UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended: March 31, 1996
Commission File No.: 0-18900
EVEREST MEDICAL CORPORATION
(Exact name of small business issuer as specified in its charter)
13755 1st Avenue North, Suite 500, Minneapolis, MN 55441-5454
(Address of Principal executive offices) (Zip Code)
(612) 473-6262
(Issuer's Telephone number, including area code)
MINNESOTA 41-1454928
(State of incorporation) (IRS Employer I.D.#)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
As of May 9, 1996, 5,810,700 shares of Common Stock of the Registrant were
outstanding.
Transitional Small Business Disclosure Format (check one): YES NO X
<PAGE>
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
EVEREST MEDICAL CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, 1996 Dec 31, 1995
(Unaudited) (Note)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 609,079 $ 1,028,476
Accounts receivable, net 1,038,839 916,341
Inventories 784,913 658,754
Prepaid insurance and deposits 67,885 51,506
-------------------------------------------------
Total current assets 2,500,716 2,655,077
Equipment
Office and display equipment 377,680 374,278
Research and development equipment 188,715 188,715
Production equipment 980,920 941,010
-------------------------------------------------
Less allowance for depreciation 1,547,316 1,504,003
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(1,274,609) (1,233,782)
272,706 270,221
Patents, net of amortization 29,890 34,754
-------------------------------------------------
Total assets $ 2,803,313 $ 2,960,052
=================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Customer advances $ 168,000 $ 168,000
Accounts payable 393,640 216,450
Accrued compensation and related taxes 133,540 140,889
Other accrued liabilities 63,097 85,113
Convertible notes, short-term portion - 488,975
Capital lease obligations, short-term portion 25,730 28,320
-------------------------------------------------
Total current liabilities 784,007 1,127,747
Capital lease obligations, net of current portion 3,797 9,138
Convertible notes, net of current portion 500,000 126,700
Shareholders' equity
Convertible preferred stock series A, ($.01 par value, $2.50
liquidation value) 1,400,000 authorized; outstanding: 1996 -
1,088,937 shares; 1995 - 1,092,937 shares 2,691,717 2,701,717
Convertible preferred stock series B, ($.01 par value, $2.75
liquidation value) authorized and outstanding: 1996 - 727,2743
shares; 1995 - 727,273 shares 1,792,813 1,792,813
Convertible preferred stock series C, ($.01 par value, $2.75
liquidation value) authorized and outstanding: 1996 - 410,906
shares; 1995 - 410,906 shares 1,002,832 1,002,832
Convertible preferred stock series D, ($.01 par value, $2.875
liquidation value) authorized and outstanding: 1996 - 471,500
shares; 1995 - 471,500 shares 1,205,807 1,205,807
Common stock ($.01 par value) 12,461,821 authorized;
outstanding: 1996 - 5,810,700; 1995 - 5,806,700 58,107 58,067
Additional paid-in capital 14,131,188 14,121,227
Preferred stock dividends (518,674) (461,723)
Retained deficit (18,848,281) (18,724,273)
-------------------------------------------------
1,515,509 1,696,467
-------------------------------------------------
Total liabilities and shareholders' equity $ 2,803,313 $ 2,960,052
=================================================
</TABLE>
Note: The balance sheet at December 31, 1995 is derived from the audited
financial statements at that date.
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF OPERATIONS (Unaudited)
<TABLE>
<CAPTION>
3 Months Ended March 31
1996 1995
-------------------------------------------------
<S> <C> <C>
Net sales $ 1,300,134 $ 1,032,494
Cost of goods sold 713,883 652,098
-------------------------------------------------
Gross margin 586,251 380,396
Cost and expenses:
Sales and marketing 377,075 226,897
Research and development 156,883 143,855
General and administrative 183,373 175,413
-------------------------------------------------
Total operating expenses 717,331 546,165
Interest and other income (29,120) (21,891)
Interest expense 22,048 32,164
-------------------------------------------------
Net loss (124,008) (176,042)
Less preferred stock dividends 90,839 62,600
-------------------------------------------------
Loss applicable to common stock $ (214,847) $ (238,642)
=================================================
Net loss per common share $ (0.04) $ (0.04)
=================================================
Weighted average number of shares outstanding during the period 5,808,700 5,775,270
=================================================
</TABLE>
<PAGE>
EVEREST MEDICAL CORPORATION
STATEMENT OF CASH FLOWS (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended March 31
1996 1995
-------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (124,008) $ (176,042)
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Depreciation and amortization 45,691 66,658
Loss on sale and disposal of equipment - 4,429
Provision for losses on accounts receivable 7,500 (28,306)
Provision for inventory obsolescence 27,897 15,000
Changes in operating assets and liabilities
Accounts receivable (129,998) 75,842
Inventories (154,056) (28,573)
Prepaid expenses (16,379) (35,680)
Customer advances - (44,635)
Accounts payable and accrued expenses (147,825) 86,686
-------------------------------------------------
Net cash used in operating activities (195,528) (64,621)
INVESTING ACTIVITIES
Purchase of equipment (43,313) (15,360)
Sale of equipment - -
Additions to patents - -
-------------------------------------------------
Net cash used in investing activities (43,313) (15,360)
FINANCING ACTIVITIES
Dividends paid (56,950) (80,000)
Proceeds from debt and warrants - -
Principal payments on debt and capital leases (123,606) (58,863)
Net proceeds from sale of common stock - 16,631
Net proceeds from sale of preferred stock - -
-------------------------------------------------
Net cash provided by financing activities (180,556) (122,232)
-------------------------------------------------
Decrease in cash and cash equivalents (419,397) (202,213)
Cash and cash equivalents at beginning of period 1,028,476 1,326,353
-------------------------------------------------
Cash and cash equivalents at end of period $ 609,079 $ 1,124,140
=================================================
</TABLE>
<PAGE>
EVEREST MEDICAL CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS (UNAUDITED)
March 31, 1996
Note A - Business Activity
Everest Medical Corporation is engaged in the development, manufacturing
and marketing of bipolar electrosurgical devices for the gastrointestinal
endoscopy, laparoscopy and other minimally invasive surgery markets. The Company
no longer considers itself in the development stage.
Note B - Basis of Presentation
The accompanying unaudited, condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for three months ended March 31, 1996 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 1996. For further information, refer to the financial statements
and footnotes thereto included in the Company's annual report on Form 10-KSB for
the year ended December 31, 1995.
Part I - Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION
RESULTS OF OPERATIONS
Net Sales. Net sales in the first quarter of 1996 were $1,300,134, an
increase of $267,640, or 26%, from the first quarter of 1995. This sales
increase was a combination of the expansion of the Everest-branded laparoscopy
product line and strong growth of the Company's OEM laparoscopy customers. The
sales increases were offset in part by declines in the shipments of the
Company's gastrointestinal products to C.R. Bard, Inc. and bipolar snares to
Japan.
The Company realized an increase of 69% in its Everest-branded laparoscopy
product sales. The sales results reflected the ongoing growth of the
EVERSHEARS(R) Bipolar Scissors, which was 21% greater than the corresponding
quarter of 1995. The Company also experienced growth in all of its product line
items compared to the same quarter of the previous year. Sales of the BiCOAG(R)
Bipolar Cutting Forceps represented 22% of the Everest-branded laparoscopy
products. With continued product enhancements and ongoing sales efforts the
Company expects sales of this product to continue to rise throughout the year.
The Company experienced strong growth in sales to Ethicon Endo-Surgery, a
division of Johnson & Johnson, and Origin Medsystems, a division of Guidant
Corporation, of a private label version of the Company's classic tip forceps as
these customers' inventories are now under control. Sales of the Company's
polypectomy snare in Japan lagged 27% behind last year due to delays in
obtaining regulatory approval by our new distributor, KK Adachi. Regulatory
approval was obtained in early April from the Japanese regulatory body, however,
the Company expects sales to be significantly reduced in the second quarter as
the distributor works off initial inventories shipped in recent quarters. Sales
of a version of the coagulating probe to C.R. Bard remained strong in the first
quarter although 6% below the same quarter of 1995.
<PAGE>
The Company expects sales of Everest-branded products will continue to
increase resulting from a broader product offering, greater sales management
support, and the introduction of a new smaller version of its BiCOAG Bipolar
Cutting Forceps. The Company also expects sales to the Company's OEM laparoscopy
customers will continue to meet initial expectations. The Company expects that
sales of its GI products will lag compared to earlier expectations.
Gross Margin. Gross margin in the first quarter of 1996 was 45.1% of sales
compared to 36.8% of sales for the first quarter of 1995. The improved gross
margin was primarily a reflection of the growing share of Everest-branded
products. Gross margin increased from 1995 levels due to the strong sales mix of
Everest-branded products, ongoing expense controls implemented by the Company,
increased production levels and raw materials cost reductions. The Company
expects that the gross margin will continue to improve from 1995 levels due to
the sales growth in Everest-branded products.
Sales and Marketing. Sales and marketing expenses for the first quarter of
1996 were $377,075, an increase of $150,178, or 66%, from the same period in
1995. This increase was a result of the growth in commission expenses due to
changing sales mix to a larger portion of Everest-branded sales, the ongoing
marketing efforts with the use of new product samples, the additional clinical
fees to promote the product through professional articles and papers, and the
full impact of staff additions made throughout 1995. The Company expects the
level of spending on sales and marketing to continue to increase in 1996
compared to 1995 levels due to the growth in Everest-branded sales and strategic
marketing investments.
Research and Development. Research and development expenses for the first
quarter of 1996 were $156,883, an increase of $13,027, or 9%, from the same
period in 1995. The Company experienced an increase in costs due to the ongoing
development of the BiCOAG Cutting Forceps to add a locking mechanism and the
introduction of a 5mm version. Shipments of the cutting forceps with the new
locking feature commenced in April. The 5mm version is scheduled for release in
July. The Company also experienced an increase in professional fees associated
with the Company's intellectual property activities that resulted in the Company
receiving two Notices of Allowances from the United Stated Patent Office on its
bipolar scissors. The Company expects spending in this area to increase over
1995 levels due to development projects and intellectual property issues.
General and Administrative. General and administrative expense for the
first quarter of 1996 were $183,373, an increase of $7,961, or 5%, from the same
period of 1995. The Company does not expect significant general and
administrative cost increases in the near future.
Net Loss. Net loss for the first quarter was $124,008 compared to a net
loss of $176,042 for the quarter in 1995. The first quarter loss was less than
the first quarter of last year due primarily to the growth in sales, the
increase in gross margin as a result of the changing sales mix and the continued
cost control efforts initiated by management. The Company believes that with
this changing sales mix, the projected sales increases and its continuing
control of its operating expenses will result in the Company achieving
profitability by year-end.
LIQUIDITY and CAPITAL RESOURCES
Cash and short-term investments were $609,079 on March 31, 1996 compared to
$1,028,476 on December 31, 1995. The Company used $195,528 of cash in operating
activities in the first three months of 1996 compared to $64,621 for the same
period of 1995. Operating activities in the first three months included an
increase in accounts receivable due the sales growth and slower than anticipated
collection from our distributor in Japan due to the delay in obtaining
regulatory approval, an increase in inventories and a growth in accounts
payable.
The Company spent $43,313 on capital equipment in the first three months
and expects this level of investment to remain constant over the next two
quarters as the Company prepares to introduce the new locking feature on the
bipolar cutting forceps and to redesign the handle of its laparoscopy product
line. In the first quarter the Company completed a $500,000 debt financing, a
13% Convertible Note with principal due in full in February 1998. The proceeds
were used to pay off outstanding principal and interest under certain 13%
Convertible Notes requiring quarterly principal and interest payments through
February 1997. During the quarter, the Company also met its obligation on
preferred stock dividends of $56,950.
<PAGE>
The Company believes it has sufficient capital to fund operations through
1996, with the assumption that its sales goals are met and there are no
significant unexpected expenditures. If for any reason the Company's sales goals
are not met or it incurs significant unexpected expenditures, the Company may
require additional debt or equity financing. There is no assurance that such
financing will be available.
Certain statements in this Management's Discussion and Analysis section are
forward looking statements that involve a number of risks and uncertainties,
including those described in the Company's Form 10-K for fiscal year ended
December 31, 1995 under Part I "Cautionary Statements."
EFFECT OF INFLATION
The Company does not believe that inflation will have a significant effect
on operations.
PART II - OTHER INFORMATION
Item 5 - Other Information
During the quarter, the Company was informed of an attempt by an
undisclosed party to initiate a patent interference proceeding with the United
States Patent and Trademark Office ("PTO") on its metal-on-metal bipolar
scissors patent issued on October 4, 1994. An interference is a PTO action to
determine who, as between two different inventors, is entitled to the patent on
the same invention, and if declared, will result in the PTO rendering a decision
on ownership of a patent.
The PTO is currently reviewing the application to determine if it will
declare the interference. Until the interference is formally declared by the
PTO, the identity of the applicant and the basis for the action is not
disclosed. The Company has learned that, if an interference is declared, it will
be the senior party in the action. Until such facts are presented to the Company
regarding the basis of the action, the Company cannot predict the outcome of
such an event. The Company has been advised by its outside patent counsel that,
based on experience and published statistics, the senior party in an
interference action is more likely than not to prevail in such an action. If an
interference action is declared, the Company has the options of negotiation,
arbitration, or pursuing the interference fully. If the Company were to pursue
the interference, future legal expenditures may be material.
If the Company were not to prevail in the interference action, the patent
claims covering the Company's current metal-on-metal scissors would belong to
the opponent in the interference and a patent granted to such party might
prohibit the Company from using the invention, unless the Company could procure
a license from the patent holder.
The Company recently announced that it has received a notice of allowance
from the PTO for a next generation bipolar scissors design. The Company has
received a written opinion from its outside patent counsel that states that this
new bipolar scissors design is not covered by any claims of the metal-on-metal
patent design and would not reasonably be found by a court of law to be
infringed by the current Company's scissors design.
Therefore, the Company, based on advice of counsel, believes that it will
likely prevail in an interference action, if declared. If the Company were not
to prevail, it would be able to continue to participate in the bipolar scissors
marketplace with a next generation design.
<PAGE>
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1: Note Purchase Agreement dated February 16, 1996 between the
Company and Okabena Partnership K.
Exhibit 10.2: Security Agreement dated February 16, 1996 between the
Company and Okabena Partnership K.
Exhibit 10.3: Convertible Note dated February 16, 1996 issued to Okabena
Partnership K.
Exhibit 10.4: Warrant dated February 16, 1996 issued to Okabena Partnership
K.
Exhibit 27: Financial Data Schedule (filed in electronic format only)
(b) Reports on Form 8-K:
None filed in the period.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
EVEREST MEDICAL CORPORATION
May 9, 1996 By: /s/ John L. Shannon, Jr.
John L. Shannon, Jr.,
President and Chief Executive Officer
(Principal executive officer)
May 9, 1996 By: /s/ Thomas F. Murphy
Thomas F. Murphy
Chief Financial Officer and Assistant Secretary
(Principal financial officer)
EXHIBIT 10.1
EVEREST MEDICAL CORPORATION
NOTE PURCHASE AGREEMENT
This Agreement is made and entered into as of the 16th day February, 1996,
between Everest Medical Corporation, a Minnesota corporation (the "Company") and
Okabena Partnership K ("Investor").
RECITALS
A. The Company desires to sell to Investor, and Investor desires to
purchase from the Company, a 13% Secured Convertible Note in the principal
amount of $500,000. The Note will be secured by a first lien security interest
in all of the assets of the Company (except assets held pursuant to capital
leases), subordinate only to senior bank debt, if and when obtained.
B. In connection with the sale and purchase of the 13% Secured Convertible
Note, Investor has agreed to surrender and the Company has agreed to cancel
warrants currently held by Investor to purchase 290,909 shares of Company Common
Stock at a price of $3.50 per share which expire on February 4, 1998 (the
"Original Warrant"). In exchange for the Original Warrant, the Company has
agreed to issue Investor warrants to purchase 290,909 shares of the Company's
Common Stock at a price of $2.75 per share.
AGREEMENT
For good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged by the Company and Investor, the Company and Investor agree
as follows:
1. Authorization of Securities. The Company proposes to authorize, issue
and sell a 13% Secured Convertible Note in the principal amount of $500,000 (the
"Note"), to be substantially in the form set forth in Exhibit 1 to this
Agreement (the "Form of Note").
The Note shall be convertible into shares of the Company's Common Stock (as
hereinafter defined) (such shares of Common Stock into which the Note are
convertible and all shares of Common Stock of the Company issued in exchange or
substitution therefor being hereinafter sometimes referred to as the "Conversion
Stock"), initially at the rate of one share of Conversion Stock for each $2.50
of the outstanding principal amount of the Note (subject to adjustment as
provided in the Note). The Note shall be secured pursuant to a Security
Agreement, to be substantially in the form set forth in Exhibit 2 to this
Agreement (the "Security Agreement").
The Company also proposes to authorize, issue and sell to Investor warrants
to purchase an aggregate of up to 290,909 shares of Company Common Stock for a
period of five years at an exercise price of $2.75 per share, such warrants to
be substantially in the form of Exhibit 3 hereto. The term "Warrants" as used
herein shall mean the warrants to be delivered pursuant to this Agreement and
all warrants issued in exchange or substitution therefor; and the term "Warrant
Stock" as used herein shall mean the shares of Common Stock issuable upon
exercise of the Warrants.
2. Sale and Purchase of Securities. Subject to the terms and conditions
hereof, the Company agrees to issue and sell to Investor, and Investor agrees to
purchase from the Company, the Note and Warrants for an aggregate purchase price
of $500,000 (the "Purchase Price.")
3. Closing. The closing of the sale to, and purchase by, Investor of the
Note and the Warrants (the "Closing") shall occur at the offices of Fredrikson &
Byron, P.A., 900 Second Avenue South, Minneapolis, Minnesota 55402, at the hour
of 10:00 a.m., Minneapolis time, on February 16, 1996 or on such other day or at
such other time or place as Investor and the Company shall agree upon (the
"Closing Date").
<PAGE>
At the Closing, the Company will deliver to Investor the Note and the
Warrants, being registered in Investor's name, along with a duly executed
Security Agreement and the related financing statements in recordable form for
filing in the appropriate state and county offices and in the United States
Patent Office, against delivery to the Company of a wire transfer or certified
check in the amount of $500,000 and the Original Warrant dated February 4, 1993.
4. Restriction on Transfer of the Securities.
4.1 Restrictions. The Note and the Conversion Stock, and the Warrants and
the Warrant Stock, are transferable to a non-affiliate of Investor only pursuant
to (a) a public offering registered under the Securities Act of 1933, as amended
(the "Securities Act"), (b) Rule 144 (or any similar rule then in effect)
adopted under the Securities Act, if such rule is available, and (c) subject to
the conditions elsewhere specified in this Section 4, any other legally
available means of transfer.
4.2 (a) Legend. The Note and Warrants shall be endorsed with the following
legend:
The securities represented by this certificate have been issued without
registration under the Securities Act of 1933 or under any state securities
laws, and may not be sold, transferred or pledged in the absence of an effective
registration statement under the applicable federal and state securities laws or
an opinion of counsel satisfactory to the Company that the transfer is exempt
from registration under the applicable federal and state securities laws.
Upon the conversion of the Note or upon the exercise of the Warrants,
unless the Company receives an opinion of counsel from the holder of such a
security satisfactory to the Company to the effect that a sale, transfer,
assignment, pledge or distribution of the Conversion Stock or Warrant Stock
issuable upon such conversion or exercise may be made without registration, or
unless such Conversion Stock or Warrant Stock is being disposed of pursuant to
registration under the Securities Act and any applicable state act, the same
legend shall be endorsed on the certificate evidencing such Conversion Stock or
Warrant Stock.
5. Representations and Warranties by the Company. The Company represents
and warrants to Investor that:
5.1 Organization; Standing. etc. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota, and has the requisite corporate power and authority to own its
properties and to carry on its business in all material respects as it is now
being conducted. The Company has the requisite corporate power and authority to
issue the Note and the Conversion Stock, and the Warrants and the Warrant Stock,
and to otherwise perform its obligations under this Agreement, the Note, the
Warrants, and the Security Agreement.
5.2 Qualification. The Company is duly qualified or licensed as a foreign
corporation in good standing in each jurisdiction wherein the nature of its
activities or of its properties owned or leased makes such qualification or
licensing necessary and failure to be so qualified or licensed would have a
material adverse impact on its business.
5.3 Financial Statements. The audited financial statements and the
unaudited interim financial statements included in the Company reports filed
with the Securities and Exchange Commission (SEC) since January 1, 1995 (the
"SEC Reports") (i) are in accordance with the books and records of the Company,
(ii) present fairly the financial condition of the Company at the balance sheet
dates and the results of its operations for the periods therein specified,
subject, in the case of the March 31, 1995, June 30, 1995 and September 30,
1995, financial statements, to normal year-end adjustments, and (iii) have, in
all material respects, been prepared in accordance with generally accepted
accounting principles applied on a basis consistent with prior accounting
periods. There has been no material adverse change in the financial condition of
the Company since September 30, 1995, and there has been no change in the
condition, financial or otherwise (including any new material debt), of the
Company since September 30, 1995, other than changes in the ordinary course of
business which have not, in the aggregate, been materially adverse.
5.4 Tax Returns and Audits. The Company has timely filed all required
federal, state and local tax returns for all tax periods ending after December
31, 1992, which are required to be filed and has timely paid, or made provision
for the payment of, all taxes which have become due pursuant to said returns or
pursuant to any assessment received by the Company or any subsidiary, or
otherwise, except such taxes, if any, as are being contested in good faith and
to which adequate reserves have been provided.
<PAGE>
5.5 Changes; Dividends; etc. Except for the transactions contemplated by
this Agreement, since September 30, 1995 the Company has not: (a) incurred any
debts, obligations or liabilities, absolute, accrued or contingent and whether
due or to become due, except current liabilities incurred in the ordinary course
of business; (b) paid any obligation or liability other than, or discharged or
satisfied any liens or encumbrances other than those securing, current
liabilities, in each case in the ordinary course of business; (c) declared or
made any payment or distribution to its shareholders as such, or purchased or
redeemed any of its shares of capital stock or other securities, or obligated
itself to do so; (d) mortgaged, pledged or subjected to lien, charge, security
interest or other encumbrance any of its assets, tangible or intangible, except
in the ordinary course of business; (e) sold, transferred or leased any of its
assets except in the ordinary course of business; (f) cancelled or compromised
any debt or claim, or waived or released any right of material value; (g)
suffered any physical damage, destruction or loss (whether or not covered by
insurance) materially and adversely affecting the properties, business or
prospects of the Company; (h) entered into any transaction other than in the
ordinary course of business; (i) issued or sold any shares of capital stock or
other securities or granted any options, warrants or other purchase rights with
respect thereto other than as contemplated by this Agreement; (j) made any
acquisition or disposition of any material assets or become involved in any
other material transaction, other than for fair value in the ordinary course of
business; or (k) agreed to do any of the foregoing other than pursuant hereto.
5.6 Property. Except as disclosed in the Company's financial statements (or
the notes thereto), SEC Reports or as otherwise indicated and filed in offices
of public record, all property and assets of any kind (real or personal,
tangible or intangible) of the Company are free from any encumbrance, and are
free from any other liens, encumbrances or defects in title which are
substantial in amount, or which could affect or impair the operations of the
business of the Company.
5.7 Litigation; Governmental Proceedings. Except as disclosed in the SEC
Reports, there are no legal actions, suits, arbitrations or other legal,
administrative or governmental proceedings or investigations pending or, to the
knowledge of the Company, threatened against the Company, its properties, assets
or business, and the Company is not aware of any facts which are likely to
result in or form the basis for any such action, suit or other proceeding. The
Company is not in default with respect to any judgment, order or decree of any
court or any governmental agency or instrumentality. The Company has not been
threatened with any action or proceeding under any business or zoning ordinance,
law or regulation.
5.8 Compliance with Applicable Laws and Other Instruments. Neither the
execution nor delivery of, nor the performance of or compliance with, this
Agreement, the Note, the Warrants, or the Security Agreement nor the
consummation of the transactions contemplated hereby or thereby will conflict
with or, with or without the giving of notice or passage of time, or both,
result in any breach of, or constitute a default under, or result in the
imposition of any lien or encumbrance upon any asset or property of the Company
pursuant to any applicable law, administrative regulation or judgment, order or
decree of any court or governmental body, or any agreement or other instrument
to which the Company is a party or by which it or any of its properties, assets
or rights is bound or affected, or will violate the Articles of Incorporation or
Bylaws of the Company.
5.9 Conversion Stock; Warrants and Warrant Stock. The Warrants, when issued
and paid for pursuant to the terms of this Agreement, will be duly authorized,
validly issued and outstanding, fully paid, nonassessable and free and clear of
all pledges, liens, encumbrances and restrictions, except as set forth in
Section 4 hereof, and the shares of Conversion Stock and Warrant Stock issuable
upon conversion of the Note or exercise of the Warrants have been reserved for
issuance based upon the initial conversion price or exercise price, as
applicable, and when issued upon conversion or exercise will be duly authorized,
validly issued and outstanding, fully paid, nonassessable and free and clear of
all pledges, liens, encumbrances and restrictions, except as set forth in
Section 4 hereof. The Warrants to be delivered by the Company hereunder, and the
certificates representing the Conversion Stock and Warrant Stock to be delivered
upon the conversion of the Note or exercise of the Warrants, will be genuine,
and the Company has no knowledge of any fact which would impair the validity
thereof.
<PAGE>
5.10 Securities Laws. Based in part upon the representations and warranties
contained in Section 6 of this Agreement, no consent, authorization, approval,
permit or order of or filing with any governmental or regulatory authority is
required under current laws and regulations in connection with the execution and
delivery of this Agreement, the Note, the Warrants or the Security Agreement or
the offer, issuance, sale or delivery of the Note or the Warrants or the offer
of the Conversion Stock or the Warrant Stock other than the qualification
thereof, if required, under applicable state securities laws, which
qualification has been or will be effected as a condition of these sales. The
Company has not, directly or through an agent, offered the Note or the
Conversion Stock, or the Warrants or the Warrant Stock, or any similar
securities for sale to, or solicited any offers to acquire such securities from,
persons other than Investor. Under the circumstances contemplated hereby, the
offer, issuance, sale and delivery of the Note and the Warrants and the offer of
the Conversion Stock and the Warrant Stock will not under current laws and
regulations require compliance with the prospectus delivery or registration
requirements of the Securities Act.
5.11 Intellectual Property. Except as disclosed in the Company's SEC
Reports, to the best of the Company's knowledge, the Company is not infringing
upon or in conflict with the asserted intellectual property rights of others
(including, without limitation, patents, trademarks and copyrights), nor has any
other person or corporation instituted any claims, demands or proceedings which
challenge the right of the Company with respect to the use of any intellectual
property claimed or used by the Company.
5.12 Capital Stock. At the date hereof, the authorized capital stock of the
Company consists of 15,000,000 shares of capital stock, $.01 par value, of which
5,810,700 shares of common stock, 1,088,937 shares of Series A Convertible
Preferred Stock, 727,273 shares of Series B Convertible Preferred Stock, 410,906
shares of Series C Convertible Preferred Stock, and 471,500 shares of Series D
Convertible Preferred Stock are issued and outstanding. All of the outstanding
shares of the Company were duly authorized, validly issued and are fully paid
and nonassessable. Other than with regard to the outstanding Series A, Series B,
Series C and Series D Convertible Preferred Stock, or as otherwise disclosed in
SEC Reports or in Exhibit 5.12, there are no outstanding subscriptions, options,
warrants, calls, contracts, demands, commitments, convertible securities or
other agreements or arrangements of any character or nature whatever, other than
this Agreement, under which the Company is obligated to issue any securities of
any kind representing an ownership interest in the Company. No holder of any
security of the Company is entitled to any preemptive or similar rights to
purchase any securities of the Company from the Company; provided, however, that
nothing in this Section 5.12 shall affect, alter or diminish any right granted
to the Investor in this Agreement.
<PAGE>
5.13 Corporate Acts and Proceedings. This Agreement has been duly
authorized by all necessary corporate action on behalf of the Company, and this
Agreement has been duly executed and delivered by authorized officers of the
Company. This Agreement is, and the Note and Warrants, when issued pursuant to
the terms of this Agreement, and the Security Agreement when executed and
delivered pursuant to the terms of this Agreement, will be, a valid and binding
agreement upon the part of the Company that is enforceable against the Company
in accordance with its terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors' rights generally and to judicial
limitations on the enforcement of the remedy of specific performance and other
equitable remedies. All corporate action necessary to the authorization,
creation, issuance, execution and delivery of the Note, the Conversion Stock,
the Warrants, the Warrant Stock and the Security Agreement has been taken on the
part of the Company.
5.14 Disclosure. The Company has not knowingly withheld from Investor any
material facts relating to the assets, business, operations, financial condition
or prospects of the Company. No representation or warranty in this Agreement or
in any certificate, schedule, statement or other document furnished or to be
furnished to Investor pursuant here to or in connection with the transactions
contemplated hereby contains or will contain any untrue statement of a material
fact or omits or will omit to state any material fact required to be stated
herein or therein or necessary to make the statements herein or therein not
misleading.
6. Representations and Warranties of Investor. Investor represents and
warrants that:
6.1 Investment Intent. The Note and the Warrants being acquired by Investor
hereunder are being purchased, and the Conversion Stock and the Warrant Stock
acquired by Investor upon conversion of such Note or exercise of such Warrants
will be acquired, for Investor's own account and not with the view to, or for
resale in connection with, any distribution or public offering thereof within
the meaning of the Securities Act. Investor understands that the Note and the
Conversion Stock, and the Warrants and the Warrant Stock, have not been
registered under the Securities Act or any applicable state laws by reason of
their issuance or contemplated issuance in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act and such
laws, and that the reliance of the Company and others upon this exemption is
predicated in part upon this representation and warranty. Investor further
understands that the Note and Conversion Stock, and the Warrants and the Warrant
Stock, may not be transferred to a non-affiliate or resold without (a)
registration under the Securities Act and any applicable state securities laws,
or (b) an exemption from the requirements of the Securities Act and applicable
state securities laws.
Investor understands that an exemption from such registration is not
presently available pursuant to Rule 144 promulgated under the Securities Act by
the SEC and that in any event Investor may not sell any securities pursuant to
Rule 144, as currently enacted, prior to the expiration of a two-year period
after Investor has acquired the securities. Investor understands that any sales
pursuant to Rule 144 may only be made in full compliance with the provisions of
Rule 144.
6.2 Location of Principal Office and Qualification as an Accredited
Investor. The state in which Investor's principal office is located in
Minnesota. Investor qualifies as an accredited investor within the meaning of
Rule 501 under the Securities Act. Investor has such knowledge and experience in
financial and business matters that Investor is capable of evaluating the merits
and risks of the investment to be made hereunder by Investor. Investor has or
has had access to all of the Company's material books and records, and access to
the Company's executive officers has been provided to Investor or to Investor's
qualified agents.
6.3 Acts and Proceedings. This Agreement has been duly authorized by all
necessary action on the part of Investor, has been duly executed and delivered
by Investor, and is a valid and binding agreement upon the part of Investor.
<PAGE>
6.4 Compliance with Applicable Laws and Other Instruments. Neither the
execution nor delivery of, nor the performance of or compliance with, this
Agreement nor the consummation of the transactions contemplated hereby will
conflict with, or, with or without the giving of notice or passage of time,
result in any breach of, or constitute a default under, or result in the
imposition of any lien or encumbrance upon any asset or property of Investor
pursuant to, any applicable law, administrative regulation or judgment, order or
decree of any court or governmental body, any agreement or other instrument to
which Investor is a party or by which it or any of its properties, assets or
rights is bound or affected.
7. Affirmative Covenants of the Company. So long as any amount remains
unpaid on the Note (and, with respect to Sections 7.1 and 7.3, so long as there
are issued and outstanding any Warrants or any shares of Conversion Stock or
Warrant Stock), the Company covenants and agrees that:
7.1 Replacement of Note or Warrants or Certificates Representing Conversion
Stock or Warrant Stock. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of the Note, Conversion
Stock, Warrants or Warrant Stock, and, in the case of any such loss, theft or
destruction, upon delivery of a bond of indemnity satisfactory to the Company,
or, in the case of any such mutilation, upon surrender and cancellation of the
Note or Warrants or certificates representing Conversion Stock or Warrant Stock,
as the case may be, the Company will issue a new Note or Warrants or
certificates representing Conversion Stock or Warrant Stock, as the case may be,
of like tenor, in lieu of such lost, stolen, destroyed or mutilated Note or
Warrants or certificates representing Conversion Stock or Warrant Stock, as the
case may be.
<PAGE>
7.2. Application of Proceeds. Unless otherwise approved by Investor, the
net proceeds received by the Company from the sale of the Note and Warrants
shall be used (i) to repay debt currently owed pursuant to 8% Convertible Notes,
originally dated in February or March 1992, and amended in February 1994.
7.3 Filing of Reports. The Company will, so long as it has securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, or has securities registered pursuant to the Securities Act, make
timely filing of such reports as are required to be filed by it with the SEC so
that Rule 144 under the Securities Act or any successor provision thereto will
be available to the security holders of the Company who are otherwise able to
take advantage of the provisions of such Rule.
8. Conversion of Note; Exercise of Warrants.
8.1 Conversion of Note. Any holder of any Note may, at its option, convert
such Note, or any portion thereof, into Conversion Stock at the rate and upon
the terms and conditions and subject to the adjustments set forth in the Note.
If Investor elects to convert the entire outstanding principal of the Note prior
to February 16, 1998, the Company agrees, through February 16, 1998, to pay
Investor a quarterly fee equal to the amount of interest that would have accrued
and been payable had Investor not converted the Note, and the Note had continued
to be outstanding.
8.2 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all Conversion Stock that may be issued upon the exercise of the
conversion privilege referred to in Section 8.1 hereof will, upon issuance in
accordance with the terms of the Note, be fully paid and nonassessable, and that
the issuance thereof shall not give rise to any preemptive rights on the part of
any person. The Company further covenants and agrees that, until expiration of
such conversion privilege, the Company will at all times have authorized and
reserved a sufficient number of shares of its Common Stock for the purpose of
issuance upon the exercise of such conversion privilege.
8.3 Adjustment of Number of Shares and Conversion Price. The number of
shares of Common Stock issuable upon conversion of the Note and the conversion
price with respect thereto shall be subject to adjustment from time to time as
set forth in the Form of Note.
8.4 Exercise of Warrants. Any holder of the Warrants may, at its option, at
any time and from time to time, exercise such Warrants, or any portion thereof,
upon the terms and conditions and subject to the adjustments set forth in
Exhibit 3 hereto.
8.5 Stock Fully Paid; Reservation of Shares. The Company covenants and
agrees that all Warrant Stock that may be issued upon the exercise of the
Warrants will, upon issuance in accordance with the terms of the Warrants, be
fully paid and nonassessable, and that the issuance thereof shall not give rise
to any preemptive rights on the part of any person. The Company further
covenants and agrees that, until expiration of the Warrants, the Company will at
all times have authorized and reserved a sufficient number of shares of its
Common Stock for the purpose of issuance upon the exercise of the Warrants.
<PAGE>
8.6 Adjustment of Number of Shares and Purchase Price. The number of shares
of Common Stock issuable upon exercise of the Warrants and the exercise price
with respect thereto shall be subject to adjustment from time to time as set
forth in Exhibit 3 hereto.
9. Registration of Conversion Stock and Warrant Stock.
9.1 Required Registration. If, at any time, the Company shall receive a
written request therefor from Investor, or from the holder or holders of at
least a majority of the outstanding shares of Conversion Stock and Warrant Stock
not theretofore registered under the Securities Act and sold, the Company shall
prepare and file a registration statement under the Securities Act covering the
Conversion Stock and Warrant Stock that are the subject of such request and
shall use its best efforts to cause such registration to become effective. The
Company shall be obligated to prepare, file and cause to become effective only
one registration statement pursuant to this Section 9.1, and to pay the expenses
associated with such registration statement. In the event that the holders of
such Conversion Stock or Warrant Stock determine for any reason not to proceed
with a registration at any time before a registration statement has been
declared effective by the SEC, and such registration statement, if theretofore
filed with the SEC, is withdrawn with respect to the shares of Conversion Stock
or Warrant Stock, and such holders agree to bear their own expenses incurred in
connection therewith and to reimburse the Company for the expenses incurred by
it attributable to the registration of such shares, then such holders shall not
be deemed to have exercised their right to require the Company to register the
Conversion Stock and Warrant Stock pursuant to this Section 9.1. The Company
shall keep effective and maintain any registration, qualification, notification
or approval specified in this Section 9.1 for such period as may be necessary
for the holders of the Conversion Stock and Warrant Stock to dispose of such
shares, and from time to time shall amend or supplement, at the Company's
expense, the prospectus or offering circular used in connection therewith to the
extent necessary in order to comply with the applicable law; provided, however,
that the Company shall not be obligated to maintain any registration for a
period of more than 18 months.
<PAGE>
At the request of the Chief Executive Officer of the Company and upon
consent from Investor, which Investor will not refuse in bad faith, the Company
may delay such registration for a period of time not to exceed 60 days if the
Company in good faith believes that such a delay is (a) necessary in order not
to adversely affect financing efforts then under way at the Company or (b)
necessary or advisable to avoid disclosure of material nonpublic information.
9.2 Expenses. The costs and expenses of a registration pursuant to Section
9.1, including but not limited to legal fees, special audit fees, printing
expenses, filing fees, fees and expenses relating to qualifications under state
securities or blue sky laws and the premiums for insurance, if any, incurred by
the Company in connection therewith, shall be borne entirely by the Company;
provided, however, that any holders participating in such registration shall
bear their own underwriting discounts and commissions and the fees and expenses
of their own counsel or accountants in connection with any such registration.
9.3 Blue Sky Laws. The Company shall, at its expense, also take reasonable
measures to qualify the Conversion Stock and Warrant Stock included in any
registration statement pursuant to Section 9.1 for sale under applicable blue
sky laws.
9.4 Additional Information. Upon the exercise of registration rights
pursuant to Section 9.1, each holder agrees to supply the Company with such
information as may be required by the Company to register or qualify such
shares.
9.5 Indemnification. In the event of any registration of a security
pursuant to this Section 9, the Company shall indemnify each holder of
securities subject to such registration, its officers, directors and general
partners and each person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act against all losses, claims, damages and
liabilities caused by any untrue statement or alleged untrue statement of a
material fact contained in any registration statement or prospectus (and as
amended or supplemented) relating to such registration, or caused by any
omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they are made unless such statement or omission
was made in reliance upon and in conformity with information furnished in
writing to the Company by such holder expressly for use therein. The obligations
of the Company to register any of its securities in accordance with the
foregoing shall be subject to the condition that each holder shall agree in
writing to indemnify the Company, its officers and directors, and each person,
if any, who controls the Company within the meaning of Section 15 of the
Securities Act, and each underwriter of the securities so registered, and each
person, if any, who controls such underwriter within the meaning of Section 15
of the Securities Act, with respect to losses, claims, damages and liabilities
caused by any untrue statement or omission made in reliance upon and in
conformity with information furnished in writing by such holder to the Company
expressly for use in such registration statement or prospectus.
9.6 Registration Rights of Transferees. The registration rights granted
Investor pursuant to this Section 9 shall also be for the benefit of, and
enforceable by, any subsequent holder of the Conversion Stock or Warrant Stock,
whether or not any express assignment of such rights to any subsequent holder is
made, so long as such subsequent holder acquires at least 10% of the Conversion
Stock or Warrant Stock then outstanding.
10. Default.
10.1 Events of Default. Each of the following events shall be an event of
default (an "Event of Default") for purposes of this Agreement:
(a) if default shall be made in the punctual payment of principal of or
interest on the Note; or
(b) if the Company or any Subsidiary becomes insolvent or bankrupt, or
admits in writing its inability to pay its debts as they mature, or makes an
assignment for the benefit of creditors, or ceases doing business as a going
concern, or the Company or any Subsidiary applies for or consents to the
appointment of a trustee or receiver for the Company or any Subsidiary, or for
the major part of the property of either; or
<PAGE>
(c) if a trustee or receiver is appointed for the Company or any Subsidiary
or for the major part of the property of either and the order of such
appointment is not discharged, vacated or stayed within 30 days after such
appointment; or
(d) if an order for relief shall be entered in any Federal bankruptcy
proceeding in which the Company or any Subsidiary is the debtor; or if
bankruptcy, reorganization, arrangement, insolvency, or liquidation proceedings,
or other proceedings for relief under any bankruptcy or similar law or laws for
the relief of debtors, are instituted by or against the Company or any
Subsidiary and, if instituted against the Company or any Subsidiary, are
consented to or, if contested by the Company or the Subsidiary, are not
dismissed by the adverse parties or by an order, decree or judgment within 30
days after such institution.
10.2 Remedies upon Events of Default. Upon the occurrence of an Event of
Default as herein defined, and so long as such Event of Default continues
unremedied, then, unless such Event of Default shall have been waived by the
holders of at least a majority of the principal amount of the Note then
outstanding, the holders of at least a majority of the principal amount of the
Note then outstanding shall be entitled by notice to declare the principal of
and any accrued interest on the Note to be immediately due and payable, and
thereupon the Note, including both principal and interest, shall become
immediately due and payable (provided, however, that when any Event of Default
described in Section 10.1(d) hereof has occurred, the Note shall immediately
become due and payable without presentment, demand or notice of any kind.
10.3 Notice of Defaults. When, to its knowledge, any Event of Default has
occurred or exists, the Company agrees to give written notice within three
business days of such Event of Default to Investor, or to all the holders of the
Note. If the holder of the Note, or a portion thereof, shall give any notice or
take any other actions in respect of a claimed Event of Default, the Company
will forthwith give written notice thereof to all other holders of the Note, or
a portion thereof, at the time outstanding, describing such notice or action and
the nature of the claimed Event of Default.
10.4 Suits for Enforcement. In case any one or more Events of Default shall
have occurred and be continuing, unless such Events of Default shall have been
waived in the manner provided in Section 10.2 hereof, the holders of at least a
majority of the principal amount of the Note may proceed to protect and enforce
their rights under this Section 10 by suit in equity or action at law. It is
agreed that in the event of such action such holders of Note shall be entitled
to receive all reasonable fees, costs and expenses incurred, including without
limitation such reasonable fees and expenses of attorneys (whether or not
litigation is commenced) and reasonable fees, costs and expenses of appeals.
10.5 Remedies Cumulative. No right, power or remedy conferred upon any
holder of the Note, or a portion thereof, shall be exclusive, and each such
right, power or remedy shall be cumulative and in addition to every other right,
power or remedy, whether conferred hereby or by any such security or now or
hereafter available at law or in equity or by statute or otherwise.
10.6 Remedies not Waived. No course of dealing between the Company and the
Investor, or the holder of the Note, and no delay in exercising any right, power
or remedy conferred hereby or by any such security or now or hereafter existing
at law or in equity or by statute or otherwise, shall operate as a waiver of or
otherwise prejudice any such right, power or remedy; provided, however, that
this Section shall not be construed or applied so as to negate the provisions
and intent of any statute which is otherwise applicable.
<PAGE>
11. Definitions. Unless the context otherwise requires, the terms defined
in this Section 11 shall have the meanings herein specified for all purposes of
this Agreement, applicable to both the singular and plural forms of any of the
terms herein defined.
11.1 "Common Stock" shall mean the Company's authorized common shares, any
additional common shares which may be authorized in the future by the Company,
and any stock into which such common shares may hereafter be changed, and shall
also include stock of the Company of any other class which is not preferred as
to dividends or as to distributions of assets on liquidation, dissolution or
winding up of the Company over any other class of stock of the Company, and
which is not subject to redemption.
12. Changes, Waivers, etc. Neither this Agreement nor any provision hereof
may be changed, amended, waived, discharged or terminated orally, but only by a
statement in writing signed by the party against which enforcement of the
change, waiver, discharge or termination is sought.
13. Payment of Fees and Expenses of Investor. Upon the consummation of the
sale of the Note and Warrants anticipated by this Agreement, the Company will
pay the reasonable out-of-pocket expenses incurred by the Investor in connection
with the transactions herein contemplated, including without limitation the
reasonable fees and out-of-pocket expenses of Robins, Kaplan, Miller & Ciresi
for their services as legal counsel to the Investor in connection with the
transactions herein contemplated.
<PAGE>
14. Notices. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and shall be delivered, or
mailed first-class postage prepaid, registered or certified mail,
(a) if to Investor, addressed to Investor at its address as shown on the
books of the Company, or at such other address as Investor may specify by
written notice to the Company, with a copy to Robert T. Montague, Robins,
Kaplan, Miller & Ciresi, 2800 LaSalle Plaza, 800 LaSalle Avenue, Minneapolis,
Minnesota 55402, or
(b) if to the Company, addressed to the Company, 13755 First Avenue North,
Plymouth, Minnesota 55441, attention Chief Executive Officer, or to such other
address as the Company may specify by written notice to Investor, and such
notices and other communications shall for all purposes of this Agreement be
treated as being effective or having been given if delivered personally, or, if
sent by mail, when received.
15. Parties in Interest. All the terms and provisions of this Agreement
shall be binding upon and inure to the benefit of and be enforceable by the
respective successors and assigns of the parties hereto, whether so expressed or
not.
16. Headings. The headings of the Sections and paragraphs of this Agreement
have been inserted for convenience of reference only and do not constitute a
part of this Agreement.
17. Choice of Law. It is the intention of the parties that the laws of
Minnesota shall govern the validity of this Agreement, the construction of its
terms and the interpretation of the rights and duties of the parties.
18. Counterparts. This Agreement may be executed concurrently in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EVEREST MEDICAL CORPORATION
a Minnesota corporation ("the Company")
By /s/ John L. Shannon, Jr.
John L. Shannon, Jr.
Chief Executive Officer
OKABENA PARTNERSHIP K
a Minnesota general partnership ("Investor")
By Okabena Investment Services, Inc.,
its Managing Partner
By /s/ Bruce C. Lueck
Bruce C. Lueck, President
EXHIBIT 10.2
SECURITY AGREEMENT
DATE: February 16, 1996
DEBTOR: Everest Medical Corporation
13755 First Avenue North
Minneapolis, MN 55441-5444
SECURED
PARTY: Okabena Partnership K
5140 Norwest Center
Minneapolis, MN 55402
RECITALS:
A. Secured Party has loaned to Debtor the aggregate principal amount of
$500,000 pursuant to that certain Note Purchase Agreement (the "Note Purchase
Agreement") and Convertible Note (the "Note"), each dated as of the same date
hereof.
B. To secure the obligations of Debtor to Secured Party under the Note,
Debtor has agreed to grant to Secured Party a security interest in certain
assets of Debtor.
AGREEMENTS:
NOW, THEREFORE, in consideration of the premises, and of the mutual
covenants contained herein, the parties agree as follows:
1. Security Interest and Collateral. To secure the debt, liability or
obligation of Debtor to Secured Party evidenced by the Note and any extensions,
renewals or replacements thereof (herein referred to as the "Obligations"),
Debtor hereby grants Secured Party a security interest (herein called the
"Security Interest") in the following property (herein called the "Collateral"):
A. Inventory. All inventory of Debtor, whether now owned or hereafter
acquired and wherever located;
B. Equipment. All equipment of Debtor, whether now owned or hereafter
acquired, including but not limited to all present and future machinery,
vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office
and recordkeeping equipment, parts and tools, and the goods described in any
equipment schedule or list herewith or hereafter furnished to Secured Party by
Debtor (but no such schedule or list need be furnished in order for the security
interest granted herein to be valid as to all of Debtor's equipment);
C. Accounts and Other Rights To Payment. Each and every right of Debtor to
the payment of money, whether such right to payment now exists or hereafter
arises, whether such right to payment arises out of a sale, lease or other
disposition of goods or other property by Debtor, out of a rendering of services
by Debtor, out of a loan by Debtor, out of the overpayment of taxes or other
liabilities of Debtor, or otherwise arises under any contract or agreement,
whether such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all other rights
and interests (including all liens and security interests) that Debtor may at
any time have by law or agreement against any account debtor or other obligor
obligated to make any such payment or against any of the property of such
account debtor or other obligor; all including but not limited to all present
and future debt instruments, chattel papers, accounts, loans and obligations
receivable and tax refunds;
D. General Intangibles. All general intangibles of Debtor, whether now
owned or hereafter acquired, including but not limited to applications for
patents, patents, copyrights, trademarks, trade secrets, good will, trade names,
customers lists, permits and franchises, and the right to use Debtor's name;
together with all substitutions and replacements for and products of any of
the foregoing property not constituting consumer goods and together with
proceeds of any and all of the foregoing property and, in the case of all
tangible Collateral, together with (i) all accessions, (ii) all accessories,
attachments, parts, equipment and repairs now or hereafter attached or affixed
to or used in connection with any such goods, and (iii) all warehouse receipts,
bills of lading and other documents of title now or hereafter covering such
goods.
<PAGE>
1.1 Until Secured Party perfects the Security Interest in the Collateral by
filing in the various governmental offices any and all documents required in
order to perfect the Security Interest, Debtor will not grant a Security
Interest in any of its assets, including the Collateral.
1.2 Debtor will deliver to Secured Party financing statements executed by
Debtor and describing the Collateral in such manner so as to permit Secured
Party to file such statements in the appropriate filing offices. Debtor will
neither sign or deliver other financing statements relating to any of its
assets, including the Collateral, unless and until it has verified and confirmed
that Secured Party has completed the filing of the financing statements
delivered pursuant hereto in order to perfect Secured Party's interest in the
Collateral.
2. Representations, Warranties and Agreements. Debtor represents, warrants
and agrees that:
2.1 Debtor is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Minnesota.
2.2 The Collateral will be used primarily for business purposes relating to
the business of Debtor.
2.3 Debtor's principal executive offices are located at 13755 First Avenue
North, Minneapolis, Minnesota 55441-5444.
2.4 Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of Collateral free and
clear of all security interests, liens and encumbrances, except certain security
interests resulting from certain capital leases disclosed on Exhibit 2.4 hereto
and the Security Interest, and will defend the Collateral against all claims or
demands of all persons other than Secured Party. Debtor will not sell or
otherwise dispose of the Collateral or any interest therein without the prior
written consent of Secured Party, except that, until the occurrence of an Event
of Default and the revocation by Secured Party of Debtor's right to do so,
Debtor may sell any inventory constituting Collateral to buyers in the ordinary
course of business.
2.5 This Agreement, the Note Purchase Agreement and the Note have been duly
and validly authorized by all necessary corporate action of Debtor and are the
legal, valid, and binding instruments of Debtor, enforceable in accordance with
their respective terms.
2.6 Debtor will not permit any tangible Collateral to be located in any
state (and, if county filing is required, in any county) in which a financing
statement covering such Collateral is required to be, but has not in fact been,
filed in order to perfect the Security Interest.
2.7 Each right to payment and each instrument, document, chattel paper and
other agreement constituting or evidencing Collateral is (or will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, set-off or counterclaim (other than those arising in the
ordinary course of business) of the account debtor or other obligor named
therein or in Debtor's records pertaining thereto as being obligated to pay such
obligation. Debtor will neither agree to any material modification or amendment
nor agree to any cancellation of any such obligation without Secured Party's
prior written consent, and will not subordinate any such right to payment to
claims of other creditors of such account debtor or other obligor.
2.8 The Security Interest granted to the Secured Party hereunder shall
constitute at all times a valid and perfected Security Interest, and the
Security Interest in the Collateral shall not become subordinate or junior to
liens or claims of any other person, firm, entity or corporation, or any
federal, state, county or local governmental agency, except that the security
interest granted hereunder shall be subordinate to any lien or security
hereafter granted or arising in connection with a loan provided to the Company
by a bank, insurance company or other lending institution ("Senior Lender"). The
Secured Party agrees that it will from time to time execute, deliver and/or file
appropriate documentation reasonably requested by the Company and the Senior
Lender to further effectuate the intent of this Section, including, but not
limited to, a subordination agreement, in form and substance reasonably
satisfactory to the Company and the Senior Lender.
<PAGE>
2.9 As long as any portion of the principal of or interest on the Note
remains outstanding, Debtor will:
(i) keep all tangible Collateral in good repair, working order and
condition, normal depreciation excepted, and will, from time to time, replace
any worn, broken or defective parts thereof;
(ii) promptly pay all taxes and other governmental charges levied or
assessed upon or against any Collateral or upon or against the creation,
perfection or continuance of the Security Interest;
(iii) keep all Collateral free and clear of all security interests, liens
and encumbrances except the security interests resulting from certain capital
leases disclosed on Exhibit 2.4 hereto and Security Interest and defend as
necessary Debtor's and Secured Party's interest in the Collateral, including
without limitation, defend in good faith any actions which seek to invalidate or
challenge Debtor's patents or patent rights;
(iv) at all reasonable times, permit Secured Party or its representatives
to examine or inspect any Collateral, label the Collateral in order to make
Secured Party's interest in the Collateral known and obvious, wherever located,
and to examine, inspect and copy Debtor's books and records pertaining to the
Collateral and its business and financial condition and to send and discuss with
account debtors and other obligors requests for verifications of amounts owed to
Debtor;
(v) keep accurate and complete records pertaining to the Collateral and
pertaining to Debtor's business and financial condition and submit to Secured
Party such periodic reports concerning the Collateral and Debtor's business and
financial condition as Secured Party may from time to time reasonably request;
(vi) promptly notify Secured Party of any loss of or material damage to any
Collateral or of any adverse change, known to Debtor, in the prospect of payment
of any sums due on or under any instrument, chattel paper, or account
constituting Collateral;
(vii) if Secured Party at any time so requests (after the occurrence of an
Event of Default), promptly deliver to Secured Party any instrument, document or
chattel paper constituting Collateral, duly endorsed or assigned by Debtor;
(viii) at all times keep all tangible Collateral insured against risks of
fire (including so-called extended coverage), theft, and such other risks and in
such amounts as Secured Party may reasonably request, with any loss payable to
Secured Party to the extent of their interest;
(ix) from time to time execute such financing statements or other
documentation as Secured Party may reasonably require in order to perfect the
Security Interest;
(x) pay when due or reimburse Secured Party on demand for all costs of
collection of any of the Obligations and all other out-of-pocket expenses
(including in each case all reasonable attorneys' fees) incurred by Secured
Party in connection with the creation, perfection, satisfaction, protection,
defense or enforcement of the Security Interest or the creation, continuance,
protection, defense or enforcement of this Agreement or any or all of the
Obligations, including expenses incurred in any litigation or bankruptcy or
insolvency proceedings;
(xi) execute, deliver or endorse any and all instruments, documents,
assignments, security agreements and other agreements and writings that Secured
Party may at any time reasonably request in order to secure, protect, perfect or
enforce the Security Interest and Secured Party's rights under this Agreement;
(xii) not use or keep any Collateral, or permit it to be used or kept, for
any unlawful purpose or in violation of any federal, state or local law, statute
or ordinance; and
(xiii) not permit any tangible Collateral to become part of or to be
affixed to any real property without first assuring to the reasonable
satisfaction of Secured Party that the Security Interest will be prior and
senior to any interest or lien then held or thereafter acquired by any mortgagee
of such real property or the owner or purchaser of any interest therein.
<PAGE>
If Debtor at any time fails to perform or observe any agreement contained
in this Section 2.9, and if such failure shall continue for a period of 10
calendar days after Secured Party give Debtor written notice thereof (or, in the
case of agreements contained in clauses (viii) and (ix) of this Section 2.9,
immediately upon the occurrence of such failure, without notice or lapse of
time), Secured Party may (but need not) perform or observe such agreement on
behalf and in the name, place and stead of Debtor (or, at Secured Party's
option, in Secured Party's own names) and may (but need not) take any and all
other actions that Secured Party may reasonably deem necessary to cure or
correct such failure (including, without limitation, the payment of taxes, the
satisfaction of security interests, liens, or encumbrances, the performance of
obligations under contracts or agreements with account debtors or other
obligors, the procurement and maintenance of insurance, the execution of
financing statements, the endorsement of instruments, and the procurement of
repairs, transportation or insurance), except to the extent that the effect of
such payment would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law. Debtor shall thereupon pay Secured
Party on demand the amount of all moneys expended and all costs and expenses
(including reasonable attorneys' fees) incurred by Secured Party in connection
with or as a result of Secured Party's performing or observing such agreements
or taking such actions, together with interest thereon from the date expended or
incurred by Secured Party at the highest rate then applicable to any of the
Obligations. To facilitate the performance or observance by Secured Party of
such agreements of Debtor, Debtor hereby irrevocably appoints (which appointment
is coupled with an interest) Secured Party as the attorney-in-fact of Debtor
with the right (but not the duty) from time to time to create, prepare,
complete, execute, deliver, endorse or file, in the name and on behalf of
Debtor, any and all instruments, documents, financing statements, applications
for insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by Debtor under this Section 2.
3. Account Verification and Collection Rights of Secured Party. Secured
Party shall have the right to verify any accounts in the name of Debtor or in
its own name; and Debtor, whenever requested, shall furnish Secured Party with
duplicate statements of the accounts, which statements may be mailed or
delivered by Secured Party for that purpose. Notwithstanding Secured Party's
rights under section 4 with respect to any and all debt instruments, chattel
papers, accounts, and other rights to payment constituting Collateral (including
proceeds), Secured Party may at any time after the occurrence of an Event of
Default notify any account debtor, or any other person obligated to pay any
amount due, that such chattel paper, account, or other right to payment has been
assigned or transferred to Secured Party for security and shall be paid directly
to Secured Party. If Secured Party so requests at any time after the occurrence
of an Event of Default, Debtor will so notify such account debtors and other
obligors in writing and will indicate on all invoices to such account debtors or
other obligors that the amount due is payable directly to Secured Party. At any
time after Secured Party or Debtor gives such notice to an account debtor or
other obligor, Secured Party may (but need not), in its own name or in Debtor's
name, demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such chattel paper,
account, or other right to payment, or grant any extension to, make any
compromise or settlement with or otherwise agree to waive, modify, amend or
change the obligations (including collateral obligations) of any such account
debtor or other obligor.
4. Events of Default. Each of the following occurrences shall constitute an
event of default under this Agreement (herein called "Event of Default"):
4.1 There shall occur an Event of Default under the Note Purchase
Agreement; or
4.2 Any representation or warranty of Debtor set forth in this Agreement or
made to Secured Party in any financial statements or reports submitted to
Secured Party by or on behalf of Debtor shall prove to have been materially
false or misleading when made.
<PAGE>
5. Remedies upon Event of Default. Upon the occurrence of an Event of
Default under section 4 and at any time thereafter, Secured Party may exercise
any one or more of the following rights and remedies:
5.1 Declare all unmatured Obligations to be immediately due and payable,
and the same shall thereupon be immediately due and payable, without presentment
or other notice or demand;
5.2 Exercise and enforce any or all rights and remedies available upon
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which Debtor hereby expressly waives), and the right to sell, lease or
otherwise dispose of any or all of the Collateral, and in connection therewith,
Secured Party may require Debtor to make the Collateral available to Secured
Party at a place to be designed by Secured Party which is reasonably convenient
to both parties, and if notice to Debtor of any intended disposition of
Collateral or any other intended action is required by law in a particular
instance, such notice shall be deemed commercially reasonable if given (in the
manner provided in Section 7 hereof) at least 10 calendar days prior to the date
of intended disposition or other action;
<PAGE>
5.3 Exercise or enforce any or all other rights or remedies available to
Secured Party by law or agreement against the Collateral, against Debtor or
against any other person or property. Secured Party is hereby granted a
nonexclusive, worldwide and royalty-free license to use or otherwise exploit all
trademarks, trade secrets, franchises, copyrights and patents of Debtor that
Secured Party deems necessary or appropriate to the disposition of any
Collateral.
6. Other Personal Property. Unless at the time Secured Party takes
possession of any tangible Collateral, or within seven days thereafter, Debtor
gives written notice to Secured Party of the existence of any goods, papers or
other property of Debtor, not affixed to or constituting a part of such
Collateral, but which are located or found upon or within such Collateral,
describing such property, Secured Party shall not be responsible or liable to
Debtor for any action taken or omitted by or on behalf of Secured Party with
respect to such property without actual knowledge of the existence of any such
property or without actual knowledge that it was located or to be found upon or
within such Collateral.
7. Miscellaneous. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by Secured Party. A waiver signed by Secured
Party shall be effective only in the specific instance and for the specific
purpose given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of Secured Party's rights or remedies. All rights and
remedies of Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Secured Party's option, and the exercise or enforcement of any
one such right or remedy shall neither be a condition to nor bar the exercise or
enforcement of any other.
All notices to be given to Debtor shall be deemed sufficiently given if
delivered or mailed by registered or certified mail, postage prepaid, to Debtor
at its address set forth above or at such other address as Debtor may
subsequently provide to Secured Party. Secured Party's duty of care with respect
to Collateral in its possession (as imposed by law) shall be deemed fulfilled if
Secured Party exercises reasonable care in physically safekeeping such
Collateral or, in the case of Collateral in the custody or possession of a
bailee or other third person, exercises reasonable care in the selection of the
bailee or other third person, and Secured Party need not otherwise preserve,
protect, insure or care for any Collateral. Secured Party shall not be obligated
to preserve any rights Debtor may have against prior parties, to realize on the
Collateral at all or in any particular manner or order, or to apply any cash
proceeds of Collateral in any particular order of application. This Agreement
shall be binding upon and inure to the benefit of Debtor and Secured Party and
their respective heirs, representatives, successors and assigns and shall take
effect when signed by Debtor and delivered to Secured Party, and Debtor waives
notice of Secured Party's acceptance hereof. Secured Party may execute this
Agreement if appropriate for the purpose of filing, but the failure of Secured
Party to execute this Agreement shall not affect or impair the validity or
effectiveness of this Agreement. A carbon, photographic or other reproduction of
this Agreement or of any financing statement signed by Debtor shall have the
same force and effects as the original for all purposes of a financing
statement.
<PAGE>
This Agreement shall be governed by the internal laws of the State of
Minnesota. If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations.
8. Release of Security Interest. As soon as practicable after Debtor has
paid in full all Obligations owed to Secured Party, Secured Party hereby agrees,
at Debtor's expense, to execute and deliver to Debtor all UCC-3 statements and
other instruments when presented by Debtor as may be necessary to release the
Security Interest and all other security interests in the Collateral.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
EVEREST MEDICAL CORPORATION ("DEBTOR")
By /s/ John L. Shannon, Jr.
John L. Shannon, Jr.
Chief Executive Officer
OKABENA PARTNERSHIP K ("SECURED PARTY")
By Okabena Investment Services, Inc.
Its Managing General Partner,
By /s/ Bruce C. Lueck
Bruce C. Lueck, President
EVEREST MEDICAL CORPORATION
13% Secured Convertible Note
$500,000 February 16, 1996
For Value Received, the undersigned EVEREST MEDICAL CORPORATION, a
Minnesota corporation (hereinafter called the "Company"), hereby promises to pay
to the order of Okabena Partnership K ("Okabena"), at its principal office in
the city of Minneapolis, Minnesota, the principal sum of Five Hundred Thousand
Dollars ($500,000) on February 16, 1998. Interest on the unpaid principal hereof
shall accrue from and after the date hereof at the rate of 13% per annum
(computed on the basis of a 360-day year, 30-day month) and shall be payable
quarterly (on each three-month anniversary of the date hereof). The principal of
and interest on this Note shall be paid in lawful money of the United States.
This Note has been issued under the terms and provisions of a Note Purchase
Agreement (the "Agreement"), dated February 16, 1996, between the Company and
Okabena. As provided in the Agreement, this Note is secured by a Security
Agreement referred to therein.
Upon the occurrence of any one or more of the Events of Default specified
in the Agreement, all amounts then remaining unpaid on this Note, including
accrued interest, may be declared to be or shall become immediately due and
payable as provided in the Agreement.
This Note is subject to the following additional provisions, terms and
conditions:
1. Prepayment - Company Option.
(a) The Company may, at its option, at any time, prepay this Note, without
premium, in whole or in part (but if in part only in the aggregate amount of
$100,000 or integral multiples thereof), upon 30 days' prior written notice to
the holder of this Note.
(b) In the event the Company shall give notice of any prepayment in
accordance with paragraph 1(a) hereof, such notice shall specify the principal
amount thereof to be prepaid and the date of the proposed prepayment, and
thereupon such principal amount, together with accrued and unpaid interest
thereon to the prepayment date, shall become due and payable on the prepayment
date.
(c) Upon payment by the Company in full of all outstanding principal and
interest pursuant to the terms of this Note, the Company shall not be obligated
to pay Okabena or the holder of this Note any further consideration of any type,
including the fee described in Section 8.1 of the Agreement.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT THE
BOTTOM OF THE LAST PAGE HEREOF.
2. Conversion Rights.
(a) This Note is convertible in whole or in part at any time prior to the
earlier of February 16, 1998, or (ii) the date the Company prepays all
outstanding principal and interest pursuant to Section 1 of this Note (the
"Conversion Period"). The Note is convertible during the Conversion Period at
the option of the holder hereof into fully paid and nonassessable shares of
Common Stock of the Company at an initial conversion price of $2.50 per share
(which conversion price shall be subject to adjustment as hereinafter provided);
provided, however, that any conversion of the portion of this Note that
constitutes interest hereon shall be subject to the consent of the Company.
<PAGE>
(b) In order to exercise the conversion privilege, the holder hereof shall
surrender this Note to the Company at its principal office, accompanied by
written notice to the Company that the holder elects to convert this Note or a
part hereof. This Note or the part hereof to be converted shall be deemed to
have been converted (i) in the case of conversion of any principal amount hereof
or conversion of any principal amount hereof and interest hereon pursuant to the
immediately preceding paragraph, on the day of surrender of this Note for
conversion in accordance with the foregoing provisions, and (ii) in the case of
conversion of interest hereon which is subject to the proviso in 2(a) hereof, on
the day the Company consents to the conversion, and at such time the rights of
the holder of this Note or the part hereof to be converted, as such holder,
shall cease and such holder shall be treated for all purposes as the record
holder of the Common Stock of the Company issuable upon conversion. As promptly
as practicable on or after the conversion date the Company shall issue a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, together with, in the event this Note is being
converted in part only, a new Note representing the principal amount hereof
which shall not have been converted.
(c) The above provisions are, however, subject to the following:
(i) The conversion price shall, from and after the date of issuance of this
Note, be subject to adjustment from time to time as hereinafter provided. Upon
each adjustment of the conversion price, the holder of this Note shall
thereafter be entitled to receive the number of shares obtained by multiplying
the conversion price in effect immediately prior to such adjustment by the
number of shares issuable pursuant to conversion immediately prior to such
adjustment, and dividing the product thereof by the conversion price resulting
from such adjustment.
(ii) In case the Company shall at any time subdivide the outstanding Common
Stock into a greater number of shares or declare a dividend payable in Common
Stock, the conversion price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding Common
Stock shall be combined into a smaller number of shares, the conversion price in
effect immediately prior to such combination shall be proportionately increased.
(iii) If any capital reorganization or reclassification of the capital
stock of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets ("Substituted Property") with
respect to or in exchange for such Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, the holder of
this Note shall have the right to purchase and receive upon the basis and upon
the terms and conditions specified in this Note and in lieu of the Common Stock
of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such Substituted Property as would
have been issued or delivered to the holder if it had converted this Note and
had received upon such conversion the Common Stock prior to such reorganization,
reclassification, consolidation, merger or sale. The Company shall not effect
any such consolidation, merger or sale, unless prior to the consummation thereof
the successor corporation (if other than the Company) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the holder at the last address of
the holder appearing on the books of the Company, the obligation to deliver to
the holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, the holder may be entitled to purchase.
(iv) Upon any adjustment of the conversion price, the Company shall give
written notice thereof, by first-class mail, postage prepaid, addressed to the
holder at the address of the holder as shown on the books of the Company, which
notice shall state the conversion price resulting from such adjustment and the
increase or decrease, if any, in the number of shares purchasable at the
conversion price upon conversion of this Note, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
<PAGE>
(v) No fractional shares of Common Stock shall be issued upon the
conversion of this Note, but, instead of any fraction of a share which would
otherwise be issuable, the Company shall pay a cash adjustment in respect of
such fraction in an amount equal to the same fraction of the market price per
share of Common Stock as of the close of business on the date of the notice
required by paragraph 2(b) above. "Market price" shall mean, if the Common Stock
is traded on a securities exchange or the NASDAQ National Market System, the
closing price of the Common Stock on such exchange or the NASDAQ National Market
System, or, if the Common Stock is otherwise traded in the over-the-counter
market, the closing bid price, in each case averaged over a period of 20
consecutive business days prior to the date as of which "market price" is being
determined. If at any time the Common Stock is not traded on an exchange or the
NASDAQ National Market System, or otherwise traded in the over-the-counter
market, the "market price" shall be deemed to be the higher of (A) the book
value thereof as determined by any firm of independent public accountants of
recognized standing selected by the Board of Directors of the Company as of the
last day of any month ending within 60 days preceding the date as of which the
determination is to be made, or (B) the fair value thereof determined in good
faith by the Board of Directors of the Company as of a date which is within 15
days of the date as of which the determination is to be made.
(vi) As used herein, the term "Common Stock" shall mean and include the
Company's presently authorized shares of Common Stock and shall also include any
capital stock of any class of the Company hereafter authorized which shall not
be limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution or winding up of the
Company; provided that the shares issuable upon conversion of this Note shall
include shares designated as Common Stock of the Company on the date of original
issue of this Note or, in the case of any reclassification of the outstanding
shares thereof, the stock, securities or assets provided for in paragraph
(c)(iii) above.
3. Remedies Upon Events of Default. Upon the occurrence of an Event of
Default as defined in the Agreement, and so long as such Event of Default
continues unremedied, then, unless such Event of Default shall have been waived
by the holders of at least a majority of the principal amount of the Note then
outstanding, the holders of at least a majority of the principal amount of the
Note then outstanding shall be entitled by notice to declare the principal of
and any accrued interest on the Note to be immediately due and payable, and
thereupon the Note, including both principal and interest, shall become
immediately due and payable (provided, however, that when any Event of Default
described in Section 10.1(d) of the Agreement has occurred, the Note shall
immediately become due and payable without presentment, demand or notice of any
kind.
EVEREST MEDICAL CORPORATION
By /s/ John L. Shannon, Jr.
John L. Shannon, Jr.
Chief Executive Officer
RESTRICTION ON TRANSFER
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
THIS NOTE IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT THE
BOTTOM OF THE LAST PAGE HEREOF.
EXHIBIT 10.4
WARRANT FOR PURCHASE OF SHARES OF
COMMON STOCK
OF
EVEREST MEDICAL CORPORATION
February 16, 1996
For value received, Okabena Partnership K, a Minnesota general partnership,
or its registered assigns (the "Holder"), is entitled to purchase from Everest
Medical Corporation, a Minnesota corporation (the "Company"), at any time on or
before February 16, 2001, Two Hundred Ninety Thousand Nine Hundred and Nine
(290,909) fully paid and nonassessable shares of the Company's Common Stock,
$.01 par value (such class of stock being hereinafter referred to as the "Common
Stock" and such shares of Common Stock as may be acquired upon exercise hereof
being hereinafter referred to as the "Warrant Shares"), at an exercise price
equal to $2.75 per share ("Warrant Exercise Price").
This Warrant has been issued to the Holder by the Company pursuant to that
certain Note Purchase Agreement, dated February 16, 1996, between the Company
and the Holder (the "Note Purchase Agreement"), and is subject to the terms and
provisions thereof.
This Warrant is subject to the following provisions, terms and conditions:
1. The rights represented by this Warrant may be exercised by the Holder,
in whole or in part (but not as to a fractional share of Common Stock), by
written notice of exercise delivered to the Company accompanied by the surrender
of this Warrant (properly endorsed if required) at the principal office of the
Company and upon payment to it, by cash, certified check or bank draft, of the
warrant exercise price for such shares. The Company agrees that the Warrant
Shares so purchased shall be and are deemed to be issued as of the close of
business on the date on which this Warrant shall have been surrendered and
payment made for such Warrant Shares as aforesaid. Certificates for the shares
of Warrant Shares so purchased shall be delivered to the Holder within 15 days
after the rights represented by this Warrant shall have been so exercised, and,
unless this Warrant has expired, a new Warrant representing the number of
Warrant Shares, if any, with respect to which this Warrant has not been
exercised shall also be delivered to the Holder within such time.
Notwithstanding the foregoing, however, the Company shall not be required to
deliver any certificates for the Warrant Shares, except in accordance with the
provisions and subject to the limitations of Paragraph 6 below.
2. The Company covenants and agrees that all Warrant Shares that may be
issued upon the exercise of this Warrant will, upon issuance, be duly authorized
and issued, fully paid and nonassessable. The Company further covenants and
agrees that until expiration of this Warrant, the Company will at all times have
authorized, and reserved for the purpose of issuance or transfer upon exercise
of this Warrant, a sufficient number of shares of Common Stock to provide for
the exercise of this Warrant.
3. This Warrant shall be subject to redemption by the Company at any time
after the first anniversary date of its issuance at the call price of $0.01 per
Warrant Share if the average of the last sale price (or if the last sale price
is not reported, the closing bid price) of the Company's Common Stock, as
reported by the National Association of Securities Dealers Automated Quotation
System, over any period of forty-five (45) consecutive trading days is equal to
or greater than 140% of the exercise price of the Warrant. Notice of the call of
the Warrant and the date scheduled for such call (the "Call Date") shall be
provided to the Holder within thirty (30) days after such forty-five (45)
consecutive trading days and at least thirty (30) days prior to the Call Date.
The Holder shall continue to have the right to exercise this Warrant until the
close of business, Minneapolis time, on the business day prior to the Call Date.
On the Call Date, the Company will deliver to the Holder a certified or
cashier's check for the full amount of the call price, and the Holder shall
deliver the original Warrant to the Company.
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT THE BOTTOM
OF THE LAST PAGE HEREOF.
<PAGE>
4. The foregoing provisions are, however, subject to the following:
(a) The Warrant Exercise Price shall be subject to adjustment from time to
time as hereinafter provided. Upon each adjustment of the Warrant Exercise
Price, the Holder of this Warrant shall thereafter be entitled to purchase, at
the Warrant Exercise Price resulting from such adjustment, the number of shares
obtained by multiplying the Warrant Exercise Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment.
(b) In case the Company shall at any time subdivide the outstanding Common
Stock into a greater number of shares or declare a dividend payable in Common
Stock, the Warrant Exercise Price and the Warrant Call Price in effect
immediately prior to such subdivision shall be proportionately reduced, and
conversely, in case the outstanding Common Stock shall be combined into a
smaller number of shares, the Warrant Exercise Price and the Warrant Call Price
in effect immediately prior to such combination shall be proportionately
increased.
(c) If any capital reorganization or reclassification of the capital stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation shall be effected in such a way that holders of Common Stock shall
be entitled to receive stock, securities or assets ("Substituted Property") with
respect to or in exchange for such Common Stock, then, as a condition of such
reorganization, reclassification, consolidation, merger or sale, the Holder
shall have the right to purchase and receive upon the basis and upon the terms
and conditions specified in this Warrant and in lieu of the Common Stock of the
Company immediately theretofore purchasable and receivable upon the exercise of
the rights represented hereby, such Substituted Property as would have been
issued or delivered to the Holder if it had exercised this Warrant and had
received upon exercise of this Warrant the Common Stock prior to such
reorganization, reclassification, consolidation, merger or sale. The Company
shall not effect any such consolidation, merger or sale, unless prior to the
consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed to the Holder at
the last address of the Holder appearing on the books of the Company, the
obligation to deliver to the Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, the Holder may be entitled to
purchase.
(d) Upon any adjustment of the Warrant Exercise Price and the Warrant Call
Price, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder at the address of the Holder as shown
on the books of the Company, which notice shall state the Warrant Exercise Price
and the Warrant Call Price resulting from such adjustment and the increase or
decrease, if any, in the number of shares purchasable at the Warrant Exercise
Price upon the exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
5. This Warrant shall not entitle the Holder to any voting rights or other
rights as a shareholder of the Company.
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT THE
BOTTOM OF THE LAST PAGE HEREOF.
<PAGE>
6. The Holder, by acceptance hereof, represents and warrants that (a) it is
acquiring this Warrant for its own account for investment purposes only and not
with a view to its resale or distribution and (b) it has no present intention to
resell or otherwise dispose of all or any part of this Warrant. Other than
pursuant to registration under federal and state securities laws or an exemption
from such registration, the availability of which the Company shall determine in
its sole discretion, (y) the Company will not accept the exercise of this
Warrant or issue certificates for Warrant Shares and (z) neither this Warrant
nor any Warrant Shares may be sold, pledged, assigned or otherwise disposed of
(whether voluntarily or involuntarily). The Company may condition such issuance
or sale, pledge, assignment or other disposition on the receipt from the party
to whom this Warrant is to be so transferred or to whom Warrant Shares is to be
issued or so transferred of any representations and agreements requested by the
Company in order to permit such issuance or transfer to be made pursuant to
exemptions from registration under federal and applicable state securities laws.
Each certificate representing the Warrant (or any part thereof) and any Warrant
Shares shall be stamped with appropriate legends setting forth these
restrictions on transferability. The Holder, by acceptance hereof, agrees to
give written notice to the Company before exercising or transferring this
Warrant or transferring any Warrant Shares of the Holder's intention to do so,
describing briefly the manner of any proposed exercise or transfer. Within
thirty (30) days after receiving such written notice, the Company shall notify
the Holder as to whether such exercise or transfer may be effected.
7. The Holder of this Warrant and holders of the Warrant Shares shall be
entitled to the registration rights set forth in Section 9 of the Note Purchase
Agreement.
8. (a) In addition to and without limiting the rights of the holder of this
Warrant with respect to other terms of this Warrant, the holder of this Warrant
shall have the right (the "Conversion Right") to convert this Warrant or any
portion thereof into shares of Common Stock as provided in this paragraph 8 at
any time or from time to time prior to its expiration, subject to the
restrictions set forth in paragraph (c) below. Upon exercise of the Conversion
Right with respect to a particular number of shares subject to this Warrant (the
"Converted Warrant Shares"), the Company shall deliver to the holder of this
Warrant, without payment by the holder of any exercise price or any cash or
other consideration, that number of shares of Common Stock equal to the quotient
obtained by dividing the Net Value (as hereinafter defined) of the Converted
Warrant Shares by the fair market value (as defined in paragraph (d) below) of a
single share of Common Stock, determined in each case as of the close of
business on the Conversion Date (as hereinafter defined). The "Net Value" of the
Converted Warrant Shares shall be determined by subtracting the aggregate
warrant purchase price of the Converted Warrant Shares from the aggregate fair
market value of the Converted Warrant Shares. Notwithstanding anything in this
paragraph 8 to the contrary, the Conversion Right cannot be exercised with
respect to a number of Converted Warrant Shares having a Net Value below $100.
No fractional shares shall be issuable upon exercise of the Conversion Right,
and if the number of shares to be issued in accordance with the foregoing
formula is other than a whole number, the Company shall pay to the holder of
this Warrant an amount in cash equal to the fair market value of the resulting
fractional share.
(b) The Conversion Right may be exercised by the holder of this Warrant by
the surrender of this Warrant at the principal office of the Company together
with a written statement specifying that the holder thereby intends to exercise
the Conversion Right and indicating the number of shares subject to this Warrant
which are being surrendered (referred to in paragraph (a) above as the Converted
Warrant Shares) in exercise of the Conversion Right. Such conversion shall be
effective upon receipt by the Company of this Warrant together with the
aforesaid written statement, or on such later date as is specified therein (the
"Conversion Date"), but not later than the expiration date of this Warrant.
Certificates for the shares of Common Stock issuable upon exercise of the
Conversion Right, together with a check in payment of any fractional share and,
in the case of a partial exercise, a new warrant evidencing the shares remaining
subject to this Warrant, shall be issued as of the Conversion Date and shall be
delivered to the holder of this Warrant within 15 days following the Conversion
Date.
(c) In the event the Conversion Right would, at any time this Warrant
remains outstanding, be deemed by the Company's independent certified public
accountants to give rise to a charge to the Company's earnings for financial
reporting purposes, then the Conversion Right shall automatically terminate upon
the Company's written notice to the holder of this Warrant of such adverse
accounting treatment.
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH AT THE BOTTOM
OF THE LAST PAGE HEREOF.
<PAGE>
(d) For purposes of this paragraph 8, the "fair market value" of a share of
Common Stock as of a particular date shall be its "market price", calculated as
of the Conversion Date, as follows:
(i) if the Common Stock is traded on an exchange or is quoted on the Nasdaq
National Market, then the average closing or last sale prices, respectively,
reported for the ten (10) business days immediately preceding the Conversion
Date, or
(ii) if the Common Stock is not traded on an exchange or on the Nasdaq
National Market but is traded on Nasdaq SmallCap Market or other
over-the-counter market, then the average closing bid and asked prices reported
for the ten (10) business days immediately preceding the Conversion Date, or
(iii) if the Common Stock is not traded on an exchange or on the Nasdaq
National Market, Nasdaq SmallCap Market or other over-the counter market, then
the price per share established by the Board of Directors of the Company.
9. This Warrant shall be transferable only on the books of the Company by
the Holder in person, or by duly authorized attorney, on surrender of the
Warrant, properly assigned.
10. Neither this Warrant nor any term hereof may be changed, waived,
discharged or terminated orally but only by an instrument in writing signed by
the party against which enforcement of the change, waiver, discharge or
termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer and to be dated as of the date set forth above.
EVEREST MEDICAL CORPORATION
By /s/ John L. Shannon, Jr.
John L. Shannon, Jr.
Chief Executive Officer
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED WITHOUT
REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY STATE SECURITIES
LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR PLEDGED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR
AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER IS EXEMPT
FROM REGISTRATION UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS.
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
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6,693,169
0
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