FORM OF AGREEMENT TO ACT AS "QUALIFIED INDEPENDENT UNDERWRITER"
SUMMIT SECURITIES, INC.
Investment Certificates, Series B
This agreement made as of the ____ day of ____________, by and between
Summit Securities, Inc., an Idaho corporation ("Summit"), Metropolitan
Investment Securities, Inc., a Washington corporation ("MIS"), and WELCO
SECURITIES, INC., a Nevada corporation ("WELCO").
WITNESSETH:
WHEREAS Summit intends to offer $40,000,000 in Investment Certificates,
Series B (hereinafter referred to as the "Certificates"), which will be
offered in reliance on a registration statement filed on Form S-2, bearing SEC
file number ___________________; and,
WHEREAS, MIS, a wholly owned broker/dealer of Summit and a member of the
National Association of Securities Dealers ("NASD"), will be engaged as the
managing agent for Summit and MIS may enter into Selected Dealer Agreements
with other qualified broker/dealers; and,
WHEREAS, pursuant to subparagraph (c) of Rule 2720 of the Bylaws of the
NASD, MIS, as a NASD member, may participate in such underwriting only if the
yield at which the Certificates offered to the public is not lower than the
yield recommended by a "Qualified Independent Underwriter" as that term is
defined in subparagraph (b)(15) of Rule 2720 to the Bylaws of the NASD, and
who participates in the preparation of the registration statement and
prospectus relating to the offering and exercises customary standards of due
diligence, with respect thereto; and,
WHEREAS, this agreement ("Agreement") describes the terms on which
Summit is retaining WELCO to serve as such a "Qualified Independent
Underwriter" in connection with this offering of Certificates; and,
NOW, THEREFORE, in consideration of the recitations set forth above, and
the terms, promises, conditions, and covenants herein contained, the parties
hereby contract and agree as follows:
DEFINITIONS.
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As hereinafter used, except as the context may otherwise require, the
term "Registration Statement" means the registration statement on Form S-2
(including the related preliminary prospectus, financial statements, exhibits
and all other documents to be filed as a part thereof or incorporated therein)
for the registration of the offer and sale of the Certificates under the
Securities Act of 1933, as amended, and the rules and regulations thereunder
(the "Act") filed with the Securities and Exchange Commission (the
"Commission"), and any amendment thereto, and the term "Prospectus" means the
prospectus including any preliminary or final prospectus (including the form
of prospectus to be filed with the Commission pursuant to Rule 424(b) under
the Act) and any amendment or supplement thereto, to be used in connection
with the offering.
1. RULE 2720.
WELCO hereby confirms its agreement as set forth in sub-paragraph
15(g) of Rule 2720 of the Bylaws of the NASD and represents that,
as appropriate, WELCO satisfies or at the times designated in such
paragraph (l5) will satisfy the other requirements set forth
therein or will receive an exemption from such requirements from
the NASD.
2. CONSENT.
WELCO hereby consents to be named in the Registration Statement
and Prospectus as having acted as a "Qualified Independent
Underwriter" solely for the purposes of Rule 2720 referenced
herein. Except as permitted by the immediately preceding sentence
or to the extent required by law, all references to WELCO in the
Registration Statement or Prospectus or in any other filing,
report, document, release or other communication prepared, issued
or transmitted in connection with the offering by Summit or any
corporation controlling, controlled by or under common control
with Summit, or by any director, officer, employee, representative
or agent of any thereof, shall be subject to WELCO's prior written
consent with respect to form and substance.
3. PRICING FORMULA AND OPINION.
WELCO agrees to render a written opinion as to the yields below
which Summit's Certificates may not be offered based on the
pricing formula that is set forth in Schedules "A" and "B" copies
of which are attached hereto, and incorporated herein by
reference. It is understood and agreed by WELCO that the
securities to
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which this Agreement relates will be offered on a continuous, best
efforts basis by MIS, as the managing agent, pursuant to the
Selling Agreement in effect between MIS and Summit which is an
exhibit to the Registration Statement referred to above. Summit,
through MIS, will continue to offer the Certificates according to
the terms and conditions of said Selling Agreement, and in
accordance with this Agreement, including, without limitation,
Schedules "A" and "B". WELCO reserves the right to review and
amend its opinion upon the filing of any post-effective amendment
to the Registration Statement or upon occurrence of any material
event which may or may not require such an amendment to be filed,
or at such time as the offering shall terminate or otherwise lapse
under operation of law.
4. FEES AND EXPENSE.
It is understood that Summit shall reimburse WELCO for its
expenses on an accountable basis in the maximum amount of $5,000.
Such expenses shall not include payment for salaries, supplies, or
similar expenses of WELCO incurred in the normal conduct of
business. It is further agreed that WELCO shall be paid a fee in
the amount of $20,000 payable as follows:
1) $10,500 payable at the time the pricing opinion is rendered,
at closing on the effective date of the registration, and
2) $1,000 payable monthly for ten consecutive months on the
first day of each month beginning March 1, 1998 provided that
Welco continues to serve as the "Qualified Independent
Underwriter" on each date a monthly payment is due.
5. MATERIAL FACTS.
Summit represents and warrants to WELCO that at the time the
Registration Statement and, at the time the Prospectus is filed
with the Commission (including any preliminary prospectus and the
form of prospectus filed with the Commission pursuant to Rule
424(b)) and at all times subsequent thereto, to and including the
date on which payment for, and delivery of, the Certificates to be
sold in the Offering is made by the underwriter or underwriters,
as the case may be, participating in the Offering and by Summit
(such date being referred to herein as the "Closing Date"), the
Prospectus (as amended or supplemented if it shall have been so
amended or supplemented) will contain all material
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statements which are required to be stated therein in accordance
with the Act and will conform to all other requirements of the
federal securities laws, and will not, on such date include 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 not misleading and that all contracts and
documents required by the Act to be filed or required as exhibits
to said registration statement have been filed. Summit further
represents and warrants that any further filing, report, document,
release or communication which in any way refers to WELCO or to
the services to be performed by WELCO pursuant to this Agreement
will not contain any untrue or misleading statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading.
Summit further warrants and represents that:
(a) All leases, contracts and agreements referred to in or
filed as exhibits to the Registration Statement to which
Summit or its subsidiaries is a party or by which it is
bound are in full force and effect.
(b) Summit has good and marketable title, except as otherwise
indicated in the Registration Statement and Prospectus, to
all of its assets and properties described therein as being
owned by it, free and clear of all liens, encumbrances and
defects except such encumbrances and defects which do not,
in the aggregate, materially affect or interfere with the
use made and proposed to be made of such properties as
described in the Registration Statement and Prospectus; and
Summit has no material leased properties except as
disclosed in the Prospectus.
(c) Summit is duly organized under the laws of the State of
Idaho and, as of the effective date of the Registration
Statement and at Closing Summit will be validly existing
and in good standing under the laws of the State of Idaho
with full corporate power and authority to own its
properties and conduct its business to the extent described
in the Registration Statement and Prospectus; Summit is
duly qualified to do business as a foreign corporation and
is in good standing in all jurisdictions in which the
nature
47
of the business transacted by it or its ownership of
properties or assets makes qualification necessary; the
authorized and outstanding capitalization of Summit is as
set forth in the Prospectus and the description in the
Prospectus of the capital stock of Summit conforms with and
accurately describes the rights set forth in the
instruments defining the same;
(d) Summit is not in violation of its Certificate of
Incorporation or Bylaws or in default in the performance or
observance of any material obligation, agreement, covenant
or condition contained in any bond, debenture, note, or
other evidence of indebtedness, contract or lease or in any
indenture or loan agreement to which it is a party or by
which it is bound.
(e) The execution, delivery and performance of this Agreement
has been duly authorized by all necessary corporate action
on the part of Summit and MIS and performance of the
foregoing agreement and the consummation of the
transactions contemplated thereby, will not conflict with
or result in a breach of any of the terms or constitute a
violation of the respective Certificates of Incorporation
or Bylaws of Summit or MIS, or any deed of trust, lease,
sublease, indenture, mortgage, or other agreement or
instrument to which Summit or MIS is a party or by which
either of them or their property is bound, or any
applicable law, rule, regulation, judgment, order or decree
of any government, governmental instrumentality or court,
domestic or foreign, having jurisdiction over Summit or MIS
or their properties or obligations; and no consent,
approval, authorization or order of any court or
governmental agency or body is required for the
consummation of the transactions contemplated herein and in
the other agreements previously referred to in this
paragraph except as may be required under the Act or under
any state securities or laws.
(f) Any certificate signed by an officer of Summit and
delivered to WELCO pursuant to this Agreement shall be
deemed a representation and warranty by Summit to WELCO, to
have the same force and effect as stated herein, as to the
matters covered thereby.
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(g) If any event relating to or affecting Summit shall occur as
a result of which it is necessary, in WELCO's opinion, to
amend or supplement the Prospectus in order to make the
Prospectus not misleading in the light of the circumstances
existing at the time it is delivered to a purchaser, Summit
undertakes to inform WELCO of such events within a
reasonable time thereafter, and will forthwith prepare and
furnish to WELCO, without expense to it, a reasonable
number of copies of any amendment or amendments or a
supplement or supplements to the Prospectus (in form and
substance satisfactory to WELCO) which will amend or
supplement the Prospectus so that as amended or
supplemented it will not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements therein in light of the circumstances
existing at the time the Prospectus is delivered to a
purchaser, not misleading.
(h) Summit hereby warrants and represents that it will offer
the Certificates in accordance with the pricing formula
that is set forth in Schedules "A" and B which are
incorporated by reference herein.
(i) All representations, warranties and agreements contained in
this Agreement, or contained in certificates of officers of
Summit submitted pursuant hereto, shall remain operative
and in full force and effect, surviving the date of this
Agreement.
6. AVAILABILITY OF INFORMATION.
Summit hereby agrees to provide WELCO, at its expense, with all
information and documentation with respect to its business,
financial condition and other matters as WELCO may deem relevant
based on the standards of reasonableness and good faith and shall
request in connection with WELCO's performance under this
Agreement, including, without limitation, copies of all
correspondence with the Commission, certificates of its officers,
opinions of its counsel and comfort letters from its auditors.
The above-mentioned certificates, opinions of counsel and comfort
letters shall be provided to WELCO as WELCO may request on the
effective date of the Registration Statement. Summit will make
reasonably available to WELCO, its auditors, counsel, and officers
and directors to discuss with WELCO any aspect of Summit which
WELCO may deem relevant. In
49
addition, Summit, at WELCO's request, will cause to be delivered
to WELCO copies of all certificates, opinions, letters and reports
to be delivered to the underwriter or underwriters, as the case
may be, pursuant to any underwriting agreement executed in
connection with the Offering or otherwise, and shall cause the
person issuing such certificate, opinion, letter or report to
authorize WELCO to rely thereon to the same extent as if addressed
directly to WELCO. Summit represents and warrants to WELCO that
all such information and documentation provided pursuant to this
paragraph 6 will not contain any untrue statement of a material
fact or omit to state a material fact necessary to make the
statement therein not misleading. In addition, Summit will
promptly advise WELCO of all telephone conversations with the
Commission which relate to or may affect the Offering.
7. INDEMNIFICATION.
(a) Subject to the conditions set forth below, and in addition
to any rights of indemnification and contribution to which
WELCO may be entitled pursuant to any agreement among
underwriters, underwriting agreement or otherwise, and to
the extent allowed by law, Summit hereby agrees that it
will indemnify and hold WELCO and each person controlling,
controlled by or under common control with WELCO within the
meaning of Section 15 of the Act or Section 20 of the
Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or the rules and regulations thereunder
(individually, an "Indemnified Person") harmless from and
against any and all loss, claim, damage, liability, cost or
expense whatsoever to which such Indemnified Person may
become subject under the Act, the Exchange Act, or other
federal or state statutory law or regulation, at common law
or otherwise, arising out of, based upon, or in any way
related or attributed to (i) this Agreement, (ii) any
untrue statement or alleged untrue statement of a material
fact contained in the Registration Statement or Prospectus
or any other filing, report, document, release or
communication, whether oral or written, referred to in
paragraph 5 hereof or the omission or alleged omission to
state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading,
(iii) any application or other document executed by Summit
or based upon written information furnished by Summit filed
in
50
any jurisdiction in order to qualify the Certificates under
the securities or Blue Sky laws thereof, or the omission or
alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements
therein not misleading, or (iv) the breach of any
representation or warranty made by Summit in this
Agreement. Summit further agrees that upon demand by an
Indemnified Person at any time or from time to time, it
will promptly reimburse such Indemnified Person for, or
pay, any loss, claim, damage, liability, cost or expense as
to which Summit has indemnified such person pursuant
hereto. Notwithstanding the foregoing provisions of this
paragraph 7, any such payment or reimbursement by Summit of
fees, expenses or disbursement incurred by an Indemnified
Person in any proceeding in which a final judgment by a
court of competent jurisdiction (after all appeals or the
expiration of time to appeal) is entered against such
Indemnified Person as a direct result of such person's
negligence, bad faith or willful misfeasance will be
promptly repaid to Summit. In addition, anything in this
paragraph 7 to the contrary notwithstanding, Summit shall
not be liable for any settlement of any action or
proceeding effected without its written consent.
(b) Promptly after receipt by an Indemnified Person under sub-
paragraph (a) above of notice of the commencement of any
action, such Indemnified Person will, if a claim in respect
thereof is to be made against Summit under paragraph (a),
notify Summit in writing of the commencement thereof; but
the omission to so notify Summit will not relieve Summit
from any liability which it may have to any Indemnified
Person otherwise than under this paragraph 7 if such
omission shall not have materially prejudiced Summit's
ability to investigate or to defend against such claim. In
case any such action is brought against any Indemnified
Person, and such Indemnified Person notifies Summit of the
commencement thereof, Summit will be entitled to
participate therein and, to the extent that it may elect by
written notice delivered to the Indemnified Person promptly
after receiving the aforesaid notice from such Indemnified
Person, to assume the defense thereof with counsel
reasonably satisfactory to such Indemnified Person;
PROVIDED, HOWEVER, that if the defendants in any such
action include both
51
the Indemnified Person and Summit or any corporation
controlling, controlled by or under common control with
Summit, or any director, officer, employee, representative
or agent of any thereof, or any other "Qualified
Independent Underwriter" retained by Summit in connection
with the Offering and the Indemnified Person shall have
reasonably concluded that there may be legal defenses
available to it which are different from or additional to
those available to such other defendant, the Indemnified
Person shall have the right to select separate counsel to
represent it. Upon receipt of notice from Summit to such
Indemnified Person of its election so to assume the defense
of such action and approval by the Indemnified Person of
counsel, Summit will not be liable to such Indemnified
Person under this paragraph 7 for any fees of counsel
subsequently incurred by such Indemnified Person in
connection with the defense thereof (other than the
reasonable costs of investigation subsequently incurred by
such Indemnified Person) unless (i) the Indemnified Person
shall have employed separate counsel in accordance with the
provision of the next preceding sentence (it being
understood, however, that Summit shall not be liable for
the expenses of more than one separate counsel in any one
jurisdiction representing the Indemnified Person, which
counsel shall be approved by WELCO), (ii) Summit, within a
reasonable time after notice of commencement of the action,
shall not have employed counsel reasonably satisfactory to
the Indemnified Person to represent the Indemnified Person,
or (iii) Summit shall have authorized in writing the
employment of counsel for the Indemnified Person at the
expense of Summit, and except that, if clause (i) or (iii)
is applicable, such liability shall be only in respect of
the counsel referred to in such clause (i) or (iii).
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in
paragraph 7 is due in accordance with its terms but is for
any reason held by a court to be unavailable from Summit to
WELCO on grounds of policy or otherwise, Summit and WELCO
shall contribute to the aggregate losses, claims, damages
and liabilities (including legal or other expenses
reasonably incurred in connection with investigating or
defending same)
52
to which Summit and WELCO may be subject in such
proportion so that WELCO is responsible for that portion
represented by the percentage that its fee under this
Agreement bears to the public offering price appearing on
the cover page of the Prospectus and Summit is responsible
for the balance, except as Summit may otherwise agree to
reallocate a portion of such liability with respect to such
balance with any other person, including, without
limitation, any other "Qualified Independent Underwriter";
PROVIDED, HOWEVER, that (i) in no case shall WELCO be
responsible for any amount in excess of the fee set forth
in paragraph 4 above and (ii) no person guilty of
fraudulent misrepresentation within the meaning of Section
11(f) of the Act shall be entitled to contribution from any
person who was not guilty of such fraudulent
misrepresentation. For purposes of this paragraph (c), any
person controlling, controlled by or under common control
with WELCO, or any partner, director, officer, employee,
representative or any agent of any thereof, shall have the
same rights to contribution as WELCO and each person who
controls Summit within the meaning of Section 15 of the Act
or Section 20 of the Exchange Act, each officer of Summit
who shall have signed the Registration Statement and each
director of Summit shall have the same rights to
contribution as Summit, subject in each case to clause (i)
of this paragraph (c). Any party entitled to contribution
will, promptly after receipt of notice of commencement of
any action, suit or proceeding against such party in
respect of which a claim for contribution may be made
against the other party under this paragraph (c), notify
such party from whom contribution may be sought, but the
omission to so notify such party shall not relieve the
party from whom contribution may be sought from any other
obligation it or they may have hereunder or otherwise than
under this paragraph (c). The indemnity and contribution
agreements contained in this paragraph 7 shall remain
operative and in full force and effect regardless of any
investigation made by or on behalf of any Indemnified
Person or termination of this Agreement.
8. AUTHORIZATION BY SUMMIT.
Summit represents and warrants to WELCO that this
53
Agreement has been duly authorized, executed and
delivered by Summit and constitutes a valid and binding obligation
of Summit.
9. AUTHORIZATION BY MIS.
MIS represents and warrants to WELCO that this Agreement has been
duly authorized, executed and delivered by MIS and constitutes a
valid and binding obligation of MIS.
10. AUTHORIZATION BY WELCO.
WELCO represents and warrants to Summit that this Agreement has
been duly authorized, executed and delivered by WELCO and
constitutes a valid and binding obligation of WELCO.
11. NOTICE.
Whenever notice is required to be given pursuant to this
Agreement, such notice shall be in writing and shall be mailed by
first class mail, postage prepaid, addressed (a) if to WELCO
SECURITIES, INC., at, Attention: Xxxxxxx X. Xxxxxxx, Xxx Xxxxxxx
Xxxxxx, Xxxxx 000, Xxxx Xxxxxx, XX 00000-0000 and (b) if to Summit
or Metropolitan Investment Securities, Inc., at 000 Xxxx Xxxxxxx
Xxx., Xxxxxxx, XX 00000, Attention: Xxxxx X. Xxxxxxx, Assistant
Corporate Counsel.
12. GOVERNING LAW.
This Agreement shall be construed (both as to validity and
performance) and enforced in accordance with and governed by the
laws of the State of Idaho applicable to agreements made and to be
performed wholly within such jurisdiction.
IN WITNESS WHEREOF, this Agreement has been executed by the
parties hereto as of the day and year first above mentioned.
SUMMIT SECURITIES, INC.
By: ______________________________________________
Xxx Xxxxxx, President
METROPOLITAN INVESTMENT SECURITIES, INC.
By: ______________________________________________
Xxxxx Xxxxxxx, Secretary
WELCO SECURITIES, INC.
By: _____________________________________________
Xxxxxxx X. Xxxxxxx, President
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SCHEDULE A
SUMMIT SECURITIES, INC.
The opinion of WELCO is conditioned upon Summit's undertaking to
maintain the rates on its Certificates at least equal to an "assumed floor."
Based upon the pricing formula described below:
1. The interest rate to be paid on the Certificates shall be fixed by
Summit from time to time. However, the rate shall not be lower than the
computation made per the worksheet on Schedule B, which is attached and
incorporated by reference herein.
2. The "assumed floor" for 6 to 11 month Certificates shall be at least
1.0% above the lesser of the interest rate on the 6 month U.S. Treasury
Bills, on a discount basis, based upon the auction average (which is
published widely in newspapers throughout the country, normally on the
day following the auction) and a composite average of the offering rates
on 6 month certificates of deposit currently being offered by banks and
savings institutions in the northwestern section of the United States.
For purposes of this composite average of certificate of deposit rates,
the rates being offered by the following institutions shall be
considered initially:
a. Seattle First National Bank
b. Security State Bank
c. U.S. Bank of Washington
x. Xxxxx Fargo Bank
x. Xxxxxxxxxx Trust Bank
x. Xxxxxxxxxx Mutual Savings Bank
WELCO and Summit agree to review on an ongoing basis the group which
comprises the composite average, and may substitute another institution
in the composite group from time-to-time by mutual agreement, as the
case may be.
3. The "assumed floor" for 60 to 120 month Certificates shall be computed
in like manner as that described in paragraph "2" above, except that the
latest auction average on 5 year U.S. Treasury Notes shall be considered
in place of the 6 month U.S. Treasury Bills, and 5 year certificates of
deposit currently offered in the composite group shall be considered in
lieu of the 6 month rate.
4. Rates on 12 to 23 month, 24 to 35 month, 36 to 47 month and 48 to 59
month Certificates shall be at least equal to the interpolated
differences between the computation of the "assumed floor" of 6 to 11
month Certificates and 60 to 120 month Certificates, based upon the
computation set forth in Schedule B.
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5. Rates on Certificates payable in installments of principal and interest
shall be no lower than .25% below the "assumed floor" for 60 to 120
month Certificates.
6. The computation of the "assumed floor" shall be made monthly, as of the
first Tuesday of each month, or at such other times during any month
that Summit causes the offering rates to change from those in effect on
the first Tuesday of each month ("the computation date"). Summit agrees
to furnish WELCO with a computation of the "assumed floor" by completing
the worksheet on Schedule B. Should the offering rates at that time on
Summit's Certificates be less than the "assumed floor" as computed,
Summit agrees to raise the rates on its Certificates to at least the
"assumed floor" within 10 calendar days of the computation date. Should
Summit fail to raise its offering rates within the 10 day period
referred to above, WELCO reserves the right, in its uncontrolled
discretion, to withdraw its opinion regarding the offering rates on the
Certificates.
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SCHEDULE B
SUMMIT SECURITIES, INC.
PRICING FORMULA
C.D. RATE
Average rate between a composite of 8 selected Banks and Savings and Loans as of
the 1st Tuesday of each month.
GOVERNMENT RATE
Most current of 8 selected auction rates available on the 1st Tuesday of each
month.
Column A Column B Column C Column D Column E
Certificate of
Deposit (CD) Government Rate Enter Lesser of Summit's
Calculation Calculation Column A or B Assumed Floor Current Rate
____________________ _______________________ _______________ _____________ ______________
5 yr CD rate = _____ 5 yr Gov't Rate = _____
6 mo CD rate = _____ 6 mo Gov't Rate = _____
DIFFERENCE = _____ DIFFERENCE = _____
x .20 X .20
_____ _____
Differential = _____ Differential = _____
(enter in (a) below) (enter in (a) below)
6 mo (actual) 6 mo (actual)
rate = _____ rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 6-11 months
_____ _____
1 yr rate = _____ 1 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 12-23 months
_____ _____
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2 yr rate = _____ 2 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 24-35 months
_____ _____
3 yr rate = _____ 3 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 36-47 months
_____ _____
4 yr rate = _____ 4 yr rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 48-59 months
_____ _____
5 yr (actual) 5 yr (actual)
rate = _____ rate = _____ _______________ + 1%___________ _______________
(a) + (a) + 60-120 months
_____ _____
INSTALLMENT PAYMENTS (Floor equal to yearly _______ _______ ____________
rate MINUS .50) (yearly -.50
rate)
58
