /s/ XXXXXX X. XXXXXXXXX
------------------------------------
Xxxxxx X. Xxxxxxxxx, President & CEO
ESQUIRE TRADE & FINANCE INC.
By: ____________________________________
Xxxxxx Xxxxxxx
Authorized Signatory
Amount subscribed for: $350,000
Address for notices:
X.X. Xxx 0000
Xxxx, XX-0000 Xxxxxxxxxxx
Fax: 000-000-000-0000
AUSTINVEST ANSTALT BALZERS
By: ____________________________________
Xx. Xxxxxx Grill
Authorized Signatory
Principal Amount subscribed for: $350,000
Address for notices:
Xxxxxxxxxxx 000
0000 Xxxxxxx
Furstentum Liechtenstein
Fax: 011-431-
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AMRO INTERNATIONAL, S.A.
By: ____________________________________
H.U. Bachofem,
Authorized Signatory
Amount subscribed for: $1,000,000
Address for notices:
X/x Xxxxxxxxxxx XX
Xxxxxxxxxxxxxxxxxx 0
Xxxxxx XX-0000 Xxxxxxxxxxx
Fax: 000-000-000-0000
LEVAL TRADING
By: ____________________________________
Name and Title:
Amount subscribed for: $300,000
Address for notices:
Fax:
THE KESHET FUND, L.P.
By: ____________________________________
Name and Title:
Principal Amount subscribed for: $150,000
Address for notices:
Fax:
[DMDS Purchase Agreement
Signature Page Continuation]
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