Document:

Exhibit
10.1

 

UNDERWRITER’S
WARRANT AGREEMENT

 

UNDERWRITER’S
WARRANT AGREEMENT dated as of August 18, 2010 (this “Agreement”), between Electromed,
Inc., a Minnesota corporation (the “Company”), and Feltl and Company, Inc.
(hereinafter referred to as the “Underwriter”).

 

RECITALS

 

	
  A.

  	
  The Company proposes to
  issue to the Underwriter warrants (the “Warrants”) to purchase up to an
  aggregate of 170,000 (as such number may be adjusted from time to time
  pursuant to Article 8 of this Warrant Agreement) shares (the “Shares”) of
  common stock, $.01 par value per share (the “Common Stock”), of the Company.

  
	
   

  	
   

  
	
  B.

  	
  The Underwriter has agreed,
  pursuant to the underwriting agreement (the “Underwriting Agreement”) dated
  August 12, 2010 between the Underwriter and the Company, to act as the
  Underwriter in connection with the Company’s proposed initial public offering
  (the “Public Offering”) of 1,700,000 shares of Common Stock (the “Public
  Shares”) at an initial public offering price of $4.00 per Public Share.

  
	
   

  	
   

  
	
  C.

  	
  The Warrants issued
  pursuant to this Agreement are being issued by the Company to the Underwriter
  or to its designees who are officers or partners of the Underwriter
  (collectively, the “Designees”), in consideration for, and as part of the
  Underwriter’s compensation in connection with the Underwriting Agreement.

  

 

TERMS AND CONDITIONS

 

NOW,
THEREFORE, in consideration of the premises, the payment by the Underwriter to
the Company of the aggregate amount of $50.00, the agreements herein set forth
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto agree as follows:

 

1.  Grant.
The Underwriter is and/or the Designees are hereby granted the right to
purchase up to an aggregate of 170,000 fully-paid and non-assessable Shares as
reflected in a warrant certificate (the “Warrant Certificate”) at an initial
exercise price (subject to adjustment as provided in Article 6 hereof) of  $4.80
per Share at any time from August 13, 2011 until 5:00 P.M., Minneapolis,
Minnesota time, on August 13, 2015 (the “Warrant Term”). Except with respect to
the rights granted pursuant to Article 7 hereof, the Shares are in all respects
identical to the Public Shares being sold to the public pursuant to the terms
and provisions of the Underwriting Agreement.

 

2.  Exercise
of Warrant.

 

2.1
 Cash Exercise. The Warrants initially are exercisable at a price of $4.80
per Share, payable in cash, by wire transfer of immediately available funds to
an account specified by the Company, or (if the total exercise price being paid
is less than $1,000) by check to the order of the Company, or any combination
thereof, subject to adjustment as provided in Article 8 hereof. Upon surrender
of the Warrant Certificate(s) with the annexed Cash Exercise Form duly
executed, together with payment of the Exercise Price (as hereinafter defined)
for the Shares, at the Company’s principal office (currently located at 500
Sixth Avenue NW, New Prague, Minnesota 56071), or at the office of its transfer
agent, as applicable, the registered holder of a Warrant Certificate shall be
entitled to receive a certificate or certificates for the Shares so purchased.
The purchase rights represented by the Warrant Certificate are exercisable at
the option of the Holder hereof, in whole or in part. In the case of the
purchase of less than all of the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares.  As used in this Agreement, the terms
“Holder” and “Holders” refer to the registered holder of a Warrant Certificate
or the Shares issued upon exercise of the Warrants as the context requires.

 

 

 

2.2  Cashless Exercise. At any time during the Warrant
Term, the Holder may, at the Holder’s option, exchange, in whole or in part,
the Warrants represented by such Holder’s Warrant Certificate which are
exercisable for the purchase of Shares into the number of Shares determined in
accordance with this Article 2.2 (a “Warrant Exchange”), by surrendering such
Warrant Certificate at the principal office of the Company or at the office of
its transfer agent, accompanied by a notice stating such Holder’s intent to
effect such exchange, the number of Warrants to be so exchanged and the date on
which the Holder requests that such Warrant Exchange occur (the “Notice of
Exchange”). The Warrant Exchange shall take place on the date specified in the
Notice of Exchange or, if later, the date the Notice of Exchange is received by
the Company or at the office of its transfer agent, as applicable (the “Exchange
Date”). Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new Warrant Certificate of like tenor representing the Warrants
which were subject to the surrendered Warrant Certificate and not included in
the Warrant Exchange, shall be issued as of the Exchange Date and delivered to
the Holder within ten  (10) business days following the Exchange Date. In
connection with any Warrant Exchange, the Holder shall be entitled to subscribe
for and acquire (i) the number of Shares (rounded to the next highest integer)
which would, but for such Warrant Exchange, then be issuable pursuant to the
provisions of Article 2.1 above upon the exercise of the Warrants specified by
the Holder in its Notice of Exchange (the “Total Share Number”) less (ii) the
number of Shares equal to the quotient obtained by dividing (a) the product of
the Total Share Number and the existing Exercise Price per Share (as
hereinafter defined) by (b) the Market Price (as hereinafter defined) of a
Public Share on the trading day immediately preceding the Exchange Date. “Market
Price” at any date shall be deemed to be the closing sale price or, in case no
reported sales takes place on such day, the average of the closing sale prices
for the last three consecutive trading days on which reported sales have taken
place, in either case as officially reported by the principal securities
exchange on which the Common Stock is listed or admitted to trading or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange, the closing bid price as reported by (i) Bloomberg Financial Markets
(or any successor thereto) (“Bloomberg”) through the OTC Bulletin Board or
successor trading market or (ii) if not listed on the OTC Bulletin Board (or
its successor market), the “pink sheets.” If the Common Stock is not listed or
admitted to trading on any national securities exchange, and bid prices are not
reported by Bloomberg through the OTC Bulletin Board or successor trading
market, or the “pink sheets,” then the Market Price shall be determined in good
faith by the  mutual agreement of the Board of Directors of the Company and the
Holder, where the Board of Directors of the Company shall prepare and deliver
to the Holder its proposed market price and an analysis setting forth the basis
for its determination.

 

3.  Issuance
of Stock Certificates.

 

Upon
the exercise of the Warrants, the issuance of certificates for the Shares
purchased shall be made no later than ten (10) business days thereafter without
charge to the Holder thereof including, without limitation, any tax which may
be payable in respect of the issuance thereof, and such certificates shall
(subject to the provisions of Article 4) be issued in the name of the Holder
thereof, or, if a sale, transfer, pledge or other disposition of the Warrants
or the Shares to be issued upon exercise thereof would be permitted by this Agreement
and applicable federal and state securities laws, in such names as may be
directed by the Holder; provided, however, that the Company shall not be
required to pay any transfer tax which may be payable in respect of any
transfer involved in the issuance and delivery of any such certificates in a
name other than that of the Holder, and the Company shall not be required to
issue or deliver such certificates unless or until the person or persons
requesting the issuance thereof shall have paid to the Company the amount of
such tax or shall have established to the satisfaction of the Company that such
tax has been paid.

 

The
certificates representing the Shares shall be executed on behalf of the Company
in the manner contemplated by the Company’s articles of incorporation or bylaws.
Warrant Certificates shall be dated the date of execution by the Company upon
initial issuance, division, exchange, substitution or transfer.

 

Upon
exercise, in part or in whole, of the Warrants, certificates representing the
Shares purchased shall bear a legend substantially similar to the following:

 

THE SHARES REPRESENTED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SHARES MAY NOT BE OFFERED
FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND APPLICABLE STATE SECURITIES LAWS, OR (B) UPON THE DELIVERY BY THE
HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
COUNSEL TO THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, IS AVAILABLE.

 

 

 

4.  Restriction on Transfer of Warrants.

 

As
used herein, “Lock-Up Period” means the period beginning on the date of the
final prospectus used in the Public Offering (the “Start Date”) and ending on
(and including) the date that is 365 days after the Start Date.  The
Underwriter (and the Holder of a Warrant Certificate, by the Holder’s
acceptance thereof) covenants and agrees that, as required by FINRA Rule
5110(g), the Warrants and the Shares may not be sold during the Public
Offering, or sold, transferred, assigned, pledged or hypothecated, or be the
subject of any hedging, short sale, derivative, put or call transaction that
would result in the effective economic disposition of the Warrants and the
Shares during the Lock-Up Period, except (i) to the Underwriter or the
Designees, provided that any portion of the Warrant and the Shares so
transferred shall remain subject to the above restriction for the remainder of
the restriction period, and (ii) any sale of Shares in accordance with Article
7 in a firm commitment underwritten public offering of Common Stock that closes
at least 180 days after the Start Date.

 

5.  Representations and
Warranties of Holder.  

The Holder of a Warrant (including the Underwriter)
represents and warrants to the Company as follows: 

5.1  Acquisition of Warrant for Personal Account. 
The Holder is acquiring this Warrant and the Shares issuable upon exercise of
this Warrant (collectively the “Securities”) for investment for its own account
and not with a present view to, or for resale in connection with, any public
resale or distribution thereof. The  Holder understands that the Securities
have not been registered under the Securities Act of 1933, as amended (the “Act”),
by reason of a specific exemption from the registration provisions of the Act
which depends upon, among other things, the bona fide nature of the investment
intent as expressed herein. The Holder further understands that the Securities
have not been passed upon or the merits thereof endorsed or approved by any
state or federal authorities.

 

5.2  Rule 144.  The Holder acknowledges
that the Securities must be held indefinitely unless subsequently registered
under the Act or an exemption from such registration is available. The Holder
is aware of the provisions of Rule 144 promulgated under the Act.

 

5.3  Accredited Investor.  As of the date hereof
the Holder is, and upon any exercise of this Warrant the Holder will be, an “accredited
investor” within the meaning of Regulation D promulgated under the Act. The
Holder is sophisticated in financial matters, and is able to evaluate the risks
and benefits of an investment in the Securities for an indefinite period of
time.

 

5.4  Opportunity To Discuss; Information.  The
Holder has been afforded the opportunity to ask questions of, and receive
answers from, the officers and/or directors of the Company acting on its behalf
concerning the terms and conditions of this transaction and to obtain any
additional information, to the extent that the Company possesses such information
or can acquire it without unreasonable effort or expense, necessary to verify
the accuracy of the information furnished; and has availed itself of the
opportunity to the extent the Holder considers appropriate in order to permit
it to evaluate the merits and risks of an investment in the Company.

 

5.5  Future Registration.  The Holder acknowledges
and recognizes that, except as provided in Article 7 hereof, the Company
has not agreed to register the resale of the Shares in any Registration
Statement to be filed by the Company under the Act.

 

6.  Price.

 

6.1  Initial and Adjusted Exercise Price. The
initial Exercise Price of each Warrant shall be $4.80 per Share. The adjusted
Exercise Price per Share shall be the prices which shall result from time to
time from any and all adjustments of the initial Exercise Price per Share in
accordance with the provisions of Article 8 hereof.

 

6.2
 Exercise Price. The term “Exercise Price” herein shall mean the initial
exercise price or the adjusted exercise price, depending upon the context.

 

7.  Registration
Rights.

 

7.1
 Registration Under the Securities Act of 1933.  As of the date hereof,
none of the Warrants or the Shares have been registered for purposes of public resale
or distribution under the Act.

 

 

 

7.2  Registrable Securities. As used herein,
the term “Registrable Security” means each of the Shares and any shares of
Common Stock issued upon any stock split or stock dividend in respect of such
Shares; provided, however, that with respect to any particular Registrable
Security, such security shall cease to be a Registrable Security when, as of
the date of determination, (i) it has been registered under the Act and
disposed of pursuant thereto, (ii) registration under the Act is no longer
required for the Holder for subsequent public distribution of such security
under Rule 144 promulgated under the Act or otherwise, or (iii) it has ceased
to be outstanding. The term “Registrable Securities” means any and/or all of
the securities falling within the foregoing definition of a “Registrable
Security.” In the event of any merger, reorganization, consolidation,
recapitalization or other change in corporate structure affecting the Common
Stock, such adjustment shall be made in the definition of “Registrable Security”
as is appropriate in order to prevent any dilution or enlargement of the rights
granted pursuant to this Article 7.

 

7.3
 Piggyback Registration. If, within seven (7) years following the
effective date of the Public Offering, the Company proposes to prepare and file
one or more post-effective amendments to the registration statement filed in
connection with the Public Offering or any new registration statement or
post-effective amendments thereto covering equity or debt securities of the
Company, or any such securities of the Company held by its shareholders (in any
such case, other than in connection with a merger, acquisition or pursuant to
Form S-8 or successor form)(for purposes of this Article 7, collectively, the “Registration
Statement”), it will give written notice of its intention to do so (“Notice”),
at least thirty (30) days prior to the filing of each such Registration
Statement, to all Holders of the Registrable Securities. Upon the written
request of such a Holder (a “Requesting Holder”), made within twenty (20) days
after receipt by the Holder of the Notice, that the Company include any of the
Requesting Holder’s Registrable Securities in the proposed Registration
Statement, the Company shall, as to each such Requesting Holder, use commercially
reasonable efforts to effect the registration under the Act of the Registrable
Securities which it has been so requested to register (“Piggyback Registration”),
at the Company’s sole cost and expense and at no cost or expense to the
Requesting Holders (except as provided in Article 7.5(b) hereof).

 

Notwithstanding
the provisions of this Article 7.3, the Company shall have the right at any
time after it shall have given written notice pursuant to this Article 7.3
(irrespective of whether any written request for inclusion of Registrable
Securities shall have already been made) to elect not to file any such proposed
Registration Statement, or to withdraw the same after the filing but prior to
the effective date thereof, without incurring any liability to any Holder of
Registrable Securities.

 

7.4
 Demand Registration.

 

(a)
 At any time beginning at such time as the Company is eligible to use a
registration statement on Form S-3 under the Act (or applicable successor form)
for secondary offerings of securities and ending five (5) years after the
effective date of the Public Offering, any “Majority Holder” (as such term is
defined in Article 7.4(c) below) of the Registrable Securities shall have the
right, exercisable by written notice to the Company (the “Demand Registration
Request”), to have the Company prepare and file with the Securities and
Exchange Commission (the “Commission”) on one occasion, at the sole expense of
the Company (except as provided in Article 7.5(b) hereof), a Registration
Statement on Form S-3 (or applicable successor form) and such other documents,
including a prospectus, as may be necessary (in the opinion of both counsel for
the Company and counsel for such Majority Holder) in order to comply with the
provisions of the Act, so as to permit a public offering and sale of the
Registrable Securities by the Holders thereof. This right is in addition to the
piggyback registration rights provided for under Article 7.3 hereof, provided
that the Company shall not be required to effect a Demand Registration pursuant
to this Article 7.4 within 180 days of the effective date of a Registration
Statement filed by the Company to which the rights provided by Article 7.3
would apply if the Holders were properly notified pursuant to Article 7.3
hereof.  The Company shall use commercially reasonable efforts to cause the
Registration Statement to become effective under the Act so as to permit a
public offering and sale of the Registrable Securities by the Holders thereof.
Once effective, the Company will use commercially reasonable efforts to
maintain the effectiveness of the Registration Statement until the earlier of
(i) the date that all of the Registrable Securities have been sold or (ii) the
date the Holders thereof receive an opinion of counsel to the Company that all
of the Registrable Securities may be freely traded without registration under the
Act under Rule 144 promulgated under the Act or otherwise.

 

(b)
 The Company covenants and agrees to give written notice of any Demand
Registration Request to all Holders of the Registrable Securities within ten
(10) business days from the date of the Company’s receipt of any such Demand
Registration Request. After receiving notice from the Company as provided in
this Article 7.4(b), Holders of Registrable Securities may request the Company
to include their Registrable Securities in the Registration Statement to be
filed pursuant to Article 7.4(a) hereof by notifying the Company of their
decision to have such securities included within fifteen (15) business days of
their receipt of the Company’s notice.

 

(c)
 The term “Majority Holder” as used in Article 7.4 hereof shall mean any Holder
or any combination of Holders of Registrable Securities that hold an aggregate
number of shares of Common Stock (including Shares already issued and Shares
issuable pursuant to the exercise of outstanding Warrants) as would constitute
a majority of the aggregate number of Shares that are Registrable Securities
(including Shares already issued and Shares issuable pursuant to the exercise
of outstanding Warrants).

 

 

 

7.5  Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:

 

(a)
 In connection with any registration under Article 7.4 hereof, the Company
shall file the Registration Statement as expeditiously as possible, but in any
event no later than thirty (30) days following receipt of any demand therefore,
shall use commercially reasonable efforts to have any such Registration
Statement declared effective at the earliest possible time, and shall furnish
each Holder of Registrable Securities such number of prospectuses as shall
reasonably be requested.

 

(b)
 The Company shall pay all costs, fees and expenses (other than underwriting
fees, discounts and nonaccountable expense allowance applicable to the
Registrable Securities and fees and expenses of counsel retained by the Holders
of Registrable Securities) in connection with all Registration Statements filed
pursuant to Articles 7.3 and 7.4(a) hereof including, without limitation, the
Company’s legal and accounting fees, printing expenses, and blue sky fees and
expenses and any fees due to the FINRA related to such registration or sale of
any of the Registrable Securities.

 

(c)
 The Company will take all necessary action which may be required in qualifying
or registering the Registrable Securities included in the Registration
Statement for offering and sale under the securities or blue sky laws of such
states as are requested by the Holders of such securities and for obtaining the
clearance of FINRA member firms to participate in the distribution of such
Registrable Securities; provided, however, that the Company shall not be
required in connection therewith to qualify to do business or file a general
consent to service of process in any jurisdiction if the Board of Directors of
the Company determines in good faith that the same would be materially
detrimental to the Company.

 

(d)
 The Company shall indemnify any Holder of the Registrable Securities to be
sold pursuant to any Registration Statement and any underwriter or person
deemed to be an underwriter under the Act and each person, if any, who controls
such Holder or underwriter or person deemed to be an underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Securities Exchange
Act of 1934, as amended (“Exchange Act”), against all loss, claim, damage,
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
any of them may become subject under the Act, the Exchange Act or otherwise, arising
from such Registration Statement to the same extent and with the same effect as
the provisions pursuant to which the Company has agreed to indemnify the
Underwriter as set forth in Section 6 of the Underwriting Agreement and to
provide for just and equitable contribution as set forth in Section 6 of the
Underwriting Agreement.

 

(e)
 Any Holder of Registrable Securities to be sold pursuant to a Registration Statement,
and such Holder’s successors and assigns, shall severally, and not jointly,
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Act or Section 20(a)
of the Exchange Act, against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Act, the Exchange Act or otherwise, arising from information
furnished by or on behalf of such Holder, or such Holder’s successors or
assigns, for specific inclusion in such Registration Statement to the same
extent and with the same effect as the provisions pursuant to which the
Underwriter has agreed to indemnify the Company as set forth in Section 6 of
the Underwriting Agreement and to provide for just and equitable contribution
as set forth in Section 6 of the Underwriting Agreement.

 

(f)
 Nothing contained in this Agreement shall be construed as requiring any Holder
to exercise the Warrants held by such Holder prior to the initial filing of any
Registration statement or the effectiveness thereof.

 

(g)
 If the Company shall fail to comply with the provisions of this Article 7, the
Company shall, in addition to any other equitable or other relief available to
the Holders of Registrable Securities, be liable for any or all incidental,
special and consequential damages sustained by the Holders of Registrable
Securities requesting registration of their Registrable Securities.

 

(h)
 In connection with any offering involving an underwriting of shares of the
Company’s Common Stock pursuant to Article 7.3, the Company shall not be
required to include any of the Registrable Securities in such underwriting
unless the Holders accept the terms of the underwriting as agreed upon between
the Company and its underwriters. If the total number of securities to be
included in such offering, including the Registrable Securities requested by
Holders to be included therein, exceeds the amount of securities that the underwriters
determine in their reasonable discretion is compatible with the success of the
offering (the “Maximum Number of Securities”), then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, which the underwriters and the Company
determine in their sole discretion will not jeopardize the success of the
offering. In the event that the underwriters determine that the Maximum Number
of Securities is less than the number of securities to be offered by the
Company plus all of the other Registrable Securities requested to be registered
by Holders or other security holders with similar registration rights, then the
securities that are included in such offering shall be allocated in the
following manner: (i) to the Company and, if there is a balance remaining, (ii)
to the Holders, provided that if the balance remaining is not sufficient to
include in the offering all of the Registrable Securities requested to be
registered by the Holders, the number of Registrable Securities to be included
for any holder shall be determined pro rata based on the proportionate number
of Registrable Securities then held (regardless of whether or not such any such
Holder has requested that all such Registrable Securities be included), and, if
there is a balance remaining, (iii) to any other shareholders holding similar
registration rights as selling security holders.

 

 

 

(i)  The Company shall promptly deliver copies of all correspondence
between the Commission and the Company, its counsel or its auditors with
respect to the Registration Statement to each Holder of Registrable Securities
included for registration in such Registration Statement pursuant to Article
7.3 hereof or Article 7.4 hereof and to the managing underwriter, if any, of
the offering in connection with which such Holder’s Registrable Securities are
being registered and shall permit each Holder of Registrable Securities and
such underwriter to do such reasonable investigation, upon reasonable advance
notice, with respect to information contained in or omitted from the
Registration Statement as it deems reasonably necessary to comply with
applicable securities laws or rules of the FINRA. Such investigation shall
include access to books, records and properties, and opportunities to discuss
the business of the Company with its officers and independent auditors, all to
such reasonable extent and at such reasonable times and as often as any such
Holder of Registrable Securities or underwriter shall reasonably request;
provided, that the Company may require each such Holder or underwriter to enter
into reasonable confidentiality and non-disclosure agreements with respect to
the information contained in or derived from such investigations.

 

8.  Adjustments
of Exercise Price and Number of Securities. The following adjustments apply
to the Exercise Price of the Warrants with respect to the Shares and the number
of Shares purchasable upon exercise of the Warrants.

 

8.1
 Computation of Adjusted Price. In case the Company at any time after
the date hereof pays a dividend in shares of Common Stock or makes a
distribution in shares of Common Stock, then upon such dividend or distribution,
the Exercise Price in effect immediately prior to such dividend or distribution
shall forthwith be reduced to a price determined by dividing (a) an amount
equal to the total number of shares of Common Stock outstanding immediately
prior to such dividend or distribution multiplied by the Exercise Price in
effect immediately prior to such dividend or distribution, by (b) the total
number of shares of Common Stock outstanding immediately after such issuance or
sale.

 

8.2
 Subdivision and Combination. In case the Company shall at any time
subdivide or combine the outstanding shares of Common Stock, the Exercise Price
shall forthwith be proportionately decreased in the case of subdivision or
proportionately increased in the case of combination.

 

8.3
 Adjustment in Number of Securities. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Article 8, the number of
Shares issuable upon the exercise of each Warrant shall be adjusted to the
nearest full number by multiplying a number equal to the Exercise Price in
effect immediately prior to such adjustment by the number of Shares issuable
upon exercise of the Warrants immediately prior to such adjustment and dividing
the product so obtained by the adjusted Exercise Price.

 

8.4
 Reclassification, Consolidation, Merger, etc. Subject to Article 12, in
case of any reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par value
to par value, or as a result of a subdivision or combination), or in the case
of any consolidation of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger in which the Company
is the surviving corporation and which does not result in any reclassification
or change of the outstanding shares of Common Stock, except a change as a
result of a subdivision or combination of such shares or a change in par value,
as aforesaid), or in the case of a sale or conveyance to another corporation of
all or substantially all of the assets of the Company, the Holders shall
thereafter have the right to convert this Warrant into the kind and amount of
shares of stock and other securities and property which the Holder would have
owned or have been entitled to receive immediately after such reclassification,
change, consolidation, merger, sale or conveyance had this Warrant been
converted immediately prior to the effective date of such reclassification,
change, consolidation, merger, sale or conveyance, and in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Article 8 with respect to the rights and interests
thereafter of the Holder of this Warrant, to the end that the provisions set
forth in this Article 8 shall thereafter correspondingly be made
applicable, as nearly as may reasonably be, in relation to any shares of stock
and other securities and property thereafter deliverable on the exercise of
this Warrant. The provisions of this Article 8.4 shall similarly apply to
successive such reclassifications, changes, consolidations, mergers, sales or
conveyances. In the event of any conflict between Article 8.4 and Article 12,
the latter shall control.

 

8.5 
Determination of Outstanding Common Shares. For purposes of this
Agreement, the number of shares of Common Stock at any one time outstanding
shall include: (i) the aggregate number of shares of common stock issued and
outstanding, and (ii) the aggregate number of shares of common stock issuable
upon the exercise of any outstanding options, rights, and warrants, and upon
the conversion or exchange of any outstanding convertible or exchangeable
securities.

 

8.6
 Dividends and Other Distributions with Respect to Outstanding Securities.
In the event that the Company shall at any time prior to the exercise of all
Warrants make any distribution of its assets to holders of its Common Stock as
a liquidating or a partial liquidating dividend, then the Holder of Warrants
who exercises its Warrants after the record date for the determination of those
Holders of Common Stock entitled to such distribution of assets as a
liquidating or partial liquidating dividend shall be entitled to receive for
the exercise price per Warrant, in addition to each share of Common Stock, the
amount of such distribution (or, at the option of the Company, a sum equal to
the value of any such assets at the time of such distribution as determined by
the Board of Directors of the Company in good faith) which would have been
payable to such Holder had he been the Holder of record of the Common Stock
receivable upon exercise of his Warrant on the record date for the
determination of those entitled to such distribution. At the time of any such
dividend or distribution, the Company shall make appropriate reserves to ensure
the timely performance of the provisions of this Article 8.6.

 

 

8.7  Subscription Rights for Shares of Common Stock
or Other Securities. In the case that the Company or an affiliate of the
Company shall at any time after the date hereof and prior to the exercise of
all the Warrants issue any rights, warrants or options to subscribe for shares
of Common Stock or any other securities of the Company or of such affiliate to
all the shareholders of the Company, the Holders of unexercised Warrants on the
record date of such issuance of rights, warrants or options shall be entitled,
in addition to the shares of Common Stock or other securities receivable upon
the exercise of the Warrants, to receive such rights, warrants or options that
such Holders would have been entitled to receive had they been, on the record
date set by the Company or such affiliate in connection with such issuance of
rights, warrants or options, the holders of record of the number of whole
shares of Common Stock then issuable upon exercise of their outstanding
Warrants.

 

9.  Exchange
and Replacement of Warrant Certificates.

 

Each
Warrant Certificate is exchangeable without expense, upon the surrender thereof
by the registered Holder at the principal executive office of the Company, for
a new Warrant Certificate of like tenor and date representing in the aggregate
the right to purchase the same number of securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.

 

Upon
receipt by the Company of evidence reasonably satisfactory to it of the loss,
theft, destruction or mutilation of any Warrant Certificate and, in case of loss,
theft or destruction, of indemnity reasonably satisfactory to it, and upon
surrender and cancellation of the Warrant Certificate, if mutilated, the
Company will make and deliver a new Warrant Certificate of like tenor in lieu
thereof.

 

10.  Elimination
of Fractional Interests.

 

The
Company shall not be required to issue certificates representing fractions of
Shares upon the exercise of the Warrants, nor shall it be required to issue
scrip or pay cash in lieu of fractional interests, it being the intent of the
parties that all fractional interests shall be eliminated by rounding any
fraction up to the nearest whole number of Shares.

 

11.  Reservation
and Listing of Securities.

 

The
Company shall at all times reserve and keep available out of its authorized
shares of Common Stock, solely for the purpose of issuance upon the exercise of
the Warrants, such number of shares of Common Stock as shall be issuable upon
the exercise thereof. The Company covenants and agrees that, upon exercise of
the Warrants and payment of the Exercise Price therefore, all Shares issuable
upon such exercise shall be duly and validly issued, fully paid, non-assessable
and not subject to the preemptive rights of any shareholder. As long as the
Warrants shall be outstanding, the Company shall use its best efforts to cause
all shares of Common Stock issuable upon the exercise of the Warrants to be
listed on any securities exchange or trading market on which the Common Stock
may be listed and/or quoted.

 

12.  Sale of the Company.

 

(a)  As used herein, a “Sale of the Company” means
(i) any sale (however effected, including without limitation by sale of
stock, merger, share exchange or otherwise, including without limitation in a
single transaction or series of related transactions) of all or substantially
all of the outstanding voting stock of the Company, or (ii) any sale,
lease or disposition of all or substantially all of the assets of the Company
and its subsidiaries, taken as a whole; provided, that in neither case, shall a
Sale of the Company include a transaction set forth above where the holders of
the Company’s voting stock immediately prior to the transaction hold more than
50% of the outstanding voting stock of the Company or its successor following
such transaction.

 

(b)  The Company shall give each Holder at least twenty
(20) days prior notice of any Sale of the Company.

 

(c)  Notwithstanding anything to the contrary herein,
this Warrant will expire at the closing for a Sale of the Company.

 

(d)  Upon receipt of the notice contemplated by
Article 12(b) hereof, any Holder may:

 

(i)  elect
(by giving written notice received by the Company no later than five days
before the closing of such Sale of the Company and surrendering the Warrants)
to receive, upon the closing of the Sale of the Company, (1) the same amount
and kind of securities, cash or property as the Holder would have been entitled
to receive upon the closing of the Sale of the Company if the Holder had been,
immediately prior to the Sale of the Company, the holder of the number of
Shares of Common Stock then issuable upon exercise in full of this Warrant less
(2) an amount of such securities, cash or property equal to the aggregate
exercise price of the Warrants surrendered.  If holders of Common Stock are
given any choice as to the securities, cash or property to be received in a
Sale of the Company, then the Holder shall be given the same choice as to such
alternate consideration it receives pursuant to an election under this Article
12(d);

 

 

 

(ii)  let the Holders’ Warrants expire in
accordance with their terms (subject to Article 12(c)); or

 

(iii)  exercise
the Holder’s Warrants in accordance with their terms prior to the expiration
thereof (subject to the Article 12(c)).

 

(e) 
Neither this Article 12, nor any notice or election contemplated by this Article 12,
shall create any obligation on the Company’s part to consummate any Sale of the
Company. If, after any notice or election contemplated by this Article 12
is given, the Company determines not to consummate the Sale of the Company,
then the Company shall notify the Holders of such determination, whereupon any
preceding notices or elections under this Article 12 regarding such Sale
of the Company shall be null and void and of no effect.

 

13.  Notices
to Warrant Holders.

 

Nothing
contained in this Agreement shall be construed as conferring upon the Holder or
Holders the right to vote or to consent or to receive notice as a shareholder
in respect of any meetings of shareholders for the election of directors or any
other matter, or as having any rights whatsoever as a shareholder of the
Company. If, however, at any time prior to the expiration of the Warrants and
their exercise, any of the following events shall occur:

 

(a)
 the Company shall take a record of the holders of its shares of Common Stock
for the purpose of entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution payable otherwise
than out of current or retained earnings, as indicated by the accounting treatment
of such dividend or distribution on the books of the Company; or

 

(b)
 the Company shall offer to all the holders of its Common Stock any additional
shares of capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or any option, right
or warrant to subscribe therefore; or

 

(c)
 a dissolution, liquidation or winding up of the Company (other than in
connection with a consolidation or merger); or

 

(d)
 reclassification or change of the outstanding shares of Common Stock (other
than a change in par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination), consolidation of the Company
with, or merger of the Company into, another corporation (other than a
consolidation or merger in which the Company is the surviving corporation and
which does not result in any reclassification or change of the outstanding
shares of Common Stock, except a change as a result of a subdivision or
combination of such shares or a change in par value, as aforesaid), or a sale
or conveyance to another corporation of the property of the Company as an
entirety is proposed; or

 

(e)
 The Company or an affiliate of the Company shall propose to issue any rights
to subscribe for shares of Common Stock or any other securities of the Company
or of such affiliate to all the shareholders of the Company; then, in any one
or more of said events, the Company shall give written notice to the Holder or
Holders of such event at least twenty (20) days prior to the date fixed as a
record date or the date of closing the transfer books for the determination of
the shareholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, options or warrants, or
entitled to vote on such proposed dissolution, liquidation, winding up or sale.
Such notice shall specify such record date or the date of closing the transfer
books, as the case may be. Failure to give such notice or any defect therein
shall not affect the validity of any action taken in connection with the
declaration or payment of any such dividend or distribution, or the issuance of
any convertible or exchangeable securities or subscription rights, options or
warrants, or any proposed dissolution, liquidation, winding up or sale.

 

14.  Notices.

 

All
notices, requests, consents and other communications hereunder shall be in
writing and shall be deemed to have been duly made (1) one business day after
being sent by overnight courier, (2) three business days after having been sent
by first-class U.S. mail (certified or regular), (3) at the time sent, if sent
by email or facsimile between 8:00 a.m. and 5:00 p.m. on  a business day, or
one business day after being sent, if sent by email or facsimile at any other
time, and (4) upon delivery, if hand-delivered by any other means.

 

 

 

(a)  If to a registered Holder of the Warrants, to the
address (or email or facsimile number, as applicable) of such Holder as shown
on the signature page hereto or the books of the Company; or

 

(b)
 If to the Company, to:

 

Electromed,
Inc.

Attn:
Chief Executive Officer

500
  Sixth Avenue NW

New
 Prague, MN 56011

 

or to such other address as
the Company may designate by notice to the Holders given pursuant to this Article.

 

15.  Supplements
and Amendments.

 

The
Company and the Underwriter may from time to time supplement or amend this
Agreement without the approval of any Holders of the Warrants and/or Shares
issued upon exercise of the Warrants in order to cure any ambiguity, to correct
or supplement any provision contained herein which may be defective or
inconsistent with any other provisions herein, or to make any other provisions
in regard to matters or questions arising hereunder which the Company and the
Underwriter may deem mutually necessary or desirable and which the Company and
the Underwriter mutually deem not to adversely affect the interests of the
Holders of Warrant Certificates.

 

16.  Successors.

 

All
the covenants and provisions of this Agreement by or for the benefit of the
Company and the Holders inure to the benefit of their respective successors and
permitted assigns hereunder.

 

17.  Governing
Law.

 

This
Agreement and each Warrant Certificate issued hereunder shall be deemed to be a
contract made under the laws of the State of Minnesota and for all purposes
shall be construed in accordance with the laws of said State, other than its
conflicts of laws provisions.

 

18.  Benefits
of this Agreement.

 

Nothing
in this Agreement shall be construed to give to any person or corporation other
than the Company and the Underwriter and any other registered Holder or Holders
of the Warrant Certificates or Shares any legal or equitable right, remedy or
claim under this Agreement; and this Agreement shall be for the sole and exclusive
benefit of the Company and the Underwriter and any other Holder or Holders of
the Warrant Certificates or Shares.

 

19.  Counterparts.

 

This
Agreement may be executed in any number of counterparts, and may be delivered
to each of the parties by facsimile or e-mail.  Facsimile or photocopy
signatures shall be deemed as legally enforceable as the original.  Each of
such counterparts shall for all purposes be deemed to be an original, and such
counterparts shall together constitute but one and the same instrument.

 

[Signature page follows.]

 

 

 

IN WITNESS WHEREOF, the Company has caused this Agreement to be duly executed as of the day and year first above written.

 

	
 

	
ELECTROMED, INC.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By: 

	
/s/ Robert D. Hansen

	
 

	
 

	
Robert D. Hansen

Chief Executive Officer 

 

 

Agreed and Accepted as of the day and year first above written:

 

 

FELTL AND COMPANY, INC.

 

	
By: 

	
/s/ Joseph P. Sullivan

	
 

	
Name: Joseph P. Sullivan

Title: Director, Corp. Finance

 

 

Feltl and Company, Inc.

2100 LaSalle Plaza

800 LaSalle Ave.

Minneapolis MN 55402

Main: 612.492.8800

 

with a copy to (that shall not constitute notice):

 

Faegre & Benson LLP

2200 Wells Fargo Center

90 South Seventh Street

Minneapolis, MN 55402-3901

Attention: W. Morgan Burns

Fax: (612) 766-1600

 

 

 

WARRANT CERTIFICATE

 

NEITHER THE WARRANTS NOR THE
SHARES UNDERLYING THE WARRANTS REPRESENTED BY THIS CERTIFICATE HAVE BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED OR APPLICABLE STATE
SECURITIES LAWS.  NEITHER THE WARRANTS NOR THE SHARES UNDERLYING THE WARRANTS
MAY BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED EXCEPT (A) PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT FOR THE WARRANTS OR THE SHARES UNDERLYING
THE WARRANTS, AS APPLICABLE, UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS, OR (B) UPON THE DELIVERY BY THE HOLDER TO THE
COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL TO THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, IS AVAILABLE.

 

THE TRANSFER OR EXCHANGE OF
THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS RESTRICTED IN ACCORDANCE WITH
THE WARRANT AGREEMENT REFERRED TO HEREIN.

 

EXERCISABLE ON OR BEFORE 5:00 P.M., MINNEAPOLIS TIME, AUGUST
13, 2015

 

	
  No. W-1000

  	
  170,000 Warrants

  

 

This
Warrant Certificate certifies that Feltl and Company, Inc. or its registered
assigns, is the registered holder of 170,000 Warrants to purchase, at any time
from August 13, 2011 until 5:00 P.M. Minneapolis, Minnesota time on August 13,
2015 (“Expiration Date”), up to 170,000 fully-paid and non-assessable shares
(the “Shares”) of the common stock, $.01 par value per share (the “Common Stock”),
of Electromed, Inc., a Minnesota corporation (the “Company”), at an initial
exercise price, subject to adjustment in certain events (the “Exercise Price”),
of  $4.80 per Share, upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the Underwriter’s Warrant Agreement dated as
of August 18, 2010, between the Company and Feltl and Company, Inc. (the “Warrant
Agreement”). Payment of the Exercise Price may be made in cash, wire transfer,
or by check payable to the order of the Company, by surrender of a portion of
the Warrants represented by the Warrant Certificate, or any combination thereof,
in each case subject to the terms of the Warrant Agreement.

 

No
Warrant may be exercised after 5:00 P.M., Minneapolis, Minnesota time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, shall thereafter be void.

 

The
Warrants evidenced by this Warrant Certificate are part of a duly authorized
issue of Warrants issued pursuant to the Warrant Agreement, which Warrant
Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words “holders” or “holder” means the registered
holders or registered holder) of the Warrants.

 

The
Warrant Agreement provides that upon the occurrence of certain events, the
Exercise Price and the type and/or number of the Company’s securities issuable
thereupon may, subject to certain conditions, be adjusted.  In such event, the
Company will, at the request of the holder, issue a new Warrant Certificate
evidencing the adjustment in the Exercise Price and the number and/or type of
securities issuable upon the exercise of the Warrants; provided, however, that
the failure of the Company to issue such new Warrant Certificates shall not in
any way change, alter, or otherwise impair the rights of the holder as set
forth in the Warrant Agreement.

 

Upon
due presentment for registration of transfer of this Warrant Certificate at an
office or agency of the Company, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection therewith.

 

 

 

Upon the exercise of less than all of the Warrants evidenced by this Certificate, the Company shall forthwith issue to the holder hereof a new Warrant Certificate representing such number of unexercised Warrants.

 

The Company may deem and treat the registered holder(s) hereof as the absolute owner(s) of this Warrant Certificate (notwithstanding any notation of ownership or other writing hereon made by anyone), for the purpose of any exercise hereof, and of any distribution to the holder(s) hereof, and for all other purposes, and the Company shall not be affected by any notice to the contrary.

 

All terms used in this Warrant Certificate which are defined in the Warrant Agreement shall have the meanings assigned to them in the Warrant Agreement.

 

IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to be duly executed.

 

Dated:  August 18, 2010

 

	
 

	
ELECTROMED, INC.

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
By: 

	
/s/ Robert D. Hansen

	
 

	
 

	
Robert D. Hansen

Chief Executive Officer 

 

 

 

 

fb.us.5549258.03

 

 

 

 

 

 

CASH EXERCISE FORM

 

The
undersigned hereby irrevocably elects to exercise the right, represented by
this Warrant Certificate, to purchase __________ Shares of Common Stock and
herewith tenders in payment for such securities, in cash, by wire transfer of
immediately available funds to an account specified by Electromed, Inc., a
Minnesota corporation (the “Company”), or (if the total exercise price being
paid is less than $1,000) by check to the order of the Company, or any
combination thereof, in the amount of $__________, all in accordance with the
terms of the Warrant Certificate.  The undersigned requests that a certificate
for such securities be registered in the name of the undersigned, or, if
permitted by the Underwriter’s Warrant Agreement dated as of August 18, 2010
between the Company and Feltl and Company, Inc., the name of:

 

	
   

  	
  ,

  
	
  whose
  address is

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  ,

  
	
  The
  undersigned requests that such Certificate be delivered to:

  	
   

  
	
   

  	
  ,

  
	
  whose
  address is

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  .

  
	
  Dated:

  	
   

  	
   

  	
   

  
	
  Signature:

  	
   

  	
   

  	
   

  
	
  SSN
  or Tax ID No:

  	
   

  	
   

  	
   

  

 

 

 

 

 

 

 

FORM OF ASSIGNMENT

 

(To
be executed by the registered holder if such holder desires to transfer the
Warrant Certificate and such transfer is permitted pursuant to the terms of the
Underwriter’s Warrant Agreement dated August 18, 2010 between the Company and
Feltl and Company, Inc.)

 

FOR
VALUE RECEIVED, ______________________________________ hereby sells, assigns
and transfers unto:

 

 

	
   

  	
  ,

  
	
  whose
  address is

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  ,

  
	
  and whose tax ID

  No. or SSN is:

  	
   

  	
   

  	
  ,

  

 

this Warrant Certificate,
together with all right, title and interest therein, and does hereby irrevocably
constitute and appoint _________________, Attorney, to transfer the within
Warrant Certificate on the books of the within-named Company, with full power
of substitution.

 

 

 

 

 

 

 

 

 

CASHLESS EXERCISE FORM

 

(To be executed upon exercise of Warrant pursuant to Article 2.2 of the Underwriter’s Warrant Agreement dated August 18, 2010 between the Company and Feltl and Company, Inc. (the “Warrant Agreement”)

 

To:  ELECTROMED, INC.

 

The undersigned hereby irrevocably elects a cashless exercise of the right to purchase represented by the attached Warrant Certificate for, and to purchase thereunder, _____________________ Shares, as provided for in Article 2.2 of the Warrant Agreement.

 

Please issue a certificate or certificates for such Shares in the name of the undersigned, or, if permitted by the Warrant Agreement, the name of:

 

	
 

	
,

	
whose address is

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
,

	
and whose tax ID

No. or SSN is:

	
 

	
 

	
,

	
The undersigned requests that such Certificate be delivered to:

	
 

	
 

	
,

	
whose address is

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
 

	
.

	
Dated:

	
 

	
 

	
 

	
Signature:

	
 

	
 

	
 

 

 

NOTE: The above signature should correspond exactly with the name on the first page of this Warrant Certificate or with the name of the assignee appearing in the assignment form, if any.

 

And if said number of shares shall not be all the shares purchasable under the attached Warrant Certificate, a new Warrant Certificate is to be issued in the name of the undersigned for the remaining balance of the shares purchasable thereunder.ex4-1.htm

EXHIBIT 4.1

AMENDMENT NO. 1 TO RIGHTS AGREEMENT

This AMENDMENT NO. 1 TO THE RIGHTS AGREEMENT (this “Amendment”) is made and entered into as of August 18, 2010, between Sun Healthcare Group, Inc., a Delaware corporation (the “Company”) and American Stock Transfer & Trust Company, LLC, a New York limited liability company, as Rights Agent (the “Rights Agent”).  Except as otherwise provided herein, all capitalized terms used in this Amendment shall have the meanings ascribed thereto in the Rights Agreement.

R E C I T A L S

WHEREAS, the Company and the Rights Agent have previously entered in that certain Rights Agreement, dated as of May 24, 2010 (the “Rights Agreement”);

WHEREAS, pursuant to Section 27 of the Rights Agreement, prior to a Section 11(a)(ii) Event and subject to the last sentence of Section 27 of the Rights Agreement, the Company may in its sole and absolute discretion and the Rights Agent shall, if the Company so directs, supplement or amend any provision of the Rights Agreement without the approval of any holders of the Rights or shares of Common Stock of the Company;

WHEREAS, the Executive Committee of the Board of Directors of the Company has determined that it is advisable to amend the Rights Agreement as set forth herein; and

WHEREAS, a Section 11(a)(ii) Event has not yet occurred and subject to and in accordance with the terms of this Amendment, the Company has directed and the Rights Agent has agreed to amend the Rights Agreement in certain respects, as more particularly set forth herein.

A G R E E M E N T

NOW, THEREFORE, in consideration of these premises and the mutual covenants and agreements set forth in the Rights Agreement and this Amendment, the parties hereto agree to modify the Rights Agreement as set forth below.

1. Amendment to Section 1(a)(A).  Section 1(a)(A) of the Rights Agreement is hereby amended to read in its entirety as follows:

“(A) the term “Acquiring Person” for purposes of clause (i) above shall not include (w) FMR LLC and its Affiliates or Associates unless and until such time as FMR LLC together with its Affiliates and Associates shall be the Beneficial Owner (as such term is defined in clauses (i) – (iv) of the definition of Beneficial Owner) of more than 14.9% of the shares of Common Stock of the Company then outstanding, (x) the Company, any Subsidiary of the Company, any employee

 

  

  

  

benefit plan or employee stock plan of the Company or any Subsidiary of the Company, or any Person organized, appointed, established or holding Common Stock of the Company for or pursuant to the terms of any such plan, (y) any underwriter acting in this capacity by agreement with the Company or (z) any Person who shall become the Beneficial Owner of 9.9% or more of the shares of Common Stock of the Company then outstanding with the approval of the Board (so long as such Person’s Beneficial Ownership of shares of Common Stock of the Company does not exceed the Beneficial Ownership level approved by the Board); and”

2. Direction to the Rights Agent.  By its execution and delivery hereof, the Company directs the Rights Agent to execute this Amendment.

3. Confirmation of the Rights Agreement.  Except as amended or modified hereby, all terms, covenants and conditions of the Rights Agreement as heretofore in effect shall remain in full force and effect and are hereby ratified and confirmed in all respects.

4. Governing Law.  This Amendment shall be deemed to be a contract made under the laws of the State of Delaware and for all purposes shall be governed by and construed in accordance with the laws of such state applicable to contracts to be made and performed entirely within such state.

5. Counterparts.  This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts together shall constitute but one and the same instrument.  Delivery of an executed counterpart of a signature page to this Amendment by facsimile or electronic mail shall be as effective as delivery of a manually executed counterpart of this Amendment.

[Remainder of Page Intentionally Left Blank]

  

2

  

       IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of the date first set forth above.

 

 

	
SUN HEALTHCARE GROUP, INC.

 

	  
	
By:       /s/ Michael Newman                   

Name:  Michael Newman                                                                       

Title:    Executive Vice President

 

	  
	  
	
AMERICAN STOCK TRANSFER & TRUST 

COMPANY, LLC, as Rights Agent

 

	  
	
By:        /s/ Carlos Pinto                            

Name:  Carlos Pinto                                                                       

Title:    Vice President

  

3

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