2,500,000 UNITS
Each Unit Consisting of One Share of Common Stock and
One Redeemable Class A Warrant
HYPERTENSION DIAGNOSTICS, INC.
UNDERWRITING AGREEMENT
_________________, 1998
▇. ▇. ▇▇▇▇▇▇▇▇ & Company
One Financial Plaza
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇ ▇▇ ▇▇▇▇▇
Dear Ladies and Gentlemen:
Hypertension Diagnostics, Inc., a Minnesota corporation (the "Company")
hereby confirms its agreement, subject to the terms and conditions stated
herein, to issue and sell to you (the "Underwriter") an aggregate of 2,500,000
Units ("Units"), each Unit consisting of one share of Common Stock of the
Company, $.01 par value (the "Share") and one Redeemable Class A Warrant (the
"Warrant") exercisable for a period of four (4) years commencing on the
effective date of the Registration Statement at a price of $5.50 per Share.
Each Warrant entitles the holder thereof to purchase one Share of Common Stock
at a price of $5.50 per Share. The Warrants shall be immediately exercisable
and are detachable and transferable commencing ten (10) trading days after the
effective date of the Registration Statement under the 1933 Act or at any
earlier time agreed by the Underwriter and the Company. The Warrants shall be
redeemable at the option of the Company at $.01 per Warrant upon thirty (30)
days' prior notice in writing of the Company's intention to redeem, provided
that the closing bid price for the Common Stock shall have averaged $6.50 for
any fourteen (14) consecutive trading days prior to such notice, or on such
other terms as may be set forth in the Preliminary Prospectus (defined herein).
The 2,500,000 Units to be purchased from the Company are referred to herein
as the "Firm Units." In addition, the Company proposes to grant the Underwriter
an option to purchase up to 375,000 additional Units upon the request of the
Underwriter solely for the purpose of covering over-allotments (the "Optional
Units"). The Firm Units and any Optional Units, which aggregate 2,875,000
Units, are collectively referred to herein as the "Units." Further, the Company
hereby
confirms its agreement to sell to the Underwriter warrants for the purchase
of 200,000 Units as described in Section 5 hereof (the "Underwriter's
Warrants"), assuming purchase by the Underwriter of the Firm Units. The
shares issuable upon exercise of the Underwriter's Warrants and the Warrants
are referred to as the "Warrant Shares." The Units (including the securities
included therein) and the Underwriter's Warrants will be in the form and
contain such rights and terms as described in the Prospectus.
The Company hereby confirms the following arrangements with respect to the
purchase of the Units by the Underwriter.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with the Underwriter as follows:
(a) A registration statement on Form SB-2 with respect to the Units,
and as a part thereof a preliminary Prospectus has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "1933 Act") and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC")
thereunder and has been filed with the SEC under the 1933 Act. The Company
has filed such amendments to the registration statement and such amended
preliminary prospectuses as may have been required to be filed to the date
hereof. If the Company has elected not to rely upon Rule 430A, the Company
has prepared and will promptly file an amendment to the registration
statement and an amended prospectus (provided the Underwriter has consented
to such filing). If the Company has elected to rely upon Rule 430A, it will
prepare and timely file a prospectus pursuant to Rule 424(b) that discloses
the information previously omitted from the prospectus in reliance upon
Rule 430A. Copies of such registration statement and each pre-effective
amendment thereto, and each related preliminary prospectus have been
delivered by the Company to the Underwriter. Such registration statement,
as amended or supplemented, including all prospectuses included as a part
thereof, financial schedules, exhibits, the information (if any) deemed to
be part thereof pursuant to Rules 430A and 434 under the 1933 Act and any
registration statement filed pursuant to Rule 462 under the 1933 Act, is
herein referred to as the "Registration Statement." The term "Prospectus"
as used herein shall mean the final prospectus, as amended or supplemented,
included as a part of the Registration Statement on file with the SEC when
it becomes effective; provided, however, that if a prospectus is filed by
the Company pursuant to Rules 424(b) and 430A or a term sheet is filed by
the Company pursuant to Rule 434 under the 1933 Act, the term "Prospectus"
as used herein shall mean the prospectus so filed pursuant to Rules 424(b)
and 430A and the term sheet so filed pursuant to Rule 434. The term
"Preliminary Prospectus" as used herein means any prospectus, as amended or
supplemented, used prior to the Effective Date (as defined in Section 4(a)
hereof) and included as a part of the Registration Statement, including any
prospectus filed with the SEC pursuant to Rule 424(a).
(b) Neither the SEC nor any state securities division has issued any
order preventing or suspending the use of any Preliminary Prospectus, or
issued a stop order
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with respect to the offering of the Units or requiring the recirculation
of a Preliminary Prospectus and, to the best knowledge of the Company,
no proceeding for any such purpose has been initiated or threatened.
Each part of the Registration Statement, when such part became or
becomes effective, each Preliminary Prospectus, on the date of filing
with the SEC, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the SEC and on any Closing
Date (as defined in Section 2 hereof), as the case may be, conformed or
will conform in all material respects with the requirements of the 1933
Act and the Rules and Regulations and the securities laws ("Blue Sky
laws") of the states where the Units are to be sold (the "States") and
contained or will contain all statements that are required to be stated
therein in accordance with the 1933 Act, the Rules and Regulations and
the Blue Sky laws of the States. When the Registration Statement became
or becomes effective and when any post-effective amendments thereto
shall become effective, the Registration Statement did not and will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Neither any Preliminary Prospectus, on the date of
filing thereof with the SEC, nor the Prospectus or any amendment or
supplement thereto, on the date of filing thereof with the SEC and on
the First and Second Closing Dates, contained or will contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that none
of the representations and warranties in this Subsection 1(b) shall
apply to statements in, or omissions from, the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriter, as identified
in Section 11 herein, specifically for use in the preparation of the
Registration Statement, Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto. There is no contract or other document
of the Company of a character required by the 1933 Act or the Rules and
Regulations to be described in the Registration Statement or Prospectus,
or to be filed as an exhibit to the Registration Statement, that has not
been described or filed as required. The descriptions of all such
contracts and documents or references thereto are correct and include
the information required under the 1933 Act and the Rules and
Regulations.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Minnesota,
with full corporate power and authority, to own, lease and operate its
properties and conduct its business as described in the Registration
Statement and Prospectus. The Company is duly qualified to do business as
a foreign corporation in good standing in each jurisdiction in which the
ownership or lease of its properties, or the conduct of its business,
requires such qualification and in which the failure to be qualified or in
good standing would have a material adverse effect on the business of the
Company. The Company has all necessary and material authorizations,
approvals and orders of and from all governmental regulatory officials and
bodies to own its properties and to conduct its business as described in
the Registration Statement and Prospectus, and is conducting its business
in
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substantial compliance with all applicable material laws, rules and
regulations of the jurisdictions in which it is conducting business. The
Company holds all material licenses, certificates, permits, authorizations,
approvals and orders of and from all state, federal and other governmental
regulatory officials and bodies necessary to own its properties and to
conduct its business as described in the Registration Statement and
Prospectus, or has obtained waivers from any such applicable requirements
from the appropriate state, federal or other regulatory authorities. All
such licenses, permits, approvals, certificates, consents, orders and other
authorizations are in full force and effect, and the Company has not
received notice of any proceeding or action relating to the revocation or
modification of any such license, permit, approval, certificate, consent,
order or other authorization which, individually or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, might materially
and adversely affect the conduct of the business or the condition,
financial or otherwise, or the earnings, affairs or business prospects of
the Company.
(d) The Company has no subsidiaries and is not affiliated with any
other Company or business entity, except as disclosed in the Prospectus.
(e) The Company is not in violation of its Articles of Incorporation
or Bylaws. The Company is not in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which the Company or its
properties are bound, and there does not exist any state of facts which
constitutes an event of default on the part of the Company or which, with
notice or lapse of time or both, would constitute such an event of default.
The Company is not, to the best of its knowledge, in violation of any law,
order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, which violation
is material to the business of the Company.
(f) The Company has full requisite power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and will be a valid and binding agreement on the
part of the Company, enforceable in accordance with its terms, if and when
this Agreement shall have become effective in accordance with Section 8,
except as enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally and by judicial limitations on the right of specific performance
and except as the enforceability of the indemnification or contribution
provisions hereof may be affected by applicable federal or state securities
laws. The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, (i) any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note, agreement
or other evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by
4
which the property or assets of the Company is bound, (ii) the Company's
Articles of Incorporation or Bylaws or (iii) any statute or any order,
rule or regulation of any court, governmental agency or body having
jurisdiction over the Company. No consent, approval, authorization or
order of any court, governmental agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except such as may be required under the 1933 Act, the
Rules and Regulations, the Blue Sky laws, the rules and regulations of
the National Association of Securities Dealers, Inc. ("NASD") and the
rules and regulations of Nasdaq.
(g) There are no actions, suits or proceedings pending before any
court or governmental agency, authority or body to which the Company is a
party or of which the business or property of the Company is the subject
which might result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Company, materially
and adversely affect its properties or assets or prevent consummation of
the transactions contemplated by this Agreement; and, to the best of the
Company's knowledge, no such actions, suits or proceedings are threatened.
The Company is not aware of any facts which would form the basis for the
assertion of any material claim or liability which are not disclosed in the
Registration Statement or the Prospectus or adequately reserved for in the
financial statements which are a part thereof, except for such claims or
liabilities which are not currently expected to have a material adverse
effect on the condition (financial or otherwise) or the earnings, affairs
or business prospects of the Company. All pending legal or governmental
proceedings to which the Company is a party or to which any of its property
is subject, which are not described in the Registration Statement and the
Prospectus, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material to the Company.
(h) The Company has the duly authorized and outstanding
capitalization as set forth in the Prospectus. The outstanding Common
Stock of the Company is duly authorized, validly issued, fully paid and
nonassessable. The Company's securities, including the Units, conform in
substance to all statements relating thereto contained in the Registration
Statement and Prospectus. The securities to be sold by the Company
hereunder have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be validly issued, fully paid and nonassessable and
will conform to the description thereof contained in the Prospectus. No
preemptive rights or similar rights of any security holders of the Company
exist with respect to the issuance and sale of the Units or the
Underwriter's Warrant by the Company. Except as disclosed in the
Prospectus, the Company has no agreement with any security holder which
gives such security holder the right to require the Company to register
under the 1933 Act any securities of any nature owned or held by such
person either in connection with the transactions contemplated by this
Agreement or after a demand for registration by such holder. Upon payment
for and delivery of the Units pursuant to this Agreement, the Underwriter
will acquire the Units, free and clear of all liens, encumbrances or
claims. The certificates evidencing the Units and the Warrants will comply
as to form with all applicable provisions of the laws of the State of
Minnesota. Except as set forth in any part of the Registration Statement,
the Company does not have outstanding any options to
5
purchase, or any rights or warrants to subscribe for, or any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, any Common Stock or other securities of the Company, or
any such warrants, convertible securities or obligations.
(i) The Underwriter's Warrant, the Warrants and the Warrant Shares
have been duly authorized. The Underwriter's Warrant and the Warrants,
when issued and delivered to the Underwriter, will constitute valid and
binding obligations of the Company in accordance with their terms, except
as enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally and by judicial limitations on the right of specific performance.
The Warrant Shares when issued in accordance with the terms of the
Underwriter's Warrant and the Warrants, will be validly issued, fully paid
and nonassessable and subject to no preemptive rights or similar rights on
the part of an person or entity. A sufficient number of shares of Common
Stock of the Company have been reserved for issuance by the Company upon
exercise of the Underwriter's Warrant and the Warrants.
(j) Ernst & Young LLP, whose reports appear in the Registration
Statement and Prospectus, are independent accountants within the meaning of
the 1933 Act and the Rules and Regulations. The financial statements of
the Company, together with the related notes, forming part of the
Registration Statement and Prospectus (the "Financial Statements"), fairly
present the financial position and the results of operations of the Company
at the respective dates and for the respective periods to which they apply.
The Financial Statements are accurate, complete and correct and have been
prepared in accordance with the 1933 Act, the Rules and Regulations and
generally accepted accounting principles ("GAAP"), consistently applied
throughout the periods involved, except as may be otherwise stated therein.
The summaries of the Financial Statements and the other financial and
statistical data and related notes set forth in the Registration Statement
and the Prospectus are (i) accurate and correct and fairly present the
information purported to be shown thereby as of the dates and for the
periods indicated on a basis consistent with the audited financial
statements of the Company and (ii) in compliance in all material respects
with the requirements of the 1933 Act and the Rules and Regulations. The
Financial Statements are based upon and consistent with the financial
statements and other reports filed by the Company with the SEC, except for
inconsistencies attributable solely to differences between GAAP and
regulatory accounting principles.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and at any Closing Date,
except as is otherwise disclosed in the Registration Statement or
Prospectus, there has not been:
(i) any change in the capital stock or long-term debt (including
any capitalized lease obligation), or except in the ordinary course of
business increase in the short-term debt of the Company;
6
(ii) any issuance of options, warrants, convertible securities
or other rights to purchase the capital stock of the Company;
(iii) any material adverse change, or any development involving a
material adverse change, in or affecting the business, business
prospects, properties, assets, patents or patent applications
(including those of the Company and those relating to devices or
technologies licensed to the Company), management, financial position,
stockholders' equity, results of operations or general condition of
the Company;
(iv) any material transaction entered into by the Company;
(v) any material obligation, direct or contingent, incurred by
the Company, except obligations incurred in the ordinary course of
business that, in the aggregate, are not material; or
(vi) any dividend or distribution of any kind declared, paid or
made on the Company's capital stock.
(l) Except as is otherwise disclosed in the Registration Statement or
Prospectus, the Company has good and marketable title to all of the
property, real and personal, described in the Registration Statement or
Prospectus as being owned by the Company, free and clear of all liens,
encumbrances, equities, charges or claims, except as do not materially
interfere with the uses made and to be made by the Company of such property
or as disclosed in the Financial Statements. Except as is otherwise
disclosed in the Registration Statement or Prospectus, the Company has
valid and binding leases to the real and personal property described in the
Registration Statement or Prospectus as being under lease to the Company,
except as to those leases which are not material to the Company or the lack
of enforceability of which would not materially interfere with the use made
and to be made by the Company of such leased property.
(m) The Company has filed all necessary federal and state income and
franchise tax returns and paid all taxes shown as due thereon. The Company
is not in default in the payment of any taxes and has no knowledge of any
tax deficiency which might be asserted against it which would materially
and adversely affect the Company's business or properties.
(n) No labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent which could reasonably
be expected to have a material adverse effect on the conduct of the
business, operations, financial condition or income of the Company.
(o) Except as disclosed in the Prospectus:
(i) The Company owns or possesses the unrestricted rights to use
all patents, copyrights, trademarks, trade secrets and proprietary
rights or information
7
necessary for the development, manufacture, operation and sale of
all products and services sold or proposed to be sold by the
Company and for the conduct of its present or intended business as
described in the Prospectus. There are no pending legal,
governmental or administrative proceedings relating to patents,
copyrights, trademarks or proprietary rights or information to
which the Company is a party or to which any property of the
Company is subject and no such proceedings are, to the best of the
Company's knowledge, threatened or contemplated against the Company
by any governmental agency or authority or others. The Company has
not received any notice of conflict with asserted rights of others.
The Company is not using any confidential information or trade
secrets of any third party without such party's consent.
(ii) The Company does not infringe upon the right or claimed
rights of any person under or with respect to any of the intangible
rights listed in the preceding subsection. The Company is not
obligated or under any liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner of, licensor of, or
other claimant to, any patent, trademark, trade name, copyright or
other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise, except as
disclosed in the Registration Statement.
(p) The Company intends to apply the proceeds from the sale of the
Units by it to the purposes and substantially in the manner set forth in
the Prospectus.
(q) The Company has no defined benefit pension plan or other pension
benefit plan which is intended to comply with the provisions of the
Employee Retirement Income Security Act of 1974 as amended from time to
time, except as disclosed in the Registration Statement.
(r) To the best of the Company's knowledge, no person is entitled,
directly or indirectly, to compensation from the Company or the Underwriter
for services as a finder in connection with the transactions contemplated
by this Agreement.
(s) The conditions for use of a Registration Statement on Form SB-2
for the distribution of the Units have been satisfied with respect to the
Company.
(t) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its directors,
officers, stockholders, or others) which has constituted or is designed to,
or which might reasonably be expected to, cause or result in stabilization
or manipulation, as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act") or otherwise, of the price of any security of the
Company to facilitate the sale or resale of the Units.
8
(u) The Company has not sold any securities in violation of Section
5(a) of the 1933 Act and has sold no securities within three (3) years
prior to the date hereof, except as set out in Item 26 of Part II of the
Registration Statement.
(v) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts adequate for its business and in
line with the insurance maintained by similar companies and businesses.
(w) The Company hereby represents that it has complied and will
comply with all provisions of Florida Statutes Section 517.075 (Ch. 92-198
and Rule 3EER92-1 of the Rules of the Florida Department of Banking and
Finance, Division of Securities). Neither the issuer, nor any affiliate
thereof, does business with the government of Cuba or with any person or
affiliate located in Cuba.
(x) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations
and (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP.
(y) All material transactions between the Company and its
shareholders who beneficially own more than 5% of any class of the
Company's voting securities have been accurately disclosed in the
Prospectus, and the terms of each such transaction are fair to the Company
and no less favorable to the Company than the terms that could have been
obtained from unrelated parties.
(z) The Company will use its best efforts to obtain a written
agreement from all shareholders of the Company that such person or
entity will not, without the prior written consent of the
Underwriter, during the 180-day period commencing on the effective
date of the Registration Statement (the "Lockup Period) (i) sell,
transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any Securities of the Company beneficially
held during the Lockup Period, (ii) sell, transfer or otherwise dispose
of or agree to sell, transfer or otherwise dispose of any options,
rights, warrants or other securities exercisable or convertible
into Units of Common Stock of the Company beneficially held during
the Lockup Period, or (iii) sell or grant, or agree to sell or
grant, options, rights, warrants or other securities exercisable or
convertible into any such Units of Common Stock; provided, however,
that the foregoing does not prohibit gifts by donees who agree to
be bound by the restrictions set forth in the lockup agreement or
transfers by will or the laws of descent.
(aa) The Common Stock of the Company has been approved by Nasdaq for
trading on its SmallCap Market-SM- following effectiveness of the
Registration Statement subject to official notice of issuance.
9
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to purchase from the Company, the Firm Units at $3.7125
per Unit.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriter to purchase the Option
Units (not to exceed an aggregate of fifteen percent (15%) of the total
number of Firm Units) at the same purchase price as the Firm Units for use
solely in covering any over-allotments made by the Underwriter in the sale
and distribution of the Firm Units. The option granted hereunder may be
exercised at any time (but not more than once) within forty-five (45) days
after the Effective Date (as defined in Section 4(a) hereof) upon notice
(confirmed in writing) by the Underwriter to the Company setting forth the
aggregate number of Option Units as to which the Underwriter is exercising
the option and the date on which certificates for such Option Units are to
be delivered. The option granted hereby may be canceled by the Underwriter
as to the Option Units for which the option is unexercised at any time
prior to the expiration of the forty-five (45) day period upon notice to
the Company.
(c) The Company will deliver the Firm Units to the Underwriter at the
offices of ▇▇▇▇▇▇▇ Rumble & Butler, P.A. unless some other place is agreed
upon, at 10:00 A.M., Minneapolis time, against payment of the purchase
price at the same place, on the third full business day after trading the
Units has commenced (but not more than ten (10) full business days after
the date the Registration Statement is declared effective), or such earlier
time as may be agreed upon between the Underwriter and the Company. Such
time and place is herein referred to as the "First Closing Date."
(d) The Company will deliver the Option Units being purchased by the
Underwriter to the Underwriter at the offices of ▇▇▇▇▇▇▇ Rumble & Butler,
P.A. set forth in Section 2(c) above, unless some other place is agreed
upon, at 10:00 A.M., Minneapolis time, against payment of the purchase
price at the same place, on the date determined by the Underwriter and
of which the Company has received notice as provided in Section 2(b),
which shall not be earlier than two nor later than three (3) full business
days after the exercise of the option as set forth in Section 2(b), or at
such other time not later than ten (10) full business days thereafter as
may be agreed upon by the Underwriter and the Company, such time and date
being herein referred to as the "Second Closing Date." The First and
Second Closing Dates are collectively referred to herein as the "Closing
Date."
(e) Certificates for the Units to be delivered will be registered in
such names and issued in such denominations as the Underwriter shall
request of the Company at least two (2) full business days prior to the
First Closing Date or the Second Closing Date, as the case may be. The
certificates will be made available to the Underwriter in definitive
10
form for the purpose of inspection and packaging at least 24 hours prior
to each respective Closing Date.
(f) Payment for the Units shall be made, against delivery to the
Underwriter or its designated agent, of certificates for the Units by wire
transfer to a designated account of the Company.
(g) The Underwriter will make a public offering of the Units directly
to the public (which may include selected dealers who are members in good
standing with the NASD or foreign dealers not eligible for membership in
the NASD but who have agreed to abide by the interpretation of the NASD's
Board of Governor's with respect to free-riding and withholding) as soon as
the Underwriter deems practicable after the Registration Statement becomes
effective at the Price to Public set forth in the Prospectus, subject to
the terms and conditions of this Agreement and in accordance with the
Prospectus. Such concessions from the public offering price may be allowed
selected dealers of the NASD as the Underwriter determines, and the
Underwriter will furnish the Company with such information about the
distribution arrangements as may be necessary for inclusion in the
Registration Statement. It is understood that the public offering price
and concessions may vary after the initial public offering. The
Underwriter shall offer and sell the Units only in jurisdictions in which
the offering of Units has been duly registered or qualified, or is exempt
from registration or qualification, and shall take reasonable measures to
effect compliance with applicable state and local securities laws.
3. FURTHER AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees with the Underwriter as follows:
(a) If the Registration Statement has not become effective prior to
the date hereof, the Company will use its best efforts to cause the
Registration Statement and any subsequent amendments thereto to become
effective as promptly as possible. The Company will notify the Underwriter
promptly, after the Company shall receive notice thereof, of the time when
the Registration Statement, or any subsequent amendment thereto, has become
effective or any supplement to the Prospectus has been filed. Following the
execution and delivery of this Agreement, the Company will prepare, and
timely file or transmit for filing with the SEC in accordance with Rules
430A, 424(b) and 434, as applicable, copies of the Prospectus, or, if
necessary, a post-effective amendment to the Registration Statement
(including the Prospectus), in which event, the Company will take all
necessary action to have such post-effective amendment declared effective
as soon as possible. The Company will notify the Underwriter promptly upon
the Company's obtaining knowledge of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceedings for that purpose and will use its
best efforts to prevent the issuance of any stop order and, if a stop order
is issued, to obtain as soon as possible the withdrawal or lifting thereof.
The Company will promptly prepare and file at its own expense with the SEC
any amendments of, or supplements to, the Registration Statement or the
Prospectus which may be necessary in connection with the distribution of
the Units by the
11
Underwriter. During the period when a Prospectus relating to the Units
is required to be delivered under the 1933 Act, the Company will
promptly file any amendments of, or supplements to, the Registration
Statement or the Prospectus which may be necessary to correct any untrue
statement of a material fact or any omission to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company will notify the
Underwriter promptly of the receipt of any comments from the SEC
regarding the Registration Statement or Prospectus or request by the SEC
for any amendment thereof or supplement thereto or for any additional
information. The Company will not file any amendment of, or supplement
to, the Registration Statement or Prospectus, whether prior to or after
the Effective Date, which shall not previously have been submitted to
the Underwriter and its counsel a reasonable time prior to the proposed
filing or to which the Underwriter shall have reasonably objected.
(b) The Company has used and will continue to use its best efforts to
register or qualify the Units for sale under the securities laws of such
jurisdictions as the Underwriter may designate and the Company will file
such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification. In each
jurisdiction in which the Units shall have been registered or qualified as
above provided, the Company will continue such registrations or
qualifications in effect for so long as may be required for purposes of the
distribution of the Units, the Warrants and the Warrant Shares; provided,
however, that in no event shall the Company be obligated to qualify to do
business as a foreign corporation in any jurisdiction in which it is not
now so qualified or to take any action which would subject it to the
service of process in suits, other than those arising out of the offering
or sale of the Units in any jurisdiction where it is not now so subject. In
each jurisdiction where any of the Units shall have been so qualified, the
Company will file such statements and reports as are or may be reasonably
required by the laws of such jurisdiction to continue such qualification in
effect. The Company will notify the Underwriter immediately of, and
confirm in writing, the suspension of qualification of the Units, the
Warrants, and the Warrant Shares or the threat of such action in any
jurisdiction. The Company will use its best efforts to qualify or register
its securities for sale in nonissuer transactions under (or obtain
exemptions from the application of) the securities laws of such states
designated by the Underwriter (and thereby permit market-making
transactions and secondary trading in its securities in such states), and
will comply with such securities laws and will continue such
qualifications, registrations and exemptions in effect for a period of five
(5) years after the date hereof.
(c) The Company will furnish to the Underwriter, as soon as
available, copies of the Registration Statement (one of which will be
signed and which shall include all exhibits), each Preliminary Prospectus,
the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section
10(a)(3) of the 1933 Act, all in such quantities as the Underwriter may
from time to time reasonably request prior to the printing of each such
document. The Company specifically authorizes the Underwriter and all
dealers to whom any of the
12
Units may be sold by the Underwriter to use and distribute copies of
such Preliminary Prospectuses and Prospectuses in connection with the
sale of the Units as and to the extent permitted by the federal and
applicable state and local securities laws.
(d) For as long as the Company has more than 100 beneficial owners,
but in no event more than five (5) years after the Effective Date, the
Company will mail as soon as practicable to the holders of its securities
substantially the following documents, which documents shall be in
compliance with this Section if they are in the form prescribed by the 1934
Act:
(i) within sixty (60) days after the end of the first three
quarters of each fiscal year, copies of the quarterly unaudited
statement of profit and loss and quarterly unaudited balance sheets of
the Company and any material subsidiaries; and
(ii) within ninety (90) days after the close of each fiscal year,
appropriate financial statements as of the close of such fiscal year
for the Company and any material subsidiary which shall be certified
to by a nationally recognized firm of independent certified public
accountants in such form as to disclose the Company's financial
condition and the results of its operations for such fiscal year.
(e) For as long as the Company has more than 100 beneficial owners,
but in no event more than five (5) years after the Effective Date, the
Company will furnish to the Underwriter (i) concurrently with furnishing
such reports to its security holders, the reports described in Section 4(d)
hereof; (ii) as soon as they are available, copies of all other reports
(financial or otherwise) mailed to security holders; and (iii) as soon as
they are available, copies of all reports and financial statements
furnished to, or filed with, the SEC, the NASD, any securities exchange or
market or any state securities commission by the Company. During such
period, the foregoing financial statements shall be on a consolidated basis
to the extent that the accounts of the Company and any subsidiary or
subsidiaries are consolidated and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(f) The Company will not, without the prior written consent of the
Underwriter, which consent shall not be unreasonably withheld, sell or
otherwise dispose of any capital stock or securities convertible or
exercisable into capital stock of the Company (other than pursuant to
existing option plans, director compensation plans or currently outstanding
options and warrants) during the 180-day period following the Effective
Date. Prior to the Closing Date, the Company will not repurchase or
otherwise acquire any of its capital stock or declare or pay any dividend
or make any distribution on any class of its capital stock.
(g) Subject to the proviso set forth below and whether or not this
Agreement becomes effective or is terminated, cancelled or the sale of the
Units to you is consummated, and regardless of the reason for or cause of
any such termination,
13
cancellation, or failure to consummate, the Company shall be
responsible for and pay all costs and expenses incident to the
performance of the obligations of the Company under this Agreement
including, without limiting the generality of the foregoing, (i) all
costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus and any
amendments thereof or supplements to any of the foregoing; (ii) the
issuance and delivery of the Units, including taxes, if any; (iii) the
cost of all certificates representing the Units; (iv) the fees and
expenses of the Transfer Agent for the Units; (v) the fees and
disbursements of counsel for the Company; (vi) all fees and other
charges of the independent public accountants of the Company; (vii) the
cost of furnishing and delivering to the Underwriter and dealers
participating in the offering copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectuses, the
Prospectus and any amendments of, or supplements to, any of the
foregoing; (viii) the NASD filing and quotation fees; and (ix) the fees
and disbursements, including filing fees and all accountable fees and
expenses of counsel for the Company incurred in registering or
qualifying the Units for sale under the laws of such jurisdictions upon
which the Underwriter and the Company may agree; and (x) the
non-accountable expenses of the Underwriter in an amount equal to 2.5%
of the gross proceeds of the Offering. Pursuant to Section 8, the
Underwriter hereby acknowledges receipt of a $10,000 advance from the
Company against the Underwriter's non-accountable expense allowance
referred to in the preceding sentence. In the event this Agreement is
terminated by the Underwriter pursuant to Section 8 or for any reason
beyond the Underwriter's control or through no fault of the Underwriter
or by the Company, the Company shall be obligated to pay, to the
Underwriter the greater of the $10,000 deposit paid at the time of the
execution of the letter of intent or all of its actual accountable
out-of-pocket expenses, including fees of its counsel, not to exceed
$20,000. In the event this Agreement is terminated by the Company or
the Underwriter for any reason within its control, including but not
limited to, an opinion of the NASD regarding the compensation
arrangement of the Underwriter, the Company shall be obligated to pay
the Underwriter only the $10,000 deposit paid at the time of the
execution of the letter of intent.
(h) The Company will not take, and will use its best efforts to cause
each of its officers and directors not to take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Units.
(i) The Company will use its best efforts to obtain (prior to the
Effective Date) and maintain the quotation of the Units, its Common Stock
and the Warrants on the Nasdaq SmallCap Market-SM-.
(j) For a period of at least five (5) years after the Effective Date,
the Company will continue to file with the SEC all reports and other
documents as may be required by the 1933 Act, the Rules and Regulations and
the 1934 Act.
14
(k) The Company will apply the proceeds from the sale of the Units
substantially in the manner set forth in the Prospectus.
(l) Other than as permitted by the 1933 Act and the Rules and
Regulations, the Company will not distribute any prospectus or other
offering material in connection with the Offering.
(m) The Company will, for a period of two (2) years after the
Effective Date, furnish directly to you, quarterly profit and loss
statements, reports of the Company's cash flow, and statements of
application of the proceeds of the offering contained in reports or
statements filed by the Company with the Commission.
(n) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than eighteen (18)
months after the effective date of the Registration Statement, a statement
of earnings of the Company (which need not be audited) complying with
Section 11(a) of the 1933 Act and the Rules and Regulations of the
Commission thereunder (including at the option of the Company Rule 158).
(o) The Company authorizes the Underwriter and all dealers to whom
any of the Units may be sold by the Underwriter in connection with the
distribution of the Units, to use the Prospectus as from time to time
amended or supplemented in connection with the offering and sale of the
Units and in accordance with the applicable provisions of the Act and the
applicable Rules and Regulations and applicable state Blue Sky or
securities laws.
(p) The Company shall not request an Effective Date nor allow the
Registration Statement to be declared effective without the prior approval
of the Underwriter.
(q) Within the time during which the Prospectus is required to be
delivered under the Act, the Company will comply, at its own expense, with
all requirements imposed upon it by the 1933 Act, by the Rules and
Regulations, by the Exchange Act, and by any order of the Commission, so
far as necessary to permit the continuance of sales or dealings in the
Units.
(r) Deleted.
(s) The Company will reserve and keep available that maximum number
of its authorized but unissued shares of Common Stock which are issuable
under exercise of Warrants and the Underwriter's Warrant during the term of
the Warrants and the Underwriter's Warrant.
(t) Prior to the Closing Date, no discussions will be held by
officers, directors or any other affiliate or associate of the Company with
any member of the news media and
15
no news release or other publicity about the Company will be permitted
without prior approval of the Company's and the Underwriter's respective
legal counsel.
(u) The Company shall have obtained a CUSIP number for the Units (and
its components) prior to the effective date of the Registration Statement
under the Act.
(v) The Company shall supply to the Underwriter, and its legal
counsel, at the Company's cost, one complete bound volume of all of the
documents relating to the public offering, within a reasonable time after
the Closing Date, not to exceed four (4) months. The volume shall be hard
cover bound in book format.
(w) The Company will apply the proceeds from the sale of the Units by
it to the purposes and in the manner set forth in the Registration
Statement and, pending such application, shall invest such net proceeds
only in one or more of the following, except as otherwise provided by
prior written consent of the Underwriter: (i) interest-bearing
obligations issued by the United States Government or issued by an
agency or instrumentality of the United States Government and guaranteed
by the United States Government and having a maturity not in excess of
one year, (ii) interest-bearing domestic commercial paper having a
maturity of not more than three hundred sixty-five (365) days and, at
the time of purchase by the Company, rated investment grade by ▇▇▇▇▇'▇
Investors Service, Inc. or Standard & Poor's Corporation, (iii)
interest-bearing certificates of deposit issued by a commercial bank
chartered by the United States Government or by any state of the United
States having shareholders' equity of at least $500,000,000 except that
the foregoing notwithstanding, the Company may invest no more than
$100,000 of such net proceeds in certificates of deposit issued by any
such commercial bank regardless of shareholders' equity, and (iv) shares
or other units of interest in a registered open-ended investment company
the assets of which aggregate at least $200,000,000 and are invested
solely in so-called "money market" obligations.
(x) Prior to or as of the First Closing Date, the Company shall have
performed each condition to closing required to be performed by it pursuant
to Section 4 hereof.
4. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriter to purchase and pay for the Units as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, in
the case of the Firm Units as of the date hereof and the First Closing Date (as
if made on and as of the First Closing Date) and in the case of the Option
Units, as of the date hereof and the Second Closing Date (as if made on and as
of the Second Closing Date), to the performance by the Company of its
obligations hereunder, and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Units and
on or before the Second Closing Date in the case of the Option Units:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. Minneapolis time, on the first full business day following
the date of this Agreement, or such later date as shall be consented to in
writing by the Underwriter (the
16
"Effective Date"). If the Company has elected to rely upon Rule 430A,
the information concerning the price of the Units and price-related
information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the SEC for filing
pursuant to Rule 424(b) within the prescribed time period, and prior to
the Closing Date the Company shall have provided evidence satisfactory
to the Underwriter of such timely filing (or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the 1933 Act and the Rules and
Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or, to the knowledge of the Company or the Underwriter,
threatened by the SEC or any state securities commission or similar
regulatory body. Any request of the SEC for additional information (to
be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter and their legal counsel. The NASD, upon review of the terms
of the Offering, shall not have objected to the terms of the
Underwriter's participation in the Offering.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to be
stated therein or is necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that this Section 4(b) shall not apply to statements in,
or omissions from, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, which are based upon and conform
to written information furnished to the Company by the Underwriter
specifically for use in the preparation of the Registration Statement or
the Prospectus, or any such amendment or supplement.
(c) Subsequent to the date as of which information is given the
Registration Statement and Prospectus, there shall not have occurred any
change, or any development involving a prospective change, which materially
and adversely affects the business or properties of the Company and which,
in the reasonable opinion of the Underwriter, materially and adversely
affects the market for the Units or the Company's securities.
(d) On or prior to each Closing Date, the form and validity of the
Units and their component parts, the legality and sufficiency of the
corporate proceedings and matters relating to the incorporation of the
Company and other matters incident to the issuance of the Units and their
component parts, the form of the Registration Statement and the Prospectus
and of any amendments thereof or supplements thereto filed prior to such
Closing Date (other than financial statements and schedules and other
financial or statistical data included therein), the authorization,
execution, and delivery of this Agreement and the description of the Units
and their component parts contained in the Prospectus shall have been
reasonably approved by the Underwriter. In connection with such
determination, the Company shall have furnished to the Underwriter such
documents as you may have requested for the purpose of enabling the
Underwriter to pass upon such matters.
17
(e) The Underwriter shall have received the opinion of ▇▇▇▇▇▇▇,
Rumble & Butler, P.A., counsel for the Company, dated as of such respective
Closing Date and satisfactory in form and substance to the Underwriter and
its counsel, to the effect that:
(i) The Company has been duly incorporated and is validly
existing in good standing under the laws of the State of Minnesota
with the requisite corporate power to own, lease and operate its
properties and conduct its business as described in the Prospectus;
and is duly qualified to do business as a foreign corporation in good
standing in all jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification
and in which the failure to be so qualified or in good standing would
have a material adverse effect on its business and the activities of
the Company. The Company has no active subsidiaries.
(ii) The number of authorized and, to the best of such counsel's
knowledge, the number of issued and outstanding shares of capital
stock of the Company are as set forth in the Prospectus, and all such
capital stock has been duly authorized and is validly issued, fully
paid and nonassessable. The Units (and their components) have been
duly authorized, and upon issuance, delivery of, and payment therefor
as described in this Agreement, will be validly issued, fully paid and
nonassessable, and the Underwriter will acquire the Units free and
clear of all liens, encumbrances or claims. To the best knowledge of
such counsel's knowledge, no preemptive rights, contractual or
otherwise, of securities holders of the Company or others exist with
respect to the issuance or sale of the Units by the Company pursuant
to this Agreement or to the issuance of Warrant Shares upon exercise
of the Warrants or the Underwriter's Warrants. To the best of such
counsel's knowledge, no rights to require registration of shares of
Common Stock or other securities of the Company exist which may be
exercised in connection with the filing of the Registration Statement.
The Units, Warrants, Underwriter's Warrant, Warrant Shares and Shares
conform as to matters of law in all material respects to the
description of these securities made in the Prospectus and such
description accurately sets forth the material legal provisions
thereof required to be set forth in the Prospectus.
(iii) The shares of Common Stock underlying the Warrants have
been duly authorized and reserved for issuance and when issued, sold
and delivered in accordance with the terms of the Warrants, will be
validly issued, fully paid and nonassessable. The issuance, sale and
delivery of the Underwriter's Warrant has been duly authorized and the
Warrant Shares issuable upon the exercise thereof have been reserved
for issuance upon such exercise. The Warrant Shares, when issued,
sold and delivered in accordance with the terms of the Underwriter's
Warrant, will be validly issued, fully paid and nonassessable. No
preemptive rights of, or rights of refusal in favor of, shareholders
of the Company exist with respect to the Units (or any component
thereof), the Underwriter's Warrant or the
18
Warrant Shares, or the issue and sale thereof, pursuant to the
Company's Articles of Incorporation or Bylaws.
(iv) The authorized securities of the Company conform as to legal
matters in all material respects to the description thereof set forth
in the Prospectus under the caption "Description of Securities." The
certificates representing the Warrants and the Common Stock are in
proper form under the Minnesota Business Corporation Act.
(v) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements of the 1933 Act
and with the Rules and Regulations, except the financial statements,
the notes thereto and the related schedules and other financial and
statistical data contained therein, as to which such counsel need not
express an opinion.
(vi) Counsel knows of no contracts, leases or documents that are
required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement that are not so described or filed.
(vii) The Underwriting Agreement, the Units (and their
components), the Warrant Agreement and the Underwriter's Warrant have
been duly authorized by all requisite corporate action, executed and
delivered by the Company and constitute the valid and binding
obligations of the Company enforceable in accordance with their
respective terms.
(viii) The execution and delivery of the Underwriting Agreement
and the issue and sale of the Underwriter's Warrant, the Units (and
their components) and the Warrant Shares will not violate or conflict
with the Articles of Incorporation or the Bylaws of the Company or any
material provision of any material contract or instrument to which the
Company is a party or by which the Company is bound, or any law of the
United States or the State of Minnesota, any rule or regulation of any
governmental authority or regulatory body of the United States or the
State of Minnesota, or any judgment, order or decree known by such
counsel and applicable to the Company of any court or governmental
authority.
(ix) No holders of capital stock of the Company, or securities
convertible into capital stock of the Company, have the right to cause
the Company to include such holder's capital stock in the Registration
Statement pursuant to the Company's Articles of Incorporation or
Bylaws or any contract or agreement.
(x) No consent, approval, authorization or order of, and no
notice to or filing with, any governmental agency or body or any court
is required to be obtained or made by the Company for the issue and
sale of the Units pursuant to the Underwriting Agreement, except such
as may be required and obtained under
19
the 1933 Act or under state or other securities laws in connection
with the purchase and distribution of the Units by the Underwriter.
(xi) The Warrant Agreement and the Underwriter's Warrants have
been duly authorized, executed and delivered by the Company and are
the valid and binding obligations of the Company, enforceable in
accordance with their terms, except as enforceability may be limited
by the application of bankruptcy, insolvency, moratorium, or other
laws of general application affecting the rights of creditors
generally and by judicial limitations on the right of specific
performance and other equitable remedies, and except as the
enforceability of indemnification or contribution provisions hereof
may be limited by federal or state securities laws. The Warrant
Shares when issued in accordance with the terms of this Agreement and
pursuant to the Warrants and the Underwriter's Warrants will be
validly issued, fully paid and nonassessable. A sufficient number of
shares of Common Stock has been reserved for issuance upon exercise of
the Warrants and the Underwriter's Warrants.
(xii) The Registration Statement has become and is effective
under the 1933 Act, the Prospectus has been filed as required by Rule
424(b), if necessary and, to the best knowledge of such counsel, no
stop orders suspending the effectiveness of the Registration Statement
have been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the ▇▇▇▇ ▇▇▇. The
registration of the Company's securities on Form 8-A has become
effective under the Securities Exchange Act of 1934, as amended, and
no stop order suspending the effectiveness of such registration, and,
to such counsel's knowledge, no proceedings for that purpose have been
instituted or are pending by the Commission.
(xiii) To the best of such counsel's knowledge, there are no
material legal or governmental proceedings of a character required by
the 1933 Act and the Rules and Regulations to be described or referred
to in the Registration Statement or Prospectus that are not described
or referred to therein. All pending legal or governmental proceedings,
if any, to which the Company is a party or to which any of its
property is subject which are not described in the Registration
Statement and the Prospectus, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not
material to the Company.
(xiv) The Registration Statement, when it became effective,
the Prospectus and any amendments thereof or supplements thereto,
(other than the financial statements and supporting financial and
statistical data included or incorporated therein, as to which such
counsel need express no opinion) on the date of filing or the date
thereof, complied as to form in all material respects with the
requirements of the 1933 Act and the Rules and Regulations.
20
(xv) This Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as enforceability may
be limited by the application of bankruptcy, insolvency, moratorium or
similar laws affecting the rights of creditors generally and judicial
limitations on the right of specific performance and except as the
enforceability of indemnification or contribution provisions hereof
may be limited by federal or state securities laws.
(xvi) To the best of such counsel's knowledge, the execution,
delivery and performance of this Agreement and the consummation of the
transactions described herein will not result in a violation of, or a
default under, the terms or provisions of (A) any material bond,
debenture, note, contract, lease, license, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which the Company or
any of its properties are bound, or (B) any material law, order, rule,
regulation, writ, injunction, or decree known to such counsel of any
government, governmental agency or court having jurisdiction over the
Company or any of its properties.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper,
upon certificates of public officials and of the officers of the Company,
provided that copies of such officers' certificates are attached to the
opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any of the statements
contained in the Registration Statement, Prospectus, or any amendment
thereof or supplement thereto in connection with such counsel's
representation, investigation and due inquiry of the Company in the
preparation of the Registration Statement, Prospectus and any amendment
thereof or supplement thereto, nothing has come to the attention of such
counsel which causes them to believe that the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto (other than
the financial statements and supporting financial and statistical data
included or incorporated therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that such opinion of counsel does not
require any statement concerning statements in, or omissions from, the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information furnished
to the Company by the Underwriter specifically for use in the preparation
of the Registration Statement, Prospectus, or any such amendment or
supplement.
(f) The Underwriter shall have received from Maun & Simon, PLC, its
counsel, such opinion or opinions as the Underwriter may reasonably
require, dated as of each closing date and satisfactory in form and
substance to the Underwriter, with respect to the
21
sufficiency of corporate proceedings and other legal matters relating to
this Agreement and the transactions contemplated hereby, and the Company
shall have furnished to said counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters. In
connection with such opinion, as to matters of fact relevant to conclusions
of law, such counsel may rely, to the extent that they deem proper, upon
representations or certificates of public officials and of responsible
officers of the Company.
(g) The Underwriter and the Company shall have received letters,
dated the date hereof and as of each Closing Date, from Ernst & Young LLP,
independent public accountants, substantially similar to the form set forth
in Appendix A hereto.
(h) The Underwriter shall have received from the Company a
certificate, dated as of each Closing Date, of the principal executive
officer and the principal financial or accounting officer of the Company to
the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of each closing
date. The Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at, or
prior to, such date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or is pending or to the best knowledge of
such officers contemplated under the 1933 Act.
(iii) Neither the Registration Statement nor the Prospectus
nor any amendment thereof or supplement thereto included any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented prospectus which has not been so set forth;
provided, however, that such certificate does not require any
representation concerning statements in, or omissions from, the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information, as identified in Section 11 herein, furnished to the
Company by the Underwriter specifically for use in the preparation of
the Registration Statement or the Prospectus, or any such amendment or
supplement.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as contemplated or referred to in the Prospectus, no event has
occurred that should have been set forth in an amendment or supplement
to Registration Statement or the Prospectus which has not been so set
forth and the Company has not incurred any direct or
22
contingent liabilities or obligations material to the Company, or
entered into any material transactions, except liabilities,
obligations or transactions in the ordinary course of business, and
there has not been any change in the capital stock or long-term debt
of the Company, (including any capitalized lease obligations), any
material increase in the short-term debt of the Company, any material
adverse change in the financial position, net worth or results of
operations of the Company or declaration or payment of any dividend.
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company
has not sustained any material loss of, or damage to, its properties,
whether or not insured.
(vi) There are no material actions, suits or proceedings pending
before any court or governmental agency, authority or body, or, to the
best of their knowledge, threatened, to which the Company is a party
or of which the business or property of the Company is the subject.
(i) The Underwriter shall have received, dated as of each closing
date, from the Secretary of the Company a certificate of incumbency
certifying the names, titles and signatures of the officers authorized to
execute the resolutions of the Board of Directors of the Company
authorizing and approving the execution, delivery and performance of this
Agreement, a copy of such resolutions to be attached to such certificate,
certifying that such resolutions and the Articles of Incorporation of the
Company and the Bylaws of the Company have been validly adopted and have
not been amended or modified.
(j) In addition, at each Closing, the Company shall have delivered to
the Underwriter an opinion, satisfactory to the Underwriter, of Schwegman,
Lundberg, ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇, P.A., special intellectual property counsel for
the Company, dated as such respective Closing Date, and satisfactory in
form and substance to the Underwriter and its counsel, to the effect that:
(i) To the best of such counsel's knowledge, except as described
in the Prospectus, there are no United States patents of third parties
which are or would be infringed by the manufacture, use, or sale of
the products or processes made or to be made, used, or sold by the
Company.
(ii) To the best of such counsel's knowledge, and except as
stated below, there are no legal, governmental or administrative
proceedings pending or threatened against the Company that relate to
patents, trademarks or other intellectual property, except for pending
or proposed United States and foreign patent applications.
(iii) To the best of such counsel's knowledge, after due
inquiry, the Company has not received any notice of conflict with the
asserted rights of others in respect of any trademarks, service marks,
trade names, trademark registrations,
23
service ▇▇▇▇ registrations, copyrights, licenses, inventions, trade
secrets, patents, patent applications, know-how, or similar rights,
nor of any threatened actions with respect thereto, which, if
determined adversely to the Company, would individually or in the
aggregate have a material adverse effect on the general affairs,
financial position, net worth or results of operations of the Company.
(iv) To the best of such counsel's knowledge, after due inquiry,
the Company owns, possesses or is licensed under all such material
trademarks, trademark applications, trademark registrations, service
marks, service ▇▇▇▇ registrations, copyrights, patents, patent
applications and licenses as are described in the Prospectus and which
are necessary for the Company's present or planned future business as
described in the Prospectus.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper,
upon certificates of public officials and of the officers of the Company,
provided that copies of such officers' certificates are attached to the
opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any of the statements
regarding intellectual property matters contained in the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto in
connection with such counsel's representation of the Company in connection
with intellectual property matters and in preparation of the intellectual
property portions of the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto, nothing has come to the attention
of such counsel which causes them to believe that the intellectual
property portions of the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto (other than the financial
statements and supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that such opinion of counsel does not
require any statement concerning statements in, or omissions from, the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information
furnished to the Company by the Underwriter specifically for use in the
preparation of the Registration Statement, Prospectus, or any such
amendment or supplement.
(k) In addition, at each Closing, the Company shall have delivered to
the Underwriter an opinion, satisfactory to the Underwriter, of ▇▇▇▇▇▇▇ &
▇▇▇▇▇, L.L.P., special Food & Drug Administration (FDA) counsel for the
Company, dated as of each Closing Date, satisfactory in form and substance
to the Underwriter and its counsel to the effect that:
24
(i) To the best of its knowledge: (i) the statements regarding
federal government regulation included in the Registration Statement,
insofar as those statements summarize provisions of the Federal Food,
Drug, and Cosmetic Act ("FDC Act") and regulations issued thereunder,
are accurate in all material respects; and (ii) the FDC Act and FDA's
implementing regulations summarized in the Regulatory Portion are the
federal food and drug statute and regulations that are material to the
Company's business.
(ii) It has no reason to believe that the Company's business, as
described in the Registration Statement is not being conducted in all
material respects in compliance with applicable requirements of the
FDC Act.
(iii) To the best of its knowledge, there are no
administrative enforcement or legal actions pending or contemplated
against the Company by the Food and Drug Administration or any similar
state or local regulatory agency.
(iv) It has no reason to believe that the information contained
in the Registration Statement, as of the date of its opinion, contains
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
in light of the circumstances under which they were made, not
misleading.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper,
upon certificates of public officials and of the officers of the Company,
provided that copies of such officers' certificates are attached to the
opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any of the statements
regarding FDA matters contained in the Registration Statement, Prospectus,
or any amendment thereof or supplement thereto in connection with such
counsel's representation of the Company in connection with FDA matters and
in preparation of the FDA portions of the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto, nothing has
come to the attention of such counsel which causes them to believe that
the FDA portions of the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto (other than the financial
statements and supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that such opinion of counsel does not
require any statement concerning statements in, or omissions from, the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information furnished
to the Company by the Underwriter specifically for use in the preparation
of the Registration Statement, Prospectus, or any such amendment or
supplement.
25
(l) The Underwriter shall have received a written agreement from each
shareholder of the Company, that such persons or entity will not, without
the prior written consent of the Underwriter during the Lockup Period (i)
sell, transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any Units of Common Stock of the Company beneficially
held during the Lockup Period, (ii) sell, transfer or otherwise dispose of
or agree to sell, transfer or otherwise dispose of any options, rights,
warrants or other securities exercisable or convertible into Units of
Common Stock of the Company beneficially held during the Lockup Period, or
(iii) sell or grant, or agree to sell or grant, options, rights, warrants
or other securities exercisable or convertible into to any such Units of
Common Stock; provided, however, that the foregoing does not prohibit gifts
to donees who agree to be bound by the restrictions set forth in the lockup
agreement or transfers by will or the laws of descent.
(m) The Company shall not have failed to have performed any of its
agreements herein contained and required to be performed at or prior to the
First Closing Date or the Second Closing Date, as the case may be.
(n) The Units (and their components) shall have been registered or
qualified for sale or exempt from such registration or qualification under
the securities laws of such jurisdictions as designated by the Underwriter
such qualifications or exemptions shall continue in effect.
(o) The Company shall have furnished to the Underwriter, dated as of
the date of the Closing Date, such further certificates and documents as
the Underwriter shall have reasonably required.
(p) All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Underwriter and its legal counsel. All statements
contained in any certificate, letter, or other document delivered pursuant
hereto by, or on behalf of, the Company shall be deemed to constitute
representations and warranties of the Company.
(q) The Underwriter may waive in writing the performance of any one
or more of the conditions specified in this Section 4 or extend the time
for their performance.
(r) If any of the conditions specified in this Section 4 shall not
have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement and all obligations of the Underwriter hereunder may be
canceled at, or at any time prior to, each Closing Date by the Underwriter.
Any such cancellation shall be without liability of the Underwriter to the
Company and shall not relieve the Company of its obligations under Section
3(g) hereof. Notice of such cancellation shall be given to the Company at
the address specified in Section 11 hereof in writing, or by telegraph or
telephone confirmed in writing.
26
5. UNDERWRITER'S WARRANTS. On the First Closing Date, the Company shall
sell to the Underwriter for $50 the Underwriter's Warrant, which shall first
become exercisable one year after the Effective Date and shall remain
exercisable for a period of four (4) years thereafter. The Underwriter's
Warrants shall be subject to certain transfer restrictions and shall be in
substantially the form filed as an exhibit to the Registration Statement and
attached as Appendix B hereto.
6. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the 1933 Act against any losses, claims,
damages or liabilities, joint or several, to which the Underwriter or each
such controlling person may become subject, under the 1933 Act, the 1934
Act, the common law or otherwise, insofar as such losses, claims, damages
or liabilities (or judicial or governmental actions or proceedings in
respect thereof) arise out of, or are based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, or the omission or alleged
omission to state in the Registration Statement or any amendment thereof a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus if used prior to
the Effective Date of the Registration Statement or in the Prospectus (as
amended or as supplemented, if the Company shall have filed with the SEC
any amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any application or other statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in
order to qualify the Units under, or exempt the Units or the sale thereof
from qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and the Company will reimburse the Underwriter, and
each such controlling person for any legal or other expenses reasonably
incurred by the Underwriter, or controlling person (subject to the
limitation set forth in Section 6(c) hereof) in connection with
investigating or defending against any such loss, claim, damage, liability
or action; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of, or is based upon, an untrue statement, or alleged untrue
statement, omission or alleged omission, made in reliance upon and in
conformity with written information furnished to the Company by, or on
behalf of, the Underwriter specifically for use in the preparation of the
Registration Statement or any such post-effective amendment thereof, any
such Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other
27
statement executed by the Company or the Underwriter filed in any
jurisdiction in order to qualify the Units (and their components) under,
or exempt the Units (and their components) or the sale thereof from
qualification under, the securities laws of such jurisdiction; and
provided further that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated or remedied in the Prospectus, such indemnity
agreement shall not inure to the benefit of the Underwriter if the person
asserting any loss, claim, damage or liability purchased the Units from
the Underwriter which are the subject thereof (or to the benefit of any
person who controls the Underwriter), if a copy of the Prospectus was
not sent or given to such person with, or prior to, the written
confirmation of the sale of such Units to such person. This indemnity
agreement is in addition to any liability which the Company may otherwise
have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of the Company's directors, each of the Company's officers
who has signed the Registration Statement and each person who controls the
Company within the meaning of Section 15 of the 1933 Act against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, or controlling person may become subject, under the 1933
Act, the 1934 Act, the common law, or otherwise, insofar as such losses,
claims, damages, or liabilities (or judicial or governmental actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, or the omission or
alleged omission to state in the Registration Statement or any amendment
thereof, a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus
if used prior to the Effective Date of the Registration Statement or in the
Prospectus (as amended or as supplemented, if the Company shall have filed
with the SEC any amendment thereof or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any application or other statement executed by the Company or by the
Underwriter and filed in any jurisdiction in order to qualify the Units
(and their components) under, or exempt the Units (and their components) or
the sale thereof from qualification under, the securities laws of such
jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; in each case to the extent, but
only the extent, that such untrue statement, alleged untrue statement,
omission or alleged omission, was made in reliance upon and in conformity
with written information furnished to the Company by, or on behalf of, the
Underwriter specifically for use in the preparation of the Registration
Statement or any such post effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or any such amendment thereof or
supplement thereto, or in any application or other statement
28
executed by the Company or by the Underwriter and filed in any
jurisdiction; and the Underwriter will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating or defending
against any such loss, claim, damage, liability or action. This indemnity
agreement is in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party
under this Section 6, notify in writing the indemnifying party of the
commencement thereof. The omission so to notify the indemnifying party
will not relieve it from any liability under this Section 6 as to the
particular item for which indemnification is then being sought, unless such
omission so to notify prejudices the indemnifying party's ability to defend
such action. In case any such action is brought against any indemnified
party and the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel who shall be reasonably satisfactory to such indemnified
party; and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 6 for
any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of
the indemnified party, it is advisable for such parties and controlling
persons to be represented by separate counsel, any indemnified party shall
have the right to employ separate counsel to represent it and all other
parties and their controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriter against the Company or by the Company against the Underwriter
hereunder, in which event the fees and expenses of such separate counsel
shall be borne by the indemnifying party and paid as incurred. Any such
indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the prior
written consent of such indemnifying party.
7. CONTRIBUTION.
(a) If the indemnification provided for in Section 6 is unavailable
under applicable law to any indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Underwriter from the offering of the Units or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
and the Underwriter in connection with the statements or omissions which
resulted in
29
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The Company and the Underwriter agree that
contribution determined by per capita allocation would not be equitable.
The respective relative benefits received by the Company, on the one hand,
and the Underwriter, on the other hand, shall be deemed to be in the same
proportion (A) in the case of the Company, as the total price paid to the
Company for the Units by the Underwriter (net of underwriting discount
received but before deducting expenses) bears to the aggregate public
offering price of the Units, (b) in the case of the Underwriter, as the
aggregate underwriting discount received by them bears to the aggregate
public offering price of the Units, in each case as reflected in the
Prospectus. The relative fault of the Company and the Underwriter shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
Notwithstanding the provisions of this Section 7, the Underwriter shall not
be required to contribute any amount in excess of the amount by which the
total price at which the Units underwritten by it were offered to the
public exceeds the amount of any damages which the Underwriter has
otherwise been required to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the ▇▇▇▇ ▇▇▇) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person who controls the Underwriter
within the meaning of the 1933 Act or the 1934 Act shall have the same
rights to contribution as the Underwriter, each person who controls the
Company within the meaning of the 1933 Act or the 1934 Act shall have the
same rights to contribution as the Company and each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company.
(b) Promptly after receipt by a party to this Agreement of notice
of the commencement of any action, suit or proceeding, such person will,
if a claim for contribution in respect thereof is to be made against
another party (the "Contributing Party"), notify the Contributing Party
of the commencement thereof, but the omission so to notify the
Contributing Party will not relieve the Contributing Party from any
liability which it may have to any party other than under this Section
7, unless such omission so to notify prejudices the Contributing Party's
ability to defend such action. Any notice given pursuant to Section 7
hereof shall be deemed to be like notice hereunder. In case any such
action, suit or proceeding is brought against any party, and such person
notifies a Contributing Party of the commencement thereof, the
Contributing Party will be entitled to participate therein with the
notifying party and any other Contributing Party similarly notified.
30
8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective when the Underwriter
releases the initial public offering of the Firm Units for sale to the
public. The Underwriter shall notify the Company immediately after any
action has been taken which causes this Agreement to become effective.
Until this Agreement is effective, it may be terminated by the Company
or the Underwriter by giving notice as hereinafter provided, except that
the provisions of Section 3(g) and Sections 6, 7, and 8 shall at all
times be effective. For purposes of this Agreement, the release of the
initial public offering of the Firm Units for sale to the public shall
be deemed to have been made when the Underwriter releases, by facsimile
or otherwise, firm offers of the Firm Units to securities dealers or
release for publication a newspaper advertisement relating to the Firm
Units, whichever occurs first.
(b) Until the First Closing Date, this Agreement may be terminated
by the Underwriter, at its option, by giving notice to the Company, if
(i) the Company shall have sustained a loss by fire, flood, accident or
other calamity which is material with respect to the business of the
Company; the Company shall have become a party to material litigation,
not disclosed in the Registration Statement or the Prospectus; or the
business or financial condition of the Company shall have become the
subject of any material litigation, not disclosed in the Registration
Statement or the Prospectus; or there shall have been, since the
respective dates as of which information is given in the Registration
Statement or the Prospectus, any material adverse change in the general
affairs, business, key personnel, capitalization, financial position or
net worth of the Company, whether or not arising in the ordinary course
of business, which loss or change, in the reasonable judgment of the
Underwriter, shall render it inadvisable to proceed with the delivery of
the Units, whether or not such loss shall have been insured; (ii)
trading in securities generally on the New York Stock Exchange, American
Stock Exchange, Nasdaq National Market, Nasdaq SmallCap Market or the
over-the-counter market shall have been suspended or minimum prices
shall have been established on such exchange by the SEC or by such
exchanges or markets; (iii) a general banking moratorium shall have been
declared by federal, New York or Minnesota authorities; (iv) there shall
have been such a material adverse change in general economic, monetary,
political or financial conditions, or the effect of international
conditions on the financial markets in the United States shall be such
that, in the judgment of the Underwriter, makes it inadvisable to
proceed with the delivery of the Units; (v) the enactment, publication,
decree or other promulgation of any federal or state statute,
regulation, rule or order of either of any court or other governmental
authority which, in the judgment of the Underwriter, materially and
adversely affects or will materially and adversely affect the business
or operations of the Company; (vi) there shall be a material outbreak of
hostilities or material escalation and deterioration in the political
and military situation between the United States and any foreign power,
or a formal declaration of war by the United States of America shall
have occurred; (vii) the Company shall have failed to comply with any of
the provisions of this Agreement on its part to be performed on or prior
to such date or if any of the conditions, agreements, representations or
warranties of the Company shall not have been fulfilled within the
respective times provided for in this Agreement; or (viii) the Company
is no
31
longer registered under the 1934 Act. Any such termination shall be
without liability of any party to any other party, except as provided in
Sections 7 and 8 hereof; provided, however, that the Company shall
remain obligated to pay costs and expenses to the extent provided in
Section 3(g) hereof.
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 8, it shall notify the Company promptly by telegram or
telephone, confirmed by letter sent to the address specified in Section
10 hereof. If the Company shall elect to prevent this Agreement from
becoming effective, it shall notify the Underwriter promptly by telegram
or telephone, confirmed by letter sent to the address specified in
Section 10 hereof.
9. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 6 and 7, respectively, the
representations and warranties of the Company set forth in Sections 1 hereof
respectively and the covenants of the Company set forth in Section 3 hereof
shall remain operative and in full force and effect, regardless of any
investigation made by, or on behalf of, the Underwriter, the Company, any of its
officers and directors, or any controlling person referred to in Sections 6 and
7, and shall survive the delivery of and payment for the Units. The aforesaid
indemnity and contribution agreements shall also survive any termination or
cancellation of this Agreement. Any successor of any party or of any such
controlling person, or any legal representative of such controlling person as
the case may be, shall be entitled to the benefit of the respective indemnity
and contribution agreements.
10. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to Underwriter
or any of the Underwriter, shall be mailed, delivered or telegraphed and
confirmed, to ▇. ▇. ▇▇▇▇▇▇▇▇ & Company, One Financial Plaza, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Senior
Vice President and Managing Director, with a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.,
Maun & Simon, PLC, ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇; or, if sent to the Company, shall be mailed,
delivered or telegraphed and confirmed, to Hypertension Diagnostics, Inc., ▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq., ▇▇▇▇▇▇▇, Rumble & Butler,
P.A., ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ Towers, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇-▇▇▇▇.
11. INFORMATION FURNISHED BY THE UNDERWRITER. The statements set forth in
the last paragraph on the cover page, the stabilization legend on the inside
front cover and the statements under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the only written
information furnished by, or on behalf of, the Underwriter specifically for use
with reference to the Underwriter referred to in Section 1 and Section 6 hereof.
12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriter and the Company, their respective successors and assigns,
and the officers, directors and controlling persons referred to in Sections 6
and 7. Nothing expressed in this Agreement is
32
intended or shall be construed to give any person or corporation, other than
the parties hereto, their respective successors and assigns, and the
controlling persons, officers and directors referred to in Sections 6 and 7
any legal or equitable right, remedy, or claim under, or in respect of, this
Agreement or any provision herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective executors,
administrators, successors, assigns and such controlling persons, officers
and directors, and for the benefit of no other person or corporation. No
purchaser of any Units from the Underwriter shall be construed a successor or
assign merely by reason of such purchase.
13. TERMINATION OF RIGHT OF FIRST REFUSAL. The parties hereto hereby
acknowledge and confirm termination of the right of first refusal granted by
the Company to the Underwriter by the terms of that certain agency agreement
dated November 24, 1997, as amended.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one Agreement.
If the foregoing is in accordance with the Underwriter's understanding
of this agreement, kindly sign and return to the Company the enclosed
counterpart of this Agreement, whereupon it will become a binding agreement
between the Company and the Underwriter in accordance with its terms.
Very truly yours,
HYPERTENSION DIAGNOSTICS, INC.
By: ___________________________________
Its: ____________________________
"Company"
Confirmed as of the date hereof
at Minneapolis, Minnesota
▇. ▇. ▇▇▇▇▇▇▇▇ & COMPANY
By:__________________________________
Authorized Officer
_____________________________________
(Print Name)
"Underwriter"
33
APPENDIX A
FORM OF COMFORT LETTER OF ERNST & YOUNG LLP
(1) They are independent public accountants with respect to the
Company within the meaning of the Securities Act of 1933, as amended (the "1933
Act").
(2) In their opinion, the financial statements of the Company
included in the Registration Statement which are stated therein to have been
examined by them comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the related published rules and
regulations.
(3) On the basis of specified procedures (but not an audit in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company responsible for financial and accounting matters
as to transactions and events subsequent to the date of the financial statements
included in the Prospectus, a reading of minutes of meetings of the stockholders
and directors of the Company since the date of the financial statements included
in the Prospectus and other procedures as specified in such letter, nothing came
to their attention which caused them to believe that (a) at a specified date not
more than five (5) days prior to the date thereof in the case of the first
letter and not more than two (2) business days prior to the date thereof in the
case of the second and third letters, there was any change in the capital stock,
long-term debt, or short-term debt (other than normal payments) of the Company,
or any material decrease in net current assets or stockholders' equity, as
compared with amounts shown on the latest balance sheet of the Company included
in the Registration Statement; or (b) for the period from the date of such
balance sheet to a date not more than five (5) days prior to the date thereof in
the case of the first letter and not more than two (2) business days prior to
the date thereof in the case of the second letter, there were any material
decreases in working capital, long-term debt or total stockholders' equity,
except for changes or decreases which the Prospectus discloses, have occurred or
may occur, or which are set forth in such letter.
(4) They have carried out specified procedures, which have been
agreed to by the Underwriter, with respect to certain information in the
Prospectus specified by the Underwriter, and on the basis of such procedures,
they have found such information to be in agreement with the accounting records
of the Company or with material derived from such records.
Warrant No.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED
FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT,
OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
________________________, 1998
WARRANT
TO PURCHASE __________ UNITS
OF
HYPERTENSION DIAGNOSTICS, INC.
Each Unit Consisting of One Share
of Common Stock and
One Redeemable Class A Warrant
THIS CERTIFIES THAT, for good and valuable consideration, ▇. ▇. ▇▇▇▇▇▇▇▇ &
Company (the "Underwriter"), or its registered assigns, is entitled to subscribe
for and purchase from Hypertension Diagnostics, Inc., a Minnesota corporation
(the "Company"), at any time after ________, ____, to and including __________,
____, _________________ (________) fully paid and nonassessable Units of the
Company's securities at the price of $_____ per Unit (the "Warrant Exercise
Price"), subject to the antidilution provisions of this Warrant. Reference is
made to this Warrant in the Underwriting Agreement dated _______ 1998, as
amended, by and between the Company and the Underwriter. The Units which may be
acquired upon exercise of this Warrant are referred to herein as the "Warrant
Units." The term "Unit" shall mean one share of the Company's Common Stock,
$.01 par value and one Redeemable Class A Warrant (exercisable at $5.50 per
share). As used herein, the term "Holder" means the Underwriter, any party
who acquires all or a part of this Warrant as a registered transferee of the
Underwriter, or any record holder or holders of the Warrant Units issued upon
exercise, whether in whole or in part, of the Warrant. As used herein, the
term "Common Stock" means and includes the Company's presently authorized
common stock, $.01 par value, and shall also include any capital stock of any
class of the Company hereafter authorized which shall not be limited to a
fixed sum or percentage in respect of the rights of the Holders thereof to
participate in dividends or in the distribution of assets upon the voluntary
or involuntary liquidation, dissolution, or winding up of the Company. The
term "Class A Warrant" shall mean the Company's Warrants exercisable for a
period of four (4) years commencing on the effective date of the Registration
Statement defined in the above-referenced Underwriting Agreement, entitling
the holder thereof to purchase one share of Common Stock at a price of $5.50
per share.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE: TRANSFERABILITY.
A. The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional Unit), by
written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant
along with a check in payment of the Warrant Exercise Price for such Units.
B. Except where directed by a court of competent jurisdiction
pursuant to the dissolution or liquidation of a corporate holder hereof and
subject to Section 7, for one (1) year from the date hereof, title to this
Warrant may be transferred only to a person who is both an officer and
shareholder, or both an officer and employee, or both an employee and
registered representative, of the Underwriter, or to a successor (or both
an officer and shareholder, or both an officer and employee, or both an
employee and registered representative of the successor) in interest to the
business of the Underwriter, by endorsement (by the holder hereof executing
the form of assignment attached hereto) and delivery in the same manner as
in the case of a negotiable instrument transferable by endorsement and
delivery.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Units purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Units (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Underwriter shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section
2. This Warrant shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange or replacement. The Company shall pay
all expenses, taxes (other than stock transfer taxes), and other charges
payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 2.
3. ISSUANCE OF THE WARRANT UNITS.
A. The Company agrees that the Units purchased hereby shall be and
are deemed to be issued to the Holder as of the close of business on the
date on which this Warrant shall have been surrendered and the payment made
for such Warrant Units as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Units so purchased shall be delivered
to the Holder within a reasonable time, not exceeding fifteen (15) days
after the rights represented by this Warrant shall have been so exercised,
and,
2
unless this Warrant has expired, a new Warrant representing the right
to purchase the number of Warrant Units, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the
Holder within such time.
B. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Units upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities
laws. Such Holder shall also provide the Company with written
representations from the Holder and the proposed transferee satisfactory to
the Company regarding the transfer or, at the election of the Company, an
opinion of counsel reasonably satisfactory to the Company to the effect
that the proposed transfer of this Warrant or disposition of Units may be
effected without registration or qualification (under any Federal or State
law) of this Warrant or the Warrant Units. Upon receipt of such written
notice and either such representations or opinion by the Company, such
Holder shall be entitled to transfer this Warrant, or to exercise this
Warrant in accordance with its terms and dispose of the Warrant Units, all
in accordance with the terms of the notice delivered by such Holder to the
Company, provided that an appropriate legend, if any, respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant or the certificates for the Warrant Units. Nothing herein,
however, shall obligate the Company to effect registrations under federal
or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when
the Holder seeks to exercise the Warrant, the Warrant exercise period will
be extended, if need be, to prevent the Warrant from expiring, until such
time as either registrations become effective or exemptions are available,
and the Warrant shall then remain exercisable for a period of at least 30
calendar days from the date the Company delivers to the Holder written
notice of the availability of such registrations or exemptions. The Holder
agrees to execute such documents and make such representations, warranties,
and agreements as may be required solely to comply with the exemptions
relied upon by the Company, or the registrations made, for the issuance of
the Warrant Units.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Units and shares issuable upon exercise of the Class A Warrants will,
upon issuance, be duly authorized and issued, fully paid, nonassessable, and
free from all taxes, liens, and charges with respect to the issue thereof except
for all taxes, liens and changes imposed by the Holder. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant a sufficient number of Units of
Common Stock to provide for the exercise of the rights represented by this
Warrant and the Class A Warrants included therein.
5. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time hereafter
subdivide or combine its outstanding shares of Common Stock, or declare a
dividend payable in Common Stock, or declare a dividend payable in Common Stock,
the exercise price in effect immediately prior to the subdivision, combination
or record date for such dividend payable in Common Stock shall forthwith be
proportionately increased, in the case of combination, or proportionately
decreased, in the case of subdivision or declaration of a dividend payable in
Common Stock, and
3
the number of Units purchasable upon exercise of this Warrant, immediately
preceding such event, shall be changed to the number determined by dividing
the then current exercise dividend payable in Common Stock and against the
number of Units purchasable upon the exercise of this Warrant immediately
preceding such event, so as to achieve an exercise price and number of Units
purchasable after such event proportional to such exercise price and number of
Units purchasable immediately preceding such event. No adjustment in exercise
price shall be required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price; PROVIDED, HOWEVER, that
any adjustments which are not required to be so made shall be carried forward
and taken into account in any subsequent adjustment. All calculations hereunder
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
No fractional Units are to be issued upon the exercise of the Warrant, but
the Company shall pay a cash adjustment in respect of any fraction of a Unit
which would otherwise be issuable in an amount equal to the same fraction of the
market price per share of Unit's on the day of exercise as determined in good
faith by the Company.
In case of any capital reorganization or any reclassification of the shares
of Common Stock of the Company, or in the case of any consolidation with or
merger of the Company into or with another corporation, or the sale of all or
substantially all of its assets to another corporation, which is effected in
such a manner that the holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a part of such reorganization, reclassification, consolidation, merger
or sale, as the case may be, lawful provision shall be made so that the holder
of the Warrant shall have the right thereafter to receive, upon the exercise
hereof, the kind and amount of shares of stock or other securities or property
which the holder would have been entitled to receive if, immediately prior to
such reorganization, reclassification, consolidation, merger or sale, the holder
had held the number of Units which were then purchasable upon the exercise of
the Warrant. In any such case, appropriate adjustment (as determined in good
faith by the Board of Directors of the Company) shall be made in the application
of the provisions set forth herein with respect to the rights and interest
thereafter of the holder of the Warrant, to the end that the provisions set
forth herein (including provisions with respect to adjustments of the exercise
price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
A. Prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new exercise price; and
B. Cause a copy of such statement to be mailed to the holder of the
Warrant as of a date within ten (10) days after the date when the
circumstances giving rise to the adjustment occurred.
4
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT UNITS.
A. Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give written notice to the Company before transferring
this Warrant or transferring any Warrant Units of such Holder's intention
to do so, describing briefly the manner of any proposed transfer. Promptly
upon receiving such written notice, the Company shall present copies
thereof to the Company's counsel and to counsel to the original purchaser
of this Warrant. If in the opinion of each such counsel the proposed
transfer may be effected without registration or qualification (under any
federal or state securities laws), the Company, as promptly as practicable,
shall notify the Holder of such opinion, whereupon the Holder shall be
entitled to transfer this Warrant or to dispose of Warrant Units received
upon the previous exercise of this Warrant, all in accordance with the
terms of the notice delivered by the Holder to the Company; provided that
an appropriate legend may be endorsed on this Warrant or the certificates
for such Warrant Units respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel to the Company and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and make
such representations, warranties, and agreements as may be required solely
to comply with the exemptions relied upon by the Company for the transfer
or disposition of the Warrant or Warrant Units.
B. If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such
Warrant Units described in the written notice given pursuant to this
Section 7 may not be effected without registration or qualification of this
Warrant or such Warrant Units the Company shall promptly give written
notice thereof to the Holder, and the Holder will limit its activities in
respect to such as, in the opinion of both such counsel, are permitted by
law.
8. FRACTIONAL UNITS. Fractional Units shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional Unit, the Company shall, upon the exercise of this Warrant for the
largest number of whole Units then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Fair Market Value (as defined in Section
10(d)) of such fractional Unit over the proportional part of the Warrant
Exercise Price represented by such fractional Unit, plus (b) the proportional
part of the Warrant Exercise Price represented by such fractional Unit.
9. REGISTRATION RIGHTS.
A. If at any time prior to the expiration of seven (7) years from
the date hereof, the Company proposes to file any Registration Statement
under the 1933 Act covering a public offering of any of the Company's
securities (except by a Form S-4 or Form S-8
5
Registration Statement or any successor forms thereto), it will give
written notice to all Holders of this Warrant, any Warrants issued pursuant
to Section 2 and/or Section 3(a) hereof, and any securities issuable upon
exercise of this Warrant or the Class A Warrants of its intention to do so
and, on the written request of any such Holder given within twenty (20)
days after receipt of any such notice (which request shall specify the
interest in this Warrant or the securities issuable upon exercise of this
Warrant or the Class A Warrants intended to be sold or disposed of by such
Holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such
securities, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement
proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying
any registration. If any registration pursuant to this Section 9(a) is
underwritten in whole or in part, the Company may require that the
securities requested for inclusion pursuant to this Section 9(a) be
included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If a greater
number of securities is offered for participation in the proposed offering
than in the reasonable opinion of the managing underwriter of the proposed
offering can be accommodated without adversely affecting the proposed
offering, then the amount of securities proposed to be offered by such
Holders for registration, as well as the number of securities of any other
selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
B. Further, at any time prior to the expiration of this Warrant, and
provided that a registration statement on Form S-3 (or any successor form
thereto) is then available to the Company, and on a one-time basis only,
upon request by the Holder or Holders of a majority in interest of any
securities originally issuable under this or any warrant issued to the
Underwriter or any affiliate in connection with the sale of shares pursuant
to the Underwriter Agreement Underwriter (whether or not then issued) and
any Warrants issued pursuant to Section 2 and/or Section 3(a) hereof, the
Company will promptly take all necessary steps to register or qualify,
under the 1933 Act and the securities laws of such states as the Holders
may reasonably request, such number of securities issued and to be issued
upon conversion of the Warrants requested by such Holders in their request
to the Company. In addition, upon the receipt of such request, the Company
shall promptly give written notice to all other record Holders of the
securities not theretofore registered under the Securities Act and sold
that such registration is to be effected. The Company shall include in
such registration statement such securities for which it has received
written requests to register by such other record Holders within 30 days
after the delivery of the Company's written notice to such other record
Holders. The Company shall be obligated to prepare, file and cause to
become effective only one registration statement pursuant to this Section
9(b) and to pay the costs and expenses associated with such registration
statement to the extent provided in Section 9(c). The Company shall keep
effective and maintain any registration, qualification, notification, or
approval specified in this Paragraph (b) for a period of one hundred twenty
(120) days or the date on which all securities are sold, whichever is
earlier.
6
C. With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following
fees, costs, and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company is required to bear such
fees and disbursements), all internal expenses, the premiums and other
costs of policies of insurance for the benefit of the Company and/or its
directors and officers against liability arising out of the public
offering, and legal fees and disbursements and other expenses of complying
with state securities laws of any jurisdictions in which the securities to
be offered are to be registered or qualified. Fees and disbursements of
special counsel and accountants for the selling Holders, underwriting
discounts and commissions, and transfer taxes for selling Holders shall be
borne by the selling Holders.
D. The Company hereby indemnifies each of the Holders of this
Warrant and of any securities issued upon exercise thereof or the Class A
Warrant, and the officers and directors, if any, who control such Holders,
within the meaning of Section 15 of the 1933 Act, against all losses,
claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company
shall have furnished any amendments thereof or supplements thereto), any
Preliminary Prospectus or any state securities law filings; (2) any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages, or liabilities
are caused by any untrue statement or omission contained in information
furnished in writing to the Company by such Holder expressly for use
therein; and each such Holder by its acceptance hereof severally agrees
that it will indemnify and hold harmless the Company, each of its officers
who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act,
with respect to losses, claims, damages, or liabilities which are caused by
any untrue statement or alleged untrue statement, omission or alleged
omission contained in information furnished in writing to the Company by
such Holder expressly for use therein.
10. ADDITIONAL RIGHT TO CONVERT WARRANT.
A. The Holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time after
it is exercisable, but prior to its expiration, into Units as provided for
in this Section 10. Upon exercise of the Conversion Right, the Company
shall deliver to the Holder (without payment by the Holder of any exercise
price) that number of shares of Company Common Stock equal to the quotient
obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate
exercise price for the Warrant in effect immediately prior to the exercise
of the Conversion Right from the aggregate Fair Market Value (as determined
below) for the Warrant immediately prior to the exercise of the Conversion
Right) by (y) the Fair Market Value of one share of Company Common Stock
immediately prior to the exercise of the Conversion Right. No fractional
shares shall be issuable upon exercise of the Conversion Right, and if the
number of shares to be issued in accordance with the foregoing formula is
other than a whole
7
number, the Company shall pay to the holder of this Warrant an amount in
cash equal to the fair market value of the resulting fractional share.
B. The Conversion Right may be exercised by the Holder, at any time
or from time to time after this Warrant is exercisable, prior to its
expiration, on any business day by delivering a written notice in the form
attached hereto (the "Conversion Notice") to the Company at the offices of
the Company exercising the Conversion Right and specifying (i) the total
number of shares of Common Stock the Holder will purchase pursuant to such
conversion and (ii) a place and date not less than one or more than 20
business days from the date of the Conversion Notice for the closing of
such purchase.
C. At any closing under Section 10(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common
Stock issuable upon such conversion, together with cash, in lieu of any
fraction of a share, and (iii) the Company will deliver to the Holder a new
Warrant representing the number of shares, if any, with respect to which
the Warrant shall not have been converted.
D. Fair Market Value of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or is
quoted on the Nasdaq National Market System, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date,
(ii) If the Company's Common Stock is not traded on an exchange or on
the Nasdaq National Market System but is traded on the Nasdaq SmallCap
Market or other over-the-counter market, then the average closing bid and
asked prices reported for the ten (10) business days immediately preceding
the Determination Date, and
(iii) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market, Nasdaq SmallCap Market or other
over-the-counter market, then the price established in good faith by the
Company's Board of Directors.
11. MISCELLANEOUS. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the term "Common Stock" shall include any stock of
any class of the Company other than preferred stock with a fixed limit on
dividends and a fixed amount payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets, or
by any other voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, but will, at all times in good faith,
assist, insofar as it is able, in the carrying out of all provisions hereof and
in the taking of all
8
other action which may be necessary in order to protect the rights of the
Holder hereof against dilution.
The Company agrees to provide Underwriter with detailed quarterly and
annual financial statements as soon as available, in a form reasonably
satisfactory to Underwriter, as well as any other documents as Underwriter or
its counsel may reasonably request in a form satisfactory to Underwriter, so
long as this Warrant or any Warrant Units are outstanding and unregistered.
Upon written request of the Holder of this Warrant, the Company will
promptly provide such Holder with a then current written list of the names and
addresses of all Holders of warrants originally issued under the terms of, and
concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include the
immediate holder of shares purchased on the exercise of this Warrant, and the
word "holder" shall include the plural thereof. This Common Stock Purchase
Warrant shall be interpreted under the laws of the State of Minnesota.
All shares of Common Stock or other securities issued upon the exercise of
the Warrant shall be validly issued, fully paid and non-assessable, and the
Company will pay all taxes due and payable by the issuer in respect of the
issuance thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a Shareholder of the Company for any purpose
whatsoever until and unless this Warrant is duly exercised.
Neither this Warrant nor any term hereof may be changed, waived, discharged
or terminated orally but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
IN WITNESS WHEREOF, Hypertension Diagnostics, Inc. has caused this Warrant
to be signed by its duly authorized officer and this Warrant to be dated
___________________, 1998.
"Company"
HYPERTENSION DIAGNOSTICS, INC.
By______________________________________
Its_____________________________________
9
TO: HYPERTENSION DIAGNOSTICS, INC.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, __________________ of the Units issuable upon the exercise of
such Warrant, and requests that certificates for such Units (together with a new
Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
________________________________________
(Print Name)
Please insert social security
or other identifying number
of registered Holder of
certificate (_____________) Address:
________________________________________
________________________________________
Date: ____________ ________________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
10
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _______________________________ the right to purchase the securities of
Hypertension Diagnostics, Inc. to which the within Warrant relates and appoints
______________________, attorney, to transfer said right on the books of
Hypertension Diagnostics, Inc. with full power of substitution in the premises.
Dated:___________ ______________________________
(Signature)
Address:
______________________________
______________________________
11
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
TO: HYPERTENSION DIAGNOSTICS, INC.
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _______________ shares of Common Stock, as provided for in Section
10 therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name__________________________
(Please print name)
Address____________________________________
Social Security No.________________
Signature__________________________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares is not all of the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder rounded up to the
next higher number of shares.
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