<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 19, 1998
REGISTRATION NO.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------------------
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------------------
HYPERTENSION DIAGNOSTICS, INC.
(Name of small business issuer as specified in its charter)
<TABLE>
<S> <C> <C>
MINNESOTA 3841 41-1618036
(State or jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification
No.)
</TABLE>
2915 WATERS ROAD, SUITE 108, EAGAN, MINNESOTA 55121-1562
(612) 687-9999
(Address and telephone number of principal executive offices)
(Address of principal place of business or intended principal place of business)
GREG H. GUETTLER, PRESIDENT
HYPERTENSION DIAGNOSTICS, INC.
2915 WATERS ROAD, SUITE 108
EAGAN, MINNESOTA 55121-1562
TELEPHONE: (612) 687-9999
FACSIMILE: (612) 687-0485
(Name, address and telephone number of agent for service)
--------------------------
COPIES TO:
GIRARD P. MILLER, ESQ. PHILIP T. COLTON, ESQ.
Doherty, Rumble & Butler Maun & Simon, PLC
Professional Association 2000 Midwest Plaza Building West
3500 Fifth Street Towers 801 Nicollet Mall
150 South Fifth Street Minneapolis, Minnesota 55402-2534
Minneapolis, Minnesota 55402-4235 Telephone: (612) 904-7400
Telephone: (612) 340-5555 Facsimile: (612) 904-7424
Facsimile: (612) 340-5584
--------------------------
APPROXIMATE DATE OF PROPOSED SALE TO PUBLIC: AS SOON AS PRACTICABLE AFTER THIS
REGISTRATION STATEMENT BECOMES EFFECTIVE.
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED(1)(2) PER UNIT(3) OFFERING PRICE(3) REGISTRATION FEE
<S> <C> <C> <C> <C>
Units, each consisting of one share of Common
Stock, $.01 par value, and one redeemable Class
A Warrant to purchase one share of Common
Stock........................................... 2,875,000 $4.125 $11,859,375 $3,498.52
Common Stock, $.01 par value.................... 2,875,000 -- -- N/A(4)
Redeemable Class A Warrant to purchase one share
of Common Stock............................... 2,875,000 -- -- N/A(4)
Common Stock, $.01 par value, underlying the
Units........................................... 2,875,000 $5.50 $15,812,500 $4,664.69
</TABLE>
(1) Pursuant to Rule 416 under the Securities Act, this registration statement
also covers such additional securities as may become issuable upon exercise
of the redeemable Class A Warrants.
(2) Includes 375,000 Units subject to an option granted to the Underwriter to
cover over-allotments, if any.
(3) Estimated solely for the purpose of calculating registration fees pursuant
to Rule 457(a) under the Securities Act of 1933, as amended.
(4) The registration fee is being paid and accounted for in the registration fee
calculation of the Units.
--------------------------
THE SMALL BUSINESS ISSUER HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH
DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE SMALL
BUSINESS ISSUER SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT
THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION, DATED MAY 19, 1998
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
<PAGE>
2,500,000 UNITS
[HYPERTENSION DIAGNOSTICS-TM- INC. LOGO]
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK
AND ONE REDEEMABLE CLASS A WARRANT
Hypertension Diagnostics, Inc. (the "Company") is offering 2,500,000 units
(the "Offering"), each unit consisting of one share of Common Stock, $.01 par
value (a "Share") and one redeemable Class A Warrant (a "Class A Warrant") at an
initial public offering price of $4.125 per unit (a "Unit"). The Class A
Warrants are immediately exercisable and, commencing 10 trading days after the
Effective Date (as defined below), are separately transferable from the Shares.
At any time until four years following the date that the Registration Statement
relating to this Prospectus has been declared effective by the Securities and
Exchange Commission (the "Effective Date"), each Class A Warrant entitles the
holder to purchase one Share at an exercise price of $5.50 per Warrant, subject
to adjustment. The Class A Warrants are subject to redemption by the Company for
$.01 per Warrant at any time commencing 90 days after the Effective Date,
provided that the closing bid price of the Shares exceeds $6.50 (subject to
adjustment), for 14 consecutive trading days.
No public market currently exists for the Company's securities. The initial
offering price of the Units offered hereby has been arbitrarily determined by
negotiations between the Company and the Underwriter. See "Underwriting." The
Company has applied for listing of its Common Stock, Class A Warrants and Units
on the Nasdaq SmallCap Market under the symbols, HDII, HDIIW and HDIIU,
respectively.
THE SECURITIES OFFERED HEREBY ARE HIGHLY SPECULATIVE, INVOLVE A HIGH DEGREE OF
RISK AND IMMEDIATE SUBSTANTIAL DILUTION AND SHOULD NOT BE PURCHASED BY
INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT. SEE
"RISK FACTORS" COMMENCING ON PAGE 7 AND "DILUTION" ON PAGE 17.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
<TABLE>
<CAPTION>
PRICE TO UNDERWRITING PROCEEDS TO
PUBLIC DISCOUNT(1) COMPANY(1)(2)
<S> <C> <C> <C>
Per Unit..................................... $4.125 $0.35 $3.77
Total (3).................................... $10,312,500 $876,563 $9,435,937
</TABLE>
(1) The Underwriter will purchase the Units from the Company at a discount equal
to 8.5% of the total Price to Public. The Company has also agreed to pay the
Underwriter a nonaccountable expense allowance equal to 2.5% of the total
Price to Public, and has agreed to sell to the Underwriter, for nominal
consideration, a five-year warrant to purchase up to 250,000 Units at an
exercise price of $4.95 per Unit (the "Underwriter's Warrant"). In addition,
the Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act of 1933, as
amended (the "Securities Act"). See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$225,000 (excluding the nonaccountable expense allowance referenced in Note
1 above).
(3) The Company has granted the Underwriter a 45-day option to purchase up to an
aggregate of 375,000 additional Units solely to cover over-allotments, if
any (the "Over-allotment Option"), at the per Unit Price to Public less the
Underwriting Discount. If the Underwriter exercises the Over-allotment
Option in full, the total Price to Public, Underwriting Discount and
Proceeds to Company in the aggregate will be $11,859,375; $1,008,047 and
$10,851,328, respectively. See "Underwriting."
The Units are offered by the Underwriter subject to prior sale when, as and
if, delivered to and accepted by the Underwriter and subject to the approval of
certain legal matters by counsel and to certain other conditions. It is expected
that delivery of the certificates representing the Units will be made on or
about , 1998, in Minneapolis, Minnesota.
[RJ STEICHEN & CO LOGO]
THE DATE OF THIS PROSPECTUS IS , 1998
<PAGE>
The HDI/PULSEWAVE-TM- CardioVascular Profiling Instrument non-invasively
measures the elasticity of both small and large arteries providing a real-time
assessment of a patient's vascular health.
<TABLE>
<S> <C>
[Picture of a physician utilizing the The HDI PULSEWAVE-TM- is designed for
HDI/PULSEWAVE-TM- Cardio Vascular easy inclusion in routine examinations
Profiling Instrument on a patient in a as a vascular screening tool.
medical office]
Utilizing a proprietary sensor, the HDI [Picture of the HDI/PULSEWAVE-TM-
PULSEWAVE-TM- provides measurements of Cardio Vascular Profiling Instrument
14 cardiovascular parameters. in the background and a sensor
attached to a human wrist in the
foreground]
</TABLE>
THE HDI/PULSEWAVE-TM- HAS NOT RECEIVED CLEARANCE FOR MARKETING BY THE FDA
AND THERE CAN BE NO ASSURANCE THAT IT WILL RECEIVE SUCH CLEARANCE.
CERTAIN PERSONS WHO PARTICIPATE IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, UNITS AND
CLASS A WARRANTS, INCLUDING PURCHASES OF THE COMMON STOCK, UNITS AND CLASS A
WARRANTS TO MAINTAIN THEIR MARKET PRICE OR PURCHASES TO COVER SOME OR ALL OF THE
UNDERWRITER'S SHORT POSITION IN THE COMMON STOCK, UNITS AND CLASS A WARRANTS.
ii
<PAGE>
PROSPECTUS SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION AND IS QUALIFIED IN ITS
ENTIRETY BY THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS. UNLESS OTHERWISE INDICATED, ALL INFORMATION IN THIS PROSPECTUS
ASSUMES NO EXERCISE OF THE OVER-ALLOTMENT OPTION.
THE FOLLOWING DISCUSSION CONTAINS VARIOUS FORWARD-LOOKING STATEMENTS AS
DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995, WHICH MAY BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMINOLOGY, SUCH AS "MAY," "EXPECT,"
"ANTICIPATE," "ESTIMATE," "GOAL," "CONTINUE" OR OTHER COMPARABLE TERMINOLOGY.
SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES RELATING TO THE
COMPANY'S FUTURE PERFORMANCE. ACTUAL RESULTS OR EVENTS MAY MATERIALLY DIFFER
FROM THOSE INDICATED IN SUCH FORWARD-LOOKING STATEMENTS. IN EVALUATING SUCH
STATEMENTS, PROSPECTIVE INVESTORS ARE CAUTIONED NOT TO PLACE UNDUE RELIANCE ON
SUCH FORWARD-LOOKING STATEMENTS AND ARE SPECIFICALLY DIRECTED TO REVIEW THE
VARIOUS FACTORS IDENTIFIED UNDER THE CAPTION "RISK FACTORS" WHICH COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED IN SUCH FORWARD-LOOKING
STATEMENTS.
THE COMPANY
The Company is engaged in the design, development, assembly and marketing of
a proprietary medical device that it believes will non-invasively detect subtle
changes in the elasticity of large and small arteries. Vascular elasticity has
been researched for many years and clinical studies suggest that a lack of
arterial elasticity is an early indicator of cardiovascular disease. The present
method for screening a patient for hypertension or potential cardiovascular
diseases is the sphygmomanometer, or traditional blood pressure cuff, which
provides the physician with very limited clinical information about the
patient's vascular health. Additionally, while the aorta and large arteries can
be visualized by various non-invasive techniques, such as radiology, magnetic
resonance imaging ("MRI"), computerized tomography ("CT") scans and
ultrasonography, the Company believes there is currently no clinical way to
evaluate the elasticity of the small and very small arteries which appear to be
the first to become altered in hypertension and other vascular diseases. For
this reason, the Company developed an easy to use, non-invasive solution that
could assess the status of these small blood vessels and provide a physician
with information to assess an individual's risk for cardiovascular disease.
The Company's HDI/PULSEWAVE-TM- CardioVascular Profiling Instrument (the
"Product") provides quantitative measurements of 14 cardiovascular parameters
that may provide clinically valuable information to physicians and researchers
in screening individuals who may be at risk for future vascular disease and in
monitoring the effectiveness of treatment of individuals with previously
diagnosed vascular disease. The Company's Product was developed by two of the
Company's founders and is based on a patented blood pressure waveform analysis
methodology which has been tested on more than 2,500 patients and featured in
approximately 30 peer-reviewed articles published in medical journals. The
Company has developed two models of the Product: one for research purposes only
(the "Model CR-2000"), which the Company is currently marketing, and one for
primary care physicians and other health care professionals (the "Model
DO-2020"), which will require Food and Drug Administration ("FDA") clearance to
market. The Company expects that the Model DO-2020 will eventually generate the
majority of its revenues and early marketing efforts will be targeted in the
United States.
The Company believes that the Model DO-2020 can markedly improve the
efficiency and cost-effectiveness of identifying and managing cardiovascular
disease by primary care physicians and other health care professionals. By
utilizing the Model DO-2020, physicians could identify for treatment those
patients demonstrating a high risk for cardiovascular disease, as opposed to
treating every patient who may merely possess one or more risk factors for
cardiovascular disease. The Company plans to utilize a combination of direct and
independent representatives, contract sales representatives and/or corporate
partners in its marketing efforts.
3
<PAGE>
Physicians will be charged for each use of the Model DO-2020, as opposed to
purchasing the equipment. The Company anticipates that marketing the Model
DO-2020 in this fashion will encourage early and more rapid adoption of the
Company's technology by minimizing the physician's capital cost and may provide
the Company with a recurring stream of revenue. Each Model DO-2020 will come
equipped with an internal modem designed to transmit the patient information to
a central data management facility ("CDMF") being developed by the Company. The
Company is designing the CDMF so that it may provide the physician with the
ability to archive a data base of patient information that can be used to
consistently monitor and analyze trends in patient treatment response.
The Company commenced marketing of the Model CR-2000 worldwide for use in
research by pharmaceutical companies, academic research centers, government
research agencies and medical device manufacturers in April 1998. The medical
research market is diverse, with pharmaceutical companies, the federal
government and medical device manufacturers funding the vast majority of
research. Pharmaceutical companies spent an estimated $15 billion dollars in
1997 on research and development within the United States. In 1997,
cardiovascular research and development costs were estimated to be between $3.1
billion and $3.9 billion worldwide.
More than one million Americans suffer a heart attack annually, and
approximately 50 million adults in the United States have been diagnosed as
suffering from hypertension, or high blood pressure; an additional 30 million
Americans are estimated to have "high-normal hypertension." Within the
approximately $1 trillion United States health care industry, cardiovascular
disease is expected to account for approximately $274 billion in 1998, with
approximately $26 billion of that amount spent on physician and professional
services. Current American Medical Association ("AMA") estimates indicate that
there are approximately 650,000 active physicians in the United States, of which
the Company believes approximately 250,000 fall into its primary target market.
The Company was incorporated in Minnesota on July 19, 1988. The Company
maintains its office at 2915 Waters Road, Suite 108, Eagan, Minnesota 55121-1562
and its telephone number is (612) 687-9999.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Securities Offered.......................... 2,500,000 Units, each Unit consisting of one
Share and one Class A Warrant, at an initial
public offering price of $4.125 per Unit. Each
Class A Warrant is immediately exercisable
and, commencing 10 trading days after the
Effective Date, is transferable separately
from the Share. At any time until four years
after the Effective Date, each Class A Warrant
entitles the holder to purchase one Share at
an exercise price of $5.50 per Warrant,
subject to adjustment. The Company may redeem
the Class A Warrants at $.01 per Warrant at
any time 90 days after the Effective Date,
provided that the closing bid price of the
Shares exceeds $6.50 (subject to adjustment)
for 14 consecutive trading days. Written
notice must precede redemption by 30 days and
must be sent within 10 business days of the 14
consecutive trading day period.
Common Stock Outstanding:
Before the Offering....................... 2,517,735 Shares(1)
After the Offering........................ 5,017,735 Shares(1)
Proposed Nasdaq SmallCap Market Symbols:
Common Stock.............................. HDII
Warrants.................................. HDIIW
Units..................................... HDIIU
Use of Proceeds............................. Sales and marketing; inventory and equipment;
wages and salaries; CDMF development; outside
consultants; clinical trials and working
capital.
</TABLE>
- ------------------------
(1) Reflects 55,724 Shares issued pursuant to option exercises after March 31,
1998. Does not include: (i) 375,000 Units subject to the Underwriter's
Over-allotment Option; (ii) 250,000 Units issuable upon exercise of the
Underwriter's Warrant; (iii) 2,500,000 Shares issuable upon the exercise of
the Class A Warrants; (iv) 311,500 Shares underlying options that have been
granted to employees under the Company's 1995 Long-Term Incentive and Stock
Option Plan (the "1995 Option Plan"); (v) 75,000 Shares underlying options
that have been granted to the Company's independent directors; (vi)
1,088,999 Shares underlying options that have been granted to consultants
and others; and (vii) 182,900 Shares underlying warrants issued to the
Underwriter or current affiliates of the Underwriter in connection with
prior private placements. See "Description of Securities--Stock Options and
Warrants."
5
<PAGE>
SUMMARY FINANCIAL DATA
The following table summarizes certain data derived from the Company's
audited financial statements as of June 30, 1996 and 1997, and for the years
then ended, and unaudited financial statements as of March 31, 1998 and for the
nine months ended March 31, 1997 and 1998. In the opinion of the Company's
management, the unaudited financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary for a fair
representation of the financial position and results of operations as of the
dates and for the periods represented. The results of operations for the nine
months ended March 31, 1998 are not necessarily indicative of the results to be
expected for the full year. The summary financial data should be read in
conjunction with the financial statements and notes thereto included elsewhere
in this Prospectus.
STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 19, 1988
NINE MONTHS (INCEPTION)
YEAR ENDED JUNE 30, ENDED MARCH 31, TO
------------------------ ------------------------ MARCH 31,
1996 1997 1997 1998 1998
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development.................... $ 564,012 $ 526,352 $ 483,062 $ 255,787 $ 1,550,372
General and administrative.................. 201,604 426,818 300,186 623,383 1,554,285
Other income, net............................. 51,531 81,198 64,724 45,700 137,101
----------- ----------- ----------- ----------- -------------
Net loss and deficit accumulated during the
development stage......................... $ (714,085) $ (871,972) $ (718,524) $ (833,470) $ (2,967,556)
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Net loss per Share--basic and diluted......... $(.57) $(.44) $(.37) $(.41) $(3.65)
Weighted average Shares outstanding........... 1,248,634 1,962,011 1,962,011 2,050,407 813,843
</TABLE>
BALANCE SHEET DATA:
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
JUNE 30, 1997 ACTUAL AS ADJUSTED(1)
------------- ------------- --------------
<S> <C> <C> <C>
Cash and cash equivalents........................................... $ 1,198,778 $ 1,569,245 $ 10,522,369
Total assets........................................................ 1,213,705 1,730,695 10,683,819
Total liabilities................................................... 4,551 44,730 44,730
Deficit accumulated during the development stage.................... (2,134,086) (2,967,556) (2,967,556)
Total shareholders' equity.......................................... 1,209,154 1,685,965 10,639,089
</TABLE>
- ------------------------
(1) As adjusted for the sale of the Units offered hereby and the anticipated
application of the net proceeds therefrom. Does not include: (i) 375,000
Units subject to the Underwriter's Over-allotment Option; (ii) 250,000 Units
issuable upon exercise of the Underwriter's Warrant; (iii) 2,500,000 Shares
issuable upon the exercise of the Class A Warrants; (iv) 317,500 Shares
underlying options that have been granted to employees under the 1995 Option
Plan (6,000 of which options were exercised after March 31, 1998); (v)
75,000 Shares underlying options that have been granted to the Company's
independent directors; (vi) 1,094,999 Shares underlying options that have
been granted to consultants and others (49,724 of which options were
exercised after March 31, 1998); and (vii) 182,900 Shares underlying
warrants issued to the Underwriter or current affiliates of the Underwriter
in connection with prior private placements. See "Description of
Securities--Stock Options and Warrants."
6
<PAGE>
RISK FACTORS
THE SECURITIES OFFERED BY THIS PROSPECTUS ARE HIGHLY SPECULATIVE, INVOLVE A
HIGH DEGREE OF RISK OF LOSS AND IMMEDIATE SUBSTANTIAL DILUTION. PROSPECTIVE
INVESTORS SHOULD READ THE ENTIRE PROSPECTUS AND CAREFULLY CONSIDER THE FOLLOWING
RISK FACTORS. THE COMPANY WISHES TO CAUTION PROSPECTIVE INVESTORS THAT THE
FOLLOWING FACTORS, AMONG OTHERS, COULD IN THE FUTURE AFFECT THE COMPANY'S ACTUAL
OPERATING RESULTS, AND THAT SUCH RESULTS COULD DIFFER MATERIALLY FROM THOSE
EXPRESSED IN ANY FORWARD-LOOKING STATEMENTS MADE BY THE COMPANY. THE STATEMENTS
UNDER THIS CAPTION ARE INTENDED TO SERVE AS CAUTIONARY STATEMENTS WITHIN THE
MEANING OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. THE FOLLOWING
INFORMATION IS NOT INTENDED TO LIMIT IN ANY WAY THE CHARACTERIZATION OF OTHER
STATEMENTS OR INFORMATION UNDER OTHER CAPTIONS AS CAUTIONARY STATEMENTS FOR SUCH
PURPOSE. THE ORDER IN WHICH SUCH FACTORS APPEAR BELOW SHOULD NOT BE CONSTRUED TO
INDICATE THEIR RELATIVE IMPORTANCE OR PRIORITY.
DEVELOPMENT STAGE COMPANY; SUBSTANTIAL ANTICIPATED FUTURE LOSSES. The
Company is a development stage company that until April 1998 has been engaged
primarily in research, design, development and commercialization of the
Company's Product. While the Company has developed a commercial version of the
Model CR-2000 and a version of the Model DO-2020 that is presently undergoing
clinical testing, the Company has only since April 1998 commenced marketing
efforts for the Model CR-2000 and has not yet generated any revenues. The
Company expects to continue to incur substantial net operating losses as
clinical testing, research and development, sales and marketing activities and
operations continue. Marketing of the Model DO-2020 to primary care physicians
and other health care professionals in the United States cannot begin until it
has received FDA clearance, which may not occur for several years, if ever. The
Company believes that marketing of the Company's Model CR-2000, intended for
research purposes only, does not require FDA clearance. There is no assurance
that either the Model CR-2000 or the Model DO-2020 will ever generate any
revenues. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Risk Factors--Lack of FDA Clearance for Product."
HISTORY OF OPERATING LOSSES; UNCERTAINTY AS A GOING CONCERN. As of March
31, 1998, the Company had a deficit accumulated during the development stage of
$(2,967,556). The Company has not yet generated any revenues. The Company's
independent auditors included an explanatory paragraph in their report on the
Company's financial statements indicating that such deficit accumulated during
the development stage raises substantial doubt as to the Company's ability to
continue as a going concern. The likelihood of the success of the Company must
be considered in light of the expenses, difficulties and delays frequently
encountered in connection with development stage businesses and the competitive
environment in which the Company will operate. The Company's ability to achieve
profitability is dependent in large part on obtaining FDA clearance for its
Model DO-2020, the availability of third party reimbursement, gaining market
acceptance of its Product, establishing distribution channels and developing the
capacity to manufacture and sell its Product successfully. There can be no
assurance that the Company will successfully market either model of its Product
or operate profitably. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
LIMITED FINANCIAL RESOURCES; NEED FOR ADDITIONAL FINANCING. The Company's
ability to execute its business strategy depends to a significant degree on its
ability to obtain substantial equity capital and other financing. The Company's
business strategy requires a large capital outlay for equipment which is to be
placed in a physician's office without charge. Consequently, the Company will
necessarily build up and maintain an inventory of equipment before the Company
will know whether its business strategy will be successful. The proceeds of the
Offering are expected to be sufficient to fund the Company's operations through
the next 18 to 24 months. Although the Company estimates that the proceeds from
the Offering will be sufficient to allow initial marketing of both models of the
Company's Product, no assurance of such can be given. Any unforeseen
contingencies, including, but not limited to, delays in FDA clearance of the
Model DO-2020, unanticipated expenses or delays in CDMF development,
unavailability of third party reimbursement, delays or limited market
acceptance, delays in establishment of distribution channels,
7
<PAGE>
shortage of components or delays in manufacturing may impede the Company's
initial marketing efforts. If the proceeds of the Offering are not sufficient to
achieve initial marketing of both models of the Company's Product, the Company
will be required to seek additional funds through another offering of the
Company's equity securities or by incurring indebtedness. If additional funds
are required, there can be no assurance that any additional funds will be
available on terms acceptable to the Company or its security holders, or at all,
or that any future capital that is available will be raised on terms that are
not dilutive to investors in the Offering. The Company's business plan and
financing needs are subject to change depending on, among other things, market
conditions, business opportunities and cash flow from operations, if any. See
"Business."
LACK OF FDA CLEARANCE FOR PRODUCT. The Company produces two models of its
Product: the Model CR-2000 and the Model DO-2020. The Company expects that the
Model DO-2020 will eventually generate the majority of its revenues. The Company
believes that the Model CR-2000 does not need either FDA clearance or approval
prior to marketing to research institutions for research use only. However, the
FDA could disagree with the Company's position and require a 510(k) Pre-Market
Notification ("510(k) Application") or Pre-Market Approval ("PMA") submission
for the Model CR-2000, which, if pursued, may not be cleared or approved, or if
cleared or approved, may contain significant limitations on the intended uses
for which the Product is marketed. In contrast, the Company's Model DO-2020 will
be regulated by the FDA as a medical device and will need FDA clearance or
approval prior to being marketed in the United States. Clearance for marketing
of the Company's Model DO-2020 has not been received from the FDA and the
Company will be unable to market the Model DO-2020 in the United States until
such clearance is obtained. The Company is currently in the clinical trial phase
of the Model DO-2020's development and, although the Company expects to file a
510(k) Application in the second half of calendar year 1998, there can be no
assurance that the Company will be able to do so. Further, the FDA may decide
that one or more of the proposed claims or indications for use for the Model
DO-2020 cannot be cleared by the 510(k) Application process. In that case, the
FDA might require the submission and approval of a PMA application before
permitting such marketing, which could delay the approval process by at least
two years.
The process of obtaining FDA clearance or approval can be lengthy and will
require continued clinical testing and expenditure of financial and other
substantial resources. The timing of the FDA clearance or approval process is
unpredictable and there can be no assurance that the Company's 510(k)
Application for marketing the Model DO-2020 will ultimately receive FDA
clearance. FDA clearance and/or approval, if granted, may include significant
limitations on the intended uses for which a product may be marketed. FDA
enforcement policy strictly prohibits the promotion of cleared or approved
medical devices for non-approved or "off-label" uses. In addition, product
clearances may be withdrawn for failure to comply with regulatory standards or
the occurrence of unforeseen problems following initial marketing. Failure to
receive necessary regulatory clearances or approvals or a lengthy approval
process would have a material adverse effect on the Company's business,
financial condition and results of operations. See "Business-- Government
Regulation."
UNCERTAINTY OF THIRD-PARTY REIMBURSEMENT. The Company's financial
performance will depend in large part on the extent to which reimbursement for
the cost of medical products and services will be available from government
health administration authorities, private health coverage insurers and other
payer organizations, if at all. No third-party payer has yet approved
reimbursement for use of the Company's Model DO-2020. Significant uncertainty
exists as to the pricing, availability of distribution channels and
reimbursement status of new medical products, and there can be no assurance that
adequate third-party reimbursement will be available for the Model DO-2020. In
certain foreign markets, pricing or profitability of health care products is
subject to government control. Inability of the Company to obtain third-party
reimbursement for the Product would have a material adverse effect on the
Company. See "Business--Reimbursement."
8
<PAGE>
NEW PRODUCT; UNCERTAINTY OF MARKET ACCEPTANCE OF PRODUCT OR MEDICAL
APPLICATION OF TECHNOLOGY. The Company's financial performance will depend in
large part upon FDA clearance of the Model DO-2020 and the extent to which
either model of the Product is accepted by researchers and physicians as
effective, reliable and safe for use in screening, diagnosing and monitoring the
treatment of patients with vascular disease. If the Model DO-2020 does not
achieve market acceptance due to lack of appropriate third-party reimbursement,
FDA clearance, acceptance of test data as reliable and beneficial, operational
problems with the CDMF or any other factors which prohibit acceptance by
physicians, the Company will likely be required to cease operations. The Company
is unable to predict how quickly or how broadly either model of its Product will
be accepted by the market, if at all, or if accepted, what the demand for them
could be. Achieving market acceptance will require the Company to educate the
marketplace about the anticipated benefits associated with the use of the
Company's Product and may also require the Company to obtain and disseminate
additional data acceptable to the medical community as evidence of such
benefits. Because the Company's Product represents a new approach for evaluating
vascular disease, there may be a greater reluctance to accept the Company's
Product than would occur with products utilizing more traditional technologies
or methods of diagnosis, resulting in longer sales cycles and slower revenue
growth than currently anticipated. There can be no assurance that the Company
will be successful in educating the marketplace about its Product or that
available data concerning these benefits will create a demand by the medical
community for the Company's Product. Furthermore, the Company's Product will be
substantially more expensive to operate than the traditional blood pressure
testing instrument, the sphygmomanometer. There can be no assurance that
physicians will utilize the Model DO-2020 once installed, or that the Company's
services will be profitable to or become generally accepted by such physicians.
In addition, the Company's Product is premised on the medical assumption that a
loss of arterial elasticity is an indicator for the early onset of
cardiovascular disease. While the Company believes, based on its clinical
studies, that the loss of arterial elasticity is an indicator for the early
onset of cardiovascular disease, there can be no assurance that the Company's
claims will be accepted by the medical community. See "Business--Marketing
Strategy."
LACK OF DEVELOPMENT OF CENTRAL DATA MANAGEMENT FACILITY. An integral
component of the Model DO-2020 is a fully operational CDMF. Each Model DO-2020
will be equipped with an internal modem designed to transmit patient profiles to
the CDMF via a dedicated, toll-free telephone number. The Company has a working
version of the CDMF, but it has only limited communication and storage
capability, sufficient only to conduct FDA clinical trials. The Company
estimates that the design and development of a CDMF capable of handling multiple
simultaneous physician transmissions integrated with the Company's tracking,
billing and production systems, and capable of storing several hundred thousand
patient records will require approximately $750,000 to complete. There can be no
assurance that the actual cost of developing a full scale CDMF will not exceed
such estimated amount. In addition, once a full scale CDMF is developed, the
Company will be required to hire additional personnel to operate the CDMF. The
Company is currently developing a full scale CDMF; however, should CDMF
completion be delayed, the Company's efforts to market the DO-2020 will also be
delayed and the Company would be materially adversely affected. See
"Business--CardioVascular Profile Reports."
LACK OF MANUFACTURING EXPERIENCE; DEPENDENCE ON THIRD-PARTY
MANUFACTURERS. To date, the Company has relied on independent contractors and
consultants for manufacturing of both models of the Product. For the Company to
be financially successful, it must manufacture its products in accordance with
strict regulatory requirements, in commercial quantities, at appropriate quality
levels and at acceptable costs. To date, the Company's Product has been
manufactured in limited quantities and not on a commercial scale. As a result,
there can be no assurance that the Company will not encounter difficulties in
obtaining reliable and affordable contract manufacturing assistance and/or in
scaling up manufacturing capabilities, including problems involving production
yields, per-unit manufacturing costs, quality control, component supply and
shortages of qualified manufacturing personnel. In addition, there can be no
assurance that the Company will not encounter problems relating to integration
of components if changes are made in the present models' configuration. Any such
difficulties could result in the inability of the
9
<PAGE>
Company to satisfy any customer demand for its Product in a cost-effective
manner and would likely have a material adverse effect on the Company. See
"Business--Production."
SINGLE SOURCE OF SUPPLY OF SENSOR AND OTHER COMPONENTS. The Company
currently obtains its proprietary arterial pulse pressure sensor (the "Sensor"),
an integral component of the Company's Product, from a single source. The
Company has a manufacturing services agreement with the sole supplier of the
Sensor. Disruption or termination of this relationship could have a material
adverse effect on the Company's operations. While the Company has no reason to
believe that this relationship will be disrupted or terminated, the inability to
obtain sufficient quantities of the Sensor meeting its standards of reliability,
accuracy and performance or the need to develop alternative sources in a timely
and cost effective manner, if and as required in the future, would adversely
affect the Company's operations until new sources of the Sensor become
available, if at all. In addition, while the Sensor utilized in prototypes of
the Product has performed reliably, there is no assurance that reliable Sensors
will be available on a large-scale commercial basis. Should the Company be
unable to obtain an adequate supply of Sensors or other components meeting its
standards of reliability, accuracy and performance, the Company would be
materially adversely affected, including delays due to the unavailability of
Products to sell, delays in obtaining FDA clearance of the Model DO-2020 and new
patent applications. See "Business--Production."
COMPETITION. Competition from medical devices which are used to screen,
diagnose and monitor the treatment of patients with cardiovascular disease is
intense and likely to increase. The Company competes with manufacturers of, for
example, non-invasive blood pressure monitoring equipment and instruments, and
may compete with manufacturers of other non-invasive devices. In addition, the
Company's Product will also compete with traditional blood pressure testing by
means of a standard sphygmomanometer which is substantially less expensive than
the Company's Product. Many of the Company's competitors and potential
competitors have substantially greater capital resources, name recognition,
research and development experience and extensive regulatory, manufacturing and
marketing capabilities. Many of these competitors offer well established, broad
product lines and ancillary services not offered by the Company. Some of the
Company's competitors have long-term or preferential supply arrangements with
physicians and hospitals which may act as a barrier to market entry for the
Company's Product. In addition, other large health care companies or medical
instrument firms may enter the non-invasive vascular product market in the
future. Competing companies may succeed in developing products that are more
efficacious or less costly than any that may be produced by the Company, and
such companies also may be more successful than the Company in producing and
marketing such products or their existing products. Competing companies may also
introduce competitive pricing pressures that may adversely affect the Company's
sales levels and margins. As a result, there can be no assurance that the
Company will be able to compete successfully with existing or new competitors.
See "Business--Competition."
DEPENDENCE ON SINGLE PRODUCT; MODEL DO-2020 PRICING STRUCTURE NOT YET
DETERMINED. The Company's success is dependent upon the marketing of the Model
CR-2000 and the Model DO-2020 versions of the Product. The Company expects that
the Model DO-2020 will eventually generate the majority of its revenues. No
assurance can be given that the Company will be able to successfully develop any
additional products. In addition, the Company has not yet finalized the pricing
structure for the Model DO-2020. While the Company intends to offer the Model
DO-2020 at terms that it believes will be competitive in the market, higher than
expected manufacturing, marketing and distribution costs or competitive forces,
may force the Company to raise or lower its price or alter its terms in a manner
which has a material and adverse effect on the Company. See "Business--The
Product."
GOVERNMENT REGULATION. The Company's research, manufacturing, marketing and
distribution of its Product in the United States and other countries are subject
to extensive regulation by numerous governmental authorities including, but not
limited to, the FDA. The FDA administers the Federal Food, Drug, and Cosmetic
Act (the "FDC Act"). Under the FDC Act, medical devices generally must receive
FDA clearance through the Section 510(k) Application process or through the more
lengthy PMA process
10
<PAGE>
before they can be marketed in the United States. The process of obtaining FDA
and other required regulatory clearances or approvals can be lengthy and has
required, and will continue to require, the expenditure of substantial resources
of the Company. Manufacturing of the Company's medical device products is
subject to extensive regulatory requirements administered by the FDA and other
regulatory bodies. The Company and its contract design and manufacturing firms
must be found in compliance with the Quality System Regulation ("QSR") required
by the FDA. FDA inspections can be conducted at any time. Failure to comply with
the QSR and other regulatory requirements could, among other things, result in
fines, suspensions or withdrawals of regulatory clearances or approvals, product
recalls, product seizures, suspension of manufacturing, operating restrictions
and criminal prosecution. Furthermore, changes in existing regulations or
adoption of new regulations or policies could prevent the Company from
obtaining, or affect the timing of, future regulatory clearances or approvals.
There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals on a timely basis or at all. Delays in
receipt of or failure to receive such clearances or approvals, or failure to
comply with existing or future regulatory requirements, would have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business--Government Regulation."
COMPLIANCE WITH FOREIGN REGULATORY REQUIREMENTS. As a part of its marketing
strategy, the Company intends to pursue commercialization of its Product in
international markets. The Company's Product is subject to regulations that vary
from country to country. The process of obtaining foreign regulatory approvals
in certain countries can be lengthy and require the expenditure of substantial
resources. Until FDA clearance or approval is obtained for the Model DO-2020, it
also must comply with the export requirements of the FDC Act before they can be
exported. There can be no assurance that the Company will be able to meet FDC
Act requirements or obtain necessary foreign regulatory clearances or approvals
for the Product on a timely basis or at all, and delays in receipt of or failure
to receive such clearances or approvals, or failure to comply with existing or
future regulatory requirements, would have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business-- Government Regulation."
LACK OF ESTABLISHED SALES/DISTRIBUTION CHANNELS. The Company commenced
marketing of the Model CR-2000 in April 1998, and currently has a limited sales
force. The Company has not yet developed a distribution system for either of its
models. There can be no assurance that the Company will be able to develop an
effective sales force with the requisite knowledge and skill to fully exploit
the sales potential of the Company's Product or be able to establish
distribution channels to promote market acceptance of, and create demand for,
the Company's Product. Even if the Company enters into an agreement with
distributors, there can be no assurance that such distributors will devote the
resources necessary to provide effective sales and promotion support to the
Company's Product. The Company's ability to expand Product sales will depend in
large part on its ability to develop relationships with distributors who are
willing to devote the resources necessary to provide such effective sales and
promotional support and to educate and train a sales force and the medical
community. There can be no assurance that the Company will be able to accomplish
these objectives. There is also no assurance that the Company's financial
condition will allow it to withstand long sales cycles for its Model DO-2020.
"Business--Marketing Strategy."
RAPID TECHNOLOGICAL CHANGE. The medical device market is characterized by
intensive development efforts and rapidly advancing technology. Success of the
Company will depend, in large part, upon its ability to anticipate and keep pace
with advancing technology and competitive innovations. There can be no assurance
that the Company and its personnel will be successful in identifying, developing
and marketing new products or enhancing its existing Product. In addition, there
can be no assurance that new products or alternative diagnostic techniques will
not be developed that will render the Company's current or planned products
obsolete or inferior. Rapid technological development by competitors may result
in the Company's Product becoming obsolete before the Company recovers a
significant portion of the research, development and commercialization expenses
incurred with respect to such Product.
11
<PAGE>
PRODUCT LIABILITY EXPOSURE; LIMITED INSURANCE COVERAGE. The Company faces
an inherent business risk of exposure to product liability claims in the event
that the use of its Product is alleged to have resulted in adverse effects. The
Company has obtained a general liability insurance policy that will also cover
product liability claims, if any. There can be no assurance that liability
claims will not be excluded from such policies, will not exceed the coverage
limits of such policies, or that such insurance will continue to be available on
commercially reasonable terms or at all. Consequently, a product liability claim
or other claim with respect to uninsured liabilities or in excess of insured
liabilities would have a material adverse effect on the Company's business,
financial condition and results of operations.
UNCERTAINTY OF HEALTH CARE REFORM. The levels of revenue and profitability
of medical device companies may be affected by the efforts of government and
third party payers to contain or reduce the costs of health care through various
means. In the United States there have been, and the Company expects that there
will continue to be, a number of federal, state and private proposals to control
health care costs. These proposals may contain measures intended to control
public and private spending on health care as well as to provide universal
public access to the health care system. If enacted, these proposals may result
in a substantial restructuring of the health care delivery system. Significant
changes in the nation's health care system are likely to have a substantial
impact over time on the manner in which the Company conducts its business and
could have a material adverse effect on the Company's business, financial
condition and results of operations. See "Business--Government Regulation."
MANAGEMENT OF GROWTH. The execution of its business plan will likely place
increasing demands on the Company's existing management and operations. The
Company's future growth and profitability will depend on its ability to
successfully attract, train, motivate, manage and retain new employees and to
continue to improve its operational, financial and management information
systems. There can be no assurance that the Company will be able to effectively
manage any expansion of its business. Management's inability to manage its
growth effectively could have a material adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Employees and Consultants" and "Management."
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL PERSONNEL. The Company is
highly dependent on a limited number of key management and technical personnel,
particularly its President, Greg H. Guettler, and its Executive Vice President
and Chief Technology Officer, Charles F. Chesney, D.V.M., Ph.D., R.A.C. The
Company does not have key-person life insurance on either Mr. Guettler or Dr.
Chesney. The Company has entered into a one year employment agreement with Mr.
Guettler that automatically extends for an additional year unless either party
gives written notice of the nonextension by a specified date. The employment
agreement contains certain confidentiality obligations and a one-year covenant
not to compete. In October 1995, the Company entered into a five-year employment
agreement with Dr. Chesney which contains certain confidentiality obligations.
The Company's future success will depend on its ability to attract and retain
highly qualified personnel. The Company competes for such personnel with other
companies, academic institutions, government entities and other organizations.
There can be no assurance that the Company will be successful in hiring or
retaining such qualified personnel. The loss of key personnel or an inability to
hire or retain qualified personnel could have an adverse effect on the Company's
business, financial condition and results of operations. See
"Business--Employees and Consultants" and "Management."
UNCERTAIN ABILITY TO PROTECT PROPRIETARY TECHNOLOGY. The Company's success
depends, and will continue to depend, in part, on its ability to maintain patent
protection for its products and processes, and to preserve its trade secrets and
to operate without infringing the property rights of third parties. The Company
is the exclusive assignee for one issued United States patent and has obtained
the exclusive rights to commercialize inventions (on a worldwide basis)
described by three other United States patents issued to the Regents of the
University of Minnesota (the "University"). The above four patents relate to the
Company's blood pressure waveform analysis procedures, its cardiovascular
profiling technology, the
12
<PAGE>
non-invasive determination of cardiac output and overall technology and
operation of the Product. The license from the University expires with the term
of these patents (currently expected to be in 2012). Patent applications
regarding one or more of these United States issued patents are currently
pending in Japan as well as in Germany, France and the United Kingdom. The
Company has three other patent applications that were submitted regarding
certain other aspects and components of the Product. There is no assurance that
these patents will be issued. Besides seeking patents, the Company intends to
rely to the fullest extent possible on certain trade secrets, on proprietary
"know-how," and on its ongoing endeavors involving product improvement and
enhancement. The validity and breadth of claims coverage in medical technology
patents involve complex legal and factual questions and, therefore, may be
highly uncertain. No assurance can be given that the Company's current patent
and licenses will provide a competitive advantage, that the pending applications
will result in patents being issued, or that competitors of the Company will not
design around any patents or licenses issued to the Company. Furthermore, there
can be no assurance that the Company's non-disclosure agreements and invention
assignment agreements will protect its proprietary information and know-how or
provide adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to develop such
information independently. There can be no assurance that allegations of
infringement of the proprietary rights of third parties will not be made, or
that if made such allegations would not be sustained if litigated. There has
been substantial litigation regarding patent and other intellectual property
rights in the medical device industry. Litigation may be necessary to enforce
patents issued to the Company, to protect trade secrets or know-how owned by the
Company, to defend the Company against claimed infringement of the rights of
others or to determine the ownership, scope or validity of the proprietary
rights of the Company and others. Any such claims may require the Company to
incur substantial litigation expenses and to divert substantial time and effort
of management personnel. An adverse determination in litigation involving the
proprietary rights of others could subject the Company to significant
liabilities to third parties, could require the Company to seek licenses from
third parties, and could prevent the Company from manufacturing, selling or
using its Product. The occurrence of such litigation or the effect of an adverse
determination in any such litigation could have a material adverse effect on the
Company's business, financial condition and results of operations. See
"Business--Patents and Proprietary Technology" and "--University of Minnesota
Research and License Agreement."
CONTROL BY MANAGEMENT. Upon completion of the Offering, the officers and
directors of the Company as a group will beneficially own 16.4% of the Company's
outstanding Shares and they will be in a position to influence the outcome of
shareholder votes, including the election of directors. See "Management" and
"Principal Shareholders."
DILUTION. Investors will experience an immediate substantial dilution of
approximately $1.99 per Share in the net tangible book value per Share. The
dilution experienced by investors will be even more substantial in the event
that outstanding options or warrants to purchase Shares are exercised. See
"Dilution."
SHARES ELIGIBLE FOR FUTURE SALE. Sales of significant amounts of Shares in
the public market or the perception that such sales may occur could adversely
affect the market price of the Company's securities or the future ability of the
Company to raise capital through an offering of its equity securities. Of the
5,017,735 Shares outstanding upon completion of the Offering, the 2,500,000
Shares component of the Units offered hereby will be eligible for immediate sale
in the public market without restriction with the exception of Shares held by
"affiliates" of the Company within the meaning of Rule 144 under the Securities
Act. Of the 2,517,735 Shares presently outstanding, 306,557 Shares are held by
officers, directors or 5% shareholders, of which 100% are subject to an
agreement in favor of the Underwriter (a "Lock Up Agreement") providing that the
shareholder will not sell, grant any option for the sale of, or otherwise
dispose of any equity securities of the Company for 180 days after the Effective
Date. Of the remaining 2,211,178 Shares, an additional 825,500 Shares are
subject to Lock Up Agreements; however, the Underwriter has requested and the
Company has agreed to use its best efforts to attempt to obtain Lock
13
<PAGE>
Up Agreements on the remaining 1,385,678 Shares. There is no assurance that the
Company will be able to obtain Lock Up Agreements on all of these Shares. Of the
remaining 1,385,678 Shares, all such Shares will be eligible for resale in the
open market immediately under Rule 144(k).
ARBITRARY OFFERING PRICE; NO PRIOR PUBLIC MARKET; POTENTIAL LIQUIDITY
PROBLEMS. The initial offering price of the Units and the Warrant exercise
price have been arbitrarily determined by negotiation between the Company and
the Underwriter. The initial offering price and the Warrant exercise price bear
no relationship to the Company's assets, book value, earnings, net worth or
other recognized criteria of value. Prior to the Offering, there has been no
public market for the Company's securities. Although the Company has applied for
listing of the Company's securities on the National Association of Securities
Dealers Automated Quotation System ("Nasdaq") SmallCap Market, there can be no
assurance that an active public market will develop or be sustained. If the
Company fails to satisfy the Nasdaq requirements to maintain listing on Nasdaq
in the future, the Company's securities will likely be quoted in the over-the-
counter market in the so-called "pink sheets" or the OTC Bulletin Board.
Consequently, an investor would find it more difficult to trade the Company's
securities. In addition, if the Company is unable to maintain the Nasdaq
requirements for continued listing, the securities would be subject to the rules
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange
Act") relating to "penny stocks." These rules require brokers who sell
securities subject to such rules to persons other than established customers and
"institutional accredited investors" to complete certain documentation, make
suitability inquiries of investors and provide investors with certain
information concerning the risks of trading in the security. Consequently, these
rules may restrict the ability of brokers to sell the securities and may affect
the ability of purchasers in the Offering to sell their securities in the
secondary market. In addition, regardless of where the Company's securities are
traded, there can be no assurance that purchasers will be able to resell the
Units at the Price to Public, or at any price. See "Underwriting."
FLUCTUATIONS IN FINANCIAL RESULTS; VOLATILITY OF MARKET PRICE. Factors such
as variations in the Company's revenues, earnings and cash flow, ability to meet
market expectations, status of the FDA clearance process, availability of
Product components, market acceptance, changes in price, terms or product mix,
changes in manufacturing costs or the introduction of new products by the
Company or competitors could cause fluctuations in the Company's quarterly
financial results and the market price of the Company's securities following the
Offering. Until the Company receives FDA clearance, the Company's inability to
market the Model DO-2020 will adversely affect the Company's financial results
which may have an adverse effect on the market price of its securities. There
can be no assurance that the Company will ever generate significant revenues or
that the Company's revenues or income will ever improve on a quarterly basis or
that any improvements from quarter to quarter will be indicative of future
performance. In addition, the Company's expenses are based in part on
expectations of future revenues. As a result, expenses may not match revenues on
a quarterly basis, and a delay in future revenues would adversely affect the
Company's operating results. In addition, the stock markets have experienced
price and volume fluctuations, resulting in change in the market prices of the
stocks of many companies which may not have been directly related to the
operating performance of these companies. Such broad market fluctuations may
adversely affect the market price of the Company's securities following the
Offering.
ANTI-TAKEOVER CONSIDERATIONS. The Company's Articles of Incorporation
provide that the authorized and unissued capital stock of the Company includes
5,000,000 undesignated preferred shares. The Board of Directors, without any
action by the Company's shareholders is authorized to designate and issue the
undesignated preferred shares in such classes or series as it deems appropriate,
and to establish the rights, preferences and privileges of such shares,
including dividends, liquidation and voting rights. No shares of preferred stock
or other senior equity securities are currently designated and there is no
current plan to designate or issue any such securities. The issuance of such
shares may deprive current shareholders of the ability to sell their shares at a
premium over any market price or adversely affect the voting power and other
rights of holders of Common Stock.
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<PAGE>
The Company's Board of Directors has approved certain amendments to the
Company's Articles of Incorporation and Bylaws which, if adopted by the existing
shareholders, would (a) classify the Board of Directors into three classes, each
of which member would serve (after a transitional period) for a staggered three
year term; (b) provide that directors may be removed for cause with the vote of
the holders of a majority of the then outstanding shares entitled to vote or
other than for cause with the vote of the holders of at least 80% of the
combined voting power of the then outstanding shares of stock entitled to vote
generally in the election of directors, voting together as a single class; (c)
provide that any new director elected to fill a vacancy on the Board shall serve
for the remainder of the full term of the class in which the vacancy occurred
rather than until the next meeting of shareholders; and (d) require an 80%
shareholder vote requirement to alter, amend or repeal the foregoing provisions
of the Articles or Bylaws. These changes are being presented to shareholders for
their approval at the Company's special meeting of shareholders to be held on
May 22, 1998. If approved by the current shareholders, this proposal could have
the effect of discouraging an attempt to acquire control of the Company and
limit the price of the Company's securities. See "Description of
Securities--Minnesota Anti-Takeover Law" and "Management."
NO CASH DIVIDENDS. The Company has never paid cash dividends and does not
anticipate paying cash dividends on its Common Stock in the foreseeable future.
It is anticipated that profits, if any, received from operations will be devoted
to the Company's future operations. In addition, the Company may be prohibited
by future loan covenants from the payment of dividends. Investors who anticipate
a need for immediate income from their investment should not purchase the Units.
See "Dividend Policy."
CURRENT PROSPECTUS AND STATE REGISTRATION REQUIRED TO EXERCISE WARRANTS;
POSSIBLE REDEMPTION OF WARRANTS. Purchasers of Units will be able to exercise
the Class A Warrants only if a current prospectus relating to the Shares
underlying the Class A Warrants is then in effect and only if such securities
are qualified for sale or exempt from qualification under the applicable
securities laws of the states in which the various holders of Class A Warrants
reside. Although the Company will use its best efforts to (i) maintain the
effectiveness of a current prospectus covering the Shares underlying the Class A
Warrants and (ii) maintain the registration of such Shares under the securities
laws of the states in which the Company initially qualifies the Units for sale
in the Offering, there can be no assurance that the Company will be able to do
so. The Company will be unable to issue Shares to those persons desiring to
exercise their Class A Warrants if a current prospectus covering the Shares
issuable upon the exercise of the Class A Warrants is not kept effective or if
such Shares are not qualified nor exempt from qualification in the states in
which the holders of the Warrants reside.
The Class A Warrants are subject to redemption at any time by the Company at
$.01 per Warrant commencing 90 days after the Effective Date if the closing bid
price of the Shares exceeds $6.50 (subject to adjustment) for 14 consecutive
trading days. Written notice must precede redemption by 30 days and must be sent
within 10 business days of the 14 consecutive trading day period. In addition, a
current prospectus covering the Shares issuable upon exercise of the Class A
Warrants must then be effective under the Securities Act. If the Class A
Warrants are redeemed, Warrant holders will lose their right to exercise the
Warrants except during such 30 day redemption period. Redemption of the Class A
Warrants could force the holders to exercise the Class A Warrants at a time when
it may be disadvantageous for the holders to do so or to sell the Class A
Warrants at the then market price or accept the redemption price, which likely
would be substantially less than the market value of the Class A Warrants at the
time of redemption.
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USE OF PROCEEDS
The net proceeds to the Company from the Offering are estimated to be
approximately $8,953,124 after deduction of the Underwriting Discount, the
Underwriter's nonaccountable expense allowance and estimated expenses of the
Offering payable by the Company. This would increase to approximately
$10,329,843 if the Over-allotment Option is exercised in full. There is no
assurance that such Over-allotment Option will be exercised. The Company intends
to use the net proceeds from the Offering, assuming no exercise of the
Over-allotment Option, in the following approximate amounts:
<TABLE>
<CAPTION>
AMOUNT OF NET PERCENTAGE OF NET
PROCEEDS PROCEEDS
------------- -----------------
<S> <C> <C>
Sales and marketing......................................... $ 3,100,000 34.6%
Inventory and equipment..................................... 2,100,000 23.4
Wages and salaries.......................................... 1,350,000 15.1
CDMF development............................................ 750,000 8.4
Outside consultants......................................... 580,000 6.5
Clinical trials............................................. 100,000 1.1
Working capital............................................. 993,124 10.9
------------- -----
Total................................................... $ 8,953,124 100.0%
------------- -----
------------- -----
</TABLE>
Additional information regarding each of the above categories is set forth
below:
SALES AND MARKETING--To establish a domestic and international Product
distribution network (direct and indirect), domestic physician education
programs, domestic marketing, advertising and public relations programs and
additional market research.
INVENTORY AND EQUIPMENT--To produce the Model DO-2020 and the Model CR-2000.
WAGES AND SALARIES--To compensate the Company's current workforce and
approximately 10 planned additions.
CDMF DEVELOPMENT--To develop a CDMF capable of handling multiple
simultaneous physician transmissions and storing several hundred thousand
patient records and to integrate it with the Company's tracking, billing and
production systems.
OUTSIDE CONSULTANTS--To maintain consultant relationships with third-party
reimbursement consultants; marketing consultants; Product design, development
and engineering consultants and regulatory affairs consultants.
CLINICAL TRIALS--To complete the Company's clinical trial phase for the
Model DO-2020. The amount required for clinical trials will increase
substantially if delays are encountered in FDA clearance or a PMA submission is
required.
WORKING CAPITAL--To provide for working capital and other general corporate
purposes to support the Company's growth.
The foregoing represents the Company's best estimate of its allocation of
the net proceeds of the Offering, based upon the current state of its business
operations, its current plans and current economic and industry conditions.
These estimates are subject to change based upon material factors such as
unanticipated levels and types of competition, adverse market trends and new
business opportunities. Any material revisions in the allocation of proceeds
will be made at the discretion of the Board. The Company believes the net
proceeds from the Offering will be sufficient to meet the Company's capital
needs through the next 18 to 24 months. Pending the use of the proceeds of the
Offering, the Company intends to invest the proceeds in short-term, high
quality, interest-bearing instruments. If the Underwriter exercises the
Over-allotment Option in full, the Company will realize additional net proceeds
of $1,376,719. Such additional net proceeds will be added to the Company's
working capital.
16
<PAGE>
DILUTION
The net tangible book value of the Company as of March 31, 1998 was
$1,682,851 or approximately $.680 per Share. "Net tangible book value"
represents the amount of tangible assets less all liabilities. Without giving
effect to any other changes in net tangible book value after March 31, 1998,
other than to give effect to (i) the sale of the Units offered hereby (assuming
the entire offering price of the Units is allocated to the Shares and no
exercise of the Over-allotment Option), and (ii) the application of the
estimated net proceeds therefrom, the net tangible book value of the Company as
of March 31, 1998 would have been $10,635,975, or $2.140 per Share. This
represents an immediate increase in net tangible book value of $1.460 per Share
to existing shareholders and an immediate dilution in net tangible book value of
$1.985 per Share to new investors in this Offering, as illustrated by the
following table:
<TABLE>
<S> <C> <C>
Initial public offering price per Share............................. $ 4.125
Net tangible book value per Share at March 31, 1998............... $ .680
Increase in net tangible book value per Share attributable to new
investors....................................................... 1.460
---------
Pro forma net tangible book value per Share after Offering.......... 2.140
---------
Dilution in net tangible book value per Share to new investors(1)... $ 1.985
---------
---------
</TABLE>
- ------------------------
(1) The dilution in net tangible book value per Share to new investors, assuming
the Over-allotment Option is fully exercised, would be $1.875.
The following table summarizes the differences between the existing
shareholders and the new investors with respect to the number of Shares
purchased from the Company, the total cash consideration paid, and the average
cash consideration paid per Share (assuming the entire offering price of the
Units is allocated to the Shares).
<TABLE>
<CAPTION>
TOTAL CASH
SHARES PURCHASED(1) CONSIDERATION PAID AVERAGE CASH
----------------------- -------------------------- CONSIDERATION
NUMBER PERCENT AMOUNT PERCENT PAID PER SHARE
---------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders........................... 2,517,735 50.2% $ 4,880,946 32.1% $ 1.939
New Investors................................... 2,500,000 49.8 10,312,500 67.9% $ 4.125
---------- ----- ------------- -----
Total....................................... 5,017,735 100.0% $ 15,193,446 100.0%
---------- ----- ------------- -----
---------- ----- ------------- -----
</TABLE>
- ------------------------
(1) Does not include: (i) 375,000 Units subject to the Underwriter's
Over-allotment Option; (ii) 250,000 Units issuable upon exercise of the
Underwriter's Warrant; (iii) 2,500,000 Shares issuable upon the exercise of
the Class A Warrants; (iv) 317,500 Shares underlying options that have been
granted to employees under the 1995 Option Plan (6,000 of which options were
exercised after March 31, 1998); (v) 75,000 Shares underlying options that
have been granted to the Company's independent directors; (vi) 1,094,999
Shares underlying options that have been granted to consultants and others
(49,724 of which options were exercised after March 31, 1998); and (vii)
182,900 Shares underlying warrants issued to the Underwriter or current
affiliates of the Underwriter in connection with prior private placements.
See "Description of Securities--Stock Options and Warrants."
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its Shares since
its inception, and the Board of Directors presently intends to retain all
earnings, if any, for use in the Company's business for the foreseeable future.
Any future determination as to declaration and payment of dividends will be made
at the discretion of the Board of Directors. In addition, the Company may be
prohibited by future loan covenants from the payment of dividends.
17
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of March
31, 1998, and as adjusted to give effect to the receipt of net proceeds from
sale of the Units offered hereby.
<TABLE>
<CAPTION>
MARCH 31, 1998
-----------------------------
ACTUAL AS ADJUSTED(1)
------------- --------------
<S> <C> <C>
Total liabilities.................................................................. $ 44,730 $ 44,730
Shareholders' equity:
Common stock, $.01 par value: 25,000,000 Shares authorized; 2,462,011 Shares
issued and outstanding (actual); and 4,962,011 Shares issued and outstanding
(as adjusted).................................................................. 24,620 49,620
Additional paid-in capital....................................................... 4,628,901 13,557,025
Deficit accumulated during the development stage................................. (2,967,556) (2,967,556)
------------- --------------
Total shareholders' equity................................................. 1,685,965 10,639,089
------------- --------------
Total liabilities and shareholders' equity................................. $ 1,730,695 $ 10,683,819
------------- --------------
------------- --------------
</TABLE>
- ------------------------
(1) As adjusted for the sale of the Units offered hereby and the anticipated
application of the net proceeds therefrom. Does not include: (i) 375,000
Units subject to the Underwriter's Over-allotment Option; (ii) 250,000 Units
issuable upon exercise of the Underwriter's Warrant; (iii) 2,500,000 Shares
issuable upon the exercise of the Class A Warrants; (iv) 317,500 Shares
underlying options that have been granted to employees under the 1995 Option
Plan (6,000 of which options were exercised after March 31, 1998); (v)
75,000 Shares underlying options that have been granted to the Company's
independent directors; (vi) 1,094,999 Shares underlying options that have
been granted to consultants and others (49,724 of which options were
exercised after March 31, 1998); and (vii) 182,900 Shares underlying
warrants issued to the Underwriter or current affiliates of the Underwriter
in connection with prior private placements. See "Description of
Securities--Stock Options and Warrants."
18
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data of the Company have been derived from
the Company's audited financial statements as of June 30, 1996 and 1997, and for
the years then ended, and from the Company's unaudited financial statements as
of March 31, 1998 and for the nine months ended March 31, 1997 and 1998. The
data set forth below should be read in conjunction with the financial statements
and notes thereto and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this Prospectus.
SELECTED STATEMENTS OF OPERATIONS DATA:
<TABLE>
<CAPTION>
PERIOD FROM
JULY 19, 1988
NINE MONTHS (INCEPTION)
YEAR ENDED JUNE 30, ENDED MARCH 31, TO
------------------------ ------------------------ MARCH 31,
1996 1997 1997 1998 1998
----------- ----------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Operating expenses:
Research and development.................... $ 564,012 $ 526,352 $ 483,062 $ 255,787 $ 1,550,372
General and administrative.................. 201,604 426,818 300,186 623,383 1,554,285
Other income, net............................. 51,531 81,198 64,724 45,700 137,101
----------- ----------- ----------- ----------- -------------
Net loss and deficit accumulated during the
development stage......................... $ (714,085) $ (871,972) $ (718,524) $ (833,470) $ (2,967,556)
----------- ----------- ----------- ----------- -------------
----------- ----------- ----------- ----------- -------------
Net loss per Share--basic and diluted......... $(.57) $(.44) $(.37) $(.41) $(3.65)
Weighted average Shares outstanding........... 1,248,634 1,962,011 1,962,011 2,050,407 813,843
</TABLE>
SELECTED BALANCE SHEET DATA:
<TABLE>
<CAPTION>
JUNE 30, 1997 MARCH 31, 1998
------------- --------------
<S> <C> <C>
Cash and cash equivalents.......................................................... $ 1,198,778 $ 1,569,245
Total assets....................................................................... 1,213,705 1,730,695
Total liabilities.................................................................. 4,551 44,730
Deficit accumulated during the development stage................................... (2,134,086) (2,967,556)
Total shareholders' equity......................................................... 1,209,154 1,685,965
</TABLE>
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION CONTAINS FORWARD LOOKING STATEMENTS. FUTURE
OPERATING RESULTS ARE SUBJECT TO FLUCTUATIONS NOT WITHIN THE CONTROL OF THE
COMPANY. THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION
WITH, AND IS QUALIFIED IN ITS ENTIRETY BY, THE COMPANY'S FINANCIAL STATEMENTS
AND NOTES THERETO INCLUDED ELSEWHERE IN THE PROSPECTUS, THE RISK FACTORS SECTION
OF THIS PROSPECTUS AND THE OTHER INFORMATION CONTAINED IN THE PROSPECTUS.
OVERVIEW
The Company was founded in July 1988 to develop its blood pressure waveform
analysis technology into a clinically acceptable, non-invasive method for
conducting cardiovascular profiling. From inception, the majority of the
Company's efforts have been focused on incorporating this technology into an
instrument that is intended to allow physicians to reliably and effectively
screen, diagnose and monitor the treatment of patients with vascular disease.
While the Company has developed and tested commercial models of the Product and
in April 1998 commenced marketing the Model CR-2000 for research use only, it
has not sold any of its Product and expects to incur substantial net operating
losses until it achieves a significant level of revenue following FDA clearance
to market the Model DO-2020.
The Company plans to market two models: the Model CR-2000 and the Model
DO-2020. Management believes that the Model CR-2000, intended for research use
only, does not require FDA clearance to market, and marketing activities have
commenced. The Model DO-2020, intended for use by physicians to diagnose
vascular disease and monitor treatment, is an FDA regulated medical device and
the Company will be unable to market the Model DO-2020 in the United States
until such clearance is obtained. The Company intends to file a 510(k)
Application in the second half of calendar year 1998. The Company also intends
to pursue the foreign registrations and approvals that will allow marketing of
the Model DO-2020 in foreign markets.
The Company is the sole assignee of one issued United States patent and has
obtained the exclusive rights to commercialize inventions, on a worldwide basis,
described by three other United States patents issued to the University of
Minnesota. These four patents relate to the Company's blood pressure waveform
analysis procedures, its cardiovascular profiling technology, the non-invasive
determination of cardiac output and the overall technology and operation of the
Company's Products. The Company has the right to grant sub-licenses to produce
products and provide services based on the technology. The Company has three
other patent applications that were submitted regarding certain other aspects
and components of the Product. There is no assurance that these patents will be
issued.
DEVELOPMENT STAGE RESULTS OF OPERATIONS
The Company is a development stage company and is not presently generating
any revenues. There can be no assurance that the Company will ever be able to
generate revenues, attain or maintain profitable operations or successfully
implement its business plan or its current development opportunities. As of
March 31, 1998, the Company had a deficit accumulated during the development
stage of $(2,967,556), attributable primarily to research and development and
general and administrative expenses. Until it is able to generate significant
revenues from its activities, the Company expects to continue to incur operating
losses.
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED TO FISCAL YEAR ENDED JUNE 30, 1997
Operating expenses for the fiscal year ended June 30, 1996 were $765,616
compared to $953,170 for the fiscal year ended June 30, 1997. Approximately 74%
of the $765,616 and 55% of the $953,170 total
20
<PAGE>
operating expenses were related to research and development expenses. A further
breakdown of research and development expenses is as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Design and development of prototype devices..................... $ 214,038 $ 425,988
Recognized compensation cost for value of stock options granted
in lieu of cash compensation.................................. 349,974 100,364
------------- -------------
Total research and development expenses..................... $ 564,012 $ 526,352
------------- -------------
------------- -------------
</TABLE>
In May 1996, the Company secured the services of a contract design
engineering firm for the design, development and integration of all of the
components necessary to fabricate and manufacture the Product. In coordination
with this firm, the Company completed a pilot production run to evaluate the
design and functionality of hardware components from a manufacturing and user
standpoint. For the fiscal years ended June 30, 1996 and June 30, 1997,
respectively, approximately 62% of the $214,038 and 81% of the $425,988 were
paid to this contract design engineering firm.
The following is a summary of the major categories included in general and
administrative expenses:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
----------------------------
JUNE 30, 1996 JUNE 30, 1997
------------- -------------
<S> <C> <C>
Wages and related expenses...................................... $ 84,548 $ 176,045
Patent expenses................................................. 21,012 21,019
Outside consultants............................................. 31,295 133,663
Insurance--general and health................................... 5,107 26,008
Travel.......................................................... 4,785 4,689
Other--miscellaneous............................................ 54,857 65,394
------------- -------------
Total general and administrative expenses................... $ 201,604 $ 426,818
------------- -------------
------------- -------------
</TABLE>
For the periods shown above, the Company added two new employees, one in May
1996 and one in July 1996.
Interest income was $53,237 and $81,198 for the fiscal years ended June 30,
1996 and June 30, 1997, respectively. Private placements of the Company's Shares
yielded net proceeds of approximately $2,431,000 in the fiscal year ended June
30, 1996.
Net loss was $(714,085) and $(871,972) for the fiscal years ended June 30,
1996 and June 30, 1997, respectively. For the fiscal year ended June 30, 1996,
basic and dilutive net loss per Share was $(.57), based on weighted average
Shares outstanding of 1,248,634. For the fiscal year ended June 30, 1997, basic
and dilutive net loss per Share was $(.44), based on weighted average Shares
outstanding of 1,962,011.
NINE MONTHS ENDED MARCH 31, 1997 COMPARED TO NINE MONTHS ENDED MARCH 31, 1998
Operating expenses for the nine months ended March 31, 1997 were $783,248
compared to $879,170 for the nine months ended March 31, 1998. Approximately 62%
of the $783,248 and 29% of the $879,170
21
<PAGE>
total operating expenses were related to research and development expenses. A
further breakdown of research and development expenses is as follows:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Design and development of prototype devices.................. $ 407,789 $ 168,454
Recognized compensation cost for value of stock options
granted in lieu of cash compensation....................... 75,273 87,333
-------------- --------------
Total research and development expenses.................. $ 483,062 $ 255,787
-------------- --------------
-------------- --------------
</TABLE>
For the nine months ended March 31, 1997 and March 31, 1998, respectively,
approximately 84% of the $407,789 and 30% of the $168,454 were paid to the
Company's outside contract design engineering firm.
The following is a summary of the major categories included in general and
administrative expenses:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
------------------------------
MARCH 31, 1997 MARCH 31, 1998
-------------- --------------
<S> <C> <C>
Wages and related expenses................................... $ 129,722 $ 262,096
Patent expenses.............................................. 13,637 24,209
Outside consultants.......................................... 102,559 110,221
Rent--building and utilities................................. -- 32,037
Insurance--general and health................................ 23,179 22,561
Travel....................................................... 1,426 8,559
Legal and accounting......................................... 3,400 83,813
Other--miscellaneous......................................... 26,263 79,887
-------------- --------------
Total general and administrative expenses................ $ 300,186 $ 623,383
-------------- --------------
-------------- --------------
</TABLE>
The Company's number of employees increased from three in the nine months
ended March 31, 1997 to five in the nine months ended March 31, 1998. In
September 1997, the Company hired its President, Greg H. Guettler. Effective
November 1997, the Company leased approximately 6,900 square feet of commercial
office and light assembly space in Eagan, Minnesota.
Interest income was $64,724 and $45,700 for the nine months ended March 31,
1997 and March 31, 1998, respectively. Private placements of the Company's
Shares yielded net proceeds of approximately $1,223,000 in the nine months ended
March 31, 1998.
Net loss was $(718,524) and $(833,470) for the nine months ended March 31,
1997 and March 31, 1998, respectively. For the nine months ended March 31, 1997,
basic and dilutive net loss per Share was $(.37), based on weighted average
Shares outstanding of 1,962,011. For the nine months ended March 31, 1998, basic
and dilutive net loss per Share was $(.41), based on weighted average Shares
outstanding of 2,050,407.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents had a net decrease of $781,514 from June 30, 1996
to June 30, 1997. The significant elements of this change were as follows: CASH
USED IN OPERATING ACTIVITIES--net loss, as adjusted for non-cash items, of
$(761,983); decrease in accounts payable of $18,989. From June 30, 1997 to March
31, 1998, cash and cash equivalents had a net increase of $370,467. The
significant elements of this change were as follows: CASH USED IN OPERATING
ACTIVITIES--net loss, as adjusted for non-cash items, of $(737,546); increase in
prepaid expenses--$31,287; increase in other assets--$36,640; increase in
accounts
22
<PAGE>
payable--$40,179; CASH USED IN INVESTING ACTIVITIES--purchase of property and
equipment--$87,487; CASH PROVIDED BY FINANCING ACTIVITIES--issuance of
Shares--$1,222,948.
The Company estimates that the net proceeds of the Offering should satisfy
its cash requirements for 18 to 24 months. The Company's business plan and
financing needs are subject to change depending on, among other things, market
conditions, timing of the receipt of clearance from the FDA to market the Model
DO-2020, business opportunities and cash flow from operations. See "Risk
Factors--Limited Financial Resources; Need for Additional Financing" and "Use of
Proceeds."
Pending application of the net proceeds, such proceeds will be invested in
short-term, high quality, interest-bearing instruments.
In addition to the net proceeds to be derived from the sale of the Units,
the Company may derive over a period of time up to $13,750,000 from the exercise
of the Class A Warrants included in the Units. At any time until four years
after the Effective Date, each Class A Warrant entitles the holder to purchase
one Share at an exercise price of $5.50 per Warrant, subject to adjustment. The
Class A Warrants are subject to redemption by the Company for $.01 per Warrant
at any time commencing 90 days after the Effective Date, provided that the
closing bid price of the Shares exceeds $6.50 (subject to adjustment) for 14
consecutive days. Written notice must precede redemption by 30 days and must be
sent within 10 business days of the 14 consecutive trading day period. Any
amounts, if any, that the Company derives from the exercise of such Class A
Warrants will be used in connection with the Company's development
opportunities, business plan activities and/or working capital requirements.
POTENTIAL IMPACT OF YEAR 2000
The Company has considered the potential impact of the year 2000 for its
internal information systems, external integration problems and its current
Product. The Company believes that its internal information systems and current
Product are either year 2000 compliant or will be so prior to the year 2000
without incurring substantial costs. There can be no assurance, however, that
the Company will not experience unexpected costs and delays in achieving year
2000 compliance for its internal information systems, external integration
problems and its current Product, which could result in a material adverse
effect on the Company's future results of operations.
23
<PAGE>
BUSINESS
INTRODUCTION
The Company is engaged in the design, development, assembly and marketing of
a proprietary medical device that it believes will non-invasively detect subtle
changes in the elasticity of large and small arteries. Vascular compliance or
elasticity has been researched for many years and clinical studies suggest that
a lack of arterial elasticity is an early indicator of cardiovascular disease.
The Product provides quantitative measurements of 14 cardiovascular parameters,
which the Company believes will provide clinically valuable information to
physicians and researchers in screening individuals who may be at risk for
future vascular disease and in monitoring the effectiveness of treatment of
individuals with previously diagnosed vascular disease. The Company has
developed two models of the Product: one for research purposes only (the "Model
CR-2000"), which the Company is currently marketing, and one for primary care
physicians and other health care professionals (the "Model DO-2020"), which will
require FDA clearance to market. The Company expects that the Model DO-2020 will
eventually generate the majority of its revenues.
BACKGROUND AND GENERAL INFORMATION
VASCULAR DISEASE
Disease of the blood vessels (vascular disease) is the leading cause of
death and a primary cause of heart attacks and strokes in the United States.
Vascular disease can manifest itself in many ways: hypertension, coronary artery
disease, peripheral artery disease, atherosclerosis, aneurysm, stroke, kidney
failure and retinopathy. According to the American Heart Association, 58 million
Americans have some form of cardiovascular disease. Hypertension is the leading
cardiovascular disease. Coronary artery disease affects 13.9 million Americans
and is the nation's number one killer. Stroke is ranked number three. According
to a 1997 release by the National Heart, Lung and Blood Institute, approximately
50 million Americans (approximately 28% of the adult population in the United
States) have been diagnosed as suffering from hypertension, typically defined as
a blood pressure greater than 140 millimeters of mercury ("mmHg") systolic
pressure and/or greater than 90 mmHg diastolic pressure, with nearly 75% of
those (37.5 million) not properly treated for the condition and thus facing
significantly increased risk for heart and kidney disease and strokes. According
to the Johns Hopkins White Papers on Hypertension (1998), an additional 30
million Americans are estimated to have "high-normal hypertension" (sometimes
referred to as "borderline hypertension"), defined as a blood pressure reading
at or slightly above 130/85 mmHg. These individuals are twice as likely to
develop hypertension and they have a greater risk of cardiovascular events than
people with lower blood pressure. In fact, high-normal blood pressure is so
common in the United States that the majority of cardiovascular events
attributable to high blood pressure occur in people who demonstrate this
condition.
Hypertension can easily go undetected and has been called the "silent
killer" because it usually produces no symptoms until after it seriously damages
the heart, kidneys, brain or some other organ. High blood pressure is of
particular concern to older adults, as levels increase with age, and is present
in more than half of Americans age 60 or older. The seriousness of this problem
increases as the population grows older because individuals with sustained high
blood pressure have an increased overall death rate from stroke, heart attack
and kidney disease.
Hypertension is a deadly disease that damages both large and small arteries,
leading to pathological changes in the tissues or organs supplied by these
damaged arteries, and accelerating the development of atherosclerosis (the
formation of plaque and the accumulation of fatty deposits lining the walls of
the artery which affect blood flow) in large blood vessels, and the arteries
supplying blood to the brain, heart, kidneys and legs. Atherosclerotic plaques
can cause mini-strokes (transient ischemic attacks) due to diminished blood flow
(ischemia) to parts of the brain; angina from partly obstructed coronary
arteries; or pain in the leg muscles when walking, a result of poor blood supply
to the legs (peripheral arterial disease).
24
<PAGE>
Blood clots, which tend to occur at the sites of atherosclerotic narrowing, can
totally block a vessel and cause a stroke or heart attack.
[ILLUSTRATION OF THREE CROSS-SECTIONS OF THE ARTERY WHICH SHOWS A
NORMAL ELASTIC ARTERY, AN ARTERY AT EARLY STAGES OF ATHEROSCLEROSIS
AND AN ARTERY AT AN ADVANCED STAGE OF ATHEROSCLEROSIS]
AN ARTERY IS MADE UP OF THREE LAYERS. THE INNER LINING OF THE VESSEL
WALL (CLOSEST TO THE BLOOD) IS ONLY AS THICK AS A SINGLE CELL AND IS
PARTICULARLY SMOOTH TO ALLOW BLOOD TO FLOW EASILY. THIS LAYER IS VERY
DELICATE AND VULNERABLE TO DAMAGE FROM HIGH BLOOD PRESSURE, HIGH
CHOLESTEROL LEVELS, SMOKING AND DIABETES. THE MIDDLE LAYER IS COMPOSED
OF SMOOTH MUSCLE CELLS WHICH CONTRACT AND RELAX TO REGULATE THE AMOUNT
OF BLOOD FLOW. THE OUTER LAYER IS MADE UP OF VARIOUS CONNECTIVE TISSUES
THAT SURROUND AND PROTECT THE ARTERY. FIGURE A SHOWS A NORMAL ELASTIC
ARTERY. FIGURE B SHOWS EARLY STAGES OF ATHEROSCLEROSIS WHERE CHANGES IN
THE ARTERIAL WALL HAVE BEGUN TO IMPACT BLOOD FLOW AND REDUCE ARTERIAL
ELASTICITY. FIGURE C SHOWS AN ADVANCED STAGE OF ATHEROSCLEROSIS WHERE
ARTERIAL ELASTICITY IS REDUCED AND WHERE PLAQUE FORMATION HAS RESTRICTED
BLOOD FLOW.
A number of risk factors for atherosclerosis have been identified, including
elevated blood pressure, elevated cholesterol level, smoking, diabetes and
family history of atherosclerosis. Clinical events associated with
atherosclerosis, including heart attacks (myocardial infarction), strokes,
angina (myocardial ischemia), peripheral vascular ischemia (claudication) and
renal failure are late manifestations of the disease as a result of plaque
formation that impinges on the blood vessel lumen. The absence of a clinically
applicable method to detect the presence of atherosclerosis prior to plaque
obstruction of the lumen has led to widespread efforts to identify the risk
factors in the entire population and to intervene on those who harbor such risk
factors. The problem with this approach is two-fold: (a) patients without these
risk factors will not be identified even though up to half of the
atherosclerotic clinical events occur in individuals without any of the
traditional risk factors; and (b) patients who have one or more risk factors may
be subjected to therapy even though they do not have the atherosclerotic process
the therapy is designed to inhibit.
Atherosclerosis begins in the wall of the artery with an early abnormality
in the lining of the arterial wall called the endothelium. The endothelium helps
to maintain the flexibility or elasticity of the artery and normally inhibits
the accumulation of lipid and cellular deposits into the arterial wall of the
artery. Abnormal function of the endothelium and the associated structural
changes in the wall result in a loss of elasticity of the small arteries.
Detection of this loss in elasticity can identify individuals with abnormal
arterial structure and function long before plaque formation can cause morbid
cardiovascular events. Furthermore, demonstration of normal arterial structure
and function might suggest that the individual does not have early
atherosclerosis and may not need aggressive risk factor management.
THE CLINICAL PROBLEM
Cardiovascular specialists spend considerable effort on evaluating heart
function, including electrocardiograms (EKG's), echocardiograms and stress
tests, but have been unable to assess the functional and structural abnormality
of the arteries prior to the late phase of arterial obstruction (as determined
by angiography). Blood pressure measurement is a very insensitive and
non-specific means of assessing the condition of the arteries. Traditionally, a
patient's arterial blood pressure is obtained clinically by using a
sphygmomanometer which involves a cuff placed on the patient's upper arm that is
pressurized to occlude blood flow. As the cuff pressure is gradually reduced,
sounds are generated in the artery below the cuff and these are identified by
using a stethoscope placed over that artery. The initial occurrence of sound as
the
25
<PAGE>
cuff is deflated reflects the "systolic blood pressure" or the highest pressure
generated during the heart's contraction, and the pressure at which the sounds
finally disappear is taken as the "diastolic blood pressure," or the lowest
pressure reached before the next cardiac cycle.
Although an elevated blood pressure is associated with a higher risk for
cardiovascular events, the elevated blood pressure is not the disease but merely
a crude marker for the likelihood of disease. Furthermore, blood pressure itself
is highly variable from moment to moment and day to day. Measurement of
ambulatory blood pressure throughout the day provides a more accurate assessment
of the actual pressure but it is a cumbersome and expensive technique and still
does not demonstrate the disease in the blood vessels it is designed to
identify. Elevated cholesterol, especially an increase in the low-density
lipoproteins/high-density lipoproteins ("LDL/HDL") ratio, also is associated
with a higher risk for morbid cardiovascular events, but this measurement does
not identify blood vessel disease but rather identifies a factor that might
accelerate blood vessel disease if it is present. Thus, the only methods in
routine use by physicians today to identify individuals who need treatment are
methods that are neither sensitive nor specific in detecting the blood vessel
disease that leads to morbid cardiovascular events.
THE COMPANY'S SOLUTION
The traditional systolic-diastolic method for measuring blood pressure
provides the physician with very limited clinical information about the
patient's vascular health. In contrast, the Company's Product measures a blood
pressure waveform produced by the beating heart that the Company believes can be
analyzed to provide an assessment of arterial elasticity. When the aortic valve
closes after the heart has ejected its stroke volume of blood (the blood ejected
during each heart beat), the decay or decrease of blood pressure within the
arteries prior to the next heart beat forms a pressure curve or waveform which
is indicative of arterial elasticity. Subtle changes in arterial elasticity
introduce changes in the arterial system that are reflected in the arterial
blood pressure waveform and research suggests that these changes in the function
and structure of the arterial wall precede the development of coronary artery
disease, or the premature stiffening of the small arteries which appears to be
an early marker for cardiovascular disease.
AN ARTERIAL BLOOD PRESSURE WAVEFORM
[DIAGRAM OF AN ARTERIAL BLOOD PRESSURE WAVEFORM]
WHEN THE HEART'S AORTIC VALVE CLOSES AFTER THE HEART HAS EJECTED ITS
STROKE VOLUME OF BLOOD, THE DECREASE OF BLOOD PRESSURE WITHIN THE
ARTERIES PRIOR TO THE NEXT HEART BEAT FORMS A "PULSE CONTOUR" OR "BLOOD
PRESSURE WAVEFORM" THAT, WHEN ANALYZED BY THE COMPANY'S PRODUCT, MAY
PROVIDE A MEASUREMENT OF ARTERIAL ELASTICITY. BLOOD PRESSURE CUFF
MEASUREMENTS, WHICH ARE LIMITED TO A SINGLE HIGH (SYSTOLIC) AND SINGLE
LOW (DIASTOLIC) VALUE, DO NOT CONVEY THE DYNAMIC NATURE OF THE BODY'S
ARTERIES.
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Incorporating the physiological phenomena associated with blood pressure
waveforms, Drs. Jay N. Cohn and Stanley M. Finkelstein, Professors at the
University of Minnesota in Minneapolis and two of the founders of the Company,
developed in the early 1980's a method for determining a measure of elasticity
in both large and small arteries. The technique involved an invasive procedure
that placed a catheter connected to a pressure transducer into the patient's
artery in order to obtain a blood pressure waveform that could be analyzed using
a modified Windkessel model, a well-established electrical analog model which
describes the pressure changes during the diastolic phase of the cardiac cycle
in the circulatory system.
MODIFIED WINDKESSEL MODEL
[DIAGRAM OF A MODIFIED WINDKESSEL MODEL]
A MODIFIED WINDKESSEL MODEL, A WELL-ESTABLISHED ELECTRICAL ANALOG MODEL
WHICH DESCRIBES PRESSURE CHANGES THAT OCCUR DURING THE DIASTOLIC PHASE
OF THE CARDIAC CYCLE, IS USED BY THE COMPANY TO DEFINE ARTERIAL
VASCULATURE PROPERTIES.
This "blood pressure waveform" or "pulse contour" analysis method provided
an independent assessment of the elasticity or flexibility of the large arteries
which expand to briefly store blood ejected by the heart, and of the small and
very small arteries (arterioles) which produce oscillations or reflections in
response to the blood pressure waveform generated during each heart beat.
AORTA
<TABLE>
<S> <C> <C>
SYSTOLE
WHEN PRESSURE WITHIN THE DIASTOLE
HEART RISES, THE AORTIC WHEN PRESSURE WITHIN THE
VALVE IS FORCED OPEN AND HEART FALLS, THE AORTIC
BLOOD IS EJECTED CAUSING VALVE CLOSES AND THE WALLS
THE WALLS OF THE AORTA TO [ILLUSTRATION OF THE HUMAN AORTA AND HEART] OF THE AORTA RECOIL TO
BE STRETCHED TO ACCOMMODATE THEIR ORIGINAL POSITION,
THE EXPELLED BLOOD, STORING PROPELLING BLOOD OUTWARDS,
ENERGY FROM THE HEART'S AWAY FROM THE HEART.
CONTRACTIONS
</TABLE>
A HEALTHY, ELASTIC AORTA ACTS AS A SUBSIDIARY PUMP TO THE HEART, ITS
WALLS EXPANDING TO STORE THE ENERGY FROM THE HEART'S CONTRACTION AND
THEN RECOILING TO ITS ORIGINAL POSITION FORCING BLOOD ONWARD WHEN THE
HEART IS RESTING.
27
<PAGE>
By assessing the elasticity of the arterial system, clinical investigators
have been able to identify a reduction in arterial elasticity in patients
without evidence of traditional risk factors, suggesting the early presence of
vascular disease. Furthermore, clinical research data has demonstrated that
individuals with heart failure, coronary artery disease, hypertension and
diabetes, typically exhibit a loss of arterial elasticity. These abnormal blood
vessel changes often appear to precede overt signs of cardiovascular disease and
the occurrence of a heart attack or stroke by many years. Clinical investigators
have also demonstrated an age-related loss of elasticity of both the large and
small arteries suggesting that premature stiffening of an individual's arteries
is an apparent marker for the early onset of cardiovascular disease.
ILLUSTRATION OF CIRCULATORY SYSTEM
[ILLUSTRATION OF HUMAN CIRCULATORY SYSTEM]
THE WALLS OF ALL LARGE AND SMALL ARTERIES THROUGHOUT THE BODY EXPAND AND
CONTRACT AS BLOOD PRESSURE WAVES FROM THE HEART PASS THROUGH THEM. AN
ARTERIAL SYSTEM THAT IS COMPOSED OF ELASTIC CONDUITS AND HIGH RESISTANCE
TERMINALS CONSTITUTES A HYDRAULIC FILTER THAT CONVERTS THE INTERMITTENT
OUTPUT OF THE HEART INTO A STEADY CAPILLARY FLOW. CHANGES IN ARTERIAL
ELASTICITY INTRODUCE CHANGES IN THE ARTERIAL SYSTEM THAT THE COMPANY
BELIEVES ARE REFLECTED IN THE BLOOD PRESSURE WAVEFORM ANALYZED BY THE
COMPANY'S PRODUCT.
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<PAGE>
THE PRODUCT
Although the aorta and large arteries can be visualized by various
non-invasive techniques, such as radiology, magnetic resonance imaging ("MRI"),
computerized tomography ("CT") scans and ultrasonography, the Company believes
there is currently no clinical way to evaluate the elasticity of the small and
very small arteries which appear to be the first to become altered in
hypertension and other vascular diseases. For this reason, the Company sought an
easy to use, non-invasive solution that could assess the status of these small
blood vessels.
The Product incorporates a patented and proprietary instrument and
procedures which painlessly and non-invasively collects 30 seconds of blood
pressure waveform data, automatically analyzes this data by means of an embedded
computer and generates a CardioVascular Profile Report. Both models of the
Product consist of four primary components: (a) a non-invasive arterial pulse
pressure sensor placed over the radial artery at the wrist; (b) an upper-arm
blood pressure cuff connected to an oscillometric pressure module; (c) an
enclosure which contains a computer, other electronics and software programs;
and (d) an external printer.
PRODUCT MODELS
<TABLE>
<CAPTION>
USE BASIC FEATURES SPECIAL FEATURES
<S> <C> <C> <C>
MODEL DO-2020 Cardiovascular The Product non-inva- - A brief medical
(DOCTOR'S OFFICE) Specialists, sively collects blood history of the patient
Cardiologists, Gen- pressure waveform is recorded by the
eral and Family data, performs a pulse nurse or technician.
Practice Physicians, contour analysis on - An internal modem
Internists, the digitized data, transmits data via a
Nephrologists, etc. and generates a toll- free telephone
CardioVascular Profile line to CDMF.
Report. Some Report - Upon FDA clear-
parameters are ance, this model may
displayed on the be used to screen,
screen, and the entire diagnose and monitor
Report is generated by the treatment of
an external printer. patients.
MODEL CR-2000 Phamaceutical Compa- The Product non-inva- - A standard output
(CLINICAL nies, Academic sively collects blood port is included to
RESEARCH) Research Centers, pressure waveform allow Research
Medical Device data, performs a pulse Investigators to send
Manufacturers, Govern- contour analysis on blood pressure
ment Research Centers, the digitized data and waveform data and ana-
etc. generates a lyzed CardioVascular
CardioVascular Profile Profile Report results
Report. Some Report to computer systems
parameters are within their research
displayed on the facilities.
screen, and the entire
Report is generated by
an external printer.
</TABLE>
The Model DO-2020 will initially be marketed to cardiovascular specialists,
cardiologists, general and family practitioners, internists, nephrologists and
other physicians in medical practices throughout the United States. Because the
Model DO-2020 provides an index of a patient's arterial elasticity, the
29
<PAGE>
Company believes it could permit physicians to screen, diagnose and monitor the
treatment of patients with cardiovascular disease with more reliability than
other methods currently available. With the Model DO-2020, physicians could have
a simple, painless and non-invasive method to obtain vital information on the
vascular status of patients in support of their efforts to identify individuals
at risk for developing cardiovascular disease and to more effectively monitor
the treatment of patients receiving cardiovascular therapy. The Company expects
that the Model DO-2020 will eventually generate the majority of its revenues.
The Model CR-2000 is being marketed to medical directors and research
investigators at pharmaceutical firms and academic research centers on a
worldwide basis. These organizations are in the business of conducting research
on a variety of therapies and have a strong interest in a non-invasive means of
gathering information from human research subjects.
<TABLE>
<S> <C>
CARDIOVASCULAR PROFILE REPORTS
The CardioVascular Profile Report provides
the following 14 cardiovascular values:
- - A 1.5 Second Blood Pressure Waveform Graph [Reproduction
- - Systolic Blood Pressure (mmHg) of sample
- - Diastolic Blood Pressure (mmHg) CardioVascular
- - Mean Arterial Pressure (mmHg) Profile
- - Pulse Rate (beats/min) Report]
- - Cardiac Ejection Time (msec)
- - Stroke Volume (ml/beat)
- - Stroke Index Volume (ml/beat/m2)
- - Estimated Cardiac Output (L/min)
- - Estimated Cardiac Index (L/min/m2)
- - Large Artery Elasticity Index (ml/mmHg X
10)
- - Small Artery Elasticity Index (ml/mmHg X
100)
- - Systemic Vascular Resistance
(dynes-sec-cm-5)
- - Total Vascular Impedance (dynes-sec-cm-5)
</TABLE>
Clinical research suggests that the arterial elasticity indices can be used
to determine the clinical age of the body's arteries and that these values, when
viewed in combination with a medical history, physical examination and/or other
tests, may provide a meaningful picture of vascular health for patients 15 years
of age and older. The large artery elasticity index and the small artery
elasticity index are of particular clinical importance in this assessment. These
indices indicate the elasticity or flexibility of the patient's large and small
arteries, which may be beneficial in distinguishing between individuals with
high-normal blood pressure and those with more severe vascular disease. These
indices also are expected to provide valuable information to physicians in
monitoring the effectiveness of treatment provided to patients with confirmed
cardiovascular disease as well as screening patients who may be at risk for
future vascular disease and/or life-threatening cardiovascular events.
The Model DO-2020 is intended to transmit patient information to a CDMF
installed on the Company's premises. The Company's current working model of the
CDMF has limited communication and storage capability, sufficient only to
conduct FDA clinical trials. A CDMF capable of handling multiple simultaneous
physician transmissions integrated with the Company's tracking, billing and
production systems, and capable of storing cardiovascular profile information on
several hundred thousand patients from different age groups and with different
disease states is currently being designed and developed. The Company expects to
compare the information transmitted to data from age and gender-
30
<PAGE>
matched patients free of disease in order to establish a range of clinical
information useful to both the Company and physicians. The Company believes the
database may also prove useful to physicians in terms of archiving patient
profiles and trending patient data over time, enhancing the accuracy of ranges
for report parameters, and providing continuity of CardioVascular Profile
Reports for patients who may have been seen over a period of time by several
physicians in different parts of the United States. If CDMF design or
development is delayed, the Company's efforts to market the DO-2020 would also
be significantly delayed, which would materially adversely affect the Company's
financial performance. See "Risk Factors--Lack of Development of CDMF."
Following completion of the CDMF, the Company may offer an Internet link to
physicians (with security protection) via a Company web site, allowing
physicians to make direct inquiries into the database regarding their patient
records. The Company intends to provide primary care physicians and other health
care professionals with toll-free telephone access to Company personnel to
obtain technical Product support.
ANTICIPATED CLINICAL BENEFIT OF CARDIOVASCULAR PROFILES
While current methods focus on major health and genetic risk factors
associated with the development of cardiovascular disease, risk factors such as
smoking, elevated cholesterol levels, diabetes, obesity, lack of exercise, high
blood pressure and a family history of cardiovascular disease are merely
statistical approximations of the likelihood for development of the disease and
do little to provide an accurate indication of blood vessel abnormalities.
According to the Johns Hopkins White Papers on Coronary Heart Disease (1998),
for approximately 20% to 40% of Americans, a heart attack is their first sign of
cardiovascular disease. A patient possessing such risk factors has a greater
probability of experiencing a life-threatening event than a patient without
them.
In contrast, conducting a cardiovascular profile could provide physicians
with specific information on the status of an individual patient's vascular
system. The Company anticipates that patients identified with abnormal
cardiovascular profiles could be provided aggressive and immediate treatment
versus those who may only have a risk factor(s) but a relatively normal
cardiovascular profile. When vascular disease is diagnosed in its early stages,
the physician has an opportunity to intervene with lifestyle alterations or
certain drugs, such as lipid lowering therapy, calcium channel blockers,
angiotensin-converting-enzyme ("ACE") inhibitors or nitrate compounds, which may
slow or reverse the abnormal arterial function. Early detection, therefore, may
provide the opportunity for aggressive intervention that may prevent heart
attacks, strokes and other cardiovascular events.
The Company does not propose that cardiovascular risk factors or traditional
blood pressure measurements be ignored when clinically evaluating patients for
the presence of vascular disease. The Company believes that non-invasively
obtained arterial elasticity measurements should be utilized to supplement
traditional blood pressure measurements and risk factor assessments, and thereby
identify much more precisely the early stages of vascular disease in patients.
THE ADVANTAGES: POTENTIAL BENEFICIAL MEDICAL OUTCOMES FOR PATIENTS AND PAYERS
During the last several years, research investigators have evaluated
hundreds of "normal" subjects as well as more than 250 patients with
cardiovascular disease. They have summarized their clinical research data in
order to establish the approximate "normal range" for arterial elasticity and
other cardiovascular parameters. Patients with normal blood pressure have been
identified who have "premature stiffening" of their small and very small
arteries. Without the benefit of a CardioVascular Profile Report, it is possible
that such patients would be considered "clinically normal and asymptomatic." It
is believed that the Model DO-2020 may help physicians identify these patients
and to intervene therapeutically.
Further, the Company believes there may be an advantage to using the Model
DO-2020 to clinically evaluate high-normal hypertensive patients in order to
decide who requires immediate and aggressive
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<PAGE>
treatment versus those who might merely need to be monitored on a periodic
basis. This would be an important clinical distinction which cannot be easily
determined in medical practice today. Some patients, therefore, are being
treated needlessly despite cost containment concerns and despite the potential
for drug side effects (such as liver dysfunction, sexual impotence, etc.).
Further, it is possible that many other patients with normal blood pressure
readings who should perhaps be treated for a latent hypertensive condition of
their arteries, are being misdiagnosed, thereby leaving them at risk for
progressive and severe cardiovascular disease.
CLINICAL RESEARCH STUDIES
To date, the core blood pressure waveform analysis method (which has been
incorporated into the Company's Product) has been used to clinically evaluate
more than 2,500 patients and research subjects, many of whom had a confirmed
diagnosis of cardiovascular disease. The clinical research studies involving
these patients and subjects were conducted at one of several clinics or medical
facilities at the University of Minnesota Hospital & Clinic, the Minneapolis
Veterans Administration Medical Center and other Clinical Investigator sites.
Some of the sites which have collaborated with the Company include:
- The University of California--Irvine, California
- Veterans Administration Medical Center, Irvine, California
- Tulane University Medical Center, New Orleans, Louisiana
- Louisiana State University, New Orleans, Louisiana
- Duke University Medical Center, Raleigh-Durham, North Carolina
- Wayne State University Medical Center, Detroit, Michigan
- Indiana University Medical Center, Indianapolis, Indiana
- Queen's University Hospital, Belfast, Northern Ireland
- Ghent University Hospital in Belgium
- The Hypertension Center at the Wolfson Medical Center in Holon, Israel
- Berman Research Center, Minneapolis, Minnesota
Some of these sites initially acquired blood pressure waveform data
utilizing invasive means, and, more recently, by using a non-invasive approach.
Clinical research studies continue to be conducted in conjunction with
nationwide governmental investigations, experiments by independent researchers
and as part of clinical trials for pharmaceutical firms. Some of these
investigations are being undertaken by members of the Company's Scientific and
Clinical Advisory Board.
The cardiovascular profile data obtained during these clinical research
studies have been summarized and presented formally at numerous scientific and
medical meetings during the last decade. The data have also been presented in
approximately 30 peer-reviewed articles published in medical journals.
MARKETS
Within the approximately $1 trillion United States health care industry,
cardiovascular disease is expected to account for $274 billion (27%) in 1998,
with approximately $26 billion of that spent on physician and other professional
services. Although significant advances have been made in the prevention and
treatment of heart attacks and strokes during the past few decades, these
diseases remain among the leading causes of death in the United States and many
other countries.
- Disease of the blood vessels is the leading cause of death in the United
States accounting for more than one-half of all deaths (over one million)
every year.
- More than one million Americans suffer heart attacks annually--the first
sign of cardiovascular disease in 20% to 40% of patients.
- According to a 1997 release by the National Heart, Lung and Blood
Institute, approximately 50 million adults (approximately 28% of the adult
American population) are currently diagnosed
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<PAGE>
with high blood pressure, with nearly 75% of those (37.5 million) not
properly treated for the condition.
- According to the Johns Hopkins White Papers on Hypertension (1998), an
additional 30 million American adults are estimated to have "high-normal
hypertension."
- Hypertension is present in more than 50% of Americans age 60 or older.
- Stroke accounts for one in every 15 deaths in the United States.
- Research expenditures within the United States by all research-based
pharmaceutical companies is estimated at $15 billion in 1997.
- Clinical cardiovascular research and development is estimated to account
for the largest percentage, at 25%, or $3.75 billion, of all United States
research and development spending in 1997.
Because of the magnitude of the impact which cardiovascular disease has on
the United States population, the Company believes it has a significant
opportunity for providing a more accurate and effective means with which to
screen, diagnose and monitor the treatment of patients with cardiovascular
disease. Furthermore, cardiovascular disease is a major cause of death in many
other developed countries throughout the world.
THE PRACTICING PHYSICIAN MARKET
The Model DO-2020 is intended to be used by physicians or trained medical
personnel. The Company's focus will be on the practice of cardiovascular
medicine within these facilities and, in particular, toward those health care
professionals who are directly involved in the screening, diagnosis, treatment
and monitoring of patients with cardiovascular disease. Current AMA estimates
indicate there are approximately 650,000 active physicians in the United States,
approximately 250,000 of which fall into the target market as potential users of
the Model DO-2020:
- Approximately 120,000 internal medicine physicians
- Approximately 80,000 general and family practice physicians
- Approximately 30,000 medical sub-specialty physicians
- Approximately 20,000 cardiovascular disease specialists
THE RESEARCH MARKET
The Model CR-2000 is being marketed to medical directors and research
investigators at pharmaceutical firms, academic centers, and/or medical device
manufacturers on a worldwide basis. The Company believes that these research
centers, especially those in the United States, have a strong interest in a non-
invasive means of gathering information from human research subjects.
According to the Tufts Center for the Study of Drug Development and a
February 1993 report by the U.S. Congressional Office of Technology Assessment,
it costs a company, on average, $359 million and about fifteen years to get one
new drug from the laboratory to the pharmacist's shelf. According to the
Pharmaceutical Research and Manufacturers of America, only five in 5,000
chemical compounds that enter preclinical testing are ultimately subjected to
human testing and only one in five of those is ultimately approved. The Company
believes the Model CR-2000 provides a new means for gathering information on
additional variables during research.
The clinical research market is diverse, with pharmaceutical companies, the
federal government and medical device manufacturers funding the vast majority of
research. Pharmaceutical companies spent an estimated $15 billion on all R&D
within the United States in 1997. Of this amount, spending on clinical
development in Phases I to IV of research was approximately $6.5 billion. Nearly
20% of this, or $3 billion,
33
<PAGE>
was outsourced to contract research organizations ("CRO's") and site service
companies in the United States. In most cases, the direct costs of physician
payments and the costs of additional medical care due to the trial are paid
directly to the provider organization by the pharmaceutical study sponsor.
The Company has identified four markets for the Model CR-2000:
- PHARMACEUTICAL COMPANIES. There are approximately 1,950 firms conducting
clinical research trials in the United States. Nonetheless, a small number
of pharmaceutical firms in the United States accounted for the majority of
all research and development spending. These pharmaceutical firms often
seek ways for gathering information on additional variables during
research.
- ACADEMIC CENTERS. Hundreds of universities throughout the world conduct
research under grants supplied by government agencies, disease management
foundations and private sponsors. Universities with research centers
conducting clinical trials in the areas of preventative cardiology,
nephrology and epidemiology are a particular target market for the Model
CR-2000.
- MEDICAL DEVICE MANUFACTURERS. Manufacturers of medical devices are
continually testing their devices to gather information on additional
variables during research.
- THE U.S. GOVERNMENT. The National Institutes of Health and Veterans'
Affairs Medical Centers, the Agency for Health Care Policy and Research
and the Centers for Disease Control and Prevention conduct large-scale
research projects. These organizations represent a market opportunity for
the Model CR-2000.
The Company anticipates that use of the Model CR-2000 in research settings
will not only provide information contributing to the advancement of significant
cardiovascular research, but will likely lead to the publication of favorable
articles in respected medical journals that will likely promote a greater
worldwide awareness of the importance of vascular elasticity and the
capabilities of the Company's Product within the medical community.
MARKETING STRATEGY
The Company's primary objective is to establish the Product as the standard
of non-invasive patient cardiovascular screening and the predominant methodology
used for the diagnosis and monitoring of patients with cardiovascular diseases.
MODEL DO-2020
Once the Model DO-2020 obtains FDA clearance to market in the United States,
the Company intends to direct its sales and marketing efforts at physicians who
screen, diagnose and monitor the treatment of patients with cardiovascular
disease. The Company will seek to gain Product acceptance by implementing a
strategy that promotes the Product's benefits directly to people who have, or
are at risk for developing, cardiovascular disease, and to educate healthcare
professionals, managed care decision makers and insurers as to the potential
advantages involved in early detection of cardiovascular disease. The Company's
education and awareness strategy will also focus on the publication of
additional research covering performance and utility of the Product and
attendance at major cardiovascular conventions.
The introduction of the Model DO-2020 will occur in three stages. The first
will consist of a controlled introduction to key physicians in the United States
in order to allow the Company sufficient time to develop a strong referral base
among opinion leaders and to allow for an orderly and efficient scaling-up of
the Company's production capabilities. Following a successful introduction of
the Product, the Company plans to implement a nationwide marketing campaign
directed towards primary care physicians and other health care professionals.
The third stage will target international cardiovascular markets.
Following FDA clearance, the Company will focus early marketing and
education efforts on United States physicians who evaluate individuals at risk
for developing cardiovascular disease and monitor
34
<PAGE>
patient response to cardiovascular therapy. In an effort to encourage rapid
acceptance of the Product, the Company anticipates offering the Model DO-2020 to
physicians on a "per-patient" or "per-report" billing basis. Because
reimbursement is a key component of physician acceptance, the Company has
retained a reimbursement consulting firm to assist in payer education and claims
approval. Invoices for physician use of the Product will be generated based on
the number of CardioVascular Profile Reports that are transmitted to the
Company's CDMF each month.
The Company anticipates using a core direct sales force to call on key
cardiovascular opinion leaders and to establish distribution arrangements with
independent and/or contract sales representatives and medical companies with
complementary distribution networks. Long term, the Company intends to use
various direct marketing methods to promote the Product to people with
cardiovascular disease, including public relations materials, advertising and a
Company Internet web site.
MODEL CR-2000
The Company is currently using various direct and indirect methods to market
the Model CR-2000 including direct mail, attendance at major medical conventions
and the use of a limited direct sales force to market the Product to
pharmaceutical companies, academic centers and major cardiovascular research
centers as a useful tool in gathering information from human subjects. The
Company anticipates using a core direct sales force to sell the Model CR-2000
and to identify and manage independent and/or contract sales representatives for
marketing the Model DO-2020 following FDA clearance. The Company has established
a sale price of $18,750 for the Model CR-2000. Higher than expected
manufacturing, marketing or distribution costs or competitive pressures may,
however, force the Company to raise or lower the price of the Product.
PRODUCTION
The design, development and integration of all of the components necessary
to fabricate and manufacture the Product was undertaken on behalf of the Company
by a contract design engineering firm. The Company determined that it would be
more efficient and cost-effective to have Product development completed by a
specialized engineering firm, rather than to establish an internal design and
engineering staff. The Company has completed a pilot production run to evaluate
the design and functionality of hardware components from a manufacturing and
user standpoint and to test and modify as necessary the operation of various
software components. According to testing performed at TUV Product Services,
Inc., the Product was found to be in compliance with the electromagnetic
compatibility immunity requirements as defined in European Standard EN
60601-1-2. The Product was also found to conform to Council Directive
(89/336/EEC) permitting display of the CE Mark. The Model DO-2020 was also
investigated by Underwriters Laboratories, Inc. for compliance to the
requirements of the Standard for Medical and Dental Equipment, UL 544, Third
Edition. The unit fully complies, is UL listed and may now display the UL label.
In the interest of flexibility and efficiency, the Company anticipates using
a contract manufacturing firm to produce the components and to manufacture the
Product on a contractual basis. Final Product assembly, testing, packaging and
shipping will be conducted by the Company at its facility in compliance in all
material respects with the FDA's Quality System Regulations ("QSR").
An integral component of the Company's Product is the Sensor. While Sensors
utilized in prototypes of the Product have performed reliably, the Company is
uncertain as to whether Sensors will be available on a commercial basis, and if
available, whether such Sensors will be reliable and accurate in their
performance during clinical use. Should the Company be unable to obtain an
adequate supply of Sensors meeting its standards of reliability, accuracy and
performance, the Company would be materially adversely
35
<PAGE>
affected. The Company currently obtains the Sensor from a single source. The
Company has a manufacturing services agreement with the sole supplier of the
Sensor. Disruption or termination of this relationship would have a material
adverse effect on the Company's operations. See "Risk Factors--Single Source of
Supply of Sensor and Other Components."
COMPETITION
Competition in the medical device industry is intense and many of the
Company's competitors have substantially greater financial, manufacturing,
marketing, distribution and technical resources than the Company. The Company
directly competes with manufacturers of sphygmomanometers, as well as drug,
medical instrument and health care companies. In addition, the Company is aware
of other companies that are developing products that measure arterial
elasticity. To the best of the Company's knowledge, no products which measure
both large and small artery elasticity have yet obtained FDA clearance to market
within the United States and no other products developed appear capable of
providing both large artery and small artery elasticity values. The Company is
aware of five other firms that are developing products that attempt to measure
vascular elasticity and which may be viewed as competitive alternatives. One
such firm has received FDA clearance to market a device which claims to evaluate
a patient's general cardiovascular condition:
- CARDIOVISION: International Medical Device Partners, of Las Vegas, Nevada
is marketing the MS-2000P under the CardioVision name. The device claims
to provide non-invasive detection of cardiovascular conditions by
measuring blood pressure and pulse rate that it then uses to indicate one
of five general cardiovascular conditions: (a) normal, (b) hypertension /
anemia / shock, (c) arteriosclerosis / diabetes / obesity / intense
stress, (d) arrhythmia or (e) potential heart failure. The device displays
a pulse pressure pattern obtained during the course of the blood pressure
measurement, and then classifies the pattern into one of these five
standard groupings that the company claims have a correlation with
cardiovascular disease. The CardioVision MS-2000P is patented, connects to
a standard PC through a serial port and can maintain 9,999 patients with
up to 100 records per patient. This product received FDA 510(k) clearance
for marketing during the Spring of 1997.
- ASULAB SA: A non-invasive ultra-sound (NIUS) instrument invented by Dr.
Hans Brunner has been developed by ASULAB Research Labs of the SMH Group
in Neuchatel, Switzerland. The NIUS has been marketed through their
licensee, Capital Medical Services (Paris). It is an ultrasonic
echo-tracking instrument which, when combined with a separate commercially
available finger blood pressure device, is capable of generating an
arterial elasticity pressure curve for just a small cross-sectional
portion of the radial artery by the wrist. Since the NIUS instrument
determines a vascular elasticity value for just a very small portion of a
single artery, it does not appear to provide information about the
patient's total vascular system.
- PULSE METRIC, INC.: Pulse Metric, a San Diego, California firm, uses
proprietary non-invasive waveform technology with a variety of personal
computer based products. In addition to providing oscillometric-based
blood pressure values, the products display a pressure waveform. However,
the Company believes the equipment presently does not analyze the waveform
data or determine arterial elasticity values. Rather, it appears that
blood pressure information collected by Pulse Metric's product is
forwarded by diskette or e-mail for subsequent analysis and determination
of arterial elasticity values at their office in San Diego.
- PWV MEDICAL LTD.: Dr. Michael O'Rourke, based in Sydney, Australia, has
developed an approach to examine the question of hardening of the arteries
or stiffened blood vessels using an "augmentation index" which is a
mathematical approach to what the blood pressure waveform looks like at
the root of the aorta by the heart. He uses data and makes assumptions as
to what the blood pressure data would actually be if, in fact, it had been
obtained at the root of the aorta. He applies certain mathematical
equations to transform these measurements and determines an "augmentation
36
<PAGE>
index." Dr. O'Rourke founded PWV Medical and the Company assumes he will
attempt to commercialize this technology. To date, the instrument has been
used exclusively for clinical research purposes; however, PWV Medical
stated their intent to file for FDA clearance on their product by early
1998.
- SPECAWAY: Specaway Pty Ltd., of St. Pauls New South Wales, Sydney,
Australia, offers a Diagnostic Applanation Tonometry (DAT) device for use
in clinical research studies which can perform an "automated arterial
waveform analysis." The DAT system can acquire EKG signals and arterial
pulses from several peripheral arteries via applanation tonometry which
then are used to derive various physiological parameters including pulse
wave velocity which some believe to be a relative surrogate value for
arterial stiffness. Using a Windkessel representation of the arterial
system involving pressure decay during diastole, and by acquiring a
measurement of peripheral resistance, Specaway's literature states that
the DAT system can estimate system arterial compliance.
The medical device industry is intensely competitive and is dominated by
several large conglomerates and numerous medical electronic device
manufacturers, any of which could enter the market at any time. These companies
have substantially greater financial and other resources and could present
intense competition for either model of the Company's Product.
GOVERNMENT REGULATION
Medical devices including the Company's Model DO-2020 are subject to strict
regulation by state and federal authorities, including the FDA and comparable
authorities in certain states. Under the 1976 amendments to the Federal Food,
Drug and Cosmetic Act and the regulations promulgated thereunder, manufacturers
of medical devices are required to comply with very specific rules and
regulations concerning the testing, manufacturing, packaging, labeling and
marketing of medical devices. Failure to comply with the Federal Food, Drug and
Cosmetic Act and any applicable regulatory requirements can result in, among
other things, civil and criminal fines, product recalls, detentions, seizures,
injunctions and criminal prosecutions. When the Company markets products outside
the United States, its products are also subject to rules and regulations in
foreign countries similar to those imposed by the FDA.
Before a new medical device may be introduced into the U.S. market, the
manufacturer generally must obtain prior authorization from the FDA. Such
authorization is based on a review by the FDA of the medical device's safety and
effectiveness for its intended uses. Medical devices may be authorized by the
FDA for marketing in the United States either pursuant to a 510(k) Application
or a PMA submission. The process of obtaining clearances or approvals from the
FDA and other applicable regulatory authorities can be expensive, uncertain and
time consuming, frequently requiring several years from the commencement of
clinical trials or submission of data to regulatory acceptance.
A PMA submission consists of information provided to the FDA sufficient to
establish independently that a device is safe and effective for its intended
use. A PMA submission must be supported by extensive clinical trial data, often
including preclinical data, as well as extensive literature to prove the safety
and effectiveness of the device. By statute, the FDA is required to respond to a
PMA submission within 180 days from the date of its submission; however, the
approval process usually takes substantially longer, often as long as several
years. During the review period, the FDA may conduct extensive reviews of the
Company's facilities, deliver multiple requests for additional information and
clarifications, and convene advisory panels to assist in its determination.
On the other hand, a 510(k) Application requires an applicant to show that a
medical device is "substantially equivalent" in terms of safety and
effectiveness to a predicate product marketed prior to 1976 or to an instrument
already cleared by the FDA for marketing in the United States. In general, the
FDA requires that a 510(k) Application include a broad spectrum of information
on various aspects of its design, operation, manufacture, intended use, claims
concerning its efficacy and safety, examples of its user manual, examples of its
promotional literature, and clinical data comparing the product to the predicate
medical device(s). An applicant may not begin marketing a product for which it
has submitted a 510(k)
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<PAGE>
Application until the FDA issues a written finding of substantial equivalence.
In practice, clearance of products often takes substantially longer than the FDA
510(k) Application period of 90 days.
FDA clearances and approvals, if granted, may include significant
limitations on the intended uses for which a product may be marketed. FDA
enforcement policy strictly prohibits the promotion of cleared or approved
medical devices for non-approved or "off-label" uses. In addition, product
clearances or approvals may be withdrawn for failure to comply with regulatory
standards or the occurrence of unforeseen problems following initial marketing.
Marketing of the Model DO-2020 Product in the United States will require
pre-marketing clearance or approval by the FDA. A clinical research trial(s), to
collect data as well as analyze results from both the Product and a predicate
medical device(s) at the same time and from the same patients, has been
commenced in order to obtain information for inclusion in the 510(k)
Application. The Company currently anticipates submission of clinical data to
the FDA for 510(k) review during the second half of 1998. There can be no
assurance that the Company will successfully complete the necessary clinical
research trial(s) on a timely basis, if ever, or that a 510(k) Application with
respect to the Model DO-2020 will be submitted to the FDA on a timely basis, if
ever. It is also possible that the FDA may decide that one or more proposed
claims, or indications for use, for the Model DO-2020 cannot be cleared for
marketing through the 510(k) process. In that case, the agency could require a
PMA submission before those claims or indications could be used in marketing the
Product. A PMA submission requires a more complex submission to the FDA than the
510(k) process and typically involves a much longer review period before
approval is obtained. This could result in significant delays in marketing the
Model DO-2020 in the United States and could have a material adverse effect on
the Company's business, financial condition and results of operations.
The Model CR-2000 is intended for use in research markets and therefore the
Company believes it does not require FDA clearance. The FDA could disagree with
the Company's interpretation of the regulations and require a 510(k) Application
or PMA submission which, if pursued, may not be cleared or approved or, if
approved, may contain certain significant limitations on the intended uses for
which the product is marketed.
Sales of medical devices outside of the United States are subject to foreign
regulatory requirements that vary from country to country. The time required to
obtain clearance by a foreign country may be longer or shorter than that
required for FDA clearance, and the requirements may differ. Export sales of
certain devices that have not received FDA marketing clearance generally are
subject to both FDA export permit requirements and, in some cases, general U.S.
export regulations. In order to obtain a FDA export permit, the Company may be
required to provide the FDA with documentation from the medical device
regulatory authority of the country in which the purchaser is located. No
assurance can be given that foreign regulatory clearances or approvals will be
granted on a timely basis, if ever, or that the Company will not be required to
incur significant costs in obtaining or maintaining its foreign regulatory
clearance or approvals.
The Company's Model DO-2020, the Company's contract design and manufacturing
organizations, as well as the Company itself, will all be subject to regulation
by the FDA and certain state and foreign governments, including, but not limited
to, required compliance with the FDA's QSR and equivalent state and foreign
regulations. Failure of any of these organizations to be or remain in compliance
with those regulations could subject one or more of those organizations, or the
medical device designed and produced for and by the Company, to regulatory
action. Such a regulatory action could threaten or cut off the Company's source
of supply or cause the FDA to order the removal of the Product from the market.
While the Company believes it could locate and qualify other sources of design
and/or manufacture of medical device products if required to do so, supply
interruptions in the meantime would have a materially adverse effect on the
Company's business, financial condition and results of operations.
Federal, state and foreign regulations regarding the manufacture and sale of
healthcare products and diagnostic devices are subject to future change. The
Company cannot predict what material impact, if any,
38
<PAGE>
such changes might have on its business. Future changes in regulations or
enforcement policies could impose more stringent requirements on the Company,
compliance with which could adversely affect the Company's business. Such
changes may relax certain requirements, which could prove beneficial to the
Company's competitors and thus adversely affect the Company's business. In
addition, regulations of the FDA and state and foreign laws and regulations
depend heavily on administrative interpretations, and there can be no assurance
that future interpretations made by the FDA, or other regulatory authorities,
with possible retroactive effect, will not adversely affect the Company.
In addition to the regulations directly pertaining to the Company and its
products, many of the Company's potential customers are subject to extensive
regulation and governmental oversight. Regulatory changes in the healthcare
industry that adversely affect the business of the Company's customers could
have a material adverse effect on the Company's business, financial condition
and results of operation.
There can be no assurance that the Company will be able to obtain necessary
regulatory clearances or approvals in the United States or internationally on a
timely basis, if ever. Delays in the receipt of, or failure to receive, such
clearances or approvals, or failure to comply with existing or future regulatory
requirements would have a material adverse effect on the Company's business,
financial condition and results of operations.
REIMBURSEMENT
The Company anticipates that most revenue affiliated with physician use of
the Model DO-2020 Product will be derived from insurance coverage and third
party payers. The patient payer marketplace includes commercial insurers, Blue
Cross/Blue Shield plans and Health Maintenance Organizations ("HMOs"), with
Medicare, other federally funded plans and "self-pay" accounting for a smaller
percentage of the payers. Each payer group establishes its own coverage and
procedure payment schedule resulting in a range of allowable payments. Physician
reimbursement is an important aspect in the Model DO-2020's success. Without
adequate levels of reimbursement, physicians will be reluctant to try the Model
DO-2020, if at all.
In contrast to patients covered by Medicare, the private insurance segment
uses a variety of payment mechanisms including: Usual, Customary and Reasonable
("UC&R") fees, Schedules of Benefits fees and fees based on Capitation
Contracts. Under the UC&R payment method, insurance carriers determine customary
professional fees for services provided by specific procedural groupings within
geographic areas. The carrier pays the "usual, customary and reasonable fee" for
a specific procedure. With a Schedule of Benefits payment method, each medical
procedure is assigned a specific dollar amount which the insurance carrier
agrees to pay toward its cost. The Schedule does not relate in any way to
doctors' actual professional fees. A capitation contract is a pre-paid plan
wherein the insurance carrier pays a contracted provider a specified amount,
typically on a monthly basis, for services rendered to their subscribers. This
method of payment is most often employed by HMOs.
The Health Care Financing Administration ("HCFA") a division of the
Department of Health and Human Services ("HHS"), has established three levels of
coding for health care products and services: Level I, Current Procedural
Terminology ("CPT") codes for physicians' services; Level II, National Codes for
supplies and certain services; and Level III, local codes. The coding system
applicable to the Model DO-2020 is the Physicians' Current Procedural
Terminology, Fourth Edition. This is a listing of descriptive terms and
identifying codes for reporting medical services and procedures performed by
physicians. Insurers require physicians to report their services with the CPT
coding system.
Review of the national Physicians' Current Procedural Terminology, Fourth
Edition, developed by the American Medical Association ("AMA"), lists codes for
non-invasive extremity studies. The existing codes closely, but not precisely,
reflect the service and parameters presented by the Model DO-2020, which is
often the situation with new or advanced medical technologies. In such cases,
CPT guidelines make provisions available by way of modifiers for existing codes
or the use of miscellaneous codes for reporting purposes. Additionally, the AMA
CPT Coding Clearinghouse Service provides a service that identifies
39
<PAGE>
appropriate coding mechanisms for new technologies. The Company intends to
solicit the AMA for clarification purposes.
Should the AMA determine that none of the existing CPT codes are appropriate
for use, the Company will be prepared to seek a new code application or code
revision following FDA clearance. In this situation, the AMA CPT guidelines
provide unlisted or miscellaneous codes for physicians to use for patient
billing purposes until a Product-specific code is obtained. Application to the
AMA for a CPT code specific to the Model DO-2020 will be among the first
reimbursement strategies implemented following FDA clearance.
Recognizing that reimbursement is integral in securing physician acceptance
of the Product, the Company has contracted with a consultant to assess the
healthcare environment and to position the Model DO-2020 into current
reimbursement coverage, coding and payment guidelines and regulations and to
evaluate the prospects for securing physician reimbursement with a
Product-specific CPT code. The Company believes that it will take 12 to 24
months to obtain a Model DO-2020-specific CPT code. During this time, physicians
may be able to use a "miscellaneous code" along with a description of the
services rendered to obtain reimbursement, although the level of reimbursement
they receive, if any, will depend on each individual payer's assessment of the
procedure.
PATENTS AND PROPRIETARY TECHNOLOGY
The Company's success depends, and will continue to depend in part, on its
ability to maintain patent protection for its products and processes, and to
preserve its trade secrets and to operate without infringing the property rights
of third parties. The Company is the exclusive assignee for one issued United
States patent and has obtained the exclusive rights to commercialize inventions
(on a worldwide basis) described by three other United States patents issued to
the University. These four patents relate to the Company's blood pressure
waveform analysis procedures, its cardiovascular profiling technology, the non-
invasive determination of cardiac output, and the overall technology and
operation of the Products. The license from the University expires with the term
of these patents (currently expected to be in 2012). Patent applications
regarding one or more of these United States issued patents are currently
pending in Japan as well as in Germany, France and the United Kingdom. In
addition, one United States patent, which broadens the claims of an earlier
issued United States patent, has been allowed and while not assured, the Company
believes it may be issued soon. The Company has three other patent applications
that were submitted regarding certain other aspects and components of the
Product. There is no assurance that these patent applications will be issued.
Besides seeking additional patents, the Company intends to rely to the fullest
extent possible on certain trade secrets, on proprietary "know-how", and on its
ongoing endeavors involving product improvement and enhancement.
The validity and breadth of claims coverage in medical technology patents
involve complex legal and factual questions and, therefore, may be highly
uncertain. No assurance can be given that the Company's current patent and
licenses will provide a competitive advantage, that the pending applications
will result in patents being issued, or that competitors of the Company will not
design around any patents or licenses issued to the Company. Furthermore, there
can be no assurance that the Company's non-disclosure agreements and invention
assignment agreements will protect its proprietary information and know-how or
provide adequate remedies for the Company in the event of unauthorized use or
disclosure of such information, or that others will not be able to develop
independently such information. There has been substantial litigation regarding
patent and other intellectual property rights in the medical device industry.
Litigation may be necessary to enforce patents issued to the Company, to protect
trade secrets or know-how owned by the Company, to defend the Company against
claimed infringement of the rights of others or to determine the ownership,
scope or validity of the proprietary rights of the Company and others. Any such
claims may require the Company to incur substantial litigation expenses and to
divert substantial time and effort of management personnel. An adverse
determination in litigation involving the proprietary rights of others could
subject the Company to significant liabilities to third parties, could require
the
40
<PAGE>
Company to seek licenses from third parties and could prevent the Company from
manufacturing, selling or using its Product. The occurrence of such litigation
or the effect of an adverse determination in any such litigation could have a
material adverse effect on the Company's business, financial condition and
results of operations.
UNIVERSITY OF MINNESOTA RESEARCH AND LICENSE AGREEMENT
On September 23, 1988, the Company entered into a Research and License
Agreement (the "University License Agreement") with the University, pursuant to
which the University granted to the Company an exclusive, worldwide license to
use the Product for diagnostic, therapeutic, monitoring and related uses. The
University License Agreement expires with the last to expire of the patents
related to the licensed technology (currently expected to be in 2012). The
Company also has the right to grant sub-licenses to produce products and provide
services based on the technology.
In consideration of the University License Agreement, the Company conducted
expanded clinical trials of arterial compliance technology and is continuing to
use its best efforts to develop commercial medical devices. The Company must pay
a royalty on revenue from commercialization of the Products (or future products,
which incorporate the licensed arterial compliance technology), in the amount of
3% of gross revenue (less certain reductions, such as returned goods).
EMPLOYEES AND CONSULTANTS
The Company currently employs six full-time employees including: Greg H.
Guettler as its President; Dr. Charles F. Chesney as its Executive Vice
President and Chief Technology Officer; James S. Murphy as its Vice President of
Finance and Chief Financial Officer; Dennis J. Morgan as its Director of
Biomedical and Software Engineering; James M. Johnson as its Director of Sales
and Julie A. Radosevich as its Director of Marketing. The Company anticipates
hiring approximately 10 additional personnel following the successful completion
of the Offering, for marketing and sales activities, for plant operations and
assembly tasks, for computer software and data base endeavors and for clinical
and customer support needs including accounting and administrative staff. The
Company believes that its relations with its employees are good.
In addition to vendors under contract to the Company regarding specific
product-related tasks, the Company has had and continues to have consultant
relationships with several experts including: (a) several experts in regulatory
affairs and FDA matters; (b) Jay N. Cohn, M.D. as its Chief Clinical Consultant;
(c) Stanley M. Finkelstein, Ph.D. as its Chief Technical Consultant, (d) a
consulting firm for computer software engineering design and programming; (e) a
consulting firm for medical electronic manufacturing and production engineering
tasks; (f) a consulting firm for third-party reimbursement; and (g) several
experts in sales and marketing. Additional consultants may be retained as
necessary to accommodate the Company's need for experts in selected areas of
Product-related activities.
LEGAL PROCEEDINGS
The Company is not a party to any litigation and is not aware of any
threatened litigation.
FACILITIES
Under the terms and conditions of a 36-month lease effective November 1997,
the Company occupies approximately 6,900 square feet of commercial office and
light assembly space at The Waters in Eagan, Minnesota, a location in close
proximity to the Minneapolis/St. Paul International Airport. The monthly gross
rent, including basic operating expenses, is approximately $7,000. The Company
believes that this facility should be adequate for its currently anticipated
requirements for the term of the lease.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY CONSULTANT
The following table provides information about the Company's directors,
executive officers and key consultant:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION(S) SINCE
- --------------------------------- --- --------------------------------------------------------------- -----------
<S> <C> <C> <C>
Melville R. Bois(1)(2) 51 Chairman of the Board of Directors 1995
Greg H. Guettler 44 President and Director 1997
Charles F. Chesney, D.V.M., 55 Executive Vice President, Chief Technology Officer and Director
Ph.D., R.A.C. 1988
James S. Murphy 53 Vice President of Finance and Chief Financial Officer --
Jay N. Cohn, M.D.(1) 67 Chief Clinical Consultant, Chairman of the Scientific and
Clinical Advisory Board and Director 1988
Kenneth W. Brimmer(1)(2) 42 Director 1995
Stanley M. Finkelstein, Ph.D. 57 Chief Technical Consultant --
</TABLE>
- ------------------------
(1) Member of the Compensation Committee of the Board of Directors.
(2) Member of the Audit Committee of the Board of Directors.
MELVILLE R. BOIS Mr. Bois was elected Chairman in 1997. From January 1996
until September 1997, he was the Company's President and Chief Executive
Officer. For more than 30 years, Mr. Bois has been employed by title insurance
and financial companies. In 1979, he founded and was the owner of Universal
Title Insurance Company. This company became Universal Title and Financial
Corporation in 1984 and Mr. Bois continues as its President. Universal Title and
Financial Corporation is a private holding company which is engaged in
commercial real estate and related records and data management. Mr. Bois has
been and is presently a member of the board of directors of several companies,
including Hilex Corporation and Grand Forks Abstract Company and since 1988 he
has been the owner and President of the Bois Family Foundation, a charitable
organization.
GREG H. GUETTLER, M.B.A. Mr. Guettler has been the President of the Company
since September 1997. Mr. Guettler has more than 19 years of experience in
sales, marketing and management positions within the medical industry. Prior to
joining the Company, Mr. Guettler was a senior manager at Universal Hospital
Services, Inc. ("UHS"), a nationwide provider of medical devices and device
management services to the health care industry. During his 14 years at UHS, Mr.
Guettler held positions as Director of National and Strategic Accounts where he
led a national accounts sales team, as Director of Alternate Care and Specialty
Product Promotions where he was responsible for the development of UHS's
alternate care business unit and the nationwide distribution of new medical
products, and as Marketing Manager where he was responsible for company-wide
marketing and planning. Additionally, Mr. Guettler has held sales, sales
management, product management and marketing positions for the St. Paul Regional
Blood Services. Mr. Guettler has a Bachelor's degree from the University of St.
Thomas in St. Paul, Minnesota (1977) and a Masters degree in Business
Administration (M.B.A.) from the University of St. Thomas Graduate School of
Management in St. Paul, Minnesota (1983).
CHARLES F. CHESNEY, D.V.M., PH.D., R.A.C. Dr. Chesney was the President and
Chief Executive Officer of the Company from its inception in 1988 until January
1, 1996 when he became the Company's Executive Vice President and Chief
Technology Officer. He has been the Secretary of the Company since December
1988. Since 1978, Dr. Chesney has been a consultant to P-T Consulting
Associates, Inc., a biomedical research, product development and consulting
firm, which he owns. From 1984 to 1987, Dr. Chesney was
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employed by the 3M Company as Research and Development Manager for 3M/Riker
Laboratories in its Pharmaceutical and Health Care Division. Dr. Chesney is the
founder of a small computer firm which offers data base management systems to
large drug companies and he is the author of more than 25 scientific
publications in the field of medical pathology and toxicology. Dr. Chesney is a
member of more than 30 professional societies and has been engaged in new
product research and development in the pharmaceutical, medical device and
bio-technology industries since 1974. In 1991, Dr. Chesney became "Board
Certified" in regulatory affairs by the Certification Board of the Regulatory
Affairs Professional Society. Dr. Chesney holds the degree of Doctor of
Veterinary Medicine from the University of Minnesota (1970) and a Ph.D. in
Medical Pathology with a minor in Cardiovascular Physiology from the University
of Wisconsin--Madison (1973).
JAMES S. MURPHY, C.P.A., M.B.A. Mr. Murphy joined the Company as Vice
President of Finance and Chief Financial Officer in May 1996. Mr. Murphy was
Controller of Gaming Corporation of America from December 1992 through November
1995. From 1978 to 1988, Mr. Murphy was the tax partner with Fox, McCue and
Murphy, a certified public accounting firm located in Eden Prairie, Minnesota.
From 1970 to 1978, Mr. Murphy was employed by Ernst & Ernst (currently Ernst &
Young LLP) with both audit (six years) and tax (two years) experience. Mr.
Murphy is a member of the American Institute of Certified Public Accountants and
the Minnesota Society of CPAs. Mr. Murphy holds a Bachelor of Science degree
from Saint John's University in Collegeville, Minnesota (1966) and a Masters
degree in Business Administration (M.B.A.) from the University of Minnesota
(1968).
JAY N. COHN, M.D. Since 1974, Dr. Cohn has been employed by the University
of Minnesota Medical School as a Professor of Medicine and was Head of the
Cardiovascular Division from 1974 through 1997. Dr. Cohn is the co-inventor of
the technology used in the Company's Product. Dr. Cohn is the Company's Chief
Clinical Consultant and has been a consultant to several pharmaceutical firms.
He became the Chairman of the Company's Scientific and Clinical Advisory Board
in 1996. Dr. Cohn is currently President of the International Society of
Hypertension and is also a member of the editorial boards of 12 professional
journals and of approximately 17 professional societies. Since 1959, Dr. Cohn
has published more than 500 scientific articles and a new textbook of
cardiovascular medicine. Dr. Cohn received his M.D. degree from Cornell
University (1956). Dr. Cohn currently serves on the board of directors of Medco
Research, Inc.
KENNETH W. BRIMMER Mr. Brimmer was employed by Grand Casinos, Inc. and its
predecessor, since October 1990 as Special Assistant to the Chairman and Chief
Executive Officer. Mr. Brimmer presently serves on the board of directors of
Rainforest Cafe, Inc., and has served as its Treasurer since May 1995 and its
acting President from April 1997 to May 1998 when he was named its President.
Mr. Brimmer also currently serves on the board of directors of New Horizons Kids
Quest, Inc. and Oxboro Medical International, Inc.
STANLEY M. FINKELSTEIN, PH.D. Dr. Finkelstein is the Company's Chief
Technical Consultant. Dr. Finkelstein has been employed by the University of
Minnesota since 1977, and is a Professor of Laboratory Medicine and Pathology in
the Medical School. He has also been Associate Director of the Division of
Health Computer Sciences within the Department of Laboratory Medicine and
Pathology since 1982 and is currently the Director of Graduate Studies for
Biomedical Engineering. Dr. Finkelstein is the author of over 100 scientific
articles in professional journals and technical conference proceedings on
subjects relating to arterial vascular compliance, pulmonary disease, medical
informatics and data management. He has also presented related material at more
than 100 conferences and technical meetings. Dr. Finkelstein is the co-inventor
of the technology used in the Company's Product. Dr. Finkelstein earned his
Ph.D. in Electrical Engineering/Systems Science--Bioengineering from the
Polytechnic Institute of Brooklyn, Brooklyn, New York (1969).
The Company's Board of Directors has approved and submitted for approval of
the Company's shareholders a proposal to (a) classify the Board of Directors
into three classes, each of which member
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would serve (after a transitional period) for a staggered three year term; (b)
provide that directors may be removed for cause with the vote of the holders of
a majority of the then outstanding shares entitled to vote or other than for
cause with the vote of the holders of at least 80% of the combined voting power
of the then outstanding shares of stock entitled to vote generally in the
election of directors, voting together as a single class; (c) provide that any
new director elected to fill a vacancy on the Board shall serve for the
remainder of the full term of the class in which the vacancy occurred rather
than until the next meeting of shareholders; and (d) require an 80% shareholder
vote requirement to alter, amend or repeal the foregoing provisions of the
Articles or Bylaws. These changes are being presented to shareholders for their
approval at the Company's special meeting of shareholders to be held on May 22,
1998. Such classification will make it more difficult to change the members of
the Board of Directors or to effect a takeover of the Company.
SCIENTIFIC AND CLINICAL ADVISORY BOARD In order to provide the Company with
a wide range of scientific and clinical advice, the Company's Board of Directors
appointed Dr. Jay N. Cohn to become the Chairman for an Advisory Board of
cardiovascular experts. The following physicians are members of the Advisory
Board:
- Jay N. Cohn, M.D.--Advisory Board Chairman; Professor of Medicine,
Cardiovascular Division, University of Minnesota Medical School,
Minneapolis, Minnesota.
- Thomas D. Giles, M.D.--Director of Program in Hypertension and Heart
Failure, Director of Cardiovascular Research, Professor of Medicine,
Department of Medicine, Louisiana State University Medical School, New
Orleans, Louisiana.
- Stevo Julius, M.D., Sc.D.--Professor of Medicine and Physiology, Frederick
G.L. Huetwell Professor of Hypertension, University of Michigan Medical
Center, Ann Arbor, Michigan.
- Lawrence M. Resnick, M.D.--Professor of Medicine, Director of
Hypertension, Wayne State University School of Medicine, Southfield,
Michigan.
- Marc A. Silver, M.D.--Professor of Medicine, Director, Loyola University
Heart Failure Center, Loyola University Medical Center, Maywood, Illinois.
- Michael A. Weber, M.D.--Chairman, Department of Medicine, Brookdale
Hospital Medical Center, Professor of Medicine, State University of New
York, Brooklyn, New York; President of the American Society of
Hypertension.
The Company intends to loan each member of the Advisory Board a Model
CR-2000 for use in their clinical research and for publication of their research
results in clinical papers and trade journals.
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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information with respect to annual
compensation paid for the years indicated to the Company's chief executive
officer. No executive officer of the Company received salary and bonus in excess
of $100,000 during the last three completed fiscal years.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
FISCAL YEAR -------------------
ENDED ---------------------- SECURITIES
NAME AND PRINCIPAL POSITION JUNE 30 SALARY BONUS UNDERLYING OPTIONS
- -------------------------------------------------------------- ------------- --------- ----------- -------------------
<S> <C> <C> <C> <C>
Melville R. Bois(1)........................................... 1997 $ 48,000 -- --
Chief Executive Officer 1996 24,000 -- 37,500
1995 -- -- --
</TABLE>
- ------------------------
(1) The Company currently has two employees that will have an annual
compensation in excess of $100,000. See "Management--Employment Agreements."
The following table summarizes the total number of options held by the named
executive officer as of the end of fiscal year 1997. No stock options were
exercised during fiscal year 1997.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
JUNE 30, 1997 JUNE 30, 1997(1)
-------------------------- --------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Melville R. Bois.......................................... 22,500 15,000 $ 22,500 $ 15,000
</TABLE>
- ------------------------
(1) Assumes a market price for the Shares equal to the Fall 1997 private
placement price of $3.00 per Share less the exercise price thereof.
EMPLOYMENT AGREEMENTS
As of September 8, 1997, the Company entered into an employment agreement
with Greg H. Guettler to serve as its President. The employment agreement has a
term of one year, but provides for automatic extension for an additional year
unless either party gives written notice of the nonextension by a specified
date. Pursuant to the employment agreement, Mr. Guettler is paid a minimum
annual salary (exclusive of benefits, bonuses or incentive payments) of
$126,000, subject to adjustment annually by the Board of Directors. In addition,
the employment agreement provides for the one-time grant of options to purchase
150,000 Shares at an exercise price of $2.00 per Share. If Mr. Guettler is
terminated without cause (as defined), he will be entitled to one year's
severance payment based on his base salary. The employment agreement is
terminable by the Company with 60 days written notice. Under the terms of the
employment agreement, Mr. Guettler will be entitled to accelerated vesting of
his stock options and one year's compensation in the event that there is a
"change in control," as defined. The employment agreement contains certain
confidentiality obligations and a one-year covenant not to compete.
On October 30, 1995, the Company entered into a five-year employment
agreement with Charles F. Chesney to serve as its President and Chief Executive
Officer until the Company appointed another President and Chief Executive
Officer, at which time Dr. Chesney became the Executive Vice President
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<PAGE>
and Chief Technology Officer (which occurred on January 1, 1996). Pursuant to
the employment agreement, Dr. Chesney is paid a minimum annual salary (exclusive
of benefits, bonuses or incentive payments) of $100,800, subject to annual
adjustments to reflect increases in the cost of living. Dr. Chesney's base
annual salary, plus benefits, bonuses and incentive payments, must be equal to,
or greater than, 80% of that paid to the Company's President and/or Chief
Executive Officer. Dr. Chesney also was granted a stock option to purchase
288,046 Shares at an exercise price of $1.70 per Share and is entitled to
certain registration rights with respect to the Shares underlying such options.
In addition, on August 18, 1997, the Company granted Dr. Chesney a stock option
under the 1995 Option Plan to purchase 75,000 Shares at an exercise price of
$2.00 per Share. The employment agreement is terminable by Dr. Chesney for any
reason, upon sixty (60) days written notice. Dr. Chesney may be terminated by
the Company only for "reasonable cause," as defined. The employment agreement
contains certain confidentiality obligations.
On July 1, 1997, the Company entered into a two-year employment agreement
with James S. Murphy to serve as Vice President of Finance and Chief Financial
Officer. The employment agreement provides for an annual base salary of $76,800,
subject to adjustments, if any, to increase the annual base salary by the Board
of Directors following an annual review in June 1998. In addition, the
employment agreement provides for a one-time grant of options to purchase 53,100
Shares, vesting monthly over a four-year period commencing July 1, 1997, at an
exercise price of $2.00 per Share. The employment agreement is terminable by the
Company if it determines, in good faith, that Mr. Murphy is not meeting
performance expectations, standards or objectives, either (a) upon 30 days
written notice, or (b) immediately by delivering one month's pay with the
termination notice. The employment agreement is terminable by Mr. Murphy upon 30
days written notice. The employment agreement contains certain nondisclosure and
confidentiality obligations.
OUTSIDE DIRECTOR COMPENSATION
Members of the Board of Directors receive no cash compensation for such
service. However, the Company has granted to each of the Company's outside
directors an option to purchase 25,000 Shares at an exercise price of $2.00 per
Share.
On October 30, 1995, the Company entered into a four-year consulting
agreement with Jay N. Cohn, M.D., a member of the Board of Directors. Dr. Cohn
is also one of the founders of the Company and serves as the Company's Chief
Clinical Consultant and Chairman of the Scientific and Clinical Advisory Board.
The agreement is cancellable for any reason by either the Company or Dr. Cohn
upon 60 days prior notice. Under the terms of the agreement, the Company agreed
to grant Dr. Cohn nonqualified stock options to purchase 449,265 Shares which
are exercisable for a period of ten years, at an exercise price of $1.70 per
Share, to serve as clinical liaison and spokesman for the Company's arterial
compliance technology and to use his best efforts to forward the research,
clinical penetration and marketing of the Company's products. All of the Shares
underlying these options have been fully vested. Dr. Cohn is entitled to certain
registration rights with respect to the Shares underlying these options.
On January 1, 1996, the Company entered into a consulting agreement with
Melville R. Bois, currently the Chairman of the Board of Directors, to serve as
the Company's President and Chief Executive Officer on a part-time basis until
such time as the Company appointed another President and/or Chief Executive
Officer. Under the terms of the agreement, the Company agreed to pay Mr. Bois a
monthly consulting fee of $4,000 and grant Mr. Bois nonqualified stock options
to purchase 12,500 Shares which are exercisable for a period of ten years, at an
exercise price of $2.00 per Share. All of the Shares underlying such options
have been fully vested. The agreement was terminated by the Company in
accordance with its terms, upon the hiring of Greg H. Guettler as President in
September 1997. On July 1, 1997, the Company granted Mr. Bois a stock option to
purchase 12,500 Shares at an exercise price of $2.00 per Share. All of the
Shares underlying such options have been fully vested. Mr. Bois is entitled to
certain registration rights with respect to the Shares underlying his options.
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<PAGE>
1995 LONG-TERM INCENTIVE AND STOCK OPTION PLAN
The Company adopted the 1995 Option Plan, with the approval of the Board of
Directors and the shareholders of the Company. The 1995 Option Plan permits the
granting of awards to employees of the Company, in the form of Stock
Appreciation Rights, Restricted Stock, Stock Awards and Stock Options. Stock
Options granted under the 1995 Option Plan may be "incentive stock options,"
meeting the requirements of Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code"), or nonqualified options which do not meet the requirements
of Section 422. A total of 400,000 Shares are presently reserved for issuance
pursuant to awards granted under the 1995 Option Plan. As of the date of this
Prospectus, there were 311,500 Shares subject to outstanding stock options
issued under the 1995 Option Plan.
The 1995 Option Plan is administered by the Compensation Committee of the
Board of Directors. The 1995 Option Plan gives broad powers to the Committee to
administer and interpret the plan, including the authority to select the
individuals to be granted options and rights, and to prescribe the particular
form and conditions of each option or right granted.
As of the date of this Prospectus, the Company has also granted a total of
1,045,275 options to purchase Shares outside the 1995 Option Plan. All of the
above options have an exercise price equal to at least 85% of the fair market
value of the Shares as of the date of grant. See "Description of Securities--
Stock Options and Warrants."
1998 STOCK OPTION PLAN
On May 1, 1998, the Board of Directors approved the 1998 Stock Option Plan
(the "1998 Option Plan"), under which stock options may be granted to employees,
consultants and independent directors of the Company. The purpose of the 1998
Option Plan is to attract and retain high-quality individuals; to provide an
increased incentive to achieve the long-term goals of the Company; and to
closely associate the interests of participants with those of other shareholders
through compensation that is based on the Company's Common Stock.
The 1998 Option Plan will be administered by either the full Board of
Directors or a committee of two or more nonemployee directors (the "Committee"),
either of which has broad authority to administer the 1998 Option Plan, select
who will receive stock options, determine the terms and provisions of the stock
option and handle interpretive issues.
Stock options may be either qualified or nonqualified for income tax
purposes. Up to a maximum of 750,000 Shares may be issued under the 1998 Option
Plan. The maximum limit is subject to adjustment in the event of stock splits,
recapitalization or other similar changes affecting the Shares. If an
outstanding option expires, is canceled or is otherwise terminated or forfeited
without being exercised, either in whole or in part, the unexercised Shares may
again be made available for issuance under the 1998 Option Plan.
The exercise price of each incentive option may not be less than 100% of the
fair market value of the Shares on the date of grant. The exercise period may be
determined by the Board or the Committee. However, an incentive stock option may
not be exercisable after the expiration of ten (10) years from the date of
grant. If the recipient owns more than 10% of the total combined voting power of
all classes of stock of the Company, then the incentive stock option may not be
exercisable after the expiration of five (5) years from the date of grant and
the exercise price may not be less than 110% of the fair market value of the
Shares on the date of grant.
The 1998 Option Plan may be amended or terminated by the Board or the
Committee at any time, but no amendment may increase the maximum number of
Shares to be issued under the 1998 Option Plan or extend the term of the 1998
Option Plan unless shareholders approve the change. In addition, no amendment or
termination may, without the consent of the affected person, adversely affect
any outstanding option.
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<PAGE>
The 1998 Option Plan will be effective upon the receipt of shareholder
approval at the Company's special meeting on May 22, 1998.
No options have been granted under the 1998 Option Plan as of the date of
this Prospectus.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Minnesota Business Corporation Act provides that officers and directors
of the Company have the right to indemnification by the Company for liability
arising out of certain actions. Such indemnification may be available for
liabilities arising in connection with the Offering. Insofar as indemnification
for liabilities arising under the Securities Act may be permitted to directors,
officers or persons controlling the Company, pursuant to such indemnification
provisions, the Company has been advised that, in the opinion of the Securities
and Exchange Commission, such indemnification is against public policy, as
expressed in the Securities Act and is, therefore, unenforceable.
The Company has adopted, in its Articles of Incorporation, a provision which
limits personal liability for breach of the fiduciary duty of its directors, to
the extent provided by Section 302A of the Minnesota Business Corporation Act.
Such provision eliminates the personal liability of directors for damages
occasioned by breach of fiduciary duty, except for liability based on the
director's duty of loyalty to the Company, liability for acts or omissions not
made in good faith, liability for acts or omissions involving intentional
misconduct, liability based on payment of improper dividends, liability based on
violations of state securities laws and liability for acts occurring prior to
the date such provision was added.
CERTAIN TRANSACTIONS
On October 30, 1995, the Company entered into a four-year consulting
agreement with Stanley M. Finkelstein, Ph.D., one of the founders of the Company
and currently the Company's Chief Technical Consultant. The agreement is
cancellable for any reason by either the Company or Dr. Finkelstein upon 60 days
prior notice. Under the terms of the agreement, the Company agreed to grant Dr.
Finkelstein nonqualified stock options to purchase 297,688 Shares, which are
exercisable for a period of ten years, at an exercise price of $1.70 per Share,
to serve as technical liaison and spokesman for the Company's arterial
compliance technology and to use his best efforts to forward the research,
clinical penetration and marketing of the Company's products. All of the Shares
underlying these options have been fully vested. Dr. Finkelstein is entitled to
certain registration rights with respect to the Shares underlying these options.
Any future transactions between the Company and any of its officers,
directors or affiliates will be on terms no less favorable to the Company than
could be obtained from unaffiliated third parties. All future material
affiliated transactions must be approved by a majority of the independent
outside members of the Company's Board of Directors who do not have an interest
in the transactions.
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PRINCIPAL SHAREHOLDERS
The following table sets forth, as of the date of this Prospectus, certain
information regarding beneficial ownership of the Company's Shares, as adjusted
to give effect to the issuance of the Units offered hereby, by (i) each person
known by the Company to be the beneficial owner of 5% or more of the outstanding
Shares; (ii) each director and executive officer of the Company; and (iii) all
directors and executive officers of the Company as a group. The percentage of
Shares outstanding before and after the Offering is calculated separately for
each person and assumes, for purposes of the calculation, the issuance of Shares
issuable upon exercise or conversion of fully vested options of securities that
are exchangeable for or convertible into Shares held by such person within 60
days from the date of this Prospectus. Unless otherwise indicated, each of the
following persons has sole voting and investment power with respect to the
Shares set forth opposite their respective names.
<TABLE>
<CAPTION>
PERCENTAGE OF
SHARES OUTSTANDING
NUMBER OF SHARES --------------------------
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING(2)
- ------------------------------------------------------------------------ ----------------- ----------- -------------
<S> <C> <C> <C>
Greg H. Guettler(3)..................................................... 24,000 * % * %
Charles F. Chesney, D.V.M., Ph.D., R.A.C.(4)............................ 296,046 8.4 4.9
James S. Murphy(5)...................................................... 87,387 2.5 1.5
Jay N. Cohn, M.D.(6).................................................... 466,385 13.3 7.8
Melville R. Bois(7)..................................................... 65,000 1.9 1.1
Kenneth W. Brimmer(8)................................................... 50,000 1.4 *
Stanley M. Finkelstein, Ph.D.(9)........................................ 312,071 8.9 5.2
All Officers and Directors as a Group (6 persons)....................... 988,818 28.2 16.4
</TABLE>
- ------------------------
* Less than 1%.
(1) The address for the directors is: 2915 Waters Road, Suite 108, Eagan,
Minnesota 55121. Dr. Finkelstein's address is: Health Informatics
Division--Box 609 UMHC, 420 Delaware St. S.E., Minneapolis, Minnesota 55455.
(2) Assumes no exercise of the Underwriter's Over-allotment Option.
(3) Includes options to purchase 12,000 Shares.
(4) Includes options to purchase 240,046 Shares.
(5) Includes options to purchase 37,387 Shares.
(6) Includes options to purchase 392,211 Shares.
(7) Includes options to purchase 40,000 Shares.
(8) Includes options to purchase 15,000 Shares.
(9) Includes options to purchase 257,688 Shares.
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<PAGE>
DESCRIPTION OF SECURITIES
The Company is presently authorized to issue up to 25,000,000 Shares and
5,000,000 shares of Preferred Stock. As of the date of this Prospectus, there
were 2,517,735 Shares outstanding. No shares of Preferred Stock were issued or
outstanding.
COMMON STOCK
Holders of Shares are entitled to receive such dividends as are declared by
the Board of Directors of the Company, out of funds legally available for the
payment of dividends. The Company expects to retain any earnings to finance the
development of its business. Accordingly, the Company does not anticipate
payment of any dividends on its Shares for the foreseeable future. In the event
of any liquidation, dissolution or winding-up of the Company, the holders of
Shares will be entitled to receive a pro rata share of the net assets of the
Company remaining after payment, or provision for payment, of the debts and
other liabilities of the Company, if any.
Holders of Shares are entitled to one vote per Share on all matters to be
voted upon by shareholders. There is no cumulative voting for the election of
directors, which means that the holders of Shares entitled to exercise more than
50% of the voting rights in an election of directors are able to elect all of
the directors. Holders of Shares have no preemptive rights to subscribe for or
to purchase any additional Shares, or other obligations convertible into Shares,
which may, hereafter, be issued by the Company.
All of the outstanding Shares are, and the Share component of the Units sold
pursuant to the Offering will be, fully paid and non-assessable. Holders of
Shares of the Company are not liable for further calls or assessments.
CLASS A WARRANTS
The Class A Warrants included as part of the Units being offered hereby will
be issued under and governed by the provisions of a Warrant Agreement (the
"Warrant Agreement") between the Company and Firstar Trust Company as Warrant
Agent (the "Warrant Agent"). The following summary of the Warrant Agreement is
not complete, and is qualified in its entirety by reference to the Warrant
Agreement, a copy of which has been filed as an exhibit to the Registration
Statement of which this Prospectus is a part.
Commencing 10 trading days after the Effective Date, the Shares and the
Class A Warrants offered as part of the Units will be detachable and separately
transferable. One Class A Warrant entitles the holder ("Warrantholder") thereof
to purchase one Share during the four years following the Effective Date,
subject to earlier redemption, provided that at such time a current prospectus
relating to the Shares issuable upon exercise of the Class A Warrants is
effective and the issuance of such Shares is qualified for sale or exempt from
qualification under applicable state securities laws. Each Class A Warrant will
be exercisable at an exercise price of $5.50 per Share, subject to adjustment in
certain events.
The Class A Warrants are subject to redemption by the Company for $.01 per
Warrant at any time commencing 90 days after the Effective Date, provided that
the closing bid price of the Shares exceeds $6.50 (subject to adjustment) for 14
consecutive trading days. Written notice must precede redemption by 30 days and
must be sent within 10 business days of the 14 consecutive trading day period.
In addition, a current prospectus covering the Shares issuable upon the exercise
of the Class A Warrants must then be effective under the Securities Act. For
purposes of the redemption, the closing bid price of the Shares if quoted on
Nasdaq and, if the Shares are listed on a national securities exchange, shall be
determined by the last reported sale price on the primary exchange on which the
Shares are traded. Holders of Class A Warrants will automatically forfeit all
rights thereunder except the right to receive the $.01 redemption price per
Warrant unless the Class A Warrants are exercised before they are redeemed.
The Warrantholders are not entitled to vote, receive dividends or exercise
any of the rights of holders of Shares for any purpose. The Class A Warrants are
in registered form and may be presented for transfer,
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<PAGE>
exchange or exercise at the office of the Warrant Agent. Although the Company
has applied for listing of the Class A Warrants on the Nasdaq SmallCap Market,
there is currently no established market for the Class A Warrants, and there is
no assurance that any such market will develop.
The Warrant Agreement provides for adjustment of the exercise price and the
number of Shares purchasable upon exercise of the Class A Warrants to protect
Warrantholders against dilution in certain events, including stock dividends,
stock splits, reclassification, and any combination of Shares, or the merger,
consolidation, and any combination of Shares, or the merger, consolidation, or
disposition of substantially all the assets of the Company.
The Class A Warrants may be exercised upon surrender of the certificate
therefor on or prior to the expiration date (or earlier redemption date) at the
offices of the Warrant Agent, with the form of "Election to Purchase" on the
reverse side of the certificate properly completed and executed as indicated,
accompanied by payment of the full exercise price (by certified or cashier's
check payable to the order of the Company) for the number of Class A Warrants
being exercised.
PREFERRED STOCK
The Company is authorized to issue up to 5,000,000 shares of undesignated
Preferred Stock. The unissued shares of Preferred Stock are subject to
designation into one or more classes or series by the Board of Directors. The
Board of Directors has the authority, without further shareholder action, to
issue, from time to time, all or any part of the undesignated shares of
Preferred Stock. Undesignated shares of Preferred Stock are issuable in one or
more classes or series, and the Board of Directors is authorized to determine
the designation and number of shares, in each class or series, and to fix the
dividend, redemption, liquidation, retirement, conversion and voting rights, if
any, of each class or series, and any other rights and preferences thereof. Any
undesignated shares of Preferred Stock, which may be issued, may have
disproportionately high voting rights or class voting rights, may be convertible
into Shares, and may rank prior to the Shares as to payment of dividends and to
the distribution of assets upon liquidation or dissolution.
The consent of the holders of the Shares is not required for any such
issuance of the undesignated shares of Preferred Stock. The existence of the
undesignated shares may have the effect of discouraging an attempt, through
acquisition of a substantial number of Shares to acquire control of the Company,
with a view to effecting a merger, sale or exchange of assets or similar
transaction. The Board of Directors, without shareholder's approval, can issue
shares of classes of Preferred Stock with voting conversion rights, which could
adversely effect the voting power of the Shares.
STOCK OPTIONS AND WARRANTS
As compensation for services performed by a licensed broker-dealer for
soliciting sales of Shares in a previous private placement terminating in 1996,
the Company issued warrants for the purchase of 132,900 Shares at an exercise
price of $2.00 per Share. All such warrants are currently exercisable and expire
on October 30, 2000. The warrants contain customary anti-dilution provisions and
certain participatory and demand registration rights and are non-transferable
except in accordance with applicable securities laws and regulations. The
warrants also include "cashless" exercise provisions entitling the holder to
convert the warrants into Shares.
As compensation for services previously performed by the Underwriter for
soliciting sales of Shares in a private placement completed in March 1998, the
Company issued warrants for the purchase of 50,000 shares, at an exercise price
of $3.00 per Share. All such warrants are exercisable commencing in February and
March 1999 and expire in February and March 2004. The warrants contain customary
anti-dilution provisions and certain participatory and demand registration
rights and are non-transferable except in accordance with applicable securities
laws and regulations. The warrants also include "cashless" exercise provisions
entitling the holder to convert the warrants into Shares. See "Underwriting."
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<PAGE>
The Company has reserved 400,000 Shares for issuance pursuant to its 1995
Option Plan and has granted options for the purchase of 317,500 Shares, at
exercise prices ranging from $2.00 to $3.00 per Share, under the 1995 Option
Plan, of which 6,000 have been exercised after March 31, 1998. See
"Management--Stock Option Plan."
The Company has also granted a total of 1,094,999 options to purchase Shares
outside the 1995 Option Plan, of which 49,724 have been exercised after March
31, 1998. These options have exercise prices ranging from $1.70 to $2.00.
The Company has also granted a total of 75,000 options to purchase Shares to
outside directors of the Company, at an exercise price of $2.00 per Share.
The Company's Board of Directors has adopted and has submitted for the
approval of the Company's shareholders at a Special Meeting of the Company's
Shareholders to be held on May 22, 1998, the Company's 1998 Option Plan. Subject
to shareholder approval of the 1998 Option Plan, the Company will reserve a
total of 750,000 Shares for issuance under the 1998 Option Plan.
The Company has agreed to sell to the Underwriter in connection with the
Offering, for nominal consideration, a warrant to purchase 250,000 Units,
exercisable for a period of four years commencing one year from the date of this
Prospectus, at an exercise price of $4.95 per Unit. See "Underwriting."
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and 302A.673
of the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless the control share acquisition is approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, cause the acquiring
person to have voting power in the election of directors to exceed any one of
the following thresholds of ownership: 20%, 33 1/3% or 50%. In general, Section
302A.673 prohibits a publicly-held Minnesota corporation from engaging in a
"business combination" with an "interested shareholder" for a period of four
years after the date of transaction in which the person became an interested
shareholder, unless the business combination is approved in a prescribed manner.
"Business combination" includes mergers, asset sales and other transactions
resulting in a financial benefit to the interested shareholder. An "interested
shareholder" is a person who is the beneficial owner, directly or indirectly, of
10% or more of the corporation's voting stock or who is an affiliate or
associate of the corporation and at any time within four years prior to the date
in question was the beneficial owner, directly or indirectly, of 10% or more of
the corporation's voting stock.
TRANSFER AGENT AND REGISTRAR
The Company's transfer agent and registrar is Firstar Trust Company,
Milwaukee, Wisconsin.
SHARES AVAILABLE FOR FUTURE SALE
Upon completion of the Offering, the Company will have outstanding 5,017,735
Shares (or 5,385,735 Shares if the Underwriter's Over-allotment Option is
exercised in full). Of these Shares, the Units (and their components) purchased
in the Offering will be freely tradable without registration or other
restriction under the Securities Act.
Of the 2,517,735 Shares currently outstanding, none have been registered
under the Securities Act, all are "restricted securities" under Rule 144 of the
Securities Act (the "Restricted Shares") and may not be sold in the absence of a
registration under the Securities Act unless an exemption from registration is
52
<PAGE>
available, including an exemption contained in Rule 144. All such Restricted
Shares will become eligible for sale, assuming all of the other requirements of
Rule 144 have been satisfied, as follows:
In general, under Rule 144 as currently in effect, a holder of Restricted
Shares who has beneficially owned such shares for at least one year (including
the holding period of any prior owner other than an affiliate of the Company) is
entitled to sell within any three-month period a number of Shares that does not
exceed the greater of (i) 1% of the then outstanding Shares (approximately
50,177 Shares immediately after the Offering); or (ii) the average weekly
trading volume of the Shares in the public market during the four calendar weeks
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales under Rule 144 are also subject to certain manner of
sale provisions, notice requirements and the availability of current public
information about the Company. A person who is not an affiliate of the Company
at any time during the 90 days preceding a sale and who beneficially owns shares
that were not acquired from the Company or an affiliate of the Company within
the past two years is entitled to sell such shares under Rule 144(k) without
regard to volume limitations, manner of sale provisions, notice requirements or
the availability of current public information concerning the Company.
In general, under Rule 701 as currently in effect, any employee, consultant
or advisor of the Company who purchases Shares from the Company by exercising a
stock option outstanding on the date of the Offering is eligible to resell such
Shares 90 days after the date of the Prospectus in reliance on Rule 144, but
need not comply with certain restrictions contained in Rule 144, including the
holding period requirement. The Company plans to file a Registration Statement,
no sooner than 180 days after the Effective Date, on Form S-8 (the "S-8
Registration Statement") to register all Shares subject to outstanding stock
options. Shares issued upon exercise of options may be freely tradeable once the
S-8 Registration Statement becomes effective.
Following the Offering, the Company cannot predict the effect, if any, that
sales of the Shares or the availability of such Shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales by existing
shareholders of substantial amounts of Shares could adversely affect prevailing
market prices for the Units, the Shares or Class A Warrants if and when a public
market exists.
Of the 2,517,735 Shares presently outstanding, 306,557 Shares are held by
officers, directors or 5% shareholders, of which 100% are subject to Lock Up
Agreements for 180 days after the Effective Date. Of the remaining 2,211,178
Shares, an additional 825,500 Shares are subject to Lock Up Agreements; however,
the Underwriter has requested and the Company has agreed to use its best efforts
to attempt to obtain Lock Up Agreements on the remaining 1,385,678 Shares. There
is no assurance that the Company will be able to obtain Lock Up Agreements on
all of these Shares. Of the remaining 1,385,678 Shares, all such Shares will be
eligible for resale in the open market immediately under Rule 144(k).
UNDERWRITING
Subject to the terms and conditions set forth in an underwriting agreement
(the "Underwriting Agreement") between the Company and R. J. Steichen & Company
(the "Underwriter"), the Company has agreed to sell to the Underwriter, and the
Underwriter has agreed to purchase from the Company the 2,500,000 Units offered
hereby.
The Underwriting Agreement provides that the obligations of the Underwriter
are subject to approval of certain legal matters by counsel and to various other
conditions precedent. The nature of the Underwriter's obligations are such that
it is committed to purchase all Units offered hereby if any of the Units are
purchased.
The Underwriter proposes to offer the Units directly to the public at the
Price to Public set forth on the cover page of this Prospectus and to certain
securities dealers who are members of the National Association of Securities
Dealers, Inc., at such price less usual and customary concessions. The Company
has agreed to pay the Underwriter a nonaccountable expense allowance equal to
2.5% of the aggregate
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<PAGE>
Price to Public of the Units sold, including any Units sold pursuant to the
Underwriter's Over-allotment Option. After the initial public offering of the
Units, the initial offering price and other selling terms may be changed by the
Underwriter. The Underwriter has advised the Company that it does not intend to
confirm sales of Units to any accounts over which it exercises discretionary
authority.
The Company has granted to the Underwriter an Over-allotment Option,
exercisable not later than 45 days after the date of this Prospectus, and
subject to the terms and conditions set forth in the Underwriting Agreement, to
purchase up to 375,000 additional Units at the Price to Public, less the
Underwriting Discount and nonaccountable expense allowance. The Underwriter may
exercise such option only to cover over-allotments made in connection with the
sale of the Units offered hereby.
The Company has agreed to sell to the Underwriter, for nominal
consideration, a warrant (the "Warrant") to purchase up to 250,000 Units (the
"Underwriter's Warrant"). The Underwriter's Warrant is not exercisable during
the first year after the date of this Prospectus and thereafter is exercisable
at a price per Unit equal to $4.95 for a period of four years. The Warrant
contains customary anti-dilution provisions and certain participatory and demand
registrations. The Underwriter's Warrant also includes "cashless" exercise
provisions entitling the holder to convert the Warrant into Shares.
The Underwriting Agreement provides for reciprocal indemnification between
the Company, the Underwriter and their officers, directors and controlling
persons against civil liabilities in connection with the Offering, including
certain liabilities under the Securities Act. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted pursuant to such
indemnification provisions, the Company has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore unenforceable.
In order to facilitate the Offering, the Underwriter may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Units. Specificially, the Underwriter may over-allot the Units in connection
with the Offering, creating a short position in the Units for its own account.
In addition, to cover over-allotments or to stabilize the price of the Units,
the Underwriter may bid for, and purchase, Units in the open market. The
Underwriter may also reclaim selling concessions allowed to a dealer for
distributing Units in the Offering, if the Underwriter repurchases previously
distributed Units in transactions to cover its short positions, in stabilization
transactions or otherwise. Finally, the Underwriter may bid for, and purchase,
Units in market making transactions and impose penalty bids. These activities
may stabilize or maintain the market price of the Units above the market level
that may otherwise prevail. The Underwriter is not required to engage in these
activities and may end any of these activities at any time.
In general, purchases of a security for the purpose of stabilization or to
reduce a short position could cause the price of the security to be higher than
it might be in the absence of such purchases. Neither the Company nor the
Underwriter makes any representation or prediction as to the direction and
magnitude of any effect that the transactions described above might have on the
price of the Units. In addition, neither the Company nor the Underwriter makes
any representations that the Underwriter will engage in such transactions or
that such transactions, once commenced, will not be discontinued without notice.
Of the 2,517,735 Shares presently outstanding, 306,557 Shares are held by
officers, directors or 5% shareholders, of which 100% are subject to Lock Up
Agreements for 180 days after the Effective Date. Of the remaining 2,211,178
Shares, an additional 825,500 Shares are subject to Lock Up Agreements; however,
the Underwriter has requested and the Company has agreed to use its best efforts
to attempt to obtain Lock Up Agreements on the remaining 1,385,678 Shares. There
is no assurance that the Company will be able to obtain Lock Up Agreements on
all of these Shares. Of the remaining 1,385,678 Shares, all such Shares will be
eligible for resale in the open market immediately under Rule 144(k).
From December 1997 to March 1998, the Company sold an aggregate of 500,000
Shares in a private placement in which the Underwriter acted as selling agent.
The Underwriter received an agent's commission of $150,000 and a nonaccountable
expense allowance of $45,000. The Company also sold to the
54
<PAGE>
Underwriter, for nominal consideration, a five-year warrant to purchase up to
50,000 Shares, at an exercise price of $3.00 per Share, and granted the
Underwriter a three-year right of first refusal to participate as the sole lead
or managing underwriter in an initial public offering of the Company's
securities pursuant to the Securities Act and as the exclusive agent in any
private placement of the Company's securities.
Prior to the Offering, there has been no public market for the securities of
the Company. The Price to Public and the Warrant exercise price were determined
through negotiation between the Company and the Underwriter and bear no relation
to the Company's current earnings, book value, net worth or financial statement
criteria of value. There can be no assurance that transactions in the Company's
securities in the public market after the Offering will be higher or lower than
the initial Price to Public.
The foregoing is a summary of the material provisions of the Underwriting
Agreement and the Underwriter's Warrant. Copies of such documents have been
filed as exhibits to the Registration Statement of which this Prospectus is a
part.
LEGAL MATTERS
The validity of the securities offered hereby will be passed upon for the
Company by Doherty, Rumble & Butler Professional Association, Minneapolis,
Minnesota. Certain legal matters in connection with the Offering will be passed
upon for the Underwriter by Maun & Simon, PLC, Minneapolis, Minnesota.
EXPERTS
The financial statements of the Company as of June 30, 1996 and 1997 and for
the years then ended and the period from July 19, 1988 (inception) to June 30,
1997, appearing in this Prospectus and Registration Statement, have been audited
by Ernst & Young LLP, independent auditors, as set forth in their report thereon
(which contains an explanatory paragraph describing conditions that raise
substantial doubt about the Company's ability to continue as a going concern as
described in Note 2 to the financial statements) appearing elsewhere herein, and
are included in reliance upon such report given upon the authority of such firm
as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission a
Registration Statement on Form SB-2 under the Securities Act with respect to the
Units offered hereby. This Prospectus filed as a part of the Registration
Statement does not contain all of the information set forth in the Registration
Statement and the exhibits thereto. For further information with respect to the
Company and the securities offered hereby, reference is made to the Registration
Statement, including the exhibits, copies of which may be obtained at prescribed
rates from the Securities and Exchange Commission at its principal office at 450
Fifth Street N.W., Washington, D.C. 20549, and at the following regional offices
of the Commission: 75 Park Place, New York, New York 10007, and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60604. In
addition, the Securities and Exchange Commission maintains a world wide web site
on the Internet at http://www.sec.gov that contains reports, proxy, information
statements and other documents filed electronically with the Securities and
Exchange Commission, including the Registration Statement. Descriptions
contained in this Prospectus as to the contents of any agreement or other
documents filed as an exhibit to the Registration Statement are not necessarily
complete and each such description is qualified by reference to such agreement
or document.
The Company currently is not a reporting company under the Exchange Act.
After completion of the Offering, the Company intends to make available to its
securityholders annual reports containing financial statements audited by its
independent accountants and quarterly reports for the first three quarters of
each fiscal year containing unaudited financial information.
55
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1997 AND PERIOD FROM
JULY 19, 1988 (INCEPTION) TO JUNE 30, 1997 AND NINE MONTH
PERIODS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
AND PERIOD FROM JULY 19, 1988 (INCEPTION) TO
MARCH 31, 1998 (UNAUDITED)
CONTENTS
<TABLE>
<S> <C>
Report of Independent Auditors............................................ F-2
Financial Statements
Balance Sheets............................................................ F-3
Statements of Operations.................................................. F-4
Statement of Shareholders' Equity......................................... F-5
Statements of Cash Flows.................................................. F-7
Notes to Financial Statements............................................. F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Hypertension Diagnostics, Inc.
We have audited the balance sheets of Hypertension Diagnostics, Inc. (a
development stage company) as of June 30, 1996 and 1997, and the related
statements of operations, shareholders' equity and cash flows for the years then
ended and the period from July 19, 1988 (inception) to June 30, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Hypertension Diagnostics,
Inc. at June 30, 1996 and 1997, and the results of its operations and its cash
flows for the years then ended and the period from July 19, 1988 (inception) to
June 30, 1997, in conformity with generally accepted accounting principles.
As discussed in Note 2 to the financial statements, the Company's deficit
accumulated during the development stage raises substantial doubt about its
ability to continue as a going concern. The Company intends to obtain additional
capital financing to permit it to continue its operations. The financial
statements do not include any adjustments that might result from this
uncertainty.
ERNST & YOUNG LLP
Minneapolis, Minnesota
October 3, 1997
F-2
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
JUNE 30
---------------------------- MARCH 31,
1996 1997 1998
------------- ------------- -------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 1,980,292 $ 1,198,778 $ 1,569,245
Interest receivable................................................ 6,606 5,375 5,075
Prepaid expenses................................................... -- -- 31,287
------------- ------------- -------------
Total current assets................................................. 1,986,898 1,204,153 1,605,607
Property and equipment:
Leasehold improvements............................................. -- -- 9,003
Furniture and equipment............................................ 18,527 20,300 98,784
Less accumulated depreciation...................................... (8,596) (15,730) (22,452)
------------- ------------- -------------
9,931 4,570 85,335
Patents, net of accumulated amortization of $4,562, $6,843 and $8,554
at June 30, 1996 and 1997 and March 31, 1998, respectively......... 6,843 4,562 2,851
Other assets......................................................... 630 420 36,902
------------- ------------- -------------
Total assets......................................................... $ 2,004,302 $ 1,213,705 $ 1,730,695
------------- ------------- -------------
------------- ------------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable..................................................... $ 23,540 $ 4,551 $ 44,730
------------- ------------- -------------
Total current liabilities............................................ 23,540 4,551 44,730
Shareholders' equity:
Preferred Stock, $.01 par value:
Authorized shares--5,000,000
Issued and outstanding shares--none.............................. -- -- --
Common Stock, $.01 par value:
Authorized shares--25,000,000
Issued and outstanding shares--1,962,011 at June 30, 1996 and
1997 and 2,462,011 at March 31, 1998........................... 19,620 19,620 24,620
Additional paid-in capital......................................... 3,223,256 3,323,620 4,628,901
Deficit accumulated during the development stage................... (1,262,114) (2,134,086) (2,967,556)
------------- ------------- -------------
Total shareholders' equity........................................... 1,980,762 1,209,154 1,685,965
------------- ------------- -------------
Total liabilities and shareholders' equity........................... $ 2,004,302 $ 1,213,705 $ 1,730,695
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
See accompanying notes
F-3
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 19, 1988 NINE MONTHS ENDED MARCH 31 PERIOD FROM
YEAR ENDED JUNE 30 (INCEPTION) JULY 19, 1988
-------------------------- TO JUNE 30, -------------------------- (INCEPTION) TO
1996 1997 1997 1997 1998 MARCH 31, 1998
------------ ------------ ------------- ------------ ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Operating expenses:
Research and
development........... $ 564,012 $ 526,352 $ 1,294,585 $ 483,062 $ 255,787 $ 1,550,372
General and
administrative........ 201,604 426,818 930,902 300,186 623,383 1,554,285
------------ ------------ ------------- ------------ ------------ --------------
Operating loss............ 765,616 953,170 2,225,487 783,248 879,170 3,104,657
Other income (expense):
Interest income......... 53,237 81,198 138,432 64,724 45,700 184,132
Interest expense........ (1,706) -- (47,031) -- -- (47,031)
------------ ------------ ------------- ------------ ------------ --------------
Net loss and deficit
accumulated during the
development stage....... $ (714,085) $ (871,972) $ (2,134,086) $ (718,524) $ (833,470) $ (2,967,556)
------------ ------------ ------------- ------------ ------------ --------------
------------ ------------ ------------- ------------ ------------ --------------
Basic and dilutive net
loss per share.......... $ (.57) $ (.44) $ (3.02) $ (.37) $ (.41) $ (3.65)
Weighted average shares
outstanding............. 1,248,634 1,962,011 707,404 1,962,011 2,050,407 813,843
</TABLE>
See accompanying notes.
F-4
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
--------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at July 19, 1988 (inception).................... -- $ -- $ -- $ -- $ --
Conversion of notes payable to Common Stock at $3.00
in August 1988 through June 1989.................... 75,167 752 224,748 -- 225,500
Sale of Common Stock at $.04 in September 1988 through
June 1989........................................... 342,853 3,428 10,286 -- 13,714
Net loss.............................................. -- -- -- (188,496) (188,496)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1989................................ 418,020 4,180 235,034 (188,496) 50,718
Sale of Common Stock at $.04 in July 1989............. 1,900 19 57 -- 76
Private placement of Common Stock at $3.00 in October
1989 through January 1990........................... 58,750 587 175,663 -- 176,250
Conversion of notes payable to Common Stock at $3.00
in July 1989 through April 1990..................... 13,000 130 38,870 -- 39,000
Redemption of Common Stock in August 1989............. (7,500) (75) (225) -- (300)
Net loss -- -- -- (195,716) (195,716)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1990................................ 484,170 4,841 449,399 (384,212) 70,028
Private placement of Common Stock at $3.00 in July
1990................................................ 1,667 17 4,984 -- 5,001
Net loss.............................................. -- -- -- (134,857) (134,857)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1991................................ 485,837 4,858 454,383 (519,069) (59,828)
Net loss.............................................. -- -- -- (3,076) (3,076)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1992................................ 485,837 4,858 454,383 (522,145) (62,904)
Net income............................................ -- -- -- 45,061 45,061
---------- --------- ------------ ------------- ------------
Balance at June 30, 1993 (carried forward).............. 485,837 4,858 454,383 (477,084) (17,843)
</TABLE>
See accompanying notes.
F-5
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF SHAREHOLDERS' EQUITY (CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
COMMON STOCK ADDITIONAL DURING THE
--------------------- PAID-IN DEVELOPMENT
SHARES AMOUNT CAPITAL STAGE TOTAL
---------- --------- ------------ ------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at June 30, 1993 (brought forward).............. 485,837 $ 4,858 $ 454,383 $ (477,084) $ (17,843)
Net loss.............................................. -- -- -- (17,743) (17,743)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1994................................ 485,837 4,858 454,383 (494,827) (35,586)
Net loss.............................................. -- -- -- (53,202) (53,202)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1995................................ 485,837 4,858 454,383 (548,029) (88,788)
Common Stock issued in connection with bridge
financing at $1.00 in August 1995, net of expenses
of $6,250........................................... 125,000 1,250 117,500 -- 118,750
Conversion of notes payable to Common Stock at
$1.00............................................... 2,174 22 2,152 -- 2,174
Private placement of Common Stock at $2.00 (October
1995 through May 1996), net of expenses of
$385,313............................................ 1,349,000 13,490 2,299,197 -- 2,312,687
Purchase of warrants.................................. -- -- 50 -- 50
Value of stock options granted in lieu of cash
compensation........................................ -- -- 349,974 -- 349,974
Net loss.............................................. -- -- -- (714,085) (714,085)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1996................................ 1,962,011 19,620 3,223,256 (1,262,114) 1,980,762
Value of stock options granted in lieu of cash
compensation........................................ -- -- 100,364 -- 100,364
Net loss.............................................. -- -- -- (871,972) (871,972)
---------- --------- ------------ ------------- ------------
Balance at June 30, 1997................................ 1,962,011 19,620 3,323,620 (2,134,086) 1,209,154
Private placement of Common Stock at $3.00 (December
1997 through March 1998), net of expenses of
$172,994............................................ 500,000 5,000 1,217,898 -- 1,222,898
Purchase of warrants.................................. -- -- 50 -- 50
Value of stock options granted in lieu of cash
compensation........................................ -- -- 87,333 -- 87,333
Net loss.............................................. -- -- -- (833,470) (833,470)
---------- --------- ------------ ------------- ------------
Balance at March 31, 1998 (unaudited)................... 2,462,011 $ 24,620 $ 4,628,901 $ (2,967,556) $ 1,685,965
---------- --------- ------------ ------------- ------------
---------- --------- ------------ ------------- ------------
</TABLE>
See accompanying notes.
F-6
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JULY 19,
1988 NINE MONTHS ENDED PERIOD FROM
YEAR ENDED JUNE 30 (INCEPTION) MARCH 31 JULY 19, 1988
-------------------- TO JUNE 30, -------------------- (INCEPTION) TO
1996 1997 1997 1997 1998 MARCH 31, 1998
--------- --------- ------------ --------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
OPERATING ACTIVITIES
Net loss........................... $(714,085) $(871,972) $(2,134,086) $(718,524) $(833,470) $ (2,967,556)
Adjustments to reconcile net loss
to net cash used in operating
activities:
Value of stock options granted in
lieu of cash compensation...... 349,974 100,364 450,338 75,273 87,333 537,671
Depreciation..................... 5,961 7,134 52,199 560 6,723 58,922
Amortization..................... 2,491 2,491 7,473 623 1,868 9,341
Write-off of property and
equipment...................... -- -- 42,702 -- -- 42,702
Change in operating assets and
liabilities:
Interest receivable............ (6,606) 1,231 (5,375) 918 300 (5,075)
Prepaid expenses............... -- -- -- -- (31,287) (31,287)
Other assets................... -- -- -- -- (36,640) (36,640)
Accounts payable............... 21,452 (18,989) 4,551 (23,540) 40,179 44,730
Accrued liabilities............ (66,351) -- 174 -- -- 174
--------- --------- ------------ --------- --------- --------------
Net cash used in operating
activities....................... (407,164) (779,741) (1,582,024) (664,690) (764,994) (2,347,018)
INVESTING ACTIVITIES
Purchase of property and
equipment........................ (1,226) (1,773) (99,471) (2,956) (87,487) (186,958)
Payment of patent costs............ -- -- (12,455) -- -- (12,455)
--------- --------- ------------ --------- --------- --------------
Net cash used in investing
activities....................... (1,226) (1,773) (111,926) (2,956) (87,487) (199,413)
FINANCING ACTIVITIES
Proceeds from notes payable........ -- -- 315,500 -- -- 315,500
Payments of notes payable.......... (49,000) -- (49,000) -- -- (49,000)
Issuance of common stock........... 2,431,487 -- 2,626,528 -- 1,222,948 3,849,476
Redemption of common stock......... -- -- (300) -- -- (300)
--------- --------- ------------ --------- --------- --------------
Net cash provided by financing
activities....................... 2,382,487 -- 2,892,728 -- 1,222,948 4,115,676
--------- --------- ------------ --------- --------- --------------
Net increase (decrease) in cash and
equivalents...................... 1,974,097 (781,514) 1,198,778 (667,646) 370,467 1,569,245
Cash and equivalents at beginning
of period........................ 6,195 1,980,292 -- 1,980,292 1,198,778 --
--------- --------- ------------ --------- --------- --------------
Cash and equivalents at end of
period........................... $1,980,292 $1,198,778 $1,198,778 $1,312,646 $1,569,245 $ 1,569,245
--------- --------- ------------ --------- --------- --------------
--------- --------- ------------ --------- --------- --------------
SUPPLEMENTAL SCHEDULE OF NONCASH
FINANCING ACTIVITIES
Conversion of note payable and
accrued interest into common
stock............................ $ 2,174 $ -- $ 266,674 $ -- $ -- $ 266,674
Cash paid for interest............. 12,526 -- 12,526 -- -- 12,526
</TABLE>
See accompanying notes.
F-7
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Hypertension Diagnostics, Inc. (the "Company") is a development stage
company formed on July 19, 1988 to develop, design and market a cardiovascular
profiling system.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less at the time of purchase to be cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Improvements are capitalized,
while repair and maintenance costs are charged to operations when incurred.
Depreciation is computed principally using the straight-line method. Estimated
useful lives for property and equipment are the term of the lease for leasehold
improvements and 3-7 years for furniture and equipment.
PATENTS
Costs incurred in obtaining patents and trademarks are capitalized as
incurred and amortized on a straight-line basis over 60 months. The Company
periodically reviews its patents and trademarks for impairment in value. Any
adjustment from the analysis is charged to operations.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company will record impairment losses on long-lived assets used in
operations when indicators of impairment are present and the undiscounted cash
flows estimated to be generated by those assets are less than the assets'
carrying amount.
RESEARCH AND DEVELOPMENT COSTS
All research and development costs are charged to expense as incurred.
INCOME TAXES
Income taxes are accounted for under the liability method. Deferred income
taxes are provided for temporary differences between the financial reporting and
tax bases of assets and liabilities.
F-8
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
INTERIM FINANCIAL INFORMATION
The accompanying financial statements as of March 31, 1998 and for the nine
month periods ended March 31, 1997 and 1998 and the period from July 19, 1988
(inception) to March 31, 1998 are unaudited. In the opinion of management of the
Company, these financial statements reflect all adjustments, consisting only of
normal and recurring adjustments necessary for a fair presentation of the
financial statements. The results of operations for the nine month period ended
March 31, 1998 are not necessarily indicative of the results that may be
expected for the full year ending June 30, 1998.
NET LOSS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement
No. 128, "Earnings per Share," requiring dual presentation of basic and diluted
earnings per share. Basic and diluted net loss per share are equal because the
effect of outstanding stock options and warrants is antidilutive. Statement No.
128 was adopted by the Company on December 31, 1997. All earnings per share
amounts have been presented, and where necessary, restated to conform to
Statement 128 requirements.
STOCK-BASED COMPENSATION
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation," but applies Accounting Principles Board Opinion No. 25 (APB 25)
and related interpretations in accounting for its plans. Under APB 25, when the
exercise price of employee stock options equals the market price of the
underlying stock on the date of grant, no compensation expense is recognized.
2. GOING CONCERN
As reflected in the accompanying financial statements, the Company has
accumulated a deficit during its development stage and to date has not generated
positive cash flows from operations. The Company may be unable to maintain
solvency unless it continues to obtain outside financing. The Company intends to
obtain additional financing through a public offering of Common Stock.
3. INCOME TAXES
At June 30, 1997, the Company had a net operating loss carryforward for tax
purposes of approximately $1,684,000. This carryforward is available to offset
future taxable income through 2012.
Components of deferred tax assets are as follows:
<TABLE>
<CAPTION>
JUNE 30
------------------------
1996 1997
----------- -----------
<S> <C> <C>
Loss carryforwards.................................................. $ 365,000 $ 674,000
Less valuation allowance............................................ (365,000) (674,000)
----------- -----------
Net deferred tax assets............................................. $ -- $ --
----------- -----------
----------- -----------
</TABLE>
F-9
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
4. STOCK OPTIONS AND WARRANTS
During 1995, the Company adopted the Hypertension Diagnostics, Inc. 1995
Long-Term Incentive and Stock Option Plan ("the Plan") that includes both
incentive stock options and non-qualified stock options to be granted to
employees, directors, officers, consultants and advisors of the Company. The
maximum number of shares reserved under the Plan is 400,000 shares. The Board of
Directors establishes the terms and conditions of all stock option grants,
subject to the Plan and applicable provisions of the Internal Revenue Code.
Incentive stock options must be granted at an exercise price not less than the
fair market value of the Common Stock on the grant date. The options granted to
participants owning more than 10% of the Company's outstanding voting stock must
be granted at an exercise price not less than 110% of fair market value of the
Common Stock on the grant date. The options expire on the date determined by the
Board of Directors but may not extend more than ten years from the grant date
while incentive stock options granted to participants owning more than 10% of
the Company's outstanding voting stock expire five years from the grant date.
A summary of outstanding options is as follows:
<TABLE>
<CAPTION>
SHARES WEIGHTED AVERAGE
AVAILABLE OPTIONS EXERCISE PRICE
FOR GRANT OUTSTANDING PER SHARE
----------- ----------- -----------------
<S> <C> <C> <C>
Balance at June 30, 1995............................................... -- -- $ --
Shares reserved...................................................... 400,000 -- --
Granted.............................................................. (15,000) 15,000 2.00
----------- -----------
Balance at June 30, 1996............................................... 385,000 15,000 2.00
Granted.............................................................. (11,900) 11,900 2.00
----------- -----------
Balance at June 30, 1997............................................... 373,100 26,900 $ 2.00
----------- -----------
----------- -----------
</TABLE>
At June 30, 1997, there were 26,900 options outstanding with an exercise
price of $2.00 that had been granted under the Plan. The outstanding options had
a weighted average remaining contractual life of nine years. The number of
options exercisable as of June 30, 1996 and 1997 were 3,750 and 23,900,
respectively, at a weighted average exercise price of $2.00. The weighted
average fair value of options granted under the Plan during each of the years
ended June 30, 1996 and 1997 was $.52 per share.
At June 30, 1997, the Company has also granted a total of 1,157,499 options
outside the Plan to officers, directors and consultants. These options all have
exercise prices between $1.70 and $2.00 and a weighted average remaining
contractual life of eight years. The number of non-Plan options exercisable at
June 30, 1996 and 1997 were 679,023 and 895,761, respectively, at a weighted
average exercise price of $1.71. The weighted average fair value of non-Plan
options granted during the years ended June 30, 1996 and 1997 was $.44 and $.52
per share, respectively.
For the years ended June 30, 1996 and 1997, the Company recognized $349,974
and $100,364, respectively, of expense related to the granting of options for
consulting services provided by the Company.
Pro forma information regarding net loss is required by Statement No. 123,
and has been determined as if the Company had accounted for its stock options
under the fair value method of that Statement. The fair value of these options
was estimated at the date of grant using the minimum value option pricing
F-10
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
4. STOCK OPTIONS AND WARRANTS (CONTINUED)
model with the following weighted average assumptions for 1996 and 1997:
risk-free interest rate of 6% and a weighted average expected life of the option
of 5 years.
The minimum value option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions.
The effect of applying Statement No. 123's fair value method of the
Company's stock-based awards results in a net loss that is not materially
different than the amounts reported for the years ended June 30, 1996 and 1997,
respectively.
During the initial phase-in period, the effects of applying Statement No.
123 for recognizing compensation cost may not be representative of the effects
on reported net income or loss for future years because the options vest over
several years and additional awards will be made in the future.
WARRANTS
In connection with private equity offerings, the Company has issued warrants
to purchase shares of Common Stock as follows:
<TABLE>
<CAPTION>
WARRANT EXERCISE EXPIRATION
SHARES PRICE DATE
- --------- ----------- -------------
<S> <C> <C>
132,900 $ 2.00 2001
50,000 $ 3.00 2003
- ---------
182,900
- ---------
- ---------
</TABLE>
5. LICENSE AGREEMENT
In September 1988, the Company entered into a license agreement with the
Regents of the University of Minnesota ("the Regents"), whereby the Company was
granted a license to utilize certain technology developed by the Regents. Under
the license agreement, the Company is required to pay royalties on net product
sales containing the technology licensed from the Regents. In the first two
years after execution of the agreement, royalties were 1% of net sales, and for
the third and fourth years were 1.5% of net sales. Beginning in the fifth year,
and continuing through the termination of the agreement, royalties were 2% of
net sales, and 3% if the Regents obtain a United States patent on any of the
technology covered under the agreement (which, in fact, occurred). Termination
occurs with the expiration of the last patent, or ten years after the date of
the first commercial product sale, if no patent exists.
6. COMMITMENTS
Subsequent to June 30, 1997, the Company entered into a non-cancelable
operating lease agreement for office/warehouse space. The term of the lease is
from November 1997 to October 2000. Prior to entering into this lease agreement,
the Company had utilized office space of its founders and officers for which it
paid no rent.
F-11
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 1997
6. COMMITMENTS (CONTINUED)
The following is a schedule of future minimum lease payments due as of
November 1997:
<TABLE>
<S> <C>
Year ending June 30:
1998............................................ $ 51,321
1999............................................ 76,981
2000............................................ 76,981
2001............................................ 25,660
---------
$ 230,943
---------
---------
</TABLE>
7. EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENTS
The Company has entered into employment agreements or consulting agreements
with its officers and some members of the Board of Directors. The officer's
employment agreements call for minimum salary levels subject to adjustment by
the Company's Board of Directors in addition to awards of stock options. The
employment agreements terminate at various times through 1999. The consulting
agreements provide for the consultants to receive compensation, in the form of
cash or stock options, for the services provided.
8. SUBSEQUENT EVENT (UNAUDITED)
From December 1997 to March 1998, the Company sold 500,000 shares of Common
Stock resulting in net proceeds to the Company of $1,222,898.
F-12
<PAGE>
<TABLE>
<S> <C>
[HYPERTENSION DIAGNOSTICS-TM- INC. LOGO]
[PICTURE DISPLAYING THE THE PORTABILITY OF THE
HDI/PULSEWAVE-TM- CARDIOVASCULAR HDI/PULSEWAVE-TM- AND ITS COMPONENTS
PROFILING INSTRUMENT AND ITS VARIOUS MAKE IT CONVENIENT TO USE THROUGHOUT A
COMPONENTS] CLINIC OR PHYSICIAN'S OFFICE.
WITH THE CARDIOVASCULAR PROFILE REPORT, [PICTURE OF SAMPLE CARDIOVASCULAR
PHYSICIANS WILL BE ABLE TO PROFILE REPORTS LYING ON A WOODEN
NON-INVASIVELY SCREEN, DIAGNOSE AND SURFACE SURROUNDED BY A STETHOSCOPE, A
MONITOR THE TREATMENT OF PATIENTS FOR BALL-POINT PEN AND MEDICAL JOURNALS]
CARDIOVASCULAR DISEASE.
</TABLE>
The HDI/PulseWave-TM- has not received clearance for marketing by the FDA and
there can be no assurance it will receive such clearance.
The HDI/PULSEWAVE-TM- CardioVascular Profiling Instrument non-invasively
measures the elasticity of both small and large arteries providing a real-time
assessment of a patient's vascular health.
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THE OFFERING MADE HEREBY. IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY
OR THE UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR
SOLICITATION OF AN OFFER TO PURCHASE BY ANY PERSON IN ANY JURISDICTION IN WHICH
SUCH OFFER WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 16
Dilution.................................................................. 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 20
Business.................................................................. 24
Management................................................................ 42
Certain Transactions...................................................... 48
Principal Shareholders.................................................... 49
Description of Securities................................................. 50
Shares Available for Future Sale.......................................... 52
Underwriting.............................................................. 53
Legal Matters............................................................. 55
Experts................................................................... 55
Additional Information.................................................... 55
Financial Statements...................................................... F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
2,500,000 UNITS
[HYPERTENSION DIAGNOSTICS-TM- INC. LOGO]
EACH UNIT CONSISTING OF ONE SHARE OF COMMON STOCK AND ONE REDEEMABLE CLASS A
WARRANT
---------------------
PROSPECTUS
---------------------
[RJ STEICHEN & CO LOGO]
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS:
ITEM 24. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by the Minnesota Business Corporation Act, Chapter
302A. Minnesota Statues Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to any proceedings by
reason of the former or present official capacity of such person against
judgments, penalties, fines, including, without limitation, excise taxes
assessed against such person with respect to an employee benefit plan,
settlements, and reasonable expenses, including attorney's fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person has not been indemnified by another organization or
employee benefit plan for the same expenses and respect to the same acts or
omissions; acted in good faith; received no improper personal benefit and
Section 302A.255, if applicable, has been satisfied; in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and in
the case of acts or omissions by persons in their official capacity for the
corporation, reasonably believed that the conduct was in the best interests of
the corporation, or in the case of acts or omissions by persons in their
capacity for other organizations, reasonably believed that the conduct was not
opposed to the best interests of the corporation.
The Company has adopted, in its Articles of Incorporation, a provision which
limits personal liability for breach of the fiduciary duty of its directors, to
the extent provided by Section 302A of the Minnesota Business Corporation Act.
Such provision eliminates the personal liability of directors for damages
occasioned by breach of fiduciary duty, except for liability based on the
director's duty of loyalty to the Company, liability for acts or omissions not
made in good faith, liability for acts or omissions involving intentional
misconduct, liability based on payments of improper dividends, liability based
on violations of state securities laws, and liability for acts occurring prior
to the date such provision was added.
The Underwriting Agreement contains provisions under which the Company on
the one hand, and the Underwriter, on the other hand, have agreed to indemnify
each other (including officers and directors of the Company and the Underwriter
and any person who may be deemed to control the Company or the Underwriter)
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
ITEM 25. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution of
the securities registered hereby, other than underwriting discounts and fees,
are set forth in the following table:
<TABLE>
<S> <C>
SEC registration fee.............................................. $ 8,165
NASD filing fee................................................... 3,270
Nasdaq SmallCap Market listing fee................................ 10,000
Accounting fees and expenses...................................... 35,000
Legal fees and expenses........................................... 85,000
Printing expenses................................................. 45,000
Blue Sky fees and expenses........................................ 10,000
Transfer agent fees and expenses.................................. 5,000
Miscellaneous..................................................... 23,565
---------
Total......................................................... $ 225,000
---------
---------
</TABLE>
Except for the SEC registration fee and the NASD fee, which are rounded, all
of the foregoing expenses have been estimated.
II-1
<PAGE>
ITEM 26. RECENT SALES OF UNREGISTERED SECURITIES.
1. In December 1995, the Company issued, in connection with the conversion
of notes payable in Shares, to Jay N. Cohn, M.D., an aggregate of 2,174 Shares
at $1.00 per Share. These securities were issued in reliance upon the exemption
set forth in Section 4(2) of the Securities Act. Dr. Cohn is a founder and a
director of the Company.
2. In August 1995, the Company sold an aggregate of 125,000 Shares to four
accredited investors at a price of $1.00 per Share. The net proceeds to the
Company were approximately $118,750. These securities were issued in reliance
upon the exemption set forth in Section 4(2) and Rule 506 of Regulation D of the
Securities Act. The placement was made without any public advertisement or
solicitation. Each purchaser executed a subscription agreement representing that
such purchaser either alone or through a representative had knowledge and
experience sufficient to evaluate the merits and risks of the investment. Each
purchaser was given full access to financial and other information regarding the
Company.
3. From October 1995 through May 1996, the Company sold an aggregate of
1,349,000 Shares to 86 accredited investors in a private placement transaction
at a price of $2.00 per Share. The net proceeds to the Company were
approximately $2,312,687. These securities were issued in reliance upon the
exemption set forth in Section 4(2) and Rule 506 of Regulation D of the
Securities Act. The placement was made without any public advertisement or
solicitation. Each purchaser executed a subscription agreement representing that
such purchaser either alone or through a representative had knowledge and
experience sufficient to evaluate the merits and risks of the investment. Each
purchaser was given full access to financial and other information regarding the
Company.
4. From December 1997 to March 1998, the Company sold an aggregate of
500,000 Shares to 51 accredited investors in a private placement at a price of
$3.00 per Share. The net proceeds to the Company were approximately $1,223,000.
The Underwriter acted as the selling agent for the private placement and
received a commission and expense allowance in an approximate amount of $195,000
and warrants to purchase 50,000 Shares at $3.00 per Share. These securities were
issued in reliance upon the exemption set forth in Section 4(2) and Rule 506 of
Regulation D of the Securities Act. The placement was made without any public
advertisement or solicitation. Each purchaser executed a subscription agreement
representing that such purchaser either alone or through a representative had
knowledge and experience sufficient to evaluate the merits and risks of the
investment. Each purchaser was given full access to financial and other
information regarding the Company.
5. On May 8, 1998, one optionholder exercised 24,018 options at $1.70 per
Share. On May 11, 1998, two optionholders exercised an aggregate of 19,706
options at $1.70 per Share. On May 11, 1998, one optionholder exercised 6,000
options at $2.00 per Share. On May 13, 1998, one optionholder exercised 6,000
options at $1.70 per Share. These securities were issued in reliance upon the
exemption set forth in Section 4(2) of the Securities Act.
ITEM 27. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBITS
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement (with form of Underwriter's Warrant attached)
1.2 Form of Selected Dealer Agreement
3.1 Articles of Incorporation
3.2 Bylaws
4.1 Specimen of Common Stock Certificate (to be filed by Amendment)
4.2 Form of Warrant Agreement
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBITS
- ------------- -----------------------------------------------------------------------------------------------------
<C> <S>
5.1 Opinion of Doherty, Rumble & Butler Professional Association (to be filed by Amendment)
10.1 Company's 1995 Long-Term Incentive and Stock Option Plan
10.2 Company's Proposed 1998 Stock Option Plan
10.3 Company's Proposed Form of Stock Option Agreement for 1998 Stock Option Plan (to be filed by
Amendment)
10.4 Research and License Agreement between the Company and the Regents of the University of Minnesota,
dated September 23, 1988
10.5 Employment Agreement between Charles F. Chesney, D.V.M., Ph.D., R.A.C. and the Company, dated October
30, 1995
10.6 Employment Agreement between James S. Murphy and the Company, dated July 1, 1997
10.7 Employment Agreement between Greg H. Guettler and the Company, dated September 8, 1997
10.8 Consulting Agreement between Jay N. Cohn, M.D. and the Company, dated October 30, 1995
10.9 Consulting Agreement between Stanley M. Finkelstein, Ph.D. and the Company, dated October 30, 1995
10.10 Consulting Agreement between Melville R. Bois and the Company, dated January 1, 1996
10.11 Office Lease Agreement, dated as of October 24, 1997
10.12 Manufacturing Services Agreement between Altron, Inc. and the Company, dated July 15, 1997.
10.13 Manufacturing Services Agreement between Apollo Research Corporation and the Company, dated May 14,
1998.
23.1 Consent of Ernst & Young LLP
23.2 Consent of Doherty, Rumble & Butler Professional Association (to be included in Exhibit 5.1.) (to be
filed by Amendment)
24.1 Power of Attorney (included in the signature page to the Registration Statement, p. II-5)
</TABLE>
ITEM 28. UNDERTAKINGS.
The undersigned small business issuer hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement to:
(i) include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) reflect in the prospectus any facts or events which, individually
or together, represent a fundamental change in the information in the
registration statement; and
(iii) include any additional or changed material information on the plan
of distribution;
(2) For determining liability under the Securities Act of 1933, treat each
post-effective amendment as a new registration statement of the securities
offered, and the offering of the securities at that time to be the initial bona
fide offering.
II-3
<PAGE>
(3) To remove from registration by means of a post-effective amendment any
of the securities that remain unsold at the end of the offering.
(4) To provide to the Underwriter at the closing specified in the
Underwriting Agreement certificates in such denominations and registered in such
names as required by the Underwriter to permit prompt delivery to each
purchaser.
(5) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the small
business issuer pursuant to the foregoing provisions, or otherwise, the small
business issuer has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the small business issuer of expenses incurred or paid by a director, officer or
controlling person of the small business issuer in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the small business
issuer will, unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction the
question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(6) For determining any liability under the Securities Act, treat the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the small business issuer under Rule 424(b)(1) or (4) or
Rule 497(h) under the Securities Act as part of this registration statement as
of the time the Securities and Exchange Commission declared it effective.
(7) For determining any liability under the Securities Act, treat each
post-effective amendment that contains a form of prospectus as a new
registration statement for the securities offered in the registration statement,
and that offering of the securities at that time as the initial bona fide
offering of those securities.
II-4
<PAGE>
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the small
business issuer certifies that it has reasonable grounds to believe that it
meets all of the requirements of filing on Form SB-2 and authorized this
Registration Statement to be signed on its behalf by the undersigned, in the
City of Eagan, State of Minnesota on May 18, 1998.
<TABLE>
<S> <C> <C>
HYPERTENSION DIAGNOSTICS, INC.
By /s/ GREG H. GUETTLER
-----------------------------------
Greg H. Guettler
PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Greg H. Guettler, such person's true and lawful attorney-in-fact and agent with
full power of substitution and resubstitution for such person and in such
persons' name, place and stead, in any and all capacities, to sign the
Registration Statement on Form SB-2 of Hypertension Diagnostics, Inc. and any or
all amendments (including post-effective amendments) to the Registration
Statement, and to file the same, with all exhibits hereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the premises, as fully to all intents and purposes as such person
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or either of them, or their substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, this
Registration Statement was signed by the following persons in the capacities
stated below on May 18, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
- -------------------------------------------------------- --------------------------------------------------------
<C> <S>
/s/ MELVILLE R. BOIS
-------------------------------------------- Chairman of the Board of Directors
Melville R. Bois
/s/ GREG H. GUETTLER
-------------------------------------------- President and Director (Principal Executive Officer)
Greg H. Guettler
/s/ CHARLES F. CHESNEY Executive Vice President, Chief Technology Officer and
-------------------------------------------- Director
Charles F. Chesney
/s/ JAMES S. MURPHY Vice President of Finance and Chief Financial Officer
-------------------------------------------- (Principal Financial and Accounting Officer)
James S. Murphy
/s/ JAY N. COHN, M.D.
-------------------------------------------- Director
Jay N. Cohn, M.D.
/s/ KENNETH W. BRIMMER
-------------------------------------------- Director
Kenneth W. Brimmer
</TABLE>
II-5
<PAGE>
2,500,000 UNITS
Each Unit Consisting of One Share of Common Stock and
One Redeemable Class A Warrant
HYPERTENSION DIAGNOSTICS, INC.
UNDERWRITING AGREEMENT
_________________, 1998
R. J. Steichen & Company
One Financial Plaza
120 South Sixth Street
Minneapolis MN 55402
Dear Ladies and Gentlemen:
Hypertension Diagnostics, Inc., a Minnesota corporation (the "Company")
hereby confirms its agreement, subject to the terms and conditions stated
herein, to issue and sell to you (the "Underwriter") an aggregate of 2,500,000
Units ("Units"), each Unit consisting of one share of Common Stock of the
Company, $.01 par value (the "Share") and one Redeemable Class A Warrant (the
"Warrant") exercisable for a period of four (4) years commencing on the
effective date of the Registration Statement at a price of $5.50 per Share.
Each Warrant entitles the holder thereof to purchase one Share of Common Stock
at a price of $5.50 per Share. The Warrants shall be immediately exercisable
and are detachable and transferable commencing ten (10) trading days after the
effective date of the Registration Statement under the 1933 Act or at any
earlier time agreed by the Underwriter and the Company. The Warrants shall be
redeemable at the option of the Company at $.01 per Warrant upon thirty (30)
days' prior notice in writing of the Company's intention to redeem, provided
that the closing bid price for the Common Stock shall have averaged $6.50 for
any twenty (20) consecutive trading days prior to such notice, or on such other
terms as may be set forth in the Preliminary Prospectus (defined herein).
The 2,500,000 Units to be purchased from the Company are referred to herein
as the "Firm Units." In addition, the Company proposes to grant the Underwriter
an option to purchase up to 375,000 additional Units upon the request of the
Underwriter solely for the purpose of covering over-allotments (the "Optional
Units"). The Firm Units and any Optional Units, which aggregate 2,875,000
Units, are collectively referred to herein as the "Units." Further, the Company
hereby
<PAGE>
confirms its agreement to sell to the Underwriter warrants for the purchase
of 250,000 Units as described in Section 5 hereof (the "Underwriter's
Warrants"), assuming purchase by the Underwriter of the Firm Units. The
shares issuable upon exercise of the Underwriter's Warrants and the Warrants
are referred to as the "Warrant Shares." The Units (including the securities
included therein) and the Underwriter's Warrants will be in the form and
contain such rights and terms as described in the Prospectus.
The Company hereby confirms the following arrangements with respect to the
purchase of the Units by the Underwriter.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with the Underwriter as follows:
(a) A registration statement on Form SB-2 with respect to the Units,
and as a part thereof a preliminary Prospectus has been prepared by the
Company in conformity with the requirements of the Securities Act of 1933,
as amended (the "1933 Act") and the rules and regulations (the "Rules and
Regulations") of the Securities and Exchange Commission (the "SEC")
thereunder and has been filed with the SEC under the 1933 Act. The Company
has filed such amendments to the registration statement and such amended
preliminary prospectuses as may have been required to be filed to the date
hereof. If the Company has elected not to rely upon Rule 430A, the Company
has prepared and will promptly file an amendment to the registration
statement and an amended prospectus (provided the Underwriter has consented
to such filing). If the Company has elected to rely upon Rule 430A, it will
prepare and timely file a prospectus pursuant to Rule 424(b) that discloses
the information previously omitted from the prospectus in reliance upon
Rule 430A. Copies of such registration statement and each pre-effective
amendment thereto, and each related preliminary prospectus have been
delivered by the Company to the Underwriter. Such registration statement,
as amended or supplemented, including all prospectuses included as a part
thereof, financial schedules, exhibits, the information (if any) deemed to
be part thereof pursuant to Rules 430A and 434 under the 1933 Act and any
registration statement filed pursuant to Rule 462 under the 1933 Act, is
herein referred to as the "Registration Statement." The term "Prospectus"
as used herein shall mean the final prospectus, as amended or supplemented,
included as a part of the Registration Statement on file with the SEC when
it becomes effective; provided, however, that if a prospectus is filed by
the Company pursuant to Rules 424(b) and 430A or a term sheet is filed by
the Company pursuant to Rule 434 under the 1933 Act, the term "Prospectus"
as used herein shall mean the prospectus so filed pursuant to Rules 424(b)
and 430A and the term sheet so filed pursuant to Rule 434. The term
"Preliminary Prospectus" as used herein means any prospectus, as amended or
supplemented, used prior to the Effective Date (as defined in Section 4(a)
hereof) and included as a part of the Registration Statement, including any
prospectus filed with the SEC pursuant to Rule 424(a).
(b) Neither the SEC nor any state securities division has issued any
order preventing or suspending the use of any Preliminary Prospectus, or
issued a stop order
2
<PAGE>
with respect to the offering of the Units or requiring the recirculation
of a Preliminary Prospectus and, to the best knowledge of the Company,
no proceeding for any such purpose has been initiated or threatened.
Each part of the Registration Statement, when such part became or
becomes effective, each Preliminary Prospectus, on the date of filing
with the SEC, and the Prospectus and any amendment or supplement
thereto, on the date of filing thereof with the SEC and on any Closing
Date (as defined in Section 2 hereof), as the case may be, conformed or
will conform in all material respects with the requirements of the 1933
Act and the Rules and Regulations and the securities laws ("Blue Sky
laws") of the states where the Units are to be sold (the "States") and
contained or will contain all statements that are required to be stated
therein in accordance with the 1933 Act, the Rules and Regulations and
the Blue Sky laws of the States. When the Registration Statement became
or becomes effective and when any post-effective amendments thereto
shall become effective, the Registration Statement did not and will not
contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading. Neither any Preliminary Prospectus, on the date of
filing thereof with the SEC, nor the Prospectus or any amendment or
supplement thereto, on the date of filing thereof with the SEC and on
the First and Second Closing Dates, contained or will contain any untrue
statement of a material fact or omit to state a material fact necessary
in order to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that none
of the representations and warranties in this Subsection 1(b) shall
apply to statements in, or omissions from, the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriter, as identified
in Section 11 herein, specifically for use in the preparation of the
Registration Statement, Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto. There is no contract or other document
of the Company of a character required by the 1933 Act or the Rules and
Regulations to be described in the Registration Statement or Prospectus,
or to be filed as an exhibit to the Registration Statement, that has not
been described or filed as required. The descriptions of all such
contracts and documents or references thereto are correct and include
the information required under the 1933 Act and the Rules and
Regulations.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Minnesota,
with full corporate power and authority, to own, lease and operate its
properties and conduct its business as described in the Registration
Statement and Prospectus. The Company is duly qualified to do business as
a foreign corporation in good standing in each jurisdiction in which the
ownership or lease of its properties, or the conduct of its business,
requires such qualification and in which the failure to be qualified or in
good standing would have a material adverse effect on the business of the
Company. The Company has all necessary and material authorizations,
approvals and orders of and from all governmental regulatory officials and
bodies to own its properties and to conduct its business as described in
the Registration Statement and Prospectus, and is conducting its business
in
3
<PAGE>
substantial compliance with all applicable material laws, rules and
regulations of the jurisdictions in which it is conducting business. The
Company holds all material licenses, certificates, permits, authorizations,
approvals and orders of and from all state, federal and other governmental
regulatory officials and bodies necessary to own its properties and to
conduct its business as described in the Registration Statement and
Prospectus, or has obtained waivers from any such applicable requirements
from the appropriate state, federal or other regulatory authorities. All
such licenses, permits, approvals, certificates, consents, orders and other
authorizations are in full force and effect, and the Company has not
received notice of any proceeding or action relating to the revocation or
modification of any such license, permit, approval, certificate, consent,
order or other authorization which, individually or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, might materially
and adversely affect the conduct of the business or the condition,
financial or otherwise, or the earnings, affairs or business prospects of
the Company.
(d) The Company has no subsidiaries and is not affiliated with any
other Company or business entity, except as disclosed in the Prospectus.
(e) The Company is not in violation of its Articles of Incorporation
or Bylaws. The Company is not in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which the Company or its
properties are bound, and there does not exist any state of facts which
constitutes an event of default on the part of the Company or which, with
notice or lapse of time or both, would constitute such an event of default.
The Company is not, to the best of its knowledge, in violation of any law,
order, rule, regulation, writ, injunction or decree of any government,
governmental instrumentality or court, domestic or foreign, which violation
is material to the business of the Company.
(f) The Company has full requisite power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and
delivered by the Company and will be a valid and binding agreement on the
part of the Company, enforceable in accordance with its terms, if and when
this Agreement shall have become effective in accordance with Section 8,
except as enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally and by judicial limitations on the right of specific performance
and except as the enforceability of the indemnification or contribution
provisions hereof may be affected by applicable federal or state securities
laws. The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company pursuant to, (i) any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note, agreement
or other evidence of indebtedness, lease, contract or other agreement or
instrument to which the Company is a party or by
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which the property or assets of the Company is bound, (ii) the Company's
Articles of Incorporation or Bylaws or (iii) any statute or any order,
rule or regulation of any court, governmental agency or body having
jurisdiction over the Company. No consent, approval, authorization or
order of any court, governmental agency or body is required for the
consummation by the Company of the transactions on its part herein
contemplated, except such as may be required under the 1933 Act, the
Rules and Regulations, the Blue Sky laws, the rules and regulations of
the National Association of Securities Dealers, Inc. ("NASD") and the
rules and regulations of Nasdaq.
(g) There are no actions, suits or proceedings pending before any
court or governmental agency, authority or body to which the Company is a
party or of which the business or property of the Company is the subject
which might result in any material adverse change in the condition
(financial or otherwise), business or prospects of the Company, materially
and adversely affect its properties or assets or prevent consummation of
the transactions contemplated by this Agreement; and, to the best of the
Company's knowledge, no such actions, suits or proceedings are threatened.
The Company is not aware of any facts which would form the basis for the
assertion of any material claim or liability which are not disclosed in the
Registration Statement or the Prospectus or adequately reserved for in the
financial statements which are a part thereof, except for such claims or
liabilities which are not currently expected to have a material adverse
effect on the condition (financial or otherwise) or the earnings, affairs
or business prospects of the Company. All pending legal or governmental
proceedings to which the Company is a party or to which any of its property
is subject, which are not described in the Registration Statement and the
Prospectus, including ordinary routine litigation incidental to the
business, are, considered in the aggregate, not material to the Company.
(h) The Company has the duly authorized and outstanding
capitalization as set forth in the Prospectus. The outstanding Common
Stock of the Company is duly authorized, validly issued, fully paid and
nonassessable. The Company's securities, including the Units, conform in
substance to all statements relating thereto contained in the Registration
Statement and Prospectus. The securities to be sold by the Company
hereunder have been duly authorized and, when issued and delivered pursuant
to this Agreement, will be validly issued, fully paid and nonassessable and
will conform to the description thereof contained in the Prospectus. No
preemptive rights or similar rights of any security holders of the Company
exist with respect to the issuance and sale of the Units or the
Underwriter's Warrant by the Company. Except as disclosed in the
Prospectus, the Company has no agreement with any security holder which
gives such security holder the right to require the Company to register
under the 1933 Act any securities of any nature owned or held by such
person either in connection with the transactions contemplated by this
Agreement or after a demand for registration by such holder. Upon payment
for and delivery of the Units pursuant to this Agreement, the Underwriter
will acquire the Units, free and clear of all liens, encumbrances or
claims. The certificates evidencing the Units and the Warrants will comply
as to form with all applicable provisions of the laws of the State of
Minnesota. Except as set forth in any part of the Registration Statement,
the Company does not have outstanding any options to
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purchase, or any rights or warrants to subscribe for, or any securities
or obligations convertible into, or any contracts or commitments to
issue or sell, any Common Stock or other securities of the Company, or
any such warrants, convertible securities or obligations.
(i) The Underwriter's Warrant, the Warrants and the Warrant Shares
have been duly authorized. The Underwriter's Warrant and the Warrants,
when issued and delivered to the Underwriter, will constitute valid and
binding obligations of the Company in accordance with their terms, except
as enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally and by judicial limitations on the right of specific performance.
The Warrant Shares when issued in accordance with the terms of the
Underwriter's Warrant and the Warrants, will be validly issued, fully paid
and nonassessable and subject to no preemptive rights or similar rights on
the part of an person or entity. A sufficient number of shares of Common
Stock of the Company have been reserved for issuance by the Company upon
exercise of the Underwriter's Warrant and the Warrants.
(j) Ernst & Young LLP, whose reports appear in the Registration
Statement and Prospectus, are independent accountants within the meaning of
the 1933 Act and the Rules and Regulations. The financial statements of
the Company, together with the related notes, forming part of the
Registration Statement and Prospectus (the "Financial Statements"), fairly
present the financial position and the results of operations of the Company
at the respective dates and for the respective periods to which they apply.
The Financial Statements are accurate, complete and correct and have been
prepared in accordance with the 1933 Act, the Rules and Regulations and
generally accepted accounting principles ("GAAP"), consistently applied
throughout the periods involved, except as may be otherwise stated therein.
The summaries of the Financial Statements and the other financial and
statistical data and related notes set forth in the Registration Statement
and the Prospectus are (i) accurate and correct and fairly present the
information purported to be shown thereby as of the dates and for the
periods indicated on a basis consistent with the audited financial
statements of the Company and (ii) in compliance in all material respects
with the requirements of the 1933 Act and the Rules and Regulations. The
Financial Statements are based upon and consistent with the financial
statements and other reports filed by the Company with the SEC, except for
inconsistencies attributable solely to differences between GAAP and
regulatory accounting principles.
(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and at any Closing Date,
except as is otherwise disclosed in the Registration Statement or
Prospectus, there has not been:
(i) any change in the capital stock or long-term debt (including
any capitalized lease obligation), or except in the ordinary course of
business increase in the short-term debt of the Company;
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<PAGE>
(ii) any issuance of options, warrants, convertible securities
or other rights to purchase the capital stock of the Company;
(iii) any material adverse change, or any development involving a
material adverse change, in or affecting the business, business
prospects, properties, assets, patents or patent applications
(including those of the Company and those relating to devices or
technologies licensed to the Company), management, financial position,
stockholders' equity, results of operations or general condition of
the Company;
(iv) any material transaction entered into by the Company;
(v) any material obligation, direct or contingent, incurred by
the Company, except obligations incurred in the ordinary course of
business that, in the aggregate, are not material; or
(vi) any dividend or distribution of any kind declared, paid or
made on the Company's capital stock.
(l) Except as is otherwise disclosed in the Registration Statement or
Prospectus, the Company has good and marketable title to all of the
property, real and personal, described in the Registration Statement or
Prospectus as being owned by the Company, free and clear of all liens,
encumbrances, equities, charges or claims, except as do not materially
interfere with the uses made and to be made by the Company of such property
or as disclosed in the Financial Statements. Except as is otherwise
disclosed in the Registration Statement or Prospectus, the Company has
valid and binding leases to the real and personal property described in the
Registration Statement or Prospectus as being under lease to the Company,
except as to those leases which are not material to the Company or the lack
of enforceability of which would not materially interfere with the use made
and to be made by the Company of such leased property.
(m) The Company has filed all necessary federal and state income and
franchise tax returns and paid all taxes shown as due thereon. The Company
is not in default in the payment of any taxes and has no knowledge of any
tax deficiency which might be asserted against it which would materially
and adversely affect the Company's business or properties.
(n) No labor disturbance by the employees of the Company exists or,
to the best of the Company's knowledge, is imminent which could reasonably
be expected to have a material adverse effect on the conduct of the
business, operations, financial condition or income of the Company.
(o) Except as disclosed in the Prospectus:
(i) The Company owns or possesses the unrestricted rights to use
all patents, copyrights, trademarks, trade secrets and proprietary
rights or information
7
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necessary for the development, manufacture, operation and sale of
all products and services sold or proposed to be sold by the
Company and for the conduct of its present or intended business as
described in the Prospectus. There are no pending legal,
governmental or administrative proceedings relating to patents,
copyrights, trademarks or proprietary rights or information to
which the Company is a party or to which any property of the
Company is subject and no such proceedings are, to the best of the
Company's knowledge, threatened or contemplated against the Company
by any governmental agency or authority or others. The Company has
not received any notice of conflict with asserted rights of others.
The Company is not using any confidential information or trade
secrets of any third party without such party's consent.
(ii) The Company does not infringe upon the right or claimed
rights of any person under or with respect to any of the intangible
rights listed in the preceding subsection. The Company is not
obligated or under any liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner of, licensor of, or
other claimant to, any patent, trademark, trade name, copyright or
other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise, except as
disclosed in the Registration Statement.
(p) The Company intends to apply the proceeds from the sale of the
Units by it to the purposes and substantially in the manner set forth in
the Prospectus.
(q) The Company has no defined benefit pension plan or other pension
benefit plan which is intended to comply with the provisions of the
Employee Retirement Income Security Act of 1974 as amended from time to
time, except as disclosed in the Registration Statement.
(r) To the best of the Company's knowledge, no person is entitled,
directly or indirectly, to compensation from the Company or the Underwriter
for services as a finder in connection with the transactions contemplated
by this Agreement.
(s) The conditions for use of a Registration Statement on Form SB-2
for the distribution of the Units have been satisfied with respect to the
Company.
(t) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its directors,
officers, stockholders, or others) which has constituted or is designed to,
or which might reasonably be expected to, cause or result in stabilization
or manipulation, as defined in the Securities Exchange Act of 1934, as
amended (the "1934 Act") or otherwise, of the price of any security of the
Company to facilitate the sale or resale of the Units.
8
<PAGE>
(u) The Company has not sold any securities in violation of Section
5(a) of the 1933 Act and has sold no securities within three (3) years
prior to the date hereof, except as set out in Item 26 of Part II of the
Registration Statement.
(v) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts adequate for its business and in
line with the insurance maintained by similar companies and businesses.
(w) The Company hereby represents that it has complied and will
comply with all provisions of Florida Statutes Section 517.075 (Ch. 92-198
and Rule 3EER92-1 of the Rules of the Florida Department of Banking and
Finance, Division of Securities). Neither the issuer, nor any affiliate
thereof, does business with the government of Cuba or with any person or
affiliate located in Cuba.
(x) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are
executed in accordance with management's general or specific authorizations
and (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP.
(y) All material transactions between the Company and its
shareholders who beneficially own more than 5% of any class of the
Company's voting securities have been accurately disclosed in the
Prospectus, and the terms of each such transaction are fair to the Company
and no less favorable to the Company than the terms that could have been
obtained from unrelated parties.
(z) The Company has obtained a written agreement from all
shareholders of the Company that such person or entity will not, without
the prior written consent of the Underwriter, during the 180-day period
commencing on the effective date of the Registration Statement (the "Lockup
Period) (i) sell, transfer or otherwise dispose of, or agree to sell,
transfer or otherwise dispose of any Securities of the Company beneficially
held during the Lockup Period, (ii) sell, transfer or otherwise dispose of
or agree to sell, transfer or otherwise dispose of any options, rights,
warrants or other securities exercisable or convertible into Units of
Common Stock of the Company beneficially held during the Lockup Period, or
(iii) sell or grant, or agree to sell or grant, options, rights, warrants
or other securities exercisable or convertible into any such Units of
Common Stock; provided, however, that the foregoing does not prohibit gifts
by donees who agree to be bound by the restrictions set forth in the lockup
agreement or transfers by will or the laws of descent.
(aa) The Common Stock of the Company has been approved by Nasdaq for
trading on its SmallCap Market-SM- following effectiveness of the
Registration Statement subject to official notice of issuance.
9
<PAGE>
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees to purchase from the Company, the Firm Units at $3.774
per Unit.
(b) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriter to purchase the Option
Units (not to exceed an aggregate of fifteen percent (15%) of the total
number of Firm Units) at the same purchase price as the Firm Units for use
solely in covering any over-allotments made by the Underwriter in the sale
and distribution of the Firm Units. The option granted hereunder may be
exercised at any time (but not more than once) within forty-five (45) days
after the Effective Date (as defined in Section 4(a) hereof) upon notice
(confirmed in writing) by the Underwriter to the Company setting forth the
aggregate number of Option Units as to which the Underwriter is exercising
the option and the date on which certificates for such Option Units are to
be delivered. The option granted hereby may be canceled by the Underwriter
as to the Option Units for which the option is unexercised at any time
prior to the expiration of the forty-five (45) day period upon notice to
the Company.
(c) The Company will deliver the Firm Units to the Underwriter at the
offices of Maun & Simon, PLC, unless some other place is agreed upon, at
10:00 A.M., Minneapolis time, against payment of the purchase price at the
same place, on the third full business day after trading the Units has
commenced (but not more than ten (10) full business days after the date the
Registration Statement is declared effective), or such earlier time as may
be agreed upon between the Underwriter and the Company. Such time and place
is herein referred to as the "First Closing Date."
(d) The Company will deliver the Option Units being purchased by the
Underwriter to the Underwriter at the offices of Maun & Simon, PLC, set
forth in Section 2(c) above, unless some other place is agreed upon, at
10:00 A.M., Minneapolis time, against payment of the purchase price at the
same place, on the date determined by the Underwriter and of which the
Company has received notice as provided in Section 2(b), which shall not be
earlier than two nor later than three (3) full business days after the
exercise of the option as set forth in Section 2(b), or at such other time
not later than ten (10) full business days thereafter as may be agreed upon
by the Underwriter and the Company, such time and date being herein
referred to as the "Second Closing Date." The First and Second Closing
Dates are collectively referred to herein as the "Closing Date."
(e) Certificates for the Units to be delivered will be registered in
such names and issued in such denominations as the Underwriter shall
request of the Company at least two (2) full business days prior to the
First Closing Date or the Second Closing Date, as the case may be. The
certificates will be made available to the Underwriter in definitive
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<PAGE>
form for the purpose of inspection and packaging at least 24 hours prior
to each respective Closing Date.
(f) Payment for the Units shall be made, against delivery to the
Underwriter or its designated agent, of certificates for the Units by wire
transfer to a designated account of the Company.
(g) The Underwriter will make a public offering of the Units directly
to the public (which may include selected dealers who are members in good
standing with the NASD or foreign dealers not eligible for membership in
the NASD but who have agreed to abide by the interpretation of the NASD's
Board of Governor's with respect to free-riding and withholding) as soon as
the Underwriter deems practicable after the Registration Statement becomes
effective at the Price to Public set forth in the Prospectus, subject to
the terms and conditions of this Agreement and in accordance with the
Prospectus. Such concessions from the public offering price may be allowed
selected dealers of the NASD as the Underwriter determines, and the
Underwriter will furnish the Company with such information about the
distribution arrangements as may be necessary for inclusion in the
Registration Statement. It is understood that the public offering price
and concessions may vary after the initial public offering. The
Underwriter shall offer and sell the Units only in jurisdictions in which
the offering of Units has been duly registered or qualified, or is exempt
from registration or qualification, and shall take reasonable measures to
effect compliance with applicable state and local securities laws.
3. FURTHER AGREEMENTS OF THE COMPANY. The Company hereby covenants and
agrees with the Underwriter as follows:
(a) If the Registration Statement has not become effective prior to
the date hereof, the Company will use its best efforts to cause the
Registration Statement and any subsequent amendments thereto to become
effective as promptly as possible. The Company will notify the Underwriter
promptly, after the Company shall receive notice thereof, of the time when
the Registration Statement, or any subsequent amendment thereto, has become
effective or any supplement to the Prospectus has been filed. Following the
execution and delivery of this Agreement, the Company will prepare, and
timely file or transmit for filing with the SEC in accordance with Rules
430A, 424(b) and 434, as applicable, copies of the Prospectus, or, if
necessary, a post-effective amendment to the Registration Statement
(including the Prospectus), in which event, the Company will take all
necessary action to have such post-effective amendment declared effective
as soon as possible. The Company will notify the Underwriter promptly upon
the Company's obtaining knowledge of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or of the
initiation or threat of any proceedings for that purpose and will use its
best efforts to prevent the issuance of any stop order and, if a stop order
is issued, to obtain as soon as possible the withdrawal or lifting thereof.
The Company will promptly prepare and file at its own expense with the SEC
any amendments of, or supplements to, the Registration Statement or the
Prospectus which may be necessary in connection with the distribution of
the Units by the
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Underwriter. During the period when a Prospectus relating to the Units
is required to be delivered under the 1933 Act, the Company will
promptly file any amendments of, or supplements to, the Registration
Statement or the Prospectus which may be necessary to correct any untrue
statement of a material fact or any omission to state any material fact
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. The Company will notify the
Underwriter promptly of the receipt of any comments from the SEC
regarding the Registration Statement or Prospectus or request by the SEC
for any amendment thereof or supplement thereto or for any additional
information. The Company will not file any amendment of, or supplement
to, the Registration Statement or Prospectus, whether prior to or after
the Effective Date, which shall not previously have been submitted to
the Underwriter and its counsel a reasonable time prior to the proposed
filing or to which the Underwriter shall have reasonably objected.
(b) The Company has used and will continue to use its best efforts to
register or qualify the Units for sale under the securities laws of such
jurisdictions as the Underwriter may designate and the Company will file
such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification. In each
jurisdiction in which the Units shall have been registered or qualified as
above provided, the Company will continue such registrations or
qualifications in effect for so long as may be required for purposes of the
distribution of the Units, the Warrants and the Warrant Shares; provided,
however, that in no event shall the Company be obligated to qualify to do
business as a foreign corporation in any jurisdiction in which it is not
now so qualified or to take any action which would subject it to the
service of process in suits, other than those arising out of the offering
or sale of the Units in any jurisdiction where it is not now so subject. In
each jurisdiction where any of the Units shall have been so qualified, the
Company will file such statements and reports as are or may be reasonably
required by the laws of such jurisdiction to continue such qualification in
effect. The Company will notify the Underwriter immediately of, and
confirm in writing, the suspension of qualification of the Units, the
Warrants, and the Warrant Shares or the threat of such action in any
jurisdiction. The Company will use its best efforts to qualify or register
its securities for sale in nonissuer transactions under (or obtain
exemptions from the application of) the securities laws of such states
designated by the Underwriter (and thereby permit market-making
transactions and secondary trading in its securities in such states), and
will comply with such securities laws and will continue such
qualifications, registrations and exemptions in effect for a period of five
(5) years after the date hereof.
(c) The Company will furnish to the Underwriter, as soon as
available, copies of the Registration Statement (one of which will be
signed and which shall include all exhibits), each Preliminary Prospectus,
the Prospectus and any amendments or supplements to such documents,
including any prospectus prepared to permit compliance with Section
10(a)(3) of the 1933 Act, all in such quantities as the Underwriter may
from time to time reasonably request prior to the printing of each such
document. The Company specifically authorizes the Underwriter and all
dealers to whom any of the
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<PAGE>
Units may be sold by the Underwriter to use and distribute copies of
such Preliminary Prospectuses and Prospectuses in connection with the
sale of the Units as and to the extent permitted by the federal and
applicable state and local securities laws.
(d) For as long as the Company has more than 100 beneficial owners,
but in no event more than five (5) years after the Effective Date, the
Company will mail as soon as practicable to the holders of its securities
substantially the following documents, which documents shall be in
compliance with this Section if they are in the form prescribed by the 1934
Act:
(i) within sixty (60) days after the end of the first three
quarters of each fiscal year, copies of the quarterly unaudited
statement of profit and loss and quarterly unaudited balance sheets of
the Company and any material subsidiaries; and
(ii) within ninety (90) days after the close of each fiscal year,
appropriate financial statements as of the close of such fiscal year
for the Company and any material subsidiary which shall be certified
to by a nationally recognized firm of independent certified public
accountants in such form as to disclose the Company's financial
condition and the results of its operations for such fiscal year.
(e) For as long as the Company has more than 100 beneficial owners,
but in no event more than five (5) years after the Effective Date, the
Company will furnish to the Underwriter (i) concurrently with furnishing
such reports to its security holders, the reports described in Section 4(d)
hereof; (ii) as soon as they are available, copies of all other reports
(financial or otherwise) mailed to security holders; and (iii) as soon as
they are available, copies of all reports and financial statements
furnished to, or filed with, the SEC, the NASD, any securities exchange or
market or any state securities commission by the Company. During such
period, the foregoing financial statements shall be on a consolidated basis
to the extent that the accounts of the Company and any subsidiary or
subsidiaries are consolidated and shall be accompanied by similar financial
statements for any significant subsidiary which is not so consolidated.
(f) The Company will not, without the prior written consent of the
Underwriter, which consent shall not be unreasonably withheld, sell or
otherwise dispose of any capital stock or securities convertible or
exercisable into capital stock of the Company (other than pursuant to
existing option plans, director compensation plans or currently outstanding
options and warrants) during the 180-day period following the Effective
Date. Prior to the Closing Date, the Company will not repurchase or
otherwise acquire any of its capital stock or declare or pay any dividend
or make any distribution on any class of its capital stock.
(g) Subject to the proviso set forth below and whether or not this
Agreement becomes effective or is terminated, cancelled or the sale of the
Units to you is consummated, and regardless of the reason for or cause of
any such termination,
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<PAGE>
cancellation, or failure to consummate, the Company shall be
responsible for and pay all costs and expenses incident to the
performance of the obligations of the Company under this Agreement
including, without limiting the generality of the foregoing, (i) all
costs and expenses in connection with the preparation, printing and
filing of the Registration Statement (including financial statements and
exhibits), Preliminary Prospectuses and the Prospectus and any
amendments thereof or supplements to any of the foregoing; (ii) the
issuance and delivery of the Units, including taxes, if any; (iii) the
cost of all certificates representing the Units; (iv) the fees and
expenses of the Transfer Agent for the Units; (v) the fees and
disbursements of counsel for the Company; (vi) all fees and other
charges of the independent public accountants of the Company; (vii) the
cost of furnishing and delivering to the Underwriter and dealers
participating in the offering copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectuses, the
Prospectus and any amendments of, or supplements to, any of the
foregoing; (viii) the NASD filing and quotation fees; and (ix) the fees
and disbursements, including filing fees and all accountable fees and
expenses of counsel for the Company incurred in registering or
qualifying the Units for sale under the laws of such jurisdictions upon
which the Underwriter and the Company may agree; and (x) the
non-accountable expenses of the Underwriter in an amount equal to 2.5%
of the gross proceeds of the Offering. Pursuant to Section 8, the
Underwriter hereby acknowledges receipt of a $10,000 advance from the
Company against the Underwriter's non-accountable expense allowance
referred to in the preceding sentence. In the event this Agreement is
terminated by the Underwriter pursuant to Section 8 or for any reason
beyond the Underwriter's control or through no fault of the Underwriter
or by the Company, the Company shall be obligated to pay, to the
Underwriter the greater of the $10,000 deposit paid at the time of the
execution of the letter of intent or all of its actual accountable
out-of-pocket expenses, including fees of its counsel, not to exceed
$20,000. In the event this Agreement is terminated by the Company or
the Underwriter for any reason within its control, including but not
limited to, an opinion of the NASD regarding the compensation
arrangement of the Underwriter, the Company shall be obligated to pay
the Underwriter only the $10,000 deposit paid at the time of the
execution of the letter of intent.
(h) The Company will not take, and will use its best efforts to cause
each of its officers and directors not to take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or result
in the stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Units.
(i) The Company will use its best efforts to obtain (prior to the
Effective Date) and maintain the quotation of the Units, its Common Stock
and the Warrants on the Nasdaq SmallCap Market-SM-.
(j) For a period of at least five (5) years after the Effective Date,
the Company will continue to file with the SEC all reports and other
documents as may be required by the 1933 Act, the Rules and Regulations and
the 1934 Act.
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(k) The Company will apply the proceeds from the sale of the Units
substantially in the manner set forth in the Prospectus.
(l) Other than as permitted by the 1933 Act and the Rules and
Regulations, the Company will not distribute any prospectus or other
offering material in connection with the Offering.
(m) The Company will, for a period of two (2) years after the
Effective Date, furnish directly to you, quarterly profit and loss
statements, reports of the Company's cash flow, and statements of
application of the proceeds of the offering contained in reports or
statements filed by the Company with the Commission.
(n) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than eighteen (18)
months after the effective date of the Registration Statement, a statement
of earnings of the Company (which need not be audited) complying with
Section 11(a) of the 1933 Act and the Rules and Regulations of the
Commission thereunder (including at the option of the Company Rule 158).
(o) The Company authorizes the Underwriter and all dealers to whom
any of the Units may be sold by the Underwriter in connection with the
distribution of the Units, to use the Prospectus as from time to time
amended or supplemented in connection with the offering and sale of the
Units and in accordance with the applicable provisions of the Act and the
applicable Rules and Regulations and applicable state Blue Sky or
securities laws.
(p) The Company shall not request an Effective Date nor allow the
Registration Statement to be declared effective without the prior approval
of the Underwriter.
(q) Within the time during which the Prospectus is required to be
delivered under the Act, the Company will comply, at its own expense, with
all requirements imposed upon it by the 1933 Act, by the Rules and
Regulations, by the Exchange Act, and by any order of the Commission, so
far as necessary to permit the continuance of sales or dealings in the
Units.
(r) The Company agrees to file with the Commission all required
reports on Form SR in accordance with the provisions of Rule 463
promulgated under the Act and to provide a copy of such reports to the
Underwriter and its counsel.
(s) The Company will reserve and keep available that maximum number
of its authorized but unissued shares of Common Stock which are issuable
under exercise of Warrants and the Underwriter's Warrant during the term of
the Warrants and the Underwriter's Warrant.
(t) Prior to the Closing Date, no discussions will be held by
officers, directors or any other affiliate or associate of the Company with
any member of the news media and
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no news release or other publicity about the Company will be permitted
without prior approval of the Company's and the Underwriter's respective
legal counsel.
(u) The Company shall have obtained a CUSIP number for the Units (and
its components) prior to the effective date of the Registration Statement
under the Act.
(v) The Company shall supply to the Underwriter, and its legal
counsel, at the Company's cost, one complete bound volume of all of the
documents relating to the public offering, within a reasonable time after
the Closing Date, not to exceed four (4) months. The volume shall be hard
cover bound in book format.
(w) The Company will apply the proceeds from the sale of the Units by
it to the purposes and in the manner set forth in the Registration
Statement and, pending such application, shall invest such net proceeds
only in one or more of the following, except as otherwise provided by
prior written consent of the Underwriter: (i) interest-bearing
obligations issued by the United States Government or issued by an
agency or instrumentality of the United States Government and guaranteed
by the United States Government and having a maturity not in excess of
one year, (ii) interest-bearing domestic commercial paper having a
maturity of not more than three hundred sixty-five (365) days and, at
the time of purchase by the Company, rated investment grade by Moody's
Investors Service, Inc. or Standard & Poor's Corporation, (iii)
interest-bearing certificates of deposit issued by a commercial bank
chartered by the United States Government or by any state of the United
States having shareholders' equity of at least $500,000,000 except that
the foregoing notwithstanding, the Company may invest no more than
$100,000 of such net proceeds in certificates of deposit issued by any
such commercial bank regardless of shareholders' equity, and (iv) shares
or other units of interest in a registered open-ended investment company
the assets of which aggregate at least $200,000,000 and are invested
solely in so-called "money market" obligations.
(x) Prior to or as of the First Closing Date, the Company shall have
performed each condition to closing required to be performed by it pursuant
to Section 4 hereof.
4. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriter to purchase and pay for the Units as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, in
the case of the Firm Units as of the date hereof and the First Closing Date (as
if made on and as of the First Closing Date) and in the case of the Option
Units, as of the date hereof and the Second Closing Date (as if made on and as
of the Second Closing Date), to the performance by the Company of its
obligations hereunder, and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Units and
on or before the Second Closing Date in the case of the Option Units:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. Minneapolis time, on the first full business day following
the date of this Agreement, or such later date as shall be consented to in
writing by the Underwriter (the
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<PAGE>
"Effective Date"). If the Company has elected to rely upon Rule 430A,
the information concerning the price of the Units and price-related
information previously omitted from the effective Registration Statement
pursuant to Rule 430A shall have been transmitted to the SEC for filing
pursuant to Rule 424(b) within the prescribed time period, and prior to
the Closing Date the Company shall have provided evidence satisfactory
to the Underwriter of such timely filing (or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the 1933 Act and the Rules and
Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or, to the knowledge of the Company or the Underwriter,
threatened by the SEC or any state securities commission or similar
regulatory body. Any request of the SEC for additional information (to
be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter and their legal counsel. The NASD, upon review of the terms
of the Offering, shall not have objected to the terms of the
Underwriter's participation in the Offering.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and is required to be
stated therein or is necessary to make the statements contained therein, in
light of the circumstances under which they were made, not misleading;
provided, however, that this Section 4(b) shall not apply to statements in,
or omissions from, the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, which are based upon and conform
to written information furnished to the Company by the Underwriter
specifically for use in the preparation of the Registration Statement or
the Prospectus, or any such amendment or supplement.
(c) Subsequent to the date as of which information is given the
Registration Statement and Prospectus, there shall not have occurred any
change, or any development involving a prospective change, which materially
and adversely affects the business or properties of the Company and which,
in the reasonable opinion of the Underwriter, materially and adversely
affects the market for the Units or the Company's securities.
(d) On or prior to each Closing Date, the form and validity of the
Units and their component parts, the legality and sufficiency of the
corporate proceedings and matters relating to the incorporation of the
Company and other matters incident to the issuance of the Units and their
component parts, the form of the Registration Statement and the Prospectus
and of any amendments thereof or supplements thereto filed prior to such
Closing Date (other than financial statements and schedules and other
financial or statistical data included therein), the authorization,
execution, and delivery of this Agreement and the description of the Units
and their component parts contained in the Prospectus shall have been
reasonably approved by the Underwriter. In connection with such
determination, the Company shall have furnished to the Underwriter such
documents as you may have requested for the purpose of enabling the
Underwriter to pass upon such matters.
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(e) The Underwriter shall have received the opinion of Doherty,
Rumble & Butler, P.A., counsel for the Company, dated as of such respective
Closing Date and satisfactory in form and substance to the Underwriter and
its counsel, to the effect that:
(i) The Company has been duly incorporated and is validly
existing in good standing under the laws of the State of Minnesota
with the requisite corporate power to own, lease and operate its
properties and conduct its business as described in the Prospectus;
and is duly qualified to do business as a foreign corporation in good
standing in all jurisdictions where the ownership or leasing of its
properties or the conduct of its business requires such qualification
and in which the failure to be so qualified or in good standing would
have a material adverse effect on its business and the activities of
the Company. The Company has no active subsidiaries.
(ii) The number of authorized and, to the best of such counsel's
knowledge, the number of issued and outstanding shares of capital
stock of the Company are as set forth in the Prospectus, and all such
capital stock has been duly authorized and is validly issued, fully
paid and nonassessable. The Units (and their components) have been
duly authorized, and upon issuance, delivery of, and payment therefor
as described in this Agreement, will be validly issued, fully paid and
nonassessable, and the Underwriter will acquire the Units free and
clear of all liens, encumbrances or claims. To the best knowledge of
such counsel's knowledge, no preemptive rights, contractual or
otherwise, of securities holders of the Company or others exist with
respect to the issuance or sale of the Units by the Company pursuant
to this Agreement or to the issuance of Warrant Shares upon exercise
of the Warrants or the Underwriter's Warrants. To the best of such
counsel's knowledge, no rights to require registration of shares of
Common Stock or other securities of the Company exist which may be
exercised in connection with the filing of the Registration Statement.
The Units, Warrants, Underwriter's Warrant, Warrant Shares and Shares
conform as to matters of law in all material respects to the
description of these securities made in the Prospectus and such
description accurately sets forth the material legal provisions
thereof required to be set forth in the Prospectus.
(iii) The shares of Common Stock underlying the Warrants have
been duly authorized and reserved for issuance and when issued, sold
and delivered in accordance with the terms of the Warrants, will be
validly issued, fully paid and nonassessable. The issuance, sale and
delivery of the Underwriter's Warrant has been duly authorized and the
Warrant Shares issuable upon the exercise thereof have been reserved
for issuance upon such exercise. The Warrant Shares, when issued,
sold and delivered in accordance with the terms of the Underwriter's
Warrant, will be validly issued, fully paid and nonassessable. No
preemptive rights of, or rights of refusal in favor of, shareholders
of the Company exist with respect to the Units (or any component
thereof), the Underwriter's Warrant or the
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<PAGE>
Warrant Shares, or the issue and sale thereof, pursuant to the
Company's Articles of Incorporation or Bylaws.
(iv) The authorized securities of the Company conform as to legal
matters in all material respects to the description thereof set forth
in the Prospectus under the caption "Description of Securities." The
certificates representing the Warrants and the Common Stock are in
proper form under the Minnesota Business Corporation Act.
(v) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements of the 1933 Act
and with the Rules and Regulations, except the financial statements,
the notes thereto and the related schedules and other financial and
statistical data contained therein, as to which such counsel need not
express an opinion.
(vi) Counsel knows of no contracts, leases or documents that are
required to be described in the Prospectus or to be filed as exhibits
to the Registration Statement that are not so described or filed.
(vii) The Underwriting Agreement, the Units (and their
components), the Warrant Agreement and the Underwriter's Warrant have
been duly authorized by all requisite corporate action, executed and
delivered by the Company and constitute the valid and binding
obligations of the Company enforceable in accordance with their
respective terms.
(viii) The execution and delivery of the Underwriting Agreement
and the issue and sale of the Underwriter's Warrant, the Units (and
their components) and the Warrant Shares will not violate or conflict
with the Articles of Incorporation or the Bylaws of the Company or any
material provision of any material contract or instrument to which the
Company is a party or by which the Company is bound, or any law of the
United States or the State of Minnesota, any rule or regulation of any
governmental authority or regulatory body of the United States or the
State of Minnesota, or any judgment, order or decree known by such
counsel and applicable to the Company of any court or governmental
authority.
(ix) No holders of capital stock of the Company, or securities
convertible into capital stock of the Company, have the right to cause
the Company to include such holder's capital stock in the Registration
Statement pursuant to the Company's Articles of Incorporation or
Bylaws or any contract or agreement.
(x) No consent, approval, authorization or order of, and no
notice to or filing with, any governmental agency or body or any court
is required to be obtained or made by the Company for the issue and
sale of the Units pursuant to the Underwriting Agreement, except such
as may be required and obtained under
19
<PAGE>
the 1933 Act or under state or other securities laws in connection
with the purchase and distribution of the Units by the Underwriter.
(xi) The Warrant Agreement and the Underwriter's Warrants have
been duly authorized, executed and delivered by the Company and are
the valid and binding obligations of the Company, enforceable in
accordance with their terms, except as enforceability may be limited
by the application of bankruptcy, insolvency, moratorium, or other
laws of general application affecting the rights of creditors
generally and by judicial limitations on the right of specific
performance and other equitable remedies, and except as the
enforceability of indemnification or contribution provisions hereof
may be limited by federal or state securities laws. The Warrant
Shares when issued in accordance with the terms of this Agreement and
pursuant to the Warrants and the Underwriter's Warrants will be
validly issued, fully paid and nonassessable. A sufficient number of
shares of Common Stock has been reserved for issuance upon exercise of
the Warrants and the Underwriter's Warrants.
(xii) The Registration Statement has become and is effective
under the 1933 Act, the Prospectus has been filed as required by Rule
424(b), if necessary and, to the best knowledge of such counsel, no
stop orders suspending the effectiveness of the Registration Statement
have been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 1933 Act. The
registration of the Company's securities on Form 8-A has become
effective under the Securities Exchange Act of 1934, as amended, and
no stop order suspending the effectiveness of such registration, and,
to such counsel's knowledge, no proceedings for that purpose have been
instituted or are pending by the Commission.
(xiii) To the best of such counsel's knowledge, there are no
material legal or governmental proceedings of a character required by
the 1933 Act and the Rules and Regulations to be described or referred
to in the Registration Statement or Prospectus that are not described
or referred to therein. All pending legal or governmental proceedings,
if any, to which the Company is a party or to which any of its
property is subject which are not described in the Registration
Statement and the Prospectus, including ordinary routine litigation
incidental to the business, are, considered in the aggregate, not
material to the Company.
(xiv) The Registration Statement, when it became effective,
the Prospectus and any amendments thereof or supplements thereto,
(other than the financial statements and supporting financial and
statistical data included or incorporated therein, as to which such
counsel need express no opinion) on the date of filing or the date
thereof, complied as to form in all material respects with the
requirements of the 1933 Act and the Rules and Regulations.
20
<PAGE>
(xv) This Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as enforceability may
be limited by the application of bankruptcy, insolvency, moratorium or
similar laws affecting the rights of creditors generally and judicial
limitations on the right of specific performance and except as the
enforceability of indemnification or contribution provisions hereof
may be limited by federal or state securities laws.
(xvi) To the best of such counsel's knowledge, the execution,
delivery and performance of this Agreement and the consummation of the
transactions described herein will not result in a violation of, or a
default under, the terms or provisions of (A) any material bond,
debenture, note, contract, lease, license, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which the Company or
any of its properties are bound, or (B) any material law, order, rule,
regulation, writ, injunction, or decree known to such counsel of any
government, governmental agency or court having jurisdiction over the
Company or any of its properties.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper,
upon certificates of public officials and of the officers of the Company,
provided that copies of such officers' certificates are attached to the
opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any of the statements
contained in the Registration Statement, Prospectus, or any amendment
thereof or supplement thereto in connection with such counsel's
representation, investigation and due inquiry of the Company in the
preparation of the Registration Statement, Prospectus and any amendment
thereof or supplement thereto, nothing has come to the attention of such
counsel which causes them to believe that the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto (other than
the financial statements and supporting financial and statistical data
included or incorporated therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that such opinion of counsel does not
require any statement concerning statements in, or omissions from, the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information furnished
to the Company by the Underwriter specifically for use in the preparation
of the Registration Statement, Prospectus, or any such amendment or
supplement.
(f) The Underwriter shall have received from Maun & Simon, PLC, its
counsel, such opinion or opinions as the Underwriter may reasonably
require, dated as of each closing date and satisfactory in form and
substance to the Underwriter, with respect to the
21
<PAGE>
sufficiency of corporate proceedings and other legal matters relating to
this Agreement and the transactions contemplated hereby, and the Company
shall have furnished to said counsel such documents as they may have
requested for the purpose of enabling them to pass upon such matters. In
connection with such opinion, as to matters of fact relevant to conclusions
of law, such counsel may rely, to the extent that they deem proper, upon
representations or certificates of public officials and of responsible
officers of the Company.
(g) The Underwriter and the Company shall have received letters,
dated the date hereof and as of each Closing Date, from Ernst & Young LLP,
independent public accountants, substantially similar to the form set forth
in Appendix A hereto.
(h) The Underwriter shall have received from the Company a
certificate, dated as of each Closing Date, of the principal executive
officer and the principal financial or accounting officer of the Company to
the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of each closing
date. The Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at, or
prior to, such date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or is pending or to the best knowledge of
such officers contemplated under the 1933 Act.
(iii) Neither the Registration Statement nor the Prospectus
nor any amendment thereof or supplement thereto included any untrue
statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented prospectus which has not been so set forth;
provided, however, that such certificate does not require any
representation concerning statements in, or omissions from, the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information, as identified in Section 11 herein, furnished to the
Company by the Underwriter specifically for use in the preparation of
the Registration Statement or the Prospectus, or any such amendment or
supplement.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as contemplated or referred to in the Prospectus, no event has
occurred that should have been set forth in an amendment or supplement
to Registration Statement or the Prospectus which has not been so set
forth and the Company has not incurred any direct or
22
<PAGE>
contingent liabilities or obligations material to the Company, or
entered into any material transactions, except liabilities,
obligations or transactions in the ordinary course of business, and
there has not been any change in the capital stock or long-term debt
of the Company, (including any capitalized lease obligations), any
material increase in the short-term debt of the Company, any material
adverse change in the financial position, net worth or results of
operations of the Company or declaration or payment of any dividend.
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company
has not sustained any material loss of, or damage to, its properties,
whether or not insured.
(vi) There are no material actions, suits or proceedings pending
before any court or governmental agency, authority or body, or, to the
best of their knowledge, threatened, to which the Company is a party
or of which the business or property of the Company is the subject.
(i) The Underwriter shall have received, dated as of each closing
date, from the Secretary of the Company a certificate of incumbency
certifying the names, titles and signatures of the officers authorized to
execute the resolutions of the Board of Directors of the Company
authorizing and approving the execution, delivery and performance of this
Agreement, a copy of such resolutions to be attached to such certificate,
certifying that such resolutions and the Articles of Incorporation of the
Company and the Bylaws of the Company have been validly adopted and have
not been amended or modified.
(j) In addition, at each Closing, the Company shall have delivered to
the Underwriter an opinion, satisfactory to the Underwriter, of Schwegman,
Lundberg, Woessner & Kluth, P.A., special intellectual property counsel for
the Company, dated as such respective Closing Date, and satisfactory in
form and substance to the Underwriter and its counsel, to the effect that:
(i) To the best of such counsel's knowledge, except as described
in the Prospectus, there are no United States patents of third parties
which are or would be infringed by the manufacture, use, or sale of
the products or processes made or to be made, used, or sold by the
Company.
(ii) To the best of such counsel's knowledge, and except as
stated below, there are no legal, governmental or administrative
proceedings pending or threatened against the Company that relate to
patents, trademarks or other intellectual property, except for pending
or proposed United States and foreign patent applications.
(iii) To the best of such counsel's knowledge, after due
inquiry, the Company has not received any notice of conflict with the
asserted rights of others in respect of any trademarks, service marks,
trade names, trademark registrations,
23
<PAGE>
service mark registrations, copyrights, licenses, inventions, trade
secrets, patents, patent applications, know-how, or similar rights,
nor of any threatened actions with respect thereto, which, if
determined adversely to the Company, would individually or in the
aggregate have a material adverse effect on the general affairs,
financial position, net worth or results of operations of the Company.
(iv) To the best of such counsel's knowledge, after due inquiry,
the Company owns, possesses or is licensed under all such material
trademarks, trademark applications, trademark registrations, service
marks, service mark registrations, copyrights, patents, patent
applications and licenses as are described in the Prospectus and which
are necessary for the Company's present or planned future business as
described in the Prospectus.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper,
upon certificates of public officials and of the officers of the Company,
provided that copies of such officers' certificates are attached to the
opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any of the statements
regarding intellectual property matters contained in the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto in
connection with such counsel's representation of the Company in connection
with intellectual property matters and in preparation of the intellectual
property portions of the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto, nothing has come to the attention
of such counsel which causes them to believe that the intellectual
property portions of the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto (other than the financial
statements and supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that such opinion of counsel does not
require any statement concerning statements in, or omissions from, the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information
furnished to the Company by the Underwriter specifically for use in the
preparation of the Registration Statement, Prospectus, or any such
amendment or supplement.
(k) In addition, at each Closing, the Company shall have delivered to
the Underwriter an opinion, satisfactory to the Underwriter, of McKenna &
Cuneo, L.L.P., special Food & Drug Administration (FDA) counsel for the
Company, dated as of each Closing Date, satisfactory in form and substance
to the Underwriter and its counsel to the effect that:
24
<PAGE>
(i) To the best of its knowledge: (i) the statements regarding
federal government regulation included in the Registration Statement,
insofar as those statements summarize provisions of the Federal Food,
Drug, and Cosmetic Act ("FDC Act") and regulations issued thereunder,
are accurate in all material respects; and (ii) the FDC Act and FDA's
implementing regulations summarized in the Regulatory Portion are the
federal food and drug statute and regulations that are material to the
Company's business.
(ii) It has no reason to believe that the Company's business, as
described in the Registration Statement is not being conducted in all
material respects in compliance with applicable requirements of the
FDC Act.
(iii) To the best of its knowledge, there are no
administrative enforcement or legal actions pending or contemplated
against the Company by the Food and Drug Administration or any similar
state or local regulatory agency.
(iv) It has no reason to believe that the information contained
in the Registration Statement, as of the date of its opinion, contains
any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements
in light of the circumstances under which they were made, not
misleading.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper,
upon certificates of public officials and of the officers of the Company,
provided that copies of such officers' certificates are attached to the
opinion.
In addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot
guarantee the accuracy, completeness or fairness of any of the statements
regarding FDA matters contained in the Registration Statement, Prospectus,
or any amendment thereof or supplement thereto in connection with such
counsel's representation of the Company in connection with FDA matters and
in preparation of the FDA portions of the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto, nothing has
come to the attention of such counsel which causes them to believe that
the FDA portions of the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto (other than the financial
statements and supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no opinion)
contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; provided, however, that such opinion of counsel does not
require any statement concerning statements in, or omissions from, the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information furnished
to the Company by the Underwriter specifically for use in the preparation
of the Registration Statement, Prospectus, or any such amendment or
supplement.
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(l) The Underwriter shall have received a written agreement from each
shareholder of the Company, that such persons or entity will not, without
the prior written consent of the Underwriter during the Lockup Period (i)
sell, transfer or otherwise dispose of, or agree to sell, transfer or
otherwise dispose of any Units of Common Stock of the Company beneficially
held during the Lockup Period, (ii) sell, transfer or otherwise dispose of
or agree to sell, transfer or otherwise dispose of any options, rights,
warrants or other securities exercisable or convertible into Units of
Common Stock of the Company beneficially held during the Lockup Period, or
(iii) sell or grant, or agree to sell or grant, options, rights, warrants
or other securities exercisable or convertible into to any such Units of
Common Stock; provided, however, that the foregoing does not prohibit gifts
to donees who agree to be bound by the restrictions set forth in the lockup
agreement or transfers by will or the laws of descent.
(m) The Company shall not have failed to have performed any of its
agreements herein contained and required to be performed at or prior to the
First Closing Date or the Second Closing Date, as the case may be.
(n) The Units (and their components) shall have been registered or
qualified for sale or exempt from such registration or qualification under
the securities laws of such jurisdictions as designated by the Underwriter
such qualifications or exemptions shall continue in effect.
(o) The Company shall have furnished to the Underwriter, dated as of
the date of the Closing Date, such further certificates and documents as
the Underwriter shall have reasonably required.
(p) All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Underwriter and its legal counsel. All statements
contained in any certificate, letter, or other document delivered pursuant
hereto by, or on behalf of, the Company shall be deemed to constitute
representations and warranties of the Company.
(q) The Underwriter may waive in writing the performance of any one
or more of the conditions specified in this Section 4 or extend the time
for their performance.
(r) If any of the conditions specified in this Section 4 shall not
have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement and all obligations of the Underwriter hereunder may be
canceled at, or at any time prior to, each Closing Date by the Underwriter.
Any such cancellation shall be without liability of the Underwriter to the
Company and shall not relieve the Company of its obligations under Section
3(g) hereof. Notice of such cancellation shall be given to the Company at
the address specified in Section 11 hereof in writing, or by telegraph or
telephone confirmed in writing.
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<PAGE>
5. UNDERWRITER'S WARRANTS. On the First Closing Date, the Company shall
sell to the Underwriter for $50 the Underwriter's Warrant, which shall first
become exercisable one year after the Effective Date and shall remain
exercisable for a period of four (4) years thereafter. The Underwriter's
Warrants shall be subject to certain transfer restrictions and shall be in
substantially the form filed as an exhibit to the Registration Statement and
attached as Appendix B hereto.
6. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the 1933 Act against any losses, claims,
damages or liabilities, joint or several, to which the Underwriter or each
such controlling person may become subject, under the 1933 Act, the 1934
Act, the common law or otherwise, insofar as such losses, claims, damages
or liabilities (or judicial or governmental actions or proceedings in
respect thereof) arise out of, or are based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, or the omission or alleged
omission to state in the Registration Statement or any amendment thereof a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus if used prior to
the Effective Date of the Registration Statement or in the Prospectus (as
amended or as supplemented, if the Company shall have filed with the SEC
any amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any application or other statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in
order to qualify the Units under, or exempt the Units or the sale thereof
from qualification under, the securities laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and the Company will reimburse the Underwriter, and
each such controlling person for any legal or other expenses reasonably
incurred by the Underwriter, or controlling person (subject to the
limitation set forth in Section 6(c) hereof) in connection with
investigating or defending against any such loss, claim, damage, liability
or action; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of, or is based upon, an untrue statement, or alleged untrue
statement, omission or alleged omission, made in reliance upon and in
conformity with written information furnished to the Company by, or on
behalf of, the Underwriter specifically for use in the preparation of the
Registration Statement or any such post-effective amendment thereof, any
such Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other
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<PAGE>
statement executed by the Company or the Underwriter filed in any
jurisdiction in order to qualify the Units (and their components) under,
or exempt the Units (and their components) or the sale thereof from
qualification under, the securities laws of such jurisdiction; and
provided further that the foregoing indemnity agreement is subject to the
condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated or remedied in the Prospectus, such indemnity
agreement shall not inure to the benefit of the Underwriter if the person
asserting any loss, claim, damage or liability purchased the Units from
the Underwriter which are the subject thereof (or to the benefit of any
person who controls the Underwriter), if a copy of the Prospectus was
not sent or given to such person with, or prior to, the written
confirmation of the sale of such Units to such person. This indemnity
agreement is in addition to any liability which the Company may otherwise
have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of the Company's directors, each of the Company's officers
who has signed the Registration Statement and each person who controls the
Company within the meaning of Section 15 of the 1933 Act against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, or controlling person may become subject, under the 1933
Act, the 1934 Act, the common law, or otherwise, insofar as such losses,
claims, damages, or liabilities (or judicial or governmental actions or
proceedings in respect thereof) arise out of, or are based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, or the omission or
alleged omission to state in the Registration Statement or any amendment
thereof, a material fact required to be stated therein or necessary to make
the statements therein not misleading; (ii) any untrue statement or alleged
untrue statement of a material fact contained in any Preliminary Prospectus
if used prior to the Effective Date of the Registration Statement or in the
Prospectus (as amended or as supplemented, if the Company shall have filed
with the SEC any amendment thereof or supplement thereto), or the omission
or alleged omission to state therein a material fact required to be stated
therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any application or other statement executed by the Company or by the
Underwriter and filed in any jurisdiction in order to qualify the Units
(and their components) under, or exempt the Units (and their components) or
the sale thereof from qualification under, the securities laws of such
jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; in each case to the extent, but
only the extent, that such untrue statement, alleged untrue statement,
omission or alleged omission, was made in reliance upon and in conformity
with written information furnished to the Company by, or on behalf of, the
Underwriter specifically for use in the preparation of the Registration
Statement or any such post effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or any such amendment thereof or
supplement thereto, or in any application or other statement
28
<PAGE>
executed by the Company or by the Underwriter and filed in any
jurisdiction; and the Underwriter will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer
or controlling person in connection with investigating or defending
against any such loss, claim, damage, liability or action. This indemnity
agreement is in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
6 of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party
under this Section 6, notify in writing the indemnifying party of the
commencement thereof. The omission so to notify the indemnifying party
will not relieve it from any liability under this Section 6 as to the
particular item for which indemnification is then being sought, unless such
omission so to notify prejudices the indemnifying party's ability to defend
such action. In case any such action is brought against any indemnified
party and the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel who shall be reasonably satisfactory to such indemnified
party; and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 6 for
any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of
the indemnified party, it is advisable for such parties and controlling
persons to be represented by separate counsel, any indemnified party shall
have the right to employ separate counsel to represent it and all other
parties and their controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriter against the Company or by the Company against the Underwriter
hereunder, in which event the fees and expenses of such separate counsel
shall be borne by the indemnifying party and paid as incurred. Any such
indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the prior
written consent of such indemnifying party.
7. CONTRIBUTION.
(a) If the indemnification provided for in Section 6 is unavailable
under applicable law to any indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Underwriter from the offering of the Units or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
and the Underwriter in connection with the statements or omissions which
resulted in
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<PAGE>
such losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The Company and the Underwriter agree that
contribution determined by per capita allocation would not be equitable.
The respective relative benefits received by the Company, on the one hand,
and the Underwriter, on the other hand, shall be deemed to be in the same
proportion (A) in the case of the Company, as the total price paid to the
Company for the Units by the Underwriter (net of underwriting discount
received but before deducting expenses) bears to the aggregate public
offering price of the Units, (b) in the case of the Underwriter, as the
aggregate underwriting discount received by them bears to the aggregate
public offering price of the Units, in each case as reflected in the
Prospectus. The relative fault of the Company and the Underwriter shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
Notwithstanding the provisions of this Section 7, the Underwriter shall not
be required to contribute any amount in excess of the amount by which the
total price at which the Units underwritten by it were offered to the
public exceeds the amount of any damages which the Underwriter has
otherwise been required to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution
from any person who was not guilty of such fraudulent misrepresentation.
For purposes of this Section 7, each person who controls the Underwriter
within the meaning of the 1933 Act or the 1934 Act shall have the same
rights to contribution as the Underwriter, each person who controls the
Company within the meaning of the 1933 Act or the 1934 Act shall have the
same rights to contribution as the Company and each officer of the Company
who shall have signed the Registration Statement and each director of the
Company shall have the same rights to contribution as the Company.
(b) Promptly after receipt by a party to this Agreement of notice
of the commencement of any action, suit or proceeding, such person will,
if a claim for contribution in respect thereof is to be made against
another party (the "Contributing Party"), notify the Contributing Party
of the commencement thereof, but the omission so to notify the
Contributing Party will not relieve the Contributing Party from any
liability which it may have to any party other than under this Section
7, unless such omission so to notify prejudices the Contributing Party's
ability to defend such action. Any notice given pursuant to Section 7
hereof shall be deemed to be like notice hereunder. In case any such
action, suit or proceeding is brought against any party, and such person
notifies a Contributing Party of the commencement thereof, the
Contributing Party will be entitled to participate therein with the
notifying party and any other Contributing Party similarly notified.
30
<PAGE>
8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective when the Underwriter
releases the initial public offering of the Firm Units for sale to the
public. The Underwriter shall notify the Company immediately after any
action has been taken which causes this Agreement to become effective.
Until this Agreement is effective, it may be terminated by the Company
or the Underwriter by giving notice as hereinafter provided, except that
the provisions of Section 3(g) and Sections 6, 7, and 8 shall at all
times be effective. For purposes of this Agreement, the release of the
initial public offering of the Firm Units for sale to the public shall
be deemed to have been made when the Underwriter releases, by facsimile
or otherwise, firm offers of the Firm Units to securities dealers or
release for publication a newspaper advertisement relating to the Firm
Units, whichever occurs first.
(b) Until the First Closing Date, this Agreement may be terminated
by the Underwriter, at its option, by giving notice to the Company, if
(i) the Company shall have sustained a loss by fire, flood, accident or
other calamity which is material with respect to the business of the
Company; the Company shall have become a party to material litigation,
not disclosed in the Registration Statement or the Prospectus; or the
business or financial condition of the Company shall have become the
subject of any material litigation, not disclosed in the Registration
Statement or the Prospectus; or there shall have been, since the
respective dates as of which information is given in the Registration
Statement or the Prospectus, any material adverse change in the general
affairs, business, key personnel, capitalization, financial position or
net worth of the Company, whether or not arising in the ordinary course
of business, which loss or change, in the reasonable judgment of the
Underwriter, shall render it inadvisable to proceed with the delivery of
the Units, whether or not such loss shall have been insured; (ii)
trading in securities generally on the New York Stock Exchange, American
Stock Exchange, Nasdaq National Market, Nasdaq SmallCap Market or the
over-the-counter market shall have been suspended or minimum prices
shall have been established on such exchange by the SEC or by such
exchanges or markets; (iii) a general banking moratorium shall have been
declared by federal, New York or Minnesota authorities; (iv) there shall
have been such a material adverse change in general economic, monetary,
political or financial conditions, or the effect of international
conditions on the financial markets in the United States shall be such
that, in the judgment of the Underwriter, makes it inadvisable to
proceed with the delivery of the Units; (v) the enactment, publication,
decree or other promulgation of any federal or state statute,
regulation, rule or order of either of any court or other governmental
authority which, in the judgment of the Underwriter, materially and
adversely affects or will materially and adversely affect the business
or operations of the Company; (vi) there shall be a material outbreak of
hostilities or material escalation and deterioration in the political
and military situation between the United States and any foreign power,
or a formal declaration of war by the United States of America shall
have occurred; (vii) the Company shall have failed to comply with any of
the provisions of this Agreement on its part to be performed on or prior
to such date or if any of the conditions, agreements, representations or
warranties of the Company shall not have been fulfilled within the
respective times provided for in this Agreement; or (viii) the Company
is no
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longer registered under the 1934 Act. Any such termination shall be
without liability of any party to any other party, except as provided in
Sections 7 and 8 hereof; provided, however, that the Company shall
remain obligated to pay costs and expenses to the extent provided in
Section 3(g) hereof.
(c) If the Underwriter elects to prevent this Agreement from
becoming effective or to terminate this Agreement as provided in this
Section 8, it shall notify the Company promptly by telegram or
telephone, confirmed by letter sent to the address specified in Section
10 hereof. If the Company shall elect to prevent this Agreement from
becoming effective, it shall notify the Underwriter promptly by telegram
or telephone, confirmed by letter sent to the address specified in
Section 10 hereof.
9. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 6 and 7, respectively, the
representations and warranties of the Company set forth in Sections 1 hereof
respectively and the covenants of the Company set forth in Section 3 hereof
shall remain operative and in full force and effect, regardless of any
investigation made by, or on behalf of, the Underwriter, the Company, any of its
officers and directors, or any controlling person referred to in Sections 6 and
7, and shall survive the delivery of and payment for the Units. The aforesaid
indemnity and contribution agreements shall also survive any termination or
cancellation of this Agreement. Any successor of any party or of any such
controlling person, or any legal representative of such controlling person as
the case may be, shall be entitled to the benefit of the respective indemnity
and contribution agreements.
10. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to Underwriter
or any of the Underwriter, shall be mailed, delivered or telegraphed and
confirmed, to R. J. Steichen & Company, One Financial Plaza, 120 South Sixth
Street, 700, Minneapolis, Minnesota 55402 Attention: Patrick M. Sidders, Senior
Vice President and Managing Director, with a copy to Philip T. Colton, Esq.,
Maun & Simon, PLC, 2000 Midwest Plaza Building West, 801 Nicollet Mall,
Minneapolis, Minnesota 55402; or, if sent to the Company, shall be mailed,
delivered or telegraphed and confirmed, to Hypertension Diagnostics, Inc., 2915
Waters Road, Suite 108, Eagan, Minnesota 55121-1662, Attention: Greg H.
Guettler, with a copy to Girard P. Miller, Esq., Doherty, Rumble & Butler,
P.A., 3500 Fifth Street Towers, 150 South Fifth Street, Minneapolis, Minnesota
55402-4235.
11. INFORMATION FURNISHED BY THE UNDERWRITER. The statements set forth in
the last paragraph on the cover page, the stabilization legend on the inside
front cover and the statements under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the only written
information furnished by, or on behalf of, the Underwriter specifically for use
with reference to the Underwriter referred to in Section 1 and Section 6 hereof.
12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriter and the Company, their respective successors and assigns,
and the officers, directors and controlling persons referred to in Sections 6
and 7. Nothing expressed in this Agreement is
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intended or shall be construed to give any person or corporation, other than
the parties hereto, their respective successors and assigns, and the
controlling persons, officers and directors referred to in Sections 6 and 7
any legal or equitable right, remedy, or claim under, or in respect of, this
Agreement or any provision herein contained, this Agreement and all
conditions and provisions hereof being intended to be and being for the sole
and exclusive benefit of the parties hereto and their respective executors,
administrators, successors, assigns and such controlling persons, officers
and directors, and for the benefit of no other person or corporation. No
purchaser of any Units from the Underwriter shall be construed a successor or
assign merely by reason of such purchase.
13. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
14. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed shall constitute an original copy
hereof, but all of which together shall constitute one Agreement.
If the foregoing is in accordance with the Underwriter's understanding
of this agreement, kindly sign and return to the Company the enclosed
counterpart of this Agreement, whereupon it will become a binding agreement
between the Company and the Underwriter in accordance with its terms.
Very truly yours,
HYPERTENSION DIAGNOSTICS, INC.
By: ___________________________________
Its: ____________________________
"Company"
Confirmed as of the date hereof
at Minneapolis, Minnesota
R. J. STEICHEN & COMPANY
By:__________________________________
Authorized Officer
_____________________________________
(Print Name)
"Underwriter"
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APPENDIX A
FORM OF COMFORT LETTER OF ERNST & YOUNG LLP
(1) They are independent public accountants with respect to the
Company within the meaning of the Securities Act of 1933, as amended (the "1933
Act").
(2) In their opinion, the financial statements of the Company
included in the Registration Statement which are stated therein to have been
examined by them comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the related published rules and
regulations.
(3) On the basis of specified procedures (but not an audit in
accordance with generally accepted auditing standards), including inquiries of
certain officers of the Company responsible for financial and accounting matters
as to transactions and events subsequent to the date of the financial statements
included in the Prospectus, a reading of minutes of meetings of the stockholders
and directors of the Company since the date of the financial statements included
in the Prospectus and other procedures as specified in such letter, nothing came
to their attention which caused them to believe that (a) at a specified date not
more than five (5) days prior to the date thereof in the case of the first
letter and not more than two (2) business days prior to the date thereof in the
case of the second and third letters, there was any change in the capital stock,
long-term debt, or short-term debt (other than normal payments) of the Company,
or any material decrease in net current assets or stockholders' equity, as
compared with amounts shown on the latest balance sheet of the Company included
in the Registration Statement; or (b) for the period from the date of such
balance sheet to a date not more than five (5) days prior to the date thereof in
the case of the first letter and not more than two (2) business days prior to
the date thereof in the case of the second letter, there were any material
decreases in working capital, long-term debt or total stockholders' equity,
except for changes or decreases which the Prospectus discloses, have occurred or
may occur, or which are set forth in such letter.
(4) They have carried out specified procedures, which have been
agreed to by the Underwriter, with respect to certain information in the
Prospectus specified by the Underwriter, and on the basis of such procedures,
they have found such information to be in agreement with the accounting records
of the Company or with material derived from such records.
<PAGE>
Warrant No.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
EITHER THE SECURITIES ACT OF 1933 OR APPLICABLE STATE SECURITIES LAWS AND MAY
NOT BE SOLD, TRANSFERRED, ASSIGNED, OFFERED, PLEDGED OR OTHERWISE DISTRIBUTED
FOR VALUE UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
SUCH LAWS COVERING SUCH SECURITIES, OR THE COMPANY RECEIVES AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT,
OFFER, PLEDGE OR OTHER DISTRIBUTION FOR VALUE IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF SUCH ACT AND SUCH LAWS.
________________________, 1998
WARRANT
TO PURCHASE __________ UNITS
OF
HYPERTENSION DIAGNOSTICS, INC.
Each Unit Consisting of One Share
of Common Stock and
One Redeemable Class A Warrant
THIS CERTIFIES THAT, for good and valuable consideration, R. J. Steichen &
Company (the "Underwriter"), or its registered assigns, is entitled to subscribe
for and purchase from Hypertension Diagnostics, Inc., a Minnesota corporation
(the "Company"), at any time after ________, ____, to and including __________,
____, _________________ (________) fully paid and nonassessable Units of the
Company's securities at the price of $_____ per Unit (the "Warrant Exercise
Price"), subject to the antidilution provisions of this Warrant. Reference is
made to this Warrant in the Underwriting Agreement dated _______ 1998, as
amended, by and between the Company and the Underwriter. The Units which may be
acquired upon exercise of this Warrant are referred to herein as the "Warrant
Units." The term "Unit" shall mean one share of the Company's Common Stock,
$.01 par value and one Redeemable Class A Warrant. As used herein, the term
"Holder" means the Underwriter, any party who acquires all or a part of this
Warrant as a registered transferee of the Underwriter, or any record holder or
holders of the Warrant Units issued upon exercise, whether in whole or in part,
of the Warrant. As used herein, the term "Common Stock" means and includes the
Company's presently authorized common stock, $.01 par value, and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the Holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution, or winding up of the
Company. The term "Class A Warrant" shall mean the Company's Warrants
exercisable for a period of four (4) years commencing on the effective date of
the Registration Statement defined in the above-referenced Underwriting
Agreement, entitling the holder thereof to purchase one share of Common Stock at
a price of $5.50 per share.
<PAGE>
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE: TRANSFERABILITY.
A. The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional Unit), by
written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant
along with a check in payment of the Warrant Exercise Price for such Units.
B. Except where directed by a court of competent jurisdiction
pursuant to the dissolution or liquidation of a corporate holder hereof and
subject to Section 7, for one (1) year from the date hereof, title to this
Warrant may be transferred only to a person who is both an officer and
shareholder, or both an officer and employee, or both an employee and
registered representative, of the Underwriter, or to a successor (or both
an officer and shareholder, or both an officer and employee, or both an
employee and registered representative of the successor) in interest to the
business of the Underwriter, by endorsement (by the holder hereof executing
the form of assignment attached hereto) and delivery in the same manner as
in the case of a negotiable instrument transferable by endorsement and
delivery.
2. EXCHANGE AND REPLACEMENT. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Units purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Units (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Underwriter shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section
2. This Warrant shall be promptly canceled by the Company upon the surrender
hereof in connection with any exchange or replacement. The Company shall pay
all expenses, taxes (other than stock transfer taxes), and other charges
payable in connection with the preparation, execution, and delivery of
Warrants pursuant to this Section 2.
3. ISSUANCE OF THE WARRANT UNITS.
A. The Company agrees that the Units purchased hereby shall be and
are deemed to be issued to the Holder as of the close of business on the
date on which this Warrant shall have been surrendered and the payment made
for such Warrant Units as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Units so purchased shall be delivered
to the Holder within a reasonable time, not exceeding fifteen (15) days
after the rights represented by this Warrant shall have been so exercised,
and,
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<PAGE>
unless this Warrant has expired, a new Warrant representing the right
to purchase the number of Warrant Units, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the
Holder within such time.
B. Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Units upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities
laws. Such Holder shall also provide the Company with written
representations from the Holder and the proposed transferee satisfactory to
the Company regarding the transfer or, at the election of the Company, an
opinion of counsel reasonably satisfactory to the Company to the effect
that the proposed transfer of this Warrant or disposition of Units may be
effected without registration or qualification (under any Federal or State
law) of this Warrant or the Warrant Units. Upon receipt of such written
notice and either such representations or opinion by the Company, such
Holder shall be entitled to transfer this Warrant, or to exercise this
Warrant in accordance with its terms and dispose of the Warrant Units, all
in accordance with the terms of the notice delivered by such Holder to the
Company, provided that an appropriate legend, if any, respecting the
aforesaid restrictions on transfer and disposition may be endorsed on this
Warrant or the certificates for the Warrant Units. Nothing herein,
however, shall obligate the Company to effect registrations under federal
or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when
the Holder seeks to exercise the Warrant, the Warrant exercise period will
be extended, if need be, to prevent the Warrant from expiring, until such
time as either registrations become effective or exemptions are available,
and the Warrant shall then remain exercisable for a period of at least 30
calendar days from the date the Company delivers to the Holder written
notice of the availability of such registrations or exemptions. The Holder
agrees to execute such documents and make such representations, warranties,
and agreements as may be required solely to comply with the exemptions
relied upon by the Company, or the registrations made, for the issuance of
the Warrant Units.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Units and shares issuable upon exercise of the Class A Warrants will,
upon issuance, be duly authorized and issued, fully paid, nonassessable, and
free from all taxes, liens, and charges with respect to the issue thereof except
for all taxes, liens and changes imposed by the Holder. The Company further
covenants and agrees that during the period within which the rights represented
by this Warrant may be exercised, the Company will at all times have authorized
and reserved for the purpose of issue or transfer upon exercise of the
subscription rights evidenced by this Warrant a sufficient number of Units of
Common Stock to provide for the exercise of the rights represented by this
Warrant and the Class A Warrants included therein.
5. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time hereafter
subdivide or combine its outstanding shares of Common Stock, or declare a
dividend payable in Common Stock, or declare a dividend payable in Common Stock,
the exercise price in effect immediately prior to the subdivision, combination
or record date for such dividend payable in Common Stock shall forthwith be
proportionately increased, in the case of combination, or proportionately
decreased, in the case of subdivision or declaration of a dividend payable in
Common Stock, and
3
<PAGE>
the number of Units purchasable upon exercise of this Warrant, immediately
preceding such event, shall be changed to the number determined by dividing
the then current exercise dividend payable in Common Stock and against the
number of Units purchasable upon the exercise of this Warrant immediately
preceding such event, so as to achieve an exercise price and number of Units
purchasable after such event proportional to such exercise price and number of
Units purchasable immediately preceding such event. No adjustment in exercise
price shall be required unless such adjustment would require an increase or
decrease of at least five cents ($0.05) in such price; PROVIDED, HOWEVER, that
any adjustments which are not required to be so made shall be carried forward
and taken into account in any subsequent adjustment. All calculations hereunder
shall be made to the nearest cent or to the nearest one-hundredth of a share, as
the case may be.
No fractional Units are to be issued upon the exercise of the Warrant, but
the Company shall pay a cash adjustment in respect of any fraction of a Unit
which would otherwise be issuable in an amount equal to the same fraction of the
market price per share of Unit's on the day of exercise as determined in good
faith by the Company.
In case of any capital reorganization or any reclassification of the shares
of Common Stock of the Company, or in the case of any consolidation with or
merger of the Company into or with another corporation, or the sale of all or
substantially all of its assets to another corporation, which is effected in
such a manner that the holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a part of such reorganization, reclassification, consolidation, merger
or sale, as the case may be, lawful provision shall be made so that the holder
of the Warrant shall have the right thereafter to receive, upon the exercise
hereof, the kind and amount of shares of stock or other securities or property
which the holder would have been entitled to receive if, immediately prior to
such reorganization, reclassification, consolidation, merger or sale, the holder
had held the number of Units which were then purchasable upon the exercise of
the Warrant. In any such case, appropriate adjustment (as determined in good
faith by the Board of Directors of the Company) shall be made in the application
of the provisions set forth herein with respect to the rights and interest
thereafter of the holder of the Warrant, to the end that the provisions set
forth herein (including provisions with respect to adjustments of the exercise
price) shall thereafter be applicable, as nearly as reasonably may be, in
relation to any shares of stock or other property thereafter deliverable upon
the exercise of the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
A. Prepare and retain on file a statement describing in reasonable
detail the method used in arriving at the new exercise price; and
B. Cause a copy of such statement to be mailed to the holder of the
Warrant as of a date within ten (10) days after the date when the
circumstances giving rise to the adjustment occurred.
4
<PAGE>
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT UNITS.
A. Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance
hereof, agrees to give written notice to the Company before transferring
this Warrant or transferring any Warrant Units of such Holder's intention
to do so, describing briefly the manner of any proposed transfer. Promptly
upon receiving such written notice, the Company shall present copies
thereof to the Company's counsel and to counsel to the original purchaser
of this Warrant. If in the opinion of each such counsel the proposed
transfer may be effected without registration or qualification (under any
federal or state securities laws), the Company, as promptly as practicable,
shall notify the Holder of such opinion, whereupon the Holder shall be
entitled to transfer this Warrant or to dispose of Warrant Units received
upon the previous exercise of this Warrant, all in accordance with the
terms of the notice delivered by the Holder to the Company; provided that
an appropriate legend may be endorsed on this Warrant or the certificates
for such Warrant Units respecting restrictions upon transfer thereof
necessary or advisable in the opinion of counsel to the Company and
satisfactory to the Company to prevent further transfers which would be in
violation of Section 5 of the Securities Act of 1933, as amended (the "1933
Act") and applicable state securities laws; and provided further that the
prospective transferee or purchaser shall execute such documents and make
such representations, warranties, and agreements as may be required solely
to comply with the exemptions relied upon by the Company for the transfer
or disposition of the Warrant or Warrant Units.
B. If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such
Warrant Units described in the written notice given pursuant to this
Section 7 may not be effected without registration or qualification of this
Warrant or such Warrant Units the Company shall promptly give written
notice thereof to the Holder, and the Holder will limit its activities in
respect to such as, in the opinion of both such counsel, are permitted by
law.
8. FRACTIONAL UNITS. Fractional Units shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional Unit, the Company shall, upon the exercise of this Warrant for the
largest number of whole Units then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Fair Market Value (as defined in Section
10(d)) of such fractional Unit over the proportional part of the Warrant
Exercise Price represented by such fractional Unit, plus (b) the proportional
part of the Warrant Exercise Price represented by such fractional Unit.
9. REGISTRATION RIGHTS.
A. If at any time prior to the expiration of seven (7) years from
the date hereof, the Company proposes to file any Registration Statement
under the 1933 Act covering a public offering of any of the Company's
securities (except by a Form S-4 or Form S-8
5
<PAGE>
Registration Statement or any successor forms thereto), it will give
written notice to all Holders of this Warrant, any Warrants issued pursuant
to Section 2 and/or Section 3(a) hereof, and any securities issuable upon
exercise of this Warrant or the Class A Warrants of its intention to do so
and, on the written request of any such Holder given within twenty (20)
days after receipt of any such notice (which request shall specify the
interest in this Warrant or the securities issuable upon exercise of this
Warrant or the Class A Warrants intended to be sold or disposed of by such
Holder and describe the nature of any proposed sale or other disposition
thereof), the Company will use its best efforts to cause all such
securities, the Holders of which shall have requested the registration or
qualification thereof, to be included in such registration statement
proposed to be filed by the Company; provided, however, that nothing
herein shall prevent the Company from, at any time, abandoning or delaying
any registration. If any registration pursuant to this Section 9(a) is
underwritten in whole or in part, the Company may require that the
securities requested for inclusion pursuant to this Section 9(a) be
included in the underwriting on the same terms and conditions as the
securities otherwise being sold through the underwriters. If a greater
number of securities is offered for participation in the proposed offering
than in the reasonable opinion of the managing underwriter of the proposed
offering can be accommodated without adversely affecting the proposed
offering, then the amount of securities proposed to be offered by such
Holders for registration, as well as the number of securities of any other
selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
B. Further, at any time prior to the expiration of this Warrant, and
provided that a registration statement on Form S-3 (or any successor form
thereto) is then available to the Company, and on a one-time basis only,
upon request by the Holder or Holders of a majority in interest of any
securities originally issuable under this or any warrant issued to the
Underwriter or any affiliate in connection with the sale of shares pursuant
to the Underwriter Agreement Underwriter (whether or not then issued) and
any Warrants issued pursuant to Section 2 and/or Section 3(a) hereof, the
Company will promptly take all necessary steps to register or qualify,
under the 1933 Act and the securities laws of such states as the Holders
may reasonably request, such number of securities issued and to be issued
upon conversion of the Warrants requested by such Holders in their request
to the Company. In addition, upon the receipt of such request, the Company
shall promptly give written notice to all other record Holders of the
securities not theretofore registered under the Securities Act and sold
that such registration is to be effected. The Company shall include in
such registration statement such securities for which it has received
written requests to register by such other record Holders within 30 days
after the delivery of the Company's written notice to such other record
Holders. The Company shall be obligated to prepare, file and cause to
become effective only one registration statement pursuant to this Section
9(b) and to pay the costs and expenses associated with such registration
statement to the extent provided in Section 9(c). The Company shall keep
effective and maintain any registration, qualification, notification, or
approval specified in this Paragraph (b) for a period of one hundred twenty
(120) days or the date on which all securities are sold, whichever is
earlier.
6
<PAGE>
C. With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following
fees, costs, and expenses: all registration, filing and NASD fees, printing
expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or
underwriters of such securities (if the Company is required to bear such
fees and disbursements), all internal expenses, the premiums and other
costs of policies of insurance for the benefit of the Company and/or its
directors and officers against liability arising out of the public
offering, and legal fees and disbursements and other expenses of complying
with state securities laws of any jurisdictions in which the securities to
be offered are to be registered or qualified. Fees and disbursements of
special counsel and accountants for the selling Holders, underwriting
discounts and commissions, and transfer taxes for selling Holders shall be
borne by the selling Holders.
D. The Company hereby indemnifies each of the Holders of this
Warrant and of any securities issued upon exercise thereof or the Class A
Warrant, and the officers and directors, if any, who control such Holders,
within the meaning of Section 15 of the 1933 Act, against all losses,
claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company
shall have furnished any amendments thereof or supplements thereto), any
Preliminary Prospectus or any state securities law filings; (2) any
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading except insofar as such losses, claims, damages, or liabilities
are caused by any untrue statement or omission contained in information
furnished in writing to the Company by such Holder expressly for use
therein; and each such Holder by its acceptance hereof severally agrees
that it will indemnify and hold harmless the Company, each of its officers
who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act,
with respect to losses, claims, damages, or liabilities which are caused by
any untrue statement or alleged untrue statement, omission or alleged
omission contained in information furnished in writing to the Company by
such Holder expressly for use therein.
10. ADDITIONAL RIGHT TO CONVERT WARRANT.
A. The Holder of this Warrant shall have the right to require the
Company to convert this Warrant (the "Conversion Right") at any time after
it is exercisable, but prior to its expiration, into Units as provided for
in this Section 10. Upon exercise of the Conversion Right, the Company
shall deliver to the Holder (without payment by the Holder of any exercise
price) that number of shares of Company Common Stock equal to the quotient
obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate
exercise price for the Warrant in effect immediately prior to the exercise
of the Conversion Right from the aggregate Fair Market Value (as determined
below) for the Warrant immediately prior to the exercise of the Conversion
Right) by (y) the Fair Market Value of one share of Company Common Stock
immediately prior to the exercise of the Conversion Right. No fractional
shares shall be issuable upon exercise of the Conversion Right, and if the
number of shares to be issued in accordance with the foregoing formula is
other than a whole
7
<PAGE>
number, the Company shall pay to the holder of this Warrant an amount in
cash equal to the fair market value of the resulting fractional share.
B. The Conversion Right may be exercised by the Holder, at any time
or from time to time after this Warrant is exercisable, prior to its
expiration, on any business day by delivering a written notice in the form
attached hereto (the "Conversion Notice") to the Company at the offices of
the Company exercising the Conversion Right and specifying (i) the total
number of shares of Common Stock the Holder will purchase pursuant to such
conversion and (ii) a place and date not less than one or more than 20
business days from the date of the Conversion Notice for the closing of
such purchase.
C. At any closing under Section 10(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common
Stock issuable upon such conversion, together with cash, in lieu of any
fraction of a share, and (iii) the Company will deliver to the Holder a new
Warrant representing the number of shares, if any, with respect to which
the Warrant shall not have been converted.
D. Fair Market Value of a share of Common Stock as of a particular
date (the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or is
quoted on the Nasdaq National Market System, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date,
(ii) If the Company's Common Stock is not traded on an exchange or on
the Nasdaq National Market System but is traded on the Nasdaq SmallCap
Market or other over-the-counter market, then the average closing bid and
asked prices reported for the ten (10) business days immediately preceding
the Determination Date, and
(iii) If the Company's Common Stock is not traded on an exchange
or on the Nasdaq National Market, Nasdaq SmallCap Market or other
over-the-counter market, then the price established in good faith by the
Company's Board of Directors.
11. MISCELLANEOUS. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the term "Common Stock" shall include any stock of
any class of the Company other than preferred stock with a fixed limit on
dividends and a fixed amount payable in the event of any voluntary or
involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets, or
by any other voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, but will, at all times in good faith,
assist, insofar as it is able, in the carrying out of all provisions hereof and
in the taking of all
8
<PAGE>
other action which may be necessary in order to protect the rights of the
Holder hereof against dilution.
The Company agrees to provide Underwriter with detailed quarterly and
annual financial statements as soon as available, in a form reasonably
satisfactory to Underwriter, as well as any other documents as Underwriter or
its counsel may reasonably request in a form satisfactory to Underwriter, so
long as this Warrant or any Warrant Units are outstanding and unregistered.
Upon written request of the Holder of this Warrant, the Company will
promptly provide such Holder with a then current written list of the names and
addresses of all Holders of warrants originally issued under the terms of, and
concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include the
immediate holder of shares purchased on the exercise of this Warrant, and the
word "holder" shall include the plural thereof. This Common Stock Purchase
Warrant shall be interpreted under the laws of the State of Minnesota.
All shares of Common Stock or other securities issued upon the exercise of
the Warrant shall be validly issued, fully paid and non-assessable, and the
Company will pay all taxes due and payable by the issuer in respect of the
issuance thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a Shareholder of the Company for any purpose
whatsoever until and unless this Warrant is duly exercised.
Neither this Warrant nor any term hereof may be changed, waived, discharged
or terminated orally but only by an instrument in writing signed by the party
against which enforcement of the change, waiver, discharge or termination is
sought.
IN WITNESS WHEREOF, Hypertension Diagnostics, Inc. has caused this Warrant
to be signed by its duly authorized officer and this Warrant to be dated
___________________, 1998.
"Company"
HYPERTENSION DIAGNOSTICS, INC.
By______________________________________
Its_____________________________________
9
<PAGE>
TO: HYPERTENSION DIAGNOSTICS, INC.
NOTICE OF EXERCISE OF WARRANT -- To Be Executed by the Registered Holder in
Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, __________________ of the Units issuable upon the exercise of
such Warrant, and requests that certificates for such Units (together with a new
Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
________________________________________
(Print Name)
Please insert social security
or other identifying number
of registered Holder of
certificate (_____________) Address:
________________________________________
________________________________________
Date: ____________ ________________________________________
Signature*
*The signature on the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
10
<PAGE>
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _______________________________ the right to purchase the securities of
Linguistic Technologies, Inc. to which the within Warrant relates and appoints
______________________, attorney, to transfer said right on the books of
Hypertension Diagnostics, Inc. with full power of substitution in the premises.
Dated:___________ ______________________________
(Signature)
Address:
______________________________
______________________________
11
<PAGE>
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
TO: HYPERTENSION DIAGNOSTICS, INC.
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Warrant Certificate for, and to purchase
thereunder, _______________ shares of Common Stock, as provided for in Section
10 therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name__________________________
(Please print name)
Address____________________________________
Social Security No.________________
Signature__________________________________
NOTE: The above signature should correspond exactly with the name on
the first page of this Warrant Certificate or with the name of the assignee
appearing in the assignment form below.
And if said number of shares is not all of the shares purchasable under the
within Warrant, a new Warrant is to be issued in the name of said undersigned
for the balance remaining of the shares purchasable thereunder rounded up to the
next higher number of shares.
12
<PAGE>
EXHIBIT 1.2
2,500,000 UNITS
Each Unit Consisting of One Share of Common Stock and
One Redeemable Class A Warrant
HYPERTENSION DIAGNOSTICS, INC.
SELECTED DEALER AGREEMENT
_________________, 1998
___________________________
___________________________
___________________________
___________________________
Ladies and Gentlemen:
Registration under the Securities Act of 1933, as amended, (the "1933 Act")
of this issue, described in the enclosed Prospectus, has become effective. The
Underwriter is offering certain of the Units for purchase as principal by a
selected list of dealers (herein collectively referred to as "Selected
Dealers").
Public Offering Price: As set forth in the Prospectus.
Selected Dealers $______ per Unit, payable as
Concession: set forth below.
Reallowance: Not in excess of $____ per
Unit may be reallowed as a
selling concession to dealers,
but only as permitted by the
Rules of Fair Practice of the
National Association of
Securities Dealers, Inc.
("NASD").
Confirmation of Orders: All orders are subject to
confirmation and allotment by
us. We reserve the right to
reject any order, or to allot
less than the amount applied for.
Delivery and Payment: At the office of R. J.
Steichen & Company at such time
and on such day as we may advise
<PAGE>
you. Payment is to be made at the
public offering price, less the
Selected Dealers concession, by a
certified or official bank check
payable to the order of
___________________ in Clearing House
funds against delivery of
certificates. If you are a member of,
or clear through a member of, the
Depository Trust Company (the "DTC"),
we may, in our discretion, make
delivery through the facilities of
the DTC.
Dealings During Life of this Units ordered by Selected Dealers,
Agreement: when confirmed by us, may be
immediately reoffered to the public
in conformity with the terms of
offering set forth in the Prospectus.
As stated in the Prospectus, we may
engage in transactions for the
purposes of stabilizing the price of
the Units. Stabilization, if
commenced, may be discontinued at any
time.
Termination of this Agreement: This Agreement shall terminate at
5:00 P.M., Minneapolis time, 45 days
after the public offering of these
Units unless extended in our
discretion for a period or periods
not to exceed in the aggregate 45
days; but we may terminate this
Agreement whether or not extended, at
any time without prior notice.
These Units are offered by us for delivery when, as, and if issued to and
accepted by us and subject to the terms hereof, our right at any time to vary
the offering price, concessions and terms of the offering and our right to
withdraw, cancel, or modify this offer without notice.
You are not authorized to act as agent for us or otherwise act in our
behalf in offering these Units to the public or otherwise, or to give any
information or to make any representation not contained in the Prospectus.
Nothing herein contained will constitute the Selected Dealers and us a
partnership, association, or other separate entity, but you shall be responsible
for your share of any liability or expense based on any claim to the contrary.
We shall not be under any liability to you, except for obligations expressly
assumed in this Agreement, and no obligations on our part shall be implied
hereby or inferred herefrom, but nothing in this paragraph shall be deemed to
relieve us of any liability imposed under the 1933 Act.
-2-
<PAGE>
By your acceptance hereof, you agree: (1) to take up and pay for the Units
ordered by and confirmed to you; (2) in reoffering the same, to comply with the
terms of this Agreement; (3) upon our request, to advise us of the amount of
Units purchased from us remaining and unsold by you and to resell to us such
number of unsold Units as we may request at the public offering price less the
amount of the Selected Dealers concession; (4) that you will not offer or sell
the Units in any jurisdiction except those with respect to which we have advised
you that such offers or sales will be permissible under the state securities or
Blue Sky laws of the respective jurisdictions (notwithstanding any information
furnished or any action taken in connection therewith, we shall have no
obligation or responsibility with respect to the registration or qualification
of the Units in any jurisdiction or the right of any Selected Dealer to sell or
advertise them therein) and that in the event that you sell any Units in
jurisdictions where the Units have not been registered or qualified you will
accept sole responsibility for any curative measures with respect to, or
liability arising from, such sales; (5) that you will not engage in stabilizing
the price of the Units or, until completion of your participation in the
distribution, in bidding for or purchasing or attempting to induce others to
purchase, directly or indirectly, any of the Units; and (6) notwithstanding the
termination of this Agreement, to bear your proper proportion of any tax,
liability or other claims in connection herewith imposed at any time against you
alone, with other Selected Dealers, or with the Underwriter, and a like share of
any expenses of resisting such claims.
It is assumed that Units sold by you will be effectively placed for
investment. You agree to pay us upon demand an amount equal to the Selected
Dealers concession as to any Units purchased by you hereunder which, prior to
the termination of this Agreement, we may Purchase or contract to purchase for
our account or which may be delivered against purchase contracts made prior to
the termination of this Agreement and, in addition, we may charge you with any
broker's commission and transfer tax paid in connection with such purchase or
contract to purchase. Certificates for Units delivered on such repurchases need
not be the identical certificates originally purchased.
You, by your confirmation below, represent that neither you nor any of your
directors, officers, partners, "persons associated with" you (as defined in the
Bylaws of the NASD) nor, to your knowledge, any "related person" (as defined by
the NASD in its NASD Conduct Rule 2700 regarding Securities Distributions, and
its subparts), has participated or intend to participate in any transaction or
dealing (including with the Company) as to which documents or information are
required to be filed with the NASD pursuant to such Rule, and as to which such
documents or information have not been so filed in a timely manner; and that the
Company is not an "affiliate" of yours, nor is any director, officer or holder
of five percent (5%) or more of the voting securities of the Company a "person
associated with" you (as such terms are defined in the Bylaws of the NASD).
You agree that you will not sell to any account over which you exercise
discretionary authority any of the Units which you purchase.
On becoming a Selected Dealer, and in offering and selling the Units, you
agree to comply with all the applicable requirements of the 1933 Act and the
rules and regulations thereunder, and any applicable state securities laws.
You confirm that you are familiar with Rule 15c2-8 under the Securities
Exchange Act of 1934 (the "1934 Act") relating to the distribution of
Preliminary and final prospectuses for securities of an
-3-
<PAGE>
issuer (whether or not the issuer is subject to the reporting requirements of
Section 13 or 15(d) of the 1934 Act) and confirm that you have complied and
will comply therewith. You confirm that you are in compliance with Rule
15c3-1 under the 1934 Act and the Securities and Exchange Commission's
uniform net capital rules thereunder, and you will continue to be in
compliance during your participation in this offering.
You represent that you are either (1) a member in good standing of the NASD
who agrees to comply with all applicable rules of the NASD, including without
limitation, the NASD's Free-Riding and Withholding Rule (IM-2110-1) and
applicable Conduct Rules, including but not limited to Rules 2420, 2730, 2740,
2750 of the NASD's Conduct Rules; or (2) a foreign dealer not eligible for
membership in the NASD who hereby agrees to make no sales within the United
States, its territories, or its possessions, nor to persons who are citizens
thereof or residents therein, and in making other sales to comply with the NASD
Securities Distributions Conduct Rule mentioned above and Conduct Rules 2730,
2740 and 2750 as if you were an NASD member and to comply with Conduct Rule 2420
of such article as that section applies to a nonmember foreign dealer.
Very truly yours,
R. J. STEICHEN & COMPANY
By:_____________________________________
Its:____________________________________
-4-
<PAGE>
ACCEPTANCE
We confirm our agreement to purchase _________ Units of the above issue
subject to all the terms and conditions set forth in the Agreement. We
acknowledge receipt of the Prospectus and no other statements, written or oral.
We further state that in purchasing the Units we have relied upon the Prospectus
and upon no other statement whatsoever, written or oral.
Dated: ______________________, 1998
______________________________________________________
Print corporate name or firm name of selected dealer
______________________________________________________
Signature of authorized official or partner
______________________________________________________
Print name of person signing
______________________________________________________
Print title of person signing
Address:
______________________________________________________
______________________________________________________
M:91322.2:PTC:05/13/1998
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<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
HYPERTENSION DIAGNOSTICS, INC.
I, the undersigned, President of Hypertension Diagnostics, Inc., a
corporation subject to the provisions of Chapter 302A, Minnesota Statutes, do
hereby certify that at a meeting of the shareholders of the corporation, duly
held on September 22, 1995, the following resolution, providing for the
amendment of the Articles of Incorporation of Hypertension Diagnostics, Inc.,
was duly adopted pursuant to said Chapter 302A:
RESOLVED: That Article III of the Articles of Incorporation of this
corporation shall be amended and restated as follows:
ARTICLE III
3.01. NUMBER OF SHARES. The aggregate number of shares which this
Corporation shall have the authority to issue is 30,000,000 shares.
3.02. CLASSES OF SHARES.
(a) The authorized Common Stock of the Corporation is 25,000,000
shares, par value $.0l per share, and the authorized Preferred Stock of the
Corporation is 5,000,000 shares.
(b) The Preferred Shares of this Corporation shall have all of the
rights and preferences set forth in one or more Certificates of
Designation, as determined by the Board of Directors.
(c) The Board of Directors may, from time to time, establish by
resolution additional or different classes or series of shares and may fix
the rights and preferences of shares in any class or series.
3.03. ISSUANCE OF SHARES. The Board of Directors shall have the
authority to issue shares of a class or series to holders of shares of
another class or series to effectuate share dividends, splits, or
conversion of its outstanding shares.
3.04. PREEMPTIVE RIGHTS. No holder of stock of this Corporation
shall have any preferential, preemptive or other right of subscription to
any shares or any class or series of shares of stock of this Corporation
allotted or sold or to be allotted or sold as now, or as may
<PAGE>
hereafter be, authorized, or to any obligations or securities convertible
into any class or series of stock of this Corporation, or to any options,
warrants or other right to acquire shares of any class of shares of this
Corporation, or to any subscription or any right of subscription to any
part thereof, except such, if any, as the Board of Directors in its sole
discretion may determine from time to time, and at such price or terms as
the Board of Directors may fix.
3.05. CUMULATIVE VOTING. No shareholder shall be entitled to any
cumulative voting rights.
3.06. VOTE REQUIRED. The shareholders shall take action by the
affirmative vote of the holders of a majority of the voting power of the
shares present and voting except where a larger proportion is required by
these Articles of Incorporation or law.
IN WITNESS WHEREOF, I have subscribed my name hereto this 9th day
of October, 1995.
/s/ Charles F. Chesney
------------------------------
Charles F. Chesney, President
2
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ARTICLES OF INCORPORATION
OF
HYPERTENSION DIAGNOSTICS, INC.
The undersigned, for purposes of forming a corporation under Chapter 302A of the
Minnesota Statutes, as amended, does hereby sign and acknowledge these Articles
of Incorporation.
ARTICLE I
The name of the corporation is Hypertension Diagnostics, Inc.
ARTICLE II
The registered office of the corporation in Minnesota is 1313 Fifth Street S.E.,
Minneapolis, Minnesota 55414.
ARTICLE III
The aggregate number of shares of stock which the corporation shall have
authority to issue is Five Million (5,000,000) shares of common stock, $.01 par
value.
ARTICLE IV
The name and mailing address of the incorporator is as follows:
Name Address
---- -------
Charles F. Chesney Five Acorn Drive
Sunfish Lake, MN 55075
ARTICLE V
The purposes of the corporation are general business purposes and the
corporation shall possess all powers necessary to conduct any business in which
it is authorized to engage, including, but not
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limited to, all those powers expressly conferred upon business corporations by
Chapter 302A of the Minnesota Statutes, as amended, together with those powers
implied therefrom.
ARTICLE VI
The corporation shall have perpetual duration.
ARTICLE VII
The affirmative vote of the holders of a majority of the voting power of the
shares represented and entitled to vote at a duly held meeting is required for
an action of the shareholders, including as amendment to the Articles of
Incorporation, except where Chapter 302A of the Minnesota Statutes, as amended,
requires an affirmative vote of a larger majority.
ARTICLE VIII
Shares of the corporation acquired by the corporation shall become authorized
but unissued shares and may be reissued as provided in these Articles.
ARTICLE IX
The names and mailing addresses of the first directors of the corporation are:
Name Address
- ---- -------
Jay N. Cohn, M.D. 4848 Russell Ave. S.
Minneapolis, MN 55410
Sidney H. Levinsohn, R.Ph. 3224 Cavell Ave
Minneapolis, MN 55426
Stephen L. Zuckerman, M.D. 5801- 25th 1/2 Street
St. Louis Park, MN 55416
Charles F. Chesney, D.V.M., Ph.D. Five Acorn Drive
Sunfish Lake, MN 55075
4
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ARTICLE X
(A) The Board of Directors may from time to time, by vote of a majority of
its members present at a duly held Meeting, adopt, amend or repeal all
or any of the Bylaws of the corporation as permitted by Chapter 302A
of the Minnesota Statutes, as amended, subject to the power of the
shareholders to adopt, amend or repeal such Bylaws.
(B) The Board of Directors is authorized to accept and reject
subscriptions for and to dispose of shares of authorized stock of the
corporation, including granting of stock options, warrants and other
rights to purchase stock, without action by the shareholders and upon
such terms and conditions as may be deemed advisable by the 3oard of
Directors in the exercise of its discretion, except as otherwise
limited by Chapter 302A of the Minnesota Statutes, as amended.
(C) The Board of Directors is authorized to issue, sell or otherwise
dispose of bonds, debentures, certificates or indebtedness and other
securities, including those convertible into stock, without action by
the shareholders and for such consideration and upon such terms and
conditions as may be deemed advisable by the Board of Directors in the
exercise of its discretion, except as otherwise limited by Chapter
302A of the Minnesota Statutes, as amended.
(D) The Board of Directors is authorized to adopt, by an affirmative vote
of a majority of the directors present at a duly called meeting, a
resolution or resolutions providing for the establishment of a class
or series of authorized stock of the corporation or bonds, debentures,
certificates of indebtedness or other securities, setting forth the
designation of and number of shares constituting the class or series
and fixing the relative rights and preferences of the class or series.
ARTICLE XI
A director of the Corporation, including a person deemed to be a director under
applicable law, shall not to be personally liable to the Corporation or its
shareholders for monetary damages for breach of fiduciary duty as a director,
except to the extent provided by applicable law (i) for any breach of the
director's duty of loyalty to the Corporation or its shareholders, (ii) for
acts or omissions, not in good faith or that involve intentional misconduct or a
knowing violation of law, (iii) under Sections 302A.559 or 80A.23 of the
Minnesota Statutes, as amended, (iv) for any transaction from which the director
derived an improper personal benefit, or (v) for any act or omission occurring
prior to the date that this Article XI becomes effective. If the Minnesota
Business Corporation Act hereafter is amended to authorize the further
elimination or limitation of the liability of directors, then the liability of a
director of the Corporation in addition to the limitation and elimination of
personal liability provided herein, shall be eliminated or limited to the
fullest extent permitted by the Minnesota Business Corporation Act, as so
amended. No amendment to or repeal of this Article XI shall apply
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to, or have any effect on, the liability or alleged liability of any director
for or with respect to any acts or omissions of such director occurring prior
to such amendment or repeal.
ARTICLE XII
Each director, officer, employee or agent, past and present, of the corporation,
and each person who serves or may have served at the request of the corporation
as a director, officer, employee or agent of another corporation or employee
benefit plan, and their respective heirs, administrators and executors, shall be
indemnified by the corporation in accordance with, and to the fullest extent
permissible under, the provisions of Chapter 302A of the Minnesota Statutes, as
amended.
ARTICLE XIII
Any action required or permitted to be taken at a meeting of the Board may be
taken by written consent signed by all the directors; provided that, if the
action is one which does not require shareholder approval, such action may be
taken by written consent signed by the number of directors that would be
required to take the same action at a meeting at which all directors were
present.
ARTICLE XIV
The shareholders of the corporation have no right to cumulate their votes in the
election of directors.
ARTICLE XV
The shareholders of the corporation have no preemptive rights in any future
issuance of stock by the corporation.
IN WITNESS WHEREOF, the undersigned hereunto sets his hand this 18th day of
July, 1988.
/s/ Charles F. Chesney
-------------------------------
Charles F. Chesney
6
<PAGE>
STATE OF MINNESOTA )
) ss.
COUNTY OF HENNEPIN )
The foregoing instrument was acknowledged before me this 18th day of July, 1988,
by Charles F. Chesney.
/s/ Ann J. Diehl
------------------------
Notary Public
[SEAL]
7
<PAGE>
BYLAWS
OF
HYPERTENSION DIAGNOSTICS, INC.
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the Corporation
required by Chapter 302A of the Minnesota Statutes to be maintained in the State
of Minnesota is as designated in the Articles of Incorporation. The Board of
Directors of the Corporation may, from time to time, change the location of the
registered office. On or before the day that such change is to become
effective, a certificate of such change and of the new address of the new
registered office shall be filed with the Secretary of State of the State of
Minnesota.
SECTION 2. OTHER OFFICES. The Corporation may establish and maintain
such other offices, within or without the State of Minnesota, as are from time
to time authorized by the Board of Directors.
ARTICLE II
MEETINGS OF SHAREHOLDERS
SECTION 1. PLACE OF MEETING. All meetings of the shareholders shall be
held at the registered office of the Corporation in the State of Minnesota or at
such place within or without the state as may be fixed from time to time by the
Board of Directors, provided that a meeting called by or at the demand of a
shareholder shall be held in the county where the principal executive office of
the Corporation is located.
SECTION 2. DATE OF MEETING. A regular meeting of shareholders may be
held for the purpose of electing directors or for the transaction of any other
business as may come before the meeting. It shall be the duty of the President
or Treasurer, upon demand of any shareholder holding three percent (3%) or more
of the voting power of all shares entitled to vote to call such meeting if a
regular meeting of shareholders has not been held during the immediately
preceding fifteen (15) months. If said officers fail to call and hold such
meeting within ninety (90) days after receipt of the demand, the shareholder
making the demand shall have the right and power to call such meeting.
SECTION 3. NOTICE OF REGULAR MEETINGS. Written notice of the time and
place of each regular shareholder meeting shall be mailed, postage prepaid, at
least ten (10) but not more than sixty (60) days before such meeting, to each
shareholder entitled to vote thereat at his address as the same appears upon the
books of the Corporation.
SECTION 4. SPECIAL MEETINGS. Special meetings of the shareholders, for
any purpose or purposes, unless otherwise prescribed by statute or by the
Articles of Incorporation, may be called by the President or Treasurer and shall
be called by the President or Treasurer at the request in writing of two or more
members of the Board of Directors, or at the request in writing of shareholders
owning ten percent (10%) or more of the voting power of all shares entitled to
vote.
<PAGE>
Such request, which shall be by registered mail or delivered in person to the
President or Treasurer, shall state the purpose or purposes of the proposed
meeting.
SECTION 5. NOTICE OF SPECIAL MEETINGS. Written notice of the time,
place and purpose or purposes of a special meeting shall be mailed, postage
prepaid, at least five (5) but not more than sixty (60) days before such
meeting, to each shareholder entitled to vote at such meeting at his address as
the same appears upon the books of the Corporation.
SECTION 6. BUSINESS TO BE TRANSACTED. No business shall be transacted
at any special meeting of shareholders except that stated in the notice of the
meeting.
SECTION 7. WAIVER OF NOTICE. A shareholder may waive notice of a
meeting of shareholders. A waiver of notice by a shareholder entitled to notice
is effective whether given before, at, or after the meeting, and whether given
in writing, orally, or by attendance. Attendance by a shareholder at a meeting
is a waiver of notice of that meeting, except where the shareholder objects at
the beginning of the meeting to the transaction of business because the meeting
is not lawfully called or convened, or objects before a vote on an item of
business because the item may not lawfully be considered at that meeting and
does not participate in the consideration of the item at that meeting.
SECTION 8. QUORUM AND ADJOURNMENT. The holders of a majority of the
voting power of the shares entitled to vote at a meeting shall constitute a
quorum at all meetings of the shareholders for the transaction of business,
except as otherwise provided by statute or by the Articles of Incorporation.
If, however, such quorum shall not be present or represented at any meeting of
the shareholders, the holders of a majority of the voting power of the shares
entitled to vote thereat, and present in person or represented by proxy, shall
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented any business may be transacted which might have been transacted at
the meeting as originally noticed. The shareholders present at a duly called or
held meeting at which a quorum is present may continue to transact business
until adjournment, even though the withdrawal of a number of shareholders
originally present leaves less than the proportion or number otherwise required
for a quorum.
SECTION 9. VOTING RIGHTS. A shareholder may cast his vote in person or
by proxy. When a quorum is present at the time a meeting is convened, the vote
of the holders of a majority of the shares entitled to vote on any question
present in person or by proxy shall decide such question unless the question is
one upon which, by express provision of the applicable statute or the Articles
of Incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
SECTION 10. MANNER OF VOTING. Each shareholder shall at every meeting
of the shareholders be entitled to one vote in person or by proxy for each share
of the capital stock having voting power held by such shareholder; provided,
however, that (i) no proxy shall be valid after eleven (11) months from its date
unless the proxy expressly provides for a longer period, and (ii) except where
the transfer books of the Corporation have been closed or a date has been fixed
as a record date for the determination of its shareholders entitled to vote, no
share of stock that has been transferred on the
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books of the Corporation within twenty (20) days next preceding any election
of directors shall be voted at such election for directors.
SECTION 11. RECORD DATE. The Board of Directors may fix a date, not
exceeding sixty (60) days preceding the date of any meeting of shareholders, as
a record date for the determination of the shareholders entitled to notice of
and to vote at such meeting, and in such case only shareholders of record on the
date so fixed, or their legal representatives, shall be entitled to notice of
and to vote at such meeting, notwithstanding any transfer of any shares on the
books of the Corporation after any record date so fixed. The Board of Directors
may close the books of the Corporation against transfers of shares during the
whole or any part of such period.
SECTION 12. ORGANIZATION OF MEETINGS. The President shall preside at
all meetings of the shareholders, and in his or her absence the Treasurer shall
act as Chairman. The Secretary shall act as secretary of all meetings of the
shareholders, or in his or her absence any person appointed by the Chairman
shall act as secretary.
SECTION 13. ACTION WITHOUT A MEETING. Any action required or permitted
to be taken at a shareholders' meeting may be taken without a meeting if
authorized by a writing or writings signed by all of the holders of shares who
would be entitled to vote on that action. Such action shall be effective at the
time the last signature is placed on such writing or writings, unless a
different effective time is provided in the written action. If any action so
taken requires a certificate to be filed in the office of the Secretary of
State, the officer, signing such certificate shall state therein that the action
was effected in the manner aforesaid.
ARTICLE III
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS. The business and affairs of the Corporation
shall be managed by or under its Board of Directors which may exercise all such
powers of the Corporation and do all such lawful acts and things as are not by
statute or by the Articles of Incorporation or by these Bylaws required to be
exercised or done by the shareholders.
SECTION 2. NUMBER AND TERM OF OFFICE. The number of directors which
shall constitute the whole board shall be at least one (1), or such other
number as may be determined by the Board of Directors or by the shareholders at
a regular meeting. Except as otherwise permitted by statute, the directors
shall be elected at each regular meeting of the Corporation's shareholders (or
at any special meeting of the shareholders called for that purpose) by a
majority of the voting power of all shares entitled to vote and present in
person or by proxy, and each director shall be elected to serve until the next
regular meeting of the shareholders or until his or her successor shall have
been duly elected and qualified.
SECTION 3. RESIGNATION AND REMOVAL. Any director may resign at any
time by giving written notice to the Corporation. Such resignation shall take
effect at the date of the receipt of such notice, or at any later time specified
therein, and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective. Any director may be
removed at any
3
<PAGE>
time, with or without cause, by the affirmative vote of the holders of a
majority of the voting shares entitled to elect such director.
SECTION 4. VACANCIES. If the office of any director becomes vacant by
reason of death, resignation, removal, disqualification, or otherwise, the
directors then in office, although less than a quorum, by a majority vote, may
choose a successor who shall hold office for the unexpired term in respect of
which such vacancy occurred. With respect to the initial election of a director
to fill a newly created directorship resulting from an increase in the number of
directors by action of the Board of Directors in the manner permitted by
statute, such vacancy shall be filled by the affirmative vote of a majority of
the directors serving at the time of the increase.
SECTION 5. MEETINGS OF DIRECTORS. The Board of Directors of the
Corporation may hold meetings, from time to time, either within or without the
State of Minnesota, at such place as a majority of the members of the Board of
Directors may from time to time appoint. If the Board of Directors fails to
select a place for the meeting, the meeting shall be held at the principal
executive office of the Corporation.
SECTION 6. CALLING MEETINGS. Meetings of the Board of Directors may be
called by (i) the President on two (2) days' notice or (ii) any director on ten
(10) days' notice, to each director, either personally, by telephone or by mail
or telegram. Every such notice shall state the date, time and place of the
meeting. Notice of a meeting called by a person other than the President shall
state the purpose of the meeting.
SECTION 7. PARTICIPATION BY CONFERENCE TELEPHONE. Directors of the
Corporation may participate in a meeting of the Board of Directors by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and participation in a
meeting by that means shall constitute presence in person at the meeting.
SECTION 8. WAIVER OF NOTICE. A director may waive notice of a meeting
of the Board of Directors. A waiver of notice by a director entitled to notice
is effective whether given before, at, or after the meeting, and whether given
in writing, orally, or by attendance. Attendance by a director at a meeting is
a waiver of notice of that meeting, except where the director objects at the
beginning of the meeting to the transaction of business because the meeting was
not lawfully called or convened and does not participate thereafter in the
meeting.
SECTION 9. ABSENT DIRECTORS. A director may give advance written
consent or opposition to a proposal to be acted on at a meeting of the Board of
Directors by actual delivery prior to the meeting of such advance written
consent or opposition to the President or Treasurer or a director who is present
at the meeting. If the director is not present at the meeting, advance written
consent or opposition to a proposal shall not constitute presence for purposes
of determining the existence of a quorum, but consent or opposition shall be
counted as a vote in favor of or against the proposal and shall be entered in
the minutes or other record of action at the meeting, if the proposal acted on
at the meeting is substantially the same or has substantially the same effect as
the proposal to which the director has consented or objected.
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<PAGE>
SECTION 10. QUORUM. At all meetings of the Board of Directors a
majority of the directors shall constitute a quorum for the transaction of
business, and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
may be otherwise specifically provided by applicable statute or by the Articles
of Incorporation. If a quorum shall not be present at any meeting of the Board
of Directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum is
present. If a quorum is present at the call of a meeting, the directors may
continue to transact business until adjournment notwithstanding the withdrawal
of enough directors to leave less than a quorum.
SECTION 11. ORGANIZATION OF MEETINGS. The President shall preside at
all meetings of the Board of Directors, and in his or her absence the Treasurer
shall act as Chairman. The Secretary shall act as secretary of all meetings of
the Board of Directors, and in his or her absence any person appointed by the
Chairman shall act as secretary.
SECTION 12. ACTION WITHOUT MEETINGS. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors may be taken without a
meeting, if a written consent thereto is signed by all members of the Board of
Directors and such written consent is filed with the minutes of proceedings of
the Board of Directors. If the proposed action need not be approved by the
shareholders and the Articles of Incorporation so provide, action may be taken
by written consent signed by the number of directors that would be required to
take the same action at a meeting of the Board of Directors at which all
directors were present. Such action shall be effective on the date on which the
last signature is placed on such writing or writings, or such other effective
date as is set forth therein.
SECTION 13. COMPENSATION OF DIRECTORS. By resolution of the Board of
Directors, each director may be paid his or her expenses, if any, of attendance
at each meeting of the Board of Directors, and may be paid a stated amount as a
director or a fixed sum for attendance at each meeting of the Board of
Directors, or both. No such payment shall preclude a director from serving the
Corporation in any other capacity and receiving compensation therefor.
ARTICLE IV
OFFICERS
SECTION 1. NUMBER. The officers of the Corporation shall be chosen by
the Board of Directors and shall include a President, a Secretary, and a
Treasurer. The Board of Directors may also choose one or more Vice Presidents,
and one or more Assistant Secretaries and Assistant Treasurers. Any number of
offices or functions of those offices may be held or exercised by the same
person.
SECTION 2. ELECTION. The Board of Directors at its first meeting after
each regular meeting of shareholders shall choose a President, a Secretary and a
Treasurer.
SECTION 3. OTHER OFFICERS AND AGENTS. The Board of Directors may
appoint such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall
5
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exercise such powers and perform such duties as shall be determined from time
to time by the Board of Directors.
SECTION 4. SALARIES. The salaries of all officers of the corporation
shall be fixed by the Board of Directors.
SECTION 5. TERM OF OFFICE. The officers of the Corporation shall hold
office until their successors are chosen and qualify. Any officer elected or
appointed by the Board of Directors may be removed with or without cause at any
time by the affirmative vote of a majority of the Board of Directors. Any
officer may resign at any time by giving written notice to the President or the
Secretary of the Corporation. Any vacancy occurring in any office of the
Corporation shall be filled by the Board of Directors.
SECTION 6. THE PRESIDENT. POWERS AND DUTIES. The President shall be
the chief executive officer of the Corporation, shall preside at all meetings of
the Board of Directors and the shareholders, shall have general active
management of the business of the Corporation, shall see that all orders and
resolutions of the Board of Directors are carried into effect, and shall perform
such other duties prescribed by the Board of Directors. He or she shall execute
bonds, mortgages, and other contracts of the Corporation, except where required
or permitted by law to be otherwise signed and executed and except where the
signing and execution thereof shall be expressly delegated by the Board of
Directors to some other officer or agent of the Corporation, and shall maintain
records of and, whenever necessary, certify all proceedings of the Board of
Directors and the shareholders. Except as otherwise prescribed by these Bylaws
or the Board of Directors, he or she shall prescribe duties of other officers.
SECTION 7. THE VICE PRESIDENT. POWERS AND DUTIES. The Vice President,
if any, or if there shall be more than one, the Vice Presidents in the order
determined by the Board of Directors, shall, in the absence or disability of the
President, perform the duties and exercise the powers of the President and shall
perform such other duties and have such other powers as the Board of Directors
or the President may from time to time prescribe.
SECTION 8. THE SECRETARY. POWERS AND DUTIES. The Secretary shall
attend all meetings of the Board of Directors and all meetings of the
shareholders and record all the proceedings of the meetings of the Corporation
and of the Board of Directors in a book to be kept for that purpose. He or she
shall give, or cause to be given, notice of all meetings of the shareholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or President, under whose
supervision he or she shall be.
SECTION 9. ASSISTANT SECRETARY. The Assistant Secretary or, if there
be more than one, the Assistant Secretaries, in the order determined by the
Board of Directors, shall, in the absence or disability of the Secretary,
perform the duties and exercise the powers of the Secretary and shall perform
such other duties and have such other powers as the Board of Directors or the
President may from time to time prescribe.
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SECTION 10. THE TREASURER. POWERS AND DUTIES. The Treasurer shall be
the chief financial officer, shall have custody of the Corporation's funds and
securities, shall keep full and accurate accounts of receipts and disbursements
in books belonging to the Corporation, shall deposit all monies and other
valuable effects in the name and to the credit of the Corporation in such
depositories as may be designated by the Board of Directors, and shall perform
such other duties prescribed by the Board of Directors or by the President.
SECTION 11. TREASURER'S ACCOUNTING. He or she shall disburse such funds
of the Corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, and shall render to the President and the Board
of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all his or her transactions as Treasurer and of the
financial condition of the Corporation.
SECTION 12. TREASURER'S BOND. If required by the Board of Directors, he
or she shall give the Corporation a bond (which shall be renewed every six (6)
years) in such sum and with such surety or sureties as shall be satisfactory to
the Board of Directors for the faithful performance of the duties of his or her
office and for the restoration to the Corporation, in case of his or her death,
resignation, retirement or removal from office, of all books, papers, vouchers,
money and other property of whatever kind in his or her possession or under his
or her control belonging to the Corporation.
SECTION 13. ASSISTANT TREASURER. The Assistant Treasurer or, if there
shall be more than one, the Assistant Treasurers, in the order determined by the
Board of Directors, shall, in the absence or disability of the Treasurer,
perform the duties and exercise the powers of the Treasurer and shall perform
such other duties and have such other powers as the Board of Directors or the
President may from time to time prescribe.
ARTICLE V
CERTIFICATES OF STOCK
SECTION 1. CERTIFICATES OF STOCK. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by the President and
the Secretary or an Assistant Secretary of the Corporation, if there be one,
certifying the number of shares owned by him or her in the Corporation. The
certificates of stock of each class shall be numbered in the order of their
issue.
SECTION 2. FACSIMILE SIGNATURES. Where a certificate is signed (1) by
a transfer agent or an assistant transfer agent, or (2) by a transfer clerk
acting on behalf of the Corporation and a registrar, the signature of any such
President, Secretary or Assistant Secretary may be facsimile. In case any
officer or officers who have signed, or whose facsimile signature or signatures
have been used on any such certificate or certificates shall cease to be such
officer or officers of the Corporation before such certificate or certificates
have been delivered by the Corporation, such certificate or certificates may
nevertheless be adopted by the Corporation and be issued and delivered as though
the person or persons who signed such certificate or certificates or whose
facsimile signature or signatures have been used thereon had not ceased to be
such officer or officers of the Corporation.
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SECTION 3. LOST OR DESTROYED CERTIFICATES. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost or destroyed, upon the making of an affidavit of that fact by the
person claiming the certificate of stock to be lost or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost or destroyed certificate or
certificates, or his or her legal representative, to advertise the same in such
manner as it shall require and/or to give the Corporation a bond in such sum as
it may direct as indemnity against any claim that may be made against the
Corporation with respect to the certificate alleged to have been lost or
destroyed.
SECTION 4. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
SECTION 5. REGISTERED SHAREHOLDERS. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall be
entitled to hold liable for calls and assessments a person so registered on its
books as the owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such share or shares on the part of any other
person, whether or not it shall have express or other notice thereof, except as
otherwise provided by applicable statute.
ARTICLE VI
GENERAL PROVISIONS
SECTION 1. DIVIDENDS. Subject to the provisions of the applicable
statute and the Articles of Incorporation, dividends upon the capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
capital stock.
SECTION 2. RESERVES. Before payment of any dividend, there may be set
aside out of any funds of the Corporation available for dividends such sum or
sums as the directors from time to time, in their absolute discretion, think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purposes as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve in
the manner in which it was created.
SECTION 3. CHECKS. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
SECTION 4. FISCAL YEAR. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
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SECTION 5. SEAL. The Corporation shall not have a corporate seal.
ARTICLE VII
AMENDMENTS
SECTION 1. AMENDMENTS. The power to make, alter, amend or rescind
these Bylaws is vested in the Board of Directors, subject to the power of the
shareholders to adopt, amend or repeal these Bylaws, as permitted by
applicable statute.
July 19, 1988
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WARRANT AGREEMENT
WARRANT AGREEMENT dated as of __________________, 1998 by and between
Hypertension Diagnostics, Inc., a Minnesota corporation (the "Company"), and
Firstar Trust Company, as Warrant Agent (the "Warrant Agent").
A. The Company proposes to issue up to 2,500,000 Redeemable Class A
Warrants (the "Warrants") evidencing the right to purchase an aggregate of up
to 2,500,000 authorized but previously unissued shares of Common Stock, $.01
par value per share, of the Company (the "Common Stock"). The Warrants would
be issued in connection with the issuance by the Company of up to 2,500,000
Units, each Unit consisting of one share of Common Stock and one Warrant, in
connection with the Company's Registration Statement on Form SB-2. In
addition, solely for purposes of covering overallotments, the Company
proposes to grant to the underwriter, for its account, the option to purchase
up to an additional 375,000 Units.
B. The Company desires the Warrant Agent to act on behalf of the
Company, and the Warrant Agent desires so to act, in connection with the
issuance, registration, transfer, exchange and exercise of the Warrants.
NOW THEREFORE, it is agreed as follows:
ARTICLE I.
APPOINTMENT OF WARRANT AGENT; ISSUANCE,
FORM AND EXECUTION OF WARRANT CERTIFICATES
SECTION 1.1 APPOINTMENT OF WARRANT AGENT. The Company hereby
appoints the Warrant Agent to act as agent for the Company, and the Warrant
Agent hereby accepts the agency established herein and agrees to perform its
agency duties in accordance with the terms and conditions of this Warrant
Agreement.
SECTION 1.2 WARRANT CERTIFICATES. The Company shall execute and
deliver to the Warrant Agent certificates which the Company has authorized to
represent the Warrants ("Warrant Certificates"). The Warrant Certificates
shall be substantially as set forth in Exhibit A hereto and may have such
legends, summaries or endorsements printed, lithographed or engraved thereon
as the Company may deem appropriate and as are not inconsistent with the
provisions of this Warrant Agreement, or as may be required to comply with
any law or with any rule or regulation relating to listing of the Warrants on
the Nasdaq Stock Market, including the SmallCap Market, or on any stock
exchange or to conform to usage. The Warrant Certificates shall be dated
with the date of their issuance.
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SECTION 1.3 EXECUTION OF WARRANT CERTIFICATES. The Warrant Certificates
shall be executed on behalf of the Company by a duly authorized officer of the
Company, either manually or by facsimile signature printed thereon. The Warrant
Certificates shall be manually countersigned by the Warrant Agent and shall not
be valid for any purpose unless so countersigned. Any Warrant Certificate may
be signed on behalf of the Company by the person who at the actual date of the
signing of such Warrant Certificate shall have been the proper officer of the
Company, although at the date of issuance of such Warrant Certificate any such
person has ceased to be such officer of the Company.
ARTICLE II.
EXERCISE OF WARRANTS
SECTION 2.1 EXERCISE. Any or all of the Warrants represented by each
Warrant Certificate may be exercised by the holder thereof on or before 5:00
p.m., Minneapolis time, on _________, 2002, unless extended by the Company,
by surrender of the Warrant Certificate with the Purchase Form, which is
printed on the reverse thereof (or a reasonable facsimile thereof) duly
executed by such holder, to the Warrant Agent at its principal office in
Minneapolis, Minnesota, accompanied by payment, in cash or by certified or
official bank check payable to the order of the Company, in an amount equal
to the product of the number of shares of Common Stock issuable upon exercise
of the Warrant represented by such Warrant Certificate, as adjusted pursuant
to the provisions of Article III hereof, multiplied by the exercise price of
$5.50, as adjusted pursuant to the provisions of Article III hereof (such
price as so adjusted from time to time being herein called the "Exercise
Price"), and such holder shall be entitled to receive such number of fully
paid and nonassessable shares of Common Stock, as so adjusted, at the time of
such exercise.
SECTION 2.2 TIME OF EXERCISE. Each exercise of Warrants shall be
deemed to have been effective immediately prior to the close of business on
the business day on which the Warrant Certificate relating to such Warrants
shall have been surrendered to the Warrant Agent as provided in SECTION 2.1,
and at such time the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such
exercise as provided in SECTION 2.3, shall be deemed to have become the
holder or holders of record thereof.
SECTION 2.3 ISSUANCE OF SHARES OF COMMON STOCK; NO FRACTIONAL SHARES.
As soon as practicable after the exercise of any Warrant, and in any event
within ten (10) days after receipt by the Warrant Agent of the notice of
exercise under SECTION 2.1, the Company at its expense (including the payment
by it of any applicable issue taxes) will cause to be issued in the name of
and delivered to the holder thereof or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct,
(a) a certificate or certificates for the number of fully paid
and nonassessable shares of Common Stock to which such holder shall be
entitled upon such exercise plus, in lieu of any fractional share to
which such holder would otherwise be entitled, an amount in cash equal
to such fraction multiplied by the then current value of a share of
Common Stock, determined as follows:
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(i) if the Common Stock is listed or admitted to unlisted trading
privileges on any single stock exchange, then such current value shall be
computed on the basis of the last reported sale price of the Common Stock
on such exchange on the last business day prior to the date of the
exercise of such Warrant upon which a sale shall have been effected; or
(ii) if the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are reported by Nasdaq,
including the SmallCap Market system (or, if not so quoted on Nasdaq, by
the National Quotation Bureau, Inc.), then the current value shall be the
last reported sale on the last business day prior to the date of the
exercise of such Warrant, or, in the event the last reported sale is
unavailable, the average of the closing bid and asked prices on the last
business day prior to the date of the exercise of such Warrant as so
reported; or
(iii) if the Common Stock is listed or admitted to unlisted
trading privileges on more than one stock exchange or one or more stock
exchanges and quoted on Nasdaq, then the current value shall, if different
as a result of calculation under the applicable method(s) described above
in this SECTION, be deemed to be the higher number calculated in
connection therewith; or
(iv) if the Common Stock is not so listed or admitted to unlisted
trading privileges and bid and asked prices are not so reported, then the
current value shall be computed on the basis of the book value of Common
Stock as of the close of business on the last day of the month immediately
preceding the date upon which such Warrant was exercised, as determined by
the Company,
and
(b) in case such exercise includes only part of the Warrants represented
by any Warrant Certificate, a new Warrant Certificate or Warrant Certificates of
like tenor, calling in the aggregate on the face or faces thereof for the number
of shares of Common Stock equal (without giving effect to any adjustment
therein) to the number of such shares called for on the face of such Warrant
Certificate minus the number of such shares designated by the holder for such
exercise as provided in SECTION 2.1. Warrants, represented by a properly
assigned Warrant Certificate, may be exercised by a new holder without first
having a new Warrant Certificate issued.
SECTION 2.4 EXTENSION OF EXERCISE PERIOD; CHANGE OF EXERCISE PRICE. The
Company may, upon notice given to the Warrant Agent, and without the consent of
the holders of the Warrant Certificates, (i) reduce the Exercise Price during
all or any portion of the originally stated exercise period, or (ii) extend the
period over which the Warrants are exercisable beyond _________, 2002 and
increase the Exercise Price for any period the Warrant exercise period is
extended. In the case of the extension of the exercise period or a change in
the Exercise Price, the Company must provide the Warrant Agent and the
Warrantholders of record notice of such extension of the exercise period,
specifying, as the case may be, the time to which such exercise period is
extended, or specifying the new Exercise Price and the periods for which such
new Exercise Price is in effect, a reasonable time
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prior to the date such extension or new Exercise Price is to take effect,
such reasonable time to be commercially reasonable and consistent with
applicable securities laws and regulations.
ARTICLE III.
ANTIDILUTION PROVISIONS
SECTION 3.1 ADJUSTMENT OF EXERCISE PRICE.
(a) The Exercise Price shall be subject to the following
adjustments. In the event that:
(i) any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common
Stock shall be paid by the Company;
(ii) the Company shall subdivide its then outstanding
shares of Common Stock into a greater number of shares; or
(iii) the Company shall combine outstanding shares of
Common Stock, by reclassification or otherwise;
then, in any such event, the 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 Exercise Price, by (B) the total number of shares of Common Stock
outstanding immediately after such event (including 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
Exercise Price per share.
(b) No adjustment of the Exercise Price shall be made if the
amount of such adjustments shall be less than one cent per share, but in
such case any adjustment that would otherwise be required to be made
shall be carried forward and shall be made at the time and together with
the next subsequent adjustment which, together with any adjustment or
adjustments so carried forward, shall amount to not less than one cent
per share.
SECTION 3.2 ADJUSTMENT OF NUMBER OF SHARES PURCHASABLE ON EXERCISE OF
WARRANTS. Upon each adjustment of the Exercise Price pursuant to SECTION 3.1,
the registered holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Exercise Price the number of
shares, calculated to the nearest full share, obtained by multiplying the number
of shares specified in such Warrant (as adjusted as a result of all adjustments
in the Exercise Price in effect prior to such adjustment) by the Exercise Price
in effect prior to such adjustment and dividing the product so obtained by the
adjusted Exercise Price.
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SECTION 3.3 NOTICE AS TO ADJUSTMENT. Upon any adjustment of the
Exercise Price and an increase or decrease in the number of shares of Common
Stock purchasable upon the exercise of the Warrants, then, and in each such
case, the Company shall within ten (10) days after the effective date of such
adjustment give written notice thereof, by first class mail, postage prepaid,
addressed to each registered Warrantholder at the address of such
Warrantholder as shown on the books of the Company, which notice shall state
the adjusted Exercise Price and the increased or decreased number of shares
purchasable upon the exercise of the Warrants, setting forth in reasonable
detail the method of calculation and the facts upon which such calculation is
based.
SECTION 3.4 EFFECT OF REORGANIZATION, RECLASSIFICATION, MERGER, ETC.
If at any time while any Warrant is outstanding there should be any capital
reorganization or reclassification of the capital stock of the Company (other
than the issue of any shares of Common Stock in subdivision of outstanding
shares of Common Stock by reclassification or otherwise and other than a
combination of shares provided for in SECTION 3.1 hereof) or any
consolidation or merger of the Company with another corporation or any sale,
conveyance, lease or other transfer by the Company of all or substantially
all of its assets to any other corporation, the holder of any Warrant shall,
during the remainder of the period such Warrant is exercisable, be entitled
to receive, upon payment of the Exercise Price, the number of shares of stock
or other securities or property of the Company, or of the successor
corporation resulting from such consolidation or merger, or of the
corporation to which the assets of the Company has been sold, conveyed,
leased or otherwise transferred, as the case may be, to which the Common
Stock (and any other securities and property) of the Company, deliverable
upon the exercise of such Warrant, would have been entitled upon such capital
reorganization, reclassification of capital stock, consolidation, merger,
sale, conveyance, lease or other transfer if such Warrant had been exercised
immediately prior to such capital reorganization, reclassification of capital
stock, consolidation, merger, sale, conveyance, lease or other transfer; and,
in any such case, appropriate adjustment (as determined by the Board of
Directors of the Company) shall be made in the application of the provisions
set forth in this Warrant Agreement with respect to the rights and interests
thereafter of the Warrantholders to the end that the provisions set forth in
this Warrant Agreement (including the adjustment of the Exercise Price and
the number of shares issuable upon the exercise of the Warrants) shall
thereafter be applicable, as near as may be reasonably practicable, in
relation to any shares or other property thereafter deliverable upon the
exercise of the Warrants as if the Warrants had been exercised immediately
prior to such capital reorganization, reclassification of capital stock, such
consolidation, merger, sale, conveyance, lease or other transfer and the
Warrantholders had carried out the terms of the exchange as provided for by
such capital reorganization, reclassification, consolidation or merger. The
Company shall not effect any such capital reorganization, consolidation,
merger or transfer unless, upon or prior to the consummation thereof, the
successor corporation or the corporation to which the property of the Company
has been sold, conveyed, leased or otherwise transferred shall assume by
written instrument the obligation to deliver to the holder of each Warrant
such shares of stock, securities, cash or property as in accordance with the
foregoing provisions such holder shall be entitled to purchase.
SECTION 3.5 PRIOR NOTICE AS TO CERTAIN EVENTS. In case at any time:
(a) The Company shall pay any dividend upon its Common Stock
payable in stock or make any distribution (other than cash dividends)
to the holders of its Common Stock; or
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(b) The Company shall offer for subscription pro rata to the
holders of its Common Stock any additional shares of stock of any class
or any other rights; or
(c) There shall be any capital reorganization or reclassification
of the capital stock of the Company, or consolidation or merger of the
Company with, or sale, conveyance, lease or other transfer of all or
substantially all of its assets to, another corporation; or
(d) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
then in any one or more of such cases, the Company shall give prior written
notice, by first class mail, postage prepaid, addressed to each registered
Warrantholders at the address of such Warrantholders as shown on the books of
the Company, of the date on which (i) the books of the Company shall close or
a record shall be taken for such stock dividend, distribution or subscription
rights or (ii) such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up shall take place, as the case
may be. Such notice shall also specify the date as of which the holders of
the Common Stock of record shall participate in such dividend, distribution
or subscription rights or shall be entitled to exchange their Common Stock
for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding up, as the case may be. Such written notice shall be given at least
twenty (20) days prior to the action in question and not less than twenty
(20) days prior to the record date or the date on which the Company's
transfer books are closed in respect thereto.
SECTION 3.6 CERTAIN OBLIGATIONS OF THE COMPANY. The Company will
not, by amendment of its articles of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid
the observance or performance of any of the terms of this Warrant Agreement
or the Warrant Certificate, but will at all times in good faith assist in the
carrying out of all such terms. Without limiting the generality of the
foregoing, the Company (a) will take all such action as may be necessary or
appropriate in order that the Company may validly and legally issue fully
paid and nonassessable shares of such stock upon the exercise of all Warrants
from time to time outstanding, and (b) will not (i) transfer all or
substantially all of its properties and assets to any other person or entity,
or (ii) consolidate with or merge into any other entity where the Company is
not the continuing or surviving entity, or (iii) permit any other entity to
consolidate with or merge into the Company where the Company is the
continuing or surviving entity but, in connection with such consolidation or
merger, the Common Stock then issuable upon the exercise of the Warrants
shall be changed into or exchanged for shares or other securities or property
of any other entity unless, in any such case, the other entity acquiring such
properties and assets, continuing or surviving after such consolidation or
merger or issuing or distributing such shares or other securities or
property, as the case may be, shall expressly assume in writing and be bound
by all the terms of this Warrant Agreement and the Warrant Certificates.
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SECTION 3.7 RESERVATION AND LISTING OF COMMON STOCK. The Company
will at all times reserve and keep available, solely for issuance and
delivery upon the exercise of the Warrants, all shares of Common Stock from
time to time issuable upon such exercise. All such shares shall be duly and
validly issued, fully paid and nonassessable with no liability on the part of
the holder thereof. The Company, at its expense, will list on each stock
exchange and on Nasdaq on which any Common Stock may then be listed (subject
to official notice of issuance) and will maintain such listing of, the shares
of Common Stock from time to time issuable upon the exercise of the Warrants.
SECTION 3.8 REGISTRATION OR EXEMPTION FOR COMMON STOCK. The Company
will use its best efforts (a) at all times the Warrants are exercisable to
maintain an effective registration statement under the Securities Act of
1933, as amended (the "Act"), covering Common Stock issuable upon exercise of
the Warrants, (b) from time to time to amend or supplement the prospectus
contained in such registration statement to the extent necessary in order to
comply with applicable law, (c) to qualify for exemption from the
registration requirements of the Act the Common Stock issuable upon exercise
of the Warrants, and (d) to maintain exemptions or qualifications, in those
jurisdictions in which the original registration statement relating to the
Warrants was initially qualified, to permit the exercise of the Warrants and
the issuance of the Common Stock pursuant to such exercise. The Warrant
Agent shall have no responsibility for the maintenance of such exemptions or
qualifications or for liabilities arising from the exercise or attempted
exercise of Warrants in jurisdictions where exemptions or qualifications have
not been maintained or are otherwise unavailable.
ARTICLE IV.
REDEMPTION OF WARRANT
SECTION 4.1 REDEMPTION PRICE. The Warrants may be redeemed at the
option of the Company, beginning 90 days after the date hereof following a
period of 14 consecutive trading days where the per share closing bid price
of the Common Stock exceeds $6.50, on notice as set forth in SECTION 4.2, and
at a redemption price equal to $.01 per Warrant. For purposes of this
SECTION, the closing bid price of the Common Stock shall be determined by the
closing bid price as reported by Nasdaq so long as the Common Stock is quoted
on Nasdaq and, if the Common Stock is listed on a stock exchange, shall be
determined by the last reported sale price on the primary exchange on which
the Common Stock is traded.
SECTION 4.2 NOTICE OF REDEMPTION. In the case of any redemption of
Warrants, the Company or, at its request, the Warrant Agent in the name of
and at the expense of the Company shall give notice of such redemption to the
holders of the Warrants to be redeemed as hereinafter provided in this
SECTION 4.2. Notice of redemption to the holders of Warrants shall be given
by mailing by first-class mail a notice of such redemption within 10 business
days following the 14 consecutive trading day period referenced in SECTION 4.1
and not less than 30 days prior to the date fixed for redemption. Any notice
which is given in the manner herein provided shall be conclusively presumed
to have been duly given, whether or not the holder receives the notice. In
any case, failure duly to give such notice, or any defect in such notice, to
the holder of any Warrant Certificate shall not affect the validity of the
proceedings for the redemption of Warrants represented by any other Warrant
Certificate. Each such notice shall specify the date fixed for redemption,
the place of redemption and the redemption price of $.01 at which each
Warrant is to be redeemed, and shall state that payment of the redemption
price of the Warrants will be made on surrender of the Warrants at
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such place of redemption, and that if not exercised by the close of business
on the date fixed for redemption, the exercise rights of the Warrants
identified for redemption shall expire unless extended by the Company. Such
notice shall also state the current Exercise Price and the date on which the
right to exercise the Warrants will expire unless extended by the Company.
SECTION 4.3 PAYMENT OF WARRANTS ON REDEMPTION; DEPOSIT OF REDEMPTION
PRICE. If notice of redemption shall have been given as provided in SECTION
4.2, the redemption price of $.01 per Warrant shall, unless the Warrant is
theretofore exercised pursuant to the terms hereof, become due and payable on
the date and at the place stated in such notice. On and after such date of
redemption, provided that cash sufficient for the redemption thereof shall
then be deposited by the Company with the Warrant Agent for that purpose, the
exercise rights of the Warrants identified for redemption shall expire. On
presentation and surrender of Warrant Certificates at such place of payment
in such notice specified, the Warrants identified for redemption shall be
paid and redeemed at the redemption price of $.01 per Warrant. Prior to the
date fixed for redemption, the Company shall deposit with the Warrant Agent
an amount of money sufficient to pay the redemption price of all the Warrants
identified for redemption. Any monies which shall have been deposited with
the Warrant Agent for redemption of Warrants and which are not required for
that purpose by reason of exercise of Warrants shall be repaid to the Company
upon delivery to the Warrant Agent of evidence satisfactory to it of such
exercise.
ARTICLE V.
CERTAIN OTHER PROVISIONS RELATING TO
RIGHTS OF HOLDERS OF WARRANT CERTIFICATES
SECTION 5.1 NO RIGHTS OF SHAREHOLDERS. The Warrant Certificates
shall be issued in registered form only. No Warrant Certificate shall
entitle the holder thereof to any of the rights of a holder of shares of
Common Stock of the Company, including, without limitation, the right to
vote, to receive dividends and other distributions, or to receive any notice
of, or to attend, meetings of holders of Common Stock or any other
proceedings of the Company.
SECTION 5.2 LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT
CERTIFICATES. Upon receipt by the Warrant Agent of evidence reasonably
satisfactory to the Warrant Agent of the loss, theft, destruction or
mutilation of any Warrant Certificate, and (a) in the case of any such loss,
theft, or destruction, upon delivery to the Warrant Agent of an indemnity
bond in form and amount, and issued by a bonding company, reasonably
satisfactory to the Company, or (b) in the case of any such mutilation, upon
surrender to and cancellation by the Warrant Agent of such Warrant
Certificate, the Company at its expense will execute and cause the Warrant
Agent to countersign and deliver, in lieu thereof, a new Warrant Certificate
of like tenor.
SECTION 5.3 TRANSFER AGENT; CANCELLATION OF WARRANT CERTIFICATES;
UNEXERCISED WARRANTS. Firstar Trust Company (and any successor), as transfer
agent (the "Transfer Agent"), is hereby irrevocably authorized and directed
at all times to reserve such number of authorized and unissued shares of
Common Stock as shall be sufficient to permit the exercise in full of all
Warrants from time to time outstanding. The Company will keep a copy of this
Agreement on file with the Transfer Agent. The Warrant Agent, and any
successor thereto, is hereby irrevocably authorized to requisition
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from time to time from the Transfer Agent certificates for shares of Common
Stock required for exercise of Warrants. The Company will supply the Transfer
Agent with duly executed certificates for shares of Common Stock for such
purpose and will make available any cash required in settlement of fractional
share interests. All Warrant Certificates surrendered upon the exercise or
redemption of Warrants shall be canceled by the Warrant Agent and shall
thereafter be delivered to the Company; such canceled Warrant Certificates,
with the Purchase Form on the reverse thereof duly filled in and signed,
shall constitute conclusive evidence as between the parties hereto of the
numbers of shares of Common Stock which shall have been issued upon exercises
of Warrants. Promptly after the last day on which the Warrants are
exercisable (set forth in SECTION 2.1 above), the Warrant Agent shall certify
to the Company the aggregate number of Warrants then outstanding and
unexercised. No shares of Common Stock shall be subject to reservation with
respect to Warrants not exercised prior to the time and date identified in
SECTION 2.1 above as the last time and date at which Warrants may be
exercised.
ARTICLE VI.
TRANSFER AND EXCHANGE OF WARRANT CERTIFICATES
SECTION 6.1 WARRANT REGISTER; TRANSFER OR EXCHANGE OF WARRANT
CERTIFICATES. The Warrant Agent shall cause to be kept at the principal
office of the Warrant Agent a register (the "Warrant Register") in which,
subject to such reasonable regulations as the Company may prescribe,
provisions shall be made for the registration of transfers and exchanges of
Warrant Certificates. Upon surrender for transfer or exchange of any Warrant
Certificates, properly endorsed, to the Warrant Agent, the Warrant Agent at
the Company's expense will issue and deliver to or upon the order of the
holder thereof a new Warrant Certificate or Warrant Certificates of like
tenor, in the name of such holder or as such holder (upon payment by such
holder of any applicable transfer taxes) may direct, calling in the aggregate
on the face or faces thereof for the number of shares of Common Stock called
for on the face of the Warrant Certificate so surrendered. Any Warrant
Certificate surrendered for transfer or exchange shall be canceled by the
Warrant Agent and shall thereafter be delivered to the Company.
SECTION 6.2 IDENTITY OF WARRANTHOLDERS. Until a Warrant Certificate
is transferred in the Warrant Register, the Company and the Warrant Agent may
treat the person in whose name the Warrant Certificate is registered as the
absolute owner thereof and of the Warrants represented thereby for all
purposes, notwithstanding any notice to the contrary, except that, if and
when any Warrant Certificate is properly assigned in blank, the Company and
the Warrant Agent may (but shall not be obligated to) treat the bearer
thereof as the absolute owner of the Warrant Certificate and of the Warrants
represented thereby for all purposes, notwithstanding any notice to the
contrary.
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ARTICLE VII.
CONCERNING THE WARRANT AGENT
SECTION 7.1 TAXES. The Company will, from time to time, promptly pay
to the Warrant Agent, or make provision satisfactory to the Warrant Agent for
the payment of, all taxes and charges that may be imposed by the United
States or any State upon the Company or the Warrant Agent upon the transfer
or delivery of shares of Common Stock upon the exercise of Warrants, but the
Company shall not be obligated to pay any tax imposed in connection with any
transfer involved in the delivery of a certificate for shares of Common Stock
in any name other than that of the registered holder of the Warrant
Certificate surrendered in connection with the purchase thereof.
SECTION 7.2 REPLACEMENT OF WARRANT AGENT IN CERTAIN CIRCUMSTANCES.
(a) The Warrant Agent may resign its duties and be discharged from
all further duties and liabilities hereunder after giving thirty (30)
days' notice in writing to the Company, except that such shorter notice
may be given as the Company shall, in writing, accept as sufficient. The
Company may discharge the Warrant Agent at any time with or without
reason, effective upon thirty (30) days written notice to the Warrant
Agent or such shorter period as the Warrant Agent shall, in writing,
accept as sufficient. If the office of Warrant Agent becomes vacant by
resignation, discharge, incapacity to act or otherwise, the Company shall
appoint in writing a new Warrant Agent, the principal office of which
shall be in Minnesota. If the Company shall fail to make such appointment
within a period of thirty (30) days after it has been notified in writing
of such resignation or incapacity by the resigning or incapacitated
Warrant Agent or by the holder of a Warrant Certificate, then the holder
of any Warrant Certificate may apply to any court of competent
jurisdiction for the appointment of a new Warrant Agent. Any new Warrant
Agent, whether appointed by the Company or by such a court, shall be a
corporation organized and doing business under the laws of the United
States or of the State of Minnesota, of good standing, and having its
principal office in Minnesota, which is authorized under such laws to
exercise corporate trust powers and is subject to supervision or
examination by Federal or State authority. Any new Warrant Agent
appointed hereunder shall execute, acknowledge and deliver to the
Company an instrument accepting such appointment hereunder and thereupon
such new Warrant Agent without any further act or deed shall become vested
with all the rights, powers, duties and responsibilities of the Warrant
Agent hereunder with like effect as if it had been named as the Warrant
Agent; but if for any reason it becomes necessary or expedient to have
the former Warrant Agent execute and deliver any further assurance,
conveyance, act or deed, the same shall be done and shall be legally and
validly executed and delivered by the former Warrant Agent. Not later
than the effective date of any such appointment the Company shall file
notice thereof with the former Warrant Agent. The Company shall promptly
give notice of any such appointment to the holders of the Warrant
Certificates by mail to their addresses as shown in the Warrant Register.
Failure to file or give such notice, or any defect therein, shall not
affect the legality or validity of the appointment of the successor
Warrant Agent.
(b) Any company into which the Warrant Agent or any new Warrant
Agent may be merged or converted or with which it may be consolidated or
any company resulting from
10
<PAGE>
any merger, conversion or consolidation to which the Warrant Agent
shall be a party shall be the successor Warrant Agent under this
Warrant Agreement without any further act; provided that if such company
would not be eligible for appointment as a successor Warrant Agent under
the provisions of paragraph (a) of this SECTION 7.2 the Company shall
forthwith appoint a new Warrant Agent in accordance with such provisions.
Any such successor Warrant Agent may adopt the prior countersignature of
any predecessor Warrant Agent and deliver Warrant Certificates
countersigned and not delivered by such predecessor Warrant Agent or may
countersign Warrant Certificates either in the name of any predecessor
Warrant Agent or the name of the successor Warrant Agent.
SECTION 7.3 REMUNERATION OF WARRANT AGENT. The Company will pay the
Warrant Agent reasonable remuneration for its services as Warrant Agent
hereunder and will reimburse the Warrant Agent upon demand for all
expenditures that the Warrant Agent may reasonably incur in the execution of
its duties hereunder.
SECTION 7.4 FURTHER ASSURANCES. The Company will perform, exercise,
acknowledge and deliver or cause to be performed, executed, acknowledged and
delivered all such further and other acts, instruments and assurances as may
reasonably be required by the Warrant Agent for the carrying out or
performing by the Warrant Agent of the provisions of this Warrant Agreement.
SECTION 7.5 LIMITATIONS ON LIABILITIES OF THE WARRANT AGENT.
(a) The Warrant Agent may consult with legal counsel (who may be
legal counsel for the Company), and the opinion of such counsel shall be
full and complete authorization and protection of the Warrant Agent as to
any action taken or omitted by it in good faith and in accordance with
such opinion.
(b) Whenever, in the performance of its duties under this Warrant
Agreement, the Warrant Agent shall deem it necessary or desirable that
any matter be proved or established, or that any instructions with respect
to the performance of its duties hereunder be given, by the Company prior
to taking or suffering any action hereunder, such matter (unless other
evidence in respect thereof be herein specifically prescribed) may be
deemed to be conclusively proved and established, or such instructions
may be given, by a certificate or instrument signed by an officer of the
Company and delivered to the Warrant Agent; and such certificate or
instrument shall be full authorization to the Warrant Agent for any
action taken or suffered in good faith by it under the provisions of this
Warrant Agreement in reliance upon such certificate or instrument; but
in its discretion the Warrant Agent may in lieu thereof accept other
evidence of such matter or may require such further or additional
evidence as it may deem reasonable.
(c) The Warrant Agent shall be liable hereunder only for its own
negligence or willful misconduct. The Warrant Agent shall act hereunder
solely as agent, and its duties shall be determined solely by the
provisions hereof. The Company agrees to indemnify the Warrant Agent and
save it harmless against any and all liabilities, including judgments,
costs and counsel fees, for anything done or omitted by the Warrant
Agent in the execution of this
11
<PAGE>
Warrant Agreement except as a result of the Warrant Agent's negligence
or willful misconduct.
(d) The Warrant Agent shall not be liable for or by reason of any
of the statements of fact or recitals contained in this Warrant Agreement
or in the Warrant Certificates (except its countersignature thereof) or
be required to verify the same, but all such statements and recitals are
and shall be deemed to have been made by the Company only.
(e) The Warrant Agent shall not be under any responsibility in
respect to the validity or execution of any Warrant Certificate (except
its countersignature thereof); nor shall it be responsible for any breach
by the Company of any covenant or condition contained in this Warrant
Agreement or in any Warrant Certificate; nor shall it be responsible for
the making of any adjustment in the Exercise Price, or number of shares
issuable upon exercise of the Warrant Certificates or responsible for the
manner, method or amount of any such adjustment or the facts that would
require any such adjustment; nor shall it by any act hereunder be deemed
to make any representation or warranty as to the authorization or
reservation of any shares of Common Stock to be issued pursuant to this
Warrant Agreement or any Warrant Certificate or as to whether any shares
of Common Stock or other securities are or will be validly authorized
and issued and fully paid and nonassessable.
SECTION 7.6 AMENDMENT AND MODIFICATION. The Warrant Agent may,
without the consent or concurrence of the holders of the Warrant
Certificates, by supplemental agreement or otherwise, join with the Company
in making any changes or corrections in this Warrant Agreement that they
shall have been advised by counsel (a) are required to cure any ambiguity or
to correct any defective or inconsistent provision or clerical omission or
mistake or manifest error herein contained, (b) add to the obligations of the
Company in this Warrant Agreement further obligations thereafter to be
observed by it, or surrender any right or power reserved to or conferred upon
the Company in this Warrant Agreement, or (c) do not or will not adversely
affect, alter or change the rights, privileges or immunities of the holders
of Warrant Certificates not provided for under this Warrant Agreement;
provided, however, that any term of this Warrant Agreement or any Warrant
Certificate may be changed, waived, discharged or terminated by an instrument
in writing signed by each party against which enforcement of such change,
waiver, discharge or termination is sought, or by which the same is to be
performed or observed.
ARTICLE VIII.
OTHER MATTERS
SECTION 8.1 SUCCESSORS AND ASSIGNS. All the covenants and provisions
of this Warrant Agreement by or for the benefit of the Company or the Warrant
Agent shall bind and inure to the benefit of their respective successors and
assigns.
12
<PAGE>
SECTION 8.2 NOTICES. Any notice or demand authorized by this Warrant
Agreement to be given or made by the Warrant Agent or by the holder of any
Warrant Certificate to or on the Company shall be sufficiently given or made if
sent by first class or registered mail, postage prepaid, addressed (until
another address is filed in writing by the Company with the Warrant Agent) as
follows:
Hypertension Diagnostics, Inc.
2915 Waters Rd, Suite 108
Eagan, MN 55121
Any notice or demand authorized by this Warrant Agreement to be given or made by
the holder of any Warrant Certificate or by the Company to or on the Warrant
Agent shall be sufficiently given or made if sent by first class or registered
mail, postage prepaid, addressed (until another address is filed in writing by
the Warrant Agent with the Company) as follows:
Firstar Trust Company
1555 N. RiverCenter Drive, Suite 301
Milwaukee, WI 53212
Attn: Corporate Trust Department
SECTION 8.3 GOVERNING LAW. This Warrant Agreement and the Warrant
Certificates are being delivered in the State of Minnesota and shall be
construed and enforced in accordance with and governed by the laws of such
State.
SECTION 8.4 NO BENEFITS CONFERRED. Nothing in this Warrant Agreement
expressed and nothing that may be implied from any of the provisions hereof
is intended, or shall be construed, to confer upon, or give to, any person or
corporation other than the Company, the Warrant Agent, and the holders of the
Warrant Certificates, any right, remedy or claim under or by reason of this
Agreement or of any covenant, condition, stipulation, promise or agreement
herein; and all covenants, conditions, stipulations, promises and agreements
in this Warrant Agreement contained shall be for the sole and exclusive
benefit of the Company, the Warrant Agent, their respective successors and
the holders of the Warrant Certificates.
SECTION 8.5 HEADINGS. The descriptive headings used in this Warrant
Agreement are inserted for convenience only and shall not control or affect
the meaning or construction of any of the provisions hereof.
13
<PAGE>
IN WITNESS WHEREOF, this Warrant Agreement has been duly executed by the
parties hereto as of the day and year first above written.
HYPERTENSION DIAGNOSTICS, INC.
By____________________________________
Its Chairman of the Board
FIRSTAR TRUST COMPANY
By____________________________________
Its_________________________________
14
<PAGE>
EXHIBIT A
No. _____________ Certificate for _________ Warrants
THIS WARRANT CERTIFICATE MAY BE
TRANSFERRED SEPARATELY FROM THE COMMON STOCK CERTIFICATE
WITH WHICH IT IS INITIALLY ISSUED
COMMENCING 10 TRADING DAYS AFTER ________, 1998
EXERCISABLE ON OR BEFORE, AND VOID AFTER,
5:00 P.M. MINNEAPOLIS TIME, _____________. 2002
HYPERTENSION DIAGNOSTICS, INC.
Warrants to Purchase Common Stock of
Hypertension Diagnostics, Inc.
Incorporated Under the Laws of the State of Minnesota
THIS CERTIFIES that CUSIP ______________
or assigns, is the owner of the number of Warrants set forth above, each of
which represents the right to purchase from Hypertension Diagnostics, Inc., a
Minnesota corporation (the "Company"), at any time on or before 5:00
Minneapolis time, ___________, 2002, upon compliance with and subject to the
conditions set forth herein and in the Warrant Agreement hereinafter referred
to, one share (subject to adjustments referred to below) of the Common Stock
of the Company (such shares or other securities or property purchasable upon
exercise of the Warrants being herein called the "Shares"), by surrendering
this Warrant Certificate, with the Purchase Form on the reverse side duly
executed, at the principal office of _______________________________________,
or its successor, as warrant agent (the "Warrant Agent"), and by paying in
full, in cash or by certified or official bank check payable to the order of
the Company, the exercise price of $5.50 per share.
Upon any exercise of less than all the Warrants evidenced by this
Warrant Certificate, there shall be issued to the holder a new Warrant
Certificate in respect of the Warrants as to which this Warrant Certificate
was not exercised.
Upon the surrender for transfer or exchange of any Warrant Certificates,
properly endorsed, to the Warrant Agent, the Warrant Agent at the Company's
expense will issue and deliver to the order of the holder hereof, a new
Warrant Certificate or Warrant Certificates of like tenor, in the name of
such holder or as such holder (upon payment by such holder of any applicable
transfer taxes) may direct, calling in the aggregate on the face or faces
thereof for the number of shares of Common Stock called for on the face
hereof.
The Warrant Certificates are issued only as registered Warrant
Certificates. Until this Warrant Certificate is transferred in the Warrant
Register, the Company and the Warrant Agent may treat the
A-1
<PAGE>
person in whose name this Warrant Certificate is registered as the absolute
owner hereof and of the Warrants represented hereby for all purposes,
notwithstanding any notice to the contrary.
This Warrant Certificate is issued under the Warrant Agreement dated as
of ______________, 1998 between the Company and the Warrant Agent. The
Warrant Agreement is hereby incorporated by reference into this Warrant
Certificate and this Warrant Certificate is subject to the terms and
provisions contained in said Warrant Agreement, to all of which terms and
provisions the registered holder of this Warrant Certificate consents by
acceptance hereof. Copies of said Warrant Agreement are on file at the
office of the Warrant Agent in Minneapolis, Minnesota, and may be obtained by
writing to the Warrant Agent.
The number of Shares receivable upon the exercise of the Warrants
represented by this Warrant Certificate and the exercise price per share are
subject to adjustment upon the happening of certain events specified in the
Warrant Agreement.
No fractional Shares of the Company's Common Stock will be issued upon
the exercise of Warrants. As to any final fraction of a share which a holder
of Warrants exercised in the same transaction would otherwise be entitled to
purchase on such exercise, the Company shall pay a cash adjustment in lieu of
any fractional Share determined as provided in the Warrant Agreement.
The Warrants may be redeemed at the option of the Company, at any time
following a period of 14 consecutive trading days where the per share closing
bid price of the Common Stock exceeds $6.50, on notice as set forth in the
Warrant Agreement, and at a redemption price equal to $.01 per Warrant. If
notice of redemption shall have been given as provided in the Warrant
Agreement and cash sufficient for the redemption be deposited by the Company
for that purpose, the exercise rights of the Warrants identified for
redemption shall expire at the close of business on such date of redemption
unless extended by the Company.
This Warrant Certificate shall not entitle the holder hereof to any of
the rights of a holder of Common Stock of the Company, including, without
limitation, the right to vote, to receive dividends and other distributions,
to exercise any preemptive right, or to receive any notice of, or to attend
meetings of holders of Common Stock or any other proceedings of the Company.
This Warrant Certificate shall be void and the Warrants and any rights
represented hereby shall cease unless exercised on or before 5:00 p.m.
Minneapolis time on _________, 2002, unless extended by the Company.
A-2
<PAGE>
This Warrant Certificate shall not be valid for any purpose until it
shall have been countersigned by the Warrant Agent.
WITNESS the facsimile signatures of the Company's duly authorized
officers.
HYPERTENSION DIAGNOSTICS, INC.
By____________________________________
Chairman of the Board
By____________________________________
Secretary
COUNTERSIGNED AND REGISTERED:
as Warrant Agent
FIRSTAR TRUST COMPANY
By____________________________________
Authorized Officer
A-3
<PAGE>
[REVERSE OF WARRANT CERTIFICATE]
THE CORPORATION WILL FURNISH ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE,
A COPY OF THE ARTICLES OF INCORPORATION AND A FULL STATEMENT OF THE
DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF
EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN
DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS
AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES.
TO: Hypertension Diagnostics, Inc.
c/o Firstar Trust Company
Warrant Agent
PURCHASE FORM
(To be Executed by the Registered Holder
in Order to Exercise Warrant Certificates)
The undersigned hereby irrevocably elects to exercise _____________* of
the Warrants represented by the Warrant Certificate and to purchase for cash
the Shares issuable upon the exercise of said Warrants and requests that
certificates for such Shares shall be issued in the name of
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
REGISTERED HOLDER OF CERTIFICATE
- ------------------------------------------------------------------------------
(Print Name)
- ------------------------------------------------------------------------------
(Address)
- ------------------------------------------------------------------------------
Dated: Signature:
------------------------- -------------------------------------
* Insert here the number of Warrants evidenced on the face of this Warrant
Certificate (or, in the case of a partial exercise, the portion thereof being
exercised), in either case without making any adjustment for additional
Common Stock or any other securities or property or cash which, pursuant to
the adjustment provisions referred to in this Warrant Certificate, may be
deliverable upon exercise.
A-4
<PAGE>
ASSIGNMENT FORM
(To be Executed by the Registered Holder
in Order to Transfer Warrant Certificates)
PLEASE INSERT SOCIAL SECURITY
OR OTHER IDENTIFYING NUMBER OF
ASSIGNEE
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
_____________________ of the Warrants to purchase shares of Common Stock
represented by this Warrant Certificate unto
- ------------------------------------------------------------------------------
(Please print or typewrite name and address including postal zip code of
assignee)
- ------------------------------------------------------------------------------
- ------------------------------------------------------------------------------
and does hereby irrevocably constitute and appoint____________________________
Attorney to transfer this Warrant Certificate on the records of the Company with
full power of substitution in the premises.
Dated: Signature(s)
------------------------ -------------------------------
SIGNATURE(S) GUARANTEED:
- -----------------------------------
NOTICE
The signature(s) to the Purchase Form or the Assignment Form must
correspond to the name as written upon the face of this Warrant Certificate
in every particular without alteration or enlargement or any change
whatsoever.
A-5
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
1995 LONG-TERM INCENTIVE AND STOCK OPTION PLAN
1. PURPOSE OF PLAN.
This Plan shall be known as the "HYPERTENSION DIAGNOSTICS, INC. 1995
LONG-TERM INCENTIVE AND STOCK OPTION PLAN" and is hereinafter referred to as
the "Plan." The purpose of the Plan is to aid in maintaining and developing
personnel capable of assuring the future success of HYPERTENSION DIAGNOSTICS,
INC., a Minnesota corporation (the "Company"), to offer such personnel
additional incentives to put forth maximum efforts for the success of the
business, and to afford them an opportunity to acquire a proprietary interest
in the Company through stock options and other long-term incentive awards as
provided herein. Options granted under this Plan may be either incentive
stock options ("Incentive Stock Options") within the meaning of Section 422
of the Internal Revenue Code of 1986 (the "Code"), or options which do not
qualify as Incentive Stock Options. Awards granted under this Plan shall be
stock appreciation rights ("SARs"), restricted stock or performance awards as
hereinafter described.
2. STOCK SUBJECT TO PLAN.
Subject to the provisions of Section 14 hereof, the stock to be subject
to options or other awards under the Plan shall be the Company's authorized
Common Stock, par value $.01 per share (the "Common Shares"). Such shares
may be either authorized but unissued shares, or issued shares which have
been reacquired by the Company. Subject to adjustment as provided in Section
14 hereof, the maximum number of shares on which options may be exercised or
other award issued under this Plan shall be 400,000 shares. If an option or
award under the Plan expires, or for any reason is terminated or unexercised
with respect to any shares, such shares shall again be available for options
or awards thereafter granted during the term of the Plan.
3. ADMINISTRATION OF PLAN.
(a) Except as provided in Section 3(b) hereof, the Plan shall be
administered by the Board of Directors of the Company or a committee thereof.
The members of any such committee shall be appointed by and serve at the
pleasure of the Board of Directors. If no committee is appointed by the
Board, the committee shall be comprised of all of the members of the Board of
Directors. (The group administering the Plan shall hereinafter be referred to
as the "Committee.")
(b) Notwithstanding Section 3(a) hereof, all option grants and awards
under this Plan to officers, directors and others who are subject to Section
16 under the Securities Exchange Act of 1934, as amended, and the rules of
the Securities and Exchange Commission promulgated thereunder, shall be made
exclusively by a committee (the "Disinterested Committee"). The
Disinterested Committee may be a subcommittee of the Committee and shall be
comprised of at least two members of the Board of Directors who have not
received any option or award under the Plan for the twelve month period prior
to serving on the Committee except as permitted by Rule 16b-3(c)(2)(i)(A)
through (D) under the Securities Exchange Act of 1934. Such persons shall
not be eligible for option
<PAGE>
grants or awards while serving on the Disinterested Committee. All
references hereinafter to the "Committee" shall mean the "Disinterested
Committee" if the action to be taken in administration of the Plan must be
taken by the Disinterested Committee.
(c) The Committee shall have plenary authority in its discretion, but
subject to the express provisions of the Plan: (i) to determine the purchase
price of the Common Stock covered by each option or award, (ii) to determine
the employees to whom and the time or times at which such options and awards
shall be granted and the number of shares to be subject to each, (iii) to
determine the form of payment to be made upon the exercise of an SAR or in
connection with performance awards, either cash, Common Shares of the Company
or a combination thereof, (iv) to determine the terms of exercise of each
option and award, (v) to accelerate the time at which all or any part of an
option or award may be exercised, (vi) to amend or modify the terms of any
option or award with the consent of the optionee, (vii) to interpret the
Plan, (viii) to prescribe, amend and rescind rules and regulations relating
to the Plan, (ix) to determine the terms and provisions of each option and
award agreement under the Plan (which agreements need not be identical),
including the designation of those options intended to be Incentive Stock
Options, and (x) to make all other determinations necessary or advisable for
the administration of the Plan, subject to the exclusive authority of the
Board of Directors under Section 15 herein to amend or terminate the Plan.
The Committee's determinations on the foregoing matters, unless otherwise
disapproved by the Board of Directors of the Company, shall be final and
conclusive.
(d) The Committee may select one of its members as its Chairman and
shall hold its meetings at such times and places as it may determine. A
majority of its members shall constitute a quorum. All determinations of the
Committee shall be made by not less than a majority of its members. Any
decision or determination reduced to writing and signed by all of the members
of the Committee shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The grant of an option or
award shall be effective only if a written agreement shall have been duly
executed and delivered by and on behalf of the Company following such grant.
The Committee may appoint a Secretary and may make such rules and regulations
for the conduct of its business as it shall deem advisable.
4. ELIGIBILITY.
Incentive Stock Options may only be granted under this Plan to any full
or part-time employee (which term as used herein includes, but is not limited
to, officers and directors who are also employees) of the Company and of its
present and future subsidiary corporations (herein called "subsidiaries").
Full or part-time employees, and non-employee consultants, Directors, agents
or independent contractors to the Company or one of its subsidiaries shall be
eligible to receive options which do not qualify as Incentive Stock Options
and awards. In determining the persons to whom options and awards shall be
granted and the number of shares subject to each, the Committee may take into
account the nature of services rendered by the respective employees or
consultants, their present and potential contributions to the success of the
Company and such other factors as the Committee in its discretion shall deem
relevant. A person who has been granted an option or award under this Plan
may be granted additional options or awards under the Plan if the Committee
shall so determine; provided, however, that for Incentive Stock Options, to
the extent the aggregate fair
2
<PAGE>
market value (determined at the time the Incentive Stock Option is granted)
of the Common Shares with respect to which all Incentive Stock Options are
exercisable for the first time by an employee during any calendar year (under
all plans described in subsection (d) of Section 422 of the Code of his
employer corporation and its parent and subsidiary corporations) exceeds
$100,000, such options shall be treated as options which do not qualify as
Incentive Stock Options. Nothing in the Plan or in any agreement thereunder
shall confer on any employee any right to continue in the employ of the
Company or any of its subsidiaries or affect, in any way, the right of the
Company or any of its subsidiaries to terminate his or her employment at any
time.
5. PRICE.
Except as provided in Section 10, the option price for all Incentive
Stock Options granted under the Plan shall be determined by the Committee but
shall not be less than 100% of the fair market value of the Common Shares at
the date of grant of such option. The option price for options granted under
the Plan which do not qualify as Incentive Stock Options and, if applicable,
the price for all awards shall also be determined by the Committee and may be
other than 100% of the fair market value of the Common Shares. For purposes
of the preceding sentence and for all other valuation purposes under the
Plan, the fair market value of the Common Shares shall be as reasonably
determined by the Committee. If on the date of grant of any option or award
hereunder the Common Shares are not traded on an established securities
market, the Committee shall make a good faith attempt to satisfy the
requirements of this Section 5 and in connection therewith shall take such
action as it deems necessary or advisable.
6. TERM.
Each option and award and all rights and obligations thereunder shall
expire on the date determined by the Committee and specified in the option or
award agreement. The Committee shall be under no duty to provide terms of
like duration or vesting for options or awards granted under the Plan, but
the term of an Incentive Stock Option may not extend more than ten (10) years
from the date of grant of such option.
7. EXERCISE OF OPTION OR AWARD.
(a) The Committee shall have full and complete authority to determine
whether an option or award will be exercisable in full at any time or from
time to time during the term thereof, or to provide for the exercise thereof
in such installments, upon the occurrence of such events (such as termination
of employment for any reason) and at such times during the term of the option
as the Committee may determine and specify in the option or award agreement.
(b) The exercise of any option or award granted hereunder shall only
be effective at such time that the sale of Common Stocks pursuant to such
exercise will not violate any state or federal securities or other laws.
(c) An optionee or grantee electing to exercise an option or award
shall give written
3
<PAGE>
notice to the Company of such election and of the number of shares subject to
such exercise. The full purchase price of such shares shall be tendered with
such notice of exercise and the original award agreement. Payment shall be
made to the Company in cash (including bank check, certified check, personal
check, or money order), or, at the discretion of the Committee and as
specified by the Committee in the optionee or grantee's option or award
agreement, (i) by delivering certificates for the Company's Common Shares
already owned by the optionee or grantee for a period of not less than six
(6) months, having a fair market value as of the date of exercise equal to
the full purchase price of the shares; or (ii) a combination of cash and such
shares. The fair market value of such tendered shares shall be determined as
provided in Section 5 herein. Until such person has been issued the shares
subject to such exercise, he or she shall possess no rights as a shareholder
with respect to such shares.
8. ADDITIONAL RESTRICTIONS.
Committee shall have full and complete authority to determine whether
all or any part of the Common Shares of the Company acquired upon exercise of
any of the options or awards granted under the Plan shall be subject to
restrictions on the transferability thereof or any other restrictions
affecting in any manner the optionee's or grantee's rights with respect
thereto, but any such restriction shall be contained in the agreement
relating to such options or awards.
9. ALTERNATIVE STOCK APPRECIATION RIGHTS.
(a) GRANT. At the time of grant of an option or award under the Plan
(or at any other time), the Committee, in its discretion, may grant a Stock
Appreciation Right ("SAR") evidenced by an agreement in such form as the
Committee shall from time to time approve. Any such SAR may be subject to
restrictions on the exercise thereof as may be set forth in the agreement
representing such SAR which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan.
(b) EXERCISE. An SAR shall be exercised by the delivery to the
Company of a written notice which shall state that the holder thereof elects
to exercise his or her SAR as to the number of shares specified in the notice
and which shall further state what portion, if any, of the SAR exercise
amount (hereinafter defined) the holder thereof requests be paid to in cash
and what portion, if any, is to be paid in Common Shares of the Company. The
Committee promptly shall cause to be paid to such holder the SAR exercise
amount either in cash, in Common Shares of the Company, or any combination of
cash and shares as the Committee may determine. Such determination may be
either in accordance with the request made by the holder of the SAR or in the
sole and absolute discretion of the Committee. The SAR exercise amount is
the excess of the fair market value of one share of the Company's Common
Shares on the date of exercise over the per share exercise price in respect
of which the SAR was granted, multiplied by the number of shares as to which
the SAR is exercised. For the purposes hereof, the fair market value of the
Company's shares shall be determined as provided in Section 5 herein.
4
<PAGE>
10. TEN PERCENT SHAREHOLDER RULE.
Notwithstanding any other provision in the Plan, if at the time an
option is granted pursuant to the Plan, the optionee owns directly or
indirectly (within the meaning of Section 425(d) of the Code) Common Shares
of the Company possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or its parent or
subsidiary corporations, if any (within the meaning of Section 422(b)(6) of
the Code), then any Incentive Stock Option to be granted to such optionee
pursuant to the Plan shall satisfy the requirements of Section 422(c)(6) of
the Code, and the option price shall be not less than 110% of the fair market
value of the Common Shares of the Company determined as described herein, and
such option by its terms shall not be exercisable after the expiration of
five (5) years from the date such option is granted.
11. NON-TRANSFERABILITY.
No option or award granted under the Plan shall be transferable by an
optionee or grantee, otherwise than by will or the laws of descent or
distribution. Except as otherwise provided in an option or award agreement,
during the lifetime of an optionee or grantee, the option shall be
exercisable only by such optionee or grantee.
12. RESTRICTED STOCK AWARDS.
Awards of Common Shares subject to forfeiture and transfer restrictions
may be granted by the Committee. Any restricted stock award shall be
evidenced by an agreement in such form as the Committee shall from time to
time approve, which agreement shall comply with and be subject to the
following terms and conditions and any additional terms and conditions
established by the Committee that are consistent with the terms of the Plan:
(a) GRANT OF RESTRICTED STOCK AWARDS. Each restricted stock award
made under the Plan shall be for such number of Common Shares as shall be
determined by the Committee and set forth in the agreement containing the
consideration to be paid by the grantee (if any) and other terms of such
restricted stock award. Such agreement shall set forth a period of time
during which the grantee must remain in the continuous employment of the
Company in order for the forfeiture and transfer restrictions to lapse. If
the Committee so determines, the restrictions may lapse during such
restricted period in installments with respect to specified portions of the
shares covered by the restricted stock award. The agreement may also, in the
discretion of the Committee, set forth performance or other conditions that
will subject the Common Shares to forfeiture and transfer restrictions. The
Committee may, at its discretion, waive all or any part of the restrictions
applicable to any or all outstanding restricted stock awards.
(b) DELIVERY OF COMMON SHARES AND RESTRICTIONS. At the time of a
restricted stock award a certificate representing the number of Common shares
awarded thereunder shall be registered in the name of the grantee. Such
certificate shall be held by the Company or any custodian appointed by the
Company for the account of the grantee subject to the terms and conditions of
the Plan, and shall bear such a legend setting forth the restrictions imposed
thereon as the Committee in its discretion, may determine. The grantee shall
have all rights of a shareholder with respect to the Common
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Shares, including the right to receive dividends and the right to vote such
shares, subject to the following restrictions: (i) the grantee shall not be
entitled to delivery of the stock certificate until the expiration of the
restricted period and the fulfillment of any other restrictive conditions set
forth in the restricted stock agreement with respect to such Common Shares;
(ii) none of the Common Shares may be sold, assigned, transferred, pledged,
hypothecated or otherwise encumbered or disposed of during such restricted
period or until after the fulfillment of any such other restrictive
conditions; and (iii) except as otherwise determined by the Committee, all of
the Common Shares shall be forfeited and all rights of the grantee to such
Common Shares shall terminate, without further obligation on the part of the
Company, unless the grantee remains in the continuous employment of the
Company for the entire restricted period in relation to which such Common
Shares were granted and unless any other restrictive conditions relating to
the restricted stock award are met. Any Common Shares, any other securities
of the Company and any other property (except for cash dividends) distributed
with respect to the Common Shares subject to restricted stock awards shall be
subject to the same restrictions, terms and conditions as such restricted
Common Shares.
(c) TERMINATION OF RESTRICTIONS. At the end of the restricted period
and provided that any other restrictive conditions of the restricted stock
award are met, or at such earlier time as otherwise determined by the
Committee, all restrictions set forth in the agreement relating to the
restricted stock award or in the Plan shall lapse as to the restricted Common
Shares subject thereto, and a stock certificate for the appropriate number of
Common Shares, free of the restrictions and the restricted stock legend,
shall be delivered to the grantee or his beneficiary or estate, as the case
may be.
13. PERFORMANCE AWARDS.
The Committee is further authorized to grant Performance awards.
Subject to the terms of this Plan and any applicable award agreement, a
Performance award granted under the Plan (i) may be denominated or payable in
cash, Common Shares (including, without limitations restricted stock), other
securities, other awards, or other property and (ii) shall confer on the
holder thereof rights valued as determined by the Committee, in its
discretion, and payable to, or exercisable by, the holder of the Performance
awards, in whole or in part, upon the achievement of such performance goals
during such performance periods as the Committee, in its discretion, shall
establish. Subject to the terms of this Plan and any applicable award
agreement, the performance goals to be achieved during any performance
period, the length of any performance period, the amount of any Performance
award granted, and the amount of any payment or transfer to be made by the
granter and by the Company under any Performance award shall be determined by
the Committee.
14. DILUTION OR OTHER ADJUSTMENTS.
If there shall be any change in the Common Shares through merger,
consolidation, reorganization, recapitalization, dividend in the form of
stock (of whatever amount), stock split or other change in the corporate
structure, appropriate adjustments in the Plan and outstanding options and
awards shall be made by the Committee. In the event of any such changes,
adjustments shall include, where appropriate, changes in the aggregate number
of shares subject to the Plan, the number of shares and the price per share
subject to outstanding options and awards and the amount payable
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upon exercise of outstanding awards, in order to prevent dilution or
enlargement of option or award rights.
15. AMENDMENT OR DISCONTINUANCE OF PLAN.
The Board of Directors may amend or discontinue the Plan at any time.
Subject to the provisions of this Section, no amendment of the Plan, however,
shall without shareholder approval: (i) increase the maximum number of shares
under the Plan as provided in Section 2 herein, (ii) decrease the minimum
price provided in Section 5 herein, (iii) extend the maximum term under
Section 6, or (iv) modify the eligibility requirements for participation in
the Plan. The Board of Directors shall not alter or impair any option or
award theretofore granted under the Plan without the consent of the holder of
the option or award.
16. TIME OF GRANTING.
Nothing contained in the Plan or in any resolution adopted or to be
adopted by the Board of Directors or by the shareholders of the Company, and
no action taken by the Committee or the Board of Directors (other than the
execution and delivery of an option or award agreement), shall constitute the
granting of an option or award hereunder.
17. INCOME TAX WITHHOLDING AND TAX BONUSES.
(a) In order to comply with all applicable federal or state income
tax laws or regulations, the Company may take such action as it deems
appropriate to ensure that all applicable federal or state payroll
withholding, income or other taxes, which are the sole and absolute
responsibility of an optionee or grantee under the Plan, are withheld or
collected from such optionee or grantee. In order to assist an optionee or
grantee in paying all federal and state taxes to be withheld or collected
upon exercise of an option or award which does not qualify as an Incentive
Stock Option hereunder, the Committee, in its absolute discretion and subject
to such additional terms and conditions its it may adopt, shall permit the
optionee or grantee to satisfy such tax obligation by (i) electing to have
the Company withhold a portion of the shares otherwise to be delivered upon
exercise of such option award with a fair market value, determined in
accordance with Section 5 herein, equal to such taxes or (ii) delivering to
the Company Common Shares other than the shares issuable upon exercise of
such option or award with a fair market value, determined in accordance with
Section 5, equal to such taxes.
(b) The Committee shall have the authority, at the time of grant of
an option under the Plan or at any time thereafter, to approve tax bonuses to
designated optionees or grantees to be paid upon their exercise of options or
awards granted hereunder. The amount of any such payments shall be
determined by the Committee. The Committee shall have full authority in its
absolute discretion to determine the amount of any such tax bonus and the
terms and conditions affecting the vesting and payment thereafter.
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18. EFFECTIVE DATE AND TERMINATION OF PLAN.
(a) This Plan shall be effective August, 1995 (the "Effective Date")
as approved by the Board of Directors and hereby terminates and supersedes
all previous plans adopted by the Company providing for the granting of stock
options or awards. However, unless within 12 months before or 12 months
after the Plan is adopted by the Board of Directors, the Plan is approved by
the vote of the holders of a majority of the outstanding Capital Stock of the
Corporation, the Plan and options granted hereunder shall not qualify under
Section 422 of the Code. All subsequent stock options granted will be
Non-Qualified Stock Options. All Options granted prior to disqualification
of the Plan for failure to obtain shareholder approval shall be converted to
Non-Qualified Stock Options.
(b) This Plan shall terminate ten (10) years after the Effective Date
or at such earlier time as the Board of Directors shall determine. No option
or award may be granted after such termination, but termination of the Plan
shall not, without the consent of the optionee or grantee, alter or impair
any rights or obligations under any option or award theretofore granted.
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HYPERTENSION DIAGNOSTICS, INC.
1998 STOCK OPTION PLAN
1. PURPOSE.
The 1998 Stock Option Plan (the "Plan") has been established by
Hypertension Diagnostics, Inc. (the "Company") (i) to attract and retain
highly qualified individuals to devote their abilities to the Company;
(ii) to generate an additional incentive to achieve long-term goals; (iii) to
closely associate the interests of participants in the Plan with those of the
Company's other shareholders through compensation that is based on the
Company's common stock; and thereby promote the future success of the
Company, including the growth in value of the Company's equity and
enhancement of long-term shareholder return.
2. DEFINITIONS.
In this Plan the following definitions shall apply:
a. "BOARD" means the Board of Directors of the Company.
b. "CODE" means the Internal Revenue Code of 1986, as amended.
c. "COMMITTEE" means the group of individuals administering the Plan,
as provided in Section 3 of the Plan.
d. "COMMON STOCK" means the common stock of the Company or the number
and kind of shares of stock or other securities into which such Common Stock
may be changed in accordance with Section 7 of the Plan.
e. "CONSULTANT" means any person who is engaged by the Company or a
Related Company to render consulting or advisory services as an independent
contractor and is compensated for such services.
f. "ELIGIBLE RECIPIENTS" means any Employee, Consultant or Independent
Director of the Company or a Related Company.
g. "EMPLOYEE" means any officer or other employee of the Company or a
Related Company. The payment of a director's fee by itself shall not be
sufficient to constitute employment by the Company or a Related Company.
h. "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
i. "FAIR MARKET VALUE" means, with respect to the Common Stock, as of
any date:
(i) if the Common Stock is listed or admitted to trading on any stock
exchange or is quoted on the NASDAQ National Market System or the NASDAQ
SmallCap Market,
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the average of the reported high and low sale prices of the Common Stock
on such exchange or by NASDAQ as of such date (or, if no shares were traded
on such day, as of the next preceding day on which there was such a trade);
or
(ii) if the Common Stock is not so listed or admitted to trading on a
stock exchange and not quoted on the NASDAQ National Market System or the
NASDAQ SmallCap Market, the average of the closing bid and asked prices in
the over-the-counter market as of such date (or, if no shares were traded
on such day, as of the next preceding day on which there was such a trade),
as so reported by the OTC Bulletin Board (or such comparable reporting
service); or
(iii) in the absence of an established public market for the Common
Stock, such price as the Committee determines in good faith in the exercise
of its reasonable discretion.
j. "INCENTIVE STOCK OPTION" means a right to purchase Common Stock
that qualifies as an "Incentive Stock Option" within the meaning of Section
422 of the Code.
k. "INDEPENDENT DIRECTOR" means a member of the Board who is not an
Employee of the Company.
l. "NONEMPLOYEE DIRECTOR" means any member of the Board who is an
"outside director" within the meaning of section 162(m) of the Code and
regulations promulgated thereunder, and who is a "nonemployee director"
within the meaning of Rule 16b-3 promulgated under the Exchange Act.
m. "NONQUALIFIED STOCK OPTION" means a right to purchase Common Stock
that does not qualify as an Incentive Stock Option.
n. "OPTION" means an Incentive Stock Option or a Nonqualified Stock
Option.
o. "OPTIONEE" means an Eligible Recipient who receives one or more
Options under the Plan.
p. "OPTION FORM" means the duration of the Option granted to the
Optionee.
q. "RELATED COMPANY" means any company during any period in which it
is a "parent company" (as that term is defined in Code section 424(e)) with
respect to the Company, or a "subsidiary corporation" (as that term is
defined in Code section 424(f)) with respect to the Company.
r. "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
a. The Plan will be administered by either the full Board or a
committee of two or more Nonemployee Directors. The committee shall be
selected by, and shall service at the discretion of the Board. As used in
this Plan, the term "Committee" will refer to the Board or to such a
committee of Nonemployee Directors, if established.
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b. Subject to the provisions of the Plan, the Committee shall have the
authority and discretion to:
(i) select from among the Eligible Recipients those persons who
shall receive Options under the Plan;
(ii) determine the nature and extent of the Options to be made to
each Eligible Recipient, including the number of shares of Common Stock to
be subject to each Option, the exercise price of the Options, the manner in
which Options will vest or become exercisable;
(iii) determine the time or times when Options will be granted;
(iv) determine the duration of each Option;
(v) impose such limitations, restrictions and conditions upon any
such award as the Committee shall deem appropriate; and
(vi) interpret the Plan, adopt, amend and rescind rules and
regulations relating to the Plan, and make all other determinations and
take all other action necessary or advisable for the implementation and
administration of the Plan.
c. All decisions and interpretation made by the Committee on all
matters relating to the Plan shall be final and binding. No member of the
Committee shall be liable for any action taken or decision made in good faith
relating to the Plan or any award thereunder.
4. ELIGIBILITY FOR PARTICIPATION.
The Committee shall determine and designate, from time to time, from
among the Eligible Recipients, those persons who will be granted Options. In
making this selection and in determining the form and amount of awards under
the Plan, the Committee may take into account the individual's functions and
responsibilities, the individual's present and potential contributions to the
Company's success and such other factors as the Committee deems relevant.
5. SHARES SUBJECT TO PLAN.
a. Shares of stock which may be issued under the Plan shall be
authorized and unissued shares of Common Stock. Subject to Section 7, the
maximum number of shares of Common Stock which may be issued under the Plan
shall be 750,000. The maximum number of shares of Common Stock which may be
available for Incentive Stock Options is 750,000.
b. For purposes of calculating the maximum number of shares of Common
Stock which may be issued under the Plan:
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(i) All the shares issued (including the shares, if any, withheld for
tax withholding requirements) shall be counted when cash is used as full
payment for shares issued upon exercise of an Option;
(ii) Only the net shares issued (including the shares, if any,
withheld for tax withholding requirements) shall be counted when previously
acquired shares of Common Stock are tendered as full or partial payment for
shares issued upon exercise of an Option.
c. Any shares of Common Stock subject to an outstanding Option that
for any reason is terminated, forfeited or expired shall again be available
for issuance under the Plan.
6. OPTION GRANTS.
a. TYPE OF OPTIONS. The Committee may from time to time, and subject
to the provisions of the Plan and such other terms and conditions as the
Committee may prescribe, grant an Option to any Eligible Recipient. The date
an Option is granted shall mean the date upon which the Committee grants an
Option to purchase a specific number of shares to an Eligible Recipient under
the Plan. Options under the Plan may be either Nonqualified Stock Options or
Incentive Stock Options, as determined in the discretion of the Committee.
b. STOCK OPTION PRICE. The price per share of each Option shall be
determined by the Committee in its discretion at the time the Option is
granted; provided, however, such price shall not be less than 100% of the
Fair Market Value of a share of Common Stock on the date the Option is
granted. In the case of an Incentive Stock Option grant to an individual
then owning more than 10% of the total combined voting power of all classes
of stock of the Company or a Related Company, the price per share shall not
be less than 110% of the Fair Market Value of a share of Common Stock on the
date the Option is granted.
c. OPTION TERM. The term of an Option shall be set by the Committee
in its sole discretion; provided that no Incentive Stock Option may be
exercised after a period of ten (10) years from the date it is granted or
five (5) years after the grant date if the Incentive Stock Option is granted
to an individual then owning more than 10% of the total combined voting power
of all classes of stock of the Company or a Related Company. No Option shall
be exercisable after the expiration of its term.
d. EXERCISE. Each Option shall be exercisable at such times and under
such conditions as may be determined by the Committee at the time of grant.
An Option may be exercised only by delivering to the Company a written notice
of such exercise, accompanied by full payment therefor, and otherwise in
accordance with such rules and procedures as may be established by the
Committee.
e. MANNER OF PAYMENT. The full purchase price for shares of Common
Stock purchased upon the exercise of any Option shall be paid at the time of
such exercise. The purchase price shall be payable in cash or by tendering
shares of Common Stock previously owned by the Optionee, or in any
combination thereof, as determined by the Committee. Any shares transferred
to the Company as payment of the purchase price shall be valued at Fair
Market Value as of the day preceding the date of exercise of such Option. In
addition, the Committee may permit an Optionee to elect to pay the
4
<PAGE>
purchase price upon the exercise of an Option by authorizing a registered
broker-dealer to sell shares of Common Stock (or a sufficient portion of the
shares) acquired upon the exercise of the Option and remit to the Company a
sufficient portion of the sale proceeds to pay the entire purchase price and
any tax withholding resulting from such exercise.
f. AGGREGATE LIMITATION OF STOCK SUBJECT TO INCENTIVE STOCK OPTIONS.
To the extent that the aggregate Fair Market Value of the shares of Common
Stock with respect to which Incentive Stock Options are exercisable for the
first time by an Optionee during any calendar year (under all plans of the
Company or a Related Company) exceeds $100,000 (or such other amount as may
be prescribed by the Code from time to time), such Incentive Stock Options
shall be treated as Nonqualified Stock Options, to the extent required by
section 422 of the Code.
g. TRANSFERABILITY. No Option granted under this Plan shall be
assignable or transferable by the Optionee, except by will or by the laws of
descent and distribution. During the life of the Optionee, such Option shall
be exercisable only by such person or by such person's guardian or legal
representative.
h. AGREEMENT WITH COMPANY. At the time of a grant of an Option under
the Plan, the Committee may require the Optionee to enter into an agreement
with the Company in a form specified by the Committee, agreeing to the terms
and conditions of the Plan and to such additional terms and conditions as the
Committee may, in its sole discretion, prescribe.
7. SHARE ADJUSTMENTS.
In the event of a corporate transaction involving the Company
(including, without limitation, any stock dividend, stock split,
recapitalization, merger, consolidation, reorganization, split-off, spin-off
or exchange of shares), the Committee may adjust the Options to preserve the
benefits or potential benefits of the Options. Actions by the Committee may
include adjustment of (i) the number and class of shares of stock which may
be delivered under the Plan, (ii) the number and class of shares of stock
subject to outstanding Options and (iii) the stock option price of
outstanding Options.
8. LIMIT ON DISTRIBUTION.
Distribution of shares of Common Stock under the Plan shall be subject
to the following:
a. Notwithstanding any provision of the Plan, the Company shall have
no liability to distribute any shares of Common Stock under the Plan unless
such distribution would comply with all applicable laws (including, without
limitation, the requirements of the Securities Act), and the applicable
requirements of any securities exchange or similar entity.
b. All certificates for shares of Common Stock delivered under the
Plan pursuant to an exercise of an Option shall be subject to such stop
transfer orders and other restrictions as the Committee may deem advisable
under applicable state and federal law or applicable rules of the Securities
and Exchange Commission and any stock exchange, and the Committee may cause a
legend to be placed on any such certificates to make appropriate reference to
such restrictions.
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<PAGE>
9. TAX WITHHOLDING.
Whenever the Company proposes or is required to distribute shares of
Common Stock under the Plan the Company may require the recipient to remit to
the Company an amount sufficient to satisfy any Federal, state or local tax
withholding requirements before delivery of any certificate for such shares
or, in the discretion of the Committee, the Company may withhold from the
shares to be delivered shares sufficient to satisfy all or a portion of such
tax withholding requirements. Whenever under the Plan payments are to be
made in cash, such payments may be net of an amount sufficient to satisfy any
Federal, state, and local tax withholding requirements.
10. AMENDMENT AND TERMINATION.
a. The Committee may, at any time, amend or terminate the Plan,
provided that, subject to Section 7:
(i) no amendment or termination may, without the approval of the
shareholders, increase the maximum number of shares of Common Stock which
may be issued under the Plan or extend the term of the Plan; and
(ii) no amendment or termination may, in the absence of written
consent to the change by the affected Optionee (or, if the Optionee is not
then living, the affected beneficiary), adversely affect the rights of any
Optionee or beneficiary under any Option granted under the Plan before such
amendment or termination is adopted by the Committee.
b. The Plan shall terminate at midnight on May 1, 2008, which is ten
years after the date the Plan was approved by the Board..
11. LIMITATION OF IMPLIED RIGHTS.
a. The Plan does not constitute a contract of employment, and
selection as an Optionee will not give any person the right to be retained in
the employ of the Company or any Related Company, nor any right in claim to
any benefit under the Plan, unless such right or claim has specifically
accrued under the terms of the Plan. Except as otherwise provided in the
Plan, no Option granted under the Plan shall confer upon the holder thereof
any right as a shareholder of the Company prior to the date on which the
person fulfills all conditions for receipt of such rights.
b. Neither an Optionee nor any other person shall, by reason of the
Plan, acquire any right or title to the assets, funds or property of the
Company or any Related Company whatsoever. An Optionee shall only have a
contractual right to the stock payable under the Plan, unsecured by any
assets of the Company or any Related Company.
12. MISCELLANEOUS.
a. The Committee's determinations under the Plan (including without
limitation determinations of the persons to receive Options, the form, amount
and timing of such Options, the terms and provisions of such Options and the
agreements evidencing same) need not be uniform and
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<PAGE>
may be made by it selectively among Eligible Recipients or Optionees whether
or not such persons are similarly situated.
b. The validity, construction, interpretation, administration and
effect of the Plan and any rules, regulations and actions relating to the
Plan will be governed by and construed exclusively in accordance with the
laws of the State of Minnesota.
13. EFFECTIVE DATE.
a. Subject to the approval of the shareholders of the Company at the
Company's 1998 special meeting of its shareholders, the Plan shall become
effective as of May 22, 1998.
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RESEARCH AND LICENSE AGREEMENT
THIS AGREEMENT is made and entered into effective as of September 23,
1988 by and between Hypertension Diagnostics, Inc., a Minnesota corporation,
having offices at 1313 Fifth Street S.E., Minneapolis, Minnesota 55414 (the
"COMPANY") and the Regents of the University of Minnesota, a Minnesota
nonprofit corporation, having an office at 100 Church Street, S.E.,
Minneapolis, Minnesota 55455 (the "UNIVERSITY").
RECITALS
WHEREAS, UNIVERSITY possesses certain information, knowledge and
intellectual property rights relating to the Technology (as hereinafter
defined);
WHEREAS, UNIVERSITY desires that such information, knowledge and devices
be developed and utilized in the public interest and is willing to enter into
a development and license agreement for those purposes;
WHEREAS, COMPANY desires to collaborate with the UNIVERSITY in the
development of such information, knowledge and devices and to obtain a
license to manufacture and sell products and provide services utilizing such
information and knowledge;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the parties agree as follows:
ARTICLE I. - DEFINITIONS
A. "Technology" shall mean any knowledge, information, know-how software, and
devices, whether patentable or not, in the possession of the UNIVERSITY at
the time of execution of this
<PAGE>
Agreement specifically relating to diagnostic, therapeutic, monitoring and
related uses of arterial compliance (an arterial compliance index) and
arterial impedance (an arterial impedance index) developed by or under the
direction of either Dr. Jay N. Cohn, Professor of Medicine and Head of the
Cardiovascular Division, University of Minnesota Medical School ("Cohn")
or Dr. Stanley M. Finkelstein, Associate Professor of Laboratory Medicine
within the Division of Health Computer Sciences, University of Minnesota
Medical School ("Finkelstein") or both. "Technology" shall not include
any knowledge, information, know-how, software or devices relating to
arterial compliance and arterial impedance developed under the direction
of either Cohn or Finkelstein or both in the course of a project
concerning the pulmonary artery in humans and dogs and the femoral artery
in dogs pursuant to that certain Donation Agreement between UNIVERSITY and
Medtronic, Inc. dated October 30, 1987, as amended and supplemented.
B. "Improvements" shall mean any development, modification, alteration or
improvement of any kind of the Technology, whether patentable or not,
including improvements of a device or method incorporating the Technology,
that (i) UNIVERSITY develops through the direction of either Cohn or
Finkelstein or both within five (5) years of the date of this Agreement,
(ii) results from research conducted by UNIVERSITY relating to the
Technology and funded by COMPANY regardless of when such research occurred,
(iii) UNIVERSITY and COMPANY develop jointly, or (iv) COMPANY develops
solely. "Improvements" shall
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<PAGE>
not include any improvement or development of the Technology made by the
UNIVERSITY which is the result of funded research under an agreement with
a third party (other than the United States government) that grants rights
in such improvement or development to that third party, provided that
COMPANY has been given not less than 60 (sixty) days' prior written notice
of the intent of the UNIVERSITY to enter into such agreement and an
opportunity of first refusal to enter into an agreement on substantially
equivalent terms. Nothing herein shall be construed to limit the right of
either Cohn or Finkelstein or both to seek and obtain private or federal
or state government funding in order to conduct research relating to the
Technology, provided that the terms of such funding do not violate the
terms of this Agreement including, without limitation, the license granted
under this Agreement.
C. "Subject Patent Application(s)" shall mean any patent application in the
United States or in a foreign country that covers all or any portion of
either the Technology or Improvements or both made solely by the UNIVERSITY
or jointly by the UNIVERSITY and COMPANY.
D. "Subject Patent(s)" shall mean any patent that issues on a Subject Patent
Application.
E. "Licensed Product(s)" shall mean any manufactured product or service that
(i) incorporates the Technology or Improvements, or (ii) is covered by a
Subject Patent. "Licensed Product(s)" shall not mean any manufactured
product or service that incorporates only Improvements developed solely by
COMPANY.
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F. "Net Sales" shall mean the gross amount invoiced for sales, leases or other
dispositions of Licensed Product(s) by COMPANY, its Affiliates or its
sublicensees less (i) all trade, quantity, and cash discounts actually
allowed, (ii) all credits and allowances actually granted on account of
rejection, returns, billing errors, or retroactive price reductions, (iii)
duties, and (iv) excise sale and use taxes, and equivalent taxes.
G. "Affiliate(s)" shall mean any present or future domestic or foreign
corporation which shall be at the pertinent time owned or controlled,
directly or indirectly by COMPANY.
ARTICLE II. - RESERVED
ARTICLE III. - INVENTIONS AND PATENT APPLICATIONS
A. Title in the Technology and Improvements developed solely by the UNIVERSITY
and jointly by UNIVERSITY and COMPANY shall rest solely and exclusively
with the UNIVERSITY, subject to the license grant of Article IV. Title in
Improvements developed solely by COMPANY shall rest solely and exclusively
with COMPANY, subject to the license grant of Article IV. Any Improvement
developed by any employee of
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UNIVERSITY (including, but not limited to, Cohn and Finkelstein) while
working at non-UNIVERSITY facilities that results from any work performed
under any consulting agreement between COMPANY and that UNIVERSITY
employee, shall be deemed developed solely by COMPANY. Any Improvement
developed by any employee of UNIVERSITY (including, but not limited to,
Cohn and Finkelstein) while working at UNIVERSITY facilities, whether or
not the Improvement results from work performed under any consulting
agreement between that employee and COMPANY, shall be deemed developed
solely by UNIVERSITY.
B. Each party shall promptly disclose to the other party any Improvements
conceived or reduced to practice by the first party. COMPANY shall
promptly disclose to UNIVERSITY any Improvement made solely by the COMPANY,
subject to the confidentiality provisions of this Agreement.
C. The UNIVERSITY shall file and prosecute Subject Patent Application(s) and
maintain Subject Patent(s) in the United States, at its own expense. If
UNIVERSITY in good faith determines not to file and prosecute any Subject
Patent Application(s) and maintain Subject Patent(s) in the United States,
COMPANY shall have the right to file and prosecute Subject Patent
Application(s) and maintain Subject Patent(s) in the United States, at its
own expense. Thereafter, UNIVERSITY shall have no right to royalties for
Licensed Product(s) that use only Improvements or inventions that are the
subject of such Subject Patent Application(s) and Subject Patent(s)
obtained by COMPANY at its own expense.
D. The UNIVERSITY shall, upon request of COMPANY, file and prosecute Subject
Patent Application(s) and maintain Subject Patent(s) in such foreign
countries as COMPANY requests. COMPANY shall reimburse the UNIVERSITY for
all reasonable out of pocket expenses incurred by the UNIVERSITY for
COMPANY
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<PAGE>
requested foreign filing, prosecution and maintenance. Such expenses
shall not include any salaries or benefits of employees of the UNIVERSITY.
COMPANY may credit all reimbursements it makes to the UNIVERSITY under
the obligation of this paragraph against royalties owing the UNIVERSITY as
a result of sales of Licensed Product(s) in the country where filing or
prosecuting Subject Patent Application(s), or maintaining Subject
Patent(s) gave rise to the reimbursed costs.
E. In the event that the UNIVERSITY notifies COMPANY of its intent to file
Subject Patent Application(s) in specified countries other than the United
States of America and COMPANY does not desire to have Subject Patent
Application(s) filed or prosecuted, or does not desire to have Subject
Patent(s) maintained, COMPANY shall promptly notify the UNIVERSITY. No
such notice may be given by the UNIVERSITY less than six months from the
date such an applications is filed in the United States of America, or less
than three (3) years following the execution of this Agreement if filed
only in foreign countries and not in the United States of America.
Subsequent to this notice, such application(s), patent(s) issuing on such
applications and such patent(s) as COMPANY does not desire to be maintained
shall no longer be considered Subject Patent Application(s) or Subject
Patent(s). The UNIVERSITY, upon such notice, may file or prosecute such
patent applications or maintain such patent(s) at its sole option and
expense.
6
<PAGE>
F. COMPANY agrees to cooperate with the UNIVERSITY in connection with the
filing and prosecution of Subject Patent Application(s). Patent counsel
shall be chosen by the UNIVERSITY subject to the approval of the COMPANY,
which shall not be unreasonably withheld. UNIVERSITY shall consult with
COMPANY on all major decisions involving filing and prosecuting Subject
Patent Application(s) and maintaining Subject Patent(s). The UNIVERSITY
shall keep COMPANY promptly apprised of developments in the filing and
prosecution of Subject Patent Application(s). This appraisal shall include
providing COMPANY with a copy of the applications and all correspondence
relating thereto. The COMPANY shall have a right to consult directly with
patent counsel concerning the prosecution of Subject Patent Application(s),
but the UNIVERSITY shall be solely responsible for directing patent counsel
provided that all decisions concerning foreign Subject Patent
Application(s) and foreign Subject Patent(s) are approved by COMPANY.
ARTICLE IV. - LICENSE GRANT AND COMMERCIAL EFFORTS
A. Subject to the terms and conditions herein, the UNIVERSITY hereby grants to
COMPANY and its Affiliates and COMPANY hereby accepts an exclusive,
worldwide license under the Technology, Improvements, and the Subject
Patent(s), with a right to grant sublicenses, to make, have made, use,
lease and sell Licensed Product(s). Notwithstanding this license grant,
the UNIVERSITY retains a nonexclusive and nontransferable right to
7
<PAGE>
use solely for educational and research purposes the Technology or
Improvements made solely by the UNIVERSITY or jointly by the UNIVERSITY
and COMPANY. COMPANY hereby grants and the UNIVERSITY hereby accepts a
nonexclusive, nontransferable and irrevocable license to use solely for
educational and research purposes any Improvements made solely by COMPANY.
The license grant from UNIVERSITY to COMPANY is subject to any rights
retained by the United States Government in the Technology, Improvements
and Subject Patent(s) that are set forth in 37 C.F.R. Section 401 (1987),
due to the fact that the United States Government has funded UNIVERSITY
research related to the Technology.
B. COMPANY and Affiliates shall have the right to grant sublicenses to others
with respect to any rights conferred upon COMPANY under this Agreement,
provided, however, that any such sublicense shall be subject in all
applicable respects to the provisions contained in this Agreement, and
further provided that COMPANY shall give the UNIVERSITY an opportunity to
review and comment on any sublicense prior to its execution. COMPANY shall
not be responsible to the UNIVERSITY for the payment of royalties due with
respect to sales made by sublicensees (other than Affiliates) that are not
actually received by COMPANY, if the COMPANY has made a good faith, best
effort attempt to collect payments for sales.
C. COMPANY shall use all reasonable efforts to effect commercial sales of
Licensed Product(s) as soon as practicable and to maximize these sales,
consistent with sound and reasonable
8
<PAGE>
business practices and judgment. In addition, within two (2) years of the
date of this Agreement, COMPANY shall (i) conduct or cause to be conducted
clinical trials of the Technology, Improvements and Subject Patent(s) on a
minimum of 200 subjects and (ii) use its best efforts to develop
noninvasive Licensed Product(s). COMPANY shall provide the UNIVERSITY
with brief written reports of COMPANY'S efforts to effect
commercialization. COMPANY shall provide these reports quarterly
beginning with the first full calendar quarter following the execution of
this Agreement and at the same time that it provides reports required by
Article V.
D. COMPANY shall sell Licensed Product(s) at a fair and reasonable price, to
be determined by COMPANY in its sole discretion, and shall refrain from
making any false or misleading claims in its advertising or otherwise.
E. COMPANY shall not use the names of the UNIVERSITY nor of any UNIVERSITY
employees in any manner associated with promotion of a commercial product
without prior written approval from the UNIVERSITY and such employees.
COMPANY shall have the right, to the extent it is advised by counsel that
it is required to do so, to use the name of the UNIVERSITY or any
UNIVERSITY employees in any prospectus or private offering document,
provided that a copy thereof shall have been provided to the UNIVERSITY at
or about the same time as such documents are provided to other investors.
F. COMPANY, its Affiliates, and its sublicensees shall alone have the
obligation to ensure that any Licensed Product(s) they
9
<PAGE>
sell is not defective and meets all applicable regulations, including
approval by the United States Food and Drug Administration. COMPANY shall
pay for all costs and expenses associated with such approvals, and
UNIVERSITY shall cooperate with COMPANY and provide and execute any
documentation necessary for COMPANY to obtain such approvals.
ARTICLE V. - EQUITY, ROYALTIES, REPORTS AND RECORDS
A. In consideration for the license granted hereunder, COMPANY shall pay or
cause to be paid to the UNIVERSITY a royalty of one (1) percent of Net
Sales of Licensed Product(s) during the two (2) years immediately after the
effective date of this Agreement; one and one-half (1-1/2) percent of Net
Sales of Licensed Product(s) beginning 2 years and ending four years after
the effective date of this Agreement, and two (2) percent of Net Sales of
Licensed Product(s) beginning four years after the effective date of this
Agreement and continuing until this Agreement is terminated or the Subject
Patent(s) expire. In the event that the UNIVERSITY obtains a United States
Subject Patent(s) for the use of the Technology and Improvements in the
diagnosis, treatment and monitoring of hypertension, then, upon written
notification by the UNIVERSITY of the issuance of such Subject Patent(s),
COMPANY will pay or cause to be paid to the UNIVERSITY a royalty of three
(3) percent of Net Sales of Licensed Product(s) (in lieu of the two (2)
percent of Net Sales of Licensed Product(s) stated above) beginning four
years after the effective date of
10
<PAGE>
this Agreement and continuing until this Agreement is terminated or the
Subject Patent(s) expire.
B. In furtherance of the relationship between the parties, but not in
consideration of the license granted hereunder, the UNIVERSITY shall
purchase 35,000 shares of the COMPANY's common stock, $.0l par value, at
$.02 per share for a total cost of $700, which shall represent as of the
date of purchase not less than five (5) percent of the total number of
shares of common stock outstanding following such purchase. Said shares of
common stock shall be subject to the terms of the Subscription Agreement
and Investment Letter (the "Subscription Agreement") attached as Exhibit A.
The parties shall execute the Subscription Agreement within five (5) days
of the date of execution of this Agreement, and UNIVERSITY shall deliver a
check to COMPANY for said common stock within 30 days of the date of this
Agreement.
C. Royalties shall be payable only once with respect to the same unit of a
Licensed Product regardless of the number of patented or nonpatented
portions of the Technology or Improvements incorporated in such product and
regardless of the country in which such product is sold.
D. Royalty payments based on Net Sales as hereinabove required to be made by
COMPANY to the UNIVERSITY shall be made in United States dollars within
ninety (90) days following each calendar quarter in which sales occurred.
Any currency translations that are necessary to calculate payments shall be
made at the exchange rate used by COMPANY for financial accounting
11
<PAGE>
purposes in accordance with generally accepted accounting principles.
Each such payment shall include the royalties which shall have accrued
during the calendar quarter immediately preceding and shall be accompanied
by a report setting forth separately the Net Sales of Licensed Product(s)
sold during that quarter. Royalty checks shall be made payable to the
Regents of the University of Minnesota and mailed to the address specified
in Article XI.
E. COMPANY, its Affiliates and its sublicensees shall keep and maintain
records of sales of Licensed Product(s) that are subject to royalty
payments under this Agreement. COMPANY shall provide reports of Net Sales
and commercialization efforts for each full calendar quarter following the
effective date of this Agreement, whether or not any sale of Licensed
Product(s) occurred. Such records shall be open to inspection at
reasonable times by a certified public accountant chosen by the UNIVERSITY
and acceptable to COMPANY, at the UNIVERSITY's expense. The records
required by this paragraph shall be maintained and available for inspection
for a period of three (3) years following the calendar quarter to which
they pertain.
ARTICLE VI. - INFRINGEMENT
A. In the event that the UNIVERSITY or COMPANY determines that a third party
is making, using or selling a product that may infringe a Subject
Patent(s), it will promptly notify the other party in writing. COMPANY
may, at its sole option and
12
<PAGE>
expense, bring suit against such alleged infringer. In the event COMPANY
decides to bring suit, it shall give prompt written notice to the
UNIVERSITY of that fact. If COMPANY determines that it is necessary or
desirable for UNIVERSITY to join any such suit, action or proceeding,
UNIVERSITY shall execute all papers and perform such other acts as may be
reasonably required, at no expense to UNIVERSITY. All recoveries in such
suit shall inure to the benefit of COMPANY, except that the UNIVERSITY
shall have the right to elect to pay up to fifty percent (50%) of the
litigation costs and receive a percentage of any recovery equal to the
percentage of litigation costs paid. The UNIVERSITY must make such
election within thirty (30) days of its receipt of notice that COMPANY has
decided to bring suit. The UNIVERSITY shall also have the right to choose
to be represented by separate counsel in any such suit at its own expense.
Irrespective of whether the UNIVERSITY elects to participate in any such
litigation, COMPANY shall have the right to determine the strategy of such
litigation and any settlement. If COMPANY elects not to bring a suit
against or to otherwise enter into a settlement agreement with the alleged
infringer, it shall promptly notify the UNIVERSITY of that fact and the
UNIVERSITY shall have the right to commence such action at its own cost
and expense, in which case any recoveries shall inure to the benefit of
the UNIVERSITY. If UNIVERSITY determines that it is necessary or
desirable for COMPANY to join any such suit, action or proceeding, COMPANY
shall execute all papers and perform such
13
<PAGE>
other acts as may be reasonably required, at no expense to COMPANY.
B. In the event that COMPANY, an Affiliate or a sublicensee is sued by a third
party charging patent infringement for the manufacture, use or sale of a
Licensed Product(s), COMPANY shall promptly notify the UNIVERSITY. COMPANY
shall be entitled to withhold up to fifty percent (50%) of the royalties
otherwise payable to the UNIVERSITY, and use that withheld royalty to
reimburse itself for legal defense costs incurred in such infringement
suits, provided, however, that the infringement suit is based on a
particular feature of a Licensed Product(s) that is within the claims of a
Subject Patent or which is included within the claims of Subject Patent
Application(s). If COMPANY avails itself of the provisions of this
paragraph, COMPANY agrees to supply the UNIVERSITY with proof of the legal
costs incurred.
C. If COMPANY, any of its Affiliates or any of its sublicensees is required to
pay a royalty to other than the UNIVERSITY as a result of a final judgment
or settlement in order to make, have made, use, lease or sell a Licensed
Product(s), then in that event, the royalty payable to the UNIVERSITY shall
be reduced by the amount of royalty that COMPANY, the Affiliate or the
sublicensee shall be required to pay to other than the UNIVERSITY, but in
no event shall the royalty payable to the UNIVERSITY be reduced by more
than fifty percent (50%) from the royalty rate specified in Article V. If
COMPANY avails itself of the provisions of this paragraph, COMPANY agrees
to
14
<PAGE>
provide the UNIVERSITY with proof of such royalties paid to the third
party.
D. The UNIVERSITY represents and warrants that it has, and at all times during
the term of this Agreement will have, complete title to the Technology, the
Subject Patent Application(s), any Subject Patents and any Improvements
made by the UNIVERSITY or jointly by the UNIVERSITY and COMPANY free of any
liens or encumbrances of any kind and that it has and will have the
complete right to grant the license described herein free of any rights of
third parties, except for any rights which might be retained by the United
States Government pursuant to 37 C.F.R. Section 401 (1987). The UNIVERSITY
further represents and warrants that it has not made and will not make any
commitments to third parties that are inconsistent with or in violation of
this Agreement. The UNIVERSITY further represents and warrants that
UNIVERSITY, its employees and agents have complied with and during the term
of this Agreement will comply with the requirements of 37 C.F.R. Section
401 (1987).
E. Within thirty (30) days of the date of this Agreement, UNIVERSITY shall
obtain a signed assignment from Mrs. Marsha Finkelstein under which she
agrees to assign all of her right, title and interest in software related
to the Technology and all copyrights and other forms of legal protection
available for said software to UNIVERSITY.
15
<PAGE>
ARTICLE VII. - TERM AND TERMINATION
A. This Agreement's term shall end with the expiration of the last to expire
of any Subject Patents, or, in the event no such patent issues, ten (10)
years after the date of first commercial sale of a Licensed Product by
COMPANY, its Affiliate(s), or its sublicensee(s).
B. COMPANY shall be deemed to be in default of its obligations under this
Agreement if any of the following shall occur and be continuing sixty (60)
days following receipt by COMPANY of written notice by certified mail
specifying in detail the nature of the alleged default:
(1) if royalties due the UNIVERSITY are unpaid;
(2) if there is a material breach or default of this Agreement by COMPANY;
(3) if COMPANY fails to develop a commercially saleable Licensed
Product(s) within 2 years of the effective date of this Agreement; or
(4) if COMPANY fails to use all reasonable efforts to effect commercial
sales of Licensed Product(s) in accordance with Article IV paragraph
E.
If such a default occurs and is continuing within sixty (60) days following
receipt of such notice, the UNIVERSITY may terminate this Agreement
effective upon receipt of a written notice of such termination by COMPANY.
C. COMPANY may terminate this Agreement at any time upon thirty (30) days
notice by certified mail to the UNIVERSITY.
16
<PAGE>
D. Upon termination of this Agreement for any reason, including the end of
term as specified above, nothing herein shall be construed to release
either party from any obligation which matured prior to the effective date
of termination. COMPANY, its Affiliates or its sublicensees may after the
effective date of such termination sell all Licensed Product(s) in stock
and complete construction of all Licensed Product(s) in the process of
manufacture at the time of termination and sell the same, provided that
COMPANY pay to the UNIVERSITY royalties on such Licensed Product(s) as
specified in this Agreement.
ARTICLE VIII. - CONFIDENTIAL INFORMATION
Subject to the provisions of Article IX below, each party agrees to keep
confidential by use of the same degree of care it exercises towards its own
confidential information and to not disclose or provide to any third party, any
information, data, or research product received from the other party which
constitutes trade secrets ("Trade Secrets") and has been clearly designated as
confidential or proprietary, unless such Trade Secrets:
(1) Were in the public domain at the time of disclosure to the third
party; or
(2) Were known to or independently developed by either party prior to the
time of disclosure; or
(3) Are later received without restriction by either party from a third
party authorized to disclose such information; or
(4) Are required to be disclosed or provided to a government entity, in
which case the party whose information is to be
17
<PAGE>
disclosed will be provided with adequate written notice and given every
reasonable opportunity to protect or contest such governmental disclosure
and the parties will cooperate in their judgment with each other; or
(5) Are reasonably required to be disclosed by the COMPANY in the conduct
of its business.
The UNIVERSITY shall, and shall cause its employees to, maintain in confidence
all Trade Secrets, except as provided in Article IX.
ARTICLE IX. - PUBLICATION
It is the policy of the UNIVERSITY to promote and safeguard free and open
inquiry by faculty, students and others. To further this policy, the UNIVERSITY
shall retain the right to publish the Technology and Improvements made solely by
the UNIVERSITY or jointly by the UNIVERSITY and COMPANY, subject to the
provisions of this Article IX. The UNIVERSITY shall provide COMPANY with a copy
of all proposed publications, papers, and any other oral or written copies of
any of the Technology or Improvements at the earlier of the date of submission
or 90 days prior to publication for the purpose of review and comment. If the
COMPANY believes that any information constitutes a COMPANY Trade Secret or
patentable subject matter, the COMPANY shall notify the UNIVERSITY within 30
days of its receipt thereof. Prosecution of patents on patentable subject
matter shall proceed in accordance with Article III above. In no event shall
UNIVERSITY publish COMPANY Trade Secrets without COMPANY'S prior written
consent. If the COMPANY determines that
18
<PAGE>
the proposed disclosure does not include Trade Secrets or patentable
subject matter, it shall so notify the UNIVERSITY.
ARTICLE X. - INDEMNIFICATION AND INSURANCE
A. COMPANY agrees to indemnify the UNIVERSITY and hold the UNIVERSITY harmless
against all liabilities, demands, damages, expenses, or losses arising from
(i) the manufacture, use, lease or sale of a Licensed Product by COMPANY,
an Affiliate or a sublicensee of COMPANY, (ii) a third party's use of a
Licensed Product purchased or leased from COMPANY, an Affiliate or a
sublicensee of COMPANY, or (iii) a third party's manufacture of a Licensed
Product at the request of COMPANY.
B. The provisions of paragraph A of this Article shall require COMPANY to
indemnify the UNIVERSITY and hold the UNIVERSITY harmless even though the
UNIVERSITY's own negligence may have given rise to the liability, demand,
damage, expense or loss. However, these provisions shall not require
COMPANY to indemnify the UNIVERSITY or hold the UNIVERSITY harmless against
any liabilities, demands, damages, expenses, or losses where the deliberate
or grossly negligent acts of the UNIVERSITY caused such liabilities,
demands, damages, expenses, or losses.
C. UNIVERSITY agrees to defend, indemnify and hold harmless COMPANY, its
Affiliates and sublicensees against and from all liability, demands,
damages, expenses or losses arising from any claim that (i) COMPANY'S
manufacture, use or sale of the
19
<PAGE>
Technology, Improvements or Licensed Product(s) infringes on the rights of
Medtronic, Inc., Mrs. Marsha Finkelstein, Gregory Hasking, M.D., or any
person who claims to have created or developed the Technology or
Improvements while being directed by UNIVERSITY, (ii) UNIVERSITY has
granted to a third party any of the rights that UNIVERSITY has granted
COMPANY under this Agreement or (iii) UNIVERSITY has misappropriated any
rights belonging to a third party that UNIVERSITY has granted COMPANY
under this Agreement.
D. The UNIVERSITY and COMPANY agree to maintain liability insurance (in such
reasonable amounts as they shall respectively determine) at their own
individual expense to insure against any liability for personal injury
arising out of the subject matter of this Agreement. The UNIVERSITY and
COMPANY shall provide each other with certification of such insurance.
E. The provisions of this Article shall survive termination of this Agreement.
ARTICLE XI. - MISCELLANEOUS PROVISIONS
A. This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their heirs, successors and assigns.
B. This Agreement shall be governed by the laws of the State of Minnesota.
C. For purposes of mailings of notices, payments, or other communications, the
addresses of the parties are given below.
20
<PAGE>
In the case of the UNIVERSITY:
Regents of the University of Minnesota
Office of Patents and Licensing
5th Floor, Administrative Services Center
1919 University Avenue
St. Paul, Minnesota 55104
In the case of the COMPANY:
Hypertension Diagnostics, Inc.
University Technology Center Suite #208-C
1313 Fifth Street S.E.
Minneapolis, Minnesota 55414
D. No term or provision of this Agreement shall be waived and no breach
excused, unless such waiver or consent shall be in writing and signed by
the party claimed to have waived or consented. No waiver of a breach shall
be deemed to be a waiver of a different or subsequent breach.
E. This Agreement may not be modified, changed or terminated orally. No
change, modification, addition or amendment shall be valid unless in
writing and signed by the parties hereto.
F. This Agreement constitutes and contains the entire Agreement of the parties
respecting the subject matter hereof and supersedes any and all prior
negotiations, correspondence, understanding, and agreements, whether
written or oral, between the parties respecting the subject matter hereof.
G. The captions used in this Agreement are for convenience only and are not to
be used in interpreting this Agreement.
H. In case any one or more of the provisions of this Agreement shall for any
reason be held to be invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability shall not affect any other
provision of this Agreement, but this Agreement shall be construed as if
such
21
<PAGE>
invalid, illegal or enforceable provisions had never been contained herein.
I. Nothing contained in this Agreement shall be deemed to constitute the
parties partners with each other or any third party or to constitute either
party an agent of the other.
IN WITNESS WHEREOF, the UNIVERSITY and COMPANY have caused this Agreement to be
executed by their duly authorized officers as of the date first above written.
HYPERTENSION DIAGNOSTICS, INC., a
Minnesota corporation
By /s/ Charles F. Chesney
---------------------------------
Charles F. Chesney
Its President
REGENTS OF THE UNIVERSITY
OF MINNESOTA, a Minnesota
nonprofit corporation
By /s/ John F. Thuente
---------------------------------
John F. Thuente
Title: Director, Patents &
Licencing
By signing below, Cohn and Finkelstein acknowledge and agree that they (i)
have read and understand this Agreement; (ii) have no objections to the terms
of this Agreement; and (iii) are personally bound by the provisions of
Article I.B., Article VIII and Article X of this Agreement.
/s/ Jay N. Cohn /s/ Stanley M. Finkelstein
- ---------------------------- -----------------------------
Jay N. Cohn, M.D. Stanley M. Finkelstein, Ph.D.
22
<PAGE>
EXHIBIT A
SUBSCRIPTION AGREEMENT
AND
INVESTMENT LETTER
Hypertension Diagnostics, Inc.
Gentlemen:
The undersigned hereby subscribes to purchase 35,000 shares of the common
stock, par value $.01 per share, of Hypertension Diagnostics, Inc. (the
"Company"), a corporation organized under the laws of the State of Minnesota
(such number of shares hereinafter collectively referred to as the "Shares"),
and agrees to pay therefor the sum of $.02 per share, for a total purchase
price of $700.00 to be paid in cash.
The undersigned acknowledges that he or she is a promoter and organizer of
the Company and is therefore fully informed concerning its proposed business.
The business plan of the Company has not yet been formally established. The
undersigned also acknowledges his or her understanding that the purchase of
the Shares is a speculative investment and recognizes that the Company makes
no assurance whatever concerning the present or prospective value of the
Shares.
The undersigned understands that the Shares have not been registered (i)
under the Securities Act of 1933, as amended (the "Act"), on the ground that
the company believes the transaction is exempt from registration under the
Act by virtue of the provisions of Section 4(2) of the Act, and (ii) under
the Minnesota Securities Act on the basis that the transaction is exempt from
registration under Minnesota Statutes, Section 80A.15, Subd. 2(a). The
undersigned understands that the Company's reliance upon the foregoing
exemptions is predicated in part on the representations of the undersigned
contained herein.
By signing this Subscription Agreement, the undersigned agrees with and
represents and warrants to the Company that:
a. He or she is acquiring the Shares subscribed for hereby for his or her own
account and not on behalf of any other person or persons.
b. He or she is purchasing the Shares for investment purposes and not for
resale or other distribution.
c. The Shares may not be sold, transferred, assigned or otherwise disposed of
except pursuant to an effective registration statement or upon receipt of
an opinion of counsel satisfactory to the Company that the transfer is
exempt from
1
<PAGE>
registration under the applicable state and federal securities laws. He
or she has been informed that the certificates representing the Shares
will bear the following or a substantially similar legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED
WITHOUT REGISTRATION UNDER THE SECURITIES ACT OF 1933 OR UNDER
ANY STATE SECURITIES LAWS, AND MAY NOT BE SOLD, TRANSFERRED OR
PLEDGED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE APPLICABLE FEDERAL AND STATE SECURITIES LAWS OR AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT THE TRANSFER
IS EXEMPT FROM REGISTRATION UNDER THE APPLICABLE FEDERAL AND
STATE SECURITIES LAWS.
d. He or she has been informed by the Company that it does not intend, nor is
it obligated now or at any future date, to register the Shares purchased
hereunder under either state or federal securities laws or to make publicly
available or provide the undersigned with the information required by Rule
144 of the Securities and Exchange Commission under the Act in order to
allow resale of the Shares under the provisions of such Rules.
e. The undersigned understands that he or she must bear the economic risk of
this investment for an indefinite period of time because the Shares have
not been registered and, therefore, cannot be sold unless they are
subsequently registered or an exemption from such registration is
available.
f. The undersigned has sufficient knowledge and experience in financial and
business matters to be capable of evaluating the merits and risks of a
prospective investment in the Shares; is experienced in making investments
which involve a high degree of risk, and is sophisticated in making
investment decisions; is familiar with the definition of "accredited
investor" under SEC Regulation D and as discussed below; and the
undersigned (is ____) (is not ____) an "accredited investor" within that
definition.
If you are an accredited investor, please indicate your basis for
qualification as an accredited investor by checking the box next to the
applicable item(s) below. The undersigned agrees to make available any
information requested by the Company to confirm such qualifications.
/ / The undersigned is a corporation with total assets in excess of
$5,000,000; or
/ / The undersigned is a director or executive officer of the Company; or
2
<PAGE>
/ / The undersigned has an individual net worth, or joint net worth with
spouse, exceeding $1,000,000 as of the date of signature hereof; or
/ / The undersigned had an individual income exceeding $200,000 in each of
the two most recent years or joint income with spouse exceeding
$300,000 in each of the two most recent years and reasonably expects
an individual income exceeding $200,000 or joint income with spouse
exceeding $300,000 in this year.
Dated: , 1988
---------------
- ----------------------------------
Signature
- ----------------------------------
Name Typed or Printed
- ----------------------------------
Residence Address
- ----------------------------------
City, State and Zip Code
- ----------------------------------
Tax Identification or
Social Security Number
This Subscription Agreement and Investment Letter is accepted as
of , 1988.
-----------------------------
HYPERTENSION DIAGNOSTICS, INC.
By
---------------------------------
Its
---------------------------
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN CHARLES F. CHESNEY, D.V.M., PH.D. AND
HYPERTENSION DIAGNOSTICS, INC.
This Agreement is made and entered into this 30th day of October, 1995, by
and between Charles F. Chesney, D.V.M., Ph.D. ("Employee") and Hypertension
Diagnostics, Inc., a Minnesota corporation ("Company") on the terms and
conditions set forth below.
I. DUTIES OF EMPLOYEE. On an interim basis, Employee will continue to serve
Company as President and Chief Executive Officer until Company, through its
Board of Directors, appoints another President and Chief Executive
Officer. At such time, Employee will serve Company as an Executive Vice
President and the Chief Technical Officer. Employee shall serve under the
direction of the Board of Directors of Company, and shall perform such
duties as may be directed by the Board of Directors.
II. COMPENSATION. In full consideration of the covenants contained herein,
Employee's rendition of services under this Agreement, and subject to the
full performance by Employee of his obligations hereunder, Company shall
provide and the Employee shall accept the following:
A. FIRST PAYMENT. Employee shall receive a lump sum payment in the
amount of Twenty-Five Thousand Dollars ($25,000) within five (5)
business days after the date of the first closing of the private
placement of Company's $.01 par value common stock pursuant to the
Agency Agreement dated August 15, 1995 between Company and Marche
Securities, Inc.
B. SECOND PAYMENT. Employee shall receive a lump sum payment in the
amount of Twenty-Five Thousand Dollars ($25,000) within three (3)
months after the date of the final closing of the private placement of
Company's $.01 par value common stock pursuant to the Agency Agreement
dated August 15, 1995 between Company and Marche Securities, Inc.
C. ANNUAL SALARY. Employee shall be paid at the basic rate of
Seventy-Two Thousand Dollars ($72,000) per year in equal installments
on a semi-monthly basis (twice per month) in accordance with the
normal payroll procedures of Company as established by the Board of
Directors of Company. For services rendered under this Agreement,
Company shall pay Employee a minimum annual salary (exclusive of
benefits, bonuses or incentive payments) of $72,000 subject to
adjustments to increase same by the Board of Directors at least
annually. In addition, Employee's Annual Salary shall be
automatically adjusted at each January 1 to reflect any increase in
the cost of living as hereinafter provided. Such increase shall be
computed as of January 1 by dividing the preceding December figure
in the general index of the Minneapolis-Saint Paul area, as shown by
the Bureau of Labor Statistics, Consumer Price Index (all items) --
Minneapolis-Saint Paul, Minnesota and published by the Office of
Information, Department of Labor, United States Government (or the
next closest month for which
<PAGE>
the publication is made for such component of the index) by the
December 1994 figure. The resulting quotient shall be multiplied by
the Annual Salary then in effect to arrive at the adjusted Annual
Salary due for the following year. If, at any time, the foregoing
index is not maintained, the adjustment shall be computed in
accordance with a substitute or successor index. If the Employee's
salary is increased during the term of this Agreement, the increased
amount shall be the Annual Salary until adjusted by the Board of
Directors. For the duration of the term of this Agreement, the base
Annual Salary plus benefits, bonuses and incentive payments paid to
the Employee shall be equal to, or greater than, eighty percent (80%)
of that paid to Company's President and Chief Executive Officer.
D. STOCK OPTIONS. Company shall grant Employee certain stock options of
Company as more fully described in the document entitled
"Non-Qualified Stock Option Agreement Between Charles F. Chesney,
D.V.M., Ph.D. and Hypertension Diagnostics, Inc.," attached hereto as
Exhibit A.
E. INSURANCE AND BENEFITS. Employee shall be entitled to contributory
participation in all life insurance, major medical health insurance,
dental insurance, disability insurance, and other benefit plans of
Company as may be approved from time to time by the Board of Directors
of Company.
F. REIMBURSEMENT OF BUSINESS EXPENSES. Company shall, in accordance
with, and to the extent of, its policies in effect from time to time,
bear all ordinary and necessary business expenses incurred by the
Employee in performing his duties as an employee of Company, provided
that Employee accounts promptly for such expense to Company in the
manner prescribed from time to time by Company.
G. WITHHOLDINGS. Company may make such withholdings, deductions or
payments from sums payable to Employee under this Agreement as are
required or permitted by law.
H. BONUS AND INCENTIVE. Bonus and incentive compensation shall be in the
discretion of the Board of Directors, provided that Employee shall
participate in those bonus and incentive plans in which any executive
employee of the Company currently or hereinafter participates.
I. VACATION. Employee shall be entitled to a minimum of three (3) weeks
paid vacation each calendar year. Vacation shall accumulate, so that
if the full vacation is not taken in a particular year, any unused
portion will be carried into the following year(s). Upon termination
of employment, Employee shall be paid for all accrued but unused
vacation days at a daily rate equivalent to the amount obtained by
dividing 360 days into his then current Annual Salary.
J. DISABILITY OR DEATH. In the event of disability, the Employee's
Annual Salary shall be terminated as of the end of the month in which
the last day of the six (6) month period of Employee's inability to
perform his duties occurs. In the event of the Employee's
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<PAGE>
death, Annual Salary shall terminate as of the end of the sixth (6th)
month following the Employee's death.
III. CANCELLATION OF AGREEMENTS AND STOCK OPTIONS. In full consideration of the
covenants, promises, and obligations contained herein, and for other good
and valuable consideration:
A. CANCELLATION OF OUTSTANDING STOCK OPTIONS. Employee hereby forever
waives, forfeits, cancels, surrenders, and divests himself of any
rights pursuant to any outstanding options of Company except those
options contained in Exhibit A.
B. CONVERTIBLE PROMISSORY NOTE. During October 1991, Employee lent the
Company $1,000 at eight percent (8%) interest under terms and
conditions as set forth in a certain Convertible Promissory Note.
Employee shall be paid this $1,000 with accrued interest in a manner
and at a time essentially identical to that applied by the Company to
other holders of such Notes.
C. TERMINATION OF EXECUTIVE EMPLOYMENT AGREEMENT. Employee hereby
terminates a certain "Executive Employment Agreement" dated October 1,
1992, between Employee and Company and forever waives, forfeits,
cancels, surrenders, and divests himself of any rights, claims, and
remedies pursuant to said agreement, including claims for the
non-payment of base salary, bonus and incentives, fringe benefits,
stock options, reimbursement of business expenses, remedies for early
termination, or any other claims for compensation of any kind under
said agreement.
D. CANCELLATION OF PROMISSORY NOTE. Employee is the holder of a certain
Promissory Note dated February 1, 1993 regarding principal with
interest accrued (at eight percent (8%) per annum) which was lent to
the Company. The approximate amount currently owned Employee by the
Company as stated in the Company's Private Placement Memorandum dated
August 25, 1995, is $471,397. Employee hereby agrees to cancel this
Note and divests himself of any rights regarding this Note.
IV. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Employee shall keep
confidential and shall not disclose to anyone or use, either during or
after the term of this Agreement, any confidential information of Company,
except as is required by Employee's duties, or as authorized in writing by
Company. "Confidential Information" means any information or compilation
of information which derives independent economic value from not being
generally known to and not being readily ascertainable by proper means by
other persons who can obtain economic value from its disclosure or use.
Examples of Confidential Information not to be disclosed or used except as
permitted by Company, include but are not limited to:
A. Information concerning Company's operations, organizational structure,
methods, technology, procedures, finances, accounting, and legal
matters;
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<PAGE>
B. Information concerning Company's sales activities and strategies,
marketing activities and strategies, servicing activities and
strategies, and strategic business planning activities;
C. Information concerning Company's past, present, or potential customers
(hereafter referred to as "customers"), including the names, addresses
and telephone numbers of these customers; the identity of the
individuals responsible for buying products and services on behalf of
these customers; the needs and buying tendencies of these customers;
contract negotiations between Company and these customers; the
contents of contracts and agreements between Company and these
customers; financial information concerning these customers' business
operations; credit information regarding these customers; and
identity, quantity, and price of products or services purchased from
Company by these customers;
D. Vendor and supplier information including the names, addresses, and
telephone numbers of Company's vendors and suppliers; information
regarding Company's relationship with its vendors and suppliers;
contract negotiations between Company and its vendors and suppliers;
the contents of contracts and agreements between Company and its
vendors and suppliers; financial information concerning its vendors
and suppliers; and identity, quantity and prices of products purchased
by Company from its vendors and suppliers;
E. Information regarding Company's pricing of its products and services,
including price lists and pricing strategies;
F. Personnel records and data.
V. BUSINESS RECORDS. Employee shall not remove any records or documents from
the premises of Company or its clients in either original, duplicate, or
copied form, except as necessary in the ordinary course of conducting
business for Company. Employee shall immediately deliver to Company, upon
termination of this Agreement with Company, any such records or documents
in Employee's possession or control.
VI. FULL TIME DUTIES. Employee shall devote his full-time and best efforts to
Company and to fulfilling the duties of his position which shall include
such duties as may from time to time be assigned him by the Board of
Directors of the Company; provided that such duties are reasonably
consistent with Employee's education, experience and training.
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<PAGE>
VII. TERMINATION OF AGREEMENT.
A. DURATION OF AGREEMENT. Unless properly terminated as provided herein,
this Agreement shall continue in effect for a term of five (5) years,
or until October 31, 2000.
B. TERMINATION BY EMPLOYEE. Employee may give written notice of
termination of this Agreement for any reason sixty (60) days prior to
the proposed date of termination, at which time this Agreement shall
terminate.
C. TERMINATION BY COMPANY. Company may give written notice of
termination of this Agreement only for Reasonable Cause sixty (60)
days prior to the proposed date of termination, at which time this
Agreement shall terminate. No waiver by Company of any breach of this
Agreement shall be deemed a waiver of any prior or subsequent breach.
For purposes of this Agreement, "Reasonable Cause" shall mean:
1. Dishonesty, fraud, misrepresentation, diversion of corporate
opportunity, using insider information for personal gain, theft
or embezzlement of Company assets, or material intentional
violations of law; or
2. Willful or reckless misconduct by Employee in the performance of
the duties, functions, obligations or responsibilities delegated
to Employee.
D. EFFECT OF DEATH. This Agreement shall terminate immediately upon the
death of Employee. Upon the date of death of Employee, any and all
obligations of Company or its successors and assigns hereunder shall
be terminated, relieved and discharged, except as to compensation
earned by Employee under this Agreement prior to the date of his death
and as provided in Paragraph J, (Section II: Compensation) herein.
E. COOPERATION UPON TERMINATION. Following notice of termination of this
Agreement, Employee shall fully cooperate with Company in all matters
relating to the winding up of Employee's pending work on behalf of
Company and the orderly transfer of such pending work to such other
employees as may be designated by Company. Employee will be entitled
to continue to participate in all benefit plans and programs for
twenty-four (24) months after termination becomes effective.
VIII.NON-TRANSFERABILITY. This Agreement may not be assigned or transferred by
Company, and shall not be assigned by Employee to any other person or
entity.
IX. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the
benefit of the legal representatives, executors, administrators, successors
and assigns of each of the parties to this Agreement.
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<PAGE>
X. GOVERNING LAW.
A. The laws of Minnesota shall govern the validity, interpretation and
performance of the respective duties and obligations of this
Agreement.
B. Employee consents to venue and jurisdiction in the District Court of
Hennepin County, State of Minnesota, and in the United States District
Court for the District of Minnesota, and to service of process under
Minnesota law, in any action commenced by Company to enforce this
Agreement.
XI. SEVERABILITY. If any provision of this Agreement is adjudged void, invalid
or unenforceable under law, the remainder of this Agreement shall continue
and remain in full force and effect.
XII. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof, and may not be amended,
changed, modified, terminated, or waived other than by written instrument
signed by both parties.
XI. SUPREMACY. This Agreement supersedes all prior oral or written agreements
and understandings between Employee and Company concerning the subject
matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year below written:
EMPLOYEE HYPERTENSION DIAGNOSTICS, INC.
/s/ Charles F. Chesney By /s/ Charles F. Chesney
- ------------------------------------- -----------------------------------
Charles F. Chesney, D.V.M., Ph.D. Its President/CEO
-----------------------------------
Dated: Oct. 31, 1995 Dated: Oct. 31, 1995
------------------------------- --------------------------------
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<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
BETWEEN CHARLES F. CHESNEY, D.V.M., PH.D. AND
HYPERTENSION DIAGNOSTICS, INC.
THIS AGREEMENT is made and entered into this 30th day of October, 1995,
between Hypertension Diagnostics, Inc., a Minnesota corporation ("Company"), and
Charles F. Chesney, D.V.M., Ph.D. ("Optionee") on the terms and conditions set
forth below.
WHEREAS, the Board of Directors of the Company has decided to permit
Non-Qualified Stock Options to be granted to certain individuals providing
valuable services to the Company and any subsidiary corporations of the Company
to purchase voting common stock of the Company; and
WHEREAS, the Company desires the Optionee to secure stock ownership in the
Company in order to increase effectiveness and personal interest in the Company;
NOW THEREFORE, in consideration of the promises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee an option to
purchase from the Company all or any part of an aggregate amount of
288,046 shares of the voting common stock of the Company, par value
$.01 per share ("Option Shares"), at an option price of $1.70 per
share. The date of this Agreement is the date of the grant.
2. EXERCISE PERIOD. The Option shall become exercisable and fully vested
on October 30, 1995. Thereafter, Optionee may exercise his rights
with respect to any number of the Option Shares at any time or from
time to time, but in no event shall this Option be exercisable after,
and this Option shall become void and expire as to all unexercised
Option Shares, at 5:00 p.m. (Minneapolis, Minnesota time) on October
30, 2005.
3. EXERCISE OF OPTION. This option may be exercised only by written
notice of intent to the Company at its office at Five Acorn Drive,
South St. Paul, MN 55077-1420. Such notice shall state the number of
shares in respect of which the option is being exercised and shall be
accompanied by payment for such shares by personal check. The
exercise of the Option shall be deemed effective upon receipt of such
notice and payment. As soon as practicable after the effective
exercise of the Option, the Company shall record on the stock transfer
books of the Company the ownership of the shares purchased in the name
of the Optionee, and the Company shall deliver to the Optionee one or
more duly issued stock certificates evidencing such ownership.
4. EXERCISE UPON DEATH. If Optionee shall die, this option may be
exercised with respect to any vested options at the date of death to
the same extent that Optionee
EXHIBIT A
<PAGE>
was entitled to exercise such options, by the person or persons to
whom Optionee's rights under this option pass by will or applicable
law, or if no such person has such right, by his executors or
administrators.
5. CHANGE IN CONTROL.
a. DEFINITION. For purposes of this Agreement, the term "Change in
Control" shall mean any transaction or occurrence of events in
which (i) Company merges or consolidates with any other
corporation and is not the surviving corporation after such
merger or consolidation; (ii) Company transfers all or
substantially all of its business and assets to any other person,
individual, corporation, partnership, group, or association; or
(iii) more than 50% of Company's outstanding voting shares are
purchased by any other person, individual, corporation,
partnership, group or association.
b. ACCELERATION. If any events constituting a Change in Control of
the Company shall occur, Optionee shall be entitled to receive
option rights covering shares of the surviving or acquiring
entity in the same proportion, at an equivalent price, and
subject to the same conditions as this Option; provided, however,
that Optionee may, at his sole discretion, accelerate the right
to exercise this Option thirty (30) days prior to the anticipated
effective date of any of the foregoing transactions; provided,
however, that if, with respect to Optionee, acceleration of the
vesting of this Option as provided herein (which acceleration
could be deemed a payment within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended
("Code")) together with any other payments which Optionee has the
right to receive from the Company or any corporation which is a
member of an "affiliated group" (as defined in Section 1504(a) of
the Code without regard to Section 1504(b) of the Code) of which
Company is a member, would constitute a "parachute payment" (as
defined in Section 280G(b)(2) of the Code), the payments to
Optionee as set forth herein shall be reduced to the largest
amount as will result in no portion of such payments being
subject to the excise tax imposed by section 4999 of the Code.
6. DILUTION OR OTHER ADJUSTMENTS. If there shall be any change in the
shares of voting common stock of the Company through merger,
consolidation, reorganization, recapitalization, dividend in the form
of stock (of whatever amount), stock split or other change in the
corporate structure, appropriate adjustments in the outstanding
options shall be made by the Company. In the event of any such
changes, adjustments shall include, where appropriate, changes in the
aggregate number of shares subject and the price per share subject to
outstanding and future options in order to prevent dilution or
enlargement of option rights.
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<PAGE>
7. NO RIGHT TO CONTINUED COMPENSATION. Nothing contained in this
Agreement shall obligate the Company or any subsidiary corporation of
the Company to continue to accept and pay for the services of Optionee
as a consultant, employee or independent contractor for any particular
period or interfere with the right of the Company or any such
subsidiary to terminate any contract or employment relationship with
Optionee.
8. NO SHAREHOLDER RIGHTS. Optionee shall have no rights as a stockholder
with respect to any shares of common stock subject to this option
prior to the date of issuance of a certificate or certificates for
such shares.
9. INVESTMENT REPRESENTATION. Notice of the exercise of this option
shall include a representation that any of the Option Shares purchased
shall be acquired as an investment and not with a view to, or for sale
in connection with, any public distribution.
10. COMPLIANCE WITH LAW AND REGULATIONS. The Optionee acknowledges that
this option may not be exercised until the Company has taken all
actions then required to comply with all applicable federal and state
laws, rules and regulations and any exchange on which the stock may
then be listed. The certificates representing the shares purchased
upon the exercise of this option shall bear a legend in substantially
the following form:
The securities evidenced by this certificate have not been
registered either under any applicable federal law and rules
or applicable state law and rules. No sale, offer to sell,
or transfer of these securities may be made unless a
registration statement under the Securities Act of 1933, as
amended, and any applicable state law with respect to such
securities is then in effect or an exemption from the
registration requirements of such laws is then, in fact,
applicable to such securities.
11. NON-TRANSFERABILITY. This option shall not be transferable other than
by will or by laws of descent and distribution. During the lifetime
of the Optionee, this option shall be exercisable only by such
Optionee.
12. OTHER ASSISTANCE. Upon the exercise of this option the Optionee or
other person exercising the option must execute any document or make
any representation or give any commitment which the Board of
Directors, in its discretion, deems necessary or advisable by reason
of the securities laws of the United States or any state, and execute
any document for the purpose of restricting the transfer of stock to
third parties, or pay any sum of money in respect of taxes or
undertake to pay or have paid any such sum which the Board of
Directors, in its discretion, deems
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<PAGE>
necessary by reason of the Code or any rule or regulation thereunder,
or by reason of the tax laws of any state or any contracts or
agreements in effect at such time.
13. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the legal representatives, executors, administrators,
successors and assigns of each of the parties to this Agreement.
14. GOVERNING LAW.
a. The laws of Minnesota shall govern the validity, interpretation
and performance of the respective duties and obligations of this
Agreement.
b. Employee consents to venue and jurisdiction in the District Court
of Hennepin County, State of Minnesota, and in the United States
District Court for the District of Minnesota, and to service of
process under Minnesota law, in any action commenced by Company
to enforce this Agreement.
15. SEVERABILITY. If any provision of this Agreement is adjudged void,
invalid or unenforceable under law, the remainder of this Agreement
shall continue and remain in full force and effect.
16. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof, and may not be
amended, changed, modified, terminated, or waived other than by
written instrument signed by both parties.
17. SUPREMACY. This Agreement supersedes all prior oral or written
agreements and understandings between Employee and Company concerning
the subject matter hereof.
18. REGISTRATION RIGHTS. If, at any time prior to October 31, 2005, the
Company shall propose to file any Registration Statement (other than
any registration on Form S-4, or any other similarly inappropriate
form or Registration Statement with respect to any initial public
offering in which there are no selling shareholders) under the
Securities Act of 1933, as amended, covering a public offering of the
Company's Common Stock, it will notify Optionee at least forty-five
(45) days prior to each such filing and will include in the
Registration Statement (to the extent permitted by applicable
regulation) the Common Stock purchased by Optionee or purchasable by
Optionee upon the exercise of the Option to the extent requested by
Optionee. Notwithstanding the foregoing, the number of shares of the
holder of this Option proposed to be registered thereby shall be
reduced pro rata with any other selling shareholder (other than the
Company) upon the request of the managing underwriter of such
offering. If the Registration Statement or Offering Statement filed
pursuant to such forty-five (45) day notice
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<PAGE>
has not become effective within six months following the date such
notice is given to Optionee, the Company must again notify Optionee
in the manner provided above.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year below written:
OPTIONEE HYPERTENSION DIAGNOSTICS, INC.
- ----------------------------------- By
----------------------------------
Charles F. Chesney, D.V.M., Ph.D. Its
---------------------------------
Dated: Dated:
------------------------------ ------------------------------
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<PAGE>
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTIONS
Hypertension Diagnostics, Inc.
Five Acorn Drive
South St. Paul, MN 55077-1420
Gentlemen:
The undersigned is the holder of a non-qualified stock option (the
"Option") to purchase shares of voting common stock ("Stock") of Hypertension
Diagnostics, Inc. (the "Company"), pursuant to the Non-Qualified Stock Option
Agreement between Charles F. Chesney, D.V.M., Ph.D. and Hypertension
Diagnostics, Inc. dated October 30, 1995. The undersigned hereby irrevocably
elects to exercise the Option to purchase _____________ shares of Stock
("Option Shares"). Enclosed herewith is payment for the Option Shares as
required under the Agreement. The undersigned requests that the certificate
representing the Option Shares be issued in the name of the undersigned and
delivered to the address set forth below within five (5) business days.
In connection with the issuance of the Option Shares to the undersigned,
the undersigned hereby certifies and represents to the Company that the
undersigned is acquiring such shares for the purpose of investment and not
with a view toward distribution. The undersigned understands that these
securities have not been registered either under any applicable federal law
and rules or applicable state law and rules and that resale will not be
permitted under state law unless the securities are first registered or the
sale is a transaction exempt from registration under the applicable state
securities law.
The undersigned further understands that no sale, offer to sell, or
transfer of the Option Shares shall be made unless a registration statement
under the federal Securities Act of 1933, as amended (the "Act"), with
respect to the Option Shares is then in effect or an exemption from the
registration requirements of the Act is then in fact applicable to the Option
Shares. The undersigned understands that a legend reciting this investment
restriction shall be placed on any stock certificate that may be issued to
the undersigned.
- -----------------------------------------
Charles F. Chesney, D.V.M., Ph.D. (Optionee)
- -----------------------------------------
- -----------------------------------------
- -----------------------------------------
Address
- -----------------------------------------
Social Security No.
Dated:
-----------------------------------
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<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN JAMES S. MURPHY AND
HYPERTENSION DIAGNOSTICS, INC.
THIS AGREEMENT is made and entered into as of the 1st day of July, 1997,
by and between HYPERTENSION DIAGNOSTICS, INC. (the "COMPANY") a Minnesota
corporation and JAMES S. MURPHY (the "EMPLOYEE").
WHEREAS, Company desires to retain the Employee to be its Vice
President of Finance and Chief Financial Officer and Employee desires to be
the Company's Vice President of Finance and Chief Financial Officer; and
WHEREAS, the Employee has represented to the Company that, except
as specifically stated at the end hereof, Employee is not a party to any
other agreement or has any obligation which will interfere with or be in
conflict with the Employee's ability to fully comply with all terms and
conditions hereof;
NOW, THEREFORE, in consideration of the foregoing promises, the
mutual covenants and obligations of this Agreement and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. EMPLOYMENT. Subject to all of the terms and conditions of
this Agreement, Company hereby employs Employee and Employee hereby accepts
employment with Company as its Vice President of Finance and Chief Financial
Officer ("CFO");
2. DUTIES. Employee will devote sufficient business hours to,
and make the best use of his energy, knowledge and training in, performing
his duties within the general guidelines established by the Company.
3. TERM. The term of this Agreement shall be from July 1, 1997
through June 30, 1999. This Agreement may be extended beyond June 30, 1999 by
mutual agreement of the parties. This Agreement may be terminated for any of
the reasons set forth in Section 9 below. In addition, the parties may, at
any time, mutually agree to terminate this Agreement. Payments to Employee
upon termination will be made by Company as set forth in Section 10 below.
4. COMPENSATION. As compensation for all of Employee's services
under this Agreement, Company agrees to provide Employee the following
compensation:
a. BASE SALARY. It is expected that performance of this
Agreement will require Employee to provide full-time services to the
Company, that is, at least 40 hours per week. Employee's base salary (the
"BASE SALARY") shall be $76,800 annually, subject to adjustments, if any,
to increase same by the Board of Directors following an annual review in
June 1998, payable in accordance with Company's standard payroll practices,
withholdings and deductions.
<PAGE>
b. STOCK OPTIONS. Employee is entitled to certain incentive
stock options under this Agreement, which are more fully described in
Exhibit 1 to this Agreement.
5. INSURANCE AND BENEFITS. Employee shall be entitled to
contributory participation in all life insurance, major medical health
insurance, dental insurance, disability insurance, and other benefit plans of
Company as may be approved from time to time by the Board of Directors of
Company.
6. REIMBURSEMENT OF BUSINESS EXPENSES. Company shall, in
accordance with, and to the extent of, its policies in effect from time to
time, bear all ordinary and necessary business expenses incurred by the
Employee in performing his duties as an employee of Company, provided that
Employee accounts promptly for such expense to Company in the manner
prescribed from time to time by Company.
7. WITHHOLDINGS. Company may make such withholdings, deductions
or payments from sums payable to Employee under this Agreement as are
required or permitted by law.
8. VACATION. Employee shall be entitled to a minimum of three
(3) weeks paid vacation each calendar year. Vacation shall accumulate, so
that if the full vacation is not taken in a particular year, any unused
portion will be carried into the following year(s). Upon termination of
employment, Employee shall be paid for all accrued but unused vacation days
at a daily rate equivalent to the amount obtained by dividing 360 days into
his then current Base Salary.
9. TERMINATION. This Agreement and Employee's employment may be
terminated by the Company if the Company determines, in good faith, that the
Employee is not meeting performance expectations, standards or objectives.
If the Company terminates this Agreement for performance reasons, it will
provide Employee with thirty (30) days' notice (which notice will contain, in
reasonable detail, the reasons for such termination), but the Company
reserves the right to, at its option, terminate Employee's employment
immediately by delivering one month's pay with the termination notice. This
Agreement may also be terminated for any of the following reasons:
a. DEATH. In the event of the Employee's death, Base Salary
shall terminate as of the end of the sixth (6th) month following the
Employee's death.
b. DISABILITY. In the event of disability, the Employee's Base
Salary shall be terminated as of the end of the month in which the last day
of the six (6) month period of Employee's inability to perform his duties
occurs. Employee shall be presumed to have such a disability for the
purpose of this Agreement if Employee is substantially incapable of
performing his duties for a period of more than eight (8) weeks.
c. VOLUNTARY TERMINATION. The Employee may, upon thirty (30)
days written notice, terminate this Agreement and Employee's employment.
d. EXPIRATION OF AGREEMENT. Unless otherwise mutually agreed
by the parties, the Agreement will expire at the close of business June 30,
1999.
2
<PAGE>
10. PAYMENTS UPON TERMINATION. If this Agreement and Employee's
employment are terminated pursuant to Section 9 above, Employee shall be paid
the following: (i) his Base Salary through the date of termination; and (ii)
any unpaid expense reimbursement. If Employee is terminated for any other
reason, Employee shall be paid the following: (i) his Base Salary through
June 30, 1999; and (ii) any unpaid expense reimbursement.
11. NON-DISCLOSURE OF TRADE SECRETS AND CONFIDENTIAL INFORMATION.
Employee shall not during the term of his employment or at any time
thereafter divulge, furnish or make accessible to anyone or use in any way
other than for the benefit of the Company in the ordinary course of business
of the Company any trade secrets or confidential information of the Company
which the Employee has acquired or has become acquainted with or will acquire
or become acquainted with during the term of his employment, whether
developed by Employee or by others. Confidential information includes any
information or compilation of information that derives independent economic
value from not being generally known or readily ascertainable by proper means
by other persons and which relates to any aspect of the Company's business,
including, but not limited to, trade secret information relating to the
Company's scientific technology, processes, systems and products; research
and development; the Company philosophies and strategies; vendor and customer
lists. All information disclosed to the Employee, or to which he obtains
access, whether originated by Employee or by others, during the period of his
employment, which he has reasonable basis to believe to be confidential
information, or which is treated by the Company as being confidential
information, shall be presumed to be confidential information.
12. CONFLICT OF INTERESTS. During the term of this Employment
Agreement, Employee agrees to avoid relationships with individuals or
businesses which might impair or appear to impair the proper performance of
his responsibilities. During the term of this Employment Agreement, Employee
is prohibited from engaging in gainful work or other activities in conflict
with his job responsibilities at the Company if such activity:
- Competes with the Company or provides services or
assistance to a competitor.
- Interferes in any way with his Company duties,
such as requiring Company time or facilities.
- Embarrasses or interferes with the Company's
ability to meet with its objectives.
13. SEVERABILITY. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom
and the remainder of such provision of this Agreement shall be unaffected and
shall continue in full force and effect. Notwithstanding the foregoing, in
the event that any provision of this Agreement is unenforceable because it is
over broad, then such provision shall be limited to the extent necessary to
make it enforceable under applicable law and enforced as so limited. The
Employee acknowledges the uncertainty of the law in this respect and
expressly stipulates that this Agreement be given the construction which
renders its provisions
3
<PAGE>
valid and enforceable to the maximum extent (not exceeding its express terms)
possible under applicable law.
14. MINNESOTA LAW. This Agreement shall be construed and enforced
in accordance with the laws of the State of Minnesota.
15. WAIVER. The waiver by any party hereto of a breach of any
provision of this Agreement shall not operate or be construed as a waiver of
any subsequent breach by either party.
16. ENTIRE AGREEMENT. This Agreement, including Exhibit 1,
supersedes any prior employment agreements between the parties and contains
the entire Agreement of the parties with respect to employment and employment
issues. There are no terms other than those contained herein. No amendment
or modification of this Agreement shall be deemed effective unless or until
executed in writing by the parties hereto with the same formality attending
execution of this Agreement.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed by its duly authorized officer and the Employee has signed this
Agreement as of the day and year first above written.
HYPERTENSION DIAGNOSTICS, INC.
By /s/ Melville R. Bois
----------------------------------------------
Melville R. Bois, President
"COMPANY"
/s/ James S. Murphy
------------------------------------------------
JAMES S. MURPHY
"EMPLOYEE"
###-##-####
------------------------------------------------
Social Security Number
4
<PAGE>
EXHIBIT 1
HYPERTENSION DIAGNOSTICS, INC.
1995 LONG TERM INCENTIVE AND STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
James S. Murphy
8670 Black Maple Drive
Eden Prairie, MN 55344
You have been granted an option to purchase Common Stock of Hypertension
Diagnostics, Inc. (the "Company") as follows:
GRANT NUMBER: 4
-----
OPTION PRICE PER SHARE: $2.00
TOTAL NUMBER OF SHARES GRANTED: 53,100 Shares
DATE OF GRANT: July 1, 1997
TYPE OF OPTION: X Incentive Stock Option
---- Nonstatutory Stock Option
TERM/EXPIRATION DATE: 06/30/2006
<TABLE>
<CAPTION>
VESTING SCHEDULE: DATE OF VESTING NUMBER OF SHARES
--------------- ----------------
<S> <C> <C>
July 31, 1997 1,106
August 31, 1997 1,106
September 30, 1997 1,106
October 31, 1997 1,107
November 30, 1997 1,106
December 31, 1997 1,106
January 31, 1998 1,106
February 28, 1998 1,107
March 31, 1998 1,106
April 30, 1998 1,106
May 31, 1998 1,106
June 30, 1998 1,107
July 31, 1998 1,106
August 31, 1998 1,106
September 30, 1998 1,106
October 31, 1998 1,107
November 30, 1998 1,106
December 31, 1998 1,106
January 31, 1999 1,106
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
VESTING SCHEDULE: DATE OF VESTING NUMBER OF SHARES
--------------- ----------------
<S> <C> <C>
February 28, 1999 1,107
March 31, 1999 1,106
April 30, 1999 1,106
May 31, 1999 1,106
June 30, 1999 1,107
July 31, 1999 1,106
August 31, 1999 1,106
September 30, 1999 1,106
October 31, 1999 1,107
November 30, 1999 1,106
December 31, 1999 1,106
January 31, 2000 1,106
February 29, 2000 1,107
March 31, 2000 1,106
April 30, 2000 1,106
May 31, 2000 1,106
June 30, 2000 1,107
July 31, 2000 1,106
August 31, 2000 1,106
September 30, 2000 1,106
October 31, 2000 1,107
November 30, 2000 1,106
December 31, 2000 1,106
January 31, 2001 1,106
February 28, 2001 1,107
March 31, 2001 1,106
April 30, 2001 1,106
May 31, 2001 1,106
June 30, 2001 1,107
-----
Total 53.100
------
------
</TABLE>
If Optionee's employment is terminated pursuant to Section 9
of the Employment Agreement between James S. Murphy and
Hypertension Diagnostics, Inc. dated as of July 1, 1997 (the
"EMPLOYMENT AGREEMENT"), Optionee shall vest in the
scheduled option shares through the date of termination of
employment. If the Company terminates the Optionee's
employment pursuant to Section 9 of the Employment
Agreement, by delivering one month's pay with the
termination notice, Optionee shall be vested in the
scheduled option shares through the date covering such
one-month pay. If Optionee's employment is terminated for
any other reason than pursuant to Section 9 of the
Employment Agreement, Optionee shall receive full vesting of
all unvested portions of the scheduled option shares as of
the Optionee's termination date.
TERMINATION PERIOD: Option may be exercised after termination of employment
except as set out in Sections 7 and 8 of the Stock Option
Agreement (but in no event later than the Expiration Date).
By your signature and the signature of the Company's
representative below, you and the Company agree that this
option is granted under and governed by the
2
<PAGE>
terms and conditions of the 1995 Long Term Incentive and
Stock Option Plan and the Stock Option Agreement, all of
which are attached and made a part of this document.
OPTIONEE: HYPERTENSION DIAGNOSTICS, INC.
By:
- -------------------- -------------------------------------
Signature Melville R. Bois
James S. Murphy Title: President
- --------------------
Print Name
3
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
1995 LONG TERM INCENTIVE AND STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Hypertension Diagnostics, Inc., a Minnesota
corporation (the "COMPANY"), hereby grants to James S. Murphy (the "Optionee")
named in the Notice of Stock Option Grant dated July 1, 1997, an option (the
"OPTION") to purchase a total number of shares of Common Stock (the "SHARES")
set forth in the Notice of Stock Option Grant, at the exercise price per share
set forth in the Notice of Stock Option Grant (the "EXERCISE PRICE") subject to
the terms, definitions and provisions of the 1995 Long Term Incentive and Stock
Option Plan (the "PLAN") adopted by the Company, which is incorporated herein by
reference. Unless otherwise defined herein, the terms defined in the Plan shall
have the same defined meanings in this Option.
If designated an Incentive Stock Option, this option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the Vesting Schedule set out in the Notice of Grant and with
the provisions of Section 7 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Section 6 below and Section 7 of the Plan, subject to the limitation
contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Stock
Option Grant.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by written
notice (in the form attached as Exhibit A) which shall state the election to
exercise the Option, the number of Shares in respect of which the Option is
being exercised, and such other representations and agreements as to the
holder's investment intent with respect to such shares of Common Stock as may be
required by the Company pursuant to the provisions of the Plan. Such written
notice shall be signed by the Optionee and shall be delivered in person or by
certified mail to the Secretary of the Company. The written notice shall be
accompanied by payment of the Exercise Price.
No Shares will be issued pursuant to the exercise of an Option unless such
issuance and such exercise shall comply with all relevant provisions of law and
the requirements of any stock exchange upon which the Shares may then be listed.
Assuming such compliance, for income tax
<PAGE>
purposes the Shares shall be considered transferred to the Optionee on the date
on which the Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form attached hereto as Exhibit B.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
i. cash; or
ii. check; or
iii. surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a fair market value on the date of
surrender equal to the Exercise Price of the Shares as to which the option
is being exercised; or
iv. delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and delivery
to the Company of the sale or loan proceeds required to pay the exercise
price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's Continuous Status as an Employee, Optionee may, to the extent
otherwise so entitled pursuant hereto or under the terms set forth in the Notice
of Stock Option Grant, exercise this Option during the Termination Period set
out in the Notice of Stock Option Grant. To the extent that Optionee was not
entitled to exercise this Option at the date of such termination, or if Optionee
does not exercise this Option within the time specified herein, the Option shall
terminate.
7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred in
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the
2
<PAGE>
lifetime of Optionee only by him. The terms of this Option shall be binding
upon the executors, administrators, heirs, successors and assigns of the
Optionee.
8. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Stock Option Grant, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
9. TAX CONSEQUENCES. The exercise of this Option, and the subsequent
sale or disposition of Shares thus acquired, shall have income tax consequences
for the Optionee, and it is Optionee's responsibility to determine any such
income tax liability.
HYPERTENSION DIAGNOSTICS, INC.
a Minnesota corporation
By:
---------------------------------------------
Melville R. Bois, President
OPTIONEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE PROVIDED IN
OPTIONEE'S EMPLOYMENT AGREEMENT OR NOTICE OF STOCK OPTION GRANT, THE VESTING OF
SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING EMPLOYMENT AT
THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED, BEING GRANTED THIS
OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES
THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S STOCK OPTION PLAN WHICH IS
INCORPORATED HEREIN BY REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH
RESPECT TO CONTINUATION OF EMPLOYMENT BY THE COMPANY, NOR SHALL IT INTERFERE IN
ANY WAY WITH HIS RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT AT ANY
TIME, WITH OR WITHOUT CAUSE.
Optionee acknowledges receipt of a copy of the Plan and represents that he
is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated:
------------------ ---------------------------------------------
Optionee
3
<PAGE>
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the terms
and conditions of the Plan and this Option Agreement. In consideration of the
Company's granting his or her spouse the right to purchase Shares as set forth
in the Plan and this Option Agreement, the undersigned hereby agrees to be
irrevocably bound by the terms and conditions of the Plan and this Option
Agreement and further agrees that any community property interest shall be
similarly bound. The undersigned hereby appoints the undersigned's spouse as
attorney-in-fact for the undersigned with respect to any amendment or exercise
of rights under the Plan or this Option Agreement.
---------------------------------------
Spouse of Optionee
4
<PAGE>
EXHIBIT A
1995 LONG TERM INCENTIVE AND STOCK OPTION PLAN
EXERCISE NOTICE
- ---------------
- ---------------
- ---------------
1. EXERCISE OF OPTION. Effective as of today,
, 19 , the undersigned ("OPTIONEE") hereby elects to exercise Optionee's
option to purchase shares of the Common Stock (the "SHARES") of
Hypertension Diagnostics, Inc. (the "COMPANY") under and pursuant to the
Company's 1995 Long Term Incentive and Stock Option Plan (the "PLAN") and the
[ ] Incentive [ ] Nonstatutory Stock Option Agreement dated __________, 1996
(the "OPTION AGREEMENT").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a shareholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued.
Optionee shall enjoy rights as a shareholder until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercises the Right
of First Refusal hereunder. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
4. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
<PAGE>
(a) LEGENDS. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to be placed upon any certificates) evidencing ownership of the Shares together
with any other legends that may be required by state or federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
6. MARKET STANDOFF AGREEMENT. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in connection
with any registration of the offering of any securities of the Company under the
1933 Act, Optionee shall not sell or otherwise transfer any Shares or other
securities of the Company during the 180-day period following the effective date
of a registration statement of the Company filed under the 1933 Act; provided,
however, that such restriction shall only apply to the first two registration
statements of the Company become effective under the 1933 Act which include
securities be sold on behalf of the Company to the public in an underwritten
public offering under the 1933 Act. The Company may impose stop-transfer
instructions with respect to securities subject t trial foregoing restrictions
until the end of such 180-day period.
7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights under
this Agreement to single or multiple assignees, and this Agreement shall inure
to the benefit of the successors and assigns of the Company. Subject to the
restrictions on transfer herein set forth, this Agreement shall be binding upon
Optionee and his or her heirs, executors, administrators, successors and
assigns.
2
<PAGE>
8. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall, be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
10. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
11. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
Minnesota law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: Hypertension Diagnostics, Inc.
By:
----------------------------------------
Its:
- ------------------------- ---------------------------------------
(Signature)
ADDRESS: ADDRESS:
- ------------------------- -------------------------------------------
- ------------------------- -------------------------------------------
3
<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : Hypertension Diagnostics, Inc.
SECURITY : Common Stock
AMOUNT :
DATE :
In connection with the purchase of the above-listed Securities, the undersigned
Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and financial
condition and has acquired sufficient information about the Company to reach an
informed and knowledgeable decision to acquire the securities. Optionee is
acquiring these securities for investment for Optionee's own account only and
not with a view to, or for resale in connection with, any "distribution" thereof
within the meaning of the Securities Act of 1933, as amended (the "Securities
Act").
(b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this connection,
Optionee understands that, in the view of the Securities and Exchange
Commission, the statutory basis for such exemption may be unavailable if
Optionee's representation was predicated solely upon a present intention to hold
these Securities for the minimum capital gains period specified under tax
statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future. Optionee further understands that the Securities must be
held indefinitely unless they are subsequently registered under the Securities
Act or an exemption from such registration is available. Optionee further
acknowledges and understands that the Company is under no obligation to register
the securities. Optionee understands that the certificate evidencing the
securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to the Company, and any other legend
required under applicable state securities laws.
(c) Optionee is familiar with the provisions of Rule 701 and Rule
144, each promulgated under the Securities Act, which, in substance, permit
limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a nonpublic offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
<PAGE>
qualifies under Rule 701 at the time of exercise of the Option by the Optionee,
such exercise will be exempt from registration under the Securities Act. In the
event the Company later becomes subject to the reporting requirements of Section
13 or 15(d) of the Securities Exchange Act of 1934, ninety (90) days thereafter
(or such longer period as any market stand-off agreement may require) the
securities exempt under Rule 701 may be resold, subject to the satisfaction of
certain of the conditions specified by Rule 144, including among other things:
(1) the sale being made through a broker in an unsolicited "broker's
transaction" or in transactions directly with a market maker (as said term is
defined under the Securities Exchange Act of 1934); and, in the case of an
affiliate, (2) the availability of certain public information about the company,
and the amount of securities being sold during any three month period not
exceeding the limitations specified in Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of exercise of the Option, then the securities may be resold in certain limited
circumstances subject to the provisions of Rule 144, which requires among other
things: (1) the resale occurring not less than two years after the party has
purchased, and made full payment for, within the meaning of Rule 144, the
securities to be sold; and, in the case of an affiliate, or of a non-affiliate
who has held the securities less than three years, (2) the availability of
certain public information about the Company, (3) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934), and (4) the amount of securities being sold during any three month period
not exceeding the specified limitations stated therein, if applicable.
(d) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell, make
short sale of, loan, grant any options for the purchase of, or otherwise dispose
of any shares of Common Stock of the Company held by Optionee (other than those
shares included in the registration) without the prior written consent of the
Company or the underwriters managing such initial underwritten public offering
of the Company's securities for one hundred eighty (180) days from the effective
date of such registration, and (2) further agrees to execute any agreement
reflecting (1) above as may be requested by the underwriters at the time of the
public offering; PROVIDED HOWEVER that the officers and directors of the Company
who own the stock of the Company also agree to such restrictions.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration under
the Securities Act, compliance with Regulation A, or some other registration
exemption will be required; and that, notwithstanding the fact that Rules 144
and 701 are not exclusive, the Staff of the Securities and Exchange Commission
has expressed its opinion that persons proposing to sell private placement
securities other than in a registered offering and otherwise than pursuant to
Rules 144 or 701 will have a substantial burden of proof in establishing that an
exemption from registration is available for such offers or sales, and that such
persons and their respective brokers who participate in such transactions do so
at their own risk. Optionee understands that no assurances can be given that
any such other registration exemption will be available in such event.
2
<PAGE>
Signature of Optionee:
---------------------------------------
Date: 19
-------------------------- ------
3
<PAGE>
EMPLOYMENT AGREEMENT
BETWEEN GREG H. GUETTLER AND
HYPERTENSION DIAGNOSTICS, INC.
THIS AGREEMENT is entered into as of September 8, 1997, by and between
Hypertension Diagnostics, Inc., a Minnesota corporation (the "COMPANY"), and
Greg H. Guettler ("EXECUTIVE").
WHEREAS, the Company wishes to employ Executive to render services for
the Company on the terms and conditions set forth in this Agreement, and
Executive wishes to be retained and employed by the Company on such terms and
conditions.
NOW, THEREFORE, in consideration of the premises and the respective
undertakings of the Company and Executive set forth below, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the Company and
Executive agree as follows:
1. EMPLOYMENT. Upon the other terms and conditions set forth in this
Agreement, the Company hereby employs Executive, and Executive accepts such
employment, as its President. Except as expressly provided herein,
termination of this Agreement by either party shall also terminate
Executive's employment by the Company.
2. TERM. Executive's employment shall commence as of the date hereof
and continue for a period of one year and shall be automatically extended for
an additional year unless either party gives written notice of nonextension
to the other party no later than July 8, 1998.
3. POSITION AND DUTIES.
3.01 SERVICE WITH COMPANY. During the term of this Agreement,
Executive agrees to perform such reasonable employment duties as the Board of
Directors shall assign to him from time to time.
3.02 PERFORMANCE OF DUTIES. Executive agrees to serve the Company
faithfully and to the best of his ability and to devote his full time,
attention and best efforts to the business and affairs of the Company during
the term of this Agreement. Executive represents to the Company that he has
no contractual commitments inconsistent with his obligations set forth in
this Agreement, and that during the term of this Agreement, he will not
render or perform services for any other corporation, firm, entity,
organization or person which are inconsistent with the provisions of this
Agreement.
4. COMPENSATION.
4.01 BASE SALARY. As compensation for all services to be rendered
by Executive under this Agreement during the full term of this Agreement, the
Company shall pay to Executive a minimum Base Salary ("BASE SALARY") shall
mean regular cash compensation paid on a periodic basis exclusive of
benefits, bonuses or incentive payments) at the annual rate of $126,000,
payable once
<PAGE>
monthly, subject to consideration of adjustment by the Board of Directors at
least annually. If the Executive's Base Salary is increased during the term
of this Agreement, the increased amount shall be the new Base Salary until a
future adjustment, if any.
4.02 BONUS AND INCENTIVE. Executive shall be paid a one-time bonus
and incentive compensation, in the form of cash, equal to not less than ten
percent (10%) and not more than twenty-five percent (25%) of Executive's Base
Salary. The Company's payment of the bonus and incentive compensation to
Executive shall be contingent upon Executive's successful completion of his
first year of employment with the Company and shall be payable at the time
Executive commences his second year of employment with the Company. Subject
to the above, the amount and criteria for determination of Executive's bonus
and incentive compensation shall be solely within the discretion of the Board
of Directors. If the Board of Directors adopts a bonus and incentive
compensation plan, the Executive shall be a participant.
4.03 FRINGE BENEFITS. In addition to the compensation payable to
Executive as provided in Sections 4.01 and 4.02 above:
(a) AUTOMOBILE. The Company shall reimburse Executive for all
company-related mileage at the then current rate allowed by the
Internal Revenue Service and the Minnesota Department of Revenue.
Executive shall receive no automobile allowance.
(b) VACATION. Executive shall be entitled to three (3) weeks
paid vacation each calendar year, during the first two (2) years of
employment with the Company, and thereafter, four (4) weeks paid
vacation each calendar year. Vacation time shall accumulate, so that
if the full vacation time is not taken in a particular calendar year,
any unused portion will be carried into the following year, PROVIDED,
HOWEVER, Executive shall not be able to accumulate more than 20 days
of vacation time. Upon termination of employment, Executive shall be
paid for all such accrued but unused vacation days at a daily rate
equivalent to the amount obtained by dividing 260 days into his then
Base Salary.
(c) HEALTH/DENTAL INSURANCE. The Company shall either purchase
a Company paid health/dental plan or reimburse Executive for plan
coverage until a Company paid plan can be implemented.
(d) OTHER BENEFITS. To the extent available or offered,
Executive shall be entitled to participate in all other benefit
programs offered by the Company to its full-time executive employees,
including, but not limited to, life insurance; long-term disability
policies; retirement benefits through the Company's pension and/or
profit sharing plans; sick leave benefits; and accidental death and
dismemberment coverages.
4.04 STOCK OPTIONS. The Company shall grant Executive stock
options for One Hundred Fifty Thousand (150,000) shares of the Company's $.01
par value Common Stock, pursuant to the terms and conditions set forth in the
Incentive Stock Option Agreement, a form of which is attached hereto and
labeled Exhibit A.
2
<PAGE>
4.05 BUSINESS EXPENSES. The Company will pay or reimburse
Executive for all reasonable and necessary out-of-pocket expenses incurred by
him in the performance of his duties under this Agreement, subject to
compliance by Executive with the Company's policies for expense
reimbursements.
5. CONFIDENTIAL INFORMATION.
5.01 "CONFIDENTIAL INFORMATION" DEFINED. "Confidential
Information" means information, not generally known, and proprietary to the
Company or to a third party for whom the Company is performing work,
including, without limitation, information concerning any patents or trade
secrets, confidential or secret designs, processes, formulae, source codes,
plans, devices or material (whether or not patented or patentable) directly
or indirectly useful in any aspect of the business of the Company, any
customer or supplier lists of the Company, any confidential secret
development or research work of the Company, or any other confidential
information or secret aspects of the business of the Company. All
information which Executive acquires or becomes acquainted with during the
period of his employment by the Company (including employment by an
affiliated company), whether developed by Executive or by others, which he
has reasonable basis to believe to be Confidential Information, or which is
treated by the Company as being Confidential Information, shall be presumed
to be Confidential Information.
5.02 OBLIGATIONS OF EXECUTIVE. Except as permitted or directed
by the Company, Executive shall not, either during his employment by the
Company or thereafter, divulge, furnish or make accessible to anyone or use
in any way (other than in the ordinary course of the business of the Company)
any Confidential Information. Executive acknowledges that the Confidential
Information constitutes a unique and valuable asset of the Company and
represents a substantial investment of time and expense by the Company and
its predecessors, and that any disclosure or other use of such Confidential
Information other than for the sole benefit of the Company would be wrongful
and would cause irreparable harm to the Company. Both during and after the
term of this Agreement, Executive will refrain from any acts or omissions
that would reduce the value of such knowledge or information to the Company.
5.03 SCOPE OF OBLIGATION. The foregoing obligations of
confidentiality shall not apply to any knowledge or information which is now
published or which subsequently becomes generally publicly known in the form
in which it was obtained from the Company, other than as a direct or indirect
result of the breach of this Agreement by Executive.
6. VENTURES. If, during the term of this Agreement, Executive is
engaged in or associated with the planning or implementing of any project,
program or venture involving the Company and a third party or parties, all
rights in such project, program or venture shall belong to the Company.
Except as formally approved by the Company, Executive shall not be entitled
to any interest in such project, program or venture or to any commission,
finder's fee or other compensation in connection therewith other than the
salary to be paid to Executive as provided in this Agreement.
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7. PATENT AND RELATED MATTERS.
7.01 DISCLOSURE AND ASSIGNMENT. Executive will promptly disclose
in writing to the Company complete information concerning each and every
invention, discovery, improvement, devices, design, apparatus, practice,
process, method or product, whether patentable or not, made, developed,
perfected, devised, conceived or first reduced to practice by Executive,
whether or not during regular working hours, either solely or in
collaboration with others, during the term of this Agreement, or the twelve
months thereafter, relating either directly or indirectly to the business,
products, practices or techniques of the Company (hereinafter referred to as
"DEVELOPMENTS"). Executive, to the extent that he has the legal right to do
so, hereby acknowledges that any and all of said Developments are the
property of the Company and hereby assigns and agrees to assign to the
Company any and all of Executive's right, title and interest in and to any
and all of such Developments.
7.02 FUTURE DEVELOPMENTS. As to any future Developments made by
Executive which relate to the business, products or practices of the Company,
and which are first conceived or reduced to practice during the term of this
Agreement, or within twelve (12) months thereafter, but which are claimed for
any reason to belong to an entity or person other than the Company, Executive
will promptly disclose the same in writing to the Company and shall not
disclose the same to others if the Company, within twenty (20) days
thereafter, shall claim ownership of such Developments under the terms of
this Agreement. If the Company makes no such claim, Executive shall not be
obligated to maintain in confidence any such information disclosed by
Executive.
7.03 LIMITATION ON SECTION 7.01 AND 7.02. The provisions of
Sections 7.01 and 7.02 shall not apply to any Development meeting the
following conditions:
(a) such Development was developed entirely on Executive's own
time; and
(b) such Development was made without the use of any Company
equipment, supplies, facility or trade secret information, and without
use of any Company personnel; and
(c) such Development does not relate (i) directly to the
business of the Company, or (ii) to the Company's actual or
demonstrably anticipated future business, research or development; and
(d) such Development does not result, directly or indirectly,
from any work performed by Executive for the Company.
7.04 ASSISTANCE OF EXECUTIVE. Upon request and without further
compensation therefor, but at no expense to Executive, and whether during the
term of this Agreement or thereafter, Executive will do all lawful acts,
including, but not limited to, the execution of papers and lawful oaths and
the giving of testimony, that in the opinion of the Company, its successors
and assigns, may be necessary or desirable in obtaining, sustaining,
reissuing, extending and enforcing United States and foreign patents,
including, but not limited to, design patents, on any and all of such
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Developments, and for perfecting affirming and recording the Company's
complete ownership and title thereto, and to cooperate otherwise in all
proceedings and matters relating thereto.
7.05 RECORDS. Executive will keep complete, accurate and
authentic accounts, notes, data and records of all Developments in the manner
and form requested by the Company. Such accounts, notes, data and records
shall be the property of the Company, and, upon its request, Executive will
promptly surrender same to it or, if not previously surrendered upon its
request or otherwise, Executive will surrender the same, and all copies
thereof, to the Company upon the conclusion of his employment.
8. TERMINATION.
8.01 GROUNDS FOR TERMINATION. This Agreement shall terminate
prior to the expiration of the initial term set forth in Section 2 or any
extension thereof in the event that any time during such initial term or any
extension thereof:
(a) Executive dies, or
(b) Executive becomes disabled (as defined below), so that he
cannot perform the essential functions of his position, or
(c) The Company elects to terminate this Agreement for "Cause"
and notifies Executive in writing of such election, or
(d) The Company elects to terminate this Agreement without
"Cause" and notifies Executive in writing of such election, or
(e) Executive elects to terminate this Agreement and notifies
the Company in writing of such election.
If this Agreement is terminated pursuant to subsection (a), (b) or (c) of this
Section 8.01, such termination shall be effective immediately; provided,
however, a termination pursuant to subsection 8.01(c) shall include the cure
period referenced, and related to, a termination for Cause described in
subsection 8.02(a). If this Agreement is terminated pursuant to subsection (d)
or (e) of this Section 8.01, such termination shall be effective on the date set
forth in the notice of termination.
8.2 "CAUSE" DEFINED.
(a) Executive has breached the provisions of this Agreement in
any material respect (provided, that the Board of Directors gives
written notice of its intention to terminate Executive's employment
for Cause, and such notice shall state in reasonable detail the
particular act(s) or failure(s) to act that constitute grounds on
which the termination is based, and, provided that Executive shall
have ten (10) business days to cure any such breach), or
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(b) Executive has engaged in material misconduct, including,
without limitation, willful and material failure to perform
Executive's duties as an officer or employee of the Company, or
(c) Executive has committed fraud, misappropriation or
embezzlement in connection with the Company's business, or
(d) Executive has been convicted or has pleaded NOLO CONTENDERE
to criminal misconduct (except for parking violations, minor traffic
violations, and other petty or insignificant misdemeanors, or other
misconduct which does not relate to or involve or adversely affect
Executive's duties for the Company, as reasonably determined by the
Company's Board of Directors).
8.03 "DISABILITY" DEFINED. As used in this Agreement, the term
"disability" means any mental or physical condition which renders Executive
unable to perform the essential functions of his position, with or without
reasonable accommodation, as defined by various state and federal disability
laws. Executive shall be presumed to have such a disability, for the purpose
of this Agreement, in the event Executive qualifies because of illness or
incapacity, to begin receiving disability income insurance payments under any
long term disability income insurance policy that the Company maintains for
the benefit of Executive. If there is no such policy in effect at the date
of Executive's illness or incapacity, Executive shall be presumed to have
such a disability for the purpose of this Agreement if Executive is
substantially incapable of performing his duties for a period of more than
eight (8) weeks, after also including any available "sick leave days," if
any, as may be adopted for employees of the Company (and as referenced in
Section 4.03(d)); provided, however, at least thirty (30) days prior to the
end of such period referenced in this sentence, the Board of Directors shall
notify Executive in writing of their determination that, with the passage of
requisite balance of time remaining, Executive shall be deemed to be
disabled; provided, further, during such thirty (30) day period, Executive
shall be permitted to make a presentation to the Board of Directors, or a
committee of the Board of Directors constituted for such presentation, for
its consideration with respect to a finding of Disability on the part of
Executive.
8.04 EFFECT OF TERMINATION. Notwithstanding any termination of
this Agreement, Executive, in consideration of his employment hereunder to
the date of such termination shall remain bound by the provisions of this
Agreement which specifically relate to periods, activities or obligations
upon or subsequent to the termination of Executive's employment.
8.05 SURRENDER OF RECORDS AND PROPERTY. Upon termination of his
employment with the Company, Executive shall deliver or shall cause to be
delivered promptly to the Company all copies of all records, manuals, books,
blank forms, documents, letters, memoranda, notes, notebooks, reports, data,
tables, calculations or copies thereof, which are the property of the Company
or which relate in any way to the business products, practices or techniques
of the Company, and all other property, trade secrets and confidential
information of the Company, including, but not limited to, all documents
which in whole or in part contain any trade secrets or confidential
information of the Company, which in any of the cases are in his possession
or under his control.
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9. REMEDIES FOR EARLY TERMINATION. In the event of Termination
pursuant to Section 8, Base Salary shall be paid as follows:
9.01 In the event of termination for Cause, Base Salary shall
continue to be paid on a monthly basis prorated through the date of
termination specified in any notice of termination.
9.02 In the event of termination pursuant to Section 8.01(e),
compensation shall continue to be paid as follows: if the notice of
termination is given by Executive at any time, Base Salary shall continue to
be paid on a monthly basis prorated through the date of termination specified
in such notice and Executive shall also be entitled to continue to
participate in those benefit programs provided by Sections 4.03(c) and (d)
for 24 months following termination.
9.03 In the event of termination of this Agreement by reason of
Executive's death, the Company shall pay Executive's estate the equivalent of
six (6) month's Base Salary payable, in the Company's discretion, over a
period not to exceed six (6) months.
9.04 In the event of disability, Base Salary shall terminate as of
the end of the sixth (6th) month following the month in which the event
causing the disability occurred.
9.05 In the event of termination without Cause pursuant to Section
8.01(d), compensation shall continue to be paid as follows:
(a) Executive shall be entitled to the balance of Base Salary
due from the date of termination until the end of twelve (12) months
thereafter. Such Base Salary shall, at the election of the Company,
be paid in a lump sum or shall continue to be paid on a monthly basis
prorated through the end of the applicable payment period referenced
immediately above;
(b) The vesting of any unexpired stock options granted Executive
shall accelerate and be fully exercisable, subject to the other terms
of the agreements granting such stock options;
(c) Executive shall be entitled to continue to participate, at
the expense of Executive, in those benefits mandated by the health
care continuation rules commonly referred to as "COBRA" (named after
The Consolidated Omnibus Reconciliation Act of 1985) for twenty-four
(24) months following such termination.
10. CHANGE IN CONTROL.
10.1 "CHANGE IN CONTROL" DEFINED. For purposes of this Section 10,
a "CHANGE IN CONTROL" shall mean:
(a) the merger or consolidation of the Company with any person
or entity not affiliated with the Company as of the date of this
Agreement, or
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(b) the sale of all or substantially all the assets of the
Company to any person or entity not affiliated with the Company as of
the date of this Agreement, or
(c) the ownership of fifty-one percent (51%) or more of the
total voting capital stock of the Company then issued and outstanding
by any person or entity (or affiliated group) not affiliated with the
Company as of the date of this Agreement, provided that this Section
10.01(c) will not apply to the issuance of the Company's capital stock
pursuant to a registration of its shares under the Securities Act of
1933, as amended (the "1933 ACT") or pursuant to a private placement
of the Company's capital stock exempt from the registration
requirements of the 1933 Act.
It is expressly recognized by the parties that a Change in Control would
necessarily result in material alteration or diminishment of Executive's
position and responsibilities. Therefore, if during the term of this
Agreement, there shall occur, with or without the consent of the Company, a
Change in Control, Executive shall have the option to terminate this
Agreement on fourteen (14) days' written notice.
10.02 REMEDIES FOR "CHANGE IN CONTROL". In the event there shall
occur, with or without the consent of the Company, a Change in Control under
this Section 10:
(a) If Executive continues to be employed by the Company (or
such surviving entity) and if following the Change in Control, there
is a reduction in Executive's Base Salary, the Company shall pay
Executive, for a period of 12 months, the difference between
Executive's Base Salary in effect on the date immediately prior to the
Change in Control, and Executive's Base Salary following the Change in
Control.
(b) If Executive continues to be employed by the Company (or
such surviving entity), the vesting of any unexpired stock options
granted Executive shall accelerate; all such unexpired stock options
may be exercised by Executive within twelve (12) months following the
date of termination (but in no event later than the expiration date of
the term of such options.)
(c) If Executive voluntarily continues his employment with the
Company (or such surviving entity) following the Change in Control,
Executive shall not be entitled to any compensation or other remedy
due to a change in the title or position of Executive.
(d) If Executive voluntarily terminates his employment with the
Company in connection with the Change in Control, and prior to the
effective date of the Change in Control, following due notice to the
Company of that fact, then Executive shall be entitled to the payment
of Base Salary from the date of termination and until the end of
twelve (12) months thereafter, and any unexpired stock options granted
Executive shall accelerate and be fully exercisable, subject to the
other terms of the agreements granting such stock options.
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11. COVENANT NOT TO COMPETE.
11.01 Executive expressly acknowledges that he is entering into
this covenant not to compete and so as to protect the business and goodwill
of the Company from competition in the event of a termination of the
employment relationship and Executive further acknowledges the reasonableness
of the restriction imposed herein. Accordingly, in the event that
Executive's employment with the Company is terminated voluntarily by the
Executive or by the Company for Cause as defined in Section 8.02, it is
agreed that:
(a) Executive will inform any new employer, before accepting
employment, of the existence of this Agreement and give such a copy
of this Section 11, Covenant Not to Compete; and
(b) Executive will not, for a period beginning from the date of
this Agreement and for twelve (12) months after Executive's employment
with the Company ends, sell to, solicit, serve, or attempt to sell to,
solicit, or serve any customer, client or account or any prospective
customer, client or account of the Company; PROVIDED, HOWEVER, that
the foregoing limitation shall only apply to sales, solicitations,
services or attempts to do any of the foregoing which involve a
Competing Product. A "customer, client or an account" is any person,
firm or entity to whom or to which the Company furnished any services,
materials, or products at any time during Executive's employment with
the Company. A "prospective customer, client or account" is one
which, during Executive's employment with the Company, is solicited,
successfully or unsuccessfully, to become a customer, client or
account of the Company. As used herein, a "Competing Product" is a
product similar to or in competition with any product, or planned
product, of the Company as of the date Executive's employment is
terminated.
(c) Executive will not, from a period beginning with the date of
this Agreement and for twelve (12) months after Executive's employment
with the Company ends, cause or attempt to cause any customer, client
or account or any prospective customer, client or account, to divert,
terminate, limit or in any manner modify or fail to enter into any
actual or potential business relationship with the Company.
(d) Executive will not, for a period beginning with the date of
this Agreement and for twelve (12) months after Executive's
employment with the Company ends, divert, solicit, or employ, or
attempt to divert, solicit, or employ any employees of the Company.
(e) Executive shall not, directly or indirectly, from a period
beginning from the date of this Agreement and for twelve (12) months
after Executive's employment with the Company ends, engage in
competition with the Company in any manner or capacity (e.g., as an
advisor, principal, agent, partner, officer, director, stockholder,
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employee, member of any association, or otherwise) for a competitor of
the Company. The obligations of Executive under Section 11.01(e)
shall apply to any geographic area in which the Company: (i) has
engaged in business during the term of this Agreement through
production, promotional, sales or marketing activity, or otherwise,
(ii) has otherwise established the Company's goodwill, business
reputation or any customer or supplier relations, or (iii) has been
directly involved in the expansion of the Company's business and
development of the Company's customer base.
12. SETTLEMENT OF DISPUTES.
12.01 RESOLUTION OF CERTAIN CLAIMS - INJUNCTIVE RELIEF. Executive
agrees that, in addition to, but not to the exclusion of any other available
remedy, the Company shall have the right to enforce the provisions of Section
7 and 11 by applying for and obtaining temporary and permanent restraining
orders or injunctions from a court of competent jurisdiction (the
jurisdiction of which is consented to in Section 11.02) without the necessity
of filing a bond therefor. The prevailing party in any such action shall be
entitled to recover from the other party reasonable attorneys' fees and costs
incurred by the prevailing party in such action.
12.02 VENUE. Any action at law, suit in equity, or judicial
proceeding arising directly, indirectly, or otherwise in connection with, out
of, related to or from this Agreement or any provision hereof, shall be
litigated only in the courts of the state of Minnesota, County of Hennepin,
or the Federal District Court, District of Minnesota, Fourth Division.
Executive waives any right Executive may have to transfer or change the venue
of any litigation brought against Executive by the Company. Executive also
waives any claim of inconvenient forum.
12.03 SEVERABILITY. To the extent any provision of this Agreement
shall be invalid or unenforceable, it shall be considered deleted herefrom
and the remainder of such provision and of this Agreement shall be unaffected
and shall continue in full force and effect. In furtherance and not in
limitation of the foregoing, should the duration or geographical extent of,
or business activities covered by, any provision of this Agreement be in
excess of that which is valid and enforceable under applicable law, then such
provision shall be construed to cover only that duration, geographical extent
or business activities which may be valid and enforceable under applicable
law. Executive acknowledges the uncertainty of the law in this respect and
expressly stipulates that this Agreement be given the construction which
renders its provisions valid and enforceable to the maximum extent (not
exceeding its express terms possible under applicable law.)
13. MISCELLANEOUS.
13.01 GOVERNING LAW. This agreement is made under and shall be
governed by and construed in accordance with the laws of the state of
Minnesota other than its law dealing with conflicts of law.
13.02 PRIOR AGREEMENTS. This agreement contains the entire
agreement of the parties relating to the employment of Executive by the
Company and the ancillary matters discussed herein and supersedes all prior
agreements and understandings with respect to such matters, and the parties
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hereto have made no agreements, representations or warranties relating to
such employment or ancillary matters which are not set forth within.
13.03 WITHHOLDING TAXES. The Company may withhold from any
benefits payable under this Agreement all federal, state, city or other taxes
as shall be required pursuant to any law or governmental regulation or ruling.
13.04 AMENDMENTS. No amendment or modification of this Agreement
shall be deemed effective unless made in writing and signed by the both
Executive and the Company.
13.05 NO WAIVER. No term or condition of this Agreement shall be
deemed to have been waived, nor shall there be by any estoppel to enforce any
provision of this Agreement, except by a statement in writing signed by the
party against whom enforcement of the waiver or estoppel is sought. Any
written waiver shall not be deemed a continuing waiver unless specifically
stated, shall operate only as to the specific term or condition waived and
shall not constitute a waiver of such term or condition for the future or as
to any act other than that specifically waived.
13.06 ASSIGNMENT. This agreement shall not be assignable, in whole
or in part, by Executive without the written consent of the Company.
13.07 NOTICES. All notices, requests and demands given to or made
pursuant hereto shall, except as otherwise specified herein, be in writing
and be delivered, mailed or faxed to any such party at its address or fax
number which:
In the case of Company shall be:
Hypertension Diagnostics, Inc.
2915 Waters Road, Suite 108
Eagan, Minnesota 55121-1562
FAX NO.: (612) 687-0485
If the case of Executive shall be:
Greg H. Guettler
1716 Pinehurst Avenue
St. Paul, MN 55116
FAX NO.: (612) 695-9315
Either party may, by notice hereunder, designate a changed address.
Any notice, if mailed properly addressed, postage prepaid, registered or
certified mail, shall be deemed dispatched on the registered date or that
stamped on the certified mail receipt, and shall be deemed received within
the second business day thereafter or when it is actually received, whichever
is sooner. Any notice which is delivered via telefax shall be deemed
dispatched when it is actually sent, and shall be deemed received when it is
actually received.
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13.08 COUNTERPARTS. This agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
shall constitute one and the same instrument.
13.09 TIME OF THE ESSENCE. Time is of the essence in the
performance of the obligations hereunder.
13.10 CAPTIONS AND HEADINGS. The captions and paragraph headings
used in this Agreement are for convenience of reference only, and shall not
affect the construction or interpretation of this Agreement or any of the
provisions hereof.
IN WITNESS WHEREOF, Executive and the Company have executed this
Agreement as of the date set forth in the first paragraph.
HYPERTENSION DIAGNOSTICS, INC.
By /s/ Melville R. Bois
-----------------------------------------
Its Chairman
------------------------------------
"COMPANY"
/s/ Greg H. Guettler
---------------------------------------------
Greg H. Guettler
"EXECUTIVE"
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EXHIBIT A
(FORM OF) INCENTIVE STOCK OPTION AGREEMENT
<PAGE>
HYPERTENSION DIAGNOSTICS, INC.
1995 LONG TERM INCENTIVE AND STOCK OPTION PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
Greg H. Guettler
1716 Pinehurst Avenue
Saint Paul, MN 55116
You have been granted an option to purchase Common Stock of Hypertension
Diagnostics, Inc. (the "Company") as follows:
<TABLE>
<S> <C>
GRANT NUMBER: 5
----
OPTION PRICE PER SHARE: $2.00
TOTAL NUMBER OF SHARES GRANTED: 150,000 Shares
DATE OF GRANT: September 8, 1997
TYPE OF OPTION: X Incentive Stock Option
-----
Nonstatutory Stock Option
-----
TERM/EXPIRATION DATE: 09/07/2007
VESTING SCHEDULE:
</TABLE>
A total of 90,000 shares subject to the Option shall vest on the
following dates, as follows:
18,000 shares on September 8, 1997 (the "Commencement Date").
18,000 shares on the 1st annual anniversary of the Commencement Date.
18,000 shares on the 2nd annual anniversary of the Commencement Date.
18,000 shares on the 3rd annual anniversary of the Commencement Date.
18,000 shares on the 4th annual anniversary of the Commencement Date.
A total of 60,000 shares subject to the Option shall vest on each of the
following dates, as follows:
30,000 shares on the 5th annual anniversary of the Commencement Date.
30,000 shares on the 6th annual anniversary of the Commencement Date.
TERMINATION PERIOD: Subject to the terms of (i) this option grant; (ii)
that certain Employment Agreement dated September 8,
1997; and (iii) the 1995 Long Term Incentive and Stock
Option Plan (the "Plan"), this option grant and all the
rights hereunder, to the extent such rights have not
been exercised, shall terminate on September 7, 2007.
See page 3 for restriction on transfer of this security.
<PAGE>
GENERAL TERMS: This option grant is subject to the terms, definitions
and provisions of the 1995 Long Term Incentive and
Stock Option Plan adopted by the Company, which are
incorporated herein by reference.
By your signature and the signature of the Company's
representative below, you and the Company agree that this
option grant is granted under and governed by the terms and
conditions of the 1995 Long Term Incentive and Stock Option
Plan and the Stock Option Agreement, all of which are
attached and made a part of this document.
OPTIONEE: HYPERTENSION DIAGNOSTICS, INC.
By:
- -------------------------------- -------------------------------------
Signature Melville R. Bois
Greg H. Guettler Title: President
- --------------------------------
Print Name
See page 3 for restriction on transfer of this security.
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HYPERTENSION DIAGNOSTICS, INC.
1995 LONG TERM INCENTIVE AND STOCK OPTION PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Hypertension Diagnostics, Inc., a Minnesota
corporation (the "COMPANY"), hereby grants to Greg H. Guettler (the
"OPTIONEE") named in the Notice of Stock Option Grant, an option (the
"OPTION") to purchase a total number of shares of Common Stock (the "SHARES")
set forth in the Notice of Stock Option Grant (the "NOTICE OF GRANT"), at the
exercise price per share set forth in the Notice of Stock Option Grant (the
"EXERCISE PRICE") subject to the terms, definitions and provisions of the
1995 Long Term Incentive and Stock Option Plan (the "PLAN") adopted by the
Company, which is incorporated herein by reference. Unless otherwise defined
herein, the terms defined in the Plan shall have the same defined meanings in
this Option.
If designated an Incentive Stock Option, this option is intended to
qualify as an Incentive Stock Option as defined in Section 422 of the Code.
2. EXERCISE OF OPTION. This Option shall be exercisable during its
term in accordance with the Vesting Schedule set out in the Notice of Grant
and with the provisions of Section 7 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option may not be exercised for a fraction of a
share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Section 6 below and Section 7 of the Plan, subject to the limitation
contained in subsection 2(i)(c).
(c) In no event may this Option be exercised after the date
of expiration of the term of this Option as set forth in the Notice of Grant.
(ii) METHOD OF EXERCISE. This Option shall be exercisable by
written notice (in the form attached as Exhibit A) which shall state the
election to exercise the Option, the number of Shares in respect of which the
Option is being exercised, and such other representations and agreements as
to the holder's investment intent with respect to such shares of Common Stock
as may be required by the Company pursuant to the provisions of the Plan.
Such written notice shall be signed by the Optionee and shall be delivered in
person or by certified mail to the Secretary of the Company. The written
notice shall be accompanied by payment of the Exercise Price.
<PAGE>
No Shares will be issued pursuant to the exercise of an Option unless
such issuance and such exercise shall comply with all relevant provisions of
law and the requirements of any stock exchange upon which the Shares may then
be listed. Assuming such compliance, for income tax purposes the Shares shall
be considered transferred to the Optionee on the date on which the Option is
exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended, at the time this Option is exercised,
Optionee shall, if required by the Company, concurrently with the exercise of
all or any portion of this Option, deliver to the Company his Investment
Representation Statement in the form attached hereto as Exhibit B.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any
of the following, or a combination thereof, at the election of the Optionee:
i. cash; or
ii. check; or
iii. surrender of other shares of Common Stock of the Company which
(A) in the case of Shares acquired pursuant to the exercise of a Company
option, have been owned by the Optionee for more than six (6) months on the
date of surrender, and (B) have a fair market value on the date of surrender
equal to the Exercise Price of the Shares as to which the option is being
exercised; or
iv. delivery of a properly executed exercise notice together with
such other documentation as the Administrator and the broker, if applicable,
shall require to effect an exercise of the Option and delivery to the Company
of the sale or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised if the
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule
under Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G")
as promulgated by the Federal Reserve Board. As a condition to the
exercise of this Option, the Company may require Optionee to make any
representation and warranty to the Company as may be required by any
applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee,
Optionee may, to the extent otherwise so entitled pursuant hereto or under
the terms set forth in the Notice of Stock Option Grant, exercise this Option
during the Termination Period set out in the Notice of Stock Option Grant.
To the extent that Optionee was not entitled to exercise this Option at the
date of such termination, or if Optionee does not exercise this Option within
the time specified herein, the Option shall terminate.
2
<PAGE>
7. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by
him. The terms of this Option shall be binding upon the executors,
administrators, heirs, successors and assigns of the Optionee.
8. TERM OF OPTION. This Option may be exercised only within the terms
set out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan, Optionee's employment agreement with the Company
and the terms of this Option.
9. TAX CONSEQUENCES. The exercise of this Option, and the subsequent
sale or disposition of Shares thus acquired, shall have income tax
consequences for the Optionee, and it is Optionee's responsibility to
determine any such income tax liability.
HYPERTENSION DIAGNOSTICS, INC.
a Minnesota corporation
By:__________________________________
Melville R. Bois, President
OPTIONEE ACKNOWLEDGES AND AGREES THAT, EXCEPT AS OTHERWISE PROVIDED IN
OPTIONEE'S EMPLOYMENT AGREEMENT OR NOTICE OF STOCK OPTION GRANT, THE VESTING
OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY CONTINUING
EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH THE ACT OF BEING HIRED,
BEING GRANTED THIS OPTION OR ACQUIRING SHARES HEREUNDER). OPTIONEE FURTHER
ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS AGREEMENT, NOR IN THE COMPANY'S
STOCK OPTION PLAN WHICH IS INCORPORATED HEREIN BY REFERENCE, SHALL CONFER
UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION OF EMPLOYMENT OR
CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY WAY WITH HIS RIGHT
OR THE COMPANY'S RIGHT TO TERMINATE HIS EMPLOYMENT OR CONSULTANCY AT ANY
TIME, WITH OR WITHOUT CAUSE.
RESTRICTION ON TRANSFER
THE SECURITY EVIDENCED HEREBY HAS 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 THE COMPANY RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THIS
SECURITY (CONCURRED IN BY COUNSEL FOR 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.
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<PAGE>
Optionee acknowledges receipt of a copy of the Plan and represents that
he is familiar with the terms and provisions thereof, and hereby accepts this
Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity
to obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept
as binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
Dated: __________ ___________________________________________
Optionee
CONSENT OF SPOUSE
The undersigned spouse of Optionee has read and hereby approves the
terms and conditions of the Plan and this Option Agreement. In consideration
of the Company's granting his or her spouse the right to purchase Shares as
set forth in the Plan and this Option Agreement, the undersigned hereby
agrees to be irrevocably bound by the terms and conditions of the Plan and
this Option Agreement and further agrees that any community property interest
shall be similarly bound. The undersigned hereby appoints the undersigned's
spouse as attorney-in-fact for the undersigned with respect to any amendment
or exercise of rights under the Plan or this Option Agreement.
_________________________________
Spouse of Optionee
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<PAGE>
EXHIBIT A
1995 LONG TERM INCENTIVE AND STOCK OPTION PLAN
EXERCISE NOTICE
_______________
_______________
_______________
1. EXERCISE OF OPTION. Effective as of today,__________________, 19__,
the undersigned ("OPTIONEE") hereby elects to exercise Optionee's
option to purchase _______ shares of the Common Stock (the "SHARES") of
Hypertension Diagnostics, Inc. (the "COMPANY") under and pursuant to the
Company's 1995 Long Term Incentive and Stock Option Plan (the "PLAN") and the
[ ] Incentive [ ] Nonstatutory Stock Option Agreement dated ____________, 1996
(the "OPTION AGREEMENT").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee
has received, read and understood the Plan and the Option Agreement and
agrees to abide by and be bound by their terms and conditions. Optionee
represents that Optionee is purchasing the Shares for Optionee's own account
for investment and not with a view to, or for sale in connection with, a
distribution of any of such Shares.
3. RIGHTS AS SHAREHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to
vote or receive dividends or any other rights as a shareholder shall exist
with respect to the optioned Stock, notwithstanding the exercise of the
Option. The Company shall issue (or cause to be issued) such stock
certificate promptly after the Option is exercised. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the stock certificate is issued.
Optionee shall enjoy rights as a shareholder until such time as Optionee
disposes of the Shares or the Company and/or its assignee(s) exercises the
Right of First Refusal hereunder. Upon such exercise, Optionee shall have no
further rights as a holder of the Shares so purchased except the right to
receive payment for the Shares so purchased in accordance with the provisions
of this Agreement, and Optionee shall forthwith cause the certificate(s)
evidencing the Shares so purchased to be surrendered to the Company for
transfer or cancellation.
4. TAX CONSULTATION. Optionee understands that Optionee may suffer
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
<PAGE>
5. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company
shall cause the legends set forth below or legends substantially equivalent
thereto, to be placed upon any certificates) evidencing ownership of the
Shares together with any other legends that may be required by state or
federal securities laws:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR,
IN THE OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY
TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR
TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE
THEREWITH.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to
ensure compliance with the restrictions referred to herein, the Company may
issue appropriate "stop transfer" instructions to its transfer agent, if any,
and that, if the Company transfers its own securities, it may make
appropriate notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred
in violation of any of the provisions of this Agreement or (ii) to treat as
owner of such Shares or to accord the right to vote or pay dividends to any
purchaser or other transferee to whom such Shares shall have been so
transferred.
6. MARKET STANDOFF AGREEMENT. Optionee hereby agrees that if so
requested by the Company or any representative of the underwriters in
connection with any registration of the offering of any securities of the
Company under the 1933 Act, Optionee shall not sell or otherwise transfer any
Shares or other securities of the Company during the 180-day period following
the effective date of a registration statement of the Company filed under the
1933 Act; provided, however, that such restriction shall only apply to the
first two registration statements of the Company become effective under the
1933 Act which include securities be sold on behalf of the Company to the
public in an underwritten public offering under the 1933 Act. The Company
may impose stop-transfer instructions with respect to securities subject t
trial foregoing restrictions until the end of such 180-day period.
7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement
shall inure to the benefit of the successors and assigns of the Company.
Subject to the restrictions on transfer herein set forth, this Agreement
shall be binding upon Optionee and his or her heirs, executors,
administrators, successors and assigns.
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<PAGE>
8. INTERPRETATION. Any dispute regarding the interpretation of
this Agreement shall, be submitted by Optionee or by the Company forthwith to
the Company's Board of Directors or the committee thereof that administers
the Plan, which shall review such dispute at its next regular meeting. The
resolution of such a dispute by the Board or committee shall be final and
binding on the Company and on Optionee.
9. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed
by and construed in accordance with the laws of the State of Minnesota
excluding that body of law pertaining to conflicts of law. Should any
provision of this Agreement be determined by a court of law to be illegal or
unenforceable, the other provisions shall nevertheless remain effective and
shall remain enforceable.
10. DELIVERY OF PAYMENT. Optionee herewith delivers to the
Company the full Exercise Price for the Shares.
11. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option
Agreement are incorporated herein by reference. This Agreement, the Plan and
the Notice of Grant/Option Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements
of the Company and Optionee with respect to the subject matter hereof, and is
governed by Minnesota law except for that body of law pertaining to conflict
of laws.
Submitted by: Accepted by:
OPTIONEE: Hypertension Diagnostics, Inc.
By:___________________________________
_____________________________ Its:__________________________________
(Signature)
ADDRESS: ADDRESS:
_____________________________ ______________________________________
_____________________________ ______________________________________
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<PAGE>
EXHIBIT B
INVESTMENT REPRESENTATION STATEMENT
OPTIONEE :
COMPANY : Hypertension Diagnostics, Inc.
SECURITY : Common Stock
AMOUNT :
DATE:
In connection with the purchase of the above-listed Securities, the
undersigned Optionee represents to the Company the following:
(a) Optionee is aware of the Company's business affairs and
financial condition and has acquired sufficient information about the Company
to reach an informed and knowledgeable decision to acquire the securities.
Optionee is acquiring these securities for investment for Optionee's own
account only and not with a view to, or for resale in connection with, any
"distribution" thereof within the meaning of the Securities Act of 1933, as
amended (the "Securities Act").
(b) Optionee acknowledges and understands that the securities
constitute "restricted securities" under the Securities Act and have not been
registered under the Securities Act in reliance upon a specific exemption
therefrom, which exemption depends upon, among other things, the bona fide
nature of Optionee's investment intent as expressed herein. In this
connection, Optionee understands that, in the view of the Securities and
Exchange Commission, the statutory basis for such exemption may be
unavailable if Optionee's representation was predicated solely upon a present
intention to hold these Securities for the minimum capital gains period
specified under tax statutes, for a deferred sale, for or until an increase
or decrease in the market price of the Securities, or for a period of one
year or any other fixed period in the future. Optionee further understands
that the Securities must be held indefinitely unless they are subsequently
registered under the Securities Act or an exemption from such registration is
available. Optionee further acknowledges and understands that the Company is
under no obligation to register the securities. Optionee understands that
the certificate evidencing the securities will be imprinted with a legend
which prohibits the transfer of the Securities unless they are registered or
such registration is not required in the opinion of counsel satisfactory to
the Company, and any other legend required under applicable state securities
laws.
(c) Optionee is familiar with the provisions of Rule 701 and
Rule 144, each promulgated under the Securities Act, which, in substance,
permit limited public resale of "restricted securities" acquired, directly or
indirectly from the issuer thereof, in a nonpublic offering subject to the
satisfaction of certain conditions. Rule 701 provides that if the issuer
qualifies under Rule 701 at the time of exercise of the Option by the
Optionee, such exercise will be exempt from registration under the Securities
Act. In the event the Company later becomes subject to the reporting
requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934,
ninety (90) days thereafter (or such longer period as any market stand-off
agreement may require) the securities exempt under Rule 701 may be resold,
subject to the satisfaction of certain of the conditions specified by Rule
144, including among other things: (1) the
<PAGE>
sale being made through a broker in an unsolicited "broker's transaction" or
in transactions directly with a market maker (as said term is defined under
the Securities Exchange Act of 1934); and, in the case of an affiliate, (2)
the availability of certain public information about the company, and the
amount of securities being sold during any three month period not exceeding
the limitations specified in Rule 144(e), if applicable.
In the event that the Company does not qualify under Rule 701 at
the time of exercise of the Option, then the securities may be resold in
certain limited circumstances subject to the provisions of Rule 144, which
requires among other things: (1) the resale occurring not less than two years
after the party has purchased, and made full payment for, within the meaning
of Rule 144, the securities to be sold; and, in the case of an affiliate, or
of a non-affiliate who has held the securities less than three years, (2) the
availability of certain public information about the Company, (3) the sale
being made through a broker in an unsolicited "broker's transaction" or in
transactions directly with a market maker (as said term is defined under the
Securities Exchange Act of 1934), and (4) the amount of securities being sold
during any three month period not exceeding the specified limitations stated
therein, if applicable.
(d) Optionee agrees, in connection with the Company's initial
underwritten public offering of the Company's securities, (1) not to sell,
make short sale of, loan, grant any options for the purchase of, or otherwise
dispose of any shares of Common Stock of the Company held by Optionee (other
than those shares included in the registration) without the prior written
consent of the Company or the underwriters managing such initial underwritten
public offering of the Company's securities for one hundred eighty (180) days
from the effective date of such registration, and (2) further agrees to
execute any agreement reflecting (1) above as may be requested by the
underwriters at the time of the public offering; PROVIDED HOWEVER that the
officers and directors of the Company who own the stock of the Company also
agree to such restrictions.
(e) Optionee further understands that in the event all of the
applicable requirements of Rule 701 or 144 are not satisfied, registration
under the Securities Act, compliance with Regulation A, or some other
registration exemption will be required; and that, notwithstanding the fact
that Rules 144 and 701 are not exclusive, the Staff of the Securities and
Exchange Commission has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and
otherwise than pursuant to Rules 144 or 701 will have a substantial burden of
proof in establishing that an exemption from registration is available for
such offers or sales, and that such persons and their respective brokers who
participate in such transactions do so at their own risk. Optionee
understands that no assurances can be given that any such other registration
exemption will be available in such event.
Signature of Optionee:
_______________________________________
Date:_____________________________ 19__
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<PAGE>
CONSULTING AGREEMENT
BETWEEN JAY N. COHN, M.D. AND
HYPERTENSION DIAGNOSTICS, INC.
This Agreement is made and entered into this 30th day of October, 1995,
by and between Jay N. Cohn, M.D. ("Consultant") and Hypertension Diagnostics,
Inc., a Minnesota corporation ("Company") on the terms and conditions set
forth below.
I. DUTIES OF CONSULTANT. Consultant will serve as clinical liaison and
spokesman for the Company's arterial compliance technology. He will
provide such activities on behalf of the Company as the Company may
reasonably request (with the understanding that Consultant is employed on a
full-time basis and that such consulting activities on behalf of the
Company will not interfere with such full-time employment) and will exert
his best effort to forward the research, clinical penetration and marketing
of the Company's products.
II. COMPENSATION. In full consideration of the covenants contained herein,
Consultant's rendition of services under this Agreement, and subject to the
full performance by Consultant of his obligations hereunder, Company shall
provide and the Consultant shall accept the following:
A. STOCK OPTIONS: Company shall grant Consultant certain stock options
of Company as more fully described in the document entitled
"Non-Qualified Stock Option Agreement Between Jay N. Cohn, M.D. and
Hypertension Diagnostics, Inc.," attached hereto as Exhibit A. In
consideration of these stock options, and for other good and valuable
consideration, Consultant hereby forever waives, forfeits, cancels,
surrenders, and divests himself of any rights pursuant to any
outstanding options of Company except those options contained in
Exhibit A.
B. EXPENSE REIMBURSEMENT. Company will reimburse Consultant for those
reasonable actual expenses which meet with the prior approval of the
Chief Executive Officer which are incurred by Consultant incident to
performance of this Agreement.
III. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Consultant shall keep
confidential and shall not disclose to anyone or use, either during or
after the term of this Agreement, any confidential information of Company,
except as is required by Consultant's duties, or as authorized in writing
by Company. "Confidential Information" means any information or
compilation of information which derives independent economic value from
not being generally known to and not being readily ascertainable by proper
means by other persons who can obtain economic value from its disclosure or
use. Examples of Confidential Information not to be disclosed or used
except as permitted by Company, include but are not limited to:
<PAGE>
A. Information concerning Company's operations, organizational structure,
methods, technology, procedures, finances, accounting, and legal
matters;
B. Information concerning Company's sales activities and strategies,
marketing activities and strategies, servicing activities and
strategies, and strategic business planning activities;
C. Information concerning Company's past, present, or potential customers
(hereafter referred to as "customers"), including the names, addresses
and telephone numbers of these customers; the identity of the
individuals responsible for buying products and services on behalf of
these customers; the needs and buying tendencies of these customers;
contract negotiations between Company and these customers; the
contents of contracts and agreements between Company and these
customers; financial information concerning these customers' business
operations; credit information regarding these customers; and
identity, quantity, and price of products or services purchased from
Company by these customers;
D. Vendor and supplier information including the names, addresses, and
telephone numbers of Company's vendors and suppliers; information
regarding Company's relationship with its vendors and suppliers;
contract negotiations between Company and its vendors and suppliers;
the contents of contracts and agreements between Company and its
vendors and suppliers; financial information concerning its vendors
and suppliers; and identity, quantity and prices of products purchased
by Company from its vendors and suppliers;
E. Information regarding Company's pricing of its products and services,
including price lists and pricing strategies;
F. Personnel records and data.
IV. BUSINESS RECORDS. Consultant shall not remove any records or documents
from the premises of Company or its clients in either original, duplicate,
or copied form, except as necessary in the ordinary course of conducting
business for Company and subject to the approval of the Company management
person with authority to act on such matters. Consultant shall immediately
deliver to Company, upon termination of this Agreement with Company or at
any other time upon Company's request, any such records or documents in
Consultant's possession or control.
V. TERMINATION OF AGREEMENT.
A. DURATION OF AGREEMENT. Unless properly terminated as provided herein,
this Agreement shall continue in effect for a term of four (4) years,
or until October 30, 1999.
2
<PAGE>
B. TERMINATION BY CONSULTANT. Consultant may give written notice of
termination of this Agreement for any reason sixty (60) days prior to
the proposed date of termination, at which time this Agreement shall
terminate.
C. THIRTY DAY TERMINATION BY COMPANY. Prior to October 30, 1997, Company
may give written notice of termination of this Agreement for
Reasonable Cause thirty (30) days prior to the proposed date of
termination, at which time this Agreement shall terminate. No waiver
by Company of any breach of this Agreement shall be deemed a waiver of
any prior or subsequent breach. For purposes of this Agreement,
"Reasonable Cause" shall mean:
1. Dishonesty, fraud, misrepresentation, diversion of corporate
opportunity, self-dealing, theft or embezzlement of Company
assets, or material intentional violations of law; or
2. Willful or reckless misconduct by Consultant in the performance
of the duties, functions, obligations or responsibilities
delegated to Consultant.
D. SIXTY DAY TERMINATION BY COMPANY. On or after October 30, 1997,
Company may give written notice of termination of this Agreement for
any reason sixty (60) days prior to the proposed date of termination,
at which time this Agreement shall terminate.
E. EFFECT OF DEATH. This Agreement shall terminate immediately upon the
death of Consultant. Upon the date of death of Consultant, any and
all obligations of Company or its successors and assigns hereunder
shall be terminated, relieved and discharged, except as to reasonable
actual reimbursable expenses incurred by Consultant under this
Agreement prior to the date of his death.
F. COOPERATION UPON TERMINATION. Following notice of termination of this
Agreement, Consultant shall fully cooperate with Company in all
matters relating to the winding up of Consultant's pending work on
behalf of Company and the orderly transfer of such pending work to
such other employees as may be designated by Company.
VI. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
Consultant and any employer of Consultant with respect to any claim made
against Consultant, including the reasonable cost of defense thereof, which
is based upon any activities of Consultant under this Agreement, except to
the extent any such claim is the result of any gross negligence on the part
of Consultant. In the event any such claim is made, Consultant shall
promptly notify the Company in writing, and the Company shall assume the
defense of such claim at its own cost. The Company shall have the right to
determine the strategy of such litigation and any settlement, provided that
the Company shall not enter into any settlement that materially
3
<PAGE>
adversely affects Consultant without Consultant's prior consent, which
shall not be unreasonably withheld.
VII. USE OF NAME. The Company shall not use the name of Consultant in any
written materials with respect to the marketing of any product without the
prior written approval of the Consultant; PROVIDED, HOWEVER, that the
Company shall have the right, to the extent that it is advised by counsel
that it is required to do so, to use the name of the Consultant in any
prospectus or private offering documents, or in any documents related to
or connected with such a prospectus or private offering documents,
provided that a copy thereof shall have been provided to Consultant at or
about the same time such documents are provided to any prospective
investors.
VIII. NON-TRANSFERABILITY. This Agreement may be assigned or transferred by
Company at its discretion, but shall not be assigned by Consultant to any
other person or entity.
IX. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the
benefit of the legal representatives, executors, administrators,
successors and assigns of each of the parties to this Agreement.
X. GOVERNING LAW.
A. The laws of Minnesota shall govern the validity, interpretation and
performance of the respective duties and obligations of this
Agreement.
B. Consultant consents to venue and jurisdiction in the District Court
of Hennepin County, State of Minnesota, and in the United States
District Court for the District of Minnesota, and to service of
process under Minnesota law, in any action commenced by Company to
enforce this Agreement.
XI. SEVERABILITY. If any provision of this Agreement is adjudged void,
invalid or unenforceable under law, the remainder of this Agreement shall
continue and remain in full force and effect.
XII. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof, and may not be amended,
modified or waived other than by written instrument signed by both
parties.
XIII. SUPREMACY. This Agreement supersedes all prior oral or written agreements
and understandings between Consultant and Company concerning the subject
matter hereof, including any implied or express representations regarding
Consultant's ownership of any interest in Company or its property, and any
prior oral or written agreements conveying stock option rights to
Consultant.
4
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year below written:
CONSULTANT HYPERTENSION DIAGNOSTICS, INC.
/s/ Jay N. Cohn By /s/ Charles F. Chesney
- ------------------------------ ------------------------------
Jay N. Cohn, M.D. Its President/CEO
------------------------------
Dated: 12/2/95 Dated: 11/8/95
----------------------- ----------------------------
5
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
BETWEEN JAY N. COHN, M.D. AND
HYPERTENSION DIAGNOSTICS, INC.
THIS AGREEMENT is made and entered into this 30th day of October, 1995,
between Hypertension Diagnostics, Inc., a Minnesota corporation ("Company"),
and Jay N. Cohn, M.D. ("Optionee") on the terms and conditions set forth
below.
WHEREAS, the Board of Directors of the Company has decided to permit
Non-Qualified Stock Options to be granted to certain individuals providing
valuable services to the Company and any subsidiary corporations of the
Company to purchase voting common stock of the Company; and
WHEREAS, the Company desires the Optionee to secure stock ownership in
the Company in order to increase effectiveness and personal interest in the
Company;
NOW THEREFORE, in consideration of the promises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee an option to
purchase from the Company all or any part of an aggregate amount of
449,265 shares of the voting common stock of the Company, par value
$.01 per share ("Option Shares"), at an option price of $1.70 per
share. The date of this Agreement is the date of the grant.
2. EXERCISE PERIOD. The Option shall become exercisable with respect to
the Option Shares in three (3) installments. The following table sets
forth the initial dates of exercisability of each installment and the
number of Option Shares as to which this Option shall become
exercisable on such dates, provided that this Option shall become so
exercisable only if the "Consulting Agreement Between
Jay N. Cohn, M.D. and Hypertension Diagnostics, Inc." ("Consulting
Agreement"), of which this Agreement is an Exhibit, has not been
terminated by Consultant prior to October 30, 1997:
<TABLE>
<CAPTION>
INITIAL DATE NUMBER OF OPTION SHARES
OF EXERCISABILITY AVAILABLE FOR EXERCISE
<S> <C>
October 30, 1995 224,633
October 30, 1996 112,316
October 30, 1997 112,316
</TABLE>
The foregoing rights to exercise this Option shall be cumulative with
respect to the Option Shares becoming exercisable on each such date
but in no event shall this Option be exercisable after, and this
Option shall become void and expire as to all
EXHIBIT A
<PAGE>
unexercised Option Shares, at 5:00 p.m. (Minneapolis, Minnesota time)
on October 30, 2005.
3. EXERCISE OF OPTION. This option may be exercised only by written
notice of intent to the Company at its office at Five Acorn Drive,
South St. Paul, MN 55077-1420. Such notice shall state the number of
shares in respect of which the option is being exercised and shall be
accompanied by payment for such shares in cash, certified or cashier's
check or by personal check, if acceptable to the Board of Directors of
Company. The exercise of the Option shall be deemed effective upon
receipt of such notice and payment. As soon as practicable after the
effective exercise of the Option, the Company shall record on the
stock transfer books of the Company the ownership of the shares
purchased in the name of the Optionee, and the Company shall deliver
to the Optionee one or more duly issued stock certificates evidencing
such ownership.
4. EXERCISE UPON DEATH. Notwithstanding Section 2 hereof, if Optionee
shall die, this option may be exercised with respect to all Option
Shares granted to Optionee by the person or persons to whom Optionee's
rights under this option pass by will or applicable law, or if no such
person has such right, by his executors or administrators.
5. CHANGE IN CONTROL.
a. DEFINITION. For purposes of this Agreement, the term "Change in
Control" shall mean any transaction or occurrence of events in
which (i) Company merges or consolidates with any other
corporation and is not the surviving corporation after such
merger or consolidation; (ii) Company transfers all or
substantially all of its business and assets to any other person,
individual, corporation, partnership, group, or association; or
(iii) more than 50% of Company's outstanding voting shares are
purchased by any other person, individual, corporation,
partnership, group or association.
b. ACCELERATION. If any events constituting a Change in Control of
the Company shall occur, Optionee shall be entitled to receive
option rights covering shares of the surviving or acquiring
entity in the same proportion, at an equivalent price, and
subject to the same conditions as this Option; provided, however,
that Optionee may, at his sole discretion, accelerate the right
to exercise this Option thirty (30) days prior to the anticipated
effective date of any of the foregoing transactions; provided,
however, that if, with respect to Optionee, acceleration of the
vesting of this Option as provided herein (which acceleration
could be deemed a payment within the meaning of
Section 280G(b)(2) of the Internal Revenue Code of 1986, as
amended ("Code")) together with any other payments which Optionee
has the right to receive from the Company or any corporation
which is a member of an "affiliated group" (as defined in
Section 1504(a) of the Code
-2-
<PAGE>
without regard to Section 1504(b) of the Code) of which Company
is a member, would constitute a "parachute payment" (as defined
in Section 280G(b)(2) of the Code), the payments to Optionee as
set forth herein shall be reduced to the largest amount as will
result in no portion of such payments being subject to the excise
tax imposed by section 4999 of the Code.
6. DILUTION OR OTHER ADJUSTMENTS. If there shall be any change in the
shares of voting common stock of the Company through merger,
consolidation, reorganization, recapitalization, dividend in the form
of stock (of whatever amount), stock split or other change in the
corporate structure, appropriate adjustments in the outstanding
options shall be made by the Company. In the event of any such
changes, adjustments shall include, where appropriate, changes in the
aggregate number of shares subject and the price per share subject to
outstanding and future options in order to prevent dilution or
enlargement of option rights.
7. NO RIGHT TO CONTINUED COMPENSATION. Nothing contained in this
Agreement shall obligate the Company or any subsidiary corporation of
the Company to continue to accept and pay for the services of Optionee
as a consultant, employee or independent contractor for any particular
period or interfere with the right of the Company or any such
subsidiary to terminate any contract or employment relationship with
Optionee.
8. NO SHAREHOLDER RIGHTS. Optionee shall have no rights as a stockholder
with respect to any shares of common stock subject to this option
prior to the date of issuance of a certificate or certificates for
such shares.
9. INVESTMENT REPRESENTATION. Notice of the exercise of this option
shall include a representation that any of the Option Shares purchased
shall be acquired as an investment and not with a view to, or for sale
in connection with, any public distribution.
10. COMPLIANCE WITH LAW AND REGULATIONS. The Optionee acknowledges that
this option may not be exercised until the Company has taken all
actions then required to comply with all applicable federal and state
laws, rules and regulations and any exchange on which the stock may
then be listed. The certificates representing the shares purchased
upon the exercise of this option shall bear a legend in substantially
the following form:
These shares have not been registered either under any applicable
federal law and rules and resale will not be permitted under state law
unless the shares are first registered under the Minnesota Securities
Law. Further, no sale, offer to sell, or transfer of these shares
shall be made unless a registration statement under the federal
Securities Act of 1933, as amended, with respect to such shares is
then in
-3-
<PAGE>
effect or an exemption from the registration requirements of such Act
is then in fact applicable to such shares.
11. NON-TRANSFERABILITY. This option shall not be transferable other than
by will or by laws of descent and distribution. During the lifetime
of the Optionee, this option shall be exercisable only by such
Optionee.
12. DISPUTE OR DISAGREEMENT. As a condition of the granting of this
option, the Optionee agrees that any dispute or disagreement which may
arise under or as a result of or pursuant to this Agreement shall be
determined by the Board of Directors in its sole discretion, and that
any interpretation by the Board of Directors of the terms of this
Agreement shall be final, binding and conclusive.
13. OTHER ASSISTANCE. Upon the exercise of this option the Optionee or
other person exercising the option must execute any document or make
any representation or give any commitment which the Board of
Directors, in its discretion, deems necessary or advisable by reason
of the securities laws of the United States or any state, and execute
any document for the purpose of restricting the transfer of stock to
third parties, or pay any sum of money in respect of taxes or
undertake to pay or have paid any such sum which the Board of
Directors, in its discretion, deems necessary by reason of the Code or
any rule or regulation thereunder, or by reason of the tax laws of any
state or any contracts or agreements in effect at such time.
14. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the legal representatives, executors, administrators,
successors and assigns of each of the parties to this Agreement.
15. GOVERNING LAW.
A. The laws of Minnesota shall govern the validity, interpretation
and performance of the respective duties and obligations of this
Agreement.
B. Employee consents to venue and jurisdiction in the District Court
of Hennepin County, State of Minnesota, and in the United States
District Court for the District of Minnesota, and to service of
process under Minnesota law, in any action commenced by Company
to enforce this Agreement.
16. SEVERABILITY. If any provision of this Agreement is adjudged void,
invalid or unenforceable under law, the remainder of this Agreement
shall continue and remain in full force and effect.
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof, and may not be
amended,
-4-
<PAGE>
changed, modified, terminated, or waived other than by written
instrument signed by both parties.
18. SUPREMACY. This Agreement supersedes all prior oral or written
agreements and understandings between Employee and Company concerning
the subject matter hereof, including any implied or express
representations regarding Employee's ownership of any interest in
Company or its property, and any prior oral or written agreements
conveying stock option rights to Employee.
19. REGISTRATION RIGHTS. If, at any time prior to October 31, 2005, the
Company shall propose to file any Registration Statement (other than
any registration on Form S-4, or any other similarly inappropriate
form or Registration Statement with respect to any initial public
offering in which there are no selling shareholders) under the
Securities Act of 1933, as amended, covering a public offering of the
Company's Common Stock, it will notify Optionee at least forty-five
(45) days prior to each such filing and will include in the
Registration Statement (to the extent permitted by applicable
regulation) the Common Stock purchased by Optionee or purchasable by
Optionee upon the exercise of the Option to the extent requested by
Optionee. Notwithstanding the foregoing, the number of shares of the
holder of this Option proposed to be registered thereby shall be
reduced pro rata with any other selling shareholder (other than the
Company) upon the request of the managing underwriter of such
offering. If the Registration Statement or Offering Statement filed
pursuant to such forty-five (45) day notice has not become effective
within six months following the date such notice is given to Optionee,
the Company must again notify Optionee in the manner provided above.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year below written:
OPTIONEE HYPERTENSION DIAGNOSTICS, INC.
___________________________________ By ______________________________________
Jay N. Cohn, M.D.
Its _____________________________________
Dated: ____________________________ Dated: __________________________________
-5-
<PAGE>
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTIONS
Hypertension Diagnostics, Inc.
Five Acorn Drive
South St. Paul, MN 55077-1420
Gentlemen:
The undersigned is the holder of a non-qualified stock option (the
"Option") to purchase shares of voting common stock ("Stock") of Hypertension
Diagnostics, Inc. (the "Company"), pursuant to the Non-Qualified Stock Option
Agreement between Jay N. Cohn and Hypertension Diagnostics, Inc. dated
October 30, 1995. The undersigned hereby irrevocably elects to exercise the
Option to purchase ____________ shares of Stock ("Option Shares"). Enclosed
herewith is payment for the Option Shares as required under the Agreement.
The undersigned requests that the certificate representing the Option Shares
be issued in the name of the undersigned and delivered to the address set
forth below.
In connection with the issuance of the Option Shares to the undersigned,
the undersigned hereby certifies and represents to the Company that the
undersigned is acquiring such shares for the purpose of investment and not
with a view toward distribution. The undersigned understands that these
securities have not been registered either under any applicable federal law
and rules or applicable state law and rules and that resale will not be
permitted under state law unless the securities are first registered or the
sale is a transaction exempt from registration under the applicable state
securities law.
The undersigned further understands that no sale, offer to sell, or
transfer of the Option Shares shall be made unless a registration statement
under the federal Securities Act of 1933, as amended (the "Act"), with
respect to the Option Shares is then in effect or an exemption from the
registration requirements of the Act is then in fact applicable to the Option
Shares. The undersigned understands that a legend reciting this investment
restriction shall be placed on any stock certificate that may be issued to
the undersigned.
___________________________________
Jay N. Cohn, M.D. (Optionee)
___________________________________
Address
___________________________________
Social Security No.
Dated: ____________________________
-6-
<PAGE>
CONSULTING AGREEMENT
BETWEEN STANLEY M. FINKELSTEIN, PH.D. AND
HYPERTENSION DIAGNOSTICS, INC.
This Agreement is made and entered into as of the 30th day of October,
1995, by and between Stanley M. Finkelstein, Ph.D. ("Consultant") and
Hypertension Diagnostics, Inc., a Minnesota corporation ("Company") on the
terms and conditions set forth below.
I. DUTIES OF CONSULTANT. Consultant will serve as technical liaison and
spokesman for the Company's arterial compliance technology. He will
provide such activities on behalf of the Company as the Company may
reasonably request (with the understanding that Consultant is employed on a
full-time basis and that such consulting activities on behalf of the
Company will not interfere with such full-time employment) and will exert
his best effort to forward the research, clinical penetration and marketing
of the Company's products.
II. COMPENSATION. In full consideration of the covenants contained herein,
Consultant's rendition of services under this Agreement, and subject to the
full performance by Consultant of his obligations hereunder, Company shall
provide and the Consultant shall accept the following:
A. STOCK OPTIONS: Company shall grant Consultant certain stock options
of Company as more fully described in the document entitled "Non-
Qualified Stock Option Agreement Between Stanley M. Finkelstein, Ph.D.
and Hypertension Diagnostics, Inc.," attached hereto as Exhibit A (the
"Option Agreement"). In consideration of these stock options, and for
other good and valuable consideration, Consultant hereby forever
waives, forfeits, cancels, surrenders, and divests himself of any
rights pursuant to any outstanding options of Company except those
options contained in the Option Agreement.
B. EXPENSE REIMBURSEMENT. Company will reimburse Consultant for those
reasonable actual expenses which meet with the prior approval of the
Chief Executive Officer which are incurred by Consultant incident to
performance of this Agreement.
III. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Consultant shall keep
confidential and shall not disclose to anyone or use, either during or
after the term of this Agreement, any confidential information of Company,
except as is required by Consultant's duties, or as authorized in writing
by Company. "Confidential Information" means any information or
compilation of information which derives independent economic value from
not being generally known to and not being readily ascertainable by proper
means by other persons who can obtain economic value from its disclosure or
use; PROVIDED, HOWEVER, that Confidential Information shall not include
information that (i) is generally in the public domain prior to the date
hereof, (ii) has become available to Consultant on a non-confidential basis
from a third party if such source is not bound by an obligation of
confidentiality or such third
<PAGE>
person has independently developed or discovered the same information, or
(iii) was within Consultant's possession prior to the date hereof form a
source not bound by an obligation of confidentiality. Examples of
Confidential Information not to be disclosed or used except as permitted by
Company, include but are not limited to:
A. Information concerning Company's operations, organizational structure,
methods, technology, procedures, finances, accounting, and legal
matters;
B. Information concerning Company's sales activities and strategies,
marketing activities and strategies, servicing activities and
strategies, and strategic business planning activities;
C. Information concerning Company's past, present, or potential customers
(hereafter referred to as "customers"), including the names, addresses
and telephone numbers of these customers; the identity of the
individuals responsible for buying products and services on behalf of
these customers; the needs and buying tendencies of these customers;
contract negotiations between Company and these customers; the
contents of contracts and agreements between Company and these
customers; financial information concerning these customers' business
operations; credit information regarding these customers; and
identity, quantity, and price of products or services purchased from
Company by these customers;
D. Vendor and supplier information including the names, addresses, and
telephone numbers of Company's vendors and suppliers; information
regarding Company's relationship with its vendors and suppliers;
contract negotiations between Company and its vendors and suppliers;
the contents of contracts and agreements between Company and its
vendors and suppliers; financial information concerning its vendors
and suppliers; and identity, quantity and prices of products purchased
by Company from its vendors and suppliers;
E. Information regarding Company's pricing of its products and services,
including price lists and pricing strategies;
F. Personnel records and data.
IV. BUSINESS RECORDS. Consultant shall not remove any records or documents
from the premises of Company or its clients in either original, duplicate,
or copied form, except as necessary in the ordinary course of conducting
business for Company and subject to the approval of the President of the
Company. Consultant shall immediately deliver to Company, upon termination
of this Agreement with Company or at any other time upon Company's request,
any such records or documents in Consultant's possession or control.
V. TERMINATION OF AGREEMENT.
2
<PAGE>
A. DURATION OF AGREEMENT. Unless properly terminated as provided herein,
this Agreement shall continue in effect for a term of four (4) years,
or until October 30, 1999.
B. TERMINATION BY CONSULTANT. Consultant may give written notice of
termination of this Agreement for any reason sixty (60) days prior to
the proposed date of termination, at which time this Agreement shall
terminate.
C. THIRTY-DAY TERMINATION BY COMPANY. Prior to October 30, 1997, Company
may give written notice of termination of this Agreement only for
Reasonable Cause thirty (30) days prior to the proposed date of
termination, at which time this Agreement shall terminate. No waiver
by Company of any breach of this Agreement shall be deemed a waiver of
any prior or subsequent breach. For purposes of this Agreement,
"Reasonable Cause" shall mean:
1. Dishonesty, fraud, misrepresentation, diversion of corporate
opportunity, self-dealing, theft or embezzlement of Company
assets, or a conviction for a violation of a law classified as a
felony; or
2. Willful or reckless misconduct by Consultant in the performance
of the duties, functions, obligations or responsibilities
delegated to Consultant; or
3. Failure to discharge his duties in a timely manner after written
notice and a ten (10) day opportunity to correct such failure;
PROVIDED, HOWEVER, if any such duties are not dischargeable
within such ten (10) day period, then such ten (10) day period
shall be extended as long as is reasonably necessary so as to
permit Consultant to discharge such duties, so long as Consultant
is diligently and in good faith pursuing the discharge of such
duties.
D. SIXTY DAY TERMINATION BY COMPANY. On or after October 30, 1997,
Company may give written notice of termination of this Agreement for
any reason sixty (60) days prior to the proposed date of termination,
at which time this Agreement shall terminate.
E. EFFECT OF DISABILITY OR DEATH. Subject to Section 4 of the Option
Agreement, this Agreement shall terminate immediately upon the total
disability or death of Consultant. Upon the date of death or total
disability of Consultant, any and all obligations of Company or its
successors and assigns hereunder shall be terminated, relieved and
discharged, except as to reasonable actual reimbursable expenses
incurred by Consultant under this Agreement prior to the date of his
disability or death. Notwithstanding the foregoing, if Consultant
shall become permanently disabled or die, the options granted to
Consultant in the Option Agreement may be immediately exercised with
respect to all Option Shares (as defined in the Option
3
<PAGE>
Agreement) granted to Consultant by the Consultant or the person or
persons to whom Consultant's rights as optionee under the Option
Agreement pass by will or applicable law, or if no such person has
such right, by his executors or administrators. For purposes hereof,
"permanently disabled" means that because of injury or sickness (i)
Consultant is unable to perform the duties of Consultant (as described
in Section I of this Agreement), and (ii) Consultant is receiving the
regular and personal care of a physician which, under prevailing
medical standards, is appropriate for the condition causing the
disability.
F. COOPERATION UPON TERMINATION. Following notice of termination of this
Agreement, Consultant shall fully cooperate with Company in all
matters relating to the winding up of Consultant's pending work on
behalf of Company and the orderly transfer of such pending work to
such other employees as may be designated by Company.
VI. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
Consultant and any employer of Consultant with respect to any claim made
against Consultant, including the reasonable cost of defense thereof, which
is based upon any activities of Consultant under this Agreement, except to
the extent any such claim is the result of any gross negligence on the part
of Consultant. In the event any such claim is made, Consultant shall
promptly notify the Company in writing, and the Company shall assume the
defense of such claim at its own cost. The Company shall have the right to
determine the strategy of such litigation and any settlement, provided that
the Company shall not enter into any settlement that materially adversely
affects Consultant without Consultant's prior consent, which shall not be
unreasonably withheld.
VII. USE OF NAME. The Company shall not use the name of Consultant in any
written materials with respect to the marketing of any product without the
prior written approval of the Consultant; PROVIDED, HOWEVER, that the
Company shall have the right, to the extent that it is advised by counsel
that it is required to do so, to use the name of the Consultant in any
prospectus or private offering documents, or in any documents related to or
connected with such a prospectus or private offering documents, provided
that a copy thereof shall have been provided to Consultant at or about the
same time such documents are provided to any prospective investors.
VIII.NON-TRANSFERABILITY. This Agreement may be assigned or transferred by
Company at its discretion, but shall not be assigned by Consultant to
any other person or entity.
IX. BINDING AGREEMENT. This Agreement shall be binding upon and inure to the
benefit of the legal representatives, executors, administrators, successors
and assigns of each of the parties to this Agreement.
X. ASSIGNMENT OF TECHNOLOGY. During the term of this Agreement, to the extent
Consultant conceives or develops any ideas, technology or products relating
to the
4
<PAGE>
Company's current or planned waveform analysis technology (including,
without limitation, all software or hardware) when he is not then working
for the University of Minnesota, then such ideas, technology or products
shall belong to the Company, and Consultant hereby assigns any such ideas,
technology or products to the Company, and Consultant shall take such
additional action as the Company shall reasonably request in connection
with the assignment of such ideas, technology or products to the Company.
XI. GOVERNING LAW.
A. The laws of Minnesota shall govern the validity, interpretation and
performance of the respective duties and obligations of this
Agreement.
B. Consultant and Company consent to venue and jurisdiction in the
District Court of Hennepin County, State of Minnesota, and in the
United States District Court for the District of Minnesota, and to
service of process under Minnesota law, in any action commenced by
either party to enforce this Agreement.
XII. SEVERABILITY. If any provision of this Agreement is adjudged void, invalid
or unenforceable under law, the remainder of this Agreement shall continue
and remain in full force and effect.
XIII.ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof, and may not be amended,
modified or waived other than by written instrument signed by both parties.
XIV. SUPREMACY. This Agreement supersedes all prior oral or written agreements
and understandings between Consultant and Company concerning the subject
matter hereof, including any implied or express representations regarding
Consultant's ownership of any interest in Company or its property, and any
prior oral or written agreements conveying stock option rights to
Consultant.
XV. INDEPENDENT CONTRACTOR. The parties acknowledge that Consultant is acting
as an independent contractor, and it is not the intention of the parties
that Consultant be deemed to be an employee of the Company.
5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
CONSULTANT HYPERTENSION DIAGNOSTICS, INC.
/s/ Stanley M. Finkelstein By /s/ Melville R. Bois
- -------------------------------- ---------------------------------
Stanley M. Finkelstein, Ph.D. Its President
---------------------------------
6
<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
BETWEEN STANLEY M. FINKELSTEIN, PH.D AND
HYPERTENSION DIAGNOSTICS, INC.
THIS AGREEMENT is made and entered into as of the 30th day of October,
1995, between Hypertension Diagnostics, Inc., a Minnesota corporation
("Company"), and Stanley M. Finkelstein, Ph.D. ("Optionee") on the terms and
conditions set forth below.
WHEREAS, the Board of Directors of the Company has decided to permit
Non-Qualified Stock Options to be granted to certain individuals providing
valuable services to the Company and any subsidiary corporations of the
Company to purchase voting common stock of the Company; and
WHEREAS, the Company desires the Optionee to secure stock ownership in
the Company in order to increase effectiveness and personal interest in the
Company;
NOW THEREFORE, in consideration of the promises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee an option to
purchase from the Company all or any part of an aggregate amount of
297,688 shares of the voting common stock of the Company, par value
$.01 per share ("Option Shares"), at an option price of $1.70 per
share. The date of this Agreement is the date of the grant.
2. EXERCISE PERIOD. The Option shall become exercisable with respect to
the Option Shares in three (3) installments. The following table sets
forth the initial dates of exercisability of each installment and the
number of Option Shares as to which this Option shall become
exercisable on such dates, provided that this Option shall become so
exercisable only if the "Consulting Agreement Between Stanley M.
Finkelstein, Ph.D. and Hypertension Diagnostics, Inc." ("Consulting
Agreement"), of which this Agreement is an Exhibit, has not been
terminated by Consultant prior to October 30, 1997:
<TABLE>
<CAPTION>
INITIAL DATE NUMBER OF OPTION SHARES
------------ -----------------------
OF EXERCISABILITY AVAILABLE FOR EXERCISE
----------------- ----------------------
<S> <C>
October 30, 1995 148,844
October 30, 1996 74,422
October 30, 1997 74,422
</TABLE>
The foregoing rights to exercise this Option shall be cumulative with
respect to the Option Shares becoming exercisable on each such date
but in no event shall this Option be exercisable after, and this
Option shall become void and expire as to all unexercised Option
Shares, at 5:00 p.m. (Minneapolis, Minnesota time) on October 30,
2005.
EXHIBIT A
<PAGE>
3. EXERCISE OF OPTION. This option may be exercised only by written
notice of intent to the Company at its office at Five Acorn Drive,
South St. Paul, MN 55077-1420. Such notice shall state the number of
shares in respect of which the option is being exercised and shall be
accompanied by payment for such shares in cash, certified or cashier's
check or by personal check, if acceptable to the Board of Directors of
Company. The exercise of the Option shall be deemed effective upon
receipt of such notice and payment. As soon as practicable after the
effective exercise of the Option, the Company shall record on the
stock transfer books of the Company the ownership of the shares
purchased in the name of the Optionee, and the Company shall deliver
to the Optionee one or more duly issued stock certificates evidencing
such ownership.
4. EXERCISE UPON DISABILITY OR DEATH. Notwithstanding Section 2 hereof,
if Optionee shall become permanently disabled or die, this option may
be immediately exercised with respect to all Option Shares granted to
Optionee by the Optionee or the person or persons to whom Optionee's
rights under this option pass by will or applicable law, or if no such
person has such right, by his executors or administrators. For
purposes hereof, "permanently disabled" means that because of injury
or sickness (i) Optionee is unable to perform the duties of Optionee
(described in Section I of the Consulting Agreement), and (ii)
Optionee is receiving the regular and personal care of a physician
which, under prevailing medical standards, is appropriate for the
condition causing the disability.
5. CHANGE IN CONTROL.
a. DEFINITION. For purposes of this Agreement, the term "Change in
Control" shall mean any transaction or occurrence of events in
which (i) Company merges or consolidates with any other
corporation and is not the surviving corporation after such
merger or consolidation; (ii) Company transfers all or
substantially all of its business and assets to any other person,
individual, corporation, partnership, group, or association; or
(iii) more than 50% of Company's outstanding voting shares are
purchased by any other person, individual, corporation,
partnership, group or association.
b. ACCELERATION. If any events constituting a Change in Control of
the Company shall occur, Optionee shall be entitled to receive
option rights covering shares of the surviving or acquiring
entity in the same proportion, at an equivalent price, and
subject to the same conditions as this Option; provided, however,
that Optionee may, at his sole discretion, accelerate the right
to exercise this Option thirty (30) days prior to the anticipated
effective date of any of the foregoing transactions; provided,
however, that if, with respect to Optionee, acceleration of the
vesting of this Option as provided herein (which acceleration
could be deemed a payment within the meaning of Section
280G(b)(2) of the Internal Revenue Code of 1986, as amended
("Code")) together with any other payments which Optionee has the
right to receive from the Company or any corporation which is a
member of an "affiliated group" (as defined in Section 1504(a) of
the Code without regard to Section
-2-
<PAGE>
1504(b) of the Code) of which Company is a member, would
constitute a "parachute payment" (as defined in Section
280G(b)(2) of the Code), the payments to Optionee as set forth
herein shall be reduced to the largest amount as will result
in no portion of such payments being subject to the excise tax
imposed by section 4999 of the Code.
6. DILUTION OR OTHER ADJUSTMENTS. If there shall be any change in the
shares of voting common stock of the Company through merger,
consolidation, reorganization, recapitalization, dividend in the form
of stock (of whatever amount), stock split or other change in the
corporate structure, appropriate adjustments in the outstanding
options shall be made by the Company. In the event of any such
changes, adjustments shall include, where appropriate, changes in the
aggregate number of shares subject and the price per share subject to
outstanding and future options in order to prevent dilution or
enlargement of option rights.
7. NO RIGHT TO CONTINUED COMPENSATION. Nothing contained in this
Agreement shall obligate the Company or any subsidiary corporation of
the Company to continue to accept and pay for the services of Optionee
as a consultant, employee or independent contractor for any particular
period or interfere with the right of the Company or any such
subsidiary to terminate any contract or employment relationship with
Optionee.
8. NO SHAREHOLDER RIGHTS. Optionee shall have no rights as a stockholder
with respect to any shares of common stock subject to this option
prior to the date of issuance of a certificate or certificates for
such shares.
9. INVESTMENT REPRESENTATION. Notice of the exercise of this option
shall include a representation that any of the Option Shares purchased
shall be acquired as an investment and not with a view to, or for sale
in connection with, any public distribution.
10. COMPLIANCE WITH LAW AND REGULATIONS. The Optionee acknowledges that
the Option Shares may not be issued absent a registration under the
Securities Act of 1933, as amended, and applicable state securities
laws or the availability of an exemption therefrom. The certificates
representing the shares purchased upon the exercise of this option
shall bear a legend in substantially the following form:
These shares have not been registered either under any applicable
federal law and rules and resale will not be permitted under state law
unless the shares are first registered under the applicable state
securities law or any applicable exemption from registration.
Further, no sale, offer to sell, or transfer of these shares shall be
made unless a registration statement under the federal Securities Act
of 1933, as amended, with respect to such shares is then in effect or
an exemption from the registration requirements of such Act is then in
fact applicable to such shares.
-3-
<PAGE>
11. NON-TRANSFERABILITY. This option shall not be transferable other than
by will or by laws of descent and distribution. During the lifetime
of the Optionee, this option shall be exercisable only by such
Optionee.
12. DISPUTE OR DISAGREEMENT. As a condition of the granting of this
option, the Optionee agrees that any dispute or disagreement which may
arise under or as a result of or pursuant to this Agreement shall be
reasonably determined by the Board of Directors, and that any
reasonable interpretation by the Board of Directors of the terms of
this Agreement shall be final, binding and conclusive.
13. OTHER ASSISTANCE. Upon the exercise of this option the Optionee or
other person exercising the option must execute any document or make
any representation or give any commitment which the Board of
Directors, in its discretion, deems necessary or advisable by reason
of the securities laws of the United States or any state, and execute
any document for the purpose of restricting the transfer of stock to
third parties, or pay any sum of money in respect of taxes or
undertake to pay or have paid any such sum which the Board of
Directors, in its discretion, deems necessary by reason of the Code or
any rule or regulation thereunder, or by reason of the tax laws of any
state or any contracts or agreements in effect at such time.
14. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the legal representatives, executors, administrators,
successors and assigns of each of the parties to this Agreement.
15. GOVERNING LAW.
a. The laws of Minnesota shall govern the validity, interpretation
and performance of the respective duties and obligations of this
Agreement.
b. Optionee and Company consent to venue and jurisdiction in the
District Court of Hennepin County, State of Minnesota, and in the
United States District Court for the District of Minnesota, and
to service of process under Minnesota law, in any action
commenced by either party to enforce this Agreement.
16. SEVERABILITY. If any provision of this Agreement is adjudged void,
invalid or unenforceable under law, the remainder of this Agreement
shall continue and remain in full force and effect.
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof, and may not be
amended, changed, modified, terminated, or waived other than by
written instrument signed by both parties.
18. SUPREMACY. This Agreement supersedes all prior oral or written
agreements and understandings between Optionee and Company concerning
the subject matter hereof,
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<PAGE>
including any implied or express representations regarding
Optionee's ownership of any interest in Company or its property,
and any prior oral or written agreements conveying stock option
rights to Optionee.
19. REGISTRATION RIGHTS. If, at any time prior to October 31, 2005, the
Company shall propose to file any Registration Statement (other than
any registration on Form S-4, or any other similarly inappropriate
form or Registration Statement with respect to any initial public
offering in which there are no selling shareholders) under the
Securities Act of 1933, as amended, covering a public offering of the
Company's Common Stock, it will notify Optionee at least forty-five
(45) days prior to each such filing and will include in the
Registration Statement (to the extent permitted by applicable
regulation) the Common Stock purchased by Optionee or purchasable by
Optionee upon the exercise of the Option to the extent requested by
Optionee. Notwithstanding the foregoing, the number of shares of the
holder of this Option proposed to be registered thereby shall be
reduced pro rata with any other selling shareholder (other than the
Company) upon the request of the managing underwriter of such
offering. If the Registration Statement or Offering Statement filed
pursuant to such forty-five (45) day notice has not become effective
within six months following the date such notice is given to Optionee,
the Company must again notify Optionee in the manner provided above.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the day
and year first above written.
OPTIONEE HYPERTENSION DIAGNOSTICS, INC.
By
- --------------------------------- -------------------------------------
Stanley M. Finkelstein, Ph.D. Its
-------------------------------------
-5-
<PAGE>
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTIONS
Hypertension Diagnostics, Inc.
Five Acorn Drive
South St. Paul, MN 55077-1420
Gentlemen:
The undersigned is the holder of a non-qualified stock option (the
"Option") to purchase shares of voting common stock ("Stock") of Hypertension
Diagnostics, Inc. (the "Company"), pursuant to the Non-Qualified Stock Option
Agreement between Stanley M. Finkelstein, Ph.d and Hypertension Diagnostics,
Inc. dated as of October 30, 1995. The undersigned hereby irrevocably elects to
exercise the Option to purchase ___________ shares of Stock ("Option Shares").
Enclosed herewith is payment for the Option Shares as required under the
Agreement. The undersigned requests that the certificate representing the
Option Shares be issued in the name of the undersigned and delivered to the
address set forth below.
In connection with the issuance of the Option Shares to the undersigned,
the undersigned hereby certifies and represents to the Company that the
undersigned is acquiring such shares for the purpose of investment and not with
a view toward distribution. The undersigned understands that these securities
have not been registered either under any applicable federal law and rules or
applicable state law and rules and that resale will not be permitted under state
law unless the securities are first registered or the sale is a transaction
exempt from registration under the applicable state securities law.
The undersigned further understands that no sale, offer to sell, or
transfer of the Option Shares shall be made unless a registration statement
under the federal Securities Act of 1933, as amended (the "Act"), with respect
to the Option Shares is then in effect or an exemption from the registration
requirements of the Act is then in fact applicable to the Option Shares. The
undersigned understands that a legend reciting this investment restriction shall
be placed on any stock certificate that may be issued to the undersigned.
- ----------------------------------------
Stanley M. Finkelstein, Ph.D. (Optionee)
- ----------------------------------------
- ----------------------------------------
- ----------------------------------------
Address
- ----------------------------------------
Social Security No.
Dated:
----------------------------------
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<PAGE>
CONSULTING AGREEMENT
BETWEEN MELVILLE R. BOIS AND
HYPERTENSION DIAGNOSTICS, INC.
This Agreement is made and entered into effective 1st day of January, 1996,
by and between Melville R. Bois ("Consultant") and Hypertension Diagnostics,
Inc., a Minnesota corporation ("Company") on the terms and conditions set forth
below.
I. DUTIES OF CONSULTANT. Consultant will serve Company as President and Chief
Executive Officer on a part-time basis until the Company, acting through
its Board of Directors, appoints another President and Chief Executive
Officer. Consultant shall serve under the direction of the Board of
Directors of Company, and shall perform such duties as may be directed by
the Board of Directors.
II. COMPENSATION. In full consideration of the covenants contained herein,
Consultant's rendition of services under this Agreement, and subject to the
full performance by Consultant of his obligations hereunder, Company shall
provide and the Consultant shall accept the following:
A. SALARY. Consultant shall be paid at the rate of Four Thousand Dollars
($4,000) per month on a monthly basis (that is, once per month at the
end of the month) in accordance with the normal payroll procedures of
Company as established by the Board of Directors of Company.
B. STOCK OPTIONS. Company shall grant Consultant an option to acquire up
to 12,500 shares of the Company's $.01 par value common stock, as more
fully described in the document entitled "Non-Qualified Stock Option
Agreement between Melville R. Bois and Hypertension Diagnostics,
Inc.," attached hereto as Exhibit A (the "Option Agreement").
C. REIMBURSEMENT OF BUSINESS EXPENSES. Company shall, in accordance
with, and to the extent of, its policies in effect from time to time,
bear all ordinary and necessary business expenses incurred by the
Consultant in performing his duties as an employee of Company,
provided that Consultant accounts promptly for such expenses to
Company in the manner prescribed from time to time by Company.
D. NO WITHHOLDINGS. Due to Consultant's position as an independent
contractor, Company shall make no withholdings, deductions or payments
from sums payable to Consultant under this Agreement.
III. NON-DISCLOSURE OF CONFIDENTIAL INFORMATION. Consultant shall keep
confidential and shall not disclose to anyone or use, either during or
after the term of this Agreement, any confidential information of Company,
except as is required by Consultant's duties, or as authorized in writing
by Company. "Confidential Information" means any
<PAGE>
information or compilation of information which derives independent
economic value from not being generally known to and not being readily
ascertainable by proper means by other persons who can obtain economic
value from it disclosure or use. The term "Confidential Information"
shall not be deemed to include any information which is in or hereafter
enters the public domain through no wrongful act of Consultant.
Examples of Confidential Information not to be disclosed or used except
as permitted by Company, include but are not limited to:
A. Information concerning Company's operations, organizational structure,
methods, technology, procedures, finances, accounting, and legal
matters;
B. Information concerning Company's sales activities and strategies,
marketing activities and strategies, servicing activities and
strategies, and strategic business planning activities;
C. Information concerning Company's past, present, or potential customers
(hereafter referred to as "customers"), including the names, addresses
and telephone numbers of these customers; the identity of the
individuals responsible for buying products and services on behalf of
these customers; the needs and buying tendencies of these customers;
contract negotiations between Company and these customers; the
contents of contracts and agreements between Company and these
customers; financial information concerning these customers' business
operations; credit information regarding these customers; and
identity, quantity, and price of products or services purchased from
Company by these customers;
D. Vendor and supplier information including the names, addresses, and
telephone numbers of Company's vendors and suppliers; information
regarding Company's relationship with its vendors and suppliers;
contract negotiations between Company and its vendors and suppliers;
the contents of contracts and agreements between Company and its
vendors and suppliers; financial information concerning its vendors
and suppliers; and identity, quantity and prices of products purchased
by Company from its vendors and suppliers;
E. Information regarding Company's pricing of its products and services,
including price lists and pricing strategies;
F. Personnel records and data.
IV. BUSINESS RECORDS. Consultant shall not remove any records or documents
from the premises of Company or its clients in either original, duplicate,
or copied form, except as necessary in the ordinary course of conducting
business for Company. Consultant shall immediately deliver to Company,
upon termination of this Agreement with Company, any such records or
documents in Consultant's possession or control.
V. DUTIES. Consultant shall devote his best efforts to Company and to
fulfilling the duties of his position which shall include such duties as
may from time to time be assigned him by the
-2-
<PAGE>
Board of Directors of the Company; provided that such duties are
reasonably consistent with Consultant's education and experience, and not
in conflict with his other business and employment commitments.
VI. TERMINATION OF AGREEMENT.
A. DURATION OF AGREEMENT. Unless properly terminated as provided herein,
this Agreement shall continue in effect for a term of one (1) year,
that is, until December 31, 1996.
B. TERMINATION BY CONSULTANT. Provided that Consultant shall have served
in such capacity for a minimum of six (6) months (including the period
of the notice of termination), Consultant may give written notice of
termination of this Agreement for any reason thirty (30) days prior to
the proposed date of termination, at which time this Agreement shall
terminate.
C. TERMINATION BY COMPANY. Company may give written notice of
termination of this Agreement only for Reasonable Cause thirty (30)
days prior to the proposed date of termination, at which time this
Agreement shall terminate. No waiver by Company of any breach of this
Agreement shall be deemed a waiver of any prior or subsequent breach.
For purposes of this Agreement, "Reasonable Cause" shall mean:
1. Dishonesty, fraud, misrepresentation, diversion of corporate
opportunity, using insider information for personal gain, theft
or embezzlement of Company assets, or material intentional
violations of law;
2. Willful or reckless misconduct by Consultant in the performance
of the duties, functions, obligations or responsibilities
delegated to Consultant; or
3. The hiring of a President and Chief Executive Officer of the
Company; provided that if the Company terminates this Agreement
pursuant to this subsection 3 before Consultant has served for a
minimum of six (6) months, then Consultant shall be entitled to
the compensation and stock options specified hereunder as if this
Agreement had remained in effect for six (6) months.
D. EFFECT OF DISABILITY OR DEATH. This Agreement shall terminate
immediately upon the disability (that is, the physical or mental
condition of Consultant that prohibits Consultant from discharging his
duties) or death of Consultant. Subject to Section 4 of the Option
Agreement, upon the date of disability or death of Consultant, any and
all obligations of Company or its successors and assigns hereunder
shall be terminated, relieved and discharged; PROVIDED HOWEVER,
Consultant or Consultant's estate shall be paid in the aggregate, a
minimum of $24,000 hereunder for the minimum of a six (6) month period
described in Section VI C4 hereof, unless this Agreement is terminated
prior to six (6) months pursuant to Section VI C1, 2 or 3 hereof.
-3-
<PAGE>
E. COOPERATION UPON TERMINATION. Following notice of termination of this
Agreement, Consultant shall fully cooperate with Company in all
matters relating to the winding up of Consultant's pending work on
behalf of Company and the orderly transfer of such pending work to
such other employees as may be designated by Company.
VII. NON-TRANSFERABILITY. This Agreement may not be assigned or transferred by
Company, and shall not be assigned by Consultant to any other person or
entity.
VIII. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the legal representatives, executors, administrators,
successors and assigns of each of the parties to this Agreement.
IX. GOVERNING LAW.
A. The laws of Minnesota shall govern the validity, interpretation and
performance of the respective duties and obligations of this
Agreement.
B. Consultant consents to venue and jurisdiction in the District Court of
Hennepin County, State of Minnesota, and in the United States District
Court for the District of Minnesota, and to service of process under
Minnesota law, in any action commenced by Company to enforce this
Agreement.
X. SEVERABILITY. If any provision of this Agreement is adjudged void, invalid
or unenforceable under law, the remainder of this Agreement shall continue
and remain in full force and effect.
XI. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of the
parties with respect to the subject matter hereof, and may not be amended,
changed, modified, terminated, or waived other than by written instrument
signed by both parties.
XII. SUPREMACY. This Agreement supersedes all prior oral or written agreements
and understandings between Consultant and Company concerning the subject
matter hereof.
XIII. INDEPENDENT CONTRACTOR. The parties acknowledge that Consultant is
acting as an independent contractor, and it is not the intention of
the parties that Consultant be deemed to be an employee of the
Company. Company acknowledges that Consultant is otherwise employed
and that he will fulfill the interim role of President and Chief
Executive Officer on a part-time basis only, without a requirement to
perform such services at particular times, and that he will do so in a
manner that is consistent with his current employment and other
business commitments.
-4-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year below written:
CONSULTANT HYPERTENSION DIAGNOSTICS, INC.
/s/ Melville R. Bois By /s/ Charles F. Chesney
- ----------------------------- ----------------------------------
Melville R. Bois Its President/CEO
-------------------------------
Dated: December 7, 1995 Dated: December 7, 1995
---------------------- ---------------------------
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<PAGE>
NON-QUALIFIED STOCK OPTION AGREEMENT
BETWEEN MELVILLE R. BOIS AND
HYPERTENSION DIAGNOSTICS, INC.
THIS AGREEMENT is made and entered into as of January 1, 1996, between
Hypertension Diagnostics, Inc., a Minnesota corporation ("Company"), and
Melville R. Bois ("Optionee") on the terms and conditions set forth below.
WHEREAS, the Board of Directors of the Company has decided to permit
Non-Qualified Stock Options to be granted to certain individuals providing
valuable services to the Company and any subsidiary corporations of the Company
to purchase voting common stock of the Company; and
WHEREAS, the Company desires the Optionee to secure stock ownership in the
Company in order to increase effectiveness and personal interest in the Company;
NOW THEREFORE, in consideration of the promises and of the covenants and
agreements set forth below, it is mutually agreed as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee an option to
purchase from the Company all or any part of an aggregate amount of
12,500 shares of the voting common stock of the Company, par value
$.01 per share ("Option Shares"), at an option price of $2.00 per
share. The date of this Agreement is the date of the grant.
2. EXERCISE PERIOD. The Option shall become exercisable with respect to
the Option Shares in monthly installments. The following table sets
forth the initial dates of exercisability of each installment and the
number of Option Shares as to which this Option shall become
exercisable on such dates, provided the Option Shares described below
available for exercise shall become so exercisable only if the
"Consulting Agreement Between Melville R. Bois and Hypertension
Diagnostics, Inc." ("Consulting Agreement"), of which this Agreement
is an Exhibit, has not been terminated by Optionee or Company prior to
the respective initial date of exercisability set forth below:
INITIAL DATE NUMBER OF OPTION SHARES
OF EXERCISABILITY AVAILABLE FOR EXERCISE
January 31, 1996 1,250
February 29, 1996 1,250
March 31, 1996 1,250
April 30, 1996 1,250
May 31, 1996 1,250
June 30, 1996 1,250
July 31, 1996 1,250
August 31, 1996 1,250
September 30, 1996 1,250
October 31, 1996 1,250
EXHIBIT A
<PAGE>
The foregoing rights to exercise this Option shall be cumulative with
respect to the Option Shares becoming exercisable on each such date
but in no event shall this Option be exercisable after, and this
Option shall become void and expire as to all unexercised Option
Shares, at 5:00 p.m. (Minneapolis, Minnesota time) on December 31,
2006.
3. EXERCISE OF OPTION. This option may be exercised only by written
notice of intent to the Company at its office at Five Acorn Drive,
South St. Paul, MN 55077-1420. Such notice shall state the number of
shares in respect of which the option is being exercised and shall be
accompanied by payment for such shares in cash, certified or cashier's
check or by personal check, if acceptable to the Board of Directors of
Company. The exercise of the Option shall be deemed effective upon
receipt of such notice and payment. As soon as practicable after the
effective exercise of the Option, the Company shall record on the
stock transfer books of the Company the ownership of the shares
purchased in the name of the Optionee, and the Company shall deliver
to the Optionee one or more duly issued stock certificates evidencing
such ownership.
4. EXERCISE UPON DEATH. Notwithstanding Section 2 hereof, if Optionee
shall die, this option may be exercised with respect to all Option
Shares available for exercise by Optionee at the date of Optionee's
death by the person or persons to whom Optionee's rights under this
option pass by will or applicable law, or if no such person has such
right, by his executors or administrators.
5. CHANGE IN CONTROL.
a. DEFINITION. For purposes of this Agreement, the term "Change in
Control" shall mean any transaction or occurrence of events in
which (i) Company merges or consolidates with any other
corporation and is not the surviving corporation after such
merger or consolidation; (ii) Company transfers all or
substantially all of its business and assets to any other person,
individual, corporation, partnership, group, or association; or
(iii) more than 50% of Company's outstanding voting shares are
purchased by any other person, individual, corporation,
partnership, group or association.
b. ACCELERATION. If any events constituting a Change in Control of
the Company shall occur, Optionee shall be entitled to receive
option rights covering shares of the surviving or acquiring
entity in the same proportion, at an equivalent price, and
subject to the same conditions as this Option; provided, however,
that Optionee may, at his sole discretion, accelerate the right
to exercise this Option thirty (30) days prior to the anticipated
effective date of any of the foregoing transactions.
-2-
<PAGE>
6. DILUTION OR OTHER ADJUSTMENTS. If there shall be any change in the
shares of voting common stock of the Company through merger,
consolidation, reorganization, recapitalization, dividend in the form
of stock (of whatever amount), stock split or other change in the
corporate structure, appropriate adjustments in the outstanding
options shall be made by the Company. In the event of any such
changes, adjustments shall include, where appropriate, changes in the
aggregate number of shares subject and the price per share subject to
outstanding and future options in order to prevent dilution or
enlargement of option rights.
7. NO RIGHT TO CONTINUED COMPENSATION. Nothing contained in this
Agreement shall obligate the Company or any subsidiary corporation of
the Company to continue to accept and pay for the services of Optionee
as a consultant, employee or independent contractor for any particular
period or interfere with the right of the Company or any such
subsidiary to terminate any contract or employment relationship with
Optionee.
8. NO SHAREHOLDER RIGHTS. Optionee shall have no rights as a stockholder
with respect to any shares of common stock subject to this option
prior to the date of issuance of a certificate or certificates for
such shares.
9. INVESTMENT REPRESENTATION. Notice of the exercise of this option
shall include a representation that any of the Option Shares purchased
shall be acquired as an investment and not with a view to, or for sale
in connection with, any public distribution.
10. COMPLIANCE WITH LAW AND REGULATIONS. The Optionee acknowledges that
this option may not be exercised until the Company has taken all
actions then required to comply with all applicable federal and state
laws, rules and regulations and any exchange on which the stock may
then be listed. The certificates representing the shares purchased
upon the exercise of this option shall bear a legend in substantially
the following form:
These shares have not been registered either under any applicable
federal law and rules and resale will not be permitted under state law
unless the shares are first registered under the Minnesota Securities
Law. Further, no sale, offer to sell, or transfer of these shares
shall be made unless a registration statement under the federal
Securities Act of 1933, as amended, with respect to such shares is
then in effect or an exemption from the registration requirements of
such Act is then in fact applicable to such shares.
11. NON-TRANSFERABILITY. Subject to Section 4 hereof, this option shall
not be transferable other than by will or by laws of descent and
distribution. During the lifetime of the Optionee, this option shall
be exercisable only by such Optionee.
-3-
<PAGE>
12. DISPUTE OR DISAGREEMENT. As a condition of the granting of this
option, the Optionee agrees that any dispute or disagreement which may
arise under or as a result of or pursuant to this Agreement shall be
determined by the Board of Directors in its sole discretion, and that
any interpretation by the Board of Directors of the terms of this
Agreement shall be final, binding and conclusive.
13. OTHER ASSISTANCE. Upon the exercise of this option the Optionee or
other person exercising the option must execute any document or make
any representation or give any commitment which the Board of
Directors, in its discretion, deems necessary or advisable by reason
of the securities laws of the United States or any state, and execute
any document for the purpose of restricting the transfer of stock to
third parties, or pay any sum of money in respect of taxes or
undertake to pay or have paid any such sum which the Board of
Directors, in its discretion, deems necessary by reason of the Code or
any rule or regulation thereunder, or by reason of the tax laws of any
state or any contracts or agreements in effect at such time.
14. BINDING AGREEMENT. This Agreement shall be binding upon and inure to
the benefit of the legal representatives, executors, administrators,
successors and assigns of each of the parties to this Agreement.
15. GOVERNING LAW.
A. The laws of Minnesota shall govern the validity, interpretation
and performance of the respective duties and obligations of this
Agreement.
B. Optionee consents to venue and jurisdiction in the District Court
of Hennepin County, State of Minnesota, and in the United States
District Court for the District of Minnesota, and to service of
process under Minnesota law, in any action commenced by Company
to enforce this Agreement.
16. SEVERABILITY. If any provision of this Agreement is adjudged void,
invalid or unenforceable under law, the remainder of this Agreement
shall continue and remain in full force and effect.
17. ENTIRE AGREEMENT. This Agreement constitutes the entire agreement of
the parties with respect to the subject matter hereof, and may not be
amended, changed, modified, terminated, or waived other than by
written instrument signed by both parties.
18. SUPREMACY. This Agreement supersedes all prior oral or written
agreements and understandings between Optionee and Company concerning
the subject matter hereof, including any implied or express
representations regarding Optionee's ownership of any interest in
Company or its property, and any prior oral or written agreements
conveying stock option rights to Optionee.
-4-
<PAGE>
19. REGISTRATION RIGHTS. If, at any time prior to December 31, 2006, the
Company shall propose to file any Registration Statement (other than
any registration on Form S-4, or any other similarly inappropriate
form or Registration Statement with respect to any initial public
offering in which there are no selling shareholders) under the
Securities Act of 1933, as amended, covering a public offering of the
Company's Common Stock, it will notify Optionee at least forty-five
(45) days prior to each such filing and will include in the
Registration Statement (to the extent permitted by applicable
regulation) the Common Stock purchased by Optionee or purchasable by
Optionee upon the exercise of the Option to the extent requested by
Optionee. Notwithstanding the foregoing, the number of shares of the
holder of this Option proposed to be registered thereby shall be
reduced pro rata with any other selling shareholder (other than the
Company) upon the request of the managing underwriter of such
offering. If the Registration Statement or Offering Statement filed
pursuant to such forty-five (45) day notice has not become effective
within six months following the date such notice is given to Optionee,
the Company must again notify Optionee in the manner provided above.
IN WITNESS WHEREOF, the parties have executed this Agreement on the day and
year below written:
OPTIONEE HYPERTENSION DIAGNOSTICS, INC.
- ----------------------------- By____________________________
Melville R. Bois Its___________________________
Dated:_______________________ Dated:________________________
-5-
<PAGE>
NOTICE OF EXERCISE OF NON-QUALIFIED STOCK OPTIONS
Hypertension Diagnostics, Inc.
Five Acorn Drive
South St. Paul, MN 55077-1420
Gentlemen:
The undersigned is the holder of a non-qualified stock option (the
"Option") to purchase shares of voting common stock ("Stock") of Hypertension
Diagnostics, Inc. (the "Company"), pursuant to the Non-Qualified Stock Option
Agreement between Melville R. Bois and Hypertension Diagnostics, Inc. dated
January 1, 1996. The undersigned hereby irrevocably elects to exercise the
Option to purchase ___________ shares of Stock ("Option Shares"). Enclosed
herewith is payment for the Option Shares as required under the Agreement. The
undersigned requests that the certificate representing the Option Shares be
issued in the name of the undersigned and delivered to the address set forth
below.
In connection with the issuance of the Option Shares to the undersigned,
the undersigned hereby certifies and represents to the Company that the
undersigned is acquiring such shares for the purpose of investment and not with
a view toward distribution. The undersigned understands that these securities
have not been registered either under any applicable federal law and rules or
applicable state law and rules and that resale will not be permitted under state
law unless the securities are first registered or the sale is a transaction
exempt from registration under the applicable state securities law.
The undersigned further understands that no sale, offer to sell, or
transfer of the Option Shares shall be made unless a registration statement
under the federal Securities Act of 1933, as amended (the "Act"), with respect
to the Option Shares is then in effect or an exemption from the registration
requirements of the Act is then in fact applicable to the Option Shares. The
undersigned understands that a legend reciting this investment restriction shall
be placed on any stock certificate that may be issued to the undersigned.
- ---------------------------------
Melville R. Bois (Optionee)
- ---------------------------------
- ---------------------------------
- ---------------------------------
Address
- ---------------------------------
Social Security No.
Dated:---------------------------
-6-
<PAGE>
THE WATERS
LEASE OF SPACE
THIS LEASE, made as of the 24th day of October , 1997, by and between
Thomas S. Schreier ("Landlord"), and HYPERTENSION DIAGNOSTICS, INC., (A
MINNESOTA CORPORATION) ("Tenant").
1. GENERAL
1.1 CONSIDERATION. Landlord enters into this Lease in
consideration of the payment by Tenant of the rents herein reserved and the
keeping, observance and performance by Tenant of the covenants and agreements of
Tenant herein contained.
1.2 EXHIBITS AND ADDENDA TO LEASE. The Exhibits and Rider to
Lease listed below shall be attached to this Lease and be deemed incorporated in
this Lease by this reference. In the event of any inconsistency between such
Exhibits and Rider to Lease and the terms and provisions of this Lease, the
terms and provisions of the Exhibits and Rider to Lease shall control. The
Exhibits and Rider to Lease to this Lease are:
Rider to Lease Additional Lease Terms
Exhibit "A" Basic Lease Information
Exhibit "B" Site Plan of Property
Exhibit "C" Site Plan of Park
Exhibit "D" Environmental Rider
2. DEMISE OF PREMISES
2.1 DEMISE. Subject to the provisions, covenants and agreements
herein contained, Landlord hereby leases and demises to Tenant, and Tenant
hereby leases from Landlord, the Demised Premises as hereinafter defined,
together with a nonexclusive right to use the Parking Area and the Common
Facilities, as hereinafter defined, for the Lease Term as hereinafter defined,
subject to existing covenants, conditions, restrictions, easements and
encumbrances and rules and regulations, if any, affecting the same.
2.2 DEMISED PREMISES. The "Demised Premises" shall mean the
space to be occupied by Tenant as indicated by cross-hatching on the Site Plan
attached as Exhibit "B" hereto. The Demised Premises are within the Building(s)
located on the Land, as the terms "Building(s)" and "Land" are hereinafter
defined.
2.3 SQUARE FOOTAGE AND ADDRESS. The Demised Premises contain
approximately the number of square feet set forth in Exhibit "A" attached
hereto. The address of the Demised Premises is, or is expected to be, the
address set forth in Exhibit "A".
<PAGE>
2.4 LAND. "Land" shall mean the parcel of real property more
particularly described in Exhibit "A" attached hereto.
2.5 BUILDING(S). "Building(s)" shall mean all buildings
constricted or to be constructed on the Land.
2.6 IMPROVEMENTS. "Improvements" shall mean the Building(s),
constructed on the Land, the Parking Area as hereinafter defined, and all other
fixtures and improvements on the land, including landscaping thereon.
2.7 PROPERTY. "Property" shall mean the Land, the Buildings(s)
and other Improvements and any fixtures and personal property used in operation
and maintenance of the Land, Building(s) and other Improvements other than
fixtures and personal property of Tenant and other tenants of space in the
Building(s).
2.8 COMMON FACILITIES. "Common Facilities" shall mean all of
the Property except the Demised Premises and other premises in the Property
leased or held for lease to tenants. Common Facilities shall include the
Parking Area and any walks, driveways, lobby areas, halls, stairs and rest rooms
designed for nonexclusive use of Tenant and other tenants of space in the
Buildings(s) and their employees, agents and invitees, and Landlord.
2.9 PARKING AREA. "Parking Area" shall mean the portion of the
Land which is or is to be paved and otherwise improved for the parking of motor
vehicles. The Parking Area is intended to be shared Tenant and other tenants of
space in the Buildings(s).
2.10 PARK. The Property is located in and is part of Landlord's
development commonly known as The Waters (the "Park"). A site plan of the Park
is attached hereto as Exhibit "C".
2.11 USE OF COMMON FACILITIES. Tenant is hereby granted the
nonexclusive right to use, in common with other tenants of space in the
Building(s), their employees, agents and invitees, so much of the Common
Facilities as may be necessary for the convenient use and enjoyment of the
Demised Premises.
2.12 COVENANT AND QUIET ENJOYMENT. Landlord covenants and agrees
that, provided Tenant is not in default and keeps, observes and performs the
covenants and agreements of Tenant contained in this Lease, Landlord shall take
no action to disturb Tenant's quiet and peaceable possession of the Demised
Premises during the term hereof.
2.13 CONDITION OF DEMISED PREMISES. Tenant covenants and agrees
that, upon taking possession of the Demised Premises, Tenant shall be deemed to
have accepted the Demised Premises "as is" and Tenant shall be deemed to have
waived any warranty of condition or habitability, suitability for occupancy, use
or habitation, fitness for a particular purpose or merchantability, express or
implied, relating to the Demised Premises. Tenant acknowledges, represents and
agrees that Tenant has made its
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own inspection and investigation of the Demised Premises, the Building(s) and
the Property, the suitability of the Demised Premises for Tenant's intended
use thereof and all zoning and regulatory matters pertinent thereto.
3. TERM OF LEASE
3.1 LEASE TERM. "Lease Term" shall mean the period commencing
on the commencement date specified in Exhibit "A" attached hereto ("Commencement
Date") and expiring on the Expiration Date specified in Exhibit "A" attached
hereto provided, however, that if construction of the Demised Premises has not
been substantially completed as of the date hereof, the provisions of any
Addendum hereto with respect to contraction and completion of the Demised
Premises shall govern with respect to commencement and expiration of the Lease
Term.
4. RENT AND OTHER AMOUNTS PAYABLE
4.1 BASE RENT. Tenant covenants and agrees to pay to Landlord,
when due, without offset, deduction or abatement and without prior notice or
demand, base rent for the full Lease Term in the amount specified as base rent
in Exhibit "A" attached hereto ("Base Rent").
4.2 MONTHLY RENT. Base Rent shall be payable monthly in
advance, without notice, in equal installments in the Monthly Rent Amount of
Base Rent specified in Exhibit "A" ("Monthly Rent") on the first (1st) day of
each calendar month through the Lease Term beginning with the Commencement Date.
If the Commencement Date is other than the 1st (1st) day of a calendar month,
the Monthly Rent for such fractional month shall be a pro rata amount (based
upon a 30-day month) of the full Monthly Rent and shall be paid on the
Commencement Date. Concurrently with the execution of this Lease, Tenant shall
pay to Landlord the Monthly Rent for the first fall month of the Lease Term.
4.3 PLACE AND MANNER OF PAYMENTS. Base Rent and all other sums
payable by Tenant to Landlord under this Lease shall be paid to Landlord at the
place for payments specified in Exhibit "A", or such other place as Landlord
may, from time to time, designate in writing. Payment shall be made in lawful
money of the United States of America.
4.4 LEASE A NET LEASE AND RENT ABSOLUTE. It is the intent of
the parties that the Base Rent provided in this Lease shall be a net payment to
Landlord; that the Lease shall continue, and rents shall be due and payable for
the full Lease Term, notwithstanding any occurrence preventing or restricting
use and occupancy of the Demised Premises, including any damage or destruction
affecting the Demised Premises, and any action by any governmental authority
relating to or affecting the Demised Premises, except as otherwise specifically
provided in this Lease; that the Base Rent shall be absolutely payable without
offset, reduction or abatement for any cause except as may be otherwise
specifically provided in this Lease; that Landlord shall not bear any costs or
expenses relating to the demised Premises or provide any services or do any act
in connection with the Demised Premises except as otherwise specifically
provided in this Lease; and that Tenant shall pay, in addition to Base Rent,
Additional Rent as provided in this Lease.
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4.5 ADDITIONAL RENT. Tenant covenants and agrees to pay, as
Additional Rent, all costs and expenses relating to the Demised Premises, to pay
Tenant's Pro Rata Share of all costs and expenses relating to the Common
Facilities to pay Tenant's Pro Rata Share of certain costs and expenses relating
to the Property and the Park, all as hereinafter provided, and to pay all other
amounts payable by Tenant under the terms of this Lease ("Additional Rent").
Costs and expenses payable by Tenant as Additional Rent shall include (a) taxes
and assessments; (b) insurance costs; (c) utility charges; (d) operating
expenses; (e) maintenance and repair expenses; and (f) other costs and expenses
relating to the Demised Premises, the Common Facilities, the Property and the
Park during or attributable to the Lease Term, all as hereinafter provided in
this Lease.
4.6 TENANT'S PRO RATA SHARE. "Tenant's Pro Rata Share" shall
mean the percentage derived by dividing the approximate square footage of the
Demised Premises, as set forth in Exhibit "A", by the approximate square footage
within the Building(s). Tenant's Pro Rata share on the date this Lease is
executed is set forth in Exhibit "A". Such percentage shall be appropriately
adjusted in the event of construction of additional Building(s) on the Land.
4.7 MONTHLY DEPOSITS. Tenant covenants and agrees to pay to
Landlord, monthly in advance, without notice, on each day that payment of
Monthly Rental is due, amounts ("Monthly Deposits"), as hereinafter specified,
for payment of Taxes and Assessments, as hereinafter defined, insurance
premiums, operating expenses, maintenance and repair expenses and other costs
and expenses relating to the Property and the Park payable by Tenant pursuant to
the terms of this Lease; and, if the Monthly Deposits are insufficient to pay
Tenant's Pro Rata Share of the actual Taxes and Assessments, insurance premiums,
operating expenses, maintenance and repair expenses and other costs and expenses
relating to the property and the Park, to pay to Landlord, within ten (10) days
after demand by Landlord, such amounts as are necessary to provide Landlord with
sufficient funds to pay Tenant's Pro Rata Share of the same. The Monthly
Deposits shall each be equal to Tenant's Pro Rata Share of 1/12 of the amounts,
as reasonably estimated by Landlord, of the annual Taxes and Assessments,
insurance premiums, operating expenses, maintenance and repair expenses and
other costs and expenses payable with respect to the Property and the Park. To
the extent the Monthly Deposits exceed Tenant's Pro Rata Share of the Actual
Taxes and Assessments, insurance premiums, operating expenses, maintenance and
repair expenses and other costs and expenses relating to the Property and the
Park, the excess amount shall, at Landlord's option, except AS MAY BE OTHERWISE
PROVIDED BY LAW, EITHER BE PAID TO TENANT OR CREDITED AGAINST THE NEXT
SUCCEEDING AMOUNTS PAYABLE BY TENANT UNDER THIS LEASE FOR MONTHLY DEPOSITS, BASE
RENT, ADDITIONAL RENT OR OTHER AMOUNTS. The amounts of Taxes and Assessments,
insurance premiums, operating expenses, maintenance and repair expenses and
other costs and expenses relating to the Property and the Park payable by Tenant
for the years in which the Lease Term commences and expires shall be subject to
the provisions hereinafter contained in this Lease for proration of such amounts
in such years. Prior to the dates on which payment is due for Taxes and
Assessments and insurance premiums, Landlord shall make payment of such Taxes
and Assessments and insurance premiums to the extent of funds from Monthly
Deposits available therefor and, upon request by Tenant', shall finish Tenant
with a copy of any receipt for such payments. Except for Landlord's obligation
to make payments out of funds available from Monthly Deposits, the making of
Monthly Deposits by Tenant shall not limit or alter Tenant's obligation to pay
Taxes and Assessments, to maintain insurance, to pay operating
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expenses and other costs and expenses relating to the Property and the Park
and to maintain and repair the Demised Premises as elsewhere provided in this
Lease.
4.8 INTENTIONALLY DELETED.
4.9 SECURITY DEPOSIT. At or prior to the Commencement Date,
Tenant shall deposit with Landlord the amount specified as a security deposit in
Exhibit "A" attached hereto ("Security Deposit"). The Security deposit shall be
retained by Landlord and may be applied by Landlord, to the extent necessary, to
pay and cover payment of rent or any other sum in default, any loss, cost,
damage or expense, including attorney's fees, sustained by Landlord by reason of
the failure of Tenant to comply with any provision, covenant, or agreement of
Tenant contained in this Lease. To the extent not necessary to cover such
delinquent payment, loss, cost, damage or expense, the Security Deposit shall be
returned to Tenant within sixty (60) days after expiration of the Lease Term or
as may be otherwise provided by law. The Security Deposit shall not be
considered as an advance payment of rent or as a measure of the loss, cost,
damage or expense which is or may be sustained by Landlord. In the event all or
any portion of the Security Deposit is applied by Landlord to pay any such
delinquent payment, loss, cost, damage or expense, Tenant shall, from time to
time, within five (5) days following demand, deposit with Landlord such amounts
as may be necessary to replenish the Security Deposit to its original amount.
Landlord's rights with respect to the Security Deposit shall be in addition to
and shall not preclude concurrent, alternative or successive exercise of any
other rights or remedies available to Landlord.
4.10 GENERAL PROVISIONS AS TO MONTHLY DEPOSITS AND SECURITY
DEPOSIT. Landlord shall be free to commingle the Monthly deposits and Security
Deposit with Landlord's own funds and Landlord shall not be obligated to pay
interest to Tenant on account of the Monthly Deposits or Security Deposit. In
the event of a transfer by Tenant of Tenant's interest in the Demised Premises,
Landlord shall be entitled to return the Monthly Deposits and Security Deposit
to Tenant's successor in interest, and Landlord shall thereupon be discharged
from any further liability with respect to the Monthly Deposits and Security
Deposit.
5. TAXES AND ASSESSMENTS
5.1 COVENANT TO PAY TAXES AND ASSESSMENTS. Tenant covenants and
agrees to pay, as Additional Rent, Tenant's Pro Rata Share of Taxes and
Assessments which are billed during any calendar year falling partly or wholly
within the Lease Term. "Taxes and Assessments" shall mean all taxes (other than
Landlord's income taxes), assessments and other impositions, general or special,
ordinary or extraordinary, of every kind or nature, which may be levied,
assessed or imposed upon or with respect to the Property or any part thereof, or
upon any building, improvements or personal property at any time situated
thereon.
5.2 PRORATION AT COMMENCEMENT AND EXPIRATION OF TERM. Taxes and
Assessments shall be prorated between Landlord and Tenant for the year in which
the Lease Term commences and for the year in which the Lease Term expires as of,
respectively, the Commencement Date and the date of expiration of the Lease
Term, except as hereinafter provided. Tenant shall be liable without proration
for the full
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amount of Taxes and Assessments relating to improvements, fixtures, equipment
or personal property installed by or on behalf of Tenant which are levied,
assessed, or attributable to the Lease Term. Proration of Taxes and
Assessments shall be made on the basis of actual Taxes and Assessments billed
during the calendar years of the Lease Term. Tenant's Pro Rata Share of
Taxes and Assessments for the years in which the Lease Term commences and
expires shall be paid and deposited with the Landlord through monthly
Deposits as hereinafter provided, but, in the event actual Taxes and
Assessments for either year are greater or less than as estimated for
purposes of Monthly Deposits, appropriate adjustment and payment shall be
made between the parties at the time the actual Taxes and assessments are
known, as may be necessary to accomplish proration, as herein provided.
5.3 SPECIAL ASSESSMENTS. In the event any Taxes or Assessments
are payable in installments over a period of years, Tenant shall be responsible
only for installments billed during the calendar years within the Lease Tenn
with proration, as above provided, of any installment payable prior to or after
expiration of the Lease Term.
5.4 ADDITIONAL TAXES. Tenant's obligation to pay Tenant's Pro
Rata Share of Taxes and Assessments shall include any Taxes and Assessments
presently in effect and any which may hereafter be levied, assessed or imposed
by any governmental authority upon Landlord or upon the Property if such Taxes
or Assessments shall be based upon or arise out of the ownership, use or
operation of, or the rents received from, the Property, other than income taxes
of Landlord.
5.5 LANDLORD'S SOLE RIGHT TO CONTEST TAXES. Landlord shall have
the sole right to contest any Taxes or Assessments. Tenant shall pay Tenant's
Pro Rata Share of all costs and expenses incurred by Landlord, including
attorneys' fees, in connection with any such contest, but Landlord shall pay to
or credit Tenant with Tenant's Pro Rata Share of any net abatement, reduction or
recovery of any Taxes and Assessments attributable to the Lease Term.
6. INSURANCE
6.1 CASUALTY INSURANCE. Landlord covenants and agrees to obtain
and keep in full force and effect during the Lease Term Casualty Insurance as
hereinafter defined. "Casualty Insurance" shall mean fire and extended coverage
insurance with respect to the Property, in an amount equal to the full
replacement cost of all Improvements, with coinsurance clauses of no less than
80%, and with coverage, at Landlord's option, by endorsement or otherwise, for
all risks, vandalism and malicious mischief, sprinkler leakage, boilers, and
rental loss, and with a deductible in an amount for each occurrence as Landlord,
in its sole discretion, may determine from time to time. Casualty Insurance
obtained by Landlord need not name Tenant as an insured party and may, at
Landlord's option, name any mortgagee or holder of a deed of trust as an insured
party as its interest may appear. Tenant covenants and agrees to pay its Pro
Rata Share of the cost of Casualty Insurance obtained by Landlord as Additional
Rent, payable pursuant to the provisions hereinabove for Monthly Deposits.
TENANT SHALL BE RESPONSIBLE FOR OBTAINING, AT TENANT'S OPTION, COST AND EXPENSE,
INSURANCE COVERAGE FOR THE PROPERTY OF TENANT LOCATED WITHIN THE DEMISED
PREMISES AND FOR BUSINESS INTERRUPTION OF TENANT. LANDLORD AND TENANT HEREBY
GRANT TO EACH OTHER ON THEIR OWN BEHALF AND ON BEHALF OF ANY INSURER PROVIDING
FIRE
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AND EXTENDED COVERAGE TO EITHER OF THEM COVERING THE IMPROVEMENTS, THE
DEMISED PREMISES, OR CONTENTS THEREOF, A WAIVER OF ANY CLAIM OF EITHER
AGAINST THE OTHER AND A WAIVER OF ANY RIGHT OF SUBROGATION WHICH ANY SUCH
INSURER OF ONE PARTY MAY ACQUIRE AGAINST THE OTHER BY VIRTUE OF A CASUALTY
COVERED BY SUCH INSURANCE OR BY VIRTUE OF PAYMENT OF LOSS UNDER ANY SUCH
INSURANCE. NEITHER PARTY, NOR ANYONE CLAIMING UNDER THEM BY WAY OF
SUBROGATION OR OTHERWISE, SHALL HAVE ANY INTEREST IN THE PROCEEDS OF
INSURANCE RECEIVED BY THE OTHER PARTY.
6.2 LIABILITY INSURANCE. Tenant covenants and agrees to obtain
and keep in full force and effect during the Lease Term, and to pay the premiums
and costs of, Liability Insurance as hereinafter defined. "Liability Insurance"
shall mean comprehensive general liability insurance covering public liability
with respect to the ownership, use and operation of the Demised Premises, with
limits of not less than $1,000,000 combined single limit of liability, which
coverage shall be primary with respect to Landlord, and with endorsements for
assumed contractual liability with respect to the liabilities assumed by Tenant
under Section 8.24 of this Lease, and with no deductible, retention or self-
insurance provision contained therein, unless otherwise approved in writing by
Landlord. Landlord covenants and agrees to obtain and keep in full force and
effect during the Lease Term liability insurance covering public liability with
respect to the ownership, use and operation of the Property including common
Facilities but excluding the Demised Premises and other premises leased to other
tenants, with limits of not less than $1,000,000 single limit of liability.
Tenant also covenants and agrees to pay Tenant's Pro Rata Share of the premiums
and costs of such liability insurance as Additional Rent, payable pursuant to
the provisions hereinabove for Monthly Deposits. Any comprehensive general
liability insurance carried by Landlord shall apply in excess of the primary
coverage required herein to be carried by Tenant.
6.3 GENERAL PROVISIONS RESPECTING INSURANCE. Except as
otherwise approved in writing by Landlord, all insurance obtained by Tenant
shall be on forms and with insurers licensed in the State of Minnesota and
selected or approved by Landlord, which approval shall not be unreasonably
withheld; shall name Landlord and the holder of any mortgage or deed or trust
encumbering the Property as insured parties, as their interests may appear; and
shall provide, by certificate of insurance or otherwise, that the insurance
coverage shall not be canceled or altered except upon 30 days prior written
notice to Landlord and the holder of any such mortgage or deed of trust.
Certificates of insurance obtained by Tenant shall be delivered to Landlord
prior to the commencement Date, and Landlord may deposit the same with the
holder of any such mortgage or deed of trust.
6.4 COOPERATION IN THE EVENT OF LOSS. Landlord and Tenant shall
cooperate with each other in the collection of any insurance proceeds which may
be payable in the event of any loss, including the execution and delivery of any
proof of loss or other actions required to effect recovery.
7. UTILITY, OPERATING, MAINTENANCE AND REPAIR SERVICE
7.1 UTILITY CHARGES. Tenant covenants and agrees to pay prior
to any delinquency all charges for water, sewage disposal, gas, electricity,
light, heat, power, telephone and other utility services used, rendered or
supplied to or for the Demised Premises and to contract for the same in
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Tenant's own name and to pay to Landlord within ten (10) days after each
billing or demand by Landlord, Tenant's Pro Rata share of any such charges
relating to Common Facilities. Tenant should not pay for any other utilities
that are not its own or related to the Common Facilities. Landlord shall not
be responsible for, and Tenant shall not be entitled to terminate this Lease
or to any abatement in rent due to, any interruption in utilities or other
services resulting from any cause whatsoever other than Landlord's own gross
negligence or willful misconduct.
7.2 OPERATING EXPENSES. Tenant covenants and agrees to pay all
costs and expenses of operations on or relating to the Demised Premises,
including costs and expenses for utilities, property management fees, (IN AN
AMOUNT NOT TO EXCEED MANAGEMENT FEES PAID FOR SIMILAR PROPERTIES IN THE AREA),
trash and garbage disposal, janitorial and cleaning services, gardening and
landscaping services, security services, pest control, removal of snow and ice
from parking areas, sidewalks and driveways serving the Demised Premises,
painting, replacement of damaged or broken glass and other breakable materials
in or serving the Demised Premises and replacement of lights and light fixtures
in or serving the Demised Premises and to contract for the same in Tenant's own
name; and to pay to Landlord, as Additional Rent payable pursuant to the
provisions hereinabove for Monthly Deposits, Tenant's Pro Rata Share of any such
costs and expenses incurred by Landlord relating to Common Facilities or which
are not separately allocated to premises in the Building(s) leased or held for
lease by Tenants.
7.3 MAINTENANCE AND REPAIR EXPENSES. Tenant covenants and
agrees to maintain, repair, replace and keep the Demised Premises and all
improvements fixtures and personal property thereon in good, safe and sanitary
condition, order and repair and in accordance with all applicable laws,
ordinances, orders, rules and regulations or governmental authorities having
jurisdiction, to pay all costs and expenses in connection therewith, and to
contract for the same in Tenant's own name; and to pay to Landlord, as
Additional Rent payable pursuant to the provisions hereinabove for Monthly
Deposits, Tenant's Pro Rata Share of any such costs and expenses incurred by
Landlord relating to Common Facilities or which are not separately allocated to
Premises in the Building(s) leased or held for lease to tenants. Such costs and
expenses as to Common Facilities may include the costs and expenses of
maintenance and upkeep of grass, trees, shrubs and landscaping, including
replanting where necessary; keeping parking areas, landscaped areas, sidewalks
and driveways free from litter, dirt, debris and obstructions, maintenance,
repair and replacement of roofs and Parking Area; and ordinary and necessary
maintenance and repair of the Property and Improvements. All maintenance and
repairs by Tenant shall be done promptly, in a good and workmanlike fashion, and
without diminishing the original quality of the Demised Premises or the
Property. Landlord shall be responsible for and shall bear the costs and
expenses of replacement of, or extraordinary maintenance and repairs to,
exterior walls and structural elements of the Building(s) and other
Improvements, unless such is caused by the act or neglect of Tenant, in which
case Tenant shall be responsible for and shall bear the costs and expenses of
same. TENANT IS RESPONSIBLE FOR ALL REPAIR AND REPLACEMENT IF NECESSARY OF THE
HVAC SYSTEM. IN THE EVENT THE CUMULATIVE COST OF SUCH REPAIR OR REPLACEMENT
COST EXCEEDS $2,000.00 DURING THE INITIAL LEASE TERM, LANDLORD WILL PAY THE COST
IN EXCESS OF $2,000.00. TENANT SHALL GET APPROVAL FROM LANDLORD PRIOR TO
INCURRING ANY SUCH EXPENSE.
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8. OTHER COVENANTS OF TENANT
8.1 LIMITATION ON USE BY TENANT. Tenant covenants and agrees
to use the Demised Premises only for the use or uses set forth as Permitted
Uses by Tenant on Exhibit "A" attached and for no other purpose.
8.2 COMPLIANCE WITH LAW. Tenant covenants and agrees that
nothing shall be done or kept on the Demised Premises in violation of any
law, ordinance, order, rule or regulation of any governmental authority
having jurisdiction and that the Demised Premises shall be used, kept and
maintained in compliance with any such law, ordinance, order, rule or
regulation and with the certificate of occupancy issued for the Building(s)
and the Demised Premises.
8.3 COMPLIANCE WITH INSURANCE REQUIREMENTS. Tenant covenants
and agrees that nothing shall be done or kept on the Demised Premises which
might impair the insurance maintained with respect to the Demised Premises or
the Property, which might increase the insured risks or which might result in
cancellation of any such insurance. Tenant shall comply with all
requirements pertaining to the use of the Demised Premises necessary for
maintenance of such insurance. If an increase many premiums for any
insurance maintained by Landlord is caused by Tenant's use of the Demised
Premises, then Tenant shall pay to Landlord on demand as additional rent the
amount of such increase.
8.4 NO WASTE OR IMPAIRMENT OF VALUE. Tenant covenants and
agrees that nothing shall be done or kept on the Demised Premises or the
Property which might impair the value of the Demised Premises or the
Property, or which would constitute waste.
8.5 NO HAZARDOUS USE. Tenant covenants and agrees that
nothing shall be done or kept on the Demised Premises or the Property and
that no improvements, changes, alterations, additions, maintenance or repairs
shall be made to the Demised Premises which might be unsafe or hazardous to
any person or property. Tenant shall not dispose, dump, discharge or release
any toxic wastes or toxic materials of any kind in or about the Demised
Premises or the Park.
8.6 NO STRUCTURAL OR ELECTRICAL OVERLOADING. Tenant
covenants and agrees that nothing shall be done or kept on the Demised
Premises or the Building(s) and that no improvements, changes, alterations,
additions, maintenance or repairs shall be made to the Demised Premises which
might impair the structural soundness of the Building(s), which might result
in an overload of electrical lines serving the Building(s) or which might
interfere with electric or electronic equipment in the Building(s) or on any
adjacent or nearby property. In the event of violations hereof, Tenant
covenants and agrees to immediately remedy the violation at Tenant's expense
and in compliance with all requirements of governmental authorities and
insurance underwriters.
8.7 NO NUISANCE, NOXIOUS OR OFFENSIVE ACTIVITY. Tenant
covenants and agrees that no noxious or offensive activity shall be carried
on upon the Demised Premises or the Property nor shall anything be done or
kept on the Demised Premises or the Property which may be or become a public
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or private nuisance or which may cause embarrassment disturbance, or
annoyance to others in the Building(s) or on adjacent or nearby property.
8.8 NO ANNOYING LIGHTS, SOUNDS OR ODORS. Tenant covenants
and agrees that no light shall be emitted from the Demised Premises which is
unreasonably bright or causes unreasonable glare; no sound shall be emitted
from the Demised Premises which is unreasonably loud or annoying; and no odor
shall be emitted from the Demised Premises which is or might be noxious or
offensive to others in the Building(s) or on adjacent or nearby property.
8.9 NO UNSIGHTLINESS. Tenant covenants and agrees that no
unsightliness shall be permitted on the Demised Premises or the Property
which is visible from any adjacent or nearby property. Without limiting the
generality of the foregoing, all unsightly equipment, objects and conditions
shall be kept enclosed within the Demised Premises; no refuse, scrap, debris,
garbage, trash, bulk materials, or waste shall be kept, stored or allowed to
accumulate on the Demised Premises or the Property except as may be enclosed
within the Demised Premises; all pipes, wires, poles, antennae and other
facilities for utilities or the transmission or reception of audio or visual
signals or electricity shall be kept and maintained underground or enclosed
within the Demised Premises or appropriately screened from view; and no
temporary structure shall be placed or permitted on the Demised Premises of
the Property without the prior written consent of Landlord.
8.10 NO ANIMALS. Tenant covenants and agrees that no animals
shall be permitted or kept on the Demised Premises or the Property.
8.11 RESTRICTION ON SIGNS AND EXTERIOR LIGHTING. Tenant
covenants and agrees that no signs or advertising devices of any nature shall
be erected or maintained by Tenant on the Demised Premises or the Property,
and no exterior lighting shall be permitted on the Demised Premises or the
Property except as approved in writing by Landlord. All building signage
shall conform to the existing building signage and shall be installed and
paid for by Tenant.
8.12 NO VIOLATION OF COVENANTS. Tenant covenants and agrees
not to commit, suffer or permit any violation of any covenants, conditions or
restrictions affecting the Demised Premises, the Property or the Park.
8.13 RESTRICTION ON CHANGES AND ALTERATIONS. Tenant covenants
and agrees not to improve, change, alter, add to, remove or demolish any
improvements on the Demised Premises ("Changes"), without the prior written
consent of Landlord (which consent shall not be unreasonably withheld with
respect to interior, non-structural changes), and unless Tenant complies with
all conditions which may be imposed by Landlord, in its also discretion in
connection with such consent, and unless Tenant pays to Landlord the
reasonable costs and expenses of Landlord for architectural, engineering and
other consultants which may be reasonably incurred by Landlord in determining
whether to approve any such Changes and in inspecting such Changes. If such
consent is given, no such Changes shall be permitted unless Tenant shall have
procured and paid for all necessary permits and authorizations from any
governmental authorities having jurisdiction; unless such changes will not
reduce the value
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of the Property, and will not affect or impair existing insurance on the
Property; and unless Tenant, at Tenant's sole cost and expense, shall
maintain or cause to be maintained workmen's compensation insurance covering
all persons employed in connection with the work and shall obtain liability
insurance covering any loss or damage to persons or property arising in
connection with any such Changes and such other insurance and bonds as
Landlord may reasonably require. Tenant covenants and agrees that any such
Changes approved by Landlord shall be completed with due diligence and in
good and workmanlike fashion and in compliance with all conditions imposed by
Landlord and all applicable permits, authorizations, laws, ordinances,
orders, rules and regulations of governmental authorities having jurisdiction
and that the costs and expenses with respect to such Changes shall be paid
promptly when due and that the Changes shall be accomplished free of liens of
mechanics and materialmen. Tenant covenants and agrees that all such Changes
shall become the property of Landlord at the expiration of the Lease Tenn or,
if landlord so requests, Tenant shall, at or prior to expiration of the Lease
Term and at its sole cost and expense, remove such Changes and restore the
Demised Premises to their condition prior to such Changes.
8.14 NO MECHANICS' LIENS. Tenant covenants and agrees not to
permit or suffer, and to cause to be removed and released, any mechanics,
materialmen or other lien on account of supplies, machinery, tools,
equipment, labor or material furnished or used in connection with the
construction or repair of or Changes to the Demised Premises by or on behalf
of Tenant. If any such lien is filed, Tenant shall within ten (10) days
thereafter, at its expense, cause the lien to be fully charged by either
paying the obligation secured thereby in fall or in accordance with the
provisions of Minn. Stat. '514.10. If Tenant elects to release the lien
pursuant to Minn. Stat. '514.10 in lieu of payment, Tenant shall have the
right to contest, in good faith and with reasonable diligence, the validity
of any such obligation secured by the lien or claimed lien, provided that
tenant shall give to Landlord such additional security as may be reasonably
requested by Landlord to insure the payment of any amounts claimed, including
interests and costs, and to prevent any sale, foreclosure or forfeiture of
any interest in the Property on account of any such hen and provided that, on
final determination of the obligation secured by the lien or claim for lien,
Tenant shall immediately pay any judgement rendered.
Tenant is not authorized to act for or on behalf of Landlord as its
agent, or otherwise, for the purpose of constructing any improvements to the
Demised Premises, and neither Landlord nor Landlord's interest in the Demised
Premises shall be subject to any obligations incurred by Tenant. Landlord
shall be entitled, but not obligated, to post on the Demised Premises during
the course of any construction by Tenant such notices of non-responsibility
as Landlord deems appropriate, and tenant shall not remove or permit removal
of any such notices. Tenant shall, at least five (5) days before the
commencement of any work which might result in such lien, give to Landlord
written notice thereof.
8.15 NO OTHER ENCUMBRANCES. Tenant covenants and agrees not
to obtain any financing secured by Tenant's interest in the Demised Premises
and not to encumber the Demised Premises or Landlord's or Tenant's interest
therein without the prior written consent of Landlord, and to keep the
Demised premises free from all liens and encumbrances except liens and
encumbrances created by Landlord.
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8.16 SUBORDINATION TO LANDLORD MORTGAGES. Tenant covenants
and agrees that, at Landlord's option, this Lease and Tenant's interest in
the Demised Premises shall be junior and subordinate to any mortgage or deed
of trust now or hereafter encumbering the Property provided that, as to any
mortgage or deed of trust given hereafter, the mortgagee or beneficiary under
such mortgage or deed of trust agrees in writing, or adequate provision is
made in the mortgage or trust, that, in the event of foreclosure of any such
mortgage or deed of trust, Tenant shall not be disturbed in its possession of
the Demised Premises, provided only that Tenant shall attorn to the party
acquiring title to the Property as the result of such foreclosure. No act or
further agreement by Tenant shall be necessary to establish the subordination
of this Lease to any such mortgage or deed of trust, but Tenant covenants and
agrees, upon request of Landlord, to execute such documents as may be
necessary or appropriate to confirm and establish this Lease as subordinate
to any such mortgage or deed of trust in accordance with the foregoing
provisions. Alternatively, Tenant covenants and agrees that, at Landlord's
option, Tenant shall execute documents as may be necessary to establish this
Lease and Tenant's interest in the Demised Premises as superior to any such
mortgage or deed of trust. If Tenant fails to execute any documents required
to be executed by Tenant under the provisions hereof, Tenant hereby makes,
constitutes and irrevocably appoints Landlord as Tenant's attorney in fact
and in Tenant's name, place and stead to execute any such documents.
8.17 NO ASSIGNMENT OR SUBLETTING. Tenant covenants and agrees
not to make or permit a Transfer, as hereinafter defined, by Tenant or by any
assignee or subtenant, without Landlord's prior written consent, which
consent shall not be unreasonably withheld provided such Transfer shall not
relieve Tenant of any of its obligations under this Lease. A "Transfer"
shall include a sublease of all or any part of the Demised Premises, any
assignment, sublease, transfer, mortgage, pledge or encumbrance of all or any
part of the Tenant's interest under this Lease or in the Demised Premises, by
operation of law or otherwise, and the use of occupancy of all or any part of
the Demised Premises by anyone other than tenant. Any such Transfer without
Landlord's written consent shall be void, at Landlord's option, and shall
constitute a default under this Lease. In the event Landlord consents to any
Transfer, Tenant shall not be relieved of its obligations under this Lease
and Tenant shall remain liable, jointly and severally and as a principal, and
not as a guarantor or surety, under this Lease, to the same extent as though
no transfer had been made, unless specifically provided to the contrary in
Landlord's prior written consent. The acceptance of rent by Landlord from
any person other than Tenant shall not be deemed to be a waiver by Landlord
of the provisions of this Section or of any other provision of this Lease,
and any consent by Landlord to a Transfer shall not be deemed a consent to
any subsequent Transfer.
Notwithstanding the foregoing, Landlord shall, at Landlord's option,
have the right, in lieu of consenting to a Transfer, to terminate this Lease
as to the portion of the Demised Premises as is subject to the proposed
Transfer and to enter into a new lease with the proposed transferee and
receive directly from the proposed transferee the consideration agreed to be
given by such transferee for the transfer. The termination of this Lease
pursuant to any provision contained herein or otherwise shall, at Landlord's
provision contained herein or otherwise shall, at Landlord's option,
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either terminate any or all existing subleases hereunder or operate as an
assignment to Landlord of any such subleases.
In the event Landlord consents to a Transfer, any option to renew this
Lease or right to extend the Lease Term shall automatically terminate unless
otherwise agreed in writing by Landlord.
Tenant covenants and agrees to pay to Landlord, within ten (10) days
after demand by Landlord, the reasonable costs and expenses of Landlord in
connection with any request for consent to a Transfer, including reasonable
attorneys' fees, whether or not consent of Landlord is given to the Transfer.
8.18 ANNUAL FINANCIAL STATEMENTS. Tenant covenants and agrees
to furnish to Landlord annually, within ninety (90) days after the end of
each fiscal year of tenant, copies of financial statements of Tenant audited,
if requested by Landlord, by a certified public accountant and agrees that
Landlord may deliver any such financial statements to any existing or
prospective mortgagee or purchaser of the Property. The financial statements
shall include a balance sheet as of the end of, and a statement of profit and
loss for, the preceding fiscal year and Tenant and, if regularly prepared by
Tenant, a statement of sources and use of funds for the preceding fiscal year
of Tenant.
8.19 PAYMENT OF INCOME AND OTHER TAXES. Tenant covenants and
agrees to pay promptly when due all personal property taxes on personal
property of Tenant on the Demised Premises and all federal, state and local
income taxes, sales taxes, use taxes, Social Security taxes, unemployment
taxes and taxes withheld from wages or salaries paid to Tenant's employees,
the nonpayment of which might give rise to a lien on the Demised Premises or
Tenant's interest therein, and to furnish, if requested by Landlord, evidence
of such payments. If Tenant's fixtures, furnishings, equipment and other
personal property are assessed together with the Property, Tenant shall pay
to Landlord tenant's taxes due thereon as determined by Landlord within ten
(10) days after delivery to Tenant of a written statement indicating the
amount of such taxes applicable to Tenant's property.
8.20 ESTOPPEL CERTIFICATES. Tenant covenants and agrees to
execute, acknowledge and deliver to Landlord upon Landlord's written request,
a written statement certifying that this Lease is unmodified (or, if
modified, stating the modifications) and in full force and effect; stating
the dates to which Base Rent and Additional Rent have been paid; stating the
amount of the Security Deposit held by Landlord; stating the amount of
Monthly Deposits then being paid by Tenant; and stating whether or not
Landlord is in default under this Lease (and, if so, specifying the nature of
the default). Tenant agrees that such statement may be delivered to and
relied upon by any existing or prospective mortgagee or purchaser of the
Property. Tenant agrees that a failure to deliver such a statement within
ten (10) days after written request from Landlord shall be conclusive upon
Tenant that this Lease is in full force and effect without modification
except as may be represented by Landlord; that there are no uncured defaults
by Landlord under this Lease; and that any representation by Landlord with
respect to Base Rent, Additional Rent, the Security Deposit and Monthly
Deposits are true.
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8.21 LANDLORD'S RIGHT TO INSPECT AND SHOW PREMISES AND TO
INSTALL FOR SALE SIGNS. Tenant covenants and agrees that Landlord and the
authorized representatives of Landlord shall have the right to enter the
Demised Premises at any reasonable time during ordinary business hours UPON
REASONABLE NOTICE TO TENANT or at any time in the event of any emergency for
the purposes of inspecting, repairing or maintaining the same or performing
any obligations of Tenant which Tenant has failed to perform hereunder or for
the purposes of showing the Demised Premises to any existing or prospective
mortgagee, purchaser or lessee of the Property or the Demised Premises.
TENANT SHALL HAVE THE RIGHT TO ACCOMPANY LANDLORD AND AUTHORIZED
REPRESENTATIVES OF LANDLORD WHILE ON THE PREMISES EXCEPT IN THE CASE OF AN
EMERGENCY. Tenant covenants and agrees that Landlord may, at any time and
from time to time, place on the Property and DURING THE LAST SIX (6) MONTHS
OF THE LEASE ON the Demised Premises a sign advertising the Property or the
Demised Premises for sale or lease.
8.22 LANDLORD TITLE TO FIXTURES, IMPROVEMENTS AND EQUIPMENT.
Tenant covenants and agrees that all fixtures and improvements on the Demised
Premises and all equipment and personal property relating to the use and
operation of the Demised Premises (as distinguished from operations incident
to the business of Tenant), including all plumbing, heating, lighting,
electrical and air conditioning fixtures and equipment, whether or not
attached to or affixed to the Demised Premises, and whether now or hereafter
located upon the Demised Premises, shall be and remain the property of
Landlord upon expiration of the Lease Term.
8.23 REMOVAL OF TENANT'S EQUIPMENT. Tenant covenants and
agrees to remove, at or prior to the expiration of the Lease term, all of
Tenant's Equipment, as hereinafter defined. "Tenant's Equipment" shall mean
all equipment, apparatus, machinery, signs, furniture, furnishings and
personal property used in the operation of the business of Tenant (as
distinguished from the use and operation of the Demised Premises). If such
removal shall injure or damage the Demised Premises, Tenant covenants and
agrees, at its sole cost and expense, at or prior to the expiration of the
Lease Term, to repair such injury and damage in good and workmanlike fashion
and to place the Demised Premises in the same condition as the Demised
Premises would have been if such Tenant's Equipment had not been installed.
If Tenant fails to remove any Tenant's Equipment by the expiration of the
Lease Term, Landlord may, at its option, keep and retain any such Tenant's
Equipment or dispose of the same and retain any proceeds thereof, and
Landlord shall be entitled to recover from Tenant any costs or expenses of
Landlord in removing the same and in restoring the Demised Premises in excess
of the actual proceeds, if any, received by Landlord from disposition thereof.
8.24 TENANT INDEMNIFICATION OF LANDLORD. SUBJECT TO THE
WAIVER OF CLAIMS AND SUBROGATION CONTAINED IN SECTION 6.1 OF THE LEASE,
Tenant covenants and agrees to protect, indemnify and save Landlord harmless
from and against all liability, obligations, claims, damages, penalties,
causes of action, costs and expenses, including attorneys' fees, imposed
upon, incurred by or asserted against Landlord by reason of (a) any accident,
injury to or death or any person or loss of or damage to any property
occurring on or about the Demised Premises; (b) any act or omission of Tenant
or Tenant's officers, employees, agents, guests or invitees or of anyone
claiming by, through or under Tenant; (c) any use which may be made of, or
condition existing upon, the Demised
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Premises; (d) any improvements, fixtures or equipment upon the Demised
Premises; (e) any failure on the part of Tenant to perform or comply with any
of the provisions, covenants or agreements of Tenant contained in this Lease;
(f) any violation by Tenant or Tenant's officers, employees, agents, guests
or invitees or by anyone claiming by, through or under Tenant of any law,
ordinance, order, rule or regulation of governmental authorities having
jurisdiction or of any covenant, condition or restriction affecting the Park;
and (g) any repairs, maintenance or Changes to the Demised Premises made by
or on behalf of Tenant. Tenant further covenants and agrees that, in case
any action, suit or proceeding is brought against Landlord by reason of any
of the foregoing, Tenant will, at Tenant's sole cost and expense, defend
Landlord in any such action, suit or proceeding.
8.25 WAIVER BY TENANT. Tenant waives and releases any claims
Tenant may have against Landlord or Landlord's officers, agents or employees
for loss, damage or injury to person or property sustained by Tenant or
Tenant's officers, agents, employees, guests, invitees or anyone claiming by,
through or under Tenant resulting from any cause whatsoever other than gross
negligence or willful misconduct of Landlord or its officers, agents or
employees.
8.26 RELEASE UPON TRANSFER BY LANDLORD. In the event of a
transfer by Landlord of the Property or of Landlord's interest as Landlord
under this Lease, Landlord's successor or assign shall take subject to and be
bound by this Lease and, in such event, Tenant covenants and agrees that
Landlord shall be released from all obligations of Landlord under this Lease,
except obligations which arose and matured prior to such transfer by
Landlord; that Tenant shall thereafter look solely to Landlord's successor or
assign for satisfaction of the obligations of Landlord under this Lease; and
that, upon demand by Landlord or Landlord's successor or assign, Tenant shall
attorn to such successor or assign.
9. DAMAGE OR DESTRUCTION
9.1 TENANT'S NOTICE OF DAMAGE. If any portion of the Demised
Premises shall be damaged or destroyed by fire or other casualty, Tenant
shall give prompt written notice thereof to Landlord ("Tenant's Notice of
Damage").
9.2 OPTIONS TO TERMINATE IF DAMAGE SUBSTANTIAL. Upon receipt
of Tenant's Notice of Damage, Landlord shall promptly proceed to determine
the nature and extent of the damage or destruction and the sufficiency of
insurance proceeds to repair and restore and to estimate the time necessary
to repair and restore the Demised Premises. As soon as reasonably possible,
Landlord shall give written notice to Tenant stating whether the insurance
proceeds are sufficient to repair and restore and, if so, Landlord's estimate
of the time necessary to repair and restore the Demised Premises ("Landlord's
notice of Repair Time"). If Landlord reasonably estimates that insurance
proceeds are insufficient to repair and restore and Landlord does not intend
to advance such deficiency or if repair and restoration of the Demised
Premises cannot be completed within 180 days from the time of Tenant's Notice
of Damage, Landlord and Tenant shall each have the option to terminate this
Lease.
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Any option granted hereunder shall be exercised by written notice to the
other party given within ten (10) days after Landlord's Notice of Repair
Time. In the event either Landlord or Tenant exercises its option to
terminate this Lease, the Lease Term shall expire ten (10) days after the
notice by either Landlord or Tenant exercising such party's option to
terminate this Lease. In the event of termination of this Lease under the
provisions hereof, Landlord shall refund to Tenant such amounts of Base Rent
and Additional Rent theretofore paid by Tenant as may be applicable to the
period subsequent to the time of Tenant's Notice of Damage less the
reasonable value of any use or occupation of the Demised Premises by Tenant
subsequent to the time of Tenant's Notice of Damage.
9.3 OBLIGATIONS TO REPAIR AND RESTORE. In the event there
are sufficient funds to repair and restore, and repair and restoration of the
Demised Premises can, in Landlord's reasonable estimation, be completed
within 180 days from the time of Tenant's Notice of Damage as specified in
Section 9.2, this Lease shall continue in full force and effect and Landlord
shall proceed to cause the Demised Premises (excluding improvements, fixtures
and personal property not owned by Landlord) to be repaired and restored with
reasonable diligence, and there shall be abatement of Base Rent and
Additional Rent proportionate to the extent of the space and period of time
that Tenant is unable to use and enjoy the Demised Premises.
9.4 APPLICATION OF INSURANCE PROCEEDS. The proceeds of any
Casualty Insurance maintained on the Demised Premises, other than casualty
insurance maintained by Tenant on fixtures and personal property of Tenant,
shall be paid to and become the property of Landlord. WHETHER OR NOT THIS
LEASE IS TERMINATED PURSUANT TO SECTION 9.2, THE AMOUNT DEDUCTIBLE FROM
INSURANCE PROCEEDS WITH RESPECT TO CASUALTY LOSS SHALL BE PAYABLE AS
ADDITIONAL RENT DUE FROM TENANT TO LANDLORD DURING THE TERM OF THE LEASE AS
PROVIDED IN SECTIONS 4.5, 4.6 AND 4.7 HEREOF.
10. CONDEMNATION
10.1 TAKING--SUBSTANTIAL TAKING--INSUBSTANTIAL TAKING. A
"Taking" shall mean the taking of all or any portion of the Demised Premises
as a result for the exercise of the power of eminent domain or condemnation
for public or quasi-public use or the sale of all or part of the Demised
Premises under the threat of condemnation. A "Substantial Taking" shall mean
a Taking of so much of the Demised Premises that the Demised Premises cannot
thereafter be reasonably used by Tenant for carrying on, at substantially the
same level or scope, the business theretofore conducted by Tenant on the
Demised premises, or a taking which the award therefore retained by Landlord
is in Landlord's reasonable estimate insufficient to restore the Demised
Premises and Property to a condition as near as possible to the original
condition thereof and if Landlord does not intend to advance such deficiency.
As "Insubstantial Taking" shall mean a Taking such that the Demised Premises
can thereafter continue to be used by Tenant for carrying on, at
substantially the same level and scope, the business theretofore conducted by
Tenant on the Demised Premises and, as aforesaid, the award is sufficient for
restoration.
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10.2 TERMINATION ON SUBSTANTIAL TAKING. If there is a
Substantial Taking with respect to the Demised Premises, the Lease Term shall
expire on the date of vesting of title pursuant to such Taking. In the event
of termination of this Lease under the provisions hereof, Landlord shall
refund to Tenant such amounts of Base Rent and Additional Rent theretofore
paid by Tenant as may be applicable to the period subsequent to the time of
termination of this Lease.
10.3 RESTORATION OF INSUBSTANTIAL TAKING. In the event of an
Insubstantial Taking, this Lease shall continue in full force and effect,
Landlord shall proceed forthwith to cause the Demised Premises to be restored
as near as may be to the original condition thereof and there shall be
abatement of Base Rent and Additional Rent proportionate to the extent of the
space so taken.
10.4 RIGHT OF AWARD. The total award, compensation, damages
or consideration received or receivable as a result of a Taking ("Award")
shall be paid to and be the property of Landlord, whether the Award shall be
made as compensation for diminution of the value of the leasehold or the fee
of the Demised Premises or otherwise, and Tenant hereby assigns to Landlord
all of Tenant's right, title and interest in and to any such Award. Tenant
covenants and agrees to execute, immediately upon demand by Landlord, such
documents as may be necessary to facilitate collection by Landlord of any
such Award.
11. DEFAULTS BY TENANT
11.1 DEFAULTS GENERALLY. Each of the following shall
constitute a "Default by Tenant" under this Lease:
11.2 FAILURE TO PAY RENT OR OTHER AMOUNTS. A default by
Tenant shall exist if Tenant fails to pay when due Base Rent, Additional
Rent, Monthly Deposits, or any other amounts payable by Tenant under the
terms of this Lease, and such failure shall continue for five (5) days after
written notice from Landlord to Tenant of such failure; provided, however,
that Tenant shall not be entitled to more than two (2) notices of such
failure during any twelve-month period and if, after two (2) such notices are
given in any twelve-month period, Tenant fails during such twelve-month
period to pay such amounts when due, such failure shall constitute a Default
by Tenant without further notice by Landlord.
11.3 VIOLATION OF LEASE TERM. A Default by Tenant shall exist
if Tenant breaches or fails to comply with any agreement, term, covenant or
condition in this Lease applicable to Tenant, and such breach or failure to
comply continues for a period of twenty (20) days after notice thereof by
Landlord to Tenant, or, if such breach or failure to comply cannot be
reasonably cured within such twenty-day period, if Tenant shall not in good
faith commence to cure such breach or failure to comply within such twenty
day period or shall not diligently proceed therewith to completion.
11.4 NON-OCCUPANCY OF DEMISED PREMISES. A Default by Tenant
shall exist if Tenant shall fail to occupy and use the Demised Premises
within fifteen (15) days after commencement of the
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Lease Term or shall leave the Demised Premises unoccupied for fifteen (15)
consecutive days or shall vacate and abandon the Demised Premises.
11.5 TRANSFER OF INTEREST WITHOUT CONSENT. A Default by
Tenant shall exist if Tenant's interest under this Lease or in the Demised
Premises shall be transferred to or pass to or devolve upon any other party
without Landlord's prior written consent.
11.6 EXECUTION AND ATTACHMENT AGAINST TENANT. A Default by
Tenant shall exist if Tenant's interest under this Lease or in the Demised
Premises shall be taken upon execution or by other process of law directed
against Tenant, or shall be subject to any attachment at the instance of any
creditor or claimant against Tenant and said attachment shall not be
discharged or disposed of within fifteen (15) days after the levy thereof.
11.7 BANKRUPTCY OR RELATED PROCEEDINGS. A Default by Tenant
shall exist if Tenant shall file a petition in bankruptcy or insolvency or
for reorganization or arrangement under the bankruptcy laws of the United
States or under any similar act of any state, or shall voluntarily take
advantage of any such law or act by answer or otherwise, or shall be
dissolved or shall make an assignment for the benefit or creditors or if
involuntary proceedings under any such bankruptcy or insolvency law or for
the dissolution of Tenant shall be instituted against Tenant or a receiver or
trustee shall be appointed for the Demised Premises or for all or
substantially all of the property of Tenant, and such proceedings shall not
be dismissed or such receivership or trusteeship vacated within sixty (60)
days after such institution or appointment.
12. LANDLORD'S REMEDIES
12.1 REMEDIES GENERALLY. Upon the occurrence of any default
by Tenant, Landlord shall have the right, at Landlord's election, then or at
any time thereafter, to exercise any one or more of the following remedies.
12.2 CURE BY LANDLORD. In the event of a Default by Tenant,
Landlord may, at Landlord's option, but without obligation to do so, and
without releasing Tenant from any obligations under this Lease, make any
payment or take any action as Landlord may deem necessary or desirable to
cure any such Default by Tenant in such manner and to such extent as Landlord
may deem necessary or desirable. Landlord may do so upon prior written
notice to Tenant, except in the case of an emergency, and without giving
Tenant an opportunity to cure such Default by Tenant. Tenant covenants and
agrees to pay to Landlord, immediately upon demand, all advances, costs and
expenses of Landlord in connection with the making of any such payment or the
taking of any such action, including reasonable attorneys' fees, together
with interest as hereinafter provided, from the date of payment of any such
advances, costs and expenses by Landlord. Action taken by Landlord may
include commencing, appearing in, defending or otherwise participating in any
action or proceeding and paying, purchasing, contesting or comprising any
claim, right, encumbrance, charge or lien with respect to the Demised
Premises which Landlord, in its discretion, may deem necessary or desirable
to protect its interest in the Demised Premises and under this Lease.
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12.3 REMEDIES OF LANDLORD. In the event of Default by Tenant,
Landlord may elect to either (i) terminate this Lease or (ii) terminate
Tenant's right to possession only without termination Tenant's continued
liability under this Lease. No reentry or taking possession of the Demised
Premises by Landlord shall be construed as an election by Landlord to
terminate this Lease unless a written notice of such intention is given to
Tenant. No notice from Landlord hereunder or under a forcible entry and
detainer statute or similar law shall constitute an election by Landlord to
terminate this Lease unless such notice specifically so states.
Notwithstanding the fact that Landlord initially elects under (ii) to
terminate Tenant's right to possession only, Landlord shall have the
continuing right to terminate this Lease by giving Tenant three (3) days'
written notice of such further election, and shall have the right to pursue
any remedy at law or in equity that may be available to Lessor.
In the event of election to terminate Tenant's right to possession only
Landlord may, at Landlord's option enter in the Demised Premises and take and
hold possession thereof, without such entry into possession termination this
Lease or releasing Tenant in whole or in part from Tenant's obligation to pay
all amounts hereunder for the full stated Lease Term. Upon such re-entry,
Landlord may remove all persons and property from the Demised Premises and
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant, without Landlord becoming liable
for any loss or damage which may be occasioned thereby. Such re-entry shall
be conducted without resort to judicial process or notice of any kind if
Tenant has abandoned or voluntarily surrendered possession of the Demised
Premises, and otherwise by resort to judicial process. Upon and after entry
into possession without termination of this Lease, Landlord may, but is not
obligated to, relet the Demised Premises, or any part thereof, for such time
and upon such terms as Landlord, in Landlord's sole discretion, shall
determine. Landlord may alter, repair and redecorate the Demised Premises as
Landlord deems desirable to facilitate reletting the Demised Premises.
Upon such re-entry, Tenant shall be liable to Landlord as follows:
A. For all reasonable attorneys' fees incurred by
Landlord in connection with exercising any remedy hereunder;
B. For the unpaid installments of Base Rent,
Additional Rent and other unpaid sums which were due prior to
such re-entry, which sums shall be payable immediately;
C. For the installments of Base Rent, Additional Rent
and other sums falling due pursuant to the provision of this
Lease for the period after reentry during which the Demised
Premises remain vacant, which sums shall be payable as they
become due hereunder;
D. For all expenses incurred in re-leasing the
Demised Premises, including leasing commissions, attorneys' fees,
and costs of alterations, repairs and redecorating, which
expenses shall be payable as they are incurred by Landlord;
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E. While the Demised Premises are subject to any new
lease or leases made pursuant to this paragraph, for the amount
by which the monthly installments received by Landlord pursuant
to such new lease or leases is less than the monthly installment
for all charges payable pursuant to this Lease, which
deficiencies shall be payable monthly. If the net amount
recovered by Landlord for such reletting excess the amounts due
by Tenant hereunder, Tenant shall have no right to such excess
amount and such excess amount shall belong to Landlord; and
F. For interest on all the above sums at the rate set
forth in Paragraph 12.7 hereof.
Notwithstanding Landlord's election to terminate Tenant's right to
possession only, and notwithstanding any reletting without termination,
Landlord, at any time thereafter, may elect to terminate their Lease, and to
recover from Tenant in lieu of the amounts which would thereafter be payable
pursuant to the foregoing, as damages for loss of the bargain and not as a
penalty, an aggregate sum which, at the time of such termination of this
Lease, represents the excess, if any, of (b) the aggregate of the Base Rent,
Additional Rent and all other sums payable by Tenant hereunder that would
have accrued for the balance of the Lease Term, over (b) the aggregate rental
value of the Demised Premises for the balance of the Lease Term, both
discounted to present worth at the rate of eight percent (8%) per annum.
12.4 LANDLORD'S LIEN AND ENFORCEMENT. Tenant hereby grants to
Landlord a security interest in all personal property, equipment and fixtures
of Tenant now or hereafter located on the Demised Premises as security for
the performance of Tenant's obligations under this Lease. Tenant covenants
and agrees, upon request by Landlord from time to time, to execute and
deliver such financing statements as may be necessary or desirable to perfect
the security interest hereby granted. In the event of a Default by Tenant,
Landlord may foreclose the security interest hereby granted in any manner
permitted by law. NOTWITHSTANDING THE FOREGOING, LANDLORD ACKNOWLEDGES THAT
ANY SECURITY INTEREST GRANTED BY TENANT TO THIRD PARTIES COVERING INVENTORY,
PERSONAL PROPERTY AND EQUIPMENT OF TENANT FOR PURPOSES OF FINANCING THE
ACQUISITION OR OWNERSHIP OF THAT PROPERTY OR THE OPERATION OF TENANT'S
BUSINESS SHALL BE PRIOR TO THE LIEN GRANTED TO LANDLORD HEREUNDER. LANDLORD
AGREES, UPON REQUEST OF TENANT, TO EXECUTE THE DELIVERY OF ANY SUBORDINATION
AGREEMENTS AS MAY BE NECESSARY OR DESIRABLE TO SUBORDINATE LANDLORD'S
INTEREST TO SUCH OTHER SECURITY INTERESTS AS MAY BE GRANTED BY TENANT
HEREUNDER.
12.5 SUITS BY LANDLORD. Actions or suits for the recovery of
amounts and damages payable under this Lease may be brought by Landlord, from
time to time, at Landlord's election, and Landlord shall not be required to
await the date upon which the Lease Term would have expired to bring any such
action or suit.
12.6 RECOVERY OF LANDLORD ENFORCEMENT COSTS. All costs and
expenses incurred by Landlord in connection with collection any amounts and
damages owing by Tenant pursuant to the provisions of this Lease or to
enforce any provision of this Lease shall be paid by Tenant to Landlord
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upon demand, including reasonably attorneys' fees whether or not any action
is commenced by Landlord, which fees shall be determined by the court and not
by a jury if related to an action.
12.6 INTEREST ON PAST DUE PAYMENTS AND ADVANCES. Tenant
covenants and agrees to pay to Landlord interest on demand at the rate of
five percent (5%) above the "Prime Rate", as hereinafter defined, on the
amount of any Monthly Rent Monthly Deposit or any other amount due hereunder
which is not paid when due, from the date due and payable, and on the amount
of any payment made by Landlord required to have been made by Tenant under
this Lease and on the amount of any costs and expenses, including reasonable
attorneys' fees, paid by Landlord in connection with the taking of any action
to cure any Default by Tenant, from the date of making any such payment or
the advancement of such costs and expenses by Landlord. "Prime Rate" shall
mean the rate charged by Norwest Bank Minnesota, N.A. (the "Bank"), or other
bank as hereinafter provided, at the time said Monthly Rent or Monthly
Deposit was due and payable or at the time of making any such payment or the
advancement of such costs and expenses by Landlord as aforesaid, on
ninety-day loans to commercial borrowers of nationally recognized and
unquestioned credit as announced by the Bank from time to time, but not in
excess of the maximum amount of finance charge permissible under applicable
law. In the event that the Bank discontinues the use of a Prime Rate, the
Prime Rate being charged by any other national banking association located in
Minneapolis or St. Paul, Minnesota, as selected by Landlord in its sole
discretion, shall be used for computing the interest rate under this Section.
12.7 LANDLORD'S BANKRUPTCY REMEDIES. Nothing contained in this
Lease shall limit or prejudice the right of Landlord to provide and obtain as
liquidated damages in any bankruptcy, insolvency, receivership,
reorganization or dissolution proceeding, an amount equal to the maximum
allowable by any statute or rule or law governing such proceeding in effect
at the time when such damages are to be proved, whether or not such amount be
greater, equal or less than the amounts recoverable, either as damages or
rent, under this Lease.
12.8 REMEDIES CUMULATIVE. Exercise of any or the remedies of
Landlord under this Lease shall not prevent the concurrent or subsequent
exercise of any other remedy provided for in this Lease or otherwise
available to Landlord at law or in equity.
13. SURRENDER AND HOLDING OVER
13.1 SURRENDER UPON LEASE EXPIRATION. Upon the expiration or
earlier termination of this Lease, or on the date specified in any demand for
possession by Landlord after any Default by Tenant, Tenant covenants and
agrees to surrender possession of the demised Premises to Landlord, in the
same condition as when Tenant first occupied the Demised Premises, ordinary
wear and tear excepted.
13.2 HOLDING OVER. If Tenant shall remain on the Demised
Premises after the expiration of the Lease Term without written agreement
providing otherwise, Tenant, at Landlord's election, shall be deemed to be a
tenant from month to month, at a monthly rental, payable in advance, equal
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<PAGE>
to 150% of the Monthly Rent, and Tenant shall pay all other sums due and be
bound by all of the other terms, covenants and agreements of this Lease.
Nothing contained herein shall be construed to give Tenant the right to hold
over at any time, and Landlord, in addition to collecting the increased
Monthly Rent and Additional Rent provided herein, may exercise any and all
remedies at law or in equity to recover possession of the Demised Premises,
as well as any damages incurred by Landlord due to Tenant's failure to vacate
the Demised Premises and deliver possession to Landlord as herein provided.
14. MISCELLANEOUS
14.1 NO IMPLIED WAIVER. No failure by Landlord to insist upon
the strict performance of any term, covenant or agreement contained in this
Lease, no failure by Landlord to exercise any right or remedy under this
Lease, and no acceptance of full or partial payment during the continuance of
any default by Tenant, shall constitute a waiver of any such term, covenant
or agreement or a waiver of any such right or remedy or a waiver of any such
Default by Tenant.
14.2 SURVIVAL OF PROVISIONS. Notwithstanding any termination of
this Lease, the same shall continue in force and effect as to any provisions
hereof which require observance or performance by Landlord or Tenant
subsequent to termination.
14.3 COVENANTS INDEPENDENT. This Lease shall be construed as if
the covenants herein between Landlord and Tenant are independent, and not
dependent, and Tenant shall not be entitled to any offset against Landlord if
Landlord fails to perform its obligations under this Lease.
14.4 COVENANTS AS CONDITIONS. Each provision of this Lease
performable by Tenant shall be deemed both a covenant and a condition.
14.5 JOINT AND SEVERAL OBLIGATIONS. If Tenant is constituted of
two or more persons, corporations or other entities, all agreements,
covenants, representations and warranties of Tenant herein are the joint and
several obligations of the persons or entities constituting Tenant. Notice
given to any one of the persons or entities constituting Tenant shall be
deemed to have been given to all such persons or entities.
14.6 TENANT'S REMEDIES. Tenant may bring a separate action
against Landlord for any claim Tenant may have against Landlord under this
Lease, provided Tenant shall first give written notice thereof to Landlord
and shall afford Landlord a reasonable opportunity to cure any such default.
In addition, Tenant shall send notice of such default by certified or
registered mail, postage prepaid, to the holder of any mortgage or deed of
trust covering the Demised Premises, the Property or any portion thereof
whose address Tenant has been notified in writing, and shall afford such
holder a reasonable opportunity to cure any default on Landlord's behalf. In
no event will Landlord be responsible for any damages incurred by Tenant for
loss of profits or interruption of business as a result of any default by
Landlord hereunder. In no event will Tenant be entitled to terminate this
Lease as a result of any default by Landlord hereunder.
22
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14.7 BINDING EFFECT. This Lease shall extend to and be binding
upon the heirs, executors, legal representatives, successors and permitted
assigns of the respective parties hereto. The terms, covenants, agreements
and conditions in this Lease shall be construed as covenants running with the
Land.
14.8 NOTICES AND DEMANDS. All notices, demands or billings
under this Lease shall be in writing, signed by the party giving the same and
shall be deemed properly received when actually received by the recipient or,
if mailed, on the earlier of actual receipt by the recipient or three
business days after mailing. Mailed notices shall be sent by registered or
certified United States mail, postage prepaid, addressed to the party to
receive the notice. Notices shall be sent to the addresses for the parties
set forth in the first paragraph of this Lease or at such other address as
either party may notify the other of in writing.
14.9 TIME OF THE ESSENCE. Time is of the essence under this
Lease, and all provisions herein relating thereto shall be strictly construed.
14.10 CAPTIONS FOR CONVENIENCE. The headings and captions hereof
are for convenience only and shall not be considered in interpreting the
provisions hereof.
14.11 SEVERABILITY. If any provision of this Lease shall be held
invalid or unenforceable, the remainder of this Lease shall not be affected
thereby, and there shall be deemed substituted for the affected provision a
valid and enforceable provision as similar as possible to the affected
provision.
14.12 GOVERNING LAW. This Lease shall be interpreted and
enforced according to the laws of the State of Minnesota.
14.13 ENTIRE AGREEMENT. This Lease and any Exhibits and Rider to
Lease referred to herein constitute the final and complete expression of the
parties' agreements with respect to the Demised Premises and Tenant's
occupancy thereof. Each party agrees that it has not relied upon or regarded
as binding any prior agreements, negotiations, representations, or
understanding, whether oral or written, except as expressly set forth herein.
14.14 NO ORAL AMENDMENT OR MODIFICATION. No amendment or
modification of this Lease, and no approvals, consents or waivers by Landlord
under this Lease, shall be valid or binding unless in writing and executed by
the party to be bound.
14.15 REAL ESTATE BROKERS. Tenant covenants to pay, hold
harmless and indemnify Landlord from and against any and all cost, expense or
liability for any compensation, commissions, charges or claims by any broker
or other agent with respect to this Lease or the negotiation thereof other
than the Paramount Real Estate Corporation and any other broker listed as a
Participating Broker on Exhibit "A" attached hereto.
23
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14.16 RELATIONSHIP OF LANDLORD AND TENANT. Nothing contained
herein shall be deemed or construed as creating the relationship of principal
and agent or of partnership, or of joint venture by the parties hereto, it
being understood and agreed that no provision contained in this Lease nor any
acts of the parties hereto shall be deemed to create any relationship other
than the relationship of Landlord and Tenant.
14.17 LIMITATION ON PERSONAL LIABILITY OF LANDLORD.
Notwithstanding anything to the contrary contained in this Lease, it is
understood and agreed that there shall be no personal liability on the part
of Landlord or any of its beneficiaries, successors or assigns with respect
to any of the terms, covenants and conditions of this Lease, and Tenant shall
look solely to the equity of Landlord in the Demised Premises in the event of
any default or liability of Landlord under this Lease, such exculpation of
liability to be absolute and without any exception whatsoever.
14.18 AUTHORITY OF TENANT. Each individual executing this Lease
on behalf of Tenant represents and warrants that s/he is duly authorized to
deliver this Lease on behalf of Tenant and that this Lease is binding upon
Tenant in accordance with its terms.
14.19 PARK. Landlord hereby reserves the right to (i) change the
name or street address of the Building(s), the Property, the Park and/or the
Demised Premises, (ii) add to, improve, or alter any part or all of the
Property, Building(s) or Park, (iii) add to, improve or alter any part or all
of the Parking Area or other Common Facilities or other portion of the Park,
and (iv) relocate Tenant to other substantially similar premises within the
Property at Landlord's expense upon thirty (30) days' written notice to
Tenant. The foregoing rights are exercisable without liability for any
inconvenience suffered by Tenant as a result thereof (including any
diminution of light, air or view), and without notice to Tenant (except as
provided otherwise in clause (iv), and Tenant shall not be entitled by reason
thereof to terminate this Lease or to claim any abatement or reduction of
rental hereunder.
14.20 LITIGATION; FINANCIAL CONDITION. Tenant represents and
warrants to Landlord that Tenant is not involved in any pending or threatened
litigation, proceeding, lawsuit, administrative hearing or other action of
any nature whatsoever, an adverse determination of which could materially and
adversely affect Tenant's financial condition or its ability to perform under
this Lease. Tenant covenants and agrees to deliver to Landlord on or before
the execution of this Lease a financial statement, dated within the last six
(6) months of the date hereof, setting forth Tenant's financial condition.
Tenant represents and warrants to Landlord that such financial statement will
accurately reflect Tenant's financial status as of the date delivered to
Landlord.
14.21 GENERAL RULES OF CONSTRUCTION.
A. This Lease may be executed in several counterparts
and the counterparts shall constitute one and the same
instrument.
B. Landlord may act under this Lease by its attorney
or agent.
C. (I) Wherever appropriate herein, the singular
includes the plural and the plural includes the singular; (ii)
whenever the word "including" is used herein, it shall be deemed
to
24
<PAGE>
mean "including, but not limited to"; (iii) the words "re-
enter" and "re-entry" as used herein shall not be restricted to
their technical legal meaning.
D. The language in all parts of this Lease shall in
all cases be construed as a whole according to its fair meaning,
and not strictly for nor against either Landlord or Tenant, and
should a court be called upon to interpret any provision hereof,
no weight shall be given to, nor shall any construction or
interpretation be influenced by, any presumption of preparation
of this Lease by Landlord or by Tenant.
14.22 RULES AND REGULATIONS. Tenant agrees to comply with and
observe all reasonable rules and regulations established by Landlord for the
Property from time to time. Tenant's failure to keep and observe such rules
and regulations shall constitute a default pursuant to the terms of this
Lease.
IN WITNESS WHEREOF the parties hereto have caused this Lease to be
executed the day and year first above written.
LANDLORD:
Thomas S. Schreier
By: /s/ Thomas S. Schreier
--------------------------
Thomas S. Schreier
Its: Owner
-------------------------
TENANT:
Hypertension Diagnostics, Inc.
(a Minnesota Corporation)
By: /s/ Greg H. Guettler
--------------------------
Its: President
-------------------------
25
<PAGE>
RIDER TO LEASE
DATED OCTOBER 24, 1997
BY AND BETWEEN
THOMAS S. SCHREIER, AS LANDLORD
AND
HYPERTENSION DIAGNOSTICS, INC.,
(A MINNESOTA CORPORATION), AS TENANT
IMPROVEMENTS:
Landlord agrees to provide, at no cost to Tenant, the following improvements:
1. Paint all office walls that are currently painted and wipe down
wallpapered walls.
2. Recarpet entire office area with the exception of the VCT ENTRANCE areas,
with a $12.00/yard allowance.
3 Replace damaged and stained ceiling tiles.
4. Replace all light bulbs and ballasts which are not working.
5. Service and certify that HVAC units are in good working condition as of
commencement date of lease.
6. Clean plumbing fixtures, bathrooms, windows and light fixtures.
7. Repair or replace any items/fixtures/components of the Demised Premises
which may be inoperative, damaged or broken.
Any improvements other than those listed above shall be at Tenants' sole cost
and expense with prior approval by Landlord.
LANDLORD: TENANT:
Thomas S. Schreier Hypertension Diagnostics, Inc.
(a Minnesota Corporation)
By: /s/ Thomas S. Schreier By: /s/ Greg H. Guettler
------------------------ ----------------------
Thomas S. Schreier
Its: Owner Its: President
----------------------- ---------------------
Date: 10/27/97 Date: 10/24/97
---------------------- --------------------
26
<PAGE>
EXHIBIT "A"
TO
THE WATERS
LEASE OF SPACE
BASIC LEASE INFORMATION
<TABLE>
<CAPTION>
<S> <C>
TENANT: Hypertension Diagnostics, Inc., (a Minnesota
Corporation)
TENANT'S TRADE NAME: Hypertension Diagnostics, Inc.
LAND - LEGAL DESCRIPTION: Lot 1, Block 2, Blue Ridge - According to the plat
thereof on file in the office of the Dakota County
Recorder, Dakota County, Minnesota
DEMISED PREMISES -APPROXIMATE TOTAL: 6,947 Square Feet
DEMISED PREMISES -APPROXIMATE OFFICE: 4,110 Square Feet
DEMISED PREMISES -APPROXIMATE WAREHOUSE: 2,837 Square Feet
DEMISED PREMISES - ADDRESS: 2915 Waters Road, Suite 108
Eagan, MN 55121
SPACE NUMBER: Suite 108
LEASE TERM: Thirty-Six (36) Months
COMMENCEMENT DATE: November 1, 1997
EXPIRATION DATE: October 31, 2000
BASE RENT - TOTAL FOR LEASE TERM: $155,448.00
BASE RENT - TOTAL ANNUAL: $51,816.00
BASE RENT - MONTHLY RENT AMOUNT: $4,318.00
TENANT'S PRO RATA SHARE (FOR ADDITIONAL RENT): 13.40% (6,947 DIVIDED BY 51,845)
</TABLE>
A-1
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
INITIAL MONTHLY DEPOSIT AMOUNT: $6,529.46
SECURITY DEPOSIT AMOUNT: $6,529.46
PLACE FOR PAYMENTS: Welsh Companies, Inc.
8200 Normandale Boulevard, Suite 200
Bloomington, MN 55437
Attn: Accounting Department
PERMITTED USE(S) BY TENANT: Office/Warehouse/Light Assembly and
Manufacturing
PARTICIPATING BROKERS: Fred Hedberg, Paramount Real Estate
Corporation and David Johnson,
JBL Companies, Inc.
</TABLE>
A-2
<PAGE>
EXHIBIT B
THIS IS A DIAGRAM DEPICTING PHASE II OF
2915 WATERS ROAD, EAGAN, MINNESOTA DEVELOPMENT.
B-1
<PAGE>
EXHIBIT C
THIS IS A DIAGRAM DEPICTING THE SITE PLAN FOR
THE WATERS OFFICE COMPLEX IN EAGAN, MINNESOTA.
C-1
<PAGE>
EXHIBIT "D"
ENVIRONMENTAL RIDER
1. TENANT'S REPRESENTATIONS, WARRANTIES AND COVENANTS CONCERNING THE USE OF
HAZARDOUS SUBSTANCES/PERIODIC NOTICE
(a) ACCEPTANCE OF PROPERTY AND COVENANT TO SURRENDER. Tenant accepts
the Property as being in good sanitary order, condition and repair and
accepts all buildings and other improvements in their present condition.
Tenant agrees on the last day of the term of this Lease, to surrender the
Demised Premises to Landlord in good and sanitary order, condition and
repair, except for such wear and tear as would be normal for the period of
the Tenant's occupancy.
No spill, deposit, emission, leakage or other release of Hazardous
Substances on the Property or the soil, surface water or groundwater thereof
shall be deemed to be "wear and tear (that) would be normal for the period of
the Tenant's occupancy." Tenant shall be responsible to promptly and
completely clean up any such release caused by Tenant, its officers and
employees, agents, contractors, and invitees as shall occur on the Property
during the term of this Lease and shall surrender the Property free of any
contamination or other damage caused by such occurrences during the term of
the Lease.
(b) MAINTENANCE OF DEMISED PREMISES. Tenant shall, at its sole cost
and expense, keep and maintain the Demised Premises in good and sanitary
order, condition, and repair. As part of this maintenance obligation, Tenant
shall promptly respond to and clean up any release or threatened release by
Tenant of any Hazardous Substance into the drainage systems, soil, surface
water, groundwater, or atmosphere, in a safe manner, in strict accordance
with applicable Law, and as authorized or approved by all federal, state,
and/or local agencies having authority to regulate the permitting, handling,
and clean up of hazardous substances.
(c) USE OF HAZARDOUS SUBSTANCES. Tenant shall not use, store,
generate, treat, transport, or dispose of any Hazardous Substance on the
Property without first obtaining Landlord's written approval. Tenant shall
notify Landlord and seek such approval in writing at lease thirty (30) days
prior to bringing any Hazardous Substance onto the Property. Landlord may
withdraw approval of any such Hazardous Substance at any time, for reasonable
cause related to the threat of site contamination, or damage or injury to
persons, property or resources on or near the Property. Upon withdrawal of
such approval, Tenant shall immediately remove the Hazardous Substance from
the site. Landlord's failure to approve the use of a Hazardous Substance
under this paragraphs shall not limit or affect Tenant's obligations under
this Lease, including Tenant's duty to remedy or remove releases of
threatened releases; to comply with Applicable Law relating to the use,
storage, generation, treatment, transportation, and/or disposal of any such
Hazardous Substances; or to indemnify Landlord against any harm or damage
caused thereby.
D-1
<PAGE>
(d) REPORTS TO LANDLORD. For any month in which any Hazardous
Substances have been used, generated, treated, stored, transported or
otherwise been present on or in the Property pursuant to the provisions of
the preceding paragraph, Tenant shall provide Landlord with a written report
listing the Hazardous Substances which were present on the Property; all
releases of Hazardous Substances that occurred or were discovered on the
Property; all compliance activities related to such Hazardous Substances,
including all contacts with government agencies or private parties of any
kind concerning Hazardous Substances; and all manifests, business plans,
consent agreements or other documents relating to Hazardous Substances
executed or requested during that time period. The report shall include
copies of all documents and correspondence related to such activities and
written reports of all oral contact relating thereto.
(e) ENTRY BY LANDLORD. Tenant shall permit Landlord and his agents to
enter into and upon the Demised Premises, upon notice, at all reasonable
times for the purpose of inspecting the Demised Premises and all activities
thereon, including activities involving Hazardous Substances, or for purposes
of maintaining any buildings on the Property. Such right of entry and
inspection shall not constitute managerial or operational control by Landlord
over any activities or operations conducted on the Property by Tenant.
II. TENANT'S INDEMNITY AND RELEASE.
(a) INDEMNITY.
(i) Tenant hereby indemnifies, defends an holds harmless
Landlord from and against any suits, actions, legal or
administrative proceedings, demands, claims, liabilities, fines,
penalties, losses, injuries, damages, expenses or costs including
interest and attorneys' fees, incurred by, claimed or assessed
against Landlord under any laws, rules, regulations, including,
without limitation, Applicable Laws (as hereinafter defined), in
any way connected with any injury to any person or damage to any
property or any loss to Landlord caused by Tenant, its officers,
employees, agents, contractor and invitees occasioned in any way
Hazardous Substances (as hereinafter defined) on the Property or
the Demised Premises.
(ii) This indemnity specifically includes the direct
obligation of Tenant to perform any remedial or other activities
required, ordered, recommended or requested by any agency,
government official or third party, or otherwise necessary to avoid
or minimize injury or liability to any person, or to prevent the
spread of pollution, caused by Tenant's activities in the Demised
Premises, (hereinafter the "Remedial Work"). Tenant shall perform
all such work in its own name in accordance with Applicable Laws
(as hereinafter defined).
(iii) Without waiving its rights hereunder, Landlord may, at its
option, perform such remedial or removal work as described
in clause (ii) above, and
D-2
<PAGE>
thereafter seek reimbursement for the costs thereof Tenant shall
permit Landlord access to the Property to perform such remedial
activities.
(iv) Whenever Landlord has incurred costs described in this
section, Tenant shall, within ten (10) days of receipt of notice
thereof, reimburse Landlord for all such expenses together with
interest from the date of expenditure at the "applicable federal rate"
established by the Internal Revenue Service.
(b) AGENCY OR THIRD PARTY ACTION.
Without limiting its obligations under any other paragraph of this
Agreement, tenant shall be solely and completely responsible for responding
to and complying with any administrative notice, order, request or demand, or
any third party claim or demand relating to potential or actual contamination
on the Demised Premises. The responsibility conferred under this paragraph
includes but is not limited to responding to such orders on behalf of the
Landlord and defending against any assertion of Landlord's financial
responsibility or individual duty to perform under such orders. Tenant shall
assume, pursuant to Paragraph (a) above, any liabilities or responsibilities
which are assessed against Landlord in any action described under this
Paragraph (b).
(c) EXCEPTION TO TENANT'S COVENANTS.
TO THE BEST OF LANDLORD'S KNOWLEDGE, NO HAZARDOUS SUBSTANCES EXIST
WITHIN THE DEMISED PREMISES AT THE COMMENCEMENT DATE OF THIS LEASE AND
LANDLORD SHALL INDEMNIFY AND DEFEND TENANT, ITS EMPLOYEES AND AGENTS AND SAVE
THEM HARMLESS FROM AND AGAINST ANY AND ALL LOSS AND AGAINST ALL CLAIMS,
ACTIONS, DAMAGES, LIABILITY AND EXPENSES ARISING OUT OF THE PRESENCE OF
HAZARDOUS MATERIALS ON THE PREMISES PRIOR TO COMMENCEMENT OF THIS LEASE OR
WHICH CAME ON TO THE PREMISES THROUGH NO FAULT OR ACTION OF TENANT.
III. DEFINITIONS.
(a) HAZARDOUS SUBSTANCE.
"Hazardous Substance(s)" shall mean any substance which at any time
shall be listed as "hazardous" or "toxic" under the Comprehensive
Environmental Response Compensation
D-3
<PAGE>
and Liability Act ("CERCLA"), 42 U.S.C. `` 9601 ET SEQ., as amended and
the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. " 6901 ET
SEQ., as amended, or in the regulations implementing such statutes, or
which has been or shall be determined at any time by any agency or court
to be a hazardous or toxic substance regulated under any other
Applicable Laws (as hereinafter defined). The term "Hazardous"
Substance(s)" shall also include, without limitation, raw materials,
building components, the product or any manufacturing or other
activities on the Property, wastes, petroleum products, or special
nuclear or by-product material as defined by the Atomic Energy Act of
1954, 42 U.S.C. `` 3011, ET SEQ., as amended.
(b) APPLICABLE LAW(S).
"Applicable Law(s)" shall include, but shall not be limited to,
CERCLA, RCRA, the Federal Water Pollution Control Act, 33 U.S.C. `` 1251
ET SEQ., the Clean Air act, 42 U.S.C. ``7401 ET SEQ., as amended, and
the regulations promulgated thereunder, and any other federal, state
and/or local laws or regulations, whether current in existence or
hereafter enacted or promulgated, that govern or relate to:
(a) The existence, cleanup and/or remedy of contamination of
property;
(b) The protection of the environment from spilled, deposited or
otherwise emplaced contamination;
(c) The control of hazardous or toxic substances or wastes; or
(d) The use, generation, discharge, transportation, treatment,
removal or recovery of hazardous or toxic substances or wastes,
including building materials.
D-4
<PAGE>
CONFIDENTIAL
MANUFACTURING SERVICES AGREEMENT
DATE: July 15, 1997
PARTIES: Hypertension Diagnostics, Inc.
Five Acorn Drive
South St. Paul, MN 55077-1420
Telephone: 612-450-0045
Telefax: 612-450-6552
"COMPANY"
Altron, Inc.
6700 Industry Avenue
Anoka, MN 55303-4595
Telephone: 612-427-7735
Telefax: 612-427-3980
"CONTRACTOR"
RECITALS:
A. The Company designed, developed and intends to market a
Cardiovascular Profiling Instrument which has several components (the
"PRODUCT").
B. The Contractor is in the business of manufacturing medical
instruments.
C. The parties desire to enter into this Agreement whereby Contractor
agrees to manufacture and supply the Product to the Company.
AGREEMENT:
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of which
are hereby acknowledged, and intending to be legally bound hereby, it is agreed
as follows:
<PAGE>
ARTICLE I
MANUFACTURING SERVICES
SECTION 1.1 SUPPLY. The Contractor shall manufacture the Product in
accordance with the terms and conditions set forth in this Agreement and
shall supply the Product to the Company, and the Company shall pay the
Contractor upon receipt of the Product, as provided herein. The Contractor
will manufacture the Product under the U.S. Food and Drug Administration's
(the "FDA") good manufacturing practices ("GMP") controls appropriate for the
manufacture of a Class II device. Any additional controls to be applied to
the manufacture of the Product will be set forth herein. Any deviation from
these controls will be approved in writing and in advance by the Company and
the Contractor.
SECTION 1.2 FACILITY INSPECTION. The Company shall have
the right, during normal business hours, to inspect all phases of the
manufacturing activities of the Product at the Contractor's facilities in order
to verify the Contractor's compliance with specification and applicable
regulatory requirements. The Contractor agrees to give the Company access
during normal business hours to such records as are reasonably necessary
including, but not limited to, quality control records, test records,
manufacturing records and design records. The Contractor further agrees to
permit the Company to review and copy such records.
ARTICLE II
PLACEMENT OF ORDERS
SECTION 2.1 REQUEST FOR QUOTATIONS. Prior to the issuance of a
purchase order, the Company shall provide a request to the Contractor
requesting a written quotation from the Contractor as to the price for the
number of units requested and the time to complete and ship such units. Such
written quotation will be delivered to the Company within twenty (20)
business days of the Contractor's receipt of the request for a quotation.
SECTION 2.2 PURCHASE ORDERS. The Company's purchase of the Product
shall be governed by purchase orders issued from time-to-time by the Company
and accepted by the Contractor (the "AUTHORIZATION LETTERS"). If the Company
sends an Authorization Letter to the Contractor, the Contractor will promptly
accept or reject the Authorization Letter in writing. If the Contractor
accepts the Authorization Letter, the Contractor will begin the manufacture
of the Product no later than the date specified in the Authorization Letter.
SECTION 2.3 COMPANY COORDINATOR. The Company shall appoint a
Manufacturing Coordinator in each Authorization Letter. The Manufacturing
Coordinator shall establish the quality and the acceptability of the services
to be performed by the Contractor under the respective Authorization Letters.
SECTION 2.4 SUPERVISION BY THE CONTRACTOR. The Contractor shall
inform the Company of the name of the primary employee responsible for the
work with respect to each Authorization Letter. The Contractor shall be
responsible for supervision and direction of the work of its employees
2
<PAGE>
and, if work is done on the Company's premises, the Contractor shall, at all
times, provide supervision of its personnel working on the Company's premises
acceptable to the Company. The Contractor shall require its employees to
comply with the Company's plant regulations and policies.
SECTION 2.5 SUITABILITY OF PERSONNEL. The Contractor agrees not to
assign to work on the Company's premises any of its employees not suitable to
the Company. The Contractor agrees to remove from the Company's premises,
immediately in the case of misconduct, any of its employees at the Company's
request. The Company agrees not to assign to work on the Contractor's
premises any of its employees not suitable to the Contractor. The Company
agrees to remove from the Contractor's premises, immediately in the case of
misconduct, any of its employees at the Contractor's request.
SECTION 2.6 AUTHORIZATION LETTERS. Each Authorization Letter shall
contain the following information:
(a) The incorporation, by reference, of this Agreement, and the
Contractor's quotation, with each Authorization Letter
assigned a unique number.
(b) A description of the Product to be manufactured (including
the quantity, Product Version, special requests, if any,
etc.).
(c) An enumeration of any items of special or unusual expense
authorized for reimbursement of the Contractor, as well as
the basis for such requirement.
(d) The maximum total expenditure authorized, subject to
additional work notices resulting in additional cost as
approved by the Company in advance.
(e) The dates by which:
(1) The Company, in accord with the Contractor,
desires the services under the Authorization
Letter to commence.
(2) The Company, in accord with the Contractor,
desires to have the services under the
Authorization Letter completed.
(f) Any other information pertinent to the work covered by the
Authorization Letter, including the content and schedule for
status reports from the Contractor.
(g) The agreed-upon amount and payment terms for services to be
conducted under the Authorization Letter, and based upon the
Contractor's quotation.
(h) Signature(s) of authorized representatives of both the
Company and the Contractor.
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SECTION 2.7 INVENTORY. The Contractor agrees to maintain a stock of
components and materials of sufficient quantity to cover the current
production of the Company's Product and the production of the Company's
Product acknowledged in Authorization Letter(s).
SECTION 2.8 ACCESSORIES. The Contractor will supply accessories
(such as, power supply, transformer, carrying case, manuals, etc.) as
required for the Company to support overseas field service. However, the
Contractor need not maintain an inventory of these items. It will be the
Company's responsibility to place orders with the Contractor in advance of
its need and to arrange for such an inventory by the Contractor.
SECTION 2.9 DELIVERY. The Contractor shall ship the Product in
accordance with the Company's instructions for method of shipment as
designated by the Company in the Authorization Letter. Upon shipment, the
Contractor must inform the Company of the Company's pick number, SKU number,
product serial number, quantity shipped, product destination, carrier, bill
to and ship to address, package weight and freight cost.
ARTICLE III
BILLING, PAYMENT AND PRICING
SECTION 3.1 PRICE. The unit price charged to the Company by the
Contractor for the Product delivered and accepted by the Company under this
Agreement will be as set forth in the Authorization Letter.
SECTION 3.2 DEPOSITS. Upon acceptance of an Authorization Letter,
the Contractor shall invoice the Company for a deposit as set forth in the
Authorization Letter. This deposit will be retained for the purpose of
covering a portion of the materials costs. Upon completion or termination of
this Agreement and the payment by the Company of all outstanding invoices,
the Contractor shall promptly refund any remaining deposit, in full, to the
Company.
SECTION 3.3 INVOICES. Upon delivery of the Product by the Contractor
to the possession of the carrier designated in the Authorization Letter, the
Contractor shall bill the Company for the Product shipped pursuant to the
Authorization Letter. Such invoices shall state the number of units shipped,
the per unit price, and the total price. The Company shall make payment to
the Contractor for the Product shipped to and accepted by the Company within
thirty (30) days following receipt of the Contractor's invoice. The Company
agrees to pay the Contractor a late penalty of one percent (1%) per month on
any unpaid balance.
ARTICLE IV
WARRANTIES, QUALITY STANDARDS AND INSPECTION
SECTION 4.1 CONTRACTOR WARRANTIES. (a) The Contractor warrants that
all Products manufactured by the Contractor shall strictly conform to the
Specifications by the Company. In addition, the Contractor warrants that all
Products manufactured by the Contractor shall be free from
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defect in material and workmanship for a period of one (1) year from the date
of shipment. The Contractor, however, shall not be liable for damage caused
by physical abuse of the Product or unauthorized opening of the Product's
case. Any defect covered by this warranty will be promptly repaired by a
member of the Contractor's authorized service team. Any unit which, due to
the defect, cannot be repaired when returned to the Contractor, will be
replaced at the Contractor's expense (including transportation). Returned
Products will be processed as defined in Section 4.1(c).
(b) SERVICES. The services provided by the Contractor will be rendered
by qualified personnel employed by the Contractor who will perform the tasks
assigned consistent with good professional practice and standards, and, when
applicable, in accordance with the FDA's GMP and/or other such regulations as
appropriate. The Contractor reserves the right to make staffing changes in
Senior Staff, Manufacturing Personnel, and/or other personnel upon reasonable
notice to the Company's Manufacturing Coordinator at logical breakpoints of
the work. In the event of such staffing change, the Company shall not be
charged for the time required to train the replacement(s). The amount of
non-compensatory training time, if any, shall be mutually determined and
agreed to by the Contractor's and the Company's management and/or
Manufacturing Coordinator.
(c) SERVICE DEPOT. The Contractor will provide Service Depot functions
for the Product and its accessories. The program will be structured as
follows:
- The Contractor, in cooperation with the Company, will establish a
mutually-acceptable inventory of functioning, complete and packaged
Products.
- The Company's customer will send in a failed Product to the Contractor
or the Company, after which the Contractor or the Company will ship a
functioning permanent replacement to the customer.
- The failed Product will be first cleaned and disinfected, as and if
necessary, by the Contractor or the Company prior to being repaired.
- Repair instructions from the Company will accompany the failed Product
describing failure-mode and any additional refurbishment services
required (E.G., new case, new paint or labels, etc.). The Contractor
and the Company will jointly develop a minimum set of standards for
repair of the Product.
- The Contractor will determine classification of all failed Products as
follows: warranty repair, normal repair (outside warranty), misuse or
damage repair, or some combination thereof.
- All non-warranty work will be performed on a time-and-materials basis
at the current Contractor rates at the time the work is performed.
- Standard lead-time for all warranty work and repair work will be ten
(10) business days from receipt of the Product by the Contractor;
PROVIDED, HOWEVER, the parts and/or components required to effect the
work are readily available. The Contractor shall notify the Company,
in writing, on a regular and periodic basis as to those specific parts
and/or components that are not readily available in normal delivery
times. The Contractor, in cooperation with the Company, will
establish a mutually-acceptable inventory of new and/or reworked parts
and components which are required to undertake warranty and repair
work in a timely manner.
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- The Contractor will return all Product devices to the Company's
customer and provide the Company with a description of work performed.
All non-warranty shipments are F.O.B., the Contractor's manufacturing
facilities. All repaired Products will be warrantied as stated in
Section 4.1.
- The Contractor shall provide the Company with a written estimate, on a
regular and periodic basis, as to the number of functioning, complete
and packaged Products it recommends be maintained in inventory.
The above-described Service Depot program will be jointly developed in detail by
the Company and the Contractor, resulting in a documented and mutually-approved
process and procedure.
SECTION 4.2 LIMITATION OF LIABILITY. EXCEPT AS SET FORTH IN THIS
AGREEMENT, THE CONTRACTOR MAKES NO OTHER GUARANTEES OR WARRANTIES WHATSOEVER,
AND THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR IMPLIED,
INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR
PURPOSE. IN NO EVENT WILL THE CONTRACTOR BE LIABLE FOR ANY LOST PROFITS OR
INCIDENTAL OR CONSEQUENTIAL DAMAGES REGARDLESS OF WHETHER THE CONTRACTOR HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, NOR ANY CLAIM AGAINST THE
COMPANY BY ANY OTHER PARTY.
SECTION 4.3 QUALITY STANDARDS. The Product manufactured and supplied
by the Contractor hereunder shall be made in strict compliance with the
Company's product and performance specifications. "SPECIFICATIONS" as used
in this Agreement, shall include, but not be limited to, the manufacturing,
design, inspection, governmental compliance, testing, quality control,
assurance, record retention and other requirements, as are applicable, and
any documents, drawings, and billing materials incorporated thereby. It is
understood that such Specifications may be amended as reasonably necessary,
during the term of this Agreement, subject to written approval from the
Company and upon receipt by the Contractor of reasonable advance notice.
SECTION 4.4 ACCEPTANCE PERIOD.
(a) When, in the Contractor's opinion, it has completed the
services described in the Authorization Letter, including submission of a
final report, if required, the Contractor shall provide written notification
of such fact to the Company. The Company shall have an acceptance period of
thirty (30) days, unless otherwise specified in the Authorization Letter,
from the date of the Contractor's written notice in which to inspect the
Products including conducting tests to determine if the services, computer
software and/or related materials and components have been completed and
manufactured in an acceptable manner. On or prior to the expiration of this
acceptance period, the Company shall provide to the Contractor written notice
of either (a) satisfactory performance and the Company's acceptance of the
Products, or (b) notice of unsatisfactory performance of services and the
Company's rejection of the Products. The Company's right to reject the
Product is limited to this thirty (30) day period unless a latent defect is
not discovered until a later date. "INSPECTION" shall mean the right of the
Company, including its agents, affiliates and dealers, to inspect and analyze
finished goods at any time during normal business hours to determine
compliance with the Specifications and to determine whether any manufacturing
deficiency exists, and shall include the right to reject any Product at any
time upon discovery of any manufacturing defect.
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(b) The Contractor shall supply the appropriate personnel to
investigate any reported deficiencies found by the Company during the
acceptance period. Deficiencies found to be of the Contractor's causing will
be corrected by the Contractor at its expense. Such correcting activities
will commence immediately and be completed as quickly as is reasonably
possible. If the deficiencies are found to be not of the Contractor's
causing, the Company shall reimburse the Contractor for the time and material
changes of (1) the Contractor investigation, and (2) such correcting
activities the Contractor agrees to perform, if requested by the Company.
The period from the time the Contractor is notified to make investigation and
corrections until the Contractor completes those activities shall not be
counted as part of the acceptance period. If corrections are required, upon
receipt of the Contractor's notice that the deficiencies have been remedied,
the Company shall have a new acceptance period of thirty (30) days, unless
otherwise agreed to in writing by the parties.
SECTION 4.5 REJECTED GOODS. The Contractor shall promptly rework,
repair or replace, at the Contractor's discretion and at no cost to the
Company, any Product that is defective in workmanship or materials, or which
fails to meet the Specifications and is rejected by the Company upon
inspection. The Company will comply with the Contractor's reasonable return
procedures. The Contractor shall not be responsible for Products damaged in
shipment, unless such Products are not packaged in accordance with Section
5.1.
SECTION 4.6 CONFIGURATION AND PROCESS CONTROL. The Contractor will
immediately advise the Company's Manufacturing Coordinator at the address set
forth in Section 10.1, of all known changes in or to the design,
configuration, or performance characteristics of the Product, or to any
component thereof supplied by the Contractor, regardless of whether such
changes affect the Specifications, or to the materials or manufacturing
processes utilized in production. No change in process or design will be
made by the Contractor unless expressly agreed to in writing by the Company
in advance of such change. The Company may, at any time in its discretion
and by written order, make additional changes to designs or Product
specification. If said changes cause either an increase or decrease in the
engineering or manufacturing costs or the time required to manufacture, a
mutually-agreeable adjustment shall be made in the Product price or delivery
schedule or both. Where inventory and/or materials have been made obsolete
or excess as a result of said change, the Company shall have the right to
determine the disposition of such property, but the Company shall, in any
event, be responsible to purchase said obsolete inventory and materials at
the incurred cost thereof.
SECTION 4.7 CONTRACTOR'S STATUS REPORTS. All work performed by the
Contractor under an Authorization Letter will be monitored through the use of
oral and written status reports. The Contractor will prepare a written
status report, appropriate and as specified in an Authorization Letter, for
submission to the Company's Manufacturing Coordinator through the
Contractor's supervision. General content of the status reports shall be
specified by the Company's Manufacturing Coordinator.
SECTION 4.8 COMPUTER AND SUPPORT SERVICES. All computer time and
other necessary support services will be provided as generally specified in
the Authorization Letter. All creation of software and related material done
by the Contractor for the Company will be programmed and
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documented in keeping with the Company standards as conveyed by the Company's
Manufacturing Coordinator and as generally specified in the Authorization
Letter.
ARTICLE V
PRODUCT PACKAGING
SECTION 5.1 PACKAGING. Unless otherwise specified in the
Authorization Letter, all items to be delivered hereunder shall be boxed,
crated or stored without additional charge and shall be placed and packaged:
(a) To ensure safe arrival at their ultimate destination;
(b) To secure the lowest transportation costs; and
(c) To comply with the requirements of common carriers.
The Company's Authorization Letter numbers must be plainly marked on all
invoices, packages, bills of lading, and shipping orders. Shipping memos or
packing lists must accompany materials. The Contractor shall identify items
delivered to the recipient by Authorization Letter number, revision,
description, and quantity per carton, as appropriate. The recipient's count
or weight shall be final and conclusive on shipments not accompanied with a
packing list. Products must be routed in accordance with the Company's
instructions for method of shipment. The Company reserves the right to
designate a specific carrier and, in such case, will advise the Contractor in
writing.
SECTION 5.2 TRANSPORTATION. Transportation insurance (in an amount
sufficient to cover the Product's(s') replacement cost) for loss and damage
will be purchased by the Contractor and will be reimbursed by the Company,
unless specifically directed to the contrary by the Company. Excess
transportation costs resulting from failure to comply with the provisions of
this Article V will be paid by the Contractor.
SECTION 5.3 CONSOLIDATION OF SHIPMENTS. Shipments made on the same
day and consigned to one destination via the same carrier must be
consolidated on one bill of lading. Failure to comply will result in a
credit by the Contractor to the Company's related Product invoice for any
excess cost incurred.
SECTION 5.4 COSTS. All prices are F.O.B., Contractor's manufacturing
facility, unless otherwise agreed to in writing.
SECTION 5.5 RISK OF LOSS. Risk of loss or damage shall pass to the
recipient of the Product upon delivery by the Contractor to the possession of
the appropriate carrier, unless otherwise agreed upon in writing by the
Contractor. Any claims for loss or damage after risk of loss has passed
shall be filed by the Company with the carrier.
SECTION 5.6 SHIPPING AGENT. It is the intention of the Company that
the Contractor will act as the shipping agent for the Company. The
Contractor will ship Products directly to the Company's customers as
requested by the Company.
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ARTICLE VI
PATENTS, INVENTIONS, RIGHTS
SECTION 6.1 GRANT OF RIGHTS. Subject to Article VII hereof, each party
grants to the other a non-exclusive license, during the term of this
Agreement, to use its respective confidential information and its respective
patent rights and patent applications covering the Product and components
thereof as necessary in order to carry out the intent and purpose of this
Agreement and for no other purpose.
SECTION 6.2 DESIGN OWNERSHIP. The parties agree that title to goods,
inventions and copyrights in works developed and delivered by the Contractor
under this Agreement, including, but not limited to, goods, patentable
inventions reduced to practice under this Agreement, copyrights in works that
are created under this Agreement, designs drawings, software, and
documentation are owned by the Company. It is understood that pre-existing
know-how, techniques, and other technology utilized by the Contractor under
this Agreement will not become the property of the Company, although the
Company can use them as necessary to utilize and enjoy the items for which
the Company obtains title as described in this subsection.
SECTION 6.3 INFRINGEMENT OF PATENTS, TRADEMARKS OR COPYRIGHTS. The
Contractor shall indemnify the Company for any loss, damage, expense or
liability that may result by reason of any infringement, or claim of
infringement, of any United States patent, trademark or copyright based on
the Company's use of the items described in Section 6.2 of the services
furnished to the Company hereunder. Each party shall notify the other party
promptly, in writing, of any claim or infringement for which the other party
is responsible and shall cooperate with the other party in every reasonable
way to facilitate the defense of any such claim.
ARTICLE VII
CONFIDENTIALITY
SECTION 7.1 DEFINITIONS. For purposes of this Article VII, the
following terms shall have the following meanings:
(a) "TRADE SECRETS" shall mean any and all Company
knowledge and information not generally known in the industry and not
readily disclosed by inspection of physical materials or documents
generally available to the public which relate to the following: (i) the
Products; (ii) products related to the Products and/or advertising,
promotion or display of the Product, developed or otherwise employed by the
Company; (iii) procedures, methods, techniques, computer software,
algorithms, computer hardware designs, plans, specifications or schematics,
compositions, formulas, specifications, plans and designs relating to
design, production, or manufacture of the Product, or advertising,
promotion or display of the Products; (iv) designers, distributors,
customers, customer contacts, distributor and customer lists, and designer,
distributor and customer arrangements; (v) business relationships,
including existence of, or proposed relationships with, designers,
manufacturers, distributors, licensors and licensees, franchisors and
franchisees; and (vi) programs, systems, information, files, materials and
other confidential information, proprietary knowledge and "trade secrets"
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(as that term is defined in the Uniform Trade Secrets Act, Minnesota
Statutes Section 325C.01, Subd. 5) of Company's business.
(b) "BUSINESS SECRETS" shall mean any and all information
pertaining to the current or proposed organization or operation of the
Company including, but not limited to, organizational documents, current or
proposed shareholders, current or proposed customers, capitalization,
current or proposed employee relationships or compensation, financing and
banking arrangements, office, retail, and manufacturing facilities,
manufacturing plans, and marketing plans and market segment identification.
(c) "CONFIDENTIAL INFORMATION" shall mean, collectively,
the Trade Secrets and the Business Secrets.
(d) "DOCUMENTS" shall mean any and all physical material
received by the Contractor from the Company, including, but not limited to,
designs, proposed advertising and/or promotional materials, letters,
studies, writings, diagrams, plans, charts, mark-ups, sketches, samples and
prototypes.
(e) "PURPOSE" shall mean the manufacturing, marketing,
sale and distribution of the Product.
SECTION 7.2 NONDISCLOSURE. The Contractor hereby warrants,
covenants and agrees that any and all Confidential Information, whether oral
or written, received by, or disclosed to the Contractor by the Company shall
be and remain strictly confidential. The Contractor shall not, at any time,
in any manner, directly or indirectly, divulge or in any manner whatsoever
disclose to any person, firm or entity whomsoever all or any portion of the
Confidential Information, except in connection with the furtherance of the
Purpose and then only upon prior notice to and written consent by the Company.
SECTION 7.3 NON-USE. The Contractor hereby warrants, covenants and
agrees that the Contractor will not, in any manner, directly or indirectly,
use or otherwise employ all or any portion of the Confidential Information
except in furtherance of the manufacture of the Product pursuant to the terms
of this Agreement.
SECTION 7.4 RETURN OF DOCUMENTS. The Contractor hereby warrants,
covenants and agrees that no copies of the Documents shall be made except as
may be necessary to manufacture the Product. The Documents shall be returned
to the Company and any notes abstracting the contents of Documents shall be
destroyed, if so requested by the Company.
SECTION 7.5 SPECIFIC ENFORCEMENT. The Contractor acknowledges and
agrees that the Company's remedy at law is inadequate in the event of any
breach or threatened breach of this Agreement. In the event of a breach or
threatened breach of this Agreement, the Company shall be entitled to
petition for injunctive relief restraining Contractor, or any of its agents
or employees, from breaching or acting in any manner inconsistent with the
conduct or performance required by this Agreement. The Contractor hereby
consents to the personal jurisdiction of the courts of the State
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of Minnesota, County of Hennepin, or the Federal District Court, District of
Minnesota, Fourth Division, with respect to any matter arising out of or in
connection with this Agreement. In the event it becomes necessary for the
Company to make application to a court of competent jurisdiction for
enforcement of the provisions of this Agreement and such court shall
determine that any portion of this Agreement is unreasonably broad or
unenforceable, such court is hereby authorized and empowered to narrow the
provisions of this Agreement to such reasonable parameters and limits as such
court shall determine to be necessary to accomplish the intent of the parties
and to protect the Company.
SECTION 7.6 COSTS. The Contractor agrees that the Contractor shall
pay all attorneys' fees (including costs of appeals) incurred by the Company
in enforcing the provisions of this Agreement. The Company shall be
reimbursed in the amount of the Company's actual attorneys' fees unless such
fees are clearly and indisputably unreasonable, in which case a court of
competent jurisdiction or a third party mutually agreed upon by the Company
and the Contractor shall determine such reimbursement in an amount equal to
reasonable attorneys' fees.
ARTICLE VIII
TERM AND TERMINATION
SECTION 8.1 TERM. The term of this Agreement shall be for ten (10)
years unless sooner terminated as provided hereinafter or by operation of law.
SECTION 8.2 TERMINATION. This Agreement may be terminated by
either party upon 270 days' written notice to the other party; PROVIDED,
HOWEVER, that such termination will not become effective until completion of,
or cancellation by the Company of, any work specified in the Authorization
Letter(s) either in effect at the time of said notice of termination or
submitted prior to the effective date of termination of this Agreement.
SECTION 8.3 CANCELLATION OF AUTHORIZATION LETTERS. The Company,
without prejudice to any right or remedy on account of any failure of the
Contractor to perform its obligations under this Agreement, may, at any time,
terminate the performance of the work under any Authorization Letter, in
whole or in part, by written notice to the Contractor specifying the extent
to which the performance of the work is terminated and the date upon which
such termination becomes effective. In the event of any such termination, the
Contractor shall be entitled to payment for services rendered prior to the
effective date of termination at the rates specified in the Authorization
Letter and for any other costs or fees the Contractor may incur in curtailing
or terminating services, or a project properly reimbursable under this
Agreement; PROVIDED, HOWEVER, that payment of any such amounts shall be
subject to any provision for the limit of expenditures set forth in the
Authorization Letter. The payment of such amounts shall be in full settlement
of any and all claims of the Contractor of every description, including
profit.
SECTION 8.4 RETURN OF WORK BY THE CONTRACTOR. In the event of
cancellation or expiration of this Agreement or any Authorization Letter
issued hereunder, all of the Company's property, Product manufacturing
information, written information and related materials, and all work in the
Contractor's possession (except duplicate copies required to be maintained by
law) shall be
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forwarded to the Company, and the Company shall make payment at the specified
rates for satisfactory services performed to the effective date of expiration
or termination.
SECTION 8.5 PERSONNEL EMPLOYMENT. Both the Contractor and the
Company agree not to solicit employment of the others' employees during the
term of this Agreement and for a period of one (1) year subsequent to the
termination of this Agreement unless otherwise mutually agreed in writing by
the parties.
SECTION 8.6 FAILURE TO PERFORM. If the Contractor or the Company
fail to perform any material obligation hereunder, the other party may, in
addition to any other remedy it may have at law or in equity, give notice of
its intent to terminate this Agreement for material breach, specifying the
act or omission upon which such notice is based. If the specified default is
not cured within thirty (30) days of the date of such notice, the
non-defaulting party shall be entitled to terminate this Agreement forthwith
upon written notice effective on the date of such notice.
SECTION 8.7 BANKRUPTCY. If either party is adjudged bankrupt, or
becomes insolvent, or makes an assignment for the benefit of creditors, or if
its business is placed in the hands of a trustee, whether by voluntary action
or otherwise, the other party may immediately terminate this Agreement.
ARTICLE IX
GOVERNMENT REGULATION
SECTION 9.1 COMPLIANCE WITH REGULATIONS. Both the Company and the
Contractor shall conduct their respective business under this Agreement in
accordance and in compliance with applicable government regulations. In this
connection, the manufacturing activities by the Contractor shall be, as a
minimum, in accordance with any applicable GMPs. The parties shall cooperate
in providing, as required, information to governmental agencies in order to
obtain and maintain necessary approvals. Documentation retention of
manufacturing quality records will be in accordance with GMP regulations. At
the end of the retention period, all records will be sent to the Company. The
Company is responsible for initiating interaction with the FDA on issues
regarding the Product. The Contractor will make the Company aware of any
known issues believed to require regulatory attention on the Company's part.
With the exception of complaint investigation, the cost incurred by each of
the parties with respect to the activities under this Section, shall be borne
by the incurring party. The Company will supply the Contractor with any
complaints from their customers in compliance with GMP requirements. The
Company will bear the cost of any complaint investigation that is not caused
by the Contractor's workmanship. The Contractor will supply the Company with
copies of all complaint investigations for the Company's files. Documentation
retention of the Product History Records and Product Master Record and other
Quality Records will be maintained by the Contractor. Retention will be in
accordance with GMP. At the end of the retention period all records will be
sent to the Company.
SECTION 9.2 COMPLIANCE WITH LAWS. Both the Contractor and the
Company shall be responsible for complying with all federal, state and local
laws, rules, regulations, guidelines and the like in the United States and in
other countries as they may pertain to the Product and to the obligations on
the parties to perform under this Agreement including, without limitation,
requirements
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in the United States with respect to registration of establishments, listing
of medical devices, reporting of deaths, serious injuries and certain
malfunctions under 21 CFR Part 803 and the potential therefor, tracking of
medical devices, recalls, safety alerts and process controls. In no event
shall either party assume any risk arising out of the other party's failure
to comply with such laws, rules, regulations, guidelines and the like, and
each party shall cooperate with the other in all respects to facilitate and
promote strict compliance with the provision of this Section. Any changes in
Product design or manufacture (and associated costs) required by law or
regulation or component availability shall be negotiated by the parties and
agreed to in good faith.
ARTICLE X
INDEPENDENT CONTRACTOR AND
MISCELLANEOUS PROVISIONS
SECTION 10.1 NOTICES. Any notice given under this Agreement shall
be mailed by first class registered or certified airmail, postage prepaid,
and return receipt requested, via a national overnight courier service, or
sent by telefax, to the receiving party at the address set forth on the first
page hereof, or at such other address as the party may from time to time
designate. Notices shall be considered given on the date mailed or sent, if
mailed or sent in accordance with the provisions of this Section 10.1,
subject to proof of receipt by overnight courier, telefax confirmation or
return receipt of a certified mail transmission.
SECTION 10.2 GOVERNING LAW AND JURISDICTION. This Agreement shall
be deemed to have been executed and delivered in Minneapolis, Minnesota, and
all questions arising out of or under this Agreement shall be governed by the
laws of the State of Minnesota.
SECTION 10.3 ENTIRE AGREEMENT. This is the final and entire
Agreement and understanding between the parties and supersedes and merges all
prior agreements and understandings, oral or written, as to the subject
matter described herein. No modifications, representation, promise or
agreement in connection with the subject matter of this Agreement shall be
binding on the Company or the Contractor unless made in writing and signed by
an officer or authorized representative of the party to be bound, such as the
issuance by the Company of a change to an Authorization Letter.
SECTION 10.4 WAIVER. No term, covenant, or written condition of
this Agreement shall be deemed waived except by the written agreement of the
parties. Forbearance or indulgence by either party in any regard whatsoever
shall not constitute a waiver of the term, covenant or condition to be
performed by the other to which the same may apply, and until complete
performance by the other party of such term, covenant and condition, the
performing party shall be entitled to invoke any remedy available to it under
this Agreement or otherwise available to it at law or in equity despite such
forbearance or indulgence.
SECTION 10.5 SAVINGS CLAUSE. If any provision of this Agreement
shall be held by a court of competent jurisdiction to be contrary to law,
such provision shall be deemed to be null and void, and the remainder of this
Agreement shall be in full force and effect. The parties specifically declare
that they would have entered into this Agreement if such void provision (or
provisions), if any, had been entirely omitted.
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SECTION 10.6 REMEDIES. No right or remedy conferred or reserved by
the Agreement shall be exclusive of any other right or remedy herein or
provided at law or in equity. To the extent any provision of this Agreement
may be inconsistent with any remedy provided at law or in equity, this
Agreement shall be controlling.
SECTION 10.7 ASSIGNABILITY. Neither party shall delegate or assign
its duties under this Agreement without the other party's prior written
consent, and any purported delegation or assignment without such consent
shall be void. Subject to the foregoing, this Agreement shall be binding on
the parties hereto and their respective successors and assigns.
SECTION 10.8 SURVIVAL OF RIGHTS AND OBLIGATIONS. The rights and
obligations of Article IV, Section 6.3 and Article VII shall survive and
continue after the expiration or termination of this Agreement, and shall
bind the parties and their successors and assigns.
SECTION 10.9 FORCE MAJEURE. Neither party shall be liable for
failure to perform or for any delay in performing any of its obligations
hereunder other than as provided for in hereof, when such failure or delay is
caused, directly or indirectly, by fire, flood, earthquake, riot, accident,
explosion, strike or other labor disturbances (regardless of the
unreasonableness of the degree of the demand of labor), war, seizure under
legal process orders or acts of any government or branch or agency thereof,
or acts of God.
SECTION 10.10 INDEPENDENT CONTRACTORS. During the term thereof, the
relationship of each of the parties hereto, to the other, is that of an
independent contractor. Nothing herein contained shall be deemed to authorize
or empower either party, its agents or employees to act as agent for the
other party or conduct business in the name, or for the account of, the other
party or any of the other party's affiliates or otherwise bind it or them in
any manner.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
above written.
HYPERTENSION DIAGNOSTICS, INC.
By /s/ Charles F. Chesney
----------------------------------------
Charles F. Chesney, D.V.M., Ph.D., R.A.C.
Executive Vice President and C.T.O.
"COMPANY"
ALTRON, INC.
By /s/ Alan C. Phillips
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Its President
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"CONTRACTOR"
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CONFIDENTIAL
MANUFACTURING SERVICES AGREEMENT
DATE: May 14, 1998
PARTIES: Hypertension Diagnostics, Inc.
2915 Waters Road, Suite 108
Eagan, MN 55121-1562
Telephone: 612-687-9999
TeleFax: 612-687-0485
"COMPANY"
Apollo Research Corporation
2640 North America Drive
West Seneca, NY 14224
Telephone: 716-674-3600
TeleFax: 716-674-3659
"CONTRACTOR"
RECITALS:
A. The Company designed, developed and intends to market a
CardioVascular Profiling Instrument (the "PRODUCT") which has several
components, including the Model 7013 Arterial Pulse Pressure Sensor (the
"SENSOR"), which was designed and developed with the assistance of the
Contractor.
B. The Contractor is in the business of manufacturing various medical
components, including the Sensor.
C. The Sensor is a component that is critical to the functionality of
the Product.
D. In consideration of the terms and conditions set forth in this
Agreement, the parties desire to enter into this Agreement whereby Contractor
agrees to manufacture and supply Sensors to the Company, and the Company
agrees to purchase the Sensors from the Contractor.
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AGREEMENT:
FOR GOOD AND VALUABLE CONSIDERATION, the receipt and sufficiency of
which are hereby acknowledged, and intending to be legally bound hereby, it
is agreed as follows:
ARTICLE I
MANUFACTURING SERVICES
SECTION 1.1 SUPPLY. During the term of this Agreement, the
Contractor shall manufacture Sensors and shall supply such Sensors to the
Company, and the Company shall purchase from the Contractor Sensors ordered
by the Company which conform to the requirements of this Agreement, all as
more particularly provided herein. The Contractor will manufacture the
Sensors under the U.S. Food and Drug Administration's (the "FDA") good
manufacturing practices ("GMP") and quality system requirements ("QSR")
applicable to the manufacture of the Sensors. Any additional requirements
applicable to the manufacture of the Sensors are as set forth herein. Any
deviation from these requirements must be approved by the Company and the
Contractor in writing and in advance of manufacture.
SECTION 1.2 FACILITY INSPECTION. The Company shall have the right,
upon reasonable notice to the Contractor, during normal business hours, to
inspect all phases of the manufacturing activities of the Sensors at the
Contractor's or any subcontractor's facilities in order to verify the
Contractor's compliance with the requirements of this Agreement. The
Contractor agrees to give the Company access or arrange for the Company to
have access during normal business hours to such records as are reasonably
necessary to any such inspection including, but not limited to, quality
control records, test records, manufacturing records and design records. The
Contractor further agrees to permit or arrange for the Company to review and
copy such records for purposes of conducting any such inspection, provided
the Company agrees to maintain the confidentiality of any such records.
ARTICLE II
PLACEMENT OF ORDERS
SECTION 2.1 REQUEST FOR QUOTATIONS. Prior to the issuance of a
purchase order, the Company shall provide to the Contractor a request for a
written quotation from the Contractor as to the price for the number of
Sensors requested and the time to manufacture such Sensors, attach such
Sensors to cables ("SENSOR CABLES") supplied by the Company and ship such
completed assemblies ("SENSOR ASSEMBLIES") to the Company. The Contractor
will deliver such written quotation to the Company within twenty (20)
calendar days of the Contractor's receipt of the request for a quotation.
SECTION 2.2 PURCHASE ORDERS. The Company's purchase of the Sensors
shall be governed by purchase orders issued from time-to-time by the Company
and accepted by the Contractor (the "AUTHORIZATION LETTERS"). If the Company
sends an Authorization Letter to the Contractor, the Contractor will promptly
accept or reject the Authorization Letter in writing. If the Contractor
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accepts the Authorization Letter, the Contractor will begin the manufacture
of the Sensors no later than the date specified in the Authorization Letter
and will otherwise adhere to the other terms and conditions specified therein.
SECTION 2.3 COMPANY COORDINATOR. In each Authorization Letter, the
Company shall appoint a Manufacturing Coordinator. The Manufacturing
Coordinator shall establish standards for the quality and acceptability of
the manufacture of the Sensors and of the services to be performed by the
Contractor under the applicable Authorization Letter, provided that such
standards shall not materially affect the profitability to the Contractor
attributable to the manufacture and assembly of the Sensors and Sensor
Assemblies contemplated by such Authorization Letter.
SECTION 2.4 SUPERVISION BY THE CONTRACTOR. The Contractor shall
inform the Company of the name of the primary employee, employees or
subcontractors responsible for the work to be performed under each
Authorization Letter. The Contractor shall be responsible for supervision
and direction of the work of its employees and subcontractors, and if work is
done on the Company's premises, the Contractor shall, at all times, provide
supervision acceptable to the Company of its personnel working on the
Company's premises. The Contractor shall require its employees and, if
applicable, its subcontractors, to comply with the Company's plant
regulations and policies.
SECTION 2.5 ACCEPTABILITY OF PERSONNEL. The Contractor agrees not to
assign to work on the Company's premises any of its employees not acceptable
to the Company. The Contractor agrees to remove from the Company's premises,
immediately in the case of misconduct, any of its employees at the Company's
request. The Company agrees not to assign to work on the Contractor's
premises any of its employees not acceptable to the Contractor. The Company
agrees to remove from the Contractor's premises, immediately in the case of
misconduct, any of its employees at the Contractor's request.
SECTION 2.6 AUTHORIZATION LETTERS. Each Authorization Letter shall
contain, at a minimum, the following information:
(a) The incorporation, by reference, of this Agreement, and
the Contractor's quotation.
(b) A brief description of the Sensors to be manufactured
pursuant to the Authorization Letter (including the
quantity, necessary modifications to the Sensors,
special requests, if any, etc.).
(c) An enumeration of any items of special or unusual
expense authorized for reimbursement of the Contractor,
as well as the basis for such reimbursement.
(d) The maximum total expenditure authorized pursuant to
the Authorization Letter, subject to additional work
notices resulting in additional cost as approved by the
Company in advance.
(e) The dates by which:
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(1) The Company, in accord with the Contractor,
desires the services under the Authorization
Letter to commence.
(2) The Company, in accord with the Contractor,
desires to have the Sensor Assemblies completed
and delivered to the Company.
(f) Any other information pertinent to the work covered by
the Authorization Letter, including the content and
schedule for status reports from the Contractor, if
any.
(g) The agreed-upon amount and payment terms for Sensor
Assemblies to be delivered and services to be completed
under the Authorization Letter, based upon the
Contractor's quotation.
(h) A description of any special or unusual services to be
rendered by the Company as part of the Contractor's
manufacture and delivery of the Sensors and Sensor
Assemblies and the Company's review and approval of
same, including reasonable time frames for the
performance of said services.
(i) Signature(s) of authorized representatives of both the
Company and the Contractor.
SECTION 2.7 INVENTORY. The Contractor agrees to maintain a stock of
components and materials in quantities sufficient to cover the current and
reasonably anticipated production of Sensors for the Company.
SECTION 2.8 PREFERENCE TO DO BUSINESS WITH THE CONTRACTOR. The
Company shall place all orders for Sensors or Sensor Assemblies with the
Contractor provided that the Contractor is able and willing to, and does in
fact, comply with all of its material obligations under this Agreement. If
the Company concludes that the Contractor is unable and/or unwilling so to
comply with any of its material obligations under this Agreement, and
actually fails to comply with any of its material obligations under this
Agreement, then the Company shall have the right, upon notice to the
Contractor, to place orders for Sensors or Sensor Assemblies with a third
party, provided that the notice to the Contractor shall specify the reasons
for and nature of the order with such third party.
SECTION 2.9 DELIVERY. The Contractor shall ship the Sensor
Assemblies at the Company's expense in accordance with the Company's
instructions for method of shipment as designated by the Company in the
Authorization Letter. Upon shipment, the Contractor shall inform the Company
of the Company's pick number, SKU number, serial number, quantity shipped,
product destination, carrier, bill-to and ship-to address, package weight and
freight cost.
SECTION 2.10 SENSOR CABLES. The Company agrees to supply to the
Contractor, at the Company's expense, such number of Sensor Cables as are
necessary to fulfill the Contractor's obligations under each Authorization
Letter, plus an allowance of ten percent (10%). Upon receipt of any Sensor
Cable, the Contractor shall immediately inspect such Sensor Cable, and shall
accept or reject the same. In the event that the Contractor rejects any
Sensor Cable, the Contractor shall promptly return such Sensor Cable to the
Company, and the Company shall promptly replace such
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Sensor Cable at its expense. Any Sensor Cables delivered by the Company in
respect of the Sensors described in any given Authorization Letter that are
not required by the Contractor shall be returned to the Company upon
completion of such Authorization Letter. Any Sensor Cables required by the
Contractor in respect of the Sensors described in any given Authorization
Letter in excess of the number supplied by the Company and accepted by the
Contractor in respect of such Authorization Letter as hereinbefore provided
shall be at the Contractor's sole cost and expense.
ARTICLE III
BILLING, PAYMENT AND PRICING
SECTION 3.1 PRICE. The per-Sensor price charged to the Company by
the Contractor for the Sensors delivered and accepted by the Company under
this Agreement will be as set forth in the applicable Authorization Letter.
The Company agrees that per-Sensor pricing under this Agreement will reflect
an entitlement on the part of the Contractor to make a reasonable profit in
connection with its activities hereunder.
SECTION 3.2 INVOICES. Upon delivery of the Sensor Assemblies by the
Contractor to the possession of the carrier designated in the Authorization
Letter, the Contractor shall bill the Company for the Sensors shipped
pursuant to the Authorization Letter. Such invoices shall state the number
of Sensors shipped, the per-Sensor price, and the total price. The Company
shall make payment to the Contractor for the Sensors shipped to and accepted
by the Company within thirty (30) days following receipt of the Contractor's
invoice. The Company agrees to pay the Contractor a late penalty of one and
one-half percent (1 1/2 %) per month on any unpaid balance.
ARTICLE IV
WARRANTIES, QUALITY STANDARDS AND INSPECTION
SECTION 4.1 CONTRACTOR WARRANTIES. (a) The Contractor warrants that
all Sensors manufactured by the Contractor pursuant to this Agreement shall
conform strictly to the Specifications of the Company described in Section
4.3 hereof. In addition, the Contractor warrants that all Sensors
manufactured by the Contractor shall be free from defects in materials and
workmanship for a period of one (1) year from the date of shipment. Any
Sensor in breach of this warranty will be returned to the Contractor at the
Company's expense and will promptly be repaired by a member of the
Contractor's authorized service staff at the Contractor's expense. Any
defective Sensor which, for any reason, cannot be repaired by the Contractor
when returned to the Contractor, will be replaced at the Contractor's expense
(including transportation). All replaced Sensors will be warranted for a
period of one (1) year from the date of shipment thereof as required by this
Section 4.1. Returned Sensors will be processed as defined in Section 4.1(c).
(b) SERVICES. The services provided by the Contractor or any
subcontractor employed by the Contractor will be rendered by qualified
personnel employed by the Contractor or any such subcontractor who will
perform the tasks assigned in a manner that is consistent with good
professional practice and standards, and, where applicable, in accordance
with the FDA's GMP, QSR
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and/or other such regulations as appropriate. Should the Company's
Manufacturing Coordinator determine that any Contractor or any subcontractor
personnel assigned to manufacture of the Sensors (or services relating
thereto) is not performing satisfactorily, the Contractor will replace such
personnel or cause any applicable subcontractor to replace any such personnel
upon receiving written notice thereof from the Company. The Contractor
reserves the right to make staffing changes in Senior Staff, Manufacturing
Personnel, and/or other personnel upon reasonable notice to the Company's
Manufacturing Coordinator at logical breakpoints of the work. In the event
of such staffing change, the Company shall not be charged for the time
required to train the replacement(s). The amount of non-compensatory
training time, if any, shall be mutually determined and agreed to by the
Contractor's and the Company's management and/or Manufacturing Coordinator.
(c) SERVICE DEPOT. The Contractor will provide Service Depot functions
for the Sensors. The program will be structured as follows:
- The Contractor, in cooperation with the Company, will establish a
mutually-acceptable inventory of functioning, complete and packaged
Sensors.
- The Company's customer will send in failed Sensors to the Company,
upon receipt of which the Company will ship a functioning permanent
replacement to the customer.
- The failed Sensors will be cleaned and disinfected, if necessary, by
the Company prior to being repaired.
- Repair instructions from the Company will accompany the failed
Sensors describing failure-mode and any additional
refurbishment services required. The Contractor and the Company
will jointly develop a minimum set of standards for repair of the
Sensors.
- The Contractor will determine classification of all failed Sensors as
follows: warranty repair, normal repair (outside warranty), misuse
or damage repair, or some combination thereof.
- All non-warranty work will be performed on a time-and-materials basis
at the current Contractor rates at the time the work is performed.
- Standard lead-time for all warranty work and repair work will be a
maximum of ten (10) business days from receipt of the Sensors by the
Contractor or, if the Sensor in question is not repairable, it shall
be replaced within ten (10) business days.
- The Contractor will return all Sensors to the Company and provide the
Company with a description of work performed. All warranty shipments
are F.O.B., the Company's facilities. All non-warranty shipments are
F.O.B., the Contractor's manufacturing and Service Depot facilities.
All repaired Sensors will be warranted for a period of one (1) year
from the date of repair thereof as required by Section 4.1.
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The above-described Service Depot program will be jointly established in
detail by the Company and the Contractor, resulting in a documented and
mutually-approved process and procedure.
SECTION 4.2 EXCLUSION OF OTHER WARRANTIES. EXCEPT AS SET FORTH IN
THIS AGREEMENT, THE CONTRACTOR MAKES NO OTHER GUARANTEES OR WARRANTIES
WHATSOEVER, AND THIS WARRANTY IS IN LIEU OF ALL OTHER WARRANTIES, EXPRESS OR
IMPLIED, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
SECTION 4.3 QUALITY STANDARDS. The Sensors manufactured and supplied
by the Contractor hereunder shall be manufactured in strict compliance with
product and performance specifications promulgated by the Company from time
to time ("SPECIFICATIONS"), which Specifications shall include, but not be
limited to, manufacturing, design, inspection, governmental compliance,
testing, quality control, assurance, record retention and other
requirements, as applicable, and any documents, drawings, and billing
materials incorporated thereby. It is understood that such Specifications
may be amended as reasonably necessary from time to time during the term of
this Agreement by the Company effective upon receipt by the Contractor of
reasonable advance notice, provided that such amendments shall be applicable
only to subsequent orders of Sensors or Sensor Assemblies.
SECTION 4.4 ACCEPTANCE PERIOD.
(a) When, in the Contractor's opinion, it has completed the services
described in an Authorization Letter, including submission of a final report,
if required, the Contractor shall provide written notification of such
completion to the Company. The Company shall have an acceptance period of
thirty (30) days, unless otherwise agreed to by the Company and the
Contractor, from the date of the Contractor's written notice in which to
inspect the Sensors including conducting tests to determine if the services,
computer software and/or related materials and components have been completed
and manufactured in an acceptable manner. On or prior to the expiration of
this acceptance period, the Company shall provide to the Contractor written
notice of either (a) satisfactory performance and the Company's acceptance of
the Sensors, or (b) notice of unsatisfactory performance of services and the
Company's rejection of the Sensors. The Company's right to reject the
Sensors is limited to this thirty (30) day period unless a latent defect, not
capable of being discovered by reasonable testing, is not discovered until a
later date. "INSPECTION" shall mean the right of the Company, including its
agents, affiliates and dealers, to inspect and analyze finished goods at any
time during normal business hours to determine compliance with the
Specifications and to determine whether any manufacturing deficiency exists,
and shall include the right to reject any Sensor at any time upon discovery
of any manufacturing defect.
(b) The Contractor shall supply appropriate personnel to investigate
any reported deficiencies found by the Company during the acceptance period.
Deficiencies found to be the responsibility of the Contractor will be
corrected by the Contractor at its expense. Such corrective activities will
commence immediately and will be completed as quickly as is reasonably
possible. If the deficiencies are found to be not the responsibility of the
Contractor, the Company shall reimburse the Contractor for the time and
material charges of (1) the Contractor's investigation, and (2) such
corrective activities as the Contractor agrees to perform, if requested by
the Company. If corrections
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are required, the period from the time the Contractor is notified of the
Company's rejection of Sensors to the time until the Contractor completes its
investigative and corrective activities shall not be counted as part of the
acceptance period; upon receipt of the Contractor's notice that the
deficiencies have been remedied, the Company shall have a new acceptance
period of thirty (30) days, unless otherwise agreed to in writing by the
parties.
SECTION 4.5 REJECTED GOODS. The Contractor shall promptly rework,
repair or replace, at the Company's discretion and at no cost to the Company,
any Sensor that is defective in workmanship or materials, or which fails to
meet the Specifications and is rejected by the Company upon inspection. The
Company will comply with the Contractor's reasonable return procedures. The
Contractor shall not be responsible for Sensors damaged in shipment, unless
such Sensors are not packaged in accordance with Section 5.1.
SECTION 4.6 CONFIGURATION AND PROCESS CONTROL. The Contractor will
immediately advise the Company's Manufacturing Coordinator at the address set
forth in Section 10.1, of all known changes in or to the design,
configuration or performance characteristics of the Sensor (regardless of
whether such changes affect the Specifications), and of all known changes in
or to the materials or manufacturing processes utilized in production. No
change in process or design will be made by the Contractor unless expressly
agreed to in writing by the Company in advance of such change. The Company
may, at any time in its discretion and by written order, make additional
changes to designs, provided that such changes shall be applicable only to
Sensors covered by future Authorization Letters. If said changes cause
either an increase or decrease in the engineering or manufacturing costs or
the time required to manufacture the Sensors, a mutually-agreeable adjustment
shall be made to the Sensor price or delivery schedule or both. Where
inventory and/or materials have been made obsolete or excess as a result of
said change, the Company shall have the right to determine the disposition of
such property, but the Company shall, in any event, be responsible to
purchase said obsolete inventory and materials at the incurred cost thereof.
SECTION 4.7 CONTRACTOR'S STATUS REPORTS. All work performed by the
Contractor under an Authorization Letter will be monitored through the use of
oral and/or written status reports, as reasonably requested by the Company
from time to time. The Contractor will prepare a written status report,
appropriate and as specified in the applicable Authorization Letter, for
submission to the Company's Manufacturing Coordinator. The general content
of the status reports shall be specified by the Company's Manufacturing
Coordinator, provided that the requirement to render such reports shall not
materially affect the profitability to the Contractor attributable to the
manufacture and assembly of the Sensors and Sensor Assemblies contemplated by
the applicable Authorization Letter.
SECTION 4.8 COMPUTER AND SUPPORT SERVICES. All computer time and
other necessary support services will be provided as generally specified in
the applicable Authorization Letter. All creation of software and related
material done by the Contractor for the Company will be programmed and
documented in keeping with the Company's standards as promulgated by the
Company's Manufacturing Coordinator pursuant to Section 2.3 hereof and as
generally specified in the applicable Authorization Letter.
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ARTICLE V
PRODUCT PACKAGING
SECTION 5.1 PACKAGING. Unless otherwise specified in the applicable
Authorization Letter, all Sensor Assemblies and other items to be delivered
hereunder shall be boxed, crated or stored without additional charge and
shall be placed and packaged:
(a) To ensure safe arrival at their ultimate destination;
(b) To secure the most expeditious and cost-effective
transportation approach; and
(c) To comply with the requirements of common carriers.
Reference to the applicable Authorization Letter and date must be plainly
marked on all invoices, packages, bills of lading, and shipping orders.
Shipping memos or packing lists must accompany materials. The Contractor
shall identify Sensors and items delivered to the Company by revision,
description, and quantity per carton, as appropriate. The Company's count or
weight shall be final and conclusive on shipments not accompanied with a
packing list. Sensors must be routed in accordance with the Company's
instructions for method of shipment. The Company reserves the right to
designate a specific carrier and, in such case, will advise the Contractor in
writing.
SECTION 5.2 TRANSPORTATION. Transportation insurance (in an amount
sufficient to cover the replacement cost of the Sensors) for loss and damage
will be purchased by the Contractor and the cost thereof will be reimbursed
by the Company, unless specifically directed to the contrary by the Company.
Excess transportation costs resulting from failure to comply with the
provisions of this Article V will be paid by the Contractor.
SECTION 5.3 CONSOLIDATION OF SHIPMENTS. Shipments made on the same
day and consigned to one destination via the same carrier must (unless
otherwise agreed to by the Company) be consolidated on one bill of lading.
Failure to comply will result in a credit by the Contractor to the Company's
related invoice for any excess cost incurred.
SECTION 5.4 COSTS. All prices are F.O.B., Contractor's manufacturing
facility and Service Depot, unless otherwise provided in this Agreement or
agreed to in writing by the parties.
SECTION 5.5 RISK OF LOSS. Risk of loss of or damage to the Sensors
shall pass to the Company upon delivery thereof by the Contractor to the
appropriate carrier, unless otherwise agreed upon in writing by the parties.
Any claims for loss or damage after risk of loss of or damage to the Sensors
has passed to the Company shall be filed by the Company with the carrier.
ARTICLE VI
PATENTS, INVENTIONS, RIGHTS
SECTION 6.1 GRANT OF RIGHTS. Subject to Article VII hereof, each
party grants to the other a non-exclusive license, during the term of this
Agreement, to use its respective confidential
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information and its respective patent rights and patent applications covering
the Sensor and components thereof as necessary in order to carry out the
intent and purpose of this Agreement and for no other purpose.
SECTION 6.2 DESIGN OWNERSHIP. Subject to the terms and conditions of
this Agreement the parties agree that title to goods, inventions and
copyrights in works developed by the Contractor pursuant to and during the
term of this Agreement, including, but not limited to, goods, patentable
inventions reduced to practice under this Agreement, copyrights in works that
are created under this Agreement, designs, drawings, software and
documentation, are owned by the Company. It is understood that know-how,
techniques and other technology utilized and owned exclusively by the
Contractor prior to the date of this Agreement will not become the property
of the Company, although the Company shall have the right to use such items
as necessary to utilize and enjoy the items to which the Company has title as
described in this Section 6.2.
SECTION 6.3 MASTER FILE. The Contractor acknowledges and agrees that
the Sensor is a component that is critical to the functionality and thereby
the marketing and sale of the Product. Accordingly, the Contractor agrees to
assemble a master file (the "MASTER FILE") of all information necessary to
manufacture the Sensors and to assemble the Sensor Assemblies, including,
without limitation, the following: (a) technical specifications; (b)
information about materials relating thereto; (c) engineering drawings;
(d) assembly procedures; (e) specialized technical know-how; (f) bill of
materials and preferred vendor contacts, addresses and phone numbers;
(g) testing, verification and validation procedures; and (h) any other relevant
information relating to the foregoing. Within thirty (30) days of the date
of this Agreement, the Contractor will supply a copy of the Master File to
the Company, and thereafter the Contractor shall update and maintain (and
shall supply the Company with a copy of any such updates to or maintenance
of) the Master File to the extent necessary to keep the Master File
absolutely current at all times.
SECTION 6.4 INFRINGEMENT OF PATENTS, TRADEMARKS OR COPYRIGHTS.
Except with respect to matters described in the second sentence of this
Section 6.4, the Contractor shall indemnify the Company for any loss, damage,
expense or liability that may result by reason of any infringement, or claim
of infringement, of any United States patent, trademark or copyright based on
the Company's use of the items described in Section 6.2 or the services
furnished to the Company hereunder. Notwithstanding the provisions contained
in the first sentence of this Section 6.4, the Company shall indemnify the
Contractor for any loss, damage, expense or liability that may result by
reason of any infringement, or claim of infringement, of any United States
patent, trademark or copyright based on the Contractor's manufacture, repair
or modification at the Company's request, of any Sensor which was
manufactured, repaired or modified on the basis of any patent, trademark or
copyright owned or applied for by the Company. Each party shall notify the
other party promptly, in writing, of any such claim for infringement and
shall cooperate with the other party in every reasonable way to facilitate
the defense of any such claim.
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ARTICLE VII
CONFIDENTIALITY
SECTION 7.1 DEFINITIONS. For purposes of this Article VII, the
following terms shall have the following meanings:
(a) "TRADE SECRETS" shall mean any and all Company
knowledge and information not generally known in the industry and not
readily disclosed by inspection of physical materials or documents
generally available to the public which relate to the following: (i) the
Product or the Sensor; (ii) products related to the Product or the
Sensor and/or advertising, promotion or display of the Product or the
Sensor, developed or otherwise employed by the Company; (iii)
procedures, methods, techniques, computer software, algorithms, computer
hardware designs, plans, specifications or schematics, compositions,
formulas, specifications, plans and designs relating to design,
production, or manufacture of the Product or the Sensor, or advertising,
promotion or display of the Product or the Sensor; (iv) designers,
distributors, customers, customer contacts, distributor and customer
lists, and designer, distributor and customer arrangements; (v) business
relationships, including existence of, or proposed relationships with,
designers, manufacturers, distributors, licensors and licensees,
franchisors and franchisees; and (vi) programs, systems, information,
files, materials and other confidential information, proprietary
knowledge and "trade secrets" (as that term is defined in the Uniform
Trade Secrets Act, Minnesota Statutes Section 325C.01, Subd. 5) of
Company's business. Trade Secrets shall also mean any and all
Contractor knowledge and information not generally known in the industry
and not readily disclosed by inspection of physical materials or
documents generally available to the public which relate to matters
comparable to those described in clauses (iv),(v) and (vi) of this
Subsection (a), including but not limited to any Contractor knowledge
and information contained in the Master File.
(b) "BUSINESS SECRETS" shall mean any and all information pertaining
to the current or proposed organization or operation of the Company or
the Contractor including, but not limited to, organizational documents,
current or proposed shareholders, current or proposed customers,
capitalization, current or proposed employee relationships or
compensation, financing and banking arrangements, office, retail, and
manufacturing facilities, manufacturing plans, and marketing plans and
market segment identification.
(c) "CONFIDENTIAL INFORMATION" of each party shall mean,
collectively, the Trade Secrets and the Business Secrets of such party.
(d) "DOCUMENTS" shall mean any and all physical material received
by the Contractor from the Company, including, but not limited to,
designs, proposed advertising and/or promotional materials, letters,
studies, writings, diagrams, plans, drawings, charts, mark-ups,
sketches, samples and prototypes relating to the Product or the Sensor.
(e) "PURPOSE" shall mean the manufacturing of the Sensor and/or
the performance of the services associated therewith, all pursuant to
this Agreement.
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SECTION 7.2 NONDISCLOSURE. Each party hereby warrants, covenants and
agrees that any and all Confidential Information of the other party, whether
oral or written, which is received by or disclosed to such party, shall be
and remain strictly confidential. Any party that receives Confidential
Information of the other party shall not, at any time, in any manner,
directly or indirectly, divulge or in any manner whatsoever disclose to any
person, firm or entity whomsoever all or any portion of such Confidential
Information, except in connection with the furtherance of the Purpose and
then only upon prior notice to and written consent by the owner of the
Confidential Information in question.
SECTION 7.3 NON-USE. Each party hereby warrants, covenants and
agrees that it will not, in any manner, directly or indirectly, use or
otherwise employ all or any portion of any Confidential Information belonging
to the other party except in furtherance of the Purpose.
SECTION 7.4 RETURN OF DOCUMENTS. Except as otherwise provided herein
the Contractor hereby warrants, covenants and agrees that no copies of the
Documents shall be made except as may be necessary to manufacture the Sensor.
The Documents shall be returned to the Company and any notes abstracting the
contents of Documents shall be destroyed, if so requested by the Company.
SECTION 7.5 SPECIFIC ENFORCEMENT. Each party acknowledges and agrees
that the other party's remedies at law are inadequate in the event of any
breach or threatened breach of this Agreement. Consequently, in the event of
a breach or threatened breach of this Agreement, the non-breaching party
shall be entitled to petition for injunctive relief restraining the breaching
party or any of its agents or employees, from breaching or acting in any
manner inconsistent with the conduct or performance required by this
Agreement. The Contractor hereby consents to personal jurisdiction in the
courts of the State of Minnesota, County of Hennepin, or the Federal District
Court, District of Minnesota, Fourth Division, with respect to any matter
arising out of or in connection with this Agreement. In the event any court
of competent jurisdiction determines that any portion of this Agreement is
unreasonably broad or unenforceable, such court is hereby authorized and
empowered to narrow the provisions of this Agreement to such reasonable
parameters and limits as such court shall determine to be necessary to
accomplish the intent of the parties and to protect the Company.
SECTION 7.6 LEGAL EXPENSES. In the event of any litigation to
enforce the provisions of this Agreement, the prevailing party shall be
entitled to recover its legal expenses (including reasonable attorneys'
fees), as assessed by the court.
ARTICLE VIII
TERM AND TERMINATION
SECTION 8.1 TERM. The term of this Agreement shall be for ten (10)
years from the date first written above unless sooner terminated as provided
hereinafter or by operation of law. Upon expiration of such term, this
Agreement shall terminate unless the parties agree otherwise in writing.
SECTION 8.2 TERMINATION WITHOUT CAUSE. This Agreement may be
terminated by either party upon 270 days' prior written notice to the other
party; PROVIDED, HOWEVER, that such termination will not become effective
until completion of, or cancellation by the Company in accordance with
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Section 8.5 of, any work specified in any Authorization Letter either in
effect at the time of said notice of termination or submitted by the Company
prior to the time of said notice of termination.
SECTION 8.3 TERMINATION FOR FAILURE TO PERFORM, ETC. If either party
(i) fails to remedy a breach by such party of any material obligation
hereunder within thirty (30) days after receipt of written notice thereof
from the other party, or (ii) fails to give reasonably adequate assurances of
continued performance within thirty (30) days after a request therefor is
made by the other party, the other party may, in addition to any other remedy
it may have at law or in equity, immediately terminate this Agreement for
failure to perform, specifying the act or omission upon which such notice is
based.
SECTION 8.4 TERMINATION FOR BANKRUPTCY. If either party is adjudged
bankrupt, or becomes insolvent, or makes an assignment for the benefit of
creditors, or if its business is placed in the hands of a trustee, whether by
voluntary action or otherwise, the other party may immediately terminate this
Agreement upon delivery of written notice of its intention to do so to the
other party.
SECTION 8.5 CANCELLATION OF AUTHORIZATION LETTERS. The Company,
without prejudice to any right or remedy on account of any failure of the
Contractor to perform its obligations under this Agreement, may, at any time,
terminate the performance of the work under any Authorization Letter, in
whole or in part, by written notice to the Contractor specifying the extent
to which the performance of the work is terminated and the date upon which
such termination becomes effective. In the event of any such termination,
the Contractor shall be entitled to payment for satisfactory services
rendered prior to the effective date of termination at the rates specified in
the Authorization Letter and for any other reasonable costs or fees the
Contractor may incur, including but not limited to any cost of component
parts or inventory incurred by the Contractor to fill a Sensor order which
the Contractor cannot reasonably avoid (which parts and/or inventory shall,
upon receipt of payment therefor by the Contractor, be delivered to the
Company) in curtailing or terminating such services; PROVIDED, HOWEVER, that
payment of any such amounts shall be subject to any provision for the limit
of expenditures set forth in the Authorization Letter. The payment of such
amounts shall be in full settlement of any and all claims of the Contractor
of every description, including profit.
SECTION 8.6 RETURN OF MATERIALS BY THE CONTRACTOR UPON TERMINATION.
In the event of any termination or expiration of this Agreement, the
Contractor will forward to the Company all of the Company's property, Sensor
and Product manufacturing information, written information and related
materials, all work in the Contractor's possession (except duplicate copies
required to be maintained by law) and a complete copy of the Master File
(including any updates thereto or any maintenance thereof through the date of
termination or expiration).
SECTION 8.7 PERSONNEL EMPLOYMENT. Each party agrees not to solicit
employment of employees of the other during the term of this Agreement and
for a period of one (1) year subsequent to the termination of this Agreement
unless otherwise mutually agreed in writing by the parties.
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ARTICLE IX
GOVERNMENT REGULATION
SECTION 9.1 COMPLIANCE WITH REGULATIONS. Both the Company and the
Contractor shall conduct their respective business under this Agreement in
accordance and in compliance with applicable government regulations. In this
connection, the manufacturing activities by the Contractor shall be, as a
minimum, in accordance with any applicable GMPs and QSRs. The parties shall
cooperate in providing, as required, information to governmental agencies in
order to obtain and maintain necessary approvals. Documentation retention of
manufacturing quality records will be in accordance with GMP and QSR
regulations. At the end of the retention period, all copies of all records
will be returned to the Company. The Company is responsible for initiating
interaction with the FDA on issues regarding the Sensor. The Contractor will
make the Company aware of any known issues believed to require regulatory
attention on the Company's part. With the exception of complaint
investigation, the cost incurred by each of the parties with respect to their
obligations under this Section 9.1 shall be borne by the incurring party. The
Company will supply the Contractor with any complaints from its customers
relating to compliance with GMP and QSR requirements. The Company will bear
the cost of any complaint investigation that is not caused by the
Contractor's workmanship. The Contractor will supply the Company with copies
of all complaint investigations for the Company's files. Documentation
retention of the Sensor History Records and Sensor Master Record and other
Quality Records will be maintained by the Contractor. Any records of the
Company relating to regulatory compliance under this Section 9.1 shall be
available for review and reproduction by the Contractor upon request, but
only to the extent necessary to permit the Contractor to investigate a
complaint involving the Contractor that relates to the Sensors and/or the
Sensor Assemblies.
SECTION 9.2 COMPLIANCE WITH LAWS. To the extent applicable to each
of them, both the Contractor and the Company shall be responsible for
complying with all federal, state and local laws, rules, regulations,
guidelines and the like in the United States and in other countries as they
may pertain to the Sensor and to the obligations on the parties to perform
under this Agreement including, without limitation, requirements in the
United States with respect to registration of establishments, listing of
medical devices, reporting of deaths, serious injuries and certain
malfunctions under 21 CFR Part 803 and the potential therefor, tracking of
medical devices, recalls, safety alerts and process controls. In no event
shall either party assume any risk arising out of the other party's failure
to comply with such laws, rules, regulations, guidelines and the like, and
each party shall cooperate with the other in all respects to facilitate and
promote strict compliance with the provision of this Section 9.2; provided
that if such cooperation subjects the cooperating party to unreasonable
costs, then such party shall be reimbursed by the other party for such actual
out-of-pocket expenses as are substantiated by original receipts. Any
changes in Sensor design or manufacture (and associated costs) required by
law or regulation or component availability shall be negotiated by the
parties and agreed to in good faith.
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ARTICLE X
MISCELLANEOUS PROVISIONS
SECTION 10.1 NOTICES. Any notice given under this Agreement shall be
mailed by first class registered or certified airmail, postage prepaid, and
return receipt requested, via a national overnight courier service, or sent
by telefax, to the receiving party at the address set forth on the first page
hereof, or at such other address as the party may from time to time
designate. Notices shall be considered given on the date mailed or sent, if
mailed or sent in accordance with the provisions of this Section 10.1,
subject to proof of receipt by overnight courier, telefax confirmation or
return receipt of a certified mail transmission.
SECTION 10.2 GOVERNING LAW. This Agreement shall be deemed to have
been executed and delivered in the State of Minnesota, and all questions
arising out of or under this Agreement shall be governed by the laws of the
State of Minnesota.
SECTION 10.3 ENTIRE AGREEMENT. This is the final and entire Agreement
and understanding between the parties and supersedes and merges all prior
agreements and understandings, oral or written, as to the subject matter
described herein. No modifications, representation, promise or agreement in
connection with the subject matter of this Agreement shall be binding on the
Company or the Contractor unless made in writing and signed by an officer or
authorized representative of the party to be bound, such as the issuance by
the Company of a change to an Authorization Letter.
SECTION 10.4 WAIVER. No term, covenant, or written condition of this
Agreement shall be deemed waived except by the written agreement of the
parties. Forbearance or indulgence by either party in any regard whatsoever
shall not constitute a waiver of the term, covenant or condition to be
performed by the other to which the same may apply, and until complete
performance by the other party of such term, covenant and condition, the
performing party shall be entitled to invoke any remedy available to it under
this Agreement or otherwise available to it at law or in equity despite such
forbearance or indulgence.
SECTION 10.5 SAVINGS CLAUSE. If any provision of this Agreement shall
be held by a court of competent jurisdiction to be contrary to law, such
provision shall be deemed to be null and void, and the remainder of this
Agreement shall be in full force and effect. The parties specifically
declare that they would have entered into this Agreement if such void
provision (or provisions), if any, had been entirely omitted.
SECTION 10.6 REMEDIES. No right or remedy conferred or reserved by
the Agreement shall be exclusive of any other right or remedy herein or
provided at law or in equity. To the extent any provision of this Agreement
may be inconsistent with any remedy provided at law or in equity, this
Agreement shall be controlling.
SECTION 10.7 ASSIGNMENT, ETC. Neither party may assign its rights,
delegate its duties or otherwise transfer any interest it may have in this
Agreement without the prior written consent of the other party (which consent
may not be unreasonably withheld or delayed), and any purported assignment,
delegation or other transfer without such consent shall be void. The
foregoing restriction
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on delegation of duties shall include, without limitation, any use by the
Contractor of subcontractors to perform any service in connection with the
final assembly of the Sensors. For purposes of this Agreement, the
Contractor shall be deemed to "transfer" its interest in this Agreement if
the Contractor ceases at any time during the term of this Agreement to have
available to it on substantially a full-time basis the services of either of
the principals of the Contractor, Fred R. Thornton and M. Terry Riggs.
Subject to the foregoing, this Agreement shall be binding on the parties
hereto and their respective successors and permitted assigns.
SECTION 10.8 SURVIVAL OF RIGHTS AND OBLIGATIONS. The rights and
obligations contained in Article IV, Section 6.3 and Section 6.4 shall
survive and continue for a period of three (3) years after the expiration or
termination of this Agreement, and shall bind the parties and their
successors and assigns for such period. The rights and obligations contained
in Article VII (except with respect to any knowledge or information
contained in the Master File) shall survive and continue for a period of six
(6) years after the expiration or termination of this Agreement, and shall
bind the parties and their successors and assigns for such period. The
rights and obligations contained in Article VII with respect to any
knowledge or information contained in the Master File shall survive until the
expiration or termination of this Agreement; provided, however, that subject
to Section 2.8 hereof, the Company shall have the right at any time prior to
the expiration or termination of this Agreement to divulge, disclose and/or
use such knowledge and information solely for the limited purpose of seeking
alternate vendors as potential manufacturing sources for the Sensors and
Sensor Assemblies, provided that the Company has signed an enforceable
nondisclosure and non-use agreement with any third party to which any Master
File knowledge and information is divulged or disclosed (of which agreement
the Contractor shall be a beneficiary).
SECTION 10.9 FORCE MAJEURE. Neither party shall be liable for failure
to perform or for any delay in performing any of its obligations hereunder
other than as provided for herein, when such failure or delay is caused,
directly or indirectly, by fire, flood, earthquake, riot, accident,
explosion, strike or other labor disturbances (regardless of the
unreasonableness of the degree of the demand of labor), war, seizure under
legal process orders or acts of any government or branch or agency thereof,
or acts of God.
SECTION 10.10 INDEPENDENT CONTRACTORS. During the term thereof, the
relationship of each party hereto to the other party, is that of an
independent contractor. Nothing herein contained shall be deemed to
authorize or empower either party, its agents or employees to act as agent
for the other party or conduct business in the name, or for the account of,
the other party or any of the other party's affiliates or otherwise bind it
or them in any manner, and neither party shall make any representation to the
contrary to any third party.
SECTION 10.11 COUNTERPARTS. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
agreement binding on each of the parties.
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IN WITNESS WHEREOF, the parties have executed this AGREEMENT
as of the date above written.
HYPERTENSION DIAGNOSTICS, INC.
BY_________________________________________
Charles F. Chesney, D.V.M., PH.D., R.A.C.
Executive Vice President and C.T.O.
"COMPANY"
APOLLO RESEARCH CORPORATION
BY_________________________________________
Its______________________________________
"CONTRACTOR"
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Exhibit 23.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 3, 1997 in the Registration Statement
(Form SB-2) and related Prospectus of Hypertension Diagnostics, Inc. for the
registration of 2,875,000 units, each unit consisting of one share of its
common stock and one redeemable common stock purchase warrant.
/s/ Ernst & Young LLP
Minneapolis, Minnesota
May 14, 1998
