UNDERWRITING AGREEMENT
_________________, 1998
Xxxxxx & Xxxxxxxxx Financial, Inc.
Xxxxxxxxx Xxxxxx Xxxxx, Xxxxx 000
000 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, XX 00000
Ladies and Gentlemen:
PDS Financial Corporation, a Minnesota corporation (the "Company"), hereby
confirms its agreement to issue and sell to you (the "Underwriter"), an
aggregate of 10,000 units, each unit consisting of a $1,000 Company 10% Senior
Subordinated Note due July 1, 2004 (the "Notes") and warrants (the "Warrants")
to purchase 50 shares of the Company's common stock, $0.01 par value (the
"Common Stock"). Such 10,000 units are collectively referred to in this
Agreement as the "Firm Units." The Company also hereby confirms its agreement
to issue and sell to the Underwriter an aggregate of up to 1,500 additional
Units upon the request of the Underwriter solely for the purpose of covering
overallotments. Such additional units are referred to in this Agreement as the
"Option Units," and the Firm Units and the Option Units are collectively
referred to as the "Units." The Notes are to be issued under an Indenture,
dated as of ______________, 1998 (the "Indenture") between the Company and First
Trust National Association as trustee (the "Trustee"). The Warrants are to be
issued pursuant to a Warrant Agreement dated as of __________________, 1998 (the
"Warrant Agreement") between the Company and Norwest Bank Minnesota, N.A.,
Minneapolis, Minnesota. The Notes and Warrants are more fully described in the
Registration Statement and Prospectus as hereafter defined.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company hereby
represents and warrants to, and agrees with, the Underwriter that:
(a) A registration statement on Form SB-2 with respect to the Units has
been prepared by the Company in conformity with the requirements of the
Securities Act of 1933, as amended (the "1933 Act") and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "SEC") thereunder and has been filed with the SEC under the
1933 Act. If the Company has elected to rely on Rule 462(b) under the 1933
Act to increase the size of the offering registered under the 1933 Act, the
Company will prepare and file with the SEC a registration statement with
respect to such increase pursuant to Rule 462(b). The Company has filed
such amendments to the registration statement and such amended preliminary
prospectuses as may have been required to be filed to the date hereof. If
the Company has elected not to rely upon Rule 430A, the Company has
prepared and will promptly file an amendment to the registration statement
and an amended prospectus (provided the Underwriter has consented to such
filing). If the
Company has elected to rely upon Rule 430A, it will prepare and timely
file a prospectus pursuant to Rule 424(b) that discloses the information
previously omitted from the prospectus in reliance upon Rule 430A.
Copies of such registration statement, including a registration
statement filed pursuant to Rule 462(b), each pre-effective amendment
thereto, and each related preliminary prospectus have been delivered by
the Company to the Underwriter. Such registration statement, as amended
or supplemented, including all prospectuses included as a part thereof,
financial schedules, exhibits, the information (if any) deemed to be
part thereof pursuant to Rules 430A and 434 under the 1933 Act and any
registration statement filed pursuant to Rule 462 under the 1933 Act, is
herein referred to as the "Registration Statement." The term
"Prospectus" as used herein shall mean the final prospectus, as amended
or supplemented, included as a part of the Registration Statement on
file with the SEC when it becomes effective; provided, however, that if
a prospectus is filed by the Company pursuant to Rules 424(b) and 430A
or a term sheet is filed by the Company pursuant to Rule 434 under the
1933 Act, the term "Prospectus" as used herein shall mean the prospectus
so filed pursuant to Rules 424(b) and 430A and the term sheet so filed
pursuant to Rule 434. The term "Preliminary Prospectus" as used herein
means any prospectus, as amended or supplemented, used prior to the
Effective Date (as defined in Section 5(a) hereof) and included as a
part of the Registration Statement, including any prospectus filed with
the SEC pursuant to Rule 424(a).
(b) Neither the SEC nor any state securities division has issued any order
preventing or suspending the use of any Preliminary Prospectus or issued
a stop order with respect to the offering of the Units, or requiring the
recirculation of a Preliminary Prospectus and no proceedings for that
purpose have been instituted or to the Company's knowledge, threatened.
Each part of the Registration Statement, when such part became or becomes
effective, each Preliminary Prospectus, on the date of filing with the SEC,
and the Prospectus and any amendment or supplement thereto, on the date of
filing thereof with the SEC and on the First Closing Date or Second Closing
Date (as defined in Section 2 hereof), as the case may be, conformed or
will conform in all material respects with the requirements of the 1933
Act and the Rules and Regulations and contained or will contain all
statements that are required to be stated therein in accordance with the
1933 Act and the Rules and Regulations. When the Registration Statement
became or becomes effective and when any post-effective amendments thereto
shall become effective, the Registration Statement did not and will not
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Neither any Preliminary Prospectus, on the date of filing
thereof with the SEC, nor the Prospectus or any amendment or supplement
thereto, on the date of filing thereof with the SEC and on the First
Closing Date and Second Closing Date, contained or will contain any untrue
statement of a material fact or omit to state a material fact necessary in
order to make the statements therein, in light of the circumstances under
which they were made, not misleading; provided, however, that none of the
representations and warranties in this Subsection 1(b) shall apply to
statements in, or omissions from, the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment thereof or
supplement thereto,
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which are based upon and conform to written information furnished to the
Company by the Underwriter, as identified in Section 12 herein,
specifically for use in the preparation of the Registration Statement,
Preliminary Prospectus or the Prospectus, or any amendment or supplement
thereto. There is no contract or other document of the Company of a
character required by the 1933 Act or the Rules and Regulations to be
described in the Registration Statement or Prospectus, or to be filed as
an exhibit to the Registration Statement, that has not been described or
filed as required. The descriptions of all such contracts and documents
or references thereto are correct and include the information required
under the 1933 Act and the Rules and Regulations. The conditions for
use of a Registration Statement on Form SB-2 for the distribution of the
Units have been satisfied with respect to the Company. All descriptions
in the Registration Statement or Prospectus of statutes, regulations,
legal or governmental proceedings, the Indenture, the Units, the Notes,
the Warrants or other contracts or other documents are accurate in all
material respects and fairly present the information shown.
(c) Coopers & Xxxxxxx L.L.P., who have examined the consolidated
financial statements reported on by them and filed with the SEC as part of
the Registration Statement and the Prospectus, are independent public
accountants as required by the 1933 Act. The consolidated financial
statements of the Company and its Subsidiaries, including the related
notes, included in the Registration Statement and in the Prospectus (the
"Financial Statements") fairly present, on the basis stated therein, the
financial position, results of operations, cash flows and changes in
shareholders' equity of the Company at the dates and for the periods to
which they relate. The Financial Statements have been prepared in
accordance with generally accepted accounting principles ("GAAP")
consistently applied, except as otherwise stated therein, throughout the
periods involved and comply in all material respects with the requirements
of the 1933 Act. The summaries of the Financial Statements and other
financial, statistical and related notes set forth in the Prospectus are
(i) fairly present the information purported to be shown thereby as of the
dates and for the periods indicated on a basis consistent with the audited
consolidated financial statements of the Company and (ii) in compliance in
all material respects with the requirements of the 1933 Act and the Rules
and Regulations. There are no other financial statements or schedules
required to be included in the Registration Statement or Prospectus that
are not included in the Registration Statement or Prospectus.
(d) Each of the Company and its Subsidiaries, PDS Financial Corporation
- Nevada and PDS Financial Corporation - Mississippi PDS Casinos
International, Inc. and TransCanada 2 Corporation (each a "Subsidiary" and
collectively the "Subsidiaries"), are and at the First Closing Date and
Second Closing Date will be, duly organized and validly existing and in
good standing under the laws of their respective states of incorporation
with full power and authority (corporate and other) to own, lease and
operate their respective properties and conduct their respective business
as currently carried on and contemplated and described in the Registration
Statement and Prospectus and no proceeding has been instituted in any such
jurisdiction revoking, limiting, curtailing or seeking to revoke, limit or
curtail such qualification. Each of the Company and its Subsidiaries are
duly qualified to do business as a foreign corporation in good
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standing in each jurisdiction in which the character and location of
their respective assets or their respective business (existing or as
contemplated by the Prospectus) requires such qualification. No
proceeding has been instituted in any such jurisdiction revoking,
limiting, curtailing or seeking to revoke, limit or curtail such
qualification.
(e) There has not been, and at the First Closing Date and Second Closing
Date shall not have been, any change in the Company's Amended and
Restated Articles of Incorporation, as amended, or Amended and Restated
Bylaws from those in effect as of the date of this Agreement and filed
as exhibits to the Registration Statement. The Company and its
Subsidiaries are not in violation of their respective Articles of
Incorporation, Bylaws or other governing instruments. The Company and
its Subsidiaries are not in default (nor with the giving of notice or
the passage of time or both would be in default) in the performance of
any obligation, agreement or condition contained in any material
contract or any bond, debenture, note, indentured loan agreement or
other evidence of indebtedness or any loan agreement, material contract
or joint venture agreement of the Company or its Subsidiaries or other
material instrument to which each is subject or by which any of their
property or assets are subject. The Company and its Subsidiaries are
not in violation of any law, order, rule, regulation, writ, injunction,
or decree of any government, governmental instrumentality or court,
domestic or foreign, which violation is material to the business of the
Company or any Subsidiary.
(f) The Company and its Subsidiaries possess all licenses, certificates,
permits, authorizations, approvals and orders of and from all state and
federal Gaming Authorities and all material licenses, certificates,
permits, authorizations, approvals and orders of all state, federal and
other governmental regulatory officials and bodies necessary to own
their properties, conduct their business as described in the
Registration Statement and Prospectus, and perform this Agreement and
consummate the transactions contemplated hereby, or has obtained waivers
from any such applicable requirements from the appropriate state,
federal or other regulatory authorities, which will be delivered to the
Underwriter on the First Closing Date. The Company and each of its
Subsidiaries are conducting their business in compliance with all
material laws, rules and regulations of the jurisdictions in which each
is conducting business. All such licenses, permits, approvals,
certificates, consents, orders and other authorizations are in full
force and effect, and the Company and its Subsidiaries have not received
notice of any proceeding or action relating to the revocation or
modification of any such license, permit, approval, certificate,
consent, order or other authorization which, individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
might adversely affect the conduct of the business or the condition,
financial or otherwise, or the earnings, affairs or business prospects
of the Company and the Subsidiaries taken as a whole. To the Company's
knowledge, neither any Gaming Authority nor any other governmental
agency is investigating the Company, its Subsidiaries or related
parties, other than in ordinary course administrative reviews or in any
ordinary course review of the transactions contemplated hereby. "Gaming
Authority" or "Gaming Authorities" shall mean any of the Nevada Gaming
Commission, the Nevada Gaming Control Board, the New Jersey Gaming
Commission, New Jersey Casino Control Commission, the Mississippi Gaming
Commission, the Mississippi State Tax Commission, the National Indian
Gaming Commission, the Bureau of Indian Affairs, the U.S. Department of
Justice, Minnesota Department of Public Safety
4
and any other agency (including, without limitation, any agency
established by a federally-recognized Indian tribe to regulate gaming on
such tribe's reservation) which has, or may at any time have,
jurisdiction over the gaming activities of the Company or any of its
Subsidiaries or any successor to such authority.
(g) Subsequent to the respective dates as of which information is given
in the Registration Statement and Prospectus, except as is described in the
Registration Statement and Prospectus through the date of this Agreement:
(i) the Company and its Subsidiaries have not incurred, and will not have
incurred, any liabilities or obligations, direct or contingent, or entered
into any transactions, in each case, other than in the ordinary course of
business; (ii) the Company and its Subsidiaries have not and will not have
paid or declared any dividends or other distributions on its capital stock;
(iii) there has not been and will not have been any material change in the
capital stock or outstanding short term or long term debt, including any
capitalized lease obligation, of the Company or its Subsidiaries, or any
issuance of options, warrants, convertible securities, or other rights to
purchase the capital stock of the Company or its Subsidiaries or any
material adverse change or a development involving a prospective material
adverse change in or affecting the condition (financial or otherwise),
business, key personnel, properties, assets, results of operations, or net
worth of the Company and its Subsidiaries taken as a whole; and (iv) the
Company or its Subsidiaries has not sustained any loss or damage to its
properties or interference with its business, whether or not insured.
(h) There are no actions, suits, investigations or proceedings pending
before any court or governmental agency, authority or body, including a
Gaming Authority, to which the Company or any Subsidiary is a party or of
which the business or property of the Company or any Subsidiary is the
subject which might: (i) result in any material adverse change in the
condition (financial or otherwise), business or prospects of the Company;
(ii) materially and adversely affect its properties or assets; (iii)
prevent consummation of the transactions contemplated by this Agreement,
Indenture and Warrant Agreement; or (iv) adversely affect its ability to
repay the Notes; and, to the best of the Company's knowledge, no such
actions, suits or proceedings are threatened. The Company is not aware of
any facts which would form the basis for the assertion of any claim or
liability which are not disclosed in the Registration Statement or the
Prospectus or adequately reserved for in the Financial Statements which are
a part thereof, except for such claims or liabilities which are not
currently expected to have a material adverse effect on the condition
(financial or otherwise) or the earnings, affairs or business prospects of
the Company or any Subsidiary. All pending legal or governmental
proceedings to which the Company or any Subsidiary is a party or to which
any of their property is subject, which are not described in the
Registration Statement and the Prospectus, including ordinary routine
litigation incidental to the business, are, considered in the aggregate,
not material to the Company or its Subsidiaries.
(i) The Company has full power and authority to execute and deliver this
Agreement and to perform its obligations hereunder. This Agreement has
been duly and validly
5
authorized, executed and delivered by the Company and will constitute a
valid, legal and binding agreement of the Company, enforceable in
accordance with its terms, if and when this Agreement shall have become
effective in accordance with Section 9 hereof. The performance of this
Agreement and the consummation of the transactions herein contemplated
will not result in a breach or violation of any of the terms and
provisions of, or constitute a default (or with the giving of notice or
the passage of time or both would so constitute a breach or default) or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company or any Subsidiary pursuant to
(i) any indenture, mortgage, deed of trust, loan agreement, bond,
debenture, note agreement or other evidence of indebtedness; lease,
contract or other agreement or instrument to which the Company or any
Subsidiary is a party or by which the property or assets of the Company
or any Subsidiary is bound, (ii) the Company's or any Subsidiary's
Articles of Incorporation or Bylaws or other organizational documents or
(iii) any statute or any order, rule or regulation of any court,
governmental agency, body or Gaming Authority having jurisdiction over
the Company or any Subsidiary. No consent, approval, authorization,
order, registration, filing, qualification, license, or permit of or
with any court or any public, governmental or regulatory agency, body or
Gaming Authority having jurisdiction over the Company or its
Subsidiaries or their properties or assets, is required for the
execution, delivery and performance of this Agreement or the
consummation of the transactions contemplated hereby, including the
issuance, sale and delivery of the Units, except as may be required
under the 1933 Act, the Rules and Regulations, the Securities laws
("Blue Sky Laws") of the states where the Units are to be sold (the
"States"), the rules and regulations of The Nasdaq National Market, the
rules and regulations of the National Association of Securities Dealers,
Inc. ("NASD") and the Nevada Gaming Commission and the Nevada Gaming
Control Board in connection with the offer and sale of the Units by the
Underwriter.
(j) The Company has full power and authority to execute and deliver the
Indenture, Warrant Agreement and Underwriter's Warrants and to perform its
obligations thereunder. The Indenture, Warrant Agreement, and the
Underwriter's Warrants have been duly and validly authorized and when
executed and delivered by the Company on the First Closing Date, will each
constitute valid, legal and binding agreements of the Company enforceable
in accordance with its terms. The Company's performance of Indenture,
Warrant Agreement and Underwriter's Warrants and the consummation of the
transactions therein contemplated by such agreements will not result in a
breach or violation of any of the terms and provisions of, or constitute a
default (or with the giving of notice or the passage of time or both would
so constitute a breach or default) or result in the creation or imposition
of any lien, charge or encumbrance upon any property or assets of the
Company or any Subsidiary pursuant to (i) any indenture, mortgage, deed of
trust, loan agreement, bond, debenture, note agreement or other evidence of
indebtedness; lease, contract or other agreement or instrument to which the
Company or any Subsidiary is a party or by which the property or assets of
the Company or any Subsidiary is bound, (ii) the Company's or any
Subsidiary's Articles of Incorporation or Bylaws or other organizational
documents or (iii) any statute or any order, rule or regulation of any
court, governmental agency, body or Gaming Authority having jurisdiction
over the Company or any Subsidiary. No consent, approval, authorization,
order, registration, filing,
6
qualification, license, or permit of or with any court or any public,
governmental or regulatory agency, body or Gaming Authority having
jurisdiction over the Company or any Subsidiary or their properties or
assets, is required for the execution, delivery and performance of the
Indenture, Warrant Agreement and Underwriter's Warrants or the
consummation of the transactions contemplated, except the qualification
of the Indenture under the Trust Indenture Act of 1939, as amended (the
"Trust Indenture Act"). The Indenture is in the form filed as an
exhibit to the Registration Statement. The Indenture complies with and
is qualified under the Trust Indenture Act.
(k) The Company has full power and authority to execute and deliver the
Notes and Warrants and to perform its obligations thereunder. The Notes
have been duly and validly authorized and, when authenticated by the
Trustee and issued, delivered and sold in accordance with this Agreement
and the Indenture, will have been duly and validly executed, authenticated,
issued and delivered and will constitute valid and legally binding
obligations of the Company entitled to the benefits provided by the
Indenture and enforceable against the Company in accordance with their
terms.
(l) The Company will as of the First Closing Date and, if applicable,
the Second Closing Date, have the duly authorized and outstanding
capitalization set forth in the Prospectus. There are no other classes of
stock authorized or outstanding except as described therein, and the
outstanding consolidated indebtedness of the Company is as set forth in the
Prospectus and has been duly authorized by the Company. The outstanding
Common Stock of the Company is duly authorized and validly issued, fully
paid, and nonassessable. All statements relating to the Units, Notes and
Warrants contained in the Registration Statement and Prospectus conform in
all material respects to the terms of the Units, Notes and Warrants. The
Warrants to be sold by the Company hereunder have been duly authorized and,
when issued, delivered and paid for pursuant to this Agreement, will be
validly issued, fully paid, and binding obligations of the Company,
enforceable in accordance with the terms of the Warrant Agreement. The
shares of Common Stock issuable upon exercise of the warrants ("Warrant
Shares") and shares of Common Stock issuable upon exercise of the
Underwriter's Warrants ("UW Warrant Shares") have been duly authorized and
when issued, delivered and paid for pursuant to the terms of the Warrant
Agreement and Underwriter's Warrants, respectively, will be validly issued,
fully paid, and nonassessable and will conform to the description of the
Company's Common Stock contained in the Prospectus. A sufficient number of
shares of the Common Stock have been reserved for issuance upon exercise of
the Warrants and Underwriter's Warrants. No preemptive rights or similar
rights of any security holders of the Company exist with respect to the
issuance and sale of the Units by the Company or exercise of the Warrant or
Underwriter's Warrants. Except as disclosed to the Underwriter in writing,
the Company has no agreement with any security holder which gives such
security holder the right to require the Company to register under the 1933
Act any securities of any nature owned or held by such person either in
connection with the transactions contemplated by this Agreement or after a
demand for registration by such holder. Upon payment for and delivery of
the Units pursuant to this Agreement, the Underwriter will acquire good and
marketable title to the Units, Notes and Warrants free
7
and clear of all liens, encumbrances, or claims. The certificates
evidencing the Notes, Warrants and Common Stock comply as to form with
all applicable provisions of federal law and the laws of the State of
Minnesota. Except as set forth in any part of the Registration
Statement, the Company and its Subsidiaries do not have any outstanding
options to purchase or any rights or warrants to subscribe for, or any
securities or obligations convertible into, or any contract or
commitments to issue or sell, any Common Stock or other securities of
the Company.
(m) The Company and its Subsidiaries have good and marketable title
(in fee simple as to real property) to all real and personal properties
and assets described in the Prospectus as being owned by them, free and
clear of all security interests, liens, charges, encumbrances,
restrictions or defects except such as are otherwise reflected in the
financial statements included in the Prospectus or described or referred
to in the Prospectus or as such do not materially affect the value of
such property and do not interfere with the use made of such property by
the Company or any of its Subsidiaries. The Company and its
Subsidiaries hold valid and enforceable leases for the properties (real
and personal) described in the Prospectus as leased by them; the Company
and its Subsidiaries are not in default (or with the giving of notice or
the passage of time or both would be in default) in any material respect
to any of such leases, and to the best knowledge of the Company, no
claim of any sort has been asserted by anyone adverse to the rights of
the Company and its Subsidiaries as lessee under any such lease or
questioning its right to continued use and possession of any of the
leased properties under any such lease.
(n) Except as disclosed in the Prospectus, the Company owns or possesses
rights to use all patents, copyrights, trademarks and proprietary rights or
information necessary for the conduct of its present or intended business
as described in the Prospectus, and, except as disclosed in the Prospectus,
the Company has not received any notice of conflict with asserted rights of
others and the Company has no reason to believe that the conduct of its
business will conflict with any such rights of others. There are no
pending legal, governmental or administrative proceedings relating to
patents, copyrights, trademarks or proprietary rights or information, to
which the Company is a party or of which any property of the Company is
subject and no such proceedings are, to the best of the Company's
knowledge, threatened or contemplated against the Company by any
governmental agency or authority or others.
(i) Except as disclosed in the Prospectus, the Company is not
obligated or under any liability whatsoever to make any payments by
way of royalties, fees or otherwise to any owner of, licensor of,
or other claimant to, any patent, trademark, trade name, copyright
or other intangible asset, with respect to the use thereof or in
connection with the conduct of its business or otherwise.
8
(ii) The Company owns and has the unrestricted right to use all
trade secrets, including know-how, customer lists, inventions,
designs, processes, computer programs and technical data necessary
to the development, manufacture, operation and sale of all products
and services sold or processed to be sold by it, free and clear of
any rights, liens and claims of others. The Company is not using
any confidential information or trade secrets of any former employer
of any of its past or present employees.
(o) The Company has filed all necessary federal, state, local and
foreign income, franchise and other tax returns required to be filed
through the date of this Agreement and has paid all taxes shown as due
thereon. All tax liabilities are adequately provided for on the books of
the Company and there is no tax proceeding or action pending or to the best
knowledge of the Company, threatened against the Company.
(p) The Company has not distributed and will not distribute any
prospectus or any other offering material in connection with the offering
and sale of the Units other than the Preliminary Prospectus or the
Prospectus or other materials permitted by the 1933 Act and Rules and
Regulations to be distributed by the Company and consented to by the
Underwriter.
(q) The Company owns no capital stock or other equity or ownership or
proprietary interest in any corporation, partnership, limited liability
company, association, trust or other entity and is not affiliated (as that
term is defined under the 0000 Xxx) with any other company or business
entity except as explicitly stated in the Prospectus. Except as described
in the Prospectus, the Company is not owned or controlled, directly or
indirectly, by any corporation, association or other entity.
(r) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that:
(i) transactions are executed in accordance with management's
general or specific authorization;
(ii) transactions are recorded as necessary to permit preparation
of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets;
(iii) access to assets is permitted only in accordance with
management's general or specific authorization; and
(iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is
taken with respect to any differences.
9
(s) The Company maintains insurance, which is in full force and effect,
of the types and in amounts which are adequate for its business and as is
customary with insurance maintained by similar companies and businesses.
(t) No labor disturbance by the employees of the Company exists or, to
the best of the Company's knowledge, is imminent which could reasonably be
expected to have a material adverse effect on the conduct of the business,
operations, financial condition, or income of the Company.
(u) Neither the Company nor any Subsidiary is an "investment company" as
defined in the Investment Company Act of 1940, as amended and will not
become an "investment company" upon the sale of the Units.
(v) Neither the Company nor any employee or agent of the Company has
made any payment of funds of the Company or received or retained funds in
violation of any law, rule or regulation.
(w) The Company has not engaged any "finder" with respect to the
transactions contemplated by this Agreement and there is no outstanding
claim for services in the nature of a "finder's fee" with respect to such
financing; and the Company agrees to indemnify and hold the Underwriter
harmless from and against any claims, losses, judgments or expenses
resulting from any finder's fees payable in connection herewith.
(x) There are no outstanding loans or advances or guarantees of
indebtedness by the Company to or for the benefit of any of the officers or
directors of the Company or any of the members of the families of any of
them except as are described in the Prospectus.
(y) The Company, after giving effect to the execution, delivery and
performance of this Agreement, the Indenture, Warrant Agreement and the
Notes and the consummation of the transactions contemplated hereby and
thereby will not be:
(i) insolvent;
(ii) left with unreasonably small capital with which to engage in
its business; or
(iii) incurring debts beyond its ability to pay such debts as they
mature.
(z) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in or which has constituted or which
constitute the stabilization or manipulation, as defined in the Securities
Exchange Act of 1934, as amended (the "1934 Act") or otherwise, of the
price of any outstanding securities of the Company to facilitate the sale
or resale of the Units.
10
(aa) The Company has timely filed all documents and amendments to
previously filed documents required to be filed by it pursuant to the 1934
Act and the rules and regulations of the SEC thereunder. Each such
document conformed in all material respects with the requirements of the
1934 Act and contained all information required to be stated therein in
accordance with the 1934 Act. No part of any such document contained any
untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading. True copies of each of the documents incorporated by
reference, if any, into each Preliminary Prospectus and the Prospectus have
been delivered by the Company to the Underwriter. To the best of the
Company's knowledge, the executive officers and directors of the Company
and stockholders who hold more than 5% of the Company's outstanding Common
Stock, have made, and are current with, all filings, if any, that are
required under the 1934 Act.
(bb) The Warrants have been approved by Nasdaq for trading on The Nasdaq
National Market System following effectiveness of the Registration
Statement.
(cc) On the First Closing Date and Second Closing Date, as the case may
be, all transfer or other taxes, if any (other than income taxes), which
are required to be paid in connection with the sale or transfer of the
Units will have been fully paid or provided for by the Company and all laws
imposing such taxes will have been fully complied with.
(dd) Each acceptance by the Company of an offer for the purchase of the
Units and each issuance of Units shall be deemed an affirmation of the
Company that the representations and warranties contained herein are true
and correct at the time of such acceptance of such issuance, in each case
as though expressly made at that time. Any certificate signed by any
officer of the Company and delivered to the Underwriter or to counsel for
the Underwriter shall be deemed a representation and warranty by the
Company to the Underwriter as to matters covered thereby.
(ee) The Company has no defined benefit pension plan or other pension
plan, except for its 401(k) Plan which has no benefit obligations and has
not been funded; which is intended to comply with the provisions of the
Employee Retirement Income Securities Act of 1974, as amended, except as
disclosed in the Registration Statement.
(ff) Since the Company's initial public offering, the Company has sold
no securities in violation of Section 5(a) of the 1933 Act.
(gg) Neither the Company, nor any affiliate thereof, does business with
the government of Cuba or with any person or affiliate located in Cuba.
(hh) All material transactions between the Company and its stockholders
who beneficially own more than 5% of any class of the Company's voting
securities have been accurately disclosed in the Prospectus, and the terms
of each such transaction are fair to the Company and on terms no less
favorable to the Company than the terms that could have been obtained from
unrelated parties.
11
(ii) No holders of the Company's securities who have demand or
participatory registration rights, have any right to include any of the
Company's securities in the Registration Statement nor is the Company
obligated to include any of its securities, other than the securities
described in this Agreement, in the Registration Statement.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties, and agreements
herein contained, but subject to the terms and conditions herein set forth,
the Company agrees to issue and sell to the Underwriter, and the
Underwriter agrees, to purchase from the Company, the Firm Units at a
purchase price equal to 93.5% of the per Unit Price to Public (as set forth
in the Prospectus). The Underwriter will purchase all of the Firm Units if
any are purchased.
(b) On the basis of the representations and warranties herein contained,
but subject to the terms and conditions herein set forth, the Company
hereby grants an option to the Underwriter to purchase an aggregate of up
to 1,500 Option Units at the same purchase price as the Firm Units for use
solely in covering any overallotments made by the Underwriter in the sale
and distribution of the Firm Units. The option granted hereunder may be
exercised at any time (but not more than once) within 45 days after the
Effective Date (as defined in Section 5(a) hereof) upon notice (confirmed
in writing) by the Underwriter to the Company setting forth the aggregate
number of Option Units as to which the Underwriter is exercising the option
and the date on which certificates for such Option Units are to be
delivered. The option granted hereby may be cancelled by the Underwriter
as to the Option Units for which the option is unexercised at any time
prior to the expiration of the 45-day period upon notice to the Company.
(c) The Company will deliver the Firm Units to the Underwriter at the
offices of Xxxxxxxxxx & Xxxxx, P.A. unless some other place is agreed upon,
at 10:00 A.M., Minneapolis time, against payment of the purchase price at
the same place, on the third full business day after the Effective Date, or
such earlier time as may be agreed upon between the Underwriter and the
Company, such time and place being herein referred to as the "First Closing
Date."
(d) The Company will deliver the Option Units being purchased by the
Underwriter to the Underwriter at the offices of Xxxxxxxxxx & Xxxxx, P.A.
as set forth in Section 2(c) above, unless some other place is agreed upon,
at 10:00 A.M., Minneapolis time, against payment of the purchase price at
the same place, on the date determined by the Underwriter and of which the
Company has received notice as provided in Section 2(b), which shall not be
earlier than two nor later than three full business days after the exercise
of the option as set forth in Section 2(b), or at such other time not later
than ten full business days thereafter as may be agreed upon the
Underwriter and the Company, such time and date being herein referred to as
the "Second Closing Date". The First Closing Date and Second Closing Date
are referred to herein as a "Closing Date."
12
(e) Certificates for the Notes and Warrants to be delivered will be
registered in such names and issued in such denominations as the
Underwriter shall request of the Company at least two full business days
prior to the First Closing Date or the Second Closing Date, as the case may
be. The certificates will be made available to the Underwriter in
definitive form for the purpose of inspection and packaging at least 24
hours prior to each respective closing date.
(f) Payment for the Units shall be made by wire transfer to a designated
account of the Company, certified or official bank check or checks in
Clearing House funds, payable to the order of the Company.
(g) The Underwriter will make a public offering of the Units directly to
the public (which may include selected dealers who are members in good
standing with the NASD or foreign dealers not eligible for membership in
the NASD but who have agreed to abide by the interpretation of the NASD's
Board of Governors with respect to free-riding and withholding) as soon as
the Underwriter deems practicable after the Registration Statement becomes
effective at the initial public price set forth on the cover page of the
Prospectus, subject to the terms and conditions of this Agreement and in
accordance with the Prospectus. Such concessions from the public offering
price may be allowed selected dealers of the NASD as the Underwriter
determines, and the Underwriter will furnish the Company with such
information about the distribution arrangements as may be necessary for
inclusion in the Registration Statement. It is understood that the public
offering price and concessions may vary after the initial public offering.
The Underwriter shall offer and sell the Units only in jurisdictions in
which the offering of Units has been duly registered or qualified, or is
exempt from registration or qualification, and shall take reasonable
measures to effect compliance with applicable state and local securities
laws.
3. UNDERWRITER'S WARRANTS. On the First Closing Date, the Company
shall sell to you for $50 the Underwriter's Warrants, which shall first become
exercisable one year after the Effective Date and shall remain exercisable for a
period of four years thereafter. The Underwriter's Warrants shall be subject to
certain transfer restrictions and shall be in substantially the form filed as an
exhibit to the Registration Statement and attached as Appendix A hereto.
4. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees
with the Underwriter as follows:
(a) If the Registration Statement has not become effective prior to the
date hereof, the Company will use its best efforts to cause the
Registration Statement and any subsequent amendments thereto to become
effective as promptly as possible. The Company will notify the Underwriter
promptly, after the Company shall receive notice thereof, of the time when
the Registration Statement, or any subsequent amendment thereto, has become
effective or any supplement to the Prospectus has been filed. Following
the execution and delivery of this Agreement, the Company will prepare, and
timely file or transmit for filing with the SEC in accordance with Rules
430A, 424(b) and 434, as applicable, copies of the
13
Prospectus, or, if necessary, a post-effective amendment to the
Registration Statement (including the Prospectus), in which event, the
Company will take all necessary action to have such post-effective
amendment declared effective as soon as possible. The Company will
notify the Underwriter promptly upon the Company's obtaining knowledge
of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or of the initiation or
threat of any proceedings for that purpose and will use its best efforts
to prevent the issuance of any stop order and, if a stop order is
issued, to obtain as soon as possible the withdrawal or lifting thereof.
The Company will promptly prepare and file at its own expense with the
SEC any amendments of, or supplements to, the Registration Statement or
the Prospectus which may be necessary in connection with the
distribution of the Units by the Underwriter. During the period when a
Prospectus relating to the Units is required to be delivered under the
1933 Act, the Company will promptly file any amendments of, or
supplements to, the Registration Statement or the Prospectus which may
be necessary to correct any untrue statement of a material fact or any
omission to state any material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The Company will notify the Underwriter promptly of the
receipt of any comments from the SEC regarding the Registration
Statement or Prospectus or request by the SEC for any amendment thereof
or supplement thereto or for any additional information. The Company
will not file any amendment of, or supplement to, the Registration
Statement or Prospectus, whether prior to or after the Effective Date,
which shall not previously have been submitted to the Underwriter and
its counsel a reasonable time prior to the proposed filing or to which
the Underwriter shall have reasonably objected.
(b) The Company has used and will continue to use its best efforts to
register or qualify the Units for sale under the securities laws of such
jurisdictions as the Underwriter may designate and the Company will file
such consents to service of process or other documents necessary or
appropriate in order to effect such registration or qualification. In each
jurisdiction in which the Units shall have been registered or qualified as
above provided, the Company will continue such registrations or
qualifications in effect for so long as may be required for purposes of the
distribution of the Units, provided, however, that in no event shall the
Company be obligated to qualify to do business as a foreign corporation in
any jurisdiction in which it is not now so qualified or to take any action
which would subject it to the service of process in suits, other than those
arising out of the offering or sale of the Units in any jurisdiction where
it is not now so subject. In each jurisdiction where any of the Units
shall have been so qualified, the Company will file such statements and
reports as are or may be reasonably required by the laws of such
jurisdiction to continue such qualification in effect for so long as the
Warrants and Underwriter's Warrants are exercisable. The Company will
notify the Underwriter immediately of, and confirm in writing, the
suspension of qualification of the Units or the threat of such action in
any jurisdiction. The Company will use its best efforts to qualify or
register its Common Stock, Notes, Warrants and Underwriter's Warrants for
sale in nonissuer transactions under (or obtain exemptions from the
application of) the securities laws of such states designated by the
Underwriter (and thereby permit market-making transactions and secondary
trading in its Common Stock, Notes, Warrants and Underwriter's Warrants in
such states), and will
14
comply with such securities laws and will continue such qualifications,
registrations and exemptions in effect for so long as the Warrants and
Underwriter's Warrants are exercisable.
(c) The Company will furnish to the Underwriter, as soon as available,
copies of the Registration Statement (one of which will be signed and which
shall include all exhibits), each Preliminary Prospectus, the Prospectus
and any amendments or supplements to such documents, including any
prospectus prepared to permit compliance with Section 10(a)(3) of the 1933
Act, all in such quantities as the Underwriter may from time to time
reasonably request prior to the printing of each such document. The
Company specifically authorizes the Underwriter and all dealers to whom any
of the Units may be sold by the Underwriter to use and distribute copies of
such Preliminary Prospectuses and Prospectuses in connection with the sale
of the Units as and to the extent permitted by the federal and applicable
state and local securities laws.
(d) As soon as practicable (but in no event later than 90 days after the
close of the period covered thereby) the Company will make generally
available to its security holders, including Note and Warrant holders, and
furnish to you, an earnings statement of the Company covering the period of
12 months beginning not later than the first day of the next fiscal quarter
following the Effective Date of the Registration Statement which will
satisfy the requirements of Section 11(a) or Rule 158 of the 1933 Act and
which need not be certified by independent public accountants.
(e) For as long as the Company has more than 100 beneficial owners, but
in no event more than five years after the Effective Date, upon request by
the Underwriter, the Company will furnish to the Underwriter,
concurrently with furnishing such reports to its stockholders, the
following reports: (i) as soon as they are available, copies of all
other reports (financial or otherwise) mailed to security holders; and
(ii) as soon as they are available, copies of all reports and financial
statements furnished to, or filed with, the SEC, the NASD, any
securities exchange or any state securities commission by the Company.
During such period, the foregoing financial statements shall be on a
consolidated basis to the extent that the accounts of the Company and
any Subsidiary or Subsidiaries are consolidated and shall be accompanied
by similar financial statements for any significant subsidiary which is
not so consolidated.
(f) For a period of at least five years after the Effective Date, the
Company will continue to file with the SEC all reports and other documents
as may be required by the 1933 Act, the Rules and Regulations and the 0000
Xxx.
(g) Prior to or as of the First Closing Date, the Company shall have
performed each condition to closing required to be performed by it pursuant
to Section 5 hereof.
(h) Other than as permitted by the 1933 Act and the Rules and
Regulations, the Company will not distribute any Prospectus or other
offering material in connection with the Offering.
15
(i) The Company will promptly comply with all filing requirements
pursuant to Item 701 of Regulation SB of the 1933 Act.
(j) The Company will cause all holders of its securities who have any
demand or participatory registration rights to waive any demand or
participatory registration rights which they may have in connection with
the offer and sale of the Units.
(k) For as long as the Notes are outstanding, the Company will cause PDS
Financial Corporation - Nevada to maintain its Distributor's License and
other permits and licensees issued by the Nevada Gaming Commission and
Nevada Control Board and the Company shall, and cause its Subsidiaries to,
use its best efforts to maintain all other gaming licenses described in the
Prospectus as being held by the Company and its Subsidiaries.
(l) The Company will apply the net proceeds from the sale of the Units
in the manner set forth under the caption "Use of Proceeds" in the
Prospectus.
(m) The Company agrees that from the date of its execution of this
Agreement to the Second Closing Date, if any, it will issue press releases,
make public statements and respond to inquiries of the press and securities
analysts in connection with this Offering only (i) in accordance with its
obligations under the 1934 Act after conferring with its counsel and (ii)
after conferring with its counsel and with the consent of the Underwriter.
(n) The Company will not claim the benefit of any usury laws against any
holders of the Notes.
(o) The Company will provide the Underwriter with copies of certificates
and supporting documentation furnished to the Trustee pursuant to the
Indenture or otherwise.
(p) The Company will continue to appoint its current auditors or any
replacement firm of auditors acceptable to the Underwriter to audit its
financial statements.
(q) The Company agrees that the necessary legal work for drafting and
preparing the Indenture and for registration, qualification or
perfection of exemptions of the Units for sale under the securities or
Blue Sky Laws of such states as the Underwriter may designate shall be
performed by counsel for the Underwriter. All Blue Sky filing fees and
fees and expenses of Underwriter's counsel shall be payable by the
Underwriter, and the fees and expenses of Underwriter's counsel incurred
in connection with the preparation of the Indenture shall be payable by the
Company regardless of whether any closing shall occur and shall be in
addition to the Underwriter's fees, expenses and commission described in
this Agreement.
16
(r) The Company will pay to the Underwriter a management fee in an
amount equal to 1.00% of the Total Units Price to Public (including Units
sold pursuant to the Underwriter's over-allotment option).
(s) The Company will pay, in addition to the Blue Sky and Indenture
fees and expenses and the Underwriter's management fee described in the
paragraphs (q) and (r) of this Section, all costs and expenses related
to the performance of its obligations under this Agreement including,
but not limited to: (i) all expenses incident to the issuance and
delivery of the Units, including taxes, if any; (ii) all expenses
incident to the preparation, filing and delivery of the Registration
Statement, each Preliminary Prospectus, the Prospectus, and any
amendments, supplements or submissions related thereto (including
exhibits); (iii) all expenses incident to the filing, delivery and
qualification of the Indenture and any amendments, supplements or
submissions related thereto (including fees and disbursements of
Underwriters' counsel, who has the responsibility for such preparation)
and the preparation, filing and delivery of the Warrant Agreement; (iv)
all NASD fees incurred by the Underwriter in connection with the review
of your compensation by the NASD; (v) the cost of preparing and printing
as many amendments to the Registration Statement as may be necessary;
(vi) the cost of all certificates representing the Notes and Warrants;
(vii) the fees and expenses of the Trustee and paying agent under the
Indenture and Transfer Agent under the Warrant Agreement; (viii) the
cost of printing and distributing all documents related to the offering;
(ix) the fees and expenses of the Company's independent accounts,
including the cost of "cold comfort" review; (x) the fees and expenses
of legal counsel for the Company; (xi) the cost of furnishing and
delivering to the Underwriter and dealers participating in the
distribution of the Units copies of the Registration Statement
(including Exhibits), Preliminary Prospectuses, the Prospectuses and any
amendments of, or supplements to, any of the foregoing; (xii) the Nasdaq
filing fee to list the Warrants on The Nasdaq National Market System;
and (xiii) the nonaccountable expense allowance of the Underwriter in an
amount equal to 2.00% of the Total Units Price to Public (including
Units sold pursuant to the Underwriter's over-allotment option),
provided, however, if this transaction is abandoned for any reason, the
Company will reimburse the Underwriter for all of its out-of-pocket
accountable expenses, including fees and expenses of its legal counsel
in an amount not to exceed $75,000.
(t) The Company will not take, and will use its best efforts to cause
each of its officers and directors not to take, directly or indirectly, any
action designed to or which might reasonably be expected to cause or result
in the or manipulation of the price of any security of the Company to
facilitate the sale or resale of the Units.
(u) The Company will use its best efforts to maintain the listing of its
Common Stock and the Warrants on The Nasdaq National Market.
(v) The Company shall use its best efforts at all times the Warrants or
Underwriter's Warrants are exercisable, to maintain an effective
registration statement under the 1933 Act covering the shares of Common
Stock issuable upon exercise of the Warrants or
17
Underwriter's Warrants (or such other registration statements or
post-effective amendments or supplements) as may be necessary to permit
the Company to deliver to each person exercising a Warrant or
Underwriter's Warrants a prospectus meeting the requirements of Section
10(a)(3) of the 1933 Act and otherwise complying therewith, and will
deliver such a prospectus to each such person. The Company further
covenants and agrees that it will obtain and keep effective all permits,
consents and approvals of governmental agencies and authorities, and
will use its best efforts to take all action which may be necessary to
qualify the shares of Common Stock issuable upon exercise of the
Warrants or Underwriter's Warrants for sale under the Blue Sky Laws of
the States, as may be necessary to permit the free exercise of the
Warrants or Underwriter's Warrants, and the issuance, sale, transfer and
delivery of the shares of Common Stock issued upon exercise of the
Warrants or Underwriter's Warrants, and to maintain such qualifications
during the entire period in which the Warrants or Underwriter's Warrants
are exercisable. If registrations are not in effect and if exemptions
are not available when a holder seeks to exercise the Warrant or
Underwriter's Warrants, the exercise period of such warrant will be
extended, if need be, to prevent such warrant from expiring, until such
time as either registrations become effective or exemptions are
available, and such warrant shall then remain exercisable for a period
of at least 90 calendar days from the date the Company delivers to such
holder written notice of the availability of such registrations or
exemptions.
5. CONDITIONS OF THE UNDERWRITER OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Units as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, in
the case of the Firm Shares as of the date hereof and the First Closing Date (as
if made on and as of the First Closing Date) and in the case of the Option
Shares, as of the date hereof and the Second Closing Date (as if made on and as
of the Second Closing Date), to the performance by the Company of its
obligations hereunder, and to the satisfaction of the following additional
conditions on or before the First Closing Date in the case of the Firm Shares
and on or before the Second Closing Date in the case of the Option Shares:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M. Minneapolis time, on the first full business day
following the date of this Agreement, or such later date as shall be
consented to in writing by the Underwriter (the "Effective Date"). If
the Company has elected to rely upon Rule 430A, the information
concerning the price of the Shares and price-related information
previously omitted from the effective Registration Statement pursuant to
Rule 430A shall have been transmitted to the SEC for filing pursuant to
Rule 424(b) within the prescribed time period, and prior to the Closing
Date the Company shall have provided evidence satisfactory to the
Underwriter of such timely filing (or a post-effective amendment
providing such information shall have been promptly filed and declared
effective in accordance with the 1933 Act and the Rules and
Regulations). No stop order suspending the effectiveness thereof shall
have been issued and no proceeding for that purpose shall have been
initiated or, to the knowledge of the Company or the Underwriter,
threatened by the SEC or any state securities commission or similar
regulatory body. Any request of the SEC for additional information (to
be included in the Registration Statement or the Prospectus or
otherwise) shall have been complied with to the satisfaction of the
Underwriter and their legal counsel. The NASD, upon review of the
18
terms of the Offering, shall not have objected to the terms of the
Underwriters' participation in the Offering.
(b) The Underwriter shall not have been advised by the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a material fact which
omits to state a material fact and which is required to be stated therein
or is necessary to make the statements contained therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that this Section 5(b) shall not apply to statements in, or
omissions from, the Registration Statement or Prospectus, or any amendment
thereof or supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriter specifically for
use in the preparation of the Registration Statement or the Prospectus, or
any such amendment or supplement.
(c) Subsequent to the date as of which information is given in the
Registration Statement and Prospectus, there shall not have occurred any
change, or any development involving a prospective change, which materially
and adversely affects the business or properties of the Company and which,
in the reasonable opinion of the Underwriter, materially and adversely
affects the market for the Units.
(d) The Underwriter and Underwriter's counsel shall have been furnished
with such documents and information as the Underwriter or they may have
requested.
(e) The Underwriter shall have received the opinion of Xxxxxx & Xxxxxxx
LLP, counsel for the Company, dated as of such respective Closing Date and
satisfactory in form and substance to the Underwriter and its counsel, to
the effect that:
(i) The Company and its Subsidiaries have been duly organized
and are validly existing in good standing under the laws of their
respective states of organization with the requisite corporate power
and authority to own or lease properties and conduct their
respective businesses as described in the Prospectus. The Company
and its Subsidiaries are duly qualified to do business as a foreign
corporation in good standing in all jurisdictions where the
ownership or leasing of their properties or the conduct of their
respective businesses requires such qualification, except where the
failure to so qualify would have a material adverse effect on the
Company and its Subsidiaries taken as a whole.
(ii) The number of authorized and the number of issued and
outstanding shares of capital stock of the Company are as set forth
in the Prospectus and all such issued and outstanding capital stock
has been duly authorized and is validly issued, fully paid, and
nonassessable. The Company has all requisite power and authority to
issue and sell the Units in accordance with and upon the terms and
conditions set forth in this Agreement, and all action required to
be taken by the Company for the due and proper authorization,
issuance, sale and delivery of the Units has been validly and
sufficiently taken. The Units to be issued and sold,
19
upon issuance and delivery of and payment for the Units hereunder
will be duly authorized, validly issued and fully paid. The
Company's Amended and Restated Articles of Incorporation, as
amended and Amended and Restated Bylaws contain no preemptive
rights. To the knowledge of such counsel, no preemptive rights,
contractual or otherwise, of securities holders of the Company
exist with respect to the issuance or sale of the Units, Warrants
and Notes by the Company pursuant to this Agreement or the
issuance of the Warrant Shares or UW Warrant Shares upon exercise
of the Warrants and Underwriter's Warrants and there are no rights
to require registration of shares of Common Stock or other
securities of the Company which may be exercised in connection
with the filing of the Registration Statement. The Units,
including Warrants and Notes, Underwriter's Warrants, Warrant
Shares and UW Warrant Shares conform as to matters of law in all
material respects to the description of these securities made in
the Prospectus, and such description accurately sets forth the
material legal provisions thereof required to be set forth in the
Prospectus.
(iii) The Units to be sold by the Company have been duly
authorized.
(iv) The Warrants have been duly authorized, executed and
delivered by the Company, and are valid and binding obligations of
the Company, enforceable in accordance with their terms, except as
enforcement of rights to indemnity and contribution in this
Agreement may be limited by federal or state securities laws or
principals of public policy and subject to the qualification that
the enforceability of the Company's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally, and by general equitable
principals when applied by a court of law or equity. The Warrant
Shares have been duly authorized and upon receipt of payment will be
validly issued, fully paid and nonassessable. A sufficient number
of shares of Common Stock of the Company have been reserved for
issuance upon exercise of the Warrants.
(v) The Notes have been duly and validly authorized and when
authenticated by the Trustee and issued, delivered and sold in
accordance with the Agreement and the Indenture, will have been duly
and validly executed, authenticated, issued and delivered and will
constitute valid and legally binding obligations of the Company
entitled to the benefits provided by the Indenture and enforceable
against the Company in accordance with their terms, except as
enforcement of rights to indemnity and contribution in this
Agreement may be limited by federal or state securities laws or
principals of public policy and subject to the qualification that
the enforceability of the Company's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally, and by general equitable
principals when applied by a court of law or equity.
20
(vi) The certificates evidencing the Notes and Warrants comply as
to form with the applicable provisions of the laws of the State of
Minnesota.
(vii) The Underwriter's Warrants have been duly authorized,
executed and delivered by the Company and are the valid and binding
obligations of the Company, enforceable in accordance with their
terms, except as enforcement of rights to indemnity and contribution
in this Agreement may be limited by federal or state securities laws
or principals of public policy and subject to the qualification that
the enforceability of the Company's obligations hereunder and
thereunder may be limited by bankruptcy, fraudulent conveyance,
insolvency, reorganization, moratorium and other laws relating to or
affecting creditors' rights generally, and by general equitable
principals when applied by a court of law or equity. The UW Warrant
Shares when issued and paid for in accordance with the terms of the
Underwriter's Warrants will be validly issued, fully paid and
nonassessable. A sufficient number of shares of Common Stock has
been reserved for issuance upon exercise of the Underwriter's
Warrants.
(viii) The Registration Statement has become and is effective under
the Act , the Prospectus has been filed as required by Rule 424(b),
if necessary, and to the best knowledge of such counsel, no stop
orders suspending the effectiveness of the Registration Statement
have been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the Act .
(ix) To the knowledge of such counsel, there are no material
legal or governmental proceedings pending, or threatened, before any
court or administrative body, regulatory agency or Gaming Authority,
to which the Company or its Subsidiaries is a party or to which any
of the properties of the Company or its Subsidiaries are subject,
that are required to be disclosed in the Registration Statement or
Prospectus that are not so described, nor to the knowledge of such
counsel legal or governmental proceedings pending or threatened,
that are required to be described in the Registration Statement or
Prospectus that are not so described.
(x) No consent, approval, authorization, order or other action
of any court or governmental agency or body is required for issuance
and sale of the Units as contemplated herein, except such as have
been obtained under the 1933 Act, the Trust Indenture Act and such
as may be required under the Blue Sky laws of any jurisdiction in
connection with the purchase and distribution of the Units by the
Underwriter and such other approvals (specified in such opinion) as
have been obtained and such as may be required by the Gaming
Authorities.
(xi) The Company has full legal right, power and authority to
enter into this Agreement and the Warrant Agreement. This Agreement
and the Warrant Agreement have been duly authorized, executed and
delivered by, and are valid
21
and binding agreements of the Company, enforceable in accordance
with its terms, except as enforcement of rights to indemnity and
contribution in this Agreement may be limited by federal or state
securities laws or principals of public policy and subject to the
qualification that the enforceability of the Company's obligations
hereunder and thereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally, and by
general equitable principals when applied by a court of law or
equity.
(xii) The Indenture has been duly and validly authorized, executed
and delivered by the Company, has been qualified under the Trust
Indenture Act, is in the form filed as an exhibit to the
Registration Statement and complies with the Trust Indenture Act
and constitutes a valid and legally binding obligation of the
Company enforceable against the Company in accordance with its
terms, except as enforcement of rights to indemnity and
contribution in this Agreement may be limited by federal or state
securities laws or principals of public policy and subject to the
qualification that the enforceability of the Company's obligations
hereunder and thereunder may be limited by bankruptcy, fraudulent
conveyance, insolvency, reorganization, moratorium and other laws
relating to or affecting creditors' rights generally, and by
general equitable principals when applied by a court of law or
equity.
(xiii) The execution or delivery of this Agreement, Indenture or
Warrant Agreement and the consummation of the transactions described
herein and therein will not result in a violation of or default
under, the Company's Amended and Restated Articles of Incorporation,
as amended, Amended and Restated Bylaws or other governing documents
(or violate any law, order, rule, regulation, writ, injunction, or
decree of any government, governmental agency or court having
jurisdiction over the Company or its Subsidiaries or any of their
properties), and, to such counsel's knowledge, the Company is not,
nor with the giving of notice or lapse of time or both would be, in
violation of or default under, nor will the execution and delivery
of this Agreement, Indenture, or Warrant Agreement and the
consummation of the transactions described therein result in a
violation of or default under the terms or provisions of any bond,
debenture, note, or other evidence of indebtedness or any contract,
license, indenture, mortgage, loan agreement, joint venture or
partnership agreement, lease, agreement or instrument to which the
Company or its Subsidiaries are a party or by which the Company or
its Subsidiaries or any of their properties are bound which are
described in the Prospectus or attached to the Registration
Statement as an Exhibit.
(xiv) The Units, Warrants and Notes conform to the description
thereof contained under the heading "Description of Units" in the
Prospectus.
(xv) The statements (i) in the Prospectus under the captions
"Risk Factors--Subordination; Absence of Security," "Risk Factors--
Anti-Takeover Provisions;
22
Preferred Stock," "Management - Stock Option Plan," "Description
of Units," "Certain Federal Income Tax Considerations,"
"Description of Securities" and (ii) in the Registration Statement
in Item 24 insofar as such statements constitute a summary of
statutes, legal and governmental proceedings, contracts and other
documents, are accurate summaries in all material respects and
fairly present the information called for with respect to such
matters.
In expressing the foregoing opinion, as to matters of fact relevant to
conclusions of law, counsel may rely, to the extent that they deem proper, upon
certificates of public officials and of the officers of the Company, provided
that copies of such officers' certificates are attached to the opinion.
In addition to the matters set forth above, such counsel shall have
furnished to the Underwriter a written statement to the effect that such counsel
has acted as counsel to the Company on a regular basis and has acted as counsel
in connection with the preparation of the Registration Statement, Preliminary
Prospectus or Prospectus, and based on the foregoing, no facts have come to the
attention of such counsel which causes them to believe that the Registration
Statement, Preliminary Prospectus or Prospectus (other than the financial
statements and supporting financial and statistical data included or
incorporated therein, as to which such counsel need express no opinion as of
First Closing Date or Second Closing Date, as the case may be) contains an
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that such written statement of counsel does not require any statement concerning
statements in, or omissions from, the Registration Statement, Preliminary
Prospectus or Prospectus, or any amendment thereof or supplement thereto, which
are based upon and conform to written information furnished to the Company by
the Underwriter specifically for use in the preparation of the Registration
Statement, Preliminary Prospectus or the Prospectus, or any such amendment or
supplement. The foregoing statement may be qualified by a statement to the
effect that such counsel does not assume responsibility for the accuracy,
completeness or fairness of the statements in the Registration Statement or the
Prospectus, except for the statements made in the Prospectus under the captions
"Description of Capital Stock" and "Certain Federal Income Tax Considerations."
(f) The underwriter shall have received the opinion of Xxxxx Xxxxxx,
special Nevada gaming counsel for the Company, dated as of such respective
Closing Date and satisfactory in form and substance to the Underwriter, to
the effect that:
(i) PDS Financial Corporation - Nevada has been duly organized
and is validly existing in good standing under the laws of Nevada
with the requisite corporate power to own, lease, and operate its
properties and conduct its business; and is duly qualified to do
business as a foreign corporation in good standing in all
jurisdiction where the ownership or leasing of its properties or the
conduct of its business requires such qualifications.
23
(ii) The information contained in the Prospectus under the
caption "Risk Factors - Strict Regulation by Gaming Authorities" and
"Business - Government Regulation," to the extent that it
constitutes matters of Nevada law or legal conclusions thereunder,
has been reviewed by such counsel and fairly summarizes the matters
therein described.
(iii) No authorization, approval, consent or order of any Nevada
court or governmental authority or agency (including the Nevada
Gaming Commission and the Nevada State Gaming Control and any other
gaming or similar governmental or regulatory authority of the State
of Nevada or any political subdivision thereof) is required in
connection with the offering, issuance or sale of the Units to the
Underwriter, except such as have been obtained, described herein and
are in full force and effect at the respective Closing Date.
(iv) To such counsel's knowledge, the Company and PDS Financial
Corporation - Nevada possess such licenses, certificates,
authorizations, approvals, permits or other rights (including all
authorizations from the Nevada Gaming Commission and the Nevada
Gaming Control Board) issued by the State of Nevada or any other
Nevada governmental bodies as are currently necessary to conduct
their businesses as described in the Prospectus.
(v) To such counsel's knowledge, neither any Gaming Authority
nor any other governmental agencies are investigating the Company,
PDS Financial Corporation - Nevada or related parties, other than in
ordinary course administrative reviews or in any ordinary course
review of the transactions contemplated hereby.
(g) The Underwriter shall have received the opinion of Xxxxxx Perskie
Xxxxx Xxxxxxxxx Xxxxxxxxx & Xxxxxxxx, special gaming counsel for the
Company, dated as of such respective Closing Date and satisfactory in form
and substance to the Underwriter, to the effect that:
(i) the information contained in the Prospectus under the
caption "Risk Factors - Strict Regulation by Gaming Authorities" and
"Business - Government Regulation," to the extent that it
constitutes matters of New Jersey, Colorado, Iowa, Minnesota,
Mississippi and Indiana law or legal conclusions thereunder, has
been reviewed by such counsel and fairly summarizes the matters
therein described; and
(ii) No authorization, approval, consent or order of any court
or governmental authority or agency of New Jersey, Colorado, Iowa,
Minnesota, Mississippi and Indiana is required in connection with
the offering, issuance or sale of the Units to the Underwriter,
except such as have been obtained and are in full force and effect
at the respective Closing Date.
24
(iii) To such counsel's knowledge, the Company and its
Subsidiaries possess such licenses, certificates, authorizations,
approvals, franchises, permits or other rights (including all
authorizations from all applicable Gaming Authorities) issued by the
appropriate Federal agencies or bodies and appropriate state
agencies of the states of New Jersey, Colorado, Iowa, Minnesota,
Mississippi and Indiana as are currently necessary to conduct their
businesses as described in the Prospectus.
(iv) To such counsel's knowledge, neither any Gaming Authority
nor any other governmental agencies are investigating the Company,
its Subsidiaries or related parties, other than in ordinary course
administrative reviews or in any ordinary course review of the
transactions contemplated hereby.
(h) At the time of execution of this Agreement and also at each Closing
Date, the Underwriter shall have received from Coopers & Xxxxxxx L.L.P. a
letter or letters, dated the date of delivery thereof, stating that they
are independent public accountants with respect to the Company on a
consolidated basis within the meaning of the 1933 Act and that:
(i) In their opinion, the financial statements included in the
Registration Statement and Prospectus and reported on therein by
them comply as to form in all material respects with the applicable
accounting requirements of the 1933 Act and related published rules
and regulations;
(ii) On the basis of a limited review (but not an audit in
accordance with generally accepted auditing standards) consisting of
a reading of the unaudited financial statements included in the
Registration Statement and Prospectus (if any) and the latest
available interim financial statements of the Company subsequent
thereto; a reading of the minutes of the board of directors and
shareholders of the Company subsequent thereto; and inquiries of
officials of the Company and its Subsidiaries responsible for
financial and accounting matters and such other inquiries and
procedures as may be specified in such letter and agreed upon by
you, nothing has come to their attention that causes them to believe
that:
a) The unaudited financial statements included in the
Registration Statement and Prospectus, if any, do not comply as
to form in all material respects with the applicable accounting
requirements of the 1933 Act or that such financial statements
are not fairly presented in conformity with generally accepted
accounting principles applied on a basis consistent with that of
the audited financial statements included in the Registration
Statement and Prospectus;
b) As of a specified date not more than five days prior to the
date of this Agreement in the case of the first letter and not
more
25
than two business days prior to the date of the First Closing
Date and Second Closing Date in the case of the second and
third letters, there have been any changes in the capital
stock, increases in debt, decreases in total accounts
receivable, or total inventories of the Company or any
increase in liabilities or decreases in assets or
stockholders' equity of the Company, in each case, as compared
with amounts shown in the most recent balance sheet included
in the Prospectus; and
c) For the period from the date of the most recent balance
sheet included therein to such specified date, there was any
decrease, as compared with the corresponding period of the
previous year, debt or total stockholder's equity, net revenues
or any decrease in income from operations or net income or in
basic or diluted per share amounts of net income except, in each
case, for such decreases which the Prospectus discloses have
occurred or may occur or which are described in such letter.
(iii) In addition to the audit referred to in their report
included in the Prospectus and the limited procedures, inspection
of minute books, inquiries and other procedures referred to in
clause (ii) above, they have carried out certain specified
procedures requested by you, not constituting an audit in
accordance with generally accepted auditing standards with respect
to certain amounts, percentages and other financial information
which are derived from the accounting records and other financial
and statistical data of the Company and its Subsidiaries which
appear in the Prospectus and which are specified by you and have
compared certain of such amounts, percentages and financial
information with the accounting records and other appropriate data
of the Company and its Subsidiaries and have found them to be in
agreement. In the event that the letters to be delivered pursuant
to this Subsection 6(i) shall set forth any changes, increases or
decreases, it shall be a further condition to the Underwriter
obligations that you, in your sole discretion, shall have
determined, after discussion with officers of the Company
responsible for financial and accounting matters, that such
changes, increases or decreases as set forth in such letters do
not reflect a material adverse change in the capital stock, debt,
assets, net worth, total accounts receivable, total inventories or
stockholders' equity of the Company on a consolidated basis as
compared with the amount shown in the most recent consolidated
balance sheet of the Company included in the Prospectus or
material adverse change in revenues or the total or per share
amounts of net income (loss).
(i) On each Closing Date, you shall have received a certificate, dated
such date, of the president and the chief financial officer of the Company
to the effect that:
26
(i) The representations and warranties of the Company in Section
1 of this Agreement are true and correct as if made on and as of
such date and the Company has performed all obligations and
satisfied all conditions on its part to be performed or satisfied at
or prior to such date;
(ii) The SEC has not issued any order preventing or suspending
the use of any prospectus or issued a stop order suspending the
effectiveness of the Registration Statement and no proceedings for
that purpose have been instituted or are pending or to their
knowledge threatened under the 1933 Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto contain all statements
and information required to be included therein and neither the
Registration Statement nor the Prospectus nor any amendment nor any
supplement thereto includes any untrue statement of a material fact
or omits to state any material fact required to be stated therein or
necessary to make the statements therein not misleading and since
the Effective Date, there has occurred no event required to be set
forth in an amendment to the Registration Statement or supplement
to the Prospectus which has not been so set forth.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus and prior to
the date of such certificate, and except as set forth or
contemplated in the Registration Statement or the Prospectus: (A)
the Company or its Subsidiaries has not incurred, except in the
ordinary course of business, any lease obligations or any direct
or contingent liabilities or commitments, (B) the Company has not
entered into any transaction other than in the ordinary course of
business, (C) the Company or its Subsidiaries has not paid or
declared any dividends or other distributions on its capital
stock, (D) there has not been any material change in the capital
stock or any material adverse change (increase or decrease) in
the debt, total accounts receivable, total inventories, net
assets, net worth, or stockholders' equity of the Company or its
Subsidiaries or any material adverse change in or affecting the
condition (financial or otherwise), business, key officers,
properties, assets, results of operations (present or
prospective), or net worth of the Company and (E) no legal or
governmental proceeding affecting the Company or the transactions
contemplated hereby has been instituted or threatened; and
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the
conduct of the business and operations of the Company or its
Subsidiaries has not, except
27
as otherwise stated therein, been materially interfered with by
strike, fire, flood, hurricane, accident, or other calamity
(whether or not insured) or by any court, arbitrator or
governmental action, order or decree and, except as otherwise
expressly stated therein, the properties of the Company or its
Subsidiaries have not sustained any material loss or damage
(whether or not insured) as a result of any such occurrence.
(j) The Underwriter shall have received (i) all written consents from
the Company's and its Subsidiaries' Lenders and any other person whose
consent is required in connection with this Agreement and the
transactions contemplated thereby and (ii) notices (either written or
oral) from the Gaming Control Board of the State of Nevada and the
Mississippi Gaming Commission of their approval of the transactions
contemplated by this Agreement.
(k) The Units shall have been qualified for sale under the Blue Sky Laws
of the States and in such amounts as shall have been specified by the
Underwriter. The Indenture shall have been qualified under the Trust
Indenture Act.
(l) Subsequent to the execution and delivery of this Agreement, there
shall not have occurred:
(i) Any change or development involving a prospective change in
or affecting particularly the business or properties of the Company
which in the judgment of the Underwriter materially impairs the
investment quality of the Notes;
(ii) Any suspension or limitation of trading in securities
generally on the New York Stock Exchange, the American Stock
Exchange, Nasdaq, or any setting of minimum prices for trading on
either such exchange or on Nasdaq or any suspension of trading of
any securities of the Company;
(iii) Any banking moratorium;
(iv) Any outbreak or escalation of major hostilities in which the
United States is involved, any declaration of war by Congress or any
other substantial national or international calamity or emergency
if, in the judgment of the Underwriter, the effect of any such
outbreak, escalation, declaration, calamity or emergency makes it
impractical or inadvisable to proceed with completion of the sale of
and payment for the Units;
(v) Any material adverse change in existing financial, political
or economic conditions in the United States or elsewhere which
change, in the opinion of the Underwriter, has materially and
adversely affected the market for the Units or other securities of
the Company or the prospects for the Company, its business or its
properties; or
28
(vi) Any substantial loss to the Company by strike, fire, flood,
accident or other calamity of such a character as to interfere
materially with the conduct of the business and operations of the
Company regardless of whether such loss shall have been insured.
(m) The Underwriter shall have received, dated as of each Closing Date,
from the Secretary of the Company a certificate of incumbency certifying
the names, titles and signatures of the officers authorized to execute this
Agreement according to the resolutions of the Board of Directors of the
Company authorizing and approving the execution, delivery and performance
of this Agreement, a copy of such resolutions to be attached to such
certificate, certifying such resolutions and certifying that the Amended
and Restated Articles of Incorporation, as amended, of the Company and the
Amended and Restated Bylaws of the Company have been validly adopted and
have not been amended or modified.
All such opinions, certificates, letters and documents shall be in
compliance with the provisions hereof only if they are satisfactory in form and
substance to the Underwriter and to its counsel. If any of the conditions
specified in this section shall not have been fulfilled when and as required by
this Agreement, this Agreement and all obligations of the Underwriter hereunder
may be canceled at, or at any time prior to, the applicable Closing Date by the
Underwriter. Any such cancellation shall be without liability of the
Underwriter to the Company and shall be in writing or by telegraph or telephone
and confirmed in writing. The Underwriter may waive in writing the
nonperformance by the Company of any one or more of the foregoing conditions or
extend the time for performance of such conditions. Each such waiver shall be
applicable only to the item to which it relates and the closing to which it
relates and no waiver or series of waivers shall be deemed to have waived any
condition at any time other than the condition at the time explicitly waived.
6. INDEMNIFICATION.
(a) The Company hereby agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within
the meaning of Section 15 of the 1933 Act against any losses, claims,
damages or liabilities, joint or several, to which the Underwriter or each
such controlling person may become subject, under the 1933 Act, the 1934
Act, the Blue Sky Laws, the common law or otherwise, insofar as such
losses, claims, damages or liabilities (or judicial or governmental actions
or proceedings in respect thereof) arise out of, or are based upon, (i) any
untrue statement or alleged untrue statement of a material fact contained
in the Registration Statement or any amendment thereof, or the omission or
alleged omission to state in the Registration Statement or any amendment
thereof a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances under which they were
made, not misleading; (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus if used prior to
the Effective Date of the Registration Statement or in the Prospectus (as
amended or as supplemented, if the Company shall have filed with the SEC
29
any amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any application or other statement executed by the Company or based upon
written information furnished by the Company filed in any jurisdiction in
order to qualify the Units under, or exempt the Units or the sale thereof
from qualification under, the Blue Sky Laws of such jurisdiction, or the
omission or alleged omission to state in such application or statement a
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading; and the Company will reimburse the Underwriter and
each such controlling person for any legal or other expenses reasonably
incurred by the Underwriter or controlling person (subject to the
limitation set forth in Section 6(c) hereof) in connection with
investigating or defending against any such loss, claim, damage, liability
or action; provided, however, that the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of, or is based upon, an untrue statement, or alleged untrue
statement, omission or alleged omission, made in reliance upon and in
conformity with written information furnished to the Company by, or on
behalf of, the Underwriter specifically for use in the preparation of the
Registration Statement or any such post effective amendment thereof, any
such Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other statement executed by
the Company or any Underwriter filed in any jurisdiction in order to
qualify the Units under, or exempt the Units or the sale thereof from
qualification under, the Blue Sky Laws of such jurisdiction. This
indemnity agreement is in addition to any liability which the Company may
otherwise have.
(b) The Underwriter severally, but not jointly, agrees to indemnify and
hold harmless the Company, each of the Company's directors, each of the
Company's officers who has signed the Registration Statement and each
person who controls the Company within the meaning of Section 15 of the
1933 Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer, or controlling person may become
subject, under the 1933 Act, the 1934 Act, the Blue Sky Laws, the common
law, or otherwise, insofar as such losses, claims, damages, or liabilities
(or judicial or governmental actions or proceedings in respect thereof)
arise out of, or are based upon, (i) any untrue statement or alleged untrue
statement of a material fact contained in the Registration Statement or any
amendment thereof, or the omission or alleged omission to state in the
Registration Statement or any amendment thereof, a material fact required
to be stated therein or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a
material fact contained in any Preliminary Prospectus if used prior to the
Effective Date of the Registration Statement or in the Prospectus (as
amended or as supplemented, if the Company shall have filed with the SEC
any amendment thereof or supplement thereto), or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading; or (iii) any
untrue statement or alleged untrue statement of a material fact contained
in any
30
application or other statement executed by the Company or by the
Underwriter and filed in any jurisdiction in order to qualify the Units
under, or exempt the Units or the sale thereof from qualification under,
the Blue Sky Laws of such jurisdiction, or the omission or alleged omission
to state in such application or statement a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; in each case to
the extent, but only the extent, that such untrue statement, alleged untrue
statement, omission or alleged omission, was made in reliance upon and in
conformity with written information furnished to the Company by, or on
behalf of, the Underwriter specifically for use in the preparation of the
Registration Statement or any such post effective amendment thereof, any
such Preliminary Prospectus or the Prospectus or any such amendment thereof
or supplement thereto, or in any application or other statement executed by
the Company or by the Underwriter and filed in any jurisdiction; and the
Underwriter will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer or controlling person in
connection with investigating or defending against any such loss, claim,
damage, liability or action. This indemnity agreement is in addition to
any liability which the Underwriter may otherwise have.
(c) Promptly after receipt by an indemnified party under this Section 6
of notice of the commencement of any action, such indemnified party will,
if a claim in respect thereof is to be made against any indemnifying party
under this Section 6, notify in writing the indemnifying party of the
commencement thereof. The omission so to notify the indemnifying party
will not relieve it from any liability under this Section 6 as to the
particular item for which indemnification is then being sought, unless such
omission so to notify prejudices the indemnifying party's ability to defend
such action. In case any such action is brought against any indemnified
party and the indemnified party notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel who shall be reasonably satisfactory to such indemnified
party; and after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party will not be liable to such indemnified party under this Section 6 for
any legal or other expenses subsequently incurred by such indemnified party
in connection with the defense thereof other than reasonable costs of
investigation; provided, however, that if, in the reasonable judgment of
the indemnified party, it is advisable for such parties and controlling
persons to be represented by separate counsel, any indemnified party shall
have the right to employ separate counsel to represent it and all other
parties and their controlling persons who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by the
Underwriter against the Company or by the Company against the Underwriter
hereunder, in which event the fees and expenses of such separate counsel
shall be borne by the indemnifying party and paid as incurred. Any such
indemnifying party shall not be liable to any such indemnified party on
account of any settlement of any claim or action effected without the prior
written consent of such indemnifying party.
31
7. CONTRIBUTION.
(a) If the indemnification provided for in Section 6 is unavailable
under applicable law to any indemnified party in respect of any losses,
claims, damages or liabilities referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
losses, claims, damages or liabilities (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company and
the Underwriter from the offering of the Units or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company
and the Underwriter in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The Company and the Underwriter
agree that contribution determined by per capita allocation (even if the
Underwriter was considered a single person) would not be equitable. The
respective relative benefits received by the Company on the one hand, and
the Underwriter, on the other hand, shall be deemed to be in the same
proportion (A) in the case of the Company, as the total price paid to the
Company for the Units by the Underwriter (net of underwriting discount
received but before deducting expenses) bears to the aggregate public
offering price of the Units and (B) in the case of the Underwriter, as the
aggregate underwriting discount received by them bears to the aggregate
public offering price of the Units, in each case as reflected in the
Prospectus. The relative fault of the Company and the Underwriter shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the
Company or by the Underwriter and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such statement
or omission. The amount paid or payable by a party as a result of the
losses, claims, damages and liabilities referred to above shall be deemed
to include any legal or other fees or expenses reasonably incurred by such
party in connection with investigating or defending any action or claim.
Notwithstanding the provisions of this Section 7, the Underwriter shall not
be required to contribute any amount in excess of the amount by which the
total price at which the Units underwritten by it were offered to the
public exceeds the amount of any damages which the Underwriter has
otherwise been required to pay by reason of any untrue or alleged untrue
statement or omission or alleged omission in the Registration Statement,
any Preliminary Prospectus, the Prospectus or any amendment or supplement
thereto. The Underwriter's obligation to contribute pursuant to this
section are several and not joint. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 0000 Xxx)
shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. For purposes of this Section 7, each
person who controls an Underwriter within the meaning of the 1933 Act or
the 1934 Act shall have the same rights to contribution as such
Underwriter, each person who controls the Company within the meaning of the
1933 Act or the 1934 Act shall have the same rights to contribution as the
Company and each officer of the Company who shall have signed the
Registration Statement and each director of the Company shall have the
same rights to contribution as the Company.
32
(b) Promptly after receipt by a party to this Agreement of notice of the
commencement of any action, suit or proceeding, such person will, if a
claim for contribution in respect thereof is to be made against another
party (the "Contributing Party"), notify the Contributing Party of the
commencement thereof, but the omission so to notify the Contributing Party
will not relieve the Contributing Party from any liability which it may
have to any party other than under this Section 7, unless such omission so
to notify prejudices the indemnifying party's ability to defend such
action. Any notice given pursuant to Section 6 hereof shall be deemed to
be like notice hereunder. In case any such action, suit or proceeding is
brought against any party, and such person notifies a Contributing Party of
the commencement thereof, the Contributing Party will be entitled to
participate therein with the notifying party and any other Contributing
Party similarly notified.
8. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 6 and 7, respectively, the
representations and warranties of the Company set forth in Section 1 hereof and
the covenants of the Company set forth in Section 4 hereof shall remain
operative and in full force and effect, regardless of any investigation made by,
or on behalf of, the Underwriter, the Company, any of its officers and
directors, or any controlling person referred to in Sections 6 and 7, and shall
survive the delivery of and payment for the Units. The aforesaid indemnity and
contribution agreements shall also survive any termination or cancellation of
this Agreement. Any successor of any party or of any such controlling person,
or any legal representative of such controlling person, as the case may be,
shall be entitled to the benefit of the respective indemnity and contribution
agreements.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at 8:00 a.m., Minnesota time,
on the first full day following the Effective Date, after which the
Underwriter shall commence selling the Units to the public, or such earlier
time as the Underwriter shall release the Units for sale to the public.
The Underwriter shall notify the Company immediately after the Underwriter
has taken any action which causes this Agreement to become effective.
Until this Agreement is effective, it may be terminated by the Company or
by the Underwriter by giving notice as hereinafter provided, except that
the provisions of Sections 4(q) and (s) and Sections 6, 7, 9, 12 and 13
shall at all times be effective. For purposes of this Agreement, the
release of the initial public offering of the Firm Units for sale to the
public shall be deemed to have been made when the Underwriter releases, by
facsimile or otherwise, firm offers of the Firm Units to securities dealers
or release for publication a newspaper advertisement relating to the Firm
Units, whichever occurs first.
(b) Until the First Closing Date, this Agreement may be terminated by
the Underwriter, at its option, by giving notice to the Company, if (i) the
Company shall have sustained a loss by fire, flood, accident or other
calamity which is material with respect to the business of the Company; the
Company shall have become a party to material litigation, not
33
disclosed in the Registration Statement or the Prospectus; or the
business or financial condition of the Company shall have become the
subject of any material litigation, not disclosed in the Registration
Statement or the Prospectus; or there shall have been, since the
respective dates as of which information is given in the Registration
Statement or the Prospectus, any material adverse change in the general
affairs, business, key personnel, capitalization, financial position or
consolidated net worth of the Company, whether or not arising in the
ordinary course of business, which loss or change, in the reasonable
judgment of the Underwriter, shall render it inadvisable to proceed with
the delivery of the Units, whether or not such loss shall have been
insured; (ii) trading in securities generally on the New York Stock
Exchange, American Stock Exchange, Nasdaq National Market, Nasdaq
SmallCap Market or the over-the-counter market shall have been suspended
or minimum prices shall have been established on such exchange by the
SEC or by such exchanges or markets; (iii) a general banking moratorium
shall have been declared by federal, New York or Minnesota authorities;
(iv) there shall have been such a material adverse change in general
economic, monetary, political or financial conditions, or the effect of
international conditions on the financial markets in the United States
shall be such that, in the judgment of the Underwriter, makes it
inadvisable to proceed with the delivery of the Units; (v) the
enactment, publication, decree or other promulgation of any federal or
state statute, regulation, rule or order of either of any court or other
governmental authority which, in the judgment of the Underwriter,
materially and adversely affects or will materially and adversely affect
the business or operations of the Company; (vi) there shall be a
material outbreak of hostilities or material escalation and
deterioration in the political and military situation between the United
States and any foreign power, or a formal declaration of war by the
United States of America shall have occurred; (vii) the Company shall
have failed to comply with any of the provisions of this Agreement on
its part to be performed on or prior to such date or if any of the
conditions, agreements, representations or warranties of the Company
shall not have been fulfilled within the respective times provided for
in this Agreement; (viii) the Company is no longer registered under the
1934 Act; or (ix) the Company's Common Stock is no longer listed on The
Nasdaq National Market. Any such termination shall be without liability
of any party to any other party, except as provided in Sections 6, 7, 9,
12 and 13 hereof; provided, however, that the Company shall remain
obligated to pay costs and expenses to the extent provided in Sections
4(q) and (s) hereof.
(c) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 9, it
shall notify the Company promptly by telegram or telephone, confirmed by
letter sent to the address specified in Section 10 hereof. If the Company
shall elect to prevent this Agreement from becoming effective, it shall
notify the Underwriter promptly by telegram or telephone, confirmed by
letter sent to the address specified in Section 10 hereof.
10. NOTICES. All communications hereunder shall be in writing and, if
sent to the Underwriter, shall be mailed by certified or registered mail or hand
delivered or sent by facsimile transmission and confirmed in writing to Xxxxxx &
Xxxxxxxxx Financial, Inc., Xxxxxxxxx Xxxxxx, Xxxxxxxxxxx, Xxxxxxxxx 00000 with a
copy to Xxxxxx X. Xxxxxx, Esq., Xxxxxxxxxx & Xxxxx, P.A., 000 Xxxxxx Xxxxxx
Xxxxx, Xxxxxxxxxxx, XX 00000 and if sent to the Company, shall be
34
mailed by certified or registered mail or hand delivered or sent by facsimile
transmission, and confirmed in writing to the Company at PDS Financial
Corporation, 0000 XxXxxx Xxxxx, Xxx Xxxxx, Xxxxxx, 00000, Attention: Chief
Executive Officer, with a copy to Xxxx X. Xxxxxx, Xxxxxx & Xxxxxxx L.L.P.,
Pillsbury Center South, 000 Xxxxx Xxxxx Xxxxxx, Xxxxxxxxxxx, XX 00000.
11. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the Underwriter, the Company, and their successors and legal
representatives, and nothing in this Agreement is intended or shall be construed
to give any other person any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein contained, this Agreement
and all conditions and provisions hereof being intended to be and being for the
sole and exclusive benefit of such persons and for the benefit of no other
person, except that the representations and warranties of the Company contained
in this Agreement shall also be for the benefit of any person or persons who
control the Underwriter within the meaning of Section 15 of the 1933 Act. No
purchaser of Units will be deemed a successor because of such purchase.
12. INFORMATION FURNISHED BY UNDERWRITER. The statements relating to
the stabilization activities of the Underwriter and the statements under the
caption "Underwriting" in any Preliminary Prospectus and in the Prospectus
constitute the only written information furnished by, or on behalf of, the
Underwriter specifically for use with reference to the Underwriter referred to
in Section 1(b) and Section 6 hereof.
13. GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with the substantive laws of the State of Minnesota without regard
to its choice of laws provisions.
14. COUNTERPARTS. This Agreement may be signed in any number of
counterparts and all such counterparts taken together shall constitute the
single Agreement of the parties.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return to us the enclosed counterpart of this Agreement,
whereupon it will become a binding agreement between the Company and each of the
several Underwriter in accordance with its terms.
Very truly yours,
PDS FINANCIAL CORPORATION
By
----------------------------
Its
---------------------------
35
ACCEPTANCE
The foregoing Underwriting Agreement
is hereby confirmed and accepted by
us as of the date first written above.
XXXXXX & XXXXXXXXX FINANCIAL, INC.
By
----------------------------
Its
---------------------------
36
Exhibit 1.1
APPENDIX A
UNDERWRITER'S WARRANT
To Purchase 50,000 Shares of Common Stock
of
PDS Financial Corporation
THIS CERTIFIES THAT, for good and valuable consideration, Xxxxxx &
Xxxxxxxxx Financial, Inc. (the "Underwriter"), or its registered assigns, is
entitled to subscribe for and purchase from PDS Financial Corporation., a
Minnesota corporation (the "Company"), at any time after _______ __, 1999 (one
year after the First Closing Date as defined in the Underwriting Agreement), up
to and including _______ __, 2003, Fifty Thousand (50,000) fully paid and
nonassessable shares of the Common Stock of the Company at the price of [120% of
Market Price on Effective Date] per share (the "Warrant Exercise Price"),
subject to the antidilution provisions of this Warrant. Reference is made to
this Warrant in the Underwriting Agreement dated _______________, 1998, by and
between the Company and the Underwriter. The shares which may be acquired upon
exercise of this Warrant are referred to herein as the "Warrant Shares." As
used herein, the term "Holder" means the Underwriter, any party who acquires all
or a part of this Warrant as a registered transferee of the Underwriter, or any
record holder or holders of the Warrant Shares issued upon exercise, whether in
whole or in part, of the Warrant; the term "Common Stock" means and includes the
Company's presently authorized common stock, $.01 par value, and shall also
include any capital stock of any class of the Company hereafter authorized which
shall not be limited to a fixed sum or percentage in respect of the rights of
the holders thereof to participate in dividends or in the distribution of assets
upon the voluntary or involuntary liquidation, dissolution, or winding up of the
Company; and the term "Convertible Securities" means any stock or other
securities convertible into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and conditions:
1. EXERCISE; TRANSFERABILITY.
(a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Company at the principal office of the Company prior to the expiration of this
Warrant and accompanied or preceded by the surrender of this Warrant along with
a check in payment of the Warrant Exercise Price for such shares or without
payment of cash pursuant to Section 10 hereof.
(b) Until exercisable, this Warrant may not be sold, assigned,
hypothecated, or otherwise transferred, other than by will or pursuant to the
operation of law, except to a person who is an officer or partner of the
Underwriter or an officer or partner of any syndicate member
1
participating in the offer and sale of the Company's securities. Further,
this Warrant may not be sold, transferred, assigned, hypothecated or divided
into two or more Warrants of smaller denominations, nor may any Warrant
shares issued pursuant to exercise of this Warrant be transferred, except as
provided in Section 7 hereof.
2. EXCHANGE AND REPLACEMENT. Subject to Sections l and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of the
loss, theft, destruction, or mutilation of this Warrant, and, in case of loss,
theft or destruction, of indemnity or security reasonably satisfactory to it,
and upon surrender and cancellation of this Warrant, if mutilated, the Company
will make and deliver a new Warrant of like tenor, in lieu of this Warrant;
provided, however, that if the Underwriter shall be such Holder, an agreement of
indemnity by such Holder shall be sufficient for all purposes of this Section 2.
This Warrant shall be promptly canceled by the Company upon the surrender hereof
in connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. ISSUANCE OF THE WARRANT SHARES.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the
next section, certificates for the Warrant Shares so purchased shall be
delivered to the Holder within a reasonable time, not exceeding fifteen (15)
days after the rights represented by this Warrant shall have been so exercised,
and, unless this Warrant has expired, a new Warrant representing the right to
purchase the number of Warrant Shares, if any, with respect to which this
Warrant shall not then have been exercised shall also be delivered to the Holder
within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant shall then remain exercisable for a period of at least 30 calendar days
from the date the Company delivers to the Holder written notice of the
availability of such
2
registrations or exemptions. The Holder agrees to execute such documents and
make such representations, warranties, and agreements as may be required
solely to comply with the exemptions relied upon by the Company, or the
registrations made, for the issuance of the Warrant Shares.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
5. ANTIDILUTION ADJUSTMENTS. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of
3
capital stock or shares of Common Stock and other capital stock of the
Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between
or among shares of such classes of capital stock or shares of Common Stock
and other capital stock. All calculations under this Subsection shall be
made to the nearest cent or to the nearest 1/100 of a share, as the case may
be. In the event that at any time as a result of an adjustment made pursuant
to this Subsection, the holder of any Warrant thereafter surrendered for
exercise shall become entitled to receive any shares of the Company other
than shares of Common Stock, thereafter the Warrant Exercise Price of such
other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in this
Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to Section
5(a) above, the Holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Warrant Exercise Price in effect prior to such adjustment) by
the Warrant Exercise Price in effect prior to such adjustment and dividing the
product so obtained by the adjusted Warrant Exercise Price.
(c) In case of any consolidation or merger to which the Company is a party
other than a merger or consolidation in which the Company is the continuing
corporation, or in case of any sale or conveyance to another corporation of the
property of the Company as an entirety or substantially as an entirety, or in
the case of any statutory exchange of securities with another corporation
(including any exchange effected in connection with a merger of a third
corporation into the Company), there shall be no adjustment under Subsection (a)
of this Section above but the Holder of each Warrant then outstanding shall have
the right thereafter to convert such Warrant into the kind and amount of shares
of stock and other securities and property which he would have owned or have
been entitled to receive immediately after such consolidation, merger, statutory
exchange, sale, or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale,
or conveyance and in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant, to
the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
4
6. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. NOTICE OF TRANSFER OF WARRANT OR RESALE OF THE WARRANT SHARES.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant
or transferring any Warrant Shares of such Holder's intention to do so,
describing briefly the manner of any proposed transfer. Promptly upon
receiving such written notice, the Company shall present copies thereof to
the Company's counsel and to counsel to the original purchaser of this
Warrant. If in the opinion of each such counsel the proposed transfer may be
effected without registration or qualification (under any federal or state
securities laws), the Company, as promptly as practicable, shall notify the
Holder of such opinion, whereupon the Holder shall be entitled to transfer
this Warrant or to dispose of Warrant Shares received upon the previous
exercise of this Warrant, all in accordance with the terms of the notice
delivered by the Holder to the Company; provided that an appropriate legend
may be endorsed on this Warrant or the certificates for such Warrant Shares
respecting restrictions upon transfer thereof necessary or advisable in the
opinion of counsel and satisfactory to the Company to prevent further
transfers which would be in violation of Section 5 of the Securities Act of
1933, as amended (the "1933 Act") and applicable state securities laws; and
provided further that the prospective transferee or purchaser shall execute
such documents and make such representations, warranties, and agreements as
may be required solely to comply with the exemptions relied upon by the
Company for the transfer or disposition of the Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this Section
7, the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares the Company shall promptly give written notice thereof to the Holder, and
the Holder will limit its activities in respect to such as, in the opinion of
both such counsel, are permitted by law.
8. FRACTIONAL SHARES. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
sum of (a) the excess, if any, of the Market Price of such fractional share over
the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange or quoted in
the National Association of Securities Dealers, Inc.'s Automated Quotations
System (NASDAQ), or if not listed on a national securities exchange or quoted in
NASDAQ, the average of the last reported
5
closing bid and asked prices as reported by Metro Data Company, Inc. from
quotations by market makers in such Common Stock on the Minneapolis-St. Xxxx
local over-the-counter market.
9. REGISTRATION RIGHTS.
(a) If the Company at any time within two (2) years after complete
exercise of this Warrant, but no more than seven (7) years from the date of this
Warrant, proposes to register under the 1933 Act (except by a Form S-4 or Form
S-8 Registration Statement or any successor forms thereto) or qualify for a
public distribution under Section 3(b) of the 1933 Act, any of its securities,
it will give written notice to all Holders of this Warrant, any Warrants issued
pursuant to Section 2 and/or Section 3(a) hereof, and any Warrant Shares of its
intention to do so and, on the written request of any such Holder given within
twenty (20) days after receipt of any such notice (which request shall specify
the interest in this Warrant or the Warrant Shares intended to be sold or
disposed of by such Holder and describe the nature of any proposed sale or other
disposition thereof), the Company will use its best efforts to cause all such
Warrants and Warrant Shares, the Holders of which shall have requested the
registration or qualification thereof, to be included in such registration
statement proposed to be filed by the Company; provided, however, that if a
greater number of Warrants and Warrant Shares is offered for participation in
the proposed offering than in the reasonable opinion of the managing underwriter
of the proposed offering can be accommodated without adversely affecting the
proposed offering, then the amount of Warrant and Warrant Shares proposed to be
offered by such Holders for registration, as well as the number of securities of
any other selling shareholders participating in the registration, shall be
proportionately reduced to a number deemed satisfactory by the managing
underwriter.
(b) Further, on a one-time basis only, during the four year period
commencing one year after the date of this Warrant, upon request by the Holder
or Holders of a majority in interest of this Warrant, of any Warrants issued
pursuant to Section 2 and/or Section 3(a) hereof, and of any Warrant Shares, the
Company will promptly take all necessary steps to register or qualify, under the
1933 Act and the securities laws of such states as the holders may reasonably
request, this Warrant and such number of Warrant Shares issued and to be issued
upon conversion of the Warrants requested by such holders in their request to
the Company. The Company shall keep effective and maintain any registration,
qualification, notification, or approval specified in this Paragraph (b) for
such period as may be reasonably necessary for such Holder or Holders of such
Warrants and/or such Warrant Shares to dispose thereof and from time to time
shall amend or supplement the prospectus used in connection therewith to the
extent necessary in order to comply with applicable law.
(c) With respect to each inclusion of securities in a registration
statement pursuant to this Section 9, the Company shall bear the following fees,
costs, and expenses: all registration, filing and NASD fees, printing expenses,
fees and disbursements of counsel and accountants for the Company, fees and
disbursements of counsel for the underwriter or underwriters of such securities
(if the Company is required to bear such fees and disbursements), all internal
expenses,
6
the premiums and other costs of policies of insurance against liability
arising out of the public offering, and legal fees and disbursements and
other expenses of complying with state securities laws of any jurisdictions
in which the securities to be offered are to be registered or qualified.
Fees and disbursements of special counsel and accountants for the selling
Holders, underwriting discounts and commissions, and transfer taxes for
selling Holders and any other expenses relating to the sale of securities by
the selling Holders not expressly included above shall be borne by the
selling Holders.
(d) The Company hereby indemnifies each of the Holders of this Warrant and
of any Warrant Shares, and the officers and directors, if any, who control such
Holders, within the meaning of Section 15 of the 1933 Act, against all losses,
claims, damages, and liabilities caused by (1) any untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
Prospectus (and as amended or supplemented if the Company shall have furnished
any amendments thereof or supplements thereto), any Preliminary Prospectus or
any state securities law filings; (2) any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading except insofar as such losses, claims,
damages, or liabilities are caused by any untrue statement or omission contained
in information furnished in writing to the Company by such Holder expressly for
use therein; and each such Holder by its acceptance hereof severally agrees that
it will indemnify and hold harmless the Company, each of its officers who signs
such Registration Statement, and each person, if any, who controls the Company,
within the meaning of Section 15 of the 1933 Act, with respect to losses,
claims, damages, or liabilities which are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein.
10. ADDITIONAL RIGHT TO CONVERT WARRANT.
(a) The holder of this Warrant shall have the right to require the Company
to convert this Warrant (the "Conversion Right") at any time after it is
exercisable, but prior to its expiration into shares of Company Common Stock as
provided for in this Section 10. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the holder of any
Warrant Exercise Price) that number of shares of Company Common Stock equal to
the quotient obtained by dividing (x) the value of the Warrant at the time the
Conversion Right is exercised (determined by subtracting the aggregate Warrant
Exercise Price for the Warrant Shares in effect immediately prior to the
exercise of the Conversion Right from the aggregate Fair Market Value for the
Warrant Shares immediately prior to the exercise of the Conversion Right) by (y)
the Fair Market Value of one share of Company Common Stock immediately prior to
the exercise of the Conversion Right.
(b) The Conversion Right may be exercised by the holder, at any time or
from time to time, prior to its expiration, on any business day by delivering a
written notice in the form attached hereto (the "Conversion Notice") to the
Company at the offices of the Company exercising the Conversion Right and
specifying (i) the total number of shares of Stock the Holder
7
will purchase pursuant to such conversion and (ii) a place and date not less
than one or more than 20 business days from the date of the Conversion Notice
for the closing of such purchase.
(c) At any closing under Section 10(b) hereof, (i) the Holder will
surrender the Warrant and (ii) the Company will deliver to the Holder a
certificate or certificates for the number of shares of Company Common stock
issuable upon such conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the Holder a new warrant
representing the number of shares, if any, with respect to which the warrant
shall not have been exercised.
(d) Fair Market Value of a share of Common Stock as of a particular date
(the "Determination Date") shall mean:
(i) If the Company's Common Stock is traded on an exchange or is
quoted on the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") National Market System, then the average closing or
last sale prices, respectively, reported for the ten (10) business days
immediately preceding the Determination Date, and
(ii) If the Company's Common Stock is not traded on an
exchange or on the NASDAQ National Market System but is traded on the
over-the-counter market, then the average closing bid and asked prices
reported for the ten (10) business days immediately preceding the
Determination Date.
IN WITNESS WHEREOF, PDS Financial Corporation has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated _______ __,
1998.
PDS FINANCIAL CORPROATION
By:
-------------------------------------
Its:
---------------------------------
8
To: PDS Financial Corporation
NOTICE OF EXERCISE OF WARRANT -
To Be Executed by the Registered Holder in Order to Exercise the Warrant
The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash, _________________ of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which this
Warrant is not exercised) shall be issued in the name of
----------------------------------------
(Print Name)
Please insert social security
or other tax identification
number of registered holder of
certificate (______________) Address:
----------------------------------------
----------------------------------------
Date: , 19
------------- -- ----------------------------------------
Signature*
*The signature on the Notice of Exercise of Warrant must correspond exactly to
the name as written upon the face of the Warrant in every particular without
alteration or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
9
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrants.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto _____________________________, the assignee, whose address is
______________________ and whose tax identification or social security number is
__________________ the right represented by the foregoing Warrant to purchase
_______ shares of the Common Stock of PDS Financial Corporation to which the
within Warrant relates and appoints _____________, attorney, to transfer said
right on the books of PDS Financial Corporation with full power of substitution
in the premises.
Name of Warrant Holder/Assignor
Dated:
------------------ ----------------------------------------
(Signature)*
Address of Warrant Holder/Assignor:
Tax Identification No. or Social
Security No. of Warrant ----------------------------------------
Holder/Assignor
----------------------------------------
-----------------------------
*Note: The above signature should correspond exactly with the name on the first
page of the Warrant or with the name of the assignee appearing on a duly
executed assignment form.
10
CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant
pursuant to Section 10)
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Warrant Certificate for, and to purchase
thereunder, ______________ shares of Common Stock, as provided for in Section 10
therein.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional share to:
Name
------------------------------------
(Please print Name)
Address
---------------------------------
----------------------------------------
Tax Identification No. or Social
Security No.
----------------------------
Signature
-------------------------------
NOTE: The above signature should correspond exactly with the name on the
first page of this Warrant Certificate or with the name of the assignee
appearing on a duly executed assignment form.
And if said number of shares shall not be all the shares purchasable under
the within Warrant Certificate, a new Warrant Certificate is to be issued in the
name of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher number of shares.
11
