<PAGE>
EXECUTION COPY
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ATS MEDICAL, INC.
as the Company
and
BUYERS,
as defined herein
SECURITIES PURCHASE AGREEMENT
Dated as of October 6, 2005
6% Convertible Senior Notes due 2025
and Warrants to Purchase Common Stock
================================================================================
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TABLE OF CONTENTS
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Page
----
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<C>
SECTION 1. PURCHASE AND SALE OF
NOTES.................................... 2
SECTION 2. BUYER'S REPRESENTATIONS AND
WARRANTIES........................ 4
SECTION 3. REPRESENTATIONS AND WARRANTIES
OF THE COMPANY................. 8
SECTION 4.
COVENANTS.....................................................
18
SECTION 5. TRANSFER AGENT
INSTRUCTIONS................................... 23
SECTION 6. CONDITIONS TO THE COMPANY'S
OBLIGATION TO CLOSE............... 23
SECTION 7. CONDITIONS TO EACH BUYER'S
OBLIGATION TO PURCHASE............. 24
SECTION 8.
INDEMNIFICATION...............................................
26
SECTION 9.
MISCELLANEOUS.................................................
27
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SCHEDULES
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Schedule A...... Company Wire Instructions
Schedule 3(a)... Subsidiaries
Schedule 4(p)... Buyers Electing Section 4(p)
Treatment
</TABLE>
EXHIBITS
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<C>
Exhibit A...... Schedule of Buyers
Exhibit B...... Form of Indenture
Exhibit C...... Form of Warrant Agent
Agreement
Exhibit D...... Schedule of Fees
Exhibit E...... Form of Registration Rights
Agreement
Exhibit F...... Form of Irrevocable Transfer
Agent Instructions
Exhibit G...... Form of Company Counsel
Opinion
</TABLE>
i
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SECURITIES PURCHASE AGREEMENT
THIS SECURITIES
PURCHASE AGREEMENT (the "Agreement"), dated as of October
6, 2005, by and among ATS Medical, Inc., a
Minnesota corporation (the
"Company"), and the Buyers listed on the
Schedule of Buyers attached hereto as
Exhibit A (individually, a "Buyer" and,
collectively, the "Buyers").
THE PARTIES TO THIS
AGREEMENT enter into this Agreement on the basis of the
following facts, intentions and
understandings:
A. In accordance
with the terms and conditions of this Agreement, the
Company has agreed to issue and sell, and
the Buyers have severally agreed to
purchase in the aggregate, (i) Nineteen
Million United States Dollars
($19,000,000) principal amount of the
Company's 6% Convertible Senior Notes due
2025 (such Convertible Senior Notes,
substantially in the form attached as
Exhibit A to the Indenture (as defined
below), as such form of Note may be
amended, modified or supplemented from time
to time in accordance with the terms
thereof, the "Initial Notes"), which shall
be convertible into shares of the
common stock, $0.01 par value per share
(the "Common Stock"), of the Company (as
converted, the "Initial Conversion
Shares"), and (ii) Warrants (such Warrants,
substantially in the form attached as
Exhibit A to the Warrant Agent Agreement
(as defined below), as such Form of Warrant
may be amended, modified or
supplemented from time to time in
accordance with the terms thereof, the
"Initial Warrants") to purchase 1,140,000
shares of Common Stock (as exercised,
the "Initial Warrant Shares"). The Initial
Notes will be issued pursuant to an
Indenture, dated as of October 7, 2005 (the
"Indenture") by and between the
Company and Wells Fargo Bank, National
Association, as trustee (the "Trustee"),
substantially in the form attached hereto
as Exhibit B. The Initial Warrants
will be issued pursuant to a Warrant Agent
Agreement, dated as of October 7,
2005 (the "Warrant Agent Agreement") by and
between the Company and Wells Fargo
Bank, National Association, as warrant
agent (the "Warrant Agent"),
substantially in the form attached hereto
as Exhibit C.
B.
Contemporaneously with the execution and delivery of this
Agreement, the
parties hereto are executing and delivering
a Registration Rights Agreement
substantially in the form attached hereto
as Exhibit E (as the same may be
amended, modified or supplemented from time
to time in accordance with the terms
thereof, the "Registration Rights
Agreement") pursuant to which the Company has
agreed to provide the Buyers with the
benefit of certain registration rights
under the Securities Act of 1933, as
amended, and the rules and regulations
promulgated thereunder (the "Securities
Act") and applicable state securities
laws, on the terms and subject to the
conditions set forth therein.
NOW THEREFORE,
in consideration of the promises and the mutual covenants
contained herein and other good and
valuable consideration, the receipt and
sufficiency of which are hereby
acknowledged, the Company and each of the Buyers
hereby agree as follows:
<PAGE>
SECTION 1.
PURCHASE AND SALE OF NOTES.
(a) Purchase of
Notes and Warrants.
(1) Subject to
the satisfaction (or waiver, to the extent permitted by
applicable law) of the conditions set forth
in Sections 6 and 7 of this
Agreement, the Company shall issue and sell
to each Buyer, and each Buyer
severally and not jointly agrees to
purchase from the Company, the respective
principal amount of Initial Notes, together
with the related Initial Warrants,
set forth opposite such Buyer's name on the
Schedule of Buyers attached hereto
as Exhibit A (the "Initial Closing"). The
Company shall issue to each Buyer One
Thousand United States Dollars ($1,000)
principal amount of Initial Notes and
Initial Warrants to purchase approximately
60 Initial Warrant Shares for each
One Thousand United States Dollars ($1,000)
tendered by each such Buyer.
(2) The Company
hereby grants the Buyers an option to purchase, severally
and not jointly, (A) up to an additional
Four Million Seven Hundred Fifty
Thousand United States Dollars ($4,750,000)
aggregate principal amount of 6%
Convertible Senior Notes due 2025 (such
Convertible Senior Notes, substantially
in the form attached as Exhibit A to the
Indenture, as such form of Note may be
amended, modified or supplemented from time
to time in accordance with the terms
thereof, the "Additional Notes" and,
together with the Initial Notes, the
"Notes"), which shall be convertible into
shares of Common Stock (as converted,
the "Additional Conversion Shares"), and
(B) Warrants (such Warrants,
substantially in the form attached as
Exhibit A to the Warrant Agent Agreement,
as such Form of Warrant may be amended,
modified or supplemented from time to
time in accordance with the terms thereof,
the "Additional Warrants" and,
together with the Initial Warrants, the
"Warrants") to purchase 285,000 shares
of Common Stock (as exercised, the
"Additional Warrant Shares"). The Additional
Notes will be issued pursuant to the
Indenture, and the Additional Warrants will
be issued pursuant to the Warrant Agent
Agreement. For purposes of this
Agreement, the term "Conversion Shares"
refers to Initial Conversion Shares and
Additional Conversion Shares, collectively,
and the term "Warrant Shares" refers
to Initial Warrant Shares and Additional
Warrant Shares, collectively.
Each Buyer may
exercise this right at any time between the Closing Date
(October 7, 2005) and the one hundred and
twentieth (120th) calendar day
following such Closing Date (such period of
time being the "Option Period") by
giving written notice of election to
exercise this option (such notice of
election being the "Option Exercise
Notice") prior to 5:00 p.m., Minneapolis,
Minnesota local time, on any Business Day
during such Option Period. Any Option
Exercise Notice shall specify the principal
amount of Additional Notes and the
number of Additional Warrants to be
purchased by the Buyer; provided that any
Buyer may not purchase more than its pro
rata portion of Additional Notes and
Additional Warrants, based on the
proportion of the principal amount of the
Initial Notes set forth opposite the name
of such Buyer on the Schedule of
Buyers attached hereto as Exhibit A to the
aggregate principal amount of Initial
Notes issued on the Closing Date. The
purchase price of the Additional Notes and
the Additional Warrants shall be the
aggregate principal amount of the
Additional Notes to be purchased plus
accrued interest on the Additional Notes
from the Closing Date through the Option
Closing Date.
2
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(b) The Initial
Closing and the Option Closing.
(1) The date and
time of the Initial Closing (the "Closing Date") shall be
10:00 a.m., Minneapolis, Minnesota local
time, on October 7, 2005, subject to
the satisfaction (or waiver, to the extent
permitted by applicable law) of the
conditions set forth in Sections 6 and 7 of
this Agreement. The Initial Closing
shall occur on the Closing Date at the
offices of Dorsey & Whitney LLP, 50 South
Sixth Street, Suite 1500, Minneapolis,
Minnesota 55402.
(2) The payment
for and delivery of the Additional Notes and the Additional
Warrants for which the Buyers have
delivered timely Option Exercise Notices (the
"Option Closing") shall occur before 11:00
a.m., Minneapolis, Minnesota local
time, three (3) Business Days after the
later of (A) the expiration of the
Option Period and (B) the Postponement
Termination Date, if any (the "Option
Closing Date"). Notwithstanding anything to
the contrary herein, the Company may
delay the Option Closing for a period not
to exceed sixty (60) days (the
"Postponement Period") if, in the Company's
good faith judgment, the disclosure
of any material non-public information or
pending development concerning the
Company of which the Company is aware at
the end of the Option Exercise Period
and/or on the original date set for the
Option Closing Date, is determined to
not be in the best interests of the
Company; provided, however, that the Company
shall promptly notify the Buyers in writing
(the "Postponement Notice") of (A)
the existence of such material non-public
information or pending development
giving rise to a Postponement Period
(provided that the Company shall not
disclose the content of such material
non-public information or pending
development to such Buyers) and (B) the
date on which the Postponement Period is
scheduled to end. For purposes of
determining the length of the Postponement
Period, which may not exceed sixty (60)
days, the Postponement Period shall be
deemed to begin on and include the original
date set for the Option Closing Date
and shall end on and include the earlier of
(x) the date stated in the
Postponement Notice as the end of the
Postponement Period or (y) to the extent
considered appropriate by the Company in
its sole discretion, any other date as
to which the Company may advise the Buyers
in writing (such notice being the
"Postponement Termination Notice") after
the Company's provision of the notices
described above (the "Postponement
Termination Date"); provided that any Buyer
which has submitted an Option Exercise
Notice may withdraw its Option Exercise
Notice by notifying the Company in writing
of such Buyer's withdrawal at any
time after the delivery of the Postponement
Notice by the Company but before
5:00 p.m., Minneapolis, Minnesota local
time, on the date which is one (1)
Business Day after the Postponement
Termination Date.
(c) Form of
Payment. On the Closing Date and the Option Closing Date, if
any, (i) each Buyer shall pay the Company
for the Notes and the related Warrants
to be issued and sold to such Buyer on the
Closing Date, or the Option Closing
Date, as the case may be, by wire transfer
of immediately available funds in
accordance with the Company's written wire
instructions attached hereto on
Schedule A, (ii) the Company shall
reimburse each Buyer for its reasonable
expenses to the extent required by Section
4(i) of this Agreement, and (iii) the
Company shall issue to each Buyer properly
authenticated Notes (in the
denominations of not less than One Thousand
United States Dollars ($1,000) as
such Buyer shall reasonably request)
representing the principal amount of Notes
which such Buyer is then purchasing
hereunder, along with Warrants representing
the related number of Warrant Shares, duly
executed on behalf of the Company and
registered in the name of such Buyer,
provided, that Notes eligible for services
through The Depository Trust Company
("DTC") shall be issued, countersigned,
3
<PAGE>
registered and delivered in global
certificate form through the facilities at
DTC in such names and denominations as each
Buyer shall specify.
SECTION 2.
BUYER'S REPRESENTATIONS AND WARRANTIES. Each Buyer represents
and warrants to the Company with respect to
only itself that as of the date
hereof:
(a) Investment
Purpose. Such Buyer is acquiring the Notes and the Warrants
for its own account and not with a view
towards, or for resale in connection
with, the public sale or distribution
thereof, except pursuant to sales
registered or exempted from registration
under the Securities Act; provided,
however, that by making the representations
herein, such Buyer does not agree to
hold any of the Notes, the Conversion
Shares, the Warrants and the Warrant
Shares (collectively, the "Securities") for
any minimum or other specific term
and reserves the right to dispose of the
Securities at any time; provided,
further, that such disposition shall be in
accordance with or pursuant to a
registration statement or an exemption
under the Securities Act.
(b) Accredited
Investor and Qualified Institutional Buyer Status. Such
Buyer is an "accredited investor" as that
term is defined in Rule 501(a) of
Regulation D under the Securities Act and a
"qualified institutional buyer" as
that term is defined in Rule 144A(a) under
the Securities Act as of the date of
this Agreement and was not organized for
the specific purpose of acquiring the
Securities.
(c) Reliance on
Exemptions. Such Buyer understands that the Securities are
being offered and sold to it in reliance on
specific exemptions from the
registration requirements of the United
States federal and state securities laws
and that the Company is relying upon the
truth and accuracy of, and such Buyer's
compliance with, the representations,
warranties, agreements, acknowledgments
and understandings of such Buyer set forth
herein and in the applicable Note or
Warrant in order to determine the
availability of such exemptions and the
eligibility of such Buyer to acquire the
Securities.
(d) Information.
Such Buyer believes it (i) has been furnished with or
believes it has had full access to all of
the information that it considers
necessary or appropriate for deciding
whether to purchase the Securities,
including a copy of the Confidential
Private Placement Memorandum, (ii) has had
an opportunity to ask questions and receive
answers from the Company regarding
the terms and conditions of the offering of
the Securities, (iii) can bear the
economic risk of a total loss of its
investment in the Securities and (iv) has
such knowledge and experience in business
and financial matters so as to enable
it to understand the risks of and form an
investment decision with respect to
its investment in the Securities. Neither
such inquiries nor any other due
diligence investigations conducted by such
Buyer or its advisors, if any, or its
representatives shall limit, modify, amend
or affect the Company's
representations and warranties contained in
this Agreement or any other
Transaction Document and the Buyer's right
to rely thereon.
(e) No
Governmental Review. Such Buyer understands that no United
States
federal or state agency or any other
government or governmental agency has
passed on or made any recommendation or
endorsement of the Securities or the
fairness or suitability of the investment
in the Securities nor have such
authorities passed upon or endorsed the
merits of the offering of the
Securities.
4
<PAGE>
(f) Transfer or
Resale. Such Buyer understands that, except as provided in
the Registration Rights Agreement, the
Securities have not been registered under
the Securities Act or any state securities
laws, and may not be offered for
sale, sold, assigned or transferred without
registration under the Securities
Act or an exemption therefrom and that, in
the absence of an effective
registration statement under the Securities
Act, such Securities may only be
sold under certain circumstances as set
forth in the Securities Act. In that
connection, such Buyer is aware of Rule 144
under the Securities Act and the
restrictions imposed thereby.
(g) Legends.
(1) Such Buyer
understands that, until the expiration of the holding period
applicable to sales thereof under Rule
144(k) (or any successor provision), any
certificate evidencing such Notes and any
certificate evidencing such Warrants
(and all securities issued in exchange
therefor or in substitution thereof,
other than Common Stock, if any, issued
upon conversion thereof (in the case of
a Note) or upon exercise thereof (in the
case of a Warrant), which shall bear
the legend set forth in Section 2(g)(2) of
this Agreement, if applicable) shall
bear a legend in substantially the
following form:
THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR
APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION THEREFROM.
The legend set
forth above shall be removed and the Company shall issue a
new Note or Warrant, as appropriate, of
like tenor and aggregate principal
amount or number of shares, as appropriate,
and which shall not bear the
restrictive legends required by this
Section 2(g)(1), (i) if such Notes or
Warrants, as appropriate, are registered
for resale under the Securities Act and
are transferred or sold pursuant to such
registration, (ii) if, in connection
with a sale transaction, such holder
provides the Company, if so requested, with
an opinion of counsel reasonably acceptable
to the Company to the effect that
such sale, assignment or transfer of the
Notes or Warrants, as appropriate, may
be made without registration under the
Securities Act, or (iii) upon expiration
of the two-year period under Rule 144(k) of
the Securities Act (or any successor
rule) if the holder of the Securities has
not been an "affiliate" (as defined in
Rule 501(b) of Regulation D under the
Securities Act) during the preceding three
(3) months.
(2) Such Buyer
understands that any stock certificate representing
Conversion Shares or Warrant Shares shall
bear a legend in substantially the
following form (unless (i) such Conversion
Shares or Warrant Shares have been
transferred or sold pursuant to an
effective registration statement, (ii) such
Conversion Shares or Warrant Shares, as
appropriate, have been transferred or
sold pursuant to the exemption from
registration provided by Rule 144 under the
Securities Act, (iii) such Conversion
Shares or Warrant Shares, as appropriate,
may be transferred pursuant to Rule 144(k)
under the Securities Act, or (iv)
unless otherwise agreed by the Company in
writing with written notice to the
transfer agent):
5
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THE SECURITIES
REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR
APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR
SALE, SOLD,
TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION
STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT AND
APPLICABLE STATE
SECURITIES LAWS OR AN EXEMPTION THEREFROM.
The legend set
forth above shall be removed and the Company shall issue the
relevant Securities without such legends to
the holder of the Securities upon
which it is stamped, (i) if such Securities
are registered for resale under the
Securities Act and are transferred or sold
pursuant to such registration, (ii)
if, in connection with a sale transaction,
such holder provides the Company, if
so requested, with an opinion of counsel
reasonably acceptable to the Company to
the effect that a public sale, assignment
or transfer of the Securities may be
made without registration under the
Securities Act, or (iii) upon expiration of
the two-year period under Rule 144(k) of
the Securities Act (or any successor
rule) if the holder of the Securities has
not been an "affiliate" (as defined in
Rule 501(b) of Regulation D under the
Securities Act) during the preceding three
(3) months.
Notwithstanding
the foregoing, the Company agrees that it will issue stock
certificates representing Conversion Shares
or Warrant Shares without the
legends shown above in this Section 2(g)(2)
if, at the time of such issuance,
(i) such Shares are registered for resale
under the Securities Act pursuant to
an effective registration statement filed
by the Company, and (ii) the Buyer to
whom such Shares are to be issued has
provided representations to the Company,
in a form reasonably acceptable to the
Company, to the effect that such Shares
will only be sold either in accordance with
the requirements for sale pursuant
to such registration statement, including
the prospectus delivery requirement,
or in accordance with the provisions of
Rule 144.
(3) Such Buyer
understands that, in the event Rule 144(k) as promulgated
under the Securities Act (or any successor
rule) is amended to change the
two-year or three-month periods under Rule
144(k) (or the corresponding periods
under any successor rule), (i) each
reference in Sections 2(g)(1) and 2(g)(2) of
this Agreement to "two (2) years" or the
"two-year period" and to "three (3)
months" shall be deemed for all purposes of
this Agreement to be references to
such changed period or periods, and (ii)
all corresponding references in the
Notes and Warrants shall be deemed for all
purposes to be references to the
changed period or periods, provided that
such changes shall not become effective
if they are otherwise prohibited by, or
would otherwise cause a violation of,
the then-applicable federal securities
laws.
(h)
Authorization; Enforcement; Validity. This Agreement and the
Registration Rights Agreement have been
duly and validly authorized, executed
and delivered on behalf of such Buyer and
are valid and binding agreements of
such Buyer enforceable against such Buyer
in accordance with their terms,
subject as to enforceability to general
principles of equity and to applicable
bankruptcy, insolvency, reorganization,
moratorium, liquidation and other
similar laws relating to, or affecting
generally, the enforcement of applicable
creditors' rights and remedies.
6
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(i) Residency.
Such Buyer is a resident of that country or state specified
in its address on the Schedule of Buyers
attached hereto as Exhibit A.
(j) No
Conflicts. The execution and performance of this Agreement and
the
Registration Rights Agreement do not
conflict with any agreement to which such
Buyer is a party or is bound thereby, any
court order or judgment addressed to
such Buyer, or the constituent documents of
such Buyer.
(k)
Conversion/Exercise Limitation. (A) Subject to Buyer's election on
the
signature pages hereto to be governed by
this Section 2(k)(A), each Buyer hereby
agrees that in no event will it convert any
of the Notes or exercise of any of
the Warrants in excess of the number of
such Notes or Warrants, upon the
conversion or exercise of which (x) the
number of shares of Common Stock
beneficially owned by such Buyer (other
than the shares which would otherwise be
deemed beneficially owned except for being
subject to a limitation on conversion
or exercise analogous to the limitation
contained in this Section 2(k)(A)) plus
(y) the number of shares of Common Stock
issuable upon the conversion of such
Notes and the exercise of such Warrants,
would be equal to or exceed 9.99% of
the number of shares of Common Stock then
issued and outstanding (after giving
effect to such conversion or exercise), it
being the intent of the Company and
the Buyers that no Buyer electing to be
governed by this Section 2(k)(A) be
deemed at any time to have the power to
vote or dispose of greater than 9.99% of
the number of shares of Common Stock issued
and outstanding. As used herein,
beneficial ownership shall be determined in
accordance with Section 13(d) of the
Securities Exchange Act of 1934, as
amended, and the rules and regulations
promulgated thereunder (the "Exchange
Act"). To the extent that the limitation
contained in this Section 2(k)(A) applies
(and without limiting any rights the
Company may otherwise have), the Company
may rely on the Buyer's determination
of whether the Notes are convertible and
whether the Warrants are exercisable
pursuant to the terms hereof, the Company
having no obligation whatsoever to
verify or confirm the accuracy of such
determination, and the submission of the
Conversion Notice (as that term is defined
in the Note) or the Exercise Notice
(as that term is defined in the Warrant) by
the Buyer shall be deemed to be the
Buyer's representation that the Notes or
the Warrants specified therein are
convertible or exercisable pursuant to the
terms hereof. Nothing contained
herein shall be deemed to restrict the
right of a Buyer to convert the Notes or
exercise the Warrants at such time as the
conversion or exercise thereof will
not violate the provisions of this Section
2(k)(A). Notwithstanding anything to
the contrary, this Section 2(k)(A) shall
not apply to a Buyer who has elected to
opt out of the application of this Section
by so indicating in the signature
page.
(B) Subject to
Buyer's election on the signature pages hereto to be
governed by this Section 2(k)(B), each
Buyer hereby agrees that in no event will
it convert any of the Notes or exercise any
of the Warrants in excess of the
number of such Notes or Warrants, upon the
conversion or exercise of which (x)
the number of shares of Common Stock
beneficially owned by such Buyer (other
than the shares which would otherwise be
deemed beneficially owned except for
being subject to a limitation on conversion
or exercise analogous to the
limitation contained in this Section
2(k)(B)) plus (y) the number of shares of
Common Stock issuable upon the conversion
of such Notes and the exercise of the
Warrants, would be equal to or exceed 4.99%
of the number of shares of Common
Stock then issued and outstanding (after
giving effect to such conversion), it
being the intent of the Company and the
Buyers that no Buyer electing to be
governed by this Section 2(k)(B) be deemed
at any time to have the power to vote
or dispose
7
<PAGE>
of greater than 4.99% of the number of
shares of Common Stock issued and
outstanding. As used herein, beneficial
ownership shall be determined in
accordance with Section 13(d) of the
Exchange Act. To the extent that the
limitation contained in this Section
2(k)(B) applies (and without limiting any
rights the Company may otherwise have), the
Company may rely on the Buyer's
determination of whether the Notes are
convertible and whether the Warrants are
exercisable pursuant to the terms hereof,
the Company having no obligation
whatsoever to verify or confirm the
accuracy of such determination, and the
submission of the Conversion Notice (as
that term is defined in the Note) or the
Exercise Notice (as that term is defined in
the Warrant) by the Buyer shall be
deemed to be the Buyer's representation
that the Notes or the Warrants specified
therein are convertible or exercisable
pursuant to the terms hereof. Nothing
contained herein shall be deemed to
restrict the right of a Buyer to convert the
Notes or exercise the Warrants at such time
as the conversion or exercise
thereof will not violate the provisions of
this Section 2(k)(B). Notwithstanding
anything to the contrary, this Section
2(k)(B) shall not apply to a Buyer who
has elected to opt out of the application
of this Section by so indicating in
the signature page.
(l) Additional
Acknowledgement. Each Buyer acknowledges that it has
independently evaluated the merits of the
transactions contemplated by this
Agreement, the Indenture, the Warrant Agent
Agreement, the Notes, the
Registration Rights Agreement and the
Warrants, that it has independently
determined to enter into the transactions
contemplated hereby and thereby, that
it is not relying on any advice from or
evaluation by any other Buyer, and that
it is not acting in concert with any other
Buyer in purchasing the Securities
offered hereunder. The Buyers and, to its
knowledge, the Company agree that the
Buyers have not taken any actions that
would cause such Buyers to be deemed as
members of a "group" for purposes of
Section 13(d) of the Exchange Act.
The Buyer's
representations and warranties made in this Section 2 are made
solely for the purpose of permitting the
Company to make a determination that
the offer and sale of the Notes and
Warrants pursuant to this Agreement complies
with applicable U.S. federal and state
securities laws and not for any other
purpose. Accordingly, the Company shall not
rely on such representations and
warranties for any other purpose.
SECTION 3.
REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Placement
Agent and each of the Buyers that as of
the date hereof:
(a) Organization
and Qualification. The Company and its Subsidiaries (as
defined below) are corporations,
partnerships or limited liability companies
duly organized and validly existing in good
standing under the laws of the
jurisdiction in which they are incorporated
or organized, and have the requisite
corporate, limited liability company or
partnership power and authorization to
own their properties and to carry on their
business as now being conducted.
Copies of the Company's Articles of
Incorporation and Bylaws, and all amendments
thereto, have been filed as exhibits to the
Company's SEC Documents (as defined
in Section 3(f) of this Agreement), are in
full effect and have not been
modified. Each of the Company and its
Subsidiaries is duly qualified as a
foreign corporation, partnership or limited
liability company to do business and
is in good standing in every jurisdiction
in which its ownership of property or
the nature of the business conducted and
proposed to be 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
8
<PAGE>
have a Material Adverse Effect. As used in
this Agreement, "Material Adverse
Effect" means any material adverse effect
on the business, properties, assets,
operations, results of operations or
financial condition of the Company and its
Subsidiaries, taken as a whole, other than
any effect relating to or resulting
from (i) the economy or the financial
markets in general, (ii) the industry in
which the Company and its Subsidiaries
operate in general, or (iii) the
announcement of the transaction
contemplated hereby. "Subsidiary" means any
entity in which the Company, directly or
indirectly, owns or controls a majority
of the ordinary voting power, capital stock
or other equity or similar
interests. The Company's "Subsidiaries" are
set forth on Schedule 3(a), and the
Company's "Significant Subsidiaries" are
separately identified on that Schedule.
(b)
Authorization; Enforcement; Validity. The Company has the
requisite
corporate power and authority to enter into
and perform its obligations under
this Agreement, the Indenture, the Warrant
Agent Agreement, the Notes, the
Warrants, the Registration Rights
Agreement, the Irrevocable Transfer Agent
Instructions (as defined in Section 5 of
this Agreement) and each of the other
agreements entered into by the parties
hereto in connection with the
transactions contemplated by this Agreement
(collectively, the "Transaction
Documents"), and to issue and sell the
Securities in accordance with the terms
hereof and thereof. The execution and
delivery of the Transaction Documents by
the Company and the consummation by it of
the transactions contemplated hereby
and thereby, including, without limitation,
the issuance and repayment of the
Notes, the reservation for issuance and the
issuance of the Conversion Shares
issuable upon conversion of the Notes, the
issuance of the Warrants and the
reservation for issuance and the issuance
of the Warrant Shares upon exercise of
the Warrants, have been duly authorized by
the Company's Board of Directors and
no further consent or authorization is
required of the Company's Board of
Directors or shareholders (other than the
Shareholder Approval, as defined in
Section 4(h) below). The Transaction
Documents have been duly executed and
delivered by the Company. The Transaction
Documents constitute the valid and
binding obligations of the Company
enforceable against the Company in accordance
with their terms, except (i) as rights to
indemnification and contribution may
be limited by federal or state securities
laws and policies underlying such laws
and (ii) as such enforceability may be
limited by general principles of equity
or applicable bankruptcy, insolvency,
reorganization, fraudulent conveyance,
moratorium, liquidation or similar laws
relating to, or affecting generally, the
enforcement of creditors' rights and
remedies.
(c)
Capitalization. Except for any shares issued or issuable pursuant
to
employee benefit plans disclosed in the
Company's SEC Documents, the
capitalization of the Company is as
described in the Company's SEC Documents.
All of the Company's outstanding shares
have been, or upon issuance will be,
validly issued and are fully paid and
nonassessable and were issued in
accordance with applicable federal and
state securities laws. The Company's
Common Stock is registered pursuant to
Section 12(g) of the Exchange Act and is
listed for trading on the Principal Market
(as defined in Section 4(f) of this
Agreement). Except for rights created
pursuant to the Transaction Documents and
as set forth in the SEC Documents, (i) no
shares of the Company's capital stock
are subject to preemptive rights or any
other similar rights or any liens or
encumbrances created by the Company; (ii)
there are no outstanding options,
warrants, scrip, rights to subscribe to,
calls or commitments of any character
whatsoever relating to, or securities or
rights convertible into or exchangeable
for, any shares of capital stock of the
Company or any of its Subsidiaries, or
contracts, commitments, understandings or
arrangements by which the Company or
any of its Subsidiaries is or may become
bound to issue additional
9
<PAGE>
shares of capital stock of the Company or
any of its Subsidiaries or options,
warrants, scrip, rights to subscribe to,
calls or commitments of any character
whatsoever relating to, or securities or
rights convertible into or exchangeable
for, any shares of capital stock of the
Company or any of its Subsidiaries
(other than any such options, warrants,
scrip, rights, calls, commitments,
securities, understandings and arrangement
outstanding under plans disclosed in
the SEC Documents); (iii) there are no
outstanding debt securities, notes,
credit agreements, credit facilities or
other agreements, documents or
instruments evidencing indebtedness of the
Company or any of its Subsidiaries or
by which the Company or any of its
Subsidiaries is or may become bound other
than the senior credit facility under that
certain Credit Agreement dated July
28, 2004, between the Company and Silicon
Valley Bank, as lender, together with
the documents now or hereafter related
thereto (including without limitation,
any guarantee agreements and any security
documents), in each case as such
agreements may be amended (including any
amendment and restatement thereof),
supplemented or otherwise modified from
time to time, including any agreement
extending the maturity of, refinancing,
replacing, increasing the amount of, or
otherwise restructuring all or any portion
of the indebtedness under such
agreement or any successor or replacement
agreement and whether by the same or
any other agent, lender or group of lenders
(or other institutions) (the "Senior
Facility"); (iv) there are no amounts
outstanding under, and there will be no
amounts due upon termination of, any credit
agreement or credit facility other
than the Senior Facility; (v) there are no
financing statements securing
obligations in any amounts greater than
Fifty Thousand United States Dollars
($50,000), singly, or Two Hundred Fifty
Thousand United States Dollars
($250,000) in the aggregate, filed in
connection with the Company or any of its
Subsidiaries other than in connection with
the Senior Facility; (vi) there are
no agreements or arrangements under which
the Company or any of its Subsidiaries
is obligated to register the sale of any of
its securities under the Securities
Act (other than any such agreements or
arrangements disclosed in the SEC
Documents); (vii) there are no outstanding
securities or instruments of the
Company or any of its Subsidiaries which
contain any redemption or similar
provisions, and there are no contracts,
commitments, understandings or
arrangements by which the Company or any of
its Subsidiaries is or may become
bound to redeem a security of the Company
or any of its Subsidiaries; (viii)
there are no securities or instruments
containing anti-dilution or similar
provisions that will be triggered by the
issuance of the Securities as described
in this Agreement; (ix) the Company does
not have any stock appreciation rights
or "phantom" stock plans or agreements or
any similar plan or agreement; (x) the
Company and its Subsidiaries have no
liabilities or obligations required to be
disclosed in the SEC Documents but not so
disclosed in the SEC Documents, other
than those incurred in the ordinary course
of the Company's or its Subsidiaries'
respective businesses and which,
individually or in the aggregate, do not or
would not have a Material Adverse Effect on
the Company and its Subsidiaries
taken as a whole; and (xi) the Company does
not have outstanding shareholder
purchase rights or "poison pill" or any
similar arrangement in effect giving any
person or entity the right to purchase any
equity interest in the Company upon
the occurrence of certain events.
(d) Issuance of
Securities. Except to the extent that the Shareholder
Approval (as defined in Section 4(h) below)
is required to authorize sufficient
shares for the conversion of the Notes, the
Securities are duly authorized and,
upon issuance in accordance with the terms
of the applicable Transaction
Documents, shall be (i) validly issued,
fully paid and non-assessable and (ii)
free from all taxes, liens and charges with
respect to the issuance thereof,
other than any liens or encumbrances
created by or imposed by the Buyers, and
shall not be subject to preemptive
10
<PAGE>
rights or other similar rights of
shareholders of the Company. As of the Initial
Closing, 1,783,222 shares of Common Stock
will have been duly authorized and
reserved for issuance upon conversion of
the Notes and exercise of the Warrants.
Upon conversion or issuance in accordance
with the terms of the Notes or upon
exercise or issuance in accordance with the
terms of the Warrants, as
applicable, the Conversion Shares and the
Warrant Shares, as the case may be,
issued upon such conversion or exercise
will be validly issued, fully paid and
non-assessable and free from all preemptive
and similar rights, taxes, liens and
charges with respect to the issue thereof,
other than any liens or encumbrances
created by or imposed by the Buyers, with
the holders being entitled to all
rights accorded to a holder of Common
Stock. Subject to the accuracy of the
representations and warranties of each of
the Buyers in this Agreement, the
issuance by the Company of the Securities
is exempt from registration under the
Securities Act and applicable state
securities laws. Once the Shareholder
Approval (as defined in Section 4(h) below)
is obtained, the Company shall
reserve sufficient shares for the
conversion of the Notes for which sufficient
shares had not been previously reserved by
the Company.
(e) No
Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and
the consummation by the Company of the
transactions contemplated hereby and
thereby (including, without limitation, the
reservation for issuance and issuance of
the Conversion Shares and the Warrant
Shares) will not (i) result in a violation
of the Company's Articles of
Incorporation or Bylaws; (ii) 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 agreement, indenture
or instrument to which the Company or
any of its Subsidiaries is a party, except
for such conflicts, defaults,
terminations, amendments, accelerations,
cancellations and violations as would
not, individually or in the aggregate, have
a Material Adverse Effect; or (iii)
result in a violation of any law, rule,
regulation, order, judgment or decree
(including federal and state securities
laws and regulations and the rules and
regulations of the Principal Market)
applicable to the Company or any of its
Subsidiaries or by which any property or
asset of the Company or any of its
Subsidiaries is bound or affected. Neither
the Company nor any of its
Subsidiaries is in violation of any
material term of or in default under its
Articles of Incorporation, Bylaws or their
organizational charter or bylaws,
respectively. Neither the Company nor any
of its Subsidiaries is in violation of
any term of or in default under any
contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or
order or any statute, rule or
regulation applicable to the Company or its
Subsidiaries, except where such
violations and defaults would not result,
either individually or in the
aggregate, in a Material Adverse Effect.
The business of the Company and its
Subsidiaries is not being conducted in
violation of any law, ordinance or
regulation of any governmental entity,
except where such violations would not
result, either individually or in the
aggregate, in a Material Adverse Effect.
Except as specifically contemplated by this
Agreement, as required under the
Securities Act or as required by Blue Sky
filings (but only to the extent that
such filings may be made after the Initial
Closing), the Company is not required
to obtain any consent, authorization or
order of, or make any filing or
registration with, any court or
governmental agency or any regulatory or
self-regulatory agency or other person or
entity in order for it to execute,
deliver or perform any of its obligations
under or contemplated by the
Transaction Documents, except to the extent
that the Articles Amendment (as
defined in Section 4(h) below) must be
filed with the Secretary of State of the
State of Minnesota. All consents,
authorizations, orders, filings and
registrations which the Company is required
to obtain pursuant to the preceding
sentence have been obtained or effected
11
<PAGE>
on or prior to the date hereof, and copies
of such consents, authorizations,
orders, filings and registrations have been
delivered to the Buyers. The Company
is not in violation of the listing
requirements of the Principal Market, and has
no actual knowledge of any facts which
would reasonably lead to delisting or
suspension of the Common Stock by the
Principal Market in the foreseeable
future. The Company and its Subsidiaries
are not in violation of any covenants
or other terms of its outstanding
indebtedness for borrowed money, which could
reasonably be expected to have a Material
Adverse Effect. The Company and its
Subsidiaries are currently unaware of any
facts or circumstances which might
give rise to any of the foregoing events
set forth in this paragraph.
(f) SEC
Documents; Financial Statements. Since December 31, 2001, the
Company has filed all reports, schedules,
forms, statements and other documents
required to be filed by it with the
Securities and Exchange Commission (the
"Commission") pursuant to the reporting
requirements of the Exchange Act (all of
the foregoing filed prior to or on the date
hereof and all exhibits included
therein and financial statements and
schedules thereto and documents
incorporated by reference therein being
hereinafter referred to as the "SEC
Documents"). As of the date of filing of
such SEC Documents, each such SEC
Document complied in all material respects
with the requirements of the Exchange
Act applicable to such SEC Document 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 therein, in light of the
circumstances under which they are or
were made, not misleading. As of their
respective dates, the financial
statements of the Company included in the
SEC Documents complied in all material
respects with applicable accounting
requirements and published rules and
regulations of the Commission with respect
thereto. Such financial statements
have been prepared in accordance with
generally accepted accounting principles,
consistently applied in the United States
("GAAP"), during the periods involved
(except (i) as may be otherwise indicated
in such financial statements or the
notes thereto, or (ii) in the case of
unaudited interim statements, to the
extent they may exclude footnotes or may be
condensed or summary statements),
correspond to the books and records of the
Company and fairly present in all
material respects the financial position of
the Company and its Subsidiaries as
of the dates thereof and the results of
operations and cash flows for the
periods then ended. Ernst & Young LLP
is an independent registered public
accounting firm as required by the Exchange
Act. The Company is not aware of any
issues raised by the Commission with
respect to any of the SEC Documents that
have not been resolved in the ordinary
course of review. No other written
information provided by or on behalf of the
Company to the Buyers which is not
included in the SEC Documents, including,
without limitation, information
referred to in Section 2(d) of this
Agreement, contains any untrue statement of
a material fact or omits to state any
material fact necessary in order to make
the statements therein, in the light of the
circumstances under which they are
or were made, not misleading. The Company
satisfies the requirements for use of
Form S-3 for registration of the resale of
the Registrable Securities (as that
term is defined in the Registration Rights
Agreement) and does not have any
knowledge or reason to believe that it does
not satisfy such requirements or
have any knowledge of any fact which would
reasonably result in its not
satisfying such requirements. The Company
is not required to file and will not
be required to file, any agreement, note,
lease, mortgage, deed or other
instrument entered into prior to the date
hereof and to which the Company is a
party or by which the Company is bound
which has not been previously filed as an
exhibit to its reports filed with the
Commission under the Exchange Act, except
for those Transaction Documents required to
be filed upon execution and
delivery. Except for the issuance of the
Notes and the Warrants contemplated by
this
12
<PAGE>
Agreement, no event, liability, development
or circumstance has occurred or
exists, or is currently contemplated to
occur, with respect to the Company or
its Subsidiaries or their respective
business, properties, prospects, operations
or financial condition, that would be
required to be disclosed by the Company
under applicable securities laws and which
has not been publicly disclosed. The
Company has no reason to believe that its
independent registered public
accounting firm will withhold its consent
to the inclusion of its audit opinion
concerning the Company's financial
statements which shall be included in the
Registration Statement (as such term is
defined in the Registration Rights
Agreement).
(g) Absence of
Litigation. Except as disclosed in the sections titled
"Legal Proceedings" in the SEC Documents,
there is no action, suit, proceeding,
inquiry or investigation ("Material
Litigation") before or by any court, public
board, government agency, self-regulatory
organization or body pending or, to
the knowledge of the Company or any of its
Subsidiaries, threatened in writing
against the Company or any of its
Subsidiaries or any of the Company's or the
Subsidiaries' officers or directors in
their capacities as such that would have
a Material Adverse Effect. The Company
believes it has set aside on its books
provisions reasonably adequate for the
payment of all judgments, damages, costs,
and expenses arising out of its pending
Material Litigation and has
appropriately accounted for such reserves
under GAAP.
(h) No
Integrated Offering. 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 cause this
offering of the Securities to be
integrated with prior offerings by the
Company for purposes of the Securities
Act or any applicable shareholder approval
provisions, including, without
limitation, under the rules and regulations
of any exchange or automated
quotation system on which any of the
securities of the Company are listed or
designated, nor will the Company or any of
its Subsidiaries take any action or
steps that would cause the offering of the
Securities to be integrated with
other offerings.
(i) Intellectual
Property Rights. The Company and its Subsidiaries own,
possess, license or can acquire or make use
of on reasonable terms, adequate
rights or licenses to use all trademarks,
trade names, trade dress, service
marks, service mark registrations, service
names, patents, patent rights,
copyrights, inventions, technology
licenses, approvals, governmental
authorizations, trade secrets, and other
intellectual property rights
(collectively, "Intellectual Property")
necessary to conduct their respective
businesses as now conducted and as
currently contemplated to be conducted by
them as described in the SEC Documents,
except where the failure to currently
own or possess Intellectual Property would
not have a Material Adverse Effect.
The Company and its Subsidiaries do not
have any knowledge of any infringement
by the Company or its Subsidiaries of
Intellectual Property rights of others, or
of any development of similar or identical
trade secrets or technical
information by others that would have a
material adverse effect. There is no
claim, action or proceeding being made by
the Company or its Subsidiaries
regarding the Intellectual Property rights
of the Company or its Subsidiaries or
to the Company's knowledge, brought or
currently threatened against the Company
or its Subsidiaries regarding the
Intellectual Property rights of or the use of
any Intellectual Property by the Company or
its Subsidiaries of any third party
that, if the subject of an unfavorable
decision, ruling or finding, would have a
Material Adverse Effect.
13
<PAGE>
(j) Insurance.
The Company and each of its Subsidiaries are insured by
insurers of recognized financial
responsibility against such losses and risks
and in such amounts as are commensurate
with similarly situated companies
engaged in similar businesses as the
Company and its Subsidiaries.
(k) Regulatory
Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits
issued by the appropriate federal,
state, local or foreign regulatory
authorities necessary to conduct their
respective businesses as currently
conducted (the "Permits"), except where the
failure to possess such Permits would not
have a Material Adverse Effect, and
neither the Company nor any of its
Subsidiaries has received any written notice
of proceedings relating to the revocation
or material modification of any such
Permit.
(l) Tax Status.
The Company and each of its Subsidiaries (i) has made or
filed all federal and state income and all
other tax returns, reports and
declarations required by any jurisdiction
to which it is subject and all such
tax returns are accurate and complete in
all material respects, (ii) has paid
all taxes and other governmental
assessments and charges due with respect to the
periods covered by such returns, reports
and declarations, except those being
contested in good faith and for which the
Company has made appropriate reserves
on its books in accordance with GAAP, and
(iii) has paid or set aside on its
books provisions reasonably adequate for
the payment of all taxes for periods
subsequent to the periods to which such
returns, reports or declarations
(referred to in clause (i) above) apply.
Except as disclosed in the SEC
Documents, there are no unpaid taxes or
assessments for tax deficiencies that
are individually or in the aggregate
material in amount claimed to be due by the
taxing authority of any jurisdiction, and
the Company knows of no basis for any
such claim, and there are no audits in
progress with respect to any tax returns,
no extension of time is in force with
respect to any date on which any tax
return was or is to be filed, and no waiver
or agreement is in force for the
extension of time for the assessment or
payment of any tax. Except as disclosed
in the SEC Documents, all provisions for
tax liabilities of the Company and each
of its Subsidiaries have been disclosed in
the Company's financial statements
and made in accordance with GAAP
consistently applied, and all liabilities for
taxes of the Company and each of its
Subsidiaries attributable to periods prior
to or ending on the Closing Date have been
adequately disclosed in the Company's
financial statements.
(m) Application
of Takeover Protections. The Company and its Board of
Directors have taken all necessary action,
if any, in order to render
inapplicable any control share acquisition,
business combination, poison pill
(including any distribution under a rights
agreement) or other similar
anti-takeover provision under the Articles
of Incorporation, the laws of the
state of its incorporation or the laws of
any other state which is applicable to
the Buyers as a result of the transactions
contemplated by this Agreement,
including, without limitation, the
Company's issuance of the Securities and the
Buyers' ownership, voting or disposition of
the Securities.
(n) Foreign
Corrupt Practices. Neither the Company nor any of its
Subsidiaries, nor, to the Company's
knowledge, any director, officer, agent,
employee or other person acting on behalf
of the Company or any Subsidiary has,
in the course of his actions for, or on
behalf of, the Company or any Subsidiary
used any corporate funds for any unlawful
contribution, gift, entertainment or
other unlawful expenses relating to
political activity; made any direct or
indirect
14
<PAGE>
unlawful payment to any foreign o
