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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 21, 1998
CARDIODYNAMICS INTERNATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
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CALIFORNIA 0-11868 95-3533362
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
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6175 NANCY RIDGE DRIVE, SUITE 300, SAN DIEGO, CALIFORNIA 92121
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (619) 535-0202
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N/A
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
On August 21, 1998, CardioDynamics International Corporation completed the first
phase of a $6,000,000 private placement of convertible preferred stock through a
group of institutional investors.
The first phase of the equity private placement provided $3,000,000 through the
issuance of Series A Convertible Preferred Stock and warrants. The remaining
$3,000,000 would be obtained through the issuance of additional Preferred Stock,
and is contingent upon certain conditions being met. The net proceeds from the
offering will be used primarily to expand the Company's direct sales force and
fund the working capital requirements for the Company's planned revenue growth.
In conjunction with the financing, the Company borrowed $1,000,000 under its
unsecured private line of credit agreement with the co-chairmen of the Company's
Board of Directors which was used to repay in part an Imperial Bank term loan.
In turn, Imperial Bank extended the term on the remaining $2,000,000 under the
bank loan agreement for six months.
EVEREN Securities, Inc., an investment banking firm located in Chicago,
Illinois, served as the financial advisor for CardioDynamics. EVEREN ranks among
the ten largest national full-service brokerage firms in the industry with a
network of 1,700 investment consultants in 170 offices.
Note: Except for the historical and factual information contained herein, this
press release contains forward-looking statements, the accuracy of which are
necessarily subject to uncertainties and risks, which include sole dependence on
the BioZ product line, a lack of general acceptance within the medical community
of TEB-based monitors, competition from Baxter Healthcare Corp. (manufacturer of
the Swan-Ganz(TM) device), further capital requirements, and various
uncertainties characteristic of companies just emerging from the development
stage; as well as other risks detailed in the Company's filings with the SEC,
including its 1997 Form 10-KSB. The Company does not undertake to update the
disclosures contained in this filing.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
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4.1 Certificate of Determination of Preferences of Series A
Convertible Preferred Stock.
4.2 Form of Common Stock Purchase Warrant dated August 21, 1998.
99.1 Securities Purchase Agreement between the Company and certain
Investors dated August 21, 1998.
99.2 Registration Rights Agreement between the Company and certain
Investors dated August 21, 1998.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
CARDIODYNAMICS INTERNATIONAL
CORPORATION
Date: September 2, 1998 By: /s/ MICHAEL K. PERRY
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Michael K. Perry
Chief Executive Officer
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EXHIBIT 4.1
CERTIFICATE OF DETERMINATION OF PREFERENCES OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF CARDIODYNAMICS INTERNATIONAL CORPORATION
A CALIFORNIA CORPORATION
Michael K. Perry and Stephen P. Loomis hereby certify that:
A. They are the Chief Executive Officer and Secretary,
respectively, of CardioDynamics International Corporation, a California
corporation.
B. Pursuant to the authority given by said corporation's
Articles of Incorporation, as amended to date, the Board of Directors of said
corporation has duly adopted the following resolutions:
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors
does hereby provide for the issue of a series of Preferred Stock of the
corporation consisting of Three Thousand (3,000) shares designated as
"Series A Convertible Preferred Stock," and does hereby fix the rights,
preferences, privileges, and restrictions and other matters relating to
said Series A Convertible Preferred Stock as follows:
(1) Designation; Voting Rights.
(a) The series of preferred stock established hereby
shall be designated the "Series A Convertible Preferred Stock" (and shall be
referred to herein as the "SERIES A PREFERRED SHARES") and the authorized number
of Series A Preferred Shares shall be 3,000. The stated value per Series A
Preferred Share shall be $1,000 (the "STATED VALUE").
(b) The holders of the outstanding Series A Preferred
Shares (collectively, the "HOLDERS" and each a "HOLDER") shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of California, and as expressly provided in this
Certificate of Determination.
(2) Holder's Conversion of Series A Preferred Shares. A Holder
shall have the right, at such Holder's option, to convert the Series A Preferred
Shares into shares of the Company's common stock, no par value per share (the
"COMMON STOCK")(as converted, the "CONVERSION SHARES"), on the following terms
and conditions:
(a) Conversion Right. Subject to the provisions of
Sections 2(e) below and the restrictions identified herein, any Holder shall be
entitled to convert at any time or times on or after the date that is 151 days
(the "INITIAL CONVERSION RESTRICTION") after the date the first Series A
Preferred Shares are issued (the "INITIAL ISSUANCE DATE") such Holder's Series A
Preferred Shares into fully paid and nonassessable shares (rounded to the
nearest whole share in accordance with Section 2(f) below) of Common Stock, at
the Conversion Rate (as defined
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below); provided however, that the Initial Conversion Restriction shall not
apply at any time on any day that the Common Stock trades on its principal
exchange or market at a price in excess of the Fixed Conversion Price (as
defined below). During the period commencing 151 days after the Initial Issuance
Date and expiring 240 days after the Initial Issuance Date (the "SECOND
CONVERSION RESTRICTION PERIOD"), if the trading price for the Common Stock on
its principal exchange or market does not exceed $1.87 per share for ten (10)
consecutive trading days (a "SECOND CONVERSION RESTRICTION EVENT") then the
aggregate number of Series A Preferred Shares convertible by a Holder for the
duration of the Second Conversion Restriction Period shall be limited per
calendar month to that number of shares of Common Stock not to exceed the
product of (x) 0.15 and (y) the greater of (I) a fraction, the denominator of
which is the Stated Value and the numerator of which is the Dollar Volume of the
Common Stock on its principal exchange or market as reported by Bloomberg L.P.
("BLOOMBERG") during the calendar month of the occurrence of the Second
Conversion Restriction Event or (II) a fraction, the denominator of which is the
Stated Value and the numerator of which is the Dollar Volume of the Common Stock
on its principal exchange or market as reported by Bloomberg during the calendar
month immediately prior to the calendar month of the occurrence of the Second
Conversion Restriction Event. The restrictions contained in this Section 2(a)
shall not apply in the event of a material adverse change subsequent to the
Initial Issuance Date in the business, results of operations, financial
condition or objective prospects of the Company. Notwithstanding the provisions
hereof, a Holder shall not at any time be entitled to elect to convert Series A
Preferred Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by such Holder and
its affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion; provided, however, that the Holder may elect to waive
this restriction upon not less than sixty-one (61) days prior written notice to
the Company. For purposes hereof, beneficial ownership shall be calculated in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended.
(b) Conversion Rate. The number of shares of Common
Stock issuable upon conversion of each of the Series A Preferred Shares pursuant
to Sections (2)(a), 2(e) and 3(a) shall be determined according to the following
formula (the "CONVERSION RATE"), subject to the provisions of Section 7 hereof:
Stated Value + amount of accrued but unpaid dividends
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Conversion Price
For purposes of this Certificate of Determination, the following terms
shall have the following meanings:
(i) "CONVERSION DATE" means the date of delivery of a
Conversion Notice pursuant to Section (2)(d)(i) hereof.
(ii) "CONVERSION PERCENTAGE" means (x) during the
period commencing on the Initial Issuance Date and expiring on the one
year anniversary of the Initial Issuance Date (the "ANNIVERSARY DATE"),
0.95; and (y) from and after the Anniversary Date, 0.92; provided,
however, that if the Registration Statement (as defined
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below) is not declared effective by the SEC within 90 days of the
Initial Issuance Date then the Conversion Percentage shall be reduced
by 0.02 on the first day of each 30 day period after such 90 day period
until the Registration Statement is so declared effective.
(iii) "CONVERSION PRICE" means the lesser of (x) the
Fixed Conversion Price and (y) the Floating Conversion Price.
(iv) "CLOSING BID PRICES" means, for any security as
of any date, the last closing bid price on the Nasdaq SmallCap Market
as reported by Bloomberg, or, if the Nasdaq SmallCap Market is not the
principal securities exchange for such security, the last closing bid
price of such security on the principal securities exchange or trading
market where such security is listed or traded as reported by
Bloomberg, or if the foregoing do not apply, the last closing bid price
of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no
closing bid price is reported for such security by Bloomberg, the last
trade price of such security as reported by Bloomberg, or, if no last
trade price is reported for such security by Bloomberg, the average of
the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc.
(v) "FLOATING CONVERSION PRICE" means the product of
(x) the average of the ten (10) lowest Closing Bid Prices of the Common
Stock during the applicable Valuation Period and (y) the Conversion
Percentage, subject to adjustment as provided herein.
(vi) "FIXED CONVERSION PRICE" means $2.70, subject to
adjustment as provided herein.
(vii) "REGISTRATION STATEMENT" means the registration
covering the resale of the shares of Common Stock issuable upon
conversion of the Series A Preferred Shares and the exercise of the
warrants issuable to the Holders and required to be filed by the
Company pursuant to a Registration Rights Agreement dated as of the
Initial Issuance Date, between the Company and the initial Holders (the
"REGISTRATION RIGHTS AGREEMENT").
(viii) "SEC" means the United States Securities and
Exchange Commission.
(ix) "VALUATION PERIOD" means the 20 consecutive
trading days immediately preceding the applicable Conversion Date.
(c) Adjustment to Conversion Price -- Dilution and Other
Events. In order to prevent dilution of the rights granted under this
Certificate of Determination, (x) the Closing Bid Prices for any days during any
Valuation Period prior to any of the events set forth below (the "ADJUSTING
CLOSING BID Prices") and (y) the Fixed Conversion Price will each be subject to
adjustment from time to time as provided in this Section 2(c). Any such
adjustments
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to the Adjusting Closing Bid Prices and Fixed Conversion Price will be
applicable to Series A Preferred Shares not yet converted or redeemed.
(i) Adjustment upon Declaration of Dividends and
Other Events. If the Company shall (I) declare a dividend or make a
distribution in shares of Common Stock, (II) subdivide or reclassify
the outstanding shares of Common Stock into a greater number of shares,
or (III) combine or reclassify the outstanding Common Stock into a
smaller number of shares, the Adjusting Closing Bid Prices and the
Fixed Conversion Price in effect on the record date of such dividend or
distribution or the effective date of such subdivision, combination or
reclassification shall be proportionately adjusted.
(ii) Adjustment Upon Issuance of Certain Securities.
If at any time during the 180 day period immediately following the
Initial Issuance Date, the Company in any manner issues or sells (a
"SUBSEQUENT FINANCING") pursuant to Section 4(2) of the Securities Act
of 1933, as amended (the "1933 ACT"), Regulation D or Regulation S of
the 1933 Act or any other private placement (other than pursuant to
Company authorized stock option plans with employees, consultants or
directors of the Company) of any security convertible into,
exchangeable for or exercisable for Common Stock or any other right to
acquire Common Stock ("CONVERTIBLE SECURITIES") and such Subsequent
Financing:
(A) has a price per share for which Common
Stock is issuable upon the conversion, exchange or exercise of such
Convertible Security that is determined based on a formula that
contains a discount (the "CLOSING PRICE DISCOUNT") to the formula used
in determining the Fixed Conversion Price hereunder (i.e. less than
130% of either the Closing Bid Prices, Average Market Prices, fair
market value, current market prices or similar concept), then from and
after the time of such Subsequent Financing the Fixed Conversion Price
shall be recalculated using the Closing Price Discount as if in effect
on the date of initial determination of the Fixed Conversion Price; or
(B) has a price per share for which Common
Stock is issuable upon the conversion, exchange or exercise of such
Convertible Security that is subject to a conversion formula that is
based on lower threshold than the Conversion Percentage or a Valuation
Period more favorable set than those set forth herein, (the "ALTERNATE
FLOATING CONVERSION FORMULA"), then from and after the time of such
Subsequent Financing the Holders shall have the option, to be exercised
by written notice delivered to the Company within 30 days of the
closing of such Subsequent Financing, to elect to have the Alternate
Floating Conversion Formula replace the Floating Conversion Price; or
(C) contains any other provisions more
favorable than those contained herein, than from and after the time of
such Subsequent Financing, the Holders shall have the option, to be
exercised by written notice delivered to the Company within
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30 days of the closing of such Subsequent Financing, to elect, by the
Holders of a majority of the Series A Preferred Shares, to have all of
the terms of such Subsequent Financing replace the terms herein, and
that upon such election, an amended Certificate of Determination shall
be filed to reflect the revised terms;
provided, however, that no adjustment shall be made
pursuant to this Section (2)(c)(ii) if such adjustment would result in
an increase in the Conversion Price then in effect.
(iii) Reorganization, Reclassification,
Consideration, Merger or Sale. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially
all of the Company's assets to another Person (as defined below) or
other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or
in exchange for Common Stock is referred to herein as an "Organic
Change." Prior to the consummation of any Organic Change, the Company
will make appropriate provision (in form and substance satisfactory to
a majority of the Holders) to insure that each of the Holders will
thereafter have the right to acquire and receive in lieu of or in
addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such
Holder's Series A Preferred Shares, such shares of stock, securities or
assets as may be issued or payable with respect to or in exchange for
the number of shares of Common Stock immediately theretofore acquirable
and receivable upon the conversion of such Holder's Series A Preferred
Shares had such Organic Change not taken place. In any such case, the
Company will make appropriate provision (in form and substance
satisfactory to a majority of the Holders) with respect to such
Holders' rights and interests to insure that the provisions of Section
2(d) below will thereafter be applicable to the Series A Preferred
Shares (including, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is other than
the Company, an immediate adjustment of the Conversion Price to the
value for the Common Stock reflected by the terms of such
consolidation, merger or sale, if the value so reflected is less than
the Conversion Price in effect immediately prior to such consolidation,
merger or sale). The Company will not effect any such consolidation,
merger or sale, unless prior to the consummation thereof, the successor
entity (if other than the Company) resulting from consolidation or
merger or the entity purchasing such assets assumes, by written
instrument (in form and substance reasonably satisfactory to a majority
of the Holders) the obligation to deliver to each Holder such shares of
stock, securities or assets as, in accordance with the foregoing
provisions, such Holder may be entitled to acquire. "PERSON" shall mean
an individual, a limited liability company, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization and a
government or any department or agency thereof.
(iv) Notices.
(A) Immediately upon any adjustment
pursuant hereto of the Adjusting Closing Bid Prices or the Fixed
Conversion Price, the Company will
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give written notice thereof to each Holder, setting forth in reasonable
detail and certifying the calculation of such adjustment.
(B) The Company will give written notice to
each Holder at least twenty (20) days prior to the date on which the
Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, or (II) for determining
rights to vote with respect to any Organic Change, dissolution or
liquidation; provided that in no event shall such notice be provided to
such Holder prior to such information being made known to the public.
(C) The Company will also give written
notice to each Holder at least twenty (20) days prior to (i) the date
on which any Organic Change, dissolution or liquidation will take place
and (ii) the anticipated closing date of any Subsequent Financing.
(v) Successive adjustments in the Adjusting Closing
Bid Prices and the Fixed Conversion Price shall be made whenever any
event specified above shall occur. All calculations under this Section
2(c) shall be made to the nearest cent or to the nearest one-hundredth
of a share, as the case may be. No adjustment in the Conversion Price
shall be made if the amount of such adjustment would be less than
$0.01, but any such amount shall be carried forward and an adjustment
with respect thereto shall be made at the time of and together with any
subsequent adjustment which, together with such amount and any other
amount or amounts so carried forward, shall aggregate $0.01 or more.
(d) Mechanics of Conversion. Subject to the Company's
inability to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 4 below:
(i) Holder's Delivery Requirements. To convert Series
A Preferred Shares into full shares of Common Stock on any Conversion
Date, the Holder thereof shall (A) deliver or transmit by facsimile,
for receipt on or prior to 11:59 p.m., Eastern Time on such date, a
copy of a fully executed notice of conversion set forth on the reverse
of the Certificates of the Series A Preferred Shares (the "CONVERSION
NOTICE"), to the Company or its designated transfer agent (the
"TRANSFER AGENT"), and (B) on the same date, surrender to a common
carrier for delivery to the Company or the Transfer Agent, the original
certificates representing the Series A Preferred Shares being converted
(or an indemnification undertaking with respect to such shares in the
case of their loss, theft or destruction) (the "PREFERRED STOCK
CERTIFICATES") and the originally executed Conversion Notice and any
other materials required by Section 13.
(ii) Company's Response. Upon receipt by the Company
of a facsimile copy of a Conversion Notice, the Company shall by the
next business day send, via facsimile, a confirmation of receipt of
such Conversion Notice to such Holder. Upon receipt by the Company or
the Transfer Agent of the Preferred Stock Certificates to be converted
pursuant to a Conversion Notice, together with the originally executed
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Conversion Notice, the Company or the Transfer Agent (as applicable)
shall, on the next business day following the date of receipt (or the
second business day following the date of receipt if received after
11:00 a.m. local time of the Company or Transfer Agent, as applicable),
(I) issue and surrender to a common carrier for overnight delivery to
the address as specified in the Conversion Notice, a certificate,
registered in the name of the Holder or its designee, for the number of
shares of Common Stock to which the Holder shall be entitled, or (II)
if the Holder requests and if such shares shall not require any
restrictive legend, credit such aggregate number of shares of Common
Stock to which the Holder shall be entitled to the Holder's or its
designee's balance account with The Depository Trust Company or (III)
if the Holder requests and if such shares shall not require any
restrictive legend, issue shares in electronic format (e.g., via DWAC).
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Conversion Price, the Company shall
promptly issue to the Holder the number of shares of Common Stock that
is not disputed and shall submit the disputed determinations or
arithmetic calculations to the Holder via facsimile within one (1)
business day of receipt of such Holder's Conversion Notice. If such
Holder and the Company are unable to agree upon the determination of
the Conversion Price within one (1) business day of such disputed
determination or arithmetic calculation being submitted to the Holder,
then the Company shall within one (1) business day submit via facsimile
the disputed determination of the Conversion Price to an independent,
reputable accounting firm of national standing acceptable to the
Company and such Holder of Series A Preferred Shares. The Company shall
cause such accounting firm to perform the determinations or
calculations and notify the Company and the Holder of the results no
later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such accounting firm's
determination shall be binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Series
A Preferred Shares shall be treated for all purposes as the record
holder or holders of such shares of Common Stock as of the close of
business on the Conversion Date.
(v) Company's Failure to Timely Convert. If the
Company shall fail (other than as a result of the situations described
in Section 4(a) with respect to which the Holder has elected, and the
Company has satisfied its obligations under, one of the options set
forth in subparagraphs (i) through (iv) of Section 4(a)) to issue to a
Holder on a timely basis as described in this Section 2(d), a
certificate for the number of shares of Common Stock to which such
Holder is entitled upon such Holder's conversion of Series A Preferred
Shares, the Company shall pay damages to such Holder equal to the
greater of (A) actual damages incurred by such Holder as a result of
such Holder's needing to "buy in" shares of Common Stock to satisfy its
securities delivery requirements ("BUY IN ACTUAL DAMAGES") and (B)
after the effective date of the Registration Statement if the Company
fails to deliver such certificates within five days after the last
possible date which the Company could have issued such Common Stock to
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such Holder without violating this Section 2(d), on each date such
conversion is not timely effected, in an amount equal to 1% of the
product of (A) the number of shares of Common Stock not issued to the
Holder on a timely basis and to which such Holder is entitled and (B)
the Closing Bid Price of the Common Stock on the last possible date
which the Company could have issued such Common Stock to such Holder
without violating this Section 2(d).
(e) Mandatory Conversion. If any Series A Preferred Shares
remain outstanding on the Mandatory Conversion Date (as defined below), then all
such Series A Preferred Shares shall be converted as of such date in accordance
with this Section 2 as if the Holders had given the Conversion Notice on the
Mandatory Conversion Date, and the Conversion Date had been fixed as of the
Mandatory Conversion Date, for all purposes of this Section 2. All Holders shall
thereupon and within two (2) business days thereafter surrender all Preferred
Stock Certificates, duly endorsed for cancellation, to the Company or the
Transfer Agent. No person shall after the Mandatory Conversion Date have any
rights in respect of Series A Preferred Shares, except the right to receive
shares of Common Stock on conversion thereof as provided in this Section 2.
"MANDATORY CONVERSION DATE" means August 21, 2002; provided, however, the
Mandatory Conversion Date may be extended as set forth in Sections 3(d) (i) and
(ii) hereof.
(f) Fractional Shares. The Company shall not issue any
fraction of a share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of more than one
Series A Preferred Share by a Holder shall be aggregated for purposes of
determining whether the conversion would result in the issuance of a fraction of
a share of Common Stock. If, after the aforementioned aggregation, the issuance
would result in the issuance of a fraction of a share of Common Stock, the
Company shall round such fraction of a share of Common Stock up or down to the
nearest whole share.
(g) Taxes. The Company shall pay any and all taxes which may
be imposed upon it with respect to the issuance and delivery of Common Stock
upon the conversion of the Series A Preferred Shares.
(3) Conversion/Redemption Upon Major Transaction; Redemption Option
Upon Triggering Event; Company Redemption Option.
(a) Conversion/Redemption Upon Major Transaction. Upon (i) a
public announcement by the Company of a Major Transaction (the "ANNOUNCEMENT
DATE") or (ii) receipt by the Holders of a Notice of Major Transaction (as
defined below), then following the vote of at least a majority of the Series A
Preferred Shares, all of the Series A Preferred Shares then outstanding shall
automatically be converted in accordance with Sections 2(d) and 3(e) hereof,
calculated as if a Conversion Notice had been given to the Company on the
Announcement Date and effective just prior to the consummation of such
transaction; provided, however, if the Company is unable to deliver Common Stock
that may be forthwith sold pursuant to an effective Registration Statement to
the Holders to satisfy the request set forth in such Conversion Notice, the
Company shall be obligated to (i) deliver to the Holders as many
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shares of Common Stock as may be forthwith sold pursuant to an effective
Registration Statement and then (ii) pay the Holders the balance of the value of
such outstanding Series A Preferred Shares in cash at a price per Series A
Preferred Share equal to the product of (A) the aggregate number of shares of
Common Stock for which each such Series A Preferred Share would be converted
into pursuant to such Conversion Notice (the "MANDATORY TRANSACTION SHARES")
multiplied by (B) the closing price of the Common Stock on such date ("MAJOR
TRANSACTION REDEMPTION PRICE"). In the event that the Company fails to pay the
Holders as provided in this Section 3(a), interest shall accrue at the rate of
2% per month (or such lesser amount allowed by law) on such outstanding amounts
and be due and payable in arrears on the last day of each month (the "MANDATORY
INTEREST"). The Company may elect at any time to pay such outstanding cash
amounts by delivering to the Holders Common Stock that immediately may be sold
pursuant to an effective Registration Statement in an amount equal to the
aggregate of (i) the Mandatory Transaction Shares and (ii) the number of shares
of Common Stock that the Mandatory Interest then due and payable could purchase
on such date at the average of the Closing Bid Prices for the five trading days
immediately preceding. If conversion does not occur under this Section 3(a), any
Holder may, by delivery of a notice of election to redeem no later than three
(3) business days prior to the consummation of the Major Transaction, require
the Company to redeem, immediately prior to the consummation of the Major
Transaction, such Holder's Series A Preferred Shares at a price per Series A
Preferred Share equal to the sum of (i) 120% of the Stated Value, or in the
event of the merger or consolidation of the Company into another Person (or a
reverse triangular merger), 130% of the Stated Value, plus (ii) accrued but
unpaid dividends thereon. In the event a Major Transaction is not consummated
subsequent to delivery to the Company of a notice of election to redeem with
respect to such failed Major Transaction, then such notice shall be deemed null
and void and such Holders shall be treated as though such failed Major
Transaction was not contemplated.
(b) Redemption Option Upon Triggering Event. In addition to
all other rights of the Holders contained herein, after a Triggering Event (as
defined below), each Holder of shall have the right in accordance with Section
3(f), at such Holder's option, to require the Company to redeem all or a portion
of such Holder's Series A Preferred Shares at a price per Series A Preferred
Share equal to the sum of (i) 130% of the Stated Value plus (ii) accrued but
unpaid dividends thereon (the "TRIGGERING EVENT REDEMPTION PRICE" and,
collectively with the "MAJOR TRANSACTION REDEMPTION PRICE", the "REDEMPTION
PRICE").
(c) "Major Transaction". A "MAJOR TRANSACTION" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation or merger of the Company with
or into another Person (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of
incorporation of the Company or pursuant to a merger after which the
holders of the Company's outstanding capital stock immediately prior to
the merger own a number of shares of the resulting company's
outstanding capital stock sufficient to elect a majority of the
resulting company's board of directors);
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(ii) the sale or transfer of substantially all of the
Company's assets (other than a sale or transfer to an entity
controlling, controlled by or under common control with the Company);
or
(iii) a purchase, tender or exchange offer for more
than 50% of the outstanding shares of Common Stock is made and accepted
by the holders thereof.
(d) "Triggering Event". A "TRIGGERING EVENT" shall be deemed
to have occurred at such time as any of the following events:
(i) notice from the Company that Common Stock issued
or issuable upon conversion of the Series A Preferred Shares cannot be
sold under the Registration Statement (the "SUSPENSION PERIOD"), for
any period of five (5) consecutive trading days or any thirty (30)
non-consecutive trading days in any period of 365 consecutive days due
to a suspension in trading (other than by reason of a general
suspension of trading of all securities on the applicable exchange or
market) (a "SUSPENSION PERIOD DEFAULT'); provided that any demand for
redemption under this Section 3(d)(i) must be made by a Holder within
30 days after receipt of notice from the Company of the termination of
a Suspension Period Default;
(ii) failure of the Common Stock issued or issuable
upon conversion of the Series A Preferred Shares to be saleable under
the Registration Statement (the "EFFECTIVENESS SUSPENSION PERIOD"), for
any period of thirty (30) trading days (whether or not consecutive) in
any period of 365 consecutive days due to a suspension of the
effectiveness of the Registration Statement or a suspension of the use
of the Registration Statement by the Company by delivery of a notice
that the Registration Statement should not be used ("EFFECTIVENESS
SUSPENSION PERIOD DEFAULT"); provided that any demand for redemption
under this Section 3(d)(ii) must be made by a Holder within 30 days
after receipt of notice from the Company of the termination of the
Effectiveness Suspension Period Default;
(iii) the failure of the Common Stock or the
Conversion Shares to be listed on the AMEX, The New York Stock
Exchange, the Nasdaq National Market System or the Nasdaq SmallCap
Market (the "DELISTING PERIOD") for a period of fifteen (15)
consecutive trading days or any 30 non-consecutive trading days during
any period of 365 consecutive days (a "DELISTING PERIOD DEFAULT");
provided however that any demand for redemption under this Section
3(d)(iii) must be made by a Holder within 30 days after receipt of
notice from the Company of the termination of the Delisting Period
Default;
(iv) the Company's failure to deliver shares of
Common Stock pursuant to a Conversion Notice or the Company's notice to
any Holder, including by way of public announcement or by failure to
respond within five (5) days to a written demand from such Holder, at
any time, of its intention not to comply with proper requests for
conversion of any Series A Preferred Shares into shares of Common
Stock, including due to any of the reasons set forth in Section 4(a)
below;
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(v) the Company is required by the SEC to file the
Registration Statement on any form type other than a Form S-3 and a
majority of the Holders have not consented to the use of an alternate
form; or
(vi) the Registration Statement shall not have been
declared effective by the SEC on or before 180 days immediately
following the Initial Issuance Date.
(e) Mechanics of Conversion/Redemption Upon Major Transaction.
No sooner than thirty (30) days nor later than ten (10) days prior to the
consummation of a Major Transaction, but not prior to the public announcement of
such Major Transaction, the Company shall deliver written notice thereof via
facsimile and overnight courier ("NOTICE OF MAJOR TRANSACTION") to each Holder.
The Holders shall have the option to elect redemption of the Series A Preferred
Shares as set forth in Section 3(a).
(f) Mechanics of Redemption at Option of Holder Upon
Triggering Event. Within one (1) day after the occurrence of a Triggering Event,
the Company shall deliver written notice thereof via facsimile and overnight
courier ("NOTICE OF TRIGGERING EVENT") to each Holder. At any time after receipt
of a Notice of Triggering Event or Holder becoming aware of the existence of a
Triggering Event, but only for as long as the facts giving rise to the
Triggering Event continue to exist, except as specifically provided in this
Section 3, each Holder may require the Company to redeem all or any portion of
such Holder's Series A Preferred Shares by delivering written notice thereof via
facsimile and overnight courier ("NOTICE OF REDEMPTION AT OPTION OF HOLDER UPON
TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of
Holder Upon Triggering Event shall indicate (i) the number of Series A Preferred
Shares that such Holder is requesting redemption for and (ii) the applicable
Redemption Price, as calculated pursuant to Section 3(b) above.
(g) Redemption At Option of the Company. At any time after the
second anniversary of the Initial Issuance Date, the Company, solely at its
option, may elect to redeem the Series A Preferred Shares, in whole or in part,
pro rata (by number of Series A Preferred Shares held) from all of the Holders
by delivering notice to the Holders of the Company's election to redeem not less
than that number of shares of Series A Preferred Shares which would require an
aggregate Company Redemption Price of at least $500,000 ("NOTICE OF COMPANY
REDEMPTION") at a redemption price per Series A Preferred Share equal to the sum
of (i) 125% of the Stated Value plus (ii) accrued but unpaid dividends thereon
(the "COMPANY REDEMPTION PRICE").
(h) Payment of Redemption Price. Upon (i) the occurrence of a
Major Transaction, (ii) the Company's receipt of a Notice(s) of Redemption at
Option of Holder Upon Triggering Event from any Holder or (iii) the delivery by
the Company of a Notice of Company Redemption, the Company shall immediately
notify each Holder by facsimile of the mechanics of the delivery of each
Holder's Preferred Stock Certificates and each Holder shall thereafter promptly
(or in the case of a Notice of Company Redemption, prior to the specified date)
send such Holder's Preferred Stock Certificates to be redeemed to the Company.
The Company shall
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<PAGE> 12
deliver the applicable Redemption Price or Company Redemption Price, as
applicable, to such Holder (i) within ten (10) days after the Company's delivery
of a Notice of Major Transaction or the Company's receipt of notices to affect a
redemption or (ii) on the date specified on the Notice of Company Redemption,
which date shall be no less than sixty (60) days after delivery of the Notice of
Company Redemption; provided that a Holder's Preferred Stock Certificates shall
have been so delivered to the Company; provided further that if the Company is
unable to redeem all of the Series A Preferred Shares, (i) in the case of the
occurrence of a Major Transaction or receipt of a Notice of Redemption at Option
of Holder Upon Triggering Event, the Company shall redeem an amount from each
Holder equal to such Holder's pro-rata amount (based on the number of Series A
Preferred Shares to be redeemed by such Holder relative to the number of Series
A Preferred Shares to be redeemed by all Holders) of all Series A Preferred
Shares being redeemed and (ii) in the case of the Company Redemption Option, the
Company's redemption election shall be null and void.
(i) In the case of the occurrence of a Major Transaction or
the receipt of Notice(s) of Redemption at Option of Holder Upon Triggering
Event, if the Company shall fail to redeem all of the Series A Preferred Shares
submitted for redemption (other than pursuant to a dispute as to the arithmetic
calculation of the Redemption Price), in addition to any remedy such Holder may
have under this Certificate of Determination and the Securities Purchase
Agreement between the Company and the initial Holders (the "SECURITIES PURCHASE
AGREEMENT"), the Redemption Price payable in respect of such unredeemed Series A
Preferred Shares shall bear interest at the rate of 1.25% per month (prorated
for partial months) until paid in full. In the case of a Triggering Event or
delivery of a Notice of Company Redemption, until the Company pays such unpaid
Redemption Price or Company Redemption Price, as applicable, in full to each
Holder, Holders of the Series A Preferred Shares submitted for redemption
pursuant to this Section 3 and for which the applicable Redemption Price or
Company Redemption Price, as applicable, has not been paid, shall have the
option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu of redemption,
require the Company to promptly return to each Holder all of the Series A
Preferred Shares that were submitted for redemption by such Holder under this
Section 3 and for which the Redemption Price or Company Redemption Price, as
applicable, has not been paid, by sending written notice thereof to the Company
via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Company's
receipt of such Void Optional Redemption Notice(s) and prior to payment of the
full Redemption Price or Company Redemption Price, as applicable, to each
Holder, (i) the Notice(s) of Redemption at Option of Holder Upon Triggering
Event or Notice of Company Redemption shall be null and void with respect to
those Series A Preferred Shares submitted for redemption and for which the
Redemption Price or Company Redemption Price, as applicable, has not been paid,
and (ii) the Company shall immediately return any Series A Preferred Shares
submitted to the Company by each Holder for redemption under this Section 3(i)
and for which the Redemption Price or Company Redemption Price, as applicable,
has not been paid. Notwithstanding the foregoing, in the event of a dispute as
to the determination of the arithmetic calculation of the Redemption Price, or
Company Redemption Price, as applicable, such dispute shall be resolved pursuant
to Section 2(d)(iii) above. Payments provided for in this Section 3 shall have
priority to payments to other stockholders in connection with a Major
Transaction.
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<PAGE> 13
(j) In the event of a Suspension Period, Effectiveness
Suspension Period or Delisting Period, then the Mandatory Conversion Date shall
by extended by the aggregate number of days in all applicable periods multiplied
by 1.5 (the product of which shall be rounded up to the nearest whole number).
Furthermore, in the event of (i) a Suspension Period Default, (ii) a Delisting
Period Default or (iii) an Effectiveness Suspension Period for either any thirty
(30) non-consecutive trading days in any period of 365 consecutive days or for
any six (6) non-consecutive trading days in the 180 day period commencing from
the date the Registration Statement is declared effective, then the Conversion
Percentage then in effect shall be reduced by (x) 0.02 immediately following
such event identified in (i), (ii) or (iii) above and (y) an additional 0.02 for
each aggregated 30 trading days of any of the events set forth in (i), (ii) and
(iii) above after the occurrence of any such event.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon
the Company's receipt of a Conversion Notice, the Company cannot issue shares of
Common Stock registered for resale under the Registration Statement for any
reason, including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law, the Nasdaq Cap or by the rules or
regulations of any stock exchange, interdealer quotation system or other
self-regulatory organization with jurisdiction over the Company or its
securities from issuing all or any portion of the Common Stock which is to be
issued to a Holder pursuant to a Conversion Notice or (z) fails to have a
sufficient number of shares of Common Stock registered for resale under the
Registration Statement, then the Company shall issue as many shares of Common
Stock as it is able to issue in accordance with such Holder's Conversion Notice
and pursuant to Section 2(d) above and, with respect to the unconverted Series A
Preferred Shares, the Holder, solely at such Holder's option, can elect to
(unless the Company issues and delivers the Conversion Shares underlying the
unconverted Series A Preferred Shares prior to the Holder's election hereunder,
in which case such Holder shall only be entitled to receive Buy In Actual
Damages under Section 2(d)(v)):
(i) require the Company to redeem from such Holder
those Series A Preferred Shares for which the Company is unable to
issue Common Stock in accordance with such Holder's Conversion Notice
("REQUIRED REDEMPTION") at a price per Series A Preferred Share (the
"REQUIRED REDEMPTION PRICE") equal to the aggregate of (i) 130% of the
Stated Value plus (ii) accrued but unpaid dividends thereon;
(ii) if the Company's inability to fully convert
Series A Preferred Shares is pursuant to Section 4(a)(z) above, require
the Company to issue restricted shares of Common Stock in accordance
with such Holder's Conversion Notice and pursuant to Section 2(d)
above;
(iii) void its Conversion Notice and retain or have
retained, as the case may be, the nonconverted Series A Preferred
Shares that were to be converted pursuant to such Holder's Conversion
Notice; or
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<PAGE> 14
(iv) if the Company's inability to fully convert
Series A Preferred Shares is pursuant to such rules and regulations
described in Section 4(a)(y) above, require the Company to issue shares
of Common Stock in accordance with such Holder's Conversion Notice and
pursuant to Section 2(d) above at a Conversion Price equal to the
average of the Closing Bid Prices of the Common Stock for the five (5)
consecutive trading days preceding such Holder's Notice in Response to
Inability to Convert (as defined below) (but only if doing so would not
contravene such rules and regulations).
(b) Mechanics of Fulfilling Holder's Election. The Company
shall forthwith send via facsimile to a Holder, upon receipt of a facsimile copy
of a Conversion Notice from such Holder which cannot be fully satisfied as
described in Section 4(a) above, a notice of the Company's inability to fully
satisfy such Holder's Conversion Notice (the "INABILITY TO FULLY CONVERT
NOTICE"). Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such Holder's Conversion Notice, (ii)
the number of Series A Preferred Shares which cannot be converted and (iii) the
applicable Required Redemption Price. Such Holder must within five (5) business
days of receipt of such Inability to Fully Convert Notice deliver written notice
via facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT") of
its election pursuant to Section 4(a) above. Failure to deliver a Notice in
Response to Inability to Convert shall be deemed an election pursuant to Section
4(a)(i).
(c) Payment of Required Redemption Price. If such Holder shall
elect to have its shares redeemed pursuant to Section 4(a)(i) above, the Company
shall pay the Required Redemption Price in cash to such Holder within ten (10)
days of the Company's receipt of the Holder's Notice in Response to Inability to
Convert (the "REQUIRED REDEMPTION PAYMENT PERIOD"). If the Company shall fail to
pay the applicable Required Redemption Price to such holder on a timely basis as
described in this Section 4(c) (other than pursuant to a dispute as to the
determination of the arithmetic calculation of the Required Redemption Price),
in addition to any remedy such Holder may have under this Certificate of
Determination and the Securities Purchase Agreement, such unpaid amount shall
bear interest at the rate of 1.25% per month (prorated for partial months) until
paid in full. From and after the expiration of the Required Redemption Payment
Period until the full Required Redemption Price is paid in full to such Holder,
such Holder may void the Required Redemption with respect to those Series A
Preferred Shares for which the full Required Redemption Price has not been paid
and receive back such Series A Preferred Shares. Notwithstanding the foregoing,
if the Company fails to pay the applicable Required Redemption Price within such
ten (10) day time period due to a dispute as to the determination of the
arithmetic calculation of the Required Redemption Price, such dispute shall be
resolved pursuant to Section 2(d)(iii) above.
(d) Pro-rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one Holder on the same day
and the Company can convert and redeem some, but not all, of the Series A
Preferred Shares pursuant to this Section 4, the Company shall convert and
redeem from each Holder electing to have Series A Preferred Shares converted and
redeemed at such time an amount equal to such Holder's pro-rata amount (based on
the number of Series A Preferred Shares held by such Holder relative to the
number of Series
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<PAGE> 15
A Preferred Shares outstanding) of all Series A Preferred Shares being converted
and redeemed at such time.
(5) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Determination of less than all of the
Series A Preferred Shares represented by a particular Preferred Stock
Certificate, the Company shall promptly cause to be issued and delivered to the
Holder of such Series A Preferred Shares a Preferred Stock Certificate
representing the remaining Series A Preferred Shares which have not been so
converted or redeemed.
(6) Reservation of Shares. The Company shall, so long as any of the
Series A Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred Shares, such number of shares of Common
Stock as shall from time to time be sufficient to effect the conversion of all
of the Series A Preferred Shares then outstanding.
(7) Dividends. The Holders shall be entitled to receive cumulative
dividends at the rate of 3% of the Stated Value per annum per Series A Preferred
Share (the "DIVIDEND"). Such Dividend shall be payable quarterly in arrears on
the last day of March, June, September and December of each year, commencing on
September 30, 1998 (each of such dates being a "DIVIDEND PAYMENT DATE"). Such
Dividend shall accrue on each Series A Preferred Share from the Initial Issuance
Date (with appropriate proration for any partial dividend period) and shall
accrue from day-to-day, whether or not earned or declared. Dividend payments
made with respect to Series A Preferred Shares may be made, subject to the terms
hereof, in cash or, at the option of and in the sole discretion of the Board of
Directors of the Company, in whole or in part, by issuing fully paid and
non-assessable Common Stock (valued at the average Closing Bid Price for the ten
(10) trading days immediately preceding the Dividend Payment Date) plus the
amount of cash dividend paid in part, if any, is equal to the amount of the cash
dividend which would otherwise be paid on such Dividend Payment Date if such
Dividend were paid entirely in cash. The issuance of such Common Stock (plus the
amount of cash dividend, if any, paid together therewith) shall constitute full
payment of such Dividend. In no event shall an election by the Board of
Directors of the Company to pay Dividends, in whole or in part, in cash on any
Dividend Payment Dates preclude the Board of Directors of the Company from
electing any other available alternative in respect of all or any portion of any
subsequent Dividend. On the Initial Issuance Date, the Company shall provide
written notice to the Holders specifying whether Dividends shall be paid in the
future in cash, Common Stock or a specified combination thereof. This notice
shall remain in effect unless the Company delivers a notice changing the
individual payment method at least twenty (20) days prior to a Dividend Payment
Date.
(8) Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
Holders shall be entitled to receive in cash out of the assets of the Company,
whether from capital or from earnings available for distribution to its
stockholders (the "PREFERRED FUNDS"), before any amount shall be paid to the
holders of any of the capital stock of the Company of any class junior in rank
to the Series A Preferred Shares in respect of the preferences as to the
distributions and payments on
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<PAGE> 16
the liquidation, dissolution and winding up of the Company, an amount per Series
A Preferred Share equal to the sum of (i) Stated Value and (ii) all accrued and
unpaid dividends (such sum being referred to as the "LIQUIDATION VALUE");
provided that, if the Preferred Funds are insufficient to pay the full amount
due to the Holders and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Series A Preferred Shares
as to payments of Preferred Funds (the "PARI PASSU SHARES"), then each Holder
and each holder of Pari Passu Shares shall receive a percentage of the Preferred
Funds equal to the full amount of Preferred Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Determination, as a percentage of the full amount of Preferred Funds payable to
all Holders and holders of Pari Passu Shares. The purchase or redemption by the
Company of stock of any class, in any manner permitted by law, shall not, for
the purposes hereof, be regarded as a liquidation, dissolution or winding up of
the Company. Neither the consolidation or merger of the Company with or into any
other Person, nor the sale or transfer by the Company of less than substantially
all of its assets, shall, for the purposes hereof, be deemed to be a
liquidation, dissolution or winding up of the Company.
(9) Preferred Rank. Prior to the one year anniversary of the Initial
Issuance Date, all shares of Common Stock of the Company and all other series of
capital stock authorized or issued by the Company (other than pari passu shares
of preferred stock approved by a majority of the then outstanding Series A
Preferred Shares) shall be of junior rank to all Series A Preferred Shares in
respect to the preferences as to distributions and payments upon the
liquidation, dissolution and winding up of the Company. Following the one year
anniversary of the Initial Issuance Date, as long as the Series A Preferred
Shares initially issued remain outstanding, then without the prior express
written consent of the Holders of not less than a majority of the then
outstanding Series A Preferred Shares, the Company shall not hereafter authorize
or issue additional or other capital stock that is of senior rank to the Series
A Preferred Shares in respect of the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
Without the prior express written consent of the Holders of not less than a
majority of the then outstanding Series A Preferred Shares, the Company shall
not hereafter authorize or make any amendment to the Company's Articles of
Incorporation or bylaws, or file any resolution of the Board of Directors of the
Company with the California Secretary of State containing any provisions, which
would adversely affect or otherwise impair the rights or relative priority of
the Holders relative to the holders of the Common Stock or the holders of any
other class of capital stock. In the event of the merger or consolidation of the
Company whereby the Company is the surviving corporation in such merger or
consolidation (other than a reverse triangular merger), the Series A Preferred
Shares shall maintain their relative powers, designations and preferences
provided for herein and no such merger shall result inconsistent therewith.
(10) Restriction on Redemption and Cash Dividends With Respect to Other
Capital Stock. Until all of the outstanding Series A Preferred Shares have been
converted or redeemed as provided herein, the Company shall not, directly or
indirectly, redeem or declare or pay any cash dividend or distribution on its
Common Stock or any other series of preferred stock of the Company without the
prior express written consent of the Holders of not less than a majority of the
then outstanding Series A Preferred Shares.
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<PAGE> 17
(11) Limitation on Number of Conversion Shares. The Company shall not
be obligated to issue, in the aggregate, more than that number of shares of
Common Stock (such amount to be proportionately and equitably adjusted from time
to time in the event of stock splits, stock dividends, combinations, reverse
stock splits, reclassification, capital reorganizations and similar events
relating to the Common Stock) (the "Nasdaq Cap") that upon conversion of the
Series A Preferred Shares, would constitute a breach of the Company's
obligations under the rules or regulations of Nasdaq or any other principal
securities exchange or trading market upon which the Common Stock becomes
traded; provided, however, that if the Company cannot issue shares of Common
Stock upon receipt of a Conversion Notice due to the Nasdaq Cap, the Company
shall use its best efforts to obtain shareholder approval to exceed the Nasdaq
Cap, and to the extent such approval is not received, then the Holders shall be
entitled to those rights and remedies contained herein, including those rights
and remedies identified in Section 4. The Nasdaq Cap shall be allocated among
the Series A Preferred Shares pro rata based on the total number of authorized
Series A Preferred Shares.
(12) Vote to Change the Terms of Series A Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the Holders of not less than a majority of the
then outstanding Series A Preferred Shares, shall be required for any change to
this Certificate of Determination or the Company's Articles of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series A Preferred Shares.
(13) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Series A
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the Holder to the Company and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new Preferred Stock
Certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue Preferred Stock Certificates if the Holder
contemporaneously requests the Company to convert such Series A Preferred Shares
into Common Stock.
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<PAGE> 18
C. The authorized number of shares of Preferred Stock of said
corporation is 18,000,000, none of which has been issued. The authorized number
of shares of Series A Convertible Preferred Stock of said corporation is 3,000,
none of which has been issued.
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate are true
and correct of our own knowledge.
DATED: August 21, 1998
/s/ MICHAEL K. PERRY
-----------------------------------------
Michael K. Perry, Chief Executive Officer
/s/ STEPHEN P. LOOMIS
-----------------------------------------
Stephen P. Loomis, Secretary
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<PAGE> 1
EXHIBIT 4.2
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND THE SECURITIES
PURCHASE AGREEMENT DATED AS OF AUGUST 21, 1998 BY AND AMONG CARDIODYNAMICS
INTERNATIONAL CORPORATION, AGR HALIFAX FUND, LTD., LEONARDO, L.P., GAM ARBITRAGE
INVESTMENTS, INC., AG SUPER FUND INTERNATIONAL PARTNERS, L.P., RAPHAEL, L.P. AND
RAMIUS FUND, LTD.
CARDIODYNAMICS INTERNATIONAL CORPORATION
COMMON STOCK PURCHASE WARRANT
No. W-[ ] August ___, 1998
Warrant to Purchase
Shares of Common Stock
CARDIODYNAMICS INTERNATIONAL CORPORATION, a California
corporation (the "Company"), for value received, hereby certifies that
_________________________, or registered assigns (the "Holder"), is entitled to
purchase from the Company _______ duly authorized, validly issued, fully paid
and nonassessable shares of Common Stock, no par value per share, of the Company
(the "Common Stock"), at a purchase price equal to $2.55 per share, at any time
or from time to time prior to 5:00 P.M., New York City time, on August 21, 2003
(the "Expiration Date"), all subject to the terms, conditions and adjustments
set forth below in this Warrant.
This Warrant is one of the Common Stock Purchase Warrants
(collectively, the "Warrants", such term to include any such warrants issued in
substitution therefor) originally issued pursuant to the terms of the Securities
Purchase Agreement, dated as of August 21, 1998 by and among the Company, the
Holder and _______________ (the "Purchase Agreement"). The Warrants originally
so issued evidence rights to purchase an aggregate of approximately 123,000
shares of Common Stock subject to adjustment as provided herein.
<PAGE> 2
1. DEFINITIONS. Capitalized terms used herein and not
otherwise defined herein shall have the meanings assigned such terms in the
Purchase Agreement. As used herein, unless the context otherwise requires, the
following terms shall have the meanings indicated:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued or sold (or, pursuant to Section 3.3 or 3.4, deemed to be
issued) by the Company after the date hereof, whether or not subsequently
reacquired or retired by the Company, other than
(a) (i) shares issued upon the exercise of the Warrants and
(ii) such number of additional shares as may become issuable upon the
exercise of the Warrants by reason of adjustments required pursuant to
the anti-dilution provisions applicable to such Warrants as in effect
on the date hereof; and
(b) (i) shares issued under, or issuable upon the exercise of
options granted or to be granted under the Company's stock option plans
as in effect on the date hereof or under any other employee stock
option or purchase plan or plans adopted or assumed after such date by
the Company's Board of Directors; provided in each such case that the
exercise or purchase price for any such share shall not be less than
85% of the fair market value (determined in good faith by the Company's
Board of Directors) of the Common Stock on the date of grant, and (ii)
such additional number of shares as may become issuable pursuant to the
terms of any such plans by reason of adjustments required pursuant to
anti-dilution provisions applicable to such securities in order to
reflect any subdivision or combination of Common Stock, by
reclassification or otherwise, or any dividend on Common Stock payable
in Common Stock.
"Business Day" shall mean any day other than a Saturday or a
Sunday or a day on which commercial banking institutions in the City of New York
are authorized by law to be closed. Any reference to "days" (unless Business
Days are specified) shall mean calendar days.
"Certificate of Determination" shall mean the Company's
Certificate of Determination of Preferences of the Series A Preferred Shares.
"Closing Bid Prices" shall mean for any security as of any
date, the closing bid price of such security on the principal securities
exchange or trade market where such security is listed or trades as reported by
Bloomberg, L.P. ("Bloomberg"), or if the foregoing does not apply, the closing
bid price of such security in the over the counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price is reported for such security by Bloomberg, the average of the bid prices
of any market makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc.
"Common Stock" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any stock into which such
Common Stock shall have been changed or any stock resulting from any
reclassification of such Common Stock, and all other stock of any class or
classes (however designated) of the Company the holders of which have the right,
without limitation as to amount, either to all or to a share of the balance of
current dividends and
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<PAGE> 3
liquidating dividends after the payment of dividends and distributions on any
shares entitled to preference.
"Company" shall have the meaning assigned to it in the
introduction to this Warrant, such term to include any corporation or other
entity which shall succeed to or assume the obligations of the Company hereunder
in compliance with Section 4.
"Convertible Securities" shall mean any evidences of
indebtedness, shares of stock (other than Common Stock) or other securities
directly or indirectly convertible into or exchangeable for Additional Shares of
Common Stock.
"Current Market Price" shall mean, on any date specified
herein, the average daily Closing Bid Prices during the 10 consecutive trading
days before such date, except that, if on any such date the shares of Common
Stock are not listed or admitted for trading on any national securities exchange
or quoted in the over-the-counter market, the Current Market Price shall be the
Fair Value on such date.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Expiration Date" shall have the meaning assigned to it in the
introduction to this Warrant.
"Fair Value" shall mean, on any date specified herein (i) in
the case of cash, the dollar amount thereof, (ii) in the case of a security
admitted for trading on any national securities exchange or quoted in the
over-the-counter market, the Current Market Price, and (iii) in all other cases
determined in good faith jointly by the Company and the Holder; provided,
however, that if such parties are unable to reach agreement within a reasonable
period of time, the Fair Value shall be determined in good faith by an
independent investment banking firm selected jointly by the Company and the
Holder or, if that selection cannot be made within ten days, by an independent
investment banking firm selected by the American Arbitration Association in
accordance with its rules, and provided further, that the Company shall pay all
of the fees and expenses of any third parties incurred in connection with
determining the Fair Value.
"Holder" shall have the meaning assigned to it in the
introduction to this Warrant.
"Options" shall mean any rights, options or warrants to
subscribe for, purchase or otherwise acquire either Additional Shares of Common
Stock or Convertible Securities.
"Other Securities" shall mean any stock (other than Common
Stock) and other securities of the Company or any other Person (corporate or
otherwise) which the holders of the Warrants at any time shall be entitled to
receive, or shall have received, upon the exercise of the Warrants, in lieu of
or in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
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"Person" shall mean any individual, firm, partnership,
corporation, trust, joint venture, association, joint stock company, limited
liability company, unincorporated organization or any other entity or
organization, including a government or agency or political subdivision thereof,
and shall include any successor (by merger or otherwise) of such entity.
"Purchase Agreement" shall have the meaning assigned to it in
the introduction to this Warrant.
"Purchase Price" shall mean initially $2.55 per share, subject
to adjustment and readjustment from time to time as provided in Section 3, and,
as so adjusted or readjusted, shall remain in effect until a further adjustment
or readjustment thereof is required by Section 3.
"Registration Rights Agreement" shall mean the Registration
Rights Agreement, dated as of August 21, 1998, substantially in the form of
Exhibit C to the Purchase Agreement.
"Rights" shall have the meaning assigned to it in Section
3.10.
"Securities Act" shall mean the Securities Act of 1933, as
amended from time to time, and the rules and regulations thereunder, or any
successor statute.
"Warrants" shall have the meaning assigned to it in the
introduction to this Warrant.
2. EXERCISE OF WARRANT.
2.1. Manner of Exercise; Payment of the Purchase Price. (a)
This Warrant may be exercised by the Holder hereof, in whole or in part (but not
for less than 5,000 shares of Common Stock), at any time or from time to time
prior to the Expiration Date, by surrendering to the Company at its principal
office this Warrant, with the form of Election to Purchase Shares attached
hereto as Exhibit A (or a reasonable facsimile thereof) duly executed by the
Holder and accompanied by payment of the Purchase Price for the number of shares
of Common Stock specified in such form.
(b) Payment of the Purchase Price shall be made in United
States currency by cash or delivery of a cashiers check payable to the order of
the Company or by wire transfer to the Company.
2.2. When Exercise Effective. Each exercise of this Warrant
shall be deemed to have been effected immediately prior to the close of business
on the Business Day on which this Warrant shall have been surrendered to, and
the Purchase Price shall have been received by, the Company as provided in
Section 2.1, and at such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock (or Other Securities)
shall be issuable upon such exercise as provided in Section 2.3 shall be deemed
to have become the holder or holders of record thereof for all purposes.
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2.3. Delivery of Stock Certificates, etc.; Charges, Taxes and
Expenses. (a) As soon as practicable after each exercise of this Warrant, in
whole or in part, and in any event within three Business Days thereafter, the
Company shall cause to be issued in the name of and delivered to the Holder
hereof or, subject the Purchase Agreement, as the Holder may direct,
(i) a certificate or certificates, or, if then permissible
under the Securities Act, at a Holder's request electronically issue
such shares (e.g., through DWAC or DTC), for the number of shares of
Common Stock (or Other Securities) to which the Holder shall be
entitled upon such exercise plus, in lieu of issuance of any fractional
share to which the Holder would otherwise be entitled, if any, a check
for the amount of cash equal to the same fraction multiplied by the
Current Market Price per share on the date of Warrant exercise, and
(ii) in case such exercise is for less than all of the shares
of Common Stock purchasable under this Warrant, a new Warrant or
Warrants of like tenor, for the balance of the shares of Common Stock
purchasable hereunder.
(b) Issuance of certificates for shares of Common Stock upon
the exercise of this Warrant shall be made without charge to the Holder hereof
for any issue or transfer tax or other incidental expense, in respect of the
issuance of such certificates, all of which such taxes and expenses shall be
paid by the Company.
2.4. Company to Reaffirm Obligations. The Company shall, at
the time of each exercise of this Warrant, upon the request of the Holder
hereof, acknowledge in writing its continuing obligation to afford to such
Holder all rights to which such Holder shall continue to be entitled after such
exercise in accordance with the terms of this Warrant, provided that if the
Holder of this Warrant shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford such rights to the
Holder.
3. ADJUSTMENT OF COMMON STOCK ISSUABLE UPON EXERCISE.
3.1. Adjustment of Number of Shares.
Upon each adjustment of the Purchase Price as a
result of the calculations made in this Section 3, this Warrant shall thereafter
evidence the right to receive, at the adjusted Purchase Price, that number of
shares of Common Stock (calculated to the nearest one-hundredth) obtained by
dividing (i) the product of the aggregate number of shares covered by this
Warrant immediately prior to such adjustment and the Purchase Price in effect
immediately prior to such adjustment of the Purchase Price by (ii) the Purchase
Price in effect immediately after such adjustment of the Purchase Price.
3.2. Adjustment of Purchase Price.
3.2.1. Issuance of Additional Shares of Common Stock. In case
the Company at any time or from time to time after the date hereof shall issue
or sell Additional Shares of Common Stock (including Additional Shares of Common
Stock deemed to be issued pursuant to
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Section 3.3 or 3.4 but excluding Additional Shares of Common Stock purchasable
upon exercise of Rights referred to in Section 3.10), without consideration or
for a consideration per share less than the Purchase Price, as in effect
immediately prior to such issue or sale, then, subject to Section 3.8, the
Purchase Price shall be reduced, concurrently with such issue or sale, to a
price (calculated to the nearest .001 of a dollar) determined by multiplying
such Purchase Price by a fraction
(a) the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issue
or sale and (ii) the number of shares of Common Stock which the gross
consideration received by the Company for the total number of such
Additional Shares of Common Stock so issued or sold would purchase at
the Purchase Price, and
(b) the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such issue or sale, provided
that, for the purposes of this Section 3.2.1, immediately after any
Additional Shares of Common Stock are deemed to have been issued
pursuant to Section 3.3 or 3.4, such Additional Shares shall be deemed
to be outstanding.
3.2.2. Extraordinary Dividends and Distributions. In case the
Company at any time or from time to time after the date hereof shall declare,
order, pay or make a dividend or other distribution (including, without
limitation, any distribution of other or additional stock or other securities or
property or Options by way of dividend or spin-off, reclassification,
recapitalization or similar corporate rearrangement) on the Common Stock, then,
in each such case, subject to Section 3.8, the Purchase Price in effect
immediately prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive such
dividend or distribution shall be reduced, effective as of the close of business
on such record date, to a price determined by multiplying such Purchase Price by
a fraction
(x) the numerator of which shall be the Current Market Price
in effect on such record date or, if the Common Stock trades on an
ex-dividend basis, on the date prior to the commencement of ex-dividend
trading, less the Fair Value of such dividend or distribution
applicable to one share of Common Stock, and
(y) the denominator of which shall be such Current Market
Price.
3.3. Treatment of Options and Convertible Securities. In case
the Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities of the Company entitled to receive, any
Options or Convertible Securities (whether or not the rights thereunder are
immediately exercisable), then, and in each such case, the maximum number of
Additional Shares of Common Stock (as set forth in the instrument relating
thereto, without regard to any provisions contained therein for a subsequent
adjustment of such number) issuable upon the exercise of such Options or, in the
case of Convertible Securities and Options therefor, the conversion or exchange
of such Convertible Securities, shall be deemed to be Additional Shares
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of Common Stock issued as of the time of such issue, sale, grant or assumption
or, in case such a record date shall have been fixed, as of the close of
business on such record date (or, if the Common Stock trades on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading), provided
that such Additional Shares of Common Stock shall not be deemed to have been
issued unless (i) the consideration per share (determined pursuant to Section
3.5) of such shares would be less than the Purchase Price as in effect on the
date of and immediately prior to such issue, sale, grant or assumption or
immediately prior to the close of business on such record date (or, if the
Common Stock trades on an ex-dividend basis, on the date prior to the
commencement of ex-dividend trading), as the case may be and (ii) such
Additional Shares of Common Stock are not purchasable pursuant to Rights
referred to in Section 3.10, and provided, further, that
(a) whether or not the Additional Shares of Common Stock
underlying such Options or Convertible Securities are deemed to be
issued, no further adjustment of the Purchase Price shall be made upon
the subsequent issue or sale of Convertible Securities or shares of
Common Stock upon the exercise of such Options or the conversion or
exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Shares of Common Stock issuable, upon the exercise,
conversion or exchange thereof (by change of rate or otherwise), the
Purchase Price computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date
prior to the commencement of ex-dividend trading, as the case may be,
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options, or the rights of conversion or exchange under such
Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and
cancellation or retirement) of any such Options which shall not have
been exercised or the expiration of any rights of conversion or
exchange under any such Convertible Securities which (or purchase by
the Company and cancellation or retirement of any such Convertible
Securities the rights of conversion or exchange under which) shall not
have been exercised, the Purchase Price computed upon the original
issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading,
as the case may be, with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration (or such
cancellation or retirement, as the case may be), be recomputed as if:
(i) in the case of Options for Common Stock or
Convertible Securities, the only Additional Shares of Common
Stock issued or sold were the Additional Shares of Common
Stock, if any, actually issued or sold upon the exercise of
such Options or the conversion or exchange of such Convertible
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Securities and the consideration received therefor was the
consideration actually received by the Company for the issue,
sale, grant or assumption of all such Options, whether or not
exercised, plus the consideration actually received by the
Company upon such exercise, or for the issue or sale of all
such Convertible Securities which were actually converted or
exchanged, plus the additional consideration, if any, actually
received by the Company upon such conversion or exchange, and
(ii) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually
issued or sold upon the exercise of such Options were issued
at the time of the issue or sale, grant or assumption of such
Options, and the consideration received by the Company for the
Additional Shares of Common Stock deemed to have then been
issued was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options,
whether or not exercised, plus the consideration deemed to
have been received by the Company (pursuant to Section 3.5)
upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above
shall have the effect of increasing the Purchase Price by an amount in
excess of the amount of the adjustment thereof originally made in
respect of the issue, sale, grant or assumption of such Options or
Convertible Securities; and
(e) in the case of any such Options which expire by their
terms not more than 30 days after the date of issue, sale, grant or
assumption thereof, no adjustment of the Purchase Price shall be made
until the expiration or exercise of all such Options, whereupon such
adjustment shall be made in the manner provided in subdivision (c)
above.
(f) the provisions of this Section 3.3 shall not be applicable
to up to one million Additional Shares of Common Stock which may be
issued upon the exercise of Options granted under the Company's 1995
Stock Option/Stock Issuance Plan, as amended May 20, 1998.
3.4. Treatment of Stock Dividends, Stock Splits, etc. In case
the Company at any time or from time to time after the date hereof shall declare
or pay any dividend on the Common Stock payable in Common Stock, or shall effect
a subdivision of the outstanding shares of Common Stock into a greater number of
shares of Common Stock (by reclassification or otherwise than by payment of a
dividend in Common Stock), then, and in each such case, Additional Shares of
Common Stock shall be deemed to have been issued (a) in the case of any such
dividend, immediately after the close of business on the record date for the
determination of holders of any class of securities entitled to receive such
dividend, or (b) in the case of any such subdivision, at the close of business
on the day immediately prior to the day upon which such corporate action becomes
effective.
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3.5. Computation of Consideration. For the purposes of this
Section 3,
(a) the consideration for the issue or sale of any Additional
Shares of Common Stock shall, irrespective of the accounting treatment
of such consideration,
(i) insofar as it consists of cash, be computed at
the amount of cash received by the Company, without deducting
any expenses paid or incurred by the Company or any
commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar
services in connection with such issue or sale,
(ii) insofar as it consists of property (including
securities) other than cash, be computed at the Fair Value
thereof at the time of such issue or sale, and
(iii) in case Additional Shares of Common Stock are
issued or sold together with other stock or securities or
other assets of the Company for a consideration which covers
both, be the portion of such consideration so received,
computed as provided in clauses (i) and (ii) above, allocable
to such Additional Shares of Common Stock, such allocation to
be determined in the same manner that the Fair Value of
property not consisting of cash or securities is to be
determined as provided in the definition of 'Fair Value'
herein;
(b) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.3, relating to Options and Convertible
Securities, shall be deemed to have been issued for a consideration per
share determined by dividing
(i) the total amount, if any, received and receivable
by the Company as consideration for the issue, sale, grant or
assumption of the Options or Convertible Securities in
question, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating
thereto, without regard to any provision contained therein for
a subsequent adjustment of such consideration to protect
against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for
Convertible Securities and the conversion or exchange of such
Convertible Securities, in each case computing such
consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of shares of Common Stock (as
set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment
of such number to protect against dilution) issuable upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities; and
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(c) Additional Shares of Common Stock deemed to have been
issued pursuant to Section 3.4, relating to stock dividends, stock
splits, etc., shall be deemed to have been issued for no consideration.
3.6. Adjustments for Combinations, etc. In case the
outstanding shares of Common Stock shall be combined or consolidated, by
reclassification or otherwise, into a lesser number of shares of Common Stock,
the Purchase Price in effect immediately prior to such combination or
consolidation shall, concurrently with the effectiveness of such combination or
consolidation, be proportionately increased.
3.7. Dilution in Case of Other Securities. In case any Other
Securities shall be issued or sold or shall become subject to issue or sale upon
the conversion or exchange of any stock (or Other Securities) of the Company (or
any issuer of Other Securities or any other Person referred to in Section 4) or
to subscription, purchase or other acquisition pursuant to any Options issued or
granted by the Company (or any such other issuer or Person) for a consideration
such as to dilute, on a basis consistent with the standards established in the
other provisions of this Section 3, the purchase rights granted by this Warrant,
then, and in each such case, the computations, adjustments and readjustments
provided for in this Section 3 with respect to the Purchase Price and the number
of shares purchasable upon Warrant exercise shall be made as nearly as possible
in the manner so provided and applied to determine the amount of Other
Securities from time to time receivable upon the exercise of the Warrants, so as
to protect the holders of the Warrants against the effect of such dilution.
3.8. De Minimis Adjustments. If the amount of any adjustment
of the Purchase Price per share required pursuant to this Section 3 would be
less than $.01, such amount shall be carried forward and adjustment with respect
thereto made at the time of and together with any subsequent adjustment which,
together with such amount and any other amount or amounts so carried forward,
shall aggregate a change in the Purchase Price of at least $.01 per share. All
calculations under this Warrant shall be made to the nearest .001 of a dollar or
to the nearest one-hundredth of a share, as the case may be.
3.9. Abandoned Dividend or Distribution. If the Company shall
take a record of the holders of its Common Stock for the purpose of entitling
them to receive a dividend or other distribution (which results in an adjustment
to the Purchase Price under the terms of this Warrant) and shall, thereafter,
and before such dividend or distribution is paid or delivered to shareholders
entitled thereto, legally abandon its plan to pay or deliver such dividend or
distribution, then any adjustment made to the Purchase Price and number of
shares of Common Stock purchasable upon Warrant exercise by reason of the taking
of such record shall be reversed, and any subsequent adjustments, based thereon,
shall be recomputed.
3.10. Shareholder Rights Plan. Notwithstanding the foregoing,
in the event that the Company shall distribute "poison pill" rights pursuant to
a "poison pill" shareholder rights plan (the "Rights"), the Company shall, in
lieu of making any adjustment pursuant to Section 3.2.1 or Section 3.2.2 hereof,
make proper provision so that each Holder who exercises a Warrant after the
record date for such distribution and prior to the expiration or redemption of
the Rights
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shall be entitled to receive upon such exercise, in addition to the shares of
Common Stock issuable upon such exercise, a number of Rights to be determined as
follows: (i) if such exercise occurs on or prior to the date for the
distribution to the holders of Rights of separate certificates evidencing such
Rights (the "Distribution Date"), the same number of Rights to which a holder of
a number of shares of Common Stock equal to the number of shares of Common Stock
issuable upon such exercise at the time of such exercise would be entitled in
accordance with the terms and provisions of and applicable to the Rights; and
(ii) if such exercise occurs after the Distribution Date, the same number of
Rights to which a holder of the number of shares into which the Warrant so
exercised was exercisable immediately prior to the Distribution Date would have
been entitled on the Distribution Date in accordance with the terms and
provisions of and applicable to the Rights, and in each case subject to the
terms and conditions of the Rights.
4. CONSOLIDATION, MERGER, ETC.
4.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Common Stock or Other Securities shall be changed
into or exchanged for stock or other securities of any other Person or cash or
any other property, or (c) shall transfer all or substantially all of its
properties or assets to any other Person, or (d) shall effect a capital
reorganization or reclassification of the Common Stock or Other Securities
(other than a capital reorganization or reclassification resulting in the issue
of Additional Shares of Common Stock for which adjustment in the Purchase Price
is provided in Section 3.2.1 or 3.2.2), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder of this Warrant,
upon the exercise hereof at any time after the consummation of such transaction
shall be entitled to receive (at the aggregate Purchase Price in effect at the
time of such consummation for all Common Stock or Other Securities issuable upon
such exercise immediately prior to such consummation), in lieu of the Common
Stock or Other Securities issuable upon such exercise prior to such
consummation, the amount of securities, cash or other property to which such
Holder would actually have been entitled as a shareholder upon such consummation
if such Holder had exercised this Warrant immediately prior thereto, subject to
adjustments (subsequent to such consummation) as nearly equivalent as possible
to the adjustments provided for in Sections 3 through 5.
4.2. Assumption of Obligations. Notwithstanding anything
contained in the Warrants or in the Purchase Agreement to the contrary, the
Company shall not effect any of the transactions described in clauses (a)
through (d) of Section 4.1 unless, prior to the consummation thereof, each
Person (other than the Company) which may be required to deliver any stock,
securities, cash or property upon the exercise of this Warrant as provided
herein shall assume, by written instrument delivered to, and reasonably
satisfactory to, the Holder of this Warrant, (a) the obligations of the Company
under this Warrant (and if the Company shall survive the consummation of such
transaction, such assumption shall be in addition to, and shall not release the
Company from, any continuing obligations of the Company under this Warrant) and
(b) the
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obligation to deliver to the Holder such shares of stock, securities, cash or
property as, in accordance with the foregoing provisions of this Section 4, the
Holder may be entitled to receive. Nothing in this Section 4 shall be deemed to
authorize the Company to enter into any transaction not otherwise permitted by
the Purchase Agreement.
5. OTHER DILUTIVE EVENTS. In case any event shall occur as to
which the provisions of Section 3 or Section 4 hereof are not strictly
applicable or if strictly applicable would not fairly protect the purchase
rights of the Holder in accordance with the essential intent and principles of
such Sections, then, in each such case, the Board of Directors of the Company
shall make an adjustment in the application of such provisions, in accordance
with such essential intent and principles, so as to preserve, without dilution,
the purchase rights represented by this Warrant.
6. NO DILUTION OR IMPAIRMENT. The Company shall not, by
amendment of its articles of incorporation or through any consolidation, merger,
reorganization, transfer of assets, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or performance
of any of the terms of this Warrant, but will at all times in good faith assist
in the carrying out of all such terms and in the taking of all such action as
may be necessary or appropriate in order to protect the rights of the Holder of
this Warrant against dilution or other impairment. Without limiting the
generality of the foregoing, the Company (a) shall take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock, free from all taxes, liens,
security interests, encumbrances, preemptive rights and charges on the exercise
of the Warrants from time to time outstanding, and (b) shall not take any action
which results in any adjustment of the Purchase Price if the total number of
shares of Common Stock (or Other Securities) issuable after the action upon the
exercise of all of the Warrants would exceed the total number of shares of
Common Stock (or Other Securities) then authorized by the Company's articles of
incorporation and available for the purpose of issue upon such exercise.
7. CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
issuable upon the exercise of this Warrant, the Company at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms of
this Warrant and prepare a certificate, signed by the Chairman of the Board,
Chief Executive Officer, President or one of the Vice Presidents of the Company,
and by the Chief Financial Officer, the Treasurer or one of the Assistant
Treasurers of the Company, setting forth such adjustment or readjustment and
showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
Additional Shares of Common Stock issued or sold or deemed to have been issued,
(b) the number of shares of Common Stock outstanding or deemed to be
outstanding, and (c) the Purchase Price in effect immediately prior to such
issue or sale and as adjusted and readjusted (if required by Section 3) on
account thereof. The Company shall forthwith mail a copy of each such
certificate to each holder of a Warrant and shall, upon the written request at
any time of any holder of a Warrant, furnish to such holder a like certificate.
The Company shall also keep copies of all such certificates at its principal
office and shall cause the same to be available for
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inspection at such office during normal business hours by any holder of a
Warrant or any prospective purchaser of a Warrant designated by the holder
thereof. The Company shall, upon the request in writing of the Holder (at the
Company's expense), retain independent public accountants of recognized national
standing selected by the Board of Directors of the Company to make any
computation required in connection with adjustments under this Warrant, and a
certificate signed by such firm shall be conclusive evidence of the correctness
of such adjustment, which shall be binding on the Holder and the Company.
8. NOTICES OF CORPORATE ACTION. In the event of:
(a) any taking by the Company of a record of the holders of
any class of securities for the purpose of determining the holders
thereof who are entitled to receive any dividend 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
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the
Company, any consolidation or merger involving the Company and any
other Person, any transaction or series of transactions in which more
than 50% of the voting securities of the Company are transferred to
another Person, or any transfer, sale or other disposition of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company shall mail to each holder of a Warrant a notice specifying (i) the
date or expected 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 (ii) the date or expected date on which any
such reorganization, reclassification, recapitalization, consolidation, merger,
transfer, sale, disposition, dissolution, liquidation or winding-up is to take
place and the time, if any such time is to be fixed, as of which the holders of
record of Common Stock (or Other Securities) shall be entitled to exchange their
shares of Common Stock (or Other Securities) for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 20 days prior to the date
therein specified.
9. REGISTRATION OF COMMON STOCK. If any shares of Common Stock
required to be reserved for purposes of exercise of this Warrant require
registration with or approval of any governmental authority under any federal or
state law (other than the Securities Act) before such shares may be issued upon
exercise, the Company shall, at its expense and as expeditiously as possible,
use its reasonable best efforts to cause such shares to be duly registered or
approved, as the case may be. At any such time as Common Stock is listed on any
national securities exchange or trade market, the Company shall, at its expense,
obtain promptly and maintain the approval for listing on each such exchange or
trade market, upon official notice of issuance, the shares of Common Stock
issuable upon exercise of the then outstanding Warrants
13
<PAGE> 14
and maintain the listing of such shares after their issuance; and the Company
shall also list on such national securities exchange or trade market, shall
register under the Exchange Act and shall maintain such listing of, any Other
Securities that at any time are issuable upon exercise of the Warrants, if and
at the time that any securities of the same class shall be listed on such
national securities exchange or trade market by the Company.
10. REGISTRATION AND TRANSFER OF WARRANTS, ETC.
10.1. Warrant Register; Ownership of Warrants. Each Warrant
issued by the Company shall be numbered and shall be registered in a warrant
register (the "Warrant Register") as it is issued and transferred, which Warrant
Register shall be maintained by the Company at its principal office or, at the
Company's election and expense, by a Warrant Agent or the Company's transfer
agent. The Company shall be entitled to treat the registered Holder of any
Warrant on the Warrant Register as the owner in fact thereof for all purposes
and shall not be bound to recognize any equitable or other claim to or interest
in such Warrant on the part of any other Person, and shall not be affected by
any notice to the contrary. A Warrant, if properly assigned, may be exercised by
a new holder without a new Warrant first having been issued.
10.2. Transfer of Warrants. Subject to the legend on the first
page hereof, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of shares of
Common Stock with respect to which rights under this Warrant were not so
transferred and to the transferee a new Warrant of like tenor, in the name of
the transferee, which shall be exercisable for such number of shares of Common
Stock with respect to which rights under this Warrant were so transferred.
10.3. Replacement of Warrants. On receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
10.4. Adjustments To Purchase Price and Number of Shares.
Notwithstanding any adjustment in the Purchase Price or in the number or kind of
shares of Common Stock purchasable upon exercise of this Warrant, any Warrant
theretofore or thereafter issued may continue to express the same number and
kind of shares of Common Stock as are stated in this Warrant, as initially
issued.
10.5. Fractional Shares. Notwithstanding any adjustment
pursuant to Section 3 in the number of shares of Common Stock covered by this
Warrant or any other provision of this Warrant, the Company shall not be
required to issue fractions of shares upon exercise of this Warrant or to
distribute certificates which evidence fractional shares. In lieu of fractional
shares,
14
<PAGE> 15
the Company shall make payment to the Holder, at the time of exercise of this
Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of a share of Common Stock on the date of
Warrant exercise.
11. REMEDIES; SPECIFIC PERFORMANCE. The Company stipulates
that there would be no adequate remedy at law to the Holder of this Warrant in
the event of any default or threatened default by the Company in the performance
of or compliance with any of the terms of this Warrant and accordingly, the
Company agrees that, in addition to any other remedy to which the Holder may be
entitled at law or in equity, the Holder shall be entitled to seek to compel
specific performance of the obligations of the Company under this Warrant,
without the posting of any bond, in accordance with the terms and conditions of
this Warrant in any court of the United States or any State thereof having
jurisdiction, and if any action should be brought in equity to enforce any of
the provisions of this Warrant, the Company shall not raise the defense that
there is an adequate remedy at law. Except as otherwise provided by law, a delay
or omission by the Holder hereto in exercising any right or remedy accruing upon
any such breach shall not impair the right or remedy or constitute a waiver of
or acquiescence in any such breach. No remedy shall be exclusive of any other
remedy. All available remedies shall be cumulative.
12. NO RIGHTS OR LIABILITIES AS SHAREHOLDER. Nothing contained
in this Warrant shall be construed as conferring upon the Holder hereof any
rights as a shareholder of the Company or as imposing any obligation on the
Holder to purchase any securities or as imposing any liabilities on the Holder
as a shareholder of the Company, whether such obligation or liabilities are
asserted by the Company or by creditors of the Company.
13. NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given hereunder must be in writing
and will be deemed to have been delivered (i) upon receipt, when delivered
personally; (ii) upon receipt, when sent by facsimile, provided a copy is mailed
by U.S. certified mail, return receipt requested; (iii) three (3) business days
after being sent by U.S. certified mail, return receipt requested, or (iv) one
(1) business day after deposit with a nationally recognized overnight delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
CardioDynamics International Corporation
6175 Nancy Ridge Drive
Suite 300
San Diego, CA 92121
Telephone: (619) 535-0202
Facsimile: (619) 623-8414
Attention: Chief Financial Officer
15
<PAGE> 16
With a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street
Suite 1300
San Diego, CA 92101-3532
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
Attention: Hayden J. Trubitt, Esq.
If to a Holder, to its address and facsimile number on the
register maintained by the Company. Each party shall provide five (5) days'
prior written notice to the other party of any change in address or facsimile
number. Notwithstanding the foregoing, the exercise of any Warrant shall be
effective in the manner provided in Section 2.
14. AMENDMENTS. This Warrant and any term hereof may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the party against which enforcement of such
amendment, modification, supplement, termination or consent to departure is
sought.
15. DESCRIPTIVE HEADINGS, ETC. The headings in this Warrant
are for convenience of reference only and shall not limit or otherwise affect
the meaning of terms contained herein. Unless the context of this Warrant
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Warrant shall
refer to this Warrant as a whole and not to any particular provision of this
Warrant, and Section and paragraph references are to the Sections and paragraphs
of this Warrant unless otherwise specified; (4) the word "including" and words
of similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (5) "or" is not exclusive; and (6)
provisions apply to successive events and transactions.
16. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to the conflict of laws principles thereof).
17. JUDICIAL PROCEEDINGS; WAIVER OF JURY. Any legal action,
suit or proceeding brought against the Company with respect to this Warrant may
be brought in any federal court of the Southern District of New York or any
state court located in New York County, State of New York, and by execution and
delivery of this Warrant, the Company hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. The Company hereby irrevocably and
unconditionally consents to the service of process of any of the aforementioned
courts in any such action, suit or proceeding by
16
<PAGE> 17
the mailing of copies thereof by registered or certified mail, postage prepaid,
at its address set forth or provided for in Section 14, such service to become
effective 10 days after such mailing. Nothing herein contained shall be deemed
to affect the right of any party to serve process in any manner permitted by law
or commence legal proceedings or otherwise proceed against any other party in
any other jurisdiction to enforce judgments obtained in any action, suit or
proceeding brought pursuant to this Section. The Company irrevocably submits to
the executive jurisdiction of the aforementioned courts in such action, suit or
proceeding. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY JURY IN ANY ACTION,
SUIT, OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY IT OR THE HOLDER IN
CONNECTION WITH THIS WARRANT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
18. REGISTRATION RIGHTS AGREEMENT. The shares of Common Stock
(and Other Securities) issuable upon exercise of this Warrant (or upon
conversion of any Other Securities issued upon such exercise) shall constitute
Registrable Securities (as such term is defined in the Registration Rights
Agreement). Each holder of this Warrant shall be entitled to all of the benefits
afforded to a holder of any such Registrable Securities under the Registration
Rights Agreement and such holder, by its acceptance of this Warrant, agrees to
be bound by and to comply with the terms and conditions of the Registration
Rights Agreement applicable to such holder as a holder of such Registrable
Securities.
CARDIODYNAMICS INTERNATIONAL
CORPORATION
By: /s/ MICHAEL K. PERRY
-----------------------------------
Name: Michael K. Perry
Title: CEO
17
<PAGE> 18
EXHIBIT A to
Common Stock Purchase Warrant
[FORM OF]
ELECTION TO PURCHASE SHARES
The undersigned hereby irrevocably elects to exercise the
Warrant to purchase ____ shares of Common Stock, no par value per share ("Common
Stock"), of CARDIODYNAMICS INTERNATIONAL CORPORATION and hereby makes payment of
$________ therefor. The undersigned hereby requests that certificates for such
shares be issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------------------
(NAME)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
- --------------------------------------------------------------------------------
(SOCIAL SECURITY OR OTHER IDENTIFYING NUMBER)
DELIVER TO:
---------------------------------------------------------------------
(NAME)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
If the number of shares of Common Stock purchased hereby is
less than the number of shares of Common Stock covered by the Warrant, the
undersigned requests that a new Warrant representing the number of shares of
Common Stock not so purchased be issued and delivered as follows:
ISSUE TO:
-----------------------------------------------------------------------
(NAME OF HOLDER)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
DELIVER TO:
---------------------------------------------------------------------
(NAME OF HOLDER)
- --------------------------------------------------------------------------------
(ADDRESS, INCLUDING ZIP CODE)
Dated: [NAME OF HOLDER]
-----------------
By
------------------------------
Name:
Title:
<PAGE> 19
EXHIBIT B to
Common Stock Purchase Warrant
[FORM OF] ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto the Assignee named below all of the rights of the undersigned to
purchase Common Stock, no par value per share ("Common Stock") of CARDIODYNAMICS
INTERNATIONAL CORPORATION represented by the Warrant, with respect to the number
of shares of Common Stock set forth below:
<TABLE>
<CAPTION>
Social Security Number or
Name of Assignee Address Tax Identification Number No. of Shares
- ---------------- ------- ------------------------- -------------
<S> <C> <C> <C>
</TABLE>
and does hereby irrevocably constitute and appoint ________ Attorney to make
such transfer on the books of CARDIODYNAMICS INTERNATIONAL CORPORATION
maintained for that purpose, with full power of substitution in the premises.
Dated: [NAME OF HOLDER]
---------------------
By
------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 99.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of
August 21, 1998, by and among CardioDynamics International Corporation, a
California corporation, with headquarters located at 6175 Nancy Ridge Drive,
Suite 300, San Diego, California 92121 (the "COMPANY"), and the investors listed
on the Schedule of Buyers attached hereto (individually, a "BUYER" and
collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering
this Agreement in reliance upon the exemption from securities registration
afforded by Rule 506 of Regulation D ("REGULATION D") as promulgated by the
United States Securities and Exchange Commission (the "SEC") under the
Securities Act of 1933, as amended (the "1933 ACT");
B. The Company has authorized shares of the Company's
preferred stock, no par value per share, designated as Series A Convertible
Preferred Stock ("SERIES A PREFERRED STOCK") and the Company shall authorize in
accordance with the terms hereof the following series of the Company's preferred
stock, no par value per share: (i) Series B Convertible Preferred Stock ("SERIES
B PREFERRED STOCK"); and (ii) Series C Convertible Preferred Stock ("SERIES C
PREFERRED STOCK") (collectively, the Series A Preferred Stock, the Series B
Preferred Stock and the Series C Preferred Stock are collectively referred to
herein as the "PREFERRED STOCK") each series of which shall be convertible into
shares of the Company's Common Stock, no par value per share (the "COMMON
Stock") (as converted, the "CONVERSION SHARES"), each in accordance with terms
substantially identical to those contained in the Company's Certificate of
Determination of the Series A Preferred Stock, in the form attached hereto as
Exhibit A (the "CERTIFICATE OF DETERMINATION"), provided that such Certificates
of Determination for the Series B Preferred Stock and Series C Preferred Stock
shall contain differing Fixed Conversion Prices (as shall be defined therein);
C. The Company has authorized the issuance of Common Stock
Purchase Warrants (the "WARRANTS"), to acquire shares of Common Stock (such
shares of Common Stock issued upon exercise of the Warrants are hereinafter
referred to as the "WARRANT SHARES");
D. The Buyers wish to purchase for $3 million, upon the terms
and conditions stated in this Agreement, an aggregate of 3,000 shares of Series
A Preferred Stock (the "INITIAL PREFERRED STOCK") in the respective amounts set
forth opposite each Buyer's name on the Schedule of Buyers; and to receive, in
consideration for such purchase, the Warrants, to purchase an aggregate of
123,000 shares of Common Stock, subject to adjustment as provided therein in the
form attached hereto as Exhibit B;
E. Subject to the terms and conditions set forth in this
Agreement, the Buyers have the right to purchase up to an aggregate of 3,000
shares of Series B Preferred Stock (the "ADDITIONAL PREFERRED STOCK") and the
Company has the right to cause the Buyers to purchase up to an aggregate of
3,000 shares of Series C Preferred Stock (the "PUT PREFERRED STOCK").
<PAGE> 2
The Series A Preferred Stock, the Series B Preferred Stock, the Series C
Preferred Stock, the Warrant Shares, the Warrants and the Conversion Shares are
collectively referred to in this Agreement as the "SECURITIES"; and
F. Contemporaneously with the execution and delivery of this
Agreement, the parties hereto are executing and delivering a Registration Rights
Agreement in the form attached hereto as Exhibit C (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as
follows:
1. PURCHASE AND SALE OF PREFERRED STOCK.
a. Purchase of Series A Preferred Stock. Subject to
the satisfaction (or waiver) of the conditions set forth in Sections 6 and 7(a)
below, the Company shall issue and sell to the Buyers and the Buyers shall
purchase from the Company Series A Preferred Stock, in the respective amounts
set forth opposite each Buyer's name on the Schedule of Buyers (the "INITIAL
CLOSING"). Subject to the terms and conditions set forth in Section 1(c) and
satisfaction of the conditions set forth in Sections 6 and 7(b), at the option
of each Buyer, the Company shall issue and sell to each such Buyer and each such
Buyer shall purchase from the Company the Additional Preferred Stock at an
additional closing (the "ADDITIONAL CLOSINGS"). Subject to the terms and
conditions set forth in Section 1(d) and satisfaction of the conditions set
forth in Sections 6 and 7(c), the Company may require that each Buyer purchase
in the aggregate the Put Preferred Stock, equal to such Buyer's pro rata portion
of Series A Preferred Stock at an additional closing up to the number of shares
set forth opposite such Buyer's name on the Schedule of Buyers; provided,
however, that if a Buyer has already purchased an amount equal to the number of
shares set forth opposite such Buyer' s name on the Schedule of Buyers, the
Company may require the remaining Buyers to purchase in pro rata portions (the
"PUT CLOSING"). The Initial Closing, the Additional Closing and the Put Closing
are referred to in this Agreement as the "CLOSINGS." The per share purchase
price (the "PURCHASE PRICE") of each share of Preferred Stock at each of the
Closings shall be $1,000. On each Closing Date, the Company shall deliver to
each Buyer a stock certificate representing such number of shares of Preferred
Stock which such Buyer is then purchasing, duly executed on behalf of the
Company and registered in the name of such Buyer or its designee (the "STOCK
CERTIFICATES").
b. Initial Closing Date. The date and time of the
Initial Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Eastern
Daylight Time on August 21, 1998, subject to satisfaction (or waiver) of the
conditions to the Initial Closing set forth in Sections 6 and 7(a) below (or
such later date as is mutually agreed to by the Company and the Buyers). The
Initial Closing shall occur on the Initial Closing Date at the offices of
Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022.
c. Additional Closing Dates. The date and time of any
Additional Closing (the "ADDITIONAL CLOSING DATES") shall be, subject to
satisfaction (or waiver) of the conditions set forth in Sections 6 and 7(b),
within 20 days of the receipt by the Company of a
<PAGE> 3
notice from any of the Buyers (with a copy of such notice being delivered by
such electing Buyer to the remaining Buyers) that such Buyer has elected to
purchase its pro rata share of the Additional Preferred Stock in an amount not
less than $500,000 (the "ADDITIONAL PREFERRED STOCK NOTICE"). The Additional
Preferred Stock Notice may only be delivered to the Company (x) on any day
during the period beginning the later of (i) 90 days from the date the
Registration Statement (as defined below) is declared effective and (ii) 180
days from the Initial Closing Date, and ending 360 days from the date the
Registration Statement is declared effective, and (y) if the Closing Bid Price
(as defined in the Certificate of Determination) of the Common Stock is greater
than the Fixed Conversion Price (as defined in the Certificate of Determination)
for ten (10) consecutive trading days. The Additional Preferred Stock Notice
shall include the amount and purchase price of the Additional Preferred Stock to
be purchased by the Buyer and the date selected by the Buyer for the Additional
Closing Date. The Fixed Conversion Price for such Additional Preferred Stock
shall be equal to 115% of the average closing price of the Common Stock on its
principal exchange or market for the ten (10) trading days immediately preceding
the Additional Closing Date. At the Additional Closing, the Company and the
Buyer shall enter into a registration rights agreement substantially identical
to (and pari passu with) the Registration Rights Agreement. The Additional
Closings shall occur on the respective Additional Closing Dates at the offices
of Schulte Roth & Zabel LLP, 900 Third Avenue, New York, New York 10022.
d. Put Closing Date. The date and time of the Put
Closing (the "PUT CLOSING Date") shall be, subject to notification of
satisfaction (or waiver) of the conditions set forth in Sections 6(a) and 7(c),
within 20 days of the receipt by the Holders of a notice from the Company that
the Company is requiring the Buyers to purchase their pro rata share of the Put
Preferred Stock (the "PUT PREFERRED STOCK NOTICE"). Subject to Section 1(e), the
Put Preferred Stock Notice may only be delivered to the Buyers (i) on any day
during the period beginning the later of (x) 90 days from the date the
Registration Statement is declared effective and (y) 180 days from the Initial
Closing Date, and ending 360 days from the date the Registration Statement is
declared effective, (ii) if during the period beginning on and including the
date which is 60 business days prior to the date of the Put Closing Date, the
Registration Statement covering the resale of the Conversion Shares and Warrant
Shares has been declared effective by the SEC and at all times has been
effective, (iii) if during the period beginning on the Initial Closing Date and
ending on and including the Put Closing Date, the Common Stock is listed on the
Nasdaq SmallCap Market, ("NASDAQ SMALLCAP"), the Nasdaq National Market, the New
York Stock Exchange or the American Stock Exchange and has not been suspended
from trading at any time during such period (excluding suspensions of not more
than 24 consecutive hours resulting from business announcements), has not been
delisted at any time during such period, nor is there any pending or threatened
delisting or suspension, (iv) if on each day during the period beginning on and
including the date which is 10 business days prior to the Put Closing Date and
ending on and including the Put Closing Date, the Closing Bid Price of the
Common Stock is not less than the Fixed Conversion Price for the Initial
Preferred Stock on the Initial Closing Date, (v) if during the period beginning
on the Initial Closing Date and ending on and including the Put Closing Date,
the Company shall have delivered Conversion Shares upon conversion of the Series
A Preferred Stock and Warrant Shares upon exercise of the Warrants to the Buyers
on a timely basis as set forth in the Certificate of Determination and the
Warrant, respectively, and (vi) if the
<PAGE> 4
Daily Dollar Volume (defined as the product of the number of shares traded on
such day and the Average Price (as reported by Bloomberg L.P.) for such day) for
each of the trading days of the 30 day period immediately preceding the date of
the Put Preferred Stock Notice is greater than $150,000. The Put Preferred Stock
Notice shall include the amount and purchase price of Put Preferred Stock to be
purchased pro rata by the Buyers and the date selected by the Company for the
Put Closing Date. The Fixed Conversion Price for such Put Preferred Stock shall
be equal to 115% of the average closing price of the Common Stock on its
principal exchange or market for the ten (10) trading days immediately preceding
the Put Closing Date. At the Put Closing, the Company and the Buyer shall enter
into a registration rights agreement substantially identical to (and pari passu
with) the Registration Rights Agreement. The Put Closing shall occur on the Put
Closing Date at the offices of Schulte Roth & Zabel LLP, 900 Third Avenue, New
York, New York 10022. The Initial Closing Date, the Additional Closing Dates and
the Put Closing Date collectively are referred to in this Agreement as the
"CLOSING DATES".
e. Restriction on Additional Closing and Put Closing.
No Buyer shall be entitled to purchase such number of shares of Additional
Preferred Stock or be obligated to purchase such number of shares of Put
Preferred Stock if such purchase would result in such Buyer's aggregate holdings
of Additional Preferred Stock and Put Preferred Stock being in excess of the
respective number of shares set forth opposite such Buyer's name on the Schedule
of Buyers.
f. Form of Payment. On each of the Closing Dates,
each Buyer shall pay the Purchase Price to the Company for the Series A
Preferred Stock to be issued and sold to such Buyer at the Closing, by wire
transfer of immediately available funds in accordance with the Company's written
wire instructions provided to the Buyers at least two days prior to the Closing
Date.
g. Warrants. In consideration of the purchase of the
Initial Preferred Stock, the Company shall on the Initial Closing Date issue and
deliver to each Buyer, Warrants to acquire an aggregate of 41 shares of Common
Stock for each $1,000 face amount of Series A Preferred Stock purchased by such
Buyer.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to
only itself that:
a. Investment Purpose. Such Buyer (i) is acquiring
the Preferred Stock and the Warrants and (ii) upon conversion of the Preferred
Stock and exercise of the Warrants, will acquire the Conversion Shares and
Warrant Shares, respectively, then issuable for its own account for investment
only and not with a view towards, or for resale in connection with, the public
sale or distribution thereof, except pursuant to sales registered or exempted
under the 1933 Act and all applicable state blue sky laws; provided, however,
that by making the representations herein, such Buyer does not agree to hold any
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption under the 1933 Act and all applicable
state blue sky laws.
<PAGE> 5
b. Accredited Investor Status. Such Buyer is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D.
c Reliance on Exemptions. Such Buyer understands that
the Preferred Stock and Warrants are being offered and sold to it in reliance on
specific exemptions from the registration requirements of United States federal
and state securities laws and that the Company is relying in part upon the truth
and accuracy of, and such Buyer's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of such Buyer set
forth herein in order to determine the availability of such exemptions and the
eligibility of such Buyer to acquire the Preferred Stock and the Warrants.
d. Information. Such Buyer and its advisors, if any,
have been furnished with all materials relating to the business, finances and
operations of the Company and materials relating to the offer and sale of the
Series A Preferred Stock and the Warrants which have been requested by such
Buyer. Such Buyer and its advisors, if any, have been afforded the opportunity
to ask questions of the Company. Neither such inquiries nor any other due
diligence investigations conducted by such Buyer or its advisors, if any, or its
representatives shall modify, amend or affect such Buyer's right to rely on the
Company's representations and warranties contained in Section 3 below.
e. No Governmental Review. Such Buyer understands
that no United States federal or state agency or any other government or
governmental agency has passed on or made any recommendation or endorsement of
the Series A Preferred Stock and the Warrants or the fairness or suitability of
the investment in the Securities nor have such authorities passed upon or
endorsed the merits of the offering of the Series A Preferred Stock and the
Warrants.
f. Transfer or Resale. Such Buyer understands that
except as provided in the Registration Rights Agreement: (i) Securities have not
been and are not being registered under the 1933 Act or any state securities
laws, and may not be offered for sale, sold, assigned or transferred unless (A)
(i) they have been subsequently registered thereunder and (ii) they are offered
for sale, sold, assigned and transferred in compliance with the prospectus
delivery requirements of the 1933 Act, (B) such Buyer shall have delivered to
the Company an opinion of counsel, in a generally acceptable form, to the effect
that such securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto) ("RULE 144"); and (ii) any sale of such
securities made in reliance on Rule 144 may be made only in accordance with the
terms of Rule 144 and further, if Rule 144 is not applicable, any resale of such
securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an underwriter (as that term is defined in
the 1933 Act) may require compliance with some other exemption under the 1933
Act or the rules and regulations of the SEC thereunder.
g. Legends. Such Buyer understands that the
certificates or other instruments representing the Preferred Stock and the
Warrants and, until such time as the sale of
<PAGE> 6
the Conversion Shares and the Warrant Shares have been registered under the 1933
Act as contemplated by the Registration Rights Agreement, the stock certificates
representing the Conversion Shares and the Warrant Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form (and
a stop-transfer order may be placed against transfer of such stock
certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
APPLICABLE STATE SECURITIES LAWS. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE,
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY
ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID
ACT OR APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD
PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder (other than the Buyer) of any
Securities upon which it is stamped, if (i) upon a resale, any applicable
Security is registered for sale under the 1933 Act, (ii) in connection with a
sale transaction, such holder provides the Company with an opinion of counsel,
in a generally acceptable form, to the effect that a public sale, assignment or
transfer of any of the Securities may be made without registration under the
1933 Act, or (iii) such holder provides the Company with reasonable assurances
that any of the Securities can be sold pursuant to Rule 144(k) under the 1933
Act. Each Buyer acknowledges, covenants and agrees to sell any of the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the 1933 Act, or (ii)
advice of counsel that such sale is exempt from registration required by Section
5 of the 1933 Act. In the event the above legend is removed from any of the
Securities, the Company may, upon reasonable advance notice to the holder,
require that the above legend be placed on any of the Securities that cannot
then be sold pursuant to an effective registration statement or Rule 144(k)
under the 1933 Act (or any successor rule thereto).
h. Authorization; Enforcement. This Agreement has
been duly and validly authorized, executed and delivered on behalf of such Buyer
and is a valid and binding agreement of such Buyer enforceable in accordance
with its terms, subject as to enforceability to general principles of equity and
to applicable bankruptcy, insolvency, reorganization, moratorium, liquidation
and other similar laws relating to, or affecting generally, the enforcement of
applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that
country and/or state specified in the Schedule of Buyers.
<PAGE> 7
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the
Buyers as set forth in this Section 3.
a. Organization and Qualification. The Company and
its subsidiaries (a complete list of which is set forth in Schedule 3(a)) are
corporations duly incorporated and validly existing in good standing under the
laws of the jurisdiction in which they are incorporated, and have the requisite
corporate power to own their properties and to carry on their business as now
being conducted. Each of the Company and its subsidiaries is duly qualified as a
foreign corporation to do business and is in good standing in every jurisdiction
in which the nature of the business conducted by it makes such qualification
necessary, except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the business,
properties, operations, financial condition, results of operations or objective
prospects of the Company and its subsidiaries taken as a whole or on the
transaction contemplated hereby (a "MATERIAL ADVERSE EFFECT").
b. Authorization; Enforcement; Compliance with Other
Instruments. (i) The Company has the requisite corporate power and authority to
enter into and perform this Agreement and the Registration Rights Agreement, to
issue, sell and perform its obligations with respect to the Series A Preferred
Stock and the Warrants in accordance with the terms hereof, the Certificate of
Determination and the Warrants, as applicable, and to issue the Conversion
Shares and the Warrant Shares upon conversion of the Series A Preferred Stock
and the exercise of the Warrants, respectively, in accordance with the
Certificate of Determination and the Warrants, respectively, (ii) the execution
and delivery of this Agreement and the Registration Rights Agreement by the
Company and the consummation by it of the transactions contemplated hereby and
thereby, including without limitation the issuance of the Series A Preferred
Stock and the Warrants and the reservation for issuance and the issuance of the
Conversion Shares issuable upon conversion of the Series A Preferred Stock and
the Warrant Shares upon exercise of the Warrants have been duly authorized by
the Company's Board of Directors and no further consent or authorization is
required by the Company, its Board of Directors or its shareholders, (iii) this
Agreement, the Registration Rights Agreement, the certificates for the Series A
Preferred Stock and the Warrants have been duly executed and delivered by the
Company, (iv) this Agreement, the Registration Rights Agreement, the
certificates for the Series A Preferred Stock and the Warrants constitute the
valid and binding obligations of the Company enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to the Closing Date, the Certificate of Determination will have been filed
with the Secretary of State of the State of California and will be in full force
and effect, enforceable against the Company in accordance with its terms.
c. Capitalization. As of the date hereof, the
authorized capital stock of the Company consists of 50,000,000 shares of Common
Stock, of which as of August 19, 1998, 32,113,743 shares were issued and
outstanding and 18,000,000 shares of preferred stock,
<PAGE> 8
no par value, of which as of August 19, 1998, no shares were issued and
outstanding. All of such outstanding shares have been validly issued and are
fully paid and nonassessable. Except as disclosed in Schedule 3(c), no shares of
Common Stock or Preferred Stock are subject to preemptive rights or any other
similar rights or any liens or encumbrances suffered or permitted by the
Company. Except as disclosed in Schedule 3(c), as of the date hereof, (i) there
are no outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into, any shares of capital stock of the Company or any of its
subsidiaries, or contracts, commitments, understandings or arrangements by which
the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries or
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into, any
shares of capital stock of the Company or any of its subsidiaries, (ii) there
are no outstanding debt securities and (iii) there are no agreements or
arrangements under which the Company or any of its subsidiaries is obligated to
register the sale of any of their securities under the 1933 Act (except the
Registration Rights Agreement). Except as disclosed in Schedule 3(c), there are
no securities or instruments containing anti-dilution or similar provisions that
will be triggered by the issuance of any of the Securities as described in this
Agreement. The Company has furnished to the Buyer true and correct copies of the
Company's Articles of Incorporation, as amended and as in effect on the date
hereof (the "ARTICLES OF INCORPORATION"), and the Company's Bylaws, as in effect
on the date hereof (the "BYLAWS"), and the terms of all securities convertible
into or exercisable for Common Stock and the material rights of the holders
thereof in respect thereto.
d. Issuance of Securities. The Preferred Stock and
Warrants are duly authorized and, upon issuance in accordance with the terms
hereof, shall be (i) validly issued, fully paid and non-assessable, (ii) free
from all taxes, liens and charges with respect to the issue thereof and (iii)
entitled to the rights and preferences set forth in the Certificate of
Determination and the Warrants, respectively. As of the date hereof, not less
than the aggregate of (i) 200% of the number of Conversion Shares issuable upon
conversion of all of the outstanding Preferred Stock and (ii) the Warrant Shares
issuable upon exercise of all of the Warrants, have been duly authorized and
reserved for issuance. Such Conversion Shares and Warrant Shares so reserved
shall be allocated for issuance upon conversion of the Preferred Stock and
exercise of the Warrants pro rata among the Buyers based on the number of
Preferred Stock held by such Buyer relative to the total number of outstanding
Preferred Stock. Subsequent to the date hereof, not less than the aggregate of
(i) 150% of the number of Conversion Shares issuable at any time upon conversion
of all the then outstanding shares of Preferred Stock and (ii) the number of
Warrant Shares issuable at such time upon exercise of all the then outstanding
Warrants shall be duly authorized and reserved for issuance. Upon conversion or
exercise in accordance with the applicable Certificate of Determination and the
Warrants, as applicable, the Conversion Shares and Warrant Shares will be
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issue thereof, with the holders being entitled to
all rights accorded to a holder of Common Stock.
e. No Conflicts. Except as disclosed in Schedule
3(e), the execution, delivery and performance of this Agreement, the
Registration Rights Agreement and the
<PAGE> 9
Warrants by the Company, the performance by the Company of its obligations under
the Certificate of Determination and the Warrants and the consummation by the
Company of the transactions contemplated hereby and thereby will not (i) result
in a violation of the Articles of Incorporation, any Certificate of
Determination, Preferences and Rights of any outstanding series of Preferred
Stock of the Company or Bylaws or (ii) conflict with, or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party, or result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) applicable to
the Company or any of its subsidiaries or by which any property or asset of the
Company or any of its subsidiaries is bound or affected. Except as disclosed in
Schedule 3(e), neither the Company nor its subsidiaries is in violation of any
term of or in default under its Articles of Incorporation, any Certificate of
Determination, Preferences and Rights of any outstanding series of Preferred
Stock of the Company or Bylaws or their organizational charter or by-laws,
respectively, or any material contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order (collectively referred to as
the "MATERIAL CONTRACTS") or any statute, rule or regulation applicable to the
Company or its subsidiaries, except for any such violations or defaults that
would not have a Material Adverse Effect. A complete and accurate list of the
Material Contracts is set forth on Schedule 3(e) hereto. The business of the
Company and its subsidiaries is not being conducted, and shall not be conducted,
in violation of any law, ordinance or regulation of any governmental entity
except for such violations that would not have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the 1933
Act and applicable blue sky laws, the Company is not required to obtain any
consent, authorization or order of, or make any filing or registration with, any
court or governmental or regulatory or self-regulatory agency in order for it to
execute, deliver or perform any of its obligations under or contemplated by this
Agreement, the Registration Rights Agreement or the Warrants or perform its
obligations under the Certificate of Determination in accordance with the terms
hereof or thereof. Except as disclosed in Schedule 3(e), all consents,
authorizations, orders, filings and registrations which the Company is required
to obtain pursuant to the preceding sentence have been obtained or effected on
or prior to the date hereof. The Company is not in violation of the listing
requirements of the Nasdaq SmallCap Market. The Company and its subsidiaries are
unaware of any facts or circumstances which might give rise to any of the
foregoing or to delisting of the Common Stock by the Nasdaq SmallCap Market,
other than the price-per-share maintenance requirement.
f. SEC Documents; Financial Statements. Since
December 1, 1996, the Company has filed all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC pursuant
to the reporting requirements of the Securities Exchange Act of 1934, as amended
(the "1934 ACT") (all of the foregoing filed prior to the date hereof and all
exhibits included therein and financial statements and schedules thereto and
documents incorporated by reference therein being hereinafter referred to as the
"SEC DOCUMENTS"). The Company shall deliver to the Buyer or its representative
true and complete copies of the SEC Documents upon request. As of their
respective dates, the SEC Documents complied in all material respects with the
requirements of the 1934 Act and the rules and regulations of the SEC
<PAGE> 10
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. As of their
respective dates, the financial statements of the Company included in the SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied during the
periods involved (except (i) as may be otherwise indicated in such financial
statements or the notes thereto, or (ii) in the case of unaudited interim
statements, to the extent they may exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No other
information provided by or on behalf of the Company to the Buyer which is not
included in the SEC Documents, including, without limitation, information
referred to in Section 2(d) of this Agreement, contains any untrue statement of
a material fact or omits to state any material fact necessary in order to make
the statements therein, in the light of the circumstances under which they are
or were made, not misleading. The Company has not provided and will not provide
to any Buyer any material non-public information which, according to applicable
law, rule or regulation should have been disclosed publicly by the Company but
which has not been so disclosed as of the date hereof.
g. Absence of Certain Changes. Except as expressly
set forth in Schedule 3(g) and the SEC Documents, since December 31, 1997, there
has been no change or development which has had or could have a Material Adverse
Effect on the business, properties, operations, financial condition, results of
operations or objective prospects of the Company and its subsidiaries taken as a
whole. The Company has not taken any steps, and does not currently expect to
take any steps, to seek protection pursuant to any bankruptcy law nor does the
Company or its subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company or its subsidiaries or their respective directors or
officers, or the Common Stock, wherein an unfavorable decision, ruling or
finding would (i) have a Material Adverse Effect on the transactions
contemplated hereby or (ii) adversely affect the validity or enforceability of,
or the authority or ability of the Company to perform its obligations under,
this Agreement, the Registration Rights Agreement, the Warrants or any of the
documents contemplated herein.
i. Acknowledgment Regarding Buyers' Purchase of the
Preferred Stock. The Company acknowledges and agrees that each of the Buyers is
acting solely in the capacity of arm's length purchaser with respect to this
Agreement and the transactions contemplated hereby. The Company further
acknowledges that each Buyer is not acting as a
<PAGE> 11
financial advisor or fiduciary of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
advice given by any of the Buyers or any of their respective representatives or
agents in connection with this Agreement and the transactions contemplated
hereby is merely incidental to such Buyer's purchase of the Preferred Stock. The
Company further represents to each Buyer that the Company's decision to enter
into this Agreement has been based solely on the independent evaluation by the
Company and its representatives.
j. No General Solicitation. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf, has engaged
in any form of general solicitation or general advertising (within the meaning
of Regulation D under the 1933 Act) in connection with the offer or sale of any
of the Securities offered hereby.
k. No Integrated Offering. Neither the Company, nor
any of its affiliates, nor any person acting on its or their behalf has,
directly or indirectly, made any offers or sales of any security or solicited
any offers to buy any security, under circumstances that would require
registration of any of the Securities under the 1933 Act or cause the offering
of any of the Securities to be integrated with prior offerings by the Company
for purposes of the 1933 Act or any applicable stockholder approval provisions,
including, without limitation, under the rules and regulations of the National
Association of Securities Dealers Automated Quotations ("NASDAQ").
l. Employee Relations. Neither the Company nor any of
its subsidiaries is involved in any union labor dispute nor, to the knowledge of
the Company or any of its subsidiaries, is any such dispute threatened. None of
the Company's or its subsidiaries' employees is a member of a union and the
Company and its subsidiaries believe that their relations with their employees
are good.
m. Intellectual Property Rights. Except as set forth
on Schedule 3(m), the Company and its subsidiaries own or possess adequate
rights or licenses to use all trademarks, trade names, service marks, service
mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, governmental authorizations, trade secrets and
rights (collectively "INTELLECTUAL PROPERTY RIGHTS") necessary to conduct their
respective businesses as now conducted. Except as set forth on Schedule 3(m),
none of the Intellectual Property Rights or other intellectual property rights
have expired or terminated, or are expected to expire or terminate in the near
future. Except as set forth on Schedule 3(m), the Company and its subsidiaries
do not have any knowledge of any event, fact or circumstance relating to (i) any
infringement by the Company or its subsidiaries of any trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets or other similar rights of others, or of any such
development of similar or identical trade secrets or technical information by
others or (ii) any person or entity now infringing any Intellectual Property
Rights or other similar rights or any such development of similar or identical
trade secrets or technical information owned or used by the Company or any of
its subsidiaries and, except as set forth on Schedule 3(m), there is no claim,
action or proceeding being made or brought against, or to the Company's
knowledge,
<PAGE> 12
being threatened against, the Company or its subsidiaries regarding any
trademarks, trade names, service marks, service mark registrations, service
names, patents, patent rights, copyrights, inventions, licenses, approvals,
governmental authorizations, trade secrets or other infringement; and except as
set forth on Schedule 3(m), the Company and its subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and its subsidiaries have taken reasonable security measures to protect
the secrecy, confidentiality and value of all of their Intellectual Property
Rights.
n. Environmental Laws. The Company and its
subsidiaries (i) are in compliance with any and all applicable foreign, federal,
state and local laws and regulations relating to the protection of human health
and safety, the environment or hazardous or toxic substances or wastes,
pollutants or contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all
permits, licenses or other approvals required of them under applicable
Environmental Laws to conduct their respective businesses and (iii) are in
compliance with all terms and conditions of any such permit, license or
approval, except for any non-compliance or lack of permits, licenses or
approvals that would not have a Material Adverse Effect.
o. Title. The Company and its subsidiaries own no
real property. The Company and its subsidiaries have good and valid title to all
personal property owned by them which is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in Schedule 3(o) or to bank lenders or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to be made of such property by the Company and its
subsidiaries. Any real property and facilities held under lease by the Company
and its subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with the
use made and proposed to be made of such property and buildings by the Company
and its subsidiaries.
p. Insurance. Except as set forth on Schedule 3(p),
the Company and each of its subsidiaries are insured by insurers of recognized
financial responsibility against such losses and risks and in such amounts as is
prudent and customary in the businesses in which the Company and its
subsidiaries are engaged. Neither the Company nor any such subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
q. Regulatory Permits. Except as set forth on
Schedule 3(q), the Company and its subsidiaries possess all certificates,
authorizations and permits issued by the appropriate federal, state or foreign
regulatory authorities necessary to conduct their respective businesses, and
neither the Company nor any such subsidiary has received any notice of
proceedings relating to the revocation or modification of any such certificate,
authorization or permit.
r. Internal Accounting Controls. The Company and each
of its subsidiaries maintain a system of internal accounting controls
sufficient, in the judgment of the
<PAGE> 13
Company's board of directors, to provide reasonable assurance that (i)
transactions are executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability, (iii) access to
assets is permitted only in accordance with management's general or specific
authorization and (iv) the recorded accountability for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
s. No Materially Adverse Contracts, Etc. Neither the
Company nor any of its subsidiaries is subject to any charter, corporate or
other legal restriction, or any judgment, decree, order, rule or regulation
which in the reasonable judgment of the Company's officers has or is expected in
the future to have a Material Adverse Effect.
t. Tax Status. Except as set forth on Schedule 3(t),
the Company and each of its subsidiaries has made or filed all federal and state
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provision reasonably adequate for the payment of all taxes for periods
subsequent to the periods to which such returns, reports or declarations apply.
There are no unpaid taxes in any material amount claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.
u. Certain Transactions. Except as set forth on
Schedule 3(u) and except for arm's length transactions pursuant to which the
Company makes payments in the ordinary course of business upon terms no less
favorable than the Company could obtain from third parties and other than the
grant of stock options disclosed on Schedule 3(c), none of the officers,
directors or employees of the Company is presently a party to any transaction
with the Company (other than for services as employees, officers and directors),
including any contract, agreement or other arrangement providing for the
furnishing of services to or by, providing for rental of real or personal
property to or from, or otherwise requiring payments to or from any officer,
director or such employee or, to the knowledge of the Company, any corporation,
partnership, trust or other entity in which any officer, director or any such
employee has a substantial interest or is an officer, director, trustee or
partner.
v. S-3 Registration. The Company is currently
eligible to use Form S-3 for registration of the sale by the Buyers and any
other Investor of the Registrable Securities (as such terms are defined in the
Registration Rights Agreement) and the Company has filed and shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to obtain and maintain such eligibility for the use of Form S-3.
<PAGE> 14
4. COVENANTS AND AGREEMENTS.
a. Best Efforts. Each party shall use its best
efforts timely to satisfy each of the conditions to be satisfied by it as
provided in Sections 6 and 7 of this Agreement.
b. Blue Sky. The Company shall, on or before the
Closing Date, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at the Closing pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date.
c. Reporting Status. Until the earlier of (i) the
date as of which the Investors (as that term is defined in the Registration
Rights Agreement) may sell all of the Conversion Shares and Warrant Shares
without restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or
successor thereto) or (ii) the date on which (A) the Investors shall have sold
all the Conversion Shares and Warrant Shares and (B) none of the Series A
Preferred Stock or Warrants are outstanding (the "REGISTRATION PERIOD"), the
Company (x) shall timely file all reports required to be filed with the SEC
pursuant to the 1934 Act, (y) shall not terminate its status as an issuer
required to file reports under the 1934 Act even if the 1934 Act or the rules
and regulations thereunder would otherwise permit such termination and (z) the
Company will use its best efforts to maintain its ability and eligibility to
register securities on Form S-3.
d. Use of Proceeds. The Company will use the proceeds
from the sale of the Series A Preferred Stock and Warrants for substantially the
same purposes in substantially the same amounts as indicated in Schedule 4(d).
The Company shall provide a Use of Proceeds Schedule prior to each of the
Additional Closings and the Put Closing identifying the use of the proceeds from
the sale of the Series B Preferred Stock and Series C Preferred Stock,
respectively, and provided further, that the Use of Proceeds Schedule for either
the Additional Closings or the Put Closing shall designate that the proceeds
from such closing shall be first used to satisfy any outstanding obligations of
the Bridge Loan (as defined below).
e. Financial Information. The Company agrees to send
the following to each Investor (as that term is defined in the Registration
Rights Agreement) during the Registration Period: (i) within five (5) days after
the filing thereof with the SEC, a copy of its Annual Reports on Form 10-KSB,
its Quarterly Reports on Form 10-QSB, any Current Reports on Form 8-K and any
registration statements or amendments filed pursuant to the 1933 Act; (ii)
within one (1) day after release thereof, copies of all press releases issued by
the Company or any of its subsidiaries; and (iii) copies of any notices and
other information made available or given to the shareholders of the Company
generally, contemporaneously with the making available or giving thereof to the
shareholders.
f. Reservation of Shares. The Company shall take all
action necessary to at all times have authorized, and reserved for the purpose
of issuance, no less than (i) 150% of the number of shares of Common Stock
needed to provide for the issuance of the Conversion Shares and (ii) the Warrant
Shares, in the aggregate, upon conversion of the outstanding Preferred Stock and
the exercise of the Warrants, respectively, in accordance with
<PAGE> 15
the terms of this Agreement and the Certificate of Determination. Such
Conversion Shares and Warrant Shares so reserved shall be allocated for issuance
upon conversion of the Preferred Stock and exercise of the Warrants pro rata
among the Buyers based on the number of Preferred Stock held by such Buyer
relative to the total number of outstanding Preferred Stock.
g. Listing. The Company shall promptly secure the
listing of the Conversion Shares and Warrant Shares upon the Nasdaq SmallCap
Market ("NASDAQ SMALLCAP") (subject to official notice of issuance) and shall
maintain, so long as any other shares of Common Stock shall be so listed, the
listing of all Conversion Shares and Warrant Shares from time to time issuable
under the terms of this Agreement, the Certificate of Determination and the
Warrants on each national securities exchange and automated quotation system
(including the Nasdaq National Market System), if any, upon which shares of
Common Stock are then listed. The Company shall promptly provide to each Buyer
copies of any notices it receives from the NASDAQ regarding the continued
eligibility of the Common Stock for listing on the Nasdaq SmallCap, except to
the extent that such notices would constitute material non-public information
which, according to applicable law, rule or regulation should have been
disclosed publicly by the Company but which has not been so disclosed as of such
date. The Company shall pay all fees and expenses in connection with satisfying
its obligations under this Section 4(g).
h. Expenses. Each of the Company and the Buyers shall
each pay its respective costs and expenses incurred by such party in connection
with the negotiation, investigation, preparation, execution, delivery and
performance of this Agreement or the Certificate of Determination, the Warrants
and the Registration Rights Agreement; provided, that at the Closing as the
Buyers may request, the Company shall reimburse the Buyers for Buyers'
documented attorneys' fees and expenses in connection with this Agreement or the
Certificate of Determination, the Warrants and the Registration Rights Agreement
up to an aggregate of $30,000.
i. Further Issuances of Securities.
(i) Right of First Refusal. If at any time
on or before the first anniversary of the Closing Date, the Company shall desire
to issue any security convertible, exchangeable or exercisable for Common Stock
or any other right to acquire any Common Stock (the "CONVERTIBLE SECURITIES")
pursuant to Section 4(2) of the 1933 Act or an offering under Regulation D or
Regulation S of the 1933 Act or in any other private placement (other than
pursuant to Company authorized stock option plans with employees, consultants or
directors of the Company), exclusive of issuances of Common Stock upon the
Buyers' conversion of the Preferred Stock or exercise of the Warrants, then the
Company shall first comply with the terms of this Section 4(i).
(ii) Notice Requirements. The Company shall
notify, or cause to be notified, the Buyers not less than thirty (30) calendar
days prior to the time the Company intends to consummate such issuance (the
"ISSUANCE NOTICE"). The Issuance Notice shall set forth all of the terms of such
proposed issuance.
<PAGE> 16
(iii) Exercise of Right of First Refusal.
The Buyers shall have a right of first refusal to acquire such private-placement
Convertible Securities, which right may be exercised by the Buyers only by
delivery of a written notice to the Company (the "EXERCISE NOTICE"), within
twenty (20) business days following receipt of the Issuance Notice (the "REFUSAL
PERIOD"). The Exercise Notice shall state that the Buyers agree to purchase all
or any specified part of the proposed issuance of such securities on terms equal
as near as may be to the terms set forth in the Issuance Notice. The closing
under such right of first refusal shall occur within ten (10) business days
after the last day of the Refusal Period.
(iv) Right to Issue Securities. After
expiration of the Refusal Period, if the provisions of this Section 4(i) have
been complied with in all respects by the Company and no Exercise Notice has
been given, or if given, the Buyers have not agreed to purchase all of the
securities set forth in the Issuance Notice, the Company shall have the right
for forty-five (45) calendar days following the termination of the Refusal
Period to issue such securities, or any portion thereof not being purchased by
the Buyers, specified in the Issuance Notice on the terms described in the
Issuance Notice without further notice to the Buyers, but after such forty-five
(45) calendar days, no such issuance may be made without again giving notice to
the Buyers and complying with all of the requirements of this Section 4(i).
(v) The Company will not issue any Preferred
Stock other than to the Buyers as contemplated hereby or as otherwise
contemplated in the Certificate of Determination.
j. Dilutive Effect. The Company understands and
acknowledges that the number of Conversion Shares and Warrant Shares issuable
upon conversion of the Preferred Stock and exercise of the Warrants,
respectively, will increase in certain circumstances. The Company further
acknowledges and agrees that its obligation to issue Conversion Shares and
Warrant Shares upon conversion of the Preferred Stock and exercise of the
Warrants, respectively, in accordance with this Agreement, the Certificate of
Determination, and the Warrants, as applicable, is absolute and unconditional
regardless of the dilutive effect that such issuance may have on the ownership
interests of other stockholders of the Company; provided, however, that the
Company shall not be obligated to issue, in the aggregate, more than that number
of shares of Common Stock (such amount to be proportionately and equitably
adjusted from time to time in the event of stock splits, stock dividends,
combinations, reverse stock splits, reclassification, capital reorganizations
and similar events relating to the Common Stock), that, upon conversion of the
Preferred Stock or exercise of the Warrants, would constitute a breach of the
Company's obligations under the rules or regulations of Nasdaq or any other
principal securities exchange or trading market upon which the Common Stock
becomes traded.
k. Low Trades of the Common Stock. So long as (i) a
Buyer or any of its affiliates beneficially owns any Preferred Stock, (ii) the
Company has not issued any publicly traded convertible securities and (iii) the
Company is not in default under the Certificate of Determination or the Warrants
for failing to effect any redemption pursuant to the terms of the Certificate of
Determination or conversion of any Preferred Stock pursuant to the Certificate
of Determination or issuance of Warrant Shares upon exercise of the Warrants,
such Buyer shall not
<PAGE> 17
offer to sell any shares of Common Stock at a price that is less than the then
current bid price of the Common Stock on such principal exchange or market or
during any Valuation Period (as defined in the Certificate of Determination)
create for any day the low trade price for the Common Stock on its principal
exchange or market.
l. Filing of Form 8-K. The Company will promptly file
after each of the Closing Dates a Form 8-K with the SEC with respect to the
issuance of the Securities at such Closing and the transactions contemplated by
this Agreement and will provide a copy thereof to each of the Buyers promptly
after such filing. Such filings shall contain appropriate disclosure of the
terms and conditions of the issuance of the Securities and shall include as
exhibits forms of the Agreement, Warrants, Certificate of Determination and
Registration Rights Agreement.
m. No Trading of the Common Stock. Prior to the date
hereof, the Buyers have not sold any shares of Common Stock, issued any buy
orders for shares of Common Stock or have otherwise traded in the Common Stock.
n. Satisfaction of Bridge Loan. In the event a Call
Closing or Put Closing does not occur, or that such closings do not in the
aggregate provide sufficient funds to satisfy all of the Company's outstanding
obligations under the Promissory Note and Credit Agreement between Imperial Bank
and the Company, dated May 14, 1998 (the "BRIDGE LOAN") and terminate such
Bridge Loan, then the Company shall secure alternate financing (the "ALTERNATE
FINANCING") to satisfy such outstanding obligations of the Bridge Loan and
terminate such Bridge Loan; provided, however that the Alternate Financing must
not require the Company to make any payments of principal for a period of not
less than one year from the date of receipt of the Alternate Financing.
o. Acquisitions. So long as a Buyer or any of its
affiliates beneficially owns any Preferred Stock, the Company will not effect
any acquisition of any business, whether through acquisition of assets or
securities (a "NEW ACQUISITION"), unless the sum of the following calculation is
at least $1.00: (i) the amount of cash received subsequent to the date hereof
through the issuance of capital stock of the Company (excluding any cash which
may be received by the Company pursuant to this Agreement and received as a
result of securing the Alternate Financing), minus (ii) the cash which may be
used as all or a portion of the purchase price for a New Acquisition, plus (iii)
the earnings before interest, taxes, depreciation and amortization ("EBITDA") of
a New Acquisition for such New Acquisition's most recent four fiscal quarters
completed prior to the date on which the agreement for such acquisition is
entered into.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to
its transfer agent (in the form attached hereto as Exhibit D) to issue
certificates, or at a Buyer's request when the legend set forth in Section 2(g)
is not required, to electronically issue such shares (e.g., through DWAC or
DTC), registered in the name of each Buyer or its respective nominee(s), for the
Conversion Shares or Warrant Shares in such amounts as specified from time to
time by each Buyer to the Company upon conversion of the Series A Preferred
Stock or exercise of the Warrants, respectively (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of
<PAGE> 18
the Conversion Shares and Warrant Shares under the 1933 Act and transfer of such
shares to a holder other than the Buyer, such certificates shall bear the
restrictive legend specified in Section 2(g) of this Agreement. The Company
warrants that no instruction other than the Irrevocable Transfer Agent
Instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof will be given by the Company to its transfer
agent and that the Securities shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement, the Certificate of Determination
and the Warrants. Nothing in this Section 5 shall affect in any way each Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of any of the Securities. If a Buyer provides the Company with an opinion
of reasonably satisfactory counsel, reasonably satisfactory in form and
substance to the Company, that registration of a resale by such Buyer of any of
the Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares or Warrant Shares, promptly
instruct its transfer agent to issue one or more certificates in such name and
in such denominations as specified by such Buyer. The Company acknowledges that
a breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the
Preferred Stock to each Buyer at the Closings is subject to the satisfaction, at
or before each of the Closing Dates, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
waived by the Company at any time in its sole discretion:
a. Such Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. Such Buyer shall have delivered to the Company the
Purchase Price for the applicable Preferred Stock being purchased by such Buyer
at such Closing by wire transfer of immediately available funds pursuant to the
wire instructions provided by the Company.
c. The representations and warranties of such Buyer
shall be true and correct in all material respects as of each of the Closing
Dates as though made at that time (except for representations and warranties
that speak as of a specific date), and such Buyer shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by such Buyer at or prior to each of the Closing Dates.
<PAGE> 19
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer
hereunder to purchase the Initial Preferred Stock at the Initial Closing is
subject to the satisfaction, at or before the Initial Closing Date, of each of
the following conditions, provided that these conditions are for each Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
i. The Company shall have executed this
Agreement and the Registration Rights Agreement, and delivered the same to such
Buyer.
ii. The Certificate of Determination shall
have been executed by the Company and filed with the Secretary of State of the
State of California, and a copy marked as filed shall have been delivered to
such Buyer.
iii. The Common Stock shall be authorized
for trading on the Nasdaq SmallCap, Nasdaq National Market, New York Stock
Exchange or American Stock Exchange (collectively, the "Exchanges"), and trading
in the Common Stock on the applicable Exchange shall not have been suspended by
the SEC or the applicable Exchange and all of the Conversion Shares and Warrant
Shares issuable upon conversion of the Series A Preferred Stock or exercise of
the Warrants to be sold at the Initial Closing shall be listed upon the
applicable Exchange (subject to notice of issuance).
iv. The representations and warranties of
the Company shall be true and correct in all material respects (except to the
extent that any of such representations and warranties is already qualified as
to materiality in Section 3 above, in which case such representations and
warranties shall be true and correct without further qualification) as of the
Initial Closing Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Initial Closing Date. Such
Buyer shall have received a certificate, executed by the Chief Executive Officer
of the Company, dated as of the Initial Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such Buyer
including, without limitation, an update as of the Initial Closing Date
regarding the representation contained in Section 3(c) above.
v. Such Buyer shall have received the
opinion of the Company's counsel dated as of the Initial Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit E attached hereto.
vi. The Company shall have executed and
delivered to such Buyer the Stock Certificates (in such denominations as such
Buyer shall request) for the Series A Preferred Stock being purchased by such
Buyer at the Initial Closing and the Warrants.
vii. The Board of Directors of the Company
shall have adopted the resolutions in substantially the form of Exhibit F
attached hereto (the "RESOLUTIONS").
<PAGE> 20
viii. As of the Initial Closing Date, the
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Series A Preferred
Stock and the exercise of the Warrants, at least an aggregate of (i) 200% of the
number of shares of Common Stock necessary to provide for the issuance of the
Conversion Shares assuming current conversion of all of the outstanding
Preferred Stock and (ii) the number of shares of Common Stock necessary to
provide for the issuance of the Warrant Shares assuming current conversion of
all of the outstanding Warrants.
ix. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
x. The Company shall have delivered to such
Buyer a certificate evidencing the incorporation and good standing of the
company and each subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date after August 1, 1998.
xi. The Company shall have delivered to such
Buyer a secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Articles of Incorporation and (C) By-laws, each as in
effect at the Initial Closing.
xii. The Company shall have delivered to
such Buyer a certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California as of a date after August 1, 1998.
xiii. The Company shall have executed the
Escrow Agreement, and shall have complied with all of the terms and provisions
contained therein.
xiv. The Company shall have delivered to
such Buyer such other documents relating to the transactions contemplated by
this Agreement as such Buyer or its counsel may reasonably request.
xv. The Company shall have an outstanding
balance under the Bridge Loan in an amount not in excess of $2,000,000 and that
the date upon which the Bridge Loan shall become fully due and payable shall be
a date not earlier than March 1, 1999.
xvi. The transactions contemplated hereby
shall not violate any law, regulation or order then in effect and applicable to
Buyers or the Company.
b. Additional Closing Dates. The obligation of each
Buyer hereunder to purchase the Additional Preferred Stock at each of the
Additional Closings is subject to the satisfaction, at or before the Additional
Closing Dates, of each of the following conditions, provided that these
conditions are for each Buyer's sole benefit and may be waived by such Buyer at
any time in its sole discretion:
<PAGE> 21
i. The Certificate of Determination for each
of the Series A Preferred Stock and Series C Preferred Stock, as applicable,
shall be in full force and effect and shall not have been amended since their
respective Closing Dates, and a copy of each of them certified by the Secretary
of State of the State of California shall have been delivered to such Buyer. The
Certificate of Determination for the Series B Preferred Stock shall have been
executed by the Company and filed with the Secretary of State of the State of
California, and a copy thereof certified by the Secretary of State of the State
of California shall have been delivered to such Buyer (and containing a Fixed
Conversion Price equal to 115% of the average closing price of the Common Stock
on its principal exchange or market for the ten (10) trading days immediately
preceding the date of the Additional Closing).
ii. The Common Stock shall be authorized for
trading on one of the Exchanges, trading in the Common Stock shall not have been
suspended by the SEC or such Exchange and all of the Conversion Shares issuable
upon conversion of the Additional Preferred Stock to be sold at the Additional
Closing shall be listed upon such Exchange.
iii. The representations and warranties of
the Company shall be true and correct in all material respects (except to the
extent that any of such representations and warranties is already qualified as
to materiality in Section 3, in which case such representations and warranties
shall be true and correct without further qualification) as of the date when
made and as of the respective Additional Closing Date as though made at that
time (except for representations and warranties that speak as of a specific
date) and the Company shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement, the Registration Rights Agreement, the Warrant or the Certificate of
Determination to be performed, satisfied or complied with by the Company at or
prior to the respective Additional Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer of the Company, dated as
of such Additional Closing Date, to the foregoing effect and as to such other
matters as may be reasonably requested by such Buyer including, without
limitation, an update as of such Additional Closing Date regarding the
representation contained in Section 3(c) above.
iv. Such Buyer shall have received the
opinion of the Company's counsel dated as of such Additional Closing Date, in
form, scope and substance reasonably satisfactory to such Buyer and in
substantially the form of Exhibit E attached hereto.
v. The Company shall have executed and
delivered to such Buyer the Stock Certificates (in such denominations as such
Buyer shall request) for the Additional Preferred Stock, being purchased by such
Buyer at the Additional Closing.
vi. The Board of Directors of the Company
shall not have amended the Resolutions.
vii. As of such Additional Closing Date, the
Company shall have reserved out of its authorized and unissued Common Stock,
solely for the purpose of effecting the conversion of the Preferred Stock, a
number of shares of Common Stock equal to an aggregate of (i) at least 150% of
the number of shares of Conversion Shares which would be
<PAGE> 22
issuable upon conversion in full of the then outstanding Preferred Stock,
including for such purposes the Additional Preferred Stock to be issued at such
Additional Closing and (ii) the number of Warrant Shares which would be issuable
upon exercise in full of the then outstanding Warrants.
viii. The Irrevocable Transfer Agent
Instructions, substantially identical to the form of Exhibit D, attached hereto,
shall have been delivered to and acknowledged in writing by the Company's
transfer agent.
ix. The Company shall have delivered to such
Buyer a certificate evidencing the incorporation and good standing of the
company and each subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within ten days of such Additional Closing Date.
x. The Company shall have delivered to such
Buyer a secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Articles of Incorporation and (C) By-laws, each as in
effect at the Additional Closing.
xi. The Company shall have delivered to such
Buyer a certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California within ten days of the Additional
Closing Date.
xii. The Company shall have delivered to
such Buyer a letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the
Additional Closing date.
xiii. The Company shall have executed and
delivered a registration rights agreement with regard to the Series B Preferred
Stock substantially identical to (and pari passu with) the Registration Rights
Agreement.
xiv. The Company shall have taken all
actions necessary so that the issuance of the Series B Preferred Stock will not
constitute a breach of the Company's obligations under the rules or regulations
of Nasdaq or any other principal securities exchange or trading market upon
which the Common Stock becomes traded.
xv. The Company shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
xvi. The transactions contemplated hereby
shall not violate any law, regulation or order then in effect and applicable to
Buyers or the Company.
c. Put Closing Date. The obligation of each Buyer
hereunder to purchase the Put Preferred Stock at the Put Closing is subject to
the satisfaction, at or before the Put Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
<PAGE> 23
i. The Certificate of Determination for each
of the Series A Preferred Stock and the Series B Preferred Stock, as applicable,
shall be in full force and effect and shall not have been amended since their
respective Closing Dates, and a copy of each of them certified by the Secretary
of State of the State of California shall have been delivered to such Buyer. The
Certificate of Determination for the Series C Preferred Stock shall have been
executed by the Company and filed with the Secretary of State of the State of
California, and a copy thereof certified by the Secretary of State of the State
of California shall have been delivered to such Buyer (and containing a Fixed
Conversion Price equal to 115% of the average closing price of the Common Stock
on its principal exchange or market for the ten (10) trading days immediately
preceding the date of the Put Closing).
ii. The Common Stock shall be authorized for
trading on one of the Exchanges, trading in the Common Stock shall not have been
suspended by the SEC or such Exchange and all of the Conversion Shares issuable
upon conversion of the Put Preferred Stock to be sold at the Put Closing shall
be listed upon such Exchange.
iii. The representations and warranties of
the Company, including the absence of any Material Adverse Effect since the
Initial Closing Date, shall be true and correct in all material respects (except
to the extent that any of such representations and warranties is already
qualified as to materiality in Section 3, in which case such representations and
warranties shall be true and correct without further qualification) as of the
date when made and as of the Put Closing Date as though made at that time
(except for representations and warranties that speak as of a specific date) and
the Company shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Agreement, the Registration Rights Agreement, the Warrant or the Certificate of
Determination to be performed, satisfied or complied with by the Company at or
prior to the respective Put Closing Date. Such Buyer shall have received a
certificate, executed by the Chief Executive Officer of the Company, dated as of
such Put Closing Date, to the foregoing effect and as to such other matters as
may be reasonably requested by such Buyer including, without limitation, an
update as of such Put Closing Date regarding the representation contained in
Section 3(c) above.
iv. Such Buyer shall have received the
opinion of the Company's counsel dated as of such Put Closing Date, in form,
scope and substance reasonably satisfactory to such Buyer and in substantially
the form of Exhibit E attached hereto.
v. The Company shall have executed and
delivered to such Buyer the Stock Certificates (in such denominations as such
Buyer shall request) for the Put Preferred Stock, being purchased by such Buyer
at the Put Closing.
vi. The Board of Directors of the Company
shall not have amended the Resolutions and shall have approved the issuance of
the Put Preferred Stock pursuant to resolutions in form and substance reasonably
satisfactory to Buyers.
vii. As of the Put Closing Date, the Company
shall have reserved out of its authorized and unissued Common Stock, solely for
the purpose of effecting the conversion of the Preferred Stock, a number of
shares of Common Stock equal to at least
<PAGE> 24
150% of the number of shares of Common Stock which would be issuable upon
conversion or exercise in full of the then outstanding Series A Preferred Stock
and Warrants, as the case may be, including for such purposes the Put Preferred
Stock to be issued at such Put Closing.
viii. The Irrevocable Transfer Agent
Instructions, in the form of Exhibit D, attached hereto, shall have been
delivered to and acknowledged in writing by the Company's transfer agent.
ix. The Company shall have delivered to such
Buyer a certificate evidencing the incorporation and good standing of the
company and each subsidiary in the state of such corporation's state of
incorporation issued by the Secretary of State of such state of incorporation as
of a date within ten days of such Put Closing Date.
x. The Company shall have delivered to such
Buyer a certified copy of its Articles of Incorporation as certified by the
Secretary of State of the State of California within ten days of the Put Closing
Date.
xi. The Company shall have delivered to such
Buyer a secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Articles of Incorporation and (C) By-laws, each as in
effect at the Put Closing.
xii. The Company shall have delivered to
such Buyer a letter from the Company's transfer agent certifying the number of
shares of Common Stock outstanding as of a date within five days of the Put
Closing date.
xiii. The Company shall have executed and
delivered a registration rights agreement with regard to the Series C Preferred
Stock substantially identical to (and pari passu with) the Registration Rights
Agreement.
xiv. The Company shall have satisfied the
financial conditions as identified on Exhibit H, attached hereto.
xv. The Company shall have delivered to such
Buyer such other documents relating to the transactions contemplated by this
Agreement as such Buyer or its counsel may reasonably request.
xvi. The Company shall have taken all
actions necessary so that the issuance of the Series C Preferred Stock will not
constitute a breach of the Company's obligations under the rules or regulations
of Nasdaq or any other principal securities exchange or trading market upon
which the Common Stock becomes traded.
xvii. The aggregate of (i) the Conversion
Shares and Warrant Shares issued prior to the Put Closing and (ii) the
Conversion Shares and Warrant Shares which may be issued upon conversion or
exercise, as applicable, of the outstanding Securities (which shall include the
Put Preferred Stock to be issued) shall not exceed 10% of the outstanding Common
Stock of the Company as of the Initial Closing Date.
<PAGE> 25
xviii. The transactions contemplated hereby
shall not violate any law, regulation or order then in effect and applicable to
Buyers or the Company.
8. INDEMNIFICATION.
In consideration of each Buyer's execution and
delivery of this Agreement and acquiring the Securities hereunder and in
addition to all of the Company's other obligations under this Agreement, the
Company shall defend, protect, indemnify and hold harmless each Buyer and each
other holder of Securities and all of their officers, directors, employees and
agents (including, without limitation, those retained in connection with the
transactions contemplated by this Agreement) (collectively, the "BUYER
INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Buyer Indemnitee is a
party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "BUYER INDEMNIFIED
LIABILITIES"), incurred by any Buyer Indemnitee (and shall advance the same) as
a result of, or arising out of, or relating to (a) subject to Section 9(i), any
misrepresentation or breach of any representation or warranty made by the
Company in this Agreement, the Certificate of Determination, the Warrants, the
Registration Rights Agreement or any other certificate, instrument or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in this Agreement, the Certificate of
Determination, the Warrants or the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, or (c) any
cause of action, suit or claim brought or made against such Buyer Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement or any other instrument, document or agreement
executed pursuant hereto by any of the Buyer Indemnitees, any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Series A Preferred Stock and Warrants or the
status of such Buyer or holder of any of the Securities as an investor in the
Company. Promptly after receipt by a Buyer Indemnitee of notice of the
commencement of any action or proceeding (including any governmental action or
proceeding) involving the Buyer Indemnified Liabilities , such Buyer Indemnitee
shall deliver to the Company a written notice of the commencement thereof, and
the Company shall have the right to participate in, and, to the extent it so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel selected by the Company and
reasonably satisfactory to the Buyer Indemnitee; provided, however, that a Buyer
Indemnitee shall have the right to retain its own counsel with the fees and
expenses to be paid by the Company, if, in the reasonable opinion of counsel
retained by the Company, the representation by such counsel of the Buyer
Indemnitee and the Company would be inappropriate due to actual differing
interests between such Buyer Indemnitee and any other party represented by such
counsel in such proceeding. The Buyer Indemnitee shall cooperate fully with the
Company in connection with any negotiation or defense of any such action or
claim by the Company and shall furnish to the Company all information reasonably
available to the Buyer Indemnitee which relates to such action or claim. The
Company shall keep the Buyer Indemnitee fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. The
Company shall not be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided,
<PAGE> 26
however, that the Company shall not unreasonably withhold, delay or condition
its consent. The Company shall not, without the consent of the Buyer Indemnitee,
consent to entry of any judgment or enter into any settlement or other
compromise which does not include as an unconditional term thereof the giving by
the claimant or plaintiff to such Buyer Indemnitee of a release from all
liability in respect to such claim or litigation. Following indemnification as
provided for hereunder, the Company shall be subrogated to all rights of the
Buyer Indemnitee with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the Company within a reasonable time of the
commencement of any such action shall not relieve it of any liability to the
Buyer Indemnitee, except to the extent that the Company is prejudiced in its
ability to defend such action. To the extent that the foregoing undertaking by
the Company may be unenforceable for any reason, the Company shall make the
maximum contribution to the payment and satisfaction of each of the Buyer
Indemnified Liabilities which is permissible under applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by
and interpreted in accordance with the laws of the State of New York without
regard to the principles of conflict of laws.
b. Counterparts. This Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party. In the event any signature page is
delivered by facsimile transmission, the party using such means of delivery
shall cause four (4) additional original executed signature pages to be
physically delivered to the other party within five (5) days of the execution
and delivery hereof.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and
the documents referred to herein, supersede all other prior or contemporaneous
oral or written agreements between or among the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be waived or amended other than by an instrument in writing signed
by the Company and majority of the then outstanding Preferred Stock, but any
such waiver or amendment shall bind all Buyers and holders.
<PAGE> 27
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile,
provided a copy is mailed by U.S. certified mail, return receipt requested;
(iii) three (3) business days after being sent by U.S. certified mail, return
receipt requested, or (iv) one (1) business day after deposit with a nationally
recognized overnight delivery service, in each case properly addressed to the
party to receive the same. The addresses and facsimile numbers for such
communications shall be:
if to the Company:
CardioDynamics International Corporation
6715 Nancy Ridge Drive
Suite 300
San Diego, CA 92121
Telephone: (619) 535-0202
Facsimile: (619) 623-8414
Attention: Chief Financial Officer
with a copy to:
Brobeck, Phleger & Harrison LLP
550 West C Street
Suite 1300
San Diego, CA 92101-3532
Telephone: (619) 699-0248
Facsimile: (619) 234-3848
Attention: Hayden J. Trubitt, Esq.
if to the Transfer Agent:
American Stock Transfer and Trust Company
40 Wall Street
New York, NY 10005
Telephone: (718) 921-8247
Facsimile: (718) 921-8373
Attention: Wilbert Myles
If to a Buyer, to its address and facsimile number on the
Schedule of Buyers, with copies to such Buyer's counsel as set forth on the
Schedule of Buyers. Each party shall provide five (5) days' prior written notice
to the other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns, including any purchasers of the Securities. The Company
shall not assign this Agreement or any rights or
<PAGE> 28
obligations hereunder without the prior written consent of the Buyers, except
pursuant to a Major Transaction (as defined in Section 3(c) of the Certificate
of Determination) with respect to which the Company is in compliance with
Section 3 of the Certificate of Determination. A Buyer may assign some or all of
its rights hereunder without the consent of the Company, provided, however, that
(i) any such assignment shall not release such Buyer from its obligations
hereunder unless such obligations are assumed by such assignee and the Company
has consented to such assignment and assumption and (ii) no Buyer may assign its
rights hereunder in a manner that would cause the offering of Securities
hereunder to be required to be registered under the 1933 Act.
h. No Third Party Beneficiaries. This Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
i. Survival. The representations and warranties of
the Company and the Buyers contained in Sections 3 and 2, respectively, shall
survive the Closing until two years after the Closing Date, including, without
limitation, all financial statements thereto. The agreements and covenants set
forth in Sections 4, 5 and 9, and the indemnification provisions set forth in
Section 8, shall survive the Closing. Each Buyer shall be responsible only for
its own representations, warranties, agreements and covenants hereunder.
j. Publicity. Without the prior written consent of
the subject Buyer or Buyers, the Company will not, and will use reasonable
efforts to ensure that its officers, directors, employees and agents do not
disclose the name of any Buyer; provided, however, that the Company shall be
entitled, without the prior approval of any Buyer, to make any press release or
other public disclosure with respect to such transactions as is required by
applicable law and regulations (although each Buyer shall be consulted by the
Company in connection with any such press release or other public disclosure
prior to its release and shall be provided with a copy thereof), but only to the
extent required by such law or regulation.
k. Further Assurances. Each party shall do and
perform, or cause to be done and performed, all such further acts and things,
and shall execute and deliver all such other agreements, certificates,
instruments and documents, as the other party may reasonably request in order to
carry out the intent and accomplish the purposes of this Agreement and the
consummation of the transactions contemplated hereby.
l. Placement Agent. The Buyers shall be responsible
for the payment of the fees of AFO Capital Advisors, LLC relating to the
transactions contemplated hereby.
m. No Strict Construction. The language used in this
Agreement will be deemed to be the language chosen by the parties to express
their mutual intent, and no rules of strict construction will be applied against
any party.
<PAGE> 29
IN WITNESS WHEREOF, the Buyers and the Company have caused
this Securities Purchase Agreement to be duly executed as of the date first
written above.
COMPANY: BUYERS:
CARDIODYNAMICS INTERNATIONAL AGR HALIFAX FUND, LTD.
CORPORATION By: AG Ramius Partners, LLC
Investment Advisor
By: /s/ Michael K. Perry By: /s/ Jeffrey M. Solomon
--------------------------------- -----------------------------------
Name: Michael K. Perry Name: Jeffrey M. Solomon
Its: Chief Executive Title: Managing Officer
Officer
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
General Partner
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Investment Advisor
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
General Partner
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
RAPHAEL, L.P.
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
<PAGE> 30
RAMIUS FUND, LTD.
By: AG Partners, L.L.C.
Investment Advisor
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Managing Officer
<PAGE> 31
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of Maximum Aggregate
Shares of Number of Shares of
Series A Series B Preferred
Investor Address and Preferred Stock and Series C Investor's Advisors and
Investor Name Facsimile Number Stock and Preferred Stock Legal Counsel Address
--------------------------- ------------------------- Warrants Purchasable ---------------------------
------------- --------------------
<S> <C> <C> <C> <C>
AGR Halifax Fund, Ltd. c/o AG Ramius Partners, 1,500 Shares 1,500 Shares Eleazer Klein, Esq.
(Cayman Islands) LLC Schulte Roth & Zabel LLP
757 Third Avenue, 27th 61,500 900 Third Avenue
Floor Warrants New York, NY 10022
New York, NY 10017 Phone: (212) 756-2376
Attn.: Jeffrey Solomon Fax: (212) 593-5955
Phone: (212) 845-7917
Fax: (212) 845-7999
c/o Angelo Gordon &
Leonardo, L.P. Co., L.P. 850 Shares 850 Shares Eleazer Klein, Esq.
(Cayman Islands) 245 Park Avenue, Schulte Roth & Zabel LLP
26th Floor 34,850 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
c/o Angelo Gordon &
GAM Arbitrage Investments, Co., L.P. 100 Shares 100 Shares Eleazer Klein, Esq.
Inc. 245 Park Avenue, Schulte Roth & Zabel LLP
(Cayman Islands) 26th Floor 4,100 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
c/o Angelo Gordon &
AG Super Fund Co., L.P. 100 Shares 100 Shares Eleazer Klein, Esq.
International Partners, 245 Park Avenue, Schulte Roth & Zabel LLP
L.P. 26th Floor 4,100 900 Third Avenue
(British Virgin Islands) New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
</TABLE>
<PAGE> 32
<TABLE>
<S> <C> <C> <C> <C>
c/o Angelo Gordon &
Raphael, L.P. Co., L.P. 150 Shares 150 Shares Eleazer Klein, Esq.
(Cayman Islands) 245 Park Avenue, Schulte Roth & Zabel LLP
26th Floor 6,150 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
c/o Angelo Gordon &
Ramius Fund, Ltd. Co., L.P. 300 Shares 300 Shares Eleazer Klein, Esq.
(Cayman Islands) 245 Park Avenue, Schulte Roth & Zabel LLP
26th Floor 12,300 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
</TABLE>
<PAGE> 33
SCHEDULE 3(a)
SUBSIDIARIES
Corporate Subsidiaries:
None.
<PAGE> 34
SCHEDULE 3(c)
CAPITALIZATION
Pre-emptive Rights, Liens or Encumbrances:
None.
<TABLE>
<S> <C>
Stock Options:
Stock Options outstanding under the Company's 1995 Stock Option/Stock
Issuance Plan to officers, directors, and key
employees. 2,168,000
Stock Options outstanding to the Company's CEO, Michael Perry At $2.55
per share with vesting over four years commencing
March 23, 1998. 1,500,000
Stock Options outstanding to the Company's former CEO, Richard
Otto at $0.50 per share with vesting tied to the Company's stock
attaining and holding specific market prices ranging from $5.00
to $9.00 per share 250,000
Warrants:
EVEREN Securities, Inc. at $3.56 per share 276,514
Ramius/Angelo Gordon/AFO Capital* 123,000
Imperial Bank at $3.00 per share 33,334
Imperial Bank at $2.00 per share* 15,000
</TABLE>
- --------------------------------------------------------------------------------
* To be issued as part of this financing
<PAGE> 35
SCHEDULE 3(c)
CAPITALIZATION (CON'T)
Scrip, Rights to Subscribe, Calls or Commitments:
None
Securities or Rights Convertible into Shares of Stock:
CardioDynamics Holdings, LLC ("CDH") - In February 1995, the Company
entered into an agreement with a related party, CDH, a California limited
Liability company, for the purchase of the Company's common stock. In
exchange for the issuance of the shares, the Company issued a five-year
secured promissory note ("CDH Note"). At August [ ], 1998 the principal
amount of the note (Fifth Amended and Restated Secured Convertible
Promissory Note) is $25,000 and carries an interest rate of 7.5% with
interest payable quarterly through maturity at March 31, 2000. The Note
is secured by all assets of the Company including proceeds and products.
The note is currently convertible into shares of the Company's common
stock at $0.30 at CDH's option with predetermined annual conversion price
increases of 20% each March 31st.
Contracts, Commitments, Understandings or Arrangements for Issuance of
Additional Shares:
None.
<TABLE>
<S> <C>
Debt Securities:
CDH Note - See above. $25,000
Imperial Bank - Six month unsecured $4M term loan with
interest at Prime plus 1.0% (Currently 10.5%) $3,000,000
Unsecured $3 Million Private Line of Credit Agreement with
Co-Chairmen of the Company's Board of Directors at 10.0%.* $100
</TABLE>
- --------------------------------------------------------------------------------
* $1M to be drawn in conjunction with this financing
Registration Agreements:
Stock options - Mr. Perry (see above)
Warrants - For each listed above
Triggered Anti-Dilution Provisions:
None.
<PAGE> 36
SCHEDULE 3(e)
CONFLICTS
Violations or Conflicts:
None.
Material Contracts:
Employment Agreement, dated March 23, 1998, between the Company and
Michael K. Perry.
Private line of Credit Agreement, dated March 11, 1998, between Allen E.
Paulson, James C. Gilstrap and the Company.
Promissory Note and Credit Agreement dated May 14, 1998, between Imperial
Bank and the Company.
Lease between AGBRI Nancy Ridge, LLC and the Company dated June 20, 1997.
1995 Stock Option/Stock Issuance Plan, as amended May 20, 1998.
Engagement Letter with EVEREN Securities, Inc. dated November 15, 1996.
<PAGE> 37
SCHEDULE 3(g)
MATERIAL CHANGES
Material Adverse Change or Development:
The Company operating losses have impaired its liquidity.
<PAGE> 38
SCHEDULE 3(h)
LITIGATION
Action, Suit, Proceeding, Inquiry or Investigation:
None.
<PAGE> 39
SCHEDULE 3(m)
INTELLECTUAL PROPERTY
Patents:
The Company has seven issued U.S. patents and multiple international
patents and patent applications based on five of those. The Company's
outstanding U.S. patents are as follows:
<TABLE>
<CAPTION>
NUMBER TITLE OF INVENTION ISSUE DATE EXPIRATION
------ ------------------ ---------- ----------
<S> <C> <C> <C>
4191962 Low Cost Multi-Channel Recorder and Display 03/04/80 09/20/98
System for Medical and Other Applications
4343314 Non-Invasive Real Time Blood Pressure 08/10/82 08/11/00
Measurement System
4450527 Noninvasive Cardiac Output Monitor 05/25/84 06/29/02
4807638 Noninvasive Continuous Mean Arterial Blood 02/28/89 10/21/07
Pressure Monitor
4836214 Esophageal Electrode Array for Electrical 06/06/89 12/01/06
Bioimpedance Measurement
4870578 Diastolic Clamp for Bioimpedance Measuring 09/26/89 08/19/07
Device
5103828 System for Therapeutic Management of 04/14/92 04/14/09
Hemodynamic State of Patient
</TABLE>
All of the Company's existing patents were issued prior to the
re-engineering of the products to a DSP-based system and development of
the BioZ.com. As such, several of the patents are not integral to the
design of BioZ. The Company also possesses proprietary software, which it
has strategically elected not to disclose through patents at this time.
<PAGE> 40
SCHEDULE 3(m)
INTELLECTUAL PROPERTY (CON'T)
Infringement by Others:
The Company believes that Renaissance Technology, Inc., located in
Newtown, PA, may be infringing on patent #4450527 - Noninvasive Cardiac
Output Monitor. In 1996 the Company sent them written notice of the
possible infringement but has not chosen to file suit at this time.
Bo Sramek, the founder of CDIC and former CEO, started a company called
Hemo Sapiens, located in Southern CA, which recently received FDA
approval on a TEB based Cardiac Output monitoring device. The Company
believes that Hemo Sapiens may be infringing on patents #4450527 -
Noninvasive Cardiac Output Monitor and #5103828 - System for Therapeutic
Management of Hemodynamic State of Patient. No action has yet been taken
to notify Hemo Sapiens of the possible infringement.
Trademarks:
The Company filed a trademark application for the rights to the
"CardioDynamics" name in January 1997. On September 2, 1997, the Patent
Office denied trademark registration because it was "merely descriptive
of the goods. However, lack of trademark registration does not preclude
the Company from using the "CardioDynamics" name.
The Company filed trademark applications for the rights to the names
BioZ, BioZ.com, BioZ.tel, and DISQ on January 12, 1998. The Company is
awaiting the Patent's Office response to these applications
The Company filed a trademark application for the rights to the name
BioZ.sim on April 23, 1998. The Company is awaiting the Patent's Office
response to this application.
The Company has signed a trademark application for the rights to the name
Z MARC on August 17, 1998 and will be filing the application with the
Patent Office on or before August 28, 1998.
There can be no assurance that the Company will obtain any of the
registered trademarks applied for, or that another company's prior use of
the names may preclude the Company's use of such names.
<PAGE> 41
SCHEDULE 3(o)
LIENS
Liens, Encumbrances and Defects:
Security interest in all assets securing the $25,000 CDH Note - See 3(c)
Leased Equipment Liens:
Inter-tel Leasing Inc. - Telephone System
Balboa Capital - Furniture, Computers & Software
Colonial Pacific Leasing - Furniture, Computers & Software
AT&T Capital Leasing - Computers & Software
<PAGE> 42
SCHEDULE 3(p)
INSURANCE
Prudent and Customary Insurance Coverage:
No exceptions.
<PAGE> 43
SCHEDULE 3(q)
REGULATORY PERMITS
Certificates, Authorizations and Permits:
The Company is in the process of applying for European CE Certification.
Until such time as the CE Certification is obtained, the Company is
precluded from offering its products for sale to Europe.
<PAGE> 44
SCHEDULE 3(t)
TAX STATUS
Unpaid Taxes or Assessments:
None.
<PAGE> 45
SCHEDULE 3(u)
CERTAIN TRANSACTION
Related Party Transactions:
CDH Note and related Security Agreement - See 3(c)
Rivertek Medical Systems, Inc. which is owned 100% by the Chief
Technology Officer of CDIC, Dennis Hepp and his wife, provides
engineering services to the Company and continues to be one of the
Company's largest vendors. In fiscal 1996 and fiscal 1997, the Company
paid $219,232 and $238,278, respectively, to Rivertek.
Unsecured $3 Million Private Line of Credit Agreement with the
Co-Chairmen of the Company's Board of Directors at 10.0%.*
On August 1, 1997, the Company entered into a Consulting Agreement with
Cam L. Garner, a Director of the Company, whereby Mr. Garner is paid a
monthly fee of $2,083 and received a one-time grant of 5,000 stock
options in exchange for providing consulting services to the Company.
- ----------
* $1M to be drawn in conjunction with this financing
<PAGE> 46
SCHEDULE 4(d)
USE OF PROCEEDS
Use of Proceeds:
The net proceeds received by the Company from the initial sale of the
Preferred Stock is estimated to be approximately $2.9 million after
deducting fees and estimated expenses. The anticipated use of these funds
is as follows:
<TABLE>
<S> <C>
----------------------------------------------------------------------------------------------------
$1 million to $1.5 million To fund expansion of its direct sales force from 12 sales
representatives to as many as 30.
----------------------------------------------------------------------------------------------------
$400 thousand to $900 thousand For new product development; FDA compliance, and new product
clearance.
----------------------------------------------------------------------------------------------------
$1 million to $1.5 million Working capital requirements of planned revenue growth,
primarily inventory and accounts receivable.
----------------------------------------------------------------------------------------------------
</TABLE>
The net proceeds received by the Company from the additional sale/Company
Put sale of Preferred Stock is estimated to be up to an additional
approximately $2.9 million after deducting fees and estimated expenses.
These funds will be used to repay up to $2 million on the Imperial Bank
bridge loan and $1 million on the unsecured private line of credit
agreement with the Co-Chairmen of the Company's Board of Directors.
Pending such uses, the Company intends to invest the net proceeds of the
Offering in interest bearing, investment grade securities.
<PAGE> 47
EXHIBIT H
FINANCIAL CONDITIONS*
<TABLE>
<S> <C>
Revenue Conditions:
Third Quarter ended August 31, 1998 $600,000
Fourth Quarter ended November 30, 1998 $750,000
Gross Profit Conditions:
Combined third and fourth quarter
gross profit $700,000
</TABLE>
- ------------
* Revenue and gross profit to be calculated in accordance with Generally
Accepted Accounting Principles as reported in the Company's quarterly and
annual reports on Forms 10-QSB and 10-KSB.
<PAGE> 1
EXHIBIT 99.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of
August 21, 1998, by and among CardioDynamics International Corporation, a
California corporation, with headquarters located at 6175 Nancy Ridge Drive,
Suite 300, San Diego, CA 92121 (the "COMPANY"), and the undersigned buyers
(each, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and
among the parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"),
the Company has agreed, upon the terms and subject to the conditions of the
Securities Purchase Agreement, to issue and sell to the Buyers shares of the
Company's Series A Convertible Preferred Stock (the "SERIES A PREFERRED
SHARES"), which will be convertible into shares of the Company's common stock,
no par value per share (the "COMMON STOCK") (as converted, the "CONVERSION
SHARES") in accordance with the terms of the Company's Certificate of
Determination of Preferences of the Series A Convertible Preferred Stock (the
"CERTIFICATE OF DETERMINATION"); and
B. In consideration for the Buyers agreeing to purchase the
Series A Preferred Shares, the Company shall issue and deliver to the Buyers
common stock purchase warrants (the "WARRANTS") to acquire additional shares of
Common Stock pursuant to the terms of the Securities Purchase Agreement (the
shares of Common Stock issued or issuable upon exercise of the Warrants are
hereinafter referred to as the "WARRANT Shares");
C. To induce the Buyers to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 ACT"), and applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the
mutual covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
(a) "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement all in accordance with
Section 9.
<PAGE> 2
(b) "PERSON" means a corporation, a limited liability company,
an association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
(c) "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
(d) "REGISTRABLE SECURITIES" means (i) the Conversion Shares
issued or issuable upon conversion of the Series A Preferred Shares, (ii) the
Warrant Shares issued or issuable upon exercise of the Warrants and (iii) any
shares of capital stock issued or issuable with respect to the Conversion
Shares, the Series A Preferred Shares, the Warrant Shares or the Warrants as a
result of any stock split, stock dividend, recapitalization, exchange or similar
event.
(e) "REGISTRATION STATEMENT" means a registration statement of
the Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall
have the respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
(a) Mandatory Registration. The Company shall prepare, and, on
or prior to thirty (30) days after the date of issuance of the Series A
Preferred Shares, file with the SEC a Registration Statement or Registration
Statements (as is necessary) on Form S-3 (or, if such form is unavailable for
such a registration, on such other form as is available for such a registration,
subject to the consent of each Buyer and the provisions of Section 2(c))
covering the resale of all of the Registrable Securities, which Registration
Statement(s) shall state that, in accordance with Rules 416 and 457 promulgated
under the 1933 Act, such Registration Statement(s) also covers such
indeterminate number of additional shares of Common Stock as may become issuable
upon conversion of the Series A Preferred Shares (i) to prevent dilution
resulting from stock splits, stock dividends or similar transactions and (ii) if
permitted by such rules, by reason of changes in the Conversion Price or
Conversion Rate (as such terms are defined in the Certificate of Determination)
of the Series A Preferred Shares in accordance with the terms thereof. Such
Registration Statement shall initially register for resale at least that number
of shares of Common Stock equal to the number of Registrable Securities as of
the date immediately preceding the date the Registration Statement is initially
filed with the SEC, subject to adjustment as provided in Section 3(b). Such
registered shares of Common Stock shall be allocated among the Investors pro
rata based on the total number of Registrable Securities issued or issuable as
of each date that a Registration Statement, as amended, relating to the resale
of the Registrable Securities is declared effective by the SEC. The Company
shall use its reasonable best efforts to have the
<PAGE> 3
Registration Statement declared effective by the SEC within ninety (90) days
after the issuance of the Series A Preferred Shares.
(b) Counsel and Investment Bankers. Subject to Section 5
hereof, in connection with any offering pursuant to Section 2, the Buyers shall
have the right to select legal counsel and an investment banker or bankers and
manager or managers to administer their interest in the offering, which
investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. The Company shall reasonably cooperate with any
such counsel and investment bankers.
(c) Eligibility for Form S-3. The Company represents, warrants
and covenants that it will meet the requirements for the use of Form S-3 for
registration of the sale by the Buyers and any other Investor of the Registrable
Securities on and after the thirtieth (30th) day following the date of issuance
of the Series A Preferred Shares and the Company has filed and shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to obtain and maintain such eligibility for the use of Form S-3. In the event
that Form S-3 is not available for sale by the Investors of the Registrable
Securities, then the Company; (x) (i) with the consent of each Investor pursuant
to Section 2(a), shall register the sale of the Registrable Securities on
another appropriate form and (ii) the Company shall undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC or (y) at the
request of the Investors, shall redeem the outstanding Series A Preferred Shares
at a price equal to the Redemption Price (as defined in the Certificate of
Determination) all in accordance with the redemption provisions set forth in
Section 3 of the Certificate of Determination.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a
Registration Statement with the SEC pursuant to Section 2(a), the Company will
use its reasonable best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof and,
pursuant thereto, the Company shall have the following obligations:
(a) The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the date of issuance of the Series A Preferred
Shares) for the registration of Registrable Securities pursuant to Section 2(a)
and use its reasonable best efforts to cause such Registration Statement(s)
relating to Registrable Securities to become effective as soon as possible after
such filing (but no later than ninety (90) days after the issuance of the Series
A Preferred Shares), and keep the Registration Statement(s) effective pursuant
to Rule 415 at all times until the earlier of (i) the date as of which the
Investors may sell all of the Registrable Securities without restriction
pursuant to Rule 144(k) promulgated under the 1933 Act (or successor thereto) or
(ii) the date on which (A) the Investors shall have sold all the Registrable
Securities and (B) none of the Series A Preferred Shares is outstanding (the
"Registration Period"), which Registration
<PAGE> 4
Statement(s) (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading. In the event that such Registration Statement is not
declared effective by the SEC within 90 days after the issuance of the Series A
Preferred Shares, until the Registration Statement is declared effective by the
SEC, the Conversion Percentage (as defined in the Certificate of Determination)
will be permanently reduced by 0.02 on the first day of each 30 day period
thereafter. In the event that such Registration Statement is not declared
effective by the SEC within 180 days after the issuance of the Series A
Preferred Shares, the Buyers shall have the right to demand redemption of any or
all of the Series A Preferred Shares at a price equal to the Redemption Price
(as defined in the Certificate of Determination) of such shares being redeemed
all in accordance with the redemption provisions set forth in Section 3 of the
Certificate of Determination.
(b) The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to the
Registration Statement(s) and the prospectus(es) used in connection with the
Registration Statement(s), which prospectus(es) are to be filed pursuant to Rule
424 promulgated under the 1933 Act, as may be necessary to keep the Registration
Statement(s) effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by the
Registration Statement(s) until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in the Registration
Statement(s). Provided that it is determined that Rules 416 and 457 are not
available to register an indeterminate number of shares as set forth in Section
2(a)(ii) hereof or for any other applicable reasons, then in the event the
number of shares available under a Registration Statement filed pursuant to this
Agreement is insufficient to cover all of the Registrable Securities, the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefor, if applicable), or both, so as
to cover all of the Registrable Securities, in each case, as soon as
practicable, but in any event within fifteen (15) days after the necessity
therefor arises (based on the market price of the Common Stock and other
relevant factors on which the Company reasonably elects to rely). The Company
shall use its reasonable best efforts to cause any such necessary amendment
and/or new Registration Statement to become effective as soon as practicable
following the filing thereof. For purposes of the foregoing provision, if
applicable, the number of shares available under a Registration Statement shall
be deemed "insufficient to cover all of the Registrable Securities" if at any
time the number of Registrable Securities issued or issuable upon conversion and
redemption of the Series A Preferred Shares and exercise of the Warrants is
greater than the quotient determined by dividing (i) the number of shares of
Common Stock available for resale under such Registration Statement by (ii) 2.0.
For purposes of the calculation set forth in the foregoing sentence, any
restrictions on the convertibility of the Series A Preferred Shares shall be
disregarded and such calculation shall assume that the Series A Preferred Shares
are then convertible into shares of Common Stock at the then prevailing
Conversion Rate (as defined in the Company's Certificate of Determination).
<PAGE> 5
(c) The Company shall furnish to each Investor whose
Registrable Securities are included in the Registration Statement(s) and its
legal counsel without charge (i) promptly after the same is prepared and filed
with the SEC at least one copy of the Registration Statement and any amendment
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits, the prospectus(es) included
in such Registration Statement(s) (including each preliminary prospectus) and,
with regards to the Registration Statement, to the extent requested any
correspondence by or on behalf of the Company to the SEC or the staff of the SEC
and any correspondence from the SEC or the staff of the SEC to the Company or
its representatives, (ii) upon the effectiveness of any Registration Statement,
ten (10) copies of the prospectus included in such Registration Statement and
all amendments and supplements thereto (or such other number of copies as such
Investor may reasonably request) and (iii) such other documents, including any
preliminary prospectus, as such Investor may reasonably request in order to
facilitate the disposition of the Registrable Securities owned by such Investor.
(d) The Company shall use reasonable efforts to (i) register
and qualify the Registrable Securities covered by the Registration Statement(s)
under such other securities or "blue sky" laws of such jurisdictions in the
United States as any Investor reasonably requests, (ii) prepare and file in
those jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.
(e) As promptly as practicable after becoming aware of such
event, the Company shall notify each Investor in writing of the happening of any
event as a result of which the prospectus included in a Registration Statement,
as then in effect, includes an untrue statement of a material fact or omission
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to the
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request); provided, however,
the Company shall not be obligated to file any post-effective amendment to a
Registration Statement for an aggregate of thirty (30) trading days (whether or
not consecutive) in any period of 365 consecutive days in order to avoid the
disclosure of a corporate development that the Company is not otherwise
obligated to disclose.
<PAGE> 6
The Company shall also promptly notify each Investor in writing (i) when a
prospectus or any prospectus supplement or post-effective amendment has been
filed, and when a Registration Statement or any post-effective amendment has
become effective (notification of such effectiveness shall be delivered to each
Investor by facsimile on the same day of such effectiveness and by overnight
mail), (ii) of any request by the SEC for amendments or supplements to a
Registration Statement or related prospectus or related information, and (iii)
of the Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
(f) The Company shall use its best efforts to prevent the
issuance of any stop order or other suspension of effectiveness of a
Registration Statement, or the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction and, if such an order or
suspension is issued, to obtain the withdrawal of such order or suspension at
the earliest possible moment and to notify each Investor who holds Registrable
Securities being sold (and, in the event of an underwritten offering, the
managing underwriters) of the issuance of such order and the resolution thereof
or its receipt of actual notice of the initiation or threat of any proceeding
for such purpose.
(g) The Company shall permit each Investor and a single firm
of counsel, initially Schulte Roth & Zabel LLP or such other counsel as
thereafter designated as selling stockholders' counsel by the Investors who hold
a majority of the Registrable Securities being sold, to review and comment upon
the Registration Statement(s) and all amendments and supplements thereto at
least ten (10) days prior to their filing with the SEC, and not file any
document in a form to which such counsel reasonably objects. The Company shall
not submit a request for acceleration of the effectiveness of a Registration
Statement(s) or any amendment or supplement thereto without the prior approval
of such counsel, which consent shall not be unreasonably withheld.
(h) The Company shall make available for inspection by any
Investor and one firm of attorneys and one firm of accountants or other agents
retained by the Investors (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility in the event that an Investor may be deemed an
underwriter, and cause the Company's officers, directors and employees to supply
all information which any Inspector may reasonably request for purposes of such
due diligence; provided, however, that each Inspector shall hold in strict
confidence and shall not make any disclosure (except to an Investor) or use of
any Record or other information which the Company determines in good faith to be
confidential, and of which determination the Inspectors are so notified, unless
(a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement or is otherwise required
under the 1933 Act, (b) the release of such Records is ordered pursuant to a
final, non-appealable subpoena or order from a court or government body of
competent jurisdiction, or (c) the information in such Records has been made
generally available to the public other than by disclosure in violation of this
or any other agreement. Each Investor agrees that it shall, upon learning that
disclosure of such Records is sought in or by a court or
<PAGE> 7
governmental body of competent jurisdiction or through other means, give prompt
notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential.
(i) The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this or any other agreement. The
Company agrees that it shall, upon learning that disclosure of such information
concerning an Investor is sought in or by a court or governmental body of
competent jurisdiction or through other means, give prompt written notice to
such Investor and allow such Investor, at the Investor's expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
(j) The Company shall use its best efforts either to (i) cause
all the Registrable Securities covered by a Registration Statement to be listed
on each securities exchange on which securities of the same class or series
issued by the Company are then listed, if any, if the listing of such
Registrable Securities is then permitted under the rules of such exchange, or
(ii) secure designation and quotation of all the Registrable Securities covered
by the Registration Statement on the Nasdaq National Market System or the Nasdaq
SmallCap Market for such Registrable Securities and, without limiting the
generality of the foregoing, to arrange for at least two market makers to
register with the National Association of Securities Dealers, Inc. as such with
respect to such Registrable Securities. The Company shall pay all fees and
expenses in connection with satisfying its obligation under this Section 3(j).
(k) The Company shall cooperate with the Investors who hold
Registrable Securities being offered to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legend) representing the
Registrable Securities to be offered pursuant to a Registration Statement and
enable such certificates to be in such denominations or amounts the Investors
may reasonably request and registered in such names as the Investors may
request. Not later than the date on which any Registration Statement registering
the resale of Registrable Securities is declared effective, the Company shall
deliver to its transfer agent instructions, accompanied by any reasonably
required opinion of counsel, that permit sales of unlegended securities in a
timely fashion that complies with then mandated securities settlement procedures
for regular way market transactions.
(l) The Company shall take all other reasonable actions
necessary to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
<PAGE> 8
(m) The Company shall provide a CUSIP number, a transfer agent
and registrar of all such Registrable Securities not later than the effective
date of such Registration Statement.
(n) If requested by an Investor, the Company shall immediately
incorporate in a prospectus supplement or post-effective amendment such
information as the Investors agree should be included therein relating to the
sale and distribution of Registrable Securities, make all required filings of
such prospectus supplement or post-effective amendment as soon as notified of
the matters to be incorporated in such prospectus supplement or post-effective
amendment; and supplement or make amendments to any Registration Statement if
requested by an Investor.
(o) The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
(p) The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
4. OBLIGATIONS OF THE INVESTORS.
(a) At least seven (7) days prior to the first anticipated
filing date of the Registration Statement, the Company shall notify each
Investor or its counsel of the information the Company requires from each such
Investor. It shall be a condition precedent to the obligations of the Company to
complete the registration pursuant to this Agreement with respect to the
Registrable Securities of a particular Investor that such Investor shall furnish
to the Company such information as may be requested in writing by the Company
regarding itself, the Registrable Securities held by it and the intended method
of disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
(b) Each Investor by such Investor's acceptance of the
Registrable Securities agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of the
Registration Statement(s) hereunder, unless such Investor has notified the
Company in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from the Registration Statement.
(c) Each Investor agrees that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section 3(f)
or the first sentence of 3(e), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to the Registration Statement(s)
covering such Registrable Securities until such Investor's receipt of the copies
of the supplemented or amended prospectus contemplated by Section 3(f) or the
first sentence of 3(e) and, if so directed by the Company, such Investor shall
deliver to the Company (at the expense of the Company) or destroy all copies in
such Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice.
<PAGE> 9
(d) No Investor shall sell any Registrable Securities other
than in compliance with the applicable requirements of the 1933 Act.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company and (not to exceed $5,000 per
registration) fees and disbursements of one counsel for the Investors, shall be
paid by the Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
(a) To the fullest extent permitted by law, the Company will,
and hereby does, indemnify, hold harmless and defend each Investor who holds
such Registrable Securities, the directors, officers, partners, employees,
agents and each Person, if any, who controls any Investor within the meaning of
the 1933 Act or the Securities Exchange Act of 1934, as amended (the "1934
ACT"), and any underwriter (as defined in the 1933 Act) for the Investors, and
the directors and officers of, and each Person, if any, who controls, any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several (collectively, "CLAIMS"), incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered,
or the omission or alleged omission to state a material fact required to be
stated therein or necessary to make the statements therein not misleading, (ii)
any untrue statement or alleged untrue statement of a material fact contained in
any preliminary prospectus if used prior to the effective date of such
Registration Statement, or contained in the final prospectus (as amended or
supplemented, if the Company files any amendment thereof or supplement thereto
with the SEC) or the omission or alleged omission to state therein any material
fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading, or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities pursuant to a Registration Statement (the
<PAGE> 10
matters in the foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). Subject to the restrictions set forth in Section 6(d), the
Company shall reimburse the Investors and each such underwriter or controlling
person, promptly as such expenses are incurred and are due and payable, for any
legal fees or other reasonable expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(a): (i) shall not apply to a Claim arising out of or based upon a
Violation which occurs in reliance upon and in conformity with information
furnished in writing to the Company by any Indemnified Person or underwriter for
such Indemnified Person expressly for use in connection with the preparation of
the Registration Statement or any such amendment thereof or supplement thereto,
if such prospectus was timely made available by the Company pursuant to Section
3(c); (ii) with respect to any preliminary prospectus, shall not inure to the
benefit of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or to the
benefit of any person controlling such person) if the untrue statement or
omission of material fact contained in the preliminary prospectus was corrected
in the prospectus, as then amended or supplemented, if such prospectus was
timely made available by the Company pursuant to Section 3(c), and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it; (iii) shall not be available to
the extent such Claim is based on a failure of the Investor to deliver or to
cause to be delivered the prospectus made available by the Company; and (iv)
shall not apply to amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which consent shall
not be unreasonably withheld. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Indemnified
Person and shall survive the transfer of the Registrable Securities by the
Investors pursuant to Section 9.
(b) In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement or
arise out of or are based upon delivery or nondelivery of a prospectus in
violation of the 1933 Act; and, subject to Section 6(d), such Investor will
reimburse any legal or other expenses reasonably incurred by them in connection
with investigating or defending any such Claim; provided, however, that the
indemnity agreement contained in this Section 6(b) and the agreement with
respect to contribution contained in Section 7 shall not apply to amounts paid
in settlement of any Claim if such settlement is effected without the prior
written consent of such Investor, which consent shall not be unreasonably
withheld; provided, further, however, that the Investor shall be liable under
this Section 6(b) for only that amount of a Claim or Indemnified Damages as does
not exceed the
<PAGE> 11
net proceeds to such Investor as a result of the sale of Registrable Securities
pursuant to such Registration Statement. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of such
Indemnified Party and shall survive the transfer of the Registrable Securities
by the Investors pursuant to Section 9. Notwithstanding anything to the contrary
contained herein, the indemnification agreement contained in this Section 6(b)
with respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
(c) The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the commencement of any
action or proceeding (including any governmental action or proceeding) involving
a Claim, such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to be made against any indemnifying party under this Section
6, deliver to the indemnifying party a written notice of the commencement
thereof, and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume control of the defense thereof
with counsel selected by the indemnifying party and reasonably satisfactory to
the Indemnified Person or the Indemnified Party, as the case may be; provided,
however, that an Indemnified Person or Indemnified Party shall have the right to
retain its own counsel with the fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The Company shall pay reasonable fees for no more than one separate
legal counsel for the Investors, and such legal counsel shall be selected by the
Investors holding a majority in interest of the Registrable Securities included
in the Registration Statement to which the Claim relates. The Indemnified Party
or Indemnified Person shall cooperate fully with the indemnifying party in
connection with any negotiation or defense of any such action or claim by the
indemnifying party and shall furnish to the indemnifying party all information
reasonably available to the Indemnified Party or Indemnified Person which
relates to such action or claim. The indemnifying party shall keep the
Indemnified Party or Indemnified Person fully apprised at all times as to the
status of the defense or any settlement negotiations with respect thereto. No
indemnifying party shall be liable for any settlement of any action, claim or
proceeding effected without its written consent, provided, however, that the
indemnifying party shall not unreasonably withhold, delay or condition its
consent. No indemnifying party shall, without the consent of the Indemnified
Party or Indemnified Person, consent to entry of any judgment or enter into any
settlement or other compromise which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party or
Indemnified Person of a release from all liability in respect to such claim or
litigation. Following indemnification as provided for hereunder, the
<PAGE> 12
indemnifying party shall be subrogated to all rights of the Indemnified Party or
Indemnified Person with respect to all third parties, firms or corporations
relating to the matter for which indemnification has been made. The failure to
deliver written notice to the indemnifying party within a reasonable time of the
commencement of any such action shall not relieve such indemnifying party of any
liability to the Indemnified Person or Indemnified Party under this Section 6,
except to the extent that the indemnifying party is prejudiced in its ability to
defend such action.
(e) The indemnification required by this Section 6 shall be
made by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
(f) The indemnity agreements contained herein shall be in
addition to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits
of Rule 144 promulgated under the 1933 Act or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration ("RULE 144"), the
Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
<PAGE> 13
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assignable by the Investors to
any Person (a "Transferee") to whom transfer of the Registrable Securities is
permitted of all or any portion of Registrable Securities if: (i) the Investor
agrees in writing with the Transferee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment; (ii) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (a) the name and address of such
Transferee, and (b) the securities with respect to which such registration
rights are being transferred or assigned; (iii) immediately following such
transfer or assignment the further disposition of such securities by the
Transferee is restricted under the 1933 Act and applicable state securities
laws; (iv) at or before the time the Company receives the written notice
contemplated by clause (ii) of this sentence the Transferee agrees in writing
with the Company to be bound by all of the provisions contained herein; (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement; (vi) such Transferee shall be an "accredited
investor" as that term is defined in Rule 501 of Regulation D promulgated under
the 1933 Act; and (vii) in the event the assignment occurs subsequent to the
date of effectiveness of the Registration Statement required to be filed
pursuant to Section 2(a), the Transferee agrees to pay all reasonable expenses
of amending or supplementing such Registration Statement to reflect such
assignment.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority of the Registrable Securities. Any amendment
or waiver effected in accordance with this Section 10 shall be binding upon each
Investor and the Company.
11. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
<PAGE> 14
(b) Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile, provided a copy
is mailed by U.S. certified mail, return receipt requested; (iii) three (3)
business days after being sent by U.S. certified mail, return receipt requested;
or (iv) one (1) business day after deposit with a nationally recognized
overnight delivery service, in each case properly addressed to the party to
receive the same. The addresses and facsimile numbers for such communications
shall be:
if to the Company:
CardioDynamics International Corporation
6175 Nancy Ridge Drive
Suite 300
San Diego, CA 92121
Telephone: (619) 535-0202
Facsimile: (619) 623-8414
Attention: Chief Financial Officer
with a copy to:
Brobeck Phleger & Harrison LLP
550 West C Street
Suite 1300
San Diego, CA 92101-3532
Telephone: (619) 234-1966
Facsimile: (619) 234-3848
Attention: Hayden J. Trubitt, Esq.
if to a Buyer, to its address and facsimile number on the
Schedule of Buyers attached hereto, with copies to such
Buyer's counsel as set forth on the Schedule of Buyers.
Each party shall provide five (5) days prior notice to the other party
of any change in address, phone number or facsimile number.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
(d) If any provision of this Agreement shall be invalid or
unenforceable in any jurisdiction, such invalidity or unenforceability shall not
affect the validity or enforceability of the remainder of this Agreement in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
(e) This Agreement, the Certificate of Determination, the
Warrants and the Securities Purchase Agreement (including all schedules and
exhibits thereto) constitute the entire
<PAGE> 15
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. The aforementioned
documents supersede all prior agreements and understandings among the parties
hereto with respect to the subject matter hereof and thereof.
(f) Subject to the requirements of Section 9, this Agreement
shall inure to the benefit of and be binding upon the permitted successors and
assigns of each of the parties hereto.
(g) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(h) This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement; provided that an original is promptly delivered thereafter to the
other party.
(i) Any legal action, suit or proceeding brought against the
Company with respect to this Agreement may be brought in any federal court of
the Southern District of New York or any state court located in New York County,
State of New York, and by execution and delivery of this Agreement, the Company
hereby irrevocably and unconditionally waives any claim (by way of motion, as a
defense or otherwise) of improper venue, that it is not subject personally to
the jurisdiction of such court, that such courts are an inconvenient forum or
that this Agreement or the subject matter may not be enforced in or by such
court. The Company hereby irrevocably and unconditionally consents to the
service of process of any of the aforementioned courts in any such action, suit
or proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, at its address set forth or provided for in Section 14, such
service to become effective 10 business days after such mailing. Nothing herein
contained shall be deemed to affect the right of any party to serve process in
any manner permitted by law or commence legal proceedings or otherwise proceed
against any other party in any other jurisdiction to enforce judgments obtained
in any action, suit or proceeding brought pursuant to this Section. The Company
irrevocably submits to the executive jurisdiction of the aforementioned courts
in such action, suit or proceeding. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL
BY JURY IN ANY ACTION, SUIT, OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT BY
IT OR THE HOLDER IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS
CONTEMPLATED HEREBY.
(j) Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
<PAGE> 16
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
Number of Maximum Aggregate
Shares of Number of Shares of
Series A Series B Preferred
Investor Address and Preferred Stock and Series C Investor's Advisors and
Investor Name Facsimile Number Stock and Preferred Stock Legal Counsel Address
--------------------------- ------------------------- Warrants Purchasable --------------------------
------------ --------------------
<S> <C> <C> <C> <C>
AGR Halifax Fund, Ltd. c/o AG Ramius Partners, 1,500 Shares 1,500 Shares Eleazer Klein, Esq.
(Cayman Islands) LLC Schulte Roth & Zabel LLP
757 Third Avenue, 27th 61,500 900 Third Avenue
Floor Warrants New York, NY 10022
New York, NY 10017 Phone: (212) 756-2376
Attn.: Jeffrey Solomon Fax: (212) 593-5955
Phone: (212) 845-7917
Fax: (212) 845-7999
c/o Angelo Gordon &
Leonardo, L.P. Co., L.P. 850 Shares 850 Shares Eleazer Klein, Esq.
(Cayman Islands) 245 Park Avenue, Schulte Roth & Zabel LLP
26th Floor 34,850 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
c/o Angelo Gordon &
GAM Arbitrage Investments, Co., L.P. 100 Shares 100 Shares Eleazer Klein, Esq.
Inc. 245 Park Avenue, Schulte Roth & Zabel LLP
(Cayman Islands) 26th Floor 4,100 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
c/o Angelo Gordon &
AG Super Fund Co., L.P. 100 Shares 100 Shares Eleazer Klein, Esq.
International Partners, 245 Park Avenue, Schulte Roth & Zabel LLP
L.P. 26th Floor 4,100 900 Third Avenue
(British Virgin Islands) New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
</TABLE>
<PAGE> 17
<TABLE>
<S> <C> <C> <C> <C>
c/o Angelo Gordon &
Raphael, L.P. Co., L.P. 150 Shares 150 Shares Eleazer Klein, Esq.
(Cayman Islands) 245 Park Avenue, Schulte Roth & Zabel LLP
26th Floor 6,150 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
c/o Angelo Gordon &
Ramius Fund, Ltd. Co., L.P. 300 Shares 300 Shares Eleazer Klein, Esq.
(Cayman Islands) 245 Park Avenue, Schulte Roth & Zabel LLP
26th Floor 12,300 900 Third Avenue
New York, NY 10167 Warrants New York, NY 10022
Attn: Gary Wolf Phone: (212) 756-2376
Phone: (212) 692-2058 Fax: (212) 593-5955
Fax: (212) 867-6395
</TABLE>
<PAGE> 18
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
CARDIODYNAMICS INTERNATIONAL AGR HALIFAX FUND, LTD.
CORPORATION By: AG Ramius Partners, LLC
Investment Advisor
By: /s/ Michael K. Perry By: /s/ Jeffrey M. Solomon
------------------------------- -----------------------------------
Name: Michael K. Perry Name: Jeffrey M. Solomon
Its: Chief Executive Title: Managing Officer
Officer
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
General Partner
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Investment Advisor
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
General Partner
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
RAPHAEL, L.P.
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Chief Executive Officer
<PAGE> 19
RAMIUS FUND, LTD.
By: AG Partners, L.L.C.
Investment Advisor
By: /s/ John M. Angelo
-----------------------------------
Name: John M. Angelo
Title: Managing Officer
