CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
POSSIS MEDICAL, INC.
Dated as of July 14, 1998
CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "Agreement"), dated
as of July 14, 1998, among Possis Medical, Inc., a Minnesota corporation (the
"Company"), and the parties who have executed this Agreement and whose names
appear on Schedule 1 hereto (each party listed on Schedule 1 hereto is sometimes
individually referred to herein as a "Purchaser" and all such parties are
sometimes collectively referred to herein as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase: (a) an aggregate
principal amount of $12,000,000 of the Company's Series A 5% Convertible
Debentures, due July 15, 2004 (the "Series A Debentures"), which are convertible
into shares of the Company's common stock, $.40 par value per share (the "Common
Stock"), (b) up to an aggregate principal amount of $2,500,000 of the Company's
Series B 5% Convertible Debentures, due six (6) years from the Series B Closing
(as defined below) which are convertible into shares of Common Stock (the
"Series B Debentures"), and (c) up to an aggregate principal amount of
$2,500,000 of the Company's Series C 5% Convertible Debentures, due six (6)
years from the Series C Closing (as defined below) which are convertible into
shares of Common Stock (the "Series C Debentures"). The Series A Debentures, the
Series B Debentures and the Series C Debentures are sometimes collectively
referred to herein as the "Debentures."
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 The Closings.
(a) The Series A Closing. (i) The closing of the purchase and
sale of the Series A Debentures (the "Series A Closing") shall take place at the
offices of Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx & Xxxxxx LLP ("Xxxxxxxx
Xxxxxxxxx"), 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, Xxx Xxxx 00000, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Series A Closing is hereinafter referred to as the "Series A
Closing Date."
(ii) Documents to be Delivered at Series A Closing.
At the Series A Closing Date, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser (1)
Series A Debentures in the principal amount set forth beside such Purchaser's
name on Schedule 1 hereto, registered in such Purchaser's name, (2) a Common
Stock purchase warrant in the form of Exhibit B, registered in such Purchaser's
name, entitling such Purchaser to acquire the number of shares of Common Stock
set forth beside such Purchaser's name on Schedule 1 hereto, at an exercise
price (subject to adjustment as set forth therein) equal to 125% of the average
Per Share Market Value for the five (5) Trading Days immediately preceding the
Series A Closing Date (the "Series A Warrants"); (3) the legal opinion of Xxxxxx
& Whitney, outside counsel to the Company, addressed to such Purchaser,
substantially in the form of Exhibit D, (4) the legal opinion of Xxxxxx X.
Xxxxxxx, General Counsel to the Company, addressed to such Purchaser,
substantially in the form of Exhibit E and (5) all other documents, instruments
and writings required to have been delivered at or prior to the Series A Closing
Date by the Company pursuant to this Agreement, including, without limitation,
executed originals of each of the Registration Rights Agreement, dated the date
hereof, by and among the Company and the Purchasers, in the form of Exhibit C
(the "Registration Rights Agreement"), and the Irrevocable Transfer Agent
Instructions, dated the Series A Closing date, in the form of Exhibit F,
delivered to and acknowledged by the Company and the Company's transfer agent
(the "Transfer Agent Instructions"); (B) each Purchaser shall deliver to the
Company (1) a wire transfer in immediately available funds equal to the
principal amount of Series A Debentures to be acquired by such Purchaser as set
forth beside such Purchaser's name on Schedule 1 hereto and (2) all documents,
instruments and writings required to have been delivered by such Purchaser at or
prior to the Series A Closing Date pursuant to this Agreement, including,
without limitation, an executed original copy of the Registration Rights
Agreement.
(b) The Series B Closing. (i) Subject to the terms and
conditions set forth in this Agreement, if the Per Share Market Value shall be
equal to or greater than 105% of the Initial Conversion Price for any period of
at least twenty (20) consecutive Trading Days, the Company shall have the right
to deliver a written notice to the Purchasers (a "Series B Subsequent Financing
Notice") no later than five Trading Days after the conclusion of such period
requiring the Purchasers to purchase, severally and not jointly, (subject to
adjustment as provided herein), at the Company's option, up to an aggregate
principal amount of $2,500,000 of Series B Debentures. A Series B Subsequent
Financing Notice may be delivered no earlier than 90 days following the
effective date of a registration statement to be filed with the Securities and
Exchange Commission (the "Commission") meeting the requirements set forth in the
Registration Rights Agreement and covering the resale by the Purchasers of the
Underlying Shares (as defined below) (an "Underlying Securities Registration
Statement"), and no later than one (1) year following the Series A Closing Date.
The closing of the purchase and sale of the Series B Debentures (the "Series B
Closing") shall take place at the offices of the Xxxxxxxx Xxxxxxxxx on the date
indicated in the Series B Subsequent Financing Notice (which may not be prior to
the 15th Trading Day or subsequent to the 25th Trading Day after receipt by the
Purchasers of the Series B Subsequent Financing Notice, or as otherwise agreed
to by the parties); provided that in no case shall the Series B Closing take
place unless and until the conditions listed in Section 4.1 have been satisfied
or waived by the appropriate party. The date of the Series B Closing is
hereinafter referred to as the "Series B Closing Date."
(ii) Documents to be Delivered at Series B Closing.
On the Series B Closing Date, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser
acquiring Series B Debentures (1) Series B Debentures, registered in the name of
such Purchaser in principal amount equal to the pro rata portion of the
principal amount of Series B Debentures to be acquired by such Purchaser
(determined by reference to the pro rata portion of the principal amount of
Series A Debentures acquired by such Purchaser hereunder); (2) a Common Stock
purchase warrant in the form of Exhibit B, registered in the name of such
Purchaser, entitling such Purchaser to acquire an aggregate number of shares of
Common Stock as
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equals such Purchaser's pro rata portion of the total number of shares of Common
Stock to which all Series B Warrants (as defined below) entitle the holders
thereof to acquire; and (3) all other documents, instruments and writings
required to have been delivered at or prior to the Series B Closing Date by the
Company pursuant to this Agreement, including, without limitation, those
described in Section 4.1; (B) each Purchaser acquiring Series B Debentures and
Series B Warrants shall deliver to the Company (1) a wire transfer in
immediately available funds equal to the principal amount of Series B Debentures
to be acquired by such Purchaser at the Series B Closing and (2) all documents,
instruments and writings required to have been delivered by such Purchaser at or
prior to the Series B Closing Date pursuant to this Agreement. At the Series B
Closing, the Company will issue and deliver to the Purchasers acquiring Series B
Debentures, Common Stock purchase warrants, in the form of Exhibit B (the
"Series B Warrants"), that, in the aggregate, entitle the holders thereof to
acquire a number of shares of Common Stock as equals (determined in accordance
with the Black-Scholes valuation model as calculated by Bloomberg Financial
Markets) 5% of the aggregate principal amount of Series B Debentures to be
issued at the Series B Closing. The exercise price for shares underlying the
Series B Warrants shall (subject to adjustment as provided therein) equal 125%
of the average Per Share Market Values for the five (5) Days immediately
proceeding the Series B Closing Date.
(c) The Series C Closing. (i) Subject to the terms and
conditions set forth in this Agreement, if the Per Share Market Value shall be
equal to or greater than 130% of the Initial Conversion Price for any period of
at least twenty (20) consecutive Trading Days, the Company shall have the right
to deliver a written notice to the Purchasers (a "Series C Subsequent Financing
Notice," and together with Series B Subsequent Financing Notice, a "Subsequent
Financing Notice") no later than five Trading Days after the conclusion of such
period requiring the Purchasers to purchase, severally and not jointly, (subject
to adjustment as provided herein), at the Company's option, up to an aggregate
principal amount of $2,500,000 of Series C Debentures. A Series C Subsequent
Financing Notice may be delivered no earlier than 90 days following the
effective date of the Underlying Securities Registration Statement (provided,
that in the event that the Underlying Securities Registration Statement filed in
connection with the Series A Closing does not cover the Underlying Shares
issuable upon conversion or exercise of the Series B Debentures and Series B
Warrants, then such 90 Business Day period shall commence upon the effective
date of the Underlying Securities Registration Statement that covers such
Underlying Shares), and no later than one (1) year following the Series B
Closing Date. The closing of the purchase and sale of the Series C Debentures
(the "Series C Closing") shall take place at the offices of the Xxxxxxxx
Xxxxxxxxx on the date indicated in the Series C Subsequent Financing Notice
(which may not be prior to the 15th Trading Day or subsequent to the 25th
Trading Day after receipt by the Purchasers of the Series C Subsequent Financing
Notice, or as otherwise agreed to by the parties); provided that in no case
shall the Series C Closing take place unless and until the conditions listed in
Section 4.1 have been satisfied or waived by the appropriate party. The date of
the Series C Closing is hereinafter referred to as the "Series C Closing Date."
(ii) Documents to be Delivered at Series C Closing.
On the Series C Closing Date, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser
acquiring Series C Debentures (1) Series C Debentures, registered in the name of
such Purchaser in principal amount equal to the pro rata portion of the
principal amount of
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Series C Debentures to be acquired by such Purchaser (determined by reference to
the pro rata portion of the principal amount of Series A Debentures acquired by
such Purchaser hereunder); (2) a Common Stock purchase warrant in the form of
Exhibit B, registered in the name of such Purchaser, entitling such Purchaser to
acquire an aggregate number of shares of Common Stock as equals such Purchaser's
pro rata portion of the total number of shares of Common Stock to which all
Series C Warrants (as defined below) entitle the holders thereof to acquire; and
(3) all other documents, instruments and writings required to have been
delivered at or prior to the Series C Closing Date by the Company pursuant to
this Agreement, including, without limitation, those described in Section 4.1;
(B) each Purchaser acquiring Series C Debentures and Seris C Warrants shall
deliver to the Company (1) a wire transfer in immediately available funds equal
to the principal amount of Series C Debentures to be acquired by such Purchaser
at the Series C Closing and (2) all documents, instruments and writings required
to have been delivered by Purchaser at or prior to the Series C Closing Date
pursuant to this Agreement. At the Series C Closing, the Company will issue and
deliver to the Purchasers acquiring Series C Debentures, Common Stock purchase
warrants in the form of Exhibit B (the "Series C Warrants") that, in the
aggregate, entitle the holders thereof to acquire a number of shares of Common
Stock as equals (determined in accordance with the Black- Scholes valuation
model as calculated by Bloomberg Financial Markets) 5% of the aggregate
principal amount of Series C Debentures to be as such at the Series C Closing.
The exercise price for shares underlying the Series C Warrants shall (subject to
adjustment as provided therein) equal 125% of the coverage per Share Market
Values for the five (5) Trading Days immediately proceeding the Series C Closing
Date.
1.2 Form of Debentures. The Debentures shall be in the form of
Exhibit A.
1.3 Certain Defined Terms. For purposes of this Agreement, "Original
Issue Date," "Trading Day", "Per Share Market Value" and "Initial Conversion
Price" shall have the meanings set forth in the form of Debenture attached as
Exhibit A: "Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close. "Closing" shall mean, collectively, the Series A Closing, the
Series B Closing and the Series C Closing. "Warrants" shall mean, collectively,
the Series A Warrants, the Series B Warrants and the Series C Warrants.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
the SEC Documents (as defined in Section 2.1(j)) (collectively the
"Subsidiaries"). Each of the
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Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
power and authority (corporate and otherwise) to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Securities (as defined below) or any of the
Transaction Documents (as defined below) in any material respect, (y) have or
result in a material adverse effect on the results of operations, assets or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole or (z) adversely impair the Company's ability to perform fully on a
timely basis its obligations under any of this Agreement, the Debentures, the
Warrants or the Registration Rights Agreement (collectively, the "Transaction
Documents") (any of (x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company and no further corporate action is
required by the Company. Each of the Transaction Documents, when executed and
delivered in accordance with the terms hereof, shall have been duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective articles of
incorporation, by-laws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures and the Warrants, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company, except as specifically disclosed in the SEC Documents (as defined
below) or Schedule 2.1(c), no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or has the right to
acquire by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "Person" means an individual
or corporation, partnership, trust, incorporated or unincorporated
5
association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Debentures and the Warrants. The
Debentures and the Warrants are duly authorized, and, when issued and paid for
in accordance with the terms hereof, shall have been validly issued, free and
clear of all liens, encumbrances and rights of first refusal of any kind
(collectively, "Liens"). The Company has on the date hereof and at all times
while Debentures and Warrants are outstanding will maintain an adequate reserve
of duly authorized shares of Common Stock, to enable it to perform its
conversion, exercise and other obligations under this Agreement, the Warrants
and the Debentures, and in no circumstances shall such reserved and available
shares of Common Stock be less than the sum of (i) (subject to the operation of
the conversion limitation set forth in Section 4(a)(iii)(B) of the Debentures)
200% of the number of shares of Common Stock which would be issuable upon
conversion in full of the Debentures issued pursuant to the terms hereof
assuming such conversion were effected on the Original Issue Date for such
Debentures, (ii) the number of shares of Common Stock issuable upon exercise in
full of the Warrants, and (iii) the number of shares Common Stock which would be
issuable upon payment of interest on the Debentures, assuming each Debenture is
outstanding for the full term stated therein and all interest is paid in shares
of Common Stock. All such authorized shares of Common Stock shall be duly
reserved for such issuance to the holders of such Debentures and Warrants on a
pro rata basis determined by reference to the portion of the principal amount of
Debentures acquired by each Purchaser hereunder. The shares of Common Stock
issuable upon conversion of the Debentures, as payment of interest thereon and
upon exercise of the Warrants are collectively referred to herein as the
"Underlying Shares." The Debentures, Warrants and Underlying Shares are
collectively referred to herein as the "Securities." When issued in accordance
with the Debentures and upon exercise of the Warrants, the Underlying Shares
shall have been duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its articles of incorporation, bylaws or other charter
documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any material property or asset of the Company is bound
or affected, except in the case of each of clauses (ii) and (iii), such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
6
(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local, foreign or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of one or more Underlying
Securities Registration Statements with the Commission, (ii) the application(s)
to the Nasdaq Stock Market (the "NASDAQ") for the listing of the Underlying
Shares with the NASDAQ (and with any other national securities exchange or
market on which the Common Stock is then listed), (iii) filing of Form D with
the Commission, (iv) filing of a Current Report on Form 8-K with the Commission,
(v) applicable Blue Sky filings and (vi) in all other cases where the failure to
obtain such consent, waiver, authorization or order, or to give such notice or
make such filing or registration could not have or result in, individually or in
the aggregate, a Material Adverse Effect (the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the SEC Documents or Schedule 2.1(g), there is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of their respective properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, state, county, local or
foreign) which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, individually or in the aggregate, have or result in a Material Adverse
Effect.
(h) No Default or Violation. Except as could not individually
or in the aggregate, have or result in, a Material Adverse Effect, neither the
Company nor any Subsidiary (i) is in default under or in violation of (and, to
the knowledge of the Company, no event has occurred which has not been waived
which, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority.
(i) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action which might subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"). Assuming the
accuracy of the representations and warranties of the Purchasers set forth in
Sections 2.2(b)-(g), the offer, issue and sale of the Securities to the
Purchasers is exempt from the registration requirements of the Securities Act.
(j) SEC Documents; Financial Statements; No Adverse Change.
The Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the three years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the "SEC Documents" and, together with the Schedules to this
Agreement the
7
"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, as the case may be, and none of the SEC Documents at the time, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All material agreements to which the Company is a party or to
which the property or assets of the Company are subject have been filed as
exhibits to the SEC Documents to the extent required. The financial statements
of the Company included in the SEC Documents comply in all material respects
with applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Except as set forth in Schedule 2.1(j), since
October 29, 1997, except as specifically disclosed in the SEC Documents, (a)
there has been no event, occurrence or development that has had or that could
have or result in a Material Adverse Effect, (b) the Company has not incurred
any liabilities (contingent or otherwise) other than (x) liabilities incurred in
the ordinary course of business consistent with past practice and (y)
liabilities not required to be reflected in the Company's financial statements
pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital stock. The
Company last filed audited financial statements with the Commission on October
29, 1997, and has not received any comments from the Commission in respect
thereof.
(k) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate (an "Affiliate") of, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(l) Certain Fees. No fees or commissions will be payable by
the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, or bank, other than Xxxxxxx Xxxxx Xxxxxx ("Salomon"),
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless the Purchasers, its
employees, officers, directors, agents, and partners, and their respective
Affiliates (as such term is defined under Rule 405 promulgated under the
Securities Act), from and against all claims, losses, damages, costs (including
the costs of
8
preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Securities, other than the Disclosure Materials and any amendments and
supplements thereto and the materials listed on Schedule 2.1(m), or (ii)
solicited any offer to buy or sell the Securities by means of any form of
general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) Seniority. Except as set forth in Schedule 2.1(p), no
indebtedness of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation, dissolution or otherwise.
(p) Exclusivity. The Company shall not issue and sell the
Debentures to any Person other than the Purchasers other than with the specific
prior written consent of the Purchasers unless the Purchasers fail to purchase
the principal amount of Debentures requested by the Company.
(q) Listing and Maintenance Requirements Compliance. The
Company has not in the past two years received notice (written or oral) from the
NASDAQ or any other stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is in compliance with all
such maintenance requirements.
(r) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary for use in connection with
its business, as currently conducted and as described in the SEC Documents, and
which the failure to so have would have a Material Adverse Effect. To the best
knowledge of the Company, there is no existing infringement by another Person of
any of the Intellectual Property Rights which are necessary for use in
connection with the Company's business.
(s) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as currently conducted as described in the SEC Documents,
except where the failure to possess such permits could not, individually or in
the aggregate, have or result in a Material Adverse Effect ("Material Permits"),
and neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit
which could result in a Material Adverse Effect.
(t) Registration Rights; Rights of Participation. Except as
set forth on Schedule 2.1(t), (i) the Company has not granted or agreed to grant
to any Person any rights (including "piggy-
9
back" registration rights) to have any securities of the Company registered with
the Commission or any other governmental authority which has not been satisfied
and (ii) no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(u) Disclosure. The Company confirms that it has not provided
the Purchasers or their agents or counsel with any information that constitutes
or might constitute material non-public information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company. None of the Disclosure
Materials or the information set forth in the Confidential Information
Memorandum dated May 12, 1998 or any other information provided to the
Purchasers by or on behalf of the Company in connection with the transactions
contemplated herein contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, severally and not jointly, represents and warrants to the Company as
follows:
(a) Organization; Authority. Such Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities to be acquired hereunder by such Purchaser has been duly authorized
by all necessary action on the part of such Purchaser. Each Transaction
Document, when executed and delivered in accordance with the terms and
conditions hereof, shall have been duly executed and delivered by such Purchaser
and shall constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities to be acquired hereunder by such Purchaser for its own account for
investment purposes only and not with a view to or for distributing or reselling
such Securities or any part thereof or interest therein, without prejudice,
however, to such Purchaser's right, subject to the provisions of this Agreement
and the Registration Rights Agreement, at all times to sell or otherwise dispose
of all or any part of such Securities pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities to be acquired hereunder by such Purchaser, it was, and at the
date hereof, it is, and at the each of the Series A Closing Date, the Series B
Closing Date and the Series C Closing Date (each a "Closing Date"), it will be,
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
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(e) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk. Such Purchaser is able to bear the loss of its
entire investment in the Securities.
(f) Access to Information. Such Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment, and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities to be acquired by it hereunder as a result of, and Purchaser is not
aware of, any advertisement, article, notice or other communication published in
any newspaper, magazine or similar media or broadcast over television or radio
or presented at any seminar relating to the sale of the Securities.
(h) Transactions in the Common Stock. Except as provided in
Section 3.18, such Purchaser has not, during the thirty (30) Trading Days
immediately preceding the date hereof, purchased or sold, or established a short
position in, any shares of Common Stock.
(i) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities to be acquired by it hereunder are being offered and sold to
it without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
(j) Tax Consequences. The Company has not made any
representation, warranty, acknowledgement or covenant, in writing or otherwise,
to such Purchaser regarding the tax consequences, if any, of the sale of the
Securities, or of the resale of the Underlying Shares by such Purchaser.
(k) Suitable Investment. Such Purchaser has evaluated the
merits and risks of an investment in the Securities and has determined that the
Securities are a suitable investment for such Purchaser in light of such
Purchaser's overall financial condition and prospects.
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(l) Fluctuation of Stock Price. Such Purchaser has been
advised, and is aware, that the market prices of shares of stock of publicly
traded companies fluctuate and that there can be no assurances as to the future
performance of any given securities, including the Underlying Shares.
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company hereby consents to and agrees to register on the
books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities (x) between Purchasers and (y) by a Purchaser
to an Affiliate thereof or to an investment fund under common management with
such Purchaser, or any transfer among any such Affiliates or funds, provided
that, in each case, the transferee certifies to the Company that the
representations and warranties contained in Section 2.2 are true and correct
with respect to such transferee. Any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1, of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
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(c) Underlying Shares shall not contain the legend set forth
above nor any other legend if the conversion of Debentures, the payment of
interest thereon, exercise of Warrants or other issuances of Underlying Shares
as contemplated hereby or by the Debentures occurs at any time while an
Underlying Securities Registration Statement covering the resale of such
Underlying Shares is effective under the Securities Act or in the event there is
not an effective Underlying Securities Registration Statement at such time, if
in the opinion of counsel to the Company such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall issue the Transfer Agent Instructions attached hereto as Exhibit F
to the Company's transfer agent on the Series A Closing Date. The Company agrees
that it will cause its Transfer Agent to provide the Purchaser, upon request,
with a certificate or certificates representing Underlying Shares, free from
such legend at such time as such legend is no longer required hereunder upon
surrender of the legended certificates duly endorsed. The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in this Section.
(d) The Purchaser agrees to dispose of Underlying Shares
represented by unlegended certificates only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
Rule 144 promulgated under the Securities Act (and to comply with the
requirements of Section 3(q) of the Registration Rights Agreement) and
acknowledges that the Company is relying upon the Purchaser's agreement in this
Section in agreeing to issue certificates for Underlying Shares without legend
as provided for herein.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and
payment of interest thereon in accordance with the terms of the Debentures and
(ii) exercise of the Warrants, may result in dilution of the outstanding shares
of Common Stock, which dilution (subject to the operation of Section
4(a)(iii)(B) of the Debentures) may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Underlying Shares upon (x) conversion of the Debentures and payment of interest
thereon in accordance with the terms of the Debentures, and (y) exercise of the
Warrants, is unconditional and absolute, subject to the limitations set forth in
the Debentures or pursuant to the Warrants, regardless of the effect of any such
dilution.
3.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to Section 13(a) or 15(d)
of the Exchange Act, it will prepare and furnish to each Purchaser and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act ("Rule 144(c)"), all such information as is required to be made
publicly available in accordance with Rule 144(c). The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell Underlying Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including causing the issuance of the legal opinion referenced
above in this Section. Upon the
13
written request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchasers may reasonably request and shall continue such qualification or
exemption at all times until each Purchaser notifies the Company in writing that
it no longer owns Securities; provided, however, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.5 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers.
3.6 Increase in Authorized Shares. At such times as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting, subject to the operation
of the conversion limitation set forth in Section 4(a)(iii)(B) of the
Debentures, 200% of the full outstanding principal amount of Debentures (and
paying any earned and unpaid interest in respect thereof in shares of Common
Stock) that remain unconverted at such date or (b) honoring the exercise in full
of the Warrants, due to the unavailability of a sufficient number of shares of
authorized but unissued or reserved Common Stock, the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's Articles of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to at
least the sum of (x) the number of shares of Common Stock then authorized, (y)
the number of shares of Common Stock then outstanding plus all shares of Common
Stock issuable upon exercise of all outstanding options, warrants (including the
Warrants) and convertible instruments, and (z) (subject to the operation of the
conversion limitation set forth in Section 4(a)(iii)(B) of the Debentures) 200%
of the number of Underlying Shares as are then issuable upon a conversion of the
full outstanding principal amount of Debentures then outstanding and as payment
of interest thereon, or such smaller number as shall be agreed to by the holders
of at least 50% in interest of the principal amount of Debentures then
outstanding. In connection therewith, the Board of Directors shall (a) adopt
proper resolutions authorizing such increase, (b) recommend to and otherwise use
its best efforts to promptly and duly obtain stockholder approval to carry out
such resolutions (and hold a regular or special meeting of the stockholders no
later than the 45th day after delivery of the proxy materials relating to such
meeting) and (c) within five (5) Business Days of obtaining such stockholder
authorization, file an appropriate amendment to the Company's Articles of
Incorporation to evidence such increase.
3.7 Listing and Reservation of Underlying Shares. (a) The Company shall
(i) not later than the fifteenth Business Day following the Series A Closing
Date, and not later than the tenth
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Business Day following each of the Series B Closing Date and the Series C
Closing Date prepare and file with the NASDAQ (as well as any other national
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed) an additional shares listing application covering a
number of shares of Common Stock which is at least equal to the number of shares
required to be reserved pursuant to Section 2.1(d) with respect to the Warrants
and principal amount of Debentures to be issued and sold at such Closing, (ii)
take all steps necessary to cause such shares to be approved for listing on the
NASDAQ (as well as on any other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed) as soon
as possible thereafter, and (iii) provide to the Purchasers evidence of such
listing. The Company shall use its best efforts to maintain the listing of its
Common Stock thereon. If the number of Underlying Shares as are issuable upon
conversion in full of the then outstanding principal amount of Debentures, as
payment of interest thereon, and upon exercise of the then unexercised portion
of the Warrants exceeds 85% of the number of Underlying Shares previously listed
on account thereof with NASDAQ (and other required exchanges), the Company shall
take the necessary actions to immediately list a number of additional Underlying
Shares such that the total number of Shares so listed shall equal 200% of the
number of Underlying Shares then issuable upon conversion of the Debentures and
as payment of interest thereon and exercise of Warrants (subject to the
operation of the conversion limitations set forth in Section 4(a)(iii)(B) of the
Debentures).
(b) The Company shall maintain a reserve of Common Stock for
issuance upon conversion of the Debentures and for payment of interest thereupon
in shares of Common Stock pursuant to the terms of the Debentures and upon
exercise of the Warrants in accordance with their terms, in such amount as may
be required to fulfill obligations in full under the Transaction Documents,
which reserve shall initially include a number of shares of Common Stock equal
to (subject to the operation of Section 4(a)(iii)(B) of the Debentures) no less
than two times the number of shares of Common Stock as would be issuable upon
conversion in full of the Debentures and or payment of interest thereon in
shares of Common Stock as of the Original Issue Date.
3.8 Conversion Procedures. The delivery by the Holder of the Holder
Conversion Notice (as defined in Exhibit A) and the Form of Election to Purchase
attached to the Warrants, as the case may be, the delivery by the Holder of the
Debentures and the Warrants (and payment of exercise price, if any, in
connection with the exercise of the Warrants), as the case may be, the delivery
by Xxxxxx & Xxxxxxx, outside counsel to the Company, to the Company's transfer
agent, on or prior to the Series A Closing Date, Series B Closing Date or Series
C Closing Date, as the case may be (and as contemplated by Section 4.1(k)) of a
copy of a legal opinion substantially in the form of Exhibit D, the issuance by
the Company of the Transfer Agent Instructions and delivery of the legal opinion
by Company counsel, as set forth in the Transfer Agent Instructions, are all the
documents and instruments that must be delivered to enable the Purchasers to
convert Debentures and exercise Warrants as contemplated in the Debentures and
Warrants.
3.9 Notice of Breaches. (a) Each of the Company and the Purchasers
shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such
15
party, as the case may be, contained therein to be incorrect or breached as of
any Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
(b) Notwithstanding the generality of Section 3.9(a), the
Company shall promptly notify the Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by any Transaction Document
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Securities a copy of any written statement in support of or
relating to such claim or notice.
3.10 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Debentures and exercises of the Warrants and
shall deliver Underlying Shares in accordance with the respective terms and
conditions and time periods set forth in the Debentures and Warrants.
3.11 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument in a placement intended to be exempt from the
registration requirements of the Securities Act (a "Subsequent Placement") for a
period of 180 days after any Closing Date, except (i) the granting of options or
warrants to employees, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon exercise of any
currently outstanding warrants or rights and upon conversion of any currently
outstanding convertible preferred stock in each case disclosed in Schedule
2.1(c), and (iii) shares of Common Stock issued upon conversion of Debentures or
as payment of interest thereon or upon exercise of the Warrants, unless (A) the
Company delivers to each Purchaser a written notice (the "Subsequent Placement
Notice") of its intention effect such Subsequent Placement, which Subsequent
Placement Notice shall describe in reasonable detail the proposed terms of such
Subsequent Placement, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Placement shall be affected (if known to
the Company), and attached to which shall be a term sheet or similar document
relating thereto and (B) no Purchaser shall have notified the Company by 5:00
p.m. (New York time) on the fifteenth (15th) Trading Day after its receipt of
the Subsequent Placement Notice of its willingness to provide (or to cause its
sole designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set forth in
the Subsequent Placement Notice. If no Purchaser shall notify the Company of its
intention to enter into such negotiations within such time period, the Company
may effect the Subsequent Placement substantially upon the terms and to the
Persons (or Affiliates of such Persons) set forth in the Subsequent Placement
Notice (if such Persons are set forth in the Subsequent Placement Notice) ;
provided, that the Company shall provide each Purchaser with a second Subsequent
Placement Notice, and the Purchasers shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Placement subject to
the initial Subsequent Placement Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Placement Notice within thirty
(30) Trading Days after the date of the
16
initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) (if any) identified in the Subsequent Placement Notice. If the
Purchasers shall indicate a willingness to provide financing in excess of the
amount set forth in the Subsequent Placement Notice, then each Purchaser shall
be entitled to provide financing pursuant to such Subsequent Placement Notice up
to an amount equal to such Purchaser's pro rata portion of the aggregate
principal amount of Debentures purchased by the Purchasers under this Agreement,
but the Company shall not be required to accept financing from the Purchasers in
an amount in excess of the amount set forth in the Subsequent Placement Notice.
Notwithstanding the foregoing, the Company need not disclose in a Subsequent
Placement Notice the name of the Person with whom a Subsequent Placement shall
be effected in the event the Person has required that the Company enter into a
written confidentiality agreement with such Person which prohibits the
disclosure of such Person's name to the Purchaser, in which event (i) the
Company shall use its reasonable best efforts to obtain such other Person's
consent to the disclosure of its name to the Purchase and (ii) in the event the
Person will not consent to such disclosure, the Company shall provide a
certificate to the Purchasers, executed by the Chief Executive Officer and the
Chief Financial Officer of the Company certifying that the Person with whom the
Subsequent Placement shall be effected has required the Company to enter into a
confidentiality agreement with such Person which prohibits the disclosure of
such Person's name to the Purchasers, and that the Company has used its
reasonable best efforts to have obtain such Person consent to such disclosure.
(b) Except for (w) Underlying Shares, (x) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, (y) Common
Stock to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) through (iii) of paragraph (a) of this Section, and
(z) shares of Common Stock to be registered for resale pursuant to the
registration rights agreements set forth on Schedule 2.1(t) the Company shall
not, without the prior written consent of the Purchasers (i) issue or sell any
of its or any of its Affiliates' equity or equity-equivalent securities pursuant
to Regulation S promulgated under the Securities Act, or (ii) register for
resale any securities of the Company for, in either case of (i) and (ii) above,
a period of not less than 90 Trading Days after the later to occur of (a) the
date that the Underlying Securities Registration Statement is declared effective
by the Commission and (b) the last Closing hereunder. Any days that a Purchasers
is not permitted to sell Underlying Shares under the Underlying Securities
Registration Statement after the date that the Underlying Securities
Registration Statement is first declared effective by the Commission shall be
added to such 90 Trading Day period for the purposes of (i) and (ii) above.
3.12 Certain Securities Laws Disclosures; Publicity. The Company shall
(i) issue within one (1) Business Day of each Closing Date a press release
acceptable to the Purchasers disclosing the transactions contemplated hereby,
(ii) file within ten (10) Business Days after each Closing Date with the
Commission a Current Report on Form 8-K disclosing the transactions contemplated
hereby, and (iii) timely file with the Commission a Form D promulgated under the
Securities Act as required under Regulation D promulgated under the Securities
Act and provide a copy thereof to the Purchasers promptly after the filing
thereof. The Company shall, no less than two (2) Business Days prior to the
filing of any disclosure required by clauses (ii) and (iii) above, provide a
copy thereof to the Purchasers. Subject to Section 5.11, no such filing or
disclosure may be made that
17
mentions the Purchasers by name without the prior written consent of the
Purchasers, which shall not be unreasonably withheld or delayed.
3.13 Use of Proceeds. The Company shall use all of the net proceeds
from the sale of the Securities to fund the expansion of the Company's sales and
marketing activities, research and development for AngioJet applications and for
working capital purposes, and not for the satisfaction of any portion of Company
debt or to redeem Company equity or equity-equivalent securities. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
3.14 Transfer of Intellectual Property Rights. Except in connection
with (i) the sale of all or substantially all of the assets of the Company or
(ii) a transaction involving the Company's vascular graft products business, but
only to the extent that the Purchasers have agreed (pursuant to the last
sentence of Section 4(h) of the Debentures) that such transaction will not be
deemed a Change of Control of the Company or constitute an Event of Default
under the Debentures, the Company shall not transfer, sell or otherwise dispose
of any Intellectual Property Rights, or allow any of the Intellectual Property
Rights to become subject to any Liens, or fail to renew such Intellectual
Property Rights (if renewable and it would otherwise lapse if not renewed),
without the prior written consent of the Purchasers, except rights to use
Intellectual Property Rights in connection with the sale by the Company of
products in the ordinary course of business.
3.15 Reimbursement. In the event that any Purchaser, other than by
reason of its gross negligence or willful misconduct, becomes involved in any
capacity in any action, proceeding or investigation brought by or against any
Person, including stockholders of the Company, in connection with or as a result
of the consummation of the transactions contemplated pursuant to the Transaction
Documents, the Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith. In addition, other than with respect to any
matter in which such Purchaser is a named party, the Company will pay such
Purchaser the charges, as reasonably determined by each Purchaser, for the time
of any officers or employees of such Purchaser devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings, trials
or pretrial matters, or otherwise with respect to inquiries, hearings, trials,
and other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliate of the Purchasers and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Purchasers shall not, without the prior written consent of the
Company, effect any settlement of any action in respect of which the Company is
a party or with respect to which the Company is obligated to make payments
hereunder.
3.16 Transactions in the Common Stock. Except as provided in Section
3.18, during the period from the receipt by such Purchaser of a Subsequent
Financing Notice until the earlier to occur
18
of (i) the date indicated in such Subsequent Financing Notice for the closing of
the purchase and sale of the Debentures subject to the Subsequent Financing
Notice (which date may not be subsequent to the 25th Trading Day after receipt
by the Purchasers of such Subsequent Financing Notice) and (ii) the Closing Date
relating to such Subsequent Financing Notice, each Purchaser, for itself and not
for any other Purchaser, agrees that it shall not establish a short position in
the Common Stock (but may maintain any short positions established prior to the
beginning of such period).
3.17 Conditions to Series B and Series C Closings. Upon delivery of
each of a Subsequent Financing Notice, the Company shall ensure that the
conditions precedent to the obligation of each Purchaser to acquire Series B
Debentures and Series B Warrants and Series C Debentures an Series C Warrants
(as the case may be) set forth in Sections 4.1 are satisfied in all material
respects.
3.18 Ordinary Course Brokerage and Trading. Xxxxxx Brothers shall not
be prohibited from engaging in its ordinary course brokerage and trading
activities in respect of the Company's stock (including establishing short
positions), provided that the personnel engaged in such activities have not been
involved with the transactions contemplated hereby and have not been provided
with any confidential information with respect to the Company.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Purchasers
to Purchase Series B Debentures and the Series B Warrants and Series C Debenture
and Series C Warrants. The obligation of each Purchaser to acquire and pay for
(x) the Series B Debentures and the Series B Warrants and (y) Series C Debenture
and Series C Warrants is subject to the satisfaction or waiver by such
Purchaser, at or before the Series B Closing Date or Series C Closing, as
applicable, of each of the following conditions:
(a) Prior Closings. The Series A Closing and
the Series B Closing, as applicable, shall have occurred;
(b) Accuracy of the Company's Representations
and Warranties. (i) Except as provided in Section 4.1(b)(ii) below, the
representations and warranties of the Company contained herein shall be true and
correct as of the date hereof and on such Closing Date (other than
representations and warranties which address matters only as of a certain date,
which shall be true and correct as of such date) and (ii) the representations
and warranties of the Company contained in Section 2.1(c) shall be true and
correct in all material respects as of the date hereof and on such Closing Date
(provided, that conversions of the Debentures and exercises of the Warrants by
the Purchasers shall not be taken into account for purposes of clause (ii));
(c) Performance by the Company. The Company
shall have performed, satisfied and complied with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to such Closing Date;
19
(d) Underlying Securities Registration
Statement. The Underlying Securities Registration Statement shall have been
declared effective under the Securities Act by the Commission and on the Series
B Closing Date and the Series C Closing Date, as applicable, shall be effective
as to all Registrable Securities (as defined in the Registration Rights
Agreement), not subject to any actual or, to the knowledge of the Company,
threatened stop order and not be subject to any actual or threatened suspension;
(e) No Injunction. No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court of governmental authority
of competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by the Transaction Documents relating to the issuance,
conversion or exercise of any of the Securities;
(f) Adverse Changes. Since the date of the
financial statements included in the Company's Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, whichever is more recent, last filed prior to the
date of this Agreement, no event which had a Material Adverse Effect and no
material adverse change in the condition (financial or otherwise) or prospects
of the Company shall have occurred which is not disclosed in the Disclosure
Materials;
(g) Litigation. No material litigation shall
have been instituted or threatened against the Company;
(h) No Suspension from Trading in or Delisting
of Common Stock. The trading in the Common Stock shall not have been suspended
or delisted from the NASDAQ (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding the
Company);
(i) Change of Control. No Change of Control in
the Company shall have occurred. "Change of Control" means the occurrence of any
of (i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 40% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of the "Continuing Directors"(as defined below) in
one or a series of related transactions, (iii) the merger of the Company with or
into another entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions, unless
following such transaction, the holders of the Company's securities continue to
hold at least 40% of such securities following such transaction or (iv) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth above in (i), (ii)
or (iii). "Continuing Directors" means those individuals who are members of the
Company's board of directors on the date hereof and any individual who
subsequently becomes a member of the Company's board of directors, if such
individual's nomination for election or election to the Company's board of
directors is approved by a vote of at least a majority of the Continuing
Directors; provided that no individual shall be considered a Continuing Director
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of
20
proxies or consents by or on behalf of a Person other than the board of
directors of the Company (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest;
:
(k) Legal Opinion. The Company shall have
delivered (i) to the Purchasers and to the Company's transfer agent the opinion
of the Company's outside counsel, in substantially the form attached hereto as
Exhibit D dated the Series B Closing Date or the Series C Closing Date, as the
case may be and (ii) to the Purchasers the opinion of Xxxxxx X. Xxxxxxx, General
Counsel to the Company, in substantially the form attached hereto as Exhibit E
dated the Series B Closing Date or the Series C Closing Date, as the case may
be;
(l) Required Approvals. All Required Approvals
required to have been obtained on or prior to the Series B Closing Date or the
Series C Closing Date, as the case may be, shall have been obtained;
(m) Shares of Common Stock. The Company shall
have duly reserved the number of Underlying Shares required by the Transaction
Documents to be reserved for issuance upon conversion of all Debentures, as
payment of interest thereon, and upon exercise of all Warrants;
(n) Delivery of Debentures and Warrants. The
Company shall have delivered to the Purchasers the Debentures and Warrants to be
issued and sold at such Closing, registered in the name of the appropriate
Purchaser, or its designee, each in form satisfactory to the Purchasers;
(o) Transfer Agent Instructions. Transfer
Agent Instructions, dated such Closing Date, shall have been delivered to and
acknowledged in writing by the Company and the Company's transfer agent; and
(p) Officer's Certificate. The Company shall
deliver to the Purchasers an Officer's Certificate dated the Series B Closing
Date or the Series C Closing Date, as the case may be, and signed by an
executive officer of the Company confirming the Company's satisfaction of the
conditions set forth in Section 4.1(b) and (c) as of such Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall reimburse the
Purchasers for legal and due diligence fees and expenses (the "Fees") actually
incurred by the Purchasers incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby upon receipt of documentation
reasonably acceptable to the Company evidencing such Fees, provided, however,
that except as set forth in the Registration Rights Agreement, in no event shall
the Company be required to reimburse the Purchasers for any Fees to the extent
such Fees exceed fifty thousand dollars ($50,000) (the "Cap"). Except as set
forth in the Registration Rights Agreement, all Fees in excess of the Cap
21
incurred by the Purchasers incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby, including without limitation,
Fees in excess of the Cap incurred in connection with the Series A Closing, the
Series B Closing, the Series C Closing, shall be payable by the Purchasers..
The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Debentures pursuant hereto.
5.2 Entire Agreement; Amendments. This Agreement, together
with the Exhibits and Schedules hereto, the Registration Rights Agreement, the
Debentures, the Warrants and the Transfer Agent Instructions contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (New York time) on any date and earlier than 11:59 p.m. (New York time) on
such date or on a date that is not a Business Day, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given to the Company and each Purchaser at its address set forth
under its name on Schedule 1 attached hereto or such other address as may be
designated in writing hereafter, in the same manner, by such Person. Copies of
notices to any Purchaser shall be sent to Xxxxxxxx Xxxxxxxxx Xxxxxx Xxxxxxxx &
Xxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx, Xxx Xxxx, XX 00000, Attn: Xxxxxxx X.
Xxxxxxxxx, Esq., fax: (000) 000-0000 and copies of all notices to the Company
shall be sent to Xxxxxx & Xxxxxxx, 000 Xxxxx Xxxxxxx Xxxxxx, Xxxxxxxxx Xxxxxx
Xxxxx, Xxxxxxxxxxx, XX 00000, Attn: Xxx X. Xxxxxx, fax: (000) 000-0000.
5.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
22
5.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), the Purchasers may not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Company. This provision shall not limit the Purchasers' right to transfer
securities or transfer or assign rights hereunder or under the Registration
Rights Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.
5.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any Transaction Document), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
5.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive each Closing and the delivery and
conversion or exercise (as the case may be) of the Debentures and Warrants.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and no party hereto shall issue any such press
release or otherwise make any such public statement, filings or other
communications without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed,
23
except that no prior consent shall be required if such disclosure is required by
law or by the Commission or the NASDAQ (as the case may be), in which such case
the disclosing party shall provide the other parties with prior notice of such
public statement, filing or other communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of a Purchaser, or include the
name of a Purchaser in any filing with the Commission, or any regulatory agency,
trading facility or stock market without the prior written consent of such
Purchaser, except to the extent such disclosure (but not any disclosure as to
the controlling Persons thereof) is required by law, in which case the Company
shall provide the Purchasers with prior notice of such disclosure.
5.12 Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. Each of the Company and the Purchasers
(severally and not jointly) agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.14 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
24
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
POSSIS MEDICAL, INC.
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------------
Name: Xxxxxx X. Xxxxxxx
Title: Vice President & General Counsel
XXXXX XXXXXXX STRATEGIC GROWTH
FUND, L.P.
By: /s/ Xxxxxxx Xxxxx
---------------------------------------
Name: Xxxxxxx Xxxxx
Title:
XXXXX XXXXXXX STRATEGIC GROWTH
FUND, LTD.
By: /s/ Xxxxxxx Xxxxx
---------------------------------------
Name: Xxxxxxx Xxxxx
Title:
XXXXXXXX INVESTMENTS, L.P.
By: /s/ Xxxxxxx X. Xxxx
---------------------------------------
Name: Xxxxxxx X. Xxxx
Title: Authorized Signatory
MONTROSE INVESTMENTS, LTD.
By: /s/ Xxxxxxx X. Xxxx
---------------------------------------
Name: Xxxxxxx X. Xxxx
Title: Authorized Signatory
XXXXXX BROTHERS, INC.
By: /s/ Sky Xxxxx
---------------------------------------
Name: Sky Xxxxx
Title: Managing Director
BAY HARBOR INVESTMENTS, INC.
By: /s/ Xxxxxxx X. Xxxxxxxxx
---------------------------------------
Name: Xxxxxxx X. Xxxxxxxxx
Title: Attorney-in-Fact
Schedule 1
Company:
POSSIS MEDICAL, INC.
0000 Xxxxxxxxx Xxxxxxxxx, X.X.
Xxxxxxxxxxx, XX 00000-0000
Facsimile: (000) 000-0000
Attn: Chief Financial Officer
Principal Amount of
Purchasers: Series A Debentures Series A Warrant Coverage
----------- ------------------- -------------------------
Xxxxx Xxxxxxx Strategic $ 700,000 6,454 shares
Growth Fund, L.P.
000 Xxxx 00xx Xxxxxx, 00xx Xx.
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxx Xxxxxx
Xxxxx Xxxxxxx Strategic $1,300,000 11,986 shares
Growth Fund, Ltd.
000 Xxxx 00xx Xxxxxx, 00xx Xx.
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxx Xxxxxx
Xxxxxxxx Investments, L.P. $1,200,000 11,064 shares
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxx Xxxx
Montrose Investments, Ltd. $2,800,000 25,816 shares
000 Xxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxx Xxxx
Xxxxxx Brothers, Inc. $3,000,000 27,660 shares
000 Xxxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxxx Xxxxxxxxx
Principal Amount of
Purchasers: Series A Debentures Series A Warrant Coverage
----------- ------------------- -------------------------
Bay Harbor Investments, Inc. $3,000,000 27,660 shares
c/o Trippoak Advisors, Inc.
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Facsimile: (000) 000-0000
Attn: Xxxxxx X. Xxxxxx
