EXHIBIT 10.1
SUBSCRIPTION AGREEMENT
Dear Subscriber:
You (the "Subscriber") hereby agree to purchase, and Hypertension
Diagnostics, Inc., a Minnesota corporation (the "Company") hereby agrees to
issue and to sell to the Subscriber, an 8% Convertible Note convertible in
accordance with the terms thereof into shares of the Company's $.01 par value
common stock (the "Company Shares") and common stock purchase warrants
("Warrants") for the aggregate consideration as set forth on the signature page
hereof ("Purchase Price"). The form of Convertible Note is annexed hereto as
EXHIBIT A. (The Company Shares included in the Securities (as hereinafter
defined) are sometimes referred to herein as the "Shares", "Common Shares" or
"Common Stock"). (The Notes, the Company Shares, Warrants, and the Common Stock
issuable upon exercise of the Warrants are collectively referred to herein as,
the "Securities"). Upon acceptance of this Agreement by the Subscriber, the
Company shall issue and deliver the Note and Warrants against payment, by
federal funds wire transfer of the Purchase Price.
The following terms and conditions shall apply to this subscription.
1. Subscriber's Representations and Warranties. The Subscriber hereby
represents and warrants to and agrees with the Company that:
(a) Information on Company. The Subscriber has been furnished
with the Company's Form 10-KSB for the year ended June 30, 2001 as filed
with the Securities and Exchange Commission (the "Commission") together
with all subsequently filed Forms 10-QSB, and other publicly available
filings made with the Commission (hereinafter referred to as the
"Reports"). In addition, the Subscriber has received from the Company
such other information concerning its operations, financial condition
and other matters as the Subscriber has requested in writing (such
information in writing is collectively, the "Other Written
Information"), and considered all factors the Subscriber deems material
in deciding on the advisability of investing in the Securities.
(b) Information on Subscriber. The Subscriber is an "accredited
investor", as such term is defined in Regulation D promulgated by the
Commission under the Securities Act of 1933, as amended (the "1933
Act"), is experienced in investments and business matters, has made
investments of a speculative nature and has purchased securities of
United States publicly-owned companies in private placements in the past
and, with its representatives, has such knowledge and experience in
financial, tax and other business matters as to enable the Subscriber to
utilize the information made available by the Company to evaluate the
merits and risks of and to make an informed investment decision with
respect to the proposed purchase, which represents a speculative
investment. The Subscriber was not organized for the specific purpose of
acquiring the Securities. The Subscriber has the authority and is duly
and legally qualified to purchase and own the Securities. The Subscriber
is able to bear the risk of such investment for an indefinite period and
to afford a complete loss thereof. The information set forth on the
signature page hereto regarding the Subscriber is accurate.
(c) Purchase of Note. On the Closing Date, the Subscriber will
purchase the Note and Warrants for its own account and not with a view
to any distribution thereof.
(d) Compliance with Securities Act. The Subscriber understands
and agrees that the Securities have not been registered under the 1933
Act, by reason of their issuance in a transaction that does not require
registration under the 1933 Act (based in part on the accuracy of the
representations and warranties of Subscriber contained herein), and that
such Securities must be held unless a subsequent disposition is
registered under the 1933 Act or is exempt from such registration.
1
(e) Company Shares Legend. The Company Shares, and the shares of
Common Stock issuable upon the exercise of the Warrants, shall bear the
following legend:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE
SHARES MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT UNDER SUCH SECURITIES ACT OR AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO HYPERTENSION DIAGNOSTICS, INC. THAT
SUCH REGISTRATION IS NOT REQUIRED."
(f) Warrants Legend. The Warrants shall bear the following
legend:
"THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF
THIS WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED. THIS WARRANT AND THE COMMON SHARES ISSUABLE
UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO HYPERTENSION
DIAGNOSTICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(g) Note Legend. The Note shall bear the following legend:
"THIS NOTE AND THE COMMON SHARES ISSUABLE UPON CONVERSION OF
THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED. THIS NOTE AND THE COMMON SHARES ISSUABLE UPON
CONVERSION OF THIS NOTE MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS NOTE UNDER SAID ACT OR AN
OPINION OF COUNSEL REASONABLY SATISFACTORY TO HYPERTENSION
DIAGNOSTICS, INC. THAT SUCH REGISTRATION IS NOT REQUIRED."
(h) Communication of Offer. The offer to sell the Securities was
directly communicated to the Subscriber. At no time was the Subscriber
presented with or solicited by any leaflet, newspaper or magazine
article, radio or television advertisement, or any other form of general
advertising or solicited or invited to attend a promotional meeting
otherwise than in connection and concurrently with such communicated
offer.
(i) Resale Compliance. The Subscriber will comply with all
applicable federal, state and other regulatory agency rules, laws and
regulations in connection with the sale and resale of the Company
Shares.
2
(j) Correctness of Representations. The Subscriber represents
that the foregoing representations and warranties are true and correct
as of the date hereof and, unless the Subscriber otherwise notifies the
Company prior to the Closing Date (as hereinafter defined), shall be
true and correct as of the Closing Date. The foregoing representations
and warranties shall survive the Closing Date.
2. Company Representations and Warranties. The Company represents and
warrants to and agrees with the Subscriber that:
(a) Due Incorporation. The Company and each of its subsidiaries,
if applicable, is a corporation duly organized, validly existing and in
good standing under the laws of the respective jurisdictions of their
incorporation and have the requisite corporate power to own their
properties and to carry on their business as now being conducted. The
Company and each of its subsidiaries, if applicable, is duly qualified
as a foreign corporation to do business and is in good standing in each
jurisdiction where the nature of the business conducted or property
owned by it makes such qualification necessary, other than those
jurisdictions in which the failure to so qualify would not have a
material adverse effect on the business, operations or financial
condition of the Company.
(b) Outstanding Stock. All issued and outstanding shares of
capital stock of the Company and each of its subsidiaries has been duly
authorized and validly issued and are fully paid and non-assessable.
(c) Authority; Enforceability. This Agreement has been duly
authorized, executed and delivered by the Company and is a valid and
binding agreement enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights generally and to general principles of equity; and the
Company has full corporate power and authority necessary to enter into
this Agreement and to perform its obligations hereunder and all other
agreements entered into by the Company relating hereto.
(d) Additional Issuances. Except as set forth on Schedule 2(d),
there are no outstanding agreements or preemptive or similar rights
affecting the Company's common stock or equity and no outstanding
rights, warrants or options to acquire, or instruments convertible into
or exchangeable for, or agreements or understandings with respect to the
sale or issuance of any shares of common stock or equity of the Company
or other equity interest in any of the subsidiaries of the Company
except as described in the Reports or Other Written Information.
(e) Consents. Other than the approval of shareholders described
in Section 7(n) and the declaration of effectiveness by the Commission
of any registration statement required to be filed pursuant to this
Agreement and the approval of any state securities commission under
applicable "blue sky" regulation, no consent, approval, authorization or
order of any court, governmental agency or body or arbitrator having
jurisdiction over the Company, or any of its affiliates, the NASD,
NASDAQ or the Company's Shareholders is required for execution of this
Agreement, and all other agreements entered into by the Company relating
thereto, including, without limitation issuance and sale of the
Securities, and the performance of the Company's obligations hereunder.
(f) No Violation or Conflict. Assuming the representations and
warranties of the Subscriber in Paragraph 1 are true and correct and the
Subscriber complies with its obligations under this Agreement, neither
the issuance and sale of the Securities nor the performance of its
obligations under this Agreement and all other agreements entered into
by the Company relating thereto by the Company will:
3
(i) violate, conflict with, result in a breach of, or
constitute a default (or an event which with the giving of
notice or the lapse of time or both would be reasonably likely
to constitute a default) under (A) the certificate of
incorporation, charter or bylaws of the Company, (B) to the
Company's knowledge, any decree, judgment, order, law, treaty,
rule, regulation or determination applicable to the Company of
any court, governmental agency or body, or arbitrator having
jurisdiction over the Company or any of its affiliates or over
the properties or assets of the Company or any of its
affiliates, (C) the terms of any bond, debenture, note or any
other evidence of indebtedness, or any agreement, stock option
or other similar plan, indenture, lease, mortgage, deed of trust
or other instrument to which the Company or any of its
affiliates is a party, by which the Company or any of its
affiliates is bound, or to which any of the properties of the
Company or any of its affiliates is subject, or (D) the terms of
any "lock-up" or similar provision of any underwriting or
similar agreement to which the Company, or any of its affiliates
is a party except the violation, conflict, breach, or default of
which would not have a material adverse effect on the Company;
or
(ii) result in the creation or imposition of any lien,
charge or encumbrance upon the Securities or any of the assets
of the Company, or any of its affiliates.
(g) The Securities. The Securities upon issuance:
(i) are, or will be, free and clear of any security
interests, liens, claims or other encumbrances, subject to
restrictions upon transfer under the 1933 Act and State laws;
(ii) have been, or will be, duly and validly authorized
and on the date of issuance and on the Closing Date, as
hereinafter defined, and the date the Note is converted, and the
Warrants are duly exercised, the Securities will be duly and
validly issued, fully paid and nonassessable (and if registered
pursuant to the 1933 Act, and resold pursuant to an effective
registration statement will be free trading and unrestricted,
except that the Securities may bear a legend relating to the
Prospectus delivery requirement and Subscriber must furnish
evidence to the Company, its counsel or transfer agent that
Subscriber has complied with the Prospectus delivery requirement
which may be satisfied with a written statement from the
Subscriber or broker);
(iii) will not have been issued or sold in violation of
any preemptive or other similar rights of the holders of any
securities of the Company; and
(iv) will not subject the holders thereof to personal
liability by reason of being such holders.
(h) Litigation. There is no pending or, to the best knowledge of
the Company, threatened action, suit, proceeding or investigation before
any court, governmental agency or body, or arbitrator having
jurisdiction over the Company, or any of its affiliates that would
affect the execution by the Company or the performance by the Company of
its obligations under this Agreement, and all other agreements entered
into by the Company relating hereto. Except as disclosed in the Reports
or Other Written Information, there is no pending or, to the best
knowledge of the Company, threatened action, suit, proceeding or
investigation before any court, governmental agency or body, or
arbitrator having jurisdiction over the Company, or any of its
affiliates which litigation if adversely determined could have a
material adverse effect on the Company.
4
(i) Reporting Company. The Company is a publicly-held company
subject to reporting obligations pursuant to Sections 15(d) and 13 of
the Securities Exchange Act of 1934, as amended (the "1934 Act") and has
a class of common shares registered pursuant to Section 12(g) of the
1934 Act. The Company's common stock is trading on the Nasdaq SmallCap
Market ("SmallCap"). Pursuant to the provisions of the 1934 Act, the
Company has filed all reports and other materials required to be filed
thereunder with the Securities and Exchange Commission during the
preceding twelve months except as set forth in the Reports.
(j) No Market Manipulation. The Company has not taken, and will
not take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in stabilization or
manipulation of the price of the common stock of the Company to
facilitate the sale or resale of the Securities or affect the price at
which the Securities may be issued.
(k) Information Concerning Company. The Reports contain all
material information relating to the Company and its operations and
financial condition as of their respective dates which information is
required to be disclosed therein. Since the date of the financial
statements included in the Reports, and except as modified in the Other
Written Information or in the Schedule hereto, there has been no
material adverse change in the Company's business, financial condition
or affairs not disclosed in the Reports. The Reports do not contain any
untrue statement of a material fact or omit to state a material fact in
light of the circumstances when made required to be stated therein or
necessary to make the statements therein not misleading.
(l) Dilution. The number of Shares issuable upon conversion of
the Notes may increase substantially in certain circumstances,
including, but not necessarily limited to, the circumstance wherein the
trading price of the Common Stock declines prior to conversion of the
Note. The Company's executive officers and directors have studied and
fully understand the nature of the Securities being sold hereby and
recognize that they have a potential dilutive effect. The board of
directors of the Company has concluded, in its good faith business
judgment, that such issuance is in the best interests of the Company.
The Company specifically acknowledges that its obligation to issue the
Shares upon conversion of the Note and exercise of the Warrants is
binding upon the Company and enforceable, except as otherwise described
in this Subscription Agreement or the Note, regardless of the dilution
such issuance may have on the ownership interests of other shareholders
of the Company.
(m)Stop Transfer. The Securities are restricted securities as of
the date of this Agreement. The Company will not issue any stop transfer
order or other order impeding the sale and delivery of the Securities,
except as may be required by federal securities laws.
(n) Defaults. Neither the Company nor any of its subsidiaries is
in violation of its Certificate of Incorporation or ByLaws. Neither the
Company nor any of its subsidiaries is (i) in default under or in
violation of any other material agreement or instrument to which it is a
party or by which it or any of its properties are bound or affected,
which default or violation would have a material adverse effect on the
Company, (ii) in default with respect to any order of any court,
arbitrator or governmental body or subject to or party to any order of
any court or governmental authority arising out of any action, suit or
proceeding under any statute or other law respecting antitrust,
monopoly, restraint of trade, unfair competition or similar matters, or
(iii) to its knowledge in violation of any statute, rule or regulation
of any governmental authority which violation would have a material
adverse effect on the Company.
5
(o) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly
or indirectly made any offers or sales of any security or solicited any
offers to buy any security under circumstances that would cause the
offering of the Securities pursuant to this Agreement to be integrated
with prior offerings by the Company for purposes of the 1933 Act or any
applicable stockholder approval provisions, including, without
limitation, under the rules and regulations of SmallCap nor will the
Company or any of its affiliates or subsidiaries take any action or
steps that would cause the offering of the Securities to be integrated
with other offerings. The Company has not conducted and will not conduct
any offering other than the transactions contemplated hereby that will
be integrated with the issuance of the Securities.
(p) No General Solicitation. Neither the Company, nor any of its
affiliates, nor to its knowledge, any person acting on its or their
behalf, has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D under the Act) in
connection with the offer or sale of the Securities.
(q) Listing. The Company's common stock is quoted on, and listed
for trading on the SmallCap. Except as disclosed in the Other Written
Information, the Company has not received any oral or written notice
that its Common Stock will be delisted from the SmallCap or that the
Common Stock does not meet all requirements for the continuation of such
listing.
(r) No Undisclosed Liabilities. The Company has no liabilities
or obligations which are material, individually or in the aggregate,
which are not disclosed in the Reports and Other Written Information,
other than those incurred in the ordinary course of the Company's
businesses since June 30, 2001 and which, individually or in the
aggregate, would not reasonably be expected to have a material adverse
effect on the Company's financial condition.
(s) No Undisclosed Events or Circumstances. Since June 30, 2001,
no event or circumstance has occurred or exists with respect to the
Company or its businesses, properties, operations or financial
condition, that, under applicable law, rule or regulation, requires
public disclosure or announcement prior to the date hereof by the
Company but which has not been so publicly announced or disclosed in the
Reports.
(t) Capitalization. The authorized and outstanding capital stock
of the Company as of the date of this Agreement and the Closing Date are
set forth on Schedule 2(t) hereto. Except as set forth in the Reports
and Other Written Information and Schedule 2(t), there are no options,
warrants, or rights to subscribe to, securities, rights or obligations
convertible into or exchangeable for or giving any right to subscribe
for any shares of capital stock of the Company. All of the outstanding
shares of Common Stock of the Company have been duly and validly
authorized and issued and are fully paid and nonassessable.
(u) Correctness of Representations. The Company represents that
the foregoing representations and warranties are true and correct as of
the date hereof in all material respects, will be true and correct as of
the Closing Date in all material respects, and, unless the Company
otherwise notifies the Subscriber prior to the Closing Date, shall be
true and correct in all material respects as of the Closing Date. The
foregoing representations and warranties shall survive the Closing Date.
3. Regulation D Offering. This Offering is being made pursuant to the
exemption from the registration provisions of the Securities Act of 1933, as
amended, afforded by Rule 506 of Regulation D promulgated thereunder. On the
Closing Date, the Company will provide an opinion reasonably acceptable to
Subscriber from the Company's legal counsel opining on the availability of the
Regulation D exemption as it relates to the offer and issuance of the
Securities. A form of the legal opinion is annexed hereto as EXHIBIT B. The
Company will provide, at the Company's expense, such other legal opinions in the
future as are reasonably necessary for the conversion of the Note and exercise
of the Warrants.
6
4. Reissuance of Securities. The Company agrees to reissue certificates
representing the Securities without the legends set forth in Sections 1(e) and
1(f) above at such time as (a) the holder thereof is permitted to and disposes
of such Securities pursuant to Rule 144(d) and/or Rule 144(k) under the 1933 Act
in the opinion of counsel reasonably satisfactory to the Company, or (b) upon
resale subject to an effective registration statement after the Securities are
registered under the 1933 Act (provided that any certificate representing
Securities so registered may bear a legend relating to the prospectus delivery
requirements). The Company agrees to cooperate with the Subscriber in connection
with all resales pursuant to Rule 144(d) and Rule 144(k) and provide legal
opinions necessary to allow such resales provided the Company and its counsel
receive all reasonably requested written representations from the Subscriber and
selling broker, if any. Provided the Subscriber provides required certifications
and representation letters, if any, if the Company fails to remove any legend as
required by this Section 4 (a "Legend Removal Failure"), then beginning on the
tenth (10th) day following the date that the Subscriber has requested the
removal of the legend and delivered all items reasonably required by the Company
to be delivered by the Subscriber, the Company continues to fail to remove such
legend, the Company shall pay to each Subscriber or assignee holding shares
subject to a Legend Removal Failure an amount equal to one percent (1%) of the
Purchase Price of the shares subject to a Legend Removal Failure per day that
such failure continues. If during any twelve (12) month period, the Company
fails to remove any legend as required by this Section 4 for an aggregate of
thirty (30) days, each Subscriber or assignee holding Securities subject to a
Legend Removal Failure may, at its option, require the Company to purchase all
or any portion of the Securities subject to a Legend Removal Failure held by
such Subscriber or assignee at a price per share equal to 120% of the applicable
Purchase Price.
5. Warrants.
(a) The Company will also issue and deliver on the Closing Date
to the Subscriber a Warrant to purchase one share for each Eight Dollars
of Purchase Price. A form of Warrant is annexed hereto as EXHIBIT C. The
per share "Purchase Price" of Common Stock as defined in the Warrant
shall be 115% of the closing bid price of the Common Stock on the
SmallCap on the date of this Agreement. The Warrants shall be
exercisable for five years after the Issue Date (as defined in the
Warrant).
(b) All the representations, covenants, warranties,
undertakings, remedies, liquidated damages, indemnification, rights in
Section 9 hereof, and other rights including but not limited to
registration rights made or granted to or for the benefit of the
Subscriber are hereby also made and granted to the Subscribers in
respect of the Warrants and Company Shares issuable upon exercise of the
Warrants.
6. Fees.
(a) The Company shall pay to counsel of the Subscribers its fees
of $20,000 maximum ($10,000 of which has already been paid) for services
rendered to Subscribers in connection with this Agreement and the other
Subscription Agreements for aggregate subscription amounts of up to
$2,000,000 of principal amount of Notes (the "Initial Offering") and
acting as escrow agent for the Initial Offering. The Company will pay to
the Finder identified on SCHEDULE D hereto a cash fee equal to nine
percent (9%) of the principal amount of the Notes as designated on
SCHEDULE D ("Finder's Fee"). The Finder's Fee in connection with the
Initial Offering must be paid on the Closing Date. The Finder identified
on SCHEDULE D will also receive within ten days of the exercise date of
the Warrants a fee equal to 4% of the cash proceeds received by the
Company from the exercise of the Warrants. The legal fees will be
payable out of funds held pursuant to a Funds Escrow Agreement to be
entered into by the Company, Subscriber and Escrow Agent.
7
(b) The Company will issue and deliver, at the Closing, to the
Finder identified on SCHEDULE D, a Warrant to purchase a number of
shares of the Company's Common Stock equal to five percent (5%) of the
principal amount of the Note issued to the Subscriber. A form of this
Warrant is annexed hereto as EXHIBIT F.
(c) The Company on the one hand, and the Subscriber on the other
hand, agree to indemnify the other against and hold the other harmless
from any and all liabilities to any other persons claiming brokerage
commissions or finder's fees except as identified on SCHEDULE D hereto
on account of services purported to have been rendered on behalf of the
indemnifying party in connection with this Agreement or the transactions
contemplated hereby and arising out of such party's actions. Except as
set forth on SCHEDULE D hereto, the Company represents that there are no
other parties entitled to receive fees, commissions, or similar payments
in connection with the offering described in the Subscription Agreement.
7. Covenants of the Company. The Company covenants and agrees with the
Subscriber as follows:
(a) Stop Orders. The Company will advise the Subscriber,
promptly after it receives notice of issuance by the Securities and
Exchange Commission, any state securities commission or any other
regulatory authority of any stop order or of any order preventing or
suspending any offering of any securities of the Company, or of the
suspension of the qualification of the Common Stock of the Company for
offering or sale in any jurisdiction, or the initiation of any
proceeding for any such purpose.
(b) Listing. The Company shall promptly secure the listing of
the Company Shares and Common Stock issuable upon exercise of the
Warrants upon each national securities exchange, or automated quotation
system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain such listing
so long as any Notes are outstanding. The Company will maintain the
listing of its Common Stock on the SmallCap, NASDAQ National Market
System, New York Exchange , OTC Bulletin Board or American Stock
Exchange (whichever of the foregoing is at the time the principal
trading exchange or market for the Common Stock (the "Principal
Market"), and will comply in all respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the National
Association of Securities Dealers ("NASD") and such other exchanges or
markets, as applicable. The Company will provide the Subscriber copies
of all notices it receives notifying the Company of the threatened or
actual delisting of the Common Stock from any Principal Market provided
the provisions of such information to the Subscriber would not violate
the provisions of Regulation FD under the 1933 Act.
(c) Market Regulations. The Company shall notify the SEC, NASD,
the Principal Market and applicable state authorities, in accordance
with their requirements, if any, of the transactions contemplated by
this Agreement, and shall take all other necessary action and
proceedings as may be required and permitted by applicable law, rule and
regulation, for the legal and valid issuance of the Securities to the
Subscriber and promptly provide copies thereof to Subscriber.
(d) Reporting Requirements. From the Closing Date and until at
least three (3) years after the effectiveness of the registration
statement on Form SB-2 or such other registration statement described in
Section 10.1(iv) hereof, the Company will (i) cause its Common Stock to
continue to be registered under Sections 12(b) or 12(g) of the Exchange
Act, (ii) comply in all respects with its reporting and filing
obligations under the Exchange Act, (iii) comply with all reporting
requirements that is applicable to an issuer with a class of Shares
registered pursuant to Section 12(g) of the Exchange Act, and (iv)
comply with all requirements related to any registration statement filed
pursuant to this Agreement. The Company will use its best efforts not to
take any action or file any document (whether or not permitted by the
Act or the Exchange Act or the rules thereunder) to terminate or suspend
such registration or to terminate or suspend its reporting and filing
obligations under said Acts until the later of three (3) years after the
actual effective date of the registration statement on Form SB-2 or such
8
other registration statement described in Section 10.1(iv) hereof. Until
the earlier of the resale of the Company Shares by the Subscriber or at
least three (3) years after the Warrants have been exercised, the
Company will use its best efforts to continue the listing of the Common
Stock on the SmallCap and will comply in all respects with the Company's
reporting, filing and other obligations under the bylaws or rules of
SmallCap.
(e) Use of Proceeds. The Company undertakes to use the proceeds
of the Subscriber's funds for the purposes set forth on SCHEDULE E
hereto. A deviation from the use of proceeds set forth on SCHEDULE E of
more than 10% per item or more than 20% in the aggregate shall be deemed
a material breach of the Company's obligations hereunder. Except as set
forth on SCHEDULE E, the Purchase Price may not and will not be used for
accrued and unpaid officer and director salaries, payment of financing
related debt, redemption of outstanding redeemable notes or equity
instruments of the Company nor non-trade obligations outstanding on the
Closing Date.
(f) Reservation of Common Stock. The Company undertakes to
reserve, pro rata on behalf of each holder of a Note or Warrant, from
its authorized but unissued Common Stock, at all times that Notes remain
outstanding, a number of Common Shares equal to not less than 200% of
the amount of Common Shares necessary to allow each such holder to be
able to convert all such outstanding Notes, at the then applicable
Conversion Price, and one share of Common Stock for each Common Share
issuable upon exercise of the Warrants.
(g) Taxes. The Company will promptly pay and discharge, or cause
to be paid and discharged, when due and payable, all lawful taxes,
assessments and governmental charges or levies imposed upon the income,
profits, property or business of the Company; provided, however, that
any such tax, assessment, charge or levy need not be paid if the
validity thereof shall currently be contested in good faith by
appropriate proceedings and if the Company shall have set aside on its
books adequate reserves with respect thereto, and provided, further,
that the Company will pay all such taxes, assessments, charges or levies
forthwith upon the commencement of proceedings to foreclose any lien
which may have attached as security therefore.
(h) Insurance. The Company will keep its assets which are of an
insurable character insured by financially sound and reputable insurers
against loss or damage by fire, explosion and other risks customarily
insured against by companies in the Company's line of business, in
amounts sufficient to prevent the Company from becoming a co-insurer and
not in any event less than 100% of the insurable value of the property
insured; and the Company will maintain, with financially sound and
reputable insurers, insurance against other hazards and risks and
liability to persons and property to the extent and in the manner
customary for companies in similar businesses similarly situated and to
the extent available on commercially reasonable terms.
(i) Books and Records. The Company will keep true records and
books of account in which full, true and correct entries will be made of
all dealings or transactions in relation to its business and affairs in
accordance with generally accepted accounting principles applied on a
consistent basis.
(j) Governmental Authorities. The Company shall duly observe and
conform in all material respects to all valid requirements of
governmental authorities relating to the conduct of its business or to
its properties or assets.
(k) Intellectual Property. The Company shall maintain in full
force and effect its corporate existence, rights and franchises and all
licenses and other rights to use intellectual property owned or
possessed by it and reasonably deemed to be necessary to the conduct of
its business.
9
(l) Properties. The Company will keep its properties in good
repair, working order and condition, reasonable wear and tear excepted,
and from time to time make all needful and proper repairs, renewals,
replacements, additions and improvements thereto; and the Company will
at all times comply with each provision of all leases to which it is a
party or under which it occupies property if the breach of such
provision could reasonably be expected to have a material adverse
effect.
(m)Confidentiality. The Company agrees that it will not
disclose, and will not include in any public announcement, the name of
any Subscriber, unless expressly agreed to by such Subscriber or unless
and until such disclosure is required by law or applicable regulation,
and then only to the extent of such requirement.
(n) NASDAQ Approval. The Company and Subscriber agree that until
the Company either obtains shareholder approval of the issuance of the
Securities, or an exemption from Nasdaq's corporate governance rules as
they may apply to the Securities, and an opinion of counsel reasonably
acceptable to Subscriber that Nasdaq's corporate governance rules do not
conflict with nor may result in a delisting of the Company's common
stock from the SmallCap ("the Approval") upon the conversion of the
Notes and exercise of the Warrants, each Subscriber may not receive more
than the number of common shares designated on the Signature Page hereto
("Section 7 Shares"). The Company represents that this number of Company
Shares together with the aggregate of such amounts designated for all
investors in the Initial Offering is not greater than 19.9% of the
shares of Company's common stock outstanding on the Closing Date. The
Company covenants to use its best efforts to obtain the Approval, if
required, pursuant to the Nasdaq's corporate governance rules to allow
conversion of all the Notes and interest thereon and exercise of all the
Warrants. The Company further covenants to file the preliminary proxy
statement relating to the Approval with the Commission on or before the
sooner of (i) the next filing made by the Company pursuant to Section
14(a) of the 1934 Act or (ii) thirty days after the Approval becomes
necessary for the Company to be able to issue, without limitation or
violation of the Nasdaq's corporate governance rules, all the shares
issuable upon conversion of the Notes and exercise of the Warrants
("Proxy Filing Date"). The Company further covenants to obtain the
Approval no later than one hundred and twenty (120) days after the Proxy
Filing Date ("Approval Date"). The Company's failure to (i) file the
proxy on or before the Proxy Filing Date; or (ii) the Company's failure
to obtain the Approval on or before the Approval Date (each being an
"Approval Default") shall be deemed an Event of Default under the Note,
but only to the extent the Notes and interest thereon that may not be
converted in compliance with Nasdaq's corporate governance rules, due to
the Company's failure to obtain the Approval. Anything to the contrary
in this Section 7(n) notwithstanding, there shall be no limitation on
the amount of Notes that may be converted by the Subscriber and the
amount of Company Shares that may be issued upon conversion of the Notes
provided the Subscriber elects a Conversion Price (as defined in the
Note) equal to the closing bid price of the Common Stock on the Closing
Date. At any meeting at which the Company's shareholders will vote on
the Approval, Company Shares issued upon conversion of the Notes may be
counted for the purpose of obtaining a quorum but may not be voted on
the Approval resolution. From and after the date that the number of
shares issuable upon conversion of the outstanding Note principal
together with the Shares already issued upon conversion of the Notes
exceeds 19.9% of the Common Stock outstanding on the Closing Date, the
Warrants may not be exercised unless and until the Approval is obtained.
8. Covenants of the Company and Subscriber Regarding Indemnification.
(a) The Company agrees to indemnify, hold harmless, reimburse
and defend Subscriber, Subscriber's officers, directors, agents,
affiliates, control persons, and principal shareholders, against any
claim, cost, expense, liability, obligation, loss or damage (including
reasonable legal fees) of any nature, incurred by or imposed upon
Subscriber or any such person which results, arises out of or is based
upon (i) any material misrepresentation by Company or breach of any
warranty by Company in this Agreement or in any Exhibits or Schedules
attached hereto, or other agreement delivered pursuant hereto; or (ii)
after any applicable notice and/or cure periods, any breach or default
in performance by the Company of any covenant or undertaking to be
performed by the Company hereunder, or any other agreement entered into
by the Company and Subscribers relating hereto.
10
(b) Subscriber agrees to indemnify, hold harmless, reimburse and
defend the Company and each of the Company's officers, directors,
agents, affiliates, control persons against any claim, cost, expense,
liability, obligation, loss or damage (including reasonable legal fees)
of any nature, incurred by or imposed upon the Company or any such
person which results, arises out of or is based upon (i) any material
misrepresentation by Subscriber in this Agreement or in any Exhibits or
Schedules attached hereto, or other agreement delivered pursuant hereto;
or (ii) after any applicable notice and/or cure periods, any breach or
default in performance by Subscriber of any covenant or undertaking to
be performed by Subscriber hereunder, or any other agreement entered
into by the Company and Subscribers relating hereto.
(c) The procedures set forth in Section 10.6 shall apply to the
indemnifications set forth in Sections 8(a) and 8(b) above.
9.1. Conversion of Note.
(a) Upon the conversion of the Note or part thereof, the Company
shall, at its own cost and expense, take all necessary action (including
the issuance of an opinion of counsel) to assure that the Company's
transfer agent shall issue stock certificates in the name of Subscriber
(or its nominee) or such other persons as designated by Subscriber and
in such denominations to be specified at conversion representing the
number of shares of common stock issuable upon such conversion. The
Company warrants that no instructions other than these instructions have
been or will be given to the transfer agent of the Company's Common
Stock and that the Shares will be unlegended, free-trading, and freely
transferable, and will not contain a legend restricting the resale or
transferability of the Company Shares provided that the Shares are being
sold pursuant to an effective registration statement covering the Shares
to be sold or are otherwise exempt from registration when sold and
Subscriber complies with prospectus delivery requirements and a legend
relating to such prospectus delivery requirement may be affixed to
certificates representing the Shares.
(b) Subscriber will give notice of its decision to exercise its
right to convert the Note or part thereof by telecopying an executed and
completed Notice of Conversion (a form of which is annexed to EXHIBIT A
hereto) to the Company via confirmed telecopier transmission. The
Subscriber will not be required to surrender the Note until the Note has
been fully converted or satisfied. Each date on which a Notice of
Conversion is telecopied to the Company in accordance with the
provisions hereof shall be deemed a Conversion Date. The Company will or
cause the transfer agent to transmit the Company's Common Stock
certificates representing the Shares issuable upon conversion of the
Note to the Subscriber via express courier for receipt by such
Subscriber within five (5) business days after receipt by the Company of
the Notice of Conversion (the "Delivery Date"). In the event the Shares
are DTC eligible or otherwise electronically transferable, then delivery
of the Shares must be made by electronic transfer provided request for
such electronic transfer has been made by the Subscriber. A Note
representing the balance of the Note not so converted will be provided
to the Subscriber, provided an original Note is delivered to the
Company.
(c) The Company understands that a delay in the delivery of the
Shares in the form required pursuant to Section 9.1(b) hereof, or the
Mandatory Redemption Amount described in Section 9.2 hereof, beyond the
Delivery Date or Mandatory Redemption Payment Date (as hereinafter
defined) could result in economic loss to the Subscriber. As
compensation to the Subscriber for such loss, the Company agrees to pay
late payments to the Subscriber for late issuance of Shares in the form
required pursuant to Section 9.1(b) hereof upon Conversion of the Note
or late payment of the Mandatory Redemption Amount, in the amount of
$100 per business day after the Delivery Date or Mandatory Redemption
11
Payment Date, as the case may be, for each $10,000 of Note principal
amount being converted or redeemed. The Company shall pay any payments
incurred under this Section in immediately available funds upon demand.
Furthermore, in addition to any other remedies which may be available to
the Subscriber, in the event that the Company fails for any reason to
effect delivery of the Shares by the Delivery Date or make payment by
the Mandatory Redemption Payment Date, the Subscriber will be entitled
to revoke all or part of the relevant Notice of Conversion or rescind
all or part of the notice of Mandatory Redemption by delivery of a
notice to such effect to the Company whereupon the Company and the
Subscriber shall each be restored to their respective positions
immediately prior to the delivery of such notice, except that late
payment charges described above shall be payable through the date notice
of revocation or rescission is given to the Company.
(d) Nothing contained herein or in any document referred to
herein or delivered in connection herewith shall be deemed to establish
or require the payment of a rate of interest or other charges in excess
of the maximum permitted by applicable law. In the event that the rate
of interest or dividends required to be paid or other charges hereunder
exceed the maximum permitted by such law, any payments in excess of such
maximum shall be credited against amounts owed by the Company to the
Subscriber and thus refunded to the Company.
9.2. Mandatory Redemption at Subscriber's Election. In the event the
Company is prohibited from issuing Shares, or fails to timely deliver Shares on
a Delivery Date, or upon the occurrence of any other Event of Default (as
defined in the Note) or for any reason other than pursuant to the limitations
set forth in Section 9.3 hereof, then at the Subscriber's election, the Company
must pay to the Subscriber ten (10) business days after request by the
Subscriber or on the Delivery Date (if requested by the Subscriber) at the
Subscriber's election, a sum of money determined by (i) multiplying up to the
outstanding principal amount of the Note designated by the Subscriber by 130%,
or (ii) multiplying the number of Shares otherwise deliverable upon conversion
of an amount of Note principal and/or interest designated by the Subscriber
(with the date of giving of such designation being a Deemed Conversion Date) at
the then Conversion Price that would be in effect on the Deemed Conversion Date
by the highest closing price of the Common Stock on the principal market for the
period commencing on the Deemed Conversion Date until the day prior to the
receipt of the Mandatory Redemption Payment, whichever is greater, together with
accrued but unpaid interest thereon ("Mandatory Redemption Payment").
Notwithstanding the foregoing, provided the proxy statement described in Section
7(n) is filed by the Proxy Filing Date and further provided all of the Company's
officers and directors vote all Common Shares owned by them in favor of the
Approval, the Mandatory Redemption Payment shall be 100% of the principal amount
of the Note designated by the Subscriber together with accrued but unpaid
interest if the event giving rise to the Mandatory Redemption Payment is a
consequence exclusively of the Company's failure to obtain the Approval of its
shareholders as contemplated by Section 7(n) hereof. The Mandatory Redemption
Payment must be received by the Subscriber on the same date as the Company
Shares otherwise deliverable or within ten (10) business days after request,
whichever is sooner ("Mandatory Redemption Payment Date"). Upon receipt of the
Mandatory Redemption Payment, the corresponding Note principal and interest will
be deemed paid and no longer outstanding.
9.3. Maximum Conversion. The Subscriber shall not be entitled to convert
on a Conversion Date that amount of the Note in connection with that number of
shares of Common Stock which would be in excess of the sum of (i) the number of
shares of Common Stock beneficially owned by the Subscriber and its affiliates
on a Conversion Date, and (ii) the number of shares of Common Stock issuable
upon the conversion of the Note with respect to which the determination of this
provision is being made on a Conversion Date, which would result in beneficial
ownership by the Subscriber and its affiliates of more than 4.99% of the
outstanding shares of Common Stock of the Company on such Conversion Date. For
the purposes of the provision to the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13d-3 thereunder. Subject to
the foregoing, the Subscriber shall not be limited to aggregate conversions of
only 4.99% and aggregate conversion by the Subscriber may exceed 4.99%. The
12
Subscriber may void the conversion limitation described in this Section 9.3 upon
75 days prior written notice to the Company. The Subscriber may allocate which
of the equity of the Company deemed beneficially owned by the Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.
9.4. Injunction - Posting of Bond. In the event a Subscriber shall elect
to convert a Note or part thereof, the Company may not refuse conversion based
on any claim that such Subscriber or any one associated or affiliated with such
Subscriber has been engaged in any violation of law, or for any other reason,
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said Note shall have been sought and obtained and
the Company posts a surety bond for the benefit of such Subscriber in the amount
of 130% of the amount of the Note, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Subscriber to the
extent Subscriber obtains judgment.
9.5. Buy-In. In addition to any other rights available to the
Subscriber, if the Company fails to deliver to the Subscriber such shares
issuable upon conversion of a Note by the Delivery Date and if ten (10) days
after the Delivery Date the Subscriber purchases (in an open market transaction
or otherwise) shares of Common Stock to deliver in satisfaction of a sale by
such Subscriber of the Common Stock which the Subscriber anticipated receiving
upon such conversion (a "Buy-In"), then the Company shall pay in cash to the
Subscriber (in addition to any remedies available to or elected by the
Subscriber) the amount by which (A) the Subscriber's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock so
purchased exceeds (B) the aggregate principal and/or interest amount of the Note
for which such conversion was not timely honored, together with interest thereon
at a rate of 15% per annum, accruing until such amount and any accrued interest
thereon is paid in full (which amount shall be paid as liquidated damages and
not as a penalty). For example, if the Subscriber purchases shares of Common
Stock having a total purchase price of $11,000 to cover a Buy-In with respect to
an attempted conversion of $10,000 of note principal and/or interest, the
Company shall be required to pay the Subscriber $1,000, plus interest. The
Subscriber shall provide the Company written notice indicating the amounts
payable to the Subscriber in respect of the Buy-In. The delivery date by which
Common Stock must be delivered pursuant to this Section 9.5 shall be tolled for
the amount of days that the Subscriber does not deliver information reasonably
requested by the Company's transfer agent.
9.6 Adjustments. The Conversion Price and amount of Shares issuable upon
conversion of the Notes shall be adjusted to offset the effect of stock splits,
stock dividends and pro rata distributions of property or equity interests to
the Company's shareholders.
9.7. Optional and Mandatory Redemption and Company's Election.
(a) In the event the Subscriber elects to convert the Note at
the conversion price set forth in Section 2.1(b)(ii) of the Note, the
Company will have the option of redeeming a portion of the outstanding
Notes ("Optional Redemption") by paying to the Subscriber a sum of money
equal to a percentage of the principal amount of the Note ("Premium")
together with accrued but unpaid interest thereon and any and all other
sums due, accrued or payable to the Subscriber arising under this
Subscription Agreement relating to the Note, the Note or any other
document delivered herewith ("Redemption Amount") outstanding on the day
notice of redemption ("Notice of Redemption) is given to a Subscriber
("Redemption Date"). A Notice of Redemption may be given only in
connection with portion of Note for which notice of conversion has been
given by the Subscriber employing the conversion price set forth in
Section 2.1(b)(ii) of the Note. The Subscriber may elect within five (5)
13
business days after receipt of a Notice of Redemption to give the
Company Notice of Conversion in connection with some or all of the Note
principal and interest which was the subject of the Notice of Redemption
provided the Conversion Price elected by the Subscriber is the Maximum
Base Price set forth in Section 2.1(b)(i) of the Note. A Notice of
Redemption must be accompanied by a certificate signed by the president
or chief financial officer of the Company stating that the Company has
on deposit and segregated ready funds equal to the Redemption Amount.
The Redemption Amount must be paid in good funds to the Subscriber no
later than the seventh (7th) business day after the Redemption Date
("Optional Redemption Payment Date"). In the event the Company fails to
pay the Redemption Amount by the Optional Redemption Payment Date, then
the Redemption Notice will be null and void and the Company will
thereafter have no further right to effect an Optional Redemption, and
at the Subscription's election, the Redemption Amount will be deemed a
Mandatory Redemption Payment and the Optional Redemption Payment Date
will be deemed a Mandatory Redemption Payment Date. Such failure will
also be deemed an Event of Default under the Notes. Any Notice of
Redemption must be given to all holders of Notes issued in connection
with the Initial Offering, in proportion to their holdings of Note
principal on a Redemption Date. A Notice of Redemption may be given by
the Company pursuant to this Section 9.7(a), provided (i) no Event of
Default, as described in the Notes shall have occurred and (ii) the
Company Shares issuable upon conversion of the entire outstanding Note
principal are included for unrestricted resale in a registration
statement effective as of the Redemption Date. Purchase Price proceeds
may not be used to effect an Optional Redemption. The Premium shall be:
120% until 180 days after the Closing Date; 128% between 181 and 270
days after the Closing Date and 135% from and after 271 days after the
Closing Date.
(b) The Company may not effect an Optional Redemption with
respect to any Note principal or interest amount which would or could
result in the issuance of Company Shares in excess of the maximum
conversion amount set forth in Section 9.3 above.
9.8. Redemption. The Company may not redeem or call the Note without the
consent of the holder of the Securities except as otherwise described herein.
10.1. Registration Rights. The Company hereby grants the following
registration rights to holders of the Securities.
(i) On one occasion, for a period commencing 121 days after the
Closing Date, but not later than three years after the Closing Date
("Request Date"), the Company, upon a written request therefor from any
record holder or holders of more than 50% of the aggregate of the
Company's Shares issued and issuable upon Conversion of the Notes (the
Common Stock issued or issuable upon conversion of the Notes or issuable
by virtue of ownership of the Notes, and one share of Common Stock for
each Share issuable upon exercise of the Warrants, collectively the
"Registrable Securities"), shall prepare and file with the SEC a
registration statement under the Act covering the Registrable Securities
which are the subject of such request, unless such Registrable
Securities are the subject of an effective registration statement or
included for registration in a pending registration statement. In
addition, upon the receipt of such request, the Company shall promptly
give written notice to all other record holders of the Registrable
Securities that such registration statement is to be filed and shall
include in such registration statement Registrable Securities for which
it has received written requests within 10 days after the Company gives
such written notice. Such other requesting record holders shall be
deemed to have exercised their demand registration right under this
Section 10.1(i). As a condition precedent to the inclusion of
Registrable Securities, the holder thereof shall provide the Company
with such information as the Company reasonably requests. The obligation
of the Company under this Section 10.1(i) shall be limited to one
registration statement.
14
(ii) If the Company at any time proposes to register any of its
securities under the Act for sale to the public, whether for its own
account or for the account of other security holders or both, except
with respect to registration statements on Forms X-0, X-0 or another
form not available for registering the Registrable Securities for sale
to the public, provided the Registrable Securities are not otherwise
registered for resale by the Subscriber or Holder pursuant to an
effective registration statement, each such time it will give at least
25 days' prior written notice to the record holder of the Registrable
Securities of its intention so to do. Upon the written request of the
holder, received by the Company within 15 days after the giving of any
such notice by the Company, to register any of the Registrable
Securities, the Company will cause such Registrable Securities as to
which registration shall have been so requested to be included with the
securities to be covered by the registration statement proposed to be
filed by the Company, all to the extent required to permit the sale or
other disposition of the Registrable Securities so registered by the
holder of such Registrable Securities (the "Seller"). In the event that
any registration pursuant to this Section 10.1(ii) shall be, in whole or
in part, an underwritten public offering of common stock of the Company,
the number of shares of Registrable Securities to be included in such an
underwriting may be reduced by the managing underwriter if and to the
extent that the Company and the underwriter shall reasonably be of the
opinion that such inclusion would adversely affect the marketing of the
securities to be sold by the Company therein; provided, however, that
the Company shall notify the Seller in writing of any such reduction.
Notwithstanding the foregoing provisions, or Section 10.4 hereof, the
Company may withdraw or delay or suffer a delay of any registration
statement referred to in this Section 10.1(ii) without thereby incurring
any liability to the Seller.
(iii) If, at the time any written request for registration is
received by the Company pursuant to Section 10.1(i), the Company has
determined to proceed with the actual preparation and filing of a
registration statement under the 1933 Act in connection with the
proposed offer and sale for cash of any of its securities for the
Company's own account, such written request shall be deemed to have been
given pursuant to Section 10.1(ii) rather than Section 10.1(i), and the
rights of the holders of Registrable Securities covered by such written
request shall be governed by Section 10.1(ii).
(iv) The Company shall file with the Commission not later than
thirty (30) days after the Closing Date (the "Filing Date"), and use its
reasonable commercial efforts to cause to be declared effective a Form
SB-2 registration statement (or such other form that it is eligible to
use) in order to register the Registrable Securities for resale and
distribution under the Act. The registration statement described in this
paragraph must be declared effective by the Commission no later than one
hundred and twenty days (120) of the Closing Date ("Effective Date").
The Company will register not less than a number of shares of Common
Stock in the aforedescribed registration statement that is equal to 200%
of the Company Shares issuable at the Conversion Price that would be in
effect on the Closing Date or the date of filing of such registration
statement (employing the Conversion Price which would result in the
greater number of Shares), assuming the conversion of 100% of the Notes
and one share of Common Stock for each of the shares issuable upon
exercise of the Warrants. The Registrable Securities shall be reserved
and set aside exclusively for the benefit of the Subscriber, and not
issued, employed or reserved for anyone other than the Subscriber. Such
registration statement will immediately be amended or additional
registration statements will be immediately filed by the Company as
necessary to register additional Company Shares to allow the public
resale of all Common Stock included in and issuable by virtue of the
Registrable Securities. No securities of the Company other than the
Registrable Securities will be included in the registration statement
described in this Section 10.1(iv) except as described on Schedule 10.1.
10.2. Registration Procedures. If and whenever the Company is required
by the provisions hereof to effect the registration of any shares of Registrable
Securities under the Act, the Company will, as expeditiously as possible:
(a) prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to
cause such registration statement to become and remain effective for the
period of the distribution contemplated thereby (determined as herein
provided), and promptly provide to the holders of Registrable Securities
("Sellers") copies of all filings and Commission letters of comment;
15
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective until the latest of: (i) twelve months after the
latest Maturity Date of a Note; (ii) until one year after all the
Company Shares are eligible for resale pursuant to Rule 144(k) of the
1933 Act; or (iii) until such registration statement has been effective
for a period of not less than 270 days, and comply with the provisions
of the Act with respect to the disposition of all of the Registrable
Securities covered by such registration statement in accordance with the
Seller's intended method of disposition set forth in such registration
statement for such period;
(c) furnish to the Seller, such number of copies of the
registration statement and the prospectus included therein (including
each preliminary prospectus) as such persons reasonably may request in
order to facilitate the public sale or their disposition of the
securities covered by such registration statement;
(d) use its best efforts to register or qualify the Seller's
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the Seller,
provided, however, that the Company shall not for any such purpose be
required to qualify generally to transact business as a foreign
corporation in any jurisdiction where it is not so qualified or to
consent to general service of process in any such jurisdiction;
(e) list the Registrable Securities covered by such registration
statement with any securities exchange on which the Common Stock of the
Company is then listed;
(f) immediately notify the Seller when a prospectus relating
thereto is required to be delivered under the Act, of the happening of
any event of which the Company has knowledge as a result of which the
prospectus contained in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing;
(g) make available for inspection by the Seller, and any
attorney, accountant or other agent retained by the Seller or
underwriter, all publicly available, non-confidential financial and
other records, pertinent corporate documents and properties of the
Company, and cause the Company's officers, directors and employees to
supply all publicly available, non-confidential information reasonably
requested by the seller, attorney, accountant or agent in connection
with such registration statement.
10.3. Provision of Documents. At the request of the Seller, provided a
demand for registration has been made pursuant to Section 10.1(i) or a request
for registration has been made pursuant to Section 10.1(ii), the Registrable
Securities will be included in a registration statement filed pursuant to this
Section 10. In connection with each registration hereunder, the Seller will
furnish to the Company in writing such information and representation letters
with respect to itself and the proposed distribution by it as reasonably shall
be necessary in order to assure compliance with federal and applicable state
securities laws. In connection with each registration pursuant to Section
10.1(i) or 10.1(ii) covering an underwritten public offering, the Company and
the Seller agree to enter into a written agreement with the managing underwriter
in such form and containing such provisions as are customary in the securities
business for such an arrangement between such underwriter and companies of the
Company's size and investment stature.
10.4. Non-Registration Events. The Company and the Subscriber agree that
the Seller will suffer damages if any registration statement required under
Section 10.1(i) or 10.1(ii) above is not filed within 30 days after written
request by the Holder and not declared effective by the Commission within 120
days after such request [or the Filing Date and Effective Date, respectively, in
16
reference to the Registration Statement on Form S-3 or such other form described
in Section 10.1(iv)], and maintained in the manner and within the time periods
contemplated by Section 10 hereof, and it would not be feasible to ascertain the
extent of such damages with precision. Accordingly, if (i) the Registration
Statement described in Sections 10.1(i) or 10.1(ii) is not filed within 30 days
of such written request, or is not declared effective by the Commission on or
prior to the date that is 120 days after such request, or (ii) the registration
statement on Form S-3 or such other form described in Section 10.1(iv) is not
filed on or before the Filing Date or not declared effective on or before the
sooner of the Effective Date, or within five business days of receipt by the
Company of a written or oral communication from the Commission that the
registration statement described in Section 10.1(iv) will not be reviewed, or
(iii) any registration statement described in Sections 10.1(i), 10.1(ii) or
10.1(iv) is filed and declared effective but shall thereafter cease to be
effective (without being succeeded immediately by an additional registration
statement filed and declared effective) for a period of time which shall exceed
30 days in the aggregate per year but not more than 20 consecutive calendar days
(defined as a period of 365 days commencing on the date the Registration
Statement is declared effective) (each such event referred to in clauses (i),
(ii) and (iii) of this Section 10.4 is referred to herein as a "Non-Registration
Event"), then, for so long as such Non-Registration Event shall continue, the
Company shall pay, at the Subscriber's option, in cash or stock at the
applicable Conversion Price, as Liquidated Damages to each holder of any
Registrable Securities an amount equal to two (2%) percent per month or part
thereof for each month or part thereof thereafter during the pendency of such
Non-Registration Event, of the principal of the Notes and Additional Notes
issued in the Initial Offering and Additional Offering, whether or not
converted, then owned of record by such holder or issuable as of or subsequent
to the occurrence of such Non-Registration Event. Payments to be made pursuant
to this Section 10.4 shall be due and payable within ten (10) business days
after demand in immediately available funds. In the event a Mandatory Redemption
Payment is demanded from the Company by the Holder pursuant to Section 9.2 of
this Subscription Agreement, then the Liquidated Damages described in this
Section 10.4 shall no longer accrue on the portion of the Purchase Price
underlying the Mandatory Redemption Payment, from and after the date the Holder
receives the Mandatory Redemption Payment. It shall also be deemed a
Non-Registration Event if at any time a Note is outstanding, there is less than
125% of the amount of Common Shares necessary to allow full conversion of such
Note at the then applicable Conversion Price, registered for unrestricted resale
in an effective registration statement.
10.5. Expenses. All expenses incurred by the Company in complying with
Section 10, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel and independent public
accountants for the Company, fees and expenses (including reasonable fees of
counsel to the Company) incurred in connection with complying with state
securities or "blue sky" laws, fees of the National Association of Securities
Dealers, Inc., transfer taxes, fees of transfer agents and registrars, and costs
of insurance are called "Registration Expenses". All underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, including
any fees and disbursements of any special counsel to the Seller, are called
"Selling Expenses". The Seller shall pay the fees of its own additional counsel,
if any. The Company will pay all Registration Expenses in connection with the
registration statement under Section 10. All Selling Expenses in connection with
each registration statement under Section 10 shall be borne by the Seller and
may be apportioned among the Sellers in proportion to the number of shares sold
by the Seller relative to the number of shares sold under such registration
statement or as all Sellers thereunder may agree.
10.6. Indemnification and Contribution.
(a) In the event of a registration of any Registrable Securities
under the Act pursuant to Section 10, the Company will indemnify and
hold harmless the Seller, each officer of the Seller, each director of
the Seller, each underwriter of such Registrable Securities thereunder
and each other person, if any, who controls such Seller or underwriter
within the meaning of the 1933 Act, against any losses, claims, damages
or liabilities, joint or several, to which the Seller, or such
underwriter or controlling person may become subject under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
17
actions in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of any material fact contained in
any registration statement under which such Registrable Securities was
registered under the Act pursuant to Section 10, any preliminary
prospectus or final prospectus contained therein, or any amendment or
supplement thereof, or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances when made, and will subject to the provisions
of Section 10.1(c) reimburse the Seller, each such underwriter and each
such controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending any such
loss, claim, damage, liability or action; provided, however, that the
Company shall not be liable to the Seller to the extent that any such
damages arise out of or are based upon an untrue statement or omission
made in any preliminary prospectus if (i) the Seller failed to send or
deliver a copy of the final prospectus delivered by the Company to the
Seller with or prior to the delivery of written confirmation of the sale
by the Seller to the person asserting the claim from which such damages
arise, (ii) the final prospectus would have corrected such untrue
statement or alleged untrue statement or such omission or alleged
omission, or (iii) 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 so made in conformity
with information furnished by any such Seller, or any such controlling
person in writing specifically for use in such registration statement or
prospectus.
(b) In the event of a registration of any of the Registrable
Securities under the Act pursuant to Section 10, the Seller will
indemnify and hold harmless the Company, and each person, if any, who
controls the Company within the meaning of the Act, each officer of the
Company who signs the registration statement, each director of the
Company, each underwriter and each person who controls any underwriter
within the meaning of the Act, against all losses, claims, damages or
liabilities, joint or several, to which the Company or such officer,
director, underwriter or controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact
contained in the registration statement under which such Registrable
Securities were registered under the Act pursuant to Section 10, any
preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereof, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and each such officer,
director, underwriter and controlling person for any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action, provided,
however, that the Seller will be liable hereunder in any such case if
and only 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 information pertaining to such Seller, as such,
furnished in writing to the Company by such Seller specifically for use
in such registration statement or prospectus, and provided, further,
however, that the liability of the Seller hereunder shall be limited to
the gross proceeds received by the Seller from the sale of Registrable
Securities covered by such registration statement.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying
party hereunder, notify the indemnifying party in writing thereof, but
the omission so to notify the indemnifying party shall not relieve it
from any liability which it may have to such indemnified party other
than under this Section 10.6(c) and shall only relieve it from any
liability which it may have to such indemnified party under this Section
10.6(c), except and only if and to the extent the indemnifying party is
prejudiced by such omission. In case any such action shall be brought
against any indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party shall be entitled to
participate in and, to the extent it shall wish, to assume and undertake
the defense thereof with counsel satisfactory to such indemnified party,
and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the
indemnifying party shall not be liable to such indemnified party under
18
this Section 10.6(c) for any legal expenses subsequently incurred by
such indemnified party in connection with the defense thereof other than
reasonable costs of investigation and of liaison with counsel so
selected, 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
reasonable defenses available to it which are different from or
additional to those available to the indemnifying party or if the
interests of the indemnified party reasonably may be deemed to conflict
with the interests of the indemnifying party, the indemnified parties
shall have the right to select one separate counsel and to assume such
legal defenses and otherwise to participate in the defense of such
action, with the reasonable expenses and fees of such separate counsel
and other expenses related to such participation to be reimbursed by the
indemnifying party as incurred.
(d) In order to provide for just and equitable contribution in
the event of joint liability under the Act in any case in which either
(i) the Seller, or any controlling person of the Seller, makes a claim
for indemnification pursuant to this Section 10.6 but it is judicially
determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the
denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 10.6
provides for indemnification in such case, or (ii) contribution under
the Act may be required on the part of the Seller or controlling person
of the Seller in circumstances for which indemnification is provided
under this Section 10.6; then, and in each such case, the Company and
the Seller will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from
others) in such proportion so that the Seller is responsible only for
the portion represented by the percentage that the public offering price
of its securities offered by the registration statement bears to the
public offering price of all securities offered by such registration
statement, provided, however, that, in any such case, (y) the Seller
will not be required to contribute any amount in excess of the public
offering price of all such securities offered by it pursuant to such
registration statement; and (z) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 10(f) of the Act) will
be entitled to contribution from any person or entity who was not guilty
of such fraudulent misrepresentation.
11. Offering Restrictions. Except with respect to issuances of common
stock or other securities or debt obligations convertible into common stock as
disclosed in the Reports or Other Written Information or as described on
Schedule 11 (the "Excepted Issuances"), the Company will not issue any equity,
convertible debt or other securities convertible into common stock until the
registration statement described in Section 10.1(iv) hereof has been effective
for 120 days.
12. Miscellaneous.
(a) Notices. All notices or other communications given or made
hereunder shall be in writing and shall be personally delivered or
deemed delivered the first business day after being telecopied (provided
that a copy is delivered by first class mail) to the party to receive
the same at its address set forth below or to such other address as
either party shall hereafter give to the other by notice duly made under
this Section: (i) if to the Company, to Hypertension Diagnostics, Inc.,
0000 Xxxxxx Xxxx, Xxxxx 000, Xxxxx, XX 00000-0000, telecopier number:
(000) 000-0000, with a copy by telecopier only to: Xxxxxxxxx & Xxxxxx,
P.L.L.P., 0000 XXX Xxxxxx, 00 Xxxxx Xxxxxx Xxxxxx, Xxxxxxxxxxx, XX
00000-0000, Attn: Xxxxxx X. Xxxxxx, Esq., telecopier number: (612)
371-3207, and (ii) if to the Subscriber, to the name, address and
telecopy number set forth on the signature page hereto, with a copy by
telecopier only to Grushko & Xxxxxxx, P.C., 000 Xxxxx Xxxxxx, Xxxxx
0000, Xxx Xxxx, Xxx Xxxx 00000, telecopier number: (000) 000-0000. Any
notice that may be given pursuant to this Agreement, or any document
delivered in connection with the foregoing may be given by the
Subscriber on the first business day after the observance dates in the
United States of America by Orthodox Jewry of Rosh Hashanah, Yom Xxxxxx,
00
the first two days of the Feast of Tabernacles, Shemini Atzeret, Simchat
Torah, the first two and final two days of Passover and Pentecost, with
such notice to be deemed given and effective, at the election of the
Subscriber on a holiday date that precedes such notice, however the
Company's time to respond to such notice shall commence from the actual
date such notice is given. Any notice received by the Subscriber on any
of the aforedescribed holidays may be deemed by the Subscriber to be
received and effective as if such notice had been received on the first
business day after the holiday.
(b) Closing. The consummation of the transactions contemplated
herein shall take place at the offices of Grushko & Xxxxxxx, P.C., 000
Xxxxx Xxxxxx, Xxxxx 0000, Xxx Xxxx, Xxx Xxxx 00000, upon the
satisfaction of all conditions to Closing set forth in this Agreement.
The closing date shall respectively be the dates that subscriber funds
representing the net amount due the Company from the Purchase Price of
the Initial Offering (the "Closing Date").
(c) Entire Agreement; Assignment. This Agreement represents the
entire agreement between the parties hereto with respect to the subject
matter hereof and may be amended only by a writing executed by both
parties. No right or obligation of either party shall be assigned by
that party without prior notice to and the written consent of the other
party.
(d) Execution. This Agreement may be executed by facsimile
transmission, and in counterparts, each of which will be deemed an
original.
(e) Law Governing this Agreement. This Agreement shall be
governed by and construed in accordance with the laws of the State of
New York without regard to principles of conflicts of laws. Any action
brought by either party against the other concerning the transactions
contemplated by this Agreement shall be brought only in the state courts
of New York or in the federal courts located in the state of New York.
Both parties and the individuals executing this Agreement and other
agreements on behalf of the Company agree to submit to the jurisdiction
of such courts and waive trial by jury. The prevailing party shall be
entitled to recover from the other party its reasonable attorney's fees
and costs. In the event that any provision of this Agreement or any
other agreement delivered in connection herewith is invalid or
unenforceable under any applicable statute or rule of law, then such
provision shall be deemed inoperative to the extent that it may conflict
therewith and shall be deemed modified to conform with such statute or
rule of law. Any such provision which may prove invalid or unenforceable
under any law shall not affect the validity or enforceability of any
other provision of any agreement.
(f) Specific Enforcement, Consent to Jurisdiction. The Company
and Subscriber acknowledge and agree that irreparable damage would occur
in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to
an injunction or injunctions to prevent or cure breaches of the
provisions of this Agreement and to enforce specifically the terms and
provisions hereof or thereof, this being in addition to any other remedy
to which any of them may be entitled by law or equity. Subject to
Section 12(e) hereof, each of the Company and Subscriber hereby waives,
and agrees not to assert in any such suit, action or proceeding, any
claim that it is not personally subject to the jurisdiction of such
court, that the suit, action or proceeding is brought in an inconvenient
forum or that the venue of the suit, action or proceeding is improper.
Nothing in this Section shall affect or limit any right to serve process
in any other manner permitted by law.
(g) Confidentiality. The Company agrees that it will not
disclose publicly or privately the identity of the Subscriber unless
expressly agreed to in writing by the Subscriber or only to the extent
required by law.
20
(h) Automatic Termination. This Agreement shall automatically
terminate without any further action of either party hereto if the
Closing shall not have occurred by the tenth (10th) business day
following the date this Agreement is accepted by the Subscriber.
[THIS SPACE INTENTIONALLY LEFT BLANK]
21
Please acknowledge your acceptance of the foregoing Subscription
Agreement by signing and returning a copy to the undersigned whereupon it shall
become a binding agreement between us.
HYPERTENSION DIAGNOSTICS, INC.
A Minnesota Corporation
By:_________________________________
Xxxx X. Xxxxxxxx, President
Dated: March _____, 2002
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
SUBSCRIBERS INITIAL OFFERING INITIAL OFFERING SECTION 7 SHARES
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
Purchase Price of Warrants to Purchase 412,386
_________________________________ Note: $700,000.00 87,500 Common Shares
----------- ------
(Signature)
ALPHA CAPITAL AKTIENGESELLSCHAFT
Xxxxxxxxx 0
0000 Xxxxxxxxxxx
Xxxxx, Lichtenstein
Fax: 000-00-00000000
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
Purchase Price of Warrants to Purchase 324,018
_________________________________ Note: $550,000.00 68,750 Common Shares
----------- ------
(Signature)
XXXXXXXXXXX LIMITED PARTNERSHIP
C/o Canaccord Capital Corporation
000 Xxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX X0X 0X0, Xxxxxx
Fax: 000-000-0000
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
Purchase Price of Warrants to Purchase 147,281
_________________________________ Note: $250,000.00 31,250 Common Shares
----------- ------
(Signature)
PALISADES EQUITY FUND
0000 Xxxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, XX 00000
Fax: 000-000-0000
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
Purchase Price of Warrants to Purchase 88,368
__________________________________ Note: $150,000.00 18,750 Common Shares
----------- ------
(Signature)
XXXXX ENTERPRISES LTD.
00X Xxxxxxxx Xxxx
Xxxxxx Xxxxxxx XX0 0XX
Fax: 000-000-000000000
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
Purchase Price of Warrants to Purchase 206,193
___________________________________ Note: $350,000.00 43,750 Common Shares
----------- ------
(Signature)
BRISTOL INVESTMENT FUND, LTD.
Caledonian House, Xxxxxxx Street
Georgetown, Grand Cayman, Cayman Islands
Fax: 000-000-0000
--------------------------------------------------------- ----------------------- ---------------------- ----------------------
FORM OF FINDER'S WARRANT
THIS WARRANT AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THIS WARRANT
AND THE COMMON SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THIS WARRANT UNDER SAID ACT OR AN OPINION OF
COUNSEL REASONABLY SATISFACTORY TO HYPERTENSION DIAGNOSTICS, INC. THAT SUCH
REGISTRATION IS NOT REQUIRED.
Right to Purchase __________ shares
of Common Stock of Hypertension
Diagnostics, Inc. (subject to
adjustment as provided herein)
COMMON STOCK PURCHASE WARRANT
No. 2002-A Issue Date: March ____, 2002
HYPERTENSION DIAGNOSTICS, INC., a corporation organized under the laws
of Minnesota (the "Company"), hereby certifies that, for value received,
______________________________ (the "Holder"), or assigns, is entitled, subject
to the terms set forth below, to purchase from the Company from and after the
Issue Date of this Warrant and at any time or from time to time before 5:00
p.m., Minneapolis, Minnesota time, through three (3) years after such date (the
"Expiration Date"), up to __________ fully paid and nonassessable shares of
Common Stock (as hereinafter defined), $.01 par value per share, of the Company
at a per share purchase price of [110% of the closing bid price of the Company's
Common Stock as of the Issue Date as reported by The Nasdaq SmallCap Market].
The aforedescribed purchase price per share, as adjusted from time to time as
herein provided, is referred to herein as the "Purchase Price". The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
As used herein the following terms, unless the context otherwise
requires, have the following respective meanings:
(a) The term "Company" shall include Hypertension Diagnostics, Inc. and
any corporation which shall succeed or assume the obligations of Hypertension
Diagnostics, Inc. hereunder.
(b) The term "Common Stock" includes (i) the Company's Common Stock,
$.01 par value per share, (ii) any other capital stock of any class or classes
(however designated) of the Company, authorized on or after such date, the
Holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the Holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even if the right so to vote has been suspended by the
happening of such a contingency) and (iii) any other securities into which or
for which any of the securities described in (i) or (ii) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "Other Securities" refers to any stock (other than Common
Stock) and other securities of the Company or any other person (corporate or
otherwise) which the Holder of the Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of the Warrant, in lieu of or
in addition to Common Stock, or which at any time shall be issuable or shall
have been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 3 or otherwise.
1. Exercise of Warrant.
1.1. Number of Shares Issuable upon Exercise. From and after the
date hereof through and including the Expiration Date, the Holder hereof
shall be entitled to receive, upon exercise of this Warrant in whole in
accordance with the terms of subsection 1.2 or upon exercise of this
Warrant in part in accordance with subsection 1.3, shares of Common
Stock of the Company, subject to adjustment pursuant to Section 4.
1.2. Full Exercise. This Warrant may be exercised in full by the
Holder hereof by delivery of an original or facsimile copy of the form
of subscription attached as Exhibit A hereto (the "Subscription Form")
duly executed by such Holder and surrender of the original Warrant
within seven (7) days of exercise, to the Company at its principal
office, accompanied by payment, as provided in Section 1.4, in the
amount obtained by multiplying the number of shares of Common Stock for
which this Warrant is then exercisable by the Purchase Price then in
effect.
1.3. Partial Exercise. This Warrant may be exercised in part
(but not for a fractional share) by surrender of this Warrant in the
manner and at the place provided in subsection 1.2 except that the
amount payable by the Holder on such partial exercise shall be the
amount obtained by multiplying (a) the number of shares of Common Stock
designated by the Holder in the Subscription Form by (b) the Purchase
Price then in effect. On any such partial exercise, the Company, at its
expense, will forthwith issue and deliver to or upon the order of the
Holder hereof a new Warrant of like tenor, in the name of the Holder
hereof or as such Holder (upon payment by such Holder of any applicable
transfer taxes) may request, the number of shares of Common Stock for
which such Warrant may still be exercised.
1.4. Purchase Price; Payment. Payment may be made either in (i)
cash or by certified or official bank check payable to the order of the
Company equal to the applicable aggregate Purchase Price and the Holder
shall thereupon be entitled to receive the number of duly authorized,
validly issued, fully-paid and non-assessable shares of Common Stock (or
Other Securities) determined as provided herein.
1.5. Company Acknowledgment. The Company will, at the time of
the exercise of the Warrant, upon the request of the Holder hereof
acknowledge in writing its continuing obligation to afford to such
Holder any rights to which such Holder shall continue to be entitled
after such exercise in accordance with the provisions of this Warrant.
If the Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to such
Holder any such rights.
1.6. Trustee for Warrant Holders. In the event that a bank or
trust company shall have been appointed as trustee for the Holders of
the Warrants pursuant to Subsection 2.2, such bank or trust company
shall have all the powers and duties of a warrant agent (as hereinafter
described) and shall accept, in its own name for the account of the
Company or such successor person as may be entitled thereto, all amounts
otherwise payable to the Company or such successor, as the case may be,
on exercise of this Warrant pursuant to this Section 1.
1.7 Delivery of Stock Certificates, etc. on Exercise. The
Company agrees that the shares of Common Stock purchased upon exercise
of this Warrant shall be deemed to be issued to the Holder hereof as the
record owner of such shares as of the close of business on the date on
which this Warrant shall have been surrendered and payment made for such
shares as aforesaid. As soon as practicable after the exercise of this
Warrant in full or in part, and in any event within seven (7) days
thereafter, the Company at its expense (including the payment by it of
any applicable issue taxes) will cause to be issued in the name of and
delivered to the Holder hereof, or as such Holder (upon payment by such
Holder of any applicable transfer taxes) may direct in compliance with
applicable securities laws, a certificate or certificates for the number
of duly and validly issued, fully paid and nonassessable shares of
Common Stock (or Other Securities) to which such Holder shall be
entitled on such exercise, plus, in lieu of any fractional share to
which such Holder would otherwise be entitled, cash equal to such
fraction multiplied by the then Fair Market Value of one full share,
together with any other stock or other securities and property
(including cash, where applicable) to which such Holder is entitled upon
such exercise pursuant to Section 1 or otherwise.
2. Adjustment for Reorganization, Consolidation, Merger, etc.
2.1. Reorganization, Consolidation, Merger, etc. In case at any
time or from time to time, the Company shall (a) effect a
reorganization, (b) consolidate with or merge into any other person or
(c) transfer all or substantially all of its properties or assets to any
other person under any plan or arrangement contemplating the dissolution
of the Company, then, in each such case, as a condition to the
consummation of such a transaction, proper and adequate provision shall
be made by the Company whereby the Holder of this Warrant, on the
exercise hereof as provided in Section 1, at any time after the
consummation of such reorganization, consolidation or merger or the
effective date of such dissolution, as the case may be, shall receive,
in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock
and other securities and property (including cash) to which such Holder
would have been entitled upon such consummation or in connection with
such dissolution, as the case may be, if such Holder had so exercised
this Warrant, immediately prior thereto, all subject to further
adjustment thereafter as provided in Section 3.
2.2. Dissolution. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense
deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the Holders of
the Warrants after the effective date of such dissolution pursuant to
this Section 2 to a bank or trust company having its principal office in
Minneapolis, Minnesota, as trustee for the Holder or Holders of the
Warrants.
2.3. Continuation of Terms. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any
transfer) referred to in this Section 2, this Warrant shall continue in
full force and effect and the terms hereof shall be applicable to the
shares of stock and other securities and property receivable on the
exercise of this Warrant after the consummation of such reorganization,
consolidation or merger or the effective date of dissolution following
any such transfer, as the case may be, and shall be binding upon the
issuer of any such stock or other securities, including, in the case of
any such transfer, the person acquiring all or substantially all of the
properties or assets of the Company, whether or not such person shall
have expressly assumed the terms of this Warrant as provided in Section
4. In the event this Warrant does not continue in full force and effect
after the consummation of the transaction described in this Section 2,
then only in such event will the Company's securities and property
(including cash, where applicable) receivable by the Holders of the
Warrants be delivered to the Trustee as contemplated by Section 2.2.
3. Extraordinary Events Regarding Common Stock. In the event that the
Company shall (a) issue additional shares of the Common Stock as a dividend or
other distribution on outstanding Common Stock, (b) subdivide its outstanding
shares of Common Stock or (c) combine its outstanding shares of the Common Stock
into a smaller number of shares of the Common Stock, then, in each such event,
the Purchase Price shall, simultaneously with the happening of such event, be
adjusted by multiplying the then Purchase Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such event and the denominator of which shall be the number of shares
of Common Stock outstanding immediately after such event, and the product so
obtained shall thereafter be the Purchase Price then in effect. The Purchase
Price, as so adjusted, shall be readjusted in the same manner upon the happening
of any successive event or events described herein in this Section 3. The number
of shares of Common Stock that the Holder of this Warrant shall thereafter, on
the exercise hereof as provided in Section 1, be entitled to receive shall be
increased to a number determined by multiplying the number of shares of Common
Stock that would otherwise (but for the provisions of this Section 3) be
issuable on such exercise by a fraction of which (a) the numerator is the
Purchase Price that would otherwise (but for the provisions of this Section 3)
be in effect, and (b) the denominator is the Purchase Price in effect on the
date of such exercise.
4. Certificate as to Adjustments. In each case of any adjustment or
readjustment in the shares of Common Stock (or Other Securities) issuable on the
exercise of the Warrants, the Company at its expense will promptly cause its
Chief Financial Officer or other appropriate designee to compute such adjustment
or readjustment in accordance with the terms of the Warrant and prepare a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of (a) the consideration received or receivable by the Company for any
additional shares of Common Stock (or Other Securities) issued or sold or deemed
to have been issued or sold, (b) the number of shares of Common Stock (or Other
Securities) outstanding or deemed to be outstanding and (c) the Purchase Price
and the number of shares of Common Stock to be received upon exercise of this
Warrant, in effect immediately prior to such adjustment or readjustment and as
adjusted or readjusted as provided in this Warrant. The Company will forthwith
mail a copy of each such certificate to the Holder of the Warrant.
5. Reservation of Stock, etc. Issuable on Exercise of Warrant;
Financial Statements. From and after forty-five (45) days after the Issue Date
of this Warrant, the Company will at all times reserve and keep available,
solely for issuance and delivery on the exercise of the Warrants, all shares of
Common Stock (or Other Securities) from time to time issuable on the exercise of
the Warrant. This Warrant entitles the Holder hereof to receive copies of all
financial and other information distributed or required to be distributed to the
Holders of the Company's Common Stock.
6. Assignment; Exchange of Warrant. Subject to compliance with
applicable securities laws, this Warrant, and the rights evidenced hereby, may
be transferred by any registered Holder hereof (a "Transferor") with respect to
any or all of the Shares. On the surrender for exchange of this Warrant, with
the Transferor's endorsement in the form of Exhibit B attached hereto (the
"Transferor Endorsement Form") and together with evidence reasonably
satisfactory to the Company demonstrating compliance with applicable securities
laws, the Company at its expense, but with payment by the Transferor of any
applicable transfer taxes) will issue and deliver to or on the order of the
Transferor thereof a new Warrant or Warrants of like tenor, in the name of the
Transferor and/or the transferee(s) specified in such Transferor Endorsement
Form (each a "Transferee"), calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face or faces
of the Warrant so surrendered by the Transferor.
7. Replacement of Warrant. On receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction or mutilation of
this Warrant and, in the case of any such loss, theft or destruction of this
Warrant, on delivery of an indemnity agreement or security reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender and cancellation of this Warrant, the Company at its
expense will execute and deliver, in lieu thereof, a new Warrant of like tenor.
8. Registration Rights.
8.1 Registration. If, at any time after the date hereof and
prior to the expiration of this Warrant, the Company shall propose to
file any registration statement under the Securities Act of 1933, as
amended, (the "ACT") covering a public offering of the Company's Common
Stock (other than a registration on Form X-0, Xxxx X-0 or any
registration form that does not permit secondary sales or a registration
of the Warrant Shares), it will notify the holder hereof in writing at
least twenty (20) days prior to each such filing and will include in the
registration statement (to the extent permitted by applicable
regulation) the Common Stock purchased by the holder or purchasable by
the holder upon the exercise of the Warrant to the extent requested by
the holder hereof. Notwithstanding the foregoing, the number of shares
of the holders of the Warrants proposed to be registered thereby shall
be reduced pro rata with any other selling shareholder (other than the
Company) upon the request of the managing underwriter of such offering.
If the registration statement or offering statement filed pursuant to
such twenty (20) day notice has not become effective within six months
following the date such notice is given to the holder hereof, the
Company must again notify such holder in the manner provided above.
8.2 Expenses. All expenses of any such registrations referred to
in this Section 8, except the fees of counsel or other professional
advisors to such holders and underwriting commissions or discounts shall
be borne by the Company.
8.3 Notice. The Company will mail to each record holder, at the
last known post office address, written notice of any exercise of the
rights granted under this Section 8, by certified or registered mail,
return receipt requested, and each holder shall have ten (10) days from
the date of deposit of such notice in the U.S. Mail to notify the
Company in writing whether such holder wishes to join in such exercise.
8.4 Prospectus;Effectiveness. The Company will furnish the
holder hereof with a reasonable number of copies of any prospectus
included in such filings and will amend or supplement the same as
required during the period of required use thereof. The Company will
maintain the effectiveness of any registration statement or the offering
statement filed by the Company, whether or not at the request of the
holder hereof, for at least six (6) months following the effective date
thereof.
8.5 Indemnification. In the case of the filing of any
registration statement, and to the extent permissible under the Act and
controlling precedent thereunder, the Company and the holder hereof
shall provide cross indemnification agreements to each other in
customary scope covering the accuracy and completeness of the
information furnished by each.
8.6 Co-operation. The Holder of the Warrant agrees to cooperate
with the Company in the preparation and filing of any such registration
statement or offering statement, and in the furnishing of information
concerning the holder for inclusion therein, or in any efforts by the
Company to establish that the proposed sale is exempt under the Act as
to any proposed distribution.
9. Maximum Exercise. The Holder shall not be entitled to exercise this
Warrant on an exercise date, in connection with that number of shares of Common
Stock which would be in excess of the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates on an exercise date,
and (ii) the number of shares of Common Stock issuable upon the exercise of this
Warrant with respect to which the determination of this limitation is being made
on an exercise date, which would result in beneficial ownership by the Holder
and its affiliates of more than 4.99% of the outstanding shares of Common Stock
of the Company on such date. For the purposes of the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. Subject to the foregoing, the Holder shall not be limited to
aggregate exercises which would result in the issuance of more than 4.99%. The
restriction described in this paragraph may be revoked upon seventy-five (75)
days prior notice from the Holder to the Company. The Holder may allocate which
of the equity of the Company deemed beneficially owned by the Subscriber shall
be included in the 4.99% amount described above and which shall be allocated to
the excess above 4.99%.
10. Transfer on the Company's Books. Until this Warrant is transferred
on the books of the Company, the Company may treat the registered Holder hereof
as the absolute owner hereof for all purposes, notwithstanding any notice to the
contrary.
11. Notices. All notices and other communications from the Company to
the Holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by such Holder or, until any such Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
12. Miscellaneous. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the laws of Minnesota. Any dispute relating to this Warrant shall be
adjudicated in Hennepin County in the State of Minnesota. The headings in this
Warrant are for purposes of reference only, and shall not limit or otherwise
affect any of the terms hereof. The invalidity or unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
IN WITNESS WHEREOF, the Company has executed this Warrant as of the
date first written above.
HYPERTENSION DIAGNOSTICS, INC.
a Minnesota corporation
By:
-----------------------------------
Xxxx X. Xxxxxxxx, President
Witness:
---------------------------------
