THIS BRIDGE LOAN
AGREEMENT (this “Agreement”) is made and entered into
as of June 16, 2003, by and among Restore Medical, Inc., a
Minnesota corporation (the “Company”), and each of the
investors listed on Schedule A hereto (the
“Purchasers”).
WHEREAS, the
Company wishes to sell and each of the Purchasers desires to
purchase subordinated convertible notes and warrants to purchase
shares of the Company’s common stock, $.01 par value
(“Common Stock”);
NOW, THEREFORE,
the parties hereto hereby agree as follows:
1.
Authorization of the Notes and Warrants . The Company will
have authorized, on or before the First Closing (as defined
herein), the issuance and sale of subordinated convertible notes up
to an aggregate principal amount of $5,374,462.49, substantially in
the form attached hereto as Exhibit A (collectively, the
“Notes”), and warrants to purchase up to an aggregate
of 224,000 shares of the Company’s Common Stock,
substantially in the form attached hereto as Exhibit B
(collectively, the “Warrants”).
2. Sale
and Purchase of Notes and Warrants . Subject to the terms and
conditions hereof, the Company will issue and sell to each
Purchaser, and each Purchaser will purchase from the Company:
(a) up to the principal amount of Notes equal to the amount of
committed capital set forth opposite the name of each such
Purchaser on Schedule A attached hereto, less the
“Purchase Price of Warrant” (as defined below), and
(b) in exchange for the Purchase Price of Warrant, a Warrant
to purchase the number of shares of Common Stock set opposite the
name of each such Purchaser at an exercise price of $0.55 per
share. “Purchase Price of Warrant” shall mean the price
paid by the Purchasers to receive each Warrant, which amount shall
be equal to the amount set forth opposite the name of each
Purchaser on Schedule A attached hereto. The Notes and the
Warrants are hereinafter collectively referred to as the
“Securities.” Each Note shall be convertible into
shares of the Company’s equity securities issued in a
Qualifying Financing (as defined below) pursuant to
Section 7.1 below and shall be secured by assets of the
Company as described in Section 3.2(c) below, the Notes, and
the Security Agreement dated as of the date hereof and attached
hereto as Exhibit C.
3.
Closing Date; Delivery and Payment .
3.1.
Closing Date . The first closing of the purchase and sale of
the Securities hereunder (the “First Closing”), as well
as each subsequent closing of the purchase and sale of any
Securities pursuant to the exercise of the Company’s call
rights set forth in Section 3.2(b) below (each, a
“Subsequent Closing”), will be held at the
Company’s principal offices or at the offices of Dorsey &
Whitney LLP on the dates agreed upon by the Company and Purchasers
purchasing a majority in interest of the aggregate principal amount
of the Notes.
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3.2.
Delivery and Payment .
(a) At
the First Closing, the Company shall deliver to each Purchaser a
Note registered in the name of each Purchaser, representing fifty
percent (50%) of the aggregate principal amount set forth opposite
the name of such Purchaser on Schedule A attached hereto, less
the Purchase Price of Warrant for such Purchaser, together with a
Warrant to purchase the number of shares of Common Stock set forth
opposite the name of such Purchaser on Schedule A attached
hereto. At the First Closing, each Purchaser shall pay to the
Company by check or wire transfer an amount equal to fifty percent
(50%) of the aggregate principal amount set forth opposite the name
of such Purchaser on Schedule A attached hereto.
(b) The
Company shall have the right to call the remaining aggregate
principal amount of Notes, in minimum increments of 25% of the
aggregate principal amount of the Notes, on one or more dates
subsequent to the First Closing, but in any event no later than
August 30, 2003 (each a “Call”). In order to call
any of the remaining aggregate principal amount of the Notes, the
Company shall provide at least fourteen (14) days’
notice to the Purchasers, at the address shown on Schedule A
attached hereto, substantially in the form of notice attached
hereto as Exhibit D (the “Call Notice”);
provided , however , (x) that each respective
Call shall have been separately approved by the disinterested
members of the Company’s Board of Directors subsequent to the
date hereof and (y) there shall not have been a Material
Adverse Effect (as defined herein) on the Company subsequent to the
date hereof. With respect to each Call, the Company shall deliver
the Call Notice by confirmed facsimile transmission or overnight
courier service to the Purchasers stating (i) its intention to
call additional funds, (ii) the amount of additional funds to
be called, (iii) the date on which the additional funds are to
be called, and (iv) the purpose for which such additional
funds are being called. At each Subsequent Closing, the Company
shall deliver to each Purchaser a Note registered in the name of
each Purchaser, representing its pro rata share of the aggregate
amount of Notes to be issued at such Subsequent Closing. For the
purposes of this Agreement, “Material Adverse Effect”
means a material adverse effect on the assets, business,
properties, operations or condition (financial or otherwise) of the
Company, or a material adverse effect on the ability of the Company
to perform its obligations under this Agreement; provided however,
that in determining whether there has been a Material Adverse
Effect, any adverse effect principally attributable to the
following shall be disregarded: (I) general political,
economic, national security, business, industry or financial market
conditions; (II) expenditures by the Company in the ordinary
course of business consistent with past practices and reasonable
expenditures by the Company in connection with the transactions
contemplated by this Agreement; or (III) the taking of any
action required by this Agreement.
(c) The
amounts due for principal and accrued interest under the Notes
shall be secured by a first priority lien on those specified assets
of the Company as provided in a Security Agreement in form and
substance mutually acceptable to the Company and the Purchasers;
provided , however , that the parties hereto
acknowledge and agree that such lien shall be junior to the
Comerica Bank-California (“Comerica”) senior security
interest in certain assets of the Company, pursuant to the terms
and conditions set forth in that certain Loan and Security
Agreement dated as of December 19, 2002 between the Company
and Comerica; provided further , that the Purchasers and the
Company agree and acknowledge that the Purchaser’s
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security
interest in assets of the Company contemplated by this Agreement
and the Security Agreement shall terminate upon conversion or
repayment of the Notes in accordance with the terms and conditions
set forth in Section 7 of this Agreement.
4.
Definitions . Unless the context otherwise requires, the
terms defined in this Section 4 shall have the meanings herein
specified for all purposes of this Agreement.
“Articles”
means the Amended and Restated Articles of Incorporation of the
Company attached hereto as Exhibit E.
“Code”
means the Internal Revenue Code of 1986, as amended, and the
Treasury Regulations thereunder.
“Commission”
means the Securities and Exchange Commission.
“Material
Adverse Effect” shall mean a material adverse effect upon the
business, operations or condition (financial or otherwise) of the
Company, or a material adverse effect that otherwise renders the
Company unable to perform its ongoing obligations.
“Person”
means any natural person, corporation, limited liability company,
association, partnership (general or limited), joint venture,
proprietorship, governmental agency, trust, estate, association,
custodian, nominee or any other individual or entity, whether
acting in an individual, fiduciary, representative or other
capacity.
“Securities
Act” means the Securities Act of 1933, as amended from time
to time.
5.
Representations and Warranties by the Company . Except as
disclosed on the Disclosure Schedule to this Agreement (the
“Disclosure Schedule”), the Company represents and
warrants to the Purchasers that:
5.1.
Organization and Standing . The Company is a corporation
duly organized, validly existing and in good standing under the
laws of the State of Minnesota and has the requisite corporate
power and authority to own its properties and to carry on its
business as now being conducted and presently proposed to be
conducted. The Company has no subsidiaries or direct or indirect
equity interest in any other Person. The Company is duly qualified
to do business as a foreign corporation in all jurisdictions in
which the failure to do so could reasonably be expected to result
in a Material Adverse Effect.
5.2.
Articles . As of the date of the First Closing, the
effective articles of incorporation of the Company shall be in the
form set forth in Exhibit E to this Agreement.
5.3.
Notes and Warrants . The Notes and Warrants, when issued and
paid for pursuant to the terms of this Agreement, will be duly and
validly authorized, issued and outstanding, fully paid,
nonassessable and free and clear of all pledges, liens,
encumbrances and restrictions, except as set forth in
Section 6.2 hereof. The shares of Common Stock issuable upon
conversion of the Warrants have been reserved for issuance and,
when issued upon such
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conversion,
will be duly and validly authorized, issued and outstanding, fully
paid, nonassessable and free and clear of all pledges, liens,
encumbrances and restrictions, except as set forth in
Section 6.2 hereof.
5.4.
Securities Laws . Based in part upon the representations and
warranties of the Purchasers contained in Section 6.1 of this
Agreement, no consent, authorization, approval, permit or order of
or filing with any governmental or regulatory authority is required
under current laws and regulations in connection with the execution
and delivery of this Agreement or the offer, issuance, sale or
delivery of the Securities, other than the qualifications and
filings under certain applicable state securities laws, which
qualifications and filings have been or will be effected as a
condition of such sales or conversions. The Company has not,
directly or through an agent, offered the Securities or any similar
securities for sale to, or solicited any offers to acquire such
securities from, Persons other than the Purchasers and other
accredited investors. Under the circumstances contemplated hereby,
the offer, issuance, sale and delivery of the Securities will not
under current laws and regulations require compliance with the
prospectus delivery or registration requirements of the Securities
Act. The shares of Common Stock issuable upon conversion of the
Warrants will be issued in compliance with all applicable federal
and state securities laws.
5.5.
Corporate Acts and Proceedings . The execution and delivery
of this Agreement has been duly authorized by all requisite
corporate action on the part of the Company, its officers,
directors and stockholders and this Agreement has been duly
executed and delivered by an authorized officer of the Company.
This Agreement is a valid and binding obligation of the Company
enforceable in accordance with its terms, except as such
enforceability may be limited by bankruptcy, insolvency,
moratorium, reorganization or other similar laws affecting the
enforcement of creditors’ rights generally and as to
limitations on the enforcement of the remedy of specific
performance and other equitable remedies. The requisite corporate
action necessary to the authorization, creation, issuance,
execution and delivery of the Securities has been taken by the
Company, its officers, directors and stockholders.
5.6.
Litigation . There are no legal actions, suits, arbitrations
or other legal, administrative or governmental proceeding or
investigation pending or, to the knowledge of the Company,
threatened against the Company, or any officer or director of the
Company relating to their duties under such position in the
Company, or the Company’s properties, assets or business, or
that questions the validity of this Agreement or the right of the
Company to enter into this Agreement, or to consummate the
transactions contemplated hereby, and neither the Company nor any
of its officers is aware of any facts which might result in or form
the basis for any such action, suit or other proceeding. The
Company is not in default with respect to any judgment, order or
decree of any court or any governmental agency or
instrumentality.
5.7.
Patents and Other Intangible Rights . The Company has
sufficient title and ownership of or exclusive licenses to all
patents, trademarks, service marks, trade names, domain names,
copyrights, trade secrets, information, proprietary rights and
processes necessary for its business as now conducted and as
proposed to be conducted without any conflict with or infringement
of the rights of others, except where failure to do so would not
reasonably be expected to have a Material Adverse Effect. The
Disclosure Schedule contains a complete list of
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patents and
pending patent applications of the Company. There are no
outstanding options, licenses or agreements of any kind relating to
the foregoing, nor is the Company bound by or a party to any
options, licenses or agreements of any kind with respect to the
patents, trademarks, service marks, trade names, domain names,
copyrights, trade secrets, licenses, information, proprietary
rights and processes of any other Person. The Company has not
received any communications alleging that the Company has violated
or, by conducting its business as proposed, would violate any of
the patents, trademarks, service marks, trade names, copyrights or
trade secrets or other proprietary rights of any other Person. The
Company is not aware that any of its employees is obligated under
any contract (including licenses, covenants or commitments of any
nature) or other agreement, or subject to any judgment, decree or
order of any court or administrative agency, that would interfere
with the use of his or her best efforts to promote the interests of
the Company or that would conflict with the Company’s
business as proposed to be conducted. Neither the execution nor
delivery of this Agreement, the carrying on of the Company’s
business by the employees of the Company nor the conduct of the
Company’s business as proposed, will, to the best of the
Company’s knowledge, conflict with or result in a breach of
the terms, conditions or provisions of, or constitute a default
under, any contract, covenant or instrument under which any of such
employees is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions of any of its employees
(or people it currently intends to hire) made prior to or outside
the scope of their employment by the Company.
5.8.
Capital Stock . Immediately prior to the First Closing, the
authorized capital stock of the Company shall consist of 15,500,000
shares, 775,000 of which shall have been designated as
Series A Convertible Preferred Stock (the “Series A
Preferred Stock”), of which 750,000 shares are issued and
outstanding, 4,500,000 of which shall have been designated as
Series B Convertible Preferred Stock (the “Series B
Preferred Stock”), of which 4,185,411 shares are issued and
outstanding, 8,500,000 shares of which have been designated as
Common Stock, of which 1,633,525 shares are issued and outstanding,
and 1,725,000 of which are undesignated shares of capital stock. No
person holds or is entitled to any outstanding subscriptions,
warrants, options, calls, convertible securities, commitments of
sale or similar rights to purchase or otherwise acquire any shares
of, or any security convertible into or exchangeable for, the
capital stock of, or other ownership interest in, the Company,
except for (a) the conversion privileges of the Series A
Preferred Stock and the Series B Preferred Stock and
(b) currently outstanding options and warrants to purchase
1,301,799 shares of capital stock of the Company. The Company is
not a party or subject to any agreement or understanding, and, to
the Company’s knowledge, there is no agreement or
understanding between any Persons, which affects or relates to the
voting or giving of written consents with respect to any capital
stock or by a director of the Company.
5.9.
No Conflict . Neither the authorization, execution, delivery
or performance of, or compliance with, this Agreement nor the
consummation of the transactions contemplated hereby will, with or
without the giving of notice or passage of time, (a) result in
any breach of, constitute a default under or result in the
imposition of any pledges, liens, encumbrances or restrictions upon
any asset or property of the Company pursuant to any agreement or
other instrument to which the Company is a party or by which it or
any of its properties is bound or affected or (b) violate its
articles of incorporation or its bylaws.
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5.10.
No Brokers or Finders . No Person has, or will have, as a
result of any acts or omission of the Company, any
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