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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): July 14, 1998
POSSIS MEDICAL, INC.
(Exact name of registrant as specified in its charter)
Minnesota 001-12567 41-0783184
(State or other jurisdiction of (Commission (I.R.S. Employer
incorporation) File Number) Identification No.)
9055 Evergreen Boulevard N.W., Minneapolis, MN 55433-8003
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (612) 780-4555
Not Applicable
(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS
On July 14, 1998, Possis Medical, Inc. (the "Company") entered into a
Convertible Debenture Purchase Agreement with the purchasers who appear on
Schedule1 thereto (the "Purchasers"), pursuant to which, on July 15, 1998, the
Company issued in a private placement (the "Private Placement") an aggregate
principal amount of $12,000,000 of the Company's Series A 5% Convertible
Debentures Due July 15, 2004 (the "Debentures"). In connection with the Private
Placement, the Company also issued warrants to the Purchasers to purchase shares
of the Company's common stock, par value $.40 per share (the "Common Stock").
From July 15, 1998 and for a period of 180 days thereafter, the Debentures
are convertible at a price of $14.79 per share. Thereafter, the price at which
the Debentures may be converted and the maximum number of shares available for
conversion may vary depending on the date of the conversion and the trading
price of the Common Stock prior to conversion. The formulas for determining the
conversion price and the maximum number of shares available for conversion are
set forth in Section 4 of the Debentures, the form of which is filed as Exhibit
4.2 hereto. The Debentures bear interest at a rate of 5% per annum, which is
payable in cash or shares of Common Stock of the Company, subject to certain
exceptions. The Company has the right to require conversion of the Debentures
in certain circumstances. The Debentures contain certain antidilution
protections.
The holders of the Debentures also received a total of 110,640 warrants to
purchase shares of Common Stock of the Company, with an exercise price equal to
$15.578 per share. The warrants are exercisable for a period of four years from
the date of their issuance.
The Company intends to use the proceeds from this offering to fund
expansion of the Company's sales and marketing activities, research and
development for certain applications, and for working capital.
The foregoing information is only a summary and is qualified in its
entirety by the information contained in the documents filed as exhibits to this
Form 8-K.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) EXHIBITS
4.1 Convertible Debenture Purchase Agreement, dated as of July
14, 1998, between Possis Medical, Inc. and the Purchasers
who appear on Schedule 1 thereto (excluding certain exhibits
thereto).
4.2 Form of Series A 5% Convertible Debenture Due July 15, 2004.
4.3 Registration Rights Agreement, dated as of July 14, 1998, by
and between Possis Medical, Inc. and the purchasers of the
Convertible Debentures.
4.4 Form of Redeemable Warrant, dated as of July 15, 1998.
99.1 Press Release, dated as of July 16, 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.
POSSIS MEDICAL, INC.
Date: July 24, 1998
By /s/ Irving R. Colacci
---------------------------------------------
Irving R. Colacci
Vice President, Legal Affairs & Human
Resources, General Counsel and Secretary
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EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF EXHIBIT
<S> <C>
4.1 Convertible Debenture Purchase Agreement, dated as of July 14,
1998, between Possis Medical, Inc. and the Purchasers who appear
on Schedule 1 thereto (excluding certain exhibits thereto).
4.2 Form of Series A 5% Convertible Debenture Due July 15, 2004.
4.3 Registration Rights Agreement, dated as of July 14, 1998, by and
between Possis Medical, Inc. and the purchasers of the
Convertible Debentures.
4.4 Form of Redeemable Warrant, dated as of July 15, 1998.
99.1 Press Release, dated as of July 16, 1998.
</TABLE>
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT
POSSIS MEDICAL, INC.
Dated as of July 14, 1998
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CONVERTIBLE DEBENTURE PURCHASE AGREEMENT (this "Agreement"), dated
as of July 14, 1998, among Possis Medical, Inc., a Minnesota corporation (the
"Company"), and the parties who have executed this Agreement and whose names
appear on Schedule 1 hereto (each party listed on Schedule 1 hereto is sometimes
individually referred to herein as a "Purchaser" and all such parties are
sometimes collectively referred to herein as the "Purchasers."
WHEREAS, subject to the terms and conditions set forth in this
Agreement, the Company desires to issue and sell to the Purchasers and the
Purchasers, severally and not jointly, desire to purchase: (a) an aggregate
principal amount of $12,000,000 of the Company's Series A 5% Convertible
Debentures, due July 15, 2004 (the "Series A Debentures"), which are convertible
into shares of the Company's common stock, $.40 par value per share (the "Common
Stock"), (b) up to an aggregate principal amount of $2,500,000 of the Company's
Series B 5% Convertible Debentures, due six (6) years from the Series B Closing
(as defined below) which are convertible into shares of Common Stock (the
"Series B Debentures"), and (c) up to an aggregate principal amount of
$2,500,000 of the Company's Series C 5% Convertible Debentures, due six (6)
years from the Series C Closing (as defined below) which are convertible into
shares of Common Stock (the "Series C Debentures"). The Series A Debentures, the
Series B Debentures and the Series C Debentures are sometimes collectively
referred to herein as the "Debentures."
IN CONSIDERATION of the mutual covenants and agreements set forth
herein and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
ARTICLE I
PURCHASE AND SALE OF SECURITIES
1.1 The Closings.
(a) The Series A Closing. (i) The closing of the purchase and
sale of the Series A Debentures (the "Series A Closing") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution hereof or such later date as the parties shall agree.
The date of the Series A Closing is hereinafter referred to as the "Series A
Closing Date."
(ii) Documents to be Delivered at Series A Closing.
At the Series A Closing Date, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser (1)
Series A Debentures in the principal amount set forth beside such Purchaser's
name on Schedule 1 hereto, registered in such Purchaser's name, (2) a Common
Stock purchase warrant in the form of Exhibit B, registered in such Purchaser's
name, entitling such Purchaser to acquire the number of shares of Common Stock
set forth beside such Purchaser's name on Schedule 1 hereto, at an exercise
price (subject to adjustment as set forth therein) equal to 125% of the average
Per Share Market Value for the five (5) Trading Days immediately preceding the
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Series A Closing Date (the "Series A Warrants"); (3) the legal opinion of Dorsey
& Whitney, outside counsel to the Company, addressed to such Purchaser,
substantially in the form of Exhibit D, (4) the legal opinion of Irving R.
Colacci, General Counsel to the Company, addressed to such Purchaser,
substantially in the form of Exhibit E and (5) all other documents, instruments
and writings required to have been delivered at or prior to the Series A Closing
Date by the Company pursuant to this Agreement, including, without limitation,
executed originals of each of the Registration Rights Agreement, dated the date
hereof, by and among the Company and the Purchasers, in the form of Exhibit C
(the "Registration Rights Agreement"), and the Irrevocable Transfer Agent
Instructions, dated the Series A Closing date, in the form of Exhibit F,
delivered to and acknowledged by the Company and the Company's transfer agent
(the "Transfer Agent Instructions"); (B) each Purchaser shall deliver to the
Company (1) a wire transfer in immediately available funds equal to the
principal amount of Series A Debentures to be acquired by such Purchaser as set
forth beside such Purchaser's name on Schedule 1 hereto and (2) all documents,
instruments and writings required to have been delivered by such Purchaser at or
prior to the Series A Closing Date pursuant to this Agreement, including,
without limitation, an executed original copy of the Registration Rights
Agreement.
(b) The Series B Closing. (i) Subject to the terms and
conditions set forth in this Agreement, if the Per Share Market Value shall be
equal to or greater than 105% of the Initial Conversion Price for any period of
at least twenty (20) consecutive Trading Days, the Company shall have the right
to deliver a written notice to the Purchasers (a "Series B Subsequent Financing
Notice") no later than five Trading Days after the conclusion of such period
requiring the Purchasers to purchase, severally and not jointly, (subject to
adjustment as provided herein), at the Company's option, up to an aggregate
principal amount of $2,500,000 of Series B Debentures. A Series B Subsequent
Financing Notice may be delivered no earlier than 90 days following the
effective date of a registration statement to be filed with the Securities and
Exchange Commission (the "Commission") meeting the requirements set forth in the
Registration Rights Agreement and covering the resale by the Purchasers of the
Underlying Shares (as defined below) (an "Underlying Securities Registration
Statement"), and no later than one (1) year following the Series A Closing Date.
The closing of the purchase and sale of the Series B Debentures (the "Series B
Closing") shall take place at the offices of the Robinson Silverman on the date
indicated in the Series B Subsequent Financing Notice (which may not be prior to
the 15th Trading Day or subsequent to the 25th Trading Day after receipt by the
Purchasers of the Series B Subsequent Financing Notice, or as otherwise agreed
to by the parties); provided that in no case shall the Series B Closing take
place unless and until the conditions listed in Section 4.1 have been satisfied
or waived by the appropriate party. The date of the Series B Closing is
hereinafter referred to as the "Series B Closing Date."
(ii) Documents to be Delivered at Series B Closing.
On the Series B Closing Date, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser
acquiring Series B Debentures (1) Series B Debentures, registered in the name of
such Purchaser in principal amount equal to the pro rata portion of the
principal amount of Series B Debentures to be acquired by such Purchaser
(determined by reference to the pro rata portion of the principal amount of
Series A Debentures acquired by such Purchaser hereunder); (2) a Common Stock
purchase warrant in the form of Exhibit B, registered in the name of such
Purchaser, entitling such Purchaser to acquire an aggregate number of shares of
Common Stock as
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equals such Purchaser's pro rata portion of the total number of shares of Common
Stock to which all Series B Warrants (as defined below) entitle the holders
thereof to acquire; and (3) all other documents, instruments and writings
required to have been delivered at or prior to the Series B Closing Date by the
Company pursuant to this Agreement, including, without limitation, those
described in Section 4.1; (B) each Purchaser acquiring Series B Debentures and
Series B Warrants shall deliver to the Company (1) a wire transfer in
immediately available funds equal to the principal amount of Series B Debentures
to be acquired by such Purchaser at the Series B Closing and (2) all documents,
instruments and writings required to have been delivered by such Purchaser at or
prior to the Series B Closing Date pursuant to this Agreement. At the Series B
Closing, the Company will issue and deliver to the Purchasers acquiring Series B
Debentures, Common Stock purchase warrants, in the form of Exhibit B (the
"Series B Warrants"), that, in the aggregate, entitle the holders thereof to
acquire a number of shares of Common Stock as equals (determined in accordance
with the Black-Scholes valuation model as calculated by Bloomberg Financial
Markets) 5% of the aggregate principal amount of Series B Debentures to be
issued at the Series B Closing. The exercise price for shares underlying the
Series B Warrants shall (subject to adjustment as provided therein) equal 125%
of the average Per Share Market Values for the five (5) Days immediately
proceeding the Series B Closing Date.
(c) The Series C Closing. (i) Subject to the terms and
conditions set forth in this Agreement, if the Per Share Market Value shall be
equal to or greater than 130% of the Initial Conversion Price for any period of
at least twenty (20) consecutive Trading Days, the Company shall have the right
to deliver a written notice to the Purchasers (a "Series C Subsequent Financing
Notice," and together with Series B Subsequent Financing Notice, a "Subsequent
Financing Notice") no later than five Trading Days after the conclusion of such
period requiring the Purchasers to purchase, severally and not jointly, (subject
to adjustment as provided herein), at the Company's option, up to an aggregate
principal amount of $2,500,000 of Series C Debentures. A Series C Subsequent
Financing Notice may be delivered no earlier than 90 days following the
effective date of the Underlying Securities Registration Statement (provided,
that in the event that the Underlying Securities Registration Statement filed in
connection with the Series A Closing does not cover the Underlying Shares
issuable upon conversion or exercise of the Series B Debentures and Series B
Warrants, then such 90 Business Day period shall commence upon the effective
date of the Underlying Securities Registration Statement that covers such
Underlying Shares), and no later than one (1) year following the Series B
Closing Date. The closing of the purchase and sale of the Series C Debentures
(the "Series C Closing") shall take place at the offices of the Robinson
Silverman on the date indicated in the Series C Subsequent Financing Notice
(which may not be prior to the 15th Trading Day or subsequent to the 25th
Trading Day after receipt by the Purchasers of the Series C Subsequent Financing
Notice, or as otherwise agreed to by the parties); provided that in no case
shall the Series C Closing take place unless and until the conditions listed in
Section 4.1 have been satisfied or waived by the appropriate party. The date of
the Series C Closing is hereinafter referred to as the "Series C Closing Date."
(ii) Documents to be Delivered at Series C Closing.
On the Series C Closing Date, the parties shall deliver or shall cause to be
delivered the following: (A) the Company shall deliver to each Purchaser
acquiring Series C Debentures (1) Series C Debentures, registered in the name of
such Purchaser in principal amount equal to the pro rata portion of the
principal amount of
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Series C Debentures to be acquired by such Purchaser (determined by reference to
the pro rata portion of the principal amount of Series A Debentures acquired by
such Purchaser hereunder); (2) a Common Stock purchase warrant in the form of
Exhibit B, registered in the name of such Purchaser, entitling such Purchaser to
acquire an aggregate number of shares of Common Stock as equals such Purchaser's
pro rata portion of the total number of shares of Common Stock to which all
Series C Warrants (as defined below) entitle the holders thereof to acquire; and
(3) all other documents, instruments and writings required to have been
delivered at or prior to the Series C Closing Date by the Company pursuant to
this Agreement, including, without limitation, those described in Section 4.1;
(B) each Purchaser acquiring Series C Debentures and Seris C Warrants shall
deliver to the Company (1) a wire transfer in immediately available funds equal
to the principal amount of Series C Debentures to be acquired by such Purchaser
at the Series C Closing and (2) all documents, instruments and writings required
to have been delivered by Purchaser at or prior to the Series C Closing Date
pursuant to this Agreement. At the Series C Closing, the Company will issue and
deliver to the Purchasers acquiring Series C Debentures, Common Stock purchase
warrants in the form of Exhibit B (the "Series C Warrants") that, in the
aggregate, entitle the holders thereof to acquire a number of shares of Common
Stock as equals (determined in accordance with the Black- Scholes valuation
model as calculated by Bloomberg Financial Markets) 5% of the aggregate
principal amount of Series C Debentures to be as such at the Series C Closing.
The exercise price for shares underlying the Series C Warrants shall (subject to
adjustment as provided therein) equal 125% of the coverage per Share Market
Values for the five (5) Trading Days immediately proceeding the Series C Closing
Date.
1.2 Form of Debentures. The Debentures shall be in the form of
Exhibit A.
1.3 Certain Defined Terms. For purposes of this Agreement, "Original
Issue Date," "Trading Day", "Per Share Market Value" and "Initial Conversion
Price" shall have the meanings set forth in the form of Debenture attached as
Exhibit A: "Business Day" shall mean any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the State of New York are authorized or required by law or other governmental
action to close. "Closing" shall mean, collectively, the Series A Closing, the
Series B Closing and the Series C Closing. "Warrants" shall mean, collectively,
the Series A Warrants, the Series B Warrants and the Series C Warrants.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations, Warranties and Agreements of the Company. The
Company hereby makes the following representations and warranties to the
Purchasers:
(a) Organization and Qualification. The Company is a
corporation, duly incorporated, validly existing and in good standing under the
laws of the State of Minnesota, with the requisite corporate power and authority
to own and use its properties and assets and to carry on its business as
currently conducted. The Company has no subsidiaries other than as set forth in
the SEC Documents (as defined in Section 2.1(j)) (collectively the
"Subsidiaries"). Each of the
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Subsidiaries is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation, with the full
power and authority (corporate and otherwise) to own and use its properties and
assets and to carry on its business as currently conducted. Each of the Company
and the Subsidiaries is duly qualified to do business and is in good standing as
a foreign corporation in each jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary, except
where the failure to be so qualified or in good standing, as the case may be,
could not, individually or in the aggregate, (x) adversely affect the legality,
validity or enforceability of the Securities (as defined below) or any of the
Transaction Documents (as defined below) in any material respect, (y) have or
result in a material adverse effect on the results of operations, assets or
condition (financial or otherwise) of the Company and the Subsidiaries, taken as
a whole or (z) adversely impair the Company's ability to perform fully on a
timely basis its obligations under any of this Agreement, the Debentures, the
Warrants or the Registration Rights Agreement (collectively, the "Transaction
Documents") (any of (x), (y) or (z), being a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents, and otherwise to carry out
its obligations thereunder. The execution and delivery of each of the
Transaction Documents by the Company and the consummation by it of the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of the Company and no further corporate action is
required by the Company. Each of the Transaction Documents, when executed and
delivered in accordance with the terms hereof, shall have been duly executed by
the Company and, when delivered in accordance with the terms hereof, will
constitute the valid and binding obligation of the Company enforceable against
the Company in accordance with its terms. Neither the Company nor any Subsidiary
is in violation of any of the provisions of its respective articles of
incorporation, by-laws or other charter documents.
(c) Capitalization. The authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). No shares of
Common Stock are entitled to preemptive or similar rights, nor is any holder of
the Common Stock entitled to preemptive or similar rights arising out of any
agreement or understanding with the Company by virtue of any of the Transaction
Documents. Except as disclosed in Schedule 2.1(c), there are no outstanding
options, warrants, script rights to subscribe to, calls or commitments of any
character whatsoever relating to, or, except as a result of the purchase and
sale of the Debentures and the Warrants, securities, rights or obligations
convertible into or exchangeable for, or giving any person any right to
subscribe for or acquire any shares of Common Stock, or contracts, commitments,
understandings, or arrangements by which the Company or any Subsidiary is or may
become bound to issue additional shares of Common Stock, or securities or rights
convertible or exchangeable into shares of Common Stock. To the knowledge of the
Company, except as specifically disclosed in the SEC Documents (as defined
below) or Schedule 2.1(c), no Person or group of related Persons beneficially
owns (as determined pursuant to Rule 13d-3 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act")) or has the right to
acquire by agreement with or by obligation binding upon the Company beneficial
ownership of in excess of 5% of the Common Stock. A "Person" means an individual
or corporation, partnership, trust, incorporated or unincorporated
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association, joint venture, limited liability company, joint stock company,
government (or an agency or subdivision thereof) or other entity of any kind.
(d) Issuance of the Debentures and the Warrants. The
Debentures and the Warrants are duly authorized, and, when issued and paid for
in accordance with the terms hereof, shall have been validly issued, free and
clear of all liens, encumbrances and rights of first refusal of any kind
(collectively, "Liens"). The Company has on the date hereof and at all times
while Debentures and Warrants are outstanding will maintain an adequate reserve
of duly authorized shares of Common Stock, to enable it to perform its
conversion, exercise and other obligations under this Agreement, the Warrants
and the Debentures, and in no circumstances shall such reserved and available
shares of Common Stock be less than the sum of (i) (subject to the operation of
the conversion limitation set forth in Section 4(a)(iii)(B) of the Debentures)
200% of the number of shares of Common Stock which would be issuable upon
conversion in full of the Debentures issued pursuant to the terms hereof
assuming such conversion were effected on the Original Issue Date for such
Debentures, (ii) the number of shares of Common Stock issuable upon exercise in
full of the Warrants, and (iii) the number of shares Common Stock which would be
issuable upon payment of interest on the Debentures, assuming each Debenture is
outstanding for the full term stated therein and all interest is paid in shares
of Common Stock. All such authorized shares of Common Stock shall be duly
reserved for such issuance to the holders of such Debentures and Warrants on a
pro rata basis determined by reference to the portion of the principal amount of
Debentures acquired by each Purchaser hereunder. The shares of Common Stock
issuable upon conversion of the Debentures, as payment of interest thereon and
upon exercise of the Warrants are collectively referred to herein as the
"Underlying Shares." The Debentures, Warrants and Underlying Shares are
collectively referred to herein as the "Securities." When issued in accordance
with the Debentures and upon exercise of the Warrants, the Underlying Shares
shall have been duly authorized, validly issued, fully paid and nonassessable,
free and clear of all Liens.
(e) No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the consummation by the Company of
the transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of its articles of incorporation, bylaws or other charter
documents (each as amended through the date hereof), or (ii) subject to
obtaining the Required Approvals (as defined below), conflict with, or
constitute a default (or an event which with notice or lapse of time or both
would become a default) under, or give to others any rights of termination,
amendment, acceleration or cancellation of, any agreement, indenture or
instrument (evidencing a Company debt or otherwise) to which the Company is a
party or by which any property or asset of the Company is bound or affected, or
(iii) result in a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or governmental authority
to which the Company is subject (including Federal and state securities laws and
regulations), or by which any material property or asset of the Company is bound
or affected, except in the case of each of clauses (ii) and (iii), such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as could not, individually or in the aggregate, have or result in a
Material Adverse Effect. The business of the Company is not being conducted in
violation of any law, ordinance or regulation of any governmental authority,
except for violations which, individually or in the aggregate, could not have or
result in a Material Adverse Effect.
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(f) Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
Federal, state, local, foreign or other governmental authority or other Person
in connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filing of one or more Underlying
Securities Registration Statements with the Commission, (ii) the application(s)
to the Nasdaq Stock Market (the "NASDAQ") for the listing of the Underlying
Shares with the NASDAQ (and with any other national securities exchange or
market on which the Common Stock is then listed), (iii) filing of Form D with
the Commission, (iv) filing of a Current Report on Form 8-K with the Commission,
(v) applicable Blue Sky filings and (vi) in all other cases where the failure to
obtain such consent, waiver, authorization or order, or to give such notice or
make such filing or registration could not have or result in, individually or in
the aggregate, a Material Adverse Effect (the "Required Approvals").
(g) Litigation; Proceedings. Except as specifically disclosed
in the SEC Documents or Schedule 2.1(g), there is no action, suit, notice of
violation, proceeding or investigation pending or, to the knowledge of the
Company, threatened against or affecting the Company or any of its Subsidiaries
or any of their respective properties before or by any court, governmental or
administrative agency or regulatory authority (Federal, state, county, local or
foreign) which (i) adversely affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the Securities or (ii)
could, individually or in the aggregate, have or result in a Material Adverse
Effect.
(h) No Default or Violation. Except as could not individually
or in the aggregate, have or result in, a Material Adverse Effect, neither the
Company nor any Subsidiary (i) is in default under or in violation of (and, to
the knowledge of the Company, no event has occurred which has not been waived
which, with notice or lapse of time or both, would result in a default by the
Company or any Subsidiary under), nor has the Company or any Subsidiary received
notice of a claim that it is in default under or that it is in violation of, any
indenture, loan or credit agreement or any other agreement or instrument to
which it is a party or by which it or any of its properties is bound, (ii) is in
violation of any order of any court, arbitrator or governmental body, or (iii)
is in violation of any statute, rule or regulation of any governmental
authority.
(i) Private Offering. Neither the Company nor any Person
acting on its behalf has taken or will take any action which might subject the
offering, issuance or sale of the Securities to the registration requirements of
the Securities Act of 1933, as amended (the "Securities Act"). Assuming the
accuracy of the representations and warranties of the Purchasers set forth in
Sections 2.2(b)-(g), the offer, issue and sale of the Securities to the
Purchasers is exempt from the registration requirements of the Securities Act.
(j) SEC Documents; Financial Statements; No Adverse Change.
The Company has filed all reports required to be filed by it under the Exchange
Act, including pursuant to Section 13(a) or 15(d) thereof, for the three years
preceding the date hereof (or such shorter period as the Company was required by
law to file such material) (the foregoing materials being collectively referred
to herein as the "SEC Documents" and, together with the Schedules to this
Agreement the
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"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Documents prior to the expiration
of any such extension. As of their respective dates, the SEC Documents complied
in all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, as the case may be, and none of the SEC Documents at the time, when
filed, contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. All material agreements to which the Company is a party or to
which the property or assets of the Company are subject have been filed as
exhibits to the SEC Documents to the extent required. The financial statements
of the Company included in the SEC Documents comply in all material respects
with applicable accounting requirements and the rules and regulations of the
Commission with respect thereto as in effect at the time of filing. Such
financial statements have been prepared in accordance with generally accepted
accounting principles ("GAAP") applied on a consistent basis during the periods
involved, except as may be otherwise specified in such financial statements or
the notes thereto, and fairly present in all material respects the financial
position of the Company and its consolidated subsidiaries as of and for the
dates thereof and the results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to normal, immaterial,
year-end audit adjustments. Except as set forth in Schedule 2.1(j), since
October 29, 1997, except as specifically disclosed in the SEC Documents, (a)
there has been no event, occurrence or development that has had or that could
have or result in a Material Adverse Effect, (b) the Company has not incurred
any liabilities (contingent or otherwise) other than (x) liabilities incurred in
the ordinary course of business consistent with past practice and (y)
liabilities not required to be reflected in the Company's financial statements
pursuant to GAAP or required to be disclosed in filings made with the
Commission, (c) the Company has not altered its method of accounting or the
identity of its auditors and (d) the Company has not declared or made any
payment or distribution of cash or other property to its stockholders or
officers or directors (other than in compliance with existing Company stock
option plans) with respect to its capital stock, or purchased, redeemed (or made
any agreements to purchase or redeem) any shares of its capital stock. The
Company last filed audited financial statements with the Commission on October
29, 1997, and has not received any comments from the Commission in respect
thereof.
(k) Investment Company. The Company is not, and is not
controlled by or under common control with an affiliate (an "Affiliate") of, an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended.
(l) Certain Fees. No fees or commissions will be payable by
the Company to any broker, financial advisor or consultant, finder, placement
agent, investment banker, or bank, other than Salomon Smith Barney ("Salomon"),
with respect to the transactions contemplated by this Agreement. The Purchasers
shall have no obligation with respect to any fees or with respect to any claims
made by or on behalf of other Persons for fees of a type contemplated in this
Section that may be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless the Purchasers, its
employees, officers, directors, agents, and partners, and their respective
Affiliates (as such term is defined under Rule 405 promulgated under the
Securities Act), from and against all claims, losses, damages, costs (including
the costs of
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preparation and attorney's fees) and expenses suffered in respect of any such
claimed or existing fees, as such fees and expenses are incurred.
(m) Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the offering and sale of
the Securities, other than the Disclosure Materials and any amendments and
supplements thereto and the materials listed on Schedule 2.1(m), or (ii)
solicited any offer to buy or sell the Securities by means of any form of
general solicitation or advertising.
(n) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(o) Seniority. Except as set forth in Schedule 2.1(p), no
indebtedness of the Company is senior to the Debentures in right of payment,
whether with respect to interest or upon liquidation, dissolution or otherwise.
(p) Exclusivity. The Company shall not issue and sell the
Debentures to any Person other than the Purchasers other than with the specific
prior written consent of the Purchasers unless the Purchasers fail to purchase
the principal amount of Debentures requested by the Company.
(q) Listing and Maintenance Requirements Compliance. The
Company has not in the past two years received notice (written or oral) from the
NASDAQ or any other stock exchange, market or trading facility on which the
Common Stock is or has been listed (or on which it has been quoted) to the
effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is in compliance with all
such maintenance requirements.
(r) Patents and Trademarks. The Company has, or has rights to
use, all patents, patent applications, trademarks, trademark applications,
service marks, trade names, copyrights, licenses and rights (collectively, the
"Intellectual Property Rights") which are necessary for use in connection with
its business, as currently conducted and as described in the SEC Documents, and
which the failure to so have would have a Material Adverse Effect. To the best
knowledge of the Company, there is no existing infringement by another Person of
any of the Intellectual Property Rights which are necessary for use in
connection with the Company's business.
(s) Regulatory Permits. The Company and the Subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
Federal, state or foreign regulatory authorities necessary to conduct their
respective businesses as currently conducted as described in the SEC Documents,
except where the failure to possess such permits could not, individually or in
the aggregate, have or result in a Material Adverse Effect ("Material Permits"),
and neither the Company nor any such Subsidiary has received any notice of
proceedings relating to the revocation or modification of any Material Permit
which could result in a Material Adverse Effect.
(t) Registration Rights; Rights of Participation. Except as
set forth on Schedule 2.1(t), (i) the Company has not granted or agreed to grant
to any Person any rights (including "piggy-
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back" registration rights) to have any securities of the Company registered with
the Commission or any other governmental authority which has not been satisfied
and (ii) no Person has any right of first refusal, preemptive right, right of
participation, or any similar right to participate in the transactions
contemplated by the Transaction Documents.
(u) Disclosure. The Company confirms that it has not provided
the Purchasers or their agents or counsel with any information that constitutes
or might constitute material non-public information. The Company understands and
confirms that the Purchasers shall be relying on the foregoing representations
in effecting transactions in securities of the Company. None of the Disclosure
Materials or the information set forth in the Confidential Information
Memorandum dated May 12, 1998 or any other information provided to the
Purchasers by or on behalf of the Company in connection with the transactions
contemplated herein contain any untrue statement of material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, severally and not jointly, represents and warrants to the Company as
follows:
(a) Organization; Authority. Such Purchaser is an entity
organized, validly existing and in good standing under the laws of the
jurisdiction of its organization with the requisite power and authority to enter
into and to consummate the transactions contemplated by the Transaction
Documents and to carry out its obligations thereunder. The acquisition of the
Securities to be acquired hereunder by such Purchaser has been duly authorized
by all necessary action on the part of such Purchaser. Each Transaction
Document, when executed and delivered in accordance with the terms and
conditions hereof, shall have been duly executed and delivered by such Purchaser
and shall constitute the valid and legally binding obligation of such Purchaser,
enforceable against it in accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the
Securities to be acquired hereunder by such Purchaser for its own account for
investment purposes only and not with a view to or for distributing or reselling
such Securities or any part thereof or interest therein, without prejudice,
however, to such Purchaser's right, subject to the provisions of this Agreement
and the Registration Rights Agreement, at all times to sell or otherwise dispose
of all or any part of such Securities pursuant to an effective registration
statement under the Securities Act and in compliance with applicable state
securities laws or under an exemption from such registration.
(c) Purchaser Status. At the time such Purchaser was offered
the Securities to be acquired hereunder by such Purchaser, it was, and at the
date hereof, it is, and at the each of the Series A Closing Date, the Series B
Closing Date and the Series C Closing Date (each a "Closing Date"), it will be,
an "accredited investor" as defined in Rule 501(a) under the Securities Act.
(d) Experience of Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities, and has so
evaluated the merits and risks of such investment.
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(e) Ability of Purchaser to Bear Risk of Investment. Such
Purchaser acknowledges that the Securities are speculative investments and
involve a high degree of risk. Such Purchaser is able to bear the loss of its
entire investment in the Securities.
(f) Access to Information. Such Purchaser acknowledges receipt
of the Disclosure Materials and further acknowledges that it has been afforded
(i) the opportunity to ask such questions as it has deemed necessary of, and to
receive answers from, representatives of the Company concerning the terms and
conditions of the offering of the Securities, and the merits and risks of
investing in the Securities, (ii) access to information about the Company and
the Company's financial condition, results of operations, business, properties,
management and prospects sufficient to enable it to evaluate its investment, and
(iii) the opportunity to obtain such additional information which the Company
possesses or can acquire without unreasonable effort or expense that is
necessary to make an informed investment decision with respect to the investment
and to verify the accuracy and completeness of the information contained in the
Disclosure Materials. Neither such inquiries nor any other investigation
conducted by or on behalf of such Purchaser or its representatives or counsel
shall modify, amend or affect such Purchaser's right to rely on the truth,
accuracy and completeness of the Disclosure Materials and the Company's
representations and warranties contained in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities to be acquired by it hereunder as a result of, and Purchaser is not
aware of, any advertisement, article, notice or other communication published in
any newspaper, magazine or similar media or broadcast over television or radio
or presented at any seminar relating to the sale of the Securities.
(h) Transactions in the Common Stock. Except as provided in
Section 3.18, such Purchaser has not, during the thirty (30) Trading Days
immediately preceding the date hereof, purchased or sold, or established a short
position in, any shares of Common Stock.
(i) Reliance. Such Purchaser understands and acknowledges that
(i) the Securities to be acquired by it hereunder are being offered and sold to
it without registration under the Securities Act in a private placement that is
exempt from the registration provisions of the Securities Act and (ii) the
availability of such exemption, depends in part on, and the Company will rely
upon the accuracy and truthfulness of, the foregoing representations and such
Purchaser hereby consents to such reliance.
(j) Tax Consequences. The Company has not made any
representation, warranty, acknowledgement or covenant, in writing or otherwise,
to such Purchaser regarding the tax consequences, if any, of the sale of the
Securities, or of the resale of the Underlying Shares by such Purchaser.
(k) Suitable Investment. Such Purchaser has evaluated the
merits and risks of an investment in the Securities and has determined that the
Securities are a suitable investment for such Purchaser in light of such
Purchaser's overall financial condition and prospects.
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(l) Fluctuation of Stock Price. Such Purchaser has been
advised, and is aware, that the market prices of shares of stock of publicly
traded companies fluctuate and that there can be no assurances as to the future
performance of any given securities, including the Underlying Shares.
The Company acknowledges and agrees that the Purchasers make
no representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act. In connection with any
transfer of Securities other than pursuant to an effective registration
statement or to the Company, except as otherwise set forth herein, the Company
may require the transferor thereof to provide to the Company an opinion of
counsel selected by the transferor, the form and substance of which opinion
shall be reasonably satisfactory to the Company, to the effect that such
transfer does not require registration under the Securities Act. Notwithstanding
the foregoing, the Company hereby consents to and agrees to register on the
books of the Company and with any transfer agent for the securities of the
Company any transfer of Securities (x) between Purchasers and (y) by a Purchaser
to an Affiliate thereof or to an investment fund under common management with
such Purchaser, or any transfer among any such Affiliates or funds, provided
that, in each case, the transferee certifies to the Company that the
representations and warranties contained in Section 2.2 are true and correct
with respect to such transferee. Any such transferee shall agree in writing to
be bound by the terms of this Agreement and shall have the rights of a Purchaser
under this Agreement and the Registration Rights Agreement.
(b) The Purchasers agree to the imprinting, so long as is
required by this Section 3.1, of the following legend on the Securities:
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE [CONVERTIBLE] [EXERCISABLE] HAVE BEEN REGISTERED WITH
THE SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF
ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH
APPLICABLE STATE SECURITIES LAWS.
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(c) Underlying Shares shall not contain the legend set forth
above nor any other legend if the conversion of Debentures, the payment of
interest thereon, exercise of Warrants or other issuances of Underlying Shares
as contemplated hereby or by the Debentures occurs at any time while an
Underlying Securities Registration Statement covering the resale of such
Underlying Shares is effective under the Securities Act or in the event there is
not an effective Underlying Securities Registration Statement at such time, if
in the opinion of counsel to the Company such legend is not required under
applicable requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff of the Commission). The
Company shall issue the Transfer Agent Instructions attached hereto as Exhibit F
to the Company's transfer agent on the Series A Closing Date. The Company agrees
that it will cause its Transfer Agent to provide the Purchaser, upon request,
with a certificate or certificates representing Underlying Shares, free from
such legend at such time as such legend is no longer required hereunder upon
surrender of the legended certificates duly endorsed. The Company may not make
any notation on its records or give instructions to any transfer agent of the
Company which enlarge the restrictions of transfer set forth in this Section.
(d) The Purchaser agrees to dispose of Underlying Shares
represented by unlegended certificates only pursuant to an effective
registration statement under the Securities Act, to the Company or pursuant to
Rule 144 promulgated under the Securities Act (and to comply with the
requirements of Section 3(q) of the Registration Rights Agreement) and
acknowledges that the Company is relying upon the Purchaser's agreement in this
Section in agreeing to issue certificates for Underlying Shares without legend
as provided for herein.
3.2 Acknowledgment of Dilution. The Company acknowledges that the
issuance of the Underlying Shares upon (i) conversion of the Debentures and
payment of interest thereon in accordance with the terms of the Debentures and
(ii) exercise of the Warrants, may result in dilution of the outstanding shares
of Common Stock, which dilution (subject to the operation of Section
4(a)(iii)(B) of the Debentures) may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Underlying Shares upon (x) conversion of the Debentures and payment of interest
thereon in accordance with the terms of the Debentures, and (y) exercise of the
Warrants, is unconditional and absolute, subject to the limitations set forth in
the Debentures or pursuant to the Warrants, regardless of the effect of any such
dilution.
3.3 Furnishing of Information. As long as any Purchaser owns
Securities, the Company covenants to timely file (or obtain extensions in
respect thereof and file within the applicable grace period) all reports
required to be filed by the Company after the date hereof pursuant to Section
13(a) or 15(d) of the Exchange Act. As long as any Purchaser owns Securities, if
the Company is not required to file reports pursuant to Section 13(a) or 15(d)
of the Exchange Act, it will prepare and furnish to each Purchaser and make
publicly available in accordance with Rule 144(c) promulgated under the
Securities Act ("Rule 144(c)"), all such information as is required to be made
publicly available in accordance with Rule 144(c). The Company further covenants
that it will take such further action as any holder of Securities may reasonably
request, all to the extent required from time to time to enable such Person to
sell Underlying Shares without registration under the Securities Act within the
limitation of the exemptions provided by Rule 144 promulgated under the
Securities Act, including causing the issuance of the legal opinion referenced
above in this Section. Upon the
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written request of any such Person, the Company shall deliver to such Person a
written certification of a duly authorized officer as to whether it has complied
with such requirements.
3.4 Blue Sky Laws. In accordance with the Registration Rights
Agreement, the Company shall qualify or exempt the issuance and sale of the
Underlying Shares under the securities or Blue Sky laws of such jurisdictions as
the Purchasers may reasonably request and shall continue such qualification or
exemption at all times until each Purchaser notifies the Company in writing that
it no longer owns Securities; provided, however, that neither the Company nor
its Subsidiaries shall be required in connection therewith to qualify as a
foreign corporation where they are not now so qualified or to take any action
that would subject the Company to general service of process in any such
jurisdiction where it is not then so subject.
3.5 Integration. The Company shall not, and shall use its best efforts
to ensure that no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers.
3.6 Increase in Authorized Shares. At such times as the Company would
be, if a notice of conversion or exercise (as the case may be) were to be
delivered on such date, precluded from (a) converting, subject to the operation
of the conversion limitation set forth in Section 4(a)(iii)(B) of the
Debentures, 200% of the full outstanding principal amount of Debentures (and
paying any earned and unpaid interest in respect thereof in shares of Common
Stock) that remain unconverted at such date or (b) honoring the exercise in full
of the Warrants, due to the unavailability of a sufficient number of shares of
authorized but unissued or reserved Common Stock, the Board of Directors of the
Company shall promptly (and in any case, within 30 Business Days from such date)
prepare and mail to the stockholders of the Company proxy materials requesting
authorization to amend the Company's Articles of Incorporation to increase the
number of shares of Common Stock which the Company is authorized to issue to at
least the sum of (x) the number of shares of Common Stock then authorized, (y)
the number of shares of Common Stock then outstanding plus all shares of Common
Stock issuable upon exercise of all outstanding options, warrants (including the
Warrants) and convertible instruments, and (z) (subject to the operation of the
conversion limitation set forth in Section 4(a)(iii)(B) of the Debentures) 200%
of the number of Underlying Shares as are then issuable upon a conversion of the
full outstanding principal amount of Debentures then outstanding and as payment
of interest thereon, or such smaller number as shall be agreed to by the holders
of at least 50% in interest of the principal amount of Debentures then
outstanding. In connection therewith, the Board of Directors shall (a) adopt
proper resolutions authorizing such increase, (b) recommend to and otherwise use
its best efforts to promptly and duly obtain stockholder approval to carry out
such resolutions (and hold a regular or special meeting of the stockholders no
later than the 45th day after delivery of the proxy materials relating to such
meeting) and (c) within five (5) Business Days of obtaining such stockholder
authorization, file an appropriate amendment to the Company's Articles of
Incorporation to evidence such increase.
3.7 Listing and Reservation of Underlying Shares. (a) The Company shall
(i) not later than the fifteenth Business Day following the Series A Closing
Date, and not later than the tenth
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Business Day following each of the Series B Closing Date and the Series C
Closing Date prepare and file with the NASDAQ (as well as any other national
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed) an additional shares listing application covering a
number of shares of Common Stock which is at least equal to the number of shares
required to be reserved pursuant to Section 2.1(d) with respect to the Warrants
and principal amount of Debentures to be issued and sold at such Closing, (ii)
take all steps necessary to cause such shares to be approved for listing on the
NASDAQ (as well as on any other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed) as soon
as possible thereafter, and (iii) provide to the Purchasers evidence of such
listing. The Company shall use its best efforts to maintain the listing of its
Common Stock thereon. If the number of Underlying Shares as are issuable upon
conversion in full of the then outstanding principal amount of Debentures, as
payment of interest thereon, and upon exercise of the then unexercised portion
of the Warrants exceeds 85% of the number of Underlying Shares previously listed
on account thereof with NASDAQ (and other required exchanges), the Company shall
take the necessary actions to immediately list a number of additional Underlying
Shares such that the total number of Shares so listed shall equal 200% of the
number of Underlying Shares then issuable upon conversion of the Debentures and
as payment of interest thereon and exercise of Warrants (subject to the
operation of the conversion limitations set forth in Section 4(a)(iii)(B) of the
Debentures).
(b) The Company shall maintain a reserve of Common Stock for
issuance upon conversion of the Debentures and for payment of interest thereupon
in shares of Common Stock pursuant to the terms of the Debentures and upon
exercise of the Warrants in accordance with their terms, in such amount as may
be required to fulfill obligations in full under the Transaction Documents,
which reserve shall initially include a number of shares of Common Stock equal
to (subject to the operation of Section 4(a)(iii)(B) of the Debentures) no less
than two times the number of shares of Common Stock as would be issuable upon
conversion in full of the Debentures and or payment of interest thereon in
shares of Common Stock as of the Original Issue Date.
3.8 Conversion Procedures. The delivery by the Holder of the Holder
Conversion Notice (as defined in Exhibit A) and the Form of Election to Purchase
attached to the Warrants, as the case may be, the delivery by the Holder of the
Debentures and the Warrants (and payment of exercise price, if any, in
connection with the exercise of the Warrants), as the case may be, the delivery
by Dorsey & Whitney, outside counsel to the Company, to the Company's transfer
agent, on or prior to the Series A Closing Date, Series B Closing Date or Series
C Closing Date, as the case may be (and as contemplated by Section 4.1(k)) of a
copy of a legal opinion substantially in the form of Exhibit D, the issuance by
the Company of the Transfer Agent Instructions and delivery of the legal opinion
by Company counsel, as set forth in the Transfer Agent Instructions, are all the
documents and instruments that must be delivered to enable the Purchasers to
convert Debentures and exercise Warrants as contemplated in the Debentures and
Warrants.
3.9 Notice of Breaches. (a) Each of the Company and the Purchasers
shall give prompt written notice to the other of any breach of any
representation, warranty or other agreement contained in any Transaction
Document, as well as any events or occurrences arising after the date hereof
which would reasonably be likely to cause any representation or warranty or
other agreement of such
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party, as the case may be, contained therein to be incorrect or breached as of
any Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
(b) Notwithstanding the generality of Section 3.9(a), the
Company shall promptly notify the Purchaser of any notice or claim (written or
oral) that it receives from any lender of the Company to the effect that the
consummation of the transactions contemplated by any Transaction Document
violates or would violate any written agreement or understanding between such
lender and the Company, and the Company shall promptly furnish by facsimile to
the holders of the Securities a copy of any written statement in support of or
relating to such claim or notice.
3.10 Conversion and Exercise Obligations of the Company. The Company
shall honor conversions of the Debentures and exercises of the Warrants and
shall deliver Underlying Shares in accordance with the respective terms and
conditions and time periods set forth in the Debentures and Warrants.
3.11 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly, without the prior written consent of the
Purchasers, offer, sell, grant any option to purchase, or otherwise dispose of
(or announce any offer, sale, grant or any option to purchase or other
disposition) any of its or its Affiliates' equity or equity-equivalent
securities or any instrument in a placement intended to be exempt from the
registration requirements of the Securities Act (a "Subsequent Placement") for a
period of 180 days after any Closing Date, except (i) the granting of options or
warrants to employees, officers and directors, and the issuance of shares upon
exercise of options granted, under any stock option plan heretofore or
hereinafter duly adopted by the Company, (ii) shares issued upon exercise of any
currently outstanding warrants or rights and upon conversion of any currently
outstanding convertible preferred stock in each case disclosed in Schedule
2.1(c), and (iii) shares of Common Stock issued upon conversion of Debentures or
as payment of interest thereon or upon exercise of the Warrants, unless (A) the
Company delivers to each Purchaser a written notice (the "Subsequent Placement
Notice") of its intention effect such Subsequent Placement, which Subsequent
Placement Notice shall describe in reasonable detail the proposed terms of such
Subsequent Placement, the amount of proceeds intended to be raised thereunder,
the Person with whom such Subsequent Placement shall be affected (if known to
the Company), and attached to which shall be a term sheet or similar document
relating thereto and (B) no Purchaser shall have notified the Company by 5:00
p.m. (New York time) on the fifteenth (15th) Trading Day after its receipt of
the Subsequent Placement Notice of its willingness to provide (or to cause its
sole designee to provide), subject to completion of mutually acceptable
documentation, financing to the Company on substantially the terms set forth in
the Subsequent Placement Notice. If no Purchaser shall notify the Company of its
intention to enter into such negotiations within such time period, the Company
may effect the Subsequent Placement substantially upon the terms and to the
Persons (or Affiliates of such Persons) set forth in the Subsequent Placement
Notice (if such Persons are set forth in the Subsequent Placement Notice) ;
provided, that the Company shall provide each Purchaser with a second Subsequent
Placement Notice, and the Purchasers shall again have the right of first refusal
set forth above in this paragraph (a), if the Subsequent Placement subject to
the initial Subsequent Placement Notice shall not have been consummated for any
reason on the terms set forth in such Subsequent Placement Notice within thirty
(30) Trading Days after the date of the
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initial Subsequent Placement Notice with the Person (or an Affiliate of such
Person) (if any) identified in the Subsequent Placement Notice. If the
Purchasers shall indicate a willingness to provide financing in excess of the
amount set forth in the Subsequent Placement Notice, then each Purchaser shall
be entitled to provide financing pursuant to such Subsequent Placement Notice up
to an amount equal to such Purchaser's pro rata portion of the aggregate
principal amount of Debentures purchased by the Purchasers under this Agreement,
but the Company shall not be required to accept financing from the Purchasers in
an amount in excess of the amount set forth in the Subsequent Placement Notice.
Notwithstanding the foregoing, the Company need not disclose in a Subsequent
Placement Notice the name of the Person with whom a Subsequent Placement shall
be effected in the event the Person has required that the Company enter into a
written confidentiality agreement with such Person which prohibits the
disclosure of such Person's name to the Purchaser, in which event (i) the
Company shall use its reasonable best efforts to obtain such other Person's
consent to the disclosure of its name to the Purchase and (ii) in the event the
Person will not consent to such disclosure, the Company shall provide a
certificate to the Purchasers, executed by the Chief Executive Officer and the
Chief Financial Officer of the Company certifying that the Person with whom the
Subsequent Placement shall be effected has required the Company to enter into a
confidentiality agreement with such Person which prohibits the disclosure of
such Person's name to the Purchasers, and that the Company has used its
reasonable best efforts to have obtain such Person consent to such disclosure.
(b) Except for (w) Underlying Shares, (x) other "Registrable
Securities" (as such term is defined in the Registration Rights Agreement) to be
registered in accordance with the Registration Rights Agreement, (y) Common
Stock to be registered for resale in connection with financings permitted
pursuant to paragraph (a)(i) through (iii) of paragraph (a) of this Section, and
(z) shares of Common Stock to be registered for resale pursuant to the
registration rights agreements set forth on Schedule 2.1(t) the Company shall
not, without the prior written consent of the Purchasers (i) issue or sell any
of its or any of its Affiliates' equity or equity-equivalent securities pursuant
to Regulation S promulgated under the Securities Act, or (ii) register for
resale any securities of the Company for, in either case of (i) and (ii) above,
a period of not less than 90 Trading Days after the later to occur of (a) the
date that the Underlying Securities Registration Statement is declared effective
by the Commission and (b) the last Closing hereunder. Any days that a Purchasers
is not permitted to sell Underlying Shares under the Underlying Securities
Registration Statement after the date that the Underlying Securities
Registration Statement is first declared effective by the Commission shall be
added to such 90 Trading Day period for the purposes of (i) and (ii) above.
3.12 Certain Securities Laws Disclosures; Publicity. The Company shall
(i) issue within one (1) Business Day of each Closing Date a press release
acceptable to the Purchasers disclosing the transactions contemplated hereby,
(ii) file within ten (10) Business Days after each Closing Date with the
Commission a Current Report on Form 8-K disclosing the transactions contemplated
hereby, and (iii) timely file with the Commission a Form D promulgated under the
Securities Act as required under Regulation D promulgated under the Securities
Act and provide a copy thereof to the Purchasers promptly after the filing
thereof. The Company shall, no less than two (2) Business Days prior to the
filing of any disclosure required by clauses (ii) and (iii) above, provide a
copy thereof to the Purchasers. Subject to Section 5.11, no such filing or
disclosure may be made that
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mentions the Purchasers by name without the prior written consent of the
Purchasers, which shall not be unreasonably withheld or delayed.
3.13 Use of Proceeds. The Company shall use all of the net proceeds
from the sale of the Securities to fund the expansion of the Company's sales and
marketing activities, research and development for AngioJet applications and for
working capital purposes, and not for the satisfaction of any portion of Company
debt or to redeem Company equity or equity-equivalent securities. Pending
application of the proceeds of this placement in the manner permitted hereby,
the Company will invest such proceeds in interest bearing accounts and/or
short-term, investment grade interest bearing securities.
3.14 Transfer of Intellectual Property Rights. Except in connection
with (i) the sale of all or substantially all of the assets of the Company or
(ii) a transaction involving the Company's vascular graft products business, but
only to the extent that the Purchasers have agreed (pursuant to the last
sentence of Section 4(h) of the Debentures) that such transaction will not be
deemed a Change of Control of the Company or constitute an Event of Default
under the Debentures, the Company shall not transfer, sell or otherwise dispose
of any Intellectual Property Rights, or allow any of the Intellectual Property
Rights to become subject to any Liens, or fail to renew such Intellectual
Property Rights (if renewable and it would otherwise lapse if not renewed),
without the prior written consent of the Purchasers, except rights to use
Intellectual Property Rights in connection with the sale by the Company of
products in the ordinary course of business.
3.15 Reimbursement. In the event that any Purchaser, other than by
reason of its gross negligence or willful misconduct, becomes involved in any
capacity in any action, proceeding or investigation brought by or against any
Person, including stockholders of the Company, in connection with or as a result
of the consummation of the transactions contemplated pursuant to the Transaction
Documents, the Company will reimburse such Purchaser for its reasonable legal
and other expenses (including the cost of any investigation and preparation)
incurred in connection therewith. In addition, other than with respect to any
matter in which such Purchaser is a named party, the Company will pay such
Purchaser the charges, as reasonably determined by each Purchaser, for the time
of any officers or employees of such Purchaser devoted to appearing and
preparing to appear as witnesses, assisting in preparation for hearings, trials
or pretrial matters, or otherwise with respect to inquiries, hearings, trials,
and other proceedings relating to the subject matter of this Agreement. The
reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliate of the Purchasers and
partners, directors, agents, employees and controlling persons (if any), as the
case may be, of the Purchasers and any such Affiliate, and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Purchasers shall not, without the prior written consent of the
Company, effect any settlement of any action in respect of which the Company is
a party or with respect to which the Company is obligated to make payments
hereunder.
3.16 Transactions in the Common Stock. Except as provided in Section
3.18, during the period from the receipt by such Purchaser of a Subsequent
Financing Notice until the earlier to occur
18
<PAGE>
of (i) the date indicated in such Subsequent Financing Notice for the closing of
the purchase and sale of the Debentures subject to the Subsequent Financing
Notice (which date may not be subsequent to the 25th Trading Day after receipt
by the Purchasers of such Subsequent Financing Notice) and (ii) the Closing Date
relating to such Subsequent Financing Notice, each Purchaser, for itself and not
for any other Purchaser, agrees that it shall not establish a short position in
the Common Stock (but may maintain any short positions established prior to the
beginning of such period).
3.17 Conditions to Series B and Series C Closings. Upon delivery of
each of a Subsequent Financing Notice, the Company shall ensure that the
conditions precedent to the obligation of each Purchaser to acquire Series B
Debentures and Series B Warrants and Series C Debentures an Series C Warrants
(as the case may be) set forth in Sections 4.1 are satisfied in all material
respects.
3.18 Ordinary Course Brokerage and Trading. Lehman Brothers shall not
be prohibited from engaging in its ordinary course brokerage and trading
activities in respect of the Company's stock (including establishing short
positions), provided that the personnel engaged in such activities have not been
involved with the transactions contemplated hereby and have not been provided
with any confidential information with respect to the Company.
ARTICLE IV
CONDITIONS
4.1 Conditions Precedent to the Obligation of the Purchasers
to Purchase Series B Debentures and the Series B Warrants and Series C Debenture
and Series C Warrants. The obligation of each Purchaser to acquire and pay for
(x) the Series B Debentures and the Series B Warrants and (y) Series C Debenture
and Series C Warrants is subject to the satisfaction or waiver by such
Purchaser, at or before the Series B Closing Date or Series C Closing, as
applicable, of each of the following conditions:
(a) Prior Closings. The Series A Closing and
the Series B Closing, as applicable, shall have occurred;
(b) Accuracy of the Company's Representations
and Warranties. (i) Except as provided in Section 4.1(b)(ii) below, the
representations and warranties of the Company contained herein shall be true and
correct as of the date hereof and on such Closing Date (other than
representations and warranties which address matters only as of a certain date,
which shall be true and correct as of such date) and (ii) the representations
and warranties of the Company contained in Section 2.1(c) shall be true and
correct in all material respects as of the date hereof and on such Closing Date
(provided, that conversions of the Debentures and exercises of the Warrants by
the Purchasers shall not be taken into account for purposes of clause (ii));
(c) Performance by the Company. The Company
shall have performed, satisfied and complied with all covenants, agreements and
conditions required by the Transaction Documents to be performed, satisfied or
complied with by the Company at or prior to such Closing Date;
19
<PAGE>
(d) Underlying Securities Registration
Statement. The Underlying Securities Registration Statement shall have been
declared effective under the Securities Act by the Commission and on the Series
B Closing Date and the Series C Closing Date, as applicable, shall be effective
as to all Registrable Securities (as defined in the Registration Rights
Agreement), not subject to any actual or, to the knowledge of the Company,
threatened stop order and not be subject to any actual or threatened suspension;
(e) No Injunction. No statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, entered, promulgated or endorsed by any court of governmental authority
of competent jurisdiction which prohibits the consummation of any of the
transactions contemplated by the Transaction Documents relating to the issuance,
conversion or exercise of any of the Securities;
(f) Adverse Changes. Since the date of the
financial statements included in the Company's Quarterly Report on Form 10-Q or
Annual Report on Form 10-K, whichever is more recent, last filed prior to the
date of this Agreement, no event which had a Material Adverse Effect and no
material adverse change in the condition (financial or otherwise) or prospects
of the Company shall have occurred which is not disclosed in the Disclosure
Materials;
(g) Litigation. No material litigation shall
have been instituted or threatened against the Company;
(h) No Suspension from Trading in or Delisting
of Common Stock. The trading in the Common Stock shall not have been suspended
or delisted from the NASDAQ (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding the
Company);
(i) Change of Control. No Change of Control in
the Company shall have occurred. "Change of Control" means the occurrence of any
of (i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 40% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of the "Continuing Directors"(as defined below) in
one or a series of related transactions, (iii) the merger of the Company with or
into another entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions, unless
following such transaction, the holders of the Company's securities continue to
hold at least 40% of such securities following such transaction or (iv) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth above in (i), (ii)
or (iii). "Continuing Directors" means those individuals who are members of the
Company's board of directors on the date hereof and any individual who
subsequently becomes a member of the Company's board of directors, if such
individual's nomination for election or election to the Company's board of
directors is approved by a vote of at least a majority of the Continuing
Directors; provided that no individual shall be considered a Continuing Director
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of
20
<PAGE>
proxies or consents by or on behalf of a Person other than the board of
directors of the Company (a "Proxy Contest") including by reason of any
agreement intended to avoid or settle any Election Contest or Proxy Contest;
:
(k) Legal Opinion. The Company shall have
delivered (i) to the Purchasers and to the Company's transfer agent the opinion
of the Company's outside counsel, in substantially the form attached hereto as
Exhibit D dated the Series B Closing Date or the Series C Closing Date, as the
case may be and (ii) to the Purchasers the opinion of Irving R. Colacci, General
Counsel to the Company, in substantially the form attached hereto as Exhibit E
dated the Series B Closing Date or the Series C Closing Date, as the case may
be;
(l) Required Approvals. All Required Approvals
required to have been obtained on or prior to the Series B Closing Date or the
Series C Closing Date, as the case may be, shall have been obtained;
(m) Shares of Common Stock. The Company shall
have duly reserved the number of Underlying Shares required by the Transaction
Documents to be reserved for issuance upon conversion of all Debentures, as
payment of interest thereon, and upon exercise of all Warrants;
(n) Delivery of Debentures and Warrants. The
Company shall have delivered to the Purchasers the Debentures and Warrants to be
issued and sold at such Closing, registered in the name of the appropriate
Purchaser, or its designee, each in form satisfactory to the Purchasers;
(o) Transfer Agent Instructions. Transfer
Agent Instructions, dated such Closing Date, shall have been delivered to and
acknowledged in writing by the Company and the Company's transfer agent; and
(p) Officer's Certificate. The Company shall
deliver to the Purchasers an Officer's Certificate dated the Series B Closing
Date or the Series C Closing Date, as the case may be, and signed by an
executive officer of the Company confirming the Company's satisfaction of the
conditions set forth in Section 4.1(b) and (c) as of such Closing Date.
ARTICLE V
MISCELLANEOUS
5.1 Fees and Expenses. The Company shall reimburse the
Purchasers for legal and due diligence fees and expenses (the "Fees") actually
incurred by the Purchasers incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby upon receipt of documentation
reasonably acceptable to the Company evidencing such Fees, provided, however,
that except as set forth in the Registration Rights Agreement, in no event shall
the Company be required to reimburse the Purchasers for any Fees to the extent
such Fees exceed fifty thousand dollars ($50,000) (the "Cap"). Except as set
forth in the Registration Rights Agreement, all Fees in excess of the Cap
21
<PAGE>
incurred by the Purchasers incident to the negotiation, preparation, execution,
delivery and performance of the Transaction Documents and the consummation of
the transactions contemplated hereby and thereby, including without limitation,
Fees in excess of the Cap incurred in connection with the Series A Closing, the
Series B Closing, the Series C Closing, shall be payable by the Purchasers..
The Company shall pay all stamp and other taxes and
duties levied in connection with the issuance of the Debentures pursuant hereto.
5.2 Entire Agreement; Amendments. This Agreement, together
with the Exhibits and Schedules hereto, the Registration Rights Agreement, the
Debentures, the Warrants and the Transfer Agent Instructions contain the entire
understanding of the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, oral or written, with respect
to such matters, which the parties acknowledge have been merged into such
documents, exhibits and schedules.
5.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase Agreement later than 8:00
p.m. (New York time) on any date and earlier than 11:59 p.m. (New York time) on
such date or on a date that is not a Business Day, (iii) the Business Day
following the date of mailing, if sent by nationally recognized overnight
courier service, or (iv) upon actual receipt by the party to whom such notice is
required to be given to the Company and each Purchaser at its address set forth
under its name on Schedule 1 attached hereto or such other address as may be
designated in writing hereafter, in the same manner, by such Person. Copies of
notices to any Purchaser shall be sent to Robinson Silverman Pearce Aronsohn &
Berman LLP, 1290 Avenue of the Americas, New York, NY 10104, Attn: Kenneth L.
Henderson, Esq., fax: (212) 541-4630 and copies of all notices to the Company
shall be sent to Dorsey & Whitney, 220 South Seventh Street, Pillsbury Center
South, Minneapolis, MN 55402, Attn: Amy E. Ayotte, fax: (612) 340-8738.
5.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers; or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
5.5 Headings. The headings herein are for convenience only, do
not constitute a part of this Agreement and shall not be deemed to limit or
affect any of the provisions hereof.
22
<PAGE>
5.6 Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and permitted
assigns. The Company may not assign this Agreement or any rights or obligations
hereunder without the prior written consent of the Purchaser. Except as set
forth in Section 3.1(a), the Purchasers may not assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
Company. This provision shall not limit the Purchasers' right to transfer
securities or transfer or assign rights hereunder or under the Registration
Rights Agreement.
5.7 No Third-Party Beneficiaries. This Agreement is intended
for the benefit of the parties hereto and their respective permitted successors
and assigns and is not for the benefit of, nor may any provision hereof be
enforced by, any other Person.
5.8 Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of any Transaction Document), and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is improper. Each party hereby irrevocably waives personal service
of process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
5.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive each Closing and the delivery and
conversion or exercise (as the case may be) of the Debentures and Warrants.
5.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
5.11 Publicity. The Company and the Purchasers shall consult
with each other in issuing any press releases or otherwise making public
statements or filings and other communications with the Commission or any
regulatory agency or stock market or trading facility with respect to the
transactions contemplated hereby and no party hereto shall issue any such press
release or otherwise make any such public statement, filings or other
communications without the prior written consent of the other, which consent
shall not be unreasonably withheld or delayed,
23
<PAGE>
except that no prior consent shall be required if such disclosure is required by
law or by the Commission or the NASDAQ (as the case may be), in which such case
the disclosing party shall provide the other parties with prior notice of such
public statement, filing or other communication. Notwithstanding the foregoing,
the Company shall not publicly disclose the name of a Purchaser, or include the
name of a Purchaser in any filing with the Commission, or any regulatory agency,
trading facility or stock market without the prior written consent of such
Purchaser, except to the extent such disclosure (but not any disclosure as to
the controlling Persons thereof) is required by law, in which case the Company
shall provide the Purchasers with prior notice of such disclosure.
5.12 Severability. In case any one or more of the provisions
of this Agreement shall be invalid or unenforceable in any respect, the validity
and enforceability of the remaining terms and provisions of this Agreement shall
not in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
5.13 Remedies. In addition to being entitled to exercise all
rights provided herein or granted by law, including recovery of damages, the
Purchasers will be entitled to specific performance of the obligations of the
Company under the Transaction Documents. Each of the Company and the Purchasers
(severally and not jointly) agree that monetary damages may not be adequate
compensation for any loss incurred by reason of any breach of its obligations
described in the foregoing sentence and hereby agrees to waive in any action for
specific performance of any such obligation the defense that a remedy at law
would be adequate.
5.14 Independent Nature of Purchasers' Obligations and Rights.
The obligations of each Purchaser hereunder is several and not joint with the
obligations of the other Purchasers hereunder, and no Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any Closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the other
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
24
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Convertible Debenture Purchase Agreement to be duly executed by their respective
authorized signatories as of the date first indicated above.
POSSIS MEDICAL, INC.
By: /s/ Irving R. Colacci
---------------------------------------
Name: Irving R. Colacci
Title: Vice President & General Counsel
BROWN SIMPSON STRATEGIC GROWTH
FUND, L.P.
By: /s/ Matthew Brown
---------------------------------------
Name: Matthew Brown
Title:
BROWN SIMPSON STRATEGIC GROWTH
FUND, LTD.
By: /s/ Matthew Brown
---------------------------------------
Name: Matthew Brown
Title:
WESTOVER INVESTMENTS, L.P.
By: /s/ William E. Rose
---------------------------------------
Name: William E. Rose
Title: Authorized Signatory
MONTROSE INVESTMENTS, LTD.
By: /s/ William E. Rose
---------------------------------------
Name: William E. Rose
Title: Authorized Signatory
<PAGE>
LEHMAN BROTHERS, INC.
By: /s/ Sky Lucas
---------------------------------------
Name: Sky Lucas
Title: Managing Director
BAY HARBOR INVESTMENTS, INC.
By: /s/ Kenneth L. Henderson
---------------------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-Fact
<PAGE>
Schedule 1
Company:
POSSIS MEDICAL, INC.
9055 Evergreen Boulevard, N.W.
Minneapolis, MN 55433-8003
Facsimile: (612) 780-7223
Attn: Chief Financial Officer
<TABLE>
<CAPTION>
Principal Amount of
Purchasers: Series A Debentures Series A Warrant Coverage
- ----------- ------------------- -------------------------
<S> <C> <C>
Brown Simpson Strategic $ 700,000 6,454 shares
Growth Fund, L.P.
152 West 57th Street, 40th Fl.
New York, NY 10019
Facsimile: (212) 247-1329
Attn: Evan Levine
Brown Simpson Strategic $1,300,000 11,986 shares
Growth Fund, Ltd.
152 West 57th Street, 40th Fl.
New York, NY 10019
Facsimile: (212) 247-1329
Attn: Evan Levine
Westover Investments, L.P. $1,200,000 11,064 shares
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose
Montrose Investments, Ltd. $2,800,000 25,816 shares
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose
Lehman Brothers, Inc. $3,000,000 27,660 shares
200 Vesey Street
New York, NY 10285
Facsimile: (212) 528-8941
Attn: Steve Weinstein
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Principal Amount of
Purchasers: Series A Debentures Series A Warrant Coverage
- ----------- ------------------- -------------------------
<S> <C> <C>
Bay Harbor Investments, Inc. $3,000,000 27,660 shares
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Facsimile: (212) 332-3256
Attn: Robert L. Miller
</TABLE>
<PAGE>
NEITHER THIS DEBENTURE NOR THE SECURITIES INTO WHICH THIS DEBENTURE IS
CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE
SECURITIES LAWS.
No. - [ ] [$ ]
---
POSSIS MEDICAL, INC.
SERIES A 5% CONVERTIBLE DEBENTURE
DUE JULY 15, 2004
THIS DEBENTURE is one of a series of duly authorized issued debentures
of Possis Medical, Inc., a Minnesota corporation, having a principal place of
business at 9055 Evergreen Boulevard N.W., Minneapolis, MN 55433-8003 (the
"Company"), designated as its Series A 5% Convertible Debentures, due July 15,
2004 (the "Debentures"), in an aggregate principal amount of
$12,000,00.
FOR VALUE RECEIVED, the Company promises to pay to [ ]
or registered assigns (the "Holder"), the principal amount of [ ]
Dollars ($[ ]), on or prior to July 15, 2004 or such earlier date as the
Debentures are required to be repaid as provided hereunder (the "Maturity
Date") and to pay interest to the Holder on the principal amount at the rate
of 5% per annum, subject to the termination of the Company's obligation to
pay interest as set forth herein, payable at the Company's option either (a)
on a quarterly basis on the third Business Day immediately after March 31,
June 30, September 30 and December 31 of each year during the term hereof
(each, a "Quarterly Payment Date"), commencing on the third Business Day
immediately after September 30, 1998, and on the earlier to occur of the Due
Date (as defined in Section 4(b)) with respect to a conversion for such
principal amount or the Maturity Date (or in the event the Holder surrenders
Debentures for conversion on the Maturity Date, on the second Trading Day
immediately thereafter) or (b) the earlier to occur of the Due Date with
respect to a conversion for such principal amount or the Maturity Date (or in
the event the Holder surrenders Debentures for conversion on the Maturity
Date, on the second Trading Day immediately thereafter). It shall be assumed
that all interest shall be paid pursuant to clause (b) of the immediately
preceding sentence unless the Company notifies the Holder in writing at least
five Business Days prior to a Quarterly Payment Date that the Company intends
to pay interest on such Quarterly Payment Date. Interest shall accrue daily
commencing on the Original Issue Date (as
<PAGE>
defined in Section 5) until payment in full of the principal amount, together
with all accrued and unpaid interest and other amounts which may become due
hereunder, has been made, provided, that interest hereunder shall cease to
accrue from and after the date the Per Share Market Value (as defined in Section
5) first exceeds 150% of the Initial Conversion Price (as defined in Section 4)
for fifteen (15) consecutive Trading Days (as defined in Section 5). Interest
shall be calculated on the basis of a 365-day year and for the actual number of
days elapsed. Interest hereunder will be paid to the Person (as defined in
Section 5) in whose name this Debenture is registered on the records of the
Company regarding registration and transfers of Debentures (the "Debenture
Register") as of the third Business Day immediately prior to the Quarterly
Payment Date. All overdue, accrued and unpaid interest and other amounts due
hereunder shall bear interest at the rate of 13.5% per annum (to accrue daily)
from the date such interest or other amount is due hereunder through and
including the date of payment. The principal of, and interest (to the extent
paid in cash) on, this Debenture are payable in such coin or currency of the
United States of America as at the time of payment is legal tender for payment
of public and private debts, at the address of the Holder last appearing on the
Debenture Register, except that interest due on the principal amount (but not
interest overdue for more than 5 days) may, at the Company's option, be paid in
shares of Common Stock (as defined in Section 5) calculated based upon the
Conversion Price (as defined below) on the date such interest was due
(notwithstanding the fact that between the Original Issue Date and the 180th day
following the Original Issue Date, conversions of Debentures are only permitted
at or above the Initial Conversion Price pursuant to Section 4(a)(i)). Except
with respect to interest overdue for more than 5 days, it shall be assumed that
the Company shall elect to make all payments of interest in Common Stock unless
the Company shall have given not less than five (5) Business Days' prior notice
of its intention to pay such interest in cash. All amounts due hereunder other
than such principal amount and interest as the Company shall elect to pay in
Common Stock shall be paid in cash. Notwithstanding anything to the contrary
contained herein, the Company may not issue shares of Common Stock in payment of
interest on the principal amount if: (i) the number of shares of Common Stock at
the time authorized, unissued and unreserved for all other purposes is
insufficient to pay interest hereunder in shares of Common Stock; (ii) such
shares are not either registered for resale pursuant to an Underlying Securities
Registration Statement (as defined in Section 5) or freely transferable without
volume restrictions pursuant to Rule 144(k) promulgated under the Securities
Act, as determined by counsel to the Company pursuant to a written opinion
letter addressed and in form and substance acceptable to the Holder and the
transfer agent for such shares, subject to receipt from the Holder of a
representation from such Holder that it is not an affiliate of the Company;
(iii) such shares are not listed or quoted on the Nasdaq National Market
("NASDAQ") or on the New York Stock Exchange, American Stock Exchange or the
Nasdaq SmallCap Market (each, a "Subsequent Market"); or (iv) the issuance of
such shares would result in the recipient thereof beneficially owning more than
4.999% of the issued and outstanding shares of Common Stock as determined in
accordance with Rule 13d-3 under the Exchange Act. Payment of interest on the
principal amount in shares of Common Stock is further subject to the provisions
of Section 4(a)(iii)(B).
-2-
<PAGE>
In the event the Company is prohibited from paying interest in Common
Stock pursuant to this paragraph, such interest shall be paid in cash without
regard to whether the Company has provided notice of its intention to pay such
interest in cash.
This Debenture is subject to the following additional provisions:
Section 1. Exchange. This Debenture is exchangeable for an
equal aggregate principal amount of Debentures of different authorized
denominations, as requested by the Holder surrendering the same but shall not be
issuable in denominations of less than integral multiplies of Fifty Thousand
Dollars ($50,000) unless such amount represents the full principal balance of
Debentures outstanding to such Holder. No service charge will be made for such
registration of transfer or exchange.
Section 2. Transfer. This Debenture has been issued subject to
certain investment representations of the original Holder set forth in the
Purchase Agreement (as defined in Section 5) and may be transferred or exchanged
only in compliance with the Purchase Agreement. Prior to due presentment to the
Company for transfer of this Debenture, the Company and any agent of the Company
may treat the Person in whose name this Debenture is duly registered on the
Debenture Register as the owner hereof for the purpose of receiving payment as
herein provided and for all other purposes, whether or not this Debenture is
overdue, and neither the Company nor any such agent shall be affected by notice
to the contrary.
Section 3. Events of Default.
(a) "Event of Default", wherever used herein, means any one of
the following events (whatever the reason and whether it shall be voluntary or
involuntary or effected by operation of law or pursuant to any judgment, decree
or order of any court, or any order, rule or regulation of any administrative or
governmental body):
(i) except as explicitly provided in Section 3(a)(x), any
default in the payment in cash of the principal of, interest on or
liquidated damages in respect of, this Debenture, free of any claim of
subordination, as and when the same shall become due and payable which
shall not be cured within a period of five (5) days (whether on the
applicable quarterly interest payment date, a Conversion Date or the
Maturity Date or by acceleration or otherwise); provided, however, that
a failure by the Company to pay the Mandatory Prepayment Amount
pursuant to Section 4(a)(iii)(B), shall not be deemed an Event of
Default until seven (7) days after the date payable;
(ii) except as explicitly provided in Sections 3(a)(vii) and
3(a)(viii), the Company shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
breach of, this Debenture, the Purchase Agreement or the Registration
Rights Agreement, and such failure or breach shall not have been
remedied within 15 days after the date on which notice of such failure
or breach shall have been given;
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(iii) the Company or any of its subsidiaries shall commence,
or there shall be commenced against the Company or any such subsidiary
a case under any applicable bankruptcy or insolvency laws as now or
hereafter in effect or any successor thereto, or the Company or any
such subsidiary commences any other proceeding under any
reorganization, arrangement, adjustment of debt, relief of debtors,
dissolution, insolvency or liquidation or similar law of any
jurisdiction whether now or hereafter in effect relating to the Company
or any subsidiary thereof or there is commenced against the Company or
any subsidiary thereof any such bankruptcy, insolvency or other
proceeding which remains undismissed for a period of 60 days; or the
Company or any subsidiary thereof is adjudicated insolvent or bankrupt;
or any order of relief or other order approving any such case or
proceeding is entered; or the Company or any subsidiary thereof suffers
any appointment of any custodian or the like for it or any substantial
part of its property which continues undischarged or unstayed for a
period of 60 days; or the Company or any subsidiary thereof makes a
general assignment for the benefit of creditors; or the Company or any
subsidiary shall fail to pay, or shall state that it is unable to pay,
or shall be unable to pay, its debts generally as they become due; or
the Company or any subsidiary thereof shall call a meeting of its
creditors with a view to arranging a composition or adjustment of its
debts; or the Company or any subsidiary thereof shall by any act or
failure to act indicate its consent to, approval of or acquiescence in
any of the foregoing; or any corporate or other action is taken by the
Company or any subsidiary thereof for the purpose of effecting any of
the foregoing;
(iv) the Company shall default in any of its obligations under
any mortgage, credit agreement or other facility, indenture agreement
or other instrument under which there may be issued, or by which there
may be secured or evidenced any indebtedness of the Company in an
amount exceeding seven hundred fifty thousand dollars ($750,000),
whether such indebtedness now exists or shall hereafter be created and
such default shall result in such indebtedness becoming or being
declared due and payable prior to the date on which it would otherwise
become due and payable;
(v) the Common Stock shall be delisted from the NASDAQ or
shall be suspended from trading on the NASDAQ without resuming trading
and/or being relisted thereon or on a Subsequent Market or having such
suspension lifted, as the case may be, within three (3) days;
(vi) except as contemplated in Section 4(h), the Company shall
be a party to any Change of Control Transaction (as defined in Section
5), shall agree to sell or dispose all or in excess of 40% of its
assets in one or more transactions (whether or not such sale would
constitute a Change of Control Transaction), or shall apply more than
$100,000 in the aggregate to redeem any securities of the Company or
prepay indebtedness of the Company for borrowed money (other than
redemptions of Underlying Shares);
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(vii) an Underlying Securities Registration Statement shall
not have been declared effective by the Commission (as defined in
Section 5) on or prior to the 180th day after the Series A Closing
Date;
(viii) an Event (as hereinafter defined) shall not have been
cured to the satisfaction of the Holder prior to the expiration of
thirty (30) days from the Event Date (as defined below) relating
thereto (other than an Event resulting from a failure of an Underlying
Securities Registration Statement to be declared effective by the
Commission on or prior to the Effectiveness Date (as defined in the
Registration Rights Agreement));
(ix) except as explicitly provided in the last paragraph of
Section 4(a)(iii)(B), the Company shall fail for any reason to deliver
certificates to a Holder prior to the twelfth (12th) day after the
surrender to the transfer agent of the Debenture pursuant to Section
4(a) or the Company shall provide notice to the Holder, including by
way of public announcement, at any time, of its intention not to comply
with requests for conversions of any Debentures in accordance with the
terms hereof; or
(x) the Company shall fail for any reason to deliver the
payment in cash pursuant to a Buy-In within ten (10) days after notice
(and the broker confirmation referred to in the last sentence of
Section 4(b)(ii)) is deemed delivered hereunder.
(b) If any Event of Default occurs and is continuing, the full
principal amount of this Debenture (and, at the Holder's option, all other
Debentures then held by such Holder), together with interest and other amounts
owing in respect thereof, to the date of acceleration shall become, immediately
due and payable in cash.
(c) The aggregate amount payable upon an Event of Default
described in Sections 3(a)(iii), (v), (vii) and (viii) shall be equal to the sum
of (i) the Mandatory Prepayment Amount (as defined in Section 5) plus (ii) the
Mandatory Prepayment Amount for the principal amount of Debentures (the
"Converted Debentures") that would then be held by such Holder had the principal
amount of Debentures converted into Underlying Shares that are then held by the
Holder not been so converted; provided, that the Holder shall not be entitled to
a Mandatory Prepayment Amount with respect to Converted Debentures if both of
the following have occurred: (i) prior to the occurrence of the Event of
Default, the Underlying Shares into which the Converted Debentures were
converted had been held by the Holder for more than thirty (30) days (which
period shall be extended at the time of the occurrence of the Event of Default
for the number of Trading Days during such 30-day period that a "Blackout
Period" (as defined in the Registration Rights Agreement) is in effect) and (ii)
prior to the occurrence of the Event of Default and after receipt by the Holder
of the Underlying Shares that are held by the Holder at the time of the
occurrence of the Event of Default, the Underlying Securities Registration
Statement with respect to such Underlying Shares had been continuously effective
for thirty (30) consecutive days.
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(d) The aggregate amount payable upon an Event of Default
described in Sections 3(a)(i), (ii) , (iv), (vi), (ix) and (x) shall be equal to
the sum of (i) the Mandatory Prepayment Amount (as defined in Section 5) plus
(ii) the Mandatory Prepayment Amount for the principal amount of Debentures (the
"Converted Debentures") that would then be held by such Holder had the principal
amount of Debentures converted into Underlying Shares that are then held by the
Holder not been so converted; provided, that the Holder shall not be entitled to
a Mandatory Prepayment Amount with respect to Converted Debentures if prior to
the occurrence of the Event of Default the Underlying Shares into which the
Converted Debentures were converted had been held by the Holder for more than
three (3) Trading Days (which period shall be extended for the number of Trading
Days during such 3-Trading Day period that a "Blackout Period" (as defined in
the Registration Rights Agreement) is in effect).
(e) For purposes of this Section 3, principal amount of
Debentures are outstanding until such date as the Holder shall have received
Underling Shares upon a conversion (or attempted conversion) thereof. Interest
shall accrue on the prepayment amount hereunder from the day after such amount
is due (being the date of an Event of Default) through the date of payment in
full thereof at the rate of 13.5% per annum. Payment of the Mandatory Prepayment
Amount pursuant to this Section 3 shall be in addition to any other amounts that
may be due to the Holder pursuant to this Debenture. Within five Business Days
of receipt by the Holder of payment of the amounts due to the Holder, (i) the
Holder shall return the Debentures to the Company and (ii) in the event the
Mandatory Prepayment Amount relates to Converted Debentures, the Holder shall
return the Underlying Shares into which such Converted Debentures were
converted. In the event of the occurrence of an Event of Default, the Holder
need not provide and the Company hereby waives any presentment, demand, protest
or other notice of any kind, and the Holder may immediately and without
expiration of any grace period enforce any and all of its rights and remedies
hereunder and all other remedies available to it under applicable law. Any
demand for payment may be rescinded and annulled by the Holder at any time prior
to payment hereunder. No such rescission or annulment shall affect any
subsequent Event of Default or impair any right consequent thereon.
Section 4. Conversion.
(a) (i) Conversion at Option of Holder. Debentures shall be
convertible into shares of Common Stock (subject to reduction as set forth in
Section 4(a)(iii)(A) and (B) and prohibition in accordance with Section
4(a)(iii)(C)) at the Conversion Price at the option of the Holder, in whole or
in part, as follows: (1) between the Original Issue Date and the 180th day
following the Original Issue Date, conversions of Debentures shall be permitted
at or above the Initial Conversion Price; (2) between the 181st and 365th day
following the Original Issue Date (such period called, the "Second Period"), the
maximum number of shares of Common Stock available for conversion by the Holder
from time to time during such Second Period shall equal the amount obtained by
dividing (x) the total principal amount of Debentures held by such Holder on the
first day of the Second Period by (y) 50% of the average Per Share Market Value
for the ten (10) Trading Days immediately preceding the commencement of the
Second Period (the "Initial Maximum Share Number"); and (3) from and after the
366th day following the Original Issue Date (such period called, the "Third
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Period"), the maximum number of shares of Common Stock available for conversion
by the Holder from time to time during such Third Period (minus any shares of
Common Stock received by the Holder upon conversion of Debentures during the
Second Period) shall equal the greater of (x) the amount obtained by dividing
(I) the total principal amount of Debentures held by such Holder on the first
day of the Second Period by (II) 50% of the average Per Share Market Value for
the five (5) Trading Days immediately preceding the commencement of the Third
Period and (y) the Initial Maximum Share Number. The number of shares of Common
Stock issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon (to the extent such interest is not being paid in
cash), by the Conversion Price (as defined below). The Holder shall effect
conversions by surrendering the Debentures (or such portions thereof) to be
converted, together with the form of conversion notice attached hereto as
Exhibit A, but without the signature of the Company (a "Holder Conversion
Notice"), to the Transfer Agent and the Company. Each Holder Conversion Notice
shall specify the principal amount of Debentures to be converted and the date on
which such conversion is to be effected, which date may not be prior to the date
such Holder Conversion Notice (without the signature of the Company) is deemed
to have been delivered hereunder (a "Holder Conversion Date"), as well as the
other information set forth on Exhibit A (but without the signature of the
Company). If no Holder Conversion Date is specified in a Holder Conversion
Notice, the Holder Conversion Date shall be the date that such Holder Conversion
Notice (without the signature of the Company) is deemed delivered hereunder.
Subject to Section 4(b), each Holder Conversion Notice, once given, shall be
irrevocable. If the Holder is converting less than all of the principal amount
represented by the Debenture(s) tendered by the Holder with the Holder
Conversion Notice, or if a conversion hereunder cannot be effected in full for
any reason, the Company shall honor such conversion to the extent permissible
hereunder and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted.
(ii) Conversion at the Option of the Company. Subject to the
provisions of this paragraph and Section 5, this Debenture shall, upon thirty
(30) days' prior notice to the Holders, be convertible into shares of Common
Stock at the option of the Company, in whole or in part, at any time and from
time to time during the 45 days following any such time as the average of the
Per Share Market Values for thirty (30) consecutive Trading Days exceeds 150% of
the Initial Conversion Price. Any conversion of this Debenture pursuant to this
Section 4(a)(ii) shall be made on a pro rata basis with the conversion of the
Debentures held by any other Persons. The number of shares of Common Stock
issuable upon a conversion hereunder shall be determined by dividing the
outstanding principal amount of this Debenture to be converted, plus all accrued
but unpaid interest thereon (to the extent such interest is not being paid in
cash), by the Conversion Price on the Company Conversion Date (as defined
below). Notwithstanding the foregoing, the Company shall not be permitted to
deliver requests for the conversion of a Holder's Debentures if (a) both (1) an
Underlying Securities Registration Statement is not then effective and (2) such
Holder is not permitted to resell Underlying Shares pursuant to Rule 144(k)
promulgated under the Securities Act, without volume restrictions, as evidenced
by an opinion letter of counsel to the Company and acceptable to the Holder and
the transfer agent for the Common Stock; (b) there are not sufficient
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shares of Common Stock authorized and reserved for issuance upon such
conversion; or (c) the Company shall have defaulted on its material covenants
and obligations hereunder (which shall include any failure to comply with its
delivery requirements under Section 4(b)) or under the Purchase Agreement or
Registration Rights Agreement, which default has not been cured in full to the
reasonable satisfaction of the Holder. The Company shall exercise its right to
require conversions by delivering to the Holder the form of conversion notice
attached hereto as Exhibit B (a "Company Conversion Notice"). Each Company
Conversion Notice shall specify the principal amount of Debentures to be
converted and the date on which such conversion is to be effected, which date
may not be prior to the date such Company Conversion Notice is deemed to have
been delivered hereunder (a "Company Conversion Date"), as well as the other
information set forth on Exhibit B. If no Company Conversion Date is specified
in a Company Conversion Notice, the Company Conversion Date shall be the date
that such Company Conversion Notice is deemed delivered hereunder. Subject to
Section 4(b) hereof, each Company Conversion Notice, once given, shall be
irrevocable. If the Company is requiring conversion of less than all of the
principal amount represented by the Debenture(s) tendered by the Holder in
response to such Company Conversion Notice, or if a conversion hereunder cannot
be effected in full for any reason, the Company shall honor such conversion to
the extent permissible hereunder and pro rata with all other holders of the
Debentures and shall promptly deliver to such Holder (in the manner and within
the time set forth in Section 4(b)) a new Debenture for such principal amount as
has not been converted. Notwithstanding anything to the contrary contained
herein, a conversion pursuant to this Section shall not be subject to the
provisions of Section 4(a)(iii)(A). A Holder Conversion Date and a Company
Conversion Date are each sometimes referred to herein as the "Conversion Date"
and a Holder Conversion Notice and a Company Conversion Notice are sometimes
referred to herein as a "Conversion Notice."
(iii) Certain Conversion Restrictions.
(A) 5% Limitation. The Holder agrees not to convert
Debentures to the extent such conversion would result in the Holder beneficially
owning (as determined in accordance with Section 13(d) of the Exchange Act and
the rules thereunder) in excess of 4.999% of the then issued and outstanding
shares of Common Stock, including shares issuable upon conversion of the
Debentures held by such Holder after application of this Section. To the extent
that the limitation contained in this Section applies, the determination of
whether Debentures are convertible (in relation to other securities owned by a
Holder) and of which portion of the principal amount of such Debentures are
convertible shall be in the sole discretion of the Holder, and the submission of
Debentures for conversion shall be deemed to be the Holder's determination of
whether such Debentures are convertible (in relation to other securities owned
by the Holder) and of which portion of such Debentures are convertible, in each
case subject to such aggregate percentage limitation, and the Company shall have
no obligation to verify or confirm the accuracy of such determination. Nothing
contained herein shall be deemed to restrict the right of the Holder to convert
Debentures at such time as such conversion will not violate the provisions of
this Section. The provisions of this Section will not apply to any conversion
pursuant to Section 4(a)(ii) of this Debenture, and may be waived by a Holder
(but only as to itself and not to any other Holder) upon not less than 75 days
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prior written notice to the Company (in which case, the Holder shall make such
filings with the Commission, including under Rule 13D or 13G, as are required by
applicable law), and the provisions of this Section shall continue to apply
until such 75th day (or later, if stated in the notice of waiver). Other Holders
shall be unaffected by any such waiver.
(B) Nasdaq 20% Limitation. If on any date (the
"Determination Date") (1) the Common Stock is listed for trading on the NASDAQ
or the Nasdaq SmallCap Market, (2) the Conversion Price then in effect is such
that the aggregate number of shares of Common Stock (x) that would then be
issuable upon conversion in full of the then outstanding principal amount of
Debentures, Series B Debentures (as defined in Section 5) and Series C
Debentures (as defined in Section 5), and as payment of interest thereon in
shares of Common Stock and (y) previously issued upon conversion of Debentures,
Series B Debentures and Series C Debentures and as payment of interest thereon,
would equal or exceed 20% of the number of shares of the Common Stock
outstanding immediately prior to the Series A Closing (as defined in Section 5)
(such number of shares as would not equal or exceed such 20% limit, the
"Issuable Maximum"), and (3) the Company shall not have previously obtained the
vote of shareholders (the "Shareholder Approval"), if any, as may be required by
the applicable rules and regulations of the Nasdaq Stock Market (or any
successor entity) to approve the issuance of shares of Common Stock in excess of
the Issuable Maximum in a private placement whereby shares of Common Stock are
deemed to have been issued at a price that is less than the greater of book
value or fair market value of the Common Stock, then with respect to the
aggregate principal amount of the Debentures, Series B Debentures and Series C
Debentures then held by the Holders for which a conversion in accordance with
the Conversion Price would result in an issuance of shares of Common Stock in
excess of the Issuable Maximum (the "Excess Principal") the Company may elect to
prepay in cash to the Holders an amount equal to the Mandatory Prepayment
Amount. Any such election by the Company must be made in writing to the Holders
within two (2) Trading Days after the Determination Date and the payment of such
Mandatory Prepayment Amount applicable to such prepayment must be made in full
to the Holders within ten (10) Business days after the date such notice is
delivered. If the Company does not deliver timely a notice of its election to
prepay under this Section or shall, if it shall have delivered such a notice,
fail to pay the prepayment amount hereunder within ten (10) Business days
thereafter, then the Holders representing 50% of the then outstanding aggregate
principal amount of Debentures, Series B Debentures and Series C Debentures
shall have the option by written notice to the Company, to declare any such
notice by the Company, if given, to be null and void ab initio and require the
Company to either (1) use its best efforts to obtain the Shareholder Approval
applicable to such issuance as soon as is possible, but in any event not later
than the 60th day after such request unless the Company has previously used its
best efforts to, but has failed to, obtain such approval, or (2) pay cash to
each Holder in an amount equal to the Mandatory Prepayment Amount for such
Holder's portion of the Excess Principal. The payment of the Mandatory
Prepayment Amount to each Holder pursuant to this Section shall be determined on
a pro rata basis based upon the principal amount of Debentures, Series B
Debentures and Series C Debentures held by such Holder on the Determination Date
and the Mandatory Prepayment Amount applicable to the portion of the Excess
Principal represented by the Series B Debentures and Series C Debentures shall
be determined in accordance with the respective definition of "Mandatory
Prepayment Amount" set
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forth in the Series B Debentures and Series C Debentures. If the Company fails
to pay the Mandatory Prepayment Amount in full pursuant to this Section within
seven (7) days after the date payable, the Company will pay interest thereon at
a rate of 15% per annum to the converting Holder, accruing daily from the
Conversion Date until such amount, plus all such interest thereon, is paid in
full.
Without limiting the Company's obligation to use its best
efforts to obtain Shareholder Approval pursuant to this Section, in no event
shall the Company be required to issue shares of Common Stock upon conversion of
the Debentures, to pay interest in shares of Common Stock or to issue shares of
Common Stock upon exercise of Warrants if such issuance would violate the rules
of NASDAQ. The Holder shall not be entitled to the liquidated damages amount in
Section 4(b)(i) or the payment pursuant to a Buy-In set forth in Section
4(b)(ii) and an Event of Default shall not be deemed to have occurred, if such
liquidated damages, Buy-in payment or Event of Default results from the failure
of the Company to issue shares of Common Stock that would result in a violation
of the rules of NASDAQ.
(b) (i) Delivery of Certificates. Subject to the
terms hereof, not later than three Trading Days after the Conversion Date, the
Company will deliver or cause to be delivered to the Holder (i) a certificate or
certificates which shall be free of restrictive legends and trading restrictions
(to the extent required by Section 3.1 of the Purchase Agreement) representing
the number of shares of the Common Stock being acquired upon the conversion of
Debentures, (ii) Debentures in a principal amount equal to the principal amount
of Debentures not converted; (iii) a bank check in the amount of all accrued and
unpaid interest (if the Company has elected to pay accrued interest in cash),
together with all other amounts then due and payable in accordance with the
terms hereof, in respect of Debentures tendered for conversion, and (iv) if the
Company has elected and is permitted hereunder to pay accrued interest in shares
of the Common Stock, certificates, which shall be free of restrictive legends
and trading restrictions (to the extent required by Section 3.1 of the Purchase
Agreement), representing such number of shares of the Common Stock as equals
such interest divided by the Conversion Price calculated on the Conversion Date;
provided, however, that the Company shall not be obligated to issue certificates
evidencing the shares of the Common Stock issuable upon conversion of the
principal amount of Debentures until two Business Days following receipt of
original Debentures by the Company or the Holder notifies the Company that such
Debenture has been mutilated, lost, stolen or destroyed and has complied with
the requirements of Section 9 hereof. The Company shall, upon request of the
Holder, if available, use its reasonable best efforts to deliver or cause to be
delivered any certificate or certificates required to be delivered by the
Company under this Section electronically through the Depository Trust
Corporation or another established clearing corporation performing similar
functions. If such certificate or certificates, including for purposes hereof,
any shares of the Common Stock to be issued on the Conversion Date on account of
accrued but unpaid interest hereunder, are not delivered to or as directed by
the Holder by the third Trading Day after a Conversion Date but in no event
sooner than two Business Days after receipt by the Company of the original
Debentures to be converted (or 3 days if to be delivered outside United States)
(the "Due Date"), the Holder shall be entitled by written notice to the Company
at any time on or before its receipt of such certificate
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or certificates thereafter, to rescind such conversion (whether subject to a
Holder Conversion Notice or a Company Conversion Notice), in which event the
Company shall immediately return the Debentures tendered for conversion, and
upon receipt of such Debentures, the Holder shall return any such certificate or
certificates representing shares of Common Stock that it may receive with
respect to the rescinded conversion. If the Company fails to deliver to the
Holder such certificate or certificates pursuant to this Section, including for
purposes hereof, any shares of the Common Stock to be issued on the Conversion
Date on account of accrued but unpaid interest hereunder, by second Trading Day
after the Due Date, the Company shall pay on demand to such Holder, in cash, as
liquidated damages and not as a penalty, $2,500 for each Trading Day commencing
on the Trading Day following the Due Date until the Company delivers such
certificates (such amount shall be also be due for each Trading Day after the
date that the Holder may rescind such conversion until such date as the Holder
shall have received the return of the principal amount of Debentures relating to
such rescission); provided, that the Company shall not be obligated to pay such
$2,500 amount per day in the event that it shall have paid all amounts due with
respect to a Buy-In pursuant to clause (ii) below. Notwithstanding anything to
the contrary contained herein, in no event shall the failure of the Company to
execute a Holder Conversion Notice that is properly completed by the Holder
affect in any way the Company's obligation to timely deliver shares of Common
Stock being acquired upon conversion of the Debentures in accordance with the
terms of this Section 4(b).
(ii) Buy-In. In addition to any other rights available to the
Holder, if the Company fails to deliver to the Holder such certificate or
certificates pursuant to Section 4(b)(i), including for purposes hereof, any
shares of Common Stock to be issued on the Conversion Date on account of accrued
but unpaid interest hereunder, by the Due Date, and if after such Due Date the
Holder purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Holder of the Underlying
Shares which the Holder anticipated receiving upon such conversion (a "Buy-In"),
then the Company shall pay in cash to the Holder the amount by which (x) the
Holder's total purchase price (including brokerage commissions, if any) for the
shares of Common Stock so purchased exceeds (y) the aggregate principal amount
of Debentures for which such conversion was not timely honored plus accrued but
unpaid interest. For example, if the Holder purchases shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to an
attempted conversion of $10,000 aggregate principal amount of Debentures
(assuming no interest payable), the Company shall be required to pay the Holder
$1,000. The Holder shall provide the Company written notice indicating the
amounts payable to the Holder in respect of the Buy-In within two Business Days
of the date such Buy-In occurred and provide a broker confirmation showing
Holder's total purchase price (including brokerage commissions, if any), for the
shares of Common Stock so purchased by the Holder.
(c)(i) Conversion Price. The conversion price (the "Conversion
Price") in effect on any Conversion Date shall be the lesser of (A) 120% of the
Average Price calculated on the Original Issue Date, (the "Initial Conversion
Price"), and (B) the average Per Share Market Value for any ten (10) consecutive
Trading Days selected by the Holder during thirty (30) consecutive Trading Days
immediately preceding the Conversion Date; provided, that such thirty (30)
Trading Day period shall be extended for the number of Trading Days in which (A)
trading in the Common Stock is
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suspended by the NASDAQ or a Subsequent Market on which the Common Stock is then
listed, or (B) after the date declared effective by the Commission, the
Underlying Securities Registration Statement is not effective, or (C) after the
date declared effective by the Commission, the Prospectus included in the
Underlying Securities Registration Statement may not be used by the Holder for
the resale of Underlying Shares, or (D) a "Blackout Period" (as defined in the
Registration Rights Agreement) is in effect; provided, further, that the thirty
(30) Trading Day period shall be extended only for the number of Trading Days
during such period in which the events described in clauses (A), (B), (C) and
(D) occur. If (a) the Underlying Securities Registration Statement is not
declared effective by the Commission on or prior to 30 days following the
Effectiveness Date, or (b) such Underlying Securities Registration Statement is
filed with and declared effective by the Commission but thereafter ceases to be
effective as to all Registrable Securities at any time prior to the expiration
of the "Effectiveness Period" (as defined in the Registration Rights Agreement),
without being succeeded within ten (10) days by a subsequent Underlying
Securities Registration Statement filed with and declared effective by the
Commission (except for such time as a Blackout Period is permitted to be in
effect pursuant to the terms of the Registration Rights Agreement), or (c) the
Common Stock shall be delisted or suspended from trading on the NASDAQ or on any
Subsequent Market for more than three (3) Trading Days (which need not be
consecutive days), (d) the conversion rights of the Holders pursuant to this
Debenture are suspended for any reason or (e) an amendment to the Underlying
Securities Registration Statement is not filed by the Company with the
Commission within ten (10) days of the Commission's notifying the Company that
such amendment is required in order for the Underlying Securities Registration
Statement to be declared effective (any such failure or breach being referred to
as an "Event," and for purposes of clause (a), the Effectiveness Date (assuming
the Underlying Securities Registration Statement is not declared effective by
the Commission on or prior to 30 days following the Effectiveness Date), for the
purposes of clause (d), the date on which such Event occurs, or for purposes of
clauses (b) and (e) the date which such 10 day-period is exceeded, or for
purposes of clause (c) the date on which such three (3) Business Day-period is
exceeded, being referred to as "Event Date"), then the Conversion Price shall be
decreased by 1.5% on the Event Date and each monthly anniversary thereof until
the earlier to occur of (i) the second month anniversary after the Event Date
and (ii) such time as the applicable Event is cured. Commencing on the second
month anniversary after the Event Date, the Holder shall be entitled to receive,
at the Company's option, on the first day of each monthly anniversary of the
Event Date, until the earlier to occur of (i) the fifth month anniversary after
the Event Date and (ii) such time as the applicable Event is cured, either (x)
further cumulative 1.5% discounts of the Conversion Price or (y) payment by the
Company of 1.5% of the aggregate principal amount of Debentures then held by
such Holder in cash, as liquidated damages and not as a penalty. Thereafter,
commencing on the fifth month anniversary after the Event Date, the Holder shall
have the option, on the first day of each monthly anniversary of the Event Date,
until such time as the applicable Event is cured, to either (x) require further
cumulative 1.5% discounts to continue or (y) require the Company to pay to the
Holder 1.5% of the aggregate principal amount of Debentures then held by such
Holder, in cash, as liquidated damages and not as a penalty. Any decrease in the
Conversion Price pursuant to this Section shall remain in effect notwithstanding
the fact that the Event causing such decrease has been subsequently cured and
further monthly decreases have
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ceased. The provisions of this Section are not exclusive and shall in no way
limit the Company's obligations under the Registration Rights Agreement.
(ii) Stock Splits; Dividends, Etc. If the Company, at
any time while any Debentures are outstanding, (a) shall pay a stock dividend or
otherwise make a distribution or distributions on shares of its Common Stock or
any other equity or equity equivalent securities payable in shares of the Common
Stock, (b) subdivide outstanding shares of the Common Stock into a larger number
of shares, (c) combine outstanding shares of the Common Stock into a smaller
number of shares, or (d) issue by reclassification of shares of the Common Stock
any shares of capital stock of the Company, the Initial Conversion Price shall
be multiplied by a fraction of which the numerator shall be the number of shares
of the Common Stock (excluding treasury shares, if any) outstanding before such
event and of which the denominator shall be the number of shares of the Common
Stock outstanding after such event. Any adjustment made pursuant to this Section
shall become effective immediately after the record date for the determination
of stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision, combination or re-classification.
(iii) Adjustments for Certain Distributions. If the
Company, at any time while any Debentures are outstanding, shall issue rights or
warrants to all holders of the Common Stock (and not to Holders of Debentures)
entitling them to subscribe for or purchase shares of the Common Stock at a
price per share less than the Per Share Market Value of the Common Stock at the
record date mentioned below, the Initial Conversion Price shall be multiplied by
a fraction, of which the denominator shall be the number of shares of the Common
Stock (excluding treasury shares, if any) outstanding on the date of issuance of
such rights or warrants plus the number of additional shares of the Common Stock
offered for subscription or purchase, and of which the numerator shall be the
number of shares of the Common Stock (excluding treasury shares, if any)
outstanding on the date of issuance of such rights or warrants plus the number
of shares which the aggregate offering price of the total number of shares so
offered would purchase at such Per Share Market Value. Such adjustment shall be
made whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders entitled
to receive such rights or warrants. However, upon the expiration of any right or
warrant to purchase shares of the Common Stock the issuance of which resulted in
an adjustment in the Initial Conversion Price pursuant to this Section, if any
such right or warrant shall expire and shall not have been exercised, the
Initial Conversion Price shall immediately upon such expiration be recomputed
and effective immediately upon such expiration be increased to the price which
it would have been (but reflecting any other adjustments in the Initial
Conversion Price made pursuant to the provisions of this Section 4 after the
issuance of such rights or warrants) had the adjustment of the Initial
Conversion Price made upon the issuance of such rights or warrants been made on
the basis of offering for subscription or purchase only that number of shares of
the Common Stock actually purchased upon the exercise of such rights or warrants
actually exercised.
(iv) Antidilution Protection. If the Company or any
subsidiary thereof, as applicable with respect to Common Stock Equivalents (as
defined below), at any time while
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Debentures are outstanding, shall issue shares of Common Stock or rights,
warrants, options or other securities or debt that is convertible into or
exchangeable for shares of Common Stock ("Common Stock Equivalents") entitling
any Person to acquire shares of Common Stock at a price per share less than the
average Per Share Market Value for the five (5) Trading Days immediately
preceding the date of issuance of such Common Stock or Common Stock Equivalents,
then the Conversion Price shall be multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to the issuance of shares of Common Stock or such Common Stock Equivalents
plus the number of shares of Common Stock which the offering price for such
shares of Common Stock or Common Stock Equivalents would purchase at the
Conversion Price, and the denominator of which shall be the sum of the number of
shares of Common Stock outstanding immediately prior to such issuance plus the
number of shares of Common Stock so issued or issuable, provided, that for
purposes hereof, all shares of Common Stock that are issuable upon exercise or
exchange of Common Stock Equivalents shall be deemed outstanding immediately
after the issuance of such Common Stock Equivalents. Such adjustment shall be
made whenever such shares of Common Stock or Common Stock Equivalents are
issued. This Section 4(c)(iv) shall not apply to (i) issuances of Common Stock
or Common Stock Equivalents (or issuances of shares of Common Stock upon
conversion or exercise of such Common Stock Equivalents) pursuant to an
underwritten public offering, (ii) grants of Common Stock Equivalents (or
issuances of shares of Common Stock upon conversion or exercise of such Common
Stock Equivalents) to directors, officers or employees of the Company or its
affiliates pursuant to an employee benefit plan approved by the board of
directors of the Company, or grants of Common Stock Equivalents (or issuances of
shares of Common Stock upon conversion or exercise of such Common Stock
Equivalents) of a purely compensatory nature to consultants of the Company or
its affiliates consistent with past practice and in the ordinary course of
business, (iii) issuances of Common Stock upon conversion or exercise of Common
Stock Equivalents (A) that are outstanding on the date hereof (provided that the
terms of such Common Stock Equivalents are not amended after the date hereof to
permit any Person at any time to acquire shares of Common Stock (including,
based upon any conversion, exchange or reset formula) at a price less than a 10%
discount to the average Per Share Market Value for the five (5) Trading Days
immediately preceding the date of amendment of such Common Stock Equivalents),
(B) for which the exercise price or conversion price is not less than the
average Per Share Market Value for the five (5) Trading Days immediately
preceding the date of issuance of such Common Stock Equivalents and (C) for
which an adjustment to the Conversion Price has already been made pursuant to
this Section 4(c)(iv) at the time of the issuance of such Common Stock
Equivalents or (iv) issuances of shares of Common Stock upon conversion of the
Debentures, payment of interest thereon or exercise of the Warrants issued
pursuant to the Purchase Agreement. Notwithstanding anything to the contrary
contained in this Section 4(c)(iv), the Company may, without adjustment to the
Conversion Price pursuant to this Section 4(c)(iv), issue and sell shares of
Common Stock or Common Stock Equivalents at prices of up to a 10% discount to
the average Per Share Market Value for the five (5) Trading Days immediately
preceding the date of issuance of such Common Stock or Common Stock Equivalents
(such discount called a "10% Discount"), provided that sales and issuances of
Common Stock or Common Stock Equivalents pursuant to agreements or instruments
under which the issuance price (including, based upon any conversion, exchange
or reset formula) of such Common Stock or Common Stock
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Equivalents is permitted at any time over the life thereof to be less than the
10% Discount, shall continue to be subject to the provisions of this Section
4(c)(iv).
(v) Distribution of Indebtedness or Other Assets. If
the Company, at any time while Debentures are outstanding, shall distribute to
all holders of the Common Stock (and not to Holders of Debentures) evidences of
its indebtedness or assets or rights or warrants to subscribe for or purchase
any security other than Common Stock, then in each such case the Initial
Conversion Price at which Debentures shall thereafter be convertible shall be
determined by multiplying the Initial Conversion Price in effect immediately
prior to the record date fixed for determination of stockholders entitled to
receive such distribution by a fraction of which the denominator shall be the
Per Share Market Value of the Common Stock determined as of the record date
mentioned above, and of which the numerator shall be such Per Share Market Value
of the Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of the Common Stock as
determined by the Board of Directors in good faith; provided, however, that in
the event of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally recognized
or major regional investment banking firm or firm of independent certified
public accountants of recognized standing (which the Holders agree may be the
firm that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest of
Debentures then outstanding; and provided, further, that the Company, after
receipt of the determination by such Appraiser shall have the right to select an
additional Appraiser, in good faith, in which case the fair market value shall
be equal to the average of the determinations by each such Appraiser. Such
adjustment shall be made whenever any such distribution is made and shall become
effective immediately after the record date mentioned above.
(vi) Reclassification or Exchange. In case of any
reclassification of the Common Stock or any compulsory share exchange pursuant
to which the Common Stock is converted into other securities, cash or property,
the Holder of this Debenture shall have the right thereafter to, at its option,
(A) convert the then outstanding principal amount, together with all accrued but
unpaid interest and any other amounts then owing hereunder in respect of this
Debenture only into the shares of stock and other securities, cash and property
receivable upon or deemed to be held by holders of the Common Stock following
such reclassification or share exchange, and the Holders of the Debentures shall
be entitled upon such event to receive such amount of securities, cash or
property as the shares of the Common Stock of the Company into which the then
outstanding principal amount, together with all accrued but unpaid interest and
any other amounts then owing hereunder in respect of this Debenture could have
been converted immediately prior to such reclassification or share exchange
would have been entitled or (B) require the Company to prepay the aggregate of
the outstanding principal amount of this Debenture, plus all interest and other
amounts due and payable in respect hereof, at a price determined in accordance
with Section 3(b). The entire prepayment price shall be paid in cash. This
provision shall similarly apply to successive reclassifications or share
exchanges. The Holder must notify the Company in writing within 10 days of its
receipt of notice of any such reclassification or exchange of the option such
Holder shall have
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elected hereunder, and if the Holder does not notify the Company, the option
described in clause (A) hereof shall apply.
(vii) Rounding. All calculations under this Section 4
shall be made to the nearest cent or the nearest 1/100th of a share, as the case
may be.
(viii) Notice of Adjustment. Whenever the Initial
Conversion Price is adjusted pursuant to any of Section 4(c)(ii) - (v), the
Company shall promptly mail to each Holder of Debentures a notice setting forth
the Initial Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment.
(ix) Notice of Record Date. If (A) the Company shall
declare a dividend (or any other distribution) on its Common Stock; (B) the
Company shall declare a special nonrecurring cash dividend on or a redemption of
its Common Stock; (C) the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock of the Company, any consolidation or merger
to which the Company is a party, any sale or transfer of all or substantially
all of the assets of the Company, of any compulsory share of exchange whereby
the Common Stock is converted into other securities, cash or property; (E) the
Company shall authorize the voluntary or involuntary dissolution, liquidation or
winding up of the affairs of the Company; then, and in each case, the Company
shall cause to be filed at each office or agency maintained for the purpose of
conversion of the Debentures, and shall cause to be mailed to the Holders of
Debentures at their last addresses as they shall appear upon the stock books of
the Company, at least ten (10) calendar days prior to the applicable record or
effective date hereinafter specified, a notice stating (x) the date on which a
record is to be taken for the purpose of such dividend, distribution,
redemption, rights or warrants, or if a record is not to be taken, the date as
of which the holders of the Common Stock of record to be entitled to such
dividend, distributions, redemption, rights or warrants are to be determined or
(y) the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and the
date as of which it is expected that holders of the Common Stock of record shall
be entitled to exchange their shares of the Common Stock for securities, cash or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer or share exchange; provided, however, that the failure to mail
such notice or any defect therein or in the mailing thereof shall not affect the
validity of the corporate action required to be specified in such notice.
Holders are entitled to convert Debentures in accordance with the terms hereof
during the ten-day period commencing the date of such notice to the effective
date of the event triggering such notice.
(x) Conversion Price Upon Major Announcement. If the
Company (i) makes a public announcement that it intends to enter into a Change
of Control Transaction or (ii) any person, group or entity (including the
Company, but excluding a Holder or any affiliate of a Holder) publicly announces
a bona fide tender offer, exchange offer or other transaction to purchase 40% or
more of the Common Stock (such announcement being referred to herein as a "Major
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Announcement" and the date on which a Major Announcement is made, the
"Announcement Date"), then, in the event that a Holder seeks to convert the
Debentures on or following the Announcement Date, the Conversion Price shall,
effective upon the Announcement Date and continuing through the earlier to occur
of the consummation of the proposed transaction or tender offer, exchange offer
or other transaction and the Abandonment Date (as defined below), be equal to
the lower of (x) the average Per Share Market Value on the five Trading Days
immediately preceding (but not including) the Announcement Date and (y) the
Conversion Price that would otherwise have been in effect on the Conversion Date
for such Debentures but for the application of this section. "Abandonment Date"
means with respect to any proposed transaction or tender offer, exchange offer
or other transaction for which a public announcement as contemplated by this
paragraph has been made, the date upon which the Company (in the case of clause
(i) above) or the person, group or entity (in the case of clause (ii) above)
publicly announces the termination or abandonment of the proposed transaction or
tender offer, exchange offer or another transaction which caused this paragraph
to become operative.
(d) Reservation of Shares. The Company covenants that it will
at all times reserve and keep available out of its authorized and unissued
shares of the Common Stock solely for the purpose of issuance upon conversion of
the Debentures and payment of interest on the Debentures, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holders, not less than such number of shares of
the Common Stock as shall (subject to any additional requirements of the Company
as to reservation of such shares set forth in the Purchase Agreement) be
issuable (taking into account the adjustments and restrictions of Section 4(c))
upon the conversion of the outstanding principal amount of the Debentures and
payment of interest hereunder. The Company covenants that all shares of the
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable and, if the Underlying
Securities Registration Statement has been declared effective under the
Securities Act, registered for public sale in accordance with such Underlying
Securities Registration Statement.
(e) Fractional Shares. Upon a conversion hereunder the Company
shall not be required to issue stock certificates representing fractions of
shares of the Common Stock, but may if otherwise permitted, make a cash payment
in respect of any final fraction of a share based on the Per Share Market Value
at such time. If the Company elects not, or is unable, to make such a cash
payment, the holder shall be entitled to receive, in lieu of the final fraction
of a share, one whole share of Common Stock.
(f) Payment of Tax Upon Issue or Transfer. The issuance of
certificates for shares of the Common Stock on conversion of the Debentures
shall be made without charge to the Holders thereof for any documentary stamp or
similar taxes that may be payable in respect of the issue or delivery of such
certificate, provided that the Company shall not be required to pay any tax that
may be payable in respect of any transfer involved in the issuance and delivery
of any such certificate upon conversion in a name other than that of the Holder
of such Debentures so converted and the Company shall not be required to issue
or deliver such certificates unless or until the person
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or persons requesting the issuance thereof shall have paid to the Company the
amount of such tax or shall have established to the satisfaction of the Company
that such tax has been paid.
(g) Notices. Any and all notices or other communications or
deliveries to be provided by the Holders of the Debentures hereunder, including,
without limitation, any Conversion Notice, shall be in writing and delivered
personally, by facsimile, sent by a nationally recognized overnight courier
service or sent by certified or registered mail, postage prepaid, addressed to
the Company, at 9055 Evergreen Boulevard, N.W., Minneapolis, MN 55433-8003
(facsimile number (612) 780-7223), attention Chief Executive Officer, or such
other address or facsimile number as the Company may specify for such purposes
by notice to the Holders delivered in accordance with this Section. Any and all
Conversion Notices shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to the Company with a copy to the
transfer agent at Norwest Bank Minnesota, N.A., Shareholder Services, 161 N.
Concord Exchange, P.O. Box 738, South Saint Paul, MN 55075-0738 (facsimile
number (612) 450-4078), attention Mary Fitzgerald, or such other address or
facsimile number as the Company may specify for such purposes by notice to the
Holders delivered in accordance with this Section. Any and all notices or other
communications or deliveries to be provided by the Company hereunder shall be in
writing and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail, postage
prepaid, addressed to each Holder of the Debentures at the facsimile telephone
number or address of such Holder appearing on the books of the Company, or if no
such facsimile telephone number or address appears, at the principal place of
business of the Holder. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date or on a date that is not a Business Day, (iii) four days after deposit
in the United States mail, (iv) the Business Day following the date of mailing,
if sent by nationally recognized overnight courier service within the U.S., or
(v) upon actual receipt by the party to whom such notice is required to be
given.
(h) Graft Business. Holder acknowledges that the Company has
engaged Salomon Smith Barney to assist it in exploring strategic alternatives
with respect to the Company's vascular graft products business, which may
include, without limitation, a sale of the assets of such business, a spin off
of such business in the form of a distribution to the shareholders of the Common
Stock, a joint venture with a third party or parties relating to such business,
some other corporate transaction, or none of the above. The Holder agrees that
so long as any such transaction is limited solely to the Company's vascular
graft business and does not involve a merger or consolidation or other
transaction involving any assets or any business of the Company outside the
vascular graft products business, such transaction shall not be deemed a Change
in Control of the Company or constitute an Event of Default hereunder; provided,
that any distribution to all holders of the
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Common Stock (and not to Holders of Debentures) of proceeds received by the
Company (whether in cash, other assets, evidences of indebtedness or otherwise)
in connection with any transaction involving the Company's vascular graft
business will cause an adjustment to the Initial Conversion Price pursuant to
Section 4(c)(v) hereof.
Section 5. Definitions. For the purposes hereof, the following
terms shall have the following meanings:
"Average Price" on any date means the (x) sum of the Per Share
Market Values for the ten (10) Trading Days immediately preceding such date
minus (y) the highest and lowest Per Share Market Values during the ten (10)
Trading Days immediately preceding such date, divided by (z) eight.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Change of Control Transaction" means the occurrence of any of
(i) an acquisition after the date hereof by an individual or legal entity or
"group" (as described in Rule 13d-5(b)(1) promulgated under the Exchange Act) of
in excess of 40% of the voting securities of the Company, (ii) a replacement of
more than one-half of the members of the Company's board of directors which is
not approved by a majority of the "Continuing Directors"(as defined below) in
one or a series of related transactions, (iii) the merger of the Company with or
into another entity, consolidation or sale of all or substantially all of the
assets of the Company in one or a series of related transactions, unless
following such transaction, the holders of the Company's securities continue to
hold at least 40% of such securities following such transaction or (iv) the
execution by the Company of an agreement to which the Company is a party or by
which it is bound, providing for any of the events set forth above in (i), (ii)
or (iii).
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the common stock, $.40 par value per
share, of the Company and stock of any other class into which such shares may
hereafter have been reclassified or changed.
"Continuing Directors" means those individuals who are members
of the Company's board of directors on the date hereof and any individual who
subsequently becomes a member of the Company's board of directors, if such
individual's nomination for election or election to the Company's board of
directors is approved by a vote of at least a majority of the Continuing
Directors; provided that no individual shall be considered a Continuing Director
if such individual initially assumed office as a result of either an actual or
threatened "Election Contest" (as described in Rule 14a-11 promulgated under the
Exchange Act) or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the board of directors of the Company (a
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"Proxy Contest") including by reason of any agreement intended to avoid or
settle any Election Contest or Proxy Contest.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Mandatory Prepayment Amount" for any Debentures for the first
180 days following the Original Issue Date shall equal the greater of (i) the
sum of (x) 115% of the principal amount of Debentures to be prepaid and (y) all
other amounts, costs, interest, expenses and liquidated damages due in respect
of such principal amount, and (ii) sum of (x) at the option of the Holder,
either (I) the principal amount of Debentures to be prepaid, plus all accrued
and unpaid interest thereon, divided by the Conversion Price on the date the
Mandatory Prepayment Amount is demanded or otherwise due, multiplied by the
Average Price on the date the Mandatory Prepayment Amount is demanded or
otherwise due or (II) the principal amount of the Debentures to be prepaid, plus
all accrued and unpaid interest thereon, divided by the Conversion Price on the
Trading Day immediately prior to the date the Mandatory Prepayment Amount is
paid in full, multiplied by the Average Price on the Trading Day immediately
prior to the date the Mandatory Prepayment Amount is paid in full, and (y) all
other amounts, costs, expenses and liquidated damages due in respect of such
principal amount.
"Original Issue Date" shall mean the date of the first
issuance of the Debentures regardless of the number of transfers of any
Debenture and regardless of the number of instruments which may be issued to
evidence such Debenture.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the NASDAQ or on
such Subsequent Market on which the Common Stock is then listed or quoted, or if
there is no such price on such date, then the closing bid price on the NASDAQ or
on such Subsequent Market on the date nearest preceding such date, or (b) if the
Common Stock is not then listed or quoted on the NASDAQ or a Subsequent Market,
the closing bid price for a share of Common Stock in the over-the-counter
market, as reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at the
close of business on such date, or (c) if the Common Stock is not then reported
by the National Quotation Bureau Incorporated (or similar organization or agency
succeeding to its functions of reporting prices), then the average of the "Pink
Sheet" quotes for the relevant conversion period, as determined in good faith by
the Holder, or (d) if the Common Stock is not then publicly traded, the fair
market value of a share of Common Stock as determined by an Appraiser selected
in good faith by the Holders of a majority in interest of the principal amount
of Debentures then outstanding. The Holder of this Debenture agrees that
Deloitte & Touche LLP, the Company's independent auditors, may act as the
Appraiser for purposes of clause (d).
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
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"Purchase Agreement" means the Convertible Debenture Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original Holders of Debentures, as amended, modified or supplemented from time
to time in accordance with its terms.
"Registration Rights Agreement" means the Registration Rights
Agreement, dated as of the Original Issue Date, between the Company and the
original Holders of Debentures, as amended, modified or supplemented from time
to time in accordance with its terms.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Closing" means the closing of the purchase and sale
of the Debentures under the Purchase Agreement.
"Series B Debentures" means the Company's Series B 5%
Convertible Debentures issued in accordance with the Purchase Agreement.
"Series C Debentures" means the Company's Series C 5%
Convertible Debentures issued in accordance with the Purchase Agreement.
"Trading Day" means (a) a day on which the Common Stock is
traded on the NASDAQ or on such Subsequent Market on which the Common Stock is
then listed or quoted, or (b) if the Common Stock is not listed on the NASDAQ or
a Subsequent Market, a day on which the Common Stock is traded in the
over-the-counter market, as reported by the OTC Bulletin Board, or (c) if the
Common Stock is not quoted on the OTC Bulletin Board, a day on which the Common
Stock is quoted in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or any similar organization or agency succeeding
its functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean any day except Saturday, Sunday and any day
which shall be a legal holiday or a day on which banking institutions in the
State of New York are authorized or required by law or other government action
to close.
"Underlying Shares" means the shares of Common Stock issuable
upon conversion of Debentures or as payment of interest in accordance with the
terms hereof.
"Underlying Securities Registration Statement" means a
registration statement meeting the requirements set forth in the Registration
Rights Agreement, covering among other things the resale of the Underlying
Shares and naming the Holder as a "selling stockholder" thereunder.
Section 6. Rank; Prepayment. Except as expressly provided
herein, no provision of this Debenture shall alter or impair the obligation of
the Company, which is absolute and unconditional, to pay the principal of,
interest and liquidated damages (if any) on, this Debenture at the time, place,
and rate, and in the coin or currency, herein prescribed. This Debenture is a
direct
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obligation of the Company. This Debenture ranks pari passu with all other
Debentures, Series B Debentures and Series C Debentures issued in accordance
with the respective terms thereof. The Company may not voluntarily prepay the
outstanding principal amount on the Debentures.
Section 7. No Rights of Shareholder. This Debenture shall not
entitle the Holder to any of the rights of a stockholder of the Company,
including without limitation, the right to vote, to receive dividends and other
distributions, or to receive any notice of, or to attend, meetings of
stockholders or any other proceedings of the Company, unless and to the extent
converted into shares of Common Stock in accordance with the terms hereof.
Section 8. Lost, Stolen or Destroyed Debentures. If this
Debenture shall be mutilated, lost, stolen or destroyed, the Company shall
execute and deliver, in exchange and substitution for and upon cancellation of a
mutilated Debenture, or in lieu of or in substitution for a lost, stolen or
destroyed debenture, a new Debenture for the principal amount of this Debenture
so mutilated, lost, stolen or destroyed but only upon receipt of evidence of
such loss, theft or destruction of such Debenture, and of the ownership hereof,
and indemnity, if requested, all reasonably satisfactory to the Company.
Section 9. Governing Law; Jurisdiction. This Debenture shall
be governed by and construed in accordance with the laws of the State of New
York, without giving effect to conflicts of laws thereof. The Company and the
Holders hereby irrevocably submit to the non-exclusive jurisdiction of the state
and federal courts sitting in the City of New York, borough of Manhattan, for
the adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, or that
such suit, action or proceeding is improper. Each of the Company and the Holder
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by receiving a copy thereof
sent to the Company at the address in effect for notices to it under this
instrument and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
Section 10. Waiver. Any waiver by the Company or the Holder of
a breach of any provision of this Debenture shall not operate as or be construed
to be a waiver of any other breach of such provision or of any breach of any
other provision of this Debenture. The failure of the Company or the Holder to
insist upon strict adherence to any term of this Debenture on one or more
occasions shall not be considered a waiver or deprive that party of the right
thereafter to insist upon strict adherence to that term or any other term of
this Debenture. Any waiver must be in writing.
Section 11. Severability. If any provision of this Debenture
is invalid, illegal or unenforceable, the balance of this Debenture shall remain
in effect, and if any provision is inapplicable to any person or circumstance,
it shall nevertheless remain applicable to all other persons and circumstances.
-22-
<PAGE>
Section 12. Payments on Business Days. Whenever any payment or
other obligation hereunder shall be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Debenture to
be duly executed by a duly authorized officer as of the date first above
indicated.
POSSIS MEDICAL, INC.
By:
-------------------------------
Name: Irving R. Colacci
Title: Vice President & General Counsel
Attest:
By:
------------------------
Name:
Title
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<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
To be Executed by the Registered Holder in order to Convert the Debenture and
sent to:
a) Norwest Bank Minnesota, N.A.
Shareholder Services
161 N. Concord Exchange
P.O. Box 738
South Saint Paul, MN 55075-0738
Attention: Mary Fitzgerald
Facsimile: (612) 450-4078
b) Possis Medical, Inc.
9055 Evergreen Boulevard, N.W.
Minneapolis, MN 55433-8003
Attention: Russel E. Carlson
Facsimile: (612) 780-7223
The undersigned hereby elects to convert Debenture No. A-[ ] (the first page of
which Debenture is attached to this Notice of Conversion) into shares of common
stock, $.40 par value per share (the "Common Stock"), of Possis Medical, Inc.
(the "Company") according to the conditions hereof, as of the date written
below. If shares are to be issued in the name of a person other than
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto and is delivering herewith such certificates and opinions as reasonably
requested by the Company in accordance therewith. No fee will be charged to the
holder for any conversion, except for such transfer taxes, if any. The
undersigned agrees to dispose of Common Stock represented by unlegended
certificates only pursuant to an effective registration statement under the
Securities Act of 1933, as amended, to the Company or pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended.
Conversion calculations: -----------------------------------------------
Date to Effect Conversion
-----------------------------------------------
Principal Amount of Debentures to be Converted
-----------------------------------------------
Number of shares of Common Stock to be Issued
-----------------------------------------------
Applicable Conversion Price
Check one:
|_| Based on the Initial Conversion Price
A-1
<PAGE>
|_| Based on the following ten (10) consecutive
Trading Day
Period: ____________ to ___________
-------------------------------------------------
Signature
-------------------------------------------------
Name
-------------------------------------------------
Address
-------------------------------------------------
Taxpayer identification number
To: Norwest Bank. Minnesota, N.A.
Please issue the shares of Common Stock indicated above.
POSSIS MEDICAL, INC
By:
-----------------------------------
Name:
Title:
A-2
<PAGE>
EXHIBIT B
NOTICE OF CONVERSION AT
THE ELECTION OF THE COMPANY
The undersigned in the name and on behalf of Possis Medical, Inc. (the
"Company") hereby notifies the addressee hereof that the Company hereby elects
to exercise its right to Convert Series A 5% Debentures Due July 2004
("Debentures") held by the Holder into shares of Common Stock, par value $.40
per share (the "Common Stock") of the Company according to the terms hereof, as
of the date written below. No fee will be charged to the Holder for any
conversion hereunder, except for such transfer taxes, if any which may be
incurred by the Company if shares are to be issued in the name of a person other
than the person to whom this notice is addressed.
Conversion calculations:
----------------------------------------------
Date to Effect Conversion
----------------------------------------------
Principal Amount of Debentures to be Converted
----------------------------------------------
Number of shares of Common Stock to be Issued
----------------------------------------------
Applicable Conversion Price
To: Norwest Bank. Minnesota, N.A.
Please issue the shares of Common Stock indicated above.
POSSIS MEDICAL, INC
By:
----------------------------------
Name:
Title:
B-1
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made
and entered into as of July 14, 1998, among Possis Medical, Inc., a Minnesota
corporation (the "Company"), and the parties who have executed this Agreement
and whose names appear on Schedule 1 hereto (each party listed on Schedule 1
hereto is sometimes individually referred to herein as a "Purchaser" and all
such parties are sometimes collectively referred to herein as the "Purchasers."
This Agreement is made pursuant to the Convertible Debenture
Purchase Agreement, dated as of the date hereof between the Company and the
Purchasers (the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that
are defined in the Purchase Agreement shall have the meanings given such terms
in the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Advice" shall have meaning set forth in Section 3(p).
"Affiliate" means, with respect to any Person, any other
Person that directly or indirectly controls or is controlled by or under common
control with such Person. For the purposes of this definition, "control," when
used with respect to any Person, means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms of "affiliated," "controlling" and "controlled" have
meanings correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any
day which shall be a legal holiday or a day on which banking institutions in the
state of New York generally are authorized or required by law or other
government actions to close.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, par value
$.40 per share.
"Debentures" means the Series A Debentures, the Series B
Debentures and the Series C Debentures.
<PAGE>
"Effectiveness Date" means the 90th day following the Series A
Closing Date.
"Effectiveness Period" shall have the meaning set forth in
Section 2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 30th day following the Series A
Closing Date.
"Holder" or "Holders" means the holder or holders, as the case
may be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in
Section 5(c).
"Indemnifying Party" shall have the meaning set forth in
Section 5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership,
trust, incorporated or unincorporated association, joint venture, limited
liability company, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included in the Registration
Statement (including, without limitation, a prospectus that includes any
information previously omitted from a prospectus filed as part of an effective
registration statement in reliance upon Rule 430A promulgated under the
Securities Act), as amended or supplemented by any prospectus supplement, with
respect to the terms of the offering of any portion of the Registrable
Securities covered by the Registration Statement, and all other amendments and
supplements to the Prospectus, including post-effective amendments, and all
material incorporated by reference or deemed to be incorporated by reference in
such Prospectus.
"Registrable Securities" means the shares of Common Stock
issuable upon (i) conversion in full of the Debentures, (ii) payment of interest
in respect of the Debentures, assuming all such interest is paid in shares of
Common Stock and that the Debentures remain outstanding for two years, and (iii)
exercise of the Warrants; provided, however that in order to account for the
fact that the number of shares of Common Stock issuable upon conversion of the
Debentures (together with the payment of interest thereon) is determined in part
upon the market price of the Common Stock prior to the time of conversion,
Registrable Securities contemplated by clauses (i) and (ii) above shall, subject
to Section 4(a)(iii)(B) of the Debentures, include (but not be limited to) a
number of shares of Common Stock equal to no less than 200% of (A) the number of
shares of Common Stock into which the Debentures (together with the payment of
interest thereon (assuming
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<PAGE>
all such interest is paid in shares of Common Stock and that the Debentures
remain outstanding for two years)) are convertible, assuming such conversion
occurred on the Series A Closing Date or the Filing Date, whichever yields a
lower Conversion Price (as defined in the Debentures) and (B) the number of
shares of Common Stock issuable upon exercise of the Warrants (such 200% amount
of the number of shares of Common Stock described in clauses (A) and (B)
referred to as the "Initially Registrable Securities"). The Company shall be
required to file additional Registration Statements to the extent the sum of (i)
the number of the shares of Common Stock into which the Debentures are
convertible (together with the payment of interest thereon (assuming all such
interest is paid in shares of Common Stock and that the Debentures remain
outstanding for two years)), and (ii) the number of shares of Common Stock
issuable upon exercise in full of the Warrants, exceeds (A) in the case the
Company has not yet filed an additional Registration Statement, 85% of the
number of shares of Common Stock initially registered in accordance with the
immediately prior sentence or (B) in the case the Company has already filed an
additional Registration Statement, 85% of the number of shares of Common Stock
previously registered in accordance with this Agreement. The Company shall have
fifteen (15) days to file such additional Registration Statements after notice
of the requirement thereof, which any Holder may give at such time when the
number of shares of Common Stock as are issuable upon conversion of Debentures
(together with the payment of interest thereon (assuming all such interest is
paid in shares of Common Stock and that the Debentures remain outstanding for
two years)) and upon exercise of the Warrants, exceeds 85% of the number of
shares of Common Stock registered in one or more Registration Statements
hereunder.
"Registration Statement" means the registration statement and
any additional registration statements contemplated by Section 2(a), including
(in each case) the Prospectus, amendments and supplements to such registration
statement or Prospectus, including pre- and post-effective amendments, all
exhibits thereto, and all material incorporated by reference or deemed to be
incorporated by reference in such registration statement.
"Rule 144" means Rule 144 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Rule 415" means Rule 415 promulgated by the Commission
pursuant to the Securities Act, as such Rule may be amended from time to time,
or any similar rule or regulation hereafter adopted by the Commission having
substantially the same effect as such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Series A Closing Date" shall have the meaning set forth in
the Purchase Agreement.
"Series A Debentures" means the Company's Series A 5%
Convertible Debentures, issuable pursuant to the Purchase Agreement.
"Series B Debentures" means the Company's Series B 5%
Convertible Debentures, issuable pursuant to the Purchase Agreement.
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<PAGE>
"Series C Debentures" means the Company's Series C 5%
Convertible Debentures, issuable pursuant to the Purchase Agreement.
"Series A Warrants" shall have the meaning set forth in the
Purchase Agreement.
"Series B Warrants" shall have the meaning set forth in the
Purchase Agreement.
"Series C Warrants" shall have the meaning set forth in the
Purchase Agreement.
"Special Counsel" means one special counsel to the Holders,
for which the Holders will be reimbursed by the Company to the extent and only
to the extent provided in Section 4(c).
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Warrants" means the Series A Warrants, Series B Warrants and
the Series Warrants.
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare
and file with the Commission a "Shelf" Registration Statement covering all
Initially Registrable Securities for an offering to be made on a continuous
basis pursuant to Rule 415. The Registration Statement shall be on Form S-3 (or
if the Company is not then eligible to register for resale the Registrable
Securities on Form S-3, such registration shall be on another appropriate form
in accordance herewith). The Registration Statement shall state, to the extent
permitted by Rule 416 under the Securities Act, that it also covers such
indeterminate number of shares of Common Stock as may be required to effect
conversion of the Debentures (and payment of interest thereon) or exercise of
the Warrants, in each case to prevent dilution resulting from stock splits,
stock dividends or similar events, or by reason of changes in the Conversion
Price in accordance with the terms of the Debentures or by reason of changes in
the Exercise Price (as defined in the Warrants) in accordance with the terms of
the Warrants, and shall also state that the number of Registrable Securities
covered by the Registration Statement is allocated among the Holders thereunder
pro rata in accordance with such Holders' pro rata portion of the number of
Registrable Securities covered by such Registration Statement. The Company shall
use its best efforts to cause the Registration Statement to be declared
effective under the Securities Act as promptly as possible after the filing
thereof, but in any event prior to the Effectiveness Date, and, subject to
Section 3(q) hereof, shall use its best efforts to keep such Registration
Statement continuously effective under the Securities Act until the date which
is three years after the date that such Registration Statement is declared
effective by the Commission or until such earlier date when all Registrable
Securities covered by such Registration Statement have been sold or may be sold
without volume restrictions pursuant to Rule 144(k) as determined by the counsel
to the Company pursuant to a written opinion letter to such effect, addressed
and acceptable to the Company's transfer agent (which may require that the
Holders of the Registrable Securities make a representation that they are not
affiliates of the Company) (the "Effectiveness Period"), provided, however, that
the Company shall not be deemed to have used its best efforts to keep the
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<PAGE>
Registration Statement effective during the Effectiveness Period if it
voluntarily takes any action that would result in the Holders not being able to
sell the Registrable Securities covered by such Registration Statement during
the Effectiveness Period, unless such action is pursuant to Section 3(q) or is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) If the Holders of a majority of the Registrable Securities
so elect, an offering of Registrable Securities pursuant to the Registration
Statement may be effected in the form of an Underwritten Offering. In such
event, and, if the managing underwriters advise the Company and such Holders in
writing that in their opinion the amount of Registrable Securities proposed to
be sold in such Underwritten Offering exceeds the amount of Registrable
Securities which can be sold in such Underwritten Offering, there shall be
included in such Underwritten Offering the amount of such Registrable Securities
which in the opinion of such managing underwriters can be sold, and such amount
shall be allocated pro rata among the Holders proposing to sell Registrable
Securities in such Underwritten Offering.
(c) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Holders of a majority of the Registrable
Securities included in such offering upon consultation with the Company. No
Holder may participate in any Underwritten Offering hereunder unless such Holder
(i) agrees to sell its Registrable Securities on the basis provided in any
underwriting agreements approved by the Persons entitled hereunder to approve
such arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such arrangements.
3. Registration Procedures
In connection with the Company's registration obligations
hereunder, the Company shall:
(a) Prepare and file with the Commission on or prior to the
Filing Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3, such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and by the Holders of Registrable Securities) which shall contain
the "Plan of Distribution" attached hereto as Annex A (except if otherwise
directed in writing by the Holders), and cause the Registration Statement to
become effective and remain effective as provided herein; provided, however,
that not less than five (5) Business Days prior to the filing of the
Registration Statement or any related Prospectus or any amendment or supplement
thereto (including any document that would be incorporated or deemed to be
incorporated therein by reference), the Company shall, (i) furnish to the
Holders, their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents (other than those incorporated
or deemed to be incorporated by reference) will be subject to the review of such
Holders, their Special Counsel and such managing underwriters, and (ii) cause
its officers and directors, counsel and independent certified public accountants
to respond to such inquiries as shall be necessary, in
-5-
<PAGE>
the reasonable opinion of respective counsel to such Holders and such
underwriters, to conduct a reasonable investigation within the meaning of the
Securities Act. The Holders, their Special Counsel and any managing underwriters
shall provide any and all comments to the Registration Statement or any related
Prospectus or any amendment or supplement thereto that is to be filed with the
Commission not later than three (3) Business Days following the date on which
such documents are furnished to the Holders, their Special Counsel and any
managing underwriters in accordance with the immediately preceding sentence. The
Company shall not file the Registration Statement or any such Prospectus or any
amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Subject to Section 3(q) hereof, prepare and file with
the Commission such amendments, including post-effective amendments, to the
Registration Statement as may be necessary to keep the Registration Statement
continuously effective as to the applicable Registrable Securities for the
Effectiveness Period and prepare and file with the Commission such additional
Registration Statements in order to register for resale under the Securities Act
such number of Registrable Securities as are required to be registered pursuant
to this Agreement; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) respond as promptly as
possible to any comments received from the Commission with respect to the
Registration Statement or any amendment thereto and as promptly as possible
provide the Holders true and complete copies of all correspondence from and to
the Commission relating to the Registration Statement; and (iv) comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all Registrable Securities covered by the Registration Statement
during the applicable period in accordance with the intended methods of
disposition by the Holders thereof set forth in the Registration Statement as so
amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities to be sold,
their Special Counsel and any managing underwriters immediately (and, in the
case of (i)(A) below, not less than five (5) days prior to such filing) and (if
requested by any such Person in writing) confirm such notice in writing no later
than one (1) Business Day following the day (i)(A) when a Prospectus or any
Prospectus supplement or post-effective amendment to the Registration Statement
is proposed to be filed; (B) when the Commission notifies the Company whether
there will be a "review" of such Registration Statement and whenever the
Commission comments in writing on such Registration Statement (the Company shall
provide true and complete copies thereof and all written responses thereto to
each of the Holders); and (C) with respect to the Registration Statement or any
post-effective amendment, when the same has become effective; (ii) of any
request by the Commission or any other Federal or state governmental authority
for amendments or supplements to the Registration Statement or Prospectus or for
additional information; (iii) of the issuance by the Commission of any stop
order suspending the effectiveness of the Registration Statement covering any or
all of the Registrable Securities or the initiation of any Proceedings for that
purpose; (iv) if at any time any of the representations and warranties of the
Company contained in any agreement (including any underwriting agreement)
contemplated hereby ceases to be true and correct in all material respects; (v)
of the receipt by the Company of any notification with respect to the suspen-
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<PAGE>
sion of the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction, or the initiation or
threatening of any Proceeding for such purpose; and (vi) of the occurrence of
any event at any time when a prospectus or a prospectus supplement is required
to be delivered under the Securities Act that makes any statement made in the
Registration Statement or Prospectus or any document incorporated or deemed to
be incorporated therein by reference untrue in any material respect or that
requires any revisions to the Registration Statement, Prospectus or other
documents so that, in the case of the Registration Statement or the Prospectus,
as the case may be, it will not contain any untrue statement of a material fact
or omit to state any 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.
(d) Except as provided in Section 3(q) hereof, use its best
efforts to avoid the issuance of, or, if issued, obtain the withdrawal of (i)
any order suspending the effectiveness of the Registration Statement, or (ii)
any suspension of the qualification (or exemption from qualification) of any of
the Registrable Securities for sale in any jurisdiction, at the earliest
practicable moment.
(e) If requested by any managing underwriter or the Holders of
a majority in interest of the Registrable Securities to be sold in connection
with an Underwritten Offering, (i) promptly incorporate in a Prospectus
supplement or post-effective amendment to the Registration Statement such
information as such managing underwriters and such Holders reasonably agree
should be included therein which shall be reasonably acceptable to the Company,
and (ii) make all required filings of such Prospectus supplement or such
post-effective amendment as soon as practicable after the Company has received
notification of the matters to be incorporated in such Prospectus supplement or
post-effective amendment; provided, however, that the Company shall not be
required to take any action pursuant to this Section 3(e) that would, in the
opinion of counsel for the Company, violate applicable law or be materially
detrimental to the business of the Company.
(f) Furnish to each Holder, their Special Counsel and any
managing underwriters, without charge, at least one conformed copy of each
Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference to the extent requested by such Person, and
all exhibits to the extent requested by such Person (including those previously
furnished or incorporated by reference) promptly after the filing of such
documents with the Commission.
(g) Promptly deliver to each Holder, their Special Counsel,
and any underwriters, without charge, as many copies of the Prospectus or
Prospectuses (including each form of prospectus) and each amendment or
supplement thereto as such Persons may reasonably request; and the Company
hereby consents to the use of such Prospectus and each amendment or supplement
thereto by each of the selling Holders and any underwriters in connection with
the offering and sale of the Registrable Securities covered by such Prospectus
and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Securities,
use its best efforts to register or qualify or cooperate with the selling
Holders, any underwriters and their Special Counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws
-7-
<PAGE>
of such jurisdictions within the United States as any Holder or underwriter
reasonable requests in writing, to keep each such reg istration or qualification
(or exemption therefrom) effective during the Effectiveness Period and to do any
and all other acts or things necessary or advisable to enable the disposition in
such jurisdictions of the Registrable Securities covered by a Registration
Statement; provided, however, that the Company shall not be required to qualify
generally to do business in any jurisdiction where it is not then so qualified
or to take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or subject the Company to any
material tax in any such jurisdiction where it is not then so subject.
(i) Cooperate with the Holders and any managing underwriters
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent required
by Section 3.1 of the Purchase Agreement, of all restrictive legends, and to
enable such Registrable Securities to be in such denominations and registered in
such names as any such managing underwriters or Holders may request at least two
(2) Business Days prior to any sale of Registrable Securities; provided, that in
the event such Registrable Securities are being acquired at such time in
connection with a conversion of a Debenture, the Company shall enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request no later than the Due
Date (as defined in the Debentures).
(j) Subject to the Section 3(q) hereof, upon the occurrence of
any event contemplated by Section 3(c)(vi), as promptly as reasonably possible,
prepare a supplement or amendment, including a post-effective amendment, to the
Registration Statement or a supplement to the related Prospectus or any document
incorporated or deemed to be incorporated therein by reference, and file any
other required document so that, as thereafter delivered, neither the
Registration Statement nor such Prospectus will contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market ("NASDAQ") and any other securities exchange, quotation system, market or
over-the-counter bulletin board, if any, on which similar securities issued by
the Company are then listed as and when required pursuant to the Purchase
Agreement.
(l) Enter into such agreements (including an underwriting
agreement in form, scope and substance as is customary in Underwritten
Offerings) and take all such other actions in connection therewith (including
those reasonably requested by any managing underwriters and the Holders of a
majority of the Registrable Securities being sold) as are reasonable in order to
expedite or facilitate the disposition of such Registrable Securities, and
whether or not an underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public offerings,
and confirm the same if and when requested; (ii) in the case of an Underwritten
Offering obtain and deliver copies thereof to each Holder and the managing
underwriters, if any, of opinions of counsel
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<PAGE>
to the Company and updates thereof addressed to each Holder and each such
underwriter, in form, scope and substance reasonably satisfactory to any such
managing underwriters and Special Counsel to the selling Holders covering the
matters customarily covered in opinions requested in Underwritten Offerings and
such other matters as may be reasonably requested by such Special Counsel and
underwriters; (iii) immediately prior to the effectiveness of the Registration
Statement, and, in the case of an Underwritten Offering, at the time of delivery
of any Registrable Securities sold pursuant thereto, use its best reasonable
efforts to obtain and deliver copies to the Holders and the managing
underwriters, if any, of "cold comfort" letters and updates thereof from the
independent certified public accountants of the Company (and, if necessary, any
other independent certified public accountants of any subsidiary of the Company
or of any business acquired by the Company for which financial statements and
financial data is, or is required to be, included in the Registration
Statement), addressed to the Company in form and substance as are customary in
connection with Underwritten Offerings; (iv) if an underwriting agreement is
entered into, the same shall contain indemnification provisions and procedures
no less favorable to the selling Holders and the underwriters, if any, than
those set forth in Section 5 (or such other provisions and procedures acceptable
to the managing underwriters, if any, and holders of a majority of Registrable
Securities participating in such Underwritten Offering); and (v) deliver such
documents and certificates as may be reasonably requested by the Holders of a
majority of the Registrable Securities being sold, their Special Counsel and any
managing underwriters to evidence the continued validity of the representations
and warranties made pursuant to clause 3(l)(i) above and to evidence compliance
with any customary conditions contained in the underwriting agreement or other
agreement entered into by the Company.
(m) Make available for inspection by the selling Holders, any
representative of such Holders, any underwriter participating in any disposition
of Registrable Securities, and any attorney or accountant retained by such
selling Holders or underwriters, at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
make available all information in each case reasonably requested by any such
Holder, representative, underwriter, attorney or accountant in connection with
the Registration Statement; provided, however, that if any of such information
is determined in good faith by the Company in writing to be of a confidential
nature at the time of delivery of such information, then prior to the delivery
of such information, the Company and the Holders shall enter into a
confidentiality agreement reasonably acceptable to the Company and the Holders
providing that such information shall be kept confidential by such Persons,
unless (i) disclosure of such information is required by court or administrative
order or is necessary to respond to inquiries of regulatory authorities; (ii)
disclosure of such information, in the opinion of counsel to such Person, is
required by law; (iii) such information becomes generally available to the
public other than as a result of a disclosure or failure to safeguard by such
Person; or (iv) such information becomes available to such Person from a source
other than the Company and such source is not known by such Person to be bound
by a confidentiality agreement with the Company.
(n) Comply with all applicable rules and regulations of the
Commission.
(o) The Company may require each selling Holder to furnish to
the Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership
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of Common Stock held by such Holder and such other information that is required
by law to be disclosed in the Registration Statement, and the Company may
exclude from such registration the Registrable Securities of any such Holder who
unreasonably fails to furnish such information within a reasonable time after
receiving such request.
If the Registration Statement refers to any Holder by name or
otherwise as the holder of any securities of the Company, then such Holder shall
have the right to require (if such reference to such Holder by name or otherwise
is not required by the Securities Act or any similar Federal statute then in
force) the deletion of the reference to such Holder in any amendment or
supplement to the Registration Statement filed or prepared subsequent to the
time that such reference ceases to be required.
(p) Each Holder covenants and agrees that (i) it will not sell
any Registrable Securities under the Registration Statement until it has
received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(g) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(c) and (ii) it and its officers, directors or
Affiliates, if any, will comply with the prospectus delivery requirements of the
Securities Act as applicable to it in connection with sales of Registrable
Securities pursuant to the Registration Statement.
Each Holder agrees by its acquisition of such Registrable
Securities that, upon receipt of a notice from the Company of the occurrence of
any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv),
3(c)(v) or 3(c)(vi), such Holder will forthwith discontinue disposition of such
Registrable Securities under the Registration Statement until such Holder's
receipt of the copies of the supplemented Prospectus and/or amended Registration
Statement contemplated by Section 3(j), or until it is advised in writing (the
"Advice") by the Company that the use of the applicable Prospectus may be
resumed, and, in either case, has received copies of any additional or
supplemental filings that are incorporated or deemed to be incorporated by
reference in such Prospectus or Registration Statement.
(q) If (a) there is material non-public information regarding
the Company which the Board reasonably determines not to be in the Company's
best interest to disclose and which the Company is not otherwise required to
disclose, or (b) there is a significant business opportunity (including but not
limited to the acquisition or disposition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or other similar
transaction) available to the Company which the Board reasonably determines not
to be in the Company's best interest to disclose, then the Company may postpone
or suspend filing or effectiveness of a registration statement for a period not
to exceed 30 days in the aggregate during any 12 month period (the period during
which the filing or effectiveness of a registration statement is postponed or
suspended pursuant to the paragraph, called a "Blackout Period"); provided,
however, that the Company may invoke a Blackout Period only on one or two
occasions during any 12 month period, which Blackout Periods may not exceed 30
days in the aggregate during any 12 month period.
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4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the NASDAQ or any
subsequent market on which the Common Stock is then listed for trading, and (B)
in compliance with state securities or Blue Sky laws (including, without
limitation, fees and disbursements of counsel for the Holders in connection with
Blue Sky qualifications or exemptions of the Registrable Securities and
determination of the eligibility of the Registrable Securities for investment
under the laws of such jurisdictions as the managing underwriters, if any, or
the Holders of a majority of Registrable Securities may reasonably designate)),
(ii) printing expenses (including, without limitation, expenses of printing
certificates for Registrable Securities and of printing prospectuses if the
printing of prospectuses is requested by the managing underwriters, if any, or
by the holders of a majority of the Registrable Securities included in the
Registration Statement), (iii) messenger, telephone and delivery expenses, (iv)
fees and disbursements of counsel for the Company and, subject to Section 4(c)
below, fees and disbursements of Special Counsel for the Holders, (v) Securities
Act liability insurance, if the Company so desires such insurance, and (vi) fees
and expenses of all other Persons retained by the Company in connection with the
consummation of the transactions contemplated by this Agreement. In addition,
the Com pany shall be responsible for all of its internal expenses incurred in
connection with the consummation of the transactions contemplated by this
Agreement (including, without limitation, all salaries and expenses of its
officers and employees performing legal or accounting duties), the expense of
any annual audit, the fees and expenses incurred in connection with the listing
of the Registrable Securities on any securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant
to the terms hereof, the Company shall be responsible for all costs, fees and
expenses in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof. Notwithstanding the
foregoing, except in connection with a block trade by a broker who as a result
of the trade may be deemed an underwriter, if at any time the Company has (i)
timely filed the Registration Statement on or prior to the Filing Date, (ii)
caused the Registration Statement to be declared effective as promptly as
possible after the filing thereof but in any event prior to the Effectiveness
Date and (iii) kept the Registration Statement continuously effective under the
Securities Act, all in accordance with the terms of this Agreement, and if at
any such time the
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Holders require an Underwritten Offering pursuant to the terms hereof, then
Holders shall be responsible for all costs, fees and expenses in connection with
such Underwritten Offering, including, without limitation, the costs of the
Company incurred in connection with its obligations under Section 3(l) hereof.
Notwithstanding anything to the contrary contained in Section 4(b), in the event
of a block trade by a broker who as a result of the trade may be deemed an
underwriter, the Company shall only be responsible for the costs, fees and
expenses incurred in connection with (i) the preparation and negotiation of an
indemnification agreement or similar agreement satisfactory to the broker and
(ii) the preparation and filing of a prospectus supplement containing a plan of
distribution section satisfactory to the broker.
(c) The Company shall only be required to reimburse the
Purchasers for legal and due diligence fees and expenses actually incurred by
the Purchasers in connection with the preparation and filing of the Registration
Statement, the qualification or exemption from qualification of any of the
Registrable Securities for sale in any jurisdiction and the other transactions
contemplated hereby (the "Fees") to the extent such Fees, together with the fees
and expenses payable by the Company pursuant to Section 5.1 of the Purchase
Agreement, do not exceed $50,000. This Section 4(c) shall not affect the
obligation of the Indemnifying Party (i) in accordance with the terms of Section
5(c) hereof to assume the defense of any Proceeding brought or asserted against
an Indemnified Party, including the employment of counsel reasonably
satisfactory to the Indemnified Party and the payment of all fees and expenses
incurred in connection therewith and (ii) in accordance with the terms of
Section 4(b), to pay the fees and disbursements of legal counsel to the
Underwriters to the extent required pursuant to the terms of Section 4(b).
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and reasonable attorneys' fees) and reasonable expenses (collectively,
"Losses"), as incurred, arising out of or relating to any untrue or alleged
untrue statement of a material fact contained in the Registration Statement, any
Prospectus or any form of prospectus or in any amendment or supplement thereto
or in any preliminary prospectus, or arising out of or relating to any omission
or alleged omission of a material fact required to be stated therein or
necessary to make the statements therein (in the case of any Prospectus or form
of prospectus or supplement thereto, in light of the circumstances under which
they were made) not misleading, except (i) to the extent, but only to the
extent, that such untrue statements or omissions are based solely upon
information regarding such Holder furnished in writing to the Company by such
Holder expressly for use therein, which information was reasonably relied on by
the Company for use therein or (ii) to the extent, but only to the extent that
such information (A) relates to such
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<PAGE>
Holder or such Holder's proposed method of distribution of Registrable
Securities and (B) was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto (it being understood that
clause (B) in this sentence shall not apply to the plan of distribution section
of a Registration Statement, Prospectus or a form of prospectus or amendment or
supplement thereto to the extent, but only to the extent, that such plan of
distribution contains the exact wording set forth in the "Plan of Distribution"
attached hereto as Annex A; provided, that clause (B) of this sentence shall
apply to the plan of distribution section of a Registration Statement,
Prospectus or form of prospectus or amendment or supplement thereto in the event
the Holders inform the Company in writing that such plan of distribution section
should be revised in any way); provided, that the Company shall not be liable to
any Holder or any officer, director, agent, broker, investment advisor or
employee or any Person who controls such Holder or any officer, director, agent
or employee of such controlling Person with respect to any untrue or alleged
untrue statement or omission or alleged omission was made in any preliminary
Prospectus that is corrected in a final Prospectus (or any amendment or
supplement thereto) if the person asserting such Losses purchased Common Stock
from a Purchaser in reliance upon such preliminary Prospectus (or a Prospectus
which was subsequently amended or supplemented) but was not sent or given a copy
of the final Prospectus (as amended or supplemented) or the Prospectus, as
subsequently amended or supplemented, that was made available by the Company to
such Purchaser at or prior to written confirmation of the sale of the Common
Stock to such person in any case where such delivery of such final Prospectus
(as amended or supplemented) is required, unless such failure to deliver such
final prospectus (as amended or supplemented) or Prospectus, as subsequently
amended or supplemented, was a result of noncompliance by the Company with
Section 3(g) of this Agreement.
(b) Indemnification by Holders. Each Holder shall, severally
and not jointly, indemnify and hold harmless the Company, its directors,
officers, agents and employees, each Person who controls the Company (within the
meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act),
and the directors, officers, agents or employees of such controlling Persons and
any other Holder selling Registrable Securities in such registration statement
and any director, officer, agent, broker, investment advisor or employee or any
Person who controls such Holder, to the fullest extent permitted by applicable
law, from and against all Losses (as determined by a court of competent
jurisdiction in a final judgment not subject to appeal or review) arising solely
out of or based solely upon (A) any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement, any Prospectus, or
any form of prospectus, or in any amendment or supplement thereto, or arising
solely out of or based solely upon any omission or alleged omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (i) to the extent, but only to the extent, that such
untrue statement or alleged untrue statement or omission or alleged omission is
contained in any information so furnished in writing by such Holder to the
Company specifically for inclusion in the Registration Statement or such
Prospectus and that such information was reasonably relied upon by the Company
for use in the Registration
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<PAGE>
Statement, such Prospectus or such form of prospectus or (ii) to the extent, but
only to the extent, that such information (A) relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and (B) was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus, or in
any amendment or supplement thereto (it being understood that clause (B) in this
sentence shall not apply to the plan of distribution section of a Registration
Statement, Prospectus or a form of prospectus or amendment or supplement thereto
to the extent, but only to the extent, that such plan of distribution contains
the exact wording set forth in the "Plan of Distribution" attached hereto as
Annex A; provided, that clause (B) of this sentence shall apply to the plan of
distribution section of a Registration Statement, Prospectus or form of
prospectus or amendment or supplement thereto in the event the Holders inform
the Company in writing that such plan of distribution section should be revised
in any way) or (B) any untrue or alleged untrue statement or omission or alleged
omission made in any preliminary Prospectus that is corrected in a final
Prospectus (or any amendment or supplement thereto) if the person asserting such
Losses purchased Common Stock from a Purchaser in reliance upon such preliminary
Prospectus (or a Prospectus which was subsequently amended or supplemented) but
was not sent or given a copy of the final Prospectus (as amended or
supplemented) or the Prospectus, as subsequently amended or supplemented, that
was made available by the Company to such Purchaser at or prior to written
confirmation of the sale of the Common Stock to such person in any case where
such delivery of such final Prospectus (as amended or supplemented) is required,
unless such failure to deliver such final prospectus (as amended or
supplemented) or Prospectus, as subsequently amended or supplemented, was a
result of noncompliance by the Company with Section 3(g) of this Agreement. In
no event shall the liability of any selling Holder hereunder be greater in
amount than the dollar amount of the net proceeds received by such Holder upon
the sale of the Registrable Securities giving rise to such indemnification
obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding
shall be brought or asserted against any Person entitled to indemnity hereunder
(an "Indemnified Party"), such Indemnified Party shall promptly notify the
Person from whom indemnity is sought (the "Indemnifying Party") in writing, and
the Indemnifying Party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the Indemnified Party and the
payment of all fees and expenses incurred in connection with defense thereof;
provided, that the failure of any Indemnified Party to give such notice shall
not relieve the Indemnifying Party of its obligations or liabilities pursuant to
this Agreement, except (and only) to the extent that it shall be finally
determined by a court of competent jurisdiction (which determination is not
subject to appeal or further review) that such failure shall have proximately
and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate
counsel in any such Proceeding and to participate in the defense thereof, but
the fees and expenses of such counsel shall be at the expense of such
Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in
writing to pay such fees and expenses; or (2) the Indemnifying Party shall have
failed promptly to assume the defense of such Proceeding and to employ counsel
reasonably satisfactory to such Indemnified Party in any such Proceeding; or
(3) the named parties to any such Proceeding (including any impleaded parties)
include both such Indemnified Party and the Indemnifying Party, and such
Indemnified Party shall have been advised by counsel that a conflict of interest
is likely to exist if the same counsel were to represent such Indemnified Party
and the Indemnifying Party (in which case, if such Indemnified Party notifies
the Indemnifying Party in
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writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement of any
such Proceeding effected without its written consent, which consent shall not be
unreasonably withheld. No Indemnifying Party shall, without the prior written
consent of the Indemnified Party, effect any settlement of any pending
Proceeding in respect of which any Indemnified Party is a party, unless (i) such
settlement does not involve a finding or admission of any violation by the
Indemnified Party of federal, state, local, municipal, foreign, international,
multinational or other administrative order, law, ordinance, principal of common
law, regulation, statue or treaty or any violation of the rights of any Person,
(ii) the sole relief provided in such settlement is monetary damages that are
paid in full by the Indemnifying Party, and (iii) such settlement includes an
unconditional release of such Indemnified Party from all liability on claims
that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including
reasonable fees and expenses to the extent incurred in connection with
investigating or preparing to defend such Proceeding in a manner not
inconsistent with this Section) shall be paid to the Indemnified Party, as
incurred, within ten (10) Business Days of written notice thereof to the
Indemnifying Party (regardless of whether it is ultimately determined that an
Indemnified Party is not entitled to indemnification hereunder; provided, that
the Indemnifying Party may require such Indemnified Party to undertake to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
(d) Contribution. If a claim for indemnification under Section
5(a) or 5(b) is unavailable to an Indemnified Party (by reason of public policy
or otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information sup plied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and
equitable if contribution pursuant to this Section 5(d) were determined by pro
rata allocation or by any other method of allocation that does not take into
account the equitable considerations referred to in the immediately preceding
paragraph. Not withstanding the provisions of this Section 5(d), no Holder
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shall be required to contribute, in the aggregate, any amount in excess of the
amount by which the proceeds actually received by such Holder from the sale of
the Registrable Securities subject to the Proceeding exceeds the amount of any
damages that such Holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this
Section are in addition to any liability that the Indemnifying Parties may have
to the Indemnified Parties.
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement
without the necessity of posting a bond in connection therewith. The Company and
each Holder agree that monetary damages would not provide adequate compensation
for any losses incurred by reason of a breach by it of any of the provisions of
this Agreement and hereby further agrees that, in the event of any action for
specific performance in respect of such breach, it shall waive the defense that
a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of
its subsidiaries has, as of the date hereof, nor shall the Company or any of its
subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that is inconsistent with the rights granted to
the Holders in this Agreement or otherwise conflicts with the provisions hereof.
Except as and to the extent specified in Schedule 2.1(t) to the Purchase
Agreement, neither the Company nor any of its subsidiaries has previously
entered into any agreement granting any registration rights with respect to any
of its securities to any Person. Without limiting the generality of the
foregoing, without the written consent of the Holders of a majority of the then
outstanding Registrable Securities, the Company shall not grant to any Person
the right to request the Company to register any securities of the Company under
the Securities Act unless the rights so granted are subject in all respects to
the prior rights in full of the Holders set forth herein, and are not otherwise
in conflict or inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 2.1(t) to the Purchase Agreement, neither the Company nor
any of its security holders (other than the Holders in such capacity pursuant
hereto) may include securities of the Company in the Registration Statement
other than the Registrable Securities, and the Company shall not after the date
hereof enter into any agreement providing any such right to any of its security
holders.
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(d) Piggy-Back Registrations. If at any time when there is not
an effective Registration Statement covering all of the Registrable Securities
and the Underlying Shares, the Company shall determine to prepare and file with
the Commission a registration statement relating to an offering for its own
account or the account of others under the Securities Act of any of its equity
securities, other than on Form S-4 or Form S-8 (each as promulgated under the
Securities Act) or their then equivalents relating to equity securities to be
issued solely in connection with any acquisition of any entity or business or
equity securities issuable in connection with stock option or other employee
benefit plans, then the Company shall send to each holder of Registrable
Securities written notice of such determination and, if within twenty (20) days
after receipt of such notice, any such holder shall so request in writing, the
Company shall include in such registration statement all or any part of such
Registrable Securities such holder requests to be registered; provided, however,
that the Company shall not be required to register any Registrable Securities
pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k)
of the Commission. After conclusion of the Effectiveness Period, if a
registration pursuant to this Section 6 (d) involves an underwritten public
offering of the securities so being registered, and the managing underwriter of
such underwritten offering shall advise the Company in writing (with a copy to
the Purchasers) not less than 5 days prior to the date scheduled for such
offering that, in its opinion, the amount of securities (including the
Registrable Securities) requested to be included in such registration exceeds
the amount which can be sold in such offering without materially adversely
affecting the distribution of the securities, then the Company shall include in
such registration first, all the securities initially proposed to be sold
pursuant to such registration statement and second, the amount of other
securities (including the Registrable Securities) requested to be included in
such registration that the Company is so advised can be sold in such offering,
allocated, if necessary, pro rata among the holders (including the Purchasers)
thereof requesting such registration on the basis of the estimated number of
shares of Common Stock (except that if other holders of securities have the
right to include in such underwritten offering securities of the Company other
than shares of Common Stock, on the basis of the estimated gross proceeds) of
the securities (including the Registrable Securities) requested to be included
in such registration.
(e) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least two-thirds of the then outstanding Registrable
Securities; provided, however, that, for the purposes of this sentence,
Registrable Securities that are owned, directly or indirectly, by the Company,
or an Affiliate of the Company are not deemed outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of Holders and that does not
directly or indirectly affect the rights of other Holders may be given by
Holders of at least a majority of the Registrable Securities to which such
waiver or consent relates; provided, however, that the provisions of this
sentence may not be amended, modified, or supplemented except in accordance with
the provisions of the immediately preceding sentence.
(f) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and delivered personally, by facsimile, sent by a nationally recognized
overnight courier service or sent by certified or registered mail,
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postage prepaid, addressed to the Company and each Holder at its facsimile
telephone number or address set forth under its name on Schedule 1 attached
hereto or such other address as may be designated in writing hereafter, in the
same manner, by such Person. Any notice or other communication or deliveries
hereunder shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number set forth on Schedule 1 prior to 8:00 p.m. (New York
City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number set forth on Schedule 1 later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date or on a date that is not a Business Day, (iii) four days after deposit
in the United States mail, (iv) the Business Day following the date of mailing,
if sent by nationally recognized overnight courier service, or (v) upon actual
receipt by the party to whom such notice is required to be given. Copies of
notices to any Holder shall be sent to Robinson Silverman Pearce Aronsohn &
Berman LLP, 1290 Avenue of the Americas, New York, NY 10104, Attn: Kenneth L.
Henderson, Esq., fax: (212) 541-4630 and copies of all notices to the Company
shall be sent to Dorsey & Whitney, 220 South Seventh Street, Pillsbury Center
South, Minneapolis, MN 55402, Attn: Amy E. Ayotte, fax: (612) 340-8738.
(g) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
each Holder. Each Holder may assign their respective rights hereunder in the
manner and to the Persons as permitted under the Purchase Agreement.
(h) Assignment of Registration Rights. The rights of each
Holder hereunder, including the right to have the Company register for resale
Registrable Securities in accordance with the terms of this Agreement, shall be
automatically assignable by each Holder without the Company's consent to any
Affiliate of such Holder, any other Holder or Affiliate of any other Holder of
all or a portion of the Debentures, the Warrants or the Registrable Securities
if: (i) the Holder agrees in writing with the transferee or assignee 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 or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment the further disposition of such
securities by the transferee or assignees is restricted under the Securities Act
and applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this Section, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions of this Agreement, and (v) such transfer shall have been made in
accordance with the applicable requirements of the Purchase Agreement. The
rights to assignment shall apply to the Holders (and to subsequent) successors
and assigns. The Company shall not be deemed to have knowledge of any assignment
of rights hereunder unless the Company shall have received notice of such
assignment in accordance with the terms of Section 6(f) hereof, and the Company
may deem and treat the assignor of the rights hereunder as the Person entitled
to such rights until notified of such assignment in accordance with Section
6(f)..
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<PAGE>
(i) Counterparts. This Agreement may be executed in any number
of counterparts, each of which when so executed shall be deemed to be an
original and, all of which taken together shall constitute one and the same
Agreement. In the event that any signature is delivered by facsimile
transmission, such signature shall create a valid binding obligation of the
party executing (or on whose behalf such signature is executed) the same with
the same force and effect as if such facsimile signature were the original
thereof.
(j) Governing Law. This Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
(k) Cumulative Remedies. The remedies provided herein are
cumulative and not exclusive of any remedies provided by law.
(l) Severability. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(m) Headings. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning hereof.
(n) Shares Held by The Company and its Affiliates. Whenever
the consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Registration Rights Agreement as of the date first written above.
POSSIS MEDICAL, INC.
By: /s/ Irving R. Colacci
-----------------------------------------
Name: Irving R. Colacci
Title: Vice President & General Counsel
BROWN SIMPSON STRATEGIC GROWTH
FUND, L.P.
By: /s/ Matthew Brown
-----------------------------------------
Name: Matthew Brown
Title:
BROWN SIMPSON STRATEGIC GROWTH
FUND, LTD.
By: /s/ Matthew Brown
-----------------------------------------
Name: Matthew Brown
Title:
WESTOVER INVESTMENTS, L.P.
By: /s/ William E. Rose
-----------------------------------------
Name: William E. Rose
Title: Authorized Signatory
MONTROSE INVESTMENTS, LTD.
By: /s/ William E. Rose
-----------------------------------------
Name: William E. Rose
Title: Authorized Signatory
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<PAGE>
LEHMAN BROTHERS, INC.
By: /s/ Sky Lucas
-----------------------------------------
Name: Sky Lucas
Title: Managing Director
BAY HARBOR INVESTMENTS, INC.
By: /s/ Kenneth L. Henderson
-----------------------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-fact
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<PAGE>
Annex A
Plan of Distribution
The Selling Stockholders, their pledgees, donees, transferees or other
successors-in-interest, may, from time to time, sell all or a portion of the
shares of Common Stock being registered hereunder (the "Shares") in privately
negotiated transactions or otherwise, at fixed prices that may be changed, at
market prices prevailing at the time of sale, at prices related to such market
prices or at negotiated prices. The Shares may be sold by the Selling
Stockholders by one or more of the following methods, without limitation: (a)
block trades in which the broker or dealer so engaged will attempt to sell the
Shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction, (b) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account pursuant to this Prospectus,
(c) an exchange distribution in accordance with the rules of the applicable
exchange, (d) ordinary brokerage transactions and transactions in which the
broker solicits purchasers, (e) privately negotiated transactions, (f) short
sales, (g) a combination of any such methods of sale and (h) any other method
permitted pursuant to applicable law.
From time to time the Selling Stockholders may engage in short sales,
short sales against the box, puts and calls and other transactions in securities
of the Company or derivatives thereof, and may sell and deliver the Shares in
connection therewith or in settlement of securities loans. If the Selling
Stockholders engage in such transactions, the applicable conversion price may be
affected. From time to time the Selling Stockholders may pledge their Shares
pursuant to the margin provisions of its customer agreements with its brokers.
Upon a default by the Selling Stockholders, the broker may offer and sell the
pledged Shares from time to time.
In effecting sales, brokers and dealers engaged by the Selling
Stockholders may arrange for other brokers or dealers to participate in such
sales. Brokers or dealers may receive commissions or discounts from the Selling
Stockholders (or, if any such broker-dealer acts as agent for the purchaser of
such shares, from such purchaser) in amounts to be negotiated which are not
expected to exceed those customary in the types of transactions involved.
Broker-dealers may agree with the Selling Stockholders to sell a specified
number of such Shares at a stipulated price per share, and, to the extent such
broker-dealer is unable to do so acting as agent for a Selling Stockholder, to
purchase as principal any unsold Shares at the price required to fulfill the
broker-dealer commitment to the Selling Stockholders. Broker-dealers who acquire
Shares as principal may thereafter resell such Shares from time to time in
transactions (which may involve block transactions and sales to and through
other broker-dealers, including transactions of the nature described above) in
the over-the-counter market or otherwise at prices and on terms then prevailing
at the time of sale, at prices then related to the then-current market price or
in negotiated transactions and, in connection with such resales, may pay to or
receive from the purchasers of such Shares commissions as described above. The
Selling Stockholders may also sell the Shares in accordance with Rule 144 under
the Securities Act, rather than pursuant to this Prospectus.
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<PAGE>
The Selling Stockholders and any broker-dealers or agents that
participate with the Selling Stockholders in sales of the Shares may be deemed
to be "underwriters" within the meaning of the Securities Act in connection with
such sales. In such event, any commissions received by such broker-dealers or
agents and any profit on the resale of the Shares purchased by them may be
deemed to be underwriting commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the Shares, including certain fees and disbursements of counsel
to the Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
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<PAGE>
Schedule 1
Company:
POSSIS MEDICAL, INC.
9055 Evergreen Boulevard, N.W.
Minneapolis, MN 55433-8003
Facsimile: (612) 780-7223
Attn: Chief Financial Officer
Purchasers:
Brown Simpson Strategic
Growth Fund, L.P.
152 West 57th Street, 40th Fl.
New York, NY 10019
Facsimile: (212) 247-1329
Attn: Evan Levine
Brown Simpson Strategic
Growth Fund, Ltd.
152 West 57th Street, 40th Fl.
New York, NY 10019
Facsimile: (212) 247-1329
Attn: Evan Levine
Westover Investments, L.P.
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose
Montrose Investments, Ltd.
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose
Lehman Brothers, Inc.
200 Vesey Street
New York, NY 10285
Facsimile: (212) 528-8941
Attn: Steve Weinstein
Bay Harbor Investments, Inc.
c/o Trippoak Advisors, Inc.
630 Fifth Avenue, Suite 2000
New York, NY 10111
Facsimile: (212) 332-3256
Attn: Robert L. Miller
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<PAGE>
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
EXERCISABLE ON OR PRIOR TO 5:30 P.M., EASTERN TIME ON JULY 15, 2002,
AND VOID THEREAFTER
POSSIS MEDICAL, INC.
REDEEMABLE WARRANT
Warrant No. [ ] Dated July 15, 1998
Possis Medical, Inc., a Minnesota corporation (the "Company"),
hereby certifies that, for value received, [ ]
or its registered assigns ("Holder"), is entitled, subject to the
terms set forth below, to purchase from the Company up to a total of [ ]
shares of Common Stock, $.40 par value per share (the "Common Stock"), of the
Company (each such share, a "Warrant Share" and all such shares, the "Warrant
Shares") at an exercise price equal to $15.578 per share (as adjusted from
time to time as provided in Section 9, the "Exercise Price"), at any time and
from time to time from and after the date hereof and on or prior to 5:30
p.m., Eastern time on July 15, 2002 (the "Expiration Date"), upon compliance
with and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this
Warrant, upon records to be maintained by the Company for that purpose (the
"Warrant Register"), in the name of the record Holder hereof from time to time.
The Company may deem and treat the registered Holder of this Warrant as the
absolute owner hereof for the purpose of any exercise hereof or any distribution
to the Holder, and for all other purposes, and the Company shall not be affected
by notice to the contrary.
<PAGE>
2. Registration of Transfers and Exchanges.
(a) This Warrant has been issued subject to certain
investment representations of the original Holder hereof set forth in the
Convertible Debenture Purchase Agreement (the "Purchase Agreement"), dated as of
July 14, 1998, among the Company and purchasers of the Company's Series A 5%
Convertible Debentures, Series B 5% Convertible Debentures and Series C 5%
Convertible Debentures. This Warrant may be transferred only to the Company or
pursuant to an available exemption from or in a transaction not subject to the
registration requirements of the Securities Act of 1933, as amended (the
"Securities Act"). Subject thereto, the Company shall register the transfer of
any portion of this Warrant in the Warrant Register, upon surrender of this
Warrant, with the Form of Assignment attached hereto duly completed and signed
(and payment by the Holder of any transfer taxes that are payable as a result of
the transfer of this Warrant to a person other than the Holder), to the Transfer
Agent or to the Company at the office specified in or pursuant to Section 3(b).
Upon any such registration or transfer, a new warrant to purchase Common Stock,
in substantially the form of this Warrant (any such new warrant, a "New
Warrant"), evidencing the portion of this Warrant so transferred shall be issued
to the transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring Holder.
The acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender
hereof by the Holder to the office of the Company specified in or pursuant to
Section 3(b) for one or more New Warrants, evidencing in the aggregate the right
to purchase the number of Warrant Shares which may then be purchased hereunder,
but New Warrants shall not represent the right to purchase less than 1,000
Warrant Shares unless such smaller number of Warrant Shares represents the full
number of Warrant Shares as are purchasable on exercise of the New Warrant. Any
such New Warrant will be dated the date of such exchange.
3. Duration, Exercise of Warrants and Redemption.
(a) This Warrant shall be exercisable by the
registered Holder on any Business Day before 5:30 P.M., Eastern time, at any
time and from time to time on or after the date hereof to and including the
Expiration Date. At 5:30 P.M., Eastern time on the Expiration Date, the portion
of this Warrant not exercised prior thereto shall be and become void and of no
value. For purposes of this Warrant, "Business Day" shall mean any day except
Saturday, Sunday and any day which shall be a legal holiday or a day on which
banking institutions in the State of New York are authorized or required by law
or other government action to close.
(b) Subject to Sections 2(b), 6 and 10, upon
surrender of this Warrant, with the Form of Election to Purchase attached hereto
duly completed and signed, to the Company at its address for notice set forth in
Section 12 and upon payment of the Exercise Price multiplied by the number of
Warrant Shares that the Holder intends to purchase hereunder, in lawful money
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<PAGE>
of the United States of America, in cash or by certified or official bank
check or checks, all as specified by the Holder in the Form of Election to
Purchase, the Company shall promptly (but in no event later than 3 Business
Days after the Date of Exercise (as defined below)) issue or cause to be
issued and cause to be delivered to or upon the written order of the Holder
and in such name or names as the Holder may designate, a certificate for the
Warrant Shares issuable upon such exercise, free of restrictive legends to
the extent required by Section 3.1 of the Purchase Agreement. Any person so
designated by the Holder to receive Warrant Shares shall be deemed to have
become holder of record of such Warrant Shares as of the Date of Exercise of
this Warrant.
A "Date of Exercise" means the date on which the
Company shall have received (i) this Warrant (or any New Warrant, as
applicable), with the Form of Election to Purchase attached hereto (or attached
to such New Warrant) appropriately completed and duly signed, and (ii) payment
of the Exercise Price for the number of Warrant Shares so indicated by the
holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its
entirety or, from time to time, for a portion of the number of Warrant Shares.
If less than all of the Warrant Shares which may be purchased under this Warrant
are exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
(d) Commencing on the 19th month following the
issuance of this Warrant (the "Trigger Date"), if (i) the average closing bid
price of the Common Stock on the Nasdaq National Market (or such other national
securities exchange on which the Common Stock is then listed or quoted) for any
consecutive 30 Trading Day period exceeds 180% of the average closing bid price
of the Common Stock for the five (5) Trading Days preceding the issuance date of
this Warrant (a "Trigger Period"), and (ii) the Warrant Shares are either
registered for resale pursuant to an effective registration statement naming the
Holder as a selling stockholder thereunder or freely transferable without volume
restrictions pursuant to Rule 144(k) promulgated under the Securities Act, as
determined by counsel to the Company pursuant to a written opinion letter
addressed and in form and substance acceptable to the Holder and the transfer
agent for the Common Stock, the Company shall have the right, upon 30 days'
notice to the Holder given at any time after the Trigger Date but not later than
five Trading Days after the conclusion of any such Trigger Period (the
"Redemption Notice"), to redeem this Warrant or any portion thereof at a price
of $.01 per Warrant Share (the "Redemption Price"), on the date set forth in the
Redemption Notice, but in no event earlier than 30 days following the date of
the Redemption Notice (the "Redemption Date"). The Holder may exercise this
Warrant at any time prior to the Redemption Date. Any portion of this Warrant
not exercised by 5:00 p.m. (New York City time) on the Redemption Date shall no
longer be exercisable and shall be returned to the Company, and the Company,
upon its receipt of the unexercised portion of this Warrant, shall issue
therefor in full and complete satisfaction of its obligations under such
remaining portion of this Warrant to the Holder an amount equal to the number of
shares of Common Stock then issuable hereunder multiplied by the
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<PAGE>
Redemption Price. The Redemption Price shall be mailed to such Holder at its
address of record, and the Warrant shall be canceled.
4. Piggyback Registration Rights. During the term of this
Warrant, the Company may not file any registration statement with the Securities
and Exchange Commission (other than registration statements of the Company filed
on Form S-8 or Form S-4, each as promulgated under the Securities Act, pursuant
to which the Company is registering securities pursuant to a Company employee
benefit plan or pursuant to a merger, acquisition or similar transaction
including supplements thereto, but not additionally filed registration
statements in respect of such securities) at any time when there is not an
effective registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder, unless the Company
provides the Holder with not less than 20 days notice of its intention to file
such registration statement and provides the Holder the option to include any or
all of the applicable Warrant Shares therein. The piggyback registration rights
granted to the Holder pursuant to this Section shall continue until all of the
Holder's Warrant Shares have been sold in accordance with an effective
registration statement or upon the Expiration Date. The Company will pay all
registration expenses in connection therewith. After conclusion of the
Effectiveness Period (as defined in the Registration Rights Agreement, dated as
of July 15, 1998, between the Company, the Holder and the other Purchasers of
the Company's Series A 5% Convertible Debentures due July, 2004 ("Series A
Debentures")), if a registration pursuant to this Section 4 involves an
underwritten public offering of the securities so being registered, and the
managing underwriter of such underwritten offering shall advise the Company in
writing (with a copy to the Holder) not less than 5 days prior to the date
scheduled for such offering that, in its opinion, the amount of securities
(including the Warrant Shares) requested to be included in such registration
exceeds the amount which can be sold in such offering without materially
adversely affecting the distribution of the securities, then the Company shall
include in such registration first, all the securities initially proposed to be
sold pursuant to such registration statement and second, the amount of other
securities (including the Warrant Shares) requested to be included in such
registration that the Company is so advised can be sold in such offering,
allocated, if necessary, pro rata among the holders (including the Holder)
thereof requesting such registration on the basis of the estimated number of
shares of Common Stock (except that if other holders of securities have the
right to include in such underwritten offering securities of the Company other
than shares of Common Stock, on the basis of the estimated gross proceeds) of
the securities (including the Warrant Shares) requested to be included in such
registration.
5. Demand Registration Rights. At any time during the term of
this Warrant when the Warrant Shares are not registered pursuant to an effective
registration statement, the Holder may make a written request for the
registration under the Securities Act (a "Demand Registration"), of all of the
Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 90 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method
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<PAGE>
of disposition thereof. The right to cause a registration of the Registrable
Securities under this Section 5 shall be limited to one such registration in the
aggregate for the Holder and for the holders of the other Redeemable Warrants
issued pursuant to the Purchase Agreement (collectively, the "Redeemable
Warrants"; the aggregate number of shares of Common Stock into which all of the
Redeemable Warrants are exercisable are called "Redeemable Warrant Shares").
Holders of Redeemable Warrants exercisable into not less than 66-2/3% of the
Redeemable Warrant Shares shall be entitled to make the Demand Registration
pursuant to this Section 5. In any registration initiated as a Demand
Registration, the Company will pay all of its registration expenses in
connection therewith. A Demand Registration shall not be counted as a Demand
Registration hereunder until the registration statement filed pursuant to the
Demand Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 360
days or such shorter period when all Registrable Securities included therein
have been sold in accordance with such registration statement, provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such
360 day period.
6. Payment of Taxes. The Company will pay all documentary
stamp taxes attributable to the issuance of Warrant Shares upon the exercise of
this Warrant; provided, however, that the Company shall not be required to pay
any tax which may be payable in respect of any transfer involved in the
registration of any certificates for Warrant Shares or Warrants in a name other
than that of the Holder, and the Company shall not be required to issue or cause
to be issued or deliver or cause to be delivered the certificates for Warrant
Shares unless or until the person or persons requesting the issuance thereof
shall have paid to the Company the amount of such tax or shall have established
to the satisfaction of the Company that such tax has been paid. The Holder shall
be responsible for all other tax liability that may arise as a result of holding
or transferring this Warrant or receiving Warrant Shares upon exercise hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that
it will at all times reserve and keep available out of the aggregate of its
authorized but unissued Common Stock, solely for the purpose of enabling it to
issue Warrant Shares upon exercise of this Warrant as herein provided, the
number of Warrant Shares which are then issuable and deliverable upon the
exercise of this entire Warrant, free from preemptive rights or any other actual
contingent purchase rights of persons other than the Holder (taking into account
the adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so
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<PAGE>
issuable and deliverable shall, upon issuance and the payment of the applicable
Exercise Price in accordance with the terms hereof, be duly and validly
authorized, issued and fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of
Warrant Shares issuable upon exercise of this Warrant are subject to adjustment
from time to time as set forth in this Section 9. Upon each such adjustment of
the Exercise Price pursuant to this Section 9, the Holder shall thereafter prior
to the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock (as defined below) or on any other
equity or equity equivalent securities payable in shares of Common Stock, (ii)
subdivide outstanding shares of Common Stock into a larger number of shares,
(iii) combine outstanding shares of Common Stock into a smaller number of shares
or (iv) issue by reclassification of shares of Common Stock any shares of
capital stock of the Company, the Exercise Price shall be multiplied by a
fraction of which the numerator shall be the number of shares of Common Stock
(excluding treasury shares, if any) outstanding before such event and of which
the denominator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding after such event. Any adjustment made
pursuant to this Section shall become effective immediately after the record
date for the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification, and shall apply to
successive subdivisions, combinations and reclassifications.
(b) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, the sale
or transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
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<PAGE>
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Board of Directors in good faith; provided, however, that in the event of a
distribution exceeding ten percent (10%) of the net assets of the Company, such
fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which the Holders agree may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock to all holders of Common
Stock for a consideration per share less than the Exercise Price then in effect,
then, forthwith upon such issue or sale, the Exercise Price shall be reduced to
the price (calculated to the nearest cent) determined by multiplying the
Exercise Price in effect immediately prior thereto by a fraction, the numerator
of which shall be the sum of (i) the number of shares of Common Stock
outstanding immediately prior to such issuance, and (ii) the number of shares of
Common Stock which the aggregate consideration received (or to be received,
assuming exercise or conversion in full of such rights, warrants and convertible
securities) for the issuance of such additional shares of Common Stock would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(e) For the purposes of this Section 9, in case the Company
shall take a record of the holders of its Common Stock for the purpose of
entitling them (A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of Common Stock,
or (B) to subscribe for or purchase Common Stock or securities convertible or
exchangeable into shares of Common Stock, then such record date shall be deemed
to be the date of the issue or sale of the shares of Common Stock deemed to have
been issued or sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(f) All calculations under this Section 9 shall be made to
the nearest cent or the nearest 1/100th of a share, as the case may be.
-7-
<PAGE>
(g) Whenever the Exercise Price is adjusted pursuant to
Section 9(c) above, the Holder, after receipt of the determination by the
Appraiser, shall have the right to select an additional appraiser (which shall
be a nationally recognized accounting firm) at the Holder's expense, in which
case the adjustment shall be equal to the average of the adjustments recommended
by each of the Appraiser and such appraiser. The Holder shall promptly mail or
cause to be mailed to the Company, a notice setting forth the Exercise Price
after such adjustment and setting forth a brief statement of the facts requiring
such adjustment. Such adjustment shall become effective immediately after the
record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or
any other distribution) on its Common
Stock; or
(ii) the Company shall declare a special
nonrecurring cash dividend on or a
redemption of its Common Stock; or
(iii) the Company shall authorize the granting
to all holders of the Common Stock rights
or warrants to subscribe for or purchase
any shares of capital stock of any class
or of any rights; or
(iv) the approval of any stockholders of the
Company shall be required in connection
with any reclassification of the Common
Stock of the Company, any consolidation or
merger to which the Company is a party,
any sale or transfer of all or
substantially all of the assets of the
Company, or any compulsory share exchange
whereby the Common Stock is converted into
other securities, cash or property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of
the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on
-8-
<PAGE>
which such reclassification, consolidation, merger, sale, transfer or share
exchange is expected to become effective or close, and the date as of which it
is expected that holders of Common Stock of record shall be entitled to exchange
their shares of Common Stock for securities, cash or other property deliverable
upon such reclassification, consolidation, merger, sale, transfer, share
exchange, dissolution, liquidation or winding up; provided, however, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
10. Payment of Exercise Price. The Holder may pay the
Exercise Price in one of the following manners:
(a) Cash Exercise. The Holder shall deliver
immediately available funds or a check payable to the Company; or
(b) Cashless Exercise. At such time as, but only at
such time as, all of the Warrant Shares are not registered pursuant to an
effective registration statement, the Holder shall have the right to surrender
this Warrant to the Company together with a notice of cashless exercise, in
which event the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be
issued to the Holder.
Y = the number of Warrant Shares with
respect to which this Warrant is being
exercised.
A = the average of the closing sale prices
of the Common Stock for the five (5) trading
days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date to the extent permitted by Rule 144.
11. Fractional Shares. The Company shall not be required to
issue or cause to be issued fractional Warrant Shares on the exercise of this
Warrant. The number of full Warrant Shares which shall be issuable upon the
exercise of this Warrant shall be computed on the basis of the aggregate number
of Warrant Shares purchasable on exercise of this Warrant so presented.
-9-
<PAGE>
If any fraction of a Warrant Share would, except for the provisions of this
Section 11, be issuable on the exercise of this Warrant, the Company shall pay
an amount in cash equal to the Exercise Price multiplied by such fraction. If
the Company elects not to, or is unable, to make such a cash payment, the Holder
shall be entitled to receive, in lieu of the final fraction of a share, one
whole Warrant Share.
12. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 4:30 p.m. (Eastern time) on a Business Day, (ii) the Business
Day after the date of transmission, if such notice or communication is delivered
via facsimile at the facsimile telephone number specified in this Section later
than 4:30 p.m. (Eastern time) on any date and earlier than 11:59 p.m. (Eastern
time) on such date, (iii) the Business Day following the date of mailing, if
sent by nationally recognized overnight courier service or a day that is not a
Business Day, or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be: (i) if to
the Company, to 9055 Evergreen Boulevard, N.W., Minneapolis, MN 55433-8003,
Facsimile: (612) 780-7223, Attention: Chief Financial Officer, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 12.
13. Warrant Agent.
(a) The Company shall serve as warrant agent under
this Warrant. Upon twenty (20) days' notice to the Holder, the Company may
appoint a new warrant agent.
(b) Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
14. Miscellaneous.
(a) This Warrant shall be binding on and inure to the
benefit of the parties hereto and their respective successors and permitted
assigns. This Warrant may be amended only in writing signed by the Company and
the Holder.
(b) Subject to Section 14(a), above, nothing in this
Warrant shall be construed to give to any person or corporation other than the
Company and the Holder any legal
-10-
<PAGE>
or equitable right, remedy or cause under this Warrant. This Warrant shall inure
to the sole and exclusive benefit of the Company and the Holder.
(c) This Warrant shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do
not constitute a part of this Warrant and shall not be deemed to limit or affect
any of the provisions hereof.
(e) In case any one or more of the provisions of this
Warrant shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
-11-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
POSSIS MEDICAL, INC.
By:
---------------------------
Name: Irving R. Colacci
Title: VP, Legal Affairs & HR,
General Counsel & Secretary
-12-
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Possis Medical, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.40 par value per share, of Possis
Medical, Inc. and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
-------------------------------
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
- ------------------------------------------------------------------------------
(Please print name and address)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
In the event the New Warrant is to be issued in the name of a person
other than the undersigned, the undersigned represents that the transfer of the
New Warrant by the undersigned to such other person is pursuant to an available
exemption from or in a transaction not subject to the registration requirements
of the Securities Act of 1933, as amended.
Dated: , Name of Holder:
------------ -----
(Print)
------------------
(By:)
------------------
(Name:)
(Title:)
<PAGE>
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant)
To: Norwest Bank. Minnesota, N.A.
Please issue the shares of Common Stock indicated above.
POSSIS MEDICAL, INC
By:
-------------------------------
Name:
Title:
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Possis Medical, Inc.
to which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of Possis Medical, Inc. with full power of
substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all respects to name
of holder as specified on the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
<PAGE>
NEWS RELEASE
FOR IMMEDIATE RELEASE FOR MORE INFORMATION CONTACT:
Robert G. Dutcher
President and Chief Executive Officer
POSSIS MEDICAL, INC.
(612) 780-4555
POSSIS MEDICAL, INC. COMPLETES CONVERTIBLE DEBENTURE FUNDING
MINNEAPOLIS, MN (July 16, 1998) -- Possis Medical, Inc. (Nasdaq-NNM: POSS)
announced that the Company has secured, through Salomon Smith Barney, a
financing commitment up to $17 million from a group of institutional investors.
Under the terms of the financing, Possis Medical has received $12 million from
the issuance of 5% convertible subordinated debentures due 2004 and 110,640
warrants, with a commitment to receive up to an additional $5 million provided
certain conditions are met. The debentures are convertible into Common Stock at
a price equal to $14.79 for a period of six months; thereafter, the conversion
price and the maximum number of shares available for conversion will be
calculated per predetermined formulas based on the market price of Possis
Medical's Common Stock. The warrants are exercisable for Common Stock at $15.58
per share. Possis Medical will file a registration statement for the shares of
Common Stock underlying the debentures and warrants.
The Company intends to use the proceeds of the offering to fund expansion of the
Company's sales and marketing activities, research and development for
AngioJet-Registered Trademark- Rheolytic-TM- Thrombectomy System applications
and for working capital purposes.
Commenting on the funding, Robert G. Dutcher, President and Chief Executive
Officer of Possis Medical, stated, "The funding will strengthen our balance
sheet and allow us to confidently continue our growth strategy for our emerging
AngioJet System business. Our unique AngioJet System has been designed to
quickly remove blood clots from vessels throughout the body and to treat a wide
range of serious medical conditions such as heart attack, stroke, dialysis
access failure, leg pain, pulmonary embolism and deep vein thrombosis."
Possis Medical, Inc. develops, manufactures and markets pioneering medical
devices for the growing cardiovascular and vascular treatment markets. Its
AngioJet Rheolytic Thrombectomy System is marketed in the United States for
treatment of dialysis access graft thrombosis. Its three products -- the
AngioJet-Registered Trademark- Rheolytic-TM- Thrombectomy System, the
Perma-Flow-Registered Trademark- Coronary Bypass Graft, and the
Perma-Seal-Registered Trademark- Dialysis Access Graft -- are highly
differentiated, next-generation medical devices that have the potential to
become preferred treatment options.
Certain statements in this press release constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933,
as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. All forward-looking statements involve risks and uncertainties that
may cause the Company's actual results to be materially different. Factors
that could impact the Company's future results are set forth in the
cautionary statements included in Exhibit99 to the Company's Form 10-Q dated
April30, 1998, filed with the Securities and Exchange Commission.
# # #
