THIS PURCHASE
AGREEMENT is made this 13th day of December, 2006 (the “
Effective Date ”) by and between Sutura, Inc.,
a Delaware corporation (the “ Company ”),
Whitebox Convertible Arbitrage Partners, L.P., a British Virgin
Islands limited partnership (“ WCAP ”),
Whitebox Hedged High Yield Partners, L.P., a British Virgin Islands
limited partnership (“ WHHY ”), Whitebox
Intermarket Partners, L.P., a British Virgin Islands limited
partnership (“ WIP ’), Pandora Select
Partners, L.P., a British Virgin Islands limited partnership (
“ Pandora ” and, together with WCAP, WHHY
and WIP, the “ Partnerships ”), Gary S.
Kohler, a Minnesota resident (“ Kohler ”)
and Scot W. Malloy, a Minnesota resident ( “
Malloy ” and, together with the Partnerships and
Kohler, the “ Whitebox Parties ” and each
a “Whitebox Party” ) with reference to the
following facts:
A. In
consideration of $238,500, $475,500, $595,500 and $190,500 each
(representing $1,500,000 in the aggregate), the Company proposes to
issue to Pandora, WHHY, WCAP and WIP, respectively, and each such
Whitebox Party desires to severally (and not jointly) purchase, a
corresponding secured convertible promissory note in the form
attached as Exhibit A (each, a
“Note” and together, the
“Notes” ).
NOW,
THEREFORE , in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as
follows:
SECTION 1.
AGREEMENT TO SELL AND PURCHASE
1.1.
Authorization of Transactions. On or prior to the closing of
the transactions contemplated in this Agreement (the
“Closing” ), the Company shall have
authorized the issuance and sale to the Partnerships of the
Notes.
1.2. Sale and
Purchase at the Closing. Subject to the terms and conditions
hereof, at the Closing, the Company hereby agrees to issue and sell
to each of the Partnerships, and each of the Partnerships severally
(and not jointly) agrees to purchase from the Company, such
Partnership’s respective Note for an aggregate purchase price
from all Partnerships of $1,500,000.
SECTION 2.
CLOSING, DELIVERY AND PAYMENT
2.1.
Closing. The Closing shall take place at 10:00 a.m. on the
Effective Date at the offices of the Whitebox Parties, in
Minneapolis, Minnesota, or at such other time or place as the
Company and Whitebox Parties may mutually agree (the
“Closing Date” ). At the Closing, subject
to the terms and conditions of this Agreement, the Company and the
Whitebox Parties will deliver the following documents and
instruments:
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(a)
Company’s Closing Deliveries.
(i) Subject to the
terms and conditions hereof, the Company will issue, sell and
deliver to each Partnership its respective Note, against payment by
each Partnership of its allocable portion of the $1,500,000
aggregate purchase price by certified check or wire transfer of
immediately available funds.
(ii) The Company
will execute and deliver to the Whitebox Parties the Fourth Amended
Registration Rights Agreement in the form of the attached
Exhibit B (the “ Registration Rights
Agreement ”).
(iii) The Company
will execute and deliver to the Whitebox Parties the Fourth Amended
Security Agreement in the form attached as Exhibit C
(the “Security Agreement” ).
(iv) The Company
will execute and deliver to the Whitebox Parties the Fourth Amended
Patent and Trademark Security Agreement in the form attached as
Exhibit D (the “Patent and Trademark
Security Agreement” )
(v) The Company
will execute and/or deliver to the Whitebox Parties any other
agreement or document as reasonably requested by the Whitebox
Parties to consummate the transactions contemplated by this
Agreement including all third party consents required in connection
with this Agreement.
(b)
Whitebox Parties’ Closing Deliveries. The Whitebox
Parties will deliver payment of the Purchase Price as
follows:
(i) The
Partnerships will deliver the $1,500,000 aggregate purchase price
by certified check or wire transfer of immediately available funds
as and for payment of the Notes.
(ii) The Whitebox
Parties shall execute and deliver to the Company the Registration
Rights Agreement.
SECTION 3.
REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY
The Company hereby
makes the following representations and warranties to the Whitebox
Parties as of the Closing Date.
3.1.
Organization, Good Standing and Qualification. The Company is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. The Company’s only
subsidiaries are (i) Sutura B.V., which is wholly-owned by the
Company and which, in turn, owns all of the outstanding capital
stock of Sutura B.V. France SARL and Sutura GmbH; (ii) Technology
Visions, Inc., a California corporation, and
(iii) HeartStitch, a Delaware corporation (each a “
Subsidiary ” and, together, the “
Subsidiaries ”).
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The Company has
all requisite corporate power and authority to own and operate its
properties and assets, to execute and deliver this Agreement, the
Registration Rights Agreement, The Security Agreement, the Patent
and trademark Security Agreement and the Notes (together, the
“Transaction Documents” ), to issue and
sell the Notes, to carry out the provisions of the Transaction
Documents, and to carry on its business as presently conducted and
as presently proposed to be conducted. The Company is duly
qualified to do business and is in good standing in each
jurisdiction in which the nature of its activities and of its
properties (both owned and leased) makes such qualification
necessary, except for those jurisdictions in which failure to be so
qualified would not have a material adverse effect on the Company,
or its business or properties, taken as a whole.
3.2.
Capitalization. The authorized capital stock of the Company
consists of 500,000,000 shares of Common Stock, par value $0.001
per share, of which 253,824,796 shares are issued and outstanding
as of September 30, 2006 and 2,000,000 shares of Preferred
Stock, par value $0.001 per share, of which no shares are issued
and outstanding as of the date hereof. As of the Closing Date, and
except as disclosed on Schedule 3.2, the Company has no
outstanding options, warrants or other rights to acquire any
capital stock, or securities convertible or exchangeable for
capital stock or for securities themselves convertible or
exchangeable for capital stock (together, “Convertible
Securities” ). As of the Closing Date, and except as
disclosed on Schedule 3.2, the Company has no agreement or
commitment to sell or issue any shares of capital stock or
Convertible Securities. All issued and outstanding shares of the
Company’s capital stock (i) have been duly authorized
and validly issued, (ii) are fully paid and nonassessable,
(iii) are free from any preemptive and cumulative voting
rights and (iv) were issued pursuant to valid exemptions under
federal and state securities laws. As of the Closing Date, and
except as disclosed on Schedule 3.2, there are no outstanding
rights of first refusal or proxy or shareholder agreements of any
kind relating to any of the Company’s securities to which the
Company or any of its executive officers and directors is a party
or as to which the Company otherwise has knowledge of. The Shares
and the Warrant Shares (when, if and upon exercise of the Warrants)
when issued, sold and delivered in accordance with the terms of
this Agreement, will be validly issued, fully paid, nonassessable
and free of any liens or encumbrances, other than restrictions on
transfer under applicable federal and state securities
laws.
3.3.
Authorization; Binding Obligations. All corporate action on the
part of the Company, its officers, directors and shareholders
necessary for the authorization of the Transaction Documents and
the performance of all obligations of the Company under this
Agreement at the Closing, has been taken or will be taken prior to
the Closing. The Transaction Documents, when executed and
delivered, will be valid and binding obligations of the Company
enforceable in accordance with their terms, except (i) as
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting
enforcement of creditors’ rights generally, (ii) as
limited by laws relating to the availability of specific
performance, injunctive relief or other equitable remedies and
(iii) to the extent that the enforceability of the
indemnification provisions of the Registration Rights Agreement may
be limited by applicable laws. The sale of the Shares, Warrants and
Warrant Shares is not subject to any preemptive rights or rights of
first refusal.
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3.4. Financial
Statements. The Company’s unaudited consolidated balance
sheet, and the statements of operations, cash flow and
stockholders’ deficit for the three month period ending
September 30, 2006, and the audited consolidated statements of
operations, cash flows and stockholders’ deficit of the
Company for the years ended December 31, 2005 and 2004 (all of
the foregoing together, the “Financial
Statements” ) fairly present in all material
respects the consolidated financial condition, operating results
and cash flow of the Company as of the respective dates and for the
respective periods covered thereby. The Financial Statements have
been prepared in accordance with generally accepted accounting
principles in the United States ( “GAAP”
) applied on a consistent basis (except as may be indicated in the
notes thereto). For purposes hereof, “ Latest Statement
Date ” means September 30, 2006, and “
Latest Financial Statements ” means the audited
financial statements of the Company at and for the year ended
December 31, 2005.
3.5.
Liabilities. The Company (i) has no material liabilities
and (ii) to the best of its knowledge, has no material
contingent liabilities, in each case not otherwise disclosed in the
Latest Financial Statements or on Schedule 3.6, except
(A) current liabilities incurred in the ordinary course of
business subsequent to the Latest Statement Date and
(B) obligations under contracts and commitments incurred in
the ordinary course of business and not required under GAAP to be
reflected in the Latest Financial Statements, which, in both cases
have not had, either in any individual case or in the aggregate, a
material adverse effect on the Company, or its business or
properties, taken as a whole.
3.6. Certain
Agreements and Actions. Except as disclosed in the Financial
Statements or on Schedule 3.6, the Company has not
(i) declared or paid any dividends, or authorized or made any
distribution upon or with respect to any class or series of its
capital stock during the periods covered by the Financial
Statements or since the Latest Statement Date, (ii) since the
Latest Statement Date, incurred any indebtedness for money borrowed
or any other material liabilities out of the ordinary course of
business, (iii) except as set forth in Schedule 3.6, made
any loans or advances to any person, other than ordinary advances
for travel or entertainment expenses or (iv) sold, exchanged or
otherwise disposed of any of its assets or rights, other than in
the ordinary course of business.
3.7.
Obligations of or to Related Parties. Except as disclosed on
Schedule 3.7, there are no obligations of the Company to
officers, directors or key employees of the Company or, to the
Company’s knowledge, to any members of their immediate
families or other affiliates, other than (i) for accrued salaries,
(ii) reimbursement for expenses reasonably incurred on behalf
of the Company and (iii) for other employee benefits made
generally available to all employees (including stock option
agreements outstanding under any stock option plan approved by the
Board of Directors of the Company). Except as disclosed on
Schedule 3.7, to the Company’s knowledge, none of the
officers, directors or key employees of the Company or, to the
Company’s knowledge, any members of their immediate families
or other affiliates, are indebted to the Company or have any direct
or indirect ownership interest in any firm, corporation or other
entity with which the Company is affiliated or with which the
Company has a business relationship, or any firm, corporation or
other entity that competes with the Company, except that such
officers, directors, employees and members of their immediate
families may own securities (with beneficial ownership not
exceeding 2%) in publicly-traded companies that
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compete with
the Company. Except as disclosed on Schedule 3.7, no officer,
director or key employee of the Company, or, to the Company’s
knowledge, any member of their immediate families or other
affiliates, is, directly or indirectly, interested in or a party to
any material contract with the Company. Except as disclosed on
Schedule 3.7 or in the Financial Statements, the Company is
not a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation.
3.8.
Changes. Since the Latest Statement Date, and except as
disclosed on Schedule 3.8, there has not been, to the
Company’s knowledge, any event or condition of any character
that, either individually or cumulatively, has materially and
adversely affected the business, assets, liabilities, financial
condition, operations or prospects of the Company.
3.9. Title to
Properties and Assets; Liens. Except as set forth on
Schedule 3.9, the Company has good and marketable title to its
properties and assets, including the properties and assets
reflected in the Latest Financial Statements, in each case subject
to no mortgage, pledge, lien, lease, encumbrance or charge, other
than (i) those resulting from taxes that have not yet become
delinquent, (ii) liens and encumbrances that do not materially
detract from the value of the property subject thereto or
materially impair the operations of the Company and
(iii) those that have otherwise arisen in the ordinary course
of business. With respect to the property and assets it leases, the
Company is in compliance with such leases in all material respects
and, to the Company’s knowledge, holds a valid leasehold
interest free of any liens, claims or encumbrances. All facilities,
machinery, equipment, fixtures and other properties owned, leased
or used by the Company which are reasonably necessary to the
Company’s conduct of its business are in good operating
condition and repair and are reasonably fit and usable for the
purposes for which they are being used, reasonable wear and tear
excepted.
3.10. Patents
and Trademarks. Schedule 3.10 contains a listing of all
U.S. and foreign patents and patent applications, and U.S. and
foreign trademarks and service marks and applications therefor,
owned by, assigned to or licensed to the Company. Except as set
forth on Schedule 3.10, the Company owns or has a valid right
to use all patents, trademarks, service marks, trade names,
copyrights, trade secrets, information and other proprietary rights
and processes necessary for its business as now conducted and as
proposed to be conducted, without any known infringement of the
rights of others. 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 their duties to
the Company or that would conflict with the Company’s
business as now conducted or proposed to be conducted. None of the
execution or delivery of, or the performance of the transactions
contemplated by, the Transaction Documents, the carrying on of the
Company’s business by the employees of the Company nor the
conduct of the Company’s business as currently conducted or
proposed to be conducted will 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
employee is now obligated. The Company does not believe it is or
will be necessary to utilize any inventions, trade secrets or
proprietary information of any of its employees made prior to their
employment by the Company, except for inventions, trade secrets or
proprietary information that have been exclusively assigned to the
Company.
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Without limiting
the generality of the above, neither of Cardio Medical Solutions,
Inc. or Nobles LAI Engineering Inc., nor any other entity owned or
controlled by officers, directors or key employees of the Company,
own or control any inventions, trade secrets or proprietary
information necessary for or desirable to the Company in connection
with and directly related to its business as now conducted or
proposed to be conducted.
Except as set
forth in Schedule 3.10, (i) each of the Company’s
employees have executed agreements of confidentiality and
non-disclosure as to the Company’s confidential information,
including its intellectual property and trade secrets, and
(ii) each of the Company’s employees has agreed to
assign to the Company any and all significant conceptions and ideas
for inventions, improvements and valuable discoveries, whether
patentable or not, which are conceived or made by such employees,
solely or jointly with another, during the period of employment,
and which are directly related to the business or activities of the
Company and which the employee conceives as a result of the
employee’s employment by the Company (other than inventions
for which no equipment, supplies, facility or trade secret
information of the Company was used and which was developed
entirely on the employee’s own time and (1) which does
not relate (a) directly to the business of the Company or
(b) to the Company’s actual or demonstrably anticipated
research or development or (2) which does not result from any
work performed by the employee for the Company).
3.11.
Compliance with Other Instruments. Except as disclosed on
Schedule 3.11, the Company is not in violation or default of
any term of its Certificate of Incorporation or Bylaws, or in any
material respect of any mortgage, indenture, contract, agreement,
instrument or contract to which it is party or by which it is bound
or of any judgment, decree, order, writ or, to its knowledge, any
statute, rule or regulation applicable to the Company that would
materially and adversely affect the business, assets, liabilities,
financial condition, operations or prospects of the Company. The
execution and delivery of, and the performance of and compliance
with the transactions contemplated by, the Transaction Documents,
and the issuance and sale of the Shares, the Warrants and the
Warrant Shares, will not, with or without the passage of time or
giving of notice, result in any such material violation, or be in
conflict with or constitute a default under any such term, or
result in the creation of any mortgage, pledge, lien, encumbrance
or charge upon any of the properties or assets of the Company or
the suspension, revocation, impairment, forfeiture or nonrenewal of
any permit, license, authorization or approval applicable to the
Company, its business or operations or any of its assets or
properties, except for such results that would not materially and
adversely affect the business, assets, liabilities, financial
condition, operations or prospects of the Company. The Company is
in compliance with all effective requirements of the Sarbanes-Oxley
Act of 2002, as amended, and the rules and regulations thereunder,
that are applicable to it, except where such noncompliance could
not have or reasonably be expected to materially and adversely
affect the business, assets, liabilities, financial condition,
operations or prospects of the Company.
3.12.
Litigation. There is no action, suit, proceeding or
investigation pending or, to the Company’s knowledge,
currently threatened against the Company that questions the
validity of this Agreement or the other Transaction Documents or
the right of the Company to enter into any of such agreements, or
to consummate the transactions contemplated hereby or thereby.
Except
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as disclosed in
the Financial Statements or on Schedule 3.12, there is no
action, suit, proceeding or investigation or, to the
Company’s knowledge, currently threatened against the Company
that might result, either individually or in the aggregate, in any
material adverse change in the assets, condition, affairs or
prospects of the Company, financial or otherwise, or any change in
the current equity ownership of the Company. The foregoing
includes, without limitation, actions pending or threatened
involving the prior employment of any of the employees of the
Company, their use in connection with the Company’s business
of any information or techniques allegedly proprietary to any of
their former employers or their obligations under any agreements
with prior employers. The Company is not a party or subject to the
provisions of any order, writ, injunction, judgment or decree of
any court or government agency or instrumentality.
3.13. Tax
Returns and Payments. The Company has filed all tax returns
(federal, state and local) required to be filed by it. All taxes
shown to be due and payable on such returns, any assessments
imposed, and, to the Company’s knowledge, all other taxes due
and payable by the Company on or before the Closing have been paid
or will be paid prior
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