<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(x) Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended FEBRUARY 28, 1998
OR
( ) Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
----------------- ----------------
Commission file number 0-19095
SOMANETICS CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2394784
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1653 EAST MAPLE ROAD,
TROY, MICHIGAN
48083-4208
(Address of principal executive offices)
(Zip Code)
(248) 689-3050
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------------- ------------------
Number of common shares outstanding at April 9, 1998: 6,035,334
<PAGE> 2
PART I FINANCIAL INFORMATION
SOMANETICS CORPORATION
BALANCE SHEETS
<TABLE>
<CAPTION>
February 28, November 30,
ASSETS 1998 1997
--------------- ----------------
CURRENT ASSETS: (Unaudited) (Audited)
<S> <C> <C>
Cash and cash equivalents ....................................... $ 1,518,881 $ 2,132,376
Marketable securities, at cost .................................. 995,349 2,470,780
Accounts receivable, net of allowance for doubtful accounts of
approximately $153,000 and $166,000 at February 28, 1998 and
November 30, 1997, respectively .............................. 767,002 191,968
Inventory, net .................................................. 748,438 433,014
Prepaid expenses ................................................ 85,315 71,581
------------ ------------
Total current assets ......................................... 4,114,985 5,299,449
------------ ------------
PROPERTY AND EQUIPMENT (at cost):
Machinery and equipment ......................................... 925,089 722,905
Furniture and fixtures .......................................... 184,949 184,351
Leasehold improvements .......................................... 166,770 166,770
------------ ------------
Total ........................................................ 1,276,808 1,074,026
Less accumulated depreciation and amortization .................. (816,467) (784,860)
------------ ------------
Net property and equipment ................................... 460,341 289,166
------------ ------------
OTHER ASSETS:
Patents and trademarks, net ..................................... 70,489 72,217
Other ........................................................... 33,909 16,600
------------ ------------
Total other assets ........................................... 104,398 88,817
------------ ------------
TOTAL ASSETS ........................................................ $ 4,679,724 $ 5,677,432
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable ................................................ $ 558,493 $ 390,494
Accrued liabilities ............................................. 405,375 397,982
------------ ------------
Total current liabilities .................................... 963,868 788,476
------------ ------------
COMMITMENTS AND CONTINGENCIES ....................................... - -
SHAREHOLDERS' EQUITY:
Preferred shares; authorized, 1,000,000 shares of $.01 par value;
no shares issued or outstanding .............................. - -
Common shares; authorized, 6,000,000 shares of $.01 par value;
issued and outstanding, 4,285,334 shares at February 28, 1998
and November 30, 1997, respectively .......................... 42,853 42,853
Additional paid-in capital ...................................... 41,212,639 41,212,639
Accumulated deficit ............................................. (37,539,636) (36,366,536)
------------ ------------
Total shareholders' equity ................................... 3,715,856 4,888,956
------------ ------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY .......................... $ 4,679,724 $ 5,677,432
============ ============
</TABLE>
See notes to financial statements
2
<PAGE> 3
SOMANETICS CORPORATION
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three-Month
Periods Ended February 28,
----------------------------
1998 1997
----------- ------------
<S> <C> <C>
NET REVENUES ................................... $ 803,365 $ 353,863
COST OF SALES .................................. 389,998 180,271
----------- -----------
GROSS MARGIN ................................... 413,367 173,592
----------- -----------
OPERATING EXPENSES:
Research, development and engineering .... 164,788 164,211
Selling, general and administrative ...... 1,480,571 1,359,088
----------- -----------
Total operating expenses ....... 1,645,359 1,523,299
----------- -----------
OPERATING LOSS ................................. (1,231,992) (1,349,707)
----------- -----------
OTHER INCOME (EXPENSE):
Interest income .......................... 50,792 33,195
Other .................................... 8,100 8,100
----------- -----------
Total other income ................... 58,892 41,295
----------- -----------
NET LOSS ....................................... $(1,173,100) $(1,308,412)
----------- -----------
NET LOSS PER COMMON SHARE -
BASIC AND DILUTED ........................... $ (.27) $ (.57)
----------- -----------
WEIGHTED AVERAGE SHARES
OUTSTANDING ................................ 4,285,334 2,285,351
=========== ===========
</TABLE>
See notes to financial statements
3
<PAGE> 4
SOMANETICS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Month
Periods Ended February 28,
--------------------------
1998 1997
---------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss .................................................... $(1,173,100) $(1,308,412)
Adjustments to reconcile net loss to net cash used in
operations:
Depreciation and amortization ........................... 23,617 13,863
Changes in assets and liabilities:
Accounts receivable (increase) ...................... (575,304) (132,340)
Inventory (increase) ................................ (315,424) (20,797)
Prepaid expenses (increase) ......................... (13,734) (1,697)
Other assets (increase) ............................. (17,310) -
Accounts payable increase ........................... 167,999 42,111
Accrued liabilities increase (decrease) ............. 7,392 (50,157)
----------- -----------
Net cash (used in) operations ..................... (1,895,864) (1,457,429)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of marketable securities ................. 1,475,431 --
Acquisition of property and equipment (net) ................. (193,062) (1,576)
----------- -----------
Net cash provided by (used in) investing activities 1,282,369 (1,576)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of Common Shares ..................... -- 11,768
----------- -----------
Net cash provided by financing activities ........ -- 11,768
----------- -----------
NET (DECREASE) IN CASH AND CASH
EQUIVALENTS ................................................. (613,495) (1,447,237)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD ................................................... 2,132,376 3,291,911
----------- -----------
CASH AND CASH EQUIVALENTS, END
OF PERIOD ................................................... $ 1,518,881 $ 1,844,674
=========== ===========
</TABLE>
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest for the three-month period ended February 28, 1998 and
1997 was $0 and $0, respectively.
See notes to financial statements
4
<PAGE> 5
SOMANETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1998
1. ORGANIZATION AND OPERATIONS
Somanetics Corporation (the "Company"), a Michigan corporation formed
in January 1982, develops, manufactures and markets the INVOS Cerebral Oximeter
(the "Cerebral Oximeter), the only FDA-cleared, non-invasive patient monitoring
system that continuously measures changes in the blood oxygen level in the adult
brain. The Cerebral Oximeter is based on the Company's proprietary In Vivo
Optical Spectroscopy ("INVOS(R)") technology. INVOS analyzes various
characteristics of human blood and tissue by measuring and analyzing
low-intensity visible and near infrared light transmitted into portions of the
body. The Company has incurred research, product development and other expenses
involved in designing, developing, marketing and selling its product, as well as
devoting efforts to raising capital.
The Company was in the development stage at February 28, 1997; during
the year ended November 30, 1997, the Company completed its development
activities and commenced its planned principal operations.
2. FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited interim financial statements of Somanetics
Corporation have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, such financial statements do
not include all of the information and footnotes normally included in the
Company's annual financial statements prepared in accordance with generally
accepted accounting principles, although the Company believes that the
disclosures are adequate to make the information presented not misleading.
The accompanying unaudited interim financial statements reflect all
adjustments which are, in the opinion of management, necessary to a fair
statement of the results for the interim periods presented. All such adjustments
are of a normal recurring nature, except those not material to the Company's
financial condition or results of operations. Operating results for the
three-month period ended February 28, 1998, are not necessarily indicative of
the results that may be expected for the year ending November 30, 1998, although
the Company expects to continue to incur operating losses for the foreseeable
future. The unaudited interim financial statements should be read in conjunction
with the financial statements and footnotes thereto for the year ended November
30, 1997 included in the Company's Annual Report on Form 10-K for the fiscal
year ended November 30, 1997.
The Company has not achieved sales necessary to support operations. The
Company has incurred an accumulated deficit of $37,539,636 through February 28,
1998. The Company had working capital of $3,151,117, cash, cash equivalents, and
marketable securities of $2,514,230, total current liabilities of $963,868 and
shareholders' equity of $3,715,856 as of February 28, 1998.
Management believes that markets exist for the product the Company has
developed; however, there is an inherent uncertainty associated with the success
of such product. The likelihood of success of the Company must be considered in
view of the Company's limited resources and current financial condition, the
problems and expenses frequently encountered in connection with formation of a
new business, the ability to raise new funds, the development and application of
new technology, and the competitive environment in which the Company operates.
5
<PAGE> 6
SOMANETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1998
The net proceeds from the public offering of Common Shares in June 1997
were sufficient to fund the Company's working capital requirements for the three
months ended February 28, 1998. Current sales are not sufficient to fund
operations. On April 8, 1998, the Company completed the public offering of
1,750,000 newly-issued Common Shares, at a price of $5.75 per share, for gross
proceeds of $10,062,500, through an offering underwritten by Brean Murray & Co.,
Inc. The net proceeds to the Company, after deducting the underwriting discount
and the estimated expenses of the offering, were approximately $9,200,000.
The Company believes that the cash, cash equivalents, and marketable
securities on hand at February 28, 1998 together with the net proceeds of the
April 8, 1998 public offering will be sufficient to sustain the Company's
operations at budgeted levels and its needs for liquidity into the year 2000. By
that time the Company will be required to raise additional cash either through
additional sales of its product, through sales of securities, by incurring
indebtedness or by some combination of the foregoing. If the Company is unable
to raise additional cash by that time, it will be required to reduce or
discontinue its operations.
The estimated length of time current cash, cash equivalents, and
marketable securities will sustain the Company's operations is based on certain
estimates and assumptions made by the Company. Such estimates and assumptions
are subject to change as a result of actual experience. There can be no
assurance that actual capital requirements necessary to market the Cerebral
Oximeter and SomaSensor, to develop enhancements to, and product extensions of,
the Cerebral Oximeter, to conduct research and development concerning additional
potential applications of the Company's technology and for working capital will
not be substantially greater than current estimates.
The Company does not believe that product sales will be sufficient to
fund the Company's operations in fiscal 1998.
As of February 28, 1998, there were 60,400 redeemable warrants
outstanding, exercisable at $20.00 per share until July 13, 2000, and 55,120
redeemable warrants outstanding exercisable at $17.50 per share until April 1,
2001. These warrants were issued in the Company's 1995 and 1996 Regulation S
securities offerings. The conditions permitting the Company to redeem these
warrants have not been met as of April 9, 1998. In addition, the placement
agents and their transferees hold warrants to purchase 64,394 Common Shares
exercisable at $12.50 per share and 15,000 warrants exercisable at $14.40 per
share. Also, the underwriter of the June 1997 public offering received warrants
to purchase 200,000 Common Shares exercisable at $4.80 per share. It is unlikely
that these warrants will be exercised if the exercise price exceeds the market
price of the Common Shares.
The Company has no loan commitments.
There can be no assurance that even if the Company receives additional
capital, it will be able to achieve the level of sales necessary to sustain its
operations. There can be no assurance that the Company will be able to obtain
any funds on terms acceptable to the Company and at times required by the
Company through sales of the Company's product, sales of securities or loans in
sufficient quantities. The report of the Company's Independent Auditors in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997
contains an explanatory paragraph relating to an uncertainty concerning the
Company's ability to continue as a going concern.
6
<PAGE> 7
SOMANETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1998
These factors, among others, raise substantial doubt about the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification of
asset carrying amounts or the amount and classification of liabilities that
might be necessary should the Company be unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Marketable Securities consist of AAA rated corporate bonds, classified
as available for sale, maturing approximately six months from the date of
acquisition and are stated at cost, which approximates fair market value.
Inventory is stated at the lower of cost or market on a first-in,
first-out (FIFO) basis. Inventory consists of:
<TABLE>
<CAPTION>
February 28, 1998 November 30, 1997
----------------- -----------------
<S> <C> <C>
Finished goods ........................... $ 78,636 $ 100,224
Work in process .......................... 292,498 174,363
Purchased components ..................... 627,637 514,725
--------- ---------
Sub-total ........................... 998,771 789,312
Less reserve for obsolete
and excess inventory .................. (250,333) (356,298)
--------- ---------
Total ............................... $ 748,438 $ 433,014
========= =========
</TABLE>
Patents and Trademarks are recorded at cost and are being amortized on
the straight-line method over 17 years. Accumulated amortization was $41,244 and
$39,516 at February 28, 1998 and November 30, 1997, respectively.
Loss Per Common Share - basic and diluted, is computed using the
weighted average number of common shares outstanding during each period. During
the first quarter of fiscal 1998, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 128, "Earnings Per Share." The adoption of
SFAS No. 128 had no impact on the reported loss per share for all periods
presented. Common Shares issuable under stock options and warrants have been
considered in the computation of the net loss per Common Share - diluted, but
have not been included because such inclusion would be antidilutive. As of
February 28, 1998 and February 28,1997, the Company had outstanding 949,831 and
490,431, respectively, of warrants and options to purchase Common Shares.
7
<PAGE> 8
SOMANETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1998
4. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
<TABLE>
<CAPTION>
February 28, 1998 November 30, 1997
----------------- -----------------
<S> <C> <C>
Professional Fees .......... $ 70,632 $120,726
Clinical Research .......... 40,880 43,330
Product Upgrades ........... 22,828 25,842
Warranty ................... 59,280 31,166
Accrued Insurance .......... 35,639 29,768
Accrued Incentive .......... 83,000 50,500
Other ...................... 93,116 96,650
-------- --------
Total ................. $405,375 $397,982
======== ========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
The Company may become subject to product liability claims by patients
or physicians, and may become a defendant in product liability or malpractice
litigation. The Company has obtained product liability insurance and an umbrella
policy. There can be no assurance that the Company will be able to maintain such
insurance or that such insurance would be sufficient to protect the Company
against such product liability.
6. SUBSEQUENT EVENTS
On January 15, 1998, the Company's Board of Directors approved an
amendment and restatement of the Company's Restated Articles of Incorporation to
(i) increase the Company's authorized Common Shares from 6,000,000 to 20,000,000
shares, and (ii) remove provisions relating to the reverse stock split effected
April 10, 1997, all subject to shareholder approval at the 1998 Annual Meeting
of Shareholders. The Company's shareholders approved such amendment and
restatement at the 1998 Annual Meeting of Shareholders on March 17, 1998.
In addition, on January 15, 1998, the Company's Board of Directors
approved an amendment to the Somanetics Corporation 1997 Stock Option Plan to
increase the number of Common Shares reserved for issuance pursuant to the
exercise of options granted under the 1997 Plan by 450,000 shares, from 295,000
to 745,000 shares, subject to shareholder approval at the 1998 Annual Meeting of
Shareholders. The Company's shareholders approved such amendment at the 1998
Annual Meeting of Shareholders on March 17, 1998.
Effective January 22, 1998, the Company's Board of Directors granted
10-year stock options under the 1997 Stock Option Plan to purchase an aggregate
of 20,000 Common Shares at $4.75 per share (the closing sale price of the Common
Shares on the date of grant) to four executive officers of the Company. In
addition, effective March 17, 1998, the Company replaced options to purchase
18,522 Common Shares granted under the 1991 Incentive Stock Option Plan or the
1993 Director Stock Option Plan to the three directors of the Company who are
not officers or employees of the Company, with ten-year options granted under
the 1997 Stock Option Plan to purchase the same number of Common Shares at an
exercise price of $5.875 per share (the closing sale price of the Common Shares
on the date of grant). Also effective March 17, 1998, the Company granted such
directors ten-year options under the 1997 Stock Option Plan to purchase an
aggregate of 6,000 Common Shares at an exercise price of $5.875 per share.
8
<PAGE> 9
SOMANETICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
(UNAUDITED)
FEBRUARY 28, 1998
In addition, effective April 2, 1998, the Company granted 10-year options under
the 1997 Stock Option Plan to purchase 430,000 Common Shares to 22 employees and
one consultant of the Company at an exercise price of $5.875 per share (the
closing sale price of the Common Shares as of the date of grant).
As discussed in Note 2, on April 8, 1998, the Company completed the
public offering of 1,750,000 newly-issued Common Shares, at a price of $5.75 per
share, for gross proceeds of $10,062,500, through an offering underwritten by
Brean Murray & Co., Inc.
9
<PAGE> 10
SOMANETICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FEBRUARY 28, 1998
The following Management's Discussion and Analysis of Financial
Condition and Results of Operations includes forward-looking statements with
respect to the Company's future financial performance. These forward-looking
statements are subject to various risks and uncertainties, including the factors
described under the caption "Risk Factors" and elsewhere in the Company's
Registration Statement on Form S-1 (file no. 333-47225) effective April 2, 1998
and elsewhere in this Report, that could cause actual results to differ
materially from historical results or those currently anticipated.
RESULTS OF OPERATIONS
OVERVIEW
Somanetics Corporation develops, manufactures and markets the INVOS
Cerebral Oximeter, the only FDA-cleared, non-invasive patient monitoring system
that continuously measures changes in the blood oxygen level in the adult brain.
In June 1996, the Company received clearance from the FDA to market the Cerebral
Oximeter and the related disposable SomaSensor in the United States. In October
1997, the Company obtained FDA clearance for new advances in its INVOS
technology that are incorporated in its next generation INVOS 4100 Cerebral
Oximeter. The next generation Cerebral Oximeter was introduced in October 1997
and became available in the first quarter of fiscal 1998.
During fiscal 1997, the Company's primary activities consisted of
research and development of the INVOS technology, the Cerebral Oximeter and the
related disposable SomaSensor. During the first quarter of fiscal 1998, the
Company's primary activities consisted of sales and marketing related to the new
model 4100 Cerebral Oximeter. The Company recently emerged from the development
stage and had an accumulated deficit of $37,539,636 through February 28, 1998.
The Company believes that its accumulated deficit will continue to increase for
the foreseeable future.
The Company derives its revenues from sales of Cerebral Oximeters and
SomaSensors to its distributors and, since the June 1996 FDA clearance, to
hospitals in the United States through its direct sales employees. The Company
recognizes revenues when it ships its product to its distributors or to
hospitals. Payment terms are generally net 30 days for United States sales and
net 60 days or longer for international sales. The Company's primary expenses,
excluding the cost of its product, are selling, general and administrative and
research, development and engineering, which are generally expensed as incurred.
The Company capitalizes its patent costs and amortizes them over 17 years. Since
May 1994, the Company has exchanged model 3100A Cerebral Oximeters for its model
3100 Cerebral Oximeters. Until the model 4100 Cerebral Oximeter became available
in the first quarter of fiscal 1998, the Company refurbished the model 3100
Cerebral Oximeters it received and sold them approximately at cost in countries
that do not require compliance with the standards met by the model 3100A. In the
first quarter of 1998, the Company began offering to exchange model 4100
Cerebral Oximeters for model 3100A Cerebral Oximeters and cash equal to the
difference in sales prices of the two models. Such sales reduce the Company's
average unit sales price and overall gross margin.
10
<PAGE> 11
SOMANETICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FEBRUARY 28, 1998
THREE MONTHS ENDED FEBRUARY 28, 1998 COMPARED TO THREE MONTHS ENDED FEBRUARY 28,
1997
Net revenues increased by approximately $450,000, or 127%, from
$353,863 in the three-month period ended February 28, 1997 to $803,365 in the
three-month period ended February 28, 1998. The increase in revenues was
primarily attributable to an increase in United States sales of approximately
$260,000, from approximately $132,000 in the first quarter of fiscal 1997 to
approximately $392,000 in the first quarter of fiscal 1998, and an increase in
international sales of approximately $189,000, from approximately $222,000 in
the first quarter of fiscal 1997 to approximately $411,000 in the first quarter
of fiscal 1998. The increase in net revenues is primarily attributable to sales
of the model 4100 Cerebral Oximeter and Somasensor which became available in the
first quarter of fiscal 1998, stocking orders for the model 4100 Cerebral
Oximeter from both existing distributors and new international distributors, a
10% increase in the average selling price of Cerebral Oximeters due to (i) a
change in the mix between sales directly to hospitals and sales through
distributors and (ii) the higher price of the new model 4100 Cerebral Oximeter,
partially offset by exchanges of model 4100 Cerebral Oximeters for model 3100A
Cerebral Oximeters with existing customers. The sales increase for the first
quarter of fiscal 1998 as compared to the first quarter of fiscal 1997 was also
partially offset by reduced shipments to Baxter Limited in Japan, which is
delaying purchases until shipment of the model 4100 Cerebral Oximeter is
permitted in Japan. There can be no assurance that the application for such
permission will be approved before the fourth quarter of fiscal 1998.
Sales of model 4100 Cerebral Oximeters, model 4100 exchanges and
refurbished model 3100 Cerebral Oximeters, model 3100A Cerebral Oximeters, and
SomaSensors comprised approximately 65%, 13%, 7%, and 13%, respectively, of the
Company's net revenues in the first quarter of fiscal 1998 and 0%, 5%, 73%, and
22%, respectively, of the Company's net revenues in the first quarter of fiscal
1997. Approximately 51% of the Company's net revenues in the first quarter of
fiscal 1998 were export sales, compared to 63% of the Company's net revenues in
the first quarter of fiscal 1997. One United States distributor and two
international distributors accounted for approximately 21%, 16%, and 10%,
respectively, of net revenues for the three months ended February 28, 1998, and
one international distributor and two United States distributors accounted for
approximately 42%, 14% and 11%, respectively, of total net revenues for the
three months ended February 28, 1997.
Gross margin as a percentage of net revenues for the quarters ended
February 28, 1998 and February 28, 1997 was approximately 51% and 49%,
respectively. Gross margin as a percentage of net revenues increased in the
first quarter ended February 28, 1998 from the first quarter of fiscal 1997
primarily because the Company realized a higher average selling price for the
new model 4100 Cerebral Oximeters. This increase was partially offset by (i) the
exchanges of model 4100 Cerebral Oximeters for model 3100A Cerebral Oximeters
with existing customers, and (ii) the higher cost to the Company of the
SomaSensor in the first quarter of fiscal 1998.
The Company's research, development and engineering expenses incurred
for the three months ended February 28, 1998 were $164,788, as compared to
$164,211 for the three months ended February 28, 1997. Although the research,
development, and engineering projects during the first quarter of fiscal 1998
were different from those during the first quarter of fiscal 1997, the Company's
expenditure levels and personnel remained relatively constant.
11
<PAGE> 12
SOMANETICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FEBRUARY 28, 1998
Selling, general and administrative expenses increased approximately
$121,000, or 9%, from $1,359,088 for the three months ended February 28, 1997 to
$1,480,571 for the three months ended February 28, 1998. The increase in
selling, general and administrative expense is primarily attributable to a
$98,000 increase in salaries, wages and related expenses as a result of
additional employees hired since March 1, 1997 (from 39 employees as of February
28, 1997 to 46 employees as of February 28, 1998), and an $81,000 increase in
selling-related expenses attributable to employee travel, industry trade shows
and advertising, and a $22,000 increase in accrued warranty expense for sales of
new product, partially offset by a $48,000 decrease in professional services
fees and regulatory certification fees, and a $27,000 decrease in employee
related expenses.
For the three-month period ended February 28, 1998, the Company
realized a 10% decrease in its net loss over the same period in fiscal 1997. The
decrease is primarily attributable to a 127% increase in net revenues, partially
offset by an 8% increase in operating expenses.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operations during the three-month period ended
February 28, 1998 was approximately $1,896,000. Cash was used primarily to (i)
fund the Company's net loss, primarily selling, general and administrative
expenses and research, development and engineering expenses (approximately
$1,149,000, net of depreciation and amortization expense), (ii) increase
accounts receivable (approximately $575,000) primarily due to higher sales in
the first quarter of fiscal 1998 than in the prior quarter, and (iii) increase
inventories of the model 4100 Cerebral Oximeter and its components
(approximately $315,000). These uses of cash were partially offset by an
increase in accounts payable (approximately $168,000) primarily due to increased
inventory purchases for the model 4100 Cerebral Oximeter and its components.
Management expects working capital requirements to increase if sales increase.
The Company capitalized approximately $171,000 of costs for model 4100 Cerebral
Oximeters being used as demonstration units in the first quarter of fiscal 1998.
The Company expects to depreciate these costs as a marketing expense over three
years.
As of February 28, 1998 the Company has working capital of $3,151,117,
cash, cash equivalents and marketable securities of $2,514,230, total current
liabilities of $963,868 and shareholder's equity of $3,715,856. The Company has
no loan commitments.
On April 8, 1998, the Company completed the public offering of
1,750,000 newly-issued Common Shares, at a price of $5.75 per share, for gross
proceeds of $10,062,500, through an offering underwritten by Brean Murray & Co.,
Inc. The net proceeds to the Company, after deducting the underwriting discount
and the estimated expenses of the offering, were approximately $9,200,000.
The Company believes that the cash, cash equivalents and marketable
securities on hand at February 28, 1998 together with the net proceeds of the
April 8, 1998 public offering will be sufficient to sustain the Company's
operations at budgeted levels and its needs for liquidity into the year 2000. By
that time the Company will be required to raise additional cash either through
additional sales of its product, through sales of securities, by incurring
indebtedness or by some combination of the foregoing. If the Company is unable
to raise additional cash by that time, it will be required to reduce or
discontinue its operations.
12
<PAGE> 13
SOMANETICS CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FEBRUARY 28, 1998
The estimated length of time current cash and cash equivalents will
sustain the Company's operations is based on certain estimates and assumptions
made by the Company. Such estimates and assumptions are subject to change as a
result of actual experience and there can be no assurance that actual capital
requirements necessary to market the Cerebral Oximeter and SomaSensor, to
develop enhancements to, and product extensions of, the Cerebral Oximeter, to
conduct research and development concerning additional potential applications of
the Company's technology and for working capital will not be substantially
greater than current estimates.
The Company does not believe that product sales will be sufficient to
fund the Company's operations in fiscal 1998.
As of February 28, 1998, there were 60,400 redeemable warrants
outstanding, exercisable at $20.00 per share until July 13, 2000, and 55,120
redeemable warrants outstanding exercisable at $17.50 per share until April 1,
2001. These warrants were issued in the Company's 1995 and April 1996 Regulation
S securities offerings. The conditions permitting the Company to redeem these
warrants have not been met as of April 9, 1998. In addition, the placement
agents and their transferees hold warrants to purchase 64,394 Common Shares
exercisable at $12.50 per share and 15,000 warrants exercisable at $14.40 per
share. Also, the underwriter of the June 1997 public offering received warrants
to purchase 200,000 Common Shares exercisable at $4.80 per share. It is unlikely
that these warrants will be exercised if the exercise price exceeds the market
price of the Common Shares.
The Company has no loan commitments.
There can be no assurance that even if the Company receives additional
capital, it will be able to achieve the level of sales necessary to sustain its
operations. There can be no assurance that the Company will be able to obtain
any funds on terms acceptable to the Company and at times required by the
Company through sales of the Company's product, sales of securities or loans in
sufficient quantities. The report of the Company's Independent Auditors in the
Company's Annual Report on Form 10-K for the fiscal year ended November 30, 1997
contains an explanatory paragraph relating to an uncertainty concerning the
Company's ability to continue as a going concern.
13
<PAGE> 14
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
14
<PAGE> 15
PART II OTHER INFORMATION
Item 2. Changes in Securities
Effective March 18, 1998, the Company amended and restated its articles
of incorporation to (i) increase the Company's authorized Common Shares from
6,000,000 to 20,000,000 shares, and (ii) remove provisions relating to the
reverse stock split effected April 10, 1997. As a result of this amendment, the
additional 14,000,000 Common Shares so authorized are available for issuance by
the Board of Directors of the Company for raising additional capital, stock
options, acquisitions, stock splits, stock dividends or other corporate
purposes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
3(i) Restated Articles of Incorporation of Somanetics
Corporation.
10.1 Form of Underwriting Agreement, dated April 3, 1998,
between Somanetics Corporation and Brean Murray &
Co., Inc.
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Company during the
quarter for which this report is filed.
15
<PAGE> 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Somanetics Corporation
---------------------------
(Registrant)
Date: April 9, 1998 By:/s/ Raymond W. Gunn
------------------ ------------------------
Raymond W. Gunn
Executive Vice President
and Chief
Financial Officer (Duly
Authorized and Principal
Financial Officer)
16
<PAGE> 17
EXHIBIT INDEX
EXHIBIT DESCRIPTION
3(i) Restated Articles of Incorporation of Somanetics Corporation.
10.1 Form of Underwriting Agreement, dated April 3, 1998, between
Somanetics Corporation and Brean Murray & Co., Inc.
27.1 Financial Data Schedule.
17
<PAGE> 1
EXHIBIT 3(i)
- --------------------------------------------------------------------------------
MICHIGAN DEPARTMENT OF CONSUMER AND INDUSTRY SERVICES
CORPORATION, SECURITIES AND LAND DEVELOPMENT BUREAU
- --------------------------------------------------------------------------------
Date Received (FOR BUREAU USE ONLY)
- --------------------------------------------------------------------------------
NAME Robert J. Krueger
Honigman Miller Schwartz and Cohn
- --------------------------------------------------------------------------------
ADDRESS 2290 First National Building
- --------------------------------------------------------------------------------
CITY STATE ZIP CODE
Detroit, Michigan 48226-3583
- --------------------------------------------------------------------------------
EFFECTIVE DATE:
DOCUMENT WILL BE RETURNED TO THE NAME AND ADDRESS YOU ENTER ABOVE
RESTATED ARTICLES OF INCORPORATION
FOR USE BY DOMESTIC PROFIT CORPORATIONS
(Please read information and instructions on the last page)
Pursuant to the provisions of Act 284, Public Acts of 1972, the undersigned
corporation executes the following Articles:
1. The present name of the corporation is: Somanetics Corporation
2. The identification number assigned by the Bureau is: 261-155
3. All former names of the corporation are: N/A
4. The date of filing the original Articles of Incorporation was:
January 15, 1982
The following Restated Articles of Incorporation supersede the Articles of
Incorporation as amended and shall be the Articles of Incorporation for the
corporation:
ARTICLE I
The name of the corporation is: Somanetics Corporation
ARTICLE II
The purpose or purposes for which the corporation is formed is to engage in any
activity within the purposes for which corporations may be organized under the
Business Corporation Act of Michigan.
<PAGE> 2
ARTICLE III
The total authorized shares:
1. Common Shares 20,000,000, par value $0.01 per share
--------------------------------------------
Preferred Shares 1,000,000, par value $0.01 per share
--------------------------------------------
2. A statement of all or any of the relative rights, preferences and
limitations of the shares of each class is as follows:
a. Preferred Shares. The Board of Directors may cause the
Corporation to issue Preferred Shares in one or more series, each
series to bear a distinctive designation and to have such relative
rights and preferences as shall be prescribed by resolution of the
Board. Such resolutions, when filed, shall constitute amendments to
these Articles of Incorporation.
ARTICLE IV
1. The address of the current registered office is:
1653 East Maple Road, Troy, Michigan 48083-4208
------------------------------- ---------------------------
(Street Address) (City) (ZIP Code)
2. The mailing address of the current registered office, if different than
above:
Michigan
----------------------------------------- -------------------
(Street Address or P.O. Box) (City) (ZIP Code)
3. The name of the current resident agent is: Bruce J. Barrett
-------------------------
ARTICLE V
When a compromise or arrangement or a plan of reorganization of this corporation
is proposed between this corporation and its creditors or any class of them or
between this corporation and its shareholders or any class of them, a court of
equity jurisdiction within the state, on application of this corporation or of a
creditor or shareholder thereof, or on application of a receiver appointed for
the corporation, may order a meeting of the creditors or class of creditors or
of the shareholders or class of shareholders to be affected by the proposed
compromise or arrangement or reorganization, to be summoned in such manner as
the court directs. If a majority in number representing 3/4 in value of the
creditors or class of creditors, or of the shareholders or class of shareholders
to be affected by the proposed compromise or arrangement or a reorganization,
agree to a compromise or arrangement or a reorganization of this corporation as
a consequence of the compromise or arrangement, the compromise or arrangement
and the reorganization, if sanctioned by the court to which the application has
been made, shall be binding on all the creditors or class of creditors, or on
all the shareholders or class of shareholders and also on this corporation.
<PAGE> 3
ARTICLE VI
A director of the Corporation shall not be personally liable to the
Corporation or its shareholders for monetary damages for breach of the
director's fiduciary duty. However, this Article VI shall not eliminate or limit
the liability of a director for any of the following:
(1) A breach of the director's duty of loyalty to the
Corporation or its shareholders.
(2) Acts or omissions not in good faith or that involve
intentional misconduct or knowing violation of law.
(3) A violation of Section 551(1) of the Michigan Business
Corporation Act.
(4) A transaction from which the director derived an improper
personal benefit.
(5) An act or omission occurring before the effective date of
this Article VI.
Any repeal or modification of this Article VI by the shareholders of the
Corporation shall not adversely affect any right or protection of any director
of the Corporation existing at the time of, or for or with respect to, any acts
or omissions occurring before such repeal or modification.
<PAGE> 4
ARTICLE VII
The business and affairs of the Corporation shall be managed by or
under the direction of a Board of Directors consisting of not less than three or
more than fifteen directors, the exact number of directors to be determined from
time to time solely by a resolution adopted by an affirmative vote of a majority
of the directors then in office. The directors shall be divided into three
classes, designated Class I, Class II and Class III. Each class shall consist,
as nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. At the 1992 Annual Meeting of
Shareholders, Class I directors shall be elected for a one-year term, Class II
directors for a two-year term and Class III directors for a three-year term. At
each succeeding annual meeting of shareholders, commencing in 1993, successors
to the class of directors whose term expires at that annual meeting shall be
elected for a three-year term.
If the number of directors is changed, any increase or decrease shall
be apportioned among the classes of directors so as to maintain the number of
directors in each class as nearly equal as possible, but in no case will a
decrease in the number of directors shorten the term of any incumbent director.
When the number of directors is increased by the Board of Directors and any
newly-created directorships are filled by the Board, the additional directors
shall be classified as provided by the Board.
A director shall hold office until the meeting for the year in which
his or her term expires and until his or her successor shall be elected and
shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office. Newly created directorships resulting
from an increase in the number of directors and any vacancy on the Board of
Directors may be filled by an affirmative vote of a majority of the directors
then in office. If the number of directors then in office is less than a quorum,
such newly created directorships and vacancies may be filled by a majority of
the directors then in office, although less than a quorum, or by the sole
remaining director. A director elected by the Board of Directors to fill a
vacancy shall hold office until the next election of the class for which the
director shall have been chosen and until his or her successor shall be elected
and shall qualify. A director or the entire Board of Directors may be removed
only for cause.
Notwithstanding the foregoing, whenever the holders of any one or more
classes of Preferred Shares or series thereof issued by the Corporation shall
have the right, voting separately by class or series, to elect directors at an
annual or special meeting of shareholders, the election, term of office, filling
of vacancies and other features of such directorship shall be governed by the
terms of these Restated Articles of Incorporation applicable thereto, and such
directors so elected shall not be divided into classes pursuant to this Article.
This Article VII may only be amended by the affirmative vote of
holders of 90% of the outstanding Common Shares of the Corporation, in addition
to the vote otherwise required by the Michigan Business Corporation Act.
<PAGE> 5
(ADDITIONAL PROVISIONS, IF ANY, MAY BE INSERTED HERE; ATTACH ADDITIONAL
PAGES IF NEEDED.)
5. COMPLETE SECTION (a) IF THE RESTATED ARTICLES WERE ADOPTED BY THE UNANIMOUS
CONSENT OF THE INCORPORATOR(S) BEFORE THE FIRST MEETING OF THE BOARD OF
DIRECTORS; OTHERWISE, COMPLETE SECTION (b). DO NOT COMPLETE BOTH.
a. / / These Restated Articles of Incorporation were duly adopted on the
____ day of ___________, 19 _______, in accordance with the
provisions of Section 642 of the Act by the unanimous consent of
the incorporator(s) before the first meeting of the Board of
Directors.
Signed this _________ day of ____________________, 19 _______.
_________________________________ ________________________________________
_________________________________ ________________________________________
(Signatures of incorporators; Type or Print Name Under Each Signature)
b. /X/ These Restated Articles of Incorporation were duly adopted on the
17th day of March, 1998 in accordance with the provisions of
Section 642 of the Act and: (check one of the following)
/ / were duly adopted by the Board of Directors without a vote of the
shareholders. These Restated Articles of Incorporation only restate
and integrate and do not further amend the provisions of the
Articles of Incorporation as heretofore amended and there is no
material discrepancy between those provisions and the provisions of
these Restated Articles.
/X/ were duly adopted by the shareholders. The necessary number of
shares as required by statue were voted in favor of these Restated
Articles.
/ / were duly adopted by the written consent of the shareholders having
not less than the minimum number of votes required by statue in
accordance with Section 407(1) of the Act. Written notice to
shareholders who have not consented in writing has been given.
(Note: Written consent by less than all of the shareholders is
permitted only if such provision appears in the Articles of
Incorporation.)
/ / were duly adopted by the written consent of all the shareholders
entitled to vote in accordance with section 407(2) of the Act.
Signed this 17 day of March, 1998
By /s/ Bruce J. Barrett
_____________________________________________________
(Signature of President, Vice-President,
Chairperson, or Vice-Chairperson)
Bruce J. Barrett, President
________________________________________________________
(Type or Print Name) (Type or Print Title)
<PAGE> 6
Name of person or organization Preparer's name and business
remitting fees: telephone number:
Somanetics Corporation Robert J. Krueger
- -------------------------------- --------------------------------
(313) 256-7675
- -------------------------------- --------------------------------
INFORMATION AND INSTRUCTIONS
1. The articles of incorporation cannot be restated until this form, or a
comparable document, is submitted.
2. Submit one original of this document. Upon filing, the document will be
added to the records of the Corporation, Securities and Land Development
Bureau. The original will be returned to the address appearing in the box
on the front as evidence of filing.
Since this document will be maintained on optical disk media, it is
important that the filing be legible. Documents with poor black and white
contrast, or otherwise illegible, will be rejected.
3. This document is to be used pursuant to sections 641 through 643 of the Act
for the purpose of restating the articles of incorporation of a domestic
profit corporation. Restate articles of incorporation are an integration
into a single instrument of the current provisions of the corporation's
articles of incorporation, along with any desired amendments to those
articles.
4. Restated articles of incorporation which do not amend the articles of
incorporation may be adopted by the board of directors without a vote of the
shareholders. Restated articles of incorporation which amend the articles
of incorporation require adoption by the shareholders. Restated articles of
incorporation submitted before the first meeting of the board of directors
require adoption by all of the incorporators.
5. Item 2 - Enter the identification number previously assigned by the
Bureau. If this number is unknown, leave it blank.
6. The duration of the corporation should be stated in the restated articles of
incorporation only if it is not perpetual.
7. This document is effective on the date endorsed "filed" by the Bureau. A
later effective date, no more than 90 days after the date of delivery, may
be stated as an additional article.
8. If the restated articles are adopted before the first meeting of the board
of directors, item 5(a) must be completed and signed in ink by a majority
of the incorporators. Other restated articles must be signed by the
president, vice-president, chairperson or vice-chairperson of the
corporation.
9. FEES: Make remittance payable to the State of Michigan. Include
corporation name and identification number on check or money order.
<TABLE>
<S> <C>
NONREFUNDABLE FEE ........................................................................................$10.00
TOTAL MINIMUM FEE ........................................................................................$10.00
ADDITIONAL FEES DUE FOR INCREASED AUTHORIZED SHARES ARE:
each additional 20,000 authorized shares of portion thereof ...................................$30.00
maximum fee per filing for first 10,000,000 authorized shares ..............................$5,000.00
each additional 20,000 authorized shares or portion thereof in excess of 10,000,000 shares ....$30.00
maximum fee per filing for authorized shares in excess of 10,000,000 shares ..............$200,000.00
</TABLE>
<TABLE>
<S> <C>
10. Mail form and fee to: The office is located at:
Michigan Department of Consumer and Industry Services 6546 Mercantile Way
Corporation, Securities and Land Development Bureau Lansing, MI 48910
Corporation Division (517) 334-6302
P.O. Box 30054
Lansing, MI 48909-7554
</TABLE>
<PAGE> 1
EXHIBIT 10.1
SOMANETICS CORPORATION
1,750,000 Common Shares
UNDERWRITING AGREEMENT
April 3, 1998
BREAN MURRAY & CO., INC.
570 Lexington Avenue
New York, New York 10022-6822
Ladies and Gentlemen:
SOMANETICS CORPORATION, a Michigan corporation (the "Company"), proposes
to sell an aggregate of 1,750,000 shares (the "Firm Shares") of the Common
Shares, par value $.01 per share (the "Common Shares"), of the Company, to you
(the "Underwriter"). The Company also has agreed to grant to you an option
(the "Option") to purchase up to an additional 262,500 Common Shares (the
"Option Shares") on the terms and for the purposes set forth in Section l(b)
hereto. The Firm Shares and the Option Shares are hereinafter collectively
referred to as the "Shares." The words "you" and "your" refer to the
Underwriter.
The Company hereby confirms as follows its agreement with the Underwriter.
1. Agreement to Sell and Purchase.
(a) On the basis of the representations, warranties and agreements of the
Company herein contained and subject to all the terms and conditions of this
Agreement, the Company agrees to sell to the Underwriter and the Underwriter
agrees to purchase from the Company at a purchase price of $5.37625 per share,
the Firm Shares, plus such additional number of Shares which the Underwriter
may become obligated to purchase pursuant to Sections 1(b) hereof.
(b) Subject to all the terms and conditions of this Agreement, the Company
grants the Option to the Underwriter to purchase the Option Shares at the same
price per share as the Underwriter shall pay for the Firm Shares. The Option
may be exercised only to cover over-allotments in the sale of the Firm Shares
by the Underwriter and may be exercised in whole or in part at any time and
from time to time on or before the 30th day after the date of this Agreement
(or on the next business day if the 30th day is not a business day), upon
notice (the "Option Shares Notice") in writing or by telephone (confirmed in
writing) by the Underwriter to the
<PAGE> 2
Company no later than 5:00 p.m., New York City time, at least two and no more
than five business days before the date specified for closing in the Option
Shares Notice (the "Option Closing Date") setting forth the aggregate number of
Option Shares to be purchased on the Option Closing Date. (As used herein,
"business day" means a day on which the New York Stock Exchange is open for
trading and on which banks in New York are open for business and not permitted
by law or executive order to be closed.) On the Option Closing Date, the
Company will sell to the Underwriter the number of Option Shares set forth in
the Option Shares Notice, and the Underwriter will purchase such number of
Option Shares.
2. Delivery and Payment.
(a) Delivery of the Firm Shares shall be made to the Underwriter at the
office of the Underwriter, 570 Lexington Avenue, New York, New York 10022-6822,
and in exchange therefor payment of the purchase price shall be made to the
Company by wire transfer of immediately available funds to the Company's
account at NBD Bank, 611 Woodward Avenue, Detroit, Michigan 48226, ABA No.
072000326, Account No. 005611024 (the "Closing"). Such delivery and payment
shall be made at 10:00 a.m., New York time, on the third business day following
the date of this Agreement, or at such other time on such other date as may be
agreed upon by the Company and the Underwriter (such date is hereinafter
referred to as the "Closing Date"). Time shall be of the essence, and delivery
at the time and place specified pursuant to this Agreement is a further
condition of the obligations of the Underwriter hereunder.
(b) To the extent the Option is exercised, delivery of the Option Shares
against payment by the Underwriter (in the manner specified above) will take
place at the offices specified above for the Closing at the time and date
(which may be the Closing Date) specified in the Option Shares Notice.
(c) Certificates evidencing the Shares shall be in definitive form and
shall be registered in such names and in such denominations as the Underwriter
shall request at least two business days prior to the Closing Date or the
Option Closing Date, as the case may be, by written notice to the Company. For
the purpose of expediting the checking and packaging of certificates for the
Shares, the Company agrees to make such certificates available for inspection
at least 24 hours prior to the Closing Date or the Option Closing Date, as the
case may be.
(d) The cost of original issue tax stamps, if any, in connection with
the issuance, sale and delivery of the Shares by the Company to the Underwriter
shall be borne by the Company. The Company will pay and save the Underwriter
and any subsequent holder of the Shares harmless from any and all liabilities
with respect to or resulting from any failure or delay in paying Federal or
state stamp and other transfer taxes, if any, which may be payable or
determined to be payable in connection with the issuance, sale or delivery to
the Underwriter of the Shares.
3. Representations and Warranties of the Company. The Company represents,
warrants and covenants to the Underwriter that:
- 2 -
<PAGE> 3
(a) A registration statement on Form S-1 (Registration No. 333-47225)
relating to the Shares, including a preliminary prospectus relating to the
Shares and such amendments to such registration statement as may have been
required to the date of this Agreement, has been prepared by the Company under
the provisions of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations (collectively referred to as the "Rules and Regulations")
of the Securities and Exchange Commission (the "Commission") promulgated
thereunder and has been filed with the Commission. The Commission has not
issued any order preventing or suspending the use of the Prospectus (as defined
below) or any Preliminary Prospectus (as defined below) or instituted or, to
the knowledge of the Company, threatened any proceeding for that purpose. The
term "Preliminary Prospectus" as used herein means a preliminary prospectus
relating to the Shares included at any time as part of the foregoing
registration statement or any amendment thereto before it became effective
under the Act and any prospectus filed with the Commission by the Company
pursuant to Rule 424(a) of the Rules and Regulations. Copies of such
registration statement and amendments and of each related Preliminary
Prospectus have been delivered to the Underwriter. If such registration
statement has not become effective, a further amendment to such registration
statement, including a form of final Preliminary Prospectus, necessary to
permit such registration statement to become effective will be filed promptly
by the Company with the Commission. If such registration statement has become
effective, a final prospectus relating to the Shares containing information
permitted to be omitted at the time of effectiveness by Rule 430A of the Rules
and Regulations will be filed by the Company with the Commission in accordance
with Rule 424(b) of the Rules and Regulations promptly after execution and
delivery of this Agreement. The term "Registration Statement" means the
registration statement at the time such registration statement becomes or
became effective (the "Effective Date"), together with any registration
statement filed by the Company pursuant to Rule 462(b) of the Rules and
Regulations, including all financial statements and schedules and all exhibits,
documents incorporated therein by reference and all information contained in
any final prospectus filed with the Commission pursuant to Rule 424(b) of the
Rules and Regulations or in a term sheet described in Rule 434 of the Rules and
Regulations in accordance with Section 5 hereof and deemed to be included
therein as of the Effective Date by Rule 430A of the Rules and Regulations.
The term "Prospectus" means the prospectus relating to the Shares as first
filed with the Commission pursuant to Rule 424(b) of the Rules and Regulations
or, if no such filing is required, the form of final prospectus relating to the
Shares included in the Registration Statement at the Effective Date.
References herein to any document or other information incorporated by
reference in the Registration Statement shall include documents or other
information incorporated by reference in the Prospectus (or if the Prospectus
is not in existence, in the most recent Preliminary Prospectus). References
herein to any Preliminary Prospectus or the Prospectus shall be deemed to
include all documents and information incorporated by reference therein and
shall be deemed to refer to and include any documents and information filed
after the date of such Preliminary Prospectus or Prospectus, as the case may
be, and so incorporated by reference, under the Securities Exchange Act of
1934, as amended (the "Exchange Act").
(b) On the date that any Preliminary Prospectus was filed with the
Commission, the date the Prospectus is first filed with the Commission pursuant
to Rule 424(b)
- 3 -
<PAGE> 4
of the Rules and Regulations (if required), at all times subsequent thereto up
to and including the Closing Date and, if later, the Option Closing Date and
when any post-effective amendment to the Registration Statement becomes
effective or any amendment or supplement to the Prospectus is filed with the
Commission, the Registration Statement, each Preliminary Prospectus and the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment or supplement thereto), including the financial
statements included in the Prospectus, did or will comply in all material
respects with all applicable provisions of the Act and the Rules and
Regulations and did or will contain all material statements required to be
stated therein in accordance with the Act and the Rules and Regulations. On
the Effective Date and when any post-effective amendment to the Registration
Statement becomes effective, no part of the Registration Statement or any such
amendment did or will contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements therein not misleading. At the Effective Date, the date
the Prospectus or any amendment or supplement to the Prospectus is filed with
the Commission and at the Closing Date and, if later, the Option Closing Date,
the Prospectus did not or will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading.
The foregoing representations and warranties in this Section 3(b) do not apply
to any statements or omissions made in reliance on and in conformity with
information furnished in writing to the Company by the Underwriter specifically
for inclusion in the Registration Statement or Prospectus or any amendment or
supplement thereto. There are no contracts or other documents required to be
filed as exhibits to the Registration Statement by the Act or the Rules and
Regulations that have not been so filed. The documents which are incorporated
by reference in any Preliminary Prospectus or the Prospectus or from which
information is so incorporated by reference, when they became effective or were
filed with the Commission, as the case may be, complied in all material
respects with the requirements of the Act and the Rules and Regulations or the
Exchange Act and the rules and regulations thereunder, as applicable, and did
not, when such documents were so filed, contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading, and any documents so
filed and incorporated by reference subsequent to the Effective Date shall,
when they are filed with the Commission, conform in all material respects with
the requirements of the Act and the Rules and Regulations and the Exchange Act
and the rules and regulations thereunder, as applicable.
(c) The Company has no subsidiaries. The Company does not own and, at the
Closing Date and the Option Closing Date, if any, will not own, an interest in
any corporation, joint venture, trust, partnership or other business entity.
The Company has been and, at the Closing Date and Option Closing Date, if any,
will be, duly incorporated and validly existing as a corporation under the laws
of the State of Michigan and is, and at the Closing Date and the Option Closing
Date, if any, will be, in good standing under the laws of the State of
Michigan. The Company has all corporate power and authority necessary to own
its properties and conduct its business as currently being carried on and as
described in the Registration Statement and Prospectus. The Company is, and at
the Closing Date and the Option Closing Date, if any, will
- 4 -
<PAGE> 5
be, duly licensed or qualified and in good standing as a foreign corporation in
each jurisdiction in which the character or location of its properties (owned,
leased or licensed) or the nature or conduct of its business or use of its
property and assets makes such licensing or qualification necessary. Complete
and correct copies of the Company's Restated Articles of Incorporation and
Bylaws, in each case as amended, have been delivered to the Underwriter or its
counsel, and no changes therein will be made subsequent to the date hereof and
prior to the Closing Date or, if later, the Option Closing Date.
(d) The outstanding shares of capital stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable and are not
subject to any preemptive or similar rights, and the holders thereof are not
subject to personal liability by reason of being such holders. The Firm Shares
to be sold hereunder to the Underwriter, and the Option Shares to be sold
hereunder to the Underwriter in the event the Option is exercised, will be duly
authorized and, when issued and delivered to the Underwriter against payment
therefor as provided by this Agreement, will be validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar rights, and
the holders thereof will not be subject to personal liability by reason of
being such holders. The Company has, and, upon completion of the sale of the
Shares, will have, an authorized, issued and outstanding capitalization as set
forth in the Registration Statement and the Prospectus under the captions
"Description of Capital Stock" and "Capitalization" (or, if the Prospectus is
not in existence, in the most recent Preliminary Prospectus). The description
of the securities of the Company in the Registration Statement and the
Prospectus under the caption "Description of Capital Stock" (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus) is,
and at the Closing Date and, if later, the Option Closing Date, will be,
complete and accurate in all material respects. Except as set forth or
contemplated in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus), the
Company does not have outstanding and, at the Closing Date and, if later, the
Option Closing Date, will not have outstanding, any options to purchase, or any
rights or warrants to subscribe for, or any securities or obligations
exchangeable or convertible into, or any contracts or commitments to issue or
sell, any shares of its capital stock or any such options, rights, warrants,
obligations, contracts or commitments. Neither the filing of the Registration
Statement nor the offering or sale of the Shares as contemplated by this
Agreement gives rise to any rights for or relating to the registration of any
Common Shares or other securities of the Company, except such rights as have
been disclosed in the Registration Statement or as have been satisfied, waived
or terminated.
(e) The financial statements and the related notes of the Company included
in the Registration Statement and in the Prospectus (or, if the Prospectus is
not in existence, in the most recent Preliminary Prospectus) or incorporated
therein by reference comply in all material respects with the requirements of
the Act and the Rules and Regulations, present fairly the financial condition,
results of operations, shareholders' equity and cash flows of the Company at
the dates and for the periods covered thereby and have been prepared in
accordance with generally accepted accounting principles ("GAAP") applied on a
consistent basis throughout the entire periods involved (except as otherwise
stated therein), subject to year-end adjustments with respect to interim
information consistent with past practice. Deloitte & Touche LLP (the
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<PAGE> 6
"Accountants"), who have reported on those of such financial statements and
related notes which are audited, are independent accountants with respect to
the Company as required by the Act and the Rules and Regulations. The selected
financial information and statistical data set forth under the captions
"Prospectus Summary -- Summary Financial Data" and "Selected Financial Data"
in the Prospectus (or, if the Prospectus is not in existence, in the most
recent Preliminary Prospectus) have been prepared on a basis consistent with
the financial statements of the Company.
(f) 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 authorization, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with GAAP and to maintain accountability for assets,
(iii) access to assets is permitted only in accordance with management's
general or specific authorization and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(g) Except as set forth or contemplated in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus), subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus and prior
to the Closing Date and, if later, the Option Closing Date, (i) there has not
been, and will not have been, any material adverse change in the business,
properties, prospects, key personnel, condition (financial or otherwise), net
worth or results of operations of the Company, (ii) the Company has not, and
will not have, incurred any material liabilities or obligations, direct or
contingent, or, entered into any material transactions not in the ordinary
course of business other than pursuant to this Agreement, (iii) the Company has
not, and will not have, paid or declared any dividends or other distributions
of any kind on any class of its capital stock, and (iv) there has not been, and
will not have been, any change in the capital stock, or a material change in
the short-term or long-term debt, or any issuance of options, warrants,
convertible securities or other rights to purchase capital stock of the
Company, other than changes in capital stock and issuances of rights, options
and shares pursuant to the Company's 1983 Stock Option Plan, 1991 Incentive
Stock Option Plan, 1993 Director Stock Option Plan and the 1997 Stock Option
Plan (collectively, the "Option Plans") or this Agreement.
(h) The Company has good and marketable title to all properties and assets
described in the Registration Statement and Prospectus (or, if the Prospectus
is not in existence, in the most recent Preliminary Prospectus), as owned by
it, free and clear of all liens, security interests, restrictions, pledges,
encumbrances, charges, equities, claims, easements, leases and tenancies
(collectively, "Encumbrances") other than those described or referred to in the
Registration Statement and Prospectus (or, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus). The Company has valid,
subsisting and enforceable leases for the properties and assets described in
the Registration Statement and Prospectus (or, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus) as leased by it, free and
clear of all Encumbrances, other than those described or referred to in the
Registration Statement
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<PAGE> 7
and Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus). The Company has no notice of any claim which has been
asserted by anyone adverse to the Company's rights as lessee or sublessee under
the respective lease or sublease, or affecting or questioning the Company's
right to the continued possession of the leased or subleased premises.
(i) Except as described or referred to in the Registration Statement or
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus), the Company owns or possesses all patents, patent
applications, trademarks, service marks, tradenames, trademark registrations,
service mark registrations, copyrights, licenses, inventions, trade secrets and
other intellectual property rights necessary for the conduct of the business of
the Company as currently carried on and as described in the Registration
Statement and Prospectus (or, if the Prospectus is not in existence, in the
most recent Preliminary Prospectus), and except as stated or referred to in the
Registration Statement or Prospectus (or, if the Prospectus is not in
existence, in the most recent Preliminary Prospectus), no name which the
Company uses and no other aspect of the business of the Company will involve or
give rise to any infringement of or license or similar fees for, any patents,
patent applications, trademarks, service marks, tradenames, trademark
registrations, service mark registrations, copyrights, licenses, inventions,
trade secrets or other similar rights of others material to the business or
prospects of the Company, and the Company has not received any notice alleging
any such infringement or fee.
(j) Except as set forth or referred to in the Registration Statement and
Prospectus (or, if the Prospectus is not in existence, in the most recent
Preliminary Prospectus), there are no actions, suits, arbitrations, claims,
governmental or other proceedings (formal or informal), or investigations
pending or, to the knowledge of the Company, threatened against or, to the
knowledge of the Company, affecting the Company, any of the Company's officers,
directors or shareholders, in its capacity as such, or any of the properties or
assets owned or leased by the Company, before or by any Federal, state,
municipal or foreign court, commission, regulatory body, administrative agency
or other governmental body, including, without limitation, the United States
Food and Drug Administration (the "FDA"), domestic or foreign (collectively, a
"Governmental Body"), which might result in any material adverse change in the
business, properties, prospects, condition (financial or otherwise), net worth
or results of operations of the Company. There are no actions, proceedings or
investigations pending or, to the knowledge of the Company, threatened by the
FDA or any other Governmental Body relating to the safety, efficacy or recall
of any product developed or sold by the Company. The Company is not in
violation of, or in default with respect to, any law, rule or regulation, or
any order, judgment or decree, except as described or referred to in the
Prospectus (or if the Prospectus is not in existence, in the most recent
Preliminary Prospectus) or such as in the aggregate do not now have and can
reasonably be expected in the future not to have a material adverse effect upon
the business, properties, prospects, condition (financial or otherwise), net
worth or results of operations of the Company; nor is the Company presently
required to take any action under any such order, judgment or decree in order
to avoid any such violation or default.
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<PAGE> 8
(k) The Company has, and at the Closing Date and, if later, the Option
Closing Date will have, all governmental licenses, permits, consents, orders,
approvals, franchises, certificates and other authorizations (collectively,
"Licenses") and has made all requisite declarations, notifications and filings
with all Government Bodies, in each case as are necessary to carry on its
business as then currently conducted and own or lease its properties as
contemplated in the Registration Statement and Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus), and
all such Licenses are, and at the Closing Date and, if later, the Option
Closing Date will be, in full force and effect. The Company has, and at the
Closing Date and, if later, the Option Closing Date will have, complied in all
material respects with all laws, regulations and orders applicable to it or its
business, assets and properties. The Company is not, nor at the Closing Date
and, if later, the Option Closing Date will it be, in violation of its Restated
Articles of Incorporation or Bylaws, in each case as amended, or in default
(nor has any event occurred which, with notice or lapse of time or both, would
constitute a default) in the due performance and observation of any term,
covenant or condition of any indenture, mortgage, deed of trust, voting trust
agreement, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness, lease, contract or other agreement or instrument (collectively, a
"contract or other agreement") to which it is a party or by which its
properties are bound, the violation of which would individually or in the
aggregate have a material adverse effect on the business, properties,
prospects, condition (financial or otherwise), net worth or results of
operations of the Company. There are no governmental proceedings or actions
pending or, to the Company's knowledge, threatened for the purpose of
suspending, modifying or revoking any License held by the Company and, to the
knowledge of the Company, no event has occurred that allows, or with notice or
lapse of time or both would allow, any such suspension, modification or
revocation or any material impairment of the Company's rights thereunder.
(l) No consent, approval, authorization or order of, or any filing or
declaration with, any Governmental Body is required for the execution, delivery
or performance of this Agreement or for the consummation of the transactions
contemplated hereby or in connection with the sale of the Shares by the
Company, except such as have been obtained and are in full force and effect and
such as may be required under the Act, the Rules and Regulations, any state
securities or Blue Sky laws or the bylaws and rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the purchase and
distribution by the Underwriter of the Shares to be sold hereby.
(m) The Company has full power (corporate and other) and authority to
enter into this Agreement and to carry out all the terms and provisions hereof
to be carried out by it. This Agreement has been duly authorized, executed and
delivered by the Company and constitutes a valid and binding agreement of the
Company, and is enforceable against the Company in accordance with its terms,
except as rights to indemnity and contribution may be limited by Federal or
state securities laws or the public policy underlying such laws. Except as
disclosed in the Registration Statement and the Prospectus (or, if the
Prospectus is not in existence, in the most recent Preliminary Prospectus), the
execution, delivery and the performance of this Agreement and the consummation
of the transactions contemplated hereby
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<PAGE> 9
will not result in the creation or imposition of any Encumbrance upon any of
the properties or assets of the Company pursuant to the terms or provisions of,
or result in a breach or violation of or conflict with any of the terms or
provisions of, or constitute a default under, or give any other party a right
to terminate any of its obligations under, or result in the acceleration of any
obligation under, (i) the Restated Articles of Incorporation or Bylaws of the
Company, in each case as amended, or (ii) any contract or other agreement to
which the Company is a party or by which it or any of its assets or properties
are bound, or (iii) any judgment, ruling, decree, order, law, statute, rule or
regulation of any Governmental Body applicable to the Company or its business
or properties, assuming compliance with applicable state securities and Blue
Sky laws.
(n) No statement, representation, warranty or covenant made by the Company
in this Agreement or made in any certificate or document required hereby to be
delivered to the Underwriter was or will be, when made, inaccurate, untrue or
incorrect in any material respect. Each certificate signed by an officer of
the Company and delivered to the Underwriter or counsel for the Underwriter
shall be deemed to be a representation and warranty by the Company to the
Underwriter as to the matters covered thereby.
(o) Neither the Company nor any of its directors, officers or affiliates
(within the meaning of the Rules and Regulations) has taken, nor will he, she
or it take, directly or indirectly, any action designed, or which might
reasonably be expected in the future, to cause or result in, under the Act or
otherwise, or which has constituted, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the Shares
or otherwise.
(p) The Company is not involved in any material labor dispute with its
employees nor is any such dispute threatened or imminent.
(q) Neither the Company nor, to the Company's knowledge, any employee or
agent of the Company has made any payment of funds of the Company or received
or retained any funds of the Company in violation of any law, rule or
regulation or of a character required to be disclosed in the Registration
Statement and Prospectus (or, if the Prospectus is not in existence, in the
most recent Preliminary Prospectus).
(r) The business, operations and facilities of the Company have been and
are being conducted in compliance in all material respects with all applicable
laws, ordinances, rules, regulations, licenses, permits, approvals, plans,
authorizations or requirements relating to occupational safety and health, or
pollution, or protection of health or the environment (including, without
limitation, those relating to emissions, discharges, releases or threatened
releases of pollutants, contaminants or hazardous or toxic substances,
materials or wastes into ambient air, surface water, groundwater or land, or
relating to the manufacture, processing, distribution, use, treatment, storage,
disposal, transport or handling of chemical substances, pollutants,
contaminants or hazardous or toxic substances, materials or wastes, whether
solid, gaseous or liquid in nature) of any governmental department, commission,
board, bureau, agency or instrumentality of the United States or any state or
political subdivision thereof, or any foreign jurisdiction, and all applicable
judicial or administrative agency or regulatory decrees, awards, judgments and
orders relating thereto; and the Company has not received any notice from any
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<PAGE> 10
Governmental Body or any third party alleging any violation thereof or material
liability thereunder (including, without limitation, liability for costs of
investigating or remediating sites containing hazardous substances and/or
damages to natural resources). The intended use and occupancy of each of the
facilities owned or operated by the Company complies in all material respects
with all applicable codes and zoning laws and regulations, and there is no
pending or, to the Company's knowledge, threatened condemnation, zoning change,
environmental or other proceeding or action that will in any material respect
adversely affect the size of, use of, improvements on, construction on or
access to such facilities.
(s) The Company has filed all foreign, Federal, state and local tax
returns that are required to be filed or has requested extensions thereof and
is not in default in any taxes which were payable pursuant to said returns.
(t) Neither the Company nor any of its directors, officers or employees in
such capacity is subject to any order or directive of, or party to any
agreement with, any regulatory agency having jurisdiction with respect to its
business or operations except as disclosed in the Prospectus (or if the
Prospectus is not in existence, in the most recent Preliminary Prospectus).
(u) The Company and each officer and director of the Company have
delivered to the Underwriter agreements (the "Lockup Agreements") to the effect
that he, she or it will not, for a period of 180 days after the date hereof,
without the prior written consent of the Underwriter, directly or indirectly,
offer, sell or otherwise dispose (or announce any offer, sale, grant of any
option to purchase or other disposition) of any Common Shares or securities
convertible into, or exercisable or exchangeable for, Common Shares, except
pursuant to this Agreement and except for (i) exercises of options and warrants
to acquire Common Shares, (ii) transfers to the holder's spouse or lineal
descendants or ancestors, natural or adopted (collectively, "Relatives"), or to
an inter vivos trust for the benefit of such holder's Relatives, (iii)
transfers upon the death of such holder pursuant to the laws of descent and
distribution or pursuant to wills, or (iv) gifts, provided that, in the case of
the foregoing clauses (i) through (iv), the transferor agrees in writing to be
bound by the terms of these restrictions.
(v) The Company has not distributed and will not distribute any prospectus
or other offering material in connection with the offering and sale of the
Shares other than any Preliminary Prospectus or the Prospectus or other
materials permitted by the Act or the Rules and Regulations to be distributed
by the Company.
(w) The Common Shares of the Company are quoted on The Nasdaq SmallCap
Market.
(x) The Company is not required to be registered under the Investment
Company Act of 1940, as amended (the "Investment Company Act").
(y) The Company has furnished the Underwriter with true and complete
copies of its report on Form 10-K for the fiscal year ended November 30, 1997,
its Proxy
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<PAGE> 11
Statement for use in connection with its 1998 Annual Meeting of Shareholders
and its 1997 Annual Report to Shareholders (the "Current Reports"), which
Current Reports constitute the only documents that the Company was required to
file with the Commission since November 30, 1997. The Company has also filed
all other reports required to be filed with the Commission prior to November
30, 1997 (such reports, together with the Current Reports are collectively
referred to as the "Commission Reports"). As of their respective filing dates,
the Commission Reports and all other filings made by the Company under the Act
or Exchange Act complied in all material respects with the requirements of the
Act or the Exchange Act, as the case may be, and none of such filings contained
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 under which they were made, not misleading.
(z) Since its inception, the Company has not incurred any material
liability resulting from a violation of the provisions of the Act or any state
securities or Blue Sky laws.
(aa) The Company has made available to the Underwriter a copy of all
premarket notification ("510(k)") and premarket approval ("PMA") concurrence or
clearance letters received from the FDA and all related documents and
information, including device master files and market studies.
(bb) The Company carries, or is covered by, insurance in such amounts and
covering such risks as is adequate for the conduct of its business and the
value of its properties.
(cc) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended, including the regulations and published interpretations
thereunder ("ERISA"); no "reportable event" (as defined in ERISA) has occurred
with respect to any "pension plan" (as defined in ERISA) for which the Company
would have any material liability; the Company has not incurred and does not
expect to incur liability under (i) Title IV of ERISA with respect to
termination of, or withdrawal from, any "pension plan" or (ii) Sections 412 or
4971 of the Internal Revenue Code of 1986, as amended, including the
regulations and published interpretations thereunder (the "Code"); and each
"pension plan" for which the Company would have any liability that is intended
to be qualified under Section 401(a) of the Code is so qualified in all
material respects and nothing has occurred, whether by action or by failure to
act, which would cause the loss of such qualification.
4. Representations and Warranties of the Underwriter. Upon your
authorization of the release of the Firm Shares, the Underwriter proposes to
offer the Firm Shares for sale to the public upon the terms set forth in the
Prospectus. The Underwriter represents and warrants to the Company that,
assuming compliance by the Company with all relevant provisions of the Act in
connection with the Registration Statement, the Underwriter will conduct all
offers and sales of the Shares in compliance with the relevant provisions of
the Act and the Rules and Regulations, all applicable state securities laws and
regulations and the bylaws and rules of the NASD. The Underwriter represents
and warrants to the Company that the Underwriter is authorized to enter into
this Agreement and to act in the manner provided in this Agreement.
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<PAGE> 12
5. Agreements of the Company. The Company covenants and agrees with the
Underwriter as follows:
(a) The Company will not, either prior to the Effective Date or
thereafter during such period as the Prospectus is required by law to be
delivered in connection with sales of the Shares by the Underwriter or a
dealer, file any amendment or supplement to the Registration Statement or the
Prospectus, unless a copy thereof shall first have been submitted to the
Underwriter and the Underwriter shall have consented thereto.
(b) If the Registration Statement is not yet effective, the Company will
use its best efforts to cause the Registration Statement to become effective
not later than the time indicated in Section 7(a) hereof. The Company will
notify the Underwriter promptly, and will confirm such advice in writing, (i)
when the Registration Statement has become effective (if later than the date
hereof) and when any post-effective amendment thereto becomes effective, (ii)
of any request by the Commission for amendments or supplements to the
Registration Statement or the Prospectus or for additional information, (iii)
of the issuance by the Commission of any stop order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or any order suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto or the initiation of any
proceedings for any such purpose or the threat thereof, (iv) of the happening
of any event during the period mentioned in the first sentence of Section 5(f)
that in the reasonable judgment of the Company makes any statement of a
material fact made in the Registration Statement or the Prospectus untrue or
that requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements of material fact therein, in light
of the circumstances in which they are made, not misleading and (v) of receipt
by the Company or the representative or attorney of the Company during the
period mentioned in the first sentence of Section 5(f) of any other
communication from the Commission relating to the Company, the Registration
Statement, any Preliminary Prospectus or the Prospectus. The Company will use
its best efforts to prevent the issuance of any order suspending the
effectiveness of the Registration Statement or any post-effective amendment
thereto or any order suspending the use of any Preliminary Prospectus or the
Prospectus or any amendment or supplement thereto, and, if any such order is
issued, the Company will use its best efforts to obtain the withdrawal of such
order at the earliest possible moment. The Company will prepare the Prospectus
in a form approved by the Underwriter and will file such Prospectus pursuant to
Rule 424(b) of the Rules and Regulations not later than the Commission's close
of business on the second business day following the execution and delivery of
this Agreement or, if applicable, such earlier time as may be required by Rule
430A(a)(3) of the Rules and Regulations. If the Company has omitted any
information from the Registration Statement pursuant to Rule 430A of the Rules
and Regulations, the Company will use its best efforts to comply with the
provisions of and make all requisite filings with the Commission pursuant to
Rule 430A of the Rules and Regulations and to notify the Underwriter promptly
of all such filings.
(c) If, at any time when a Prospectus relating to the Shares is required
to be delivered under the Act, any event has occurred as a result of which the
Prospectus, as then
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<PAGE> 13
amended or supplemented, would include any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, or the Registration Statement, as then amended or supplemented,
would include any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein not misleading, or if
for any other reason it is necessary at any such time to amend or supplement
the Prospectus or the Registration Statement to comply with the Act or the
Rules and Regulations, the Company will promptly notify the Underwriter thereof
and, in accordance with Section 5(a) hereof, will prepare and file with the
Commission, at the Company's expense, an amendment to the Registration
Statement or an amendment or supplement to the Prospectus that corrects such
statement or omission or effects such compliance.
(d) The Company will furnish to the Underwriter, without charge, two
signed copies of the Registration Statement and of any post-effective amendment
thereto, including financial statements and schedules, and all exhibits
thereto, other than exhibits incorporated by reference.
(e) The Company will comply with all the provisions of all undertakings
contained in the Registration Statement.
(f) On the Effective Date, and thereafter from time to time for such
period as the Prospectus is required by the Act to be delivered, the Company
will deliver to the Underwriter, without charge, as many copies of the
Prospectus or any amendment or supplement thereto as the Underwriter may
reasonably request. The Company consents to the use of the Prospectus or any
amendment or supplement thereto by the Underwriter and by all dealers to whom
the Shares may be sold, both in connection with the offering or sale of the
Shares and for any period of time thereafter during which the Prospectus is
required by law to be delivered in connection therewith. If during such period
of time any event shall occur which in the judgment of the Company or counsel
to the Underwriter should be set forth in the Prospectus in order to make any
statement of a material fact therein, in the light of the circumstances under
which it was made, not misleading, or in the Registration Statement in order to
make any statement of a material fact therein not misleading, or if it is
necessary to supplement or amend the Prospectus or the Registration Statement
to comply with law, the Company will, in accordance with Section 5(a) hereof,
forthwith prepare and duly file with the Commission an appropriate supplement
or amendment thereto and will deliver to the Underwriter, without charge, such
number of copies thereof as the Underwriter may reasonably request.
(g) The Company will (i) take or cause to be taken all such actions and
furnish all such information as the Underwriter may reasonably request in order
to qualify the Shares for offer and sale under the state securities or Blue Sky
laws of such jurisdictions as the Underwriter may designate, (ii) continue such
qualifications in effect for as long as may be necessary to complete the
distribution of the Shares but not to exceed one year from the date of this
Agreement and (iii) make such applications, file such documents and furnish
such information as may be required for the purposes set forth in the foregoing
clauses (i) and (ii); provided, that in
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<PAGE> 14
no event shall the Company be obligated to qualify to do business in any
jurisdiction where it is not now so qualified or to take any action which would
subject it to general service of process or to taxation in any jurisdiction
where it is not now so subject.
(h) During the period of five years commencing on the Effective Date, the
Company will furnish to the Underwriter upon request copies of such financial
statements and other periodic and special reports as the Company may from time
to time distribute generally to the holders of any class of its capital stock
and will furnish to the Underwriter upon request a copy of each annual or other
report it shall be required to file with the Commission.
(i) The Company will make generally available to holders of its
securities, as soon as may be practicable, but in no event later than the last
day of the fifteenth full calendar month following the calendar quarter in
which the Effective Date falls, an earnings statement (which need not be
audited but shall be in reasonable detail) for a period of 12 months commencing
after the Effective Date, and satisfying the provisions of Section 11(a) of the
Act (including Rule 158 of the Rules and Regulations).
(j) The Company will not for a period of 180 days after the date hereof,
without the prior written consent of the Underwriter, directly or indirectly,
offer, sell or otherwise dispose (or announce any offer, sale, grant of any
option to purchase or other disposition) of any Common Shares or any securities
convertible into, or exercisable or exchangeable for, Common Shares, except
pursuant to Section 1 hereof and except that the Company may grant options, and
issue shares pursuant to the options granted, under the Company's Option Plans
and the Company may issue shares pursuant to warrants outstanding as of the
date of this Agreement.
(k) The Company will not at any time, directly or indirectly, take any
action intended, or which might reasonably be expected, to cause or result in,
or which will constitute, stabilization of the price of the Common Shares to
facilitate the sale or resale of any of the Shares.
(l) The Company shall apply the net proceeds of the sale of the Shares as
set forth in the Prospectus.
(m) The Company shall not invest, or otherwise use, the proceeds received
by the Company from the sale of the Shares to the Underwriter in such a manner
as would require the Company to register as an investment company under the
Investment Company Act.
(n) The Company will maintain a transfer agent and, if necessary under the
jurisdiction of incorporation of the Company or if required by The Nasdaq Stock
Market, Inc., a registrar for its Common Shares.
(o) The Company will timely file all such reports, forms or other
documents as may be required from time to time under the Act, the Rules and
Regulations, the Exchange Act, and the rules and regulations promulgated
thereunder, and all such reports, forms and documents filed will comply in all
material respects as to form and substance with the applicable
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<PAGE> 15
requirements of the Act, the Rules and Regulations, the Exchange Act, and the
rules and regulations promulgated thereunder.
6. Expenses. Whether or not the transactions contemplated by this
Agreement are consummated or this Agreement is terminated, the Company will
pay, or reimburse if paid by the Underwriter, all costs and expenses incident
to the performance of its obligations under this Agreement and the transactions
contemplated by this Agreement, including, but not limited to, costs and
expenses of or relating to (i) the preparation, printing and filing of the
Registration Statement and exhibits thereto, each Preliminary Prospectus, the
Prospectus, any amendment or supplement to the Registration Statement or the
Prospectus, (ii) the preparation and delivery of certificates representing the
Shares, (iii) the printing of this Agreement, any Dealer Agreements and any
Underwriter's Questionnaire, (iv) furnishing (including costs of shipping and
mailing) such copies of the Registration Statement, the Prospectus and any
Preliminary Prospectus, and all amendments and supplements thereto, as may be
requested for use in connection with the offering and sale of the Shares by the
Underwriter or by dealers to whom Shares may be sold, (v) the quotation of the
Shares on The Nasdaq Stock Market, (vi) any filings required to be made by the
Underwriter with the NASD, (vii) the registration or qualification of the
Shares for offer and sale under the securities or Blue Sky laws of such
jurisdictions designated pursuant to Section 5(g) hereof, including the
reasonable fees, disbursements and other charges of counsel to the Underwriter
in connection therewith, and the preparation and printing of preliminary,
supplemental and final Blue Sky memoranda, (viii) counsel and accountants to
the Company and (ix) the transfer agent, and any registrar, for the Shares.
Whether or not the transactions contemplated by this Agreement are consummated
or if this Agreement shall be terminated by the Company pursuant to any
provisions hereof, the Company will reimburse the Underwriter for all of its
accountable out-of-pocket fees and expenses including, among other things, its
travel and travel-related expenses and its counsel fees and expenses, incurred
by it in connection herewith, up to an aggregate amount of $75,000.
7. Conditions to the Obligations of the Underwriter. The obligations of
the Underwriter hereunder are subject to the following conditions:
(a) Notification that the Registration Statement has become effective
shall be received by the Underwriter not later than 9:00 a.m., New York time,
on the date of this Agreement or at such later date and time as shall be
consented to in writing by the Underwriter and all filings required prior to
such effectiveness by Rule 424 and Rule 430A of the Rules and Regulations shall
have been made.
(b) (i) No stop order suspending the effectiveness of the Registration
Statement shall have been issued and no proceedings for that purpose shall be
pending or threatened by the Commission, (ii) no order suspending the
effectiveness of the Registration Statement or the qualification or
registration of the Shares under the securities or Blue Sky laws of any
jurisdiction shall be in effect, and no proceeding for such purpose shall be
pending before or threatened or contemplated by the authorities of any such
jurisdiction, (iii) any request for additional information on the part of the
staff of the Commission or any such authorities shall
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<PAGE> 16
have been complied with to the satisfaction of the staff of the Commission or
such authorities and (iv) after the date hereof no amendment or supplement to
the Registration Statement or the Prospectus shall have been filed unless a
copy thereof was first submitted to the Underwriter and the Underwriter
consented thereto, and the Underwriter shall have received certificates, dated
the Closing Date and the Option Closing Date, if any, and signed on behalf of
the Company by the Chief Executive Officer of the Company and the Chief
Financial Officer of the Company (who may, as to proceedings threatened, rely
upon the best of their information and belief), to the effect of the foregoing
clauses (i), (ii) and (iii).
(c) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, (i) there shall not have been a
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise), or results of
operations of the Company, whether or not arising from transactions in the
ordinary course of business, and (ii) the Company shall not have sustained any
material loss or interference with its business, assets or properties from
fire, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or any court or legislative or other governmental
action, order or decree, which is not set forth in the Registration Statement
and the Prospectus, if in the judgment of the Underwriter any such development
makes it impracticable or inadvisable to consummate the sale and delivery of
the Shares by the Underwriter at the public offering price.
(d) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, there shall have been no litigation
or other proceeding instituted against the Company or any of its officers,
directors or shareholders in their capacities as such, or any of its assets or
properties, before or by any Governmental Body in which litigation or
proceeding an unfavorable ruling, decision or finding would materially and
adversely affect the general affairs, business, properties, prospects,
condition (financial or otherwise), net worth or results of operations of the
Company.
(e) Each of the representations and warranties of the Company contained
herein shall be true and correct in all material respects at the date hereof,
at the Closing Date and, with respect to the Option Shares, if any, at the
Option Closing Date, as if made on such date, and all covenants and agreements
contained herein to be performed on the part of the Company and all conditions
contained herein to be fulfilled or complied with by the Company at or prior to
the Closing Date and, with respect to the Option Shares, if any, at or prior to
the Option Closing Date, shall have been fully performed, fulfilled or complied
with in all material respects.
(f) The Underwriter shall have received an opinion, dated the Closing Date
and the Option Closing Date, as applicable, from Honigman Miller Schwartz and
Cohn, Detroit, Michigan, counsel for the Company, to the following effect:
(i) The Company has been duly incorporated and is validly existing
and in good standing under the laws of the State of Michigan;
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<PAGE> 17
(ii) The description of the Common Shares under the caption "Description
of Capital Stock" in the Prospectus, to the extent that it constitutes
statements of law or legal conclusions, conforms in all material respects to
the terms thereof contained in the Company's Restated Articles of
Incorporation, as amended (the "Articles"). The authorized capital stock of the
Company is as set forth in the Prospectus under the caption "Capitalization".
All of the issued and outstanding Common Shares have been, and the Shares, when
issued, delivered and paid for by the Underwriter in accordance with the terms
of this Agreement, will be, duly authorized, validly issued, fully paid and
nonassessable and will not be subject to any preemptive or similar right
arising under the Michigan Business Corporation Act, as amended, the Company's
Articles or Bylaws, or any agreement listed as an Exhibit to the Registration
Statement (the "Exhibits"). To such counsel's actual knowledge, neither the
filing of the Registration Statement nor the offering or sale of the Shares
pursuant to this Agreement gives rise to any rights for the registration of any
Common Shares or other securities of the Company pursuant to any of the
Exhibits, except as disclosed in the Registration Statement, or such rights as
have been satisfied, waived or terminated;
(iii) Based solely on such counsel's review of the minutes of the
meetings of the Company's shareholders and board of directors and committees of
the board of directors and a certificate of officers of the Company (the
"Certificate"), except as described in the Registration Statement and the
Prospectus, there are no options, warrants, agreements, contracts or other
rights in existence to purchase or acquire from the Company any shares of
capital stock of the Company;
(iv) The Registration Statement has become effective under the Act; and,
to such counsel's actual knowledge, (i) no stop order suspending the
effectiveness of the Registration Statement or any amendment thereto has been
issued under the Act, and (ii) no proceedings for that purpose have been
instituted, are pending or are threatened by the Commission under the Act;
(v) The Registration Statement and, if any, each amendment thereto and
the Prospectus and, if any, each amendment and supplement thereto (except the
financial statements, schedules and other financial data contained therein, as
to which such counsel need not express any opinion), complies as to form in all
material respects with the requirements of the Act and Rules and Regulations;
(vi) The descriptions contained in the Registration Statement and in the
Prospectus under the captions "Risk Factors -- Potential Anti-Takeover Effect",
"Business -- Research and Development", "Management -- Directors and Executive
Officers", "-- Compensation", and "-- Indemnification of Directors and
Officers", "Certain Transactions", "Description of Capital Stock", and Notes 7,
8, 9 and 11 of "Notes to Financial Statements" of statutes, litigation,
contracts and other documents, insofar as such descriptions relate to matters
of law, fairly present in all material respects summaries of such statutes,
litigation, contracts and other documents;
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<PAGE> 18
(vii) To such counsel's actual knowledge, there are no contracts or
documents which are required by the Act to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement which are not so described or filed;
(viii) Based solely on the Certificate and the results of an inquiry
circulated to the partners of such counsel's firm (the "Inquiry"), such counsel
confirms to you that, to such counsel's actual knowledge, there is not pending
or threatened against the Company any action, suit, arbitration, claim,
governmental or other proceeding (informal or formal) or investigation before
or by any Governmental Body which is required to be disclosed in the
Registration Statement or the Prospectus which is not so disclosed therein;
(ix) The Company has the corporate power and authority to execute,
deliver and comply with its obligations under this Agreement and to consummate
the transactions provided for herein; and the execution, delivery and
performance by the Company of this Agreement have been duly authorized by all
requisite corporate action on behalf of the Company, and such counsel shall
confirm to you that this Agreement has been executed and delivered on behalf of
the Company by a duly authorized officer of the Company.
(x) The choice of New York law as the governing law contained in this
Agreement would, to the extent specifically pleaded and proved, be recognized
and applied in an action brought before a court of competent jurisdiction in
the State of Michigan or a Federal court applying the laws of the State of
Michigan, except that such court would not apply those laws of the State of New
York (i) which such court characterizes as procedural, (ii) which are revenue
or penal laws, (iii) the application of which would be inconsistent with
"public policy" as such term is understood under the laws of the State of
Michigan, or (iv) with respect to the enforceability, perfection or priority of
a security interest in real or personal property located in Michigan or subject
to Federal law. However, if this Agreement were stated to be governed by and
construed in accordance with the law of the State of Michigan, or if a Federal
court or a Michigan court were to apply the law of the State of Michigan to
this Agreement, this Agreement would constitute a valid and binding obligation
of the Company and, except for the contribution and indemnification provisions
hereof, as to which such counsel need not express any opinion, would be
enforceable against the Company in accordance with its terms, except as limited
by applicable bankruptcy, insolvency, reorganization, moratorium or other laws
now or hereafter in effect relating to or affecting creditors rights generally
or by general principles of equity relating to the availability of remedies;
(xi) The execution and delivery of this Agreement by the Company, and the
Company's compliance with the terms of this Agreement (i) do not result in the
creation or imposition of any Encumbrance upon any property or assets of the
Company pursuant to the terms or provisions of, or constitute a breach of, or
default under, any material contract or other material agreement included as an
Exhibit to the Registration Statement, and (ii) do not violate (A) the Articles
or Bylaws of the Company, (B) any laws which are known to such counsel to be
applicable to the Company where such violation would reasonably be expected to
have a material
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<PAGE> 19
adverse effect on the validity, performance or enforceability of any of the
terms of this Agreement applicable to the Company or relating to the rights and
remedies of the Underwriter under this Agreement, or (C) based solely on the
Certificate and the Inquiry, any of the Company's existing obligations under
any judgment, decree or order of any arbitrator or Governmental Body naming the
Company; no consent, approval, authorization or order of, or filing with, any
Governmental Body is legally required for the execution, delivery and
performance of this Agreement by the Company, except such as may be required
under the Act and the Rules and Regulations, such as may be required by the
bylaws and rules of the NASD in connection with the purchase and distribution
by the Underwriter of the Shares and such as may be required under state
securities or Blue Sky laws in connection with the purchase and distribution by
the Underwriter of the Shares;
(xii) To such counsel's actual knowledge, the Company is not in any
breach or violation of any of the terms or provisions of, or in default under
(nor has an event occurred which with notice or lapse of time or both would
constitute a default or acceleration under), the terms of its Articles or
Bylaws, in each case as amended;
(xiii) To such counsel's actual knowledge, the Company is not an
"investment company" as such term is defined in the Investment Company Act.
In addition, such counsel shall state that, such counsel has participated
in the preparation of the Registration Statement and the Prospectus and nothing
has come to such counsel's attention that causes such counsel to believe that
the Registration Statement as of the Effective Date and as of the date of such
opinion contained or contains any untrue statement of a material fact or
omitted or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading or that the Prospectus
as of the date thereof and as of the date of such opinion, contained or
contains any untrue statement of a material fact or omitted or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading (it being understood that such counsel need not make any statement
with respect to the financial statements, schedules and other financial data
included in the Registration Statement or the Prospectus).
In rendering any such opinion, such counsel may (i) state that such
counsel expresses no opinion as to the laws of any jurisdiction other than the
laws of the State of Michigan and the Federal laws of the United States and
expresses no opinion concerning the FD&C Act (as defined below) or related
rules and regulations or any intellectual property law and (ii) may rely, as to
matters of fact on certificates of responsible officers of the Company and
public officials.
References to the Registration Statement and the Prospectus in this
paragraph (f) shall include any amendment or supplement thereto at the date of
such opinion.
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<PAGE> 20
(g) The Underwriter shall have received an opinion, dated the Closing Date
and the Option Closing Date, as applicable, from Hogan & Hartson L.L.P,
Washington, D.C., special FDA counsel for the Company, to the following effect:
(i) The statements in the Prospectus under the captions "Risk
Factors -- Government Regulation" and "Business -- Government Regulation,"
insofar as such statements purport to summarize applicable provisions of the
Federal Food, Drug, and Cosmetic Act (the "FD&C Act") and the regulations
promulgated thereunder, are accurate summaries in all material respects of the
provisions purported to be summarized under such captions in the Prospectus;
and
(ii) There are no FDA enforcement actions or proceedings pending or,
to such counsel's knowledge, threatened, against the Company.
In addition such counsel shall state that, during the course of
preparation of the Registration Statement such counsel participated in certain
discussions with certain officers and employees of the Company as to the FDA
regulatory matters dealt with under the captions "Risk Factors -- Government
Regulation" and "Business -- Government Regulation" in the Prospectus. While
such counsel has not undertaken to determine independently, and does not assume
any responsibility for, the accuracy, completeness or fairness of the
statements under such captions in the Prospectus, such counsel may state on the
basis of these discussions and its activities as special FDA regulatory
counsel to the Company in connection with such counsel's review of the
statements contained in such captioned sections that no facts have come to such
counsel's attention that cause such counsel to believe that the statements in
the Prospectus under the captions "Risk Factors -- Government Regulation" and
"Business -- Government Regulation," insofar as such statements relate to FDA
regulatory matters, at the time the Registration Statement became effective,
contained an untrue statement of material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading or that as of the date of such opinion, contains an untrue
statement of material fact or omits to state a material fact necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading.
In rendering any such opinion, such counsel may (i) state that such
counsel expresses no opinion as to the laws of any jurisdiction other than the
Federal laws of the United States or as to any laws other than the FD&C Act and
the regulations promulgated thereunder and (ii) may rely, as to matters of
fact, to the extent such counsel deems proper, on certificates of responsible
officers of the Company and public officials and, as to matters involving the
application of laws of any other jurisdiction than the United States.
References to the Registration Statement and the Prospectus in this
paragraph (g) shall include any amendment or supplement thereto at the date of
such opinion.
(h) The Underwriter shall have received an opinion, dated the Closing Date
and the Option Closing Date, as applicable, from Price, Heneveld, Cooper,
DeWitt & Litton, Grand Rapids, Michigan, special counsel for the Company, to
the following effect:
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<PAGE> 21
(i) The statements set forth in the Registration Statement and the
Prospectus pertaining to this offering, under the captions "Risk Factors --
Proprietary Rights; Risk of Infringement" and "Business -- Proprietary Rights
Information" (the "Intellectual Property Portion"), comprise accurate summaries
in all material respects of the provisions purported to be summarized under
such captions, and of any legal matters referred to therein;
(ii) As of (i.e., on) the date of such opinion, the Company is
recorded in the records of the United States Patent and Trademark Office as the
sole owner or assignee of record of each of the issued patents noted on an
appendix to such opinion (the "Patents"), and each of the patent
applications noted on such appendix was so assigned and recorded at the time of
filing (the "Patent Applications"). To the actual knowledge of such counsel,
there have not been any subsequent recorded assignments and there is no
litigation pending or stated to be threatened (whether orally or in writing) by
any person relating to the ownership of the Patents or Patent Applications, no
material defects of form in the preparation or filing of the Patent
Applications and the applications which led to the Patents and, unless
otherwise noted on such appendix, none of the Patent Applications are on this
date under final rejection; and
(iii) To such counsel's actual knowledge, there is no litigation
pending or stated to be threatened (whether orally or in writing)
against the Company at this time alleging that any of the Company's products
infringe any patent, copyright, trademark, trade secret or other intellectual
property rights of any third party and no litigation pending or stated to be
threatened (whether orally or in writing) against the Company at this time
relating to the Patents, the Patent Applications, or to any copyright,
trademark, trade secret or other intellectual property right owned by the
Company.
In rendering any such opinion, such counsel may (i) state that such
counsel expresses no opinion as to the laws of any jurisdiction other than the
United States, or as to any laws other than the Federal intellectual property
laws of the United States and (ii) may rely, as to matters of fact on
certificates of responsible officers of the Company and public officials.
References to the Registration Statement and the Prospectus in this
paragraph (h) shall include any amendment or supplement thereto at the date of
such opinion.
(i) The Underwriter shall have received an opinion, dated the Closing Date
and the Option Closing Date, as applicable, from Piper & Marbury L.L.P.,
counsel to the Underwriter, which opinion shall be satisfactory in all respects
to the Underwriter.
(j) Concurrently with the execution and delivery of this Agreement, or, if
the Company elects to rely on Rule 430A of the Rules and Regulations, on the
date of the Prospectus, the Accountants shall have furnished to the Underwriter
a letter, dated the date of its delivery (the "Original Letter"), addressed to
the Underwriter and in form and substance satisfactory to the Underwriter, to
the effect that:
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<PAGE> 22
(i) They are independent certified public accountants with respect to the
Company within the meaning of the Act, the Rules and Regulations, the Exchange
Act and the rules and regulations thereunder;
(ii) In their opinion, the audited financial statements and schedules
examined by them and included in the Registration Statement, or incorporated
therein by reference, and in the Prospectus comply as to form in all material
respects with the applicable accounting requirements of the Act, the Rules and
Regulations, the Exchange Act and the rules and regulations promulgated
thereunder;
(iii) On the basis of a reading of the latest available interim unaudited
financial statements of the Company, carrying out certain specified procedures
(which do not constitute an audit made in accordance with generally accepted
auditing standards) that would not necessarily reveal matters of significance
with respect to the comments set forth in this paragraph (iii), a reading of
the minute books of the shareholders, the board of directors and any committees
thereof of the Company and inquiries of certain officials of the Company who
have responsibility for financial and accounting matters, nothing came to their
attention that caused them to believe that at a specific date not more than
five business days prior to the date of such letter, there were any changes in
the shares of capital stock or long-term indebtedness of the Company, in each
case compared with amounts shown on the November 30, 1997 balance sheet
included in the Registration Statement and the Prospectus, or for the period
from December 1, 1997 to such specified date there were any decreases, as
compared with the corresponding period of the preceding fiscal year, in net
revenues, except in all instances for changes, decreases or increases set forth
in such letter or as set forth in or contemplated in the Prospectus; and
(iv) They have carried out certain specified procedures, not constituting
an audit, with respect to certain amounts, percentages and financial
information that are derived from the general accounting records of the Company
and are included in its Annual Report on Form 10-K for the fiscal year ended
November 30, 1997 and have compared such amounts, percentages and financial
information with such records of the Company and with information derived from
such records and have found them to be in agreement, excluding any questions of
legal interpretation.
In the event that the letter referred to above set forth any such changes,
decreases or increases, it shall be a further condition to the obligations of
the Underwriter that (A) such letters shall, if requested by the Underwriter,
be accompanied by a written explanation of the Company as to the significance
thereof and (B) such changes, decreases or increases do not, in the sole
judgment of the Underwriter, make it impractical or inadvisable to proceed with
the purchase and delivery of the Shares as contemplated by the Registration
Statement, as amended as of the date hereof.
At the Closing Date and, as to the Option Shares, if any, the Option
Closing Date, the Accountants shall have furnished to the Underwriter a letter,
dated the date of its delivery, which shall confirm, on the basis of a review
in accordance with the procedures set forth in the Original Letter, that
nothing has come to their attention during the period from the date of the
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<PAGE> 23
Original Letter referred to in the prior sentence to a date (specified in such
letter) not more than five days prior to the Closing Date or the Option Closing
Date, as the case may be, which would require any change in the Original Letter
if it were required to be dated and delivered at the Closing Date or the Option
Closing Date, as the case may be.
(k) At the Closing Date and, as to the Option Shares, if any, the Option
Closing Date, there shall be furnished to the Underwriter an accurate
certificate, dated the date of its delivery, signed on behalf of the Company by
each of the Chief Executive Officer and the Chief Financial Officer of the
Company, in form and substance satisfactory to the Underwriter, to the effect
that:
(i) Each signer of such certificate has carefully examined the
Registration Statement and the Prospectus and (A) as of the date of such
certificate, (x) neither the Registration Statement, nor any amendment or
supplement thereto, if any, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary in
order to make the statements therein not misleading and (y) neither the
Prospectus, nor any amendment or supplement thereto, if any, contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading, and (B)
since the Effective Date, no event has occurred as a result of which it is
necessary to amend or supplement the Prospectus in order to make the statements
therein not untrue or misleading in any material respect;
(ii) Each of the representations and warranties of the Company
contained in this Agreement were, when originally made, and are, at the time
such certificate is delivered, true and correct in all material respects; each
of the covenants required herein to be performed by the Company on or prior to
the date of such certificate has been duly, timely and fully performed in all
material respects and each condition herein required to be complied with by the
Company on or prior to the delivery of such certificate has been duly, timely
and fully complied with in all material respects.
(iii) The Registration Statement has become effective and no stop
order suspending the effectiveness of the Registration Statement or any
post-effective amendment thereto and no order directed at any document
incorporated by reference in the Registration Statement or any amendment
thereto or the Prospectus has been issued, and no proceedings for that purpose
have been instituted or, to the Company's knowledge, are threatened or
contemplated by the Commission.
(l) The Shares shall have been qualified for sale in such states as the
Underwriter may reasonably designate and each such qualification shall be in
full force and effect and not subject to any stop order or other proceeding on
the Closing Date and the Option Closing Date, if any.
(m) The Underwriter shall have received at or prior to the Closing Date
from Piper & Marbury L.L.P. a memorandum or summary, in form and substance
satisfactory to the
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<PAGE> 24
Underwriter, with respect to the qualification for offering and sale by the
Underwriter of the Shares under the state securities or Blue Sky laws of such
jurisdictions as the Underwriter may reasonably have designated to the Company.
(n) The Company shall have filed a Nasdaq SmallCap Market Notification
Form for the listing of the Firm Shares and Option Shares and shall not have
received any notice of delisting of any Common Shares.
(o) The Lockup Agreements shall be in full force and effect.
(p) The Company shall have furnished to the Underwriter such
certificates, letters and other documents, in addition to those specifically
mentioned herein, as the Underwriter may have reasonably requested
as to the accuracy and completeness at the Closing Date and the Option Closing
Date, if any, of any statement in the Registration Statement or the Prospectus,
as to the accuracy at the Closing Date and the Option Closing Date, if any, of
the representations and warranties of the Company, as to the performance by the
Company of its obligations under this Agreement or as to the fulfillment of the
conditions concurrent and precedent to the obligations hereunder of the
Underwriter.
All such opinions, certificates, letters and other documents will be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to you. The Company will furnish you with such conformed copies of
such opinions, certificates, letters and other documents as you shall
reasonably request.
If any of the conditions hereinabove provided for in this Section 7 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriter hereunder may be terminated by the
Underwriter by notifying the Company of such termination in writing at or prior
to the Closing Date or the Option Closing Date, as the case may be.
8. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the Underwriter,
the directors, officers, employees and agents of the Underwriter and each
person, if any, who controls the Underwriter within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, from and against any and all
losses, claims, damages or liabilities, joint or several (and actions in respect
thereof), to which they, or any of them, may become subject under the Act or
other Federal or state law or regulation, at common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any misrepresentation or breach of warranty
made by the Company in Section 3 of this Agreement, (ii) any untrue statement or
alleged untrue statement of any material fact contained in (A) any Preliminary
Prospectus, the Registration Statement or the Prospectus or any amendment or
supplement to the Registration Statement or the Prospectus or (B) any
application or other document, or any amendment or supplement thereto, executed
by the Company or based upon written information furnished by or on behalf of
the Company filed in any jurisdiction in order to
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<PAGE> 25
qualify the Shares under the securities or Blue Sky laws thereof or filed with
the Commission, the NASD or any securities association or securities exchange
(each, an "Application"), or (iii) the omission or alleged omission to state in
any Preliminary Prospectus, the Registration Statement or the Prospectus or any
amendment or supplement to the Registration Statement or the Prospectus or any
Application a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse, as incurred, the
Underwriter and each such other person for any legal or other expenses
reasonably incurred by the Underwriter or such other person in connection with
investigating, defending or appearing as a third-party witness in connection
with 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 an untrue statement or omission
or alleged untrue statement or omission in any of such documents made or
omitted to be made in reliance upon and in conformity with information
furnished by the Underwriter in writing to the Company by the Underwriter
expressly for inclusion therein; provided, further, that such indemnity with
respect to any Preliminary Prospectus shall not inure to the benefit of the
Underwriter (or any such other person) from whom the person asserting any such
loss, claim, damage, liability or action purchased Shares which are the subject
thereof to the extent that any such loss, claim, damage or liability (i)
results from the fact that the Underwriter failed to send or give a copy of the
Prospectus (as amended or supplemented) to such person at or prior to the
confirmation of the sale of such Shares to such person in any case where such
delivery is required by the Act and (ii) arises out of or is based upon an
untrue statement or omission of a material fact contained in such Preliminary
Prospectus that was corrected in the Prospectus (or any amendment or supplement
thereto), unless such failure to deliver the Prospectus (as amended or
supplemented) was the result of noncompliance by the Company with Section 5(f)
hereof. This indemnity agreement will be in addition to any liability that the
Company might otherwise have. The Company will not, without the prior written
consent of the Underwriter, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not the
Underwriter or any person who controls the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act is a party to each
claim, action, suit or proceeding), unless such settlement, compromise or
consent includes an unconditional release of the Underwriter and each such
other person from all liability arising out of such claim, action, suit or
proceeding.
(b) The Underwriter will indemnify and hold harmless the Company, the
directors, officers, employees and agents of the Company and each person, if
any, who controls the Company within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act, against any and all losses, claims, damages or
liabilities, joint or several (and actions in respect thereof), to which they,
or any of them, may become subject under the Act or other Federal or state law
or regulation, at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or the
Prospectus or any amendment or supplement to the Registration Statement or the
Prospectus or any Application, or (ii) the omission or the alleged omission to
state in the Registration Statement, any Preliminary Prospectus or the
Prospectus or any
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<PAGE> 26
amendment or supplement to the Registration Statement or the Prospectus, or any
Application, a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made or omitted to be made in reliance upon and in
conformity with written information furnished to the Company by the Underwriter
expressly for use therein; and, subject to the limitation set forth immediately
preceding this clause, will reimburse, as incurred, the Company and each such
other person for any legal or other expenses reasonably incurred by the Company
and each such other person in connection with investigating, defending or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or any action in respect thereof. The Company acknowledges
that, for all purposes under this Agreement, the statements set forth under the
heading "Underwriting" and the information set forth in the last paragraph on
the front cover page (insofar as such information relates to the Underwriter)
and the last two paragraphs on the inside front cover of any Preliminary
Prospectus and the Prospectus constitute the only information furnished in
writing to the Company by the Underwriter expressly for inclusion in the
Registration Statement, any Preliminary Prospectus or the Prospectus. This
indemnity agreement will be in addition to any liability that the Underwriter
might otherwise have. The Underwriter will not, without the prior written
consent of the Company, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action, suit or proceeding in
respect of which indemnification may be sought hereunder (whether or not the
Company or any person who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act is a party to each claim, action,
suit or proceeding), unless such settlement, compromise or consent includes an
unconditional release of the Company and each such other person from all
liability arising out of such claim, action, suit or proceeding.
(c) Promptly after receipt by an indemnified party under this Section 8 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying party or parties
under this Section 8, notify such indemnifying party or parties of the
commencement thereof; but the omission so to notify the indemnifying party or
parties will not relieve it or them from any liability which it or they may
have to any indemnified party under the foregoing provisions of this Section 8
or otherwise unless, and only to the extent that, such omission results in the
forfeiture of substantive rights or defenses by the indemnifying party. If any
such action is brought against an indemnified party, the indemnifying party or
parties against which a claim is made will be entitled to participate therein
and, to the extent that it or they may wish, to assume the defense thereof with
counsel reasonably satisfactory to such indemnified party; provided, however,
that if the defendants in any such action include both the indemnified party
and the indemnifying party or parties and the indemnified party shall have
reasonably concluded that there may be one or more legal defenses available to
it and/or other indemnified parties which are different from or additional to
those available to the indemnifying party or parties, the indemnifying party or
parties shall not have the right to direct the defense of such action on behalf
of such indemnified party or parties and such indemnified party or parties
shall have the right to select separate counsel to defend such action on behalf
of such indemnified party or parties. After notice from the indemnifying party
or parties to such indemnified party of its or their election so to assume the
defense thereof and
- 26 -
<PAGE> 27
approval by such indemnified party of counsel appointed to defend such action,
the indemnifying party or parties will not be liable to such indemnified party
under this Section 8 for any legal or other expenses other than reasonable
costs of investigation subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall
have employed separate counsel in accordance with the proviso to the next
preceding sentence (it being understood, however, that in connection with such
action the indemnifying party or parties shall not be liable for the expenses
of more than one separate counsel (in addition to local counsel) in any one
action or separate but substantially similar actions in the same jurisdiction
arising out of the same general allegations or circumstances, designated by the
Underwriter in the case of paragraph (a) of this Section 8, representing the
indemnified parties under such paragraph (a) who are parties to such action or
actions), or (ii) the indemnifying party has authorized in writing the
employment of counsel for the indemnified party at the expense of the
indemnifying party or parties. After such notice from the indemnifying party
or parties to such indemnified party, the indemnifying party or parties will
not be liable for the costs and expenses of any settlement of such action
effected by such indemnified party without the consent of the indemnifying
party or parties.
(d) If the indemnification provided for in the foregoing paragraphs of
this Section 8 is unavailable or insufficient to hold harmless an indemnified
party under paragraph (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein,
then each indemnifying party shall contribute to the amount paid or payable by
such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) (i) in such proportion as is
appropriate to reflect the relative benefits received by the indemnifying party
or parties, on the one hand, and the indemnified party, on the other, from the
offering of the Shares or (ii) if, but only if, the allocation provided by the
foregoing clause (i) is not permitted by applicable law, in such proportion as
is appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the indemnifying party or parties on
the one hand, and the indemnified party, on the other, in connection with the
statements or omissions or alleged statements or omissions that resulted in
such losses, claims, damages or liabilities (or actions in respect thereof), as
well as any other relevant equitable considerations. The relative benefits
received by the Company, on the one hand, and the Underwriter, on the other,
shall be deemed to be in the same proportion as the total proceeds from the
offering of the Shares (before deducting expenses) received by the Company bear
to the total underwriting discounts and commissions received by the
Underwriter, in each case as set forth in the table on the cover page of the
Prospectus. Relative fault shall be determined by reference to whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the Underwriter, the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this Section 8(d) were to be determined
by pro rata allocation or by any other method of allocation which does not take
into account the equitable considerations referred to herein. The amount paid
or payable by an indemnified party as a result of the losses, claims, damages,
liabilities (or actions in respect thereof) referred to above in this Section
8(d) shall be deemed to include any legal or other
- 27 -
<PAGE> 28
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), the Underwriter shall not be required to
contribute any amount in excess of the amount by which the underwriting
discounts and commissions applicable to the Shares purchased by the Underwriter
exceeds the amount of any damages that the Underwriter has otherwise been
required to pay in respect of the same or any substantially similar claim.
Notwithstanding the provisions of this Section 8(d), the Company shall not be
required to contribute any amount in excess of the amount by which the total
proceeds received by it from the sale of the Shares under this Agreement,
before deducting expenses, exceeds the aggregate amount of any damages that the
Company has otherwise been required to pay in respect of the same or any
substantially similar claim. No person found guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Act) will be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriter's obligations to contribute as provided in
this Section 8(d) are several in proportion to their respective underwriting
obligations and not joint. For purposes of this Section 8(d), each person, if
any, who controls the Underwriter within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act will have the same rights to contribution as
the Underwriter, and each director of the Company, each officer of the Company
who signed the Registration Statement and each person, if any, who controls the
Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act, will have the same rights to contribution as the Company, subject
in each case to the provisions of this Section 8(d). Any party entitled to
contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against such party in respect of which a claim for
contribution may be made under this Section 8(d), notify any such party or
parties from whom contribution may be sought, but the omission so to notify
will not relieve the party or parties from whom contribution may be sought from
any other obligation(s) it or they may have hereunder or otherwise than under
this Section 8(d), or to the extent that such party or parties were not
adversely affected by such omission. The contribution agreement set forth
above shall be in addition to any liabilities which any indemnifying party may
otherwise have. No party will be liable for contribution with respect to any
action or claim settled without its written consent (which consent will not be
unreasonably withheld).
9. Termination. The obligations of the Underwriter under this Agreement
may be terminated at any time prior to the Closing Date (or, with respect to
the Option Shares, if any, on or prior to the Option Closing Date), by notice
to the Company from the Underwriter, without liability on the part of the
Underwriter to the Company, if, prior to delivery and payment for the Firm
Shares (or the Option Shares, if any, as the case may be), (i) the Company
shall have failed, refused or been unable, at or prior to such Closing Date, to
perform all obligations on its part to be performed under this Agreement, (ii)
any of the representations or warranties of the Company are not accurate in any
respect, (iii) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there shall have occurred any
material adverse change in the general affairs, business, business prospects,
properties, management, condition (financial or otherwise), net worth or
results of operation, whether or not arising in the ordinary course of
business, (iv) trading in the Common Shares or securities generally shall have
been suspended by the Commission or by The Nasdaq Stock Market, (v) minimum or
maximum
- 28 -
<PAGE> 29
prices shall have been established for the Common Shares or securities
generally on either The Nasdaq Stock Market or the New York Stock Exchange, or
additional material governmental restrictions, not in force on the date of this
Agreement, shall have been imposed upon trading in securities generally by any
such market or exchange or by order of the Commission or any court or other
governmental authority, (vi) a general banking moratorium shall have been
declared by the United States or New York State authorities, (vii) there shall
have been enacted, published, decreed or otherwise promulgated any statute,
regulation, rule or order of any court or other Governmental Body which in the
opinion of the Underwriter materially and adversely affects or may materially
and adversely affect the business or operations of the Company or (viii) any
material adverse change in the financial or securities markets in the United
States or any outbreak or material escalation of hostilities or declaration by
the United States of a national emergency or war or other calamity or crisis
shall have occurred, the effect of any of which is such as to make it, in the
sole judgment of the Underwriter, impracticable or inadvisable to market the
Shares on the terms and in the manner contemplated by the Prospectus. This
Agreement may also be terminated as provided in Sections 7 and 10 of this
Agreement. Any termination pursuant to this Section 9 shall be without
liability of any party to any other party except as provided in Sections 6 and
8 hereof.
10. [Intentionally Omitted]
11. Survival. The respective representations, warranties, agreements,
covenants, indemnities and other statements of the Company and the Underwriter
pursuant to this Agreement shall remain in full force and effect, regardless of
(i) any investigation made by or on behalf of the Company, any of its officers
or directors, the Underwriter or any controlling person referred to in Section
8 hereof and (ii) delivery of and payment for the Shares. The respective
agreements, covenants, indemnities and other statements set forth in Sections 6
and 8 hereof shall remain in full force and effect, regardless of any
termination or cancellation of this Agreement.
12. Notices. Notice given pursuant to any of the provisions of this
Agreement shall be in writing and, unless otherwise specified, shall be mailed
or delivered (a) if to the Company, at the office of the Company, 1653 East
Maple Road, Troy, Michigan 48083-4208, Attention: Chief Executive Officer,
Telephone: (810) 689-3050 and Facsimile: (810) 689-4294, with a copy to
Honigman Miller Schwartz and Cohn, 2290 First National Building, Detroit,
Michigan 48226, Attention: Robert J. Krueger, Esq., Telephone: (313) 256-7675
and Facsimile: (313) 962-0176 or (b) if to the Underwriter, at the offices of
Brean Murray & Co., Inc., 570 Lexington Avenue, New York, New York 10022-6822
Attention: Mr. A. Brean Murray, Telephone: (212) 702-6500 and Facsimile: (212)
702-6649, with a copy to Piper & Marbury L.L.P., 1251 Avenue of the Americas,
New York, New York 10020-1104, Attention: Michael Hirschberg, Esq., Telephone:
(212) 835-6270 and Facsimile: (212) 835-6001. Any such notice shall be
effective only upon receipt. Any notice under Section 8 or 9 hereof may be
made by telephone or facsimile but if so made shall be subsequently confirmed
in writing.
13. Successors. This Agreement shall inure to the benefit of and shall be
binding upon the Underwriter, the Company and their respective successors and
legal representatives, and
- 29 -
<PAGE> 30
nothing expressed or mentioned in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or
claim under or in respect of this Agreement, or any provisions herein
contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of such persons and
for the benefit of no other person except that (i) the indemnities of the
Company contained in Section 8 of this Agreement shall also be for the benefit
of any person or persons who control the Underwriter within the meaning of
Section 15 of the Act or Section 20 of the Exchange Act and (ii) the
indemnities of the Underwriter contained in Section 8 of this Agreement shall
also be for the benefit of the directors of the Company, the officers of the
Company who have signed the Registration Statement and any person or persons
who control the Company within the meaning of Section 15 of the Act or Section
20 of the Exchange Act. No purchaser of Shares from the Underwriter shall be
deemed a successor because of such purchase. This Agreement shall not be
assignable by any party hereto without the prior written consent of the other
parties.
14. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS AGREEMENT,
AND THE TERMS AND CONDITIONS SET FORTH HEREIN, SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, WITHOUT GIVING
EFFECT TO ANY PROVISIONS RELATING TO CONFLICTS OF LAWS.
15. Submission to Jurisdiction. The Company hereby submits to the
nonexclusive jurisdiction of the United States District Court for the Southern
District of New York and of the Supreme Court of the State of New York sitting
in New York County (including its Appellate Division), and of any other
appellate court in the State of New York, for the purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. The Company irrevocably waives, to the fullest extent
permitted by applicable law, any objection that it may now or hereafter have to
the laying of venue of any such proceeding brought in such a court and any
claim that any such proceeding brought in such a court has been brought in an
inconvenient forum.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
- 30 -
<PAGE> 31
Please confirm that the foregoing correctly sets forth the agreement among
the Company and the Underwriter.
Very truly yours,
SOMANETICS CORPORATION
By:__________________________________
Raymond W. Gunn
Executive Vice President and Chief
Financial Officer
Confirmed as of the date first
above mentioned:
BREAN MURRAY & CO., INC.
By:_________________________________
A. Brean Murray
Chairman and Chief Executive Officer
- 31 -
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF SOMANETICS CORPORATION AS OF, AND FOR THE THREE MONTHS
ENDED, FEBRUARY 28, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS AND ACCOMPANYING NOTES TO FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 1,518,881
<SECURITIES> 995,349
<RECEIVABLES> 920,002
<ALLOWANCES> 153,000
<INVENTORY> 748,438
<CURRENT-ASSETS> 4,114,985
<PP&E> 1,276,808
<DEPRECIATION> 816,467
<TOTAL-ASSETS> 4,679,724
<CURRENT-LIABILITIES> 963,868
<BONDS> 0
0
0
<COMMON> 42,853
<OTHER-SE> 3,673,003
<TOTAL-LIABILITY-AND-EQUITY> 4,679,724
<SALES> 803,365
<TOTAL-REVENUES> 803,365
<CGS> 389,998
<TOTAL-COSTS> 389,998
<OTHER-EXPENSES> 1,645,359
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (1,173,100)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,173,100)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,173,100)
<EPS-PRIMARY> (.27)
<EPS-DILUTED> (.27)
</TABLE>
