PURCHASE AGREEMENT
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THIS PURCHASE AGREEMENT ("Agreement") is made as of the 31st day of July,
1998 by and between Medical Dynamics, Inc., a Colorado corporation (the
"Company"), and The Tail Wind Fund, Ltd., a British Virgin Islands limited
liability company (the "Investor").
In consideration of the mutual promises made herein and for other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. The following terms, as used herein, have the following
meanings:
1.1 "Affiliate" means, with respect to any person, any other person
which directly or indirectly controls, is controlled by, or is under common
control with, such person.
1.2 "Agreements" means this Agreement and the Registration Rights
Agreement.
1.3 "Closing" means the consummation of the transactions contemplated
by this Agreement, which shall occur as provided herein.
1.4 "Common Stock" means the Common Stock, par value $.001 per share,
of the Company.
1.5 "Control" means the possession , direct or indirect, of the power
to direct or cause the direction of the management and policies of a person,
whether through the ownership of voting securities, by contract or otherwise.
1.6 "Debenture" means the Convertible Debenture issued to the Investor
in the form attached hereto as Exhibit A.
1.7 "Material Adverse Effect" means a material adverse effect on the
(i) condition (financial or otherwise), business, assets, results of operations
or prospects of the Company and its subsidiaries, taken as a whole; (ii) ability
of the Company to perform any of its material obligations under the terms of
this Agreement; or (iii) rights and remedies of the Investor under the terms of
this Agreement.
1.8 "Person" means an individual, corporation, partnership, trust,
business trust, association, joint stock company, joint venture, pool,
syndicate, sole proprietorship, unincorporated organization, governmental
authority or any other form of entity not specifically listed herein.
1.9 "Registration Rights Agreement" means the Registration Rights
Agreement relating to the Common Stock issuable pursuant to the conversion of
the Debentures and the exercise of the Warrants, in the form attached hereto as
Exhibit B, to be entered into as of the date hereof.
1.10 "SEC" means the Securities and Exchange Commission.
1.11 "SEC Filings" has the meaning set forth in Section 4.5.
1.12 "Securities" means the Debentures, the Common Stock issuable upon
the conversion of, or payable as accrued interest on, the Debentures, the
Warrants and the Common Stock issuable upon the exercise of Warrants.
1.13 "1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
1.14 "1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
1.15 "Warrants" means (a) the "First Investment Warrant," which is the
Warrant issued to the Investor on the First Closing Date to purchase up to an
aggregate of 110,000 shares of Common Stock at the exercise price stated
therein, the form of which is attached hereto as Exhibit C and (b) the "Second
Investment Warrant," which is the Warrant to be issued to the Investor on the
Second Closing Date to purchase up to an aggregate of 40,000 shares of Common
Stock at the exercise price stated therein, the form of which is attached hereto
as Exhibit D.
2. Purchase and Sale of Debenture and Issuance of Warrant.
2.1 First Investment. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties contained
herein, the Investor hereby purchases and the Company hereby sells and issues to
the Investor (a) the Debenture at an aggregate purchase price of $1,100,000,
issued and delivered concurrently herewith in eleven equal Debenture forms of
$100,000 face amount each and (b) the First Investment Warrant issued and
delivered concurrently herewith (the "First Investment").
2.2 Second Investment. Subject to the terms and conditions of this
Agreement, and in reliance on the representations and warranties contained
herein, upon the satisfaction of the conditions set forth below, on or before
December 31, 1998, the Investor shall purchase and the Company shall sell and
issue to the Investor (a) Debentures at an aggregate purchase price of $400,000,
which shall be issued and delivered against receipt of funds as contemplated by
Section 3, below, in four equal Debenture forms of $100,000 face amount each and
(b) the Second Investment Warrant (the "Second Investment"). The obligation of
the Investor to make the Second Investment shall be subject to the satisfaction
of the following conditions:
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(a) The average closing bid price of the Common Stock for the
month of November 1998 shall be $2.10 or above;
(b) The effective date of the registration statement contemplated
by the Registration Rights Agreement is within 120 days of the date hereof;
(c) The registration statement on Form S-3 (Registration No. 333-
42631) is not subject to any suspension of effectiveness and has not been so
subject for a period in excess of ten (10) days during the period commencing on
the date hereof and ending on November 30, 1998;
(d) The representations and warranties of the Company shall be
true and correct as of the date of the Second Investment;
(e) The trading in the Common Stock shall not have been suspended
by the SEC or the Nasdaq Stock Market, and the Common Stock shall not have been
delisted from the Nasdaq Stock Market;
(f) The Company shall have delivered to the Investor an opinion
of Company's counsel in form and substance similar to the opinion delivered in
connection with the First Investment.
2.3 Closing Dates and Closings. The date and time of the issuance and
sale of the Debentures and Warrants pursuant to this Agreement (the "Closing
Dates") shall be (i) in the case of the First Investment, the date hereof (the
"First Closing Date"); and (ii) in the case of the Second Investment, December
31, 1998 or such earlier date in the month of December 1998 as the parties may
mutually agree (the "Second Closing Date"). On each Closing Date, the Investor
shall cause the purchase price for the Debentures being purchased on that
Closing Date to be paid into escrow as provided in the Escrow Agreement attached
hereto as Exhibit E, and the Company shall cause the Debentures and Warrant
subscribed for hereby with respect to that Closing Date to be executed, issued
and delivered to the Escrow Agent as provided in the Escrow Agreement. The
parties expressly acknowledge and agree that on or before the Second Closing
Date, the Company also shall cause to be delivered to the Investor a certificate
of an officer of the Company to the effect that the conditions precedent to the
Second Investment (as set forth in Section 2.2 above) have been satisfied and
that the representations and warranties of the Company set forth herein are true
and correct as of such date and will be true and correct as of the Second
Closing Date.
3. Payment of Purchase Price. The Investor shall cause the purchase price
to be paid in full by wire transfer to the Escrow Agent pursuant to the terms of
the Escrow Agreement.
4. Representations and Warranties of the Company. The Company hereby
represents and warrants to the Investor that:
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4.1 Organization, Good Standing and Qualification. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of Colorado and has all requisite power and authority to carry
on its business and own its properties as now conducted and owned. The Company
and each of its subsidiaries is duly qualified or licensed to do business as a
foreign corporation in good standing in each jurisdiction in which the conduct
of its business or its ownership or leasing of property makes such qualification
or licensing necessary unless the failure to so qualify or be licensed would not
have a Material Adverse Effect.
4.2 Authorization. The Company has full power and authority and has
taken all requisite action on the part of the Company, its officers, directors
and stockholders necessary for (i) the authorization, execution and delivery of
the Agreements, (ii) the performance of all obligations of the Company hereunder
or thereunder, and (iii) the authorization, issuance (or reservation for
issuance) and delivery of the Securities. The Agreements constitute the legal,
valid and binding obligations of the Company, enforceable against the Company in
accordance with their terms.
4.3 Valid Issuance.
(a) The Company has reserved a sufficient number of shares of
Common Stock for issuance upon conversion of the Debentures and exercise of the
Warrants, and such shares, when issued in accordance with the respective terms
of the Debentures and the Warrants, will be duly authorized, validly issued,
fully paid, non-assessable and free and clear of all encumbrances and
restrictions, except for restrictions on transfer imposed by applicable
securities laws.
(b) The authorized capital stock of the Company consists, solely
of 30,000,000 shares of Common Stock and 5,000,000 shares of preferred stock. As
of July 27, 1998, the Company has 9,991,739 shares of Common Stock and no shares
of preferred stock issued and outstanding and there are no other outstanding
shares of capital stock of the Company. All of the issued and outstanding shares
of the Company's Common Stock have been duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights. Except as set forth
on Schedule 4.3, no one is entitled to preemptive or similar statutory or
contractual rights with respect to any securities of the Company. Except as
disclosed on Schedule 4.3 to this Agreement, there are no outstanding warrants,
options, convertible securities or other rights, agreements or arrangements of
any character under which the Company is or may be obligated to issue any equity
securities of any kind, or to transfer any equity securities of any kind, and
the Company and its subsidiaries do not have any present plan or intention to
issue any equity securities of any kind, or to transfer any equity securities of
any kind owned by them. Except as disclosed on Schedule 4.3, the Company does
not know of any voting agreements, buy-sell agreements, option or right of first
purchase agreements or other agreements of any kind among any of the
securityholders of the Company relating to the securities held by them. Except
as disclosed on Schedule 4.3, the Company has not granted any Person the right
to require the Company to register any securities of the Company under the 1933
Act, whether on a demand basis or in connection with the registration of
securities of the Company for its own account or for the account of any other
Person.
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(c) The number of outstanding shares of Common Stock, as
indicated above, plus the number of shares of Common Stock issuable pursuant to
outstanding rights and agreements, assuming the complete exercise or conversion
of all rights to acquire capital stock of the Company until such rights and
subsequent rights incident to exercise or conversion are fully exercised or
converted for Common Stock, together represent a total of 13,887,691 shares of
Common Stock immediately prior to the Closing, plus an indeterminable number of
shares of Common Stock issuable to the Investor pursuant to convertible
debentures previously issued to the investor.
4.4 Consents. The execution, delivery and performance by the Company
of the Agreements and the offer, issue and sale of the Securities require no
consent of, action by or in respect of, or filing with, any Person, governmental
body, agency, or official other than filings that have been made pursuant to
applicable state securities laws and post-sale filings pursuant to applicable
state and federal securities laws and the requirements of Nasdaq, which the
Company undertakes to file within the applicable time periods.
4.5 Delivery of SEC Filings; Business. The Company has delivered or
made available to the Investor true and correct copies of (i) its most recent
Annual Report on Form 10- KSB, (ii) its quarterly reports on Form 10-QSB for
each fiscal quarter subsequent to that fiscal year end, and (iii) any other
documents filed with the Securities and Exchange Commission (the "SEC") since
the filing of its most recent Annual Report on Form 10-KSB (collectively, the
"SEC Filings"). The Company and its subsidiaries are engaged only in the
business described in the SEC Filings and the SEC Filings contain a complete and
accurate description of the business of the Company and its subsidiaries.
4.6 Use of Proceeds. The proceeds of the sale of the Securities
hereunder shall be used by the Company for working capital and operating
capital.
4.7 No Material Adverse Change. Except as set forth in Schedule 4.7,
since the filing of the Company's most recent Annual Report on Form 10-KSB or as
otherwise identified and described in subsequent reports filed by the Company
pursuant to the 1934 Act, there has not been:
(i) any change in the consolidated assets, liabilities, financial
condition or operating results of the Company from that reflected in the
financial statements included in the Company's most recent Quarterly Report on
Form 10-QSB, except changes in the ordinary course of business which have not
had, in the aggregate, a Material Adverse Effect;
(ii) any declaration or payment of any dividend, or any
authorization or payment of any distribution, on any of the capital stock of the
Company, or any redemption or repurchase of any securities of the Company;
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(iii) any material damage, destruction or loss, whether or not
covered by insurance to any assets or properties of the Company or any of its
subsidiaries;
(iv) any waiver by the Company or any of its subsidiaries of a
valuable right or of a material debt owed to it;
(v) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any of its
subsidiaries, except in the ordinary course of business and which is not
material to the assets, properties, financial condition, operating results or
business of the Company and its subsidiaries taken as a whole (as such business
is presently conducted and as it is proposed to be conducted);
(vi) any material change or amendment to a material contract or
arrangement by which the Company or any of their subsidiaries or any of its
assets or properties is bound or subject;
(vii) any material change in any compensation arrangement or
agreement with any employee of the Company or any of its subsidiaries who now
earns, or who would earn as a result of such change, in excess of $100,000 per
annum or any other officer of the Company or any of its subsidiaries;
(viii) any labor difficulties or labor union organizing
activities with respect to employees of the Company or any of its subsidiaries;
(ix) any transaction entered into by the Company or any of its
subsidiaries other than in the ordinary course of business; or
(x) any other event or condition of any character which might
have a Material Adverse Effect that is not reflected in the SEC Filings.
4.8 SEC Filings; Material Contracts.
(a) As of its filing date, each report filed by the Company with
the SEC pursuant to the 1934 Act, complied as to form in all material respects
with the requirements of the 1934 Act and did not contain any untrue statement
of a material fact or omit to state any material fact necessary in order to make
the statements made therein, in the light of the circumstances under which they
were made, not misleading.
(b) Each registration statement and any amendment thereto filed
by the Company pursuant to the 1933 Act and the rules and regulations
thereunder, as of the date such statement or amendment became effective,
complied as to form in all material respects with the 1933 Act and did not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; and each prospectus filed pursuant to Rule 424(b) under the 1933
Act, as of its issue date and as of the closing of any sale or securities
pursuant thereto did not contain any untrue statement of a material fact or omit
to state any material fact necessary in order to make the statements made
therein, in the light of the circumstances under which they were made, not
misleading.
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(c) Except as listed in Schedule 4.8 hereto, there are no
agreements or instruments currently in force and effect that constitute a
"material contract" (as such term is defined in Item 601(b)(10) of Regulation
S-K) of the Company or that constitute a warrant, option, convertible security
or other right, agreement or arrangement of any character under which the
Company is or may be obligated to issue any equity security of any kind, or to
transfer any equity security of any kind. The Company has delivered to the
Investor prior to the Closing full and complete copies of all agreements
indicated in Schedule 4.8 hereto.
4.9 Registration Rights. The registration rights granted to the
Investor pursuant to the Registration Rights Agreement are at least as favorable
to the Investor as those granted to any holder of any securities of the Company
are to such holder.
4.10 No Breach, Violation or Default. The execution, delivery and
performance of the Agreements and the issuance and sale of the Securities will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, rule, regulation or order of any
governmental agency or body or any court, domestic or foreign, having
jurisdiction over the Company or any subsidiary of the Company or any of their
properties, or any agreement or instrument to which the Company or any such
subsidiary is a party or by which the Company or any such subsidiary is bound or
to which any of the properties of the Company or any such subsidiary is subject,
or the Certificate of Incorporation or By-Laws of the Company or any such
subsidiary.
4.11 Tax Returns and Payments. The Company and its subsidiaries have
correctly and timely prepared and filed all tax returns required to have been
filed by it with all appropriate federal, state and local governmental agencies
and timely paid all taxes owed by them. The charges, accruals and reserves on
the books of the Company and its subsidiaries in respect of taxes for all fiscal
periods are adequate in all material respects, and there are no material unpaid
assessments of the Company or any subsidiary nor, to the knowledge of the
Company, any basis for the assessment of any additional taxes, penalties or
interest for any fiscal period or audits by any federal, states or local taxing
authority except such as which are not material. All material taxes and other
assessments and levies which the Company or any subsidiary is required to
withhold or to collect for payment have been duly withheld and collected and
paid to the proper governmental entity or third party. There are no tax liens or
claims pending or threatened against the Company or any subsidiary or any of
their respective assets or property. There are no outstanding tax sharing
agreements or other such arrangements between the Company or any subsidiary and
any other corporation or entity.
4.12 Title to Properties. Except as disclosed in the SEC Filings, the
Company and its subsidiaries have good and marketable title to all real
properties and all other properties and assets owned by them, in each case free
from liens, encumbrances and defects that would materially affect the value
thereof or materially interfere with the use made or currently planned to be
made thereof by them; and except as disclosed in the SEC Filings, the Company
and its subsidiaries hold any leased real or personal property under valid and
enforceable leases with no exceptions that would materially interfere with the
use made or currently planned to be made thereof by them.
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4.13 Certificates, Authorities and Permits. The Company and its
subsidiaries possess adequate certificates, authorities or permits issued by
appropriate governmental agencies or bodies necessary to conduct the business
now operated by them and have not received any notice of proceedings relating to
the revocation or modification of any such certificate, authority or permit
that, if determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect.
4.14 No Labor Disputes. No labor dispute with the employees of the
Company or any subsidiary exists or, to the knowledge of the Company, is
imminent that might have a Material Adverse Effect.
4.15 Intellectual Property. The Company and its subsidiaries own or
possess adequate trademarks and trade names and have all other rights to
inventions, know-how, patents, copyrights, confidential information and other
intellectual property (collectively, "Intellectual Property Rights"), free and
clear of all liens, security interests, charges, encumbrances, equities and
other adverse claims, necessary to conduct the business now operated by them, or
presently employed by them, and presently contemplated to be operated by them,
and have not received any notice of infringement of or conflict with asserted
rights of others with respect to any Intellectual Property Rights that, if
determined adversely to the Company or any of its subsidiaries, would
individually or in the aggregate have a Material Adverse Effect. No proprietary
technology of any Person was used in the design or development by the Company of
(or otherwise with respect to) any of the Intellectual Property Rights which
technology was not properly acquired by the Company from such Person.
4.16 Environmental Matters. Neither the Company nor any of its
subsidiaries is in violation of any statute, rule, regulation, decision or order
of any governmental agency or body or any court, domestic or foreign, relating
to the use, disposal or release of hazardous or toxic substances or relating to
the protection or restoration of the environment or human exposure to hazardous
or toxic substances (collectively, "Environmental Laws"), owns or operates any
real property contaminated with any substance that is subject to any
Environmental Laws, is liable for any off-site disposal or contamination
pursuant to any Environmental Laws, or is subject to any claim relating to any
Environmental Laws, which violation, contamination, liability or claim would
individually or in the aggregate have a Material Adverse Effect; and the Company
is not aware of any pending investigation which might lead to such a claim.
4.17 Litigation. Except as disclosed in the SEC Filings, there are no
pending actions, suits or proceedings against or affecting the Company, any of
its subsidiaries or any of their respective properties that, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect or would materially and adversely
affect the ability of the Company to perform its obligations under this
Agreement, or which are otherwise material in the context of the sale of the
Securities; and to the Company's knowledge, no such actions, suits or
proceedings are threatened or contemplated.
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4.18 Financial Statements. The financial statements included in each
SEC Filing present fairly the consolidated financial position of the Company and
its subsidiaries as of the dates shown and their consolidated results of
operations and cash flows for the periods shown, and such financial statements
have been prepared in conformity with the generally accepted accounting
principles applied on a consistent basis.
4.19 Insurance Coverage. The Company and its subsidiaries maintain in
full force and effect insurance coverage that is customary for comparably
situated companies for the business being conducted, and properties owned or
leased, by the Company and its subsidiaries, and the Company reasonably believes
such insurance coverage to be adequate against all liabilities, claims and risks
against which it is customary for comparably situated companies to insure.
4.20 Compliance with Nasdaq Continued Listing Requirements. The
Company is in compliance with all applicable Nasdaq Small Cap Market continued
listing requirements and has not received any notice from Nasdaq concerning a
possible delisting of the Company's Common Stock within the last twelve months.
4.21 Acknowledgment of Dilution. The number of shares of Common Stock
issuable upon conversion of the Debentures may increase substantially in certain
circumstances, including the circumstance where the trading price of the Common
Stock declines. The Company's executive officers and directors have studied and
fully understand the nature of the Securities being sold hereunder and recognize
that such Securities have a dilutive effect. The Board of Directors of the
Company has concluded in its good faith business judgment that such issuance is
in the best interests of the Company. The Company acknowledges that its
obligations to issue shares of Common Stock in accordance with the terms of the
Debentures upon conversion of the Debentures are binding upon it and enforceable
regardless of the dilution that such issuance may have on the ownership interest
of the other stockholders of the Company.
4.22 Brokers and Finders. The Company has taken no action which would
give rise to any claim by any Person for a broker's commission, finder's fee or
similar payment by the Company or the Investor related to this Agreement or the
transactions contemplated hereby, except for amounts which are payable to Xxxxxx
Capital Group, Ltd. which shall be the sole responsibility of the Company and
shall be paid exclusively by the Company out of escrow from the proceeds hereof.
4.23 No Directed Selling Efforts or General Solicitation. Neither the
Company nor any person acting on its behalf has conducted any general
solicitation or general advertising (as those terms are used in Regulation D
under the 0000 Xxx) in connection with the offer or sale of any of the
Securities.
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4.24 No Integrated Offering Requiring Registration. Neither the
Company nor any of its Affiliates, nor any Person acting on its or their behalf,
has, directly or indirectly, made any offers or sales of any security or
solicited any offers to buy any security, under circumstances that would require
registration of the offer and sale of the Securities under the 1933 Act, or
cause the offering of the Securities to be integrated with any prior offering(s)
by the Company for purposes of the 1933 Act or any applicable shareholder
approval provisions, including those under the rules of Nasdaq.
4.25 Year 2000. All of the products which are being offered and sold
by the Company are now Year 2000 compliant, which for the purpose of this
Section 4.25 means that such products contain and/or rely on computer software
programs which are capable of handling and processing dates beyond the year
1999. The Company has undertaken all commercially reasonable efforts to ensure
that its operational computer systems also are prepared to handle and process
dates beyond the year 1999.
4.26 Disclosures. No representation or warranty made under any Section
hereof and no information furnished by the Company pursuant hereto, or in any
other document, certificate or statement furnished by the Company to the
Investor or any authorized representative of the Investor, pursuant to the
Agreements or in connection therewith, contains any untrue statement of a
material fact or omits to state a material fact necessary to make the respective
statements contained herein or therein, in light of the circumstances under
which the statements were made, not misleading.
5. Representations and Warranties of the Investor. The Investor hereby
represents and warrants to the Company that:
5.1 Organization and Existence. The Investor is a validly existing
limited liability company and has all requisite corporate power and authority to
invest in the Securities pursuant to this Agreement. The Investor is not a
resident of the United States or any state, district or territory thereof.
5.2 Authorization. The execution, delivery and performance by the
Investor of the Agreements have been duly authorized and the Agreements will
each constitute the valid and legally binding obligation of the Investor,
enforceable against the Investor in accordance with their terms.
5.3 Purchase Entirely for Own Account. The Securities to be received
by such Investor hereunder will be acquired for investment for the Investor's
own account, not as nominee or agent, and not with a view to the resale or
distribution of any part thereof, and the Investor has no present intention of
selling, granting any participation in, or otherwise distributing the same. The
Investor is not a registered broker dealer or a Person engaged in the business
of being a broker dealer.
5.4 Investment Experience. The Investor acknowledges that it can bear
the economic risk and complete loss of its investment in the Securities and has
such knowledge and experience in financial or business matters that it is
capable of evaluating the merits and risks of the investment contemplated
hereby.
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5.5 Disclosure of Information. The Investor has had an opportunity to
ask questions and receive answers from the Company regarding the Company, its
business and the terms and conditions of the offering of the Securities. Neither
such inquiries nor any other due diligence investigation conducted by the
Investor shall modify, amend or affect the Investor's right to rely on the
Company's representations and warranties contained in this Agreement or made
pursuant to this Agreement.
5.6 Restricted Securities. The Investor understands that the
Securities are characterized as "restricted securities" under the federal
securities laws inasmuch as they are being acquired from the Company in a
transaction not involving a public offering and that under such laws and
applicable regulations such securities may be resold without registration under
the 1933 Act only in certain limited circumstances.
5.7 Legends. It is understood that, until registration for resale
pursuant to the Registration Rights Agreement, certificates evidencing the
Securities may bear one or all of the following legends:
(a) "These securities have not been registered under the
Securities Act of 1933 (the "Act"). They may not be sold, offered for sale,
pledged or hypothecated in the absence of a registration statement in effect
with respect to the securities under the Act or an exemption from the
registration requirements of the Act."
(b) If required by the authorities of any state in connection
with the issuance of sale of the Securities, the legend required by such state
authority.
Upon registration for resale pursuant to the Registration Rights
Agreement, all certificates evidencing the Common Stock shall be issued free of
such restrictive legends.
5.8 Accredited Investor. The Investor is an accredited investor as
defined in Rule 501(a) of Regulation D, as amended, under the 0000 Xxx.
5.9 No General Solicitation. The Investor did not learn of the
investment in the Securities as a result of any public advertising or general
solicitation.
6. Registration Rights Agreement. The parties acknowledge and agree that
part of the inducement for the Investor to enter into this Agreement is the
Company's execution and delivery of the Registration Rights Agreement. The
parties acknowledge and agree that simultaneously with the execution hereof, the
Registration Rights Agreement is being duly executed and delivered by the
parties thereto.
7. Covenants and Agreements of the Company.
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7.1 Capital Raising Limitations. From the date hereof through the
eight-month period following the later of (A) the effective date of the
registration statement contemplated by the Registration Rights Agreement and (B)
the Second Closing Date (the "Restricted Period"), without the prior written
consent of the Investor (which consent may be withheld in such Investor's sole
discretion), the Company shall not issue or sell, or agree to issue or sell (a)
any equity or debt securities that are convertible into, exchangeable or
exercisable for, or include the right to receive additional shares of Common
Stock either (i) at a conversion, exercise or exchange rate or other price that
is based upon and/or varies with the trading prices of or quotations for the
Common Stock at any time after the initial issuance of such debt or equity
securities; or (ii) with a fixed conversion, exercise or exchange price that is
subject to being reset at some future date(s) after the initial issuance of such
debt or equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market for
the Common Stock; or (b) any securities of the Company pursuant to an "equity
line" structure which provides for the sale, from time to time, of securities of
the Company which are registered for resale pursuant to the 1933 Act (the
transactions in this sentence being collectively referred to as "Variable Rate
Transactions"). The Restricted Period shall be extended by that number of days,
if any, during which any Blackout Period (as defined in the Registration Rights
Agreement) has been in effect.
7.2 Rights of Investor upon Additional Offerings. The Company agrees
that for the period of one year following the later of (A) the effective date of
the registration contemplated by the Registration Rights Agreement and (B) the
Second Closing Date, the Company shall give thirty days advance written notice
to the Investor prior to any offer or sale of any of its equity securities or
any securities convertible into or exchangeable or exercisable for such
securities. In addition, prior to the closing of any such sale, the Investor
shall have the right to participate in such offering and purchase such equity
securities for the same consideration and on the same terms and conditions as
contemplated for such third-party sale, which right must be exercised in writing
by the Investor within ten business days following receipt of the notice from
the Company. If, subsequent to the Company giving notice to the Investor
hereunder, the terms and conditions of the proposed third-party sale are changed
in any way, the Company shall be required to provide a new notice to the
Investor hereunder and the Investor shall have the right to participate in the
offering on such changed terms and conditions as provided hereunder.
7.3 Limitation on Acquisitions by Company. Commencing on the date
hereof and continuing for a period of one year following the effective date of
the registration statement contemplated by the Registration Rights Agreement,
the Company agrees that it shall not, directly or indirectly, in one or a series
of transactions, purchase all or substantially all of the assets of, or greater
than a majority of the outstanding securities of any entity having an after-tax
loss in excess of $100,000 for the most recent four fiscal quarters from the
closing date of any such acquisition by the Company (or the earlier date on
which the Company makes any payment, in cash, stock or kind, in connection
therewith), without obtaining the prior written consent of the Investor.
12
7.4 Opinion of Counsel. The Company has delivered, simultaneously with
the execution and delivery of this Agreement, the opinion of Norton Xxxxxxxx
LLC, its counsel, in the form attached hereto as Exhibit F.
7.5 Reservation of Common Stock Pursuant to Conversion of Debenture
and Exercise of Warrants. The Company hereby agrees to at all times reserve and
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of permitting conversion of the Debenture and exercise of the
Warrant, such number of shares of Common Stock as shall from time to time equal
1.5 times the number of shares sufficient to permit the complete conversion of
the Debenture plus the number of shares of Common Stock as shall be necessary to
permit the exercise of the Warrant in accordance with the respective terms of
the Debenture and the Warrant.
7.6 Reports. So long as the Investor holds Debentures or Warrants, the
Company will deliver to the Investor the following reports by overnight courier
to the address set forth in Section 9.4:
(a) Quarterly Reports. As soon as available and in any event
within 45 days after the end of each fiscal quarter of the Company, the
Company's Form 10-QSB or, in the absence of a Form 10-QSB, consolidated balance
sheets of the Company and its subsidiaries as at the end of such period and the
related consolidated statements of operations, stockholders' equity and cash
flows for such period and for the portion of the Company's fiscal year ended on
the last day of such quarter, all in reasonable detail and certified by a
principal financial officer of the Company to have been prepared in accordance
with generally accepted accounting principles, subject to year-end and audit
adjustments.
(b) Annual Reports. As soon as available and in any event within
90 days after the end of each fiscal year of the Company, the Company's Form
10-KSB or, in the absence of a Form 10-KSB, consolidated balance sheets of the
Company and its subsidiaries as at the end of such year and the related
consolidated statements of earnings, stockholders' equity and cash flows for
such year, all in reasonable detail and accompanied by the report on such
consolidated financial statements of an independent certified public accountant
selected by the Company and reasonably satisfactory to the Investor.
(c) Securities Filings. As promptly as practicable and in any
event within five days after the same are issued or filed, copies of (i) all
press releases issued by the Company or any subsidiary, and all notices, proxy
statements, financial statements, reports and documents as the Company or any
subsidiary shall send or make available generally to its stockholders or to
financial analysts, and (ii) all periodic and special reports, documents and
registration statements (other than on Form S-8) which the Company or any
subsidiary furnishes or files, or any officer or director of the Company or any
of its subsidiaries (in such person's capacity as such) furnishes or files with
the SEC.
13
(d) Other Information. Such other information relating to the
Company or its subsidiaries as from time to time may reasonably be requested by
the Investor provided the Company produces such information in its ordinary
course of business.
7.7 Press Releases. At least 48 hours prior to issuance, the Company
shall submit for comment by facsimile to the Investor any press release or other
publicity concerning the Investor, the Transaction Agreements or the
transactions contemplated thereby.
7.8 No Conflicting Agreements. The Company will not, and will not
permit its subsidiaries to, take any action, enter into any agreement or make
any commitment which would conflict or interfere in any material respect with
the obligations to the Investor under the Agreements.
7.9 Insurance. The Company shall, and shall cause each subsidiary to,
have in full force and effect (a) insurance reasonably believed to be adequate
on all assets and activities of a type customarily insured, covering property
damage and loss of income by fire or other casualty, and (b) insurance
reasonably believed to be adequate protection against all liabilities, claims
and risks against which it is customary for companies similarly situated as the
Company and the subsidiaries to insure.
7.10 Compliance with Laws. The Company will use reasonable efforts,
and will cause each of its subsidiaries to use reasonable efforts, to comply in
all material respects with all applicable laws, rules, regulations, orders and
decrees of all governmental authorities, except to the extent non-compliance (in
one instance or in the aggregate) would not have a Material Adverse Effect.
7.11 Corporate Governance. For so long as the Convertible Debenture,
or any portion thereof, is outstanding and/or the Investor is the beneficial
owner of the Company's Common Stock, the Company:
(a) Shall distribute to its shareholders copies of an annual
report containing audited financial statements of the Company and its
subsidiaries a reasonable period of time prior to the Company's annual meeting
of shareholders;
(b) Shall maintain a minimum of two independent directors on its
board of directors;
(c) Shall hold an annual meeting of shareholders each and every
year;
(d) Shall solicit proxies and provide proxy statements for all
meetings of shareholders;
(e) Shall obtai shareholder approval of (i) a plan or arrangement
pursuant to which stock may be acquired by officers or directors of the Company
(except for warrants or rights issued generally to shareholders of the Company
or broadly based plans or arrangements including other employees of the
Company); (ii) an issuance of the Company's securities when the issuance will
14
result in a change of control; (iii) an issuance of the Company's securities in
connection with the acquisition of another company if shareholder approval of
such issuance is required under applicable Nasdaq rules; and (iv) any other
issuance of the Company's securities if shareholder approval of such issuance is
required under applicable Nasdaq rules.
8. Survival. All representations, warranties, covenants and agreements
contained in this Agreement shall be deemed to be representations, warranties,
covenants and agreements as of the date hereof and shall survive the execution
and delivery of this Agreement for a period of five years and six months from
the date of this Agreement; provided, however, that the provisions contained in
Section 7 hereof shall survive in accordance therewith.
9. Miscellaneous.
9.1 Successors and Assigns. This Agreement may not be assigned by
either party without the prior written consent of the other party hereto, except
that without the prior written consent of the Company, but after notice duly
given, the Investor may assign its rights and delegate its duties hereunder to
an Affiliate, and without the prior written consent of Investor, but after
notice duly given, the Company may assign its rights and delegate its duties
hereunder to any successor-in-interest corporation in the event of a merger or
consolidation of the Company with or into another corporation, or any merger or
consolidation of another corporation with or into the Company which results
directly or indirectly in an aggregate change in the ownership or control of
more than 50% of the voting rights of the equity securities of the Company, or
the sale of all or substantially all of the Company's assets. The terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the respective permitted successors and assigns of the parties. Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
9.2 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.3 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
9.4 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified, or if sent
by telex or telecopier, upon receipt of the correct answer back, or upon deposit
with the United States Post Office, by registered or certified mail, or upon
deposit with an overnight air courier, in each case postage prepaid and
addressed to the party to be notified at the address as follows, or at such
other address as such party may designate by ten days' advance written notice to
the other party:
15
If to the Company:
Medical Dynamics, Inc.
00 Xxxxxxxxx Xxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Van X. Xxxxxxx
Telephone: 303/000-0000
Facsimile: 303/799-1378
with a copy to:
Norton Xxxxxxxx LLC
0000 XXX Xxxxxxx, Xxxxx 000
Xxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxxxx, Xx.
Telephone: 303/000-0000
Facsimile: 303/221-5553
If to the Investor:
The Tail Wind Fund, Ltd.
Windermere House
000 Xxxx Xxx Xxxxxx
X.X. Xxx XX-0000
Nassau, Bahamas
Telephone:
Facsimile:
with a copy to:
The Tail Wind Fund, Ltd.
c/o European American Securities, Inc.
Xxx Xxxxxx Xxxxxx, 0xx Xxxxx
Xxxxxx XX0X 0XX
Xxxxxxx
Attn: Xxxxx Xxxxx
Telephone: 00-000-000-0000
Facsimile: 00-000-000-0000
and with a copy to:
Xxxxx Xxxx LLP
000 Xxxxxxxxxx Xxxxxx, X.X.
Xxxxxxxxxx, X.X. 00000
Attn: XxXxxx Xxxxxx
Telephone: 202/000-0000
Facsimile: 202/508-6200
16
9.5 Expenses. The Company shall pay the fees of Xxxxx Xxxx LLP,
counsel to the Investor, in an amount up to $12,500.
9.6 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the Investor. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Securities purchased under this Agreement at the time outstanding,
each future holder of all such securities, and the Company.
9.7 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
9.8 Entire Agreement. This Agreement, including the Exhibits and
Schedules hereto, and the Registration Rights Agreement constitute the entire
agreement among the parties hereof with respect to the subject matter hereof and
thereof and supersede all prior agreements and understandings, both oral and
written, between the parties with respect to the subject matter hereof and
thereof.
9.9 Further Assurances. The parties shall execute and deliver all such
further instruments and documents and take all such other actions as may
reasonably be required to carry out the transactions contemplated hereby and to
evidence the fulfillment of the agreements herein contained.
9.10 Applicable Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Colorado without regard
to principles of conflicts of laws.
17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
The Company: MEDICAL DYNAMICS, INC.
By:_________________________
Name: Van X. Xxxxxxx
Title: President
The Investor: THE TAIL WIND FUND, LTD.
By:_________________________
Name:
Title:
18
Schedule 4.3
------------
See attached Schedule 4.3
19
Schedule 4.7
------------
None.
20
Schedule 4.8
------------
None.
21
