MEDICALCV, INC.
1,500,000 UNITS(1)
CONSISTING OF 1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
_____________, 2001
Equity Securities Investments, Inc.
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Ladies/Gentlemen:
MedicalCV, Inc., a Minnesota corporation (the "Company"), hereby confirms
its agreement to issue and sell to Equity Securities Investments, Inc. (the
"Underwriter") an aggregate of 1,500,000 units (the "Units"), each Unit
consisting of one share of the Company's common stock, $0.01 par value per share
("Common Stock"), and one redeemable Class A Common Stock purchase warrant of
the Company (the "Redeemable Warrants"). (Such 1,500,000 Units are collectively
referred to in this Agreement as the "Firm Units.") The Company also hereby
confirms its agreement to grant to the Underwriter an option to purchase up to
225,000 additional Units (the "Option Units") on the terms and for the purposes
set forth in Section 2(b) hereof. (As used in this Agreement, the term "Units"
shall consist of the Firm Units and the Option Units.) The Company also hereby
confirms its agreement to issue to the Underwriter warrants for the purchase of
a total of 150,000 Units as described in Section 6 hereof (the "Underwriter's
Warrants"), assuming the purchase by the Underwriter of the Firm Units. The
Units issuable upon exercise of the Underwriter's Warrants are referred to in
this Agreement as the "Warrant Units."
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees with the
Underwriter as follows:
(i) A registration statement on Form SB-2 (File No. 333-68884)
with respect to the Units, including a prospectus subject to
completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC")
promulgated thereunder and has been filed with the SEC under the
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(1) Plus an option to purchase up to 225,000 additional Units to cover
over-allotments.
Securities Act; one or more amendments to such registration
statement have also been so prepared and have been, or will be, so
filed. Copies of the registration statement and amendments and each
related preliminary prospectus to date have been delivered by the
Company to the Underwriter, and, to the extent applicable, were
identical to the electronically transmitted copies thereof filed
with the SEC pursuant to the SEC's Electronic Data Gathering
Analysis and Retrieval System ("▇▇▇▇▇"), except to the extent
permitted by Regulation S-T under the Securities Act. If the Company
has elected not to rely upon Rule 430A of the Rules and Regulations,
the Company has prepared and will promptly file an amendment to the
registration statement and an amended prospectus. If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, it will
prepare and file a prospectus pursuant to Rule 424(b) that discloses
the information previously omitted from the prospectus in reliance
upon Rule 430A. Such registration statement as amended at the time
it is or was declared effective by the SEC, including the
information deemed to be part of the registration statement at the
time of effectiveness pursuant to Rule 430A(b), if applicable, is
hereinafter called the "Registration Statement," and if any
amendment thereto shall be filed after the "Effective Date" (as
hereinafter defined) and before the "First Closing Date" (as
hereinafter defined), the term "Registration Statement" shall refer
to the registration statement as so amended (but only from and after
the effectiveness of such amendment). The prospectus included in the
Registration Statement at the time it is or was declared effective
by the SEC is hereinafter called the "Prospectus," except that if
any prospectus filed by the Company with the SEC pursuant to Rule
424(b) of the Rules and Regulations or any other prospectus provided
to the Underwriter by the Company for use in connection with the
offering of the Units (whether or not required to be filed by the
Company with the SEC pursuant to Rule 424(b) of the Rules and
Regulations) differs from the prospectus on file at the time the
Registration Statement is or was declared effective by the SEC, the
term "Prospectus" shall refer to such differing prospectus from and
after the time such prospectus is filed with the SEC or transmitted
to the SEC for filing pursuant to such Rule 424(b) or from and after
the time it is first provided to the Underwriter by the Company for
such use. The term "Preliminary Prospectus" as used herein means any
preliminary prospectus included in the Registration Statement prior
to the time it becomes or became effective under the Securities Act
and any prospectus subject to completion as described in Rule 430A
of the Rules and Regulations. As used herein, the term "Effective
Date" shall mean each date and time that the Registration Statement,
any post-effective amendment or amendments thereto and any Rule
462(b) Registration Statement became or becomes effective. For
purposes of this Agreement, all references to the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement to any of the foregoing shall be deemed to
include the respective copies thereof filed with the SEC pursuant to
▇▇▇▇▇.
(ii) At the time the Registration Statement is or was declared
effective by the SEC and at all times subsequent thereto up to the
"First Closing Date" and
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the "Second Closing Date" (as such terms are hereinafter defined),
the Registration Statement and Prospectus, and all amendments
thereof and supplements thereto, will comply or complied with the
provisions and requirements of the Securities Act and the Rules and
Regulations. Neither the SEC nor any state securities authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus or requiring the recirculation of a Preliminary
Prospectus, or issued a stop order with respect to the offering of
the Units (if the Registration Statement has been declared
effective), or instituted or, to the Company's knowledge, threatened
the institution of, proceedings for any of such purposes. When the
Registration Statement shall become effective and when any
post-effective amendment thereto shall become effective, the
Registration Statement (as amended, if the Company shall have filed
with the SEC any post-effective amendments thereto) will not or did
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 in which they
were made, not misleading. When the Registration Statement is or was
declared effective by the SEC and at all times subsequent thereto up
to the First Closing Date and the Second Closing Date, the
Prospectus (as amended or supplemented, if the Company shall have
filed with the SEC any amendment thereof or supplement thereto) will
not or did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading. When any
Preliminary Prospectus was first filed with the SEC and when any
amendment thereof or supplement thereto was first filed with the
SEC, such Preliminary Prospectus and any amendment thereof and
supplement thereto complied in all material respects with the
applicable provisions of the Securities Act and the Rules and
Regulations and did not contain an untrue statement of a material
fact and did not omit to state any material fact required to be
stated therein or necessary in order to make the statements therein
not misleading. None of the representations and warranties in this
Subsection 1(a)(ii) shall apply to statements in, or omissions from,
the Registration Statement or the Prospectus, or any amendment
thereof or supplement thereto, which are based upon and conform to
written information relating to the Underwriter 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.
(iii) The Company has no subsidiaries other than those
identified in Exhibit 21 to the Registration Statement (each one a
"Subsidiary" and collectively the "Subsidiaries") and is not
affiliated with any other company or business entity, except as
disclosed in the Prospectus. The Company and each Subsidiary has
been duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other)
to own, lease and operate its properties and conduct its business as
described in the Registration Statement and Prospectus; the Company
owns all of the outstanding capital stock of each of the
Subsidiaries
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free and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; the Company and each Subsidiary is duly
qualified to do business as a foreign corporation and is 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 condition
(financial or otherwise), earnings, operations or business of the
Company; and no proceeding has been instituted in any such
jurisdiction revoking, limiting or curtailing, or seeking to revoke,
limit or curtail, such power and authority or qualification.
(iv) The Company and each Subsidiary has operated and is
operating in material compliance with all authorizations, licenses,
certificates, permits, consents, approvals and orders of and from
all United States state, federal, foreign, and all other
governmental regulatory officials and bodies, including the United
States Food and Drug Administration (the "FDA") and any agency of
any United States state or foreign government exercising comparable
authority (including any non-governmental entity whose approval or
authorization is required under foreign law comparable to that
administered by the FDA) in a jurisdiction where the Company's
products are sold (collectively, "Permits"), which are necessary to
own its properties and/or to conduct its business as described in
the Registration Statement and Prospectus and in the manner and to
the extent now conducted, with no material restrictions or
qualifications, and such Permits are valid and in full force and
effect; the Company and each Subsidiary is conducting its business
in substantial compliance with the Permits and with all applicable
laws, rules and regulations of the jurisdictions in which it is
conducting business; and neither the Company nor any Subsidiary is
in material violation of any applicable law, order, rule,
regulation, writ, injunction, judgment or decree of any court,
government or governmental agency or body, domestic or foreign,
having jurisdiction over the Company or any Subsidiary or over their
respective properties. No proceeding has been instituted or is
pending or, to the best knowledge of the Company, is contemplated or
threatened which in any manner affects or draws into question the
validity or effectiveness of the Permits; the Company is not in
violation of any statutes, orders, standards, rules or regulations
relating to or affecting the properties or Permits of the Company or
the operation of the Company's business in the manner and to the
extent now conducted and is not in violation of any Permit; and the
Company has not received, and it does not have knowledge of any
facts that furnish any reasonable basis for, any Notice of Adverse
Findings, Regulatory Letters, Section 305 notices, or other similar
communications, alerts or seizures requested or threatened relating
to the Company's products. On July 26, 2001, the Company received
from the FDA premarket approval of its Omnicarbon Cardiac Valve
Prothesis, and such premarket approval has not been modified,
changed, amended or withdrawn. Except to the extent disclosed in the
Registration Statement or the Prospectus, any clinical, pre-clinical
and other studies and tests conducted by and on behalf of or
sponsored by the Company were and, if still pending are, being
conducted in accordance with standard
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medical and scientific research procedures. The descriptions of the
results of such studies and tests are accurate and complete in all
material respects and fairly present the published data derived from
such studies and tests, and the Company has no knowledge of any
other studies or tests the results of which are inconsistent with or
otherwise call into question the results described or referred to in
the Prospectus. Except to the extent disclosed in the Registration
Statement and the Prospectus, the Company has not received any
notices or other correspondence from the FDA or any other
governmental agency with respect to any ongoing clinical or
pre-clinical studies or tests that are described in the Prospectus
or the results of which are referred to the Prospectus requiring the
termination, suspension or modification of such studies or tests.
Except as set forth in the Registration Statement and Prospectus,
(A) the Company is in material compliance with all material rules,
laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the
environment (the "Environmental Laws") which are applicable to its
business, (B) the Company has received no notice from any
governmental authority or third party of an asserted claim under
Environmental Laws, which claim is required to be disclosed in the
Registration Statement and the Prospectus, (C) the Company has not
been required to make any material capital expenditures to comply
with Environmental Laws, and (D) no property which is owned, leased
or occupied by the Company has been designated as a Superfund site
pursuant to the Comprehensive Response, Compensation and Liability
Act of 1980, as amended (42 U.S.C. Section 9601, ET SEQ.), or
otherwise designated as a contaminated site under applicable state
or local law.
(v) Neither the Company nor any Subsidiary is in violation of
its respective articles of incorporation or bylaws or 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, lease, indenture,
mortgage, loan agreement, joint venture or other agreement or
instrument to which it is a party or by which it or its respective
properties are bound, which default is material to the business of
the Company and its Subsidiaries taken as a whole.
(vi) The Company has full requisite power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has been duly authorized, executed and
delivered by the Company and is a valid and binding agreement on the
part of the Company, enforceable against the Company in accordance
with its terms, except as enforceability may be limited by the
application of bankruptcy, insolvency, reorganization, moratorium or
other 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 law or the public
policies underlying such law. The performance of this Agreement and
the consummation of the transactions herein contemplated will not
result in a material breach or violation of any of the terms and
provisions of, or constitute a material default under, (A) any
indenture, mortgage, deed of
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trust, loan agreement, bond, debenture, note, agreement or other
evidence of indebtedness, any lease, contract, joint venture or
other agreement or instrument to which the Company or any Subsidiary
is a party or by which the Company or any Subsidiary or their
respective properties may be bound, (B) the respective articles of
incorporation or bylaws of the Company or any Subsidiary, or (C) any
material applicable law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental agency
or body, domestic or foreign, having jurisdiction over the Company
or any Subsidiary or over their respective properties. No consent,
approval, authorization or order of or qualification with any court,
governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or over their
respective properties is required for the execution and delivery of
this Agreement and the consummation by the Company of the
transactions herein contemplated, except such as may be required
under the Securities Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or under state or other securities or
Blue Sky laws.
(vii) Except as is otherwise expressly described in the
Registration Statement or Prospectus, there is neither pending nor,
to the best of the Company's knowledge, threatened, any action,
suit, claim or proceeding against the Company, any Subsidiary, or
any of their respective officers or any of their respective
properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having
jurisdiction over the Company or any Subsidiary or over their
respective officers or properties or otherwise which (i) might
result in any material adverse change in the condition (financial or
otherwise), earnings, operations or business of the Company and its
Subsidiaries taken as a whole or might materially and adversely
affect their properties, assets or rights, or (ii) might prevent
consummation of the transactions contemplated hereby.
(viii) The Company has, and at the First Closing Date and
Second Closing Date (collectively, the "Closing Dates") will have,
the duly authorized and outstanding capitalization as set forth in
the Prospectus. All outstanding shares of capital stock of the
Company are duly authorized and validly issued, fully paid and
non-assessable, have been issued in compliance with all federal and
state securities laws, were not issued in violation of or subject to
any preemptive rights or other rights to subscribe for or purchase
securities, and the authorized and outstanding capital stock of the
Company conforms in all material respects with the statements
relating thereto contained in the Registration Statement and the
Prospectus; the shares of Common Stock included in the Units to be
sold hereunder by the Company and the shares of Common Stock
issuable upon exercise of the Redeemable Warrants have been duly
authorized for issuance and sale to the Underwriter pursuant to this
Agreement and, when issued and delivered by the Company against
payment therefor in accordance with the terms of this Agreement,
will be duly and validly issued and fully paid and non-assessable
and will be sold free and clear of any pledge, lien, security
interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right,
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registration right, right of first refusal or other similar right of
shareholders exists with respect to the issuance and sale of the
Units, or with respect to any of the shares of Common Stock included
in the Units to be sold hereunder by the Company or the shares of
Common Stock issuable upon exercise of the Redeemable Warrants, or
the issuance and sale or exercise of the Redeemable Warrants, or the
issuance and sale or exercise of the Underwriter's Warrants and the
shares of Common Stock and Redeemable Warrants included in the
Warrant Units, or the issuance of the shares of Common Stock
issuable upon exercise of the Redeemable Warrants included in the
Warrant Units, other than those to be held by the Underwriter and
those that have been expressly waived prior to the date hereof.
Except as disclosed in the Prospectus, the Company has no
outstanding options to purchase, or any preemptive rights or other
rights to subscribe for or to purchase, any securities or
obligations convertible into, or any contracts or commitments to
issue or sell, shares of its capital stock or any such options,
rights, convertible securities or obligations. The certificates
evidencing the shares of Common Stock and the Redeemable Warrants
comply as to form with all applicable provisions of the laws of the
State of Minnesota.
(ix) The Redeemable Warrants included in the Units to be sold
by the Company have been duly and validly authorized and, when
authenticated by Registrar and Transfer Company (the "Warrant
Agent") and issued, delivered and sold in accordance with this
Agreement and the Warrant Agreement dated as of the date hereof
between the Company and the Warrant Agent, will have been duly and
validly executed, authenticated, issued and delivered and will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as
enforceability may be limited by the application of bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by judicial
limitations on the right of specific performance. A sufficient
number of shares of Common Stock of the Company has been reserved
for issuance by the Company upon exercise of the Redeemable
Warrants.
(x) The Underwriter's Warrants and the shares of Common Stock
and Redeemable Warrants included in the Warrant Units have been duly
authorized. The Underwriter's 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,
reorganization, moratorium or other similar laws affecting the
rights of creditors generally and by judicial limitations on the
right of specific performance and except insofar as the
indemnification provisions thereof may be limited by applicable law
and the policies underlying such law. The shares of Common Stock
included in the Warrant Units, when issued and delivered upon such
exercise, will be validly issued, fully paid and non-assessable and
subject to no preemptive rights or similar rights on the part of any
person or entity. The Redeemable Warrants included in the Warrant
Units, when issued, delivered and sold in accordance with this
Agreement and the Underwriter's Warrants, will have been duly and
validly executed, authenticated, issued and delivered and will
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constitute valid and binding obligations of the Company, enforceable
by the Company in accordance with their terms, except as
enforceability may be limited by the application of bankruptcy,
insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by judicial
limitations on the right of specific performance. The shares of
Common Stock issuable upon exercise of the Redeemable Warrants
included in the Warrant Units have been duly authorized and, when
issued and delivered upon such exercise, will be validly issued,
fully paid and nonassessable and subject to no preemptive rights or
similar rights on the part of any person or entity. A sufficient
number of shares of Common Stock of the Company has been reserved
for issuance by the Company upon exercise of the Underwriter's
Warrants and the Redeemable Warrants included in the Warrant Units.
(xi) PricewaterhouseCoopers LLP, which has expressed its
opinion with respect to the financial statements covered by their
report, which financial statements and report are filed as part of
the Registration Statement and included in the Registration
Statement and Prospectus, are independent accountants within the
meaning of the Securities Act and the Rules and Regulations. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ Ltd., which has expressed its opinion with
respect to the financial statements covered by their report, which
financial statements and report are filed as part of the
Registration Statement and included in the Registration Statement
and Prospectus, are independent accountants within the meaning of
the Securities Act and the Rules and Regulations. The financial
statements of the Company set forth in the Registration Statement
and Prospectus comply in all material respects with the requirements
of the Securities Act and fairly present the financial position and
the results of operations of the Company and the Subsidiaries at the
respective dates and for the respective periods to which they apply
in accordance with generally accepted accounting principles
consistently applied throughout the periods involved (subject, in
the case of unaudited financial statements, to normal year-end
adjustments which in the opinion of management of the Company are
not material, and except as otherwise stated therein); and the
supporting schedules included in the Registration Statement present
fairly the information required to be stated therein. The selected
and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein
and have been compiled on a basis consistent with the audited
financial statements presented therein. No other financial
statements or schedules are required by the Securities Act or the
Rules and Regulations to be included in the Registration Statement.
(xii) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus,
and at each Closing Date, except as is otherwise disclosed in the
Registration Statement or Prospectus, there has not been: (A) any
change in the capital stock or long-term debt (including any
capitalized lease obligation) or material increase in the short-term
debt of the Company or any Subsidiary (other than issuances of
Common Stock upon the exercise of options outstanding as of the
Effective Date and options granted under the Company's 1992 Stock
Option Plan, 1993 Director Stock Option Plan, 1997
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Stock Option Plan, and 2001 Equity Incentive Plan (collectively, the
"Stock Plans")); (B) any issuance of options, warrants, convertible
securities or other rights to purchase the capital stock of the
Company (other than options granted under the Stock Plans); (C) any
material adverse change, or any development involving a material
adverse change, in or affecting the condition (financial or
otherwise), earnings, operations, business, or business prospects,
management, financial position, stockholders' equity, results of
operations or general condition of the Company; (D) any transaction
entered into by the Company or any Subsidiary that is material to
the Company; (E) any obligation, direct or contingent, incurred by
the Company or any Subsidiary, except obligations incurred in the
ordinary course of business that, in the aggregate, are not
material; (F) any dividend or distribution of any kind declared,
paid or made on the capital stock of the Company; or (G) any loss or
damage (whether or not insured) to the property of the Company or
any Subsidiary which has been sustained which has a material adverse
effect on the condition (financial or otherwise), earnings,
operations or business of the Company or a Subsidiary.
(xiii) Except as is otherwise expressly disclosed in the
Registration Statement or Prospectus, (A) the Company and each
Subsidiary has good and marketable title to all of the property,
real and personal, and assets described in the Registration
Statement or Prospectus as being owned by it, free and clear of any
and all pledges, liens, security interests, encumbrances, equities,
charges or claims, other than such as would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company, (B) the agreements to which
the Company or any Subsidiary is a party described in the
Registration Statement and Prospectus are valid agreements,
enforceable by the Company or the Subsidiary (as applicable), except
as the enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by judicial
limitations on the right of specific performance, and (C) each of
the Company and the Subsidiaries has valid and enforceable leases
for all properties described in the Registration Statement and
Prospectus as leased by it, except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by judicial limitations on the right of specific
performance. Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as are
necessary to its operations as now conducted.
(xiv) The Company and each Subsidiary has timely filed (or has
timely requested an extension of time to file) all necessary federal
and state income and franchise tax returns and has paid all taxes
shown thereon as due; there is no tax deficiency that has been or,
to the best of the Company's knowledge, could be asserted against
the Company or any Subsidiary that might have a material adverse
effect on the condition (financial or otherwise), earnings,
operations, business or properties of the Company or a Subsidiary;
and all tax liabilities are adequately provided for in the books of
the Company and each Subsidiary.
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(xv) No labor disturbance by the employees of the Company or
any Subsidiary exists or, to the best of the Company's knowledge, is
imminent. No collective bargaining agreement exists with any of the
employees of the Company or any Subsidiary and, to the best of the
Company's knowledge, no such agreement is imminent.
(xvi) The Company and each Subsidiary owns, or possesses
adequate rights to use, all patents, patent rights, inventions,
trade secrets, know-how, technology, service marks, trade names,
copyrights, trademarks and proprietary rights or information which
are necessary for the conduct of its present or intended business as
described in the Registration Statement or Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks,
service marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company or any of its Subsidiaries,
taken as a whole; and the Company has not received any notice of,
and has no knowledge of, any infringement of or conflict with the
asserted rights of others with respect to any patent, patent rights,
inventions, trade secrets, know-how, technology, trademarks, service
marks, trade names or copyrights which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding, might
have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company or any Subsidiary. Except as disclosed in the
Registration Statement or Prospectus, 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, patent rights, inventions, trade secrets,
know-how, technology, service marks, trade names, trademark,
copyright or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(xvii) The Units have been approved for quotation on
The Nasdaq SmallCap Market.
(xviii) 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.
(xix) 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, shareholders 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
Exchange Act or otherwise, of the price of any security of the
Company to facilitate the sale or resale of the Units. The Company
has not distributed and will not distribute prior to the later of
(A) the First Closing Date or the Second Closing Date, as the case
may be, and (B) completion of the distribution of the Units, any
offering material in connection with the offering and sale of the
Units other than any Preliminary Prospectus, the Prospectus, the
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Registration Statement and other materials, if any, permitted by the
Securities Act. Except as is otherwise disclosed in the Registration
Statement or Prospectus, and 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" or
otherwise in connection with the transactions contemplated by this
Agreement.
(xx) The Company and each Subsidiary maintains insurance,
which is in full force and effect, with insurers of recognized
financial responsibility of the types and in the amounts generally
deemed adequate for their respective businesses and, to the best of
the Company's knowledge, consistent with the insurance maintained by
similar companies and businesses; and neither the Company nor any
Subsidiary has any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage
expires or to obtain similar coverage from similar insurers as may
be necessary to continue its business at a cost that would not
materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business prospects of
the Company.
(xxi) The Company has provided to counsel for the Underwriter
("Underwriter's Counsel") a complete and accurate list of all
holders of any shares of Common Stock and any options, warrants and
other rights to purchase any shares of Common stock or any
securities convertible into or exchangeable or exercisable for
shares of Common Stock (collectively, "Securities") and the number
and type of Securities held by each holder of Securities.
(xxii) Neither the Company nor any Subsidiary has at any time
during the last five (5) years (or, if formed during the last five
years, since its inception) made any unlawful contribution to any
candidate for an office or failed to disclose fully any contribution
in violation of law, or made any payment to any federal or state
governmental officer or official, domestic or foreign, or other
person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States
or any jurisdiction thereof. The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that transactions are executed in accordance with
management's general or specific authorizations, transactions are
recorded as necessary to permit preparation of financial statements
in conformity with generally accepted accounting principles and to
maintain accountability for assets, access to assets is permitted
only in accordance with management's general or specific
authorization, and the recorded accountability for assets is
compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(xxiii) Neither the Company nor any of its affiliates is
presently doing business with the government of Cuba or with any
person or affiliate located in Cuba.
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(b) Any certificate signed by any officer of the Company and
delivered to you or to Underwriter's Counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, the Firm Units at a purchase price of
$4.05 per Unit. The Underwriter will purchase all of the Firm Units if any
are purchased. The Firm Units will be delivered by the Company to the
Underwriter for the account of the Underwriter against payment of the
purchase price therefor by wire transfer or other same-day funds payable
to the order of the Company at the offices of Equity Securities
Investments, Inc., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or at such other place as may be agreed upon by the
Underwriter and the Company), at 9:00 a.m., Minneapolis, Minnesota time,
on (i) the third (3rd) full business day following the date hereof if the
Registration Statement is declared effective before 3:30 p.m.,
Minneapolis, Minnesota time on the date hereof, (ii) the fourth (4th) full
business day following the date hereof if the Registration Statement is
declared effective after 3:30 p.m., Minneapolis, Minnesota time on the
date hereof, or (iii) such other time and date as the Underwriter and the
Company may determine, such time and date of payment and delivery being
herein called the "First Closing Date." Delivery of the Firm Units will be
made by credit to "full fast" transfer to the account or accounts at The
Depository Trust Company designated by the Underwriter.
(b) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set
forth, the Company hereby grants an option to the Underwriter to purchase
an aggregate of up to 225,000 Option 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 by the Underwriter at any time (but not
more than once), in whole or in part, during the period of forty-five (45)
days after the date of this Agreement by giving written notice to the
Company and the Company's counsel, which notice shall set forth the
aggregate number of Option Units as to which the Underwriter is exercising
the option, the names and denominations in which the Option Units are to
be registered, and the date and time, as determined by the Underwriter and
the Company, when the Option Units are to be delivered, such time and date
being herein referred to as the "Second Closing Date;" provided, however,
that the Second Closing Date shall not be earlier than the First Closing
Date nor earlier than the second business day after the date on which the
option shall have been exercised. No Option Units shall be sold and
delivered unless the Firm Units previously have been, or simultaneously
are, sold and delivered. The Option Units will be delivered by the Company
to the Underwriter for the account of the Underwriter against payment of
the purchase price therefor by wire transfer or other same-day funds
payable to the order of the Company at the offices of Equity Securities
Investments, Inc. ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ (or at such other place as may be agreed upon by the
Underwriter and the Company) at 9:00 a.m., Minneapolis, Minnesota time, on
the Second
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Closing Date. Delivery of the Option Units will be made by credit to "full
fast" transfer to the account or accounts at The Depository Trust Company
designated by the Underwriter.
3. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees with
the Underwriter as follows:
(a) If the Registration Statement has not already been declared
effective by the SEC, the Company will use its best efforts to cause the
Registration Statement and any post-effective amendments thereto to become
effective as promptly as possible; the Company will notify the Underwriter
promptly of the time when the Registration Statement or any post-effective
amendment to the Registration Statement has become effective or any
supplement to the Prospectus has been filed and of any request by the SEC
for any amendment or supplement to the Registration Statement or
Prospectus or additional information; if the Company has elected to rely
on Rule 430A of the Rules and Regulations, the Company will file a
Prospectus containing the information omitted therefrom pursuant to such
Rule 430A with the SEC within the time period required by, and otherwise
in accordance with the provisions of, Rules 424(b) and 430A of the Rules
and Regulations; the Company will prepare and file with the SEC, promptly
upon your request, any amendments or supplements to the Registration
Statement or Prospectus that, in the opinion of the Company and the
Underwriter, may be necessary or advisable in connection with the
distribution of the Units by the Underwriter; and the Company will not
file any amendment or supplement to the Registration Statement or
Prospectus to which the Underwriter shall reasonably object by notice to
the Company after having been furnished a copy a reasonable time prior to
the filing.
(b) The Company will advise the Underwriter promptly after it shall
receive notice or obtain knowledge thereof of the issuance by the SEC of
any stop order suspending the effectiveness of the Registration Statement,
of the suspension of the qualification of the Units for offering or sale
in any jurisdiction or of the initiation or threatening of any proceeding
for any such purpose; and the Company will promptly use its best efforts
to prevent the issuance of any stop order or to obtain its withdrawal if
such a stop order should be issued.
(c) Within the time during which a prospectus relating to the Units
is required to be delivered under the Securities Act, the Company will
comply as far as it is able with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to permit
the continuance of sales of or dealings in the Units as contemplated by
the provisions hereof and the Prospectus. If, during such period, any
event occurs as a result of which the Prospectus would include an untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances then
existing, not misleading, or if, during such period, it is necessary to
amend the Registration Statement or supplement the Prospectus to comply
with the Securities Act, the Company will promptly notify the Underwriter
and will amend the Registration Statement or supplement the Prospectus (at
the expense of the Company) so as to correct such statement or omission or
effect such compliance.
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(d) The Company will use its best efforts to arrange for the
qualification of the Units for offering and sale under the securities laws
of such jurisdictions as the Underwriter may designate and to continue
such qualifications in effect for so long as may be required for purposes
of the distribution of the Units; provided, however, that in no event
shall the Company be obligated to qualify to do business in any
jurisdiction where 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 in which the Units
shall have been qualified as herein provided, the Company will use its
best efforts to make and file such statements and reports in each year as
are or may be reasonably required by the laws of such jurisdiction.
(e) The Company will furnish to the Underwriter copies of the
Registration Statement (two of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments
and supplements to such documents, in each case as soon as available and
in such quantities as the Underwriter may from time to time reasonably
request.
(f) For a period of five years from the Effective Date, the Company
will furnish directly to the Underwriter as soon as the same shall be sent
to its shareholders generally copies of all annual or interim shareholder
reports of the Company and will, for the same period, also furnish the
Underwriter with the following:
(i) One copy of any report, application or document (other
than exhibits, which, however, will be furnished on your request)
filed by the Company with the SEC, The Nasdaq Stock Market, the
National Association of Securities Dealers, Inc. ("NASD") or any
securities exchange;
(ii) As soon as the same shall be sent to shareholders
generally, copies of each communication sent to shareholders; and
(iii) From time to time, such other information concerning the
Company as the Underwriter may reasonably and specifically request,
provided that the Company shall not be required to furnish any
information pursuant hereto that is not furnished to its
shareholders or not otherwise made publicly available.
(g) The Company will, for a period of two (2) years from the
Effective Date, furnish directly to the Underwriter quarterly profit and
loss statements, reports of the Company's cash flow and statements of
application of the proceeds of the offering of the Units by the Company in
such reasonable detail as the Underwriter may request.
(h) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the
fifteen (15) months after the end of the Company's current fiscal quarter,
an earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Securities
Act and Rule 158 of the Rules and Regulations and covering a twelve
(12)-month period beginning after the Effective Date of the Registration
Statement.
-14-
(i) After completion of the offering of the Units, the Company will
make all filings and take all actions required to maintain the quotation
or listing of the Units on The Nasdaq SmallCap Market, The Nasdaq National
Market or any national stock exchange. The Company shall make all filings
and take all actions required to have the Common Stock and the Redeemable
Warrants constituting the Units to be quoted on the same automated
quotations system or listed on the same national stock exchange on which
the Units are being quoted or listed, which quotation or listing shall be
effective eighteen (18) months from the Effective Date, when the Units
become separable. After the Units become separable, the Company will make
all filings and take all actions required to maintain the quotation or
listing of the Common Stock and the Redeemable Warrants on such quotations
system or national stock exchange.
(j) The Company will apply the net proceeds from the sale of the
Units substantially in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) For a period of six months after the Second Closing Date, the
Company will not, without the prior written consent of the Underwriter,
directly or indirectly, offer to sell, contract to sell, sell, pledge,
hypothecate, transfer or otherwise dispose of or grant any rights with
respect to (collectively, a "Disposition") of any Securities including,
without limitation, any Securities that are convertible into or
exchangeable or exercisable for Common Stock, and shall not accelerate the
exercisability of any Securities that are convertible into or exchangeable
or exercisable for Common Stock, except that the Company may take the
following actions:
(i) sell Units pursuant to this Agreement;
(ii) grant options under the Company's Stock Plans in the
ordinary course, but only if the per share exercise price or
conversion price of any such options is equal to or greater than the
market price of the Common Stock on the date of grant;
(iii) issue shares of Common Stock upon the exercise of
options granted under the Stock Plans and upon the exercise of
warrants outstanding on the date of this Agreement; and
(iv) issue the Company's Securities in connection with the
Company's acquisition of any business entity or property when
approved by the Company's board of directors or shareholders, if
such approval is required.
(l) For a period of six months from the Effective Date, the Company
will not, without the prior written consent of the Underwriter, file a
registration statement with the SEC or any state securities or "Blue Sky"
law authority relating to any of the Company's Securities, whether such
shares are to be offered and sold by the Company or by its shareholders,
except for a Registration Statement on Form S-4 or Form S-8 (or any
successor or replacement forms of such registration statements) relating
only to shares of Common Stock subject to options granted under the Stock
Plans with respect to a Form
-15-
S-8 or any successor or replacement form, or Securities of the Company
issued in connection with an acquisition with respect to a Form S-4 or
any successor or replacement form.
(m) 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.
(n) The Company will inform the Florida Department of Banking and
Finance at any time prior to the consummation of the distribution of the
Units by the Underwriter if it commences engaging in business with the
government of Cuba or with any person or affiliate located in Cuba. Such
information shall be provided within ninety (90) days after the
commencement thereof or after a change occurs with respect to previously
reported information.
(o) The Company will cause the Common Stock, the Redeemable Warrants
and the Units to be registered under the Exchange Act, which registrations
shall be effective concurrently with the effectiveness of the Registration
Statement.
(p) The Company hereby grants to the Underwriter the right to
nominate a representative to serve on the Company's Board of Directors
during the period of three (3) years following the Effective Date of the
Registration Statement, and the Company shall use its best efforts to
secure the election of such representative to the Company's Board of
Directors; provided, that any compensation received by such representative
or the Underwriter in connection with the representative serving on the
Company's Board of Directors shall not exceed any compensation received by
any other member of the Company's Board of Directors.
(q) Unless the Company's Common Stock and Redeemable Warrants are
listed on The Nasdaq National Market or other suitable secondary trading
exemptions are available, or if for any reason state Blue Sky or
securities laws do not apply to secondary trading of the Common Stock and
Redeemable Warrants, the Company will seek to become listed in Standard &
Poors or another recognized securities manual as soon as practicable after
the Effective Date and shall pay all filing fees in connection therewith,
for the purpose of facilitating secondary trading in the Common Stock and
Redeemable Warrants; and the Company shall also agree to make appropriate
filings to qualify the Common Stock and Redeemable Warrants for secondary
trading in states in which such filings are necessary to cause the Common
Stock and Redeemable Warrants to be qualified, provided that such
qualification may be obtained without causing the Company extraordinary
cost or hardship.
4. EXPENSES.
(a) The Company agrees with the Underwriter that:
(i) Whether or not this Agreement becomes effective or is
terminated or cancelled or the sale of the Units hereunder is
consummated, and regardless of
-16-
the reason for or cause of any such termination, cancellation or
failure to consummate, the Company will pay or cause to be paid (A)
all expenses (including any transfer taxes) incurred in connection
with the delivery to the Underwriter of the Units, (B) all expenses
and fees (including, without limitation, fees and expenses of the
Company's accountants and of counsel to the Company, excluding,
however, fees of Underwriter's counsel) in connection with the
preparation, printing, filing, delivery and shipping of the
Registration Statement (including the financial statements therein
and all amendments, schedules and exhibits thereto), each
Preliminary Prospectus, the Prospectus and any amendment thereof or
supplement thereto, (C) all fees and reasonable expenses, including
all reasonable counsel fees of Underwriter's Counsel, incurred in
connection with the qualification of the Units for offering and sale
by the Underwriter or by dealers under the securities or Blue Sky
laws of the states and other jurisdictions which the Underwriter may
designate in accordance with Section 3(d) hereof, (D) all costs and
expenses incident to qualification with The Nasdaq SmallCap Market,
(E) postage and express charges and other expenses in connection
with delivery to the Underwriter of the Preliminary Prospectus and
Prospectus, and (F) all other costs and expenses incident to the
performance of the Company's obligations hereunder that are not
otherwise specifically described herein. In addition to and not in
lieu of the foregoing, the Company shall pay to the Underwriter on
each Closing Date for out-of-pocket expenses (including fees of
Underwriter's Counsel other than fees and expenses incurred in
connection with Blue Sky or state securities qualifications) a
nonaccountable expense allowance (the "Allowance") equal to three
percent (3.0%) of the total public offering price for all the Units
sold to the Underwriter on each Closing Date as set forth on the
cover page of the Prospectus, including the Option Units and Units
sold pursuant to orders received through the Company.
(ii) If the Underwriter withdraws from the sale of the Units
as herein proposed (A) for any reason within the control of the
Company (such as, for example, the sale of the Units as herein
proposed is abandoned by the Company, the Company decides to pursue
and/or accept alternative financing or a strategic partnership, or
there is a sale of the Company or its assets, merger, acquisition by
the Company of the equity securities or other assets of another
entity), and/or as a result of activities or decisions made by the
Company's board of directors or shareholders; (B) based upon the
fact that there has been a material adverse change in the financial
or other affairs of, or prospects for, the Company since the date of
the last financial statements of the Company provided to the
Underwriter; (C) because any of the Company's representations or
warranties in this Agreement prove to be untrue; (D) because there
shall have occurred any general suspension of trading in securities
on the New York Stock Exchange or any limitation on prices for such
trading or because any new restrictions on the distribution of
securities shall have been established by the New York Stock
Exchange or by the SEC or by any federal or state agency, all to
such a degree as, in the Underwriter's sole judgment, would restrict
materially a free market for the Units; (E) because there shall have
occurred such a material change in general
-17-
economic, political or financial conditions, or because the effect
of international conditions on the financial markets in the United
States become such as, in the Underwriter's sole judgment, would
make it inadvisable to proceed with the sale of the Units; or (F)
because adverse market or other conditions make the offering of the
Units not feasible in the Underwriter's sole judgment, the Company
will pay to the Underwriter the amount of all actual accountable,
out-of-pocket expenses (including fees and disbursements of
Underwriter's Counsel but excluding payment for general overhead,
salaries, supplies or similar expenses of underwriter incurred in
the normal conduct of business) incurred by the Underwriter in
connection with the contemplated purchase, offer and sale of the
Units ("Underwriter's Expenses"), including, without limitation,
expenses incurred in the Underwriter's investigation, preparation to
market and marketing of the Units, and in contemplation of
performing and in performance of its obligations hereunder, up to
(and including) a maximum of $25,000.00 paid as a "Commitment Fee"
to the Underwriter as described below; provided, however, that if
the sale of the Units is withdrawn pursuant to Section 4(a)(ii)(A),
then the Company shall reimburse the Underwriter's Expenses up to
(and including) a maximum of $100,000.00. All reimbursements
pursuant to Sections 4(a)(i) and (ii) shall occur within ten (10)
days after the Underwriter delivers to the Company a written
itemization of such expenses. The Underwriter hereby acknowledges
the receipt from the Company of a commitment fee (the "Commitment
Fee") in the amount of $25,000.00, which shall be credited by the
Underwriter against the Allowance or against the amount described in
the first sentence of this subsection 4(a)(ii) and, to the extent
that the Commitment Fee is greater than the amount of the
Underwriter's Expenses, the Underwriter shall refund to the Company
the difference between the Commitment Fee and the amount of the
Underwriter's Expenses.
(iii) In addition to its other obligations under Sections 7(a)
and 8 hereof, the Company agrees that, as an interim measure during
the pendency of any claim, action, investigation, inquiry or other
proceeding described in Section 7(a), it will reimburse the
Underwriter on a monthly basis for all reasonable legal or other
expenses incurred in connection with investigating or defending any
such claim, action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the Company's obligation to
reimburse the Underwriter for such expenses and the possibility that
such payments might later be held to have been improper by a court
of competent jurisdiction. To the extent that any such interim
reimbursement payment is so held to have been improper, the
Underwriter shall promptly return such payment to the Company
together with interest, compounded daily, determined on the basis of
the prime rate (or other commercial lending rate for borrowers of
the highest credit standing) listed from time to time in The Wall
Street Journal which represents the base rate on corporate loans
posted by a substantial majority of the nation's thirty (30) largest
banks (the "Prime Rate"). Any such interim reimbursement payments
which are not made to
-18-
the Underwriter within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of
such request.
(b) It is agreed that any controversy rising out of the operation of
the interim reimbursement arrangements set forth in Section 4(a)(iii)
hereof, including the amounts of any requested reimbursement payments and
the method of determining such amounts, shall be settled by arbitration
conducted pursuant to the Code of Arbitration Procedure of the NASD. Any
such arbitration must be commenced by service of a written demand for
arbitration or a written notice of intention to arbitrate, therein
electing the arbitration tribunal. If the party demanding arbitration does
not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized
to do so. Any such arbitration will be limited to the operation of the
interim reimbursement provisions contained in Section 4(a)(iii) hereof and
will not resolve the ultimate propriety or enforceability of the
obligation to indemnify for expenses which is created by the provisions of
Sections 7(a) and 7(b) hereof or the obligation to contribute to expenses
which is created by the provisions of Section 8(a) hereof.
5. 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 4:00 p.m. Minneapolis, Minnesota time on the date of this Agreement,
or such later date or time as shall be consented to in writing by you; no
stop order suspending the effectiveness thereof shall have been issued and
no proceedings 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; and 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 Underwriter's Counsel.
(b) The Company shall not have advised the Underwriter that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a material fact or
omits to state a material fact which 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 5(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
-19-
Underwriter specifically for use in the preparation of the Registration
Statement or the Prospectus, or any such amendment or supplement.
(c) Subsequent to the Effective Date and prior to each Closing Date,
there shall not have occurred any change, or any development involving a
prospective change, which materially and adversely affects the Company's
condition (financial or otherwise), earnings, operations, properties,
business or business prospects from that set forth in the Registration
Statement or Prospectus, and which, in the Underwriter's sole judgment, is
material and adverse and that makes it, in the Underwriter's sole
judgment, impracticable or inadvisable to proceed with the public offering
of the Units as contemplated by the Prospectus and this Agreement.
(d) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery
of the Units shall have been reasonably satisfactory to Underwriter's
Counsel, and Underwriter's Counsel shall have been furnished with such
papers and information as it may reasonably have requested to enable it to
pass upon the matters referred to in this Section.
(e) On each Closing Date, the Underwriter shall have received the
opinion of ▇▇▇▇▇▇ and ▇▇▇▇▇▇, P.A., counsel for the Company, dated as of
such Closing Date, satisfactory in form and substance to the Underwriter
and Underwriter's Counsel, to the effect that:
(i) Each of the Company and the Subsidiaries has been duly
incorporated and is validly existing as a corporation in good
standing under the laws of the jurisdiction of its incorporation and
has the corporate power and authority to own, lease and operate its
properties and to conduct its business as currently being carried on
and as described in the Registration Statement and Prospectus.
(ii) Each of the Company and the Subsidiaries is duly
qualified to do business as a foreign corporation and is in good
standing in each jurisdiction, if any, in which the ownership or
leasing of its properties or the conduct of its business requires
such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business
of the Company and the Subsidiaries considered as one enterprise. To
the best of such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association or
other entity other than the Subsidiaries.
(iii) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under
the caption "Description of Securities." The issued and outstanding
Shares of Common Stock of the Company have been duly and validly
issued and are fully paid and non-assessable, and the holders
thereof are not subject to any personal liability solely by reason
of being such holders.
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(iv) The Units to be issued by the Company pursuant to the
terms of this Agreement, and the shares of Common Stock included in
the Units, have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will
be duly and validly issued and fully paid and non-assessable, and
the holders thereof will not be subject to personal liability solely
by reason of being such holders. The shares of Common Stock issuable
upon exercise of the Redeemable Warrants included in the Units have
been duly authorized and, when issued and delivered upon such
exercise, will be duly and validly issued and fully paid and
non-assessable, and the holders thereof will not be subject to
personal liability solely by reason of being such holders. Except as
otherwise stated in the Registration Statement and Prospectus, there
are no preemptive rights or other rights to subscribe for or to
purchase, or any restriction upon the voting or transfer of, any
shares of capital stock pursuant to the Company's articles of
incorporation, bylaws or any agreement or other instrument known to
such counsel to which the Company is a party or by which the Company
is bound. To the best of such counsel's knowledge, except as set
forth in the Prospectus, neither the filing of the Registration
Statement nor the offering or sale of the Units as contemplated by
this Agreement gives rise to any rights for or relating to the
registration of any shares of capital stock or other securities of
the Company and no such rights exist, other than those rights that
have been waived prior to the date hereof. To the best of such
counsel's knowledge, except as described in the Registration
Statement and Prospectus, there are no options, warrants,
agreements, contracts or rights in existence to purchase or acquire
from the Company any shares of capital stock of the Company.
(v) The Redeemable Warrants included in the Units to be sold
by the Company have been duly and validly authorized and, when
authenticated by the Warrant Agent and issued, delivered and sold in
accordance with this Agreement and the Warrant Agreement dated as of
the date hereof between the Company and the Warrant Agent, will have
been duly and validly executed, authenticated, issued and delivered
and will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms,
except as enforceability may be limited by the application of
bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the rights of creditors generally and by judicial
limitations on the right of specific performance. A sufficient
number of shares of Common Stock of the Company has been reserved
for issuance by the Company upon exercise of the Redeemable
Warrants.
(vi) The Underwriter's Warrants and the shares of Common Stock
and Redeemable Warrants included in the Warrant Units have been duly
authorized. The Underwriter's 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,
reorganization, moratorium or other similar laws affecting the
rights of creditors generally and by judicial limitations on the
right of specific performance and except insofar as the
indemnification provisions thereof may be
-21-
limited by applicable law and the policies underlying such law. The
shares of Common Stock included in the Warrant Units, when issued in
accordance with the terms of this Agreement and pursuant to the
Underwriter's Warrants, will be fully paid and nonassessable and
subject to no preemptive rights or similar rights on the part of any
person or entity. The Redeemable Warrants included in the Warrant
Units, when issued, delivered and sold in accordance with this
Agreement and the Underwriter's Warrants, will have been duly and
validly executed, authenticated, issued and delivered and will
constitute valid and binding obligations of the Company, enforceable
against the Company in accordance with their terms, except as
enforceability may be limited by the application of bankruptcy,
insolvency, reorganization, moratorium or similar laws effecting the
rights of creditors generally and by judicial limitations on the
right of specific performance. The shares of Common Stock issuable
upon exercise of the Redeemable Warrants included in the Warrant
Units have been duly authorized and, when issued and delivered upon
such exercise, will be validly issued, fully paid and non-assessable
and, to such counsel's knowledge, subject to no preemptive rights or
similar rights on the part of any person or entity. A sufficient
number of shares of Common Stock of the Company has been reserved
for issuance by the Company upon exercise of the Underwriter's
Warrants and the Redeemable Warrants included in the Warrant Units.
(vii) The Company has the requisite corporate power and
authority to enter into this Agreement and to issue, sell and
deliver to the Underwriter the Units to be issued and sold by it
hereunder. This Agreement has been duly authorized by all necessary
corporate action on the part of the Company and has been duly
executed and delivered by the Company and, assuming due
authorization, execution and delivery by the Underwriter, is a
valid, legal and binding agreement of the Company, enforceable in
accordance with its terms, except insofar as indemnification and
contribution provisions may be limited by applicable law or the
public policies underlying such law and except as enforceability may
be limited by bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance or similar laws relating to or affecting
creditors' rights generally or by general equitable principles.
(viii) The Registration Statement has become effective under
the Securities Act and, to the best of such counsel's knowledge, 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 threatened under the Securities
Act.
(ix) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto (other than the financial
statements, including the notes thereto and the supporting
schedules, and other financial, numerical, statistical and
accounting data derived therefrom, as to which such counsel need
express no opinion), comply as to form in all material respects with
the requirements of the Securities Act and the Rules and
Regulations.
-22-
(x) The forms of certificates evidencing the Common Stock and
the Redeemable Warrants and filed as exhibits to the Registration
Statement comply with Minnesota law.
(xi) The description in the Registration Statement and the
Prospectus of the Company's articles of incorporation and bylaws and
of statutes, legal and governmental proceedings, contracts and other
documents are accurate in all material respects and fairly present
the information required to be presented by the Securities Act and
the applicable Rules and Regulations; and to the best of such
counsel's knowledge, there are no statutes or legal or governmental
proceedings required to be described in the Prospectus that are not
described as required, or of any agreements, contracts, leases or
documents of a character required to be described or referred to in
the Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which are not described or
referred to therein or filed as required.
(xii) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein
contemplated (other than performance of the Company's
indemnification and contribution obligations hereunder, concerning
which no opinion need be expressed) do not result in any violation
of the Company's articles of incorporation or bylaws or result in a
breach or violation of any of the terms and provisions of, or
constitute a default under, any bond, debenture, note or other
evidence of indebtedness, or any material lease, contract,
indenture, mortgage, deed of trust, loan agreement, joint venture or
other material agreement or instrument known to such counsel to
which the Company is a party or by which its properties are bound,
or any applicable statute, rule or regulation known to such counsel
or, to the best of such counsel's knowledge, any order, writ or
decree of any court, government or governmental agency or body
having jurisdiction over the Company or the Subsidiaries or over any
of their material properties or operations.
(xiii) To the best of such counsel's knowledge, no consent,
approval, authorization or order of, or filing with, or
qualification with, any court, government or governmental agency or
body is necessary in connection with the execution, delivery and
performance of this Agreement or for the execution, delivery and
performance of this Agreement or for the consummation of the
transactions herein contemplated, except such as have been obtained
under the Securities Act or such as may be required under state or
other securities or Blue Sky laws in connection with the purchase
and the distribution of the Units by the Underwriter.
(xiv) To the best of such counsel's knowledge, there are no
legal or governmental proceedings pending or threatened against the
Company or any of the Subsidiaries of a character required to be
disclosed in the Registration Statement or the Prospectus by the
Securities Act or the Rules and Regulations, other than those
described therein.
-23-
(xv) To the best of such counsel's knowledge, neither the
Company nor any of the Subsidiaries is presently (A) in violation of
its respective articles of incorporation or bylaws, (B) in material
breach or violation of any applicable statute, rule or regulation
known to such counsel or any order, writ or decree of any court or
governmental agency or body, or (C) in breach of or otherwise in
default in the performance of any material obligation, agreement or
condition contained in any bond, debenture, note, loan agreement or
any other material contract, lease or other instrument to which the
Company is subject or by which it may be bound, or to which any of
the material assets or property of the Company is subject.
(xvi) On the basis of information obtained as a result of
discussions and meetings with officers and other representatives of
the Company, discussions with representatives of the independent
public accountants for the Company in connection with the
preparation of the Registration Statement and the Prospectus, and
the examination of other information and documents requested by such
counsel, nothing has come to such counsel's attention that has
caused them to believe that the Registration Statement and any
amendment thereof, at the time it became effective and at all times
subsequent thereto up to and on that Closing Date, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the
statements therein not misleading, or that the Prospectus, and any
amendment or supplement thereto, at the first date of its issuance
and up to and at all times subsequent thereto up to and on that
Closing Date, contained any untrue statement of a material fact or
omitted to state 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. Such
counsel may further state that in making the foregoing comments,
such counsel does not intend them to include or cover (A) the
financial statements and notes thereto and related schedules and
other financial, numerical, statistical and accounting data
contained or omitted from the Registration Statement and any
amendment or supplement thereto and the Prospectus; or (B) industry
data or industry reports utilized or relied upon by the Company in
connection with the preparation of the Registration Statement or
referred to therein.
Counsel rendering the foregoing opinion may rely as to questions of
law not involving the laws of the United States or the State of Minnesota
upon opinions of local counsel, and, as to questions of fact, upon
representations or certificates of officers of the Company or its
Subsidiaries and of government officials, in which case their opinion is
to state the extent of such reliance. Copies of any opinion,
representation or certificate so relied upon shall be delivered to the
Underwriter and to Underwriter's Counsel.
(f) The Underwriter shall have received the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇,
Esq., of the law firm of ▇▇▇▇▇ and ▇▇▇▇▇▇, intellectual property counsel
to the Company, dated as of the First Closing Date and the Second Closing
Date and satisfactory in form and substance to the Underwriter and its
counsel, and such intellectual property counsel may rely on appropriate
written representations or certificates of public officials and of
-24-
appropriate officers of the Company (provided that a copy of such written
representations or certificates are furnished to the Underwriter), to the
effect that:
(i) The statements made in the Registration Statement and the
Prospectus concerning the Company's intellectual property,
including, by way of illustration, all patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service ▇▇▇▇ registrations, copyrights, licenses, inventions, trade
secrets and similar rights, do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light
of the circumstances under which they were made, not misleading, and
fairly present the information set forth therein.
(ii) To such counsel's knowledge, the Company owns or
possesses the right to use all the patents, patent applications,
trademarks, service marks, trade names, trademark registrations,
service ▇▇▇▇ registrations, copyrights, licenses, inventions, trade
secrets and similar rights as described in the Registration
Statement and the Prospectus. Such counsel has not received any
notice of any claim of infringement of or claim for license or
similar fees under any patents, patent applications, trademarks,
service marks, trade names, trademark registrations, service ▇▇▇▇
registrations, copyrights, licenses, inventions, trade secrets or
similar rights of others or any claim with respect thereto, which
would have a material adverse effect on the business of the Company.
(g) The Underwriter shall have received from Winthrop & Weinstine,
P.A., Underwriter's Counsel, such opinion or opinions as the Underwriter
may reasonably require, dated as of the First Closing Date and the Second
Closing Date, which are satisfactory in form and substance to the
Underwriter, with respect to the sufficiency of corporate proceedings and
other legal matters relating to this Agreement and the transactions
contemplated hereby, and the Company shall have furnished to Underwriter's
Counsel such documents as it may have requested for the purpose of
enabling it to pass upon such matters. In connection with such opinion, as
to matters of fact relevant to conclusions of law, Underwriter's Counsel
may rely, to the extent that it deems proper, upon representations or
certificates of public officials and of responsible officers of the
Company.
(h) At the time of execution of this Agreement, the Underwriter
shall have received from PricewaterhouseCoopers LLP a letter dated the
date of such execution, in form and substance satisfactory to the
Underwriter, to the effect that they are independent accountants with
respect to the Company within the meaning of the Securities Act, the
applicable published instructions and the Rules and Regulations, and
further stating in effect that:
(i) In their opinion, the audited consolidated financial
statements of the Company and its Subsidiaries included in the
Registration Statement and Prospectus covered by their report
included therein comply as to form in all
-25-
material respects with the applicable requirements of the Securities
Act, the published instructions and the Rules and Regulations and
have been prepared in accordance with United States generally
accepted accounting principles consistently applied throughout and
as of the end of the periods involved.
(ii) On the basis of (A) a reading of the minutes of the
shareholders' and directors' meetings of the Company since
_______________, (B) inquiries of certain officials of the Company
responsible for financial and accounting matters, (C) a reading of
the Company's monthly operating statements for the months beginning
on _______________, and (D) other specified procedures and inquiries
(but not an audit in accordance with generally accepted accounting
principles), nothing came to their attention causing them to believe
that:
(1) the unaudited consolidated financial statements of
the Company and its Subsidiaries contained in the Prospectus
and any amendment thereof or supplement thereto do not comply
as to form, in all material respects, with the applicable
accounting requirements of the Securities Act and the
published Rules and Regulations or were not prepared in
conformity with generally accepted accounting principles and
practices applied on a basis consistent in all material
respects with those followed in the preparation of the audited
consolidated financial statements of the Company and its
Subsidiaries included therein; or
(2) the unaudited consolidated amounts of revenues,
income before provision for income taxes, net income and ratio
of earnings to fixed charges of the Company and its
Subsidiaries, if any, contained in the Prospectus, or any
amendment thereof or supplement thereto, were not derived from
consolidated financial statements prepared in conformity with
generally accepted accounting principles and practices applied
on a basis consistent in all material respects with those
followed in the preparation of the audited consolidated
financial statements of the Company and its Subsidiaries
included therein; or
(3) with respect to the period subsequent to July 31,
2001, there were, at a specified date, not more than five (5)
business days prior to the date of the letter, any changes or
any material increases or decreases in capital stock,
long-term or short-term debt or shareholders' equity,
decreases in net assets, net current assets, or net worth or
any material decrease, as compared with the corresponding
period of the prior year, in revenues or net income of the
Company as compared with the amounts shown in the consolidated
balance sheet included in the Registration Statement, except
as disclosed or referred to in the Prospectus and Registration
Statement.
(iii) Certain information set forth on the cover of the
Prospectus and in the Prospectus under the headings "Prospectus
Summary" (including the subheading "Summary Financial Data"), "Risk
Factors," "Use of Proceeds,"
-26-
"Dividend Policy," "Capitalization," "Dilution," "Selected Financial
Data," "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Business," "Management," "Certain
Relationships and Related Transactions," "Principal Shareholders,"
"Description of Securities" and "Shares Eligible for Future Sale"
that is derived from the audited financial statements of the Company
and its Subsidiaries covered by their report included therein or
derived from the unaudited consolidated financial statements of the
Company and its Subsidiaries contained therein and that are
expressed in dollars (or percentages derived from dollar amounts) or
numbers have been compared to accounting records of the Company
which were subject to the internal accounting controls of the
Company and are in agreement with such records or computations made
therefrom, excluding any questions of legal interpretation.
(i) At the time of execution of this Agreement, the Underwriter
shall have received from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇ Ltd. a letter
dated the date of such execution, in form and substance satisfactory to
the Underwriter, to the effect that they are independent accountants with
respect to the Company within the meaning of the Securities Act, the
applicable published instructions and the Rules and Regulations, and
further stating in effect that:
(i) In their opinion, the audited consolidated financial
statements of the Company and its Subsidiaries included in the
Registration Statement and Prospectus covered by their report
included therein comply as to form in all material respects with the
applicable requirements of the Securities Act, the published
instructions and the Rules and Regulations and have been prepared in
accordance with United States generally accepted accounting
principles consistently applied throughout and as of the ends of the
periods involved.
(ii) Certain information set forth in the Prospectus under the
headings "Prospectus Summary" (including the subheading "Summary
Financial Data"), "Risk Factors," "Use of Proceeds," "Dividend
Policy," "Capitalization," "Dilution," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," "Management," "Certain
Relationships and Related Transactions," "Principal Shareholders,"
"Description of Securities," and "Shares Eligible for Future Sale"
that is derived from the audited financial statements of the Company
and its Subsidiaries covered by their report included therein and
that are expressed in dollars (or percentages derived from dollar
amounts) or numbers have been compared to accounting records of the
Company which were subject to the internal accounting controls of
the Company and are in agreement with such records or computations
made therefrom, excluding any questions of legal interpretation.
(j) The Underwriter shall have received from PricewaterhouseCoopers
LLP a letter dated as of each Closing Date to the effect that such
accountants reaffirm, as of such Closing Date, and as though made on such
Closing Date, the statements made in the letter furnished by such
accountants pursuant to Section 5(h), except that the specified date
referred to in such letter will be a date not more than five (5) business
days prior to such
-27-
Closing Date. The Underwriter shall have received from ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ & Talbot Ltd. a letter dated as of each Closing Date to the effect
that such accountants reaffirm, as of such Closing Date, and as though
made on such Closing Date, the statements made in the letter furnished by
such accountants pursuant to Section 5(i), except that the specified date
referred to in such letter will be a date not more than five (5) business
days prior to such Closing Date.
(k) The Underwriter shall have received from the Company a
certificate, dated as of the First Closing Date and the Second Closing
Date, of the principal executive officer and the principal financial
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 such Closing
Date, and 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 Closing Date;
(ii) No stop order or other order suspending the effectiveness
of the Registration Statement or any amendment thereof or the
qualification of the Units for offering or sale have been issued,
and no proceedings for that purpose have been instituted or, to the
best of their knowledge, are contemplated by the SEC or any state or
regulatory body; and
(iii) The signers of said certificate have carefully examined
the Registration Statement and the Prospectus and any amendments
thereof or supplements thereto, and (A) such documents contain all
statements and information required to be included therein; the
Registration Statement, or any amendment thereof, does not contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they
were made, not misleading; and the Prospectus, as amended or
supplemented, does not include any untrue statement of material fact
or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading; (B) 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; (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the Company has not incurred any material liabilities or
material obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business
consistent with past practice, or declared or paid any dividends or
made any distribution of any kind with respect to its capital stock,
and except as disclosed in the Prospectus, there has not been any
change in the capital stock (other than a change in the number of
outstanding shares of Common Stock due to the offering of the Units
or the issuance of shares upon the exercise of options or warrants
outstanding as of the Effective Date or options granted pursuant to
the Stock Plans described in the Registration Statement), or any
material increase in the short-term debt or long-term debt, or in
the issuance of options, warrants, convertible securities or other
-28-
rights to purchase the capital stock, of the Company (other than
grants of stock options to the Company's employees in the ordinary
course of business under existing Stock Plans, or pursuant to
automatic grants of options thereunder), or any material adverse
change or any development involving a prospective material adverse
change (whether or not arising in the ordinary course of business)
in the general affairs, condition (financial or otherwise),
business, key personnel, property, prospects, net worth or results
of operations of the Company; and (D) except as stated in the
Registration Statement and Prospectus, there is not pending or, to
their knowledge, threatened or contemplated, any action, suit or
proceeding to which the Company is a party before or by any court or
governmental agency, authority or body, or any arbitrator, which
might result in any material adverse change of the condition
(financial or otherwise), business, prospects or results of
operations of the Company.
(l) On each Closing Date, there shall have been furnished to you a
certificate of the Secretary of the Company, dated as of such Closing
Date, with the documents listed herein attached, and to the effect and
certifying as follows:
(i) Attached thereto are true and correct copies of the
articles of incorporation of the Company, as amended to the date of
the certificate; that there have been no changes or amendments to
the attached articles of incorporation of the Company; that no
resolutions have been adopted by the Board of Directors or
shareholders of the Company relating to (A) the amendment of said
articles of incorporation, (B) the merger, consolidation or
dissolution of the Company, or (C) the sale of all or substantially
all of the assets or business of the Company; and that the Company
is in good standing in the State of Minnesota and has paid all of
its corporate franchise taxes due as of the date of such
certificate.
(ii) Attached thereto is a true and correct copy of the bylaws
of the Company as in effect as of the date of such certificate and
that no resolutions have been adopted by the Board of Directors or
shareholders of the Company relating to changes or amendments to the
attached Bylaws.
(iii) Attached thereto are true and correct copies of the
resolutions of the Board of Directors of the Company relating to the
preparation and signing of the Registration Statement and this
Agreement, the issuance and sale of the Units and other related
matters, and that such resolutions have not been amended, modified
or rescinded and are in full force and effect as of the date of such
certificate and are the only resolutions adopted by the Board of
Directors of the Company with respect to the offering contemplated
by the Registration Statement.
(iv) Attached thereto are true and correct copies of all
material correspondence with respect to the Registration Statement
and Prospectus and related matters between the Company or its
counsel, on the one hand, and the SEC, on the other.
-29-
(v) This Agreement, as executed and delivered by the Company,
is in the form presented to and approved by officers authorized to
do so by the Board of Directors of the Company.
(vi) Attached thereto are specimens of the certificates for
the Units, the Common Stock and the Redeemable Warrants in the forms
authorized and approved for use by the Board of Directors of the
Company.
(vii) The persons who have signed the Registration Statement
and all amendments thereto were duly elected at the respective times
of such signing and duly acting as officers and directors of the
Company or as an attorney-in-fact therefor, as set forth in the
Registration Statement.
(m) The Units shall be included and quoted on The Nasdaq
SmallCap Market.
(n) Winthrop & Weinstine, P.A. shall deliver to the Underwriter and
the Company a Blue Sky Memorandum reasonably satisfactory to the
Underwriter and the Company confirming that all requisite actions for the
offer and sale of the Units in all jurisdictions requested by the
Underwriter have been taken.
(o) The Company shall have furnished to the Underwriter and to
Underwriter's Counsel such additional certificates, documents and evidence
as the Underwriter shall reasonably request.
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 Underwriter's 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.
The Underwriter may waive in writing the performance of any one or more of
the conditions specified in this Section 5 or extend the time for their
performance.
If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement to be fulfilled and if the
fulfillment of said condition has not been waived by the Underwriter, 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 4(a) hereof.
Notice of such cancellation shall be given to the Company at the address
specified in Section 12 hereof in writing, or by telegraph or telephone
confirmed in writing.
6. OTHER RIGHTS OF UNDERWRITER.
(a) In consideration of the agreement of the Underwriter to act as
Underwriter, and upon payment of a purchase price of $50.00, on the First
Closing Date, the Company will issue and deliver to the Underwriter, for
its account, the Underwriter's Warrants to
-30-
purchase the Warrant Units in an amount equal to ten percent (10%) of the
number of Firm Units purchased by the Underwriter in the offering. The
Underwriter's Warrants shall be issued on the First Closing Date and shall
be dated as of the Effective Date. The Underwriter's Warrants shall be
exercisable commencing one year after the Effective Date and for a period
ending five years after the Effective Date at a price of $6.75 per Warrant
Share, which is equal to 150% of the per Unit public offering price of
$4.50 set forth on the cover page of the Prospectus. As to other terms,
the Underwriter's Warrants shall be in form and substance substantially
the same as APPENDIX A hereto.
(b) The Company hereby grants to the Underwriter, for the period
ending fifteen (15) months after the First Closing Date, the exclusive
right to act as the Company's investment banker and/or financial advisor
("Advisor") in connection with any of the following transactions or series
of related transactions in which the Company or any subsidiary of the
Company is involved (collectively, the "Transactions"): strategic
partnership or joint venture; the sale of the Company or all or
substantially all of its assets; merger; reorganization; the acquisition
of equity securities, debt securities or assets of another entity; or any
other similar transaction or series of related transactions having an
aggregate value of at least Five Million and 00/100 Dollars
($5,000,000.00). The Underwriter may assign the right granted hereunder to
act as Advisor in connection with a Transaction to an affiliate of the
Underwriter, which shall be a qualified investment banking firm. The
Company will pay to the Underwriter or its affiliate as compensation for
services rendered by the Underwriter to the Company in connection with a
Transaction a fee equal to the following; provided, however, that the
maximum fee to be paid by the Company to the Underwriter in connection
with any Transaction shall not exceed Two Million and 00/100 Dollars
($2,000,000.00):
(i) Five percent (5%) of the first Five Million and
00/100 Dollars ($5,000,000.00) of the aggregate value of the
Transaction;
(ii) Four percent (4%) of the aggregate value of the
Transaction in excess of Five Million and 00/100 Dollars
($5,000,000.00) and up to and including Ten Million and 00/100
Dollars ($10,000,000.00);
(iii) Three percent (3%) of the aggregate value of the
Transaction in excess of Ten Million and 00/100 Dollars
($10,000,000.00) and up to and including Fifteen Million and 00/100
Dollars ($15,000,000.00);
(iv) Two percent (2%) of the aggregate value of the
Transaction in excess of Fifteen Million and 00/100 Dollars
($15,000,000.00) and up to and including Twenty Million and 00/100
Dollars ($20,000,000.00); and
(v) One percent (1%) of the aggregate value of the Transaction
in excess of Twenty Million and 00/100 Dollars ($20,000,000.00).
Notwithstanding the foregoing, but subject to the $2,000,000 limitation in
the proviso in the last sentence of Section 6(b) above, if the Company
engages in a Transaction with an entity demonstrated by the Company to be
a party with which the Company has
-31-
engaged in discussions regarding a potential Transaction during the twelve
(12) months ended May 23, 2001, the Company will pay to the Underwriter or
its affiliate as compensation for services rendered by the Underwriter to
the Company hereunder in connection with such a Transaction a fee equal to
two percent (2%) of the first Five Million and 00/100 Dollars
($5,000,000.00) of the aggregate value of the Transaction, plus one
percent (1%) of the aggregate value of the Transaction in excess of Five
Million and 00/100 Dollars ($5,000,000.00); and provided further, that no
fee shall be payable hereunder by the Company to the Underwriter unless a
Transaction is completed.
(c) If the Underwriter or its affiliate is engaged by the Company
under Section 6(b) in connection with a Transaction for which the
Underwriter or its affiliate earns a fee, the Underwriter or its affiliate
shall provide to the Company, upon the Company's request, and as part of
the services of the Underwriter or its affiliate to the Company and at no
additional cost to the Company, an industry-standard fairness opinion.
7. 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 Securities Act ("Underwriter Indemnified
Person"), against any losses, claims, damages or liabilities, joint or
several, to which the Underwriter or each such controlling person may
become subject under the Securities Act, the Exchange Act, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of, or are based upon, (i) any
material breach of any representation, warranty, agreement or covenant of
the Company contained in this Agreement, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement or any amendment thereof or supplement thereto, or the omission
or alleged omission to state in the Registration Statement or any
amendment thereof or supplement thereto a material fact necessary to make
the statements therein, in light of the circumstances under which they
were made, not misleading; (iii) 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 necessary in order to
make the statements therein, in light of the circumstances under which
they were made, not misleading; or (iv) 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.
The Company will reimburse each Underwriter and each such controlling
person for any legal or other expenses reasonably incurred by such
Underwriter or
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controlling person 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 or 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, the
Prospectus or any such amendment thereof or supplement thereto, or in any
application or other statement executed by the Company or the Underwriter
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; 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 (or to the benefit of any person who
controls the Underwriter) if the person asserting any loss, claim, damage
or liability purchased the Units from 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. Notwithstanding the foregoing, in no event shall the
Company be obligated to indemnify or hold harmless the Underwriter
Indemnified Parties for the expense of more than one firm of legal counsel
representing the Underwriter Indemnified Parties, unless counsel to one of
the Underwriter Indemnified Parties, at the Company's expense, opines to
the Company and the Underwriter Indemnified Parties that an irreconcilable
and material conflict exists among any of the Underwriter Indemnified
Parties that reasonably requires the Underwriter Indemnified Parties to be
represented by separate legal counsel, in which case the Company shall pay
for the expense of two firms of legal counsel.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
Registration Statement and each person who controls the Company within the
meaning of Section 15 of the Securities 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 Securities Act, the
Exchange Act, common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions 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 supplement thereto, or the omission or alleged omission to
state in the Registration Statement or any amendment thereof or supplement
thereto 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
-33-
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
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;
in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or 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, the
Prospectus or any such amendment thereof or supplement thereto, or in any
application or other statement 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 7 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify in writing the
indemnifying party of the commencement thereof. The omission so to notify
the indemnifying party will relieve it from any liability under this
Section 7 as to the particular item for which indemnification is then
being sought, but not from any other liability which it may have to any
indemnified party. 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 the indemnifying party's election so to assume the
defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section 7 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 the defendants in any such action include both the
indemnified party and the indemnifying party, and the indemnified party
shall have reasonably concluded that there may be legal defenses available
to it and/or other indemnified parties which are different from or
additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume
such legal defenses and to otherwise participate in the defense of such
action on behalf of such indemnified party or parties, in which event the
reasonable fees and expenses of one such separate counsel shall be borne
by the indemnifying party. 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 consent of such indemnifying party.
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8. CONTRIBUTION.
(a) In order to provide for just and equitable contribution in any
action in which the Underwriter or the Company (or any person who controls
the Underwriter or the Company within the meaning of Section 15 of the
Securities Act) makes a claim for indemnification pursuant to Section 7
hereof, but such indemnification is unavailable or insufficient to hold
harmless and indemnify a party under Section 7, then each indemnifying
party shall contribute to the amount paid or payable by such indemnified
party as a result of the losses, claims, damages or liabilities referred
to in Section 7 above (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and the
Underwriter on the other from the offering of the Units hereunder or (ii)
if the allocation provided by the foregoing clause (i) is not permitted by
applicable law, in such proportion as is appropriate to reflect not only
the relative benefits referred to in such clause (i) but also the relative
fault of the Company on the one hand and the Underwriter on the other in
connection with the statements or omissions that resulted in 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 allocations would not be equitable. The
respective relative benefits received by the Company, on the one hand, and
the Underwriter, on the other, shall be deemed to be in the same
proportion (x) 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 total public offering
price of the Units, and (y) in the case of the Underwriters, as the
aggregate underwriting discount received by them bears to the total public
offering price of the Units, in each case as reflected in the Prospectus.
The relative fault 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 the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and the
Underwriter agree that it would not be just and equitable if contributions
pursuant to this Section 8 were to be determined by pro rata allocation or
by any other method of allocation which does not take into account the
equitable considerations referred to in the first sentence of this Section
8. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this
Section 8 shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the
subject of this Section 8. Notwithstanding the provisions of this Section
8, 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 and distributed to the public were offered to the
public exceeds the amount of any damages that the Underwriter has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities
Act) shall be entitled to contribution from any person who is not guilty
of such fraudulent misrepresentation.
-35-
(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 8. 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.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective immediately after the time
at which the Registration Statement shall become effective under the
Securities Act upon the Effective Date of the Registration Statement.
(b) Until the First Closing Date, this Agreement may be terminated
by the Underwriter, at its sole option, by giving notice to the Company,
and the option referred to in Section 2(b), if exercised, may be cancelled
at any time prior to the Second Closing Date, if (i) the Company shall
have failed, refused or been unable, at or prior to such Closing Date, to
perform any agreement on its part to be performed hereunder, (ii) any
other condition of the Underwriter's obligations hereunder is not
fulfilled or waived by the Underwriter, (iii) trading in securities
generally on the New York Stock Exchange, the American Stock Exchange or
in the over-the-counter market shall have been suspended, (iv) minimum or
maximum prices for trading shall have been fixed, or maximum ranges for
prices for securities shall be required, on the New York Stock Exchange,
the American Stock Exchange or in the over-the-counter market by such
Exchange or by The Nasdaq Stock Market or by order of the SEC or any other
governmental authority having jurisdiction, (v) a banking moratorium shall
have been declared by federal, New York or Minnesota authorities, (vi)
there shall have been such a serious, unusual and material 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 as, in the reasonable judgment of the Underwriter,
would make it inadvisable to proceed with the delivery of the Units, (vii)
the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order 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, or (viii) 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. 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 4 hereof.
-36-
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 9, it shall notify the Company and the Company's counsel promptly
by telegram or telephone, confirmed by letter sent to the address
specified in Section 11 hereof. If the Company shall elect to prevent this
Agreement from becoming effective, it shall notify the Underwriter and the
Underwriter's Counsel promptly by telegram or telephone, confirmed by
letter sent to the addresses specified in Section 11 hereof.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8, the representations
and warranties of the Company set forth in Section 1 hereof and the covenants
and agreements 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 7 and 8, 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.
11. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telegraphed, and confirmed, as follows:
If to the Underwriter, to: Equity Securities Investments, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇
with a copy to: Winthrop & Weinstine, P.A.
3000 ▇▇▇▇ ▇▇▇▇▇▇▇▇ Plaza
▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇▇, Esq.
If to the Company, to: MedicalCV, Inc.
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
with a copy to: ▇▇▇▇▇▇ and ▇▇▇▇▇▇, P.A.
2400 IDS Center
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
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12. INFORMATION FURNISHED BY THE UNDERWRITER. The penultimate paragraph of the
front cover page of the Prospectus, the statements relating to the stabilization
activities of the Underwriter and the statements under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitute
the written information furnished by, or on behalf of, the Underwriter
specifically for use with reference to the Underwriter referred to in Section
1(a)(ii) and Sections 7(a) and 7(b) hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and
be binding upon the Underwriter and the Company and their respective successors
and assigns and, with respect to Sections 7 and 8, the officers, directors and
controlling persons referred to in Sections 7 and 8. Nothing expressed in this
Agreement is 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 7 and 8 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.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us 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,
MedicalCV, Inc.
By_________________________________
Signature
_________________________________
Name Typed or Printed
Its_______________________________________
Title Typed or Printed
ACCEPTANCE
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us
as of the date first above written.
Equity Securities Investments, Inc.
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By_________________________________
Signature
_________________________________
Name Type or Printed
Its_______________________________________
Title Typed or Printed
-39-
APPENDIX A
FORM OF WARRANT
TO PURCHASE 150,000 UNITS
(EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE CLASS A
WARRANT)
MEDICALCV, INC.
RESTRICTION ON TRANSFER
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR ANY 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 OR LAWS COVERING SUCH SECURITY OR MEDICALCV, INC. (THE "COMPANY")
RECEIVES AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT, PLEDGE OR DISTRIBUTION IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT OF 1933
AND ALL APPLICABLE STATE SECURITIES LAWS.
NO. ______ 150,000 UNITS
FOR GOOD AND VALUABLE CONSIDERATION, MedicalCV, Inc., a Minnesota
corporation (the "Company"), hereby certifies that Equity Securities
Investments, Inc., Golden Valley, Minnesota (the "Underwriter"), or its
registered assigns, is entitled to subscribe for and purchase from the Company
at any time or from time to time after [ONE YEAR FROM EFFECTIVE DATE], to and
including [FIVE YEARS FROM THE EFFECTIVE DATE] One Hundred Fifty Thousand
(150,000) units (the "Units"), each Unit consisting of one share of the
Company's Common Stock and one redeemable Common Stock purchase warrant of the
Company. The per Unit exercise price of this Warrant is $6.75 (the "Warrant
Exercise Price"), subject to adjustment as provided herein.
This Warrant is the Underwriter's Warrant referred to in the
Underwriting Agreement dated_____________, 2001 by and between the Company
and the Underwriter entered into in connection with the offering (the
"Offering") by the Company of 1,500,000 Units, plus an additional 225,000
Units solely to cover over-allotments.
As used herein, (i) this Warrant and all warrants hereafter issued
in exchange or substitution for this Warrant are referred to as the "Warrants;"
(ii) the Units which may be acquired upon exercise of the Warrants are referred
to herein as the "Warrant Units;" (iii) the term "Holder" means the Underwriter,
any party who acquires all or a part of this Warrant as a
A-1
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; (iv) the term "Common Stock" means and includes the Company's
presently authorized common stock, par value $.01 per share, together with
any other equity securities which may be issued by the Company with respect
thereto or in substitution therefor; (v) the term "Redeemable Warrants" means
the redeemable Common Stock purchase warrants subject to the Warrant
Agreement dated __________, 2001 between the Company and Registrar and
Transfer Company, as warrant agent (the "Warrant Agent"), each Redeemable
Warrant becoming exercisable [18 MONTHS FROM EFFECTIVE DATE] and representing
the right to purchase at any time until [THREE YEARS FROM EFFECTIVE DATE] one
share of Common Stock at a price of $6.50 per share, subject to adjustment as
provided in said Warrant Agreement; and (vi) the term "Convertible
Securities" means any stock or other securities convertible into, or
exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and
conditions, to which each Holder hereof consents and agrees:
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 Warrant 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 Warrant Units.
(b) If the Company has redeemed the Redeemable Warrants before the
date upon which this Warrant first becomes exercisable, the Holder may, for a
period of thirty (30) days beginning on the date on which this Warrant first
becomes exercisable, exercise the Redeemable Warrants included in the Warrant
Units.
(c) This Warrant may not be sold, assigned, pledged, hypothecated
or otherwise transferred (other than by will, pursuant to the operation of
law or where directed by a court of competent jurisdiction upon the
dissolution or liquidation of a corporate Holder hereof) except to officers
or partners (not shareholders) of the Underwriter; such transfer to be 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. Further, this Warrant
may not be sold, transferred, assigned, hypothecated or divided into two or
more Warrants of smaller denominations, nor may any shares of Common Stock or
Redeemable Warrants issued pursuant to the exercise of this Warrant or shares
of Common Stock issued pursuant to the exercise of the Redeemable Warrants be
transferred, except as provided in Section 7 hereof.
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
A-2
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 shares of Common Stock and the
Redeemable Warrants comprising the Warrant Units purchased upon exercise of this
Warrant 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
Section 3(b), certificates for the shares of Common Stock and the Redeemable
Warrants comprising 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, 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, the Company shall not be required
to deliver any shares of Common Stock or the Redeemable Warrants comprising the
Warrant Units upon exercise of this Warrant except in accordance with exemptions
from the applicable securities registration requirements or registrations under
applicable securities laws. 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 thirty (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 reasonably required solely to comply with
the exemptions relied upon by the Company, or the registrations made, for the
issuance of the shares of Common Stock and the Redeemable Warrants comprising
the Warrant Units.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
A-3
(a) All shares of Common Stock included in the Warrant Units will,
upon issuance, be duly authorized and issued, fully paid, non-assessable and
free from all taxes, liens and charges with respect to the issue thereof;
(b) All Redeemable Warrants included in the Warrant Units, when
issued, delivered and sold in accordance with this Warrant, will be duly and
validly executed, authenticated, issued and delivered and will constitute
valid and binding obligations of the Company, enforceable against the Company
in accordance with their terms, except as enforceability may be limited by
the application of bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting the rights of creditors generally and by
judicial limitations on the right of specific performance;
(c) All Shares of Common Stock issuable upon exercise of the
Redeemable Warrants included in the Warrant Units 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; and
(d) 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 shares of Common Stock
and Redeemable Warrants to provide for the exercise of the rights represented by
this Warrant and a sufficient number of shares of Common Stock to provide for
the exercise of the Redeemable Warrants included in the Warrant Units.
5. ANTI-DILUTION ADJUSTMENTS. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time
such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the
Company payable in Common Stock or securities convertible into Common
Stock;
(ii) subdivide its then outstanding shares of Common Stock
into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately
prior to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price determined by dividing (A) the number
of shares of Common Stock outstanding immediately prior to such event,
multiplied by the then existing Warrant Exercise Price, by (B) the total
number of shares of Common Stock outstanding immediately
A-4
after such event (including in each case the maximum number of shares of
Common Stock issuable in respect of any securities convertible into Common
Stock), and the resulting quotient shall be the adjusted Warrant Exercise
Price per share. An adjustment made pursuant to this subsection shall become
effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date
in the case of a subdivision, combination, reclassification or other event.
If, as a result of an adjustment made pursuant to this subsection, the Holder
of any Warrant thereafter surrendered for exercise shall become entitled to
receive shares of two or more classes of capital stock or shares of Common
Stock and other capital stock of the Company, the Board of Directors (whose
determination shall be conclusive) shall determine the allocation of the
adjusted Warrant Exercise Price between or among shares of such classes of
capital stock or shares of Common Stock and other capital stock. If at any
time, as a result of an adjustment made pursuant to this subsection, the
holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive any shares of the Company other than shares of Common
Stock, thereafter the Warrant Exercise Price of such other shares so
receivable upon exercise of any Warrant shall be subject to adjustment from
time to time in a manner and on terms as nearly equivalent as practicable to
the provisions with respect to Common Stock contained in this subsection.
(b) If the Company shall distribute to all holders of Common Stock
(including any such distribution made to the shareholders of the Company in
connection with a consolidation or merger in which the Company is the continuing
corporation) evidences of its indebtedness, cash (other than any cash dividend
which, together with any cash dividends paid within the 12 months prior to the
record date for such distribution, does not exceed 5% of the "Current Market
Price" (as hereinafter defined) at the record date for such distribution) or
assets (other than dividends payable in shares of its capital stock), or rights,
options or warrants to subscribe for or purchase Common Stock or securities
convertible into or exchangeable for shares of Common Stock, then, in each such
case, the Warrant Exercise Price shall be adjusted by multiplying the Warrant
Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Current Market Price per Unit on
such record date, less the fair market value (as determined in good faith by the
Company's Board of Directors, whose determination shall be conclusive, absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such rights, options, or warrants or convertible or
exchangeable securities, or the amount of such cash, applicable to one share,
and the denominator of which shall be such "Current Market Price" per Unit (as
"Current Market Price" is defined below). Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the record date for
the determination of shareholders entitled to receive such distribution.
(c) For the purpose of any computation under this Warrant, the
"Current Market Price" per Unit on any date shall be the average of the daily
closing prices for the 30 consecutive trading days immediately preceding the
date in question for the Company's Units or, if the shares of Common Stock and
Redeemable Warrants comprising the Units are trading separately, the sum of the
average daily closing prices for such 30 consecutive trading day period for such
shares of Common Stock and the Redeemable Warrants. The closing price for each
day
A-5
shall be the last reported sales price regular way or, in case no such reported
sale takes place on such day, the closing bid price regular way, in either case
on the principal national securities exchange (including, for purposes hereof,
The Nasdaq National Market and The Nasdaq SmallCap Market) on which the Units,
the shares of Common Stock or the Redeemable Warrants are listed or admitted to
trading or, if the Units, the shares of Common Stock or the Redeemable Warrants
are not listed or admitted to trading on any national securities exchange, the
highest reported bid price as furnished by the National Association of
Securities Dealers, Inc. through Nasdaq or a similar organization if Nasdaq is
no longer reporting such information. If, on any such date, the Units, the
shares of Common Stock or the Redeemable Warrants are not listed or admitted to
trading on any national securities exchange and are not quoted by Nasdaq or any
similar organization, the fair value of a Unit, a share of Common Stock or a
Redeemable Warrant on such date, as determined in good faith by the Company's
Board of Directors, whose determination shall be conclusive, absent manifest
error, shall be used.
(d) No adjustment in the Warrant Exercise Price shall be required if
such adjustment is less than $.05; provided, however, that any adjustments which
by reason of this Section 5 are not required to be made shall be carried forward
and taken into account in any subsequent adjustment. All calculations under this
Section 5 shall be made to the nearest cent or to the nearest whole share, as
the case may be.
(e) In any case in which this Section 5 shall require that an
adjustment in the Warrant Exercise Price may be made effective as of a record
date for a specified event, the Company may elect to defer, until the occurrence
of such event, issuing to the Holder, if the Holder exercised or converted this
Warrant after such record date, the Warrant Units, if any, issuable upon such
exercise or conversion over and above the Warrant Units, if any, issuable upon
such exercise or conversion on the basis of the Warrant Exercise Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
the Holder a due ▇▇▇▇ or other appropriate instrument evidencing the Holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(f) Upon each adjustment of the Warrant Exercise Price pursuant
to Section 5(a) above, the Holder of each Warrant shall thereafter (until
another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of Warrant Units obtained by multiplying the number
of Warrant Units specified in such Warrant (as adjusted as a result of all
adjustments in the Warrant Exercise Price in effect prior to such adjustment)
by the Warrant Exercise Price in effect prior to such adjustment and dividing
the product so obtained by the adjusted Warrant Exercise Price.
(g) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
Subsection (a) of this Section above but the Holder of each Warrant then
outstanding shall have the right thereafter to convert
A-6
such Warrant into the kind and amount of shares of stock and other securities
and property which he would have owned or have been entitled to receive
immediately after such consolidation, merger, statutory exchange, sale or
conveyance had such Warrant been converted immediately prior to the effective
date of such consolidation, merger, statutory exchange, sale, or conveyance and
in any such case, if necessary, appropriate adjustment shall be made in the
application of the provisions set forth in this subsection with respect to the
rights and interests thereafter of any Holders of the Warrant, to the end that
the provisions set forth in this subsection shall thereafter correspondingly be
made applicable, as nearly as may reasonably be, in relation to any shares of
stock and other securities and property thereafter deliverable on the exercise
of the Warrant. The provisions of this subsection shall similarly apply to
successive consolidations, mergers, statutory exchanges, sales or conveyances.
(h) Upon any adjustment of the Warrant Exercise Price, then and in
each such case, the Company shall (i) give written notice thereof by first-class
mail, postage prepaid, within ten (10) calendar days after the date when the
circumstances giving rise to the adjustment occurred, addressed to the Holder as
shown on the books of the Company, which notice shall state the Warrant Exercise
Price resulting from such adjustment and the increase or decrease, if any, in
the number of Warrant Units purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based; and (ii) prepare and retain on file
a statement describing in reasonable detail the method used in arriving at the
new Warrant Exercise Price.
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 SHARES OF COMMON
STOCK OR REDEEMABLE WARRANTS.
(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 any shares of Common Stock or Redeemable
Warrants comprising the Warrant Units or any shares of Common Stock issuable
upon the exercise of the Redeemable Warrants included in the 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. If, in the opinion of
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 the
shares of Common Stock and Redeemable Warrants comprising the Warrant Units
received upon the previous exercise of this Warrant or the shares of Common
Stock issuable upon exercise of the Redeemable Warrants included in the
Warrant Units, 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 the shares of Common Stock
or Redeemable Warrants comprising the Warrant Units or the shares of Common
Stock issuable upon exercise of
A-7
the Redeemable Warrants included in the Warrant Units, describing restrictions
upon transfer thereof necessary or advisable in the opinion of counsel and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities 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 the shares of Common
Stock or Redeemable Warrants comprising the Warrant Units or the shares of
Common Stock issuable upon exercise of the Redeemable Warrants included in the
Warrant Units.
(b) If, in the opinion of counsel referred to in this Section 7,
the proposed transfer or disposition of this Warrant, or of the shares of
Common Stock or Redeemable Warrants comprising the Warrant Units or of the
shares of Common Stock issuable upon exercise of the Redeemable Warrants
included in the 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 the shares of Common Stock or Redeemable Warrants
comprising the Warrant Units or the shares of Common Stock issuable upon
exercise of the Redeemable Warrants included in the Warrant Units, the
Company shall promptly give written notice thereof to the Holder, and the
Holder will limit its activities in respect to such transfer or disposition
as, in the opinion of such counsel, are permitted by law.
(c) Until this Warrant is duly transferred on the books of the
Company, the Company shall treat the registered Holder of this Warrant as
absolute owner hereof for all purposes without being affected by any notice to
the Company.
8. FRACTIONAL WARRANT UNITS. Fractional Warrant 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 Warrant Unit, the Company shall, upon the exercise of this
Warrant for the largest number of whole Warrant 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) hereof) of such fractional Warrant Unit over the
proportional part of the Warrant Exercise Price represented by such fractional
Warrant Unit, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional Warrant Unit.
9. REGISTRATION RIGHTS.
(a) The Company agrees that, if at any time and from time to time
during the period commencing [ONE YEAR FROM THE EFFECTIVE DATE] and ending two
(2) years after complete exercise of this Warrant (but not later than [[SEVEN
YEARS] AFTER THE EFFECTIVE DATE]), the Company proposes to file a registration
statement under the Securities Act (other than a Form S-4 or Form S-8
Registration Statement or any successor or replacement forms thereto) with
respect to, or qualify for a public distribution under Section 3(b) of the
Securities Act, any of its securities in connection with the proposed offer of
such securities by the Company or any of its shareholders:
A-8
(i) the Company will promptly notify the Holder and all other
registered Holders, if any, of other Warrants, Warrant Units, shares of
Common Stock and Redeemable Warrants included in the Warrant Units and
shares of Common Stock issuable upon exercise of the Redeemable Warrants
included in the Warrant Units (such shares of Common Stock, Warrant Units
and Redeemable Warrants to be referred to hereinafter collectively as
"Registrable Securities"), at least twenty (20) days prior to each such
filing, that it intends to file such registration statement or effect such
qualification, and that the Registrable Securities which are then held
and/or which may be acquired upon the exercise of this Warrant by the
Holder and such other Holders will be included in such registration
statement or qualification at the Holder's and such Holders' request; and
(ii) the Company will use its best efforts to cause such
registration statement or qualification to include all Registrable
Securities which it has been so requested to include; provided, however,
that if a greater number of Registrable 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
Registrable 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, subject to
preexisting registration rights, be excluded or proportionately reduced
to a number deemed satisfactory by the managing underwriter.
The Holder and such other Holders may request that their Registrable
Securities be included in such registration statement or qualification by
making written request to the Company specifying the number of shares of
Common Stock, Warrant Units and/or Redeemable Warrants to be so included.
Such request shall be made within twenty (20) days after receipt from the
Company of notice of such intended registration or qualification.
(b) Further, at any time after this Warrant becomes exercisable
and prior to the expiration of this Warrant, and on a one-time basis only,
upon request by the Holder or Holders of a majority in interest of the
Warrant or the Warrant Units, the Company will promptly take all necessary
steps to register or qualify, under the Securities Act and the securities
laws of such states as such Holder or Holders may reasonably request, such
number of Registrable Securities requested by such Holder(s) in their request
to the Company. In addition, if any registration pursuant to this Section
9(b) is underwritten in whole or in part, the Company may require that the
Registrable Securities requested for inclusion pursuant to this Section 9(b)
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 Registrable 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 Registrable Securities proposed to be
offered by such Holder(s) for registration, as well as the number of
securities of any other selling shareholders participating in the
registration, shall, subject to preexisting registration rights, be
proportionately reduced to a number deemed satisfactory by the managing
underwriter. Furthermore, upon the receipt of such request, the Company shall
promptly give written notice to all other record Holders of Registrable
Securities not theretofore registered under the Securities Act and sold that
such registration is to
A-9
be effected. The Company shall include in such registration statement such
Registrable Securities for which it has received written requests to register by
such other record Holders within twenty (20) 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 as provided in Section 9(c). The
Company shall keep effective and maintain any registration, qualification,
notification or approval specified in this Section 9(b) for a period of one
hundred twenty (120) days.
(c) With respect to each inclusion of securities in a
registration or qualification pursuant to this Section 9, the Company shall
bear all fees, costs and expenses thereof, including, without limitation, all
filing fees, fees imposed by the National Association of Securities Dealers,
Inc., 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 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, the officers
and directors of such Holders and any person who controls such Holders within
the meaning of Section 15 of the Securities Act against all losses, claims,
damages and liabilities caused by: (i) any untrue statement or alleged untrue
statement of a material fact contained in any registration statement or
prospectus prepared in connection with any registration statement pursuant to
this Section 9 (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; and (ii) 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 Securities 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.
(e) Each Holder of Registrable Securities included in a registration
or qualification pursuant to this Section 9 agrees to cooperate with the Company
in the preparation and filing of any such registration statement or other
offering materials and in the furnishing of information concerning the Holder
for inclusion therein, or in any efforts by the Company to
A-10
establish that the proposed sale is exempt under the Securities Act as to any
proposed distribution.
(f) If, after any registration statement filed as required under
this Section 9 becomes effective, the Company advises the Holder that the
Company considers it appropriate for the registration statement to be amended,
the Company shall use its commercially reasonable efforts to amend such
registration statement as soon as practicable and the Holders of the Registrable
Securities included in such registration statement shall suspend any further
sales of their registered shares until the Company advises them that the
registration statement has been so amended.
10. RIGHT TO CONVERT.
(a) The Holder of this Warrant shall have the right (but not the
obligation) to require the Company to convert this Warrant (the "Conversion
Right"), at any time after one year from the date of this Warrant and prior to
its expiration, into Warrant Units as provided for in this Section 10. Upon
exercise of the Conversion Right by the Holder, the Company shall deliver to the
Holder (without payment by the Holder of any exercise price) that number of
Warrant Units equal to the quotient obtained by dividing (i) the value of the
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Warrant Exercise Price for the Warrant Units in effect immediately
prior to the exercise of the Conversion Right from the aggregate "Fair Market
Value" (as determined below) for the Warrant Units immediately prior to the
exercise of the Conversion Right) by (ii) the Fair Market Value of one Warrant
Unit immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at any time
or from time to time, prior to its expiration, on any business day, by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company exercising the Conversion Right and specifying (i) the
total number of Warrant Units the Holder will purchase pursuant to such
conversion, and (ii) a place, and a date not less than five (5) nor more than
twenty (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, (ii) the Company will deliver or cause to be delivered to
the Holder a certificate or certificates for the number of shares of Common
Stock and Redeemable Warrants comprising the Warrant Units issuable upon such
conversion, together with cash in lieu of any fraction of a Warrant Unit, and
(iii) the Company will deliver to the Holder a new Warrant representing the
number of Warrant Units, if any, with respect to which the Warrant shall not
have been converted.
(d) "Fair Market Value" of a Warrant Unit as of a particular date
(the "Determination Date") shall mean the Fair Market Value of a Unit or, if the
shares of Common Stock and Redeemable Warrants comprising the Units are trading
separately, the sum of the Fair Market Value of a share of Common Stock and a
Redeemable Warrant comprising that Warrant
A-11
Unit as of the Determination Date. "Fair Market Value" of a Unit, a share of
Common Stock or of a Redeemable Warrant as of the Determination Date shall mean:
(i) If the Company's Units, Common Stock or Redeemable
Warrants are traded on an exchange or quoted on The Nasdaq National Market
or The Nasdaq SmallCap Market, 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 Units, Common Stock or Redeemable
Warrants are not traded on an exchange or quoted on The Nasdaq National
Market or The Nasdaq SmallCap Market but are traded in the
over-the-counter market, then the average of the closing bid and asked
prices as reported for the ten (10) business days immediately preceding
the Determination Date.
11. MISCELLANEOUS. The Company shall 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 other action which may be
necessary in order to protect the rights of Holders against dilution.
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. This Warrant shall be interpreted under
the laws of the State of Minnesota.
To the extent of any conflict between (a) the terms of this Warrant and
(b) the terms of the Redeemable Warrants and/or the Warrant Agreement, the
terms of this Warrant shall govern.
IN WITNESS WHEREOF, MedicalCV, Inc. has caused this Warrant to be
signed by its duly authorized officer and to be dated ______________, 2001.
MedicalCV, Inc.
By_________________________________
Signature
_________________________________
Name Typed or Printed
Its_______________________________________
Title Typed or Printed
A-12
NOTICE OF EXERCISE OF WARRANT
(To be signed upon the exercise of the Warrant for cash or by check)
The undersigned hereby irrevocably elects to exercise the attached
Warrant and to purchase thereunder, for cash, ________________ of the Units
of MedicalCV, Inc. issuable upon the exercise of such Warrant, herewith makes
payment of $___________ therefor in cash or by check, and requests that
certificates for Units or certificates for the shares of Common Stock and
Redeemable Warrants comprising the Units (together with a new Warrant to
purchase the number of Units, if any, with respect to which this Warrant is
not exercised) be issued in the name set forth below and be delivered to the
address set forth below.
Dated: ________________
__________________________________________
(Signature)
__________________________________________
(Name Typed or Printed)
__________________________________________
(Address)
__________________________________________
__________________________________________
(Social Security or Tax Ident. No.)
* The signature on the Notice of Exercise of Warrant must exactly correspond
to the name as written upon the face of the Warrant in every particular
without alteration 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.
NOTICE OF WARRANT CONVERSION
(To be signed only upon conversion of Warrant)
To: MedicalCV, Inc.
Dated: ___________________
The undersigned, pursuant to Section 10 of the attached Warrant Certificate
(Certificate No.____), hereby agrees to subscribe for and purchase _________
Units covered by such Warrant by converting other Units covered by such Warrant
according to the following formula:
____________________________ multiplied by _____________________________
Per Unit Fair Market Value * number of Units subject to Warrant
MINUS
_________________________ multiplied by ________________________________
Exercise price per Unit number of Units subject to Warrant
DIVIDED BY
______________________________________
Per Unit Fair Market Value*
EQUALS: __________________________________
Please indicate dates and average closing or last sales price for each day used
to determine Fair Market Value:
Dates: _____ _____ _____ _____ _____ _____ _____
Market Price: _____ _____ _____ _____ _____ _____ _____
* Average closing or last sale price reported for the ten (10) business days
immediately preceding the exercise date.
__________________________________________
(Signature)
__________________________________________
(Name Typed or Printed)
__________________________________________
(Address)
__________________________________________
__________________________________________
Telephone number (including area code)
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _________________________________ the right to purchase _______________
Units of MedicalCV, Inc. to which the within Warrant relates and appoints
_________________________________, as attorney-in-fact, to transfer said right
on the books of MedicalCV, Inc. with full power of substitution in the premises.
Dated: ________________
__________________________________________
(Signature)
__________________________________________
(Name Typed or Printed)
__________________________________________
(Address)
__________________________________________
__________________________________________
(Social Security or Tax Ident. No.)
* The signature on the Assignment of Warrant must exactly correspond to the
name as written upon the face of the Warrant in every particular without
alteration 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.