Exhibit 1.1
UNDERWRITING AGREEMENT
BETWEEN
MONTANA XXXXX BREAD CO., INC.
AND
XXXXXX SECURITIES, INC.
DATED: ________________, 2002
TABLE OF CONTENTS
Page
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1. Purchase and Sale of Securities............................................................. 1
1.1 Firm Securities.................................................................... 1
1.1.1 Purchase of Firm Securities................................................ 1
1.1.2 Delivery and Payment....................................................... 1
1.2 Over-Allotment Option.............................................................. 2
1.2.1 Option Securities.......................................................... 2
1.2.2 Exercise of Option......................................................... 2
1.2.3 Payment and Delivery....................................................... 3
1.3 Underwriter's Purchase Option...................................................... 3
1.3.1 Purchase Option............................................................ 3
1.3.2 Payment and Delivery....................................................... 3
2. Representations and Warranties of the Company............................................... 3
2.1 Filing of Registration Statement................................................... 3
2.1.1 Pursuant to the Act........................................................ 3
2.1.2 Pursuant to the Exchange Act............................................... 4
2.2 No Stop Orders, Etc................................................................ 4
2.3 Disclosures in Registration Statement.............................................. 4
2.3.1 Securities Act Representation.............................................. 4
2.3.2 Disclosure of Contracts.................................................... 4
2.3.3 Prior Securities Transactions.............................................. 5
2.4 Changes After Dates in Registration Statement...................................... 5
2.4.1 No Material Adverse Change................................................. 5
2.4.2 Recent Securities Transactions, Etc........................................ 5
2.5 Independent Accountants............................................................ 5
2.6 Financial Statements............................................................... 6
2.7 Authorized Capital; Options; Etc................................................... 6
2.8 Valid Issuance of Securities; Etc.................................................. 6
2.8.1 Outstanding Securities..................................................... 6
2.8.2 Securities Sold Pursuant to this Agreement................................. 6
2.9 Registration Rights of Third Parties............................................... 7
2.10 Validity and Binding Effect of Agreements.......................................... 7
2.11 No Conflicts, Etc.................................................................. 7
2.12 No Defaults; Violations............................................................ 8
2.13 Corporate Power; Licenses; Consents................................................ 8
2.13.1 Conduct of Business........................................................ 8
2.13.2 Transactions Contemplated Herein........................................... 8
2.14 Title to Property; Insurance....................................................... 8
2.15 Litigation; Governmental Proceedings............................................... 9
2.16 Good Standing...................................................................... 9
2.17 Taxes ........................................................................... 9
2.18 Employees' Options................................................................. 9
2.19 Transactions Affecting Disclosure to NASD.......................................... 10
2.19.1 Finder's Fees.............................................................. 10
2.19.2 Payments Within Twelve Months.............................................. 10
2.19.2 Use of Proceeds............................................................ 10
TABLE OF CONTENTS (CONT.)
Page
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2.19.4 Insider's NASD Affiliation................................................. 10
2.20 Foreign Corrupt Practices Act...................................................... 10
2.21 American Stock Exchange Eligibility................................................ 11
2.22 Intangibles........................................................................ 11
2.23 Relations With Employees........................................................... 11
2.23.1 Employee Matters........................................................... 11
2.23.2 Employee Benefit Plans..................................................... 11
2.24 Officers' Certificate.............................................................. 12
2.25 Warrant Agreement.................................................................. 12
2.26 Lock-Up Agreements................................................................ 12
2.27 Subsidiaries....................................................................... 12
2.28 Environmental Matters.............................................................. 13
2.29 Product Liability Insurance........................................................ 13
2.30 Conversion of Preferred Stock and Debentures....................................... 13
2.31 Related Party Transactions......................................................... 13
2.32 [Intentionally Omitted]............................................................ 13
2.33 Xxxxxx Capital..................................................................... 13
2.34 BB&T Capital Markets............................................................... 13
2.35 Contribution to Capital............................................................ 13
2.36 Sale of Java Joe's Public Market Roastery Inc...................................... 13
3. Covenants of the Company.................................................................... 13
3.1 Amendments to Registration Statement............................................... 13
3.2 Federal Securities Laws............................................................ 14
3.2.1 Compliance................................................................. 14
3.2.2 Filing of Final Prospectus................................................. 14
3.2.3 Exchange Act Registration.................................................. 14
3.3 Blue Sky Filings................................................................... 14
3.4 Delivery to the Underwriter of Prospectuses........................................ 14
3.5 Events Requiring Notice to the Underwriter......................................... 15
3.6 Review of Financial Statements..................................................... 15
3.7 Secondary Market Trading and Standard & Poor's..................................... 15
3.8 AMEX Maintenance................................................................... 15
3.9 Warrant Solicitation and Registration of Common Stock
Underlying the Warrants.................................................... 16
3.9.1 Warrant Solicitation Fees.................................................. 16
3.9.2 Registration of Common Stock............................................... 16
3.10 Public Relations Firm.............................................................. 16
3.11 Reports to the Underwriter......................................................... 16
3.11.1 Periodic Reports, Etc...................................................... 16
3.11.2 Transfer Sheets and Weekly Position Listings............................... 17
3.11.3 Secondary Market Trading Memorandum........................................ 17
3.12 Agreements between the Underwriter and the Company................................. 17
3.12.1 Merger and Acquisition Agreement........................................... 17
3.12.2 Financial Consulting Agreement............................................. 17
3.12.3 Underwriter's Purchase Option.............................................. 17
ii
TABLE OF CONTENTS (CONT.)
Page
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3.13 Disqualification of Form SB-2 or Form S-1 (or other appropriate form).............. 18
3.14 Payment of Expenses................................................................ 18
3.14.1 General Expenses........................................................... 18
3.14.2 Non-Accountable Expenses................................................... 19
3.15 Application of Net Proceeds........................................................ 19
3.16 Delivery of Earnings Statements to Security Holders................................ 19
3.17 Key Person Life Insurance.......................................................... 19
3.18 Stabilization...................................................................... 19
3.19 Internal Controls.................................................................. 20
3.20 Accountants and Lawyers............................................................ 20
3.21 Transfer Agent..................................................................... 20
3.22 Sale of Securities................................................................. 20
3.23 Exercise Price of Options/Warrants................................................. 20
4. Conditions of the Underwriter's Obligations................................................. 20
4.1 Regulatory Matters................................................................. 21
4.1.1 Effectiveness of Registration Statement.................................... 21
4.1.2 NASD Clearance............................................................. 21
4.1.3 No Blue Sky Stop Orders.................................................... 21
4.2 Company Counsel Matters............................................................ 21
4.2.1 Effective Date Opinion of Counsel.......................................... 21
4.2.2 Closing Date and Option Closing Date of Counsel............................ 21
4.2.3 Reliance................................................................... 21
4.2.4 [Intentionally Omitted].................................................... 22
4.3 Cold Comfort Letter................................................................ 22
4.4 Officers' Certificates............................................................. 23
4.4.1 Officers' Certificate...................................................... 23
4.4.2 Secretary's Certificate.................................................... 23
4.5 No Material Changes................................................................ 23
4.6 Delivery of Agreements............................................................. 24
4.7 Opinion of Counsel of the Underwriter.............................................. 24
4.8 Unaudited Financials............................................................... 24
5. Indemnification ........................................................................... 24
5.1 Indemnification of the Underwriter................................................. 24
5.1.1 General.................................................................... 24
5.1.2 Procedure.................................................................. 25
5.2 Indemnification of the Company..................................................... 26
5.3 Contribution....................................................................... 26
5.3.1 Contribution Rights........................................................ 26
5.3.2 Contribution Procedure..................................................... 27
6. [Intentionally Omitted]..................................................................... 27
7. Additional Covenants........................................................................ 27
7.1 Board Designee..................................................................... 27
7.2 [Intentionally Omitted]............................................................ 27
7.3 [Intentionally Omitted]............................................................ 28
7.4 Press Release...................................................................... 28
7.5 Form S-8........................................................................... 28
7.6 Transactional Bibles............................................................... 28
iii
TABLE OF CONTENTS (cont.)
Page
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7.7 Compensation and Other Arrangements................................................ 28
8. Representations and Agreements to Survive Delivery.......................................... 28
9. Effective Date of This Agreement and Termination Thereof.................................... 28
9.1 Effective Date..................................................................... 28
9.2 Termination........................................................................ 28
9.3 Notice ........................................................................... 29
9.4 Expenses........................................................................... 29
9.5 Indemnification.................................................................... 29
10. Miscellaneous ........................................................................... 29
10.1 Notices ........................................................................... 29
10.2 Headings........................................................................... 30
10.3 Amendment.......................................................................... 30
10.4 Entire Agreement................................................................... 30
10.5 Binding Effect..................................................................... 30
10.6 Governing Law, Jurisdiction........................................................ 30
10.7 Execution in Counterparts.......................................................... 31
10.8 Waiver, Etc........................................................................ 31
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INDEX OF DEFINITIONS
Term Section
---- -------
Act.................................................................................2.1.1
AMEX.................................................................................2.21
Closing Date........................................................................1.1.2
Code ..............................................................................2.23.2
Commission..........................................................................2.1.1
Common Stock........................................................................1.1.1
Company......................................................................Introductory
Paragraph
Debentures...........................................................................2.26
Effective Date......................................................................1.2.2
ERISA..............................................................................2.23.2
ERISA Plans........................................................................2.23.2
Exchange Act........................................................................2.1.2
Filing Date........................................................................2.19.2
Financial Consulting Agreement.....................................................3.13.1
Firm Securities.....................................................................1.1.1
Insiders.............................................................................2.26
Intangibles..........................................................................2.22
Merger and Acquisition Agreement...................................................3.12.1
NASD...............................................................................2.19.1
Option Closing Date.................................................................1.2.2
Option Securities...................................................................1.2.1
Over-allotment Option...............................................................1.2.1
Preferred Stock......................................................................2.26
Preliminary Prospectus..............................................................2.1.1
Prospectus..........................................................................2.1.1
Public Securities...................................................................1.2.1
Registration Statement..............................................................2.1.1
Regulations.........................................................................2.1.1
Secondary Market Trading Memorandum................................................3.11.3
Securities..........................................................................1.3.1
Subsidiary(ies)......................................................................2.27
Transfer Agent.......................................................................3.21
Unaudited Financials..................................................................4.8
Underwriter..................................................................Introductory
Paragraph
Underwriter's Purchase Option.......................................................1.3.1
Underwriter's Securities............................................................1.3.1
Underwriter's Shares................................................................1.3.1
Underwriter's Warrants..............................................................1.3.1
Warrant.............................................................................1.1.1
Warrant Agreement....................................................................2.25
v
MONTANA XXXXX BREAD CO., INC.
2,000,000 SHARES OF COMMON STOCK
AND
2,000,000 REDEEMABLE COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
New York, New York
, 2002
Xxxxxx Securities, Inc.
0000 Xxxxxxx Xxxxxxxx
Xxxxxxx, Xxx Xxxx 00000
Ladies and Gentlemen:
The undersigned, Montana Xxxxx Bread Co., Inc., a Delaware corporation
(the "Company"), hereby confirms its agreement with Xxxxxx Securities, Inc.
(being referred to herein variously as "you" or the "Underwriter") as follows:
1. PURCHASE AND SALE OF SECURITIES.
1.1 FIRM SECURITIES.
1.1.1 PURCHASE OF FIRM SECURITIES. On the basis of the
representations and warranties 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 2,000,000
shares of the Company's common stock, par value $.001 per share ("Common Stock")
at a purchase price (net of discounts and commissions) of $____________ [NET
PRICE TO UNDERWRITER] per share, and 2,000,000 Redeemable Common Stock Purchase
Warrants ("Warrant(s)") at a purchase price (net of discounts and commissions)
of $_________ [NET PRICE TO UNDERWRITER] per Warrant, each Warrant to purchase
one share of Common Stock at a purchase price of $__________ per share during
the period beginning 90 days after the Effective Date (as hereinafter defined)
and ending on the fifth anniversary of the Effective Date. Such shares of Common
Stock and Warrants are referred to herein as the "Firm Securities."
1.1.2 DELIVERY AND PAYMENT. Delivery and payment for the Firm
Securities shall be made at 10:00 A.M., New York time, on or before the third
business day following the date that the Firm Securities commence trading or at
such earlier time as the Underwriter shall determine, or at such other time as
shall be agreed upon by the Underwriter and the Company, at the offices of
counsel to the Underwriter or at such
1
other place as shall be agreed upon by the Underwriter and the Company. The
hour and date of delivery and payment for the Firm Securities are called the
"Closing Date." Payment for the Firm Securities shall be made on the Closing
Date at the Underwriter's election by wire transfer or by certified or bank
cashier's check(s) in New York Clearing House funds, payable to the order of
the Company upon delivery to you of certificates (in form and substance
reasonably satisfactory to the Underwriter) representing the Firm Securities
for the account of the Underwriter. The certificates representing the Firm
Securities shall be registered in such name or names and in such authorized
denominations as the Underwriter may request in writing at least two full
business days prior to the Closing Date. The Company will permit the
Underwriter to examine and package the Firm Securities for delivery at least
one full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Securities except upon tender of payment
by the Underwriter for all the Firm Securities.
1.2 OVER-ALLOTMENT OPTION.
1.2.1 OPTION SECURITIES. For the purposes of covering any
over-allotments in connection with the distribution and sale of the Firm
Securities, the Underwriter is hereby granted an option to purchase up to an
additional 300,000 shares of Common Stock and/or 300,000 Warrants from the
Company ("Over-allotment Option"). Such additional 300,000 shares of Common
Stock and 300,000 Warrants are hereinafter referred to as the "Option
Securities." The Firm Securities and the Option Securities, together with the
shares of Common Stock issuable upon exercise of the Warrants, are hereinafter
referred to collectively as the "Public Securities." The purchase price to be
paid for the Option Securities will be the same price per Option Security as the
price per Firm Security set forth in Section 1.1.1 hereof.
1.2.2 EXERCISE OF OPTION. The Over-allotment Option granted
pursuant to Section 1.2.1 hereof may be exercised by the Underwriter as to all
or any part of the Option Securities at any time, from time to time, within
forty-five (45) days after the effective date ("Effective Date") of the
Registration Statement (as hereinafter defined). The Underwriter will not be
under any obligation to purchase any Option Securities prior to the exercise of
the Over-allotment Option. The Over-allotment Option granted hereby may be
exercised by the giving of oral notice to the Company from the Underwriter,
which must be confirmed within one (1) business day by a letter or telecopy
setting forth the number of Option Securities to be purchased, the date and time
for delivery of and payment for the Option Securities and stating that the
Option Securities referred to therein are to be used for the purpose of covering
over-allotments in connection with the distribution and sale of the Firm
Securities. If such notice is given at least two full business days prior to the
Closing Date, the date set forth therein for such delivery and payment will be
the Closing Date. If such notice is given thereafter, the date set forth therein
for such delivery and payment will not be earlier than three full business days
after the date of the notice, unless the Underwriter and the Company agree upon
an earlier date. If such delivery and payment for the Option Securities does not
occur on the Closing Date, the date and time of the closing for such Option
Securities will be as set forth in the notice (hereinafter the "Option Closing
Date"). Upon exercise of the Over-allotment Option, the Company will become
obligated to convey to the Underwriter, and, subject to the terms and conditions
set forth herein, the Underwriter will become obligated to purchase, the number
of Option Securities specified in such notice.
2
1.2.3 PAYMENT AND DELIVERY. Payment for the Option Securities
will be at the Underwriter's election by wire transfer or by certified or bank
cashier's check(s) in New York Clearing House funds, payable to the order of the
Company at the offices of the Underwriter or at such other place as shall be
agreed upon by the Underwriter and the Company upon delivery to you of
certificates representing such securities for the Underwriter. The certificates
representing the Option Securities to be delivered will be in such denominations
and registered in such names as the Underwriter requests not less than two full
business days prior to the Closing Date or the Option Closing Date, as the case
may be. The Company will permit the Underwriter to examine and package the
Option Securities for delivery not less than one full business day prior to such
Closing Date.
1.3 UNDERWRITER'S PURCHASE OPTION.
1.3.1 PURCHASE OPTION. The Company hereby agrees to issue and
sell to the Underwriter (and/or its designees) on the Closing Date for an
aggregate purchase price of $100, an option ("Underwriter's Purchase Option")
for the purchase of an aggregate of 200,000 shares of Common Stock
("Underwriter's Shares") at an initial exercise price of 165% of the initial
offering price of a share of common stock (i.e, $________ per share of Common
Stock) and/or 200,000 Warrants ("Underwriter's Warrants") at an initial exercise
price of 165% of the initial offering price of a Warrant (i.e., $________ per
Warrant). Each of the Underwriter's Shares and the Underwriter's Warrants is
identical to the Common Stock and Warrants constituting the Firm Securities. The
Underwriter's Purchase Option shall be exercisable for a period of four years
commencing one year from the Effective Date. The Underwriter's Purchase Option,
the Underwriter's Shares, the Underwriter's Warrants and the shares of Common
Stock issuable upon exercise of the Underwriter's Warrants are hereinafter
referred to collectively as the "Underwriter's Securities." The Public
Securities and the Underwriter's Securities are hereinafter referred to
collectively as the "Securities."
1.3.2 PAYMENT AND DELIVERY. Delivery and payment for the
Underwriter's Purchase Option shall be made on the Closing Date. The Company
shall deliver to the Underwriter, upon payment therefor, certificates for the
Underwriter's Purchase Option in the name or names and in such authorized
denominations as the Underwriter may request.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to the Underwriter as follows:
2.1 FILING OF REGISTRATION STATEMENT.
2.1.1 PURSUANT TO THE ACT. The Company has filed with the
Securities and Exchange Commission ("Commission") a registration statement and
an amendment or amendments thereto, on Form SB-2 (No. 333-86956), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Securities under the Securities Act of 1933, as amended ("Act"), which
registration statement and amendment or amendments have been prepared by the
Company in conformity with the requirements of the Act, and the rules and
regulations
3
("Regulations") of the Commission under the Act. Except as the context may
otherwise require, such registration statement, as amended, on file with the
Commission at the time the registration statement becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein and all information
deemed to be a part thereof as of such time pursuant to paragraph (b) of Rule
430A of the Regulations), is hereinafter called the "Registration Statement,"
and the form of the final prospectus dated the Effective Date or such later date
as may be determined by the Underwriter (or, if applicable, the form of final
prospectus filed with the Commission pursuant to Rule 424 of the Regulations),
is hereinafter called the "Prospectus." The Registration Statement has been
declared effective by the Commission on the date hereof.
2.1.2 PURSUANT TO THE EXCHANGE ACT. The Company has filed with
the Commission a registration statement on Form 8-A (No. _________) providing
for the registration under the Securities Exchange Act of 1934, as amended
("Exchange Act"), of the Common Stock and the Warrants. Such registration of the
Common Stock and the Warrants has been declared effective by the Commission on
the date hereof.
2.2 NO STOP ORDERS, ETC. Neither the Commission nor, to the
Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus or has instituted
or, to the Company's knowledge, threatened to institute any proceedings with
respect to such an order.
2.3 DISCLOSURES IN REGISTRATION STATEMENT.
2.3.1 SECURITIES ACT REPRESENTATION. At the time the
Registration Statement became effective and at all times subsequent thereto up
to and including the Closing Date and the Option Closing Date, if any, the
Registration Statement and the Prospectus and any amendment or supplement
thereto contained and will contain all material statements that are required to
be stated therein in accordance with the Act and the Regulations, and conformed
and will conform in all material respects to the requirements of the Act and the
Regulations; neither the Registration Statement nor the Prospectus, nor any
amendment or supplement thereto, during such time period and on such dates,
contained or will contain any untrue statement of a material fact or omitted or
will omit to state any material fact required to be stated therein or necessary
to make the statements therein not misleading. When any Preliminary Prospectus
was first filed with the Commission (whether filed as part of the Registration
Statement or any amendment thereto or pursuant to Rule 424(a) of the
Regulations) and when any amendment thereof or supplement thereto was first
filed with the Commission, such Preliminary Prospectus and any amendments
thereof and supplements thereto complied in all material respects with the
applicable provisions of the Act and the Regulations and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The representation
and warranty made in this Section 2.3.1 does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by the Underwriter
expressly for use in the Registration Statement or Prospectus or any amendment
thereof or supplement thereto.
4
2.3.2 DISCLOSURE OF CONTRACTS. The description in the
Registration Statement and the Prospectus of contracts and other documents is
accurate in all material respects and presents fairly the information required
to be disclosed and there are no contracts or other documents required to be
described in the Registration Statement or the Prospectus or to be filed with
the Commission as exhibits to the Registration Statement that have not been so
described or filed. Each contract or other instrument (however characterized or
described) to which the Company is a party or by which its property or business
is or may be bound or affected and that is (i) referred to in the Prospectus, or
(ii) material to the Company's business, has been duly and validly executed, is
in full force and effect in all material respects in accordance with its terms
and is enforceable against the Company and, to the Company's knowledge, the
other parties thereto in accordance with its terms, and none of such contracts
or instruments has been assigned by the Company, and neither the Company nor, to
the Company's knowledge, any other party is in default thereunder and, to the
Company's knowledge, no event has occurred that, with the lapse of time or the
giving of notice, or both, would constitute a default thereunder. None of the
material provisions of such contracts or instruments violates or will result in
a violation of any existing applicable law, rule, regulation, judgment, order or
decree of any governmental agency or court having jurisdiction over the Company
or any of its assets or businesses, including, without limitation, those
relating to environmental laws and regulations.
2.3.3 PRIOR SECURITIES TRANSACTIONS. No securities of the
Company have been sold by the Company or by or on behalf of, or for the benefit
of, any person or persons controlling, controlled by, or under common control
with the Company within the three years prior to the date hereof, except as
disclosed in the Registration Statement.
2.4 CHANGES AFTER DATES IN REGISTRATION STATEMENT.
2.4.1 NO MATERIAL ADVERSE CHANGE. Since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, except as otherwise specifically stated therein, (i) there has been
no material adverse change in the condition, financial or otherwise, or in the
results of operations, business or business prospects of the Company, including,
but not limited to, a material loss or interference with its business from fire,
storm, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree,
whether or not arising in the ordinary course of business, and (ii) there have
been no transactions entered into by the Company, other than those in the
ordinary course of business, that are material with respect to the condition,
financial or otherwise, or to the results of operations, business or business
prospects of the Company.
2.4.2 RECENT SECURITIES TRANSACTIONS, ETC. Since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or (ii)
declared or paid any dividend or made any other distribution on or in respect to
its capital stock, except as provided under the terms of the Company's Series A
Preferred Stock.
5
2.5 INDEPENDENT ACCOUNTANTS. PricewaterhouseCoopers LLP, whose
report is filed with the Commission as part of the Registration Statement, are
independent accountants as required by the Act and the Regulations.
2.6 FINANCIAL STATEMENTS. The financial statements, including the
notes thereto and supporting schedules included in the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company at the dates and for the periods to which they apply;
and such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved; and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein. The pro forma
financial information set forth in the Registration Statement and Prospectus
reflects all significant assumptions and adjustments relating to the business
and operations of the Company.
2.7 AUTHORIZED CAPITAL; OPTIONS; ETC. The Company had at the date or
dates indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions and adjustments stated in the Registration Statement
and the Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement and the Prospectus, on the Effective Date and on the Closing Date
there will be no outstanding or authorized subscriptions, options, warrants or
other rights to purchase or otherwise acquire, or preemptive rights with respect
to the issuance or sale of any Common Stock of the Company, including any
obligations to issue any shares pursuant to anti-dilution provisions, or any
security convertible into shares of Common Stock of the Company, or any
contracts or commitments to issue or sell shares of Common Stock or any such
options, warrants, rights or convertible securities.
2.8 VALID ISSUANCE OF SECURITIES; ETC.
2.8.1 OUTSTANDING SECURITIES. All issued and outstanding
securities of the Company have been duly authorized and validly issued and are
fully paid and non-assessable; the holders thereof have no rights of rescission
with respect thereto, and are not subject to personal liability by reason of
being such holders; and none of such securities were issued in violation of the
preemptive rights of any holders of any security of the Company or similar
contractual rights granted by the Company. The outstanding options and warrants
to purchase shares of Common Stock constitute valid and binding obligations of
the Company, enforceable in accordance with their terms. The authorized Common
Stock and outstanding options and warrants to purchase shares of Common Stock
conform to all statements relating thereto contained in the Registration
Statement and the Prospectus. The offers and sales by the Company of the
outstanding Common Stock, options and warrants to purchase shares of Common
Stock, and securities convertible into shares of Common Stock, were at all
relevant times registered under the Act and registered or qualified under the
applicable state securities or Blue Sky laws or exempt from such registration or
qualification requirements.
2.8.2 SECURITIES SOLD PURSUANT TO THIS AGREEMENT. The
Securities have been duly authorized and, when issued and paid for, will be
validly issued, fully
6
paid and non-assessable; the holders thereof are not and will not be subject to
personal liability by reason of being such holders; the Securities are not and
will not be subject to the preemptive rights of any holders of any security of
the Company or similar contractual rights granted by the Company; and all
corporate action required to be taken for the authorization, issuance and sale
of the Securities has been duly and validly taken. When issued, the
Underwriter's Purchase Option, the Underwriter's Warrants and the Warrants will
constitute valid and binding obligations of the Company to issue and sell, upon
exercise thereof and payment therefor, the number and type of securities of the
Company called for thereby and the Underwriter's Purchase Option, the
Underwriter's Warrants and the Warrants will be enforceable against the Company
in accordance with their respective terms, except (i) as such enforceability may
be limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (ii) as enforceability of any indemnification or
contribution provision may be limited under the federal and state securities
laws, and (iii) that the remedy of specific performance and injunctive and other
forms of equitable relief may be subject to the equitable defenses and to the
discretion of the court before which any proceeding therefor may be brought.
2.9 REGISTRATION RIGHTS OF THIRD PARTIES. Except as set forth in the
Prospectus, no holders of any securities of the Company or of any options or
warrants of the Company or other rights exercisable for or convertible or
exchangeable into securities of the Company have the right to require the
Company to register any such securities of the Company under the Act or to
include any such securities in a registration statement to be filed by the
Company.
2.10 VALIDITY AND BINDING EFFECT OF AGREEMENTS. This Agreement and
the Warrant Agreement (as hereinafter defined) have been duly and validly
authorized by the Company and constitute, and the Underwriter's Purchase Option,
the Financial Consulting Agreement and the Merger and Acquisition Agreement have
been duly and validly authorized by the Company and, when executed and
delivered, will constitute, the valid and binding agreements of the Company,
enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification or contribution provision may be limited
under the federal and state securities laws, and (iii) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
2.11 NO CONFLICTS, ETC. The execution, delivery, and performance by
the Company of this Agreement, the Underwriter's Purchase Option, the Warrant
Agreement, the Financial Consulting Agreement and the Merger and Acquisition
Agreement, the consummation by the Company of the transactions herein and
therein contemplated and the compliance by the Company with the terms hereof and
thereof do not and will not, with or without the giving of notice or the lapse
of time or both, (i) result in a breach of, or conflict with any of the terms
and provisions of, or constitute a default under, or result in the creation,
modification, termination or imposition of any lien, charge or encumbrance upon
any property or assets of the Company pursuant to the terms of any indenture,
mortgage, deed of trust, note, loan or credit agreement or any other agreement
or instrument evidencing an obligation for borrowed money, or any
7
other agreement or instrument to which the Company is a party or by which the
Company may be bound or to which any of the property or assets of the Company is
subject; (ii) result in any violation of the provisions of the Certificate of
Incorporation or the By-Laws of the Company; (iii) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or businesses; or (iv) have a material adverse effect on
any permit, license, certificate, registration, approval, consent, license or
franchise of or concerning the Company.
2.12 NO DEFAULTS; VIOLATIONS. Except as described in the Prospectus,
no default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other material agreement or instrument
to which the Company is a party or by which the Company may be bound or to which
any of the properties or assets of the Company is subject. Except as described
in the Prospectus, the Company is not in violation of any term or provision of
its Certificate of Incorporation or By-Laws or in violation of any material
franchise, license, permit, applicable law, rule, regulation, judgment or decree
of any governmental agency or court, domestic or foreign, having jurisdiction
over the Company or any of its properties or businesses.
2.13 CORPORATE POWER; LICENSES; CONSENTS.
2.13.1 CONDUCT OF BUSINESS. The Company has all requisite
corporate power and authority, and has all necessary and material
authorizations, approvals, orders, licenses, certificates and permits of and
from all governmental regulatory officials and bodies to own or lease its
properties and conduct its business as described in the Prospectus, and the
Company is and has been doing business in compliance with all such material
authorizations, approvals, orders, licenses, certificates and permits and all
federal, state and local laws, rules and regulations. The disclosures in the
Registration Statement concerning the effects of federal, state and local
regulation on the Company's business as currently contemplated are correct in
all material respects and do not omit to state a material fact.
2.13.2 TRANSACTIONS CONTEMPLATED HEREIN. The Company has all
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
approval, authorization or order of, and no filing with, any court, government
agency or other body is required for the valid authorization, issuance, sale and
delivery, of the Securities and the consummation of the transactions and
agreements contemplated by this Agreement, the Warrant Agreement, the
Underwriter's Purchase Option, the Financial Consulting Agreement and the Merger
and Acquisition Agreement and the Prospectus, except with respect to applicable
federal and state securities laws.
2.14 TITLE TO PROPERTY; INSURANCE. The Company has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property (tangible and intangible) owned or leased by it, free
and clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material
8
nature whatsoever, other than those referred to in the Prospectus and liens for
taxes not yet due and payable. The Company has adequately insured its properties
against loss or damage by fire or other casualty and maintains, in adequate
amounts, such other insurance as is usually maintained by companies engaged in
the same or similar business.
2.15 LITIGATION; GOVERNMENTAL PROCEEDINGS. Except as set forth in
the Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or, to the
Company's knowledge, threatened against, or involving the properties or business
of, the Company that might materially and adversely affect the financial
position, prospects, value or the operation of the properties or the business of
the Company, or that questions the validity of the capital stock of the Company
or this Agreement or of any action taken or to be taken by the Company pursuant
to, or in connection with, this Agreement. There are no outstanding orders,
judgments or decrees of any court, governmental agency or other tribunal,
domestic or foreign, naming the Company and enjoining the Company from taking,
or requiring the Company to take, any action, or to which the Company, its
properties or business is bound or subject.
2.16 GOOD STANDING. The Company has been duly organized and is
validly existing as a corporation and is in good standing under the laws of the
state of its incorporation. The Company is duly qualified and licensed and in
good standing as a foreign corporation in each jurisdiction in which ownership
or leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
material adverse effect on the financial position, prospects or value or the
operation of the properties or the business of the Company.
2.17 TAXES. The Company has filed all returns (as hereinafter
defined) required to be filed with taxing authorities prior to the date hereof
or has duly obtained extensions of time for the filing thereof. The Company has
paid all undisputed portions of all taxes (as hereinafter defined) shown as due
on such returns that were filed and has paid all taxes imposed on or assessed
against the Company. The provisions for taxes payable, if any, shown on the
financial statements filed with or as part of the Registration Statement are
sufficient for all accrued and unpaid taxes, whether or not disputed, and for
all periods to and including the dates of such consolidated financial
statements. Except as disclosed in writing to the Underwriter, (i) no issues
have been raised (and are currently pending) by any taxing authority in
connection with any of the returns or taxes asserted as due from the Company,
and (ii) no waivers of statutes of limitation with respect to the returns or
collection of taxes have been given by or requested from the Company. The term
"taxes" mean all federal, state, local, foreign, and other net income, gross
income, gross receipts, sales, use, ad valorem, transfer, franchise, profits,
license, lease, service, service use, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, property, windfall profits, customs,
duties or other taxes, fees, assessments, or charges of any kind whatever,
together with any interest and any penalties, additions to tax, or additional
amounts with respect thereto. The term "returns" means all returns,
declarations, reports, statements, and other documents required to be filed in
respect to taxes.
2.18 EMPLOYEES' OPTIONS. No more than 3,000 shares of Common Stock
(underlying outstanding options to purchase Common Stock) are eligible for sale
9
pursuant to Rule 701 promulgated under the Act in the 12-month period following
the Effective Date, and none of such options have an exercise price lower than
$10.00 per share.
2.19 TRANSACTIONS AFFECTING DISCLOSURE TO NASD.
2.19.1 FINDER'S FEES. Except as set forth on SCHEDULE 2.19.1,
there are no claims, payments, issuances, arrangements or understandings for
services in the nature of a finder's, consulting or origination fee with respect
to the introduction of the Company to the Underwriter or the sale of the
Securities hereunder or any other arrangements, agreements, understandings,
payments or issuances with respect to the Company that may affect the
Underwriter's compensation, as determined by the National Association of
Securities Dealers, Inc. ("NASD").
2.19.2 PAYMENTS WITHIN TWELVE MONTHS. Except as set forth on
SCHEDULE 2.19.2, and other than payments to the Underwriter, the Company has not
made any direct or indirect payments (in cash, securities or otherwise) to (i)
any person, as a finder's fee, investing fee or otherwise, in consideration of
such person raising capital for the Company or introducing to the Company
persons who provided capital to the Company, (ii) any NASD member, or (iii) any
person or entity that has any direct or indirect affiliation or association with
any NASD member within the 12-month period prior to the date on which the
Registration Statement was filed with the Commission ("Filing Date") or
thereafter, assuming the accuracy of the information contained in the NASD
questionnaires received from each of the Company's security holders.
2.19.3 USE OF PROCEEDS. None of the net proceeds of the
offering will be paid by the Company to any participating NASD member or any
affiliate or associate of any participating NASD member, except as specifically
authorized herein.
2.19.4 INSIDERS' NASD AFFILIATION. Except as set forth on
SCHEDULE 2.19.4, no officer or director of the Company or owner of any of the
Company's unregistered securities has any direct or indirect affiliation or
association with any NASD member. The Company will advise the Underwriter and
the NASD if it learns that any officer, director or stockholder of the Company
is or becomes an affiliate or associated person of an NASD member participating
in the offering.
2.20 FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any
of its officers, directors, employees, agents or any other person acting on
behalf of the Company has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who was, is, or may
be in a position to help or hinder the business of the Company (or assist it in
connection with any actual or proposed transaction) that (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
material adverse effect on the assets,
10
business or operations of the Company as reflected in any of the financial
statements contained in the Prospectus or (iii) if not continued in the future,
might adversely affect the assets, business, operations or prospects of the
Company. The Company's internal accounting controls and procedures are
sufficient to cause the Company to comply with the Foreign Corrupt Practices Act
of 1977, as amended.
2.21 AMERICAN STOCK EXCHANGE ELIGIBILITY. As of the Effective Date,
the Public Securities have been approved for listing on The American Stock
Exchange ("AMEX").
2.22 INTANGIBLES. The Company owns or possesses the requisite
licenses or rights to use all trademarks, service marks, service names, trade
names, patents and patent applications, copyrights and other rights
(collectively, "Intangibles") described as being licensed to or owned by it in
the Registration Statement. The Company's Intangibles that have been registered
in the United States Patent and Trademark Office have been fully maintained and
are in full force and effect. Except as described in the Prospectus, there is no
claim or action by any person pertaining to, or proceeding pending or, to the
Company's knowledge, threatened relating to, and the Company has not received
any notice of conflict with the asserted rights of others, that challenges the
exclusive right of the Company with respect to, any Intangibles used in the
conduct of the Company's business. The Intangibles and the Company's current
products, services and processes do not infringe on any Intangibles held by any
third party. To the Company's knowledge, no others have infringed upon the
Intangibles of the Company.
2.23 RELATIONS WITH EMPLOYEES.
2.23.1 EMPLOYEE MATTERS. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment practices,
terms and conditions of employment and wages and hours relating thereto. There
are no pending investigations involving the Company by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state and local laws and regulations. There is no unfair labor practice
charge or complaint against the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or threatened against or involving the Company or any predecessor
entity, and none has ever occurred. No question concerning representation exists
respecting the employees of the Company and no collective bargaining agreement
or modification thereof is currently being negotiated by the Company. No
grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.23.2 EMPLOYEE BENEFIT PLANS. Other than as set forth in the
Registration Statement, the Company neither maintains, sponsors nor contributes
to, nor is it required to contribute to, any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a,
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not maintain or contribute
to, and has at no time maintained or
11
contributed to, a defined benefit plan, as defined in Section 3(35) of ERISA. No
ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended ("Code"), that could subject the
Company to any tax penalty for prohibited transactions and that has not
adequately been corrected. Each ERISA Plan is in compliance with all material
reporting, disclosure and other requirements of the Code and ERISA as they
relate to any such ERISA Plan. Determination letters have been received from the
Internal Revenue Service with respect to each ERISA Plan that is intended to
comply with Code Section 401(a), stating that such ERISA Plan and the attendant
trust are qualified thereunder. The Company has never completely or partially
withdrawn from a "multi-employer plan."
2.24 OFFICERS' CERTIFICATE. Any certificate signed by any duly
authorized officer of the Company and delivered to you or to your counsel shall
be deemed a representation and warranty by the Company to the Underwriter as to
the matters covered thereby and as of the date given.
2.25 WARRANT AGREEMENT. The Company has entered into a warrant
agreement with respect to the Warrants and the Underwriter's Warrants
substantially in the form filed as an exhibit to the Registration Statement
("Warrant Agreement") with Continental Stock Transfer & Trust Company, providing
for, among other things, (i) no redemption of the Warrants without the consent
of the Underwriter and (ii) for the payment of a warrant solicitation fee as
contemplated by Section 3.9 hereof.
2.26 LOCK-UP AGREEMENTS. Except as set forth on SCHEDULE 2.26, the
Company has caused to be duly executed legally binding and enforceable
agreements pursuant to which all of the officers and directors of the Company
and all holders of the outstanding Common Stock of the Company or warrants or
options to purchase, or other securities convertible into, shares of Common
Stock (including their family members and affiliates) (collectively, the
"Insiders"), agree not to sell any shares of Common Stock or warrants or options
to purchase, or other securities convertible into Common Stock owned by them
(either pursuant to Rule 144 of the Regulations or otherwise) for a period of 24
months following the Effective Date except with the prior written consent of the
Underwriter. Notwithstanding the foregoing, the Company has caused to be duly
executed legally binding and enforceable agreements pursuant to which (i) Xxx
Xxxxxxxxx, (ii) holders of shares of the Company's Series A Preferred Stock
("Preferred Stock") and Subordinated Convertible Debentures ("Debentures") which
have converted into shares of Common Stock on the date hereof or will convert on
the Closing Date into shares of Common Stock (but only with respect to the
Common Stock issued or issuable upon conversion, not with respect to other
Common Stock owned by them), (iv) Xxxxxx Capital and (iii) the persons set forth
on SCHEDULE 2.26, agree not to sell any shares of Common Stock or warrants or
options to purchase, or other securities convertible into Common Stock owned by
them (either pursuant to Rule 144 of the Regulations or otherwise) for a period
of 13 months following the Effective Date except with the prior written consent
of the Underwriter.
2.27 SUBSIDIARIES. Except as set forth on SCHEDULE 2.27, the Company
does not own an interest in any corporation, partnership, limited liability
company, joint venture, trust or other business entity. The Company has no
subsidiaries other than those
12
subsidiaries set forth on SCHEDULE 2.27, each of which is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation (each a "Subsidiary" and collectively the "Subsidiaries"). The
Company owns all of the capital stock of the Subsidiaries free and clear of all
liens, security interests and other encumbrances of any nature whatsoever,
except as set forth in the Prospectus. The representations and warranties made
by the Company in this Agreement shall also apply and be true with respect to
each Subsidiary, individually and taken as a whole with the Company and all
other Subsidiaries, as if each representation and warranty contained herein made
specific reference to the Subsidiaries each time the term "Company" was used.
2.28 ENVIRONMENTAL MATTERS. The Company has complied in all material
respects with all applicable environmental laws.
2.29 PRODUCT LIABILITY INSURANCE. To its knowledge, the Company
maintains product liability insurance of the type and in the amounts typically
maintained by similar companies operating in the industry in which the Company
operates.
2.30 CONVERSION OF PREFERRED STOCK AND DEBENTURES. As of the date
hereof, Debentures in the aggregate principal amount of $4,538,500 will convert
into ________ shares of Common Stock of the Company and, as of the Closing Date,
an aggregate of 312,500 shares of Preferred Stock will convert into ___________
shares of Common Stock of the Company.
2.31 RELATED PARTY TRANSACTIONS. There are no business relationships
or related party transactions involving the Company or any other person required
to be described in the Prospectus that have not been described as required.
2.32 [Intentionally Omitted].
2.33 XXXXXX CAPITAL. The Company and Xxxxxx Capital have entered
into an amendment to the Note Purchase Agreement between the Company and Xxxxxx
Capital as described in the Prospectus, which amendment has been approved by the
board of directors of the Company.
2.34 BB&T CAPITAL MARKETS. The Company has obtained a written waiver
from BB&T Capital Markets of their rights to certain payments from the Company
as set forth in the Agreement between the Company and BB&T Capital Markets dated
August 23, 2001, and the Company has paid all amounts required to be paid by the
Company as described in such waiver.
2.35 CONTRIBUTION TO CAPITAL. Xxxxxx X'Xxxxxxx and Xxxxx X'Xxxxxxx
have contributed ___________ of their shares of Common Stock to the capital of
the Company.
2.36 SALE OF JAVA JOE'S PUBLIC MARKET ROASTERY INC. Xxxxxx X'Xxxxxxx
has sold all of the outstanding shares of capital stock of Java Joe's Public
13
Market Roastery Inc. ("Java Joe's") to the Company for the sum of $30,000, which
represents his cost in capitalizing Java Joe's and commencing its operations.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees as follows:
3.1 AMENDMENTS TO REGISTRATION STATEMENT. The Company will deliver
to the Underwriter, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Underwriter
shall reasonably object in writing.
3.2 FEDERAL SECURITIES LAWS.
3.2.1 COMPLIANCE. During the time when a Prospectus is required to
be delivered under the Act, the Company will use all reasonable efforts to
comply with all requirements imposed upon it by the Act, the Regulations and the
Exchange Act and by the regulations under the Exchange Act, as from time to time
in force, so far as necessary to permit the continuance of sales of or dealings
in the Public Securities in accordance with the provisions hereof, and the
Prospectus. If at any time when a Prospectus relating to the Public Securities
is required to be delivered under the Act, any event shall have occurred as a
result of which, in the opinion of counsel for the Company or counsel for the
Underwriter, the Prospectus, as then amended or supplemented, includes an 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, in light of the
circumstances under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act, the Company will
notify the Underwriter promptly and prepare and file with the Commission,
subject to Section 3.1 hereof, an appropriate amendment or supplement in
accordance with Section 10 of the Act.
3.2.2 FILING OF FINAL PROSPECTUS. The Company will file the
Prospectus (in form and substance reasonably satisfactory to the Underwriter)
with the Commission pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 EXCHANGE ACT REGISTRATION. For a period of five years from
the Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock and Warrants under the provisions of Section 12
of the Exchange Act.
3.3 BLUE SKY FILINGS. The Company will endeavor in good faith, in
cooperation with the Underwriter, at or prior to the time the Registration
Statement becomes effective, to qualify the Public Securities for offering and
sale under the securities laws of such jurisdictions as the Underwriter may
reasonably designate, provided that no such qualification shall be required in
any jurisdiction where, as a result thereof, the Company would be subject to
service of general process or to taxation as a foreign corporation doing
business in such jurisdiction. In each jurisdiction where such qualification
shall be effected, the Company will, unless the Underwriter agrees that such
14
action is not at the time necessary or advisable, use all reasonable efforts to
file and make such statements or reports at such times as are or may be required
by the laws of such jurisdiction.
3.4 DELIVERY TO THE UNDERWRITER OF PROSPECTUSES. The Company will
deliver to the Underwriter, without charge, from time to time during the period
when the Prospectus is required to be delivered under the Act or the Exchange
Act such number of copies of each Preliminary Prospectus and the Prospectus as
the Underwriter may reasonably request and, as soon as the Registration
Statement or any amendment or supplement thereto becomes effective, deliver to
the Underwriter one original executed Registration Statement, including
exhibits, and all post-effective amendments thereto and copies of all exhibits
filed therewith or incorporated therein by reference and all original executed
consents of certified experts.
3.5 EVENTS REQUIRING NOTICE TO THE UNDERWRITER. The Company will
notify the Underwriter immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment thereto, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Public Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the mailing and delivery to the Commission for filing of any amendment
or supplement to the Registration Statement or Prospectus, (v) of the receipt of
any comments or request for any additional information from the Commission, and
(vi) of the happening of any event during the period described in Section 3.4
hereof that, in the judgment of the Company, makes any statement of a material
fact made in the Registration Statement or the Prospectus untrue or that
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 REVIEW OF FINANCIAL STATEMENTS. For a period of five years from
the Effective Date, the Company, at its expense, shall cause its regularly
engaged independent certified public accountants to participate to review (as
described in Statement on Audited Standards No. 71 -- Interim Financial
Information) (but not audit) the Company's financial statements for each of the
first three fiscal quarters prior to the announcement of quarterly financial
information, the filing of the Company's Form 10-Q or Form 10-QSB quarterly
reports and the mailing of any quarterly financial information to stockholders.
3.7 SECONDARY MARKET TRADING AND STANDARD & POOR'S. If the Company
does not maintain the listing of the Public Securities on the AMEX during the
five-year period following the Effective Date, the Company will take all
necessary and appropriate actions to achieve accelerated publication in Standard
and Poor's Corporation Records Corporate Descriptions and to maintain such
publication with updated quarterly information for a period of five years from
the Effective Date, including the payment of any necessary fees and expenses.
The Company shall take such action as may be
15
reasonably requested by the Underwriter to obtain a secondary market trading
exemption in such states as may be requested by the Underwriter, including the
payment of any necessary fees and expenses and the filing of requisite forms
(e.g., Form 25101(b) for secondary market trading in the State of California) on
the Effective Date.
3.8 AMEX MAINTENANCE. For a period of five years from the date
hereof, the Company will use its best efforts to maintain the listing by the
AMEX of the Common Stock, and, if outstanding, the Warrants.
3.9 WARRANT SOLICITATION AND REGISTRATION OF COMMON STOCK
UNDERLYING THE WARRANTS.
3.9.1 WARRANT SOLICITATION FEES. The Company hereby engages the
Underwriter, on a non-exclusive basis, as its agent for the solicitation of the
exercise of the Warrants. The Company, at its cost, will (i) assist the
Underwriter with respect to such solicitation, if requested by the Underwriter
and will (ii) provide to the Underwriter, and direct the Company's transfer and
warrant agent to provide to the Underwriter, lists of the record and, to the
extent known, beneficial owners of the Company's Warrants. Commencing one year
from the Effective Date, the Company will pay to the Underwriter a commission of
five percent of the Warrant exercise price for each Warrant exercised, payable
on the date of such exercise, on the terms provided for in the Warrant
Agreement, if allowed under the rules and regulations of the NASD and only if
the Underwriter has provided bona fide services to the Company in connection
with the exercise of Warrants and has received written confirmation from the
holder that the Underwriter has solicited such exercise. In addition to
soliciting the exercise of Warrants, either orally or in writing, such services
also may include disseminating information supplied to the Underwriter by the
Company, either orally or in writing, to Warrantholders about the Company or the
market for the Company's securities, and assisting in the processing of the
exercise of Warrants. The Underwriter may engage sub-agents reasonably
acceptable to the Company in its solicitation efforts. The Company will disclose
the arrangement to pay such solicitation fees to the Underwriter in any
prospectus used by the Company in connection with the registration of the shares
of Common Stock underlying the Warrants.
3.9.2 REGISTRATION OF COMMON STOCK. The Company agrees that
prior to the date that the Warrants become exercisable, it shall file with the
Commission a post-effective amendment to the Registration Statement, if
possible, or a new registration statement, to register under the Act, and it
shall take such action as is necessary to qualify for sale, in those states in
which the Warrants were initially offered by the Company, the Common Stock
issuable upon exercise of the Warrants. In either case, the Company shall cause
the same to become effective at or prior to the date that the Warrants become
exercisable, and maintain the effectiveness of such registration statement and
keep current a prospectus thereunder and maintain such qualification until the
expiration of the Warrants in accordance with the provisions of the Warrant
Agreement. The provisions of this Section 3.9.2 may not be modified, amended or
deleted without the prior written consent of the Underwriter.
16
3.10 PUBLIC RELATIONS FIRM. The Company shall retain a public
relations firm acceptable to the Underwriter for a period of five years from the
Effective Date.
3.11 REPORTS TO THE UNDERWRITER.
3.11.1 PERIODIC REPORTS, ETC. For a period of five years from
the Effective Date, the Company will promptly furnish to the Underwriter copies
of such financial statements and other periodic and special reports as the
Company from time to time files with any governmental authority or furnishes
generally to holders of any class of its securities, and promptly furnish to the
Underwriter (i) a copy of each periodic report the Company shall be required to
file with the Commission, (ii) a copy of every press release and every news item
and article with respect to the Company or its affairs that was released by the
Company, (iii) a copy of each Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4
received or prepared by the Company, (iv) a copy of monthly statements setting
forth such information regarding the Company's results of operations and
financial position (including balance sheet, profit and loss statements and data
regarding outstanding purchase orders) as is regularly prepared by management of
the Company, and (v) such additional documents and information regarding the
Company and the affairs of any future subsidiaries of the Company as the
Underwriter may from time to time reasonably request.
3.11.2 TRANSFER SHEETS AND WEEKLY POSITION LISTINGS. For a
period of five years from the Closing Date, the Company will furnish to the
Underwriter at the Company's sole expense such transfer sheets and position
listings of the Company's securities as the Underwriter may request, including
the daily, weekly and monthly consolidated transfer sheets of the transfer agent
of the Company and the weekly position listings of the Depository Trust Company.
3.11.3 SECONDARY MARKET TRADING MEMORANDUM. If, during the
five-year period following the Effective Date, the Public Securities are not
listed or quoted, as the case may be, on one of the following: the New York
Stock Exchange, the American Stock Exchange or the Nasdaq National Market
System, the Company shall cause the Underwriter's legal counsel to deliver to
the Underwriter a written memorandum detailing those states in which the Common
Stock and the Warrants may be traded in non-issuer transactions under the Blue
Sky laws of the fifty states ("Secondary Market Trading Memorandum") and to
update such memorandum as reasonably requested by the Underwriter. The Company
shall pay to the Underwriter's legal counsel a one-time fee of $5,000 for such
services.
3.12 AGREEMENTS BETWEEN THE UNDERWRITER AND THE COMPANY.
3.12.1 MERGER AND ACQUISITION AGREEMENT. On the Closing Date,
the Company will enter into a Merger and Acquisition Agreement with the
Underwriter in the form filed with the Commission as an exhibit to the
Registration Statement providing for a finder's fee to be paid to the
Underwriter if the Company participates in any merger, consolidation, or other
transaction in which the Underwriter introduced the
17
Company to the other party for a period of five years from the Closing Date
("Merger and Acquisition Agreement").
3.12.2 FINANCIAL CONSULTING AGREEMENT. On the Closing Date,
the Company will enter into a Financial Consulting Agreement with the
Underwriter in the form filed with the Commission as an exhibit to the
Registration Statement pursuant to which the Underwriter shall receive a
consulting fee of $75,000 per year for a two-year period from the Effective
Date ("Financial Consulting Agreement"). Fees for the first year ($75,000) shall
be paid in advance on the Closing Date.
3.12.3 UNDERWRITER'S PURCHASE OPTION. On the Closing Date, the
Company will execute and deliver the Underwriter's Purchase Option to the
Underwriter or its designees in the form filed as an exhibit to the Registration
Statement.
3.13 DISQUALIFICATION OF FORM SB-2 OR FORM S-1 (OR OTHER
APPROPRIATE FORM). For a period equal to seven (7) years from the date hereof,
the Company will not take any action or actions that may prevent or disqualify
the Company's use of Form SB-2 or Form S-1 (or other appropriate form) for the
registration of the Warrants and the Underwriter's Securities and the securities
issuable upon exercise of those securities under the Act.
3.14 PAYMENT OF EXPENSES.
3.14.1 GENERAL EXPENSES. The Company hereby agrees to pay on
the Closing Date and, to the extent not paid on the Closing Date, on the Option
Closing Date, all expenses incident to the performance of the obligations of the
Company under this Agreement, including but not limited to (i) the preparation,
printing, filing, delivery and mailing (including the payment of postage with
respect to such mailing) of the Registration Statement, the Prospectus and the
Preliminary Prospectuses and the printing and mailing of this Agreement and
related documents, including the cost of all copies thereof and any amendments
thereof or supplements thereto supplied to the Underwriter in quantities as may
be reasonably required by the Underwriter, (ii) the printing, engraving,
issuance and delivery of the shares of Common Stock, the Warrants and the
Underwriter's Purchase Option, including any transfer or other taxes payable
thereon, (iii) the qualification of the Public Securities under state or foreign
securities or Blue Sky laws, including the filing fees under such Blue Sky laws,
the costs of printing and mailing the "Preliminary Blue Sky Memorandum," and all
amendments and supplements thereto, the fees (equal to $30,000 if the Public
Securities are not listed on the AMEX on the Effective Date and equal to $10,000
if the Public Securities are listed on the AMEX on the Effective Date) and
disbursements of the Underwriter's counsel, and fees and disbursements of local
counsel, if any, retained for such purpose (provided that all such disbursements
have been approved in advance by the Company) and a one-time fee of $5,000
payable to Underwriter's counsel for the preparation of the Secondary Market
Trading Memorandum pursuant to Section 3.11.3 hereof, (iv) costs associated with
applications for assignments of a rating of the Public Securities by qualified
rating agencies, if applicable, (v) filing fees, costs and expenses (including
fees (equal to $5,000) and disbursements for the Underwriter's counsel) incurred
in registering the offering with the NASD, (vi) costs of placing "tombstone"
advertisements in The Wall Street Journal, The New York Times and a third
publication to be selected by the
18
Underwriter, the total costs of such advertisements not to exceed $35,000, (vii)
fees and disbursements of the transfer and warrant agent, (viii) the Company's
expenses associated with "due diligence" meetings arranged by the Underwriter,
(ix) the preparation, binding and delivery of transaction "bibles," in quantity,
form and style satisfactory to the Underwriter and transaction lucite cubes or
similar commemorative items in a style and quantity as reasonably requested by
the Underwriter, (x) any listing of the Public Securities on any securities
exchange or any listing in Standard & Poor's and (xi) all other costs and
expenses incident to the performance of its obligations hereunder that are not
otherwise specifically provided for in this Section 3.14.1. The Company also
agrees to engage and pay for an investigative search firm of the Underwriter's
choice (International Business Research (U.S.A.), Inc.) to conduct an
investigation of the officers and directors of the Company, which amount will be
credited against the Underwriter's non-accountable expense allowance if the
offering is consummated as provided herein. The Underwriter may deduct from the
net proceeds of the offering payable to the Company on the Closing Date, or the
Option Closing Date, if any, the expenses set forth herein to be paid by the
Company to the Underwriter and/or to third parties.
3.14.2 NON-ACCOUNTABLE EXPENSES. The Company further agrees
that, in addition to the expenses payable pursuant to Section 3.14.1, it will
pay to the Underwriter a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Firm Securities and the Option Securities, of which $50,000 has been paid to
date, and the Company will pay the balance on the Closing Date and any
additional monies owed attributable to the Option Securities or otherwise on the
Option Closing Date by certified or bank cashier's check or, at the election of
the Underwriter, by deduction from the proceeds of the offering contemplated
herein. If the offering contemplated by this Agreement is not consummated for
any reason whatsoever then the following provisions shall apply: The Company's
liability for payment to the Underwriter of the non-accountable expense
allowance shall be equal to the sum of the Underwriter's actual out-of-pocket
expenses (including, but not limited to, counsel fees, "road-show" and due
diligence expenses). The Underwriter shall retain such part of the
non-accountable expense allowance previously paid as shall equal such actual
out-of-pocket expenses. If the amount previously paid is insufficient to cover
such actual out-of-pocket expenses, the Company shall remain liable for and
promptly pay any other actual out-of-pocket expenses. If the amount previously
paid exceeds the amount of actual out-of-pocket expenses, the Underwriter shall
promptly remit to the Company any such excess.
3.15 APPLICATION OF NET PROCEEDS. The Company will apply the net
proceeds from the offering received by it in a manner consistent with the
application described under the caption "Use of Proceeds" in the Prospectus. The
Company hereby agrees that, without the express prior written consent of the
Underwriter, the Company will not apply any net proceeds from the offering to
pay (i) any debt for borrowed funds other than pursuant to the amendment to the
Note Purchase Agreement between the Company and Xxxxxx Capital as described in
the Prospectus or (ii) any debt or obligation owed to any Insider.
3.16 DELIVERY OF EARNINGS STATEMENTS TO SECURITY HOLDERS. The
Company will make generally available to its security holders as soon as
practicable, but
19
not later than the first day of the fifteenth full calendar month following the
Effective Date, an earnings statement (which need not be certified by
independent certified public accountants unless required by the Act or the
Regulations, but which shall satisfy the provisions of Rule 158(a) under Section
11(a) of the Act) covering a period of at least twelve consecutive months
beginning after the Effective Date.
3.17 KEY PERSON LIFE INSURANCE. The Company will maintain key person
life insurance in an amount not less than $3,000,000 on the life of Xxxxxx
X'Xxxxxxx, to be in effect as of the Effective Date, and pay the annual premiums
therefor and name the Company as the sole beneficiary thereof for at least three
years following the Effective Date.
3.18 STABILIZATION. Neither the Company, nor, to its knowledge, any
of its employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or that has constituted or that might
reasonably be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Public Securities.
3.19 INTERNAL CONTROLS. The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance 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.
3.20 ACCOUNTANTS AND LAWYERS. For a period of five years from the
Effective Date, the Company shall retain independent public accountants and
securities lawyers reasonably acceptable to the Underwriter.
PricewaterhouseCoopers LLP and Xxxxxx, Xxxxxxx & Xxxxx LLP are acceptable to the
Underwriter.
3.21 TRANSFER AGENT. For a period of five years from the Effective
Date, the Company shall retain a transfer agent ("Transfer Agent") for the
Common Stock and Warrants reasonably acceptable to the Underwriter. Continental
Stock Transfer & Trust Company is acceptable to the Underwriter.
3.22 SALE OF SECURITIES. Subject to Section 2.26 hereof, the Company
agrees not to permit or cause a private or public sale or private or public
offering of any of its securities (in any manner, including pursuant to Rule 144
under the Act) owned nominally or beneficially by the Insiders for the time
periods set forth in Section 2.26 following the Effective Date without obtaining
the prior written consent of the Underwriter.
3.23 EXERCISE PRICE OF OPTIONS/WARRANTS. For a period of 24 months
after the Effective Date, the Company will not grant any option pursuant to the
20
Company's 1998 employee stock option plan ("1998 Plan") or otherwise, or issue
any warrants, in either case having an exercise price less than the greater of
$_________ [INSERT AGGREGATE OFFERING PRICE OF ONE SHARE OF COMMON STOCK AND ONE
WARRANT] per share or the fair market value of the Common Stock on the date of
the grant. The exercise price of any options granted by the Company after 24
months following the Effective Date shall be at least equal to the fair market
value of the Common Stock on the date of grant. The Company will not increase
the size of the 1998 Plan or adopt any additional employee stock option plan for
a period of two years after the Effective Date without the prior written consent
of the Underwriter.
4. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Securities, as provided herein, shall
be subject to the continuing accuracy in all material respects of the
representations and warranties of the Company as of the date hereof and as of
each of the Closing Date and the Option Closing Date, if any, to the accuracy
of the statements of officers of the Company made pursuant to the provisions
hereof and to the performance by the Company of its obligations hereunder and
to the following conditions:
4.1 REGULATORY MATTERS.
4.1.1 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement has been declared effective on the date of this Agreement and, at each
of the Closing Date and the Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for such purpose shall have been instituted or shall be pending or,
to the Company's knowledge, contemplated by the Commission and any request on
the part of the Commission for additional information shall have been complied
with to the reasonable satisfaction of Xxxxxxxx Xxxxxx, counsel to the
Underwriter.
4.1.2 NASD CLEARANCE. By the Effective Date, the Underwriter
shall have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriter as described in the Registration
Statement.
4.1.3 NO BLUE SKY STOP ORDERS. No order suspending the sale of
the Securities in any jurisdiction designated by the Underwriter pursuant to
Section 3.3 hereof shall have been issued on or before either the Closing Date
or the Option Closing Date, and no proceedings for that purpose shall have been
instituted or, to the Company's knowledge, shall be contemplated.
4.2 COMPANY COUNSEL MATTERS.
4.2.1 EFFECTIVE DATE OPINION OF COUNSEL. On the Effective Date,
the Underwriter shall have received the opinion of Xxxxxx, Xxxxxxx & Xxxxx LLP,
counsel to the Company, dated the Effective Date, addressed to the Underwriter
and in form and substance satisfactory to Xxxxxxxx Xxxxxx, counsel to the
Underwriter.
4.2.2 CLOSING DATE AND OPTION CLOSING DATE OPINION OF COUNSEL.
On each of the Closing Date and the Option Closing Date, if any, the Underwriter
shall
21
have received the opinion of Xxxxxx, Xxxxxxx & Xxxxx, LLP, counsel to the
Company, dated the Closing Date or the Option Closing Date, as the case may be,
addressed to the Underwriter and in form and substance satisfactory to Xxxxxxxx
Xxxxxx, counsel to the Underwriter, confirming as of the Closing Date and, if
applicable, the Option Closing Date, the statements made by Xxxxxx, Xxxxxxx &
Xxxxx, LLP in their opinion delivered on the Effective Date.
4.2.3 RELIANCE. In rendering such opinion, such counsel may
rely (i) as to matters involving the application of laws other than the laws of
the United States and jurisdictions in which they are admitted, to the extent
such counsel deems proper and to the extent specified in such opinion, if at
all, upon an opinion or opinions (in form and substance reasonably satisfactory
to Underwriter's counsel) of other counsel reasonably acceptable to
Underwriter's counsel, familiar with the applicable laws, and (ii) as to matters
of fact, to the extent they deem proper, on certificates or other written
statements of officers of departments of various jurisdiction having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to Underwriter's counsel if requested. The opinion of counsel for the Company
shall include a statement to the effect that it may be relied upon by counsel
for the Underwriter in its opinion delivered to the Underwriter.
4.2.4 [Intentionally Omitted].
4.3 COLD COMFORT LETTER. At the time this Agreement is executed, and
at each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, addressed to the Underwriter and in form and substance
satisfactory in all respects (including the non-material nature of the changes
or decreases, if any, referred to in clause (iii) below) to you and to Xxxxxxxx
Xxxxxx, counsel for the Underwriter, from PricewaterhouseCoopers LLP dated,
respectively, as of the date of this Agreement and as of the Closing Date and
the Option Closing Date, if any:
(i) confirming that they are independent accountants with
respect to the Company within the meaning of the Act and the applicable
Regulations;
(ii) stating that in their opinion the financial statements
and the financial statement schedules of the Company included in the
Registration Statement and Prospectus comply as to form in all material respects
with the applicable accounting requirements of the Act and the published
Regulations thereunder;
(iii) stating that, based on the performance of procedures
specified by the American Institute of Certified Public Accountants for a review
of the latest available unaudited interim financial statements of the Company
(as described in Statement on Auditing Standards ("SAS") No. 71 -- "Interim
Financial Information"), with an indication of the date of the latest available
unaudited interim financial statements, a reading of the latest available
minutes of the stockholders and board of directors and the various committees of
the board of directors, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention that
22
would lead them to believe that (a) the unaudited financial statements of the
Company included in the Registration Statement do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or any material modification should be made to the unaudited interim
financial statements included in the Registration Statement for them to be in
conformity with generally accepted accounting principles applied on a basis
substantially consistent with that of the audited financial statements of the
Company included in the Registration Statement, (b) at a date not later than
five days prior to the Effective Date, Closing Date or Option Closing Date, as
the case may be, there was any change in the capital stock or long-term debt of
the Company, or any decrease in the stockholders' equity of the Company as
compared with amounts shown in the ___________ __, 2002 balance sheet included
in the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any decrease, setting forth the amount
of such decrease, and (c) during the period from ____________, 2002 to a
specified date not later than five days prior to the Effective Date, Closing
Date or Option Closing Date, as the case may be, there was any decrease in
revenues, net earnings or net earnings per share of Common Stock, in each case
as compared with the corresponding period in the preceding year and as compared
with the corresponding period in the preceding quarter, other than as set forth
in or contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
(iv) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and earnings, statements and
other financial information pertaining to the Company set forth in the
Prospectus in each case to the extent that such amounts, numbers, percentages,
statements and information may be derived from the general accounting records,
and work sheets, of the Company with the results obtained from the application
of specified readings, inquiries and other appropriate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter and found them to be in
agreement; and
(v) statements as to such other matters incident to the
transaction contemplated hereby as you may reasonably request.
4.4 OFFICERS' CERTIFICATES.
4.4.1 OFFICERS' CERTIFICATE. At each of the Closing Date and
the Option Closing Date, if any, the Underwriter shall have received a
certificate, that is true and correct in fact, of the Company signed by the
Chairman of the Board or the President and the Secretary of the Company, dated
the Closing Date or the Option Closing Date, as the case may be, respectively,
to the effect that the Company has in all material respects performed all
covenants and complied with all conditions required by this Agreement to be
performed or complied with by the Company prior to and as of the Closing Date,
or the Option Closing Date, as the case may be, and that the conditions set
forth in Section 4.5 hereof have been satisfied in all material respects as of
such date and that, as of Closing Date and the Option Closing Date, as the case
may be, the representations and warranties of the Company set forth in Section 2
hereof are true and correct. In addition, the Underwriter will have received
such other and further certificates of officers of the Company as the
Underwriter may reasonably request.
23
4.4.2 SECRETARY'S CERTIFICATE. At each of the Closing Date and
the Option Closing Date, if any, the Underwriter shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the By-Laws and Certificate of Incorporation, as amended, of the
Company are true and complete, have not been modified and are in full force and
effect, (ii) that the resolutions relating to the public offering contemplated
by this Agreement are in full force and effect and have not been modified, (iii)
all correspondence between the Company or its counsel and the Commission, (iv)
all correspondence between the Company or its counsel and the AMEX concerning
listing of the Securities on the AMEX and (vi) as to the incumbency of the
officers of the Company. The documents referred to in such certificate shall be
attached to such certificate.
4.5 NO MATERIAL CHANGES. Prior to and on each of the Closing Date
and the Option Closing Date, if any, (i) there shall have been no material
adverse change or development involving a prospective material change in the
condition or prospects or the business activities, financial or otherwise, of
the Company from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and Prospectus which is materially adverse
to the Company, taken as a whole, (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness
which default would have a material adverse effect on the Company, (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus, (v)
no action suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company or affecting any of its property or business
before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all material statements that are
required to be stated therein in accordance with the Act and the Regulations and
conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains 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, in light of the circumstances under which they
were made, not misleading.
4.6 DELIVERY OF AGREEMENTS. The Company has delivered to the
Underwriter an executed copy of the Underwriter's Purchase Option, the Merger
and Acquisition Agreement and the Financial Consulting Agreement.
4.7 OPINION OF COUNSEL FOR THE UNDERWRITER. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to
24
Xxxxxxxx Xxxxxx, counsel to the Underwriter, and you shall have received from
such counsel a favorable opinion, dated the Closing Date and the Option Closing
Date, if any, with respect to such of these proceedings as you may reasonably
require. On or prior to the Effective Date, the Closing Date and the Option
Closing Date, as the case may be, counsel for the Underwriter shall have been
furnished such documents, certificates and opinions as they may reasonably
require for the purpose of enabling them to review or pass upon the matters
referred to in this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
4.8 UNAUDITED FINANCIALS. The Company shall have furnished to the
Underwriter a copy of the latest available unaudited interim financial
statements for the period ended May 31, 2002 ("Unaudited Financials") of the
Company which have been read by PricewaterhouseCoopers LLP, as stated in their
letter dated as of the Closing Date to be furnished pursuant to Section 4.3
hereof.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION OF THE UNDERWRITER.
5.1.1 GENERAL. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Underwriter, its directors,
officers, agents and employees and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
legal or other expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, whether arising out
of any action between the Underwriter and the Company or between the Underwriter
and any third-party or otherwise) to which they or any of them may become
subject under the Act, the Exchange Act or any other statute or at common law or
otherwise or under the laws of foreign countries, arising out of or based upon
any untrue statement or alleged untrue statement of a material fact contained in
(i) any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time each may be amended and supplemented); (ii) in any
post-effective amendment or amendments or any new registration statement and
prospectus in which is included securities of the Company issued or issuable
upon exercise of the Underwriter's Purchase Option; or (iii) any application or
other document or written communication (in this Section 5 collectively called
"application") executed by the Company or based upon written information
furnished by the Company in any jurisdiction in order to qualify the Securities
under the securities laws thereof or filed with the Commission, any state
securities commission or agency, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter by or on
behalf of the Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in any application, as the case may be. The Company agrees promptly to notify
the Underwriter of the commencement of any litigation or proceedings against the
25
Company or any of its officers, directors or controlling persons in connection
with the issue and sale of the Securities or in connection with the Registration
Statement or Prospectus.
5.1.2 PROCEDURE. If any action is brought against the
Underwriter or controlling person in respect of which indemnity may be sought
against the Company pursuant to Section 5.1.1, the Underwriter shall promptly
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and fees of
counsel (subject to the approval of the Underwriter) and payment of actual
expenses. The Underwriter or controlling person shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Underwriter or such controlling person
unless (i) the employment of such counsel shall have been authorized in writing
by the Company in connection with the defense of such action, or (ii) the
Company shall not have employed counsel to have charge of the defense of such
action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys selected by the Underwriter
and/or controlling person shall be borne by the Company. Notwithstanding
anything to the contrary contained herein, if the Underwriter or controlling
person shall assume the defense of such action as provided above, the Company
shall have the right to approve the terms of any settlement of such action which
approval shall not be unreasonably withheld.
5.2 INDEMNIFICATION OF THE COMPANY. The Underwriter agrees to
indemnify and hold harmless the Company against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
legal or other expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, whether arising out
of any action between the Underwriter and the Company or between the Company and
any third-party or otherwise) described in the foregoing indemnity from the
Company to the Underwriter, as incurred, but only with respect to untrue
statements or omissions, or alleged untrue statements or omissions directly
relating to the transactions effected by the Underwriter in connection with this
offering made in any Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment or supplement thereto or in any application in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in such Preliminary Prospectus, the Registration Statement or
Prospectus or any amendment or supplement thereto or in any such application. In
case any action shall be brought against the Company based on any Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment or
supplement thereto or any application, and in respect of which indemnity may be
sought against the Underwriter, the Underwriter shall have the rights and duties
given to the Company, and the Company shall have the rights and duties given to
the Underwriter by the provisions of Section 5.1.2.
5.3 CONTRIBUTION.
26
5.3.1 CONTRIBUTION RIGHTS. In order to provide for just and
equitable contribution under the Act in any case in which (i) any person
entitled to indemnification under this Section 5 makes claim for indemnification
pursuant hereto but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 5 provides for indemnification in such case, or (ii) contribution
under the Act, the Exchange Act or otherwise may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriter shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by the Company and
the Underwriter, as incurred, in such proportions that the Underwriter is
responsible for that portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to the initial
offering price appearing thereon and the Company is responsible for the balance;
provided, that, no person guilty of a 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. Notwithstanding
the provisions of this Section 5.3, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Public Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages that the Underwriter has
otherwise been required to pay in respect of such losses, liabilities, claims,
damages and expenses. For purposes of this Section, each director, officer and
employee of the Underwriter, and each person, if any, who controls the
Underwriter within the meaning of Section 15 of the Act, shall have the same
rights to contribution as the Underwriter.
5.3.2 CONTRIBUTION PROCEDURE. Within fifteen days after receipt
by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability that it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding that was effected
by the party seeking contribution without the written consent of such
contributing party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
27
6. [Intentionally Omitted].
7. ADDITIONAL COVENANTS.
7.1 BOARD DESIGNEE. For a period of five years from the Effective
Date, the Company will appoint a designee of the Underwriter (reasonably
acceptable to the Company) as a member of the Board of Directors of the Company.
Such designee shall receive no more or less compensation than is paid to other
non-management directors of the Company and shall be entitled to be reimbursed
for all reasonable out-of-pocket expenses incurred in attending such meetings,
including but not limited to food, lodging and transportation. To the extent
permitted by law, the Company will agree to indemnify the Underwriter and its
designee for the actions of such designee as a director of the Company. In
addition, the Company will obtain and maintain a liability insurance policy
affording coverage for the acts of its officers and directors in an amount not
less than $3,000,000 and will include the Underwriter's designee as an insured
under such policy. Regardless of whether the Underwriter has exercised its
option to designate a member of the Company's Board of Directors, the
Underwriter shall nevertheless have the right to send a representative (who need
not be the same individual from meeting to meeting) to observe each meeting of
the Board of Directors. The Company agrees to give the Underwriter written
notice of each such meeting and to provide the Underwriter with an agenda and
minutes of the meeting no later than it gives such notice and provides such
items to the other directors, and reimburse the representative of the
Underwriter for its reasonable out-of-pocket expenses incurred in connection
with its attendance at the meeting, including but not limited to, food, lodging
and transportation and any fees paid to the directors for attending such
meeting.
7.2 [Intentionally Omitted].
7.3 [Intentionally Omitted].
7.4 PRESS RELEASES. The Company will not issue a press release or
engage in any other publicity until 25 days after the Effective Date without the
Underwriter's prior written consent.
7.5 FORM S-8. The Company shall not file a Registration Statement on
Form S-8 (or any similar or successor form) for the registration of shares of
Common Stock underlying stock options for a period of two years from the
Effective Date without the Underwriter's prior written consent.
7.6 TRANSACTIONAL BIBLES. The Company agrees that if its
representatives have not submitted to a bindery acceptable to the Underwriter
all of the closing and other documents material to the offering within 30 days
of the Effective Date, then the Company shall pay the fees and costs of the
Underwriter's agents to prepare the transactional bibles and have them bound.
7.7 COMPENSATION AND OTHER ARRANGEMENTS. The Company agrees that for
a period of three years from the Effective Date, all compensation and other
arrangements between the Company and its officers, directors and affiliates
shall be
28
approved by the Compensation Committee of the Company's Board of Directors, a
majority of the members of which shall have no affiliation or other relationship
with the Company other than as directors.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the
context otherwise requires, all representations, warranties and agreements
contained in this Agreement shall be deemed to be representations, warranties
and agreements at the Closing Dates and such representations, warranties and
agreements of the Underwriter and Company, including the indemnity agreements
contained in Section 5 hereof, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Underwriter,
the Company or any controlling person, and shall survive termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter
until the earlier of the expiration of any applicable statute of limitations and
the seventh anniversary of the later of the Closing Date or the Option Closing
Date, if any, at which time the representations, warranties and agreements shall
terminate and be of no further force and effect.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
9.1 EFFECTIVE DATE. This Agreement shall become effective on the
Effective Date at the time that the Registration Statement is declared
effective.
9.2 TERMINATION. The Underwriter shall have the right to terminate
this Agreement at any time prior to any Closing Date, (i) if any domestic or
international event or act or occurrence has materially disrupted, or in the
Underwriter's opinion will in the immediate future materially disrupt, general
securities markets in the United States; or (ii) if trading on the New York
Stock Exchange, the American Stock Exchange or in the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been fixed,
or maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction, or (iii) if the United States shall
have become involved in a war or major hostilities, or (iv) if a banking
moratorium has been declared by a New York State or federal authority, or (v) if
a moratorium on foreign exchange trading has been declared which materially
adversely impacts the United States securities market, or (vi) if the Company
shall have sustained a material loss by fire, flood, accident, hurricane,
earthquake, theft, sabotage or other calamity or malicious act which, whether or
not such loss shall have been insured, will, in your opinion, make it
inadvisable to proceed with the delivery of the Securities, or (vii) if Xxxxxx
X'Xxxxxxx shall no longer serve the Company in his present capacity, or (viii)
if the Company has breached any of its representations, warranties or
obligations hereunder, or (ix) if the Underwriter shall have become aware after
the date hereof of such a material adverse change in the condition (financial or
otherwise), business, or prospects of the Company, or such adverse material
change in general market conditions as in the Underwriter's reasonable judgment
would make it impracticable to proceed with the offering, sale and/or delivery
of the Securities or to enforce contracts made by the Underwriter for the sale
of the Securities.
29
9.3 NOTICE. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 9, the
Company shall be notified on the same day as such election is made by you by
telephone or telecopy, confirmed by letter.
9.4 EXPENSES. In the event that this Agreement shall not be carried
out for any reason whatsoever, within the time specified herein or any
extensions thereof pursuant to the terms hereof, the obligations of the Company
to pay the expenses related to the transactions contemplated herein shall be
governed by Section 3.14 hereof.
9.5 INDEMNIFICATION. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Section 5 shall not be in any way affected by, such election or
termination or failure to carry out the terms of this Agreement or any part
hereof.
10. MISCELLANEOUS.
10.1 NOTICES. All communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or telecopied and confirmed
If to the Underwriter:
Xxxxxx Securities, Inc.
0000 Xxxxxxx Xxxxxxxx
Xxxxxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxxx
Telecopier: (000) 000-0000
Copy to:
Xxxxxxxx Xxxxxx
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telecopier: (000) 000-0000
If to the Company:
Montana Xxxxx Bread Co., Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 000X
Xxxxxxxxx, Xxx Xxxx 00000
Attention: Xxxxxx X'Xxxxxxx
Telecopier: (000) 000-0000
Copy to:
00
Xxxxxx, Xxxxxxx & Xxxxx LLP
0000 Xxxxxx & Xxxx Xxxxx
Xxxxxxxxx, Xxx Xxxx 00000-0000
Attention: Xxxxx X. Xxxxxxx, Esq.
Telecopier: (000) 000-0000
10.2 HEADINGS. The headings contained herein are for the sole
purpose of convenience of reference, and shall not in any way limit or affect
the meaning or interpretation of any of the terms or provisions of this
Agreement.
10.3 AMENDMENT. This Agreement may be amended only by a written
instrument executed by each of the parties hereto.
10.4 ENTIRE AGREEMENT. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement) constitutes the entire agreement of the parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
10.5 BINDING EFFECT. This Agreement shall inure solely to the
benefit of and shall be binding upon, the Underwriter, the Company and the
controlling persons, directors and officers referred to in Section 5 hereof, and
their respective successors, legal representatives and assigns, and no other
person shall have or be construed to have any legal or equitable right, remedy
or claim under or in respect of or by virtue of this Agreement or any provisions
herein contained.
10.6 GOVERNING LAW, JURISDICTION. This Agreement shall be governed
by and construed and enforced in accordance with the law of the State of New
York, without giving effect to conflicts of law. The Company hereby agrees that
any action, proceeding or claim against it arising out of or relating in any way
to this Agreement shall be brought and enforced in the courts of the State of
New York or the United States District Court for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company hereby waives any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 10.1 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
Company in any action, proceeding or claim. The parties agree that the
prevailing party(ies) in any such action shall be entitled to recover from the
other party(ies) all of its reasonable attorneys' fees and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
10.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more
31
counterparts has been signed by each of the parties hereto and delivered to each
of the other parties hereto.
10.8 WAIVER, ETC. The failure of any of the parties hereto at any
time to enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor in any way to affect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto thereafter to enforce each and every provision of this Agreement.
No waiver of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
32
If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
MONTANA XXXXX BREAD CO., INC.
By:_______________________________________________
Name: Xxxxxx X'Xxxxxxx
Title: Chairman and Chief Executive Officer
Accepted as of the date first
above written.
New York, New York
XXXXXX SECURITIES, INC.
By:_________________________________________
Name: Xxxxx X. Xxxxxxx
Title: Chairman
33
