EXHIBIT 1.1
FOUNDERS FOOD & XXXXXXX, LTD.
1,000,000 SHARES OF COMMON STOCK (1)
UNDERWRITING AGREEMENT
____________, 2000
Equity Securities Investments, Inc.
0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Ladies/Gentlemen:
Founders Food & Xxxxxxx, Ltd., a Minnesota corporation (the "Company"),
hereby confirms its agreement to issue and sell to Equity Securities
Investments, Inc. (the "Underwriter") an aggregate of 1,000,000 authorized and
unissued shares (the "Firm Shares") of common stock, $0.01 par value per share
("Common Stock"), of the Company. The Company also hereby confirms its agreement
to grant to the Underwriter an option to purchase up to 150,000 additional
authorized and unissued shares of Common Stock (the "Option Shares") on the
terms and for the purposes set forth in Section 2(b) hereof. (As used in this
Agreement, the term "Shares" shall consist of the Firm Shares and the Option
Shares.) The Company also hereby confirms its agreement to issue to the
Underwriter warrants for the purchase of a total of 100,000 shares of Common
Stock as described in Section 6 hereof (the "Underwriter's Warrants"), assuming
purchase by the Underwriter of the Firm Shares. The shares of Common Stock
issuable upon exercise of the Underwriter's Warrants are referred to in this
Agreement as the "Warrant Shares."
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees with the
Underwriter as follows:
(i) A registration statement on Form SB-2 (File No. 333-______)
with respect to the Shares, including a prospectus subject to completion,
has been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the
Commission under the Securities Act; one or more amendments to such
registration statement have also been so prepared and have been, or will be,
so filed. Copies of the registration statement and amendments and each
related preliminary prospectus to date have been delivered by the Company to
the Underwriter, and, to the extent applicable, were identical to the
electronically transmitted copies thereof filed with the Commission pursuant
to the Commission's Electronic Data Gathering Analysis and Retrieval System
("XXXXX"), except to the extent permitted by Regulation S-T under the
Securities Act. If the Company has elected not to rely upon Rule 430A of the
Rules and Regulations, the Company has prepared and will promptly file an
amendment to the registration statement and an amended
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(1) Plus an option to purchase up to 150,000 additional shares to cover
over-allotments.
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prospectus. If the Company has elected to rely upon Rule 430A of the Rules
and Regulations, it will prepare and file a prospectus pursuant to Rule
424(b) that discloses the information previously omitted from the prospectus
in reliance upon Rule 430A. Such registration statement as amended at the
time it is or was declared effective by the Commission, including the
information deemed to be part of the registration statement at the time of
effectiveness pursuant to Rule 430A(b), if applicable, is hereinafter called
the "Registration Statement" and, if any amendment thereto shall be filed
after the effective date and prior to the "First Closing Date" (as
hereinafter defined), the term "Registration Statement" shall refer to the
registration statement as so amended (but only from and after the
effectiveness of such amendment). The prospectus included in the
Registration Statement at the time it is or was declared effective by the
Commission is hereinafter called the "Prospectus," except that if any
prospectus filed by the Company with the Commission pursuant to Rule 424(b)
of the Rules and Regulations or any other prospectus provided to the
Underwriter by the Company for use in connection with the offering of the
Shares (whether or not required to be filed by the Company with the
Commission pursuant to Rule 424(b) of the Rules and Regulations) differs
from the prospectus on file at the time the Registration Statement is or was
declared effective by the Commission, the term "Prospectus" shall refer to
such differing prospectus from and after the time such prospectus is filed
with the Commission or transmitted to the Commission for filing pursuant to
such Rule 424(b) or from and after the time it is first provided to the
Underwriter by the Company for such use. The term "Preliminary Prospectus"
as used herein means any preliminary prospectus included in the Registration
Statement prior to the time it becomes or became effective under the
Securities Act and any prospectus subject to completion as described in Rule
430A of the Rules and Regulations. For purposes of this Agreement, all
references to the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement to any of the foregoing shall be
deemed to include the respective copies thereof filed with the Commission
pursuant to XXXXX.
(ii) At the time the Registration Statement is or was declared
effective by the Commission and at all times subsequent thereto up to the
"First Closing Date" and the "Second Closing Date" (as such terms are
hereinafter defined), the Registration Statement and Prospectus, and all
amendments thereof and supplements thereto, will comply or complied with the
provisions and requirements of the Securities Act and the Rules and
Regulations. Neither the Commission nor any state securities authority has
issued any order preventing or suspending the use of any Preliminary
Prospectus or requiring the recirculation of a Preliminary Prospectus, or
issued a stop order with respect to the offering of the Shares (if the
Registration Statement has been declared effective), or instituted or, to
the Company's knowledge, threatened the institution of, proceedings for any
of such purposes. When the Registration Statement shall become effective and
when any post-effective amendment thereto shall become effective, the
Registration Statement (as amended, if the Company shall have filed with the
Commission any post-effective amendments thereto) will not or did not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading. When the Registration Statement is or was declared effective by
the Commission and at all times subsequent thereto up to the First Closing
Date and the Second Closing Date, the Prospectus (as amended or
supplemented, if the Company shall have filed with the Commission any
amendment thereof or supplement thereto) will not or did not contain any
untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances in which they were made, not
misleading. When any Preliminary Prospectus was first filed with the
Commission and when any amendment thereof or supplement thereto was first
filed with the Commission, such Preliminary Prospectus and any amendment
thereof and supplement thereto complied in all material respects with the
applicable provisions of the Securities Act and the Rules and Regulations
and did not contain an untrue statement of a material fact and did not omit
to state any material fact required to be stated therein or necessary in
order to make the statements therein not misleading. None of the
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representations and warranties in this Subsection 1(a) shall apply to
statements in, or omissions from, the Registration Statement or the
Prospectus, or any amendment thereof or supplement thereto, which are based
upon and conform to written information relating to the Underwriter
furnished to the Company by the Underwriter specifically for use in the
preparation of the Registration Statement or the Prospectus, or any such
amendment or supplement.
(iii) The Company has no subsidiaries and is not affiliated with
any other company or business entity, except as disclosed in the Prospectus.
The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and authority (corporate and other) to own,
lease and operate its properties and conduct its business as described in
the Registration Statement and Prospectus; the Company is duly qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction in which the ownership or lease of its properties or the
conduct of its business requires such qualification and in which the failure
to be qualified or in good standing would have a material adverse effect on
the condition (financial or otherwise), earnings, operations or business of
the Company; and no proceeding has been instituted in any such jurisdiction
revoking, limiting or curtailing, or seeking to revoke, limit or curtail,
such power and authority or qualification.
(iv) The Company has operated and is operating in material
compliance with all authorizations, licenses, certificates, consents,
permits, approvals and orders of and from all state, federal and other
governmental regulatory officials and bodies necessary to own its properties
and to conduct its business as described in the Registration Statement and
Prospectus, all of which are, to the Company's knowledge, valid and in full
force and effect; the Company is conducting its business in substantial
compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business; and the Company is not in
material violation of any applicable law, order, rule, regulation, writ,
injunction, judgment or decree of any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
over its properties. Except as set forth in the Registration Statement and
Prospectus:
(A) the Company is in material compliance with all material
rules, laws and regulations relating to the use, treatment, storage and
disposal of toxic substances and protection of health or the
environment (the "Environmental Laws") which are applicable to its
business;
(B) the Company has received no notice from any governmental
authority or third party of an asserted claim under Environmental Laws,
which claim is required to be disclosed in the Registration Statement
and the Prospectus;
(C) the Company will not be required to make any future
material capital expenditures to comply with Environmental Laws; and
(D) no property which is owned, leased or occupied by the
Company has been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Section 9601, ET SEQ.), or otherwise designated as a
contaminated site under applicable state or local law.
(v) The Company is not in violation of its articles of
incorporation or bylaws or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract, lease,
indenture, mortgage, loan agreement, joint venture or other agreement or
instrument to which it is a
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party or by which it or its properties are bound, which default is material
to the business of the Company.
(vi) The Company has full requisite power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company
and is a valid and binding agreement on the part of the Company, enforceable
against the Company in accordance with its terms, except as enforceability
may be limited by the application of bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors generally
and by judicial limitations on the right of specific performance, and except
as the enforceability of the indemnification or contribution provisions
hereof may be affected by applicable law or the public policies underlying
such law. The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a material breach or
violation of any of the terms and provisions of, or constitute a material
default under:
(A) any indenture, mortgage, deed of trust, loan agreement,
bond, debenture, note, agreement or other evidence of indebtedness, any
lease, contract, joint venture or other agreement or instrument to
which the Company is a party or by which the Company or its properties
may be bound;
(B) the articles of incorporation or bylaws of the Company;
or
(C) any material applicable law, order, rule, regulation,
writ, injunction, judgment or decree of any court, government or
governmental agency or body, domestic or foreign, having jurisdiction
over the Company or over its properties.
No consent, approval, authorization or order of or qualification with any
court, governmental agency or body, domestic or foreign, having jurisdiction
over the Company or over its properties is required for the execution and
delivery of this Agreement and the consummation by the Company of the
transactions herein contemplated, except such as may be required under the
Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or under state or other securities or Blue Sky laws, all of
which requirements have been satisfied.
(vii) Except as is otherwise expressly described in the
Registration Statement or Prospectus, there is neither pending nor, to the
best of the Company's knowledge, threatened, any action, suit, claim or
proceeding against the Company or any of its officers or any of its
properties, assets or rights before any court, government or governmental
agency or body, domestic or foreign, having jurisdiction over the Company or
over its officers or properties or otherwise which (A) might result in any
material adverse change in the condition (financial or otherwise), earnings,
operations or business of the Company or might materially and adversely
affect their properties, assets or rights, or (B) might prevent consummation
of the transactions contemplated hereby.
(viii) The Company has, and at the First Closing Date and Second
Closing Date (collectively, the "Closing Dates") will have, the duly
authorized and outstanding capitalization set forth in the Prospectus. All
outstanding shares of capital stock of the Company are duly authorized and
validly issued, fully paid and non-assessable, have been issued in
compliance with all federal and state securities laws, were not issued in
violation of or subject to any preemptive rights or other rights to
subscribe for or purchase securities, and the authorized and outstanding
capital stock of the Company conforms in all material respects with the
statements relating thereto contained in the Registration Statement and the
Prospectus; the Shares to be sold hereunder by the Company have been duly
authorized for issuance and sale to the Underwriter pursuant to this
Agreement and, when
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issued and delivered by the Company against payment therefor in accordance
with the terms of this Agreement, will be duly and validly issued and fully
paid and non-assessable and will be sold free and clear of any pledge, lien,
security interest, encumbrance, claim or equitable interest; and no
preemptive right, co-sale right, registration right, right of first refusal
or other similar right of shareholders exists with respect to any of the
Shares to be sold hereunder by the Company or the issuance and sale thereof,
or the issuance and sale or exercise of the Underwriter's Warrants, other
than those that have been expressly waived prior to the date hereof. Except
as disclosed in the Prospectus, the Company has no outstanding options to
purchase, or any preemptive rights or other rights to subscribe for or to
purchase, any securities or obligations convertible into, or any contracts
or commitments to issue or sell, shares of its capital stock or any such
options, rights, convertible securities or obligations. The certificates
evidencing the Shares comply as to form with all applicable provisions of
the laws of the State of Minnesota.
(ix) The Underwriter's Warrants and the Warrant Shares have been
duly authorized. The Underwriter's Warrants, when issued and delivered to
the Underwriter, will constitute valid and binding obligations of the
Company in accordance with their terms, except as enforceability may be
limited by the application of bankruptcy, insolvency, reorganization,
moratorium or other similar laws affecting the rights of creditors generally
and by judicial limitations on the right of specific performance and except
insofar as the indemnification provisions thereof may be limited by
applicable law and the policies underlying such law. The Warrant Shares,
when issued in accordance with the terms of this Agreement and pursuant to
the Underwriter's Warrants, will be fully paid and non-assessable and
subject to no preemptive rights or similar rights on the part of any person
or entity. A sufficient number of shares of Common Stock of the Company has
been reserved for issuance by the Company upon exercise of the Underwriter's
Warrants.
(x) Schechter, Dokken, Kanter, Xxxxxxx & Xxxxxx, Ltd., which has
expressed its opinion with respect to the financial statements filed as part
of the Registration Statement and included in the Registration Statement and
Prospectus, are independent accountants within the meaning of the Securities
Act and the Rules and Regulations. The financial statements of the Company
set forth in the Registration Statement and Prospectus comply in all
material respects with the requirements of the Securities Act and fairly
present the financial position and the results of operations of the Company
at the respective dates and for the respective periods to which they apply
in accordance with generally accepted accounting principles consistently
applied throughout the periods involved (subject, in the case of unaudited
financial statements, to normal year-end adjustments which in the opinion of
management of the Company are not material, and except as otherwise stated
therein); and the supporting schedules included in the Registration
Statement present fairly the information required to be stated therein. The
selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and have
been compiled on a basis consistent with the audited financial statements
presented therein. No other financial statements or schedules are required
by the Securities Act or the Rules and Regulations to be included in the
Registration Statement.
(xi) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and at each Closing
Date, except as is otherwise disclosed in the Registration Statement or
Prospectus, there has not been:
(A) any change in the capital stock or long-term debt
(including any capitalized lease obligation) or material increase in
the short-term debt of the Company (other than issuances of Common
Stock upon the exercise of options outstanding as of the Effective Date
and options granted under the Company's 1997 Stock Option Plan and the
Company's Director Stock Option Plan (collectively, the "Option
Plans"));
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(B) any issuance of options, warrants, convertible securities
or other rights to purchase the capital stock of the Company (other
than options granted under the Option Plans);
(C) any material adverse change, or any development involving
a material adverse change, in or affecting the condition (financial or
otherwise), earnings, operations, business, or business prospects,
management, financial position, stockholders' equity, results of
operations or general condition of the Company;
(D) any transaction entered into by the Company that is
material to the Company;
(E) any obligation, direct or contingent, incurred by the
Company except obligations incurred in the ordinary course of business
that, in the aggregate, are not material;
(F) any dividend or distribution of any kind declared, paid
or made on the capital stock of the Company; or
(G) any loss or damage (whether or not insured) to the
property of the Company which has been sustained which has a material
adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company.
(xii) Except as is otherwise expressly disclosed in the
Registration Statement or Prospectus:
(A) the Company has good and marketable title to all of the
property, real and personal, and assets described in the Registration
Statement or Prospectus as being owned by it, free and clear of any and
all pledges, liens, security interests, encumbrances, equities, charges
or claims, other than such as would not have a material adverse effect
on the condition (financial or otherwise), earnings, operations or
business of the Company;
(B) the agreements to which the Company is a party described
in the Registration Statement and Prospectus are valid agreements,
enforceable by the Company except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to or affecting creditors'
rights generally or by judicial limitations on the right of specific
performance; and
(C) the Company has valid and enforceable leases for all
properties described in the Registration Statement and Prospectus as
leased by it, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to or affecting creditors' rights generally or by
judicial limitations on the right of specific performance. Except as
set forth in the Registration Statement and Prospectus, the Company
owns or leases all such properties as are necessary to its operations
as now conducted.
(xiii) The Company has timely filed (or has timely requested an
extension of time to file) all necessary federal and state income and
franchise tax returns and has paid all taxes shown thereon as due; there is
no tax deficiency that has been or, to the best of the Company's knowledge,
could be asserted against the Company that might have a material adverse
effect on the condition
6
(financial or otherwise), earnings, operations, business or properties of
the Company; and all tax liabilities are adequately provided for in the
books of the Company.
(xiv) No labor disturbance by the employees of the Company exists
or, to the best of the Company's knowledge, is imminent. Except as disclosed
in the Registration Statement and the Prospectus, no collective bargaining
agreement exists with any of the employees of the Company and, to the best
of the Company's knowledge, no such agreement is imminent.
(xv) The Company owns, or possesses adequate rights to use, all
patents, patent rights, inventions, trade secrets, know-how, technology,
service marks, trade names, copyrights, trademarks and proprietary rights or
information which are necessary for the conduct of its present or intended
business as described in the Registration Statement or Prospectus; the
expiration of any patents, patent rights, trade secrets, trademarks, service
marks, trade names or copyrights would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations or business of
the Company and the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with the asserted rights of
others with respect to any patent, patent rights, inventions, trade secrets,
know-how, technology, trademarks, service marks, trade names or copyrights
which, singly or in the aggregate, if the subject of an unfavorable
decision, ruling or finding, might have a material adverse effect on the
condition (financial or otherwise), earnings, operations, business or
business prospects of the Company. Except as disclosed in the Registration
Statement or Prospectus, the Company is not obligated or under any liability
whatsoever to make any payments by way of royalties, fees or otherwise to
any owner of, licensor of, or other claimant to, any patent, patent rights,
inventions, trade secrets, know-how, technology, service marks, trade names,
trademark, copyright or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or otherwise.
(xvi) The Shares have been approved for quotation on The Nasdaq
SmallCap Market.
(xvii) The Company has no defined benefit pension plan or other
pension benefit plan which is intended to comply with the provisions of the
Employee Retirement Income Security Act of 1974 as amended from time to
time, except as disclosed in the Registration Statement.
(xviii) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its directors,
officers, shareholders or others) which has constituted or is designed to,
or which might reasonably be expected to, cause or result in stabilization
or manipulation, as defined in the Exchange Act or otherwise, of the price
of any security of the Company to facilitate the sale or resale of the
Shares. The Company has not distributed and will not distribute prior to the
later of (A) the First Closing Date or the Second Closing Date, as the case
may be, and (B) completion of the distribution of the Shares, any offering
material in connection with the offering and sale of the Shares other than
any Preliminary Prospectus, the Prospectus, the Registration Statement and
other materials, if any, permitted by the Securities Act. Except as is
otherwise disclosed in the Registration Statement or Prospectus, and to the
best of the Company's knowledge, no person is entitled, directly or
indirectly, to compensation from the Company or the Underwriter for services
as a "finder" or otherwise in connection with the transactions contemplated
by this Agreement.
(xix) The Company maintains insurance, which is in full force and
effect, with insurers of recognized financial responsibility of the types
and in the amounts generally deemed adequate for their respective businesses
and, to the best of the Company's knowledge, in line with the insurance
maintained by similar companies and businesses; and the Company has no any
reason to
7
believe that it will not be able to renew its existing insurance coverage as
and when such coverage expires or to obtain similar coverage from similar
insurers as may be necessary to continue its business at a cost that would
not materially and adversely affect the condition (financial or otherwise),
earnings, operations, business or business prospects of the Company.
(xx) Each executive officer and director of the Company and each
beneficial owner of five percent (5%) or more of the Common Stock to be
outstanding after the sale of the Firm Shares (calculated in accordance with
Rule 13d-3 under the Exchange Act) has agreed pursuant to the form of
One-Year Lock-up Agreement attached hereto as APPENDIX A-1 (the "One-Year
Lock-up Agreement") that such person will not, for a period of one year from
the date (the "Effective Date") that the Registration Statement is declared
effective by the Commission (the "One-Year Lock-up Period"), without the
prior written consent of the Underwriter, offer to sell, contract to sell,
sell, pledge, hypothecate, transfer or otherwise dispose of, or grant any
rights with respect to (collectively, a "Disposition"), any shares of Common
Stock and any options, warrants and other rights to purchase any shares of
Common Stock or any securities convertible into or exchangeable or
exercisable for shares of Common Stock now owned or hereafter acquired by
such person (collectively, "Securities"), or with respect to which such
person has or hereafter acquires the power of Disposition, other than as
permitted by the One-Year Lock-up Agreement. In addition, each other
beneficial owner of Common Stock of the Company has agreed pursuant to the
Lock-up Agreement attached hereto as APPENDIX A-2 (the "Six-Month Lock-up
Agreement") that such person shall not, for a period of six (6) months from
the Effective Date ("Six-Month Lock-up Period"), Dispose of any Securities
now owned or hereafter acquired by such person or with respect to which such
person has or hereafter acquires the power of Disposition, other than as
permitted by the Six-Month Lock-up Agreement. (The One-Year Lock-up
Agreement and the Six-Month Lock-up Agreement shall hereinafter be
collectively referred to as the "Lock-up Agreements.") The Company has
provided to counsel for the Underwriter ("Underwriter's Counsel") true,
accurate and complete copies of all of the Lock-up Agreements. The Company
has provided to Underwriter's Counsel a complete and accurate list of all
holders of Securities of the Company and the number and type of securities
held by each holder of Securities.
(xxi) The Company has not at any time during the last five (5)
years (or, if formed during the last five years, since its inception) made
any unlawful contribution to any candidate for an office or failed to
disclose fully any contribution in violation of law, or made any payment to
any federal or state governmental officer or official, domestic or foreign,
or other person charged with similar public or quasi-public duties, other
than payments required or permitted by the laws of the United States or any
jurisdiction thereof. The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that transactions are
executed in accordance with management's general or specific authorizations,
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and
to maintain accountability for assets, access to assets is permitted only in
accordance with management's general or specific authorization, and the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
(xxii) Neither the Company nor any of its affiliates is presently
doing business with the government of Cuba or with any person or affiliate
located in Cuba.
(b) Any certificate signed by any officer of the Company and delivered
to you or to Underwriter's Counsel shall be deemed a representation and warranty
by the Company to the Underwriter as to the matters covered thereby.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
8
(a) On the basis of the representations, warranties and agreements
herein contained, and subject to the terms and conditions herein set forth, the
Company agrees to sell to the Underwriter, and the Underwriter agrees to
purchase from the Company, the Firm Shares at a purchase price of $3.60 per
Share. The Underwriter will purchase all of the Firm Shares if any are
purchased.
The Firm Shares will be delivered by the Company to the Underwriter for
the account of the Underwriter against payment of the purchase price therefor by
wire transfer or other same-day funds payable to the order of the Company at the
offices of Equity Securities Investments, Inc., 0000 Xxxxxxx Xxxxxxxxx, Xxxxx
000, Xxxxxxxxxxx, Xxxxxxxxx 00000 (or at such other place as may be agreed upon
by the Underwriter and the Company), at 9:00 a.m., Minneapolis, Minnesota time,
on (i) the third (3rd) full business day following the date hereof if the
Registration Statement is declared effective before 3:30 p.m., Minneapolis,
Minnesota time on the date hereof, (ii) the fourth (4th) full business day
following the date hereof if the Registration Statement is declared effective
after 3:30 p.m., Minneapolis, Minnesota time on the date hereof, or (iii) such
other time and date as the Underwriter and the Company may determine, such time
and date of payment and delivery being herein called the "First Closing Date."
Delivery of the Firm Shares will be made by credit to "full fast" transfer to
the account or accounts at The Depository Trust Company designated by the
Underwriter.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants an option to the Underwriter to purchase an aggregate of
up to 150,000 Option Shares at the same purchase price as the Firm Shares, for
use solely in covering any over-allotments made by the Underwriter in the sale
and distribution of the Firm Shares. The option granted hereunder may be
exercised by the Underwriter at any time (but not more than once), in whole or
in part, during the period of thirty (30) days after the Effective Date of the
Registration Statement by giving written notice to the Company and the Company's
counsel, which notice shall set forth the aggregate number of Option Shares as
to which the Underwriter is exercising the option, the names and denominations
in which the Option Shares are to be registered, and the date and time, as
determined by the Underwriter, when the Option Shares are to be delivered, such
time and date being herein referred to as the "Second Closing Date;" provided,
however, that the Second Closing Date shall not be earlier than the First
Closing Date nor earlier than the second business day after the date on which
the option shall have been exercised. No Option Shares shall be sold and
delivered unless the Firm Shares previously have been, or simultaneously are,
sold and delivered.
The Option Shares will be delivered by the Company to the Underwriter
for the account of the Underwriter against payment of the purchase price
therefor by wire transfer or other same-day funds payable to the order of the
Company at the offices of Equity Securities Investments, Inc. 0000 Xxxxxxx
Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxxx, Xxxxxxxxx 00000 (or at such other place as
may be agreed upon by the Underwriter and the Company) at 9:00 a.m.,
Minneapolis, Minnesota time, on the Second Closing Date. Delivery of the Option
Shares will be made by credit to "full fast" transfer to the account or accounts
at The Depository Trust Company designated by the Underwriter.
3. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees with
the Underwriter as follows:
(a) If the Registration Statement has not already been declared
effective by the Commission, the Company will use its best efforts to cause the
Registration Statement and any post-effective amendments thereto to become
effective as promptly as possible; the Company will notify the Underwriter
promptly of the time when the Registration Statement or any post-effective
amendment to the Registration Statement has become effective or any supplement
to the Prospectus has been filed and of any request by the Commission for any
amendment or supplement to the Registration Statement or Prospectus or
additional information; if the Company has elected to rely on Rule 430A of the
Rules and Regulations, the Company will
9
file a Prospectus containing the information omitted therefrom pursuant to such
Rule 430A with the Commission within the time period required by, and otherwise
in accordance with the provisions of, Rules 424(b) and 430A of the Rules and
Regulations; the Company will prepare and file with the Commission, promptly
upon your request, any amendments or supplements to the Registration Statement
or Prospectus that, in your opinion, may be necessary or advisable in connection
with the distribution of the Shares by the Underwriter; and the Company will not
file any amendment or supplement to the Registration Statement or Prospectus to
which the Underwriter shall reasonably object by notice to the Company after
having been furnished a copy a reasonable time prior to the filing.
(b) The Company will advise the Underwriter, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance by the Commission of
any stop order suspending the effectiveness of the Registration Statement, of
the suspension of the qualification of the Shares for offering or sale in any
jurisdiction, or of the initiation or threatening of any proceeding for any such
purpose; and the Company will promptly use its best efforts to prevent the
issuance of any stop order or to obtain its withdrawal if such a stop order
should be issued.
(c) Within the time during which a prospectus relating to the Shares
is required to be delivered under the Securities Act, the Company will comply as
far as it is able with all requirements imposed upon it by the Securities Act,
as now and hereafter amended, and by the Rules and Regulations, as from time to
time in force, so far as necessary to permit the continuance of sales of or
dealings in the Shares as contemplated by the provisions hereof and the
Prospectus. If, during such period, any event occurs as a result of which the
Prospectus would include an untrue statement of a material fact or omit to state
a material fact necessary to make the statements therein, in the light of the
circumstances then existing, not misleading, or if, during such period, it is
necessary to amend the Registration Statement or supplement the Prospectus to
comply with the Securities Act, the Company will promptly notify the Underwriter
and will amend the Registration Statement or supplement the Prospectus (at the
expense of the Company) so as to correct such statement or omission or effect
such compliance.
(d) The Company will use its best efforts to arrange for the
qualification of the Shares for offering and sale under the securities laws of
such jurisdictions as the Underwriter may designate and to continue such
qualifications in effect for so long as may be required for purposes of the
distribution of the Shares; provided, however, that in no event shall the
Company be obligated to qualify to do business in any jurisdiction where it is
not now so qualified or to take any action which would subject it to the service
of process in suits, other than those arising out of the offering or sale of the
Shares, in any jurisdiction where it is not now so subject. In each jurisdiction
in which the Shares shall have been qualified as herein provided, the Company
will make and file such statements and reports in each year as are or may be
reasonably required by the laws of such jurisdiction.
(e) The Company will furnish to the Underwriter copies of the
Registration Statement (two of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments and
supplements to such documents, in each case as soon as available and in such
quantities as the Underwriter may from time to time reasonably request.
(f) For a period of five years from the Effective Date, the Company
will furnish directly to the Underwriter as soon as the same shall be sent to
its shareholders generally copies of all annual or interim shareholder reports
of the Company and will, for the same period, also furnish the Underwriter with
the following:
(i) One copy of any report, application or document (other than
exhibits, which, however, will be furnished on your request) filed by the
Company with the Commission, Nasdaq, the NASD or any securities exchange;
10
(ii) As soon as the same shall be sent to shareholders generally,
copies of each communication sent to shareholders; and
(iii) From time to time, such other information concerning the
Company as the Underwriter may reasonably and specifically request, provided
that the Company shall not be required to furnish any information pursuant
hereto that is not furnished to its shareholders or not otherwise made
publicly available.
(g) The Company will, for a period of two (2) years from the Effective
Date, furnish directly to the Underwriter quarterly profit and loss statements,
reports of the Company's cash flow and statements of application of the proceeds
of the offering of the Shares by the Company in such reasonable detail as the
Underwriter may request.
(h) The Company will make generally available to its security holders
as soon as practicable, but in any event not later than the fifteen (15) months
after the end of the Company's current fiscal quarter, an earnings statement
(which will be in reasonable detail but need not be audited) complying with the
provisions of Section 11(a) of the Securities Act and Rule 158 of the Rules and
Regulations and covering a twelve (12)-month period beginning after the
Effective Date of the Registration Statement.
(i) After completion of the offering of the Shares, the Company will
make all filings required to maintain the quotation of the Common Stock on The
Nasdaq SmallCap Market or any national stock exchange.
(j) The Company will apply the net proceeds from the sale of the
Shares substantially in the manner set forth under the caption "Use of Proceeds"
in the Prospectus.
(k) For a period of six months after the Effective Date of the
Registration Statement, the Company will not, without the prior written consent
of the Underwriter, directly or indirectly, effect the Disposition of any
Securities including, without limitation, any Securities that are convertible
into or exchangeable or exercisable for Common Stock, and shall not accelerate
the exercisability of any Securities that are convertible into or exchangeable
or exercisable for Common Stock, except the Company may take the following
actions:
(i) sell Shares pursuant to this Agreement;
(ii) grant options under the Option Plans in the ordinary course,
provided that the exercise price or conversion price of any options shall
have an exercise price or conversion price that is not less than the market
price of the Common Stock at the date of grant, or if greater, $4.00 per
share;
(iii) issue shares of Common Stock pursuant to the exercise of
options granted under the Option Plans; and
(iv) sell Common Stock, grant warrants to purchase Common Stock
(and issue shares pursuant to the exercise of such warrant), and grant other
Securities convertible into Common Stock (and issue shares pursuant to the
exercise of such warrant), to the Company's strategic business partners
consistent with the past practices of the Company, provided that the
exercise price or conversion price of any warrants or other convertible
Security shall have an exercise price or conversion price that is not less
than the market price of the common stock at the date of grant, or if
greater, $4.00 per share.
11
(l) The Company will not take, and will use its best efforts to cause
each of its officers and directors not to take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or result in
the stabilization or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Shares.
(m) The Company will inform the Florida Department of Banking and
Finance at any time prior to the consummation of the distribution of the Shares
by the Underwriter if it commences engaging in business with the government of
Cuba or with any person or affiliate located in Cuba. Such information shall be
provided within ninety (90) days after the commencement thereof or after a
change occurs with respect to previously reported information.
(n) The Company hereby grants to the Underwriter a right of first
refusal to act as the sole or managing agent or underwriter, as the case may be,
for any private or public offering of equity or debt securities commenced by the
Company during the period of three (3) years following the Effective Date of the
Registration Statement. If the Company receives a bona fide offer from any third
party to serve as sole or managing agent or underwriter in such a private or
public offering which the Company is willing to accept, the Company shall
promptly give written notice to the Underwriter, including all essential terms
and conditions of such offer. The Underwriter shall have a period of fifteen
(15) days after receipt of such written notice to elect to enter into an
agreement with the Company as sole or managing agent or underwriter, as the case
may be, on the same terms and conditions as set forth in the company's written
notice, after which time the Underwriter will be deemed to have declined such
exercise. If the Underwriter declines to exercise its right of first refusal or
fails to notify the Company within such 15-day period of an election to invoke
its right of first refusal, the Company may enter into an agreement with such
third party from whom it has received a bona fide offer; provided, however, that
the Underwriter's right of first refusal with respect to other offerings shall
continue until the termination of the three-year period following the Effective
Date of the Registration Statement. If the Company fails to enter into such an
agreement with such third party or if the terms and conditions of such offer are
thereafter materially changed, the right of first refusal granted to the
Underwriter shall once again apply.
(o) The Company hereby grants to the Underwriter the right to
nominate a representative to serve on the Company's Board of Directors during
the period of three (3) years following the Effective Date of the Registration
Statement, and the Company shall use its best efforts to secure the election of
such representative to the Company's Board of Directors. Such representative
shall be subject to the approval of the Company, which approval shall not be
unreasonably withheld. The Underwriter's right to nominate a representative to
serve on the Company's Board of Directors supersedes, and is not in addition to,
the similar right granted to the Underwriter in the Agency Agreement for the
Company's 1997 private placement.
4. EXPENSES.
(a) The Company agrees with the Underwriter that:
(i) Whether or not this Agreement becomes effective or is
terminated or cancelled or the sale of the Shares hereunder is consummated,
and regardless of the reason for or cause of any such termination,
cancellation, or failure to consummate, the Company will pay or cause to be
paid:
(A) all expenses (including any transfer taxes) incurred in
connection with the delivery to the Underwriter of the Shares;
(B) all expenses and fees (including, without limitation,
fees and expenses of the Company's accountants and of counsel to the
Company, excluding, however, fees of Underwriter's Counsel) in
connection with the preparation, printing, filing, delivery, and
shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits
thereto), each Preliminary Prospectus, the Prospectus, and any
amendment thereof or supplement thereto;
(C) all fees and reasonable expenses, including all
reasonable counsel fees of Underwriter's Counsel, incurred in
connection with the qualification of the Shares for offering and sale
by the Underwriter or by dealers under the securities or Blue Sky laws
of the states and other jurisdictions which the Underwriter may
designate in accordance with Section 3(d) hereof;
(D) all costs and expenses incident to qualification with The
Nasdaq SmallCap Market;
(E) postage and express charges and other expenses in
connection with delivery to the Underwriter of the Preliminary
Prospectus and Prospectus; and
(F) all other costs and expenses incident to the performance
of the Company's obligations hereunder that are not otherwise
specifically described herein.
In addition to and not in lieu of the foregoing, the Company shall pay to
the Underwriter on each Closing Date for out-of-pocket expenses (including
fees of Underwriter's Counsel other than fees and expenses incurred in
connection with Blue Sky or state securities qualifications) a
nonaccountable expense allowance equal to three percent (3.0%) of the
aggregate Price to Public for all the Shares sold to the Underwriter on each
Closing Date, including Shares sold pursuant to orders received through the
Company. If the Underwriter withdraws from the sale of the Shares as herein
proposed:
12
(A) for any reason within the control of the Company such as,
for example, the sale of the Shares as herein proposed is abandoned by
the Company;
(B) based upon the fact that there has been a material
adverse change in the financial or other affairs of the Company since
the date of the last financial statements of the Company provided to
the Underwriter;
(C) because any of the Company's representations or
warranties in this Agreement prove to be untrue;
(D) because there shall have occurred any general suspension
of trading in securities on the New York Stock Exchange or any
limitation on prices for such trading or because any new restrictions
on the distribution of securities shall have been established by the
New York Stock Exchange or by the Commission or by any federal or state
agency, all to such a degree as, in the Underwriter's judgment, would
restrict materially a free market for the Shares;
(E) because there shall have occurred such a materiel change
in general economic, political or financial conditions, or because the
effect of international conditions on the financial markets in the
United States become such as, in the Underwriter's judgment, makes it
inadvisable to proceed with the sale of the Shares;
(F) because the Company's financial condition or its business
prospects do not fulfill the Underwriter's expectations based on
representations made by the Company prior to ____________;
(G) because the offering of the Shares lacks public interest
prior to the Effective Date; or
(H) because adverse market or other conditions make the
offering of the Shares not feasible in the Underwriter's judgment;
the Company will pay to the Underwriter the amount of all actual
accountable, out-of-pocket expenses (including fees and disbursements of
Underwriter's Counsel) incurred by the Underwriter in connection with the
contemplated purchase, offer and sale of the Shares, including, without
limitation, expenses incurred in its investigation, preparation to market,
and marketing of the Shares, and in contemplation of performing and in
performance of its obligations hereunder, up to a maximum of $25,000.00.
All reimbursements pursuant to this Section 4(a)(i) shall occur within ten
(10) days after the Underwriter delivers to the Company a written
itemization of such expenses. The provisions of this Section 4(a)(i) are
intended to relieve the Underwriter from the payment of the expenses and
costs which the Company hereby agrees to pay and shall not impair the
obligations of the Company hereunder to the Underwriter.
(ii) In addition to its other obligations under Sections 7(a) and
8 hereof, the Company agrees that, as an interim measure during the pendency
of any claim, action, investigation, inquiry or other proceeding described
in Section 7(a), it will reimburse the Underwriter on a monthly basis for
all reasonable legal or other expenses incurred in connection with
investigating or defending any such claim, action, investigation, inquiry or
other proceeding, notwithstanding the absence of a judicial determination as
to the propriety and enforceability of the Company's obligation to reimburse
the Underwriter for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent
jurisdiction. To the extent that any such interim reimbursement
13
payment is so held to have been improper, the Underwriter shall promptly
return such payment to the Company together with interest, compounded daily,
determined on the basis of the prime rate (or other commercial lending rate
for borrowers of the highest credit standing) listed from time to time in
The Wall Street Journal which represents the base rate on corporate loans
posted by a substantial majority of the nation's thirty (30) largest banks
(the "Prime Rate"). Any such interim reimbursement payments which are not
made to the Underwriter within thirty (30) days of a request for
reimbursement shall bear interest at the Prime Rate from the date of such
request.
(b) It is agreed that any controversy rising out of the operation of
the interim reimbursement arrangements set forth in Section 4(a)(ii) hereof,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, shall be settled by arbitration conducted pursuant to
the Code of Arbitration Procedure of the National Association of Securities
Dealers, Inc. ("NASD"). Any such arbitration must be commenced by service of a
written demand for arbitration or a written notice of intention to arbitrate,
therein electing the arbitration tribunal. If the party demanding arbitration
does not make such designation of an arbitration tribunal in such demand or
notice, then the party responding to said demand or notice is authorized to do
so. Any such arbitration will be limited to the operation of the interim
reimbursement provisions contained in Section 4(a)(ii) hereof and will not
resolve the ultimate propriety or enforceability of the obligation to indemnify
for expenses which is created by the provisions of Sections 7(a) and 7(b) hereof
or the obligation to contribute to expenses which is created by the provisions
of Section 8(a) hereof.
5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation of the
Underwriter to purchase and pay for the Shares as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, in
the case of the Firm Shares, as of the date hereof and the First Closing Date
(as if made on and as of the First Closing Date), and in the case of the Option
Shares, as of the date hereof and the Second Closing Date (as if made on and as
of the Second Closing Date); to the performance by the Company of its
obligations hereunder; and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Shares
and on or before the Second Closing Date in the case of the Option Shares:
(a) The Registration Statement shall have become effective not later
than 4:00 p.m. Minneapolis, Minnesota time on the date of this Agreement, or
such later date or time as shall be consented to in writing by you (the
"Effective Date"); and no stop order suspending the effectiveness thereof shall
have been issued and no proceedings for that purpose shall have been initiated
or, to the knowledge of the Company, or the Underwriter, threatened by the
Commission or any state securities commission or similar regulatory body; and
any request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to the satisfaction of the Underwriter and Underwriter's Counsel.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto, contains any untrue statement of a fact which is material or omits to
state a fact which is material and is required to be stated therein or is
necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; provided, however,
that this Section 5(b) shall not apply to statements in, or omissions from, the
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information furnished to
the Company by the Underwriter specifically for use in the preparation of the
Registration Statement or the Prospectus, or any such amendment or supplement.
(c) Subsequent to the Effective Date and prior to each Closing Date,
there shall not have occurred any change, or any development involving a
prospective change, which materially and adversely affects the Company's
condition (financial or otherwise), earnings, operations, properties, business
or business
14
prospects from that set forth in the Registration Statement or Prospectus, and
which, in the Underwriter's sole judgment, is material and adverse and that
makes it, in the Underwriter's sole judgment, impracticable or inadvisable to
proceed with the public offering of the Shares as contemplated by the Prospectus
and this Agreement.
(d) All corporate proceedings and other legal matters in connection
with this Agreement, the form of Registration Statement and the Prospectus, and
the registration, authorization, issue, sale and delivery of the Shares shall
have been reasonably satisfactory to Underwriter's Counsel, and Underwriter's
Counsel shall have been furnished with such papers and information as it may
reasonably have requested to enable it to pass upon the matters referred to in
this Section.
(e) On each Closing Date, the Underwriter shall have received the
opinion of Xxxxxx and Xxxxxx, P.A., counsel for the Company, dated as of such
Closing Date, satisfactory in form and substance to the Underwriter and
Underwriter's Counsel, to the effect that:
(i) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation and has the corporate power and authority to own, lease and
operate its properties and to conduct its business as currently being
carried on and as described in the Registration Statement and Prospectus.
(ii) The Company is duly qualified to do business as a foreign
corporation and is in good standing in each jurisdiction, if any, in which
the ownership or leasing of its properties or the conduct of its business
requires such qualification, except where the failure to be so qualified or
be in good standing would not have a material adverse effect on the
condition (financial or otherwise), earnings, operations or business of the
Company. To the best of such counsel's knowledge, the Company does not own
or control, directly or indirectly, any corporation, association or other
entity.
(iii) The capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus under the
caption "Description of Securities." The issued and outstanding shares of
capital stock of the Company have been duly and validly issued and are fully
paid and non-assessable, and the holders thereof are not subject to any
personal liability solely by reason of being such holders.
(iv) The Shares to be issued by the Company pursuant to the terms
of this Agreement have been duly authorized and, upon issuance and delivery
against payment therefor in accordance with the terms hereof, will be duly
and validly issued and fully paid and non-assessable, and the holders
thereof will not be subject to personal liability solely by reason of being
such holders. Except as otherwise stated in the Registration Statement and
Prospectus, there are no preemptive rights or other rights to subscribe for
or to purchase, or any restriction upon the voting or transfer of, any
shares of capital stock pursuant to the Company's articles of incorporation,
bylaws or any agreement or other instrument known to such counsel to which
the Company is a party or by which the Company is bound. To the best of such
counsel's knowledge, except as set forth in the Prospectus, neither the
filing of the Registration Statement nor the offering or sale of the Shares
as contemplated by this Agreement gives rise to any rights for or relating
to the registration of any shares of capital stock or other securities of
the Company and no such rights exist, other than those rights that have been
waived prior to the date hereof. To the best of such counsel's knowledge,
except as described in the Registration Statement and Prospectus, there are
no options, warrants, agreements, contracts or rights in existence to
purchase or acquire from the Company any shares of capital stock of the
Company.
15
(v) The Underwriter's Warrants and the Warrant Shares have been
duly authorized. The Underwriter's Warrants, when issued and delivered to
the Underwriter, will constitute valid and binding obligations of the
Company in accordance with their terms, except as enforceability may be
limited by the application of bankruptcy, insolvency, reorganization,
moratorium, or other similar laws affecting the rights of creditors
generally and by judicial limitations and the right of specific performance.
The Warrant Shares, when issued in accordance with the terms of this
Agreement and pursuant to the Underwriter's Warrants, will be fully paid and
non-assessable and subject to no preemptive rights or similar rights on the
part of any person or entity. A sufficient number of shares of Common Stock
of the Company has been reserved for issuance by the Company upon exercise
of the Underwriter's Warrants.
(vi) The Company has the requisite corporate power and authority
to enter into this Agreement and to issue, sell and deliver to the
Underwriter the Shares to be issued and sold by it hereunder. This Agreement
has been duly authorized by all necessary corporate action on the part of
the Company and has been duly executed and delivered by the Company and,
assuming due authorization, execution and delivery by the Underwriter, is a
valid, legal and binding agreement of the Company, enforceable in accordance
with its terms, except insofar as indemnification and contribution
provisions may be limited by applicable law or the public policies
underlying such law and except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance or
similar laws relating to or affecting creditors' rights generally or by
general equitable principles.
(vii) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement has been issued
and no proceeding for that purpose has been instituted or is pending or
threatened under the Securities Act.
(viii) The Registration Statement and the Prospectus, and each
amendment thereof or supplement thereto (other than the financial
statements, including the notes thereto and the supporting schedules, and
other financial, numerical, statistical and accounting data derived
therefrom, as to which such counsel need express no opinion), comply as to
form in all material respects with the requirements of the Securities Act
and the Rules and Regulations.
(ix) The form of certificates evidencing the Common Stock and
filed as an exhibit to the Registration Statement complies with Minnesota
law.
(x) The description in the Registration Statement and the
Prospectus of the Company's articles of incorporation and bylaws and of
statutes, legal and governmental proceedings, contracts and other documents
are accurate in all material respects and fairly present the information
required to be presented by the Securities Act and the applicable Rules and
Regulations; and such counsel does not know of any statutes or legal or
governmental proceedings required to be described in the Prospectus that are
not described as required, or of any agreements, contracts, leases or
documents of a character required to be described or referred to in the
Registration Statement or Prospectus or to be filed as an exhibit to the
Registration Statement which are not described or referred to therein or
filed as required.
(xi) The execution, delivery and performance of this Agreement and
the consummation of the transactions herein contemplated (other than
performance of the Company's indemnification and contribution obligations
hereunder, concerning which no opinion need be expressed) do not result in
any violation of the Company's articles of incorporation or bylaws or result
in a breach or violation of any of the terms and provisions of, or
constitute a default under, any bond,
16
debenture, note or other evidence of indebtedness, or any material lease,
contract, indenture, mortgage, deed of trust, loan agreement, joint venture
or other material agreement or instrument known to such counsel to which the
Company is a party or by which its properties are bound, or any applicable
statute, rule or regulation known to such counsel or, to the best of such
counsel's knowledge, any order, writ or decree of any court, government or
governmental agency or body having jurisdiction over the Company or other
any of its material properties or operations.
(xii) No consent, approval, authorization or order of, or filing
with, or qualification with, any court, government or governmental agency or
body is necessary in connection with the execution, delivery and performance
of this Agreement or for the execution, delivery and performance of this
Agreement or for the consummation of the transactions herein contemplated,
except such as have been obtained under the Securities Act or such as may be
required under state or other securities or Blue Sky laws in connection with
the purchase and the distribution of the Shares by the Underwriter.
(xiii) To the best of such counsel's knowledge, there are no legal
or governmental proceedings pending or threatened against the Company of a
character required to be disclosed in the Registration Statement or the
Prospectus by the Securities Act or the Rules and Regulations, other than
those described therein.
(xiv) To the best of such counsel's knowledge, the Company is not
presently (A) in violation of its articles of incorporation or bylaws, (B)
in material breach or violation of any applicable statute, rule or
regulation known to such counsel or any order, writ or decree of any court
or governmental agency or body, or (C) in breach of or otherwise in default
in the performance of any material obligation, agreement or condition
contained in any bond, debenture, note, loan agreement or any other material
contract, lease or other instrument to which the Company is subject or by
which it may be bound, or to which any of the material assets or property of
the Company is subject.
(xv) To the best of such counsel's knowledge, the Company holds,
and is operating in compliance in all material respects with, all
franchises, grants, authorizations, licenses, permits, easements, consents,
certificates and orders of any government or self-regulatory body required
for the conduct of its business, and all such franchises, grants,
authorizations, licenses, permits, easements, consents, certifications and
orders are valid and in full force and effect.
(xvi) To the best of such counsel's knowledge, after due inquiry,
the Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with the asserted rights of others with respect
to any patent, patent rights, inventions, trade secrets, know-how,
technology, trade marks, service marks, trade names, or copyrights which,
singularly or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company.
(xvii) To the best of such counsel's knowledge, after due inquiry,
the Company owns, or possesses adequate rights to use, all patents, patent
rights, inventions, trade secrets, know-how, technology, service marks,
trade names, copyrights, trade marks and proprietary rights or information
which are necessary for the conduct of its present or intended business as
described in the Registration Statement or Prospectus.
(xviii) On the basis of information obtained as a result of
discussions and meetings with officers and other Underwriter of the Company,
discussions with Underwriter of the independent public accountants for the
Company in connection with the preparation of the Registration Statement
17
and the Prospectus, and the examination of other information and documents
requested by such counsel, nothing has come to such counsel's attention that
has caused them to believe that the Registration Statement and any amendment
thereof, at the time it became effective and at all times subsequent thereto
up to and on that Closing Date, contained any untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary in order to make the statements therein not misleading, or that
the Prospectus, and any amendment or supplement thereto, at the first date
of its issuance and up to and at all times subsequent thereto up to and on
that Closing Date, contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary
in order to make the statements therein, in light of the circumstances under
which they were made, not misleading. Such counsel may further state that in
making the foregoing comments, such counsel does not intend them to include
or cover the financial statements and notes thereto and related schedules
and other financial, numerical, statistical and accounting data contained or
omitted from the Registration Statement and any amendment or supplement
thereto and the Prospectus.
Counsel rendering the foregoing opinion may rely as to questions of law
not involving the laws of the United States or the State of Minnesota upon
opinions of local counsel, and, as to questions of fact, upon representations or
certificates of officers of the Company and of government officials, in which
case their opinion is to state the extent of such reliance. Copies of any
opinion, representation or certificate so relied upon shall be delivered to the
Underwriter and to Underwriter's Counsel.
(f) The Underwriter shall have received from Robins, Kaplan, Xxxxxx &
Xxxxxx L.L.P., Underwriter's Counsel, such opinion or opinions as the
Underwriter may reasonably require, dated as of the First Closing Date and the
Second Closing Date, which are satisfactory in form and substance to the
Underwriter, with respect to the sufficiency of corporate proceedings and other
legal matters relating to this Agreement and the transactions contemplated
hereby, and the Company shall have furnished to Underwriter's Counsel such
documents as it may have requested for the purpose of enabling it to pass upon
such matters. In connection with such opinion, as to matters of fact relevant to
conclusions of law, Underwriter's Counsel may rely, to the extent that it deems
proper, upon representations or certificates of public officials and of
responsible officers of the Company.
(g) At the time of execution of this Agreement, the Underwriter shall
have received from Schechter, Dokken, Kanter, Xxxxxxx & Xxxxxx, Ltd. a letter
dated the date of such execution, in form and substance satisfactory to the
Underwriter, to the effect that they are independent accountants with respect to
the Company within the meaning of the Securities Act and the applicable
published instructions, and the Rules and Regulations thereunder, and further
stating in effect that:
(i) In their opinion, the audited financial statements included in
the Registration Statement and Prospectus covered by their report included
therein comply as to form in all material respects with the applicable
requirements of the Securities Act, the published instructions and the Rule
and Regulations.
(ii) On the basis of (A) a reading of the minutes of the
shareholders' and directors' meetings of the Company since inception, (B)
inquiries of certain officials of the Company responsible for financial and
accounting matters, (C) a reading of the Company's monthly operating
statements for the months beginning on June 26, 1997, and (D) other
specified procedures and inquiries (but not an audit in accordance with
generally accepted accounting principles), nothing came to their attention
causing them to believe that:
(1) the unaudited financial statements of the Company
contained in the Prospectus and any amendment thereof or supplement
thereto do not comply as to form, in all
18
material respects, with the applicable accounting requirements of the
Securities Act and the published Rules and Regulations or were not
prepared in conformity with generally accepted accounting principles
and practices applied on a basis consistent in all material respects
with those followed in the preparation of the audited financial
statements of the Company included therein; or
(2) the unaudited amounts of revenues, income before
provision for income taxes, net income and ratio of earnings to fixed
charges of the Company contained in the Prospectus, or any amendment
thereof or supplement thereto, were not derived from financial
statements prepared in conformity with generally accepted accounting
principles and practices applied on a basis consistent in all material
respects with those followed in the preparation of the audited
financial statements of the Company included therein; or
(3) the unaudited pro forma financial statements of the
Company contained in the Prospectus or any amendment thereof or
supplement thereto, were not properly compiled in accordance with
generally accepted accounting principles or did not provide for all
adjustments necessary for a fair presentation of the information
purported to be shown thereby; or
(4) with respect to the period subsequent to September 30,
1999, there were, at a specified date, not more than five (5) business
days prior to the date of the letter, any changes or any material
increases or decreases in capital stock, long-term or short-term debt
or shareholders' equity, decreases in net assets, net current assets,
or net worth or any material decrease, as compared with the
corresponding period of the prior year, in revenues or net income of
the Company as compared with the amounts shown in the balance sheet
included in the Registration Statement, except as disclosed or referred
to in the Prospectus and Registration Statement.
(iii) Certain information set forth on the cover of the Prospectus
and in the Prospectus under the headings "Prospectus Summary" (including the
subheading "Summary Financial Data"), "Risk Factors," "Use of Proceeds,"
"Dividend Policy," "Capitalization," "Dilution," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Business," "Management," "Certain Relationships and Related
Transactions," "Principal Shareholders," "Shares Eligible for Future Sale,"
and "Description of Securities" and that are expressed in dollars (or
percentages derived from dollar amounts) or numbers have been compared to
accounting records of the Company which were subject to the internal
accounting controls of the Company and are in agreement with such records or
computations made therefrom, excluding any questions of legal
interpretation.
(h) The Underwriter shall have received from Schechter, Dokken,
Kanter, Xxxxxxx & Xxxxxx, Ltd. a letter dated as of each Closing Date to the
effect that such accountants reaffirm, as of such Closing Date, and as though
made on such Closing Date, the statements made in the letter furnished by such
accountants pursuant to Section 5(g), except that the specified date referred to
in such letter will be a date not more than five (5) business days prior to such
Closing Date.
(i) The Underwriter shall have received from the Company a
certificate, dated as of the First Closing Date and the Second Closing Date, of
the principal executive officer and the principal financial or accounting
officer of the Company, to the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of such Closing Date,
and the Company has complied with all
19
the agreements and satisfied all the conditions on its part to be performed
or satisfied at, or prior to, such Closing Date;
(ii) No stop order or other order suspending the effectiveness of
the Registration Statement or any amendment thereof or the qualification of
the Shares for offering or sale have been issued, and no proceedings for
that purpose have been instituted or, to the best of their knowledge, are
contemplated by the Commission or any state or regulatory body; and
(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus and any amendments thereof or
supplements thereto, and
(A) such documents contain all statements and information
required to be included therein; the Registration Statement, or any
amendment thereof, does not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading; and the
Prospectus, as amended or supplemented, does not include any untrue
statement of material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(B) since the Effective Date of the Registration Statement,
there has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been so set forth;
(C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus,
the Company has not incurred any material liabilities or material
obligations, direct or contingent, or entered into any material
transactions, not in the ordinary course of business consistent with
past practice, or declared or paid any dividends or made any
distribution of any kind with respect to its capital stock, and except
as disclosed in the Prospectus, there has not been any change in the
capital stock (other than a change in the number of outstanding shares
of Common Stock due to the offering of the Shares or the issuance of
shares upon the exercise of options outstanding as of the Effective
Date or options granted pursuant to the Option Plans described to in
the Registration Statement), or any material increase in the short-term
debt or long-term debt, or in the issuance of options, warrants,
convertible securities or other rights to purchase the capital stock,
of the Company, or any material adverse change or any development
involving a prospective material adverse change (whether or not arising
in the ordinary course of business) in the general affairs, condition
(financial or otherwise), business, key personnel, property, prospects,
net worth or results of operations of the Company, and
(D) except as stated in the Registration Statement and
Prospectus, there is not pending or, to their knowledge, threatened or
contemplated, any action, suit or proceeding to which the Company is a
party before or by any court or governmental agency, authority or body,
or any arbitrator, which might result in any material adverse change of
the condition, (financial or otherwise), business, prospects, or
results of operations of the Company.
(j) On each Closing Date, there shall have been furnished the
Underwriter a certificate of Secretary of the Company, dated as of such Closing
Date, with the documents listed herein attached, and to the effect and
certifying as follows:
20
(i) Attached thereto are true and correct copies of the articles
of incorporation of the Company, as amended to the date of the certificate,
and stating that there have been no changes or amendments to the attached
articles of incorporation of the Company, and no resolutions have been
adopted by the Board of Directors or shareholders of the Company relating to
(A) the amendment of said articles of incorporation, (B) the merger,
consolidation or dissolution of the Company, or (C) the sale of all or
substantially all of the assets or business of the Company, and that the
Company is in good standing in the State of Minnesota and has paid all of
its corporate franchise taxes due as of the date of such certificate.
(ii) Attached thereto is a true and correct copy of the bylaws of
the Company as in effect as of the date of such certificate and no
resolutions have been adopted by the Board of Directors or shareholders of
the Company relating to changes or amendments to the attached Bylaws.
(iii) Attached thereto are true and correct copies of the
resolutions of the Board of Directors of the Company relating to the
preparation and signing of the Registration Statement and this Agreement,
the issuance and sale of the Shares and other related matters, and such
resolutions have not been amended, modified or rescinded and are in full
force and effect as of the date of such certificate and are the only
resolutions adopted by the Board of Directors of the Company with respect to
the offering contemplated by the Registration Statement.
(iv) Attached thereto are true and correct copies of all material
correspondence with respect to the Registration Statement and Prospectus
and related matters between the Company, its counsel, and/or Schechter,
Dokken, Kanter, Xxxxxxx & Xxxxxx, Ltd., on the one hand, and the
Commission, on the other.
(v) This Agreement, as executed and delivered by the Company, is
in the form presented to and approved by officers authorized to do so by
the Board of Directors of the Company.
(vi) Attached thereto is a specimen of the certificate for the
Common Stock in the form authorized and approved for use by the Board of
Directors of the Company.
(vii) The persons who have signed the Registration Statement and
all amendments thereto were duly elected at the respective times of such
signing and duly acting as officers and directors of the Company or as an
attorney-in-fact therefor, as set forth in the Registration Statement.
(k) The Underwriter shall have received from each of the executive
officers and directors of the Company and each beneficial owner of five percent
(5%) or more of the Common Stock to be outstanding after the sale of the Firm
Shares (calculated in accordance with Rule 13d-3 under the Exchange Act) the
One-Year Lock-up Agreement in the form of APPENDIX A-1 hereto whereby each such
person agrees that during the One-Year Lock-up Period such person will not,
without the Underwriter's prior written consent, effect the Disposition of any
Securities except as permitted by the One-Year Lock-up Agreement, and the
Underwriter shall have received from each other shareholder of the Company the
Six-Month Lock-up Agreement in the form of APPENDIX A-2 hereto whereby each such
person agrees that during the Six-Month Lock-up Period such person will not,
without the Underwriter's prior written consent, effect the Disposition of any
Securities other than as permitted by the Six-Month Lock-up Agreement.
(l) The Common Stock of the Company shall be included and quoted on
The Nasdaq SmallCap Market.
21
(m) Robins, Kaplan, Xxxxxx & Xxxxxx L.L.P. shall deliver to the
Underwriter a Blue Sky Memorandum reasonably satisfactory to the Underwriter
confirming that all requisite actions for the offer and sale of the Shares in
all jurisdictions requested by the Underwriter have been taken.
(n) The Company shall have furnished to the Underwriter and to
Underwriter's Counsel such additional certificates, documents and evidence as
the Underwriter shall reasonably request.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to the Underwriter and Underwriter's Counsel. All statements contained in any
certificate, letter or other document delivered pursuant hereto by, or on behalf
of, the Company shall be deemed to constitute representations and warranties of
the Company.
The Underwriter may waive in writing the performance of any one or more
of the conditions specified in this Section 5 or extend the time for their
performance.
If any of the conditions specified in this Section 5 shall not have
been fulfilled when and as required by this Agreement to be fulfilled and if the
fulfillment of said condition has not been waived by the Underwriter, this
Agreement and all obligations of the Underwriter hereunder may be canceled at,
or at any time prior to, each Closing Date by the Underwriter. Any such
cancellation shall be without liability of the Underwriter to the Company and
shall not relieve the Company of its obligations under Section 4(a) hereof.
Notice of such cancellation shall be given to the Company at the address
specified in Section 12 hereof in writing, or by telegraph or telephone
confirmed in writing.
6. UNDERWRITER'S WARRANTS. In consideration of the agreement of the
Underwriter to act as Underwriter, and upon payment of a purchase price of
$100.00, on the First Closing Date the Company will issue and deliver to the
Underwriter, for its account, the Underwriter's Warrants to purchase Shares in
an amount equal to ten percent (10%) of the number of Firm Shares purchased by
the Underwriter in the offering. The Underwriter's Warrants shall be issued on
the First Closing Date and shall be dated as of the Effective Date. The
Underwriter's Warrants shall be exercisable commencing one year after the
Effective Date and for a period of five years after the Effective Date at a
price equal to 120% of the Price to Public per Share set forth on the cover page
of the Prospectus. As to other terms, the Underwriter's Warrants shall be in
form and substance substantially the same as APPENDIX B hereto. The Company
represents and warrants that the Underwriter's Warrants have been duly
authorized and, when granted and delivered in accordance with the terms hereof,
will be valid, binding and enforceable obligations of the Company, except
insofar as indemnification and contribution provisions may be limited by
applicable law or the public policies underlying such law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the Warrant
Shares issuable upon exercise of the Underwriter's Warrants have been duly
authorized and reserved for issuance upon exercise; and upon receipt by the
Company of the consideration for such securities in accordance with the terms of
the Underwriter's Warrants, the Warrant Shares shall have been duly and validly
issued, fully paid and non-assessable.
7. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless the
Underwriter, and each person, if any, who controls the Underwriter within the
meaning of Section 15 of the Securities Act, against any losses, claims, damages
or liabilities, joint or several, to which the Underwriter or each such
controlling person may become subject under the Securities Act, the Exchange
Act, the common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of, or are based upon, (i)
any breach of any representation, warranty, agreement or covenant of the Company
contained in this Agreement, (ii) any untrue statement or alleged untrue
statement of a material fact contained
22
in the Registration Statement or any amendment thereof or supplement thereto, or
the omission or alleged omission to state in the Registration Statement or any
amendment thereof or supplement thereto a material fact necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading; (iii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus, if used prior to the
Effective Date of the Registration Statement, or in the Prospectus (as amended
or as supplemented, if the Company shall have filed with the Commission any
amendment thereof or supplement thereto), or the omission or alleged omission to
state therein a material fact necessary in order to make the statements therein,
in light of the circumstances under which they were made, not misleading; or
(iv) any untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company or based
upon written information furnished by the Company filed in any jurisdiction in
order to qualify the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction, or the omission
or alleged omission to state in such application or statement a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
Company will reimburse each Underwriter and each such controlling person for any
legal or other expenses reasonably incurred by such Underwriter or controlling
person in connection with investigating or defending against any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in reliance upon and in
conformity with written information relating to the Underwriter furnished to the
Company by the Underwriter specifically for use in the preparation of the
Registration Statement or any such post-effective amendment thereof, any such
Preliminary Prospectus, or the Prospectus, or any such amendment thereof or
supplement thereto, or in any application or other statement executed by the
Company or the Underwriter filed in any jurisdiction in order to qualify the
Shares under, or exempt the Shares or the sale thereof from qualification under,
the securities laws of such jurisdiction; and provided further that the
foregoing indemnity agreement is subject to the condition that, insofar as it
relates to any untrue statement, alleged untrue statement, omission or alleged
omission made in any Preliminary Prospectus but eliminated or remedied in the
Prospectus, such indemnity agreement shall not inure to the benefit of the
Underwriter (or to the benefit of any person who controls the Underwriter) if
the person asserting any loss, claim, damage or liability purchased the Shares
from the Underwriter if a copy of the Prospectus was not sent or given to such
person with, or prior to, the written confirmation of the sale of such Shares to
such person. This indemnity agreement is in addition to any liability which the
Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who has signed the Registration
Statement, and each person who controls the Company within the meaning of
Section 15 of the Securities Act against any losses, claims, damages or
liabilities to which the Company or any such director, officer or controlling
person may become subject under the Securities Act, the Exchange Act, the common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of, or are based upon, (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof or supplement thereto, or the
omission or alleged omission to state in the Registration Statement or any
amendment thereof or supplement thereto, a material fact required to be stated
therein or necessary to make the statements therein not misleading; (ii) any
untrue statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus, if used prior to the Effective Date of the Registration
Statement, or in the Prospectus (as amended or as supplemented, if the Company
shall have filed with the Commission any amendment thereof or supplement
thereto), or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading; or (iii) any untrue statement or alleged untrue statement of a
material fact contained in any application or other statement executed by the
Company or by the Underwriter and filed in any jurisdiction in order to qualify
the Shares under, or exempt the Shares or the sale thereof from qualification
under, the securities laws of such jurisdiction, or the omission or alleged
omission to state in such
23
application or statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading; in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by, or on behalf of, the Underwriter
specifically for use in the preparation of the Registration Statement or any
such post-effective amendment thereof, any such Preliminary Prospectus, or the
Prospectus or any such amendment thereof or supplement thereto, or in any
application or other statement executed by the Company or by the Underwriter and
filed in any jurisdiction; and the Underwriter will reimburse any legal or other
expenses reasonably incurred by the Company or any such director, officer, or
controlling person in connection with investigating or defending against any
such loss, claim, damage, liability or action. This indemnity agreement is in
addition to any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 7, notify in writing the indemnifying party of the commencement
thereof. The omission so to notify the indemnifying party will relieve it from
any liability under this Section 7 as to the particular item for which
indemnification is then being sought, but not from any other liability which it
may have to any indemnified party. In case any such action is brought against
any indemnified party, and the indemnified party notifies an indemnifying party
of the commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel who shall be reasonably satisfactory to such indemnified party; and
after notice from the indemnifying party to such indemnified party of the
indemnifying party's election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 7 for any
legal or other expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if the defendants in any such action
include both the indemnified party and the indemnifying party, and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the indemnified
party or parties shall have the right to select separate counsel to assume such
legal defenses and to otherwise participate in the defense of such action on
behalf of such indemnified party or parties, in which event the fees and
expenses of one such separate counsel shall be borne by the indemnifying party.
Any such indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the consent of
such indemnifying party.
8. CONTRIBUTION.
(a) In order to provide for just and equitable contribution in any
action in which the Underwriter or the Company (or any person who controls the
Underwriter or the Company within the meaning of Section 15 of the Securities
Act) makes claim for indemnification pursuant to Section 7 hereof, but such
indemnification is unavailable or insufficient to hold harmless and indemnify a
party under Section 7, then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to in Section 7 above (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriter on the other from the offering of
the Shares hereunder or (ii) if the allocation provided by the foregoing clause
(i) is not permitted by applicable law, in such proportion as is appropriate to
reflect not only the relative benefits referred to in such clause (i) but also
the relative fault of the Company on the one hand and the Underwriter on the
other in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the Underwriter on the other shall be deemed to be in the same proportion as
the total net proceeds from the offering of the Shares (before the deducting
expenses) received by the
24
Company bear to the total underwriting discounts received by the Underwriter, in
each case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by the
Company or the Underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriter agree that it would not be just and
equitable if contributions pursuant to this Section 8 were to be determined by
pro rata allocation or by any other method f allocation which does not take into
account the equitable considerations referred to in the first sentence of this
Section 8. The amount paid by an indemnified party as a result of the losses,
claims, damages or liabilities referred to in the first sentence of this Section
8 shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending against any
action or claim which is the subject of this Section 8. Notwithstanding the
provisions of this Section 8, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Shares underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that the Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or omission
or alleged omission. No person guilty of fraudulent misrepresentation (within
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation.
(b) Promptly after receipt by a party to this Agreement of notice of
the commencement of any action, suit or proceeding, such person will, if a claim
for contribution in respect thereof is to be made against another party (the
"Contributing Party"), notify the Contributing Party of the commencement
thereof; but the omission so to notify the Contributing Party will not relieve
the Contributing Party from any liability which it may have to any party other
than under this Section 8. Any notice given pursuant to Section 7 hereof shall
be deemed to be like notice hereunder. In case any such action, suit or
proceeding is brought against any party, and such person notifies a Contributing
Party of the commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing Party
similarly notified.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at immediately after the
time at which the Registration Statement shall become effective under the
Securities Act upon the Effective Date of the Registration Statement.
(b) Until the First Closing Date, this Agreement may be terminated by
the Underwriter, at its option, by giving notice to the Company, and the option
referred to in Section 2(b), if exercised, may be cancelled at any time prior to
the Second Closing Date, if (i) the Company shall have failed, refused, or been
unable, at or prior to such Closing Date, to perform any agreement on its part
to be performed hereunder, (ii) any other condition of the Underwriter's
obligations hereunder is not fulfilled or waived by the Underwriter, (iii)
trading in securities generally on the New York Stock Exchange, the American
Stock Exchange or in the over-the-counter market shall have been suspended, (iv)
minimum or maximum prices for trading shall have been fixed, or maximum ranges
for prices for securities shall be required, on the New York Stock Exchange, the
American Stock Exchange, or in the over-the-counter market, by such Exchange or
by Nasdaq or by order of the Commission or any other governmental authority
having jurisdiction, (v) a banking moratorium shall have been declared by
federal, New York, or Minnesota authorities, (vi) there shall have been such a
serious, unusual and material change in general economic, monetary, political or
financial conditions, or the effect of international conditions on the financial
markets in the United States shall be such as, in the judgment of the
Underwriter, makes it inadvisable to proceed with the delivery of the Shares,
(vii) the enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of any court or other governmental
authority which, in the judgment of the Underwriter, materially and adversely
affects or will materially and adversely affect the business or operations of
the Company, or (viii) there shall be a material
25
outbreak of hostilities or material escalation and deterioration in the
political and military situation between the United States and any foreign
power, or a formal declaration of war by the United States of America shall have
occurred. Any such termination shall be without liability of any party to any
other party, except as provided in Sections 7 and 8 hereof; provided, however,
that the Company shall remain obligated to pay costs and expenses to the extent
provided in Section 4 hereof.
(c) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 9, it shall
notify the Company and the Company's counsel promptly by telegram or telephone,
confirmed by letter sent to the address specified in Section 11 hereof. If the
Company shall elect to prevent this Agreement from becoming effective, it shall
notify the Underwriter promptly by telegram or telephone, confirmed by letter
sent to the addresses specified in Section 11 hereof.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8, the representations
and warranties of the Company set forth in Section 1 hereof, and the covenants
and agreements of the Company set forth in Section 3 hereof, shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Underwriter, the Company, any of its officers and
directors, or any controlling person referred to in Sections 7 and 8, and shall
survive the delivery of and payment for the Shares. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement. Any successor of any party or of any such controlling person, or
any legal representative of such controlling person, as the case may be, shall
be entitled to the benefit of the respective indemnity and contribution
agreements.
11. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telegraphed, and confirmed, as follows:
If to the Underwriter, to: Equity Securities Investments,
0000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: _________________
with a copy to: Robins, Kaplan, Xxxxxx & Xxxxxx L.L.P.
0000 XxXxxxx Xxxxx
000 XxXxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
If to the Company, to: Founders Food & Xxxxxxx, Ltd.
0000 Xxxxx Xxxx Xxxx
Xx. Xxxxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
with a copy to: Xxxxxx and Xxxxxx, P.A.
2400 IDS Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
12. INFORMATION FURNISHED BY THE UNDERWRITER. The statements relating to
the stabilization activities of the Underwriter and the statements under the
caption "Underwriting" in any Preliminary
26
Prospectus and in the Prospectus constitute the written information furnished
by, or on behalf of, the Underwriter specifically for use with reference to the
Underwriter referred to in Section 1(a)(ii) and Sections 7(a) and 7(b) hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit of
and be binding upon the Underwriter and the Company and their respective
successors and assigns, and the officers, directors and controlling persons
referred to in Sections 7 and 8. Nothing expressed in this Agreement is intended
or shall be construed to give any person or corporation, other than the parties
hereto, their respective successors and assigns, and the controlling persons,
officers and directors referred to in Sections 7 and 8 any legal or equitable
right, remedy or claim under, or in respect of, this Agreement or any provision
herein contained, this Agreement and all conditions and provisions hereof being
intended to be and being for the sole and exclusive benefit of the parties
hereto and their respective executors, administrators, successors, assigns and
such controlling persons, officers and directors, and for the benefit of no
other person or corporation. No purchaser of any Shares from the Underwriter
shall be construed a successor or assign merely by reason of such purchase.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
27
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to us the enclosed counterpart of this
Agreement, whereupon it will become a binding agreement between the Company and
the Underwriter in accordance with its terms.
Very truly yours,
FOUNDERS FOOD & XXXXXXX, LTD.
By
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Signature
---------------------------
Name Typed or Printed
Its
---------------------------
Title Typed or Printed
ACCEPTANCE
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us as
of the date first above written.
EQUITY SECURITIES INVESTMENTS, INC.
By
--------------------------------------
Signature
----------------------------------------
Name Type or Printed
Its
-------------------------------------
Title Typed or Printed
28
