FORM OF UNDERWRITING AGREEMENT
June ___, 1999
Xxxxxx & Xxxxxxxxx Financial, Inc.
Xxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Ladies and Gentlemen:
Paper Warehouse, Inc., a Minnesota corporation (the "Company"), hereby
confirms its agreement to issue and sell to you (the "Underwriter"), six
million ($6,000,000) principal amount of its 9% Convertible Subordinated
Debentures due June ____, 2005 ("Debentures"). The Debentures are to be
issued under an Indenture, dated as of June ___, 1999 (the "Indenture")
between the Company and Norwest Bank Minnesota, N.A. as trustee (the
"Trustee"). The Debentures are convertible into shares of the Company's
Common Stock, $.01 par value (the "Common Stock"). The Debentures are more
fully described in the Registration Statement and Prospectus as hereafter
defined.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form S-1 (Registration No. 333-_____) with
respect to the Debentures has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "1933
Act") and the rules and regulations (the "Rules and Regulations") of the
Securities and Exchange Commission (the "SEC") thereunder and has been
filed with the SEC under the 1933 Act. If the Company has elected to rely
on Rule 462(b) under the 1933 Act to increase the size of the offering
registered under the 1933 Act, the Company will prepare and file with the
SEC a registration statement with respect to such increase pursuant to Rule
462(b). The Company has filed such amendments to the registration
statement and such amended preliminary prospectuses as may have been
required to be filed to the date hereof. If the Company has elected not to
rely upon Rule 430A, the Company has prepared and will promptly file an
amendment to the registration statement and an amended prospectus (provided
the Underwriter has consented to such filing). If the Company has elected
to rely upon Rule 430A, it will prepare and timely file a prospectus
pursuant to Rule 424(b) that discloses the information previously omitted
from the prospectus in reliance upon Rule 430A. Copies of such
registration statement, including a registration statement filed pursuant
to Rule 462(b), each pre-effective amendment thereto, and each related
preliminary prospectus have been delivered by the Company to the
Underwriter. Such registration statement, as amended or supplemented,
including all prospectuses included as a part thereof, financial schedules,
exhibits, the information (if any) deemed to be part thereof pursuant to
Rules 430A and 434
under the 1933 Act and any registration statement filed pursuant to
Rule 462 under the 1933 Act, is herein referred to as the "Registration
Statement." The term "Prospectus" as used herein shall mean the final
prospectus, as amended or supplemented, included as a part of the
Registration Statement on file with the SEC when it becomes effective;
provided, however, that if a prospectus is filed by the Company pursuant
to Rules 424(b) and 430A or a term sheet is filed by the Company
pursuant to Rule 434 under the 1933 Act, the term "Prospectus" as used
herein shall mean the prospectus so filed pursuant to Rules 424(b) and
430A and the term sheet so filed pursuant to Rule 434. The term
"Preliminary Prospectus" as used herein means any prospectus, as amended
or supplemented, used prior to the Effective Date (as defined in Section
5(a) hereof) and included as a part of the Registration Statement,
including any prospectus filed with the SEC pursuant to Rule 424(a).
(b) Neither the SEC nor any state securities division has issued any order
preventing or suspending the use of any Preliminary Prospectus or issued a
stop order with respect to the offering of the Debentures, or requiring the
recirculation of a Preliminary Prospectus and no proceedings for that
purpose have been instituted or, to the Company's knowledge, threatened.
Each part of the Registration Statement, when such part became or becomes
effective, each Preliminary Prospectus, on the date of filing with the SEC,
and the Prospectus and any amendment or supplement thereto, on the date of
filing thereof with the SEC and on the Closing Date (as defined in Section
2 hereof), as the case may be, conformed or will conform in all material
respects with the requirements of the 1933 Act and the Rules and
Regulations and securities laws ("Blue Sky Laws") of the states where the
Debentures are to be sold (the "States:) and contained or will contain all
statements that are required to be stated therein in accordance with the
1933 Act, Rules and Regulations and Blue Sky Laws of the States. When the
Registration Statement became or becomes effective and when any post-
effective amendments thereto shall become effective, the Registration
Statement did not and will not contain any untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading. Neither any Preliminary
Prospectus, on the date of filing thereof with the SEC, nor the Prospectus
or any amendment or supplement thereto, on the date of filing thereof with
the SEC and on the Closing Date, contained or will contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this Subsection 1(b) shall apply to
statements in, or omissions from, the Registration Statement, Preliminary
Prospectus or the Prospectus, or any amendment thereof or supplement
thereto, which are based upon and conform to written information furnished
to the Company by the Underwriter, as identified in Section 12 herein,
specifically for use in the preparation of the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto. There is no contract or other document of the Company of a
character required by the 1933 Act or the Rules and Regulations to be
described in the Registration Statement or Prospectus, or to be filed as an
exhibit to the Registration Statement, that has not been described or filed
as required. The descriptions of all such contracts and documents or
references thereto are correct and include the information required under
the
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1933 Act and the Rules and Regulations. The conditions for use of a
Registration Statement on Form S-1 for the distribution of the Debentures
have been satisfied with respect to the Company. All descriptions in the
Registration Statement or Prospectus of statutes, regulations, legal or
governmental proceedings, the Indenture, the Debentures, or other contracts
or other documents are accurate in all material respects and fairly present
the information shown.
(c) KPMG Peat Marwick LLP, who have examined the consolidated financial
statements reported on by them and filed with the SEC as part of the
Registration Statement and the Prospectus, are independent public
accountants as required by the 1933 Act. The consolidated financial
statements of the Company and its Subsidiaries, including the related
notes, included in the Registration Statement and in the Prospectus (the
"Financial Statements") fairly present, on the basis stated therein, the
financial position, results of operations, cash flows and changes in
shareholders' equity of the Company and Paper Warehouse Franchising, Inc.
on a consolidated basis at the dates and for the periods to which they
relate. The Financial Statements have been prepared in accordance with
generally accepted accounting principles ("GAAP") consistently applied,
except as otherwise stated therein, throughout the periods involved and
comply in all material respects with the requirements of the 1933 Act. The
summaries of the Financial Statements and other financial, statistical and
related notes set forth in the Prospectus (i) fairly present the
information purported to be shown thereby as of the dates and for the
periods indicated on a basis consistent with the audited consolidated
financial statements of the Company and (ii) are in compliance in all
material respects with the requirements of the 1933 Act and the Rules and
Regulations. There are no other financial statements or schedules required
to be included in the Registration Statement or Prospectus that are not
included in the Registration Statement or Prospectus.
(d) Each of the Company and its Subsidiary, Paper Warehouse Franchising,
Inc. (the "Subsidiary" or "PWF"), are and at the Closing Date will be, duly
organized and validly existing and in good standing under the laws of their
respective states of incorporation with full power and authority (corporate
and other) to own, lease and operate their respective properties and
conduct their respective businesses as currently carried on and
contemplated and described in the Registration Statement and Prospectus and
no proceeding has been instituted in any such jurisdiction revoking,
limiting, curtailing or seeking to revoke, limit or curtail such
qualification. Each of the Company and its Subsidiaries are duly qualified
to do business as a foreign corporation in good standing in each
jurisdiction in which the character and location of their respective assets
or their respective business (existing or as contemplated by the
Prospectus) requires such qualification and which the failure to so qualify
would have a material adverse effect upon its business condition (financial
or otherwise), of the Company or PWF. No proceeding has been instituted in
any such jurisdiction revoking, limiting, curtailing or seeking to revoke,
limit or curtail such qualification.
(e) There has not been, and at the Closing Date shall not have been, any
change in the Company's Amended and Restated Articles of Incorporation and
Amended and Restated
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Bylaws from those in effect as of the date of this Agreement and filed as
exhibits or incorporated by reference to the Registration Statement. The
Company and PWF are not in violation of their respective Articles of
Incorporation, Bylaws or other governing instruments. The Company and PWF
are not in default (nor with the giving of notice or the passage of time or
both would be in default) in the performance of any obligation, agreement
or condition contained in any contract or any bond, debenture, note,
indentured loan agreement or other evidence of indebtedness or any loan
agreement, contract or joint venture agreement of the Company or PWF or
other instrument to which each is subject or by which any of their
respective property or assets are subject where such default could have a
material adverse effect on the condition (financial or otherwise),
business or properties of the Company or PWF. The Company and its
Subsidiaries are not in violation of any law, order, rule, regulation,
writ, injunction, or decree of any government, governmental instrumentality
or court, domestic or foreign, which violation is material to the business
of the Company or PWF.
(f) The Company and PWF possess all franchises, licenses, certificates,
permits, authorizations, approvals and orders of all state, federal and
other governmental regulatory officials and bodies necessary to own their
respective properties, conduct their respective business as described in
the Registration Statement and Prospectus, and perform this Agreement and
consummate the transactions contemplated hereby, or have obtained waivers
from any such applicable requirements from the appropriate state, federal
or other regulatory authorities, which will be delivered to the Underwriter
on the Closing Date. The Company and each of its Subsidiaries are
conducting their business in compliance with all material laws, rules and
regulations of the jurisdictions in which each is conducting business. All
such licenses, permits, approvals, certificates, consents, orders and other
authorizations are in full force and effect, and the Company and its
Subsidiaries have not received notice of any proceeding or action relating
to the revocation or modification of any such license, permit, approval,
certificate, consent, order or other authorization which, individually or
in the aggregate, if the subject of an unfavorable decision, ruling or
finding, might adversely affect the conduct of the business or the
condition, financial or otherwise, or the earnings, affairs or business
prospects of the Company and the Subsidiaries taken as a whole.
(g) Subsequent to the respective dates as of which information is given in
the Registration Statement and Prospectus, except as is described in the
Registration Statement and Prospectus through the date of this Agreement:
(i) the Company and PWF have not incurred, and will not have incurred, any
material liabilities or obligations, direct or contingent, or entered into
any transactions, in each case, other than in the ordinary course of
business; (ii) the Company and PWF have not and will not have paid or
declared any dividends or other distributions on their capital stock;
(iii) except in the ordinary course of business consistent with past
practice, there has not been and will not have been any material change in
the capital stock or outstanding debt, including any capitalized lease
obligation, of the Company or its Subsidiaries, or any issuance of options,
warrants, convertible securities other than may be issued pursuant to the
Company's 1997 Compensation Stock Option Plan and the Directors' Stock
Option Plan,
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or other rights to purchase the capital stock of the Company
or its Subsidiaries or any material adverse change or a development
involving a prospective material adverse change in or affecting the
condition (financial or otherwise), business, key personnel, properties,
assets, results of operations, or net worth of the Company and its
Subsidiaries taken as a whole; and (iv) the Company or its Subsidiaries has
not sustained any material loss or damage to their respective properties or
interference with their respective business, whether or not insured.
(h) There are no actions, suits, investigations or proceedings pending
before any court or governmental agency, authority or body, to which the
Company or its Subsidiary is a party or of which the business or property
of the Company or its Subsidiary is the subject which might: (i) result in
any material adverse change in the condition (financial or otherwise),
business or prospects of the Company; (ii) materially and adversely affect
its properties or assets; (iii) prevent consummation of the transactions
contemplated by this Agreement and Indenture; or (iv) adversely affect its
ability to repay the Debentures; and, to the best of the Company's
knowledge, no such actions, suits or proceedings are threatened. The
Company is not aware of any facts which would form the basis for the
assertion of any claim or liability which are not disclosed in the
Registration Statement or the Prospectus or adequately reserved for in the
Financial Statements which are a part thereof, except for such claims or
liabilities which are not currently expected to have a material adverse
effect on the condition (financial or otherwise) or the earnings, affairs
or business prospects of the Company or its Subsidiary. All pending legal
or governmental proceedings to which the Company or its Subsidiary is a
party or to which any of their respective property is subject, which are
not described in the Registration Statement and the Prospectus, including
ordinary routine litigation incidental to the business, are, considered in
the aggregate, not material to the Company or its Subsidiaries.
(i) The Company has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has
been duly and validly authorized, executed and delivered by the Company and
will constitute a valid, legal and binding agreement of the Company,
enforceable in accordance with its terms, if and when this Agreement shall
have become effective in accordance with Section 9 hereof, except as
enforcement of rights to indemnity in this Agreement may be limited by
federal or state securities laws. The performance of this Agreement and
the consummation of the transactions herein contemplated will not result in
a breach or violation of any of the terms and provisions of, or constitute
a default (or with the giving of notice or the passage of time or both
would so constitute a breach or default) or result in the creation or
imposition of any lien, charge or encumbrance upon any property or assets
of the Company or any Subsidiary pursuant to (i) any indenture, mortgage,
deed of trust, loan agreement, bond, debenture, note agreement or other
evidence of indebtedness; lease, contract or other agreement or instrument
to which the Company or any Subsidiary is a party or by which the property
or assets of the Company or any Subsidiary is bound, (ii) the Company's or
its Subsidiary's Articles of Incorporation or Bylaws or other
organizational documents or (iii) any statute or any order, rule or
regulation of any court, governmental agency or body having jurisdiction
over the Company or any Subsidiary.
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No consent, approval, authorization, order, registration, filing,
qualification, license, or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the
Company or its Subsidiaries or their properties or assets, is required
for the execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the
issuance, sale and delivery of the Debentures, except as may be required
under the 1933 Act, the Rules and Regulations, the Blue Sky Laws of the
States, the rules and regulations of Nasdaq and the rules and
regulations of the National Association of Securities Dealers, Inc.
("NASD") in connection with the offer and sale of the Debentures by the
Underwriter.
(j) The Company has full power and authority to execute and deliver the
Indenture and Underwriter's Warrants, as defined herein, and to perform its
obligations thereunder. The Indenture and the Underwriter's Warrants have
been duly and validly authorized and when executed and delivered by the
Company on the Closing Date, will each constitute valid, legal and binding
agreements of the Company enforceable in accordance with their terms. The
Company's performance of Indenture and the Underwriter's Warrants and the
consummation of the transactions therein contemplated by such agreements
will not result in a breach or violation of any of the terms and provisions
of, or constitute a default (or with the giving of notice or the passage of
time or both would so constitute a breach or default) or result in the
creation or imposition of any lien, charge or encumbrance upon any property
or assets of the Company or its Subsidiary pursuant to (i) any indenture,
mortgage, deed of trust, loan agreement, bond, debenture, note agreement or
other evidence of indebtedness; lease, contract or other agreement or
instrument to which the Company or any Subsidiary is a party or by which
the property or assets of the Company or any Subsidiary is bound, (ii) the
Company's or any Subsidiary's Articles of Incorporation or Bylaws or other
organizational documents or (iii) any statute or any order, rule or
regulation of any court, governmental agency or body having jurisdiction
over the Company or any Subsidiary. No consent, approval, authorization,
order, registration, filing, qualification, license, or permit of or with
any court or any public, governmental or regulatory agency or body having
jurisdiction over the Company or any Subsidiary or their properties or
assets, is required for the execution, delivery and performance of the
Indenture and Underwriter's Warrants or the consummation of the
transactions contemplated thereby. The Indenture and Underwriter's
Warrants are in the form filed as an exhibit to the Registration Statement.
(k) The Company has full power and authority to execute and deliver the
Debentures and to perform its obligations thereunder. The Debentures have
been duly and validly authorized and, when authenticated by the Trustee and
issued, delivered and sold in accordance with this Agreement and the
Indenture, will have been duly and validly executed, authenticated, issued
and delivered and will constitute valid and legally binding obligations of
the Company entitled to the benefits provided by the Indenture and
enforceable against the Company in accordance with their terms.
(l) The Company has, as of the dates set forth in the Prospectus, the duly
authorized and outstanding capitalization set forth in the Prospectus.
There are no other classes of
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stock authorized or outstanding except as described in the Prospectus,
and the outstanding consolidated indebtedness of the Company is as set
forth, as of the dates set forth therein, in the Prospectus and has been
duly authorized by the Company. The outstanding Common Stock of the
Company is duly authorized and validly issued, fully paid, and
nonassessable. All statements relating to the Debentures contained in
the Registration Statement and Prospectus conform in all material
respects to the terms of the Debentures. The shares of Common Stock
issuable upon conversion of the Debentures ("Conversion Shares") and
shares of Common Stock issuable upon exercise of the Underwriter's
Warrants ("UW Warrant Shares") have been duly authorized and when
issued, delivered and paid for pursuant to the terms of the Indenture
and Underwriter's Warrants, respectively, will be validly issued, fully
paid, and nonassessable and will conform to the description of the
Company's Common Stock contained in the Prospectus. A sufficient number
of shares of the Common Stock have been reserved for issuance upon
conversion of the Debentures and exercise of the Underwriter's Warrants.
No preemptive rights or similar rights of any security holders of the
Company exist with respect to the issuance and sale of the Debentures by
the Company or conversion of the Debentures or exercise of the
Underwriter's Warrants. The Company has no agreement with any security
holder which gives such security holder the right to require the Company
to register under the 1933 Act any securities of any nature owned or
held by such person either in connection with the transactions
contemplated by this Agreement or after a demand for registration by
such holder. Upon payment for and delivery of the Debentures pursuant
to this Agreement, the Underwriter will acquire good and marketable
title to the Debentures free and clear of all liens, encumbrances, or
claims. The certificates evidencing the Debentures and Common Stock
comply as to form with all applicable provisions of federal law and the
laws of the State of Minnesota. Except as set forth in any part of the
Registration Statement, the Company and its Subsidiaries do not have any
outstanding options to purchase or any rights or warrants to subscribe
for, or any securities or obligations convertible into, or any contract
or commitments to issue or sell, any Common Stock or other securities of
the Company.
(m) The Company and its Subsidiaries have good and marketable title (in
fee simple as to real property) to all real and personal properties and
assets described in the Prospectus as being owned by them, free and clear
of all security interests, liens, charges, encumbrances, restrictions or
defects except such as are otherwise reflected in the financial statements
included in the Prospectus or described or referred to in the Prospectus or
as such do not materially affect the value of such property and do not
materially interfere with the use made of such property by the Company or
its Subsidiary. The Company and its Subsidiary hold valid and enforceable
leases for the properties (real and personal) described in the Prospectus
as leased by them; the Company and its Subsidiary are not in default (or
with the giving of notice or the passage of time or both would be in
default) in respect to any of such leases, and to the best knowledge of the
Company, no claim of any sort has been asserted by anyone adverse to the
rights of the Company and its Subsidiaries as lessee under any such lease
or questioning its right to continued use and possession of any of the
leased properties under any such lease.
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(n) Except as disclosed in the Prospectus, the Company owns or possesses
rights to use all patents, copyrights, trademarks and proprietary rights
and other similar rights necessary for the conduct of its present or
intended business as described in the Prospectus, and, except as disclosed
in the Prospectus, the Company has not received any notice of conflict with
asserted rights of others and the Company has no reason to believe that the
conduct of its business will conflict with any such rights of others.
There are no pending legal, governmental or administrative proceedings
relating to patents, copyrights, trademarks or proprietary rights or
information, to which the Company is a party or of which any property of
the Company is subject and no such proceedings are, to the best of the
Company's knowledge, threatened or contemplated against the Company by any
governmental agency or authority or others.
(i) To the best knowledge of the Company, the Company does
not infringe upon the right or claimed right of any person under
or with respect to any of the intangible rights listed above.
Except as disclosed in the Prospectus, the Company is not
obligated or under any liability whatsoever to make any payments
by way of royalties, fees or otherwise to any owner of, licensor
of, or other claimant to, any patent, trademark, trade name,
copyright or other intangible asset, with respect to the use
thereof or in connection with the conduct of its business or
otherwise.
(ii) The Company owns and has the unrestricted right to use
all trade secrets, including know-how, customer lists,
inventions, designs, processes, computer programs and technical
data necessary to the development, manufacture, operation and
sale of all products and services sold or processed to be sold by
it, free and clear of any rights, liens and claims of others.
The Company is not using any confidential information or trade
secrets of any former employer of any of its past or present
employees.
(o) The Company has filed all necessary federal, state, local and foreign
income, franchise and other tax returns required to be filed through the
date of this Agreement and has paid all taxes shown as due thereon. All
tax liabilities are adequately provided for on the books of the Company and
there is no tax proceeding or action pending or, to the best knowledge of
the Company, threatened against the Company.
(p) The Company has not distributed and will not distribute any prospectus
or any other offering material in connection with the offering and sale of
the Debentures other than the Preliminary Prospectus or the Prospectus or
other materials permitted by the 1933 Act and Rules and Regulations to be
distributed by the Company and consented to by the Underwriter.
(q) The Company owns no capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, limited liability
company, association, trust or other entity and is not affiliated (as that
term is defined under the 0000 Xxx) with any
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other company or business entity except as explicitly stated in the
Prospectus. Except as described in the Prospectus, the Company is not
owned or controlled, directly or indirectly, by any corporation,
association or other entity.
(r) The Company maintains a system of internal accounting controls
sufficient to provide that:
(i) transactions are executed in accordance with management's
general or specific authorization;
(ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
(s) The Company maintains insurance, which is in full force and effect, of
the types and in amounts which are adequate for its business and as is
customary with insurance maintained by similar companies and businesses.
(t) No labor disturbance by the employees of the Company exists or, to the
best of the Company's knowledge, is imminent which could reasonably be
expected to have a material adverse effect on the conduct of the business,
operations, financial condition, or income of the Company.
(u) Neither the Company nor any Subsidiary is an "investment company" as
defined in the Investment Company Act of 1940, as amended and will not
become an "investment company" upon the sale of the Debentures.
(v) Neither the Company nor any employee or agent of the Company has made
any payment of funds of the Company or received or retained funds in
violation of any law, rule or regulation.
(w) The Company has not engaged any "finder" with respect to the
transactions contemplated by this Agreement and there is no outstanding
claim for services in the nature of a "finder's fee" with respect to such
financing; and the Company agrees to indemnify and hold the Underwriter
harmless from and against any claims, losses, judgments or expenses
resulting from any finder's fees payable in connection herewith.
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(x) There are no outstanding loans or advances or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of
them except as are described in the Prospectus.
(y) The Company, after giving effect to the execution, delivery and
performance of this Agreement, the Indenture, and the Debentures and the
consummation of the transactions contemplated hereby and thereby will not
be:
(i) insolvent;
(ii) left with unreasonably small capital with which to engage
in its business; or
(iii) incurring debts beyond its ability to pay such debts as
they mature.
(z) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in or which has constituted or which
constitute the stabilization or manipulation, as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act") or otherwise, of the
price of any outstanding securities of the Company to facilitate the sale
or resale of the Debentures.
(aa) The Company has timely filed all documents and amendments to
previously filed documents required to be filed by it pursuant to the 1934
Act and the Rules and Regulations. Each such document conformed in all
material respects with the requirements of the 1934 Act and contained all
information required to be stated therein in accordance with the 1934 Act.
No part of any such document contained any 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. True copies of
each of the documents incorporated by reference, if any, into each
Preliminary Prospectus and the Prospectus have been delivered by the
Company to the Underwriter. To the best of the Company's knowledge, the
executive officers and directors of the Company and stockholders who hold
more than 5% of the Company's outstanding Common Stock, have made, and are
current with, all filings, if any, that are required under the 1934 Act.
(bb) On the Closing Date, all transfer or other taxes, if any (other than
income taxes), which are required to be paid in connection with the sale or
transfer of the Debentures will have been fully paid or provided for by the
Company and all laws imposing such taxes will have been fully complied
with.
(cc) Each acceptance by the Company of an offer for the purchase of the
Debentures and each issuance of Debentures shall be deemed an affirmation
of the Company that the representations and warranties contained herein are
true and correct at the time of such acceptance of such issuance, in each
case as though expressly made at that time. Any certificate signed by any
officer of the Company and delivered to the Underwriter or to
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counsel for the Underwriter shall be deemed a representation and warranty
by the Company to the Underwriter as to matters covered thereby.
(dd) The Company has no defined benefit pension plan or other pension plan,
except for its 401(k) Plan which has been funded; which is intended to
comply with the provisions of the Employee Retirement Income Securities Act
of 1974, as amended, except as disclosed in the Registration Statement.
(ee) The Company has sold no securities in violation of Section 5(a) of the
1933 Act.
(ff) Neither the Company, nor any affiliate thereof, does business with the
government of Cuba or with any person or affiliate located in Cuba.
(gg) All material transactions between the Company and its stockholders who
beneficially own more than 5% of any class of the Company's voting
securities have been accurately disclosed in the Prospectus, and the terms
of each such transaction are fair to the Company and on terms no less
favorable to the Company than the terms that could have been obtained from
unrelated parties.
(hh) No holders of the Company's securities who have demand or
participatory registration rights, have any right to include any of the
Company's securities in the Registration Statement nor is the Company
obligated to include any of its securities, other than the securities
described in this Agreement, in the Registration Statement.
(ii) The Company has not offered or sold any franchises or entered into any
franchise or similar agreements in violation of applicable federal, state
or local laws or regulations governing franchises or similar business
arrangements. All registrations or filings required to be made by the
Company in connection with the offer and sale of franchises or the
establishment or maintenance of franchise agreements or similar
arrangements have been made and remain in full force and effect. The
Company is not in breach of any franchise or similar agreement.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties, and agreements herein
contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, the Debentures at a purchase price
equal to 93% of the per Debenture price offered to the public (as set forth
in the Prospectus at $1,000 per Debenture). The Underwriter will purchase
all of the Debentures if any are purchased.
(b) The Company will deliver the Debentures to the Underwriter at the
offices of Xxxxxxxxxx & Xxxxx, P.A. unless some other place is agreed upon,
at 10:00 A.M., Minneapolis time, against payment of the purchase price at
the same place, on the third full business day after the Effective Date, or
such earlier time as may be agreed upon
11
between the Underwriter and the Company, such time and place being herein
referred to as the "Closing Date."
(c) Certificates for the Debentures to be delivered will be registered in
such names and issued in such denominations as the Underwriter shall
request of the Company at least three full business days prior to the
Closing Date. The certificates will be made available to the Underwriter
in definitive form for the purpose of inspection and packaging at least 24
hours prior to the Closing Date.
(d) Payment for the Debentures shall be made by wire transfer to a
designated account of the Company, certified or official bank check or
checks in Clearing House funds, payable to the order of the Company.
(e) The Underwriter will make a public offering of the Debentures directly
to the public (which may include selected dealers who are members in good
standing with the NASD or foreign dealers not eligible for membership in
the NASD but who have agreed to abide by the interpretation of the NASD's
Board of Governors with respect to free-riding and withholding) as soon as
the Underwriter deems practicable after the Registration Statement becomes
effective at the initial public price set forth on the cover page of the
Prospectus, subject to the terms and conditions of this Agreement and in
accordance with the Prospectus. Such concessions from the public offering
price may be allowed selected dealers of the NASD as the Underwriter
determines, and the Underwriter will furnish the Company with such
information about the distribution arrangements as may be necessary for
inclusion in the Registration Statement. It is understood that the public
offering price and concessions may vary after the initial public offering
of the Debentures. The Underwriter shall offer and sell the Debentures
only in jurisdictions in which the offering of Debentures has been duly
registered or qualified, or is exempt from registration or qualification,
and shall take reasonable measures to effect compliance with applicable
state and local securities laws.
3. UNDERWRITER'S WARRANTS. On the Closing Date, the Company shall sell
to you for $50 the Underwriter's Warrants, which shall first become exercisable
one year after the Effective Date and shall remain exercisable for a period of
four years thereafter. The Underwriter's Warrants shall be subject to certain
transfer restrictions and shall be in substantially the form filed as an exhibit
to the Registration Statement and attached as Appendix A hereto.
4. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees
with the Underwriter as follows:
(a) If the Registration Statement has not become effective prior to the
date hereof, the Company will use its best efforts to cause the
Registration Statement and any subsequent amendments thereto to become
effective as promptly as possible. The Company will notify the Underwriter
promptly, after the Company shall receive notice thereof, of the time when
the Registration Statement, or any subsequent amendment thereto, has become
effective or any supplement to the Prospectus has been filed. Following
the execution and delivery of
12
this Agreement, the Company will prepare, and timely file or transmit
for filing with the SEC in accordance with Rules 430A, 424(b) and 434,
as applicable, copies of the Prospectus, or, if necessary, a
post-effective amendment to the Registration Statement (including the
Prospectus), in which event, the Company will take all necessary action
to have such post-effective amendment declared effective as soon as
possible. The Company will notify the Underwriter promptly upon the
Company's obtaining knowledge of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or of
the initiation or threat of any proceedings for that purpose and will
use its best efforts to prevent the issuance of any stop order and, if a
stop order is issued, to obtain as soon as possible the withdrawal or
lifting thereof. The Company will promptly prepare and file at its own
expense with the SEC any amendments of, or supplements to, the
Registration Statement or the Prospectus which may be necessary in
connection with the distribution of the Debentures by the Underwriter.
During the period when a Prospectus relating to the Debentures is
required to be delivered under the 1933 Act, the Company will promptly
file any amendments of, or supplements to, the Registration Statement or
the Prospectus which may be necessary to correct any untrue statement of
a material fact or any omission to state any material fact necessary to
make the statements therein, in light of the circumstances under which
they were made, not misleading. The Company will notify the Underwriter
promptly of the receipt of any comments from the SEC regarding the
Registration Statement or Prospectus or request by the SEC for any
amendment thereof or supplement thereto or for any additional
information. The Company will not file any amendment of, or supplement
to, the Registration Statement or Prospectus, whether prior to or after
the Effective Date, which shall not previously have been submitted to
the Underwriter and its counsel a reasonable time prior to the proposed
filing or to which the Underwriter shall have reasonably objected.
(b) The Company has used and will continue to use its best efforts to
register or qualify the Debentures for sale under the securities laws of
such jurisdictions as the Underwriter may designate and the Company will
file such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification. In each
jurisdiction in which the Debentures shall have been registered or
qualified as above provided, the Company will continue such registrations
or qualifications in effect for so long as may be required for purposes of
the distribution of the Debentures, provided, however, that in no event
shall the Company be obligated to qualify to do business as a foreign
corporation in any jurisdiction in which it is not now so qualified or to
take any action which would subject it to the service of process in suits,
other than those arising out of the offering or sale of the Debentures in
any jurisdiction where it is not now so subject. In each jurisdiction
where any of the Debentures shall have been so qualified, the Company will
file such statements and reports as are or may be reasonably required by
the laws of such jurisdiction to continue such qualification in effect for
so long as the Debentures are outstanding. The Company will notify the
Underwriter immediately of, and confirm in writing, the suspension of
qualification of the Debentures or the threat of such action in any
jurisdiction. The Company will use its best efforts to qualify or register
its Common Stock and Debentures for sale in nonissuer transactions under
(or obtain exemptions from the application of) the securities laws of such
states designated by the Underwriter (and thereby
13
permit market-making transactions and secondary trading in its Common
Stock and Debentures in such states), and will comply with such
securities laws and will continue such qualifications, registrations and
exemptions in effect for so long as the Debentures are outstanding.
(c) The Company will furnish to the Underwriter, as soon as available,
copies of the Registration Statement (one of which will be signed and which
shall include all exhibits), the Preliminary Prospectus, the Prospectus and
any amendments or supplements to such documents, including any prospectus
prepared to permit compliance with Section 10(a)(3) of the 1933 Act, all in
such quantities as the Underwriter may from time to time reasonably request
prior to the printing of each such document. The Company specifically
authorizes the Underwriter and all dealers to whom any of the Debentures
may be sold by the Underwriter to use and distribute copies of such
Preliminary Prospectuses and Prospectuses in connection with the offer and
sale of the Debentures as and to the extent permitted by the federal and
applicable state and local securities laws.
(d) As soon as practicable (but in no event later than 90 days after the
close of the period covered thereby) the Company will make generally
available to its security holders, including Debenture holders, and furnish
to you, an earnings statement of the Company covering the period of 12
months beginning not later than the first day of the next fiscal quarter
following the Effective Date of the Registration Statement which will
satisfy the requirements of Section 11(a) or Rule 158 of the 1933 Act and
which need not be certified or audited by independent public accountants.
(e) For as long as the Company has more than 100 beneficial owners, but in
no event more than six years after the Effective Date, the Company will
furnish to the Underwriter, without need of request, concurrently with
furnishing such reports to its stockholders, the following reports: (i) as
soon as they are available, copies of all other reports (financial or
otherwise) mailed to security holders; and (ii) as soon as they are
available, copies of all reports and financial statements furnished to, or
filed with, the SEC, the NASD, any securities exchange or any state
securities commission by the Company. During such period, the foregoing
financial statements shall be on a consolidated basis to the extent that
the accounts of the Company and any Subsidiary or Subsidiaries are
consolidated and shall be accompanied by similar financial statements for
any significant subsidiary which is not so consolidated.
(f) For a period of at least six years after the Effective Date, the
Company will continue to file with the SEC all reports and other documents
as may be required by the 1933 Act, the Rules and Regulations and the 0000
Xxx.
(g) Prior to or as of the Closing Date, the Company shall have performed
each condition to closing required to be performed by it pursuant to
Section 5 hereof, unless waived by the Underwriter in writing.
14
(h) Other than as permitted by the 1933 Act and the Rules and Regulations,
the Company will not distribute any Prospectus or other offering material
in connection with the Offering.
(i) The Company will promptly comply with all filing requirements pursuant
to Item 701 of Regulation SK of the 1933 Act.
(j) The Company will cause all holders of its securities who have any
demand or participatory registration rights to waive any demand or
participatory registration rights which they may have in connection with
the offer and sale of the Debentures, in connection with any other offer or
sale of other securities of the Company, or as a result of "demand"
registration rights for a period of one year from the date of this
Agreement.
(k) For as long as the Debentures are outstanding, the Company will cause
its Subsidiaries to maintain all mutual licenses, permits, and approvals
described in the Prospectus as being held by the Company and its
Subsidiary.
(l) The Company will apply the net proceeds from the sale of the
Debentures substantially in accordance with the manner set forth under the
caption "Use of Proceeds" in the Prospectus.
(m) The Company agrees that from the date of its execution of this
Agreement to the Closing Date, it will issue press releases, make public
statements and respond to inquiries of the press and securities analysts in
connection with this Offering only (i) in accordance with its obligations
under the 1934 Act after conferring with its counsel and (ii) after
conferring with its counsel and with the consent of the Underwriter.
(n) The Company will not claim the benefit of any usury laws against any
holders of the Debentures.
(o) The Company will provide the Underwriter with copies of certificates
and supporting documentation furnished to the Trustee pursuant to the
Indenture or otherwise.
(p) The Company will continue to appoint its current auditors or any
replacement firm of auditors acceptable to the Underwriter to audit its
financial statements.
(q) The Company agrees that the necessary legal work for drafting and
preparing the Indenture and for registration, qualification or perfection
of exemptions of the Debentures for sale under the Blue Sky Laws of such
States as the Underwriter may designate shall be performed by counsel for
the Underwriter. All Blue Sky filing fees and fees and expenses of
Underwriter's counsel shall be payable by the Company, and fees and
expenses of Underwriter's counsel incurred in connection with the
preparation of the Indenture shall be payable by the Company regardless of
whether any closing shall occur and shall be in addition to the
Underwriter's fees, expenses and commission described in this Agreement.
15
(r) The Company will pay, in addition to the Blue Sky and Indenture fees
described in the paragraph (q) of this Section, all costs and expenses
related to the performance of its obligations under this Agreement
including, but not limited to: (i) all expenses incident to the issuance
and delivery of the Debenture, including taxes, if any; (ii) all expenses
incident to the preparation, filing and delivery of the Registration
Statement, each Preliminary Prospectus, the Prospectus, and any amendments,
supplements or submissions related thereto (including exhibits); (iii) all
expenses incident to the filing, delivery and qualification of the
Indenture and any amendments, supplements or submissions related thereto
(including fees and disbursements of Underwriters' counsel, who has the
responsibility for such preparation); (iv) all NASD fees incurred by the
Underwriter in connection with the review of your compensation by the NASD;
(v) the cost of preparing and printing as many amendments to the
Registration Statement as may be necessary; (vi) the cost of all
certificates representing the Debentures; (vii) the fees and expenses of
the Trustee and paying agent under the Indenture; (viii) the cost of
printing and distributing all documents related to the offering of the
Debentures; (ix) the fees and expenses of the Company's independent
accounts, including the cost of "cold comfort" review; (x) the fees and
expenses of legal counsel for the Company; (xi) the cost of furnishing and
delivering to the Underwriter and dealers participating in the distribution
of the Debentures copies of the Registration Statement (including
Exhibits), Preliminary Prospectuses, the Prospectuses and any amendments
of, or supplements to, any of the foregoing; (xii) the nonaccountable
expense allowance of the Underwriter in an amount equal to 2.5% of the
aggregate principal amount of the Debenture sold by the Company, less the
$25,000 deposit paid by the Company to the Underwriter on May 13, 1999,
provided, however, if this transaction is abandoned for any reason, the
Company will reimburse the Underwriter only for its actual out-of-pocket
accountable expenses in an amount not to exceed $50,000.
(s) The Company will not take, and will use its best efforts to cause each
of its officers and directors not to take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or result
in the manipulation of the price of any security of the Company to
facilitate the sale or resale of the Debentures.
(t) The Company will use its best efforts to maintain the listing of its
Common Stock on The Nasdaq National Market.
5. CONDITIONS OF THE UNDERWRITER OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Debentures as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, as
of the date hereof and the Closing Date, to the performance by the Company of
its obligations hereunder, and to the satisfaction of the following additional
conditions on or before the Closing Date:
(a) The Registration Statement shall have become effective not later than
5:00 P.M. Minneapolis time, on the first full business day following the
date of this Agreement, or such later date as shall be consented to in
writing by the Underwriter (the "Effective Date").
16
If the Company has elected to rely upon Rule 430A, the information
concerning the price of the Debentures and price-related information
previously omitted from the effective Registration Statement pursuant to
Rule 430A shall have been transmitted to the SEC for filing pursuant to
Rule 424(b) within the prescribed time period, and prior to the Closing
Date the Company shall have provided evidence satisfactory to the
Underwriter of such timely filing (or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the 1933 Act and the Rules and
Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or, to the knowledge of the Company or the Underwriter,
threatened by the SEC or any state securities commission or similar
regulatory body. Any request of the SEC for additional information (to
be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter and its legal counsel. The NASD, upon review of the terms
of the Offering, shall not have objected to the terms of the
Underwriters' participation in the Offering.
(b) The Underwriter shall not have been advised that the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto,
contains any untrue statement of a material fact which omits to state a
material fact and which is required to be stated therein or is necessary to
make the statements contained therein, in light of the circumstances under
which they were made, not misleading.
(c) Subsequent to the date as of which information is given in the
Registration Statement and Prospectus, there shall not have occurred any
change, or any development involving a prospective change, which materially
and adversely affects the business or properties of the Company and which,
in the reasonable opinion of the Underwriter, materially and adversely
affects the market for the Debentures.
(d) The Underwriter and Underwriter's counsel shall have been furnished
with such documents and information as the Underwriter or they may have
requested.
(e) The Underwriter shall have received the opinion of Xxxxxxxxxxx Xxxxx &
Xxxxxxxx LLP, counsel for the Company, dated as of the Closing Date and
satisfactory in form and substance to the Underwriter and its counsel, to
the effect that:
(i) The Company and its Subsidiaries have been duly organized
and are validly existing in good standing under the laws of their
respective states of organization with the requisite corporate
power and authority to own or lease properties and conduct their
respective businesses as described in the Prospectus. The
Company and its Subsidiaries are duly qualified to do business as
a foreign corporation in good standing in all jurisdictions where
the ownership or leasing of their properties or the conduct of
their respective businesses requires such qualification, except
where the failure to so qualify would not have a material adverse
effect on the Company and its Subsidiaries taken as a whole.
17
(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. 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 best 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 number of authorized and the number of issued and
outstanding shares of capital stock of the Company are as set
forth in the Prospectus, excluding the issuance of Capital Stock
upon the conversion of the Debentures, or the exercise of the
Underwriter's Warrant, and all such issued and outstanding
capital stock has been duly authorized and is validly issued,
fully paid, and nonassessable. The Company has all requisite
power and authority to issue and sell the Debentures in
accordance with and upon the terms and conditions set forth in
this Agreement, and all action required to be taken by the
Company for the due and proper authorization, issuance, sale and
delivery of the Debentures has been validly and sufficiently
taken. The Debentures to be issued and sold, upon issuance and
delivery of and payment for the Debentures hereunder will be duly
authorized, validly issued and fully paid. The Company's Amended
and Restated Articles of Incorporation, as amended and Amended
and Restated Bylaws contain no preemptive rights. To the best
knowledge of such counsel, no preemptive rights, contractual or
otherwise, of securities holders of the Company exist with
respect to the issuance or sale of the Debentures by the Company
pursuant to this Agreement or the issuance of the Conversion
Shares upon conversion of the Debentures to shares of the
Company's Common Stock and there are no rights to require
registration of shares of Common Stock or other securities of the
Company which may be exercised in connection with the filing of
the Registration Statement. The Debentures, Underwriter's
Warrants and Common Stock conform as to matters of law in all
material respects to the description of these securities made in
the Prospectus, and such description accurately sets forth the
material legal provisions thereof required to be set forth in the
Prospectus.
(iv) The Common Stock to be issued upon conversion of the
Debentures has been duly authorized and when converted pursuant
to the terms of the Indenture will be validly issued, fully paid
and nonassessable.
18
A sufficient number of shares of Common Stock of the Company have
been reserved for issuance upon conversion of the Debentures.
(v) The certificates evidencing the Debentures and Common
Stock comply as to form with the applicable provisions of the
laws of the State of Minnesota.
(vi) The Underwriter's Warrants have been duly authorized,
executed and delivered by the Company and are the valid and
binding obligations of the Company, enforceable in accordance
with their terms, except as enforcement of rights to indemnity
and contribution in this Agreement may be limited by federal or
state securities laws or principals of public policy and subject
to the qualification that the enforceability of the Company's
obligations hereunder and thereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors'
rights generally, and by general equitable principals when
applied by a court of law or equity. The Common Stock when
issued and paid for in accordance with the terms of the
Underwriter's Warrants will be validly issued, fully paid and
nonassessable. A sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Underwriter's
Warrants.
(vii) The Registration Statement has become and is effective
under the 1933 Act, the Prospectus has been filed as required by
Rule 424(b), if necessary, and to the best knowledge of such
counsel, no stop orders suspending the effectiveness of the
Registration Statement have been issued and no proceedings for
that purpose have been instituted or are pending or contemplated
under the Act.
(viii) The Registration Statement, the Prospectus and each
amendment or supplement thereto comply as to form in all material
respects with the requirements of the 1933 Act and the Rules and
Regulations (except that such counsel need express no opinion as
to the financial statements and related schedules included
therein).
(ix) 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.
19
(x) To the best knowledge of such counsel, there are no legal
or governmental proceedings pending, or threatened, before any
court or administrative body or regulatory agency, to which the
Company or its Subsidiaries is a party or to which any of the
properties of the Company or its Subsidiaries are subject, that
are required to be disclosed in the Registration Statement or
Prospectus that are not so described, nor to the knowledge of
such counsel legal or governmental proceedings pending or
threatened, that are required to be described in the Registration
Statement or Prospectus that are not so described.
(xi) No consent, approval, authorization, order or other
action of any court or governmental agency or body is required
for the execution and delivery of this Agreement and issuance and
sale of the Debentures as contemplated herein, except for the
order of the SEC making the Registration Statement effective and
similar authorizations required under the Blue Sky laws (as to
which such counsel need express no opinion) of any jurisdiction
in connection with the purchase and distribution of the
Debentures by the Underwriter and such other approvals (specified
in such opinion) as have been obtained.
(xii) The Company has full legal right, power and authority to
enter into this Agreement. This Agreement has been duly
authorized, executed and delivered by, and is a valid and binding
agreement of the Company, enforceable in accordance with its
terms, except as enforcement of rights to indemnity and
contribution in this Agreement may be limited by federal or state
securities laws or principals of public policy and subject to the
qualification that the enforceability of the Company's
obligations hereunder and thereunder may be limited by
bankruptcy, fraudulent conveyance, insolvency, reorganization,
moratorium and other laws relating to or affecting creditors'
rights generally, and by general equitable principals when
applied by a court of law or equity.
(xiii) The Indenture has been duly and validly authorized,
executed and delivered by the Company, is exempt from
qualification under the Trust Indenture Act, is in the form filed
as an exhibit to the Registration Statement and constitutes a
valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms, except as
enforcement of rights to indemnity and contribution in this
Agreement may be limited by federal or state securities laws or
principals of public policy and subject to the qualification that
the enforceability of the Company's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to
or affecting creditors' rights
20
generally, and by general equitable principals when applied by a
court of law or equity.
(xiv) The execution or delivery of this Agreement, Indenture
and Underwriters' Warrant and the consummation of the
transactions described herein and therein will not result in a
violation of or default under, the Company's Amended and Restated
Articles of Incorporation, as amended, Amended and Restated
Bylaws or other governing documents, or violate any law, order,
rule, regulation, writ, franchise, injunction, or decree of any
government, governmental agency or court having jurisdiction over
the Company or its Subsidiaries or any of their properties, and,
to such counsel's knowledge, the Company is not, nor with the
giving of notice or lapse of time or both would be, in violation
of or default under, nor will the execution and delivery of this
Agreement, Indenture, and Underwriters' Warrant and the
consummation of the transactions described therein result in a
violation of or default under the terms or provisions of any
bond, debenture, note, or other evidence of indebtedness or any
contract, license, indenture, mortgage, loan agreement, joint
venture or partnership agreement, lease, agreement or instrument
to which the Company or its Subsidiaries are a party or by which
the Company or its Subsidiaries or any of their properties are
bound which are described in the Prospectus or attached to the
Registration Statement as an Exhibit.
(xv) The Debentures conform to the description thereof
contained under the heading "Description of Debentures" in the
Prospectus.
(xvi) The statements (i) in the Prospectus under the captions
"Government Regulation, Properties, -- Legal Proceedings,"
Management -- Employment Agreements, -- Stock Option Plans, --
"Director Compensation -- Employee Stock Purchase Plan," "Certain
Transactions," "Description of Debentures," "Certain Federal
Income Tax Considerations," "Description of Capital Stock,"
"Share Eligible for Future Sale," and (ii) in the Registration
Statement in Item 14 insofar as such statements constitute a
summary of statutes, legal and governmental proceedings,
contracts and other documents, are accurate summaries in all
material respects and fairly present the information called for
with respect to such matters.
(xvii) The Company holds, and is operating in compliance in all
material respects with, all 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 grants, authorizations, licenses,
permits, easements, consents, certifications and orders are valid
and in full force and effect.
21
(xviii) 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
(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 (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, either the Registration Statement or the
Prospectus or any further amendment or supplement thereto made by
the Company prior to the Closing Date (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 such counsel does not
know of any amendment to the Registration Statement required to
be filed.
(f) The Underwriter shall receive the opinion of Xxxx Plant Xxxxx Xxxxx &
Xxxxxxx, P.A., special franchise counsel for the Company, dated as of the
Closing Date and satisfactory in form and substance to the Underwriter and
its counsel, to the effect that:
(i) Each of the franchise agreements and development
agreements entered into by the Company or its subsidiary 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 subsidiary.
(ii) The Company's uniform franchise offering circulars, dated
April ____, 1998 and April ____, 1999, 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.
22
(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 -- Our Failure to Execute Our Franchise Program May
Reduce Our Profitability," "Business -- Franchising," 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.
In the addition to the matters set forth above, such opinion shall also
include a statement to the effect that, although such counsel cannot guarantee
the accuracy, completeness or fairness of any of the statements contained in the
Registration Statement or Prospectus as they relate to the Company's franchise
operations, in connection with such counsel's representation of the Company in
the preparation of the disclosures in the Registration Statement relating to the
Company's franchise operations, nothing has come to the attention of such
counsel which causes them to believe that the disclosures regarding the
Company's franchise operations contained in the Registration Statement or
Prospectus (except as to the financial and statistical information, as to which
no opinion need be expressed) 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 in which they were made,
not misleading.
(g) In addition, as of the Closing Date, the Company shall have delivered
to the Underwriter an opinion, satisfactory to the Underwriter, of Merchant
Xxxxx, P.A., special intellectual property counsel for the Company, dated
as of the Closing Date, and satisfactory in form and substance to the
Underwriter and its counsel, to the effect that:
(i) To the best of such counsel's knowledge, and except as
stated below, there are no legal, governmental or administrative
proceedings pending or threatened against the Company that relate
to trademarks, service marks, trade name, trade dress or other
intellectual property.
23
(ii) To the best of such counsel's knowledge, the Company has
not received any notice of conflict with the asserted rights of
others in respect of any trademarks, services marks, trade names,
trademark registrations, service xxxx registrations, copyrights,
licenses, inventions, trade secrets, patents, patent
applications, know-how, or similar rights, nor of any threatened
actions with respect thereto, which, if determined adversely to
the Company, would individually or in the aggregate have a
material adverse effect on the general affairs, financial
position, net worth or results of operations of the Company.
(iii) To the best of such counsel's knowledge, the Company
owns, possesses or is licensed under all such material
trademarks, trademark applications, trademark registrations,
service marks, service xxxx registrations, copyrights, patents,
patent applications and licenses as are described in the
Prospectus and which are necessary for the Company's present or
planned future business as described in the Prospectus.
(iv) The description of the Company's and its Subsidiary's
intellectual property rights set forth in the Prospectus under
the caption "Business -- Trademarks and Service Marks" fairly and
accurately describe the status of the Company's and its
Subsidiary's trademark and service xxxx rights.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that, although such counsel cannot guarantee the
accuracy, completeness or fairness of any of the statements regarding
intellectual property matters contained in the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto in connection with
such counsel's representation of the Company in connection with intellectual
property matters and in preparation of the intellectual property portions of the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto, nothing has come to the attention of such counsel which causes them to
believe that the intellectual property portions of the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto (other than the
financial statements and supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no opinion) contains
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading; provided,
however, that such opinion of counsel does not require any statement concerning
statements in, or omissions from, the Registration Statement, Prospectus, or any
amendment thereof or supplement thereto, which are based upon and conform to
written information, identified in Section 12 herein, furnished to the Company
by the Underwriter specifically for use in the preparation of the Registration
Statement, Prospectus, or any such amendment or supplement.
(h) At the time of execution of this Agreement and also at the Closing
Date, the Underwriter shall have received from KPMG Peat Marwick LLP a
letter or letters, dated the date of delivery thereof, in the form and
substance satisfactory to the Underwriter,
24
stating that they are independent public accountants with respect to the
Company on a consolidated basis within the meaning of the 1933 Act and
that:
(i) In their opinion, the Financial Statements included in
the Registration Statement and Prospectus and reported on therein
by them comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and related
published rules and regulations;
(ii) On the basis of a limited review (but not an examination
in accordance with generally accepted auditing standards)
consisting of a reading of the unaudited financial statements
included in the Registration Statement and Prospectus (if any)
and the latest available interim financial statements of the
Company subsequent thereto; a reading of the minutes of the board
of directors and shareholders of the Company subsequent thereto;
and inquiries of officials of the Company and its Subsidiaries
responsible for financial and accounting matters and such other
inquiries and procedures as may be specified in such letter and
agreed upon by you, nothing has come to their attention that
causes them to believe that:
a) The unaudited financial statements included in the
Registration Statement and Prospectus, if any, do not
comply as to form in all material respects with the
applicable accounting requirements of the 1933 Act and
with the published Rules and Regulations or that such
financial statements are not fairly presented in
conformity with generally accepted accounting principles
applied on a basis consistent with that of the audited
financial statements included in the Registration
Statement and Prospectus;
b) As of a specified date not more than five days
prior to the date of this Agreement in the case of the
first letter and not more than two business days prior to
the date of the Closing Date in the case of the second
letter, there have been any changes in the capital stock,
increases in debt, decreases in total accounts
receivable, or total inventories of the Company or any
increase in liabilities or decreases in assets or
stockholders' equity of the Company, in each case, as
compared with amounts shown in the most recent balance
sheet included in the Prospectus; and
c) For the period from the date of the most recent
balance sheet included therein to such specified date,
there was any decrease, as compared with the
corresponding period of the previous year, debt or total
stockholder's equity, net revenues or any decrease in
income from operations or net income or in basic or
diluted per share amounts of net income except, in each
case, for
25
such decreases which the Prospectus discloses have occurred
or may occur or which are described in such letter.
(iii) In addition to the examination referred to in their
report included in the Prospectus and the limited procedures,
inspection of minute books, inquiries and other procedures
referred to in clause (ii) above, they have carried out certain
specified procedures requested by you, not constituting an audit
in accordance with generally accepted auditing standards with
respect to certain amounts, percentages and other financial
information which are derived from the accounting records and
other financial and statistical data of the Company and its
Subsidiaries which appear in the Prospectus including the
information set forth under the captions "Financial Highlights,"
"Capitalization," "Selected Consolidated Financial Data,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," and which are specified by you and have
compared certain of such amounts, percentages and financial
information with the accounting records and other appropriate
data of the Company and its Subsidiaries and have found them to
be in agreement. In the event that the letters to be delivered
pursuant to this Subsection 6(i) shall set forth any changes,
increases or decreases, it shall be a further condition to the
Underwriter obligations that you, in your sole discretion, shall
have determined, after discussion with officers of the Company
responsible for financial and accounting matters, that such
changes, increases or decreases as set forth in such letters do
not reflect a material adverse change in the capital stock, debt,
net assets, net worth, assets, total accounts receivable, total
inventories or stockholders' equity of the Company on a
consolidated basis as compared with the amount shown in the most
recent consolidated balance sheet of the Company included in the
Prospectus or material adverse change in revenues or the total or
per share amounts of net income (loss).
(i) On the Closing Date, you shall have received a certificate, dated such
date, of the president and the chief financial officer of the Company to
the effect that:
(i) The representations and warranties of the Company in
Section 1 of this Agreement are true and correct as if made on
and as of such date and the Company has performed all obligations
and satisfied all conditions on its part to be performed or
satisfied at or prior to such date;
(ii) The SEC has not issued any order preventing or suspending
the use of any prospectus or issued a stop order suspending the
effectiveness of the Registration Statement and no proceedings
for that purpose have been instituted or are pending or to their
knowledge threatened under the 1933 Act;
26
(iii) The Registration Statement and the Prospectus and, if
any, each amendment and each supplement thereto contain all
statements and information required to be included therein and
neither the Registration Statement nor the Prospectus nor any
amendment nor any supplement thereto includes any untrue
statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements
therein not misleading and since the Effective Date, there has
occurred no event required to be set forth in an amendment to the
Registration Statement or supplement to the Prospectus which has
not been so set forth.
(iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus
and prior to the date of such certificate, and except as set
forth or contemplated in the Registration Statement or the
Prospectus: (A) neither the Company nor its Subsidiary has
incurred, except in the ordinary course of business, any lease
obligations or any direct or contingent liabilities or
commitments, (B) the Company has not entered into any transaction
other than in the ordinary course of business, (C) neither the
Company nor its Subsidiary has paid or declared any dividends or
other distributions on its capital stock, (D) there has not been
any change in the capital stock or any material adverse change,
(increase or decrease) in the outstanding debt, total accounts
receivable, total inventories, net assets, net worth, or
stockholders' equity of the Company or its Subsidiary or any
material adverse change in or affecting the condition (financial
or otherwise), business, key personnel, properties, assets,
results of operations (present or prospective), or net worth of
the Company and (E) no legal or governmental proceeding affecting
the Company or the transactions contemplated hereby has been
instituted or threatened; and
(v) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, the conduct of the business and operations of the
Company or its Subsidiaries has not, except as otherwise stated
therein, been materially interfered with by strike, fire, flood,
hurricane, accident, or other calamity (whether or not insured)
or by any court, arbitrator or governmental action, order or
decree and, except as otherwise expressly stated therein, the
properties of the Company or its Subsidiaries have not sustained
any material loss or damage (whether or not insured) as a result
of any such occurrence.
(j) The Underwriter shall have received all necessary written consents
from the Company's and its Subsidiary' lenders and any other person whose
consent is required in connection with this Agreement and the transactions
contemplated thereby.
27
(k) The Debentures shall have been qualified for sale under the Blue Sky
Laws of the States and in such amounts as shall have been specified by the
Underwriter.
(l) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred:
(i) Any change or development involving a prospective change
in or affecting particularly the business or properties of the
Company which in the judgment of the Underwriter materially
impairs the investment quality of the Debentures;
(ii) Any suspension or limitation of trading in securities
generally on the New York Stock Exchange, the American Stock
Exchange, Nasdaq, or any setting of minimum prices for trading on
either such exchange or on Nasdaq or any suspension of trading of
any securities of the Company;
(iii) Any banking moratorium;
(iv) Any outbreak or escalation of major hostilities in which
the United States is involved, any declaration of war by Congress
or any other substantial national or international calamity or
emergency if, in the judgment of the Underwriter, the effect of
any such outbreak, escalation, declaration, calamity or emergency
makes it impractical or inadvisable to proceed with completion of
the sale of and payment for the Debentures;
(v) Any material adverse change in existing financial,
political or economic conditions in the United States or
elsewhere which change, in the opinion of the Underwriter, has
materially and adversely affected the market for the Debentures
or other securities of the Company or the prospects for the
Company, its business or its properties; or
(vi) Any substantial loss to the Company by strike, fire,
flood, accident or other calamity of such a character as to
interfere materially with the conduct of the business and
operations of the Company regardless of whether such loss shall
have been insured.
(m) The Underwriter shall have received, dated as of the Closing Date,
from the Secretary of the Company a certificate of incumbency certifying
the names, titles and signatures of the officers authorized to execute this
Agreement according to the resolutions of the Board of Directors of the
Company authorizing and approving the execution, delivery and performance
of this Agreement, a copy of such resolutions to be attached to such
certificate, certifying such resolutions and certifying that the Company's
Amended and Restated Articles of Incorporation, as amended, and the
Company's Amended and Restated Bylaws have been validly adopted and have
not been amended or modified.
28
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Underwriter and to its counsel. If any of the conditions
specified in this section shall not have been fulfilled when and as required by
this Agreement, this Agreement and all obligations of the Underwriter hereunder
may be canceled at, or at any time prior to the Closing Date by the Underwriter.
Any such cancellation shall be without liability of the Underwriter to the
Company and shall be in writing or by telegraph or telephone and confirmed in
writing. The Underwriter may waive in writing the nonperformance by the Company
of any one or more of the foregoing conditions or extend the time for
performance of such conditions. Each such waiver shall be applicable only to
the item to which it relates and the closing to which it relates and no waiver
or series of waivers shall be deemed to have waived any condition at any time
other than the condition at the time explicitly waived.
6. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the 1933 Act against any losses, claims,
damages or liabilities to which the Underwriter or each such controlling
person may become subject, under the 1933 Act, the 1934 Act, the Blue Sky
Laws, the common law or otherwise, insofar as such losses, claims, damages
or liabilities (or judicial or governmental actions or proceedings in
respect thereof) arise out of, or are based upon, (i) any untrue statement
or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, or the omission or alleged
omission to state in the Registration Statement or any amendment thereof a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus if used prior to
the Effective Date of the Registration Statement or in the Prospectus (as
amended or as supplemented, if the Company shall have filed with the SEC
any amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any application or other statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in
order to qualify the Debentures under, or exempt the Debentures or the sale
thereof from qualification under, the Blue Sky Laws of such jurisdiction,
or the omission or alleged omission to state in such application or
statement a material fact required to be stated therein or necessary to
make the statements threin, in light of the circumstances under which they
were made, not misleading; and the Company will reimburse the Underwriter
and each such controlling person for any legal or other expenses reasonably
incurred by the Underwriter or controlling person (subject to the
limitation set forth in Section 6(c) hereof) in connection with
investigating or defending against any such loss, claim, damage, liability
or action; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage
29
or liability arises out of, or is based upon, an untrue statement, or
alleged untrue statement, omission or alleged omission, made in reliance
upon and in conformity with written information furnished to the Company
by, or on behalf of, the Underwriter specifically for use in the
preparation of the Registration Statement or any such post effective
amendment thereof, any such Preliminary Prospectus or the Prospectus or
any such amendment thereof or supplement thereto, or in any application
or other statement executed by the Company or any Underwriter filed in
any jurisdiction in order to qualify the Debentures under, or exempt the
Debentures or the sale thereof from qualification under, the Blue Sky
Laws of such jurisdiction. This indemnity agreement is in addition to
any liability which the Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company,
each of the Company's directors, each of the Company's officers who has
signed the Registration Statement and each person who controls the Company
within the meaning of Section 15 of the 1933 Act against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject, under the 1933 Act, the
1934 Act, the Blue Sky Laws, the common law, or otherwise, insofar as such
losses, claims, damages, or liabilities (or judicial or governmental
actions or proceedings in respect thereof) arise out of, or are based upon,
(i) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof, or the
omission or alleged omission to state in the Registration Statement or any
amendment thereof, a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) any untrue
statement or alleged untrue statement of a material fact contained in any
Preliminary Prospectus if used prior to the Effective Date of the
Registration Statement or in the Prospectus (as amended or as supplemented,
if the Company shall have filed with the SEC any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading; or (iii) any untrue statement or alleged untrue
statement of a material fact contained in any application or other
statement executed by the Company or by the Underwriter and filed in any
jurisdiction in order to qualify the Debentures under, or exempt the
Debentures or the sale thereof from qualification under, the Blue Sky Laws
of such jurisdiction, or the omission or alleged omission to state in such
application or statement a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading; in each case to the extent, but
only the extent, that such untrue statement, alleged untrue statement,
omission or alleged omission, was made in reliance upon and in conformity
with written information furnished to the Company by, or on behalf of, the
Underwriter specifically for use in the preparation of the Registration
Statement or any such post effective amendment thereof, any such
Preliminary Prospectus or the Prospectus or any such amendment thereof or
supplement thereto, or in any application or other statement executed by
the Company or by the Underwriter and filed in any jurisdiction; and the
Underwriter will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer or controlling person in
connection with investigating or defending against any such loss, claim,
damage, liability or action. This
30
indemnity agreement is in addition to any liability which the Underwriter
may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 6 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 6, notify in writing the indemnifying party of the
commencement thereof. The omission so to notify the indemnifying party
will not relieve it from any liability under this Section 6 as to the
particular item for which indemnification is then being sought, unless such
omission so to notify prejudices the indemnifying party's ability to defend
such action. In case any such action is brought against any indemnified
party and the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel who shall be reasonably satisfactory to such indemnified
party; and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 6 for
any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of
the indemnified party, it is advisable for such parties and controlling
persons to be represented by separate counsel, any indemnified party shall
have the right to employ separate counsel to represent it and all other
parties and their controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriter against the Company or by the Company against the Underwriter
hereunder, in which event the fees and expenses of such separate counsel
shall be borne by the indemnifying party and paid as incurred. Any such
indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the prior
written consent of such indemnifying party.
7. CONTRIBUTION.
(a) If the indemnification provided for in Section 6 is unavailable under
applicable law to, or insufficient to hold harmless, any indemnified party
in respect of any losses, claims, damages or liabilities referred to
therein, then each indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (i) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Underwriter from the
offering of the Debentures or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Company and the Underwriter in
connection with the statements or omissions which resulted in such losses,
claims, damages or liabilities, as well as any other relevant equitable
considerations. The Company and the Underwriter agree that contribution
determined by pro rata allocation (even if the Underwriter was considered a
single person) would not be
31
equitable. The respective relative benefits received by the Company on
the one hand, and the Underwriter, on the other hand, shall be deemed to
be in the same proportion (A) in the case of the Company, as the total
price paid to the Company for the Debentures by the Underwriter (net of
underwriting discount received but before deducting expenses) bears to
the aggregate public offering price of the Debentures and (B) in the
case of the Underwriter, as the aggregate underwriting discount and
commissions received by them bears to the aggregate public offering
price of the Debentures, in each case as reflected in the Prospectus.
The relative fault of the Company and the Underwriter shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fct relates to information supplied by the
Company or by the Underwriter and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The amount paid or payable by a party as a
result of the losses, claims, damages and liabilities referred to above
shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or
defending any action or claim. Notwithstanding the provisions of this
Section 7, the Underwriter shall not be required to contribute any
amount in excess of the amount by which the total price at which the
Debentures underwritten by it and offered to the public exceeds the
amount of any damages which the Underwriter has otherwise been required
to pay by reason of any untrue or alleged untrue statement or omission
or alleged omission in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto. The
Underwriter's obligation to contribute pursuant to this section are
several and not joint. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 0000 Xxx) shall be entitled
to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7, each person who
controls an Underwriter within the meaning of the 1933 Act or the 1934
Act shall have the same rights to contribution as such Underwriter, each
person who controls the Company within the meaning of the 1933 Act or
the 1934 Act shall have the same rights to contribution as the Company
and each officer of the Company who shall have signed the Registration
Statement and each director of the Company shall have the same rights to
contribution as the Company.
(b) Promptly after receipt by a party to this Agreement of notice of the
commencement of any action, suit or proceeding, such person will, if a
claim for contribution in respect thereof is to be made against another
party (the "Contributing Party"), notify the Contributing Party of the
commencement thereof, but the omission so to notify the Contributing Party
will not relieve the Contributing Party from any liability which it may
have to any party other than under this Section 7, unless such omission so
to notify prejudices the indemnifying party's ability to defend such
action. Any notice given pursuant to Section 6 hereof shall be deemed to
be like notice hereunder. In case any such action, suit or proceeding is
brought against any party, and such person notifies a Contributing Party of
the commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing
Party similarly notified.
32
8. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 6 and 7, respectively, the
representations and warranties of the Company set forth in Section 1 hereof and
the covenants of the Company set forth in Section 4 hereof shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Underwriter, the Company, any of its officers and
directors, or any controlling person referred to in Sections 6 and 7, and shall
survive the delivery of and payment for the Debentures. The aforesaid indemnity
and contribution agreements shall also survive any termination or cancellation
of this Agreement. Any successor of any party or of any such controlling
person, or any legal representative of such controlling person, as the case may
be, shall be entitled to the benefit of the respective indemnity and
contribution agreements.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at 8:00 a.m., Minnesota time, on
the first full day following the Effective Date, after which the
Underwriter shall commence selling the Debentures to the public, or such
earlier time as the Underwriter shall release the Debentures for sale to
the public. The Underwriter shall notify the Company immediately after the
Underwriter has taken any action which causes this Agreement to become
effective. Until this Agreement is effective, it may be terminated by the
Company or by the Underwriter by giving notice as hereinafter provided,
except that the provisions of Sections 4(q) and (r) and Sections 6, 7, 9,
12 and 13 shall at all times be effective. For purposes of this Agreement,
the release of the Debentures for sale to the public shall be deemed to
have been made when the Underwriter releases, by facsimile or otherwise,
firm offers of the Debentures to securities dealers or release for
publication a newspaper advertisement relating to the Debentures, whichever
occurs first.
(b) Until the Closing Date, this Agreement may be terminated by the
Underwriter, at its option, by giving notice to the Company, if (i) the
Company shall have sustained a loss by fire, flood, accident or other
calamity which is material with respect to the business of the Company; the
Company shall have become a party to material litigation, not disclosed in
the Registration Statement or the Prospectus; or the business or financial
condition of the Company shall have become the subject of any material
litigation, not disclosed in the Registration Statement or the Prospectus;
or there shall have been, since the respective dates as of which
information is given in the Registration Statement or the Prospectus, any
material adverse change in the general affairs, business, key personnel,
capitalization, financial position or consolidated net worth of the
Company, whether or not arising in the ordinary course of business, which
loss or change, in the reasonable judgment of the Underwriter, shall render
it inadvisable to proceed with the delivery of the Debentures, whether or
not such loss shall have been insured; (ii) trading in securities generally
on the New York Stock Exchange, American Stock Exchange, Nasdaq National
Market, Nasdaq SmallCap Market or the over-the-counter market shall have
been suspended or minimum prices shall have been established on such
exchange by the SEC or by such exchanges or markets; (iii) a general
banking moratorium shall have been declared by federal, New York or
Minnesota authorities; (iv) there shall have been such a material adverse
change in
33
general economic, monetary, political or financial conditions, or the
effect of international conditions on the financial markets in the
United States shall be such that, in the judgment of the Underwriter,
makes it inadvisable to proceed with the delivery of the Debentures; (v)
the enactment, publication, decree or other promulgation of any federal
or state statute, regulation, rule or order of either of any court or
other governmental authority whih, in the judgment of the Underwriter,
materially and adversely affects or will materially and adversely affect
the business or operations of the Company; (vi) there shall be a
material outbreak of hostilities or material escalation and
deterioration in the political and military situation between the United
States and any foreign power, or a formal declaration of war by the
United States of America shall have occurred; (vii) the Company shall
have failed to comply with any of the provisions of this Agreement on
its part to be performed on or prior to such date or if any of the
conditions, agreements, representations or warranties of the Company
shall not have been fulfilled within the respective times provided for
in this Agreement; (viii) the Company is no longer registered under the
1934 Act; or (ix) the Company's Common Stock is no longer listed on The
Nasdaq National Market or Nasdaq SmallCap Market. Any such termination
shall be without liability of any party to any other party, except as
provided in Sections 6, 7, 9, 12 and 13 hereof; provided, however, that
the Company shall remain obligated to pay costs and expenses to the
extent provided in Sections 4(q) and (r) of Section 4 of this Agreement.
(c) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 9, it
shall notify the Company promptly by telegram or telephone, confirmed by
letter sent to the address specified in Section 10 hereof. If the Company
shall elect to prevent this Agreement from becoming effective, it shall
notify the Underwriter promptly by telegram or telephone, confirmed by
letter sent to the address specified in Section 10 hereof.
10. NOTICES. All communications hereunder shall be in writing and, if
sent to the Underwriter, shall be mailed by certified or registered mail or hand
delivered or sent by facsimile transmission and confirmed in writing to Xxxxxx &
Xxxxxxxxx Financial, Inc., Xxxxxxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000 with a
copy to Xxxxxx X. Xxxxxx, Esq., Xxxxxxxxxx & Xxxxx, P.A., 000 Xxxxxx Xxxxxx
Xxxxx, Xxxxxxxxxxx, XX 00000 and if sent to the Company, shall be mailed by
certified or registered mail or hand delivered or sent by facsimile
transmission, and confirmed in writing to the Company at Paper Warehouse, Inc.,
0000 Xxxxxxxxx Xxxxxxxxx, Xx. Xxxxx Xxxx, XX 00000, Attention: Chief Financial
Officer, with a copy to Xxxxx Xxxxxxxxx, Xxxxxxxxxxx Xxxxx & Xxxxxxxx LLP, Plaza
VII, 00 Xxxxx Xxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxxxxxxx, XX 00000.
11. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company, and their successors, assigns and
legal representatives, and nothing in this Agreement is intended or shall be
construed to give any other person any legal or equitable right, remedy or claim
under or in respect of this Agreement or any provision herein contained, this
Agreement and all conditions and provisions hereof being intended to be and
being for the sole and exclusive benefit of such persons and for the benefit of
no other person, except that the representations and warranties of the Company
contained in this Agreement shall also be for the
34
benefit of any person or persons who control the Underwriter within the meaning
of Section 15 of the 1933 Act. No purchaser of Debentures will be deemed a
successor because of such purchase.
12. INFORMATION FURNISHED BY UNDERWRITER. The statements under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the only written information furnished by, or on behalf of, the
Underwriter specifically for use with reference to the Underwriter referred to
in Section 1(b) and Section 6 hereof.
13. GOVERNING LAW. This Agreement shall be governed by, and construed in
accordance with the substantive laws of the State of Minnesota without regard to
its choice of laws provisions.
14. COUNTERPARTS. This Agreement may be signed in any number of
counterparts and all such counterparts taken together shall constitute the
single Agreement of the parties.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed duplicate of this Agreement, whereupon
it will become a binding agreement between the Company and the Underwriter in
accordance with its terms.
Very truly yours,
PAPER WAREHOUSE, INC.
By
---------------------------
Its
---------------------------
ACCEPTANCE
The foregoing Underwriting Agreement is
hereby confirmed and accepted by us as of
the date first written above.
XXXXXX & XXXXXXXXX FINANCIAL, INC.
By
---------------------------
Its
---------------------------
35
APPENDIX A
FORM OF UNDERWRITER'S WARRANT
-----------------------------
To Purchase 50,000 Shares of Common Stock
of
Paper Warehouse, Inc.
THIS CERTIFIES THAT, for good and valuable consideration, Xxxxxx &
Xxxxxxxxx Financial, Inc. (the "Underwriter"), or its registered assigns, is
entitled to subscribe for and purchase from Paper Warehouse, Inc., a Minnesota
corporation (the "Company"), at any time after June __, 2000, up to and
including June __, 2004, Fifty Thousand (50,000) fully paid and nonassessable
shares of the Common Stock of the Company at the price of $___ [120% of market
price immediately prior to effective date] per share (the "Warrant Exercise
Price"), subject to the antidilution provisions of this Warrant. Reference is
made to this Warrant in the Underwriting Agreement dated June __, 1999, by and
between the Company and the Underwriter. The shares which may be acquired upon
exercise of this Warrant are referred to herein as the "Warrant Shares." As
used herein, the term "Holder" means the Underwriter, any party who acquires all
or a part of this Warrant as a registered transferee of the Underwriter, or any
record holder or holders of the Warrant Shares issued upon exercise, whether in
whole or in part, of the Warrant; the term "Common Stock" means and includes the
Company's presently authorized common stock, $.01 par value, and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution, or winding up of the
Company; and the term "Convertible Securities" means any stock or other
securities convertible into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
a check in payment of the Warrant Exercise Price for such shares or without
payment of cash pursuant to Section 10 hereof.
(b) Until exercisable, this Warrant may not be sold, assigned,
hypothecated, or otherwise transferred, other than by will or pursuant to the
operation of law, except to a person who is an officer or partner of the
Underwriter or an officer or partner of any syndicate member participating in
the offer and sale of the Company's securities. Further, this Warrant may not
be
1
sold, transferred, assigned, hypothecated or divided into two or more Warrants
of smaller denominations, nor may any Warrant shares issued pursuant to exercise
of this Warrant be transferred, except as provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections l and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Underwriter shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the
next section, certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time, not exceeding fifteen (15)
days after the rights represented by this Warrant shall have been so exercised,
and, unless this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the Holder
within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such
2
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company, or the registrations made, for
the issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into
a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this
3
Subsection shall be made to the nearest cent or to the nearest 1/100 of a share,
as the case may be. In the event that at any time as a result of an adjustment
made pursuant to this Subsection, the holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive any shares of the
Company other than shares of Common Stock, thereafter the Warrant Exercise Price
of such other shares so receivable upon exercise of any Warrant shall be subject
to adjustment from time to time in a manner and on terms as nerly equivalent as
practicable to the provisions with respect to Common Stock contained in this
Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to Section
5(a) above, the Holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Warrant Exercise Price in effect prior to such adjustment) by
the Warrant Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
4
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the "1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations,
warranties, and agreements as may be required solely to comply with the
exemptions relied upon by the Company for the transfer or disposition of the
Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this Section
7, the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares the Company shall promptly give written notice thereof to the Holder, and
the Holder will limit its activities in respect to such as, in the opinion of
both such counsel, are permitted by law.
8. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange or quoted in
the National Association of Securities Dealers, Inc.'s Automated Quotations
System (NASDAQ), or if not listed on a national securities exchange or quoted in
NASDAQ, the average of the last reported closing bid and asked prices as
reported by Metro Data Company, Inc. from quotations by
5
market makers in such Common Stock on the Minneapolis-St. Xxxx local
over-the-counter market.
9. REGISTRATION RIGHTS.
(a) If the Company at any time within two (2) years after complete
exercise of this Warrant, but no more than seven (7) years from the date of this
Warrant, proposes to register under the 1933 Act (except by a Form S-4 or Form
S-8 Registration Statement or any successor forms thereto) or qualify for a
public distribution under Section 3(b) of the 1933 Act, any of its securities,
it will give written notice to all Holders of this Warrant, any Warrants issued
pursuant to Section 2 and/or Section 3(a) hereof, and any Warrant Shares of its
intention to do so and, on the written request of any such Holder given within
twenty (20) days after receipt of any such notice (which request shall specify
the interest in this Warrant or the Warrant Shares intended to be sold or
disposed of by such Holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrants and Warrant Shares, the Holders of which shall have requested the
registration or qualification thereof, to be included in such registration
statement proposed to be filed by the Company; provided, however, that if a
greater number of Warrants and Warrant Shares is offered for participation in
the proposed offering than in the reasonable opinion of the managing underwriter
of the proposed offering can be accommodated without adversely affecting the
proposed offering, then the amount of Warrant and Warrant Shares proposed to be
offered by such Holders for registration, as well as the number of securities of
any other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
(b) Further, on a one-time basis only, during the four year period
commencing one year after the date of this Warrant, upon request by the Holder
or Holders of a majority in interest of this Warrant, of any Warrants issued
pursuant to Section 2 and/or Section 3(a) hereof, and of any Warrant Shares, the
Company will promptly take all necessary steps to register or qualify, under the
1933 Act and the securities laws of such states as the holders may reasonably
request, this Warrant and such number of Warrant Shares issued and to be issued
upon conversion of the Warrants requested by such holders in their request to
the Company. The Company shall keep effective and maintain any registration,
qualification, notification, or approval specified in this Paragraph (b) for
such period as may be reasonably necessary for such Holder or Holders of such
Warrants and/or such Warrant Shares to dispose thereof and from time to time
shall amend or supplement the prospectus used in connection therewith to the
extent necessary in order to comply with applicable law.
(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company is required to bear such fees and disbursements), all internal
expenses, the premiums and other costs of policies of insurance against
liability arising out of the public
6
offering, and legal fees and disbursements and other expenses of complying with
state securities laws of any jurisdictions in which the securities to be offered
are to be registered or qualified. Fees and disbursements of special counsel
and accountants for the selling Holders, underwriting discounts and commissions,
and transfer taxes for selling Holders and any other expenses relating to the
sale of securities by the selling Holders not expressly included above shall be
borne by the selling Holders.
(d) The Company hereby indemnifies each of the Holders of this Warrant and
of any Warrant Shares, and the officers and directors, if any, who control such
Holders, within the meaning of Section 15 of the 1933 Act, against all losses,
claims, damages, and liabilities caused by (1) any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (and as amended or supplemented if the Company shall have furnished
any amendments thereof or supplements thereto), any Preliminary Prospectus or
any state securities law filings; (2) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading except insofar as such losses, claims,
damages, or liabilities are caused by any untrue statement or omission contained
in information furnished in writing to the Company by such Holder expressly for
use therein; and each such Holder by its acceptance hereof severally agrees that
it will indemnify and hold harmless the Company, each of its officers who signs
such Registration Statement, and each person, if any, who controls the Company,
within the meaning of Section 15 of the 1933 Act, with respect to losses,
claims, damages, or liabilities which are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein.
10. ADDITIONAL RIGHT TO CONVERT WARRANT.
(a) The holder of this Warrant shall have the right to require the Company
to convert this Warrant (the "Conversion Right") at any time after it is
exercisable, but prior to its expiration into shares of Company Common Stock as
provided for in this Section 10. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the holder of any
Warrant Exercise Price) that number of shares of Company Common Stock equal to
the quotient obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Exercise Price for the Warrant Shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate Fair Market Value for the
Warrant Shares immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of Company Common Stock immediately prior to
the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the Holder will purchase
pursuant to such conversion and (ii) a place and date not less than one or more
than 20 business days from the date of the Conversion Notice for the closing of
such purchase.
7
(c) At any closing under Section 10(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the warrant
shall not have been exercised.
(d) Fair Market Value of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or
is quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date, and
(ii) If the Company's Common Stock is not traded on an exchange
or on the NASDAQ National Market System but is traded on the
over-the-counter market, then the average closing bid and asked prices
reported for the ten (10) business days immediately preceding the
Determination Date.
IN WITNESS WHEREOF, Paper Warehouse, Inc. has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated June ___,
1999.
PAPER WAREHOUSE, INC.
By:
------------------------------------
Its:
------------------------------
8
To: Paper Warehouse, Inc.
NOTICE OF EXERCISE OF WARRANT -
To Be Executed by the Registered Holder in Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
-----------------------------------
(Print Name)
Please insert social security
or other tax identification
number of registered holder of
certificate (______________) Address:
-----------------------------------
-----------------------------------
Date:
----------------- -----------------------------------
Signature*
*The signature on the Notice of Exercise of Warrant must correspond exactly to
the name as written upon the face of the Warrant in every particular without
alteration or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _____________________________, the assignee, whose address is
______________________ and whose tax identification or social security number is
__________________ the right represented by the foregoing Warrant to purchase
_______ shares of the Common Stock of Paper Warehouse, Inc. to which the within
Warrant relates and appoints _____________, attorney, to transfer said right on
the books of Paper Warehouse, Inc. with full power of substitution in the
premises.
Name of Warrant Holder/Assignor
Dated:
----------------- ----------------------------------
(Signature)*
Address of Warrant Holder/Assignor:
Tax Identification No. or Social ----------------------------------
Security No. of Warrant Holder/Assignor
----------------------------------
------------------------------------
*Note: The above signature should correspond exactly with the name on the first
page of the Warrant or with the name of the assignee appearing on a duly
executed assignment form.
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section 10
therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name
-------------------------------------
(Please print Name)
Address
----------------------------------
-----------------------------------------
Tax Identification No. or Social
Security No.
----------------------------
Signature
--------------------------------
NOTE: The above signature should correspond exactly with the name on the
first page of this Warrant Certificate or with the name of the assignee
appearing on a duly executed assignment form.
And if said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher number of shares.
