EXHIBIT 10.2
REMOTEMDX, INC.
SUBSCRIPTION AGREEMENT
SUBSCRIPTION AGREEMENT (this "Subscription Agreement") made as of this
__ day of , 2005 between RemoteMDx, Inc., a corporation organized under the laws
of the State of Utah with offices at 0000 Xxxx 0000 Xxxxx, Xxxx Xxxx Xxxx, Xxxx
00000 (the "Company"), and the undersigned (the "Subscriber").
WHEREAS, the Company desires to issue a maximum of $1,000,000 (the
"Maximum Offering") of 18% convertible promissory notes (the "Bridge Notes"),
substantially in the form attached hereto as Exhibit A, and 1,000,000 shares of
common stock of the Company (the "Shares") (the "Offering"), on the terms and
conditions set forth herein, and the Subscriber desires to acquire the number of
Securities set forth on the signature page hereof;
WHEREAS, the Bridge Notes may, at the sole discretion of each of the
holders of the Bridge Notes, convert into shares of Common Stock of the Company
(the "Bridge Shares");
WHEREAS, the Bridge Shares purchased by the Subscriber pursuant to this
Subscription Agreement and the Shares are entitled to registration rights on the
terms set forth in this Subscription Agreement;
WHEREAS, Casimir Capital L.P. is acting as placement agent (the
"Placement Agent") for the Offering pursuant to a placement agency agreement
(the "Agency Agreement") by and between the Company and the Placement Agent
dated __, 2005; and
WHEREAS, the Subscriber is delivering simultaneously herewith a
completed confidential investor questionnaire attached hereto as Exhibit B (the
"Questionnaire").
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants hereinafter set forth, the parties hereto do hereby agree as follows:
I. SUBSCRIPTION FOR SECURITIES AND REPRESENTATIONS BY AND COVENANTS OF
SUBSCRIBER
1.1 Subscription for Securities. Subject to the terms and
conditions hereinafter set forth, the Subscriber hereby subscribes for and
agrees to purchase from the Company such number of Securities as is set forth
upon the signature page hereof at an aggregate price equal to $[________] and
the Company agrees to sell such Securities to the Subscriber for said purchase
price, subject to the Company's right, in its sole discretion, and the Placement
Agent's right, in its sole discretion, to (a) sell to the Subscriber such lesser
number of Securities as they may, in their sole discretion, deem necessary or
desirable without any prior notice to or further consent by the Subscriber or
(b) reject this subscription, in whole or in part, at any time prior to a
Closing (as defined below) with respect to this subscription. The purchase price
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is payable by certified or bank check made payable to "Signature Bank, as escrow
agent for RemoteMDx, Inc." or by wire transfer of funds, contemporaneously with
the execution and delivery of this Subscription Agreement. Signature Bank (the
"Escrow Agent") shall act as such in accordance with the terms and conditions of
an escrow agreement to be entered into by and among the Placement Agent, the
Company and the Escrow Agent. The Bridge Notes and Shares shall be delivered by
the Company within five (5) business days following the consummation of the
Offering as set forth in Article III hereof.
1.2 Reliance on Exemptions. The Subscriber acknowledges that the
Offering has not been reviewed by the United States Securities and Exchange
Commission (the "SEC") or any state agency because it is intended to be a
nonpublic offering exempt from the registration requirements of the Securities
Act of 1933, as amended (the "1933 Act"), and state securities laws. The
Subscriber understands that the Company is relying in part upon the truth and
accuracy of, and the Subscriber's compliance with, the representations,
warranties, agreements, acknowledgments and understandings of the Subscriber set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Subscriber to acquire the Securities.
1.3 Investment Purpose. The Subscriber represents that the
Securities (defined below) are being purchased for its own account, for
investment purposes only and not for distribution or resale to others in
contravention of the registration requirements of the 1933 Act. The Subscriber
agrees that it will not sell or otherwise transfer the Bridge Notes, Bridge
Shares, or the Shares (collectively, the "Securities") unless they are
registered under the 1933 Act or unless an exemption from such registration is
available.
1.4 Accredited Investor. The Subscriber represents and warrants
that it is an "accredited investor" as such term is defined in Rule 501 of
Regulation D promulgated under the 1933 Act, as indicated by its responses to
the Questionnaire, and that it is able to bear the economic risk of any
investment in the Securities. The Subscriber further represents and warrants
that the information furnished in the Questionnaire is accurate and complete in
all material respects.
1.5 Risk of Investment. The Subscriber recognizes that the
purchase of Securities involves a high degree of risk in that: (a) an investment
in the Company is highly speculative and only investors who can afford the loss
of their entire investment should consider investing in the Company and the
Securities; (b) transferability of the Securities is limited; and (c) the
Company may require substantial additional funds to operate its business and
there can be no assurance that the Maximum Offering will be completed. The
Subscriber hereby confirms that he or she has read the "Risk Factors" attached
hereto as Exhibit C.
1.6 Prior Investment Experience. The Subscriber acknowledges that
he has prior investment experience, including investment in non-listed and
non-registered securities and that he recognizes the highly speculative nature
of this investment.
1.7 Information. The Subscriber acknowledges careful review of
this Subscription Agreement, and all exhibits, schedules and appendices which
are attached hereto (collectively, the "Offering Documents"), and hereby
represents that: (i) the Subscriber has been furnished by the Company during the
course of this transaction with all information regarding the Company which it
has requested; (ii) that the Subscriber has been afforded the opportunity to ask
questions of and receive answers from duly authorized officers of the Company
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concerning the terms and conditions of the Offering, and any additional
information which it has requested; and (iii) the Subscriber, if it has
requested, has been given the opportunity by the Placement Agent to review the
Agency Agreement.
1.8 No Representations. The Subscriber hereby represents that,
except as expressly set forth in the Offering Documents, no representations or
warranties have been made to the Subscriber by the Company or any agent,
employee or affiliate of the Company, including the Placement Agent, and in
entering into this transaction the Subscriber is not relying on any information
other than that contained in the Offering Documents and the results of
independent investigation by the Subscriber.
1.9 Tax Consequences. The Subscriber acknowledges that the
Offering may involve tax consequences and that the contents of the Offering
Documents do not contain tax advice or information. The Subscriber acknowledges
that he must retain his own professional advisors to evaluate the tax and other
consequences of an investment in the Securities.
1.10 Transfer or Resale. The Subscriber acknowledges that there is
no public market for any of the Company's securities. The Subscriber understands
and hereby acknowledges that the Company is under no obligation to register the
securities comprising the Securities under the 1933 Act, with the exception of
certain registration rights covering the resale of the Bridge Shares purchased
by the Subscriber pursuant to this Subscription Agreement and the Shares set
forth in Article IV herein. The Subscriber consents that the Company may, if it
desires, permit the transfer of the Securities out of the Subscriber's name only
when the Subscriber's request for transfer is accompanied by an opinion of
counsel reasonably satisfactory to the Company that neither the sale nor the
proposed transfer results in a violation of the 1933 Act or any applicable state
"blue sky" laws.
1.11 Placement Agent. The Subscriber agrees that neither the
Placement Agent nor any of its directors, officers, employees or agents shall be
liable to any Subscriber for any action taken or omitted to be taken by it in
connection therewith, except for willful misconduct or gross negligence.
1.12 Legends. The Subscriber understands that the certificates
representing the Securities, until such time as they have been registered under
the 1933 Act, shall bear a restrictive legend in substantially the following
form (and a stop-transfer order may be placed against transfer of such
certificates or other instruments):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE
SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED
OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
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SECURITIES LAWS, OR (B) AN OPINION OF COUNSEL, IN A
REASONABLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT
REQUIRED UNDER SAID ACT OR APPLICABLE STATE SECURITIES
LAWS, OR (II) UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID
ACT.
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of the Registrable
Security (as defined herein) upon which it is stamped, if (a) such Registrable
Securities are being sold pursuant to a registration statement under the 1933
Act, (b) such holder delivers to the Company an opinion of counsel, in a
reasonably acceptable form, to the Company that a disposition of the Registrable
Securities is being made pursuant to an exemption from such registration, or (c)
such holder provides the Company with reasonable assurance that a disposition of
the Registrable Securities may be made pursuant to the Rule without any
restriction as to the number of securities acquired as of a particular date that
can then be immediately sold.
1.13 No General Solicitation. The Subscriber represents that the
Subscriber was not induced to invest by any form of general solicitation or
general advertising including, but not limited to, the following: (a) any
advertisement, article, notice or other communication published in any
newspaper, magazine or similar media or broadcast over the news or radio; and
(b) any seminar or meeting whose attendees were invited by any general
solicitation or advertising.
1.14 Validity; Enforcement. If the Subscriber is a corporation,
partnership, trust or other entity, the Subscriber represents and warrants that:
(a) it is authorized and otherwise duly qualified to purchase and hold the
Securities; and (b) that this Subscription Agreement has been duly and validly
authorized, executed and delivered and constitutes the legal, binding and
enforceable obligation of the undersigned. If the Subscriber is an individual,
the Subscriber represents and warrants that this Subscription Agreement has been
duly and validly executed and delivered and constitutes the legal, binding and
enforceable obligation of the undersigned.
1.15 Address. The Subscriber hereby represents that the address of
the Subscriber furnished by the Subscriber at the end of this Subscription
Agreement is the undersigned's principal residence if the Subscriber is an
individual or its principal business address if it is a corporation or other
entity.
1.16 Foreign Subscriber. If the Subscriber is not a United States
person, such Subscriber hereby represents that it has satisfied itself as to the
full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Securities comprising the Securities or any use
of this Subscription Agreement, including: (a) the legal requirements within its
jurisdiction for the purchase of the Securities; (b) any foreign exchange
restrictions applicable to such purchase; (c) any governmental or other consents
that may need to be obtained; and (d) the income tax and other tax consequences,
if any, that may be relevant to the purchase, holding, redemption, sale or
transfer of the Securities comprising the Securities. Such Subscriber's
subscription and payment for, and his or her continued beneficial ownership of
the Securities, will not violate any applicable securities or other laws of the
Subscriber's jurisdiction.
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1.17 NASD Member. The Subscriber acknowledges that if it is a
Registered Representative of a NASD member firm, the Subscriber must give such
firm notice required by the NASD's Rules of Fair Practice, receipt of which must
be acknowledged by such firm on the signature page hereof.
1.18 Entity Representation. If the undersigned Subscriber is a
partnership, corporation, trust or other entity, such partnership, corporation,
trust or other entity further represents and warrants that: (a) it was not
formed for the purpose of investing in the Company; (b) it is authorized and
otherwise duly qualified to purchase and hold the Securities; and (c) that this
Subscription Agreement has been duly and validly authorized, executed and
delivered and constitutes the legal, binding and enforceable obligation of the
undersigned.
II. REPRESENTATIONS BY THE COMPANY
The Company represents and warrants to the Subscriber, except as set
forth in the disclosure schedules attached hereto:
2.1 Organization and Qualification. The Company is duly organized
and validly existing in good standing under the laws of the jurisdiction in
which it is organized, and has the requisite corporate power and authority to
own its properties and to carry on its business as now being conducted. The
Company is duly qualified as a foreign corporation to do business and is in good
standing in every jurisdiction in which its ownership of property or the nature
of the business conducted by it makes such qualification necessary, except to
the extent that the failure to be so qualified or be in good standing would not
have a Material Adverse Effect. As used in this Subscription Agreement,
"Material Adverse Effect" means any material adverse effect on the business,
properties, assets, operations, results of operations, financial condition or
prospects of the Company, or on the transactions contemplated hereby, or by the
other Offering Documents or the agreements and instruments to be entered into in
connection herewith or therewith, or on the authority or ability of the Company
to perform its obligations under the Offering Documents. The Company does not
have any subsidiaries other than as set forth on Schedule 2.1 attached hereto.
2.2 Authorization; Enforcement; Validity. The Company has the
requisite corporate power and authority to enter into and perform its
obligations under this Subscription Agreement and the other Offering Documents,
to perform its obligations under the Offering Documents, and to issue the
Securities in accordance with the terms of the Offering Documents. When executed
and delivered by the Company, the execution and delivery of the Offering
Documents by the Company and the consummation by the Company of the transactions
contemplated by the Offering Documents, including without limitation the
issuance of the Securities, will have been duly authorized by the Company's
board of directors and no further consent or authorization is required from the
Company's board of directors or its stockholders.
2.3 Issuance of Securities. The issuance, sale and delivery of the
Securities have been duly authorized by all requisite corporate action by the
Company and, upon issuance in accordance with the Offering Documents, shall be
(a) duly authorized, validly issued, fully paid and non-assessable, and (b) free
from all taxes, liens and charges with respect to the issue thereof.
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2.4 No Conflicts. The execution, delivery and performance of the
Offering Documents by the Company and the consummation by the Company of the
transactions contemplated therein, will not (a) result in a violation of the
Company's Certificate of Incorporation, any certificate of designations,
preferences and rights of any outstanding series of preferred stock of the
Company, or the Company's bylaws, (b) conflict with, or constitute a default or
an event which with notice or lapse of time or both would become a default
under, or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, lease, license or instrument, or (c)
result in a violation of any law, rule, regulation, order, judgment or decree
(including Federal and state securities laws and regulations) applicable to the
Company or by which any property or asset of the Company is bound or affected.
2.5 Financial Statements. As of their respective dates, the
financial statements of the Company attached hereto as Schedule 2.5 complied as
to form in all material respects with applicable accounting requirements. Such
financial statements have been prepared in accordance with generally accepted
accounting principles, consistently applied, during the periods involved (except
(a) as may be otherwise indicated in such financial statements or the notes
thereto, or (b) in the case of unaudited interim statements, to the extent they
may exclude footnotes or may be condensed or summary statements) and fairly
present in all material respects the financial position of the Company as of the
dates thereof and the results of its operations and cash flows for the periods
then ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments that will not be material).
2.6 Absence of Litigation. Except as set forth on Schedule 2.6
attached hereto, there is no action, suit, proceeding, inquiry or investigation
before or by any court, public board, government agency, self-regulatory
organization or body, or arbitrator pending or, to the knowledge of the Company,
threatened against the Company or any of the Company's officers or directors in
their capacities as such which would have a Material Adverse Effect.
2.7 Securities Law Compliance. The offer, offer for sale, and sale
of the Securities have not been registered with the SEC. The Securities are to
be offered for sale and sold in reliance upon the exemptions from the
registration requirements of Section 5 of the 1933 Act. The Company will conduct
the Offering in compliance with the requirements of Regulation D under the 1933
Act.
2.8 Disclosure. None of the representations and warranties of the
Company appearing in this Subscription Agreement or any information appearing in
any of the Offering Documents, when considered together as a whole, contains, or
on any Closing Date (as defined in Section 3.1 below) will contain, any untrue
statement of a material fact or omits, or on any Closing Date will omit, to
state any material fact required to be stated herein or therein in order for the
statements herein or therein, in light of the circumstances under which they
were made, not to be misleading.
III. TERMS OF SUBSCRIPTION
3.1 Offering Period. The subscription period will begin as of June
__, 2005 and will terminate at 11:59 PM New York time on October 31, 2005,
unless extended by mutual agreement of the Company and the Placement Agent for
up to an additional 60 days (the "Termination Date"). Provided that all
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conditions to closing set forth in the Agency Agreement have been satisfied or
waived, and neither the Company nor the Placement Agent have notified the other
that they do not intend to effect a closing of the Offering (a "Closing"), a
Closing shall take place at the offices of counsel to the Placement Agent,
Sichenzia Xxxx Xxxxxxxx xxxxxxx LLP, 0000 Xxxxxx xx xxx Xxxxxxxx Xxxxxx, Xxx
Xxxx, Xxx Xxxx 00000 (but in no event later than three days following the
Termination Date, which closing date may be accelerated or adjourned by
agreement between the Company and the Placement Agent). At the Closing, payment
for the Securities to be issued and sold by the Company shall be made against
issuance and delivery of the Bridge Notes and Shares comprising such Securities.
In addition, subsequent closings of the Offering (if applicable) may be
scheduled at the discretion of the Company and Placement Agent, each of which
shall be deemed a "Closing" hereunder. The date of the last closing of the
Offering is hereinafter referred to as the "Final Closing" and the date of any
Closing hereunder is hereinafter referred to as a "Closing Date."
3.2 Expenses; Fees. Simultaneously with payment for and delivery
of the Securities at each Closing of the Offering, the Company shall pay to the
Placement Agent (i) a placement fee equal to ten percent (10%) of the aggregate
gross proceeds in each Closing. The Placement Agent will also receive a
non-accountable expense allowance equal to 3% of the aggregate gross proceeds in
each Closing (the "Agent's Expense Allowance"). The Company has also agreed to
issue to the Placement Agent an aggregate of 250,000 shares of common stock for
the successful completion of the entire Offering, such shares to be issued on a
pro-rata basis based upon the aggregate gross proceeds in each Closing.
In addition, in connection with the Offering, the Company and the
Placement Agent have agreed to enter into a Financial Advisory Agreement
("Financial Advisory Agreement") pursuant to which the Company shall engage the
Placement Agent as its exclusive financial advisor with respect to financial and
strategic advisory services as may, from time to time, reasonably be required by
the Company, including the finding, structuring and/or negotiation of mergers,
acquisitions, joint ventures, product or technology licensing arrangements,
product or service sales, and such other corporate development and corporate
finance services. The Company shall pay the Placement Agent an advisory fee
equal to $120,000 for a period of twelve (12) months commencing on the date of
such Financial Advisory Agreement ("Consultancy Period") and shall issue to
Casimir 250,000 shares of Common Stock. $30,000 of such fees shall be paid and
the shares shall be issued upon the Closing of an aggregate of $500,000. The
remaining cash fees shall be paid on a monthly basis at the rate of $10,000 per
month.
3.3 Escrow. Pending the sale of the Securities, all funds paid
hereunder shall be deposited by the Company in escrow with the Escrow Agent. If
the Company shall not have completed a Closing on or before the Termination
Date, then this subscription shall be void and all funds paid hereunder by the
Subscriber, without interest, shall be promptly returned to the Subscriber,
subject to Section 3.5 hereof.
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3.4 Certificates. The Subscriber hereby authorizes and directs the
Company, at each Closing, to deliver the Shares to be issued to such Subscriber
pursuant to this Subscription Agreement either (a) to the Subscriber's address
indicated in the Questionnaire, or (b) directly to the Subscriber's account
maintained with the Placement Agent, if any.
3.5 Return of Funds. The Subscriber hereby authorizes and directs
the Company to return any funds for unaccepted subscriptions to the same account
from which the funds were drawn, including any customer account maintained with
the Placement Agent.
IV. REGISTRATION RIGHTS
4.1 Mandatory Registration.
(a) Filing of Form SB-2 Registration Statements. Subject to
the terms and conditions of this Agreement, the Company shall file with the SEC
within thirty (30) days following the earlier of the closing of the offering or
the Termination Date, a registration statement on Form SB-2 under the Securities
Act (the "Registration Statement") for the registration of the resale by the
Holder of the Bridge Shares and the Shares (collectively, including any shares
of Common Stock issued or issuable thereon upon any stock split, stock
combination, stock dividend or the like or as a result of any anti-dilution
adjustments under the Bridge Notes or the Shares, but excluding any Securities
that a Subscriber is permitted to transfer under Rule 144(k) of the 1933 Act,
the "Registrable Securities")
(b) Effectiveness of the Registration Statement. The
Company shall use its reasonable best efforts to have the Registration Statement
declared effective by the SEC by no later than one hundred and fifty (150) days
after the earlier of (i) the closing of the offering or (ii) the termination
date, and to insure that the Registration Statement remains in effect for the
period specified in Section 4.3(a), subject to the terms and conditions of this
Agreement.
(c) Failure to File or Obtain Effectiveness of Registration
Statements. In the event the Company fails for any reason to file or to obtain
the effectiveness of a Registration Statement within the time periods set forth
in Sections 1(a) and 1(b), then the Company will make pro rata payments to the
Holder, as liquidated damages and not as a penalty, in an amount equal to 2.0%
of the aggregate amount invested by the Holder for each 30-day period or pro
rata for any portion thereof following the date by which such Registration
Statement should have been filed or decaled effective. Such payments shall be in
partial compensation to the Holder, and shall not constitute the Holder's
exclusive remedy for such events. Such payments shall be made to each Investor
in cash.
(d) The parties hereto acknowledge and agree that the sums
payable under Sections 1(c) or 1(d) above shall constitute liquidated damages
and not penalties. The parties further acknowledge that (a) the amount of loss
or damages likely to be incurred is incapable or is difficult to precisely
estimate, (b) the amounts specified in such Sections bear a reasonable
proportion and are not plainly or grossly disproportionate to the probable loss
likely to be incurred in connection with any failure by the Company to obtain or
maintain the effectiveness of a Registration Statement, (c) one of the reasons
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for the parties reaching an agreement as to such amounts was the uncertainty and
cost of litigation regarding the question of actual damages, and (d) the parties
are sophisticated business parties and have been represented by sophisticated
and able legal and financial counsel and negotiated this Agreement at arm's
length.
4.2. Cooperation with Company. The Holder will cooperate with the
Company in all respects in connection with this Agreement, including, timely
supplying all information reasonably requested by the Company and executing and
returning all documents reasonably requested in connection with the registration
and sale of the Registrable Securities.
4.3 Registration Procedures. If and whenever the Company is
required by any of the provisions of this Agreement to use its best efforts to
effect the registration of any of the Registrable Securities under the 1933 Act,
the Company shall (except as otherwise provided in this Agreement), as
expeditiously as possible:
a. prepare and file with the Securities and Exchange
Commission (the "Commission") a registration statement and shall use its best
efforts to cause such registration statement to become effective and remain
effective until earlier of (i) two years from the date of issuance of the
Registrable Securities, (ii) the date that none of the Registrable Securities
are or may become issued and outstanding, (iii) the date that all of the
Registrable Securities have been sold, (iv) the date the investors in the
Offering receive an opinion of counsel to the Company, which counsel shall be
reasonably acceptable to the investors in the Offering, that the securities may
be sold under the provisions of Rule 144 without limitation as to volume, or (v)
all Registrable Securities have been otherwise transferred to persons who may
trade such shares without restriction under the Act, and the Company has
delivered a new certificate or other evidence of ownership for such securities
not bearing a restrictive legend.
b. prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the 1933 Act with respect to the sale or other
disposition of all securities covered by such registration statement whenever
the Holder of such securities shall desire to sell or otherwise dispose of the
same (including prospectus supplements with respect to the sales of securities
from time to time in connection with a registration statement pursuant to Rule
415 of the Commission);
c. furnish to the Holder such numbers of copies of a
summary prospectus or other prospectus, including a preliminary prospectus or
any amendment or supplement to any prospectus, in conformity with the
requirements of the 1933 Act, and such other documents, as such Holder may
reasonably request in order to facilitate the public sale or other disposition
of the securities owned by such Holder;
d. use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as each Holder shall reasonably request, and
do any and all other acts and things which may be necessary or advisable to
enable such Holder to consummate the public sale or other disposition in such
jurisdiction of the securities owned by such Holder, except that the Company
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shall not for any such purpose be required to qualify to do business as a
foreign corporation in any jurisdiction wherein it is not so qualified or to
file therein any general consent to service of process;
e. use its best efforts to list such securities on any
securities exchange on which any securities of the Company is then listed, if
the listing of such securities is then permitted under the rules of such
exchange;
f. enter into and perform its obligations under an
underwriting agreement, if the offering is an underwritten offering, in usual
and customary form, with the managing underwriter or underwriters of such
underwritten offering;
g. notify the Holder of Registrable Securities covered by
such registration statement, at any time when a prospectus relating thereto
covered by such registration statement is required to be delivered under the
1933 Act, of the happening of any event of which it has knowledge as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing; and
h. furnish, at the request of the Holder on the date such
Registrable Securities are delivered to the underwriters for sale pursuant to
such registration or, if such Registrable Securities are not being sold through
underwriters, on the date the registration statement with respect to such
Registrable Securities becomes effective, (i) an opinion, dated such date, of
the counsel representing the Company for the purpose of such registration,
addressed to the underwriters, if any, and to the Holder making such request,
covering such legal matters with respect to the registration in respect of which
such opinion is being given as the Holder of such Registrable Securities may
reasonably request and are customarily included in such an opinion and (ii)
letters, dated, respectively, (1) the effective date of the registration
statement and (2) the date such Registrable Securities are delivered to the
underwriters, if any, for sale pursuant to such registration from a firm of
independent certified public accountants of recognized standing selected by the
Company, addressed to the underwriters, if any, and to the Holder making such
request, covering such financial, statistical and accounting matters with
respect to the registration in respect of which such letters are being given as
the Holder of such Registrable Securities may reasonably request and are
customarily included in such letters.
4.3 Expenses. All expenses incurred in any registration of the
Holder's Registrable Securities under this Agreement shall be paid by the
Company, including, without limitation, printing expenses, fees and
disbursements of counsel for the Company, expenses of any audits to which the
Company shall agree or which shall be necessary to comply with governmental
requirements in connection with any such registration, all registration and
filing fees for the Holder's Registrable Securities under federal and State
securities laws, and expenses of complying with the securities or blue sky laws
of any jurisdictions; provided, however, the Company shall not be liable for (a)
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any discounts or commissions to any underwriter; (b) any stock transfer taxes
incurred with respect to Registrable Securities sold in the Offering or (c) the
fees and expenses of counsel for any Holder, provided that the Company will pay
the costs and expenses of Company counsel when the Company's counsel is
representing any or all selling security holders
4.4 Indemnification.
(a) The Company will indemnify and hold harmless each Subscriber
of Registrable Securities that are included in a registration statement pursuant
to the provisions of Sections 4.1 hereof, its directors and officers, and any
underwriter (as defined in the 0000 Xxx) for such Subscriber and each person, if
any, who controls such Subscriber or such underwriter within the meaning of the
1933 Act, from and against, and will reimburse such Subscriber and each such
underwriter and controlling person with respect to, any and all loss, damage,
liability, cost and expense to which such Subscriber or any such underwriter or
controlling person may become subject under the 1933 Act or otherwise, insofar
as such losses, damages, liabilities, costs or expenses are caused by any untrue
statement or alleged untrue statement of any material fact contained in such
registration statement, any prospectus contained therein or any amendment or
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, damage, liability,
cost or expenses arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission so made in conformity with
information furnished by or on behalf of such Subscriber, such underwriter or
such controlling person in writing specifically for use in the preparation
thereof. Notwithstanding anything to the contrary contained herein, the Company
shall not be required to indemnify or hold harmless any such person with respect
to any such loss, damage, liability, cost or expense arising out of or based
upon (A) (i) any failure by such person to give any purchaser of Registrable
Securities at or prior to the written confirmation of such sale, a copy of the
most recent prospectus, (ii) any prospectus used after such time as the Company
advised such person that the filing of a post effective amendment or supplement
thereto was required, except the prospectus as so amended or supplemented, or
(iii) any prospectus used after such time as the Company's obligation to keep
the Registration Statement effective and current has expired or been suspended
hereunder, provided, that the Company has so advised such person; (B) shall not
apply to amounts paid in settlement of any claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (C) with respect to any preliminary prospectus, shall
not inure to the benefit of any such person if the untrue statement or omission
of material fact contained in the preliminary prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented, if such
corrected prospectus was timely made available by the Company pursuant to the
terms of this Agreement, and such person was promptly advised in writing not to
use the incorrect prospectus prior to the use giving rise to a claim and such
person, notwithstanding such advice, used it.
(b) Each holder of Registrable Securities that are included in a
registration statement pursuant to the provisions of Section 4.1 hereof will
indemnify and hold harmless the Company, its directors and officers, any
controlling person and any underwriter from and against, and will reimburse the
Company, its directors and officers, any controlling person and any underwriter
with respect to, any and all loss, damage, liability, cost or expense to which
the Company or any controlling person and/or any underwriter may become subject
under the 1933 Act or otherwise, insofar as such losses, damages, liabilities,
costs or expenses are caused by any untrue statement or alleged untrue statement
11
of any material fact contained in such registration statement, any prospectus
contained therein or any amendment or supplement thereto, or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, in each case
to the extent that such untrue statement or alleged untrue statement or omission
or alleged omission was so made in reliance upon and in strict conformity with
written information furnished by or on behalf of such holder specifically for
use in the preparation thereof.
(c) Promptly after receipt by an indemnified party pursuant to the
provisions of paragraph (a) or (b) of this Section 4.4 of notice of the
commencement of any action involving the subject matter of the foregoing
indemnity provisions such indemnified party will, if a claim thereof is to be
made against the indemnifying party pursuant to the provisions of said paragraph
(a) or (b), promptly notify the indemnifying party of the commencement thereof;
but the omission to so notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise under this
Section except to the extent the defense of the claim is prejudiced. In case
such action is brought against any indemnified party and it notifies the
indemnifying party of the commencement thereof, the indemnifying party shall
have the right to participate in, and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party,
provided, however, if counsel for the indemnifying party concludes that a single
counsel cannot under applicable legal and ethical considerations, represent both
the indemnifying party and the indemnified party, the indemnified party or
parties have the right to select separate counsel to participate in the defense
of such action on behalf of such indemnified party or parties; provided that
there shall be no more than one such separate counsel. After notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party pursuant to the provisions of said paragraph (a) or (b) for any legal or
other expense subsequently incurred by such indemnified party in connection with
the defense thereof other than reasonable costs of investigation, unless (i) the
indemnified party shall have employed counsel in accordance with the provisions
of the preceding sentence, (ii) the indemnifying party shall not have employed
counsel reasonably satisfactory to the indemnified party to represent the
indemnified party within a reasonable time after the notice of the commencement
of the action or (iii) the indemnifying party has, in its sole discretion,
authorized the employment of counsel for the indemnified party at the expense of
the indemnifying party.
V. MISCELLANEOUS
5.1 Notice. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Subscription Agreement
must be in writing and will be deemed to have been delivered: (a) upon receipt,
when delivered personally, (b) upon receipt, when sent by facsimile (provided
confirmation of transmission is mechanically or electronically generated and
kept on file by the sending party), or (c) one (1) business day after deposit
with an overnight courier service, in each case properly addressed to the party
to receive the same. The addresses and facsimile numbers for such communications
shall be:
12
If to the Company:
RemoteMDx, Inc.
0000 Xxxx 0000 Xxxxx
Xxxx Xxxx Xxxx, Xxxx 00000
Phone: 000-000-0000
Fax:
Attention:
With a copy to:
---------------
---------------
---------------
---------------
Phone:
Fax:
Attention:
If to the Subscriber, to its address and facsimile number set
forth at the end of this Subscription Agreement, or to such other address and/or
facsimile number and/or to the attention of such other person as specified by
written notice given to the Company five (5) days prior to the effectiveness of
such change. Written confirmation of receipt (a) given by the recipient of such
notice, consent, waiver or other communication, (b) mechanically or
electronically generated by the sender's facsimile machine containing the time,
date, recipient facsimile number and an image of the first page of such
transmission, or (c) provided by an overnight courier service shall be
rebuttable evidence of personal service, receipt by facsimile or receipt from an
overnight courier service in accordance with clause (a), (b) or (c) above,
respectively.
5.2 Entire Agreement; Amendment. This Subscription Agreement
supersedes all other prior oral or written agreements between the Subscriber,
the Company, their affiliates and persons acting on their behalf with respect to
the matters discussed herein, and this Subscription Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Subscriber
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Subscription Agreement may be amended or waived
other than by an instrument in writing signed by the Company and the holders of
at least a majority of the Securities then outstanding (determined on an as
converted to Common Stock basis) (or if prior to the Closing, the Subscribers
purchasing at least a majority of the Securities to be purchased at the
Closing). No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Securities then outstanding.
5.3 Severability. If any provision of this Subscription Agreement
shall be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Subscription Agreement in that jurisdiction or the validity or
enforceability of any provision of this Subscription Agreement in any other
jurisdiction.
13
5.4 Governing Law; Jurisdiction; Waiver of Jury Trial. All
questions concerning the construction, validity, enforcement and interpretation
of this Subscription Agreement shall be governed by the internal laws of the
State of New York, without giving effect to any choice of law or conflict of law
provision or rule (whether of the State of New York or any other jurisdictions)
that would cause the application of the laws of any jurisdictions other than the
State of New York. Each party hereby irrevocably submits to the non-exclusive
jurisdiction of the state and Federal courts sitting in the Southern District of
New York, for the adjudication of any dispute hereunder or in connection
herewith or with any transaction contemplated hereby or discussed herein, and
hereby irrevocably waives, and agrees not to assert in any suit, action or
proceeding, any claim that it is not personally subject to the jurisdiction of
any such court, that such suit, action or proceeding is brought in an
inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Subscription Agreement and agrees that such service shall constitute good
and sufficient service of process and notice thereof. Nothing contained herein
shall be deemed to limit in any way any right to serve process in any manner
permitted by law. Each party hereby irrevocably waives any right it may have,
and agrees not to request, a jury trial for the adjudication of any dispute
hereunder or in connection with or arising out of this Subscription Agreement or
any transaction contemplated hereby.
5.5 Headings. The headings of this Subscription Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Subscription Agreement.
5.6 Successors And Assigns. This Subscription Agreement shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns. The Company shall not assign this Subscription Agreement
or any rights or obligations hereunder without the prior written consent of the
holders of at least a majority the Securities then outstanding, except by merger
or consolidation. The Subscriber shall not assign its rights hereunder without
the consent of the Company, which consent shall not be unreasonably withheld.
5.7 No Third Party Beneficiaries. This Subscription Agreement is
intended for the benefit of the parties hereto and their respective permitted
successors and assigns, and is not for the benefit of, nor may any provision
hereof be enforced by, any other person.
5.8 Survival. The representations and warranties of the Company
and the Subscriber contained in Articles I and II and the agreements set forth
this Article V shall survive the Final Closing for a period of two years.
5.9 Further Assurances. Each party shall do and perform, or cause
to be done and performed, all such further acts and things, and shall execute
and deliver all such other agreements, certificates, instruments and documents,
as the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Subscription Agreement and the consummation of
the transactions contemplated hereby.
14
5.10 No Strict Construction. The language used in this
Subscription Agreement will be deemed to be the language chosen by the parties
to express their mutual intent, and no rules of strict construction will be
applied against any party.
5.11 Legal Representation. The Subscriber acknowledges that: (a)
it has read this Subscription Agreement and the exhibits hereto; (b) it
understands that the Company has been represented in the preparation,
negotiation, and execution of this Subscription Agreement by __________________,
counsel to the Company; (c) it understands that the Placement Agent has been
represented by Sichenzia Xxxx Xxxxxxxx Xxxxxxx LLP, counsel to the Placement
Agent, and that such counsel has not represented and is not representing the
Subscriber; (d) it has either been represented in the preparation, negotiation,
and execution of this Subscription Agreement by legal counsel of its own choice,
or has chosen to forego such representation by legal counsel after being advised
to seek such legal representation; and (e) it understands the terms and
consequences of this Subscription Agreement and is fully aware of its legal and
binding effect.
5.12 Expenses of Enforcement. The Company shall pay all fees and
expenses (including reasonable fees and expenses of counsel and other
professionals) incurred by the Subscriber or any successor holder of Securities
in enforcing any of its rights and remedies under this Subscription Agreement.
5.13 Confidentiality. The Subscriber acknowledges that the
information contained in the Offering Documents is of a confidential nature and
that the Subscriber shall treat it in a confidential manner, and that it will
not, directly or indirectly, disclose or permit, if applicable, its affiliates
or representatives to disclose any of such information to any other person or
e-mail or reproduce any of the Offering Documents, or to make accessible to
anyone, the confidential information concerning or relating to the business or
financial affairs of the Company contained in the Offering Documents to which it
has become privy by reason of this Subscription Agreement until such information
has been publicly disclosed by the Company, in whole or in part without the
prior written consent of the Company, provided, however, such confidential
information shall not include any information already available to or in the
possession of Subscriber prior to the date of its disclosure to Subscriber by
the Company, any information generally available to the public, or any
information which becomes available to Subscriber on a non-confidential basis
from a third party who is not bound by a confidentiality obligation to the
Company; and provided further, that such confidential information may be
disclosed (i) to Subscriber's partners, employees, agents, advisors and
representatives in connection with its subscription hereunder, who shall be
informed of the confidential nature of the information and that such information
is subject to a confidentiality agreement; (ii) to any person with the written
consent of the Company; or (iii) if, upon the advice of counsel, Subscriber is
compelled to disclose such information, provided that the Company is advised of
such proposed disclosure as soon as practicable following the request for such
disclosure. The Subscriber further acknowledges that its confidentiality and
other obligations shall apply to any confidential information relating to the
Company or the Securities which is provided to the Subscriber subsequent to the
delivery of the Offering Documents.
5.14 Counterparts. This Subscription Agreement may be executed in
two or more identical counterparts, all of which shall be considered one and the
same agreement and shall become effective when counterparts have been signed by
each party and delivered to the other party; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
15
IN WITNESS WHEREOF, the parties have executed this Subscription
Agreement as of the day and year first written above.
-------------------------------------- ------------------------------------
Signature of Subscriber Signature of Co-Subscriber
-------------------------------------- ------------------------------------
Name of Subscriber Name of Co-Subscriber
[please print] [please print]
-------------------------------------- ------------------------------------
Address of Subscriber Address of Co-Subscriber
-------------------------------------- ------------------------------------
Social Security or Taxpayer Social Security or Taxpayer
Identification Number of Subscriber Identification Number of
Co-Subscriber
--------------------------------------- ------------------------------------
--------------------------------------
Dollar Amount of Securities Subscribed For
*If Subscriber is a Registered Representative with an NASD member firm,
have the following acknowledgment signed by the appropriate party:
The undersigned NASD member firm acknowledges receipt of Subscription
Accepted: the notice required by Rule 3040 of the NASD Conduct Rules.
REMOTEMDX, INC.
---------------------------------
Name of NASD Member By:___________________________________
Name:
Title:
By:______________________________ ______________________________________
Authorized Officer Accepted Dollar Amount of Subscription Accepted
16
EXHIBIT A
FORM OF BRIDGE NOTE
1
EXHIBIT B
INVESTOR QUESTIONNAIRE
1
EXHIBIT C
RISK FACTORS
Investment in the Bridge Notes and Shares involves a high degree of
risk and should be regarded as speculative. As a result, the purchase of the
Bridge Notes and Shares should be considered only by persons who can afford a
loss of their entire investment. Prospective investors should carefully consider
the following risk factors before purchasing the Bridge Notes and Shares offered
hereby.
The financial statements contained in our annual report on Form 10-KSB
for the year ended September 30, 2004 have been prepared on the basis that we
will continue as a going concern, notwithstanding the fact that our financial
performance and condition during the past few years raise substantial doubt as
to our ability to do so. There is no assurance we will ever be profitable.
In fiscal year 2004, we incurred a net loss of $6,406,711, negative
cash flow from operating activities of $2,071,052, and an accumulated deficit of
$69,480,005.
These factors, as well as the risk factors set out below raise
substantial doubt about our ability to continue as a going concern. The
financial statements and the report of our accountants included in this report
do not include any adjustments that might result from the outcome of this
uncertainty. Our plans with respect to this uncertainty include the conversion
of a significant portion of our outstanding debt and other obligations, as well
as raising capital from the sale of our securities. There can be no assurance
that the debt holders will be willing to convert the debt obligations to equity
securities or that the Company will be successful in raising additional capital
from the sale of equity or debt securities. If the Company is unable to obtain
additional financing, it will be unable to continue the development of its
products and may have to cease operations.
As a result of our increased focus on a new business market our
business is subject to many of the risks of a new or start-up venture.
The change in our business goals and strategy subjects us to the risks
and uncertainties usually associated with start-ups. Our business plan involves
risks, uncertainties and difficulties frequently encountered by companies in
their early stages of development. If we are to be successful in this new
business direction, we must accomplish the following, among other things:
o Develop and introduce functional and attractive product and
service offerings;
o Increase awareness of our brand and develop consumer loyalty;
o Respond to competitive and technological developments;
o Build an operational structure to support our business; and
o Attract, retain and motivate qualified personnel.
If we fail to achieve these goals, that failure would have a material
adverse effect on our business, prospects, financial condition and operating
results. Because the market for our new product and service offerings is new and
1
evolving, it is difficult to predict with any certainty the size of this market
and its growth rate, if any. There is no assurance that a market for these
products or services will ever develop or that demand for our products and
services will emerge or be sustainable. If the market fails to develop, develops
more slowly than expected or becomes saturated with competitors, our business,
financial condition and operating results would be materially adversely
affected.
Our management group owns or controls a significant number of our
outstanding shares.
Certain of our directors, executives and principal shareholders or
persons associated with them beneficially own approximately 22.8% of our
outstanding common stock. In addition, these individuals are the beneficial
owners of preferred stock convertible into a significant number of shares of
common stock. As a result, these persons have the ability, acting as a group, to
effectively control our affairs and business, including the election of our
directors and, subject to certain limitations, approval or preclusion of
fundamental corporate transactions. This concentration of ownership may also
have the effect of delaying or preventing a change of control or making other
transactions more difficult or impossible without their support. See Item 9
"Directors, Executive Officers, Promoters and Control Persons; Compliance with
Section 16(a) of the Exchange Act," and Item 11 "Security Ownership of Certain
Beneficial Owners and Management."
There is no certainty that the market will accept our new products and
services.
Our targeted markets may never accept our new products or services.
Insurance companies, physicians, nurses, patients and consumers may not use our
products unless they determine, based on experience, clinical data, advertising
or other factors, that those products are a preferable alternative to currently
available methods of diagnosis. In addition, decisions to adopt new medical
devices can be influenced by government administrators, regulatory factors, and
other factors largely outside our control. No assurance can be given that key
decision-makers or third party payors will accept our new products, which could
have a material adverse effect on our business, financial condition and results
of operations.
Our relationship with our majority shareholders presents potential
conflicts of interest, which may result in decisions that favor them over our
other shareholders.
Our principal beneficial owners, Xxxxx Xxxxxxx and Xxxxx X. Xxxxxx,
provide management and financial services and assistance to the Company.
Substantially all of our financing over the past twelve months has come from
entities affiliated with these two shareholders and directors, who also serve as
executive officers of the Company. When their personal investment interests
diverge from our interests, they and their affiliates may exercise their
influence in their own best interests. Some decisions concerning our operations
or finances may present conflicts of interest between us and these shareholders
and their affiliated entities.
2
During the two most recent fiscal years we have been dependent upon
certain major customers, the loss of which would adversely affect our results of
operations and business condition. Certain of these customers now purchase
product from distributors owned and controlled by our former executives and
consultants, which will reduce our revenues in future operating periods.
During fiscal year 2004, two customers accounted for more than 10% of
sales. Xxxxxx Scientific accounted for approximately 13% ($163,395) of sales and
MDC accounted for approximately 14% ($170,000). The loss of one or more of these
customers would result in lower revenues and limit the cash available to grow
our business and to achieve profitability. We have no arrangements or contracts
with these customers that would require them to purchase a specific amount of
product from us.
The Company purchases a significant amount of inventory of consumer
electronics products annually from a single supplier under an agreement that
expires next year. The Company also relies on significant suppliers for other
key products and cellular access. If the Company does not renew these agreements
when they expire it may not continue to have access to these suppliers' products
or services at favorable prices or in volumes as it has in the past, which would
reduce revenues and could adversely affect results of operations or financial
condition.
Under our agreement with Matsushita Electric Works, Ltd. ("MEW"), the
Company purchases most of its mobile and cellular device products from MEW.
During the fall of 2001, the Company entered into a cellular switching access
agreement under which it purchases substantially all of its cellular access
requirements. That agreement expired in 2004. However the Company has entered
into an agreement with a national cellular access company for these services. If
any of these significant suppliers were to cease providing product or services
to us, we would be required to seek alternative sources. There is no assurance
that alternate sources could be located or that the delay or additional expense
associated with locating alternative sources for these products or services
would not materially and adversely affect our business and financial condition.
Our proposed business plan subjects our research, development and
ultimate marketing activities to current and possibly to future government
regulation. The cost of compliance or the failure to comply with this regulation
could adversely affect our business, results of operations and financial
condition.
The products we currently distribute and sell are not subject to
specific approvals from any governmental agency, although our products using
cellular and GPS products must be manufactured in compliance with applicable
rules and regulations of the Federal Communications Commission. Under our new
business plan we are developing and intend to market medical devices that are or
that may become regulated by a number of governmental agencies, including the
United States Food and Drug Administration ("FDA"). The FDA requires
governmental clearance of all medical devices and drugs before they can be
marketed in the United States. Similar approvals are required from other
regulatory agencies in most foreign countries. The regulatory processes
3
established by these government agencies are lengthy, expensive, and uncertain
and may require extensive and expensive clinical trials. There can be no
assurance that any future products developed by us that are subject to the FDA's
authority will prove to be safe and effective and meet all of the applicable
regulatory requirements necessary to be marketed. The results of testing
activities could be susceptible to varied interpretations that could delay,
limit or prevent required regulatory approvals. In addition, we may encounter
delays or denials of approval based on a number of factors, including future
legislation, administrative action or changes in FDA policy made during the
period of product development and FDA regulatory review. We may encounter
similar delays in foreign countries. Furthermore, approval may entail ongoing
requirements for, among other things, post-marketing studies. Even if we obtain
regulatory approval of a marketed product, our manufacturer and its
manufacturing facility are subject to on-going regulation and inspections.
Discovery of previously unknown problems with a product, manufacturer or
facility could result in FDA sanctions, restrictions on a product or
manufacturer, or an order to withdraw and/or recall a specific product from the
market. There can also be no assurance that changes in the legal or regulatory
framework or other subsequent developments will not result in limitation,
suspension or revocation of regulatory approvals granted to us. Any such events,
were they to occur, could have a material adverse effect on our business,
financial condition and results of operations.
We may also be required to comply with FDA regulations for
manufacturing practices, which mandate procedures for extensive control and
documentation of product design, control and validation of the manufacturing
process and overall product quality. Foreign regulatory agencies have similar
manufacturing standards. Any third parties manufacturing our products or
supplying materials or components for such products may also be subject to these
manufacturing practices and mandatory procedures. If we, our management or our
third party manufacturers fail to comply with applicable regulations regarding
these manufacturing practices, we could be subject to a number of sanctions,
including fines, injunctions, civil penalties, delays, suspensions or
withdrawals of market approval, seizures or recalls of product, operating
restrictions and, in some cases, criminal prosecutions.
Our products and related manufacturing operations may also be subject
to regulation, inspection and licensing by other governmental agencies,
including the Occupational Health and Safety Administration.
We face intense competition, including competition from entities that
are more established and have greater financial resources than we do, which may
make it difficult for us to establish and maintain a viable market presence.
Our current and expected markets are rapidly changing. Existing
products and services and emerging products and services will compete directly
with the products we are seeking to develop and market. Our technology will
compete directly with other technology, and, although we believe our technology
4
has or will have advantages over these competing systems, there can be no
assurance that our technology will have advantages that are significant enough
to cause users to adopt its use. Competition is expected to increase.
Many of the companies currently in the remote medical monitoring and
diagnostic market may have significantly greater financial resources and
expertise in research and development, marketing, manufacturing, pre-clinical
and clinical testing, obtaining regulatory approvals, and marketing than those
available to us. Smaller companies may also prove to be significant competitors,
particularly through collaborative arrangements with large third parties.
Academic institutions, governmental agencies, and public and private research
organizations also conduct research, seek patent protection, and establish
collaborative arrangements for product and clinical development and marketing in
the medical diagnostic arena. Many of these competitors have products or
techniques approved or in development and operate large, well-funded research
and development programs in the field. Moreover, these companies and
institutions may be in the process of developing technology that could be
developed more quickly or be ultimately more effective than our planned
products.
We face competition based on product efficacy, the timing and scope of
regulatory approvals, availability of supply, marketing and sales capability,
reimbursement coverage, price and patent position. There can be no assurance
that our competitors will not develop more effective or more affordable
products, or achieve earlier patent protection or product commercialization.
Our business plan is subject to the risks of technological uncertainty,
which may result in our products failing to be competitive or readily accepted
by our target markets.
We may not realize revenues from the sale of any of our new products or
services for several years, if at all. Some of the products we are currently
evaluating likely will require further research and development efforts before
they can be commercialized. There can be no assurance that our research and
development efforts will be successful or that we will be successful in
developing any commercially successful products. In addition, the technology
which we integrate or that we may expect to integrate with our product and
service offerings, is rapidly changing and developing. We face risks associated
with the possibility that our technology may not function as intended and the
possible obsolescence of our technology and the risks of delay in the further
development of our own technologies. Cellular coverage is not uniform throughout
our current and targeted markets and GPS technology depends upon "line-of-sight"
access to satellite signals used to locate the user. This limits the
effectiveness of GPS if the user is in the lower floors of a tall building,
underground or otherwise located where the signals have difficulty penetrating.
Other difficulties and uncertainties normally associated with new industries or
the application of new technologies in new or existing industries also threaten
our business, including the possible lack of consumer acceptance, difficulty in
obtaining financing for untested technologies, increasing competition from
larger well-funded competitors, advances in competing or other technologies, and
changes in laws and regulations affecting the development, marketing or use of
our new products and related services.
5
We are dependent upon our strategic alliances, the loss of which would
limit our success.
Our strategy for the identification, development, testing, manufacture,
marketing and commercialization of our products and services includes, entering
into various collaborations through corporate alliances. We have entered into
collaborative relationships with a significant engineering and product
commercialization firm and a multi-national manufacturing corporation, and we
believe that these relationships provide us with strong strategic alliances for
the design and engineering of our products. MEW, our manufacturing partner, is a
large Japanese multinational with significant operations and holdings in several
industries, including electronics. There can be no assurance, however, that
these relationships will succeed or that we will be able to negotiate strategic
alliances with other parties on acceptable terms, if at all, or that any of
these collaborative arrangements will be successful. To the extent we choose or
are unable to establish or continue such arrangements we could experience
increased capital requirements as a result of undertaking such activities. In
addition, we may encounter significant delays in introducing products currently
under development into the marketplace or find that the development, manufacture
or sale of our proposed products are adversely affected by the absence of
successful collaborative agreements.
We have a history of losses and anticipate significant future losses
and may be unable to project our revenues and expenses accurately.
As a development stage company, we expect to incur net operating losses
and negative cash flows for the foreseeable future. We will incur significant
expenses associated with the development and deployment of our new products and
promoting our brand. We intend to enter into additional arrangements through
current and future strategic alliances that may require us to pay consideration
in various forms and in amounts that may significantly exceed current estimates
and expectations. We may also be required to offer promotional packages of
hardware and software to end-users at subsidized prices in order to promote our
brand, products and services. These guaranteed payments, promotions and other
arrangements would result in significant expense. If we do achieve
profitability, we cannot be certain that we will be able to sustain or increase
profitability in the future. In addition, because of our limited operating
history in our newly targeted markets, we may be unable to project revenues or
expenses with any degree of certainty. We expect expenses to increase
significantly in the future as we continue to incur significant sales and
marketing, product development and administrative expenses. We cannot guarantee
that we will be able to generate sufficient revenues to offset operating
expenses or the costs of the promotional packages or subsidies described above,
or that we will be able to achieve or maintain profitability. If revenues fall
short of projections, our business, financial condition and operating results
would be materially adversely affected.
6
Our business plan anticipates significant growth through sales and
acquisitions; to manage the expected growth we will require capital and there is
no assurance we will be successful in obtaining necessary additional funding.
If we are successful in implementing our business plan, we may be
required to raise additional capital to manage anticipated growth. Our actual
capital requirements will depend on many factors, including but not limited to,
the costs and timing of our ongoing development activities, the number and type
of clinical or other tests we may be required to conduct in seeking government
or agency approval of these products, the success of our development efforts,
the cost and timing of establishing or expanding our sales, marketing and
manufacturing activities, the extent to which our products gain market
acceptance, our ability to establish and maintain collaborative relationships,
competing technological and market developments, the progress of our
commercialization efforts and the commercialization efforts of our marketing
alliances, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory issues, and other factors, including many
that are outside our control. To satisfy our capital requirements, we may seek
to raise funds through public or private financings, collaborative relationships
or other arrangements. Any arrangement that includes the issuance of equity
securities or securities convertible into our equity securities may be dilutive
to shareholders (including the purchasers of the shares), and debt financing, if
available, may involve significant restrictive covenants that limit our ability
to raise capital in other transactions. Collaborative arrangements, if necessary
to raise additional funds, may require that we relinquish or encumber our rights
to certain of our technologies, products or marketing territories. Any inability
or failure to raise capital when needed could also have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that any such financing, if required, will be available on terms
satisfactory to us, if at all.
We currently lack experienced sales and marketing capability for all of
our product and service lines.
We currently have limited staff with experience in sales, marketing or
distribution in our intended markets. We will be required to develop a marketing
and sales force with technical expertise and with supporting distribution
capability. Alternatively, we may obtain the assistance of other companies with
established distribution and sales forces, in which case we would be required to
enter into agreements regarding the use and maintenance of these distribution
systems and sales forces. There can be no assurance that we will be able to
establish in-house sales and distribution capabilities, or that we will be
successful in gaining market acceptance for our products through the use of
third parties. There can be no assurance that we will be able to recruit, train
and maintain successfully the necessary sales and marketing personnel, or that
the efforts of such personnel will be successful.
Our products are subject to the risks and uncertainties associated with
the protection of intellectual property and related proprietary rights.
7
We believe that our success depends in part on our ability to obtain
and enforce patents, maintain trade secrets and operate without infringing on
the proprietary rights of others in the United States and in other countries. We
have applied for several patents and those applications are awaiting action by
the Patent Office. There is no assurance those patents will issue or that when
they do issue they will include all of the claims currently included in the
applications. Even if they do issue, those new patents and our existing patents
must be protected against possible infringement. The enforcement of patent
rights can be uncertain and involve complex legal and factual questions. The
scope and enforceability of patent claims are not systematically predictable
with absolute accuracy.
The strength of our own patent rights depends, in part, upon the
breadth and scope of protection provided by the patent and the validity of our
patents, if any. Our inability to obtain or to maintain patents on our key
products could adversely affect our business. We own five patents and have filed
and intend to file additional patent applications in the United States and in
key foreign jurisdictions relating to our technologies, improvements to those
technologies and for specific products we may develop. There can be no assurance
that patents will issue on any of these applications or that, if issued, any
patents will not be challenged, invalidated or circumvented. The prosecution of
patent applications and the enforcement of patent rights are expensive, and the
expense may adversely affect our profitability and the results of our
operations. In addition, there can be no assurance that the rights afforded by
any patents will guarantee proprietary protection or competitive advantage.
Our success will also depend, in part, on our ability to avoid
infringing the patent rights of others. We must also avoid any material breach
of technology licenses we may enter into with respect to our new products and
services. Existing patent and license rights may require us to alter the designs
of our products or processes, obtain licenses or cease certain activities. In
addition, if patents have been issued to others that contain competitive or
conflicting claims and such claims are ultimately determined to be valid and
superior to our own, we may be required to obtain licenses to those patents or
to develop or obtain alternative technology. If any licenses are required, there
can be no assurance that we will be able to obtain any necessary licenses on
commercially favorable terms, if at all. Any breach of an existing license or
failure to obtain a license to any technology that may be necessary in order to
commercialize our products may have a material adverse impact on our business,
results of operations and financial condition. Litigation that could result in
substantial costs may also be necessary to enforce patents licensed or issued to
us or to determine the scope or validity of third party proprietary rights. If
our competitors prepare and file patent applications in the United States that
claim technology also claimed by us, we may have to participate in proceedings
declared by the U.S. Patent and Trademark Office to determine priority of
invention, which could result in substantial costs, even if we eventually
prevail. An adverse outcome could subject us to significant liabilities to third
parties, require disputed rights to be licensed from third parties or require
that we cease using such technology.
8
We rely on trade secrets laws to protect portions of our technology for
which patent protection has not yet been pursued or is not believed to be
appropriate or obtainable. These laws may protect us against the unlawful or
unpermitted disclosure of any information of a confidential and proprietary
nature, including but not limited to our know-how, trade secrets, methods of
operation, names and information relating to vendors or suppliers and customer
names and addresses.
We intend to protect this unpatentable and unpatented proprietary
technology and processes, in addition to other confidential and proprietary
information in part, by entering into confidentiality agreements with employees,
collaborative partners, consultants and certain contractors. There can be no
assurance that these agreements will not be breached, that we will have adequate
remedies for any breach, or that our trade secrets and other confidential and
proprietary information will not otherwise become known or be independently
discovered or reverse-engineered by competitors.
The existence of certain anti-dilution rights applicable to our Series
B Preferred Stock might result in increased dilution if we were to offer and
sell shares of common stock at prices below the conversion rate of $3.00 per
common share unless those rights are waived.
The investors in our Series B preferred stock and MEW have the right to
an automatic adjustment of the conversion price of the Series B preferred shares
held by them in the event we were to sell shares of common stock at a price
below the original conversion price of $3.00 per share. We have issued shares
and options to purchase shares to certain creditors to convert debt to equity at
prices that are below the $3.00 conversion price. Certain holders of the Series
B preferred stock, including MEW, have waived their right to receive the
adjustment for such issuances through December 11, 2003, but there is no
assurance that any holder of Series B preferred stock will waive those rights as
to subsequent to December 11, 2003 issuances. MEW's right expired in April 2004.
Any increase in the number of shares of common stock issued upon conversion of
Series B preferred shares would compound the risks of dilution to existing
shareholders.
The obligation to issue shares of common stock upon the exercise of
outstanding options and warrants or upon conversion of outstanding shares of
preferred stock increases the potential for short sales.
Downward pressure on the market price of our common stock that likely
would result from sales of common stock issued on conversion of the preferred
stock or the exercise of options and warrants could encourage short sales of
common stock by the holders of the preferred stock or others. A significant
amount of short selling could place further downward pressure on the market
price of the common stock, reducing the market value of the securities held by
our shareholders.
Payment of dividends in additional shares of Series A preferred stock
will result in further dilution.
9
Under the terms of the Series A preferred stock, our board of directors
may elect to pay dividends by issuing additional shares of Series A preferred
stock. Dividends accrue from the date of the issuance of the preferred stock,
subject to any intervening payments in cash. Each share of Series A preferred
stock is convertible into 370 shares of common stock. The issuance of additional
shares of Series A preferred stock as dividends could result in a substantial
increase in the number of shares issued and outstanding and could result in a
decrease of the relative voting control of the holders of the common stock
issued and outstanding prior to such payment of dividends and interest.
We have and will continue to have significant future capital needs and
there is no assurance we will be successful in obtaining necessary additional
funding.
We may be required to raise additional capital to fully implement our
business plan. Our actual capital requirements will depend on many factors,
including but not limited to, the costs and timing of our ongoing development
activities, the number and type of clinical or other tests we may be required to
conduct in seeking government or agency approval of these products, the success
of our development efforts, the cost and timing of establishing or expanding our
sales, marketing and manufacturing activities, the extent to which our products
gain market acceptance, our ability to establish and maintain collaborative
relationships, competing technological and market developments, the progress of
our commercialization efforts and the commercialization efforts of our marketing
alliances, the costs involved in preparing, filing, prosecuting, maintaining and
enforcing and defending patent claims and other intellectual property rights,
developments related to regulatory issues, and other factors, including many
that are outside our control. To satisfy our capital requirements, we may seek
to raise funds through public or private financings, collaborative relationships
or other arrangements. Any arrangement that includes the issuance of equity
securities or securities convertible into our equity securities may be dilutive
to shareholders (including the purchasers of the shares), and debt financing, if
available, may involve significant restrictive covenants that limit our ability
to raise capital in other transactions. Collaborative arrangements, if necessary
to raise additional funds, may require that we relinquish or encumber our rights
to certain of our technologies, products or marketing territories. Any inability
or failure to raise capital when needed could also have a material adverse
effect on our business, financial condition and results of operations. There can
be no assurance that any such financing, if required, will be available on terms
satisfactory to us, if at all.
We rely on third parties to manufacture our products. Therefore, we do
not have direct control over the quality or other aspects of the manufacturing
process, which could result in a loss of customer acceptance of our products and
increased expense related to warranty claims or defective product returns.
We do not directly control the manufacturing facilities where our
products are made and we must depend on third parties to make our products
according to our standards for quality and reliability. We do not own any
manufacturing facilities or equipment and do not employ any manufacturing
10
personnel. We use third parties to manufacture our products on a contract basis.
There is no assurance that we will be able to obtain qualified contract
manufacturing services on reasonable terms. In addition, the manufacture of our
products involves complex and precise processes. Changes in manufacturing
processes by our contract manufacturer or our suppliers, or the use of defective
components or materials, could significantly reduce our manufacturing yields and
product reliability. For example, during the year ended September 30, 2003, we
voluntarily recalled approximately 200 GPS devices that contained a defect
causing the battery to drain power at an unacceptable rate. The problem was
quickly resolved and the units replaced at the expense of our manufacturer.
There is no assurance, however, that similar problems will not arise in the
future with these other products.
Xxxxx stock regulations may impose certain restrictions on
marketability of the Company's securities.
The Securities and Exchange Commission (the "Commission") has adopted
regulations which generally define a "xxxxx stock" to be any equity security
that has a market price (as defined) of less than $5.00 per share or an exercise
price of less than $5.00 per share, subject to certain exceptions. As a result,
the common stock is subject to rules that impose additional sales practice
requirements on broker-dealers who sell such securities to persons other than
established customers and accredited investors (generally those with assets in
excess of $1,000,000 or annual income exceeding $200,000, or $300,000 together
with their spouse). For transactions covered by these rules, the broker-dealer
must make a special suitability determination for the purchase of such
securities and have received the purchaser's written consent to the transaction
prior to the purchase. Additionally, for any transaction involving a xxxxx
stock, unless exempt, the rules require the delivery, prior to the transaction,
of a risk disclosure document mandated by the Commission relating to the xxxxx
stock market. The broker-dealer must also disclose the commission payable to
both the broker-dealer and the registered representative, current quotations for
the securities and, if the broker-dealer is the sole market maker, the
broker-dealer must disclose this fact and the broker-dealer's presumed control
over the market. Finally, monthly statements must be sent disclosing recent
price information for the xxxxx stock held in the account and information on the
limited market in xxxxx stocks. Consequently, the "xxxxx stock" rules may
restrict the ability of broker-dealers to sell the Company's securities and may
affect the ability of investors to sell the Company's securities in the
secondary market and the price at which such purchasers can sell any such
securities.
Investors should be aware that, according to the Commission, the market
for xxxxx stocks has suffered in recent years from patterns of fraud and abuse.
Such patterns include:
o Control of the market for the security by one or a few
broker-dealers that are often related to the promoter or issuer;
o Manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases;
o "Boiler room" practices involving high pressure sales tactics and
unrealistic price projections by inexperienced sales persons;
11
o Excessive and undisclosed bid-ask differentials and markups by
selling broker-dealers; and
o The wholesale dumping of the same securities by promoters and
broker-dealers after prices have been manipulated to a desired
level, along with the inevitable collapse of those prices with
consequent investor losses.
The Company's management is aware of the abuses that have occurred
historically in the xxxxx stock market.
The holders of our Series B preferred stock have voting rights that are
the same as the voting rights of holders of our common stock, which effectively
dilutes the voting power of the holders of the common stock.
Holders of shares of Series B preferred stock are entitled to one vote
per share of Series B preferred stock on all matters upon which holders of the
common stock of the Company are entitled to vote. Therefore, without converting
the shares of Series B preferred stock, the holders thereof enjoy the same
voting rights as if they held an equal number of shares of common stock, as well
as the liquidation preference described above. In addition, without the approval
of holders of a majority of the outstanding shares of Series B preferred stock
voting as a class, we are prohibited from (i) authorizing, creating or issuing
any shares of any class or series ranking senior to the Series B preferred stock
as to liquidation rights; (ii) amending, altering or repealing our Articles of
Incorporation if the powers, preferences or special rights of the Series B
preferred stock would be materially adversely affected; or (iii) becoming
subject to any restriction on the Series B preferred stock other than
restrictions arising solely under the Utah Act or existing under our Articles of
Incorporation as in effect on June 1, 2001.
12
EXHIBIT D
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED BY THE HOLDER NAMED HEREON
FOR ITS OWN ACCOUNT FOR INVESTMENT WITH NO INTENTION OF MAKING OR CAUSING TO BE
MADE ANY PUBLIC DISTRIBUTION OF ALL OR ANY PORTION THEREOF; AND SUCH SECURITIES
MAY NOT BE PLEDGED, SOLD OR IN ANY OTHER WAY TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS IN EFFECT AT THAT TIME OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO THE ISSUER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT.
REMOTE MDX, INC.
CONVERTIBLE PROMISSORY BRIDGE NOTE
June __, 2005
$---------------------
FOR VALUE RECEIVED, the undersigned RemoteMDx, Inc., a Utah corporation
(referred to herein as "Borrower"), promises to pay to the order of
_______________ ("Lender"), the principal sum of __________________
($___________), together with interest on the outstanding principal balance of
this note at the rate of 18% per annum. This note (the "Bridge Note") is issued
in connection with the private placement of convertible promissory notes of like
kind and tenor as this Bridge Note (together with this Bridge Note, the "Bridge
Notes").
THIS BRIDGE NOTE SHALL BECOME DUE AND PAYABLE ON THE FIRST TO OCCUR OF
(I) __________ __, 2008(1) OR (II) THE CONSUMMATION OF A PUBLIC OR PRIVATE
EQUITY OR DEBT OFFERING OR RESTRUCTURING TRANSACTION (THROUGH A MERGER, SALE,
RECAPITALIZATION, EXTRAORDINARY DIVIDEND, STOCK REPURCHASE, SPIN-OFF, JOINT
VENTURE OR OTHERWISE) PURSUANT TO WHICH THE BORROWER RECEIVES GROSS PROCEEDS OF
AT LEAST $3,000,000 (THE "MATURITY DATE").
INTEREST ON THE BASIS OF A THREE YEAR TERM OF THIS BRIDGE NOTE SHALL BE
PAID SIMULTANEOUSLY WITH THE ISSUANCE OF THIS BRIDGE NOTE BY THE COMPANY BY
ISSUING ONE SHARE OF COMMON STOCK FOR EVERY DOLLAR LOANED (INTEREST SHARES) OF
RESTRICTED COMMON STOCK OF THE COMPANY.
__________
(1) Insert date that is 36 months after the Closing.
1
BORROWER SHALL HAVE THE RIGHT TO PREPAY THIS BRIDGE NOTE IN FULL AT ANY
TIME. IN THE EVENT THE BORROWER INTENDS TO PREPAY ANY OR ALL OF THE OUTSTANDING
PRINCIPAL OR INTEREST ON THIS BRIDGE NOTE, THE BORROWER MUST PROVIDE WRITTEN
NOTICE TO THE LENDER AT LEAST 10 DAYS PRIOR TO THE PROPOSED PREPAYMENT DATE
("PREPAYMENT DATE").
In the event that the Borrower, subsequent to the date of this Bridge
Notes, enters into any financing or financings of any type aggregating
$1,000,000, other than a bank line of credit or other similar financing of up to
$1,000,000 (a "Bank Line of Credit"), then and in such event the Borrower shall
be required to make a partial prepayment (a "Partial Prepayment") of $350,000 of
the principal amount of the Bridge Notes and the pro rata share of interest
accrued to date on such portion the Bridge Notes. In addition, in the event that
the Borrower, subsequent to the date of this Note, enters into any financing or
financings of any type aggregating more than $2,000,000, other than a Bank Line
of Credit of up to $1,000,000, then and in such event the amount of the Partial
Prepayment shall be increased to $700,000 of the principal amount of the Bridge
Notes and the pro rata share of interest accrued to date on such portion the
Bridge Notes. The Borrower shall be required to notify the Lender in writing of
any financing which results in the Company being required to prepay the Bridge
Notes, in whole or in part, prior to _________, 2008, and to make such payment
within three business days after the Company receives the proceeds of such
financing.
All amounts due hereunder are payable in lawful money of the United
States of America to the Lender at the address above indicated.
This is the Bridge Note referred to in the Subscription Agreement
("Subscription Agreement"), to be executed by the Borrower and Lender as of the
date hereof. The terms and conditions of the Subscription Agreement and all
other documents and instruments delivered in connection therewith, including,
without limitation, the Shares (collectively, the "Loan Documents") are
incorporated by reference herein and made a part hereof. The execution and
delivery of the Loan Documents shall not be a condition to the effectiveness of
this Bridge Note upon execution and delivery hereof by the Borrower. The
Borrower has taken all necessary action to authorize the execution, delivery and
performance of this Bridge Note. This Bridge Note constitutes the legal, valid
and binding obligations of the Borrower, enforceable against it in accordance
with its terms. Notwithstanding anything contained herein or in the Loan
Documents, this Bridge Note shall be in default and Lender shall have all rights
and remedies available to it under the law, in the event that Borrower shall not
pay any amounts hereunder when due. All capitalized terms not otherwise defined
herein shall have their respective meanings as set forth in the Subscription
Agreement.
2
Section 1. At any time from the date hereof through the date that this
Bridge Note is paid in full, Lender shall have the right, in its sole
discretion, to convert the principal balance of this Bridge Note then
outstanding, in whole or in part, into shares of Common Stock, par value $0.001
per share ("Common Stock") of the Borrower at a conversion price (the
"Conversion Price") equal to fifty percent (50%) of the average of the closing
prices for the Common Stock on the NASD OTC Bulletin Board (or such other
principal market or exchange where the Common Stock is listed or traded at the
time of conversion) for the twenty (20) days immediately preceding the
Conversion Date.
Lender may convert this Bridge Note at the then applicable Conversion
Price by the surrender of this Bridge Note (properly endorsed) at the principal
office of the Borrower, or at such other agency or office of the Borrower in the
United States of America as the Borrower may designate by notice in writing to
the Lender at the address of Lender appearing herein. The Lender shall effect
conversions by delivering to the Borrower the form of Notice of Conversion
attached hereto as Annex A (a "Notice of Conversion"), specifying therein the
principal amount of Bridge Note to be converted and the date on which such
conversion is to be effected (a "Conversion Date"). If no Conversion Date is
specified in a Notice of Conversion, the Conversion Date shall be the date that
such Notice of Conversion is provided hereunder. To effect conversions
hereunder, the Lender shall not be required to physically surrender Bridge Notes
to the Borrower unless the entire principal amount of this Bridge Note has been
so converted. Conversions hereunder shall have the effect of lowering the
outstanding principal amount of this Bridge Note in an amount equal to the
applicable conversion. The Lender and the Borrower shall maintain records
showing the principal amount converted and the date of such conversions. The
Lender and any assignee, by acceptance of this Bridge Note, acknowledge and
agree that, by reason of the provisions of this paragraph, following conversion
of a portion of this Bridge Note, the unpaid and unconverted principal amount of
this Bridge Note may be less than the amount stated on the face hereof. In the
event of the conversion of all or a portion of this Bridge Note, a certificate
or certificates for the securities so converted, as applicable, registered in
the name of the Lender, shall be delivered to the Lender as soon as practicable
after the receipt by Borrower of this Bridge Note and Lender's written request
for conversion.
Section 2. If the Borrower, at any time while this Bridge Note is
outstanding, (A) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or any other equity or equity
equivalent securities payable in shares of Common Stock, (B) subdivide
outstanding shares of Common Stock into a larger number of shares, (C) combine
(including by way of reverse stock split) outstanding shares of Common Stock
into a smaller number of shares, or (D) issue by reclassification of shares of
the Common Stock any shares of capital stock of the Borrower, then the
Conversion Price shall be multiplied by a fraction of which the numerator shall
be the number of shares of Common Stock (excluding treasury shares, if any)
outstanding before such event and of which the denominator shall be the number
of shares of Common Stock (excluding treasury shares, if any) outstanding after
such event. Any adjustment made pursuant to this paragraph shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall become
effective immediately after the effective date in the case of a subdivision,
combination or re-classification.
3
In case of any consolidation or merger of the Borrower with or into
another corporation or the conveyance of all or substantially all of the assets
of the Borrower to another corporation upon the request of this Bridge Note
Holder, this Bridge Note shall thereafter be convertible (to the extent such
conversion is permitted hereunder) into the number of shares of stock or other
securities or property to which a holder of the number of shares of Common Stock
of the Borrower deliverable upon conversion of this Bridge Note would have been
entitled upon such consolidation, merger or conveyance; and, in any such case,
appropriate adjustment shall be made in the application of the provisions herein
set forth with respect to the rights and interest thereafter of the holders of
this Bridge Note, to the end that the provisions set forth herein shall be
thereafter applicable, as nearly as reasonably may be, in relation to any shares
of stock or other property thereafter deliverable upon the conversion of the
Bridge Note.
Section 3. (a) In the event that this Bridge Note is not converted or
paid in full or converted on or before the Maturity Date, then until the Bridge
Note is converted or paid in full, (i) the then applicable Conversion Price,
shall be reduced by 2.5% on the date that is 30 days after the Maturity Date,
and an additional 2.5% on each subsequent date that is 30 days after the
previous date of reduction, up to a maximum reduction of 15%, and (ii) the
Company shall pay an additional monthly 1.5% cash penalty, compounded monthly,
up to a maximum of 8%.
(b) If the Borrower at any time while this Bridge Note is outstanding,
shall issue, or be deemed to have issued, Additional Shares of Common Stock (as
hereinafter defined) without consideration or for consideration per share of
Common Stock less than the then applicable Conversion Price (the "Dilutive
Price") (a "Triggering Issuance") in effect immediately prior to such issuance,
then forthwith upon the occurrence of any such event (the "Dilutive Event") the
Conversion Price shall be reduced so that the Conversion Price in effect
immediately following the Dilutive Event will equal the Dilutive Price.
As used herein:
"Additional Shares of Common Stock" shall mean all shares of
Common Stock issued or deemed to be issued by the Borrower after
the date hereof which represent a Triggering Issuance. If the
Borrower issues any Options or Convertible Securities (as
hereinafter defined), the maximum number of shares of Common Stock
issuable thereunder, shall be deemed to be Additional Shares of
Common Stock issued as of the time of such issue, if the
consideration per share of such Additional Shares of Common Stock
(as hereinafter determined) is less than the then-applicable
Conversion Price, until such time as such Options or Convertible
Securities shall terminate or be exercised or converted into
Common Stock, upon which time the number of shares of Common Stock
actually thereupon issued shall be deemed to be Additional Shares
4
of Common Stock. The Borrower shall be deemed to have issued the
maximum number of shares of Common Stock potentially underlying
any Options or Convertible Securities. Notwithstanding the
foregoing, no issuance or deemed issuance nor Common Stock or
options or warrants to purchase Common Stock issued to (i)
officers, directors or employees of or consultants to the Borrower
pursuant to any compensation agreement, plan or arrangement or the
issuance of Common Stock upon the exercise of any such options or
warrants, provided such securities were issued prior to the date
hereof or pursuant to a stock option plan that was approved by the
board of directors and stockholders of the Borrower; (ii) upon
conversion of existing convertible securities outstanding as of
the date hereof or this Bridge Note; and (iii) upon exercise of
outstanding warrants existing as of the date hereof, shall be
deemed the issuance of Additional Shares of Common Stock.
"Options" shall mean rights, options or warrants to subscribe for,
purchase or otherwise acquire either Common Stock or Convertible
Securities.
"Convertible Securities" shall mean any evidences of indebtedness,
shares (other than Common Stock) or other securities directly or
indirectly convertible into or exchangeable for Common Stock.
With respect to Options and Convertible Securities, "consideration" per
share of Additional Shares of Common Stock shall be determined by adding (x) the
aggregate consideration received upon issuance of the Options or Convertible
Securities divided by the number of shares receivable upon the exercise or
conversion thereof and (y) the minimum possible consideration per share received
or to be received per share upon the exercise, conversion or exchange of such
Options or Convertible Securities for shares of Common Stock.
Upon the occurrence of each adjustment or readjustment of the
Conversion Price hereunder, the Borrower at its expense promptly shall compute
such adjustment or readjustment and furnish to the holder of this Bridge Note a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based.
(d) If the Borrower at any time while this Bridge Note is outstanding,
shall issue, or be deemed to have issued, Additional Shares of Common Stock at a
Dilutive Price, then forthwith upon the occurrence of the Dilutive Event, and
thereafter successively upon each such issue, the Conversion Price shall be
reduced as follows: (i) the number of shares of Common Stock outstanding
immediately prior to such issue shall be multiplied by the Conversion Price in
5
effect at the time of such issue and the product shall be added to the aggregate
consideration, if any, received by the Company upon such issue of Additional
Shares of Common Stock; and (ii) the sum so obtained shall be divided by the
number of shares of Common Stock outstanding immediately after such issue. The
resulting quotient shall be the adjusted Conversion Price.
Section 4. This Bridge Note and any of the rights granted hereunder are
freely transferable by the Lender, in its sole discretion, subject to federal
and state securities law restrictions, if any.
Section 5. The Borrower covenants that it will at all times reserve and
keep available out of its authorized and unissued shares of Common Stock solely
for the purpose of issuance upon conversion of this Bridge Note, each as herein
provided, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Lender, not less than such number of shares of
the Common Stock as shall be issuable upon the conversion of the outstanding
principal amount of this Bridge Note. The Borrower covenants that all shares of
Common Stock that shall be so issuable shall, upon issue, be duly and validly
authorized, issued and fully paid, nonassessable. No consent of any other party
and no consent, license, approval or authorization of, or registration or
declaration with, any governmental authority, bureau or agency is required in
connection with the execution, delivery or performance by the Borrower, or the
validity or enforceability of this Bridge Note other than such as have been met
or obtained. The execution, delivery and performance of this Bridge Note and all
other agreements and instruments executed and delivered or to be executed and
delivered pursuant hereto or thereto or the securities issuable upon conversion
of this will not violate any provision of any existing law or regulation or any
order or decree of any court, regulatory body or administrative agency or the
certificate of incorporation or by-laws of the Borrower or any mortgage,
indenture, contract or other agreement to which the Borrower is a party or by
which the Borrower or any property or assets of the Borrower may be bound.
Section 6. Upon a conversion hereunder the Borrower shall not be
required to issue stock certificates representing fractions of shares of the
Common Stock, and in lieu of any fractional shares which would otherwise be
issuable, the Borrower shall issue the next highest whole number of shares of
Common Stock.
Section 7. If (i) the Borrower shall declare a dividend (or any other
distribution) on the Common Stock; (ii) the Borrower shall declare a special
nonrecurring cash dividend on or a redemption of the Common Stock; (iii) the
Borrower shall authorize the granting to all holders of the Common Stock rights
or warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; (iv) the approval of any stockholders of the Borrower
shall be required in connection with any reclassification of the Common Stock,
any consolidation or merger to which the Borrower is a party, any sale or
6
transfer of all or substantially all of the assets of the Borrower, or any
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or (v) the Borrower shall authorize the voluntary
or involuntary dissolution, liquidation or winding up of the affairs of the
Borrower; then, in each case, the Borrower shall cause to be filed at each
office or agency maintained for the purpose of conversion of the Bridge Notes,
and shall cause to be mailed to the Lender at its last address as shall appear
upon the Bridge Note records of the Borrower, at least 20 calendar days prior to
the applicable record or effective date hereinafter specified, a notice stating
(i) the date on which a record is to be taken for the purpose of such dividend,
distribution, redemption, rights or warrants, or if a record is not to be taken,
the date as of which the holders of the Common Stock of record to be entitled to
such dividend, distribution, redemption, rights or warrants are to be
determined, or (ii) the date on which such reclassification, consolidation,
merger, sale, transfer, share exchange, dissolution, liquidation or winding up
is expected to become effective or close, and the date as of which it is
expected that holders of the Common Stock of record shall be entitled to
exchange their shares of the Common Stock for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding up, provided, that the
failure to mail such notice or any defect therein or in the mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice. The Lender is entitled to convert this Bridge Note during the
20-day period commencing the date of such notice to the effective date of the
event triggering such notice. Notwithstanding anything to the contrary contained
herein, the Borrower must obtain the written consent of a majority of the
holders of the outstanding principal amount under the Bridge Notes prior to (i)
selling or otherwise transferring substantially all of its assets; (ii)
performing a consolidation, merger or similar transaction where the Borrower is
not the surviving corporation of such consolidation, merger or transaction;
(iii) effecting any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property; (iv) effecting a voluntary
dissolution, liquidation or winding up of the affairs of the Borrower or (v)
incurring additional indebtedness in an amount that exceeds $1,000,000, unless,
in the cases of the transactions specified in (i) through (iv) above, as a
result of such transaction, the Bridge Notes will be repaid in full.
Section 8. The issuance of certificates for shares of the Common Stock
or other securities on conversion of this Bridge Note shall be made without
charge to the Lender for any documentary stamp or similar taxes that may be
payable in respect of the issue or delivery of such certificate, provided that
the Borrower shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the Lender and the Borrower shall
not be required to issue or deliver such certificates unless or until the person
or persons requesting the issuance thereof shall have paid to the Borrower or
its designee the amount of such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
Section 9. Borrower agrees, that in the event any amounts due and
payable hereunder are collected by law or through an attorney at law, to pay all
costs of collection, including, without limitation, reasonable attorney's fees.
Nothing herein shall limit any right granted to Lender by any other instrument
or document or by law or equity. The undersigned for itself, and its respective
successors and assigns, hereby waives presentment, demand, notice, protest and
7
all other demands and notices in connection with the delivery, acceptance,
performance or endorsement of this Bridge Note.
Section 10. Each of the following events, if occurring while any of the
principal of this Bridge Note remains unpaid, shall constitute an "Event of
Default" hereunder:
(a) The Borrower shall fail to pay the principal of this Bridge
Note or any other amounts payable to the Lender hereunder within three
(3) days when due whether at scheduled maturity, upon acceleration or
otherwise.
(b) Any representation or warranty made or deemed to be made by
the Borrower (or any of its officers, directors, employees or agents)
under or in connection with this Bridge Note or in any Loan Document
shall prove to have been false or incorrect in any material respect
when made; provided, however, that such failure shall not result in an
Event of Default to the extent it is corrected by the Borrower within a
period of five (5) days after the date on which written notice
specifying such failure shall have been given to the Borrower.
(c) The Borrower shall fail to observe or perform any other
covenant, agreement or warranty contained in, or otherwise commit any
material breach of any of the Loan Documents; provided, however, that
such failure shall not result in an Event of Default to the extent it
is corrected by the Borrower within a period of five (5) days after the
date on which written notice specifying such failure shall have been
given to the Borrower.
(d) The Borrower or any of its active subsidiaries shall commence,
or there shall be commenced against the Borrower or any such active
subsidiary a case under any applicable bankruptcy or insolvency laws as
now or hereafter in effect or any successor thereto, or the Borrower
commences any other proceeding under any reorganization, arrangement,
adjustment of debt, relief of debtors, dissolution, insolvency or
liquidation or similar law of any jurisdiction whether now or hereafter
in effect relating to the Borrower or any active subsidiary thereof or
there is commenced against the Borrower or any active subsidiary
thereof any such bankruptcy, insolvency or other proceeding which
remains undismissed for a period of 60 days; or the Borrower or any
active subsidiary thereof is adjudicated insolvent or bankrupt; or any
order of relief or other order approving any such case or proceeding is
entered; or the Borrower or any active subsidiary thereof suffers any
appointment of any custodian or the like for it or any substantial part
of its property which continues undischarged or unstayed for a period
of 60 days; or the Borrower or any active subsidiary thereof makes a
general assignment for the benefit of creditors; or the Borrower shall
fail to pay, or shall state that it is unable to pay, or shall be
unable to pay, its debts generally as they become due; or the Borrower
or any active subsidiary thereof shall call a meeting of its creditors
with a view to arranging a composition, adjustment or restructuring of
8
its debts; or the Borrower or any active subsidiary thereof shall by
any act or failure to act expressly indicate its consent to, approval
of or acquiescence in any of the foregoing; or any corporate or other
action is taken by the Borrower or any active subsidiary thereof for
the purpose of effecting any of the foregoing.
Immediately upon the occurrence of an Event of Default, at Lender's
option, (i) the Maturity Date shall be deemed to have occurred automatically and
(ii) the entire principal amount of this Bridge Note then outstanding, all other
amounts payable by the Borrower hereunder shall automatically become and be due
and payable, without presentment, demand, protest or any notice of any kind, all
of which are hereby expressly waived by the Borrower, anything herein to the
contrary notwithstanding.
Section 11. Any and all notices or other communications or deliveries
to be provided by the Lender hereunder, including, without limitation, any
conversion notice, shall be in writing and delivered personally, by facsimile,
sent by a nationally recognized overnight courier service or sent by certified
or registered mail, postage prepaid, addressed to the Borrower, 0000 Xxxx 0000
Xxxxx, Xxxx Xxxx Xxxx, Xxxx 00000, or such other address or facsimile number as
the Borrower may specify for such purposes by notice to the Lender delivered in
accordance with this paragraph. Any and all notices or other communications or
deliveries to be provided by the Borrower hereunder shall be in writing and
delivered personally, by facsimile, sent by a nationally recognized overnight
courier service or sent by certified or registered mail, postage prepaid,
addressed to each Lender at the address of such Lender appearing on the books of
the Borrower, or if no such address appears, at the principal place of business
of the Lender. Any notice or other communication or deliveries hereunder shall
be deemed given and effective on the earliest of (i) the date of transmission if
delivered by hand or by telecopy that has been confirmed as received by 5:00
P.M. on a business day, (ii) one business day after being sent by nationally
recognized overnight courier or received by telecopy after 5:00 P.M. on any day,
or (iii) five business days after being sent by certified or registered mail,
postage and charges prepaid, return receipt requested.
Section 12. Upon the occurrence and during the continuation of an Event
of Default and the declaration of the Maturity Date, the Lender shall have, in
addition to all other rights and remedies under this Agreement, this Bridge Note
and related documents, all other rights and remedies provided under each
applicable jurisdiction and other applicable laws, which rights shall be
cumulative.
Section 13. This Bridge Note and the provisions hereof are to be
construed according to and are governed by the laws of the State of New York,
without regard to principles of conflicts of laws thereof.
IN WITNESS WHEREOF, the Borrower has caused this Bridge Note to be duly
executed by a duly authorized officer as of the date first above indicated.
9
REMOTEMDX, INC.
By: ___________________________
Name:
Title:
10
ANNEX A
NOTICE OF CONVERSION
To Be Executed by the Holder
in Order to Convert Note
The undersigned Lender hereby elects to convert $__________ currently
outstanding and owed under the Convertible Bridge Note issued to ______________
at a Conversion Price of $_______ (the "Bridge Note") and to purchase
___________ shares of Common Stock of RemoteMDx, Inc. issuable upon conversion
of such Bridge Note, and requests that certificates for such securities shall be
issued in the name of:
------------------------------------------------
(please print or type name and address)
------------------------------------------------
(please insert social security or other identifying number)
and be delivered as follows:
------------------------------------------------
please print or type name and address)
------------------------------------------------
(please insert social security or other identifying number)
LENDER
By:
-------------------------------------------------
Name:
Title:
Conversion Date:
---------------------------
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