Exhibit 1
MEDICALCV, INC.
1,500,000 UNITS(1)
CONSISTING OF 1,500,000 SHARES OF COMMON STOCK AND
1,500,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
_____________, 2001
Equity Securities Investments, Inc.
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx Xxxxxx, Xxxxxxxxx 00000
Ladies/Gentlemen:
MedicalCV, Inc., a Minnesota corporation (the "Company"), hereby
confirms its agreement to issue and sell to Equity Securities Investments, Inc.
(the "Underwriter") an aggregate of 1,500,000 units (the "Units"), each Unit
consisting of one share of the Company's common stock, $0.01 par value per share
("Common Stock"), and one redeemable Common Stock purchase warrant of the
Company (the "Redeemable Warrants"). (Such 1,500,000 Units are collectively
referred to in this Agreement as the "Firm Units.") The Company also hereby
confirms its agreement to grant to the Underwriter an option to purchase up to
225,000 additional Units (the "Option Units") on the terms and for the purposes
set forth in Section 2(b) hereof. (As used in this Agreement, the term "Units"
shall consist of the Firm Units and the Option Units.) The Company also hereby
confirms its agreement to issue to the Underwriter warrants for the purchase of
a total of 150,000 Units as described in Section 6 hereof (the "Underwriter's
Warrants"), assuming the purchase by the Underwriter of the Firm Units. The
Units issuable upon exercise of the Underwriter's Warrants are referred to in
this Agreement as the "Warrant Units."
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees with the
Underwriter as follows:
(i) A registration statement on Form SB-2 (File No.
333-______) with respect to the Units, including a prospectus
subject to completion, has been prepared by the Company in
conformity with the requirements of the Securities Act of
1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities
and Exchange Commission (the "SEC") thereunder and has been
filed with the SEC under the Securities Act; one or more
amendments to such registration statement have also been so
prepared and have been, or will be, so filed. Copies of the
registration statement and amendments and each related
preliminary prospectus to date have been delivered by the
Company to the Underwriter, and, to the extent applicable,
were identical to the electronically transmitted copies
thereof filed with the SEC pursuant to the SEC's Electronic
Data Gathering Analysis and Retrieval System ("XXXXX"), except
to the extent permitted by Regulation S-T under the Securities
Act. If the Company has elected not to rely upon Rule 430A of
the Rules and Regulations, the Company has prepared and will
promptly file an amendment to the registration statement and
an amended prospectus. If the Company has elected to rely upon
Rule 430A of the Rules and
---------------------------
(1) Plus an option to purchase up to 225,000 additional Units to cover
over-allotments.
Regulations, it will prepare and file a prospectus pursuant to
Rule 424(b) that discloses the information previously omitted
from the prospectus in reliance upon Rule 430A. Such
registration statement as amended at the time it is or was
declared effective by the SEC, including the information
deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable, is
hereinafter called the "Registration Statement," and if any
amendment thereto shall be filed after the "Effective Date"
(as hereinafter defined) and before the "First Closing Date"
(as hereinafter defined), the term "Registration Statement"
shall refer to the registration statement as so amended (but
only from and after the effectiveness of such amendment). The
prospectus included in the Registration Statement at the time
it is or was declared effective by the SEC is hereinafter
called the "Prospectus," except that if any prospectus filed
by the Company with the SEC pursuant to Rule 424(b) of the
Rules and Regulations or any other prospectus provided to the
Underwriter by the Company for use in connection with the
offering of the Units (whether or not required to be filed by
the Company with the SEC pursuant to Rule 424(b) of the Rules
and Regulations) differs from the prospectus on file at the
time the Registration Statement is or was declared effective
by the SEC, the term "Prospectus" shall refer to such
differing prospectus from and after the time such prospectus
is filed with the SEC or transmitted to the SEC for filing
pursuant to such Rule 424(b) or from and after the time it is
first provided to the Underwriter by the Company for such use.
The term "Preliminary Prospectus" as used herein means any
preliminary prospectus included in the Registration Statement
prior to the time it becomes or became effective under the
Securities Act and any prospectus subject to completion as
described in Rule 430A of the Rules and Regulations. As used
herein, the term "Effective Date" shall mean each date and
time that the Registration Statement, any post-effective
amendment or amendments thereto and any Rule 462(b)
Registration Statement became or becomes effective. For
purposes of this Agreement, all references to the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any
amendment or supplement to any of the foregoing shall be
deemed to include the respective copies thereof filed with the
SEC pursuant to XXXXX.
(ii) At the time the Registration Statement is or was
declared effective by the SEC and at all times subsequent
thereto up to the "First Closing Date" and the "Second Closing
Date" (as such terms are hereinafter defined), the
Registration Statement and Prospectus, and all amendments
thereof and supplements thereto, will comply or complied with
the provisions and requirements of the Securities Act and the
Rules and Regulations. Neither the SEC nor any state
securities authority has issued any order preventing or
suspending the use of any Preliminary Prospectus or requiring
the recirculation of a Preliminary Prospectus, or issued a
stop order with respect to the offering of the Units (if the
Registration Statement has been declared effective), or
instituted or, to the Company's knowledge, threatened the
institution of, proceedings for any of such purposes. When the
Registration Statement shall become effective and when any
post-effective amendment thereto shall become effective, the
Registration Statement (as amended, if the Company shall have
filed with
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the SEC any post-effective amendments thereto) will not or did
not contain any untrue statement of a material fact or omit to
state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading. When
the Registration Statement is or was declared effective by the
SEC and at all times subsequent thereto up to the First
Closing Date and the Second Closing Date, the Prospectus (as
amended or supplemented, if the Company shall have filed with
the SEC any amendment thereof or supplement thereto) will not
or did not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of
the circumstances in which they were made, not misleading.
When any Preliminary Prospectus was first filed with the SEC
and when any amendment thereof or supplement thereto was first
filed with the SEC, such Preliminary Prospectus and any
amendment thereof and supplement thereto complied in all
material respects with the applicable provisions of the
Securities Act and the Rules and Regulations and did not
contain an untrue statement of a material fact and did not
omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not
misleading. None of the representations and warranties in this
Subsection 1(a)(ii) shall apply to statements in, or omissions
from, the Registration Statement or the Prospectus, or any
amendment thereof or supplement thereto, which are based upon
and conform to written information relating to the Underwriter
furnished to the Company by the Underwriter specifically for
use in the preparation of the Registration Statement or the
Prospectus, or any such amendment or supplement.
(iii) The Company has no subsidiaries other than
those identified in Exhibit 21 to the Registration Statement
(each one a "Subsidiary" and collectively the "Subsidiaries")
and is not affiliated with any other company or business
entity, except as disclosed in the Prospectus. The Company and
each Subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with full power and
authority (corporate and other) to own, lease and operate its
properties and conduct its business as described in the
Registration Statement and Prospectus; the Company owns all of
the outstanding capital stock of each of the Subsidiaries free
and clear of any pledge, lien, security interest, encumbrance,
claim or equitable interest; the Company and each Subsidiary
is duly qualified to do business as a foreign corporation and
is in good standing in each jurisdiction in which the
ownership or lease of its properties or the conduct of its
business requires such qualification and in which the failure
to be qualified or in good standing would have a material
adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company; and no
proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing, or seeking to revoke, limit
or curtail, such power and authority or qualification.
(iv) The Company and each Subsidiary has operated and
is operating in material compliance with all authorizations,
licenses, certificates, permits, consents, approvals and
orders of and from all United States state, federal, foreign,
and all other governmental regulatory officials and bodies,
including the United States Food and Drug Administration (the
"FDA") and any agency of any United States state or foreign
government exercising comparable authority (including any
non-governmental entity whose approval or authorization is
required under foreign law comparable to that administered by
the FDA) in a jurisdiction where the Company's products are
sold (collectively, "Permits"), which are necessary to own its
properties and/or to conduct its business as described in the
Registration Statement and Prospectus and in the manner and to
the extent now conducted, with no material restrictions or
qualifications, and such Permits are valid and in full force
and effect; the Company and each Subsidiary is conducting its
business in substantial compliance with the Permits and with
all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business; and neither
the Company nor any Subsidiary is in material violation of any
applicable law, order, rule, regulation, writ, injunction,
judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction
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over the Company or any Subsidiary or over their respective
properties. No proceeding has been instituted or is pending
or, to the best knowledge of the Company, is contemplated or
threatened which in any manner affects or draws into question
the validity or effectiveness of the Permits; the Company is
not in violation of any statutes, orders, standards, rules or
regulations relating to or affecting the properties or Permits
of the Company or the operation of the Company's business in
the manner and to the extent now conducted and is not in
violation of any Permit; and the Company has not received, and
it does not have knowledge of any facts that furnish any
reasonable basis for, any Notice of Adverse Findings,
Regulatory Letters, Section 305 notices, or other similar
communications, alerts or seizures requested or threatened
relating to the Company's products. On July 26, 2001, the
Company received from the FDA premarket approval of its
Omnicarbon Cardiac Valve Prothesis, and such premarket
approval has not been modified, changed, amended or withdrawn.
Except to the extent disclosed in Registration Statement or
the Prospectus, the clinical, pre-clinical and other studies
and tests conducted by and on behalf of or sponsored by the
Company were and, if still pending are, being conducted in
accordance with standard medical and scientific research
procedures. The descriptions of the results of such studies
and tests are accurate and complete in all material respects
and fairly present the published data derived from such
studies and tests, and the Company has no knowledge of any
other studies or tests the results of which are inconsistent
with or otherwise call into question the results described or
referred to in the Prospectus. Except to the extent disclosed
in the Registration Statement and the Prospectus, the Company
has not received any notices or other correspondence from the
FDA or any other governmental agency with respect to any
ongoing clinical or pre-clinical studies or tests that are
described in the Prospectus or the results of which are
referred to the Prospectus requiring the termination,
suspension or modification of such studies or tests. Except as
set forth in the Registration Statement and Prospectus, (A)
the Company is in material compliance with all material rules,
laws and regulations relating to the use, treatment, storage
and disposal of toxic substances and protection of health or
the environment (the "Environmental Laws") which are
applicable to its business, (B) the Company has received no
notice from any governmental authority or third party of an
asserted claim under Environmental Laws, which claim is
required to be disclosed in the Registration Statement and the
Prospectus, (C) the Company will not be required to make any
future material capital expenditures to comply with
Environmental Laws, and (D) no property which is owned, leased
or occupied by the Company has been designated as a Superfund
site pursuant to the Comprehensive Response, Compensation and
Liability Act of 1980, as amended (42 U.S.C. Section 9601, ET
SEQ.), or otherwise designated as a contaminated site under
applicable state or local law.
(v) Neither the Company nor any Subsidiary is in
violation of its respective articles of incorporation or
bylaws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
bond, debenture, note or other evidence of indebtedness or in
any contract, lease, indenture, mortgage, loan agreement,
joint venture or other agreement or instrument to which it is
a party or by which it or its respective properties are bound,
which default is material to the business of the Company and
its Subsidiaries taken as a whole.
(vi) The Company has full requisite power and
authority to enter into this Agreement and perform the
transactions contemplated hereby. This Agreement has been duly
authorized, executed and delivered by the Company and is a
valid and binding agreement on the part of the Company,
enforceable against the Company in accordance with its terms,
except as enforceability may be limited by the application of
bankruptcy,
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insolvency, reorganization, moratorium or other similar laws
affecting the rights of creditors generally and by judicial
limitations on the right of specific performance, and except
as the enforceability of the indemnification or contribution
provisions hereof may be affected by applicable law or the
public policies underlying such law. The performance of this
Agreement and the consummation of the transactions herein
contemplated will not result in a material breach or violation
of any of the terms and provisions of, or constitute a
material default under, (A) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note, agreement or
other evidence of indebtedness, any lease, contract, joint
venture or other agreement or instrument to which the Company
or any Subsidiary is a party or by which the Company or any
Subsidiary or their respective properties may be bound, (B)
the respective articles of incorporation or bylaws of the
Company or any Subsidiary, or (C) any material applicable law,
order, rule, regulation, writ, injunction, judgment or decree
of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or
any Subsidiary or over their respective properties. No
consent, approval, authorization or order of or qualification
with any court, governmental agency or body, domestic or
foreign, having jurisdiction over the Company or any
Subsidiary or over their respective properties is required for
the execution and delivery of this Agreement and the
consummation by the Company of the transactions herein
contemplated, except such as may be required under the
Securities Act, the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or under state or other
securities or Blue Sky laws, all of which requirements have
been satisfied.
(vii) Except as is otherwise expressly described in
the Registration Statement or Prospectus, there is neither
pending nor, to the best of the Company's knowledge,
threatened, any action, suit, claim or proceeding against the
Company, any Subsidiary, or any of their respective officers
or any of their respective properties, assets or rights before
any court, government or governmental agency or body, domestic
or foreign, having jurisdiction over the Company or any
Subsidiary or over their respective officers or properties or
otherwise which (i) might result in any material adverse
change in the condition (financial or otherwise), earnings,
operations or business of the Company and its Subsidiaries
taken as a whole or might materially and adversely affect
their properties, assets or rights, or (ii) might prevent
consummation of the transactions contemplated hereby.
(viii) The Company has, and at the First Closing Date
and Second Closing Date (collectively, the "Closing Dates")
will have, the duly authorized and outstanding capitalization
set forth in the Prospectus. All outstanding shares of capital
stock of the Company are duly authorized and validly issued,
fully paid and non-assessable, have been issued in compliance
with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other
rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company
conforms in all material respects with the statements relating
thereto contained in the Registration Statement and the
Prospectus; the shares of Common Stock included
in the Units to be sold hereunder by the Company and the
shares of Common Stock issuable upon exercise of the
Redeemable Warrants have been duly authorized for issuance and
sale to the Underwriter pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor
in accordance with the terms of this Agreement, will be duly
and validly issued and fully paid and non-assessable and will
be sold free and clear of any pledge, lien, security interest,
encumbrance, claim or equitable interest; and no preemptive
right, co-sale right, registration right, right of first
refusal or other similar right of shareholders exists with
respect to any of the shares of Common Stock included
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in the Units to be sold hereunder by the Company or the
shares of Common Stock issuable upon exercise of the
Redeemable Warrants or the issuance and sale thereof, or the
issuance and sale or exercise of the Redeemable Warrants, or
the issuance and sale or exercise of the Underwriter's
Warrants and the shares of Common Stock and Redeemable
Warrants included in the Warrant Units, or the issuance of
the shares of Common Stock issuable upon exercise of the
Warrant Units included in the Warrant Units, other than those
that have been expressly waived prior to the date hereof.
Except as disclosed in the Prospectus, the Company has no
outstanding options to purchase, or any preemptive rights or
other rights to subscribe for or to purchase, any securities
or obligations convertible into, or any contracts or
commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or
obligations. The certificates evidencing the shares of Common
Stock and the Redeemable Warrants comply as to form with all
applicable provisions of the laws of the State of Minnesota.
(ix) The Redeemable Warrants included in the Units to
be sold by the Company have been duly and validly authorized
and, when authenticated by Registrar and Transfer Company (the
"Warrant Agent") and issued, delivered and sold in accordance
with this Agreement and the Warrant Agreement dated as of the
date hereof between the Company and the Warrant Agent, will
have been duly and validly executed, authenticated, issued,
and delivered and will constitute valid and binding
obligations of the Company, enforceable against the Company in
accordance with their terms, except as enforceability may be
limited by the application of bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the
rights of creditors generally and by judicial limitations on
the right of specific performance. A sufficient number of
shares of Common Stock of the Company has been reserved for
issuance by the Company upon exercise of the Redeemable
Warrants.
(x) The Underwriter's Warrants and the shares of
Common Stock and Redeemable Warrants included in the Warrant
Units have been duly authorized. The Underwriter's Warrants,
when issued and delivered to the Underwriter, will constitute
valid and binding obligations of the Company in accordance
with their terms, except as enforceability may be limited by
the application of bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of
creditors generally and by judicial limitations on the right
of specific performance and except insofar as the
indemnification provisions thereof may be limited by
applicable law and the policies underlying such law. The
shares of Common Stock included in the Warrant Units, when
issued and delivered upon such exercise, will be validly
issued, fully paid and non-assessable and subject to no
preemptive rights or similar rights on the part of any person
or entity. The Redeemable Warrants included in the Warrant
Units, when authenticated by the Warrant Agent and issued,
delivered and sold in accordance with this Agreement, the
Warrant Agreement between the Company and the Warrant Agent,
and the Underwriter's Warrants, will have been duly and
validly executed, authenticated, issued and delivered and will
constitute valid and binding obligations of the Company,
enforceable by the Company in accordance with their terms,
except as enforceability may be limited by the application of
bankruptcy, insolvency, reorganization, moratorium or other
similar laws affecting the rights of creditors generally and
by judicial limitations on the right of specific performance.
The shares of Common Stock issuable upon exercise of the
Redeemable Warrants included in the Warrant Units have been
duly authorized and, when issued and delivered upon such
exercise, will be validly issued, fully paid and nonassessable
and subject to no preemptive rights or similar rights on the
part of any person or entity. A sufficient number of shares of
Common Stock of the
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Company has been reserved for issuance by the Company upon
exercise of the Underwriter's Warrants and the Redeemable
Warrants included in the Warrant Units.
(xi) PricewaterhouseCoopers LLP, which has expressed
its opinion with respect to the financial statements filed as
part of the Registration Statement and included in the
Registration Statement and Prospectus, are independent
accountants within the meaning of the Securities Act and the
Rules and Regulations. The financial statements of the Company
set forth in the Registration Statement and Prospectus comply
in all material respects with the requirements of the
Securities Act and fairly present the financial position and
the results of operations of the Company and the Subsidiaries
at the respective dates and for the respective periods to
which they apply in accordance with generally accepted
accounting principles consistently applied throughout the
periods involved (subject, in the case of unaudited financial
statements, to normal year-end adjustments which in the
opinion of management of the Company are not material, and
except as otherwise stated therein); and the supporting
schedules included in the Registration Statement present
fairly the information required to be stated therein. The
selected and summary financial and statistical data included
in the Registration Statement present fairly the information
shown therein and have been compiled on a basis consistent
with the audited financial statements presented therein. No
other financial statements or schedules are required by the
Securities Act or the Rules and Regulations to be included in
the Registration Statement.
(xii) Subsequent to the respective dates as of which
information is given in the Registration Statement and
Prospectus, and at each Closing Date, except as is otherwise
disclosed in the Registration Statement or Prospectus, there
has not been: (A) any change in the capital stock or long-term
debt (including any capitalized lease obligation) or material
increase in the short-term debt of the Company or any
Subsidiary (other than issuances of Common Stock upon the
exercise of options outstanding as of the Effective Date and
options granted under the Company's 1992 Stock Option Plan,
1993 Director Stock Option Plan, 1997 Stock Option Plan, and
2001 Equity Incentive Plan (collectively, the "Stock Plans"));
(B) any issuance of options, warrants, convertible securities
or other rights to purchase the capital stock of the Company
(other than options granted under the Stock Plans); (C) any
material adverse change, or any development involving a
material adverse change, in or affecting the condition
(financial or otherwise), earnings, operations, business, or
business prospects, management, financial position,
stockholders' equity, results of operations or general
condition of the Company; (D) any transaction entered into by
the Company or any Subsidiary that is material to the Company;
(E) any obligation, direct or contingent, incurred by the
Company or any Subsidiary, except obligations incurred in the
ordinary course of business that, in the aggregate, are not
material; (F) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company; or
(G) any loss or damage (whether or not insured) to the
property of the Company or any Subsidiary which has been
sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of
the Company or a Subsidiary.
(xiii) Except as is otherwise expressly disclosed in
the Registration Statement or Prospectus, (A) the Company and
each Subsidiary has good and marketable title to all of the
property, real and personal, and assets described in the
Registration Statement or Prospectus as being owned by it,
free and clear of any and all pledges, liens, security
interests, encumbrances, equities, charges or claims, other
than such as would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or
business of the Company, (B) the agreements to which the
Company or any Subsidiary is
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a party described in the Registration Statement and Prospectus
are valid agreements, enforceable by the Company or the
Subsidiary (as applicable), except as the enforcement thereof
may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to
or affecting creditors' rights generally or by judicial
limitations on the right of specific performance, and (C) each
of the Company and the Subsidiaries has valid and enforceable
leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by
judicial limitations on the right of specific performance.
Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted.
(xiv) The Company and each Subsidiary has timely
filed (or has timely requested an extension of time to file)
all necessary federal and state income and franchise tax
returns and has paid all taxes shown thereon as due; there is
no tax deficiency that has been or, to the best of the
Company's knowledge, could be asserted against the Company or
any Subsidiary that might have a material adverse effect on
the condition (financial or otherwise), earnings, operations,
business or properties of the Company or a Subsidiary; and all
tax liabilities are adequately provided for in the books of
the Company and each Subsidiary.
(xv) No labor disturbance by the employees of the
Company or any Subsidiary exists or, to the best of the
Company's knowledge, is imminent. No collective bargaining
agreement exists with any of the employees of the Company or
any Subsidiary and, to the best of the Company's knowledge, no
such agreement is imminent.
(xvi) The Company and each Subsidiary owns, or
possesses adequate rights to use, all patents, patent rights,
inventions, trade secrets, know-how, technology, service
marks, trade names, copyrights, trademarks and proprietary
rights or information which are necessary for the conduct of
its present or intended business as described in the
Registration Statement or Prospectus; the expiration of any
patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material
adverse effect on the condition (financial or otherwise),
earnings, operations or business of the Company or any of its
Subsidiaries, taken as a whole; and the Company has not
received any notice of, and has no knowledge of, any
infringement of or conflict with the asserted rights of others
with respect to any patent, patent rights, inventions, trade
secrets, know-how, technology, trademarks, service marks,
trade names or copyrights which, singly or in the aggregate,
if the subject of an unfavorable decision, ruling or finding,
might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or
business prospects of the Company or any Subsidiary. Except as
disclosed in the Registration Statement or Prospectus, the
Company is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to
any owner of, licensor of, or other claimant to, any patent,
patent rights, inventions, trade secrets, know-how,
technology, service marks, trade names, trademark, copyright
or other intangible asset, with respect to the use thereof or
in connection with the conduct of its business or otherwise.
(xvii) The Units have been approved for quotation on
The Nasdaq SmallCap Market.
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(xviii) The Company has no defined benefit pension
plan or other pension benefit plan which is intended to comply
with the provisions of the Employee Retirement Income Security
Act of 1974 as amended from time to time, except as disclosed
in the Registration Statement.
(xix) The Company has not taken and will not take,
directly or indirectly, any action (and does not know of any
action by its directors, officers, shareholders or others)
which has constituted or is designed to, or which might
reasonably be expected to, cause or result in stabilization or
manipulation, as defined in the Exchange Act or otherwise, of
the price of any security of the Company to facilitate the
sale or resale of the Units. The Company has not distributed
and will not distribute prior to the later of (A) the First
Closing Date or the Second Closing Date, as the case may be,
and (B) completion of the distribution of the Units, any
offering material in connection with the offering and sale of
the Units other than any Preliminary Prospectus, the
Prospectus, the Registration Statement and other materials, if
any, permitted by the Securities Act. Except as is otherwise
disclosed in the Registration Statement or Prospectus, and to
the best of the Company's knowledge, no person is entitled,
directly or indirectly, to compensation from the Company or
the Underwriter for services as a "finder" or otherwise in
connection with the transactions contemplated by this
Agreement.
(xx) The Company and each Subsidiary maintains
insurance, which is in full force and effect, with insurers of
recognized financial responsibility of the types and in the
amounts generally deemed adequate for their respective
businesses and, to the best of the Company's knowledge,
consistent with the insurance maintained by similar companies
and businesses; and neither the Company nor any Subsidiary has
any reason to believe that it will not be able to renew its
existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be
necessary to continue its business at a cost that would not
materially and adversely affect the condition (financial or
otherwise), earnings, operations, business or business
prospects of the Company.
(xxi) Each executive officer and director of the
Company and each beneficial owner of five percent (5%) or more
of the Common Stock to be outstanding after the sale of the
Firm Units (calculated in accordance with Rule 13d-3 under the
Exchange Act) has agreed pursuant to the form of 180-Day
Lock-up Agreement attached hereto as APPENDIX A-1 (the
"180-Day Lock-up Agreement") that such person will not, for a
period of 180 days from the Effective Date (the "180-Day
Lock-up Period"), without the prior written consent of the
Underwriter, offer to sell, contract to sell, sell, pledge,
hypothecate, transfer or otherwise dispose of, or grant any
rights with respect to (collectively, a "Disposition"), any
shares of Common Stock and any options, warrants and other
rights to purchase any shares of Common Stock or any
securities convertible into or exchangeable or exercisable for
shares of Common Stock now owned or hereafter acquired by such
person (collectively, "Securities"), or with respect to which
such person has or hereafter acquires the power of
Disposition, other than as permitted by the 180-Day Lock-up
Agreement. The Company has provided to counsel for the
Underwriter ("Underwriter's Counsel") true, accurate and
complete copies of all of the 180-Day Lock-up Agreements. The
Company has provided to Underwriter's Counsel a complete and
accurate list of all holders of Securities of the Company and
the number and type of Securities held by each holder of
Securities.
(xxii) Neither the Company nor any Subsidiary has at
any time during the last five (5) years (or, if formed during
the last five years, since its inception) made any
9
unlawful contribution to any candidate for an office or failed
to disclose fully any contribution in violation of law, or
made any payment to any federal or state governmental officer
or official, domestic or foreign, or other person charged with
similar public or quasi-public duties, other than payments
required or permitted by the laws of the United States or any
jurisdiction thereof. The Company maintains a system of
internal accounting controls sufficient to provide reasonable
assurances that transactions are executed in accordance with
management's general or specific authorizations, transactions
are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting
principles and to maintain accountability for assets, access
to assets is permitted only in accordance with management's
general or specific authorization, and the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with
respect to any differences.
(xxiii) Neither the Company nor any of its affiliates
is presently doing business with the government of Cuba or
with any person or affiliate located in Cuba.
(b) Any certificate signed by any officer of the Company and
delivered to you or to Underwriter's Counsel shall be deemed a
representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions
herein set forth, the Company agrees to sell to the Underwriter, and
the Underwriter agrees to purchase from the Company, the Firm Units at
a purchase price of $4.05 per Unit. The Underwriter will purchase all
of the Firm Units if any are purchased. The Firm Units will be
delivered by the Company to the Underwriter for the account of the
Underwriter against payment of the purchase price therefor by wire
transfer or other same-day funds payable to the order of the Company at
the offices of Equity Securities Investments, Inc., 000 Xxxxx Xxxxxx
Xxxxx, Xxxxx 000, Xxxxxx Xxxxxx, Xxxxxxxxx 00000 (or at such other
place as may be agreed upon by the Underwriter and the Company), at
9:00 a.m., Minneapolis, Minnesota time, on (i) the third (3rd) full
business day following the date hereof if the Registration Statement is
declared effective before 3:30 p.m., Minneapolis, Minnesota time on the
date hereof, (ii) the fourth (4th) full business day following the date
hereof if the Registration Statement is declared effective after 3:30
p.m., Minneapolis, Minnesota time on the date hereof, or (iii) such
other time and date as the Underwriter and the Company may determine,
such time and date of payment and delivery being herein called the
"First Closing Date." Delivery of the Firm Units will be made by credit
to "full fast" transfer to the account or accounts at The Depository
Trust Company designated by the Underwriter.
(b) On the basis of the representations, warranties and
agreements herein contained, but subject to the terms and conditions
herein set forth, the Company hereby grants an option to the
Underwriter to purchase an aggregate of up to 225,000 Option Units at
the same purchase price as the Firm Units, for use solely in covering
any over-allotments made by the Underwriter in the sale and
distribution of the Firm Units. The option granted hereunder may be
exercised by the Underwriter at any time (but not more than once), in
whole or in part, during the period of forty-five (45) days after the
date of this Agreement by giving written notice to the Company and the
Company's counsel, which notice shall set forth the aggregate number of
Option Units as to which the Underwriter is exercising the option, the
names and denominations in which the Option Units are to be registered,
and the date and time, as determined by the Underwriter, when the
Option Units are to be delivered, such time and date being herein
referred to as the "Second
10
Closing Date;" provided, however, that the Second Closing Date shall
not be earlier than the First Closing Date nor earlier than the second
business day after the date on which the option shall have been
exercised. No Option Units shall be sold and delivered unless the Firm
Units previously have been, or simultaneously are, sold and delivered.
The Option Units will be delivered by the Company to the Underwriter
for the account of the Underwriter against payment of the purchase
price therefor by wire transfer or other same-day funds payable to the
order of the Company at the offices of Equity Securities Investments,
Inc. 000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000, Xxxxxx Xxxxxx, Xxxxxxxxx 00000
(or at such other place as may be agreed upon by the Underwriter and
the Company) at 9:00 a.m., Minneapolis, Minnesota time, on the Second
Closing Date. Delivery of the Option Units will be made by credit to
"full fast" transfer to the account or accounts at The Depository Trust
Company designated by the Underwriter.
3. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees with
the Underwriter as follows:
(a) If the Registration Statement has not already been
declared effective by the SEC, the Company will use its best efforts to
cause the Registration Statement and any post-effective amendments
thereto to become effective as promptly as possible; the Company will
notify the Underwriter promptly of the time when the Registration
Statement or any post-effective amendment to the Registration Statement
has become effective or any supplement to the Prospectus has been filed
and of any request by the SEC for any amendment or supplement to the
Registration Statement or Prospectus or additional information; if the
Company has elected to rely on Rule 430A of the Rules and Regulations,
the Company will file a Prospectus containing the information omitted
therefrom pursuant to such Rule 430A with the SEC within the time
period required by, and otherwise in accordance with the provisions of,
Rules 424(b) and 430A of the Rules and Regulations; the Company will
prepare and file with the SEC, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus
that, in your opinion, may be necessary or advisable in connection with
the distribution of the Units by the Underwriter; and the Company will
not file any amendment or supplement to the Registration Statement or
Prospectus to which the Underwriter shall reasonably object by notice
to the Company after having been furnished a copy a reasonable time
prior to the filing.
(b) The Company will advise the Underwriter, promptly after it
shall receive notice or obtain knowledge thereof, of the issuance by
the SEC of any stop order suspending the effectiveness of the
Registration Statement, of the suspension of the qualification of the
Units for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceeding for any such purpose; and the Company
will promptly use its best efforts to prevent the issuance of any stop
order or to obtain its withdrawal if such a stop order should be
issued.
(c) Within the time during which a prospectus relating to the
Units is required to be delivered under the Securities Act, the Company
will comply as far as it is able with all requirements imposed upon it
by the Securities Act, as now and hereafter amended, and by the Rules
and Regulations, as from time to time in force, so far as necessary to
permit the continuance of sales of or dealings in the Units as
contemplated by the provisions hereof and the Prospectus. If, during
such period, any event occurs as a result of which the Prospectus would
include an untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of
the circumstances then existing, not misleading, or if, during such
period, it is necessary to amend the Registration Statement or
supplement the Prospectus to comply with the Securities Act, the
Company will promptly notify the Underwriter and will amend the
Registration Statement or supplement the Prospectus (at the expense of
the Company) so as to correct such statement or omission or effect such
compliance.
11
(d) The Company will use its best efforts to arrange for the
qualification of the Units for offering and sale under the securities
laws of such jurisdictions as the Underwriter may designate and to
continue such qualifications in effect for so long as may be required
for purposes of the distribution of the Units; provided, however, that
in no event shall the Company be obligated to qualify to do business in
any jurisdiction where it is not now so qualified or to take any action
which would subject it to the service of process in suits, other than
those arising out of the offering or sale of the Units, in any
jurisdiction where it is not now so subject. In each jurisdiction in
which the Units shall have been qualified as herein provided, the
Company will make and file such statements and reports in each year as
are or may be reasonably required by the laws of such jurisdiction.
(e) The Company will furnish to the Underwriter copies of the
Registration Statement (two of which will be signed and will include
all exhibits), each Preliminary Prospectus, the Prospectus, and all
amendments and supplements to such documents, in each case as soon as
available and in such quantities as the Underwriter may from time to
time reasonably request.
(f) For a period of five years from the Effective Date, the
Company will furnish directly to the Underwriter as soon as the same
shall be sent to its shareholders generally copies of all annual or
interim shareholder reports of the Company and will, for the same
period, also furnish the Underwriter with the following:
(i) One copy of any report, application or document
(other than exhibits, which, however, will be furnished on
your request) filed by the Company with the SEC, The Nasdaq
Stock Market, the National Association of Securities Dealers,
Inc. ("NASD") or any securities exchange;
(ii) As soon as the same shall be sent to
shareholders generally, copies of each communication sent to
shareholders; and
(iii) From time to time, such other information
concerning the Company as the Underwriter may reasonably and
specifically request, provided that the Company shall not be
required to furnish any information pursuant hereto that is
not furnished to its shareholders or not otherwise made
publicly available.
(g) The Company will, for a period of two (2) years from the
Effective Date, furnish directly to the Underwriter quarterly profit
and loss statements, reports of the Company's cash flow and statements
of application of the proceeds of the offering of the Units by the
Company in such reasonable detail as the Underwriter may request.
(h) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than the
fifteen (15) months after the end of the Company's current fiscal
quarter, an earnings statement (which will be in reasonable detail but
need not be audited) complying with the provisions of Section 11(a) of
the Securities Act and Rule 158 of the Rules and Regulations and
covering a twelve (12)-month period beginning after the Effective Date
of the Registration Statement.
(i) After completion of the offering of the Units, the Company
will make all filings and take all actions required to maintain the
quotation or listing of the Units on The Nasdaq SmallCap Market, The
Nasdaq National Market, or any national stock exchange. The Company
shall make all filings and take all actions required to have the Common
Stock and the Redeemable Warrants constituting the Units to be quoted
on the same automated quotations system or listed on the same national
stock exchange on which the Units are being quoted or
12
listed, which quotation or listing shall be effective eighteen (18)
months from the Effective Date, when the Units become separable. After
the Units become separable, the Company will make all filings and take
all actions required to maintain the quotation or listing of the Common
Stock and the Redeemable Warrants on such quotations system or national
stock exchange.
(j) The Company will apply the net proceeds from the sale of
the Units substantially in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(k) For a period of six months after the Second Closing Date,
the Company will not, without the prior written consent of the
Underwriter, directly or indirectly, effect the Disposition of any
Securities including, without limitation, any Securities that are
convertible into or exchangeable or exercisable for Common Stock, and
shall not accelerate the exercisability of any Securities that are
convertible into or exchangeable or exercisable for Common Stock,
except that the Company may take the following actions:
(i) sell Units pursuant to this Agreement;
(ii) grant options under the Company's Stock Plans in
the ordinary course, but only if the per share exercise price
or conversion price of any such options is equal to or greater
than the market price of the Common Stock on the date of grant
or, if greater, $4.50 per share; and
(iii) issue shares of Common Stock upon the exercise
of options granted under the Stock Plan and upon the exercise
of warrants outstanding on the date of this Agreement.
(l) For a period of six months from the Effective Date, the
Company will not, without the prior written consent of the Underwriter,
file a registration statement with the SEC or any state securities or
"Blue Sky" law authority relating to any of the Company's Securities,
whether such shares are to be offered and sold by the Company or by its
shareholders, except for a Registration Statement on Form S-8 (or any
successor or replacement form of registration statement) relating only
to shares of Common Stock subject to options granted under the Stock
Plans.
(m) The Company will not take, and will use its best efforts
to cause each of its officers and directors not to take, directly or
indirectly, any action designed to or which might reasonably be
expected to cause or result in the stabilization or manipulation of the
price of any security of the Company to facilitate the sale or resale
of the Units.
(n) The Company will inform the Florida Department of Banking
and Finance at any time prior to the consummation of the distribution
of the Units by the Underwriter if it commences engaging in business
with the government of Cuba or with any person or affiliate located in
Cuba. Such information shall be provided within ninety (90) days after
the commencement thereof or after a change occurs with respect to
previously reported information.
(o) The Company will cause the Common Stock, the Redeemable
Warrants and the Units to be registered under the Exchange Act, which
registrations shall be effective concurrently with the effectiveness of
the Registration Statement.
(p) The Company hereby grants to the Underwriter the right to
nominate a representative to serve on the Company's Board of Directors
during the period of three (3) years following the Effective Date of
the Registration Statement, and the Company shall use its best efforts
to secure the election of such representative to the Company's Board of
Directors.
13
(q) Unless the Company's Common Stock and Redeemable Warrants
are listed on The Nasdaq National Market or other suitable secondary
trading exemptions are available, or if for any reason state Blue Sky
or securities laws do not apply to secondary trading of the Common
Stock and Redeemable Warrants, the Company will seek to become listed
in Standard & Poors or another recognized securities manual as soon as
practicable after the Effective Date and shall pay all filing fees in
connection therewith, for the purpose of facilitating secondary trading
in the Common Stock and Redeemable Warrants; and the Company shall also
agree to make appropriate filings to qualify the Common Stock and
Redeemable Warrants for secondary trading in states in which such
filings are necessary to cause the Common Stock and Redeemable Warrants
to be qualified, provided that such qualification may be obtained
without causing the Company extraordinary cost or hardship.
4. EXPENSES.
(a) The Company agrees with the Underwriter that:
(i) Whether or not this Agreement becomes effective
or is terminated or cancelled or the sale of the Units
hereunder is consummated, and regardless of the reason for or
cause of any such termination, cancellation, or failure to
consummate, the Company will pay or cause to be paid (A) all
expenses (including any transfer taxes) incurred in connection
with the delivery to the Underwriter of the Units, (B) all
expenses and fees (including, without limitation, fees and
expenses of the Company's accountants and of counsel to the
Company, excluding, however, fees of Underwriter's counsel) in
connection with the preparation, printing, filing, delivery,
and shipping of the Registration Statement (including the
financial statements therein and all amendments, schedules,
and exhibits thereto), each Preliminary Prospectus, the
Prospectus, and any amendment thereof or supplement thereto,
(C) all fees and reasonable expenses, including all reasonable
counsel fees of Underwriter's Counsel, incurred in connection
with the qualification of the Units for offering and sale by
the Underwriter or by dealers under the securities or Blue Sky
laws of the states and other jurisdictions which the
Underwriter may designate in accordance with Section 3(d)
hereof, (D) all costs and expenses incident to qualification
with The Nasdaq SmallCap Market, (E) postage and express
charges and other expenses in connection with delivery to the
Underwriter of the Preliminary Prospectus and Prospectus, and
(F) all other costs and expenses incident to the performance
of the Company's obligations hereunder that are not otherwise
specifically described herein. In addition to and not in lieu
of the foregoing, the Company shall pay to the Underwriter on
each Closing Date for out-of-pocket expenses (including fees
of Underwriter's Counsel other than fees and expenses incurred
in connection with Blue Sky or state securities
qualifications) a nonaccountable expense allowance (the
"Allowance") equal to three percent (3.0%) of the aggregate
Price to Public for all the Units sold to the Underwriter on
each Closing Date, including Units sold pursuant to orders
received through the Company.
(ii) If the Underwriter withdraws from the sale of
the Units as herein proposed (A) for any reason within the
control of the Company (such as, for example, the sale of the
Units as herein proposed is abandoned by the Company, the
Company decides to pursue and/or accept alternative financing
or a strategic partnership, or there is a sale of the Company
or its assets, merger, acquisition by the Company of the
equity securities or other assets of another entity), and/or
as a result of activities or decisions made by the Company's
board of directors or shareholders; (B) based upon the fact
that there has been a material adverse change in the financial
or other affairs of, or prospects for, the Company since the
date of the last financial statements of the Company provided
14
to the Underwriter; (C) because any of the Company's
representations or warranties in this Agreement prove to be
untrue; (D) because there shall have occurred any general
suspension of trading in securities on the New York Stock
Exchange or any limitation on prices for such trading or
because any new restrictions on the distribution of securities
shall have been established by the New York Stock Exchange or
by the SEC or by any federal or state agency, all to such a
degree as, in the Underwriter's sole judgment, would restrict
materially a free market for the Units; (E) because there
shall have occurred such a material change in general
economic, political or financial conditions, or because the
effect of international conditions on the financial markets in
the United States become such as, in the Underwriter's sole
judgment, makes it inadvisable to proceed with the sale of the
Units; (F) because the Company's financial condition or its
business prospects do not fulfill the Underwriter's
expectations based on representations made by the Company
prior to __________, 2001; (G) because the offering of the
Units lacks public interest prior to the Effective Date; or
(H) because adverse market or other conditions make the
offering of the Units not feasible in the Underwriter's sole
judgment, the Company will pay to the Underwriter the amount
of all actual accountable, out-of-pocket expenses (including
fees and disbursements of Underwriter's Counsel) incurred by
the Underwriter in connection with the contemplated purchase,
offer and sale of the Units, including, without limitation,
expenses incurred in its investigation, preparation to market,
and marketing of the Units, and in contemplation of performing
and in performance of its obligations hereunder, up to a
maximum of $25,000.00; provided, however, that if the sale of
the Units is withdrawn pursuant to Section 4(a)(ii)(A) then,
in addition to reimbursing the Underwriter's expenses as
provided for herein, the Company shall pay to the Underwriter
a $100,000.00 termination fee. All reimbursements pursuant to
Sections 4(a)(i) and (ii) shall occur within ten (10) days
after the Underwriter delivers to the Company a written
itemization of such expenses. The provisions of Sections
4(a)(i) and (ii) are intended to relieve the Underwriter from
the payment of the expenses and costs which the Company hereby
agrees to pay and shall not impair the obligations of the
Company hereunder to the Underwriter. The Underwriter hereby
acknowledges the receipt from the Company of a non-refundable
commitment fee in the amount of $25,000.00, which shall be
credited by the Underwriter against the Allowance or against
the amount described in the third sentence of this subsection
4(a)(ii).
(iii) In addition to its other obligations under
Sections 7(a) and 8 hereof, the Company agrees that, as an
interim measure during the pendency of any claim, action,
investigation, inquiry or other proceeding described in
Section 7(a), it will reimburse the Underwriter on a monthly
basis for all reasonable legal or other expenses incurred in
connection with investigating or defending any such claim,
action, investigation, inquiry or other proceeding,
notwithstanding the absence of a judicial determination as to
the propriety and enforceability of the Company's obligation
to reimburse the Underwriter for such expenses and the
possibility that such payments might later be held to have
been improper by a court of competent jurisdiction. To the
extent that any such interim reimbursement payment is so held
to have been improper, the Underwriter shall promptly return
such payment to the Company together with interest, compounded
daily, determined on the basis of the prime rate (or other
commercial lending rate for borrowers of the highest credit
standing) listed from time to time in The Wall Street Journal
which represents the base rate on corporate loans posted by a
substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments
which are not made to the Underwriter within thirty (30) days
of a request for reimbursement shall bear interest at the
Prime Rate from the date of such request.
15
(b) It is agreed that any controversy rising out of the
operation of the interim reimbursement arrangements set forth in
Section 4(a)(iii) hereof, including the amounts of any requested
reimbursement payments and the method of determining such amounts,
shall be settled by arbitration conducted pursuant to the Code of
Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written
notice of intention to arbitrate, therein electing the arbitration
tribunal. If the party demanding arbitration does not make such
designation of an arbitration tribunal in such demand or notice, then
the party responding to said demand or notice is authorized to do so.
Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Section 4(a)(iii) hereof and will
not resolve the ultimate propriety or enforceability of the obligation
to indemnify for expenses which is created by the provisions of
Sections 7(a) and 7(b) hereof or the obligation to contribute to
expenses which is created by the provisions of Section 8(a) hereof.
5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriter to purchase and pay for the Units as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, in
the case of the Firm Units, as of the date hereof and the First Closing Date (as
if made on and as of the First Closing Date), and in the case of the Option
Units, as of the date hereof and the Second Closing Date (as if made on and as
of the Second Closing Date); to the performance by the Company of its
obligations hereunder; and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Units and
on or before the Second Closing Date in the case of the Option Units:
(a) The Registration Statement shall have become effective not
later than 4:00 p.m. Minneapolis, Minnesota time on the date of this
Agreement, or such later date or time as shall be consented to in
writing by you; and no stop order suspending the effectiveness thereof
shall have been issued and no proceedings for that purpose shall have
been initiated or, to the knowledge of the Company or the Underwriter,
threatened by the SEC or any state securities commission or similar
regulatory body; and any request of the SEC for additional information
(to be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter and Underwriter's Counsel.
(b) The Underwriter shall not have advised the Company that
the Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a material fact or
omits to state a material fact which is required to be stated therein
or is necessary to make the statements contained therein, in light of
the circumstances under which they were made, not misleading; provided,
however, that this Section 5(b) shall not apply to statements in, or
omissions from, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, which are based upon and
conform to written information furnished to the Company by the
Underwriter specifically for use in the preparation of the Registration
Statement or the Prospectus, or any such amendment or supplement.
(c) Subsequent to the Effective Date and prior to each Closing
Date, there shall not have occurred any change, or any development
involving a prospective change, which materially and adversely affects
the Company's condition (financial or otherwise), earnings, operations,
properties, business or business prospects from that set forth in the
Registration Statement or Prospectus, and which, in the Underwriter's
sole judgment, is material and adverse and that makes it, in the
Underwriter's sole judgment, impracticable or inadvisable to proceed
with the public offering of the Units as contemplated by the Prospectus
and this Agreement.
(d) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and
the Prospectus, and the registration, authorization, issue, sale and
delivery of the Units shall have been reasonably satisfactory to
16
Underwriter's Counsel, and Underwriter's Counsel shall have been
furnished with such papers and information as it may reasonably have
requested to enable it to pass upon the matters referred to in this
Section.
(e) On each Closing Date, the Underwriter shall have received
the opinion of Xxxxxx and Xxxxxx, P.A., counsel for the Company, dated
as of such Closing Date, satisfactory in form and substance to the
Underwriter and Underwriter's Counsel, to the effect that:
(i) Each of the Company and the Subsidiaries has been
duly incorporated and is validly existing as a corporation in
good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to
own, lease and operate its properties and to conduct its
business as currently being carried on and as described in the
Registration Statement and Prospectus.
(ii) Each of the Company and the Subsidiaries is duly
qualified to do business as a foreign corporation and is in
good standing in each jurisdiction, if any, in which the
ownership or leasing of its properties or the conduct of its
business requires such qualification, except where the failure
to be so qualified or be in good standing would not have a
material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company
and the Subsidiaries considered as one enterprise. To the best
of such counsel's knowledge, the Company does not own or
control, directly or indirectly, any corporation, association
or other entity other than the Subsidiaries.
(iii) The capital stock of the Company conforms as to
legal matters to the description thereof contained in the
Prospectus under the caption "Description of Securities." The
issued and outstanding Units of the Company have been duly and
validly issued and are fully paid and non-assessable, and the
holders thereof are not subject to any personal liability
solely by reason of being such holders.
(iv) The Units to be issued by the Company pursuant
to the terms of this Agreement, and the shares of Common Stock
included in the Units, have been duly authorized and, upon
issuance and delivery against payment therefor in accordance
with the terms hereof, will be duly and validly issued and
fully paid and non-assessable, and the holders thereof will
not be subject to personal liability solely by reason of being
such holders. The shares of Common Stock issuable upon
exercise of the Redeemable Warrants included in the Units have
been duly authorized and, when issued and delivered upon such
exercise, will be duly and validly issued and fully paid and
non-assessable, and the holders thereof will not be subject to
personal liability solely by reason of being such holders.
Except as otherwise stated in the Registration Statement and
Prospectus, there are no preemptive rights or other rights to
subscribe for or to purchase, or any restriction upon the
voting or transfer of, any shares of capital stock pursuant to
the Company's articles of incorporation, bylaws or any
agreement or other instrument known to such counsel to which
the Company is a party or by which the Company is bound. To
the best of such counsel's knowledge, except as set forth in
the Prospectus, neither the filing of the Registration
Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any rights for or
relating to the registration of any shares of capital stock or
other securities of the Company and no such rights exist,
other than those rights that have been waived prior to the
date hereof. To the best of such counsel's knowledge, except
as described in the Registration Statement and Prospectus,
there are no options, warrants, agreements, contracts or
rights in existence to purchase or acquire from the Company
any shares of capital stock of the Company.
17
(v) The Redeemable Warrants included in the Units to
be sold by the Company have been duly and validly authorized
and, when authenticated by the Warrant Agent and issued,
delivered and sold in accordance with this Agreement and the
Warrant Agreement dated as of the date hereof between the
Company and the Warrant Agent, will have been duly and validly
executed, authenticated, issued and delivered and will
constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their
terms, except as enforceability may be limited by the
application of bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of
creditors generally and by judicial limitations on the right
of specific performance. A sufficient number of shares of
Common Stock of the Company has been reserved for issuance by
the Company upon exercise of the Redeemable Warrants.
(vi) The Underwriter's Warrants and the shares of
Common Stock and Redeemable Warrants included in the Warrant
Units have been duly authorized. The Underwriter's Warrants,
when issued and delivered to the Underwriter, will constitute
valid and binding obligations of the Company in accordance
with their terms, except as enforceability may be limited by
the application of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of
creditors generally and by judicial limitations on the right
of specific performance and except insofar as the
indemnification provisions thereof may be limited by
applicable law and the policies underlying such law. The
shares of Common Stock included in the Warrant Units, when
issued in accordance with the terms of this Agreement and
pursuant to the Underwriter's Warrants, will be fully paid and
nonassessable and subject to no preemptive rights or similar
rights on the part of any person or entity. The Redeemable
Warrants included in the Warrant Units, when authenticated by
the Warrant Agent and issued, delivered and sold in accordance
with this Agreement, the Warrant Agreement between the Company
and the Warrant Agent, and the Underwriter's Warrants, will
have been duly and validly executed, authenticated, issued and
delivered and will constitute valid and binding obligations of
the Company, enforceable against the Company in accordance
with their terms, except as enforceability may be limited by
the application of bankruptcy, insolvency, reorganization,
moratorium or similar laws effecting the rights of creditors
generally and by judicial limitations on the right of specific
performance. The shares of Common Stock issuable upon exercise
of the Redeemable Warrants included in the Warrant Units have
been duly authorized and, when issued and delivered upon such
exercise, will be validly issued, fully paid and
non-assessable and, to such counsel's knowledge, subject to no
preemptive rights or similar rights on the part of any person
or entity. A sufficient number of shares of Common Stock of
the Company has been reserved for issuance by the Company upon
exercise of the Underwriter's Warrants and the Redeemable
Warrants included in the Warrant Units.
(vii) The Company has the requisite corporate power
and authority to enter into this Agreement and to issue, sell
and deliver to the Underwriter the Units to be issued and sold
by it hereunder. This Agreement has been duly authorized by
all necessary corporate action on the part of the Company and
has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the
Underwriter, is a valid, legal and binding agreement of the
Company, enforceable in accordance with its terms, except
insofar as indemnification and contribution provisions may be
limited by applicable law or the public policies underlying
such law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws relating to or affecting creditors'
rights generally or by general equitable principles.
18
(viii) The Registration Statement has become
effective under the Securities Act and, to the best of such
counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or is
pending or threatened under the Securities Act.
(ix) The Registration Statement and the Prospectus,
and each amendment thereof or supplement thereto (other than
the financial statements, including the notes thereto and the
supporting schedules, and other financial, numerical,
statistical and accounting data derived therefrom, as to which
such counsel need express no opinion), comply as to form in
all material respects with the requirements of the Securities
Act and the Rules and Regulations.
(x) The forms of certificates evidencing the Common
Stock and the Redeemable Warrants and filed as exhibits to the
Registration Statement comply with Minnesota law.
(xi) The description in the Registration Statement
and the Prospectus of the Company's articles of incorporation
and bylaws and of statutes, legal and governmental
proceedings, contracts and other documents are accurate in all
material respects and fairly present the information required
to be presented by the Securities Act and the applicable Rules
and Regulations; and such counsel does not know of any
statutes or legal or governmental proceedings required to be
described in the Prospectus that are not described as
required, or of any agreements, contracts, leases or documents
of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an
exhibit to the Registration Statement which are not described
or referred to therein or filed as required.
(xii) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein
contemplated (other than performance of the Company's
indemnification and contribution obligations hereunder,
concerning which no opinion need be expressed) do not result
in any violation of the Company's articles of incorporation or
bylaws or result in a breach or violation of any of the terms
and provisions of, or constitute a default under, any bond,
debenture, note or other evidence of indebtedness, or any
material lease, contract, indenture, mortgage, deed of trust,
loan agreement, joint venture or other material agreement or
instrument known to such counsel to which the Company is a
party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to the
best of such counsel's knowledge, any order, writ or decree of
any court, government or governmental agency or body having
jurisdiction over the Company or the Subsidiaries or other any
of their material properties or operations.
(xiii) No consent, approval, authorization or order
of, or filing with, or qualification with, any court,
government or governmental agency or body is necessary in
connection with the execution, delivery and performance of
this Agreement or for the execution, delivery and performance
of this Agreement or for the consummation of the transactions
herein contemplated, except such as have been obtained under
the Securities Act or such as may be required under state or
other securities or Blue Sky laws in connection with the
purchase and the distribution of the Units by the Underwriter.
(xiv) To the best of such counsel's knowledge, there
are no legal or governmental proceedings pending or threatened
against the Company or any of the Subsidiaries of a character
required to be disclosed in the Registration Statement or the
19
Prospectus by the Securities Act or the Rules and Regulations,
other than those described therein.
(xv) To the best of such counsel's knowledge, neither
the Company nor any of the Subsidiaries is presently (A) in
violation of its respective articles of incorporation or
bylaws, (B) in material breach or violation of any applicable
statute, rule or regulation known to such counsel or any
order, writ or decree of any court or governmental agency or
body, or (C) in breach of or otherwise in default in the
performance of any material obligation, agreement or condition
contained in any bond, debenture, note, loan agreement or any
other material contract, lease or other instrument to which
the Company is subject or by which it may be bound, or to
which any of the material assets or property of the Company is
subject.
(xvi) To the best of such counsel's knowledge, the
Company holds, and is operating in compliance in all material
respects with, all franchises, grants, authorizations,
licenses, permits, easements, consents, certificates and
orders of any government or self-regulatory body required for
the conduct of its business, and all such franchises, grants,
authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and
effect.
(xvii) To the best of such counsel's knowledge, after
due inquiry, the Company has not received any notice of, and
has no knowledge of, any infringement of or conflict with the
asserted rights of others with respect to any patent, patent
rights, inventions, trade secrets, know-how, technology, trade
marks, service marks, trade names, or copyrights which,
singularly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise),
earnings, operations, business or business prospects of the
Company.
(xviii) To the best of such counsel's knowledge,
after due inquiry, the Company owns, or possesses adequate
rights to use, all patents, patent rights, inventions, trade
secrets, know-how, technology, service marks, trade names,
copyrights, trade marks and proprietary rights or information
which are necessary for the conduct of its present or intended
business as described in the Registration Statement or
Prospectus.
(xix) On the basis of information obtained as a
result of discussions and meetings with officers and other
representatives of the Company, discussions with
representatives of the independent public accountants for the
Company in connection with the preparation of the Registration
Statement and the Prospectus, and the examination of other
information and documents requested by such counsel, nothing
has come to such counsel's attention that has caused them to
believe that the Registration Statement and any amendment
thereof, at the time it became effective and at all times
subsequent thereto up to and on that Closing Date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein not misleading, or that
the Prospectus, and any amendment or supplement thereto, at
the first date of its issuance and up to and at all times
subsequent thereto up to and on that Closing Date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, not misleading. Such
counsel may further state that in making the foregoing
comments, such counsel does not intend them to include or
cover the financial statements and notes thereto and related
schedules and other financial,
20
numerical, statistical and accounting data contained or
omitted from the Registration Statement and any amendment or
supplement thereto and the Prospectus.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the
State of Minnesota upon opinions of local counsel, and, as to questions
of fact, upon representations or certificates of officers of the
Company or its Subsidiaries and of government officials, in which case
their opinion is to state the extent of such reliance. Copies of any
opinion, representation or certificate so relied upon shall be
delivered to the Underwriter and to Underwriter's Counsel.
(f) The Underwriter shall have received the opinion of
________, intellectual property counsel to the Company, dated as of the
First Closing Date and the Second Closing Date and satisfactory in form
and substance to the Underwriter and its counsel, and such intellectual
property counsel may rely on appropriate written representations or
certificates of public officials and of appropriate officers of the
Company (provided that a copy of such written representations or
certificates are furnished to the Underwriter), to the effect that:
(i) The statements made in the Registration Statement
and the Prospectus concerning the Company's intellectual
property, including, by way of illustration, all patents,
patent applications, trademarks, service marks, trade names,
trademark registrations, service xxxx registrations,
copyrights, licenses, inventions, trade secrets, and similar
rights, do not contain an untrue statement of a material fact
or omit to state a material fact required to be stated therein
or necessary to make the statements made therein, in light of
the circumstances under which they were made, not misleading,
and fairly present the information set forth therein.
(ii) To such counsel's knowledge, the Company owns or
possesses the right to use all the patents, patent
applications, trademarks, service marks, trade names,
trademark registrations, service xxxx registrations,
copyrights, licenses, inventions, trade secrets, and similar
rights as described in the Registration Statement and the
Prospectus. Such counsel has not received any notice of, and
to such counsel's knowledge, no person or entity could
reasonably claim, any infringement of or claim for license or
similar fees under any patents, patent applications,
trademarks, service marks, trade names, trademark
registrations, service xxxx registrations, copyrights,
licenses, inventions, trade secrets, or similar rights of
others or any claim with respect thereto, which would have a
material adverse effect on the business of the Company.
(g) The Underwriter shall have received from Winthrop &
Weinstine, P.A., Underwriter's Counsel, such opinion or opinions as the
Underwriter may reasonably require, dated as of the First Closing Date
and the Second Closing Date, which are satisfactory in form and
substance to the Underwriter, with respect to the sufficiency of
corporate proceedings and other legal matters relating to this
Agreement and the transactions contemplated hereby, and the Company
shall have furnished to Underwriter's Counsel such documents as it may
have requested for the purpose of enabling it to pass upon such
matters. In connection with such opinion, as to matters of fact
relevant to conclusions of law, Underwriter's Counsel may rely, to the
extent that it deems proper, upon representations or certificates of
public officials and of responsible officers of the Company.
(h) At the time of execution of this Agreement, the
Underwriter shall have received from PricewaterhouseCoopers LLP a
letter dated the date of such execution, in form and substance
satisfactory to the Underwriter, to the effect that they are
independent accountants with
21
respect to the Company within the meaning of the Securities Act and the
applicable published instructions, and the Rules and Regulations
thereunder, and further stating in effect that:
(i) In their opinion, the audited financial
statements included in the Registration Statement and
Prospectus covered by their report included therein comply as
to form in all material respects with the applicable
requirements of the Securities Act, the published instructions
and the Rules and Regulations and have been prepared in
accordance with United States generally accepted accounting
principles, consistently applied throughout and as of the end
of the periods involved.
(ii) On the basis of (A) a reading of the minutes of
the shareholders' and directors' meetings of the Company since
_______________, (B) inquiries of certain officials of the
Company responsible for financial and accounting matters, (C)
a reading of the Company's monthly operating statements for
the months beginning on _______________, and (D) other
specified procedures and inquiries (but not an audit in
accordance with generally accepted accounting principles),
nothing came to their attention causing them to believe that:
(1) the unaudited consolidated financial
statements of the Company and its Subsidiaries
contained in the Prospectus and any amendment thereof
or supplement thereto do not comply as to form, in
all material respects, with the applicable accounting
requirements of the Securities Act and the published
Rules and Regulations or were not prepared in
conformity with generally accepted accounting
principles and practices applied on a basis
consistent in all material respects with those
followed in the preparation of the audited
consolidated financial statements of the Company and
its Subsidiaries included therein; or
(2) the unaudited consolidated amounts of
revenues, income before provision for income taxes,
net income and ratio of earnings to fixed charges of
the Company and its Subsidiaries, if any, contained
in the Prospectus, or any amendment thereof or
supplement thereto, were not derived from
consolidated financial statements prepared in
conformity with generally accepted accounting
principles and practices applied on a basis
consistent in all material respects with those
followed in the preparation of the audited
consolidated financial statements of the Company and
its Subsidiaries included therein; or
(3) with respect to the period subsequent to
______________, 2001, there were, at a specified
date, not more than five (5) business days prior to
the date of the letter, any changes or any material
increases or decreases in capital stock, long-term or
short-term debt or shareholders' equity, decreases in
net assets, net current assets, or net worth or any
material decrease, as compared with the corresponding
period of the prior year, in revenues or net income
of the Company as compared with the amounts shown in
the consolidated balance sheet included in the
Registration Statement, except as disclosed or
referred to in the Prospectus and Registration
Statement.
(iii) Certain information set forth on the cover of
the Prospectus and in the Prospectus under the headings
"Prospectus Summary" (including the subheading "Summary
Financial Data"), "Risk Factors," "Use of Proceeds," "Dividend
Policy," "Capitalization," "Dilution," "Selected Financial
Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business,"
"Management," "Certain Relationships and Related
Transactions," "Principal Shareholders,"
22
"Description of Securities" and "Shares Eligible for Future
Sale" and that are expressed in dollars (or percentages
derived from dollar amounts) or numbers have been compared to
accounting records of the Company which were subject to the
internal accounting controls of the Company and are in
agreement with such records or computations made therefrom,
excluding any questions of legal interpretation.
(i) The Underwriter shall have received from
PricewaterhouseCoopers LLP a letter dated as of each Closing Date to
the effect that such accountants reaffirm, as of such Closing Date, and
as though made on such Closing Date, the statements made in the letter
furnished by such accountants pursuant to Section 5(h), except that the
specified date referred to in such letter will be a date not more than
five (5) business days prior to such Closing Date.
(j) The Underwriter shall have received from the Company a
certificate, dated as of the First Closing Date and the Second Closing
Date, of the principal executive officer and the principal financial
officer of the Company, to the effect that:
(i) The representations and warranties of the Company
in this Agreement are true and correct as if made on and as of
such Closing Date, and the Company has complied with all the
agreements and satisfied all the conditions on its part to be
performed or satisfied at, or prior to, such Closing Date;
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment
thereof or the qualification of the Units for offering or sale
have been issued, and no proceedings for that purpose have
been instituted or, to the best of their knowledge, are
contemplated by the SEC or any state or regulatory body; and
(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus and any
amendments thereof or supplements thereto, and (A) such
documents contain all statements and information required to
be included therein; the Registration Statement, or any
amendment thereof, does not contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein
not misleading; and the Prospectus, as amended or
supplemented, does not include any untrue statement of
material fact or omit to state a material fact necessary to
make the statements therein, in light of the circumstances
under which they were made, not misleading; (B) since the
Effective Date of the Registration Statement, there has
occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth; (C)
subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, the
Company has not incurred any material liabilities or material
obligations, direct or contingent, or entered into any
material transactions, not in the ordinary course of business
consistent with past practice, or declared or paid any
dividends or made any distribution of any kind with respect to
its capital stock, and except as disclosed in the Prospectus,
there has not been any change in the capital stock (other than
a change in the number of outstanding shares of Common Stock
due to the offering of the Units or the issuance of shares
upon the exercise of options outstanding as of the Effective
Date or options granted pursuant to the Stock Plans described
in the Registration Statement), or any material increase in
the short-term debt or long-term debt, or in the issuance of
options, warrants, convertible securities or other rights to
purchase the capital stock, of the Company, or any material
adverse change or any development involving a prospective
material adverse change (whether or not arising in the
ordinary course of business) in the general affairs, condition
(financial or otherwise),
23
business, key personnel, property, prospects, net worth or
results of operations of the Company; and (D) except as stated
in the Registration Statement and Prospectus, there is not
pending or, to their knowledge, threatened or contemplated,
any action, suit or proceeding to which the Company is a party
before or by any court or governmental agency, authority or
body, or any arbitrator, which might result in any material
adverse change of the condition, (financial or otherwise),
business, prospects, or results of operations of the Company.
(k) On each Closing Date, there shall have been furnished to
you a certificate of the Secretary of the Company, dated as of such
Closing Date, with the documents listed herein attached, and to the
effect and certifying as follows:
(i) Attached thereto are true and correct copies of
the articles of incorporation of the Company, as amended to
the date of the certificate, and stating that there have been
no changes or amendments to the attached articles of
incorporation of the Company, and no resolutions have been
adopted by the Board of Directors or shareholders of the
Company relating to (A) the amendment of said articles of
incorporation, (B) the merger, consolidation or dissolution of
the Company, or (C) the sale of all or substantially all of
the assets or business of the Company, and that the Company is
in good standing in the State of Minnesota and has paid all of
its corporate franchise taxes due as of the date of such
certificate.
(ii) Attached thereto is a true and correct copy of
the bylaws of the Company as in effect as of the date of such
certificate and no resolutions have been adopted by the Board
of Directors or shareholders of the Company relating to
changes or amendments to the attached Bylaws.
(iii) Attached thereto are true and correct copies of
the resolutions of the Board of Directors of the Company
relating to the preparation and signing of the Registration
Statement and this Agreement, the issuance and sale of the
Units and other related matters, and such resolutions have not
been amended, modified or rescinded and are in full force and
effect as of the date of such certificate and are the only
resolutions adopted by the Board of Directors of the Company
with respect to the offering contemplated by the Registration
Statement.
(iv) Attached thereto are true and correct copies of
all material correspondence with respect to the Registration
Statement and Prospectus and related matters between the
Company, its counsel, and/or PricewaterhouseCoopers LLP, on
the one hand, and the SEC, on the other.
(v) This Agreement, as executed and delivered by the
Company, is in the form presented to and approved by officers
authorized to do so by the Board of Directors of the Company.
(vi) Attached thereto are specimens of the
certificates for the Common Stock and the Redeemable Warrants
in the forms authorized and approved for use by the Board of
Directors of the Company.
(vii) The persons who have signed the Registration
Statement and all amendments thereto were duly elected at the
respective times of such signing and duly acting as officers
and directors of the Company or as an attorney-in-fact
therefor, as set forth in the Registration Statement.
24
(l) The Underwriter shall have received from each of the
executive officers and directors of the Company and each beneficial
owner of five percent (5%) or more of the Common Stock to be
outstanding after the sale of the Firm Units (calculated in accordance
with Rule 13d-3 under the Exchange Act) the 180-Day Lock-up Agreement
in the form of APPENDIX A hereto whereby each such person agrees that
during the 180-Day Lock-up Period such person will not, without the
Underwriter's prior written consent, effect the Disposition of any
Securities except as permitted by the 180-Day Lock-up Agreement.
(m) The Units shall be included and quoted on The Nasdaq
SmallCap Market.
(n) Winthrop & Weinstine, P.A. shall deliver to the
Underwriter a Blue Sky Memorandum reasonably satisfactory to the
Underwriter confirming that all requisite actions for the offer and
sale of the Units in all jurisdictions requested by the Underwriter
have been taken.
(o) The Company shall have furnished to the Underwriter and to
Underwriter's Counsel such additional certificates, documents and
evidence as the Underwriter shall reasonably request.
All such opinions, certificates, letters and documents will be in compliance
with the provisions hereof only if they are reasonably satisfactory to the
Underwriter and Underwriter's Counsel. All statements contained in any
certificate, letter or other document delivered pursuant hereto by, or on behalf
of, the Company shall be deemed to constitute representations and warranties of
the Company.
The Underwriter may waive in writing the performance of any one or more
of the conditions specified in this Section 5 or extend the time for their
performance.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled and if the
fulfillment of said condition has not been waived by the Underwriter, this
Agreement and all obligations of the Underwriter hereunder may be canceled at,
or at any time prior to, each Closing Date by the Underwriter. Any such
cancellation shall be without liability of the Underwriter to the Company and
shall not relieve the Company of its obligations under Section 4(a) hereof.
Notice of such cancellation shall be given to the Company at the address
specified in Section 12 hereof in writing, or by telegraph or telephone
confirmed in writing.
6. OTHER RIGHTS OF UNDERWRITER.
(a) In consideration of the agreement of the Underwriter to
act as Underwriter, and upon payment of a purchase price of $50.00, on
the First Closing Date, the Company will issue and deliver to the
Underwriter, for its account, the Underwriter's Warrants to purchase
the Warrant Shares in an amount equal to ten percent (10%) of the
number of Firm Units purchased by the Underwriter in the offering. The
Underwriter's Warrants shall be issued on the First Closing Date and
shall be dated as of the Effective Date. The Underwriter's Warrants
shall be exercisable commencing one year after the Effective Date and
for a period ending five years after the Effective Date at a price of
$5.40 per Warrant Share, which is equal to 120% of the per Unit public
offering price of $4.50 set forth on the cover page of the Prospectus.
As to other terms, the Underwriter's Warrants shall be in form and
substance substantially the same as APPENDIX B hereto.
(b) If the Company determines to redeem the Redeemable
Warrants, it shall give the Underwriter written notice of such
redemption at least ten (10) trading days before the Company sends out
notice of redemption to the holders of the Redeemable Warrants. The
Underwriter shall then have the right to act as solicitation agent in
connection with the Company's
25
redemption of the Redeemable Warrants, for which it shall receive a
commission equal to seven and on-half percent (7.5%) of the gross
proceeds received by the Company upon exercise of the Redeemable
Warrants. Such commission shall be paid by the Company to the
Underwriter within five (5) business days after the date fixed for
redemption by the Company.
(c) At any time during the three (3) years from the date of
the First Closing, the Company will not enter into an Agreement for any
public or private offering of any debt or equity securities of the
Company, whether sold by the Company or by some other person,
individual or entity, to or through any person, firm or corporation
other than the Underwriter unless and until the Company shall first
negotiate for the sale of the Company's securities with or offer to
sell its securities to the Underwriter. The Company shall notify the
Underwriter in writing of the Company's intention to offer its
securities in such an offering and the proposed terms and conditions of
such offering (including the type and terms of the securities of the
Company to be offered and the conditions of the proposed offering). The
Underwriter shall then have fifteen (15) trading days from the day it
receives such written notice from the Company to determine whether it
wishes to participate in the offering as managing underwriter,
co-managing underwriter, or otherwise, as determined by the Underwriter
in its sole discretion. If the Underwriter declines or fails to
exercise its right of first refusal with respect to the proposed
offering within such fifteen (15) trading-day period, the Company may
then enter into a letter of intent for the public sale, or, as
appropriate, a contract for the private sale, of any of its securities
through any other person, firm or corporation on the same general terms
and conditions as those which were tendered to the Underwriter. If,
however, the Company fails to enter into such a letter of intent or
contract with such third party within thirty (30) days after the
expiration of the fifteen (15) trading-day period, or if the terms and
conditions of such offer are thereafter materially changed, the right
of first refusal granted to the Underwriter hereunder shall be
reinstated. Nothing in this Agreement shall be construed as granting
the continuation of such preferential right on the part of the
Underwriter beyond the three-year period described in the first
sentence of this Section 6(c).
(d) The Company hereby grants to the Underwriter, for the
period ending fifteen (15) months after the First Closing Date, the
exclusive right to act as the Company's investment banker and/or
financial advisor in connection with any of the following transactions
or series of related transactions in which the Company or any
subsidiary of the Company is involved (collectively, the
"Transactions"): strategic partnership or joint venture; the sale of
the Company or all or substantially all of its assets; merger;
reorganization; the acquisition of equity securities, debt securities
or assets of another entity; or any other similar transaction or series
of related transactions having an aggregate value of at least Five
Million and 00/100 Dollars ($5,000,000.00). The Underwriter may assign
to its affiliate the right granted hereunder to act as Advisor in
connection with a Transaction. The Company will pay to the Underwriter
or its affiliate as compensation for services rendered by the
Underwriter to the Company in connection with a Transaction a fee equal
to the following; provided, however, that the maximum fee to be paid by
the Company to the Underwriter in connection with any Transaction shall
not exceed Two Million and 00/100 Dollars ($2,000,000.00):
(i) Five percent (5%) of the first Five Million and
00/100 Dollars ($5,000,000.00) of the aggregate value of the
Transaction;
(ii) Four percent (4%) of the aggregate value of the
Transaction in excess of Five Million and 00/100 Dollars
($5,000,000.00) and up to and including Ten Million and 00/100
Dollars ($10,000,000.00);
26
(iii) Three percent (3%) of the aggregate value of
the Transaction in excess of Ten Million and 00/100 Dollars
($10,000,000.00) and up to and including Fifteen Million and
00/100 Dollars ($15,000,000.00);
(iv) Two percent (2%) of the aggregate value of the
Transaction in excess of Fifteen Million and 00/100 Dollars
($15,000,000.00) and up to and including Twenty Million and
00/100 Dollars ($20,000,000.00); and
(v) One percent (1%) of the aggregate value of the
Transaction in excess of Twenty Million and 00/100 Dollars
($20,000,000.00).
Notwithstanding the foregoing, if the Company engages in a Transaction
with an entity demonstrated by the Company to be a party with which the
Company has engaged in discussions regarding a potential Transaction
during the twelve (12) months ended May 23, 2001, the Company will pay
to the Underwriter or its affiliate as compensation for services
rendered by the Underwriter to the Company hereunder in connection with
such a Transaction a fee equal to two percent (2%) of the first Five
Million and 00/100 Dollars ($5,000,000.00) of the aggregate value of
the Transaction, plus one percent (1%) of the aggregate value of the
Transaction in excess of Five Million and 00/100 Dollars
($5,000,000.00).
(e) If the Underwriter or its affiliate is engaged by the
Company under Section 6(d) in connection with a Transaction for which
the Underwriter or its affiliate earns a fee, the Underwriter or its
affiliate shall provide to the Company, upon the Company's request, and
as part of the services of the Underwriter or its affiliate to the
Company and at no additional cost to the Company, an industry-standard
fairness opinion.
7. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless
the Underwriter, and each person, if any, who controls the Underwriter
within the meaning of Section 15 of the Securities Act, against any
losses, claims, damages or liabilities, joint or several, to which the
Underwriter or each such controlling person may become subject under
the Securities Act, the Exchange Act, common law or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of, or are based upon, (i) any breach of any
representation, warranty, agreement or covenant of the Company
contained in this Agreement, (ii) any untrue statement or alleged
untrue statement of a material fact contained in the Registration
Statement or any amendment thereof or supplement thereto, or the
omission or alleged omission to state in the Registration Statement or
any amendment thereof or supplement thereto a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading; (iii) any untrue statement or
alleged untrue statement of a material fact contained in any
Preliminary Prospectus, if used prior to the Effective Date of the
Registration Statement, or in the Prospectus (as amended or as
supplemented, if the Company shall have filed with the SEC any
amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact necessary in order to make
the statements therein, in light of the circumstances under which they
were made, not misleading; or (iv) any untrue statement or alleged
untrue statement of a material fact contained in any application or
other statement executed by the Company or based upon written
information furnished by the Company filed in any jurisdiction in order
to qualify the Units under, or exempt the Units or the sale thereof
from qualification under, the securities laws of such jurisdiction, or
the omission or alleged omission to state in such application or
statement a material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company will reimburse
27
each Underwriter and each such controlling person for any legal or
other expenses reasonably incurred by such Underwriter or controlling
person in connection with investigating or defending against any such
loss, claim, damage, liability or action; provided, however, that the
Company will not be liable in any such case to the extent that any such
loss, claim, damage or liability arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged
omission made in reliance upon and in conformity with written
information relating to the Underwriter furnished to the Company by the
Underwriter specifically for use in the preparation of the Registration
Statement or any such post-effective amendment thereof, any such
Preliminary Prospectus, or the Prospectus, or any such amendment
thereof or supplement thereto, or in any application or other statement
executed by the Company or the Underwriter filed in any jurisdiction in
order to qualify the Units under, or exempt the Units or the sale
thereof from qualification under, the securities laws of such
jurisdiction; and provided further that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to
any untrue statement, alleged untrue statement, omission or alleged
omission made in any Preliminary Prospectus but eliminated or remedied
in the Prospectus, such indemnity agreement shall not inure to the
benefit of the Underwriter (or to the benefit of any person who
controls the Underwriter) if the person asserting any loss, claim,
damage or liability purchased the Units from the Underwriter if a copy
of the Prospectus was not sent or given to such person with, or prior
to, the written confirmation of the sale of such Units to such person.
This indemnity agreement is in addition to any liability which the
Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who has signed the
Registration Statement, and each person who controls the Company within
the meaning of Section 15 of the Securities Act against any losses,
claims, damages or liabilities to which the Company or any such
director, officer or controlling person may become subject under the
Securities Act, the Exchange Act, common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of, or are based upon, (i) any untrue statement or
alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof or supplement thereto,
or the omission or alleged omission to state in the Registration
Statement or any amendment thereof or supplement thereto, a material
fact required to be stated therein or necessary to make the statements
therein not misleading; (ii) any untrue statement or alleged untrue
statement of a material fact contained in any Preliminary Prospectus,
if used prior to the Effective Date of the Registration Statement, or
in the Prospectus (as amended or as supplemented, if the Company shall
have filed with the SEC any amendment thereof or supplement thereto),
or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were
made, not misleading; or (iii) any untrue statement or alleged untrue
statement of a material fact contained in any application or other
statement executed by the Company or by the Underwriter and filed in
any jurisdiction in order to qualify the Units under, or exempt the
Units or the sale thereof from qualification under, the securities laws
of such jurisdiction, or the omission or alleged omission to state in
such application or statement a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; in each case
to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in
reliance upon and in conformity with written information furnished to
the Company by, or on behalf of, the Underwriter specifically for use
in the preparation of the Registration Statement or any such
post-effective amendment thereof, any such Preliminary Prospectus, or
the Prospectus or any such amendment thereof or supplement thereto, or
in any application or other statement executed by the Company or by the
Underwriter and filed in any jurisdiction; and the Underwriter will
reimburse any legal or other expenses reasonably incurred by the
Company or any such director, officer, or controlling person in
connection with investigating or defending against any such loss,
28
claim, damage, liability or action. This indemnity agreement is in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify in writing the
indemnifying party of the commencement thereof. The omission so to
notify the indemnifying party will relieve it from any liability under
this Section 7 as to the particular item for which indemnification is
then being sought, but not from any other liability which it may have
to any indemnified party. In case any such action is brought against
any indemnified party, and the indemnified party notifies an
indemnifying party of the commencement thereof, the indemnifying party
will be entitled to participate therein and, to the extent that it may
wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, with counsel who shall be reasonably
satisfactory to such indemnified party; and after notice from the
indemnifying party to such indemnified party of the indemnifying
party's election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 7
for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than
reasonable costs of investigation; provided, however, that if the
defendants in any such action include both the indemnified party and
the indemnifying party, and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it and/or other
indemnified parties which are different from or additional to those
available to the indemnifying party, the indemnified party or parties
shall have the right to select separate counsel to assume such legal
defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties, in which event the fees
and expenses of one such separate counsel shall be borne by the
indemnifying party. Any such indemnifying party shall not be liable to
any such indemnified party on account of any settlement of any claim or
action effected without the consent of such indemnifying party.
8. CONTRIBUTION.
(a) In order to provide for just and equitable contribution in
any action in which the Underwriter or the Company (or any person who
controls the Underwriter or the Company within the meaning of Section
15 of the Securities Act) makes claim for indemnification pursuant to
Section 7 hereof, but such indemnification is unavailable or
insufficient to hold harmless and indemnify a party under Section 7,
then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims,
damages or liabilities referred to in Section 7 above (i) in such
proportion as is appropriate to reflect the relative benefits received
by the Company on the one hand and the Underwriter on the other from
the offering of the Units hereunder or (ii) if the allocation provided
by the foregoing clause (i) is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in such clause (i) but also the relative fault of the
Company on the one hand and the Underwriter on the other in connection
with the statements or omissions that resulted in such losses, claims,
damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the
one hand and the Underwriter on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering of the
Units (before deducting expenses) received by the Company bear to the
total underwriting discounts received by the Underwriter, in each case
as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The Company and
the Underwriter agree
29
that it would not be just and equitable if contributions pursuant to
this Section 8 were to be determined by pro rata allocation or by any
other method of allocation which does not take into account the
equitable considerations referred to in the first sentence of this
Section 8. The amount paid by an indemnified party as a result of the
losses, claims, damages or liabilities referred to in the first
sentence of this Section 8 shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in
connection with investigating or defending against any action or claim
which is the subject of this Section 8. Notwithstanding the provisions
of this Section 8, the Underwriter shall not be required to contribute
any amount in excess of the amount by which the total price at which
the Units underwritten by it and distributed to the public were offered
to the public exceeds the amount of any damages that the Underwriter
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
(b) Promptly after receipt by a party to this Agreement of
notice of the commencement of any action, suit or proceeding, such
person will, if a claim for contribution in respect thereof is to be
made against another party (the "Contributing Party"), notify the
Contributing Party of the commencement thereof; but the omission so to
notify the Contributing Party will not relieve the Contributing Party
from any liability which it may have to any party other than under this
Section 8. Any notice given pursuant to Section 7 hereof shall be
deemed to be like notice hereunder. In case any such action, suit or
proceeding is brought against any party, and such person notifies a
Contributing Party of the commencement thereof, the Contributing Party
will be entitled to participate therein with the notifying party and
any other Contributing Party similarly notified.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective immediately after
the time at which the Registration Statement shall become effective
under the Securities Act upon the Effective Date of the Registration
Statement.
(b) Until the First Closing Date, this Agreement may be
terminated by the Underwriter, at its sole option, by giving notice to
the Company, and the option referred to in Section 2(b), if exercised,
may be cancelled at any time prior to the Second Closing Date, if (i)
the Company shall have failed, refused, or been unable, at or prior to
such Closing Date, to perform any agreement on its part to be performed
hereunder, (ii) any other condition of the Underwriter's obligations
hereunder is not fulfilled or waived by the Underwriter, (iii) trading
in securities generally on the New York Stock Exchange, the American
Stock Exchange or in the over-the-counter market shall have been
suspended, (iv) minimum or maximum prices for trading shall have been
fixed, or maximum ranges for prices for securities shall be required,
on the New York Stock Exchange, the American Stock Exchange, or in the
over-the-counter market, by such Exchange or by The Nasdaq Stock Market
or by order of the SEC or any other governmental authority having
jurisdiction, (v) a banking moratorium shall have been declared by
federal, New York, or Minnesota authorities, (vi) there shall have been
such a serious, unusual and material change in general economic,
monetary, political or financial conditions, or the effect of
international conditions on the financial markets in the United States
shall be such as, in the sole judgment of the Underwriter, makes it
inadvisable to proceed with the delivery of the Units, (vii) the
enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other
governmental authority which, in the judgment of the Underwriter,
materially and adversely affects or will materially and adversely
affect the business or operations of the Company, or (viii) there shall
be a material outbreak of hostilities or
30
material escalation and deterioration in the political and military
situation between the United States and any foreign power, or a formal
declaration of war by the United States of America shall have occurred.
Any such termination shall be without liability of any party to any
other party, except as provided in Sections 7 and 8 hereof; provided,
however, that the Company shall remain obligated to pay costs and
expenses to the extent provided in Section 4 hereof.
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 9, it shall notify the Company and the Company's counsel
promptly by telegram or telephone, confirmed by letter sent to the
address specified in Section 11 hereof. If the Company shall elect to
prevent this Agreement from becoming effective, it shall notify the
Underwriter promptly by telegram or telephone, confirmed by letter sent
to the addresses specified in Section 11 hereof.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8, the representations
and warranties of the Company set forth in Section 1 hereof, and the covenants
and agreements of the Company set forth in Section 3 hereof, shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Underwriter, the Company, any of its officers and
directors, or any controlling person referred to in Sections 7 and 8, and shall
survive the delivery of and payment for the Units. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement. Any successor of any party or of any such controlling person, or
any legal representative of such controlling person, as the case may be, shall
be entitled to the benefit of the respective indemnity and contribution
agreements.
11. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telegraphed, and confirmed, as follows:
If to the Underwriter, to: Equity Securities Investments, Inc.
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx Xxxxxx, Xxxxxxxxx 00000
Attention: Xx. Xxxxxx X. Xxxxx
with a copy to: Winthrop & Weinstine, P.A.
3000 Xxxx Xxxxxxxx Plaza
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxxxxxxxxxx, Esq.
If to the Company, to: MedicalCV, Inc.
0000 Xxxxx Xxxxxx Xxxxx
Xxxxx Xxxxx Xxxxxxx, XX 00000
Attention: Xx. Xxxxx X. Xxxxxx
with a copy to: Xxxxxx and Xxxxxx, P.A.
2400 IDS Center
00 Xxxxx Xxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
12. INFORMATION FURNISHED BY THE UNDERWRITER. The statements relating to the
stabilization activities of the Underwriter and the statements under the caption
"Underwriting" in any Preliminary Prospectus and in the Prospectus constitute
the written information furnished by, or on behalf of, the Underwriter
31
specifically for use with reference to the Underwriter referred to in Section
1(a)(ii) and Sections 7(a) and 7(b) hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns and, with respect to Sections 7 and 8, the officers, directors and
controlling persons referred to in Sections 7 and 8. Nothing expressed in this
Agreement is intended or shall be construed to give any person or corporation,
other than the parties hereto, their respective successors and assigns, and the
controlling persons, officers and directors referred to in Sections 7 and 8 any
legal or equitable right, remedy or claim under, or in respect of, this
Agreement or any provision herein contained, this Agreement and all conditions
and provisions hereof being intended to be and being for the sole and exclusive
benefit of the parties hereto and their respective executors, administrators,
successors, assigns and such controlling persons, officers and directors, and
for the benefit of no other person or corporation. No purchaser of any Units
from the Underwriter shall be construed a successor or assign merely by reason
of such purchase.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
If the foregoing is in accordance with your understanding of our agreement,
please sign and return to us the enclosed counterpart of this Agreement,
whereupon it will become a binding agreement between the Company and the
Underwriter in accordance with its terms.
Very truly yours,
MedicalCV, Inc.
By
----------------------------------
Signature
Name Typed or Printed
Its
---------------------------------
Title Typed or Printed
ACCEPTANCE
The foregoing Underwriting Agreement is hereby confirmed and accepted by us as
of the date first above written.
Equity Securities Investments, Inc.
By
----------------------------------
Signature
----------------------------------
Name Type or Printed
Its
-------------------------------
Title Typed or Printed
32
APPENDIX A
180-DAY LOCK-UP AGREEMENT
Equity Securities Investments, Inc.
000 Xxxxx Xxxxxx Xxxxx, Xxxxx 000
Xxxxxx Xxxxxx, XX 00000
Re: MedicalCV, Inc.
Ladies and Gentlemen:
The undersigned, a beneficial owner of common stock, $.01 par value per share
(the "Common Stock"), of MedicalCV, Inc. (the "Company"), understands and
acknowledges that the Company is intending to file with the Securities and
Exchange Commission a Registration Statement on Form SB-2 (the "Registration
Statement") for the registration of the offer and sale of the Company's units,
each unit consisting of a share of Common Stock and a warrant to purchase a
share of Common Stock, including units subject to the over-allotment option
described in the Registration Statement (collectively, the "Units"). The
undersigned further understands that the Company, as issuer, and Equity
Securities Investments, Inc., as the underwriter (the "Underwriter") to be named
in that certain proposed underwriting agreement expected to be entered into in
connection with the public offering of the Units by the Underwriter (the
"Underwriting Agreement"), contemplate entering into such Underwriting
Agreement.
In order to induce the Underwriter to proceed with the public offering, the
undersigned agrees, for the benefit of the Company and the Underwriter, that
should such public offering be effectuated, the undersigned will not, without
the prior written consent of the Underwriter, for one hundred eighty (180) days
commencing on the effective date of the Registration Statement ("Effective
Date"):
(i) offer to sell, contract to sell, pledge, hypothecate, transfer
or otherwise dispose of, grant any rights with respect to
(collectively, a "Disposition"), any shares of Common Stock of
the Company, and options, warrants or other rights to purchase
any shares of Common Stock or any securities convertible into
or exchangeable or exercisable for shares of Common Stock
(collectively, "Securities") now owned or hereafter acquired
by the undersigned or with respect to which the undersigned
has or hereafter acquires the power of Disposition; or
(ii) any Disposition of any Securities
other than by gifts to donees who agree in writing to be bound by the same
restrictions, or by will or the laws of descent and distribution; in which case
the Securities also will be subject to the same restriction.
The undersigned hereby further agrees that during the two years commencing on
the Effective Date, the undersigned will effect all sales of Securities only
through the Underwriter.
Dated: ________________, 2001 Very truly yours,
----------------------------------
Signature
----------------------------------
Name Typed or Printed
00
XXXXXXXX X
FORM OF WARRANT
TO PURCHASE 150,000 SHARES OF COMMON STOCK
MEDICALCV, INC.
RESTRICTION ON TRANSFER
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD,
TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED FOR VALUE
UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT OR LAWS
COVERING SUCH SECURITY OR MEDICALCV, INC. (THE "COMPANY") RECEIVES AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY STATING THAT SUCH SALE, TRANSFER,
ASSIGNMENT, PLEDGE OR DISTRIBUTION IS EXEMPT FROM THE REGISTRATION AND
PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT OF 1933 AND ALL
APPLICABLE STATE SECURITIES LAWS.
NO. ______ 150,000 SHARES
FOR GOOD AND VALUABLE CONSIDERATION, MedicalCV, Inc., a
Minnesota corporation (the "Company"), hereby certifies that Equity Securities
Investments, Inc., Golden Valley, Minnesota (the "Underwriter"), or its
registered assigns, is entitled to subscribe for and purchase from the Company
at any time or from time to time after [ONE YEAR FROM EFFECTIVE DATE], to and
including [FIVE YEARS FROM THE EFFECTIVE DATE] One Hundred Fifty Thousand
(150,000) units (the "Units"), each Unit consisting of one share of the
Company's Common Stock and one redeemable Common Stock purchase warrant of the
Company. The per Unit exercise price of this Warrant is $5.40 (the "Warrant
Exercise Price"), subject to adjustment as provided herein.
This Warrant is one of the Underwriter's Warrants referred to
in the Underwriting Agreement dated_____________, 2001 by and between the
Company and the Underwriter entered into in connection with the offering (the
"Offering") by the Company of 1,500,000 Units, plus an additional 225,000 Units
solely to cover over-allotments.
As used herein, (i) this Warrant and all warrants hereafter
issued in exchange or substitution for this Warrant are referred to as the
"Warrants;" (ii) the Units which may be acquired upon exercise of the Warrants
are referred to herein as the "Warrant Units;" (iii) the term "Holder" means the
Underwriter, any party who acquires all or a part of this Warrant as a
registered transferee of the Underwriter, or any record holder or holders of the
Warrant Units issued upon exercise, whether in whole or in part, of the Warrant;
(iv) the term "Common Stock" means and includes the Company's presently
authorized common stock, par value $.01 per share, together with any other
equity securities which may be issued by the Company with respect thereto or in
substitution therefor; (v) the term "Redeemable Warrants" means the redeemable
common stock purchase warrants subject to the Warrant Agreement dated
__________, 2001 between the Company and Registrar and Transfer Company, as
warrant agent (the "Warrant Agent"), each Redeemable Warrant representing the
right to purchase at any time on or before _______, 2004 one share of Common
Stock at a price of $6.50 per share, subject to adjustment as provided in said
Warrant Agreement; and (vi) the term "Convertible Securities" means any stock or
other
34
securities convertible into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and
conditions, to which each Holder hereof consents and agrees:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by
the Holder hereof, in whole or in part (but not as to a fractional Warrant Unit)
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
a check in payment of the Warrant Exercise Price for such Warrant Units.
(b) If the Company has redeemed the Redeemable Warrants before
the date upon which this Warrant first becomes exercisable, the Holder may, for
a period of thirty (30) days beginning on the date on which this Warrant first
becomes exercisable, exercise the Redeemable Warrants included in the Warrant
Units.
(c) This Warrant may not be sold, assigned, pledged,
hypothecated, or otherwise transferred (other than by will, pursuant to the
operation of law, or where directed by a court of competent jurisdiction upon
the dissolution or liquidation of a corporate Holder hereof), except to a person
who is both an officer and a shareholder of the Underwriter; such transfer to be
by endorsement (by the Holder hereof executing the form of assignment attached
hereto) and delivery in the same manner as in the case of a negotiable
instrument transferable by endorsement and delivery. Further, this Warrant may
not be sold, transferred, assigned, hypothecated or divided into two or more
Warrants of smaller denominations, nor may any shares of Common Stock or
Redeemable Warrants issued pursuant to the exercise of this Warrant or shares of
Common Stock issued pursuant to the exercise of the Redeemable Warrants be
transferred, except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Units purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Units (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Underwriter shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. ISSUANCE OF THE WARRANT UNITS.
(a) The Company agrees that the shares of Common Stock and the
Redeemable Warrants comprising the Warrant Units purchased upon exercise of this
Warrant shall be and are deemed to be issued to the Holder as of the close of
business on the date on which this Warrant shall have been surrendered and the
payment made for such Warrant Units as aforesaid. Subject to the provisions of
35
Section 3(b), certificates for the shares of Common Stock and the Redeemable
Warrant comprising the Warrant Units so purchased shall be delivered to the
Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Units, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, the Company shall not be
required to deliver any shares of Common Stock or the Redeemable Warrants
comprising the Warrant Units upon exercise of this Warrant except in accordance
with exemptions from the applicable securities registration requirements or
registrations under applicable securities laws. Nothing herein, however, shall
obligate the Company to effect registrations under federal or state securities
laws, except as provided in Section 9. If registrations are not in effect and if
exemptions are not available when the Holder seeks to exercise the Warrant, the
Warrant exercise period will be extended, if need be, to prevent the Warrant
from expiring, until such time as either registrations become effective or
exemptions are available, and the Warrant shall then remain exercisable for a
period of at least thirty (30) calendar days from the date the Company delivers
to the Holder written notice of the availability of such registrations or
exemptions. The Holder agrees to execute such documents and make such
representations, warranties, and agreements as may be reasonably required solely
to comply with the exemptions relied upon by the Company, or the registrations
made, for the issuance of the shares of Common Stock and the Redeemable Warrants
comprising the Warrant Units.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that:
(a) All shares of Common Stock included in the Warrant Units
will, upon issuance, be duly authorized and issued, fully paid, non-assessable
and free from all taxes, liens and charges with respect to the issue thereof;
(b) All Redeemable Warrants included in the Warrant Units,
when authenticated by the Warrant Agent, and issued, delivered and sold in
accordance with this Warrant and the Warrant Agreement between the Company and
the Warrant Agent, will be duly and validly executed, authenticated, issued and
delivered and will constitute valid and binding obligations of the Company,
enforceable against the Company in accordance with their terms, except as
enforceability may be limited by the application of bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the rights of
creditors generally and by judicial limitations on the right of specific
performance;
(c) All Shares of Common Stock issuable upon exercise of the
Redeemable Warrants included in the Warrant Units will, upon issuance, be duly
authorized and issued, fully paid, nonassessable and free from all taxes, liens
and charges with respect to the issue thereof; and
(d) During the period within which the rights represented by
this Warrant may be exercised, the Company will at all times have authorized and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant a sufficient number of shares of Common Stock
and Redeemable Warrants to provide for the exercise of the rights represented by
this Warrant and a sufficient number of shares of Common Stock to provide for
the exercise of the Redeemable Warrants included in the Warrant Units.
5. ANTI-DILUTION ADJUSTMENTS. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
36
(a) The Warrant Exercise Price shall be adjusted from time to
time such that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the
Company payable in Common Stock or securities convertible into Common
Stock;
(ii) subdivide its then outstanding shares of Common
Stock into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately
prior to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (A) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (B) the total number of shares of Common Stock outstanding
immediately after such event (including in each case the maximum number of
shares of Common Stock issuable in respect of any securities convertible into
Common Stock), and the resulting quotient shall be the adjusted Warrant
Exercise Price per share. An adjustment made pursuant to this subsection
shall become effective immediately after the record date in the case of a
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination, reclassification or
other event. If, as a result of an adjustment made pursuant to this
subsection, the Holder of any Warrant thereafter surrendered for exercise
shall become entitled to receive shares of two or more classes of capital
stock or shares of Common Stock and other capital stock of the Company, the
Board of Directors (whose determination shall be conclusive) shall determine
the allocation of the adjusted Warrant Exercise Price between or among shares
of such classes of capital stock or shares of Common Stock and other capital
stock. All calculations under this subsection shall be made to the nearest
cent or to the nearest 1/100 of a share, as the case may be. If at any time,
as a result of an adjustment made pursuant to this subsection, the holder of
any Warrant thereafter surrendered for exercise shall become entitled to
receive any shares of the Company other than shares of Common Stock,
thereafter the Warrant Exercise Price of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions
with respect to Common Stock contained in this subsection.
(b) If the Company shall distribute to all holders of Common
Stock (including any such distribution made to the shareholders of the Company
in connection with a consolidation or merger in which the Company is the
continuing corporation) evidences of its indebtedness, cash (other than any cash
dividend which, together with any cash dividends paid within the 12 months prior
to the record date for such distribution, does not exceed 5% of the "Current
Market Price" (as hereinafter defined) at the record date for such distribution)
or assets (other than dividends payable in shares of its capital stock), or
rights, options, or warrants to subscribe for or purchase Common Stock or
securities convertible into or exchangeable for shares of Common Stock, then, in
each such case, the Warrant Exercise Price shall be adjusted by multiplying the
Warrant Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be the Current Market Price per Unit on
such record date, less the fair market value (as determined in good faith by the
Company's Board of Directors, whose determination shall be conclusive, absent
manifest error) of the portion of the evidences of indebtedness or assets so to
be distributed, or of such rights, options, or warrants or convertible or
exchangeable securities, or the amount of such cash, applicable to one share,
and the denominator of which shall be such "Current Market Price" per Unit (as
37
"Current Market Price" is defined below). Such adjustment shall be made whenever
any such distribution is made, and shall become effective on the record date for
the determination of shareholders entitled to receive such distribution.
(c) For the purpose of any computation under this Warrant, the
"Current Market Price" per Unit on any date shall be the average of the daily
closing prices for the 30 consecutive trading days immediately preceding the
date in question for the Company's Units or, if the shares of Common Stock and
Redeemable Warrants comprising the Units are trading separately, the sum of the
average daily closing prices for such 30 consecutive trading day period for such
shares of Common Stock and the Redeemable Warrants. The closing price for each
day shall be the last reported sales price regular way or, in case no such
reported sale takes place on such day, the closing bid price regular way, in
either case on the principal national securities exchange (including, for
purposes hereof, The Nasdaq National Market and The Nasdaq SmallCap Market) on
which the Units, the shares of Common Stock or the Redeemable Warrants are
listed or admitted to trading or, if the Units, the shares of Common Stock or
the Redeemable Warrants are not listed or admitted to trading on any national
securities exchange, the highest reported bid price as furnished by the National
Association of Securities Dealers, Inc. through Nasdaq or a similar organization
if Nasdaq is no longer reporting such information. If, on any such date, the
Units, the shares of Common Stock or the Redeemable Warrants are not listed or
admitted to trading on any national securities exchange and are not quoted by
Nasdaq or any similar organization, the fair value of a Unit, a share of Common
Stock or a Redeemable Warrant on such date, as determined in good faith by the
Company's Board of Directors, whose determination shall be conclusive, absent
manifest error, shall be used.
(d) No adjustment in the Warrant Exercise Price shall be
required if such adjustment is less than $.05; provided, however, that any
adjustments which by reason of this Section 5 are not required to be made shall
be carried forward and taken into account in any subsequent adjustment. All
calculations under this Section 5 shall be made to the nearest cent or to the
nearest whole share, as the case may be.
(e) In any case in which this Section 5 shall require that an
adjustment in the Warrant Exercise Price may be made effective as of a record
date for a specified event, the Company may elect to defer, until the occurrence
of such event, issuing to the Holder, if the Holder exercised or converted this
Warrant after such record date, the Warrant Units, if any, issuable upon such
exercise or conversion over and above the Warrant Units, if any, issuable upon
such exercise or conversion on the basis of the Warrant Exercise Price in effect
prior to such adjustment; provided, however, that the Company shall deliver to
the Holder a due xxxx or other appropriate instrument evidencing the Holder's
right to receive such additional shares upon the occurrence of the event
requiring such adjustment.
(f) Upon each adjustment of the Warrant Exercise Price
pursuant to Section 5(a) above, the Holder of each Warrant shall thereafter
(until another such adjustment) be entitled to purchase at the adjusted Warrant
Exercise Price the number of Warrant Units, calculated to the nearest full
Warrant Unit, obtained by multiplying the number of Warrant Units specified in
such Warrant (as adjusted as a result of all adjustments in the Warrant Exercise
Price in effect prior to such adjustment) by the Warrant Exercise Price in
effect prior to such adjustment and dividing the product so obtained by the
adjusted Warrant Exercise Price.
(g) In case of any consolidation or merger to which the
Company is a party other than a merger or consolidation in which the Company is
the continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any
38
exchange effected in connection with a merger of a third corporation into the
Company), there shall be no adjustment under Subsection (a) of this Section
above but the Holder of each Warrant then outstanding shall have the right
thereafter to convert such Warrant into the kind and amount of shares of stock
and other securities and property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this subsection with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this subsection shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(h) Upon any adjustment of the Warrant Exercise Price, then
and in each such case, the Company shall (i) give written notice thereof, by
first-class mail, postage prepaid, within ten (10) calendar days after the date
when the circumstances giving rise to the adjustment occurred, addressed to the
Holder as shown on the books of the Company, which notice shall state the
Warrant Exercise Price resulting from such adjustment and the increase or
decrease, if any, in the number of Warrant Units purchasable at such price upon
the exercise of this Warrant, setting forth in reasonable detail the method of
calculation and the facts upon which such calculation is based; and (ii) prepare
and retain on file a statement describing in reasonable detail the method used
in arriving at the new Warrant Exercise Price.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE SHARES OF COMMON
STOCK OR REDEEMABLE WARRANTS.
(a) Subject to the sale, assignment, hypothecation, or other
transfer restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give written notice to the Company before transferring this
Warrant, or any shares of Common Stock or Redeemable Warrants comprising the
Warrant Units, or any shares of Common Stock issuable upon the exercise of the
Redeemable Warrants included in the Warrant Units, of such Holder's intention to
do so, describing briefly the manner of any proposed transfer. Promptly upon
receiving such written notice, the Company shall present copies thereof to the
Company's counsel and to counsel to the original purchaser of this Warrant. If,
in the opinion of each such counsel, the proposed transfer may be effected
without registration or qualification (under any federal or state securities
laws), the Company, as promptly as practicable, shall notify the Holder of such
opinion, whereupon the Holder shall be entitled to transfer this Warrant or to
dispose of the shares of Common Stock and Redeemable Warrants comprising the
Warrant Units received upon the previous exercise of this Warrant or the shares
of Common Stock issuable upon exercise of the Redeemable Warrants included in
the Warrant Units, all in accordance with the terms of the notice delivered by
the Holder to the Company; provided that an appropriate legend may be endorsed
on this Warrant or the certificates for the shares of Common Stock or Redeemable
Warrants comprising the Warrant Units or the shares of Common Stock issuable
upon exercise of the Redeemable Warrants included in the Warrant Units,
describing restrictions upon transfer thereof necessary or advisable in the
opinion of counsel and satisfactory to the Company to prevent further transfers
which would be in violation of Section 5 of the Securities Act of 1933, as
amended (the "Securities Act"), and applicable state securities laws; and
provided further that the prospective transferee or purchaser shall execute such
documents and make such representations, warranties, and agreements as may be
required solely to
39
comply with the exemptions relied upon by the Company for the transfer or
disposition of the Warrant or the shares of Common Stock or Redeemable Warrants
comprising the Warrant Units or the shares of Common Stock issuable upon
exercise of the Redeemable Warrants included in the Warrant Units.
(b) If, in the opinion of either of the counsel referred to in
this Section 7, the proposed transfer or disposition of this Warrant or of the
shares of Common Stock or Redeemable Warrants comprising the Warrant Units, or
of the shares of Common Stock issuable upon exercise of the Redeemable Warrants
included in the Warrant Units, described in the written notice given pursuant to
this Section 7 may not be effected without registration or qualification of this
Warrant, or the shares of Common Stock or Redeemable Warrants comprising the
Warrant Units, or the shares of Common Stock issuable upon exercise of the
Redeemable Warrants included in the Warrant Units, the Company shall promptly
give written notice thereof to the Holder, and the Holder will limit its
activities in respect to such transfer or disposition as, in the opinion of both
such counsel, are permitted by law.
(c) Until this Warrant is duly transferred on the books of the
Company, the Company shall treat the registered Holder of this Warrant as
absolute owner hereof for all purposes without being affected by any notice to
the Company.
8. FRACTIONAL WARRANT UNITS. Fractional Warrant Units shall not be
issued upon the exercise of this Warrant, but in any case where the holder
would, except for the provisions of this Section, be entitled under the terms
hereof to receive a fractional Warrant Unit, the Company shall, upon the
exercise of this Warrant for the largest number of whole Warrant Units then
called for, pay a sum in cash equal to the sum of (a) the excess, if any, of the
"Fair Market Value" (as defined in Section 10(d) hereof) of such fractional
Warrant Unit over the proportional part of the Warrant Exercise Price
represented by such fractional Warrant Unit, plus (b) the proportional part of
the Warrant Exercise Price represented by such fractional Warrant Unit.
9. REGISTRATION RIGHTS.
(a) The Company agrees that, if at any time and from time to
time during the period commencing [ONE YEAR FROM THE EFFECTIVE DATE] and ending
two (2) years after complete exercise of this Warrant (but not later than [SEVEN
YEARS AFTER THE EFFECTIVE DATE]), the Company proposes to file a registration
statement under the Securities Act (other than a Form S-4 or Form S-8
Registration Statement or any successor or replacement forms thereto) with
respect to, or qualify for a public distribution under Section 3(b) of the
Securities Act, any of its securities in connection with the proposed offer of
such securities by the Company or any of its shareholders:
(i) the Company will promptly notify the Holder and
all other registered Holders, if any, of other Warrants, Warrant Units,
shares of Common Stock and Redeemable Warrants included in the Warrant
Units, and shares of Common Stock issuable upon exercise of the
Redeemable Warrants included in the Warrant Units (such shares of
Common Stock, Warrant Units and Redeemable Warrants to be referred to
hereinafter collectively as "Registrable Securities"), at least thirty
(30) days prior to each such filing, that it intends to file such
registration statement or effect such qualification, and that the
Registrable Securities which are then held and/or which may be acquired
upon the exercise of this Warrant by the Holder and such other Holders
will be included in such registration statement or qualification at the
Holder's and such Holders' request; and
(ii) the Company will use its best efforts to cause
such registration statement or qualification to include all Registrable
Securities which it has been so requested to include;
40
provided, however, that if a greater number of Registrable Securities
is offered for participation in the proposed offering than in the
reasonable opinion of the managing underwriter of the proposed offering
can be accommodated without adversely affecting the proposed offering,
then the amount of Registrable Securities proposed to be offered by
such Holders for registration, as well as the number of securities of
any other selling shareholders participating in the registration, shall
be excluded or proportionately reduced to a number deemed satisfactory
by the managing underwriter.
The Holder and such other Holders may request that their Registrable Securities
be included in such registration statement or qualification by making written
request to the Company specifying the number of shares of Common Stock, Warrant
Units and/or Redeemable Warrants to be so included. Such request shall be made
within twenty (20) days after receipt from the Company of notice of such
intended registration or qualification.
(b) Further, at any time after this Warrant becomes
exercisable and prior to the expiration of this Warrant, and on a one-time basis
only, upon request by the Holder or Holders, the Company will promptly take all
necessary steps to register or qualify, under the Securities Act and the
securities laws of such states as such Holder or Holders may reasonably request,
such number of Registrable Securities requested by such Holder(s) in their
request to the Company. In addition, if any registration pursuant to this
Section 9(b) is underwritten in whole or in part, the Company may require that
the Registrable Securities requested for inclusion pursuant to this Section 9(b)
be included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If a greater number of
Registrable Securities is offered for participation in the proposed offering
than in the reasonable opinion of the managing underwriter of the proposed
offering can be accommodated without adversely affecting the proposed offering,
then the amount of Registrable Securities proposed to be offered by such
Holder(s) for registration, as well as the number of securities of any other
selling shareholders participating in the registration, shall be proportionately
reduced to a number deemed satisfactory by the managing underwriter.
Furthermore, upon the receipt of such request, the Company shall promptly give
written notice to all other record Holders of Registrable Securities not
theretofore registered under the Securities Act and sold that such registration
is to be effected. The Company shall include in such registration statement such
Registrable Securities for which it has received written requests to register by
such other record Holders within thirty (30) days after the delivery of the
Company's written notice to such other record Holders. The Company shall be
obligated to prepare, file and cause to become effective only one registration
statement pursuant to this Section 9(b) and to pay the costs and expenses
associated with such registration statement as provided in Section 9(c). The
Company shall keep effective and maintain any registration, qualification,
notification, or approval specified in this Section 9(b) for a period of one
hundred twenty (120) days.
(c) With respect to each inclusion of securities in a
registration or qualification pursuant to this Section 9, the Company shall bear
all fees, costs, and expenses thereof, including, without limitation, all filing
fees, fees imposed by the National Association of Securities Dealers, Inc.,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or underwriters
of such securities (if the Company is required to bear such fees and
disbursements), all internal expenses, the premiums and other costs of policies
of insurance against liability arising out of the public offering, and legal
fees and disbursements and other expenses of complying with state securities
laws of any jurisdictions in which the securities to be offered are to be
registered or qualified. Fees and disbursements of special counsel and
accountants for the selling Holders, underwriting discounts and commissions, and
transfer taxes for selling Holders shall be borne by the selling Holders.
41
(d) The Company hereby indemnifies each of the Holders, the
officers and directors of such Holders, and any person who controls such Holders
within the meaning of Section 15 of the Securities Act, against all losses,
claims, damages, and liabilities caused by: (i) any untrue statement or alleged
untrue statement of a material fact contained in any registration statement or
prospectus prepared in connection with any registration statement pursuant to
this Section 9 (and as amended or supplemented if the Company shall have
furnished any amendments thereof or supplements thereto), any preliminary
prospectus or any state securities law filings; and (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such registration statement, and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act,
with respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or alleged untrue statement, omission or alleged omission
contained in information furnished in writing to the Company by such Holder
expressly for use therein.
(e) Each Holder of Registrable Securities included in a
registration or qualification pursuant to this Section 9 agrees to cooperate
with the Company in the preparation and filing of any such registration
statement or other offering materials and in the furnishing of information
concerning the Holder for inclusion therein, or in any efforts by the Company to
establish that the proposed sale is exempt under the Securities Act as to any
proposed distribution.
(f) If, after any registration statement filed as required
under this Section 9 becomes effective, the Company advises Holder that the
Company considers it appropriate for the registration statement to be amended,
the Company shall use its commercially reasonable efforts to amend such
registration statement as soon as practicable and the Holders of the Registrable
Securities included in such registration statement shall suspend any further
sales of their registered shares until the Company advises them that the
registration statement has been so amended.
10. RIGHT TO CONVERT.
(a) The Holder of this Warrant shall have the right (but not
the obligation) to require the Company to convert this Warrant (the "Conversion
Right"), at any time after one year from the date of this Warrant and prior to
its expiration, into Warrant Units as provided for in this Section 10. Upon
exercise of the Conversion Right by the Holder, the Company shall deliver to the
Holder (without payment by the Holder of any exercise price) that number of
Warrant Units equal to the quotient obtained by dividing (i) the value of the
Warrant at the time the Conversion Right is exercised (determined by subtracting
the aggregate Warrant Exercise Price for the Warrant Units in effect immediately
prior to the exercise of the Conversion Right from the aggregate "Fair Market
Value" (as determined below) for the Warrant Units immediately prior to the
exercise of the Conversion Right) by (ii) the Fair Market Value of one Warrant
Unit immediately prior to the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the Holder, at
any time or from time to time, prior to its expiration, on any business day, by
delivering a written notice (the "Conversion Notice") to the Company at the
offices of the Company exercising the Conversion Right and specifying (i) the
total number of Warrant Units the Holder will purchase pursuant to such
conversion, and (ii) a place, and a date not less than five (5) nor more than
twenty (20) business days from the date of the Conversion Notice, for the
closing of such purchase.
42
(c) At any closing under Section 10(b) hereof, (i) the Holder
will surrender the Warrant, (ii) the Company will deliver or cause to be
delivered to the Holder a certificate or certificates for the number of shares
of Common Stock and Redeemable Warrants comprising the Warrant Units issuable
upon such conversion, together with cash in lieu of any fraction of a Warrant
Unit, and (iii) the Company will deliver to the Holder a new Warrant
representing the number of Warrant Units, if any, with respect to which the
Warrant shall not have been converted.
(d) "Fair Market Value" of a Warrant Unit as of a particular
date (the "Determination Date") shall mean the Fair Market Value of a Unit or,
if the shares of Common Stock and Redeemable Warrants comprising the Units are
trading separately, the sum of the Fair Market Value of a share of Common Stock
and a Redeemable Warrant comprising that Warrant Unit as of the Determination
Date. "Fair Market Value" of a Unit, a share of Common Stock or of a Redeemable
Warrant as of the Determination Date shall mean:
(i) If the Company's Units, Common Stock or
Redeemable Warrants are traded on an exchange or quoted on The Nasdaq
National Market or The Nasdaq SmallCap Market, then the average closing
or last sale prices, respectively, reported for the ten (10) business
days immediately preceding the Determination Date;
(ii) If the Company's Units, Common Stock or
Redeemable Warrants are not traded on an exchange or quoted on The
Nasdaq National Market or The Nasdaq SmallCap Market but are traded in
the over-the-counter market, then the average of the closing bid and
asked prices as reported for the ten (10) business days immediately
preceding the Determination Date.
11. MISCELLANEOUS. The Company shall not, by amendment of its articles
of incorporation or through reorganization, consolidation, merger, dissolution
or sale of assets, or by any other voluntary act or deed, avoid or seek to avoid
the observance or performance of any of the covenants, stipulations or
conditions to be observed or performed hereunder by the Company, but will, at
all times in good faith, assist, insofar as it is able, in the carrying out of
all provisions hereof and in the taking of all other action which may be
necessary in order to protect the rights of Holders against dilution.
Upon written request of the Holder of this Warrant, the Company will
promptly provide such Holder with a then current written list of the names and
addresses of all Holders of warrants originally issued under the terms of, and
concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. This Warrant shall be interpreted under
the laws of the State of Minnesota.
IN WITNESS WHEREOF, MedicalCV, Inc. has caused this Warrant to
be signed by its duly authorized officer and to be dated ______________, 2001.
MedicalCV, Inc.
By
---------------------------------
Signature
---------------------------------
Name Typed or Printed
Its
---------------------------------
Title Typed or Printed
43
NOTICE OF EXERCISE OF WARRANT
(To be signed upon the exercise of the Warrant for cash or by check)
The undersigned hereby irrevocably elects to exercise the attached
Warrant and to purchase thereunder, for cash, ________________ of the shares of
Common Stock of MedicalCV, Inc. issuable upon the exercise of such Warrant,
herewith makes payment of $___________ therefor in cash or by check, and
requests that certificates for the shares of Common Stock (together with a new
Warrant to purchase the number of shares of Common Stock, if any, with respect
to which this Warrant is not exercised) be issued in the name set forth below
and be delivered to the address set forth below.
Dated: ________________
-----------------------------------
(Signature)
-----------------------------------
(Name Typed or Printed)
-----------------------------------
(Address)
-----------------------------------
-----------------------------------
(Social Security or Tax Ident. No.)
* The signature on the Notice of Exercise of Warrant must exactly correspond
to the name as written upon the face of the Warrant in every particular
without alteration or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
44
NOTICE OF WARRANT CONVERSION
(To be signed only upon conversion of warrant)
To: MedicalCV, Inc.
Dated: ___________________
The undersigned, pursuant to Section 10 of the attached Warrant Certificate
(Certificate No.____), hereby agrees to subscribe for and purchase _________
shares of Common Stock covered by such Warrant by converting other shares
covered by such Warrant according to the following formula:
____________________________ multiplied by ___________________________________
Per Share Fair Market Value * number of shares subject to Warrant
MINUS
_________________________ multiplied by _______________________________________
Exercise price per share number of shares subject to Warrant
DIVIDED BY
__________________________________________
Per share Fair Market Value*
EQUALS: __________________________________
Please indicate dates and average closing or last sales price for each day used
to determine Fair Market Value:
Dates: ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
Market Price: ____ ____ ____ ____ ____ ____ ____ ____ ____ ____
* Average closing or last sale price reported for the ten (10) business days
immediately preceding the exercise date.
---------------------------------------
Signature
---------------------------------------
Name Typed or Printed
---------------------------------------
Address
---------------------------------------
---------------------------------------
Telephone number (including area code)
45
ASSIGNMENT OF WARRANT
(To be signed only upon authorized transfer of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and
transfers unto _________________________________ the right to purchase
_______________ shares of Common Stock of MedicalCV, Inc. to which the within
Warrant relates and appoints _________________________________, as
attorney-in-fact, to transfer said right on the books of MedicalCV, Inc. with
full power of substitution in the premises.
Dated: ________________
---------------------------------------
(Signature)
---------------------------------------
(Name Typed or Printed)
---------------------------------------
(Address)
---------------------------------------
(Social Security or Tax Ident. No.)
* The signature on the Assignment of Warrant must exactly correspond to
the name as written upon the face of the Warrant in every particular
without alteration or any change whatsoever. When signing on behalf of
a corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
46
