DRAFT OF NOVEMBER 4, 1997
1,666,667 SHARES
PAPER WAREHOUSE, INC.
COMMON STOCK
$.01 PAR VALUE
UNDERWRITING AGREEMENT
, 1997
▇▇▇▇ ▇▇▇▇▇▇▇▇ Incorporated
As Representative of the several Underwriters
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Ladies and Gentlemen:
Paper Warehouse, Inc., a Minnesota corporation (the "Company"), proposes,
subject to the terms and conditions stated herein, to issue and sell to the
several Underwriters named in Schedule A hereto (the "Underwriters"), for
which you are acting as representative (the "Representative"), an aggregate
of 1,666,667 shares (the "Firm Shares") of Common Stock, $.01 par value per
share, of the Company (the "Common Stock"), and, at the election of the
Underwriters, up to an aggregate of 250,000 shares of Common Stock (the
"Option Shares"), 200,000 shares of which are to be sold by the Company and
50,000 shares of which are to be sold by LSG Corporation (the "Selling
Shareholder"). The Firm Shares and the Option Shares are herein collectively
called the "Shares."
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement on Form S-1 (File No. 333-36911)
and a related preliminary prospectus for the registration of the Shares under
the Securities Act of 1933, as amended (the "Act"). The registration
statement, as amended at the time it was declared effective, including the
information (if any) deemed to be part thereof pursuant to Rule 430A under
the Act is herein referred to as the "Registration Statement." The form of
prospectus first filed by the Company with the Commission pursuant to Rules
424(b) and 430A under the Act is referred to herein as the "Prospectus."
Each preliminary prospectus included in the Registration Statement prior to
the time it becomes effective or filed with the Commission pursuant to Rule
424(a) under the Act is referred to herein as a "Preliminary Prospectus."
Copies of the
Registration Statement, including all exhibits and schedules thereto, any
amendments thereto and all Preliminary Prospectuses have been delivered to
you.
The Company and the Selling Shareholder hereby confirm their agreements
with respect to the purchase of the Shares by the Underwriters as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
(a) The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(i) The Registration Statement has been declared effective under the
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. No stop order suspending the
effectiveness of the Registration Statement has been issued and no
proceeding for that purpose has been instituted or threatened by the
Commission.
(ii) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission promulgated thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading; provided,
however, the Company makes no representation or warranty as to information
contained in or omitted in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter
through the Representative expressly for use in the preparation thereof.
(iii) The Registration Statement conforms, and the Prospectus and
any amendments or supplements thereto will conform, in all material
respects to the requirements of the Act and the rules and regulations
thereunder. Neither the Registration Statement nor any amendment thereto,
and neither the Prospectus nor any supplement thereto, contains or will
contain, as the case may be, any untrue statement of a material fact or
omits or will omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; provided, however, that the
Company makes no representation or warranty as to information contained in
or omitted from the Registration Statement or the Prospectus, or any such
amendment or supplement, in reliance upon, and in conformity with, written
information furnished to the Company by or on behalf of any Underwriter
through the Representative expressly for use in the preparation thereof.
(iv) The Company has been duly organized, is validly existing as a
corporation in good standing under the laws of the State of Minnesota, has
the corporate power and authority to own or lease its properties and
conduct its business as described in the Prospectus, and is duly qualified
to transact business in all jurisdictions in which the
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conduct of its business or its ownership or leasing of property requires
such qualification and the failure so to qualify would have a material
adverse effect on the business or condition, financial or otherwise, of the
Company and its subsidiaries, taken as a whole.
(v) The Company does not own any stock or other equity interest in
any corporation, partnership, joint venture, unincorporated association or
other entity other than Paper Warehouse Franchising, Inc. ("PWF"). Each
subsidiary of the Company has been duly incorporated, is validly existing
as a corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus, and is
duly qualified to transact business in all jurisdictions in which the
conduct of its business or its ownership or leasing of property requires
such qualification and the failure so to qualify would have a material
adverse effect on the business or condition, financial or otherwise, of the
Company and its subsidiaries, taken as a whole. All outstanding shares of
capital stock of each of the subsidiaries of the Company have been duly
authorized and validly issued, are fully paid and non-assessable, and are
owned directly or indirectly, by the Company free and clear of all liens,
encumbrances and security interests. No options, warrants or other rights
to purchase, agreements or other obligations to issue, or other rights to
convert any obligations into, shares of capital stock or ownership
interests in any of the subsidiaries of the Company are outstanding.
(vi) The outstanding shares of capital stock of the Company have been
duly authorized and validly issued and are fully paid and nonassessable.
All offers and sales by the Company of outstanding shares of capital stock
and other securities of the Company, prior to the date hereof, were made in
compliance with the Act and all applicable state securities or blue sky
laws. The Shares to be issued and sold by the Company to the Underwriters
pursuant to this Agreement have been duly authorized and, when issued and
paid for as contemplated herein, will be validly issued, fully paid and
nonassessable. 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 of the Company pursuant to the Company's Articles
of Incorporation, Bylaws or any agreement or other instrument to which the
Company is a party or by which the Company is bound. Neither the filing of
the Registration Statement nor the offering or the 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, except such rights which have been validly waived or
satisfied. Except as described in the Prospectus, there are no outstanding
options, warrants, agreements, contracts or other rights to purchase or
acquire from the Company any shares of its capital stock. The Company has
the authorized and outstanding capital stock as set forth under the heading
"Capitalization" in the Prospectus. The outstanding capital stock of the
Company, including the Shares, conforms, and the Shares to be issued by the
Company to the Underwriters will conform, to the description thereof
contained in the Prospectus.
(vii) The financial statements, together with the related notes
and schedules as set forth in the Registration Statement and Prospectus,
present fairly the consolidated
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financial position, results of operations and changes in cash flows of the
Company and its subsidiaries on the basis stated in the Registration
Statement at the indicated dates and for the indicated periods. Such
financial statements have been prepared in accordance with generally
accepted accounting principles consistently applied throughout the periods
involved, and all adjustments necessary for a fair presentation of results
for such periods have been made, except as otherwise stated therein.
The summary and selected financial and statistical data included in the
Registration Statement present fairly the information shown therein on the
basis stated in the Registration Statement and have been compiled on a
basis consistent with the financial statements presented therein.
(viii) There is no action or proceeding pending or, to the
knowledge of the Company, threatened or contemplated against the Company or
any of its subsidiaries before any court or administrative or regulatory
agency which, if determined adversely to the Company or any of its
subsidiaries, would, individually or in the aggregate, result in a material
adverse change in the business or condition (financial or otherwise),
results of operations, stockholders' equity or prospects of the Company and
its subsidiaries, taken as a whole, except as set forth in the Registration
Statement.
(ix) The Company has good and marketable title to all properties and
assets reflected as owned in the financial statements hereinabove described
(or as described as owned in the Prospectus), in each case free and clear
of all liens, encumbrances and defects, except such as are described in the
Prospectus or do not substantially affect the value of such properties and
assets and do not materially interfere with the use made and proposed to be
made of such properties and assets by the Company and its subsidiaries; and
any real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
(x) Since the respective dates as of which information is given in
the Registration Statement, as it may be amended or supplemented, (A) there
has not been any material adverse change, or any development involving a
prospective material adverse change, in or affecting the condition,
financial or otherwise, of the Company and its subsidiaries, taken as a
whole, or the business affairs, management, financial position,
shareholders' equity or results of operations of the Company and its
subsidiaries, taken as a whole, whether or not occurring in the ordinary
course of business, (B) there has not been any transaction not in the
ordinary course of business entered into by the Company or any of its
subsidiaries which is material to the Company and its subsidiaries, taken
as a whole, other than transactions described or contemplated in the
Registration Statement, (C) the Company and its subsidiaries have not
incurred any material liabilities or obligations, which are not in the
ordinary course of business or which could result in a material reduction
in the future earnings of the Company and its subsidiaries, (D) the Company
and its subsidiaries have not sustained any material loss or interference
with their respective businesses or properties from fire, flood, windstorm,
accident or other calamity, whether or not covered by insurance, (E) there
has not been any change in the
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capital stock of the Company (other than upon the exercise of options and
warrants described in the Registration Statement), or any material increase
in the short-term or long-term debt (including capitalized lease
obligations) of the Company and its subsidiaries, taken as a whole,
(F) there has not been any declaration or payment of any dividends or any
distributions of any kind with respect to the capital stock of the Company,
other than any dividends or distributions described or contemplated in the
Registration Statement, or (G) there has not been any issuance of warrants,
options, convertible securities or other rights to purchase or acquire
capital stock of the Company.
(xi) Neither the Company nor any of its subsidiaries are in violation
of, or in default under, their respective Articles of Incorporation or
Bylaws, or any statute, or any rule, regulation, order, judgment, decree or
authorization of any court or governmental or administrative agency
(including the Federal Trade Commission (the "FTC")) or body having
jurisdiction over the Company or any of its subsidiaries or any of their
properties, or any indenture, mortgage, deed of trust, loan agreement,
lease, franchise, license or other agreement or instrument to which the
Company or any of its subsidiaries is a party or by which it or any of them
are bound or to which any property or assets of the Company or any of its
subsidiaries is subject, which violation or default would have a material
adverse effect on the business, condition (financial or otherwise), results
of operations, stockholders' equity or prospects of the Company and its
subsidiaries, taken as a whole.
(xii) The issuance and sale of the Shares by the Company and the
compliance by the Company with all of the provisions of this Agreement and
the consummation of the transactions contemplated herein will not violate
any provision of the Articles of Incorporation or Bylaws of the Company or
any of its subsidiaries or any statute or any order, judgment, decree,
rule, regulation or authorization of any court or governmental or
administrative agency (including the FTC) or body having jurisdiction over
the Company or any of its subsidiaries or any of their properties, and will
not conflict with, result in a breach or violation of, or constitute,
either by itself or upon notice or passage of time or both, a default under
any indenture, mortgage, deed of trust, loan agreement, lease, franchise,
license or other agreement or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
is bound or to which any property or assets of the Company or any of its
subsidiaries is subject. No approval, consent, order, authorization,
designation, declaration or filing by or with any court or governmental
agency or body is required for the execution and delivery by the Company of
this Agreement and the consummation of the transactions herein
contemplated, except as may be required under the Act or any state
securities or blue sky laws.
(xiii) The Company and all of its subsidiaries hold and are operating
in compliance with all franchises, grants, authorizations, licenses,
approvals, consents, orders, certificates and permits from governmental
and regulatory authorities, foreign and domestic, which are necessary to
the conduct of its business as described in the Prospectus and all such
franchises, grants, authorizations, licenses, approvals, consents,
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orders, certificates and permits are valid and in full force and effect.
Neither the Company nor any of its subsidiaries have received notice of
nor have knowledge of any basis for any proceeding or action relating
specifically to the Company or its subsidiaries for the revocation or
suspension of any such franchises, grants, authorizations, licenses,
approvals, consents, orders, certificates or permits or any other action
or proposed action by any regulatory authority having jurisdiction over
the Company or its subsidiaries that would have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(xiv) The Company has the power and authority to enter into this
Agreement and to authorize, issue and sell the Shares it will sell
hereunder as contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by the Company.
(xv) KPMG Peat Marwick LLP, which has certified certain of the
financial statements filed with the Commission as part of the Registration
Statement, are independent public accountants as required by the Act and
the rules and regulations thereunder.
(xvi) The Company has not taken and will not take, directly or
indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(xvii) The Company's registration statement pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), has been declared effective by the Commission; and the Shares have
been approved for designation upon notice of issuance on the Nasdaq
National Market under the symbol PWHS.
(xviii) The Company has obtained and delivered to the Representative
written agreements, in form and substance satisfactory to the
Representative, of each of its directors, executive officers and
shareholders (or persons who will be shareholders as of the Closing Date)
that no offer, sale, assignment, transfer, encumbrance, contract to sell,
grant of an option to purchase or other disposition of any Common Stock or
other capital stock of the Company will be made for a period of 180 days
after the date of the Prospectus, directly or indirectly, by such holder
otherwise than hereunder or with the prior written consent of the
Representative.
(xix) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and
sale of the Shares other than any Preliminary Prospectus or the Prospectus
or other materials permitted by the Act to be distributed by the Company.
(xx) The Company is in compliance with all provisions of Florida
Statutes Section 517.075 (Chapter 92-198, laws of Florida). The Company
does not do any business, directly or indirectly, with the government of
Cuba or with any person or entity located in Cuba.
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(xxi) The Company and its subsidiaries have filed all federal,
state, local and foreign tax returns or reports required to be filed, and
have paid in full all taxes indicated by said returns or reports and all
assessments received by it or any of them to the extent that such taxes
have become due and payable, except where the Company and its subsidiaries
are contesting in good faith such taxes and assessments. The Company and
PWF each have had in effect a valid election under Internal Revenue Code
(the "Code") Section 1362 to be treated as an "S corporation" for each of
their taxable years since February 1, 1993 (the "S Corporation Commencement
Date"). Neither the Company, PWF nor any of the shareholders of the
Company or PWF have taken any action to revoke that election. Neither the
Company nor PWF nor any of the shareholders are aware of any basis or the
existence of any facts that would permit the Internal Revenue Service to
revoke that election for any period prior to the effective date of the
Registration Statement. Since the S Corporation Commencement Date to and
including the effective date of the Registration Statement, neither the
Company nor PWF will have incurred or become liable for the payment of any
corporate-level income tax, or any related penalties or interest.
(xxii) The Company and each of its subsidiaries owns or possesses
all patents, patent applications, trademarks, service marks, tradenames,
trademark registrations, service ▇▇▇▇ registrations, copyrights, licenses,
inventions, know-how, trade secrets and other similar rights necessary for
the conduct of their respective business as currently carried on or
intended to be carried on and as described in the Prospectus. No name
which the Company, its subsidiaries or any of its franchisees uses and no
other aspect of the business of the Company, its subsidiaries or any of its
franchisees involves or gives rise to any infringement of or conflict with,
or licenses or similar registrations, service ▇▇▇▇ registrations,
copyrights, licenses, inventions, trade secrets or other similar rights of
others, and neither the Company nor any of its subsidiaries have received
any notice or claim of conflict with the asserted rights of others with
respect to any of the foregoing.
(xxiii) The Company is not, and upon completion of the sale of
Shares contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.
(xxiv) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (A) transactions
are executed in accordance with management's general or specific
authorization; (B) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (C) access
to records is permitted only in accordance with management's general or
specific authorization; and (D) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(xxv) Other than as contemplated by this Agreement, the Company
has not incurred any liability for any finder's or broker's fee or agent's
commission in connection
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with the execution and delivery of this Agreement or the consummation of
the transactions contemplated hereby.
(xxvi) There has been no unlawful storage, treatment or disposal of
waste by the Company or its subsidiaries (or any of its
predecessors-in-interest) at any of the facilities owned thereby, except
for such violations which would not have a material adverse effect on
the condition, financial or otherwise, or the earnings, affairs or
business prospects of the Company and its subsidiaries, taken as a
whole; there has been no material spill, discharge, leak, emission,
ejection, escape, dumping or release of any kind onto the properties
owned by the Company or its subsidiaries, or into the environment
surrounding those properties of any toxic or hazardous substances as
defined under any federal, state or local regulations, laws or statutes,
except for those releases permissible under such regulations, laws or
statutes or otherwise allowable under applicable permits and except for
such releases which would not have a material adverse effect on the
condition, financial or otherwise, or the earnings, affairs or business
prospects of the Company and its subsidiaries, taken as a whole.
(xxvii) No material labor dispute with the employees of the Company
or its subsidiaries exists or is imminent.
(xxviii) Each employee benefit plan (as defined in Section 3(3) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"))
("Employee Benefit Plan"), and each bonus, retirement, pension, profit
sharing, stock bonus, thrift, stock option, stock purchase, incentive,
severance, deferred or other compensation or welfare benefit plan, program,
agreement or arrangement of, or applicable to current or former employees
of, or individuals providing or who provided personal services to, the
Company or its subsidiaries or with respect to which the Company or its
subsidiaries could have any liability ("Benefit Plans"), was or has been
established, maintained and operated in all material respects in compliance
with all applicable federal, state, and local statutes, orders,
governmental rules and regulations, including, but not limited to, ERISA
and the Internal Revenue Code of 1986, as amended (the "Code"). The
Company does not, either directly or indirectly as a member of a controlled
group within the meaning of Sections 414(b), (c), (m) and (o) of the Code
("Controlled Group"), have and there are no facts or circumstances that
could result in any material liability arising, directly or indirectly,
pursuant to or in connection with (A) the termination of any single
employer plan under Sections 4062 or 4064 of ERISA, (B) Section 302 of
ERISA or Section 412 of the Code, (C) any minimum funding contributions
under Section 302(c)(11) of ERISA or Section 412(c)(11) of the Code, (D)
any accumulated funding deficiency within the meaning of Section 412(a) of
the Code, whether or not waived, or (E) to the Internal Revenue Service,
the Department of Labor, the Pension Benefit Guaranty Corporation, or any
Benefit Plan or any multiemployer plan (as defined in Section 3(37) of
ERISA) ("Multiemployer Plan") under Section 502 or 515 or ERISA, under
Subtitle D or Subtitle E of Title IV of ERISA, under Subchapter D of
Chapter 1 of Subtitle A of the Code, under Chapter 43 or Chapter 47 of
Subtitle D of the Code or Section 6652 of the Code or other penalty
relating to an Employee Benefit Plan. No action, suit, grievance,
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arbitration, Internal Revenue Service, Department of Labor or Pension
Benefit Guaranty Corporation audit or investigation or other matter of
litigation or claim with respect to any Benefit Plan (other than routine
claims for benefits made in the ordinary course of plan administration
for which plan administrative procedures have not been exhausted) is
pending or, to the Company's knowledge, threatened or imminent against
or with respect to any Benefit Plan, any member of a Controlled Group
that includes the Company, or any fiduciary within the meaning of
Section 3(21) of ERISA with respect to a Benefit Plan which, if
determined adversely to the Company, would have a material adverse
effect on the Company and its subsidiaries, taken as whole. Neither the
Company nor any member of a Controlled Group that includes the Company,
has any knowledge of any facts that could give rise to any action, suit,
grievance, arbitration, audit or investigation or any other manner of
litigation or claim with respect to any Benefit Plan.
(xxix) The Company maintains insurance of the types and in the
amounts generally deemed adequate in its business and consistent with
insurance coverage maintained by similar companies and businesses, and as
required by the rules and regulations of all governmental agencies having
jurisdiction over the Company, all of which insurance is in full force and
effect.
(b) Any certificate signed by any officer of the Company and delivered to
the Representative or counsel to the Underwriters shall be deemed to be a
representation and warranty of the Company to each Underwriter as to the matters
covered thereby.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SELLING SHAREHOLDER.
(a) The Selling Shareholder represents and warrants to, and covenants and
agrees with, each of the Underwriters and the Company that:
(i) Such Selling Shareholder has duly executed and delivered a Power
of Attorney (the "Power of Attorney"), appointing ____________________ and
__________________________, and each of them, as attorney-in-fact (the
"Attorneys-In-Fact") with full power and authority to execute and deliver
this Agreement on behalf of the Selling Shareholder, to authorize the
delivery of the Shares to be sold by the Selling Shareholder, and otherwise
to act on behalf of such Selling Shareholder in connection with the
transactions contemplated by this Agreement.
(ii) The Selling Shareholder has duly executed and delivered a Custody
Agreement (the "Custody Agreement") with _______________________________,
as Custodian, pursuant to which certificates in negotiable form for the
Shares to be sold by the Selling Shareholder hereunder have been placed in
custody for delivery under this Agreement.
(iii) The Selling Shareholder has full right, power and authority
to enter into this Agreement, the Power of Attorney and the Custody
Agreement, and to sell, assign, transfer and deliver the Shares to be sold
by the Selling Shareholder hereunder; and all consents, approvals,
authorizations and orders necessary for the execution and delivery by
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the Selling Shareholder of this Agreement, the Power of Attorney and the
Custody Agreement, and for the sale and delivery of the Shares to be
sold by the Selling Shareholder hereunder, have been obtained, except
such as may be required by any state securities or blue sky laws.
(iv) The Selling Shareholder has, and at the Closing Date and the
Option Closing Date, as the case may be (as such dates are hereinafter
defined), will have good and valid title to the Option Shares to be sold
by the Selling Shareholder hereunder, free of any liens, encumbrances,
security interests, equities or claims whatsoever; and upon delivery of
and payment for the Option Shares pursuant to this Agreement, good and
valid title thereto, free of any liens, encumbrances, security
interests, equities or claims whatsoever, will be transferred to the
several Underwriters.
(v) The consummation by the Selling Shareholder of the transactions
herein contemplated and the fulfillment by the Selling Shareholder of the
terms hereof will not conflict with or result in a breach or violation of
any of the terms and provisions of, or constitute a default under, any
mortgage, deed of trust, loan agreement or other agreement, instrument or
obligation to which the Selling Shareholder is a party or to which any of
the property or assets of the Selling Shareholder is subject, except for
such agreements, instruments or obligations for which consents have been
obtained, nor will such actions result in any violations of the provisions
of the charter or by-laws of the Selling Shareholder, or any statute, rule,
regulation or order applicable to the Selling Shareholder of any court or
of any regulatory body or administrative agency or other governmental body
having jurisdiction over the Selling Shareholder.
(vi) The Selling Shareholder has not taken and will not take, directly
or indirectly, any action designed to, or which has constituted, or which
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of the Common Stock.
(vii) To the extent that any statements or omissions made in the
Registration Statement, any Preliminary Prospectus thereof, the Prospectus
or any amendment or supplement thereto are made in reliance upon and in
conformity with written information with respect to the Selling Shareholder
furnished to the Company by the Selling Shareholder expressly for use
therein, such Preliminary Prospectus and the Registration Statement did
not, and the Prospectus and any further amendments or supplements to the
Registration Statement and the Prospectus will not, when they become
effective or are filed with the Commission, as the case may be, 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.
(viii) The Selling Shareholder represents and warrants to, and
agrees with, the Underwriters to the same effect as the representations and
warranties of the Company set forth in Section 1 of this Agreement.
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(b) In order to document the Underwriters' compliance with the reporting
and withholding provisions of the Code with respect to the transactions herein
contemplated, the Selling Shareholder agrees to deliver to you prior to or at
the Closing Date a properly completed and executed United States Treasury
Department Form W-9 (or other applicable form of statement specified by Treasury
Department regulations in lieu thereof).
(c) The Selling Shareholder specifically agrees that the Shares
represented by the certificates held in custody for the Selling Shareholder
under the Custody Agreement are subject to the interests of the Underwriters
hereunder, and that the arrangements made by the Selling Shareholder for such
custody and the appointment by the Selling Shareholder of the
Attorneys-in-Fact by the Power of Attorney, are to that extent irrevocable.
The Selling Shareholder specifically agrees that the obligations of the
Selling Shareholder hereunder shall not be terminated by operation of law, by
the dissolution of such corporation or by the occurrence of any other event.
If any such event should occur before the delivery of the Shares hereunder,
certificates representing the Shares shall be delivered by or on behalf of
the Selling Shareholder in accordance with the terms and conditions of this
Agreement and of the Custody Agreement, and actions taken by the
Attorneys-in-Fact pursuant to the Powers of Attorney shall be as valid as if
such dissolution or other event has not occurred, regardless of whether or
not the Custodian, the Attorneys-in-fact, or any of them, shall have received
notice of such dissolution or other event.
(d) Any certificate signed by or on behalf of the Selling Shareholder
and delivered to the Representatives or to counsel to the Underwriters shall
be deemed to be a representation and warranty of the Selling Shareholder to
each Underwriter as to the matters covered thereby.
3. PURCHASE, SALE AND DELIVERY OF SHARES.
(a) On the basis of the representations, warranties and covenants
contained herein, and subject to the terms and conditions herein set forth,
the Company agrees to sell to each Underwriter and each Underwriter agrees,
severally and not jointly, to purchase from the Company, at a price of $_____
per share, the number of Firm Shares set forth opposite the name of each
Underwriter in Schedule A hereto, subject to adjustments in accordance with
Section 9 hereof.
In addition, on the basis of the representations, warranties and covenants
herein contained and subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters an option to purchase at their
election up to 200,000 Option Shares and the Selling Shareholder hereby grants
to the several Underwriters an option to purchase at its election up to 50,000
Option Shares, each at the same price per share as set forth for the Firm Shares
in the paragraph above, for the sole purpose of covering overallotments in the
sale of the Firm Shares. The option granted hereby may be exercised in whole or
in part, but only once, and at any time upon written notice given within 30 days
after the date of this Agreement, by you, as Representative of the several
Underwriters, to the Company and the Selling Shareholder setting forth the
number of Option Shares as to which the several Underwriters are exercising the
option and the time and date at which certificates are to be delivered. If any
Option Shares are
11
purchased, each Underwriter agrees, severally and not jointly, to purchase
that portion of the number of Option Shares as to which such election shall
have been exercised (subject to adjustment to eliminate fractional shares)
determined by multiplying such number of Option Shares by a fraction the
numerator of which is the maximum number of Option Shares which such
Underwriter is entitled to purchase as set forth opposite the name of such
Underwriter in Schedule A hereto and the denominator of which is the maximum
number of Option Shares which all of the Underwriters are entitled to
purchase hereunder. The time and date at which certificates for Option
Shares are to be delivered shall be determined by the Representative but
shall not be earlier than two or later than ten full business days after the
exercise of such option, and shall not in any event be prior to the Closing
Date. If the date of exercise of the option is three or more full days
before the Closing Date, the notice of exercise shall set the Closing Date as
the Option Closing Date.
(b) Certificates (or uncertificated shares at the election of the
Representative) in definitive form for the Shares to be purchased by each
Underwriter hereunder, and in such denominations and registered in such names
as ▇▇▇▇ ▇▇▇▇▇▇▇▇ Incorporated may request upon at least forty-eight hours'
prior notice to the Company, shall be delivered by or on behalf of the
Company to you for the account of such Underwriter at such time and place as
shall hereafter be designated by the Representative, against payment by such
Underwriter or on its behalf of the purchase price therefor by certified or
official bank check or checks, payable to the order of the Company in next
day funds. The time and date of such delivery and payment shall be, with
respect to the Firm Shares, 8:30 a.m. Minneapolis time, at the offices of
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, on _________________, 1997, or such other
time and date as you and the Company may agree upon in writing, such time and
date being herein referred to as the "Closing Date," and, with respect to the
Option Shares, at the time and on the date specified by you in the written
notice given by you of the Underwriters' election to purchase the Option
Shares, or such other time and date as you and the Company may agree upon in
writing, such time and date being referred to herein as the "Option Closing
Date." Such certificates will be made available for checking and packaging
at least twenty-four hours prior to the Closing Date or the Option Closing
Date, as the case may be, at a location as may be designated by you.
4. OFFERING BY UNDERWRITERS. It is understood that the several
Underwriters propose to make a public offering of the Firm Shares as soon as the
Representative deems it advisable to do so. The Firm Shares are to be initially
offered to the public at the initial public offering price set forth in the
Prospectus. The Representative may from time to time thereafter change the
public offering price and other selling terms. To the extent, if at all, that
any Option Shares are purchased pursuant to Section 3 hereof, the Underwriters
will offer such Option Shares to the public on the foregoing terms.
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with the
several Underwriters that:
(a) The Company will prepare and timely file with the Commission under
Rule 424(b) under the Act a Prospectus containing information previously omitted
at the time of effectiveness of the Registration Statement in reliance on Rule
430A under the Act, and will not
12
file any amendment to the Registration Statement or supplement to the
Prospectus of which the Representative shall not previously have been advised
and furnished with a copy and as to which the Representative shall have
objected in writing promptly after reasonable notice thereof or which is not
in compliance with the Act or the rules and regulations thereunder.
(b) The Company will advise the Representative promptly of any request of
the Commission for amendment of the Registration Statement or for any supplement
to the Prospectus or for any additional information, or of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the use of the Prospectus, of the suspension of the qualification
of the Shares for offering or sale in any jurisdiction, or of the institution or
threatening of any proceedings for that purpose, and the Company will use its
best efforts to prevent the issuance of any such stop order preventing or
suspending the use of the Prospectus or suspending such qualification and to
obtain as soon as possible the lifting thereof, if issued.
(c) The Company will endeavor to qualify the Shares for sale under the
securities laws of such jurisdictions as the Representative may reasonably have
designated in writing and will, or will cause counsel to, make such
applications, file such documents, and furnish such information as may be
reasonably requested by the Representative, provided that the Company shall not
be required to qualify as a foreign corporation or to file a general consent to
service of process in any jurisdiction where it is not now so qualified or
required to file such a consent. The Company will, from time to time, prepare
and file such statements, reports and other documents as are or may be required
to continue such qualifications in effect for so long a period as the
Representative may reasonably request for distribution of the Shares.
(d) The Company will furnish the Underwriters with as many copies of any
Preliminary Prospectus as the Representative may reasonably request and, during
the period when delivery of a prospectus is required under the Act, the Company
will furnish the Underwriters with as many copies of the Prospectus in final
form, or as thereafter amended or supplemented, as the Representative may, from
time to time, reasonably request. The Company will deliver to the
Representative, at or before the Closing Date, two (2) signed copies of the
Registration Statement and all amendments thereto including all exhibits filed
therewith, and will deliver to the Representative such number of copies of the
Registration Statement, without exhibits, and of all amendments thereto, as the
Representative may reasonably request.
(e) If, during the period in which a prospectus is required by law to be
delivered by an Underwriter or dealer, any event shall occur as a result of
which the Prospectus as then amended or supplemented would include an untrue
statement of a material fact or omit to state any material fact necessary in
order to make the statements therein, in light of the circumstances existing
at the time the Prospectus is delivered to a purchaser, not misleading, or if
for any other reason it shall be necessary at any time to amend or supplement
the Prospectus to comply with any law, the Company promptly will prepare and
file with the Commission an appropriate amendment to the Registration
Statement or supplement to the Prospectus so that the Prospectus as so
amended or supplemented will not include an untrue statement of a material
fact or omit to state any material fact necessary in order to make the
statements therein in light of the
13
circumstances existing when it is so delivered, not misleading, or so that
the Prospectus will comply with law. In case any Underwriter is required to
deliver a prospectus in connection with sales of any Shares at any time nine
months or more after the effective date of the Registration Statement, upon
the request of the Representative but at the expense of such Underwriter, the
Company will prepare and deliver to such Underwriter as many copies as the
Representative may request of an amended or supplemented Prospectus complying
with Section 10(a)(3) of the Act.
(f) The Company will make generally available to its security holders, as
soon as it is practicable to do so, but in any event not later than 18 months
after the effective date of the Registration Statement, an earnings statement
(which need not be audited) in reasonable detail, covering a period of at least
12 consecutive months beginning after the effective date of the Registration
Statement, which earnings statement shall satisfy the requirements of Section
11(a) of the Act and Rule 158 thereunder and will advise you in writing when
such statement has been so made available.
(g) The Company will, for such period up to five years from the Closing
Date, deliver to the Representative copies of its annual report and copies of
all other documents, reports and information furnished by the Company to its
security holders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or the
Exchange Act. The Company will deliver to the Representative similar reports
with respect to significant subsidiaries, as that term is defined in the rules
and regulations under the Act, which are not consolidated in the Company's
financial statements.
(h) No offering, sale or other disposition of any Common Stock or other
capital stock of the Company, or warrants, options, convertible securities or
other rights to acquire such Common Stock or other capital stock (other than
pursuant to employee stock option plans, outstanding options or on the
conversion of convertible securities outstanding on the date of this Agreement)
will be made for a period of 180 days after the date of this Agreement, directly
or indirectly, by the Company otherwise than hereunder or with the prior written
consent of the Representative.
(i) The Company will apply the net proceeds from the sale of the Shares to
be sold by it hereunder substantially in accordance with the purposes set forth
under "Use of Proceeds" in the Prospectus.
(j) The Company will use its best efforts to maintain the designation of
the Common Stock on the Nasdaq National Market.
6. COSTS AND EXPENSES. Whether or not the transactions contemplated by
this Agreement are consummated, the Company will pay (directly or by
reimbursement) all costs, expenses and fees incident to the performance of the
obligations of the Company and the Selling Shareholder under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of preparing, printing and filing of the Registration
Statement, Preliminary Prospectuses and the Prospectus and any amendments and
supplements thereto and the printing, mailing and delivery to the Underwriters
and dealers of copies thereof and of this Agreement, the
14
Master Agreement Among Underwriters, Selected Dealers Agreement and any
supplements or amendments thereto (excluding, except as provided below, fees
and expenses of counsel to the Underwriters); the filing fees of the
Commission; the filing fees and expenses (including legal fees and
disbursements of counsel for the Underwriters) incident to securing any
required review by the NASD of the terms of the sale of the Shares; listing
fees, if any, transfer taxes and the expenses, including the fees and
disbursements of counsel for the Underwriters incurred in connection with the
qualification of the Shares under state securities or Blue Sky laws; the fees
and expenses incurred in connection with the designation of the Shares on the
Nasdaq National Market; the costs of preparing stock certificates; the costs
and fees of any registrar or transfer agent and all other costs and expenses
incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section 6. In addition, the
Company will pay all travel and lodging expenses incurred by management of
the Company in connection with any informational "road show" meetings held in
connection with the offering and will also pay for the preparation of all
materials used in connection with such meetings. The Company shall not,
however, be required to pay for any of the Underwriters' expenses (other than
those related to qualification of the Shares under state securities or Blue
Sky laws and those incident to securing any required review by the NASD of
the terms of the sale of the Shares) except that, if this Agreement shall not
be consummated because the conditions in Section 7 hereof are not satisfied,
or because this Agreement is terminated by the Representative pursuant to
Section 11(b) hereof, or by reason of any failure, refusal or inability on
the part of the Company to perform any undertaking or satisfy any condition
of this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with
said terms shall be due to the default or omission of any Underwriter, then
the Company shall promptly upon request by the Representative reimburse the
several Underwriters for all out-of-pocket accountable expenses, including
fees and disbursements of counsel, incurred in connection with investigating,
marketing and proposing to market the Shares or in contemplation of
performing their obligations hereunder; but the Company shall not in any
event be liable to any of the several Underwriters for damages on account of
loss of anticipated profits from the sale by them of the Shares.
7. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS. The several
obligations of the Underwriters to purchase the Firm Shares on the Closing
Date and the Option Shares, if any, on the Option Closing Date, are subject
to the condition that all representations and warranties of the Company and
the Selling Shareholder contained herein are true and correct, at and as of
the Closing Date or the Option Closing Date, as the case may be, the
condition that the Company and the Selling Shareholder shall have performed
all of their covenants and obligations hereunder and to the following
additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant to
Rule 424(b) within the applicable time period prescribed for such filing by
the rules and regulations under the Act and in accordance with Section 5(a)
hereof; no stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, or any part thereof shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the Commission; and all requests for additional information on
the part of the Commission shall have been complied with to the reasonable
satisfaction of the Representative.
15
(b) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
& Brand, counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters, to the
effect that:
(i) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Minnesota, with
corporate power and authority to own or lease its properties and conduct
its business as described in the Prospectus.
(ii) The Company does not own any stock or other equity interest in
any corporation, partnership, joint venture, unincorporated association
or other entity other than PWF. Each subsidiary of the Company has been
duly organized and is validly existing as a corporation in good standing
under the laws of the jurisdiction of its incorporation, with corporate
power and authority to own or lease its properties and conduct its
business as described in the Prospectus. The outstanding shares of
capital stock of each such subsidiary have been duly authorized and
validly issued, are fully paid and nonassessable and are owned directly
or indirectly, by the Company, free and clear of all liens, encumbrances
and security interests, other than security interests specifically
disclosed in the Prospectus. To the knowledge of such counsel, no
options, warrants or other rights to purchase, agreements or other
obligations to issue or other rights to convert any obligations into any
shares of capital stock or ownership interests in each such subsidiary
are outstanding.
(iii) The Company has authorized and outstanding capital stock as
described in the Prospectus. The outstanding shares of the Company's
capital stock have been duly authorized and validly issued and are fully
paid and nonassessable. The form of certificate for the Shares is in
due and proper form and complies with all applicable statutory
requirements. The Shares to be issued and sold by the Company pursuant
to this Agreement have been duly authorized and, when issued and paid
for as contemplated herein, will be validly issued, fully paid and
nonassessable. No preemptive or, to the knowledge of such counsel,
other similar subscription rights of shareholders of the Company, or of
holders of warrants, options, convertible securities or other rights to
acquire shares of capital stock of the Company, exist with respect to
any of the Shares or the issue and sale thereof. To the knowledge of
such counsel, no rights to register outstanding shares of the Company's
capital stock, or shares issuable upon the exercise of outstanding
warrants, options, convertible securities or other rights to acquire
shares of such capital stock, exist which have not been validly
exercised or waived with respect to the Registration Statement. The
capital stock of the Company, including the Shares, conforms in all
material respects to the description thereof contained in the Prospectus.
(iv) The Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order proceedings with
respect thereto have been instituted or are pending or threatened by the
Commission.
16
(v) The Registration Statement, the Prospectus and each amendment or
supplement thereto comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder (except
that such counsel need express no opinion as to the financial statements
and related schedules included therein).
(vi) The descriptions of statutes, legal and governmental proceedings,
contracts and other documents (A) in the Prospectus under the captions
"Risk Factors -- Risks Associated with Franchisees, --Government
Regulation, --Possible Issuances of Preferred Stock; Anti-Takeover Effect
of Minnesota Law, --Shares Eligible for Future Sale, --S Corporation
Status; Distributions" "S Corporation Distributions," "Dividend Policy,"
"Business -- Franchising, -- Trademark and Service Marks, -- Government
Regulation, -- Properties, -- Legal Proceedings," "Management -- Employment
Agreements, -- Employee and Director Stock Option Plans," "Certain
Transactions," "Description of Capital Stock," and "Shares Eligible for
Future Sale" and (B) in the Registration Statement in Item 14 are accurate
summaries and fairly present the information called for with respect to
such matters.
(vii) Such counsel does not know of any contracts, agreements,
documents or instruments required to be filed as exhibits to the
Registration Statement or described in the Registration Statement or the
Prospectus which are not so filed or described as required; and insofar as
any statements in the Registration Statement or the Prospectus constitute
summaries of any contract, agreement, document or instrument to which the
Company or any of its subsidiaries is a party, such statements are accurate
summaries and fairly present the information called for with respect to
such matters.
(viii) Such counsel knows of no legal or governmental proceeding,
pending or threatened, before any court or administrative body or
regulatory agency, to which the Company or any of its subsidiaries is a
party or to which any of the properties of the Company or any of its
subsidiaries is subject that are required to be described in the
Registration Statement or Prospectus and are not so described, or statutes
or regulations that are required to be described in the Registration
Statement or the Prospectus that are not so described.
(ix) The execution and delivery of this Agreement and the consummation
of the transactions herein contemplated do not and will not conflict with
or result in a violation of or default under the Articles or Bylaws of the
Company or its subsidiaries, or under any franchise, statute, permit,
judgment, decree, order, rule or regulation known to such counsel of any
court or governmental agency or body having jurisdiction over the Company
or any of its subsidiaries or any of their properties, or under any lease,
contract, indenture, mortgage, loan agreement or other agreement or other
instrument or obligation known to such counsel to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any property or assets of the Company or
any of its subsidiaries is subject, except such agreements, instruments or
obligations with respect to which valid consents or waivers have been
obtained by the Company or its subsidiaries.
17
(x) The Company has the corporate power and authority to enter into
this Agreement and to authorize, issue and sell the Shares as contemplated
hereby. This Agreement has been duly and validly authorized, executed and
delivered by the Company.
(xi) No approval, consent, order, authorization, designation,
declaration or filing by or with any regulatory, administrative or other
governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by state securities and blue
sky laws, as to which such counsel need express no opinion) except such as
have been obtained or made, specifying the same.
(xii) The Company is not, and immediately upon completion of the sale of
Shares contemplated hereby will not be, required to register as an
"investment company" under the Investment Company Act of 1940, as amended.
(xiii) Such counsel has no reason to believe that, as of its effective
date, the Registration Statement or any further amendment thereto made by
the Company prior to the Closing Date or the Option Closing Date, as the
case may be (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion), contained an
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to the Closing
Date or the Option Closing Date, as the case may be (other than the
financial statements and related schedules therein, as to which such
counsel need express no opinion), contained an untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading or that, as of the Closing Date or the Option Closing Date,
as the case may be, either the Registration Statement or the Prospectus or
any further amendment or supplement thereto made by the Company prior to
the Closing Date or the Option Closing Date, as the case may be (other than
the financial statements and related schedules therein, as to which such
counsel need express no opinion), contains an untrue statement of a
material fact or omits to state a material fact necessary to make the
statements therein, in light of the circumstances in which they were made,
not misleading; and they do not know of any amendment to the Registration
Statement required to be filed.
(xiv) 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 governmental 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.
18
(xv) The Company and PWF each have had in effect a valid election
under Code Section 1362 to be treated as an "S corporation" for each of
their taxable years since the S Corporation Commencement Date. To such
counsel's knowledge, neither the Company, PWF nor any of the shareholders
of the Company or PWF have taken any action to revoke that election. Such
counsel is not aware of any basis or the existence of any facts that would
permit the Internal Revenue Service to revoke that election for any period
prior to the effective date of the Registration Statement. Since the S
Corporation Commencement Date to and including the effective date of the
Registration Statement, neither the Company nor PWF will have incurred or
become liable for the payment of any corporate-level income tax, or any
related penalties or interest.
(c) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of counsel for the Selling
Shareholder, which counsel shall be reasonably acceptable to the Representative,
dated the Closing Date or the Option Closing Date, as the case may be, addressed
to the Underwriters, to the effect that:
(i) A Power of Attorney and a Custody Agreement have been duly
executed and delivered by the Selling Shareholder and are the valid and
binding agreements of Selling Shareholder.
(ii) This Agreement has been duly authorized, executed and delivered
by or on behalf of the Selling Shareholder.
(iii) The sale of the Shares to be sold by the Selling Shareholder
hereunder and the compliance by the Selling Shareholder with all of the
provisions of this Agreement, the Power of Attorney and the Custody
Agreement, and the consummation of the transactions herein and therein
contemplated, will not conflict with or result in a breach or violation of
any terms or provisions of, or constitute a default under, any statute, any
indenture, mortgage, deed of trust, loan agreement or other agreement or
instrument know to such counsel to which the Selling Shareholder is a party
of the property or assets of the Selling Shareholder is subject, nor will
such action result in any violation of the provisions of the organizational
documents of the Selling Shareholder, or any order, rule or regulation
known to such counsel of any court or governmental agency or body having
jurisdiction over Selling Shareholder of the property of the Selling
Shareholder.
(iv) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the
transactions contemplated by this Agreement in connection with the Shares
to be sold by the Selling Shareholder hereunder, except such consents,
approvals, authorizations or orders as have been validly obtained and are
in full force and effect, such as have been obtained under the Act and such
as may be required under the state securities or blue sky laws in
connection with the purchase and distribution of such Shares by the
Underwriters.
(v) The Selling Shareholder has full right, power and authority to
sell, assign, transfer and deliver the Shares to be sold by the Selling
Shareholder hereunder.
19
(vi) Good and valid title to the Shares being sold by the Selling
Shareholder, free and clear of any claims, liens, encumbrances, security
interests or other adverse claims, has been transferred to each of the
several Underwriters who have purchased such Shares in good faith and
without notice of any such claim, lien, encumbrance, security interest or
other adverse claim within the meaning of the Uniform Commercial Code.
(d) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, the opinion of ▇▇▇▇ Plant ▇▇▇▇▇ ▇▇▇▇▇ &
▇▇▇▇▇▇▇, P.A., counsel to the Company relating to certain franchise matters,
dated the Closing Date or the Option Closing Date, as the case may be, addressed
to the Underwriters, to the effect that:
(i) Each of the franchise agreements and development agreements
entered into by the Company or any of its subsidiaries relating to its
conveyance of franchise and development rights have been duly authorized,
executed and delivered by, and, assuming due execution and delivery by the
other parties thereto, are valid, legal and binding obligations of, and are
enforceable by, the Company and its subsidiaries.
(ii) The Company's uniform franchise offering circulars, dated April
30, 1996 and April 22, 1997, as amended September 10, 1997, inclusive of
attached exhibits ("UFOCS") contained information substantially in
compliance, as of the effective date of the respective UFOCS, with the
disclosure provisions of the FTC franchise and business opportunity laws
and regulations ("FTC Rule") and the franchise disclosure laws of those
states with which the Company has filed such UFOCS. The UFOCS are
substantially in compliance as to form with the FTC Rule and the franchise
disclosure laws of those states with which the Company has filed such
UFOCS.
(iii) 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 governmental 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.
(iv) The descriptions of federal and state franchise regulations set
forth in the Prospectus under the captions "Risk Factors -- Risks
Associated with Franchises," "Risk Factors -- Government Regulation," and
"Business -- Government Regulation" fairly and accurately describe the
status of the material governmental franchise regulations pertaining to the
Company's franchising activities.
(v) The description of the Company's franchising agreements set forth
in the Prospectus under the caption "Business -- Franchising" fairly and
accurately describes the material terms of the Company's franchise
agreements.
(vi) The Company has not received any notice of violation of any FTC
Rule or any state franchise registration or franchise disclosure law.
20
(e) The Representative shall have received from ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ &
▇▇▇▇▇▇▇▇, counsel for the Underwriters, an opinion dated the Closing Date or the
Option Closing Date, as the case may be, with respect to the incorporation of
the Company, the validity of the Shares, the Registration Statement, the
Prospectus, and other related matters as the Representative may reasonably
request, and such counsel shall have received such papers and information as
they may reasonably request to enable them to pass upon such matters.
(f) The Representative shall have received on each of the date hereof, the
Closing Date and the Option Closing Date, as the case may be, a signed letter,
dated as of the date hereof, the Closing Date or the Option Closing Date, as the
case may be, in form and substance satisfactory to the Representative, from KPMG
Peat Marwick LLP, to the effect that they are independent public accountants
with respect to the Company and its subsidiaries within the meaning of the Act
and the related rules and regulations and containing statements and information
of the type ordinarily included in accountants' "comfort letters" to
underwriters with respect to the financial statements and certain financial
information contained in the Registration Statement and the Prospectus.
(g) Subsequent to the execution and delivery of this Agreement and prior
to the Closing Date or the Option Closing Date, as the case may be, there shall
not have been any change or any development involving a prospective change, in
or affecting the general affairs, management, financial position, shareholders'
equity or results of operations of the Company and its subsidiaries, otherwise
than as set forth or contemplated in the Prospectus, the effect of which, in
your judgment, is material and adverse to the Company and makes it impracticable
or inadvisable to proceed with the public offering or the delivery of the Shares
being delivered at the Closing Date or the Option Closing Date, as the case may
be, on the terms and in the manner contemplated in the Prospectus.
(h) The Representative shall have received on the Closing Date or the
Option Closing Date, as the case may be, a certificate or certificates of the
chief executive officer and the chief financial officer of the Company to the
effect that, as of the Closing Date or the Option Closing Date, as the case may
be, each of them severally represents as follows:
(i) The Prospectus was filed with the Commission pursuant to Rule
424(b) within the applicable period prescribed for such filing by the rules
and regulations under the Act and in accordance with Section 5 of this
Agreement; no stop order suspending the effectiveness of the Registration
Statement has been issued, and no proceedings for such purpose have been
initiated or are, to his knowledge, threatened by the Commission.
(ii) The representations and warranties of the Company set forth in
Section 1 of this Agreement are true and correct at and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company has
performed all of its obligations under this Agreement to be performed at or
prior to the Closing Date or the Option Closing Date, as the case may be.
(i) The Representative shall have received on the Closing Date and the
Option Closing Date, as the case may be, a certificate of the Selling
Shareholder to the effect that, as of
21
the Closing Date and the Option Closing Date, as the case may be, the Selling
Shareholder represents as follows:
(i) The representations and warranties of the Selling Shareholder set
forth in Section 2 of this Agreement are true and correct at and as of the
Closing Date and the Option Closing Date, as the case may be, and the
Selling Shareholder has performed all of its obligations under this
Agreement to be performed at or prior to the Closing Date and the Option
Closing Date, as the case may be.
(j) All outstanding warrants (the "Warrants") issued by the Company in
connection with the Company's 1994 private placement of 46 units of 10%
subordinated notes (the "Notes") with Warrants attached thereto, shall no longer
be outstanding and shall have been exchanged for shares of Common Stock of the
Company in accordance with the terms and conditions set forth in that certain
letter provided to the holders of the Notes and Warrants from the Company dated
January 14, 1997, as extended pursuant to the Extension of Warrant Conversion
Agreement.
(k) All of the options outstanding under that certain Restated Option
Agreement by and between the Company and the Selling Shareholder dated October
6, 1995 shall have been exercised in full.
(l) The Company and the Selling Shareholder shall have furnished to the
Representative such further certificates and documents as the Representative may
reasonably have requested.
The opinions and certificates mentioned in this Agreement shall be deemed
to be in compliance with the provisions hereof only if they are in all material
respects reasonably satisfactory to the Representative and to ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
& ▇▇▇▇▇▇▇▇, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this Section 7 shall
not have been fulfilled when and as required by this Agreement to be fulfilled,
the obligations of the Underwriters hereunder may be terminated by the
Representative by notifying the Company of such termination in writing or by
telegram at or prior to the Closing Date or the Option Closing Date, as the case
may be. In such event, the Company, the Selling Shareholder and the
Underwriters shall not be under any obligation to each other (except to the
extent provided in Sections 6 and 8 hereof).
8. INDEMNIFICATION.
(a) The Company and the Selling Shareholder severally agree to indemnify
and hold harmless each Underwriter, each officer and director thereof, and each
person, if any, who controls any Underwriter within the meaning of the Act,
against any losses, claims, damages or liabilities to which such Underwriter or
such persons may became subject under the Act or otherwise, insofar as such
losses, claims, damages or liabilities (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in the Registration Statement,
any Preliminary
22
Prospectus or the Prospectus, including any amendments or supplements
thereto, (ii) the omission or alleged omission to state therein a material
fact required to be stated therein, or necessary to make the statements
therein not misleading in light of the circumstances under which they were
made, or (iii) any act or failure to act or any alleged act or failure to act
by any Underwriter in connection with, or relating in any manner to, the
Common Stock or the offering contemplated hereby, and which is included as
part of or referred to in any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arising out of or based upon
matters covered by clause (i) or (ii) above, and will reimburse each
Underwriter and each such controlling person for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that neither the Company nor the
Selling Shareholder shall 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 the Registration Statement, any Preliminary Prospectus or
the Prospectus, including any amendments or supplements thereto, in reliance
upon and in conformity with written information furnished to the Company by
any Underwriter through the Representative specifically for use therein; and
provided, further, that neither the Company nor the Selling Shareholder shall
be liable in the case of any matter covered by clause (iii) above to the
extent that it is determined in a final judgment by a court of competent
jurisdiction that such losses, claims, damages or liabilities resulted
directly from any such acts or failures to act undertaken or omitted to be
taken by such Underwriter through its gross negligence or willful misconduct.
(b) Each Underwriter agrees to indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement, each person, if any, who controls the Company within the meaning
of the Act, and the Selling Shareholder against any losses, claims, damages
or liabilities to which the Company, any such director, officer or
controlling person or the Selling Shareholder may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or arise out of or are based upon the
omission or the alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances under which they were made, and will
reimburse any legal or other expenses reasonably incurred by the Company any
such director, officer or controlling person or the Selling Shareholder in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that each Underwriter will be
liable in each case to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission has
been made in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any such amendment or supplement in reliance upon and in
conformity with written information furnished to the Company by any
Underwriter through the Representative specifically for use therein.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity or
contribution may be sought
23
pursuant to this Section 8, such person (the "indemnified party") shall
promptly notify the person against whom such indemnity may be sought (the
"indemnifying party") in writing. No indemnification provided for in Section
8(a) or (b) or contribution provided for in Section 8(d) shall be available
with respect to a proceeding to any party who shall fail to give notice of
such proceeding as provided in this Section 8(c) if the party to whom notice
was not given was unaware of the proceeding to which such notice would have
related and was prejudiced by the failure to give such notice, but the
failure to give such notice shall not relieve the indemnifying party or
parties from any liability which it or they may have to the indemnified party
otherwise than on account of the provisions of Section 8(a), (b) or (c). In
case any such proceeding shall be brought against any indemnified party and
it shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel reasonably
satisfactory to such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay promptly as incurred the reasonable fees and expenses of the
counsel retained by the indemnified party in the event (i) the indemnifying
party and the indemnified party shall have mutually agreed to the retention
of such counsel or (ii) the named parties to any such proceeding (including
any impleaded parties) include both the indemnifying party and the
indemnified party and the indemnified party shall have reasonably concluded
that there may be a conflict between the positions of the indemnifying party
and the indemnified party in conducting the defense of any such action or
that there may be legal defenses available to it or other indemnified parties
which are different from or additional to those available to the indemnifying
party. It is understood that the indemnifying party shall not, in connection
with any proceeding or related proceedings in the same jurisdiction, be
liable for the fees and expenses of more than one separate firm at any time
for all such indemnified parties. Such firm shall be designated in writing
by the Representative and shall be reasonably satisfactory to the Company in
the case of parties indemnified pursuant to Section 8(a) and shall be
designated in writing by the Company and shall be reasonably satisfactory to
the Representative in the case of parties indemnified pursuant to Section
8(b). The indemnifying party shall not be liable for any settlement of any
proceeding effected without its written consent but if settled with such
consent or if there be a final judgment for the plaintiff, the indemnifying
party agrees to indemnify the indemnified party from and against any loss or
liability by reason of such settlement or judgment.
(d) If the indemnification provided for in this Section 8 is unavailable
or insufficient to hold harmless an indemnified party under Section 8(a) or
(b) above in respect of any losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or liabilities
(or actions or proceedings in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company and the
Selling Shareholder, on the one hand, and the Underwriters, on the other,
from the offering of the Shares. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law, then each
indemnifying party shall contribute to such amount paid or payable by such
indemnified party in such proportion as is appropriate to
24
reflect not only such relative benefits but also the relative fault of the
Company and the Selling Shareholder, on the one hand, and the Underwriters,
on the other, in connection with the statements or omissions which resulted
in such losses, claims, damages or liabilities (or actions or proceedings in
respect thereof), as well as any other relevant equitable considerations.
The relative benefits received by the Company and the Selling Shareholder, on
the one hand, and the Underwriters, on the other, shall be deemed to be in
the same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and the Selling Shareholder bears
to the total underwriting discounts and commissions received by the
Underwriters, 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 and the Selling Shareholder, on the one
hand, or the Underwriters, on the other, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission. The Company, the Selling Shareholder and the
Underwriters agree that it would not be just and equitable if contributions
pursuant to this Section 8(d) were determined by pro rata allocation (even if
the Underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(d). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions or proceedings in respect thereto) referred to above
in this Section 8(d) shall be deemed to include any legal or other expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 8(d), no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the Shares purchased by such Underwriter; and no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
Section 8(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The obligations of the Company or the Selling Shareholder under this
Section 8 shall be in addition to any liability which the Company or the
Selling Shareholder may otherwise have, and the obligations of the
Underwriters under this Section 8 shall be in addition to any liability which
the Underwriters may otherwise have.
9. DEFAULT BY UNDERWRITERS. If on the Closing Date or the Option
Closing Date, as the case may be, any Underwriter shall fail to purchase and
pay for the portion of the Shares which such Underwriter has agreed to
purchase and pay for on such date (otherwise than by reason of any default on
the part of the Company), you, as Representative of the Underwriters, shall
use your best efforts to procure within 36 hours thereafter one or more of
the other Underwriters, or any others, to purchase from the Company such
amounts as may be agreed upon, and upon the terms set forth herein, of the
Firm Shares or Option Shares, as the case may be, which the defaulting
Underwriter or Underwriters failed to purchase. If during such 36 hours you,
as Representative, shall not have procured such other Underwriters, or any
others, to purchase the Firm Shares or Option Shares, as the case may be,
agreed to be purchased by the defaulting Underwriter or Underwriters, then
(a) if the aggregate number of Shares with respect
25
to which such default shall occur does not exceed 10% of the Firm Shares or
Option Shares, as the case may be, covered hereby, the other Underwriters
shall be obligated, severally, in proportion to the respective numbers of
Firm Shares or Option Shares, as the case may be, which they are obligated to
purchase hereunder, to purchase the Firm Shares or Option Shares, as the case
may be, which such defaulting Underwriter or Underwriters failed to purchase,
or (b) if the aggregate number of shares of Firm Shares or Option Shares, as
the case may be, with respect to which such default shall occur exceeds 10%
of the Firm Shares or Option Shares, as the case may be, covered hereby, the
Company or you as the Representative of the Underwriters will have the right,
by written notice given within the next 36-hour period to the parties to this
Agreement, to terminate this Agreement without liability on the part of the
non-defaulting Underwriters or of the Company except for expenses to be borne
by the Company and the Underwriters as provided in Section 6 hereof and the
indemnity and contribution agreements in Section 8 hereof. In the event of a
default by any Underwriter or Underwriters, as set forth in this Section 9,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as you, as Representative, may
determine in order that the required changes in the Registration Statement or
in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES. All communications hereunder shall be in writing and,
except as otherwise provided herein, will be mailed, delivered or telegraphed
and confirmed as follows: if to the Underwriters, to ▇▇▇▇ ▇▇▇▇▇▇▇▇
Incorporated, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇,
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇, with copies to ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇, 45
South Seventh Street, Suite ▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, Esq.; if to the Company, to ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇. ▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: Yale ▇. ▇▇▇▇▇▇▇▇, with
copies to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand, 3300 Norwest Center, ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇, Esq.; and if to the Selling Shareholder, to ________________, with
copies to ________________.
11. TERMINATION. This Agreement may be terminated by you by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the Shares are
released by you for sale by notice to the Underwriters or (ii) 4:00 p.m.,
Minneapolis time, on the first business day following the later of the date
on which the Registration Statement becomes effective or the date of this
Agreement;
(b) at any time prior to the Closing Date if any of the following has
occurred: (i) since the respective dates as of which information is given in
the Registration Statement and the Prospectus, any material adverse change in
or affecting the condition, financial or otherwise, of the Company and its
subsidiaries taken as a whole or the business affairs, management, financial
position, shareholders' equity or results of operations of the Company and
its subsidiaries taken as a whole, whether or not arising in the ordinary
course of business, (ii) any outbreak or
26
escalation of hostilities or declaration of war or national emergency after
the date hereof or other national or international calamity or crisis or
change in economic or political conditions if the effect of such outbreak,
escalation, declaration, emergency, calamity, crisis or change on the
financial markets of the United States would, in your judgment, make the
offering or delivery of the Shares impracticable or inadvisable, (iii)
suspension of trading in securities on the New York Stock Exchange or the
American Stock Exchange or limitation on prices (other than limitations on
hours or numbers of days of trading) for securities on either such Exchange,
or a halt or suspension of trading in securities generally which are quoted
on Nasdaq National Market, or (iv) declaration of a banking moratorium by
either federal or New York State authorities; or
(c) as provided in Sections 7 and 9 of this Agreement.
This Agreement also may be terminated by you, by notice to the Company,
as to any obligation of the Underwriters to purchase the Option Shares, upon
the occurrence at any time prior to the Option Closing Date of any of the
events described in subparagraph (b) above or as provided in Sections 7 and 9
of this Agreement.
12. WRITTEN INFORMATION. For all purposes under this Agreement
(including, without limitation, Section 1, Section 2, Section 3 and Section 8
hereof), the Company and the Selling Shareholder understand and agree with each
of the Underwriters that the following constitutes the only written information
furnished to the Company and the Selling Shareholder by or through the
Representative specifically for use in preparation of the Registration
Statement, any Preliminary Prospectus, the Prospectus, or any amendment or
supplement thereto: (i) the information relating to stabilization set forth in
the last paragraph on page two of the Preliminary Prospectus and the Prospectus,
and (ii) the information set forth under the caption "Underwriting" in the
Preliminary Prospectus and the Prospectus.
13. SUCCESSORS. This Agreement has been and is made solely for the
benefit of and shall be binding upon the Underwriters, the Company and their
respective successors, executors, administrators, heirs and assigns, and the
officers, directors and controlling persons referred to herein, and no other
person will have any right or obligation hereunder. The term "successors" shall
not include any purchaser of the Shares merely because of such purchase.
14. MISCELLANEOUS. The reimbursement, indemnification and contribution
agreements contained in this Agreement and the representations, warranties and
covenants in this Agreement shall remain in full force and effect regardless of
(a) any termination of this Agreement, (b) any investigation made by or on
behalf of any Underwriter or controlling person thereof, or by or on behalf of
the Company or its directors and officers and (c) delivery of and payment for
the Shares under this Agreement.
Each provision of this Agreement shall be interpreted in such a manner as
to be effective and valid under applicable law, but if any provision of this
Agreement is held to be invalid, illegal or unenforceable under any applicable
law or rule in any jurisdiction, such provision will be ineffective only to the
extent of such invalidity, illegality or unenforceability in such jurisdiction
or any provision hereof in any other jurisdiction
27
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one
and the same instrument.
This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Minnesota.
If the foregoing letter is in accordance with your understanding of our
agreement, please sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement among the Company, the Selling
Shareholder and the several Underwriters in accordance with its terms.
Very truly yours,
PAPER WAREHOUSE, INC.
By:
--------------------------------------
Yale ▇. ▇▇▇▇▇▇▇▇
Its: President and Chief Executive Officer
SELLING SHAREHOLDER
LSG CORPORATION
By:
--------------------------------------
Its:
-------------------------------------
The foregoing Underwriting
Agreement is hereby confirmed
and accepted as of the date
first above written.
▇▇▇▇ ▇▇▇▇▇▇▇▇ INCORPORATED
As Representative of the several Underwriters
By:
------------------------------------
Its:
-----------------------------------
28
SCHEDULE A
Schedule of Underwriters
Number of Firm Maximum Number
Underwriter Shares to be Purchased of Option Shares
----------- ---------------------- ----------------
▇▇▇▇ ▇▇▇▇▇▇▇▇ Incorporated.......
______________ ____________
Total
______________ ____________
______________ ____________
29
