<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE QUARTER ENDED FEBRUARY 28, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________
TO _________
Commission File Number: 0-11868
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
CALIFORNIA 95-3533362
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6155 CORNERSTONE COURT EAST, SUITE 125, SAN DIEGO, CALIFORNIA 92121
(Address of principal executive offices) (Zip Code)
(619) 535-0202
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
Check whether the registrant has filed all documents and reports required to be
filed by Section 12, 13 or 15(d) of the Exchange Act after the distribution of
securities under a plan confirmed by a court. Yes X No
--- ---
APPLICABLE ONLY TO CORPORATE ISSUERS:
As of April 1, 1997, 31,872,628 shares of Common Stock were outstanding.
Transitional Small Business Disclosure Format
(check one):
Yes No X
--- ---
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CARDIODYNAMICS INTERNATIONAL CORPORATION
TABLE OF CONTENTS
PAGE NO.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Balance Sheets at February 28, 1997, (UNAUDITED)
and November 30, 1996, (AUDITED). 3
Condensed Statements of Operations, (UNAUDITED) for the three
month periods ended February 28, 1997 and February 29, 1996. 5
Condensed Statements of Cash Flows, (UNAUDITED) for the three
months ended February 28, 1997 and February 29, 1996. 6
Notes to Condensed Financial Statements, (UNAUDITED) 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION 8
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 10
ITEM 2. CHANGES IN SECURITIES 10
ITEM 3. DEFAULTS UPON SENIOR SECURITIES 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 10
ITEM 5. OTHER INFORMATION 10
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 10
SIGNATURES 11
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
1997 1996
------------ ------------
<S> <C> <C>
Assets:
Current assets:
Cash and cash equivalents $5,581,617 $706,190
Marketable securities -- 262,619
Receivables, less allowance for doubtful receivables
of $332 and $7,416, respectively 27,326 24,925
Inventory, net 450,772 293,629
Other current assets 30,724 68,336
------------ ------------
Total current assets 6,090,439 1,355,699
Property and equipment, at cost 288,786 265,781
Less accumulated depreciation 167,787 156,149
------------ ------------
Net property and equipment 120,999 109,632
Other assets:
Deposits 4,250 4,250
------------ ------------
Total assets $6,215,688 $1,469,581
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
3
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CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
FEBRUARY 28, NOVEMBER 30,
LIABILITIES AND SHAREHOLDERS' EQUITY 1997 1996
- ------------------------------------ ------------ ------------
<S> <C> <C>
Current liabilities:
Accounts payable $ 260,611 $ 125,385
Accrued salaries, wages and related benefits 50,251 28,882
Other accrued expenses 42,991 67,264
Customer deposits -- 23,012
Marketable securities held for redeemed preferred shares -- 22,676
Current portion of long-term debt 12,100 12,100
------------ ------------
Total current liabilities 365,953 279,319
Long-term debt, less current maturities 34,183 37,822
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par, 500,000 shares authorized;
issued and outstanding 183,115 in February and
November, respectively. 457,791 457,791
Common stock, no par, 50,000,000 shares authorized;
issued and outstanding 31,740,344 shares in
February and 29,581,696 in November 13,923,565 8,366,514
Unrealized loss on marketable securities -- (89,270)
Accumulated deficit (8,565,804) (7,582,595)
------------ ------------
Shareholders' equity 5,815,552 1,152,440
------------ ------------
Total liabilities and shareholders' equity $6,215,688 $ 1,469,581
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
4
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CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
FEBRUARY 28,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
Net sales $131,928 $61,010
Cost of sales 94,027 32,731
------------ ------------
Gross profit 37,901 28,279
Operating expenses:
Selling, general and administrative expenses 687,031 264,033
Research and development 172,376 73,361
------------ ------------
Total operating expenses 859,407 337,394
Loss from operations (821,506) (309,115)
Other income (expense):
Interest, net 3,950 (177)
Loss on disposition of marketable securities (164,853) --
------------ ------------
Total other income (expense) (160,903) (177)
Loss before income taxes (982,409) (309,292)
Provision for income taxes (800) (800)
------------ ------------
Net loss ($983,209) ($310,092)
------------ ------------
------------ ------------
Loss per common share ($0.03) ($0.01)
------------ ------------
------------ ------------
Weighted average number of
common shares outstanding 29,653,681 20,788,570
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
5
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CARDIODYNAMICS INTERNATIONAL CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED FEBRUARY 28,
---------------------------------
1997 1996
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($983,209) ($310,092)
Adjustments to reconcile net loss to net cash used in
operating activities:
Depreciation 11,638 10,770
Loss on sale of marketable securities 164,853 --
Changes in operating assets and liabilities:
Receivables (2,401) 56,183
Inventories (157,143) (88,820)
Other current assets 37,612 (8,578)
Accounts payable 135,226 (94,972)
Accrued salaries, wages and related benefits 21,369 (29,091)
Other accrued expenses (24,273) (20,152)
Customer deposits (23,012) (26,075)
------------ ------------
Net cash used in operating activities (819,340) (510,827)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities 180,129 --
Purchase of property and equipment (23,005) (9,191)
------------ ------------
Net cash provided by/(used in) investing activities 157,124 (9,191)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (3,639) (8,308)
Proceeds from exercise of warrants 200 226
Cash payment for redeemed preferred shares (15,769) --
Issuance of common stock 5,556,851 551,000
------------ ------------
Net cash provided by financing activities 5,537,643 542,918
------------ ------------
Net increase in cash and cash equivalents 4,875,427 22,900
Cash and cash equivalents at beginning of period 706,190 7,441
------------ ------------
Cash and cash equivalents at end of period $5,581,617 $ 30,341
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed financial statements
6
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CARDIODYNAMICS INTERNATIONAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
This document's "forward-looking" statements, (those not limited to historical
information) inherently involve risks and uncertainties. Among the factors that
could cause the Company's actual results to differ materially from those
indicated in any such forward-looking statements are: (i) sole dependance on the
newly-introduced BioZ-TM- System and related products, (ii) general acceptance
in the medical community of Thoracic Electrical Bioimpedance (TEB), (iii) the
timing and results of clinical trials of the BioZ-TM- System, (iv) competition
from Baxter Healthcare Corporation, maker of the Swan-Ganz-TM- RHC device, and
(v) various uncertainties characteristic of companies just emerging from the
development stage; as well as other risks detailed in the Company's annual
report on Form 10-KSB for the fiscal year ended November 30, 1996 and any
later-filed SEC reports. The Company does not undertake to update the
disclosures contained in this document.
DESCRIPTION OF BUSINESS:
CardioDynamics International Corporation develops, manufactures and markets
noninvasive digital heart monitoring devices which provide continuous data on a
wide range of hemodynamic parameters, (a measurement of the heart's ability to
deliver oxygen-rich blood throughout the body). The Company's primary product,
the BioZ-TM- System, uses proprietary TEB technology to obtain data which is
typically available only through a time consuming, consuming, costly,
potentially dangerous invasive procedure called right-heart catheterization,
(RHC). Since TEB monitoring is non-invasive, it eliminates patient risk and
potentially decreases the length of a hospital stay, thereby reducing patient
cost.
BASIS OF PRESENTATION:
The accompanying condensed financial statements have been prepared in accordance
with the requirements for Form 10-QSB and therefore do not include all
information and footnotes which would be presented were such financial
statements prepared in accordance with generally accepted accounting principles.
These statements should be read in conjunction with the Company's November 30,
1996 audited financial statements and notes thereto as presented in its Annual
Report on Form 10-KSB. Financial presentations for the prior periods have been
reclassified to conform with the current presentation.
In the opinion of management, the information contained herein reflects all
adjustments necessary to make the results of operations for the interim periods
a fair statement of such operations. All such adjustments are of a normal
recurring nature. The results of operations for the three months ended February
28, 1997 are not necessarily indicative of the results that may be expected for
the full fiscal year ended November 30, 1997.
7
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CARDIODYNAMICS INTERNATIONAL CORPORATION
PART I - FINANCIAL INFORMATION, (CONTINUED)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The following discussion should be read in conjunction with the attached
condensed financial statements and notes thereto, and with the Company's audited
financial statements for the fiscal year ended November 30, 1996.
RESULTS OF OPERATIONS
Sales for the first quarter of fiscal 1997 increased to $131,928 from $61,010 in
the first quarter of fiscal 1996. The Company commenced shipments of its new
BioZ-TM- System against the over one million dollars in initial orders for
distributor demonstration and stocking units. Last year's sales were of a prior
product line.
Sales in both the 1997 and 1996 quarters are well below the levels required for
viable operations, therefore the usefulness of comparative figures and ratios is
somewhat limited. The Company received 510(k) marketing clearance for the
BioZ-TM- System in late November, 1996. This provides the Company the
opportunity to commercialize the BioZ-TM- System, which could result in
significantly increased sales. The gross profit as a percent of net sales for
the quarter ended February 28, 1997 was 29%, down significantly from the same
quarter in fiscal 1996 as a result of the low sales volume relative to the
Company's increased manufacturing capacity and related overhead costs.
Selling, general and administrative costs in the first quarter of fiscal 1997
were approximately $423,000 higher than the first fiscal quarter of 1996 due
primarily to the addition of regional sales managers, costs related to
establishing a network of specialty distributors, development of advertising and
marketing materials, and strengthening of the management team. The Company also
invested in additional engineering and clinical personnel to support development
and regulatory approval of the BioZ-TM- System. As a result, research and
development expenses increased by approximately $100,000 or 135% in the first
quarter of fiscal 1997 over last years' first quarter.
The Company recognized a loss of $164,853 related to the disposition of certain
marketable securities during the quarter. These securities had been held for
payment to preferred shareholders upon exercise of their right to redeem their
preferred shares for common stock and a pro-rata portion of the proceeds of
selling the marketable securities. In accordance with Statement of Financial
Accounting Standards No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES, the Company classified the investment securities as
"available-for-sale". Accordingly, unrealized gains and losses were excluded
from earnings and reported as a separate component of shareholders' equity. The
realized loss was computed based on specific identification of the securities
sold or written-off. At November 30, 1996 the Company accrued $22,676 for
payment to preferred shareholders who exercised their conversion right which
ended in April, 1996. The actual amount paid to these preferred shareholders,
based on the net proceeds of the sale of those securities, was $15,769.
8
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION, (CONTINUED)
The Company incurred a net loss for the first quarter of 1997 of $.03 per common
share compared with a net loss of $.01 per common share in the same period last
year. The weighted average number of common shares outstanding for the first
quarter of 1997 was 29,653,681, versus 20,788,570 reported in the first quarter
of 1996. The increase was primarily due to an affiliate's conversion of Note
principal into 7,200,000 shares in June 1996 and the February 1997 issuance of
shares in the private placement through EVEREN Securities, Inc., (described
below).
LIQUIDITY AND CAPITAL RESOURCES
In order to fund the Company's research and development efforts, marketing
programs, capital expenditures and working capital requirements, the Company
raised approximately $7.2 million in a private placement of approximately 2.5
million shares of common stock through EVEREN Securities, Inc. The initial $6.2
million was funded at the end of the first fiscal quarter of 1997 with the
balance completed in early March, 1997.
As a result of the initial $6.2 million private placement losing, the overall
cash balance increased by $4,875,427 in the quarter ended February 28, 1997 and
working capital increased to $5,724,486, up from $1,076,380 at November 30,
1996. During the first quarter of 1997, the Company used $819,340 of cash in
operating activities, this compares to a $510,827 operating cash usage in the
first quarter of 1996. The operating cash usage in the first quarter of 1997
was largely due to the loss incurred for the period, reduced by non-cash
accounting charges including depreciation and recognition of a loss on
disposition of certain marketable securities. In addition, $157,143 of
operating cash was used to begin building inventories of the BioZ-TM- System in
anticipation of revenue growth in the balance of the year.
The Company generated $157,124 from investing activities in the first three
months of 1997 through the sale of certain marketable securities offset somewhat
by investment in computer equipment. Capital expenditures for the balance of
fiscal 1997 are estimated to approximate $650,000 and the Company intends to pay
for these additions with cash on hand and through equipment financing
agreements. The Company believes that it has sufficient financial resources to
support its forecasted working capital and capital expenditure requirements for
the balance of 1997 with cash on hand, to further secure its financial resources
and position the Company to finance its working capital requirements for future
Company growth, management is evaluating several financial institutions in order
to establish a revolving line of credit with a bank.
Longer term, the Company's liquidity will depend on its ability to commercialize
successfully the BioZ-TM- System and other diagnostic products.
9
<PAGE>
CARDIODYNAMICS INTERNATIONAL CORPORATION
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Fifth Amended and Restated Secured Convertible Promissory Note,
dated February 1, 1997, between CardioDynamics Holdings, LLC and
the Company.
10.1 Warrants to purchase 276,514 shares of CardioDynamics
International Corporation Common Stock to EVEREN Securities,
Inc. dated February 26, 1997 and March 6, 1997.
10.2 Form of Stock Purchase Agreement for 1997 EVEREN private
placement.
27 Financial Data Schedule.
(b) Reports on Form 8-K
During the first quarter, the Company filed one report on Form 8-K
with regard to the Company's receipt of 510(k) marketing clearance from
the FDA for its key product, the BioZ-TM- non-invasive hemodynamic
monitoring system. The date of the report was November 26, 1996.
10
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CARDIODYNAMICS INTERNATIONAL CORPORATION
SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the
registrant caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
CARDIODYNAMICS INTERNATIONAL CORPORATION
Date: April 11, 1997 By: /s/ Richard E. Otto
-------------- --------------------------------
Richard E. Otto
Director, President and Chief
Executive Officer
Date: April 11, 1997 By: /s/ Stephen P. Loomis
-------------- --------------------------------
Stephen P. Loomis
Vice President Finance and
Chief Financial Officer
11
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FIFTH AMENDED AND RESTATED
SECURED CONVERTIBLE
PROMISSORY NOTE
$25,000.00 February 7, 1995, as
amended March 30, 1995,
May 19, 1995,
March 31, 1996
June 30, 1996,
and February 1, 1997
FOR VALUE RECEIVED, CardioDynamics International Corporation, a California
corporation ("Maker"), 6155 Cornerstone Court East, Suite 125, San Diego,
California 92121, hereby promises to pay to the order of CardioDynamics
Holdings, LLC, a California limited liability company ("Lender"), 5067 Shore
Drive, Carlsbad, California 92008, TWENTY-FIVE THOUSAND DOLLARS ($25,000.00), at
such address of Lender, in lawful money of the United States together with
interest on the principal balance outstanding at the lesser of (a) seven and
one-half percent per annum, or (b) if less, the maximum rate permissible by
applicable law. Interest shall be calculated on the basis of a 360-day year for
the actual number of days elapsed, and shall be payable in arrears on each
March 31, June 30, September 30 and December 31. The principal amount of and
all unpaid accrued interest under the Note shall become due and payable in full
on March 31, 2000. This Note is an amendment and restatement of a certain
Secured Convertible Promissory Note dated February 7, 1995 in the original
principal amount of $100,000.
1. ADDITIONAL PROVISIONS RELATING TO DEBT CHARACTERISTICS.
This Note may not be prepaid in full or in part.
This Note is secured by the collateral identified and described as security
therefor in that certain Security Agreement, dated as of February 7, 1995, by
and between Maker and Lender and the collateral identified and described as
security therefor in that certain Patent Security Agreement, dated as of
February 7, 1995, by and between Maker and Lender (collectively, the "Security
Agreement").
Upon the happening of any of the following events, Lender may, at its
option, declare immediately due and payable the entire unpaid principal amount
of this Note, together with all interest thereon, plus any other amounts payable
at the time of such declaration pursuant to this Note. Such events are the
following: (1) failure to make any interest payment as it falls due, (2) Maker
shall admit in writing its inability to pay its debts as they become due, shall
make a general assignment for the benefit of creditors or shall file any
petition or action for relief under any bankruptcy, reorganization, insolvency
or moratorium law, or any other law or laws for the relief of, or relating to,
debtors; or (3) an involuntary petition shall be filed against Maker under any
bankruptcy, reorganization, insolvency or moratorium law, or any other law or
laws for the relief of, or relating to, debtors unless such petition shall be
dismissed or vacated within sixty (60) days of the
<PAGE>
date thereof. Lender shall further be entitled to the remedies provided in the
event of default provided in the Security Agreement.
Maker hereby waives diligence, presentment, demand, protest or other notice
of any kind.
2. CONVERSION.
2.1 CONVERSION PRIVILEGE. Lender has the right, at Lender's option,
at any time after February 6, 1996 and prior to payment in full of the principal
balance of this Note, to convert this Note, in accordance with the provisions
hereof, in whole or in part, into fully paid and nonassessable shares of Common
Stock of Maker. The number of shares of Common Stock into which this Note may
be converted shall be determined by dividing the aggregate principal amount
together with all accrued interest to the date of conversion by the Conversion
Price (as defined below) in effect at the time of such conversion. The initial
Conversion Price shall be equal to $0.50. On March 31, 1996, the Conversion
Price shall decrease to $0.25, subject to further possible adjustment under
subsection 2.2 hereof. On each of March 31, 1998 and March 31, 1999, the
Conversion Price shall increase by 20% from its immediately preceding level.
Before Lender shall be entitled to convert this Note into shares of Common
Stock, it shall surrender this Note at the office of Maker and shall give
written notice by mail, postage prepaid, to Maker at its principal corporate
office, of the election to convert the same, and shall state therein the name or
names in which the certificate or certificates for shares of Common Stock are to
be issued. Maker shall, as soon as practicable thereafter, issue and deliver at
such office to the holder of this Note a certificate or certificates for the
number of shares of Common Stock to which the holder of this Note shall be
entitled as aforesaid. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of such surrender of this
Note, and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of such date.
Upon the conversion of this Note, Lender shall surrender this Note, duly
endorsed, at the principal office of Maker. At its expense, Maker shall, as
soon as practicable thereafter, issue and deliver to such Lender at such
principal office a certificate or certificates for the number of shares of such
Common Stock to which the Lender shall be entitled upon such conversion (bearing
such legends as may be required by applicable state and federal securities laws
in the opinion of counsel to Maker), together with any other securities and
property to which Lender is entitled upon such conversion under the terms of
this Note. If less than the entire Note is converted, Maker shall issue to
Lender a new Note, of like tenor, for the remaining principal amount.
2.2 CONVERSION PRICE ADJUSTMENTS. In the event Maker should at any
time or from time to time after the date of issuance hereof fix a record date
for the effectuation of a split or subdivision of the outstanding shares of
Common Stock or the determination of holders of Common
-2-
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Stock entitled to receive a dividend or other distribution payable in additional
shares of Common Stock or other securities or rights convertible into, or
entitling the holder thereof to receive directly or indirectly, additional
shares of Common Stock (hereinafter referred to as "Common Stock Equivalents")
without payment of any consideration by such holder for the additional shares of
Common Stock or the Common Stock Equivalents (including the additional shares of
Common Stock issuable upon conversion or exercise thereof), then, as of such
record date (or the date of such dividend distribution, split or subdivision if
no record date is fixed), the Conversion Price of this Note shall be
appropriately decreased so that the number of shares of Common Stock issuable
upon conversion of this Note shall be increased in proportion to such increase
of outstanding shares.
If the number of shares of Common Stock outstanding at any time after the
date hereof is decreased by a combination of the outstanding shares of Common
Stock, then, following the record date of such combination, the Conversion Price
for this Note shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion hereof shall be decreased in proportion to
such decrease in outstanding shares.
In the event Maker shall declare a distribution payable in securities of
other persons, evidences of indebtedness issued by Maker or other persons,
assets (excluding cash dividends) or options or rights, then, in each such case
for the purpose of this subsection 2.2, the holder hereof shall be entitled to a
proportionate share of any such distribution as though such holder was the
holder of the number of shares of Common Stock of Maker into which this Note is
convertible as of the record date fixed for the determination of the holders of
Common Stock of Maker entitled to receive such distribution.
-3-
<PAGE>
2.3 NOTICES OF RECORD DATE, ETC. In the event of:
- any taking by Maker of a record of the holders of any class of
securities of Maker for the purpose of determining the holders
thereof who are entitled to receive any dividend (other than a
cash dividend payable out of earned surplus at the same rate as
that of the last such cash dividend theretofore paid) or other
distribution, or any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right; or
- any capital reorganization of Maker, any reclassification or
recapitalization of the capital stock of Maker or any transfer of
all or substantially all of the assets of Maker to any other
person or any consolidation or merger involving Maker; or
- any voluntary or involuntary dissolution, liquidation or
winding-up of Maker,
Maker will mail to the holder of this Note at least ten (10) days prior to the
earliest date specified therein, a notice specifying:
(a) The date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right; and,
(b) The date on which any such reorganization, reclassification,
transfer, consolidation, merger, dissolution, liquidation or winding-up is
expected to become effective and the record date for determining
shareholders entitled to vote thereon.
2.4 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. Maker shall at
all times reserve and keep available out of its authorized but unissued shares
of Common Stock solely for the purpose of effecting the conversion of the Note
such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of the Note; and if at any time the number
of authorized but unissued shares of Common Stock shall not be sufficient to
effect the conversion of the entire outstanding principal amount of this Note,
in addition to such other remedies as shall be available to the holder of this
Note, Maker will use its reasonable best efforts to take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
3. MATCHING RIGHT.
If during the term of this Note, Maker shall issue any Common Stock to any
person in any circumstances, Lender shall have the right (exercisable by written
notice of exercise delivered to Maker no later than 60 days after Maker's
written notice to Lender of such issuance to such other
-4-
<PAGE>
person, accompanied by a cashier's check for payment in full), but not the
obligation, to purchase from Maker (at the Conversion Price in effect on the
date of the issuance to the other person) the same number of shares of Common
Stock issued to the other person. This right may be exercised any number of
times, and no non-exercise shall affect such right in future instances.
4. MISCELLANEOUS.
The rights and obligations of Maker and Lender shall be binding upon and
benefit the successors, assigns, heirs, administrators, and transferees of Maker
and Lender.
Lender shall not be deemed by any act or omission or commission to have
waived any of its rights or remedies hereunder unless such waiver is in writing
and expressly stated as such and signed by Lender and then only to the extent
specifically set forth in the writing. A waiver of one event shall not be
construed as continuing or a bar to or waiver of any right or remedy as to a
subsequent event. Maker expressly agrees that this Note, or any payment
hereunder, may be extended from time to time and consents to the acceptance of
security, if any, or the release of security, if any, from this Note, all
without in any way affecting the liability of Maker.
Any notice that Maker or Lender desires to give to the other related to
this Note shall be in writing and shall be deemed delivered when personally
delivered by any courier service which obtains a receipt upon delivery to an
officer or registered agent of the respective corporation, or two business days
after deposit in the United States mail, certified mail, return receipt
requested, postage prepaid, addressed to the party being notified at its
respective address specified in this Note.
If Lender should institute collection efforts, of any nature whatsoever, to
attempt to collect any and all amounts due hereunder upon the default of Maker
on this Note or under the Security Agreement, or any other efforts to enforce
any of its rights under this Note, Maker shall be liable to pay to Lender
immediately and without demand all reasonable costs and expenses of collection
incurred by Lender, including without limitation reasonable attorneys fees,
whether or not suit or other action or proceeding be instituted and specifically
including but not limited to collection efforts that may be made on appeal or
through a bankruptcy court, and all such sums shall be fully secured by all
instruments securing this Note.
The provisions of this Note are intended by Maker to be severable and
divisible and the invalidity or unenforceability of a provision or term herein
shall not invalidate or render unenforceable the remainder of this Note or any
part thereof.
This Note shall be construed in accordance with the laws of the State of
California without giving effect to principles of conflict of laws.
IN WITNESS WHEREOF, Maker has executed this instrument in San Diego,
California.
MAKER:
-5-
<PAGE>
CARDIODYNAMICS INTERNATIONAL
CORPORATION
By:
-------------------------------------
Richard E. Otto, President
By:
-------------------------------------
Stephenson M. Dechant, Secretary
-6-
<PAGE>
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrant to Purchase 263,657 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
CARDIODYNAMICS INTERNATIONAL CORPORATION
Void after February 25, 2002
This certifies that, for value received, EVEREN Securities, Inc., or
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from CardioDynamics International Corporation (the "Company"), a
California corporation, 263,657 shares of the Common Stock of the Company, as
constituted on the date hereof (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to below, with the
subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant and any warrants delivered in substitution or exchange therefor as
provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on February 26, 1997 and ending at 5:00 p.m., Pacific Daylight Time,
on February 25, 2002 after the Exercise Date and shall be void thereafter.
2. EXERCISE PRICE. The Exercise Price at which this Warrant may be
exercised shall be $3.5625 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
1.
<PAGE>
3. EXERCISE OF WARRANT.
(a) The purchase rights represented by this Warrant are exercisable
by the Holder in whole or in part, but not for less than 50,000 shares at a time
(or such lesser number of shares which may then constitute the maximum number
purchasable; such number being subject to adjustment as provided in Section 11
below), at any time, or from time to time, during the term hereof as described
in Section 1 above, by the surrender of this Warrant and the Notice of Exercise
annexed hereto duly completed and executed on behalf of the Holder, at the
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), upon payment in cash or by check
acceptable to the Company of the purchase price of the shares to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of loss, theft, or destruction, on delivery of an
indemnity agreement (and/or, in the discretion of the Company's Board of
Directors, an indemnity bond) reasonably satisfactory in form and substance to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
6. RIGHTS OF SHAREHOLDERS. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon
2.
<PAGE>
any recapitalization, issuance of stock, reclassification of stock,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the shares of Common Stock purchasable
upon the exercise hereof shall have been issued, as provided herein.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change its address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given
to the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the
Holder, appoint an agent for the purpose of maintaining the Warrant Register
referred to in Section 7(a) above, issuing the Common Stock or other securities
then issuable upon the exercise of this Warrant, exchanging this Warrant,
replacing this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This Warrant
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject to the provisions of this Warrant with respect to
compliance with the Securities Act of 1933, as amended (the "Act"), title to
this Warrant may be transferred by endorsement (by the Holder executing the
Assignment Form annexed hereto) and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery.
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Warrant with respect to compliance with the Act and with
the limitations on assignments and transfers and contained in this Section 7,
the Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares issuable upon exercise thereof.
3.
<PAGE>
(e) COMPLIANCE WITH SECURITIES LAWS.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell, or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Act or any state securities laws. Upon exercise of
this Warrant, the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the shares of Common Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
(ii) This Warrant and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a standard Securities Act
restricted-securities legend.
8. RESERVATION OF STOCK. The Company covenants that during the Term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Articles of Incorporation (the "Articles")
to provide sufficient reserves of shares of Common Stock issuable upon exercise
of the Warrant. The Company further covenants that all shares that may be
issued upon the exercise of rights represented by this Warrant, upon exercise of
the rights represented by this Warrant and payment of the Exercise Price, all as
set forth herein, will be free from all taxes, liens, and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein). The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
9. NOTICES.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder of this Warrant.
(b) In case
4.
<PAGE>
(i) the Company shall take a record of the holders of its
Common Stock (or other stock or securities at the time receivable upon the
exercise of this Warrant) for the purpose of entitling them to receive any
dividend or other distribution, or any right to subscribe for or purchase any
shares of stock of any class or any other securities, or to receive any other
right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
(c) All such notices, advices and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the third business day following
the date of such mailing.
10. AMENDMENTS.
(a) Any term of this Warrant may be amended with the written consent
of the Company and the holders of not less than sixty percent (60%) of the
shares of Common Stock issuable upon exercise of any and all outstanding
warrants for such shares of Common Stock (the "Common Stock Warrants"), even
without the consent of the Holder. Any amendment effected in accordance with
this Section 10 shall be binding upon each holder of any of the Common Stock
Warrants, each future holder of all such Common Stock Warrants, and the Company;
provided, however, that no special consideration or inducement may be given to
any such holder in connection with such consent that is not given ratably to all
such holders, and that such amendment must apply to all such holders equally and
ratably in accordance with the number of shares of Common Stock issuable upon
exercise
5.
<PAGE>
of their Common Stock Warrants. The Company shall promptly give notice to all
holders of Common Stock Warrants of any amendment effected in accordance with
this Section 10.
(b) No waivers of or exceptions to any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. ADJUSTMENTS. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
11.1 MERGER, SALE OF ASSETS, ETC.
(a) If at any time, while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be (i) a reorganization (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash, or otherwise, or (iii) a sale or transfer of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the Exercise Price then
in effect, not the original Common Stock but instead the number of shares of
stock or other securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or transfer which a holder
of the shares deliverable upon exercise of this Warrant would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer if
this Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation which are
at the time receivable upon the exercise of this Warrant. If the per share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interests of
the Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
6.
<PAGE>
(b) NOTICES OF RECORD DATE. In the event that the Company shall
propose at any time to merge with or into any other corporation, or sell, lease
or convey all or substantially all its property or business, or to liquidate,
dissolve or wind up, then the Company shall send to the holder of this Warrant
at least 15 days' prior written notice of the date on which a record shall be
taken for determining rights to vote in respect of such event.
11.2 RECLASSIFICATION, ETC. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in Section 11.
11.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
11.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company which such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
11.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of this Warrant a certificate
setting forth such adjustment or readjustment
7.
<PAGE>
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request, at any time, of any such
holder, furnish or cause to be furnished to such holder a like certificate
setting forth: (i) such adjustments and readjustments; (ii) the Exercise Price
at the time in effect; and (iii) the number of shares and the amount, if any, of
other property which at the time would be received upon the exercise of the
Warrant.
11.6 NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of this Warrant against impairment.
12. REGISTRATION RIGHTS. The Holder shall have the following registration
rights with respect to Registrable Securities (as defined below):
12.1 CERTAIN DEFINITIONS. As used in this Section 12, the following
terms shall have the following respective meanings:
(a) "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "HOLDER" shall mean the Holder and any holder of
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 12.5 hereof.
(c) "INITIATING HOLDERS" shall mean any Holder or Holders who
in the aggregate hold not less than twenty-five percent (25%) of the outstanding
Registrable Securities. For purposes of such calculation, holders of Warrant(s)
shall be considered to hold the shares of Common Stock then issuable upon
conversion of such Warrant(s).
(d) "REGISTRABLE SECURITIES" shall mean (i) shares of Common
Stock issued or issuable pursuant to the exercise of the Warrant and any other
Warrant(s) of like tenor and (ii) any Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the shares
referenced in (i) above, provided, however, that Registrable Securities shall
not include any shares of Common Stock that have previously been registered or
that have otherwise been sold to the public.
(e) The terms "REGISTER", "REGISTERED" AND "REGISTRATION" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
8.
<PAGE>
(f) "REGISTRATION EXPENSES" shall mean all expenses incurred in
effecting any registration pursuant to this Section 12, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses and
fees and disbursements of counsel for the Holder(s).
(g) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time, corresponding
to such act.
(h) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for any Holder(s).
12.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive
from Initiating Holders at any time or times not earlier than February 25, 1998,
a written request (specifying that it is made pursuant to this Section 12.2)
that the Company effect a Form S-3 resale registration with respect to at least
25% of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts
to effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws and appropriate compliance with the Securities
Act) as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after such written notice from the
Company is effective.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 12.2:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
9.
<PAGE>
(B) After the Company has effected two such
registrations pursuant to this Section 12.2(a) and such registrations have been
declared or ordered effective; or
(C) If the Company is not eligible to use Form S-3 to
register securities for resale.
(b) Subject to the foregoing clauses (A) through (C), the
Company shall file a Form S-3 resale registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to such Holders a certificate signed by the president of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company for such
registration statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for the period during which such
disclosure would be seriously detrimental, provided, that the Company may not
defer the filing for a period of more than one hundred eighty (180) days after
receipt of the request of the Initiating Holders, and, provided further, that
(except as provided in clause (c) above) the Company shall not defer its
obligation in this manner more than once in any twelve-month period.
(c) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, and they so advise the Company as a part of their request made
pursuant to Section 12.2(a), the Company shall (i) include such information in
the written notice referred to in Section 12.2(a)(i) above, and (ii) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriter(s) are reasonably
acceptable to the Company.
12.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant hereto
shall be borne by the Company. All Selling Expenses relating to securities so
registered shall be borne by the holders of such securities pro rata on the
basis of the number of shares so registered on their behalf.
12.4 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to Section 12.2, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense, the Company will use its best efforts
to:
10.
<PAGE>
(a) Keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
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 not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on any securities exchange or Nasdaq market on which
similar securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration; and
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
12.5 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities granted to a Holder by the Company
under Section may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 50,000
11.
<PAGE>
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits
and the like), and only provided that the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned.
12.6 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request registration of any Registrable Securities shall terminate on the first
day such Registrable Securities may immediately be sold under Commission Rule
144 during any 90-day period.
13. MISCELLANEOUS. This Warrant shall be governed by and construed in
accordance with California law. It may not be amended or waived except in
writing.
IN WITNESS WHEREOF, CardioDynamics International Corporation has
caused this Warrant to be executed by its officer thereunto duly authorized.
Dated: February 26, 1997
CARDIODYNAMICS INTERNATIONAL CORPORATION
By /s/ Steve Loomis
-------------------------------------
12.
<PAGE>
NOTICE OF EXERCISE
To: CARDIODYNAMICS INTERNATIONAL CORPORATION
(1) The undersigned hereby elects to purchase ______________ shares of
Common Stock of CardioDynamics International Corporation pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price for
such shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of the Common Stock are being acquired solely for
the account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------------
[Name]
---------------------------------------------
[Name]
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
---------------------------------------------
[Name]
---------------------------------------------
- ------------------------- ---------------------------------------------
[Date] [Signature]
13.
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ____________________________
Attorney to make such transfer on the books of CardioDynamics International
Corporation, maintained for the purpose, with full power of substitution in the
premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or any shares of stock to be
issued upon exercise hereof except under circumstances which will not result in
a violation of the Securities Act of 1933, as amended, or any state securities
laws. Further, the Assignee has acknowledged that upon exercise of this
Warrant, the Assignee shall, if requested by the Company, confirm in writing, in
a form satisfactory to the Company, that the shares of stock so purchased are
being acquired for investment and not with a view toward distribution or resale.
DATED:
-------------
----------------------------------------
Signature of Holder
----------------------------------------
(Witness)
14.
<PAGE>
WARRANT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 AND MAY
NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A
REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES UNDER SUCH ACT
OR EVIDENCE SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
Warrant to Purchase 12,857 Shares of
Common Stock (subject to adjustment)
WARRANT TO PURCHASE COMMON STOCK
of
CARDIODYNAMICS INTERNATIONAL CORPORATION
Void after March 5, 2002
This certifies that, for value received, EVEREN Securities, Inc., or
registered assigns ("Holder") is entitled, subject to the terms set forth below,
to purchase from CardioDynamics International Corporation (the "Company"), a
California corporation, 12,857 shares of the Common Stock of the Company, as
constituted on the date hereof (the "Warrant Issue Date"), upon surrender
hereof, at the principal office of the Company referred to below, with the
subscription form attached hereto duly executed, and simultaneous payment
therefor in lawful money of the United States or otherwise as hereinafter
provided, at the Exercise Price as set forth in Section 2 below. The number,
character and Exercise Price of such shares of Common Stock are subject to
adjustment as provided below. The term "Warrant" as used herein shall include
this Warrant and any warrants delivered in substitution or exchange therefor as
provided herein.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable, in whole or in part, during the term
commencing on March 6, 1997 and ending at 5:00 p.m., Pacific Daylight Time, on
March 5, 2002 after the Exercise Date and shall be void thereafter.
2. EXERCISE PRICE. The Exercise Price at which this Warrant may be
exercised shall be $3.5625 per share of Common Stock, as adjusted from time to
time pursuant to Section 11 hereof.
1.
<PAGE>
3. EXERCISE OF WARRANT.
(a) The purchase rights represented by this Warrant are exercisable
by the Holder in whole or in part, but not for less than 50,000 shares at a time
(or such lesser number of shares which may then constitute the maximum number
purchasable; such number being subject to adjustment as provided in Section 11
below), at any time, or from time to time, during the term hereof as described
in Section 1 above, by the surrender of this Warrant and the Notice of Exercise
annexed hereto duly completed and executed on behalf of the Holder, at the
office of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the Holder at the address of the Holder
appearing on the books of the Company), upon payment in cash or by check
acceptable to the Company of the purchase price of the shares to be purchased.
(b) This Warrant shall be deemed to have been exercised immediately
prior to the close of business on the date of its surrender for exercise as
provided above, and the person entitled to receive the shares of Common Stock
issuable upon such exercise shall be treated for all purposes as the holder of
record of such shares as of the close of business on such date. As promptly as
practicable on or after such date and in any event within ten (10) days
thereafter, the Company at its expense shall issue and deliver to the person or
persons entitled to receive the same a certificate or certificates for the
number of shares issuable upon such exercise. In the event that this Warrant is
exercised in part, the Company at its expense will execute and deliver a new
Warrant of like tenor exercisable for the number of shares for which this
Warrant may then be exercised.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the Holder would otherwise be
entitled, the Company shall make a cash payment equal to the Exercise Price
multiplied by such fraction.
5. REPLACEMENT OF WARRANT. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of loss, theft, or destruction, on delivery of an
indemnity agreement (and/or, in the discretion of the Company's Board of
Directors, an indemnity bond) reasonably satisfactory in form and substance to
the Company or, in the case of mutilation, on surrender and cancellation of this
Warrant, the Company at its expense shall execute and deliver, in lieu of this
Warrant, a new warrant of like tenor and amount.
6. RIGHTS OF SHAREHOLDERS. Subject to Sections 9 and 11 of this Warrant,
the Holder shall not be entitled to vote or receive dividends or be deemed the
holder of Common Stock or any other securities of the Company that may at any
time be issuable on the exercise hereof for any purpose, nor shall anything
contained herein be construed to confer upon the Holder, as such, any of the
rights of a shareholder of the Company or any right to vote for the election of
directors or upon any matter submitted to shareholders at any meeting thereof,
or to give or withhold consent to any corporate action (whether upon
2.
<PAGE>
any recapitalization, issuance of stock, reclassification of stock,
consolidation, merger, conveyance, or otherwise) or to receive notice of
meetings, or to receive dividends or subscription rights or otherwise until the
Warrant shall have been exercised and the shares of Common Stock purchasable
upon the exercise hereof shall have been issued, as provided herein.
7. TRANSFER OF WARRANT.
(a) WARRANT REGISTER. The Company will maintain a register (the
"Warrant Register") containing the names and addresses of the Holder or Holders.
Any Holder of this Warrant or any portion thereof may change its address as
shown on the Warrant Register by written notice to the Company requesting such
change. Any notice or written communication required or permitted to be given
to the Holder may be delivered or given by mail to such Holder as shown on the
Warrant Register and at the address shown on the Warrant Register. Until this
Warrant is transferred on the Warrant Register of the Company, the Company may
treat the Holder as shown on the Warrant Register as the absolute owner of this
Warrant for all purposes, notwithstanding any notice to the contrary.
(b) WARRANT AGENT. The Company may, by written notice to the Holder,
appoint an agent for the purpose of maintaining the Warrant Register referred to
in Section 7(a) above, issuing the Common Stock or other securities then
issuable upon the exercise of this Warrant, exchanging this Warrant, replacing
this Warrant, or any or all of the foregoing. Thereafter, any such
registration, issuance, exchange, or replacement, as the case may be, shall be
made at the office of such agent.
(c) TRANSFERABILITY AND NONNEGOTIABILITY OF WARRANT. This Warrant
may not be transferred or assigned in whole or in part without compliance with
all applicable federal and state securities laws by the transferor and the
transferee (including the delivery of investment representation letters and
legal opinions reasonably satisfactory to the Company, if such are requested by
the Company). Subject to the provisions of this Warrant with respect to
compliance with the Securities Act of 1933, as amended (the "Act"), title to
this Warrant may be transferred by endorsement (by the Holder executing the
Assignment Form annexed hereto) and delivery in the same manner as a negotiable
instrument transferable by endorsement and delivery.
(d) EXCHANGE OF WARRANT UPON A TRANSFER. On surrender of this
Warrant for exchange, properly endorsed on the Assignment Form and subject to
the provisions of this Warrant with respect to compliance with the Act and with
the limitations on assignments and transfers and contained in this Section 7,
the Company at its expense shall issue to or on the order of the Holder a new
warrant or warrants of like tenor, in the name of the Holder or as the Holder
(on payment by the Holder of any applicable transfer taxes) may direct, for the
number of shares issuable upon exercise thereof.
3.
<PAGE>
(e) COMPLIANCE WITH SECURITIES LAWS.
(i) The Holder of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the shares of Common Stock to be issued upon
exercise hereof are being acquired solely for the Holder's own account and not
as a nominee for any other party, and for investment, and that the Holder will
not offer, sell, or otherwise dispose of this Warrant or any shares of Common
Stock to be issued upon exercise hereof except under circumstances that will not
result in a violation of the Act or any state securities laws. Upon exercise of
this Warrant, the Holder shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the shares of Common Stock so
purchased are being acquired solely for the Holder's own account and not as a
nominee for any other party, for investment, and not with a view toward
distribution or resale.
(ii) This Warrant and all shares of Common Stock issued upon
exercise hereof shall be stamped or imprinted with a standard Securities Act
restricted-securities legend.
8. RESERVATION OF STOCK. The Company covenants that during the Term this
Warrant is exercisable, the Company will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the exercise of this Warrant and, from time to time, will
take all steps necessary to amend its Articles of Incorporation (the "Articles")
to provide sufficient reserves of shares of Common Stock issuable upon exercise
of the Warrant. The Company further covenants that all shares that may be
issued upon the exercise of rights represented by this Warrant, upon exercise of
the rights represented by this Warrant and payment of the Exercise Price, all as
set forth herein, will be free from all taxes, liens, and charges in respect of
the issue thereof (other than taxes in respect of any transfer occurring
contemporaneously or otherwise specified herein). The Company agrees that its
issuance of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue the
necessary certificates for shares of Common Stock upon the exercise of this
Warrant.
9. NOTICES.
(a) Whenever the Exercise Price or number of shares purchasable
hereunder shall be adjusted pursuant to Section 11 hereof, the Company shall
issue a certificate signed by its Chief Financial Officer setting forth, in
reasonable detail, the event requiring the adjustment, the amount of the
adjustment, the method by which such adjustment was calculated and the Exercise
Price and number of shares purchasable hereunder after giving effect to such
adjustment, and shall cause a copy of such certificate to be mailed (by first
class mail, postage prepaid) to the Holder of this Warrant.
(b) In case
4.
<PAGE>
(i) the Company shall take a record of the holders of its Common
Stock (or other stock or securities at the time receivable upon the exercise of
this Warrant) for the purpose of entitling them to receive any dividend or other
distribution, or any right to subscribe for or purchase any shares of stock of
any class or any other securities, or to receive any other right, or
(ii) of any capital reorganization of the Company, any
reclassification of the capital stock of the Company, any consolidation or
merger of the Company with or into another corporation, or any conveyance of all
or substantially all of the assets of the Company to another corporation, or
(iii) of any voluntary dissolution, liquidation or winding-up of
the Company,
then, and in each such case, the Company will mail or cause to be mailed to the
Holder or Holders a notice specifying, as the case may be, (A) the date on which
a record is to be taken for the purpose of such dividend, distribution or right,
and stating the amount and character of such dividend, distribution or right, or
(B) the date on which such reorganization, reclassification, consolidation,
merger, conveyance, dissolution, liquidation or winding-up is to take place, and
the time, if any is to be fixed, as of which the holders of record of Common
Stock (or such stock or securities at the time receivable upon the exercise of
this Warrant) shall be entitled to exchange their shares of Common Stock (or
such other stock or securities) for securities or other property deliverable
upon such reorganization, reclassification, consolidation, merger, conveyance,
dissolution, liquidation or winding-up. Such notice shall be mailed at least 15
days prior to the date therein specified.
(c) All such notices, advices and communications shall be deemed to
have been received (i) in the case of personal delivery, on the date of such
delivery and (ii) in the case of mailing, on the third business day following
the date of such mailing.
10. AMENDMENTS.
(a) Any term of this Warrant may be amended with the written consent
of the Company and the holders of not less than sixty percent (60%) of the
shares of Common Stock issuable upon exercise of any and all outstanding
warrants for such shares of Common Stock (the "Common Stock Warrants"), even
without the consent of the Holder. Any amendment effected in accordance with
this Section 10 shall be binding upon each holder of any of the Common Stock
Warrants, each future holder of all such Common Stock Warrants, and the Company;
provided, however, that no special consideration or inducement may be given to
any such holder in connection with such consent that is not given ratably to all
such holders, and that such amendment must apply to all such holders equally and
ratably in accordance with the number of shares of Common Stock issuable upon
exercise
5.
<PAGE>
of their Common Stock Warrants. The Company shall promptly give notice to all
holders of Common Stock Warrants of any amendment effected in accordance with
this Section 10.
(b) No waivers of or exceptions to any term, condition or provision
of this Warrant, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision.
11. ADJUSTMENTS. The Exercise Price and the number of shares purchasable
hereunder are subject to adjustment from time to time as follows:
11.1 MERGER, SALE OF ASSETS, ETC.
(a) If at any time, while this Warrant, or any portion thereof, is
outstanding and unexpired there shall be (i) a reorganization (other than a
combination, reclassification, exchange or subdivision of shares otherwise
provided for herein), (ii) a merger or consolidation of the Company with or into
another corporation in which the Company is not the surviving entity, or a
reverse triangular merger in which the Company is the surviving entity but the
shares of the Company's capital stock outstanding immediately prior to the
merger are converted by virtue of the merger into other property, whether in the
form of securities, cash, or otherwise, or (iii) a sale or transfer of the
Company's properties and assets as, or substantially as, an entirety to any
other person, then, as a part of such reorganization, merger, consolidation,
sale or transfer, lawful provision shall be made so that the holder of this
Warrant shall thereafter be entitled to receive upon exercise of this Warrant,
during the period specified herein and upon payment of the Exercise Price then
in effect, not the original Common Stock but instead the number of shares of
stock or other securities or property of the successor corporation resulting
from such reorganization, merger, consolidation, sale or transfer which a holder
of the shares deliverable upon exercise of this Warrant would have been entitled
to receive in such reorganization, consolidation, merger, sale or transfer if
this Warrant had been exercised immediately before such reorganization, merger,
consolidation, sale or transfer, all subject to further adjustment as provided
in this Section 11. The foregoing provisions of this Section 11.1 shall
similarly apply to successive reorganizations, consolidations, mergers, sales
and transfers and to the stock or securities of any other corporation which are
at the time receivable upon the exercise of this Warrant. If the per share
consideration payable to the holder hereof for shares in connection with any
such transaction is in a form other than cash or marketable securities, then the
value of such consideration shall be determined in good faith by the Company's
Board of Directors. In all events, appropriate adjustment (as determined in
good faith by the Company's Board of Directors) shall be made in the application
of the provisions of this Warrant with respect to the rights and interests of
the Holder after the transaction, to the end that the provisions of this Warrant
shall be applicable after that event, as near as reasonably may be, in relation
to any shares or other property deliverable after that event upon exercise of
this Warrant.
6.
<PAGE>
(b) NOTICES OF RECORD DATE. In the event that the Company shall
propose at any time to merge with or into any other corporation, or sell, lease
or convey all or substantially all its property or business, or to liquidate,
dissolve or wind up, then the Company shall send to the holder of this Warrant
at least 15 days' prior written notice of the date on which a record shall be
taken for determining rights to vote in respect of such event.
11.2 RECLASSIFICATION, ETC. If the Company at any time while this
Warrant, or any portion thereof, remains outstanding and unexpired shall, by
reclassification of securities or otherwise, change any of the securities as to
which purchase rights under this Warrant exist into the same or a different
number of securities of any other class or classes, this Warrant shall
thereafter represent the right to acquire such number and kind of securities as
would have been issuable as the result of such change with respect to the
securities which were subject to the purchase rights under this Warrant
immediately prior to such reclassification or other change and the Exercise
Price therefor shall be appropriately adjusted, all subject to further
adjustment as provided in Section 11.
11.3 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If the Company at
any time while this Warrant, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which purchase
rights under this Warrant exist, into a different number of securities of the
same class, the Exercise Price for such securities shall be proportionately
decreased in the case of a split or subdivision or proportionately increased in
the case of a combination.
11.4 ADJUSTMENTS FOR DIVIDENDS IN STOCK OR OTHER SECURITIES OR
PROPERTY. If while this Warrant, or any portion hereof, remains outstanding and
unexpired the holders of the securities as to which purchase rights under this
Warrant exist at the time shall have received, or, on or after the record date
fixed for the determination of eligible shareholders, shall have become entitled
to receive, without payment therefor, other or additional stock or other
securities or property (other than cash) of the Company by way of dividend, then
and in each case, this Warrant shall represent the right to acquire, in addition
to the number of shares of the security receivable upon exercise of this
Warrant, and without payment of any additional consideration therefor, the
amount of such other or additional stock or other securities or property (other
than cash) of the Company which such holder would hold on the date of such
exercise had it been the holder of record of the security receivable upon
exercise of this Warrant on the date hereof and had thereafter, during the
period from the date hereof to and including the date of such exercise, retained
such shares and/or all other additional stock available by it as aforesaid
during such period, giving effect to all adjustments called for during such
period by the provisions of this Section 11.
11.5 CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment pursuant to this Section 11, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of this Warrant a certificate
setting forth such adjustment or readjustment
7.
<PAGE>
and showing in detail the facts upon which such adjustment or readjustment is
based. The Company shall, upon the written request, at any time, of any such
holder, furnish or cause to be furnished to such holder a like certificate
setting forth: (i) such adjustments and readjustments; (ii) the Exercise Price
at the time in effect; and (iii) the number of shares and the amount, if any, of
other property which at the time would be received upon the exercise of the
Warrant.
11.6 NO IMPAIRMENT. The Company will not, by any voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed hereunder by the Company, but will at all times in good
faith assist in the carrying out of all the provisions of this Section 11 and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of this Warrant against impairment.
12. REGISTRATION RIGHTS. The Holder shall have the following registration
rights with respect to Registrable Securities (as defined below):
12.1 CERTAIN DEFINITIONS. As used in this Section 12, the following
terms shall have the following respective meanings:
(a) "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(b) "HOLDER" shall mean the Holder and any holder of
Registrable Securities to whom the registration rights conferred by this
Agreement have been transferred in compliance with Section 12.5 hereof.
(c) "INITIATING HOLDERS" shall mean any Holder or Holders who
in the aggregate hold not less than twenty-five percent (25%) of the outstanding
Registrable Securities. For purposes of such calculation, holders of Warrant(s)
shall be considered to hold the shares of Common Stock then issuable upon
conversion of such Warrant(s).
(d) "REGISTRABLE SECURITIES" shall mean (i) shares of Common
Stock issued or issuable pursuant to the exercise of the Warrant and any other
Warrant(s) of like tenor and (ii) any Common Stock issued as a dividend or other
distribution with respect to or in exchange for or in replacement of the shares
referenced in (i) above, provided, however, that Registrable Securities shall
not include any shares of Common Stock that have previously been registered or
that have otherwise been sold to the public.
(e) The terms "REGISTER", "REGISTERED" AND "REGISTRATION" shall
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act and applicable rules and
regulations thereunder, and the declaration or ordering of the effectiveness of
such registration statement.
8.
<PAGE>
(f) "REGISTRATION EXPENSES" shall mean all expenses incurred in
effecting any registration pursuant to this Section 12, including, without
limitation, all registration, qualification and filing fees, printing expenses,
escrow fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, and expenses of any regular or special audits incident to or
required by any such registration, but shall not include Selling Expenses and
fees and disbursements of counsel for the Holder(s).
(g) "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time, corresponding
to such act.
(h) "SELLING EXPENSES" shall mean all underwriting discounts
and selling commissions applicable to the sale of Registrable Securities and all
fees and disbursements of counsel for any Holder(s).
12.2 REQUESTED REGISTRATION.
(a) REQUEST FOR REGISTRATION. If the Company shall receive
from Initiating Holders at any time or times not earlier than March 5, 1998, a
written request (specifying that it is made pursuant to this Section 12.2) that
the Company effect a Form S-3 resale registration with respect to at least 25%
of the Registrable Securities, the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its diligent best efforts
to effect such registration (including, without limitation, filing
post-effective amendments, appropriate qualifications under applicable blue sky
or other state securities laws and appropriate compliance with the Securities
Act) as would permit or facilitate the sale and distribution of all or such
portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within twenty (20) days after such written notice from the
Company is effective.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 12.2:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
9.
<PAGE>
(B) After the Company has effected two such
registrations pursuant to this Section 12.2(a) and such registrations have been
declared or ordered effective; or
(C) If the Company is not eligible to use Form S-3 to
register securities for resale.
(b) Subject to the foregoing clauses (A) through (C), the
Company shall file a Form S-3 resale registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders; provided,
however, that if (i) in the good faith judgment of the Board of Directors of the
Company, such registration would be seriously detrimental to the Company and the
Board of Directors of the Company concludes, as a result, that it is essential
to defer the filing of such registration statement at such time, and (ii) the
Company shall furnish to such Holders a certificate signed by the president of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company for such
registration statement to be filed in the near future and that it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for the period during which such
disclosure would be seriously detrimental, provided, that the Company may not
defer the filing for a period of more than one hundred eighty (180) days after
receipt of the request of the Initiating Holders, and, provided further, that
(except as provided in clause (c) above) the Company shall not defer its
obligation in this manner more than once in any twelve-month period.
(c) UNDERWRITING. If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, and they so advise the Company as a part of their request made
pursuant to Section 12.2(a), the Company shall (i) include such information in
the written notice referred to in Section 12.2(a)(i) above, and (ii) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders, which underwriter(s) are reasonably
acceptable to the Company.
12.3 EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant hereto
shall be borne by the Company. All Selling Expenses relating to securities so
registered shall be borne by the holders of such securities pro rata on the
basis of the number of shares so registered on their behalf.
12.4 REGISTRATION PROCEDURES. In the case of each registration
effected by the Company pursuant to Section 12.2, the Company will keep each
Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense, the Company will use its best efforts
to:
10.
<PAGE>
(a) Keep such registration effective for a period of one
hundred twenty (120) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto, whichever
first occurs;
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish such number of prospectuses and other documents
incident thereto, including any amendment of or supplement to the prospectus, as
a Holder from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
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 not misleading or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on any securities exchange or Nasdaq market on which
similar securities issued by the Company are then listed;
(f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration; and
(g) Otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings statement
covering the period of at least twelve months, but not more than eighteen
months, beginning with the first month after the effective date of the
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act.
12.5 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to
cause the Company to register securities granted to a Holder by the Company
under Section may be transferred or assigned by a Holder only to a transferee or
assignee of not less than 50,000
11.
<PAGE>
shares of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits
and the like), and only provided that the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment, stating
the name and address of said transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned.
12.6 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to
request registration of any Registrable Securities shall terminate on the first
day such Registrable Securities may immediately be sold under Commission Rule
144 during any 90-day period.
13. MISCELLANEOUS. This Warrant shall be governed by and construed in
accordance with California law. It may not be amended or waived except in
writing.
IN WITNESS WHEREOF, CardioDynamics International Corporation has
caused this Warrant to be executed by its officer thereunto duly authorized.
Dated: March 6, 1997
CARDIODYNAMICS INTERNATIONAL CORPORATION
By /s/ Steve Loomis
-------------------------------------
12.
<PAGE>
NOTICE OF EXERCISE
To: CARDIODYNAMICS INTERNATIONAL CORPORATION
(1) The undersigned hereby elects to purchase ______________ shares of
Common Stock of CardioDynamics International Corporation pursuant to the terms
of the attached Warrant, and tenders herewith payment of the purchase price for
such shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the shares of the Common Stock are being acquired solely for
the account of the undersigned and not as a nominee for any other party, and for
investment, and that the undersigned will not offer, sell, or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended, or any state
securities laws.
(3) Please issue a certificate or certificates representing said shares of
Common Stock in the name of the undersigned or in such other name as is
specified below:
---------------------------------------------
[Name]
---------------------------------------------
[Name]
(4) Please issue a new Warrant for the unexercised portion of the attached
Warrant in the name of the undersigned or in such other name as is specified
below:
---------------------------------------------
[Name]
---------------------------------------------
- ------------------------- ---------------------------------------------
[Date] [Signature]
13.
<PAGE>
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under the within Warrant, with respect to the number of shares
of Common Stock set forth below:
Name of Assignee Address No. of Shares
- ---------------- ------- -------------
and does hereby irrevocably constitute and appoint ___________________________
Attorney to make such transfer on the books of CardioDynamics International
Corporation, maintained for the purpose, with full power of substitution in the
premises.
The undersigned also represents that, by assignment hereof, the Assignee
acknowledges that this Warrant and the shares of stock to be issued upon
exercise hereof are being acquired for investment and that the Assignee will not
offer, sell or otherwise dispose of this Warrant or any shares of stock to be
issued upon exercise hereof except under circumstances which will not result in
a violation of the Securities Act of 1933, as amended, or any state securities
laws. Further, the Assignee has acknowledged that upon exercise of this
Warrant, the Assignee shall, if requested by the Company, confirm in writing, in
a form satisfactory to the Company, that the shares of stock so purchased are
being acquired for investment and not with a view toward distribution or resale.
DATED:
-------------
---------------------------------------------
Signature of Holder
---------------------------------------------
(Witness)
14.
<PAGE>
PURCHASE AGREEMENT
THIS AGREEMENT is made as of the ____ day of January, 1997, by and
between CardioDynamics International Corporation (the "Company"), a corporation
organized under the laws of the State of California, with its principal offices
at 6155 Cornerstone Court East, Suite 125, San Diego, California 92121 and the
purchaser whose name and address is set forth on the signature page hereof (the
"Purchaser").
IN CONSIDERATION of the mutual covenants contained in this Agreement,
the Company and the Purchaser agree as follows:
SECTION 1. AUTHORIZATION OF SALE OF THE SHARES.
Subject to the terms and conditions of this Agreement, the Company has
authorized the sale of up to an aggregate of ___________ shares of the common
stock (the "Common Stock"), no par value, of the Company (the "Shares").
SECTION 2. AGREEMENT TO SELL AND PURCHASE THE SHARES. On the Closing
Date (as defined in Section 3), the Company, subject to the terms of this
Agreement, will sell to the Purchaser the number of Shares indicated below, and
the Purchaser will buy from the Company, upon the terms and conditions
hereinafter set forth, the aggregate number of such Shares (at the purchase
price) shown below:
Number of Price Per
Shares to be Share In Aggregate
Purchased Dollars Price
------------ --------- ---------
$ $
The Company proposes to enter into this same form of purchase
agreement with certain other investors (the "Other Purchasers") and expects to
complete sales of the Shares to them. The Purchaser and the Other Purchasers are
hereinafter sometimes collectively referred to as the "Purchasers," and this
Agreement and the agreements executed by the Other Purchasers are hereinafter
sometimes collectively referred to as the "Agreements." The term "Placement
Agent" shall mean EVEREN Securities, Inc.
<PAGE>
SECTION 3. DELIVERY OF THE SHARES AT THE CLOSING. The completion of
the purchase and sale of the Shares (the "Closing") shall occur at the offices
of Stroock & Stroock & Lavan, Seven Hanover Square, New York, New York 10004, on
January __, 1997, at 10:00 a.m., Eastern Time, or at such other place and time
(the "Closing Date") to be agreed upon by the Company and the Placement Agent
and of which the Purchasers will be notified by facsimile transmission or
otherwise.
At the Closing, the Company shall deliver to the Purchaser one or more
stock certificates registered in the name of the Purchaser, or in such nominee
name(s) as designated by the Purchaser, representing the number of Shares set
forth in Section 2 above. The name(s) in which the stock certificates are to be
registered are set forth in the Stock Certificate Questionnaire attached hereto
as part of Appendix I. The Company's obligation to complete the purchase and
sale of the Shares and deliver such stock certificate(s) to the Purchaser at the
Closing shall be subject to the following conditions, any one or more of which
may be waived by the Company (which waiver, in the case of (c) below, shall be
in an express writing): (a) receipt by the Company of New York Clearing House
funds in the full amount of the purchase price for the Shares being purchased
hereunder; (b) completion of the purchases and sales under the Agreements with
Other Purchasers; and (c) the accuracy of the representations and warranties
made by the Purchasers and the fulfillment of those undertakings of the
Purchasers to be fulfilled prior to the Closing. The Purchaser's obligations
hereunder are expressly not conditioned on the purchase by any or all of the
Other Purchasers of the Shares that they have agreed to purchase from the
Company. The Purchaser's obligation to accept delivery of such stock
certificate(s) and to pay for the Shares evidenced thereby shall be subject to
the accuracy in all material respects of the representations and warranties made
by the Company herein and the fulfillment in all material respects of those
undertakings of the Company to be fulfilled prior to Closing, including the
following:
LEGAL OPINION. Prior to and as a condition to the Closing, the
Company will cause Brobeck, Phleger & Harrison LLP, counsel to the Company
("Company Counsel"), to deliver its legal opinion to the Placement Agent
reasonably satisfactory to the Placement Agent and counsel to the Placement
Agent. Such opinion shall also state that each of the Purchasers may rely
thereon as though it were addressed directly to such Purchaser.
CERTIFICATE. Prior to and as a condition to the Closing, the Company
will deliver a certificate of the Company executed by the Chairman of the Board
or President and the chief Financial or Accounting Officer of the Company, to be
dated the Closing Date in form and substance satisfactory to the Placement Agent
to the effect that the representations and warranties of the Company set forth
in Section 4 are true and correct as of the date of this Agreement and are true
and correct in all material respects as of the Closing Date, and the Company has
complied
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<PAGE>
with all the agreements and satisfied all the conditions to be performed or
satisfied by it on or prior to such Closing Date.
COMFORT LETTER. Prior to and as a condition to the Closing, the
Company will cause Peterson & Co., certified public accountants to the Company
(the "Accountants") to deliver a comfort letter to the Placement Agent
reasonably satisfactory to the Placement Agent and counsel to the Placement
Agent. Such comfort letter will state that each of the Purchasers may rely
thereon as though it were addressed directly to such Purchaser.
SECTION 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
The Company hereby represents and warrants to, and covenants with, the Purchaser
as follows:
4.1. ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of California and has all requisite corporate power and authority to
conduct its business as currently conducted.
4.2. AUTHORIZED CAPITAL STOCK. Except as disclosed in or
contemplated by the Private Placement Memorandum (as defined below), the Company
has authorized and outstanding capital stock as set forth in the Private
Placement Memorandum; the issued and outstanding shares of the Company's Common
Stock have been duly authorized and validly issued, are fully paid and
nonassessable, have been issued in compliance with all federal and state
securities laws, were not issued in violation of or subject to any preemptive
rights or other rights to subscribe for or purchase securities, and conform to
the description thereof included in the Private Placement Memorandum. Except as
contemplated in the Private Placement Memorandum, the Company does not have
outstanding any options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The
description of the Company's stock, stock bonus and other stock plans or
arrangements and the options or other rights granted and exercised thereunder,
included in the Private Placement Memorandum accurately and fairly presents in
all material respects, the information shown with respect to such plans,
arrangements, options and rights.
4.3. ISSUANCE, SALE AND DELIVERY OF THE SHARES. The Shares to be
sold by the Company have been duly authorized and, when issued, delivered and
paid for in the manner set forth in this Agreement, will be duly authorized,
validly issued, fully paid and nonassessable, and will conform to the
description thereof included in the Private Placement Memorandum. No preemptive
rights or other rights to subscribe for or purchase exist with respect to the
issuance and sale of the Shares by the Company pursuant to this Agreement.
Except as disclosed in the
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<PAGE>
Private Placement Memorandum, no shareholder of the Company has any right which
has not been waived to require the Company to register the sale of any shares
owned by such shareholder under the Securities Act of 1933, as amended (the
"Securities Act"), in the Registration Statement. No further approval or
authority of the shareholders or the Board of Directors of the Company will be
required for the issuance and sale of the Shares to be sold by the Company as
contemplated herein.
4.4. DUE EXECUTION, DELIVERY AND PERFORMANCE OF THE AGREEMENTS. The
Company has full legal right, power and authority to enter into the Agreements
and perform the transactions contemplated hereby. The Agreements have been duly
authorized, executed and delivered by the Company. The making and performance
of the Agreements by the Company and the consummation of the transactions herein
contemplated will not violate any provision of the articles of incorporation or
bylaws, or other organizational documents, of the Company, and will not conflict
with, result in the breach or violation of, or constitute, either by itself or
upon notice or the passage of time or both, a default under any material
agreement, mortgage, deed of trust, lease, franchise, license, indenture, permit
or other instrument to which the Company is a party or by which the Company or
its properties may be bound or affected, any statute or any authorization,
judgment, decree, order, rule or regulation of any court or any regulatory body,
administrative agency or other governmental body applicable to the Company or
any of its properties. No consent, approval, authorization or other order of
any court, regulatory body, administrative agency or other governmental body is
required for the execution and delivery of this Agreement or the consummation of
the transactions contemplated by this Agreement, except for compliance with the
Blue Sky laws applicable to the offering of the Shares. Upon their execution
and delivery, the Agreements will constitute valid and binding obligations of
the Company and the respective Purchasers, enforceable in accordance with their
respective terms, except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or similar laws affecting
creditors' and contracting parties' rights generally and except as
enforceability may be subject to general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law)
and except as the indemnification agreements of the Company in Section 7.3
hereof may be legally unenforceable.
4.5. ACCOUNTANTS. The Accountants, who have expressed or will express
their opinion with respect to the audited financial statements and schedules
included in the Private Placement Memorandum and those to be incorporated by
reference in the Registration Statement, are independent accountants as required
by the Securities Act and the rules and regulations promulgated thereunder (the
"Rules and Regulations").
4.6. NO DEFAULTS. The Company is not in violation or default of any
provision of its articles of incorporation or
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<PAGE>
bylaws, or other organizational documents, or is not in breach of or default
with respect to any provision of any agreement, judgment, decree, order,
mortgage, deed of trust, lease, franchise, license, indenture, permit or other
instrument to which it is a party or by which it or any of its properties are
bound; and there does not exist any state of fact which constitutes an event of
default on the part of the Company as defined in such documents or which, with
notice or lapse of time or both, would constitute such an event of default
except such breaches and defaults which individually or in the aggregate would
not be material to the Company.
4.7. CONTRACTS. The contracts described in the Private Placement
Memorandum are in full force and effect on the date hereof; and, to the best of
the Company's knowledge, neither the Company nor any other party is in breach of
or default under any of such contracts except such breach or default which
individually or in the aggregate would not be material to the Company.
4.8. NO ACTIONS. There are no legal or governmental actions, suits
or proceedings pending or, to the best of the Company's knowledge, threatened to
which the Company is or may be a party or of which property owned or leased by
the Company is or may be the subject, or related to environmental or
discrimination matters, which actions, suits or proceedings might, individually
or in the aggregate, prevent or adversely affect the transactions contemplated
by this Agreement or result in a material adverse change in the condition
(financial or otherwise), properties, business, results of operations or
prospects of the Company, and no labor disturbance by the employees of the
Company exists or, to the best knowledge of the Company, is imminent. The
Company is neither a party to nor subject to the provisions of any injunction,
judgment, decree or order of any court, regulatory body, administrative agency
or other governmental body that would have a material effect on the conduct of
its business as described in the Private Placement Memorandum.
4.9. PROPERTIES. The Company has good and valid title to all the
properties and assets reflected as owned by it in the financial statements
included in the Private Placement Memorandum or incorporated by reference
therein, subject to no lien, mortgage, pledge, charge or encumbrance of any kind
except (i) those, if any, reflected in such financial statements, or (ii) those
which are not material in amount and do not adversely affect the use made and
promised to be made of such property by the Company. The Company holds its
leased properties under valid and binding leases, except as would not reasonably
be expected to have a material adverse effect on the condition (financial or
otherwise), business, results of operations or prospects of the Company. Except
as disclosed in the Private Placement Memorandum or incorporated by reference
therein, the Company owns or leases all such properties as are necessary to its
operations as now conducted.
-5-
<PAGE>
4.10. NO MATERIAL CHANGE. Since November 30, 1996 and except as
described in or specifically contemplated by the Private Placement Memorandum,
(i) the Company has not incurred any material liabilities or obligations,
indirect, or contingent, or entered into any material verbal or written
agreement or other transaction which is not in the ordinary course of business
or which could reasonably be expected to result in a material reduction in the
future earnings of the Company; (ii) the Company has not sustained any material
loss or interference with its businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company has not paid or declared any dividends or other distributions
with respect to its capital stock and the Company is not in default in the
payment of principal or interest on any outstanding debt obligations; (iv) there
has not been any change in the capital stock of the Company (other than the sale
of the Shares hereunder), or increase in indebtedness material to the Company;
and (v) there has not been any material adverse change in the condition
(financial or otherwise), business, properties, results of operations or
prospects of the Company.
4.11. INTELLECTUAL PROPERTY. Except as disclosed in or specifically
contemplated by the Private Placement Memorandum, the Company has sufficient
trademarks, trade names, patent rights, copyrights, licenses, approvals and
governmental authorizations to conduct its businesses as now conducted; the
expiration of any trademarks, trade names, patent rights, copyrights, licenses,
approvals or governmental authorizations would not have a material adverse
effect on the condition (financial or otherwise), business, results of
operations or prospects of the Company; and the Company has no knowledge of any
material infringement by it of trademark, trade name rights, patent rights,
copyrights, licenses, trade secrets or other similar rights of others, and there
is no claim being made against the Company regarding trademark, trade name,
patent, copyright, license, trade secrecy or other infringement which could have
a material adverse effect on the condition (financial or otherwise), business,
results of operations or prospects of the Company.
4.12. COMPLIANCE. The Company has not been advised, and has no
reason to believe, that it is not conducting business in compliance with all
applicable laws, rules and regulations of the jurisdictions in which it is
conducting business, including, without limitation, all applicable local, state
and federal environmental laws and regulations; except where failure to be so in
compliance would not materially adversely affect the condition (financial or
otherwise), business, results of operations or prospects of the Company.
4.13. TAXES. The Company has filed all necessary federal, state and
foreign income and franchise tax returns and has paid or accrued all taxes shown
as due thereon, and the Company has no knowledge of tax deficiency which has
been or might be asserted or threatened against the Company which could
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<PAGE>
materially adversely affect the business condition (financial or otherwise),
business, results of operations or prospects of the Company.
4.14. TRANSFER TAXES. On the Closing Date, all stock transfer or
other similar taxes which are required to be paid in connection with the sale
and transfer of the Shares to be sold to the Purchaser hereunder will be, or
will have been, fully paid or provided for by the Company and all laws imposing
such taxes will be or will have been fully complied with.
4.15. INVESTMENT COMPANY. The Company is not required to register as
an "investment company" as such term is defined in the Investment Company Act of
1940, as amended.
4.16. OFFERING MATERIALS. The Company has not distributed and will
not distribute prior to the Closing Date any offering material in connection
with the offering and sale of the Shares other than the Private Placement
Memorandum or any amendment or supplement thereto.
4.17. INSURANCE. Except as disclosed in the Private Placement
Memorandum, the Company maintains insurance of the types and in the amounts
generally deemed adequate for its business, including, but not limited to,
insurance covering all real and personal property owned or leased by the Company
against theft, damage, destruction, acts of vandalism and all other risks
customarily insured against, all of which insurance is in full force and effect.
4.18. ADDITIONAL INFORMATION. The Company represents and warrants
that the information contained in the following documents, which the Placement
Agent has furnished to the Purchaser, or will furnish prior to the Closing, is
or will be true and correct in all material respects as of their respective
filing dates:
(a) Annual Report on Form 10-KSB for the year ended November 30,
1995;
(b) Quarterly Report on Form 10-QSB for the quarter ended August 30,
1996;
(c) the Confidential Placement Memorandum dated January 1997
containing certain summary information relating to the sale by
the Company of the Shares pursuant to the Agreements, including
all addenda and exhibits thereto (the "Private Placement
Memorandum"); and
(d) all other documents, if any, filed by the Company with the
Securities and Exchange Commission (the "Commission") since
November 30, 1995 pursuant to Sections 13 or 15(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act").
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<PAGE>
4.19. OBSERVATION RIGHTS. The Company will afford any Purchaser that
at any time holds, and during such period of time as it continues to hold, more
than 5% of the issued and outstanding shares of Common Stock of the Company the
right to attend the meetings of its Board of Directors ("Observation Rights")
and will provide such Purchaser with notice of such meetings on the same basis
as it is required to provide to its Directors, provided that, no waiver of
notice by the Board of Directors will have the effect of waiving or canceling
any such entity's right to notice hereunder. The Company has taken all
corporate action required to afford Observation Rights to such entity.
SECTION 5. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
PURCHASER. (a) The Purchaser represents and warrants to, and covenants with,
the Company that: (i) the Purchaser, taking into account the personnel and
resources it can practically bring to bear on the purchase of the Shares
contemplated hereby, is knowledgeable, sophisticated and experienced in making,
and is qualified to make, decisions with respect to investments in shares
presenting an investment decision like that involved in the purchase of the
Shares, including investments in securities issued by the Company, and has
requested, received, reviewed and considered all information it deems relevant
in making an informed decision to purchase the Shares; (ii) the Purchaser is
acquiring the number of Shares set forth in Section 2 above in the ordinary
course of its business and for its own account for investment (as defined for
purposes of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
regulations thereunder) only and with no present intention of distributing any
of such Shares or any arrangement or understanding with any other persons
regarding the distribution of such Shares; (iii) the Purchaser will not,
directly or indirectly, offer, sell, pledge, transfer or otherwise dispose of
(or solicit any offers to buy, purchase or otherwise acquire or take a pledge
of) any of the Shares except in compliance with the Securities Act, the Rules
and Regulations and any applicable state securities or blue sky laws; (iv) the
Purchaser has completed or caused to be completed the Registration Statement
Questionnaire and the Stock Certificate Questionnaire, both attached hereto as
Appendices I and II, for use in preparation of the Registration Statement and
the answers thereto are true and correct to the best knowledge of the Purchaser
as of the date hereof and will be true and correct as of the effective date of
the Registration Statement; (v) the Purchaser has, in connection with its
decision to purchase the number of Shares set forth in Section 2 above, relied
solely upon the Private Placement Memorandum and the documents included therein
and the representations and warranties of the Company contained herein; and (vi)
the Purchaser is an "accredited investor" within the meaning of Rule 501 of
Regulation D promulgated under the Securities Act.
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<PAGE>
(b) The Purchaser hereby covenants with the Company not to make any
sale of the Shares without effectively causing the prospectus delivery
requirement under the Securities Act to be satisfied, and the Purchaser
acknowledges and agrees that such Shares are not transferable on the books of
the Company unless the certificate submitted to the transfer agent evidencing
the Shares is accompanied by a separate officer's certificate: (i) in the form
of Appendix IV hereto, (ii) executed by an officer of, or other authorized
person designated by, the Purchaser, and (iii) to the effect that: (A) the
Shares have been sold in accordance with the Registration Statement, the
Securities Act and the Rules and Regulations and any applicable state securities
or blue sky laws and (B) the requirement of delivering a current prospectus has
been satisfied. The Purchaser acknowledges that there may occasionally be times
when the Company must suspend the use of the prospectus forming a part of the
Registration Statement until such time as an amendment to the Registration
Statement has been filed by the Company and declared effective by the Commission
or until such time as the Company has filed an appropriate report with the
Commission pursuant to the Exchange Act. The Purchaser hereby covenants that it
will not sell any Shares pursuant to said prospectus during the period
commencing at the time at which the Company gives the Purchaser notice of the
suspension of the use of said prospectus and ending at the time the Company
gives the Purchaser notice that the Purchaser may thereafter effect sales
pursuant to said prospectus, PROVIDED, HOWEVER, that the Company will not
suspend the use of the prospectus for more than 60 consecutive days or more than
twice in any 12 month period. The Purchaser further covenants to notify the
Company promptly of the sale of all of its Shares.
(c) The Purchaser further represents and warrants to, and covenants
with, the Company that (i) the Purchaser has full right, power, authority and
capacity to enter into this Agreement and to consummate the transactions
contemplated hereby and has taken all necessary action to authorize the
execution, delivery and performance of this Agreement, and (ii) upon the
execution and delivery of this Agreement, this Agreement shall constitute a
valid and binding obligation of the Purchaser enforceable in accordance with its
terms, except as enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting creditors' and
contracting parties' rights generally and except as enforceability may be
subject to general principles of equity (regardless of whether such
enforceability is considered in a proceeding in equity or at law) and except as
the indemnification agreements of the Purchaser in Section 7.3 hereof may be
legally unenforceable.
SECTION 6. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
Notwithstanding any investigation made by any party to this Agreement or by the
Placement Agent, all covenants, agreements, representations and warranties made
by the Company, and the Purchaser herein and in the certificates for the Shares
delivered pursuant hereto shall survive the execution of this
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Agreement, the delivery to the Purchaser of the Shares being purchased and the
payment therefor.
SECTION 7. REGISTRATION OF THE SHARES; COMPLIANCE WITH THE SECURITIES
ACT.
7.1. REGISTRATION PROCEDURES AND EXPENSES. The Company further
covenants that it shall:
(a) within 180 days after receipt of any request in the form of
Appendix III hereto, by Purchasers owning 66 2/3% of the Shares,
prepare and file with the Commission the Registration Statement
(the "Registration Statement") relating to the sale of the
Shares by the Purchaser from time to time through the automated
quotation system of The Nasdaq Small-Cap Market or The Nasdaq
National Market, in the over-the-counter market, on the
facilities of any national securities exchange on which the
Company's common stock is then traded or in privately-negotiated
transactions, PROVIDED HOWEVER, that the Company may postpone
the filing of the Registration Statement for (a) up to 60 days
if, in the good faith judgment of the Board of Directors of the
Company, the filing of any registration statement during such
60-day period would adversely affect a material proposed or
pending acquisition, merger or other extraordinary corporate
event to which the Company is or reasonably expects to be a
party, or (b) up to 60 days if the Company is not yet eligible
to file a registration statement on Form S-3 but reasonably
expects to become eligible to so file within such 60-day period.
(b) use its best efforts to cause the Shares to be quoted on the
automated quotation system of The Nasdaq Small-Cap Market, The
Nasdaq National Market or the facilities of any national
securities exchange on which the Common Stock is then traded, as
soon as practicable after request for registration of the
Shares;
(c) use its best efforts, subject to receipt of necessary
information from the Purchasers, to cause the Commission to
notify the Company of the Commission's willingness to declare
the Registration Statement effective within 60 days after the
Registration Statement is filed by the Company;
(d) prepare and file with the Commission such amendments and
supplements to the Registration Statement and the prospectus
used in connection therewith as may be necessary to keep the
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Registration Statement effective until (i) such shares are sold
pursuant to the Registration Statement or (ii) the date on which
the Shares may be resold by the Purchasers without registration,
by reason of Rule 144(k) under the Securities Act or any other
rule of similar effect;
(e) furnish to the Purchaser with respect to the Shares registered
under the Registration Statement (and to each underwriter, if
any, of such Shares) such number of copies of prospectuses and
such other documents as the Purchaser may reasonably request, in
order to facilitate the public sale or other disposition of all
or any of the Shares by the Purchaser, PROVIDED, HOWEVER, that
the obligation of the Company to deliver copies of prospectuses
to the Purchaser shall be subject to the receipt by the Company
of reasonable assurances from the Purchaser that the Purchaser
will comply with the applicable provisions of the Securities Act
and of such other securities or blue sky laws as may be
applicable in connection with any use of such prospectuses;
(f) file documents required of the Company for normal blue sky
clearance in states specified in writing by the Purchaser,
PROVIDED, HOWEVER, that the Company shall not be required to
qualify to do business or consent to service of process in any
jurisdiction in which it is not now so qualified or has not so
consented;
(g) on or prior to the date on which the Registration Statement
becomes effective (the "Effective Date"), cause the Accountants
to deliver a comfort letter to the Purchasers with respect to
the Registration Statement in a form reasonably satisfactory to
the Placement Agent and counsel to the Placement Agent;
(h) on or prior to the Effective Date, cause Company Counsel to
deliver its legal opinion addressed to Purchasers in a form
reasonably satisfactory to the Placement Agent and counsel to
the Placement Agent;
(i) on or prior to the Effective Date, deliver a certificate
executed by the Chief Executive Officer and the Chief Financial
or Accounting Officer of the Company, in form and substance
satisfactory to the Placement Agent to the effect that the
representations and warranties of the Company set forth in
Section 4 hereof are true and correct with respect to the
Registration Statement as of the Effective Date and that the
Company has
-11-
<PAGE>
complied with all of the agreements and satisfied all of the
conditions to be performed by it on or prior to the Effective
Date; and
(j) bear all expenses in connection with the procedures in this
Section 7.1 and the registration of the Shares pursuant to the
Registration Statement, other than fees and expenses, if any, of
counsel or other advisers to the Purchaser or the Other
Purchasers or underwriting discounts, brokerage fees and
commissions incurred by the Purchaser or the Other Purchasers,
if any.
7.2. TRANSFER OF SHARES AFTER REGISTRATION. The Purchaser agrees
that it will not effect any disposition of the Shares or its right to purchase
the Shares that would constitute a sale within the meaning of the Securities Act
or pursuant to any applicable state securities or blue sky laws except as
contemplated in the Registration Statement referred to in Section 7.1 and that
it will promptly notify the Company of any changes in the information set forth
in the Registration Statement regarding the Purchaser or its Plan of
Distribution.
7.3. INDEMNIFICATION. For the purpose of this Section 7.3:
(i) the term "Purchaser" shall include the Purchaser and any
affiliate of such Purchaser; and
(ii) the term "Registration Statement" shall include any final
prospectus, exhibit, supplement or amendment included in or
relating to the Registration Statement referred to in Section
7.1.
(a) The Company agrees to indemnify and hold harmless each of the
Purchasers and each person, if any, who controls any Purchaser within the
meaning of the Securities Act, against any losses, claims, damages, liabilities
or expenses, joint or several, to which such Purchasers or such controlling
person may become subject, under the Securities Act, the Exchange Act, or any
other federal or state statutory law or regulation, or at common law or
otherwise (including in settlement of any litigation, if such settlement is
effected with the written consent of the Company), insofar as such losses,
claims, damages, liabilities or expenses (or actions in respect thereof as
contemplated below) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, including the prospectus, financial statements and schedules, and all
other documents filed as a part thereof, as amended at the time of effectiveness
of the Registration Statement, including any information deemed to be a part
thereof as of the time of effectiveness pursuant to paragraph (b) of Rule 430A,
or pursuant to Rule 434, of the rules and regulations of the Commission under
-12-
<PAGE>
the Securities Act (the "Regulations"), or the prospectus, in the form first
filed with the Commission pursuant to Rule 424(b) of the Regulations, or filed
as part of the Registration Statement at the time of effectiveness if no Rule
424(b) filing is required (the "Prospectus"), or any amendment or supplement
thereto, (ii) the omission or alleged omission to state in any of them a
material fact required to be stated therein or necessary to make the statements
in any of them not misleading, or (iii) on any inaccuracy in the representations
and warranties of the Company contained in this Agreement, or any failure of the
Company to perform its express obligations hereunder, and will reimburse each
Purchaser and each such controlling person for any legal and other expenses as
such expenses are reasonably incurred by such Purchaser or such controlling
person in connection with investigating, defending, settling, compromising or
paying any such loss, claim, damage, liability, expense or action; PROVIDED,
HOWEVER, that the Company will not be liable in any such case to the extent that
any such loss, claim, damage, liability or expense arises out of or is based
upon (i) an untrue statement or alleged untrue statement or omission or alleged
omission made in the Registration Statement, the Prospectus or any amendment or
supplement thereto in reliance upon and in conformity with written information
furnished to the Company by or on behalf of the Purchaser expressly for use
therein or (ii) the failure of such Purchaser to comply with the covenants and
agreements contained in Sections 5 or 7.2 hereof respecting sale of the Shares,
the inaccuracy of any representations made by such Purchaser herein or any
statement or omission in any Prospectus that is corrected in any subsequent
Prospectus that was delivered to the Purchaser prior to the pertinent sale or
sales by the Purchaser.
In addition to its other obligations under this paragraph (a), the
Company agrees that, as an interim measure during the pendency of any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, or any
inaccuracy in the representations and warranties of the Company in this
Agreement or failure to perform its express obligations in this Agreement, all
as described in this paragraph (a), it will reimburse each Purchaser on a
quarterly basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim, action,
investigation, inquiry or other proceeding, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the Company's
obligation, to reimburse each Purchaser for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, each Purchaser shall promptly return
it to the Company together with interest, compounded daily, determined on the
basis of the Prime Rate (or other commercial lending rate for borrowers of the
highest credit standing) announced from time to time by Bank of America National
Trust and Savings Association, San Francisco, California (the "Prime
-13-
<PAGE>
Rate"). Any such interim reimbursement payments which are not made to a
Purchaser within 30 days of a request for reimbursement shall bear interest at
the Prime Rate from the date of such request. This indemnity agreement will be
in addition to any liability which the Company may otherwise have.
(b) Each Purchaser will, severally and not jointly, indemnify and
hold harmless the Company, each of its directors, each of its officers who
signed the Registration Statement and each person, if any, who controls the
Company within the meaning of the Securities Act, against any losses, claims,
damages, liabilities or expenses to which the Company, each of its directors,
each of its officers who signed the Registration Statement or controlling person
may become subject, under the Securities Act, the Exchange Act, or any other
federal or state statutory law or regulation, or at common law or otherwise
(including in settlement of any litigation, if such settlement is effected with
the written consent of such Purchaser) insofar as such losses, claims, damages,
liabilities or expenses (or actions in respect thereof as contemplated below)
arise out of or are based upon any failure to comply with the covenants and
agreements contained in Sections 5 or 7.2 hereof respecting the sale of the
Shares, the inaccuracy of any representation made by such Purchaser herein or
any untrue or alleged untrue statement of any material fact contained in the
Registration Statement, the Prospectus, or any amendment or supplement thereto,
or that arises out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in the Registration Statement, the Prospectus, or
any amendment or supplement thereto, in reliance upon and in conformity with
written information furnished to the Company by or on behalf of any Purchaser
expressly for use therein, and will reimburse the Company, each of its
directors, each of its officers who signed the Registration Statement and each
controlling person for any legal and other expense reasonably incurred by the
Company, each of its directors, each of its officers who signed the Registration
Statement and each controlling person in connection with investigating,
defending, settling, compromising or paying any such loss, claim, damage,
liability, expense or action. In addition to its other obligations under this
paragraph (b), each Purchaser severally agrees that, as an interim measure
during the pendency of any claim, action, investigation, inquiry or other
proceeding arising out of or based upon any statement or omission, or any
alleged statement or omission, described in this paragraph (b) which relates to
written information furnished to the Company by or on behalf of any Purchaser,
it will reimburse the Company (and, to the extent applicable, each officer,
director or controlling person) on a quarterly basis for all reasonable legal or
other expenses incurred in connection with the investigating or defending any
such claim, action, investigation, inquiry or other proceeding, notwithstanding
the absence of a judicial
-14-
<PAGE>
determination as to the propriety and enforceability of the Purchaser's
obligations to reimburse the Company (and, to the extent applicable, each
officer, director or controlling person) for such expenses and the possibility
that such payments might later be held to have been improper by a court of
competent jurisdiction. To the extent that any such interim reimbursement
payment is so held to have been improper, the Company (and, to the extent
applicable, each officer, director or controlling person) shall promptly return
it to such Purchaser together with interest, compounded daily, determined on the
basis of the Prime Rate. Any such interim reimbursement payments which are not
made to the Company within 30 days of a request for reimbursement shall bear
interest at the Prime Rate from the date of such request. This indemnity
agreement will be in addition to any liability which such Purchaser may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7.3 of notice of the commencement of any action, such indemnified party will, if
a claim in respect thereof is to be made against an indemnifying party under
this Section 7.3 notify the indemnifying party in writing of the commencement
thereof; but the omission so to notify the indemnifying party will not, to the
extent the indemnifying party is not prejudiced as a proximate result of such
failure, relieve the indemnifying party from any liability which it may have to
any indemnified party for contribution or otherwise than under the indemnity
agreement contained in this Section 7.3. In case any such action is brought
against any indemnified party and such indemnified party seeks or intends to
seek indemnity from an indemnifying party, the indemnifying party will be
entitled to participate in, and, to the extent that it may wish, jointly with
all other indemnifying parties similarly notified, to assume the defense thereof
with counsel reasonably satisfactory to such indemnified party; provided,
however, if the defendants in any such action include both the indemnified party
and the indemnifying party and the indemnified party shall have reasonably
concluded that there may be a conflict between the positions of the indemnifying
party and the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it and/or other indemnified
parties which are different from or additional to those available to the
indemnifying party, the indemnified party or parties shall have the right to
select separate counsel, reasonably satisfactory to the indemnified party or
parties, to assume such legal defense and to otherwise participate in the
defense of such action on behalf of such indemnified party or parties. Upon
receipt of notice from the indemnifying party to such indemnified party of its
election so to assume the defense of such action and approval by the indemnified
party of counsel, the indemnifying party will not be liable to such indemnified
party under this Section 7.3 for any legal or other expenses subsequently
incurred by such indemnified party in connection with the defense thereof unless
(i) the indemnified party shall have employed such counsel in connection with
the assumption of legal defense in accordance with the proviso to the preceding
sentence (it being understood,
-15-
<PAGE>
however, that the indemnifying party shall be not liable for the expenses of
more than one separate counsel, approved by such indemnifying party in the case
of paragraph (a), representing the indemnified parties who are parties to such
action) or (ii) the indemnifying party shall not have employed counsel
reasonably satisfactory to the indemnified party to represent the indemnified
party within a reasonable time after notice of commencement of action, in each
of which cases the reasonable fees and expenses of counsel shall be at the
expense of the indemnifying party.
(d) If the indemnification provided for in this Section 7.3 is
required by its terms but is for any reason held to be unavailable to or
otherwise insufficient to hold harmless an indemnified party under paragraphs
(a), (b) or (c) of this Section 7.3 in respect to any losses, claims, damages,
liabilities or expenses referred to herein, then each applicable indemnifying
party shall contribute to the amount paid or payable by such indemnified party
as a result of any losses, claims, damages, liabilities or expenses referred to
herein (i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Purchaser from the placement of Common Stock or
(ii) if the allocation provided by clause (i) above is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits referred to in clause (i) above but the relative fault of the
Company and the Purchaser in connection with the statements or omissions or
inaccuracies in the representations and warranties in this Agreement which
resulted in such losses, claims, damages, liabilities or expenses, as well as
any other relevant equitable considerations. The respective relative benefits
received by the Company on the one hand and each Purchaser on the other shall be
deemed to be in the same proportion as the amount paid by such Purchaser to the
Company pursuant to this Agreement for the Shares purchased by such Purchaser
that were sold pursuant to the Registration Statement bears to the difference
(the "Difference") between the amount such Purchaser paid for the Shares that
were sold pursuant to the Registration Statement and the amount received by such
Purchaser from such sale. The relative fault of such Selling Shareholders and
each Purchaser shall be determined by reference to, among other things, whether
the untrue or alleged statement of a material fact or the omission or alleged
omission to state a material fact or the inaccurate or the alleged inaccurate
representation and/or warranty relates to information supplied by the Company or
by such Purchaser and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The amount paid or payable by a party as a result of the losses, claims,
damages, liabilities and expenses referred to above shall be deemed to include,
subject to the limitations set forth in paragraph (c) of this Section 7.3, any
legal or other fees or expenses reasonably incurred by such party in connection
with investigating or defending any action or claim. The provisions set forth
in paragraph (c) of this Section 7.3 with respect to notice of commencement of
any action shall apply if a claim for
-16-
<PAGE>
contribution is to be made under this paragraph (d); PROVIDED, HOWEVER, that no
additional notice shall be required with respect to any action for which notice
has been given under paragraph (c) for purposes of indemnification. The Company
and each Purchaser agree that it would not be just and equitable if contribution
pursuant to this Section 7.3 were determined solely by pro rata allocation (even
if the Purchaser were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Purchasers' obligations to contribute pursuant to this
Section 7.3 are several and not joint.
7.4. TERMINATION OF CONDITIONS AND OBLIGATIONS. For each Purchaser
who is not an affiliate of the Company, the conditions precedent imposed by
Section 5 or this Section 7 upon the transferability of the Shares shall cease
and terminate as to any particular number of the Shares upon the passage of
thirty-six months from the effective date of the Registration Statement or at
such time as an opinion of counsel satisfactory to the Company shall have been
rendered to the effect that such conditions are not necessary in order to comply
with the Securities Act.
7.5. INFORMATION AVAILABLE. So long as the Registration Statement is
effective covering the resale of Shares owned by the Purchaser, the Company will
furnish to the Purchaser:
(a) as soon as practicable after available (but in the case of the
Company's Annual Report to Shareholders, within 120 days after
the end of each fiscal year of the Company), one copy of (i) its
Annual Report on Form 10-K or 10-KSB (which Annual Report shall
contain financial statements audited in accordance with
generally accepted accounting principles by the Accountants or
another reputable firm of certified public accountants), (ii)
its quarterly reports on Form 10-Q or 10-QSB, and (iv) a full
copy of the particular Registration Statement covering the
Shares (the foregoing, in each case, excluding exhibits); and
(b) upon the reasonable request of the Purchaser, a reasonable
number of copies of the prospectuses to supply to any other
party requiring such prospectuses;
and the Company, upon the reasonable request of the Purchaser, will meet with
the Purchaser or a representative thereof at the Company's headquarters to
discuss all information relevant for
-17-
<PAGE>
disclosure in the Registration Statement covering the Shares, subject to
appropriate confidentiality limitations.
SECTION 8. BROKER'S FEE. The Purchaser acknowledges that the Company
intends to pay to the Placement Agent a fee in respect of the sale of the Shares
to the Purchaser. Each of the parties hereto hereby represents that, on the
basis of any actions and agreements by it, there are no other brokers or finders
entitled to compensation in connection with the sale of the Shares to the
Purchaser.
SECTION 9. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing, shall be mailed by first-class
registered or certified airmail, or nationally recognized overnight express
courier postage prepaid, and shall be deemed given when so mailed and shall be
delivered as addressed as follows:
(a) if to the Company, to:
CardioDynamics International Corporation
6155 Cornerstone Court East, Suite 125
San Diego, California 92121
Attn: Chief Operating Officer
with a copy so mailed to:
Brobeck, Phleger & Harrison LLP
550 West "C" Street, Suite 1300
San Diego, California 92101
Attn: Hayden Trubitt, Esq.
or to such other person at such other place as the Company shall
designate to the Purchaser in writing; and
(b) if to the Purchaser, at its address as set forth at the end of
this Agreement, or at such other address or addresses as may
have been furnished to the Company in writing.
SECTION 10. CHANGES. This Agreement may not be modified or amended
except pursuant to an instrument in writing signed by the Company and the
Purchaser.
SECTION 11. HEADINGS. The headings of the various sections of this
Agreement have been inserted for convenience of reference only and shall not be
deemed to be part of this Agreement.
SECTION 12. SEVERABILITY. In case any provision contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and
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<PAGE>
enforceability of the remaining provisions contained herein shall not in any way
be affected or impaired thereby.
SECTION 13. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the conflicts of law principles thereof and the federal law of the United States
of America.
SECTION 14. COUNTERPARTS. This Agreement may be executed in two or
more counterparts, each of which shall constitute an original, but all of which,
when taken together, shall constitute but one instrument, and shall become
effective when one or more counterparts have been signed by each party hereto
and delivered to the other parties.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their duly authorized representatives as of the day and year
first above written.
CARDIODYNAMICS INTERNATIONAL CORPORATION
By:
------------------------------------------
Name:
Title:
Print or Type:
Name of Purchaser:
----------------------------------------
Address:
-----------------------------------
Telephone:
--------------------------------
Telecopier:
--------------------------------
Name of Individual representing
Purchaser:
----------------------------------------
Title of Individual representing
Purchaser:
----------------------------------------
SIGNATURE:
(by Individual representing Purchaser)
----------------------------------------
-20-
<PAGE>
SUMMARY INSTRUCTION SHEET FOR PURCHASER
(to be read in conjunction with the entire
Purchase Agreement which follows)
A. Complete the following items on BOTH Purchase Agreements:
1. Page 20 - Signature:
(i) Name, address and phone and telecopier numbers of Purchaser
(ii) Name of Individual representing Purchaser
(iii) Title of Individual representing Purchaser
(iv) Signature of Purchaser by Individual representing Purchaser
2. Appendix I - Stock Certificate Questionnaire:
Provide the information requested by the Stock Certificate
Questionnaire.
3. Appendix II - Registration Statement Questionnaire:
In order to have the Shares included in the Registration Statement,
provide the information requested by the Registration Statement
Questionnaire.
4. Appendix III - Registration Rights Request: In order to request that
the Shares be included in the Registration Statement, provide the
information requested by the Registration Rights Request and execute
the completed Registration Rights Request.
5. Return BOTH properly completed and signed Purchase Agreements,
including the properly completed Appendix I, Appendix II and Appendix
III, to:
EVEREN Securities, Inc.
One World Trade Center
47th Floor
New York, New York 10048
B. Instructions regarding the transfer of funds for the purchase of Shares
will be sent by facsimile to the Purchaser by the Placement Agent at a
later date.
<PAGE>
C. Upon the resale of the Shares by the Purchasers after the Registration
Statement covering the Shares is effective, as described in the Purchase
Agreement, the Purchaser:
(i) must deliver a current prospectus of the Company to the buyer
(prospectuses must be obtained from the Company at the
Purchaser's request); and
(ii) must send a letter in the form of Appendix IV to the Company so
that the Shares may be properly transferred.
-2-
<PAGE>
Appendix I
STOCK CERTIFICATE QUESTIONNAIRE
Pursuant to Section 3 of the Agreement, please provide us with the
following information:
1. The exact name that your Shares are
to be registered in (this is the name
that will appear on your stock
certificate(s)). You may use a
nominee name if appropriate: ______________________
2. The relationship between the Purchaser
of the Shares and the Registered Holder
listed in response to item 1 above: ______________________
3. The mailing address of the Registered
Holder listed in response to item 1
above: ______________________
______________________
______________________
______________________
4. Tax Identification Number of the
Registered Holder listed in
response to item 1 above: ______________________
A-1
<PAGE>
Appendix II
REGISTRATION STATEMENT QUESTIONNAIRE
In connection with the preparation of the Registration Statement, please
provide us with the following information:
1. For use in the "Selling Shareholders" section of the Registration
Statement, please state the Purchaser's/Selling Shareholder's name exactly as it
should appear in the Registration Statement:
--------------------------------
2. Please provide the number of Shares that the Purchaser/Selling
Shareholder owns immediately after Closing, including those Shares purchased
pursuant to this Purchase Agreement and any shares purchased through other
transactions:
--------------------------------
3. Has the Purchaser/Selling Shareholder had any position, office or
other material relationship within the past three years with the Company or its
affiliates?
_____ Yes _____ No
If yes, please indicate the nature of any such relationships below:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4. Does the Purchaser/Selling Shareholder intend to use an
underwriter in connection with the distribution of the Shares?
_____ Yes _____ No
If yes, please give the name of such undewriter:
________________________________________________________________________________
B-1
<PAGE>
Appendix III
REGISTRATION REQUEST
The undersigned hereby confirms that it is the owner of _____ shares
(the "Shares") of the common stock, no par value, of CardioDynamics
International Corporation (the "Company"), all of which were purchased pursuant
to a Purchase Agreement between the undersigned and the Company dated January
__, 1997 (the "Purchase Agreement"), and hereby requests that the Company file
with the Securities and Exchange Commission a registration statement for the
resale of such shares pursuant to the Company's obligations under Section 7 of
the Purchase Agreement.
Name of Purchaser: ______________________
Name of Individual
representing Purchaser: ______________________
Title of Individual
representing Purchaser: ______________________
SIGNATURE BY:
Individual representing Purchaser: ______________________
Name:
Title:
C-1
<PAGE>
APPENDIX IV
Attention:
PURCHASER'S CERTIFICATE OF SUBSEQUENT SALE
The undersigned, [an officer of, or other person duly authorized
by] ___________________________________________________ [fill in official
name of institution] hereby certifies that said institution is the
Purchaser of the shares evidenced by the attached certificate, and as such,
sold such shares on _____________________ [date] in accordance with
Registration Statement number _____________________________________________
[fill in the number of or otherwise identify Registration Statement], the
Securities Act of 1933, as amended, and any applicable state securities or
blue sky laws and the requirement of delivering a current prospectus by the
Company has been complied with in connection with such sale.
Print or Type:
Name of Purchaser: ______________________
Name of Individual
representing Purchaser: ______________________
Title of Individual
representing Purchaser: ______________________
SIGNATURE BY:
Individual representing Purchaser: ______________________
D-1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM QUARTER
ENDED FEBRUARY 28, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> FEB-28-1997
<CASH> 5,581,617
<SECURITIES> 0
<RECEIVABLES> 27,658
<ALLOWANCES> 332
<INVENTORY> 450,772
<CURRENT-ASSETS> 6,090,439
<PP&E> 288,786
<DEPRECIATION> 167,787
<TOTAL-ASSETS> 6,215,688
<CURRENT-LIABILITIES> 365,953
<BONDS> 0
0
457,791
<COMMON> 13,923,565
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 6,215,688
<SALES> 131,928
<TOTAL-REVENUES> 131,928
<CGS> 94,027
<TOTAL-COSTS> 859,407
<OTHER-EXPENSES> (160,903)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (982,409)
<INCOME-TAX> 800
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (983,209)
<EPS-PRIMARY> (0.03)
<EPS-DILUTED> (0.03)
</TABLE>
