1,600,000 SHARES COMMON STOCK
ELECTRONIC PROCESSING, INC.
UNDERWRITING AGREEMENT
, 1997
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X. X. Xxxxxxxx & Company
000 Xxxxxxxx Xxxx
Xxxxx 000
Xxxxxxxxxxx, XX 00000-0000
Dear Ladies and Gentlemen:
Electronic Processing, Inc., a Missouri corporation (the "Company"), hereby
confirms its agreement to issue and sell to X. X. Xxxxxxxx & Company (the
"Underwriter"), an aggregate of 1,600,000 shares of authorized but unissued
common stock, par value $0.01 per share, of the Company (the "Common Stock").
Such 1,600,000 shares of Common Stock are collectively referred to in this
Agreement as the "Firm Shares." The Company also hereby confirms its agreement
to issue and sell to the Underwriter up to 240,000 shares of Common Stock upon
the request of the Underwriter solely for the purpose of covering
overallotments. Such additional shares are referred to in this Agreement as the
"Option Shares." The Firm Shares and the Option Shares are collectively
referred to herein as the "Shares." Further, the Company hereby confirms its
agreement to issue to the Underwriter warrants for the purchase of a total of
160,000 shares as described in Section 5 hereof (the "Underwriter's Warrants"),
assuming purchase by the Underwriter of the Firm Shares. The shares issuable
upon exercise of the Underwriter's Warrants are referred to as the "Warrant
Shares."
The Company hereby confirms the arrangements with respect to the purchase
by the Underwriter of the Firm Shares plus the Option Shares purchased if the
overallotment option is exercised in whole or in part.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to and agrees with the Underwriter as follows:
(a) A registration statement on Form SB-2 with respect to the Shares
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. 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
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of such registration statement and 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 4(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 Shares or requiring
the recirculation of a Preliminary Prospectus and, to the best knowledge of
the Company, no proceeding for any such purpose has been initiated or
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 any 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 the securities laws ("Blue Sky Laws") of the
states where the Shares are to be sold (the "States") and contained or will
contain all statements that are required to be stated therein in accordance
with the 1933 Act, the Rules and Regulations and the Blue Sky Laws of the
States. When the Registration Statement became or becomes effective and
when any post-effective amendments thereto shall become effective, the
Registration Statement did not and will not contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading. Neither any
Preliminary Prospectus, on the date of filing thereof with the SEC, nor the
Prospectus or any amendment or supplement thereto, on the date of filing
thereof with the SEC and on the First and Second Closing Dates, contained
or will contain any untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; provided,
however, that none of the representations and warranties in this Subsection
1(b) shall apply to statements in, or omissions from, the Registration
Statement, Preliminary Prospectus or the Prospectus, or any amendment
thereof or supplement thereto, which are based upon and conform to written
information furnished to the Company by the Underwriter 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
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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.
(c) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Missouri,
with full corporate power and authority, to own, lease and operate its
properties and conduct its business as described in the Registration
Statement and Prospectus. The Company is duly qualified to do business as
a foreign corporation in good standing in each jurisdiction in which the
ownership or lease of its properties, or the conduct of its business,
requires such qualification and in which the failure to be qualified or in
good standing would have a material adverse effect on the business of the
Company. The Company has all necessary and material authorizations,
approvals and orders of and from all governmental regulatory officials and
bodies to own its properties and to conduct its business as described in
the Registration Statement and Prospectus, and is conducting its business
in substantial compliance with all applicable material laws, rules and
regulations of the jurisdictions in which it is conducting business. The
Company holds all material licenses, certificates, permits, authorizations,
approvals and orders of and from all state, federal and other governmental
regulatory officials and bodies necessary to own its properties and to
conduct its business as described in the Registration Statement and
Prospectus, or has obtained waivers from any such applicable requirements
from the appropriate state, federal or other regulatory authorities. All
such licenses, permits, approvals, certificates, consents, orders and other
authorizations are in full force and effect, and the Company has 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 materially
and adversely affect the conduct of the business or the condition,
financial or otherwise, or the earnings, affairs or business prospects of
the Company.
(d) The Company has no subsidiaries and is not affiliated with any
other Company or business entity, except as disclosed in the Prospectus.
(e) The Company is not in violation of its Articles of Incorporation
or Bylaws. The Company is not in default in the performance or observance
of any obligation, agreement, covenant or condition contained in any bond,
debenture, note or other evidence of indebtedness or in any contract,
indenture, mortgage, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which the Company or its
properties are bound, and there does not exist any state of facts which
constitutes an event of default on the part of the Company or which, with
notice or lapse of time or both, would constitute such an event of default.
The Company is not, to the best of its knowledge, 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.
(f) The Company has full requisite power and authority to enter into
this Agreement. This Agreement has been duly authorized, executed and
delivered by the
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Company and will be a valid and binding agreement on the part of the
Company, enforceable in accordance with its terms, if and when this
Agreement shall have become effective in accordance with Section 8, except
as enforceability may be limited by the application of bankruptcy,
insolvency, moratorium or similar laws affecting the rights of creditors
generally and by judicial limitations on the right of specific performance
and except as the enforceability of the indemnification or contribution
provisions hereof may be affected by applicable federal or state securities
laws. The performance of this Agreement and the consummation of the
transactions herein contemplated will not result in a breach or violation
of any of the terms and provisions of, or constitute a default under or
result in the creation or imposition of any lien, charge or encumbrance
upon any property or assets of the Company 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 is a party or by which the property or
assets of the Company is bound, (ii) the Company's Articles of
Incorporation or Bylaws or (iii) any statute or any order, rule or
regulation of any court, governmental agency or body having jurisdiction
over the Company. No consent, approval, authorization or order of any
court, governmental agency or body is required for the consummation by the
Company of the transactions on its part herein contemplated, except such as
may be required under the 1933 Act, the Rules and Regulations, the Blue Sky
Laws, the rules and regulations of the National Association of Securities
Dealers, Inc. ("NASD") and the rules and regulations of Nasdaq.
(g) Except as is otherwise expressly stated in the Registration
Statement or Prospectus, there are no actions, suits or proceedings pending
before any court or governmental agency, authority or body to which the
Company is a party or of which the business or property of the Company is
the subject which might result in any material adverse change in the
condition (financial or otherwise), business or prospects of the Company,
materially and adversely affect its properties or assets or prevent
consummation of the transactions contemplated by this Agreement; and, to
the best of the Company's knowledge, no such actions, suits or proceedings
are threatened except as is otherwise expressly stated in the Registration
Statement or Prospectus. The Company is not aware of any facts which would
form the basis for the assertion of any material 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.
All pending legal or governmental proceedings to which the Company is a
party or to which any of its 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.
(h) The authorized, issued and outstanding capital stock of the
Company is as set forth in the Prospectus. The outstanding Common Stock of
the Company is duly authorized, validly issued, fully paid and
nonassessable. The Shares conform in substance to all statements relating
thereto contained in the Registration Statement and Prospectus. The Shares
to be sold by the Company hereunder have been duly authorized and, when
issued and delivered pursuant to this Agreement, will be validly issued,
fully
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paid and nonassessable and will conform to the description thereof
contained in the Prospectus. No preemptive rights or similar rights of any
security holders of the Company exist with respect to the issuance and sale
of the Shares by the Company or exercise of the Underwriter's Warrants.
Except as disclosed in the Prospectus, 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 Shares pursuant to this
Agreement, the Underwriter will acquire the Shares, free and clear of all
liens, encumbrances or claims. The certificates evidencing the Shares will
comply as to form with all applicable provisions of the laws of the State
of Missouri. Except as set forth in any part of the Registration
Statement, the Company does not have outstanding any options to purchase,
or any rights or warrants to subscribe for, or any securities or
obligations convertible into, or any contracts or commitments to issue or
sell, any Common Stock or other securities of the Company, or any such
warrants, convertible securities or obligations.
(i) The Underwriter's Warrants and the Warrant Shares have been duly
authorized. The Underwriter's Warrants, when issued and delivered to the
Underwriter, will constitute valid and binding obligations of the Company
in accordance with their terms, except as enforceability may be limited by
the application of bankruptcy, insolvency, moratorium or similar laws
affecting the rights of creditors generally and by judicial limitations on
the right of specific performance. The Warrant Shares when issued in
accordance with the terms of this Agreement and pursuant to the
Underwriter's Warrants, will be validly issued, fully paid and
nonassessable and subject to no preemptive rights or similar rights on the
part of any person or entity. A sufficient number of shares of Common
Stock of the Company have been reserved for issuance by the Company upon
exercise of the Underwriter's Warrants.
(j) Xxxxx, Xxxxx & Xxxxxx, whose reports appear in the Registration
Statement and Prospectus, are independent accountants within the meaning of
the 1933 Act and the Rules and Regulations. The financial statements of
the Company, together with the related notes, forming part of the
Registration Statement and Prospectus (the "Financial Statements"), fairly
present the financial position and the results of operations of the Company
at the respective dates and for the respective periods to which they apply.
The Financial Statements are accurate, complete and correct and have been
prepared in accordance with the 1933 Act, the Rules and Regulations and
generally accepted accounting principles ("GAAP"), consistently applied
throughout the periods involved, except as may be otherwise stated therein.
The summaries of the Financial Statements and the other financial,
statistical and related notes set forth in the Registration Statement and
the Prospectus are (i) accurate and correct and 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 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.
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(k) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus and at any Closing Date,
except as is otherwise disclosed in the Registration Statement or
Prospectus, there has not been:
(i) any change in the capital stock or long-term debt (including
any capitalized lease obligation) of the Company, or increase in the
short-term debt, other than in the ordinary course of business, of the
Company;
(ii) any issuance of options, warrants, convertible securities
or other rights to purchase the capital stock of the Company;
(iii) any adverse change, or any development involving a
material adverse change, in or affecting the business, business
prospects, properties, assets, patents or patent applications
(including those of the Company and those relating to devices or
technologies licensed to the Company), management, financial position,
stockholders' equity, results of operations or general condition of
the Company;
(iv) any material transaction entered into by the Company;
(v) any material obligation, direct or contingent, incurred by
the Company, except obligations incurred in the ordinary course of
business that, in the aggregate, are not material; or
(vi) any dividend or distribution of any kind declared, paid or
made on the Company's capital stock.
(l) Except as is otherwise disclosed in the Registration Statement or
Prospectus, the Company has good and marketable title to all of the
property, real and personal, described in the Registration Statement or
Prospectus as being owned by the Company, free and clear of all liens,
encumbrances, equities, charges or claims, except as do not materially
interfere with the uses made and to be made by the Company of such property
or as disclosed in the Financial Statements. Except as is otherwise
disclosed in the Registration Statement or Prospectus, the Company has
valid and binding leases to the real and personal property described in the
Registration Statement or Prospectus as being under lease to the Company,
except as to those leases which are not material to the Company or the lack
of enforceability of which would not materially interfere with the use made
and to be made by the Company of such leased property.
(m) The Company has filed all necessary federal and state income and
franchise tax returns and paid all taxes shown as due thereon. The Company
is not in default in the payment of any taxes and has no knowledge of any
tax deficiency which might be asserted against it which would materially
and adversely affect the Company's business or properties.
(n) 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
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have a material adverse effect on the conduct of the business, operations,
financial condition or income of the Company.
(o) Except as disclosed in the Prospectus:
(i) The Company owns or possesses the unrestricted rights to use
all patents, copyrights, trademarks, trade secrets and proprietary
rights or information necessary for the development, manufacture,
operation and sale of all products and services sold or proposed to be
sold by the Company and for the conduct of its present or intended
business as described in the Prospectus. 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 to 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. The Company has not
received any notice of conflict with asserted rights of others. The
Company is not using any confidential information or trade secrets of
any third party without such party's consent.
(ii) The Company does not infringe upon the right or claimed
rights of any person under or with respect to any of the intangible
rights listed in the preceding subsection. 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.
(p) The Company intends to apply the proceeds from the sale of the
Shares by it to the purposes and substantially in the manner set forth in
the Prospectus.
(q) The Company has no defined benefit pension plan or other pension
benefit 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 Security Act of 1974 as amended from time to
time, except as disclosed in the Registration Statement.
(r) To the best of the Company's knowledge, no person is entitled,
directly or indirectly, to compensation from the Company or the Underwriter
for services as a finder in connection with the transactions contemplated
by this Agreement.
(s) The conditions for use of a Registration Statement on Form SB-2
for the distribution of the Shares have been satisfied with respect to the
Company.
(t) The Company has not taken and will not take, directly or
indirectly, any action (and does not know of any action by its directors,
officers, stockholders, or others) which has constituted or is designed to,
or which might reasonably be expected to, cause or result in stabilization
or manipulation, as defined in the Securities Exchange
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Act of 1934, as amended (the "1934 Act") or otherwise, of the price of any
security of the Company to facilitate the sale or resale of the Shares.
(u) The Company has not sold any securities in violation of Section
5(a) of the 1933 Act.
(v) The Company maintains insurance, which is in full force and
effect, of the types and in the amounts adequate for its business and in
line with the insurance maintained by similar companies and businesses.
(w) The Company hereby represents that, as of the date hereof, it has
complied with all provisions of Section 517.075, Florida Statutes and Rule
3E-900-001 of the Rules of the Florida Department of Banking and Finance,
Division of Securities, copies of which are attached hereto.
(x) 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 authorizations
and (ii) transactions are recorded as necessary to permit preparation of
financial statements in conformity with GAAP.
(y) 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 no less favorable to the Company than the terms that could have been
obtained from unrelated parties.
(z) The Company has obtained a written agreement from each of the
officers, directors, and current stockholders of the Company, that for 180
days following the Effective Date, such person will not, without the
Underwriter's prior written consent, sell, transfer or otherwise dispose
of, or agree to sell, transfer, or otherwise dispose of, any of his or her
shares of Common Stock or any options, warrants or rights to purchase
Common Stock, beneficially held by such persons during such 180-day period
other than by gift to donees who agree to be bound by the same restriction
or by will or the laws of descent.
(aa) The Common Stock of the Company has been approved by Nasdaq for
trading on its SmallCap Market-SM- following effectiveness of 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 the Underwriter, and the Underwriter
agrees to purchase the Firm Shares from the Company, at $_____________ per
Firm Share (which price represents the price to public less underwriting
discounts and commissions of $_____ per Share). The Underwriter will
purchase all of the Firm Shares if any are purchased.
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(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 the Option Shares at the same purchase price as the Firm Shares for use
solely in covering any overallotments made by the Underwriter in the sale
and distribution of the Firm Shares. 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 4(a) hereof) upon notice (confirmed
in writing) by the Underwriter to the Company setting forth the aggregate
number of Option Shares as to which the Underwriter is exercising the
option and the date on which certificates for such Option Shares are to be
delivered. The option granted hereby may be canceled by the Underwriter as
to the Option Shares 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 Shares 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 trading of
the Shares has commenced (but not more than ten full business days after
the date the Registration Statement is declared effective), or such earlier
time as may be agreed upon between the Underwriter and the Company. Such
time and place is herein referred to as the "First Closing Date."
(d) The Company will deliver the Option Shares being purchased by the
Underwriter to the Underwriter at the offices of Xxxxxxxxxx & Xxxxx, P.A.
set forth in Section 2(c) above, unless some other place is agreed upon, at
9:00 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 one 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 by the
Underwriter and the Company, such time and date being herein referred to as
the "Second Closing Date." The First and Second Closing Dates are
collectively referred to herein as the "Closing Date."
(e) Certificates for the Shares 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 Shares shall be made, against delivery to the
Underwriter or its designated agent, of certificates for the Shares by wire
transfer to a designated account of the Company.
(g) The Underwriter will make a public offering of the Shares
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 Governor's with respect to
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free-riding and withholding) as soon as the Underwriter deem practicable
after the Registration Statement becomes effective at the Price to Public
set forth in Section 2(a) above, 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 determine, 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 Shares only in
jurisdictions in which the offering of Shares 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.
(h) On the First Closing Date, the Company shall issue and deliver to
the Underwriter the Underwriter's Warrants against payment by the
Underwriter of the purchase price therefor of $50.00.
3. FURTHER AGREEMENTS 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 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 Shares by the Underwriter. During the period when a Prospectus
relating to the Shares 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
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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 Shares 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 Shares 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 Shares; 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 Shares in any jurisdiction where
it is not now so subject. In each jurisdiction where any of the Shares
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. The Company will
notify the Underwriter immediately of, and confirm in writing, the
suspension of qualification of the Shares or the threat of such action in
any jurisdiction. The Company will use its best efforts to qualify or
register its Common Stock 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 in such states), and
will comply with such securities laws and will continue such
qualifications, registrations and exemptions in effect for a period of five
years after the date hereof.
(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 Shares may be sold by the Underwriter to use and
distribute copies of such Preliminary Prospectuses and Prospectuses in
connection with the sale of the Shares as and to the extent permitted by
the federal and applicable state and local securities laws.
(d) For as long as the Company has more than 100 beneficial owners,
but in no event more than five years after the Effective Date, the Company
will mail as soon as practicable to the holders of its Common Stock
substantially the following documents, which documents shall be in
compliance with this Section if they are in the form prescribed by the 1934
Act:
(i) within forty-five days after the end of the first three quarters
of each fiscal year, copies of the quarterly unaudited statement of
profit and loss and quarterly unaudited balance sheets of the Company
and any material subsidiaries; and
-11-
(ii) within ninety days after the close of each fiscal year,
appropriate financial statements as of the close of such fiscal year
for the Company and any material subsidiary which shall be certified
to by a nationally recognized firm of independent certified public
accountants in such form as to disclose the Company's financial
condition and the results of its operations for such fiscal year.
(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, the Company
will furnish to the Underwriter (i) concurrently with furnishing such
reports to its stockholders, the reports described in Section 3(d) hereof;
(ii) as soon as they are available, copies of all other reports (financial
or otherwise) mailed to security holders; and (iii) 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) The Company will not, without the prior written consent of the
Underwriter, which consent shall not be unreasonably withheld, sell or
otherwise dispose of any capital stock or securities convertible or
exercisable into capital stock of the Company (other than pursuant to
currently outstanding options and warrants) during the 180-day period
following the Effective Date. Prior to the Closing Date, the Company will
not repurchase or otherwise acquire any of its capital stock or declare or
pay any dividend or make any distribution on any class of its capital
stock.
(g) Subject to the proviso set forth below, the Company shall be
responsible for and pay all costs and expenses incident to the performance
of its obligations under this Agreement by the Company including, without
limiting the generality of the foregoing, (i) all costs and expenses in
connection with the preparation, printing and filing of the Registration
Statement (including financial statements and exhibits), Preliminary
Prospectuses and the Prospectus and any amendments thereof or supplements
to any of the foregoing; (ii) the issuance and delivery of the Shares,
including taxes, if any; (iii) the cost of all certificates representing
the Shares; (iv) the fees and expenses of the Transfer Agent for the
Shares; (v) the fees and disbursements of counsel for the Company; (vi) all
fees and other charges of the independent public accountants of the
Company; (vii) the cost of furnishing and delivering to the Underwriter and
dealers participating in the offering copies of the Registration Statement
(including appropriate exhibits), Preliminary Prospectuses, the Prospectus
and any amendments of, or supplements to, any of the foregoing; (viii) the
NASD filing and quotation fees; (ix) the fees and disbursements, including
filing fees and all accountable fees and expenses of counsel for the
Underwriter incurred in registering or qualifying the Shares for sale under
the laws of such jurisdictions upon which the Underwriter and the Company
may agree; and (x) a nonaccountable expense allowance to the Underwriter
equal to 3% of the gross proceeds of the Offering. The Underwriter hereby
acknowledge receipt of a $10,000 advance against the Underwriter's
nonaccountable expense allowance referred to in the preceding sentence. In
the event this Agreement is terminated pursuant to Section 8
-12-
below, the Company shall remain obligated to pay the Underwriter its actual
accountable out-of-pocket expenses, not to exceed $20,000 without the prior
written approval of the Company. Further, if upon termination of this
Agreement pursuant to Section 8 below, the Underwriter's actual accountable
out-of-pocket expenses do not exceed the $10,000 advance against the
Underwriter's accountable expense allowance, the portion of the advance not
used will be reimbursed to the Company by the Underwriter.
(h) 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 stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Shares.
(i) The Company will use its best efforts to maintain the quotation
of its Common Stock on the Nasdaq SmallCap Market-SM-.
(j) For a period of at least three years after the Effective Date,
the Company will file with the SEC all reports and other documents as may
be required by the 1933 Act, the Rules and Regulations and the 1934 Act.
(k) The Company will apply the proceeds from the sale of the Shares
substantially in the manner set forth in the Prospectus.
(l) 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 4 hereof.
(m) 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.
(n) On First Closing Date, the Company shall grant to the Underwriter
the Underwriter's Warrants, in substantially the form attached as Appendix
B hereto.
4. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Shares 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
-13-
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 terms of the Offering,
shall not have objected to the terms of the Underwriter' participation in
the Offering.
(b) The Underwriter shall not have advised the Company that the
Registration Statement or Prospectus, or any amendment thereof or
supplement thereto, contains any untrue statement of a fact which is
material or omits to state a fact which is material and 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 4(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 any of 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 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 Shares.
(d) The Underwriter shall have received the opinion of Petillon &
Xxxxxx, 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 has been duly incorporated and is validly
existing in good standing under the laws of the State of Missouri with
the requisite corporate power to own, lease and operate its properties
and conduct its business as described in the Prospectus; and is duly
qualified to do business as a foreign corporation in good standing in
all jurisdictions where the ownership or leasing of its properties or
the conduct of its business requires such qualification and in which
the failure to be so qualified or in good standing would have a
material adverse effect on its business and the activities of the
Company are permitted under the 1933 Act, the Rules and Regulations
and other applicable laws.
(ii) The number of authorized and, to the best of such counsel's
knowledge, the number of issued and outstanding shares of capital
stock of the Company are as set forth in the Prospectus and all such
capital stock has been
-14-
duly authorized and is validly issued, fully paid and nonassessable.
Upon delivery of and payment for the Shares hereunder, the Underwriter
will acquire the Shares free and clear of all liens, encumbrances or
claims. To the best of such counsel's knowledge, no preemptive
rights, contractual or otherwise, of securities holders of the Company
exist with respect to the issuance or sale of the Shares by the
Company pursuant to this Agreement or the issuance of the Warrant
Shares upon exercise of the Underwriter's Warrants. To the best of
such counsel's knowledge, no rights to require registration of shares
of Common Stock or other securities of the Company exist which may be
exercised in connection with the filing of the Registration Statement.
The Shares, Underwriter's Warrants and 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 Shares have been duly authorized and, upon delivery to
the Underwriter against payment therefor, will be validly issued,
fully paid and nonassessable.
(iv) The certificates evidencing the Shares comply as to form
with the applicable provisions of the laws of the State of Missouri.
In giving such opinion, Petillon & Xxxxxx may rely on the opinion of
Seigfreid, Bingham, Levy, Xxxxxx & Xxx of Kansas City, Missouri.
(v) 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 enforceability may be limited by the application of
bankruptcy, insolvency, moratorium, or other laws of general
application affecting the rights of creditors generally and by
judicial limitations on the right of specific performance and other
equitable remedies, and except as the enforceability of
indemnification or contribution provisions hereof may be limited by
federal or state securities laws. The Warrant Shares when issued in
accordance with the terms of this Agreement and pursuant to 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.
(vi) The Registration Statement has become and is effective
under the 1933 Act, the Prospectus has been filed as required by Rule
424(b), if necessary and, to the best knowledge of such counsel, no
stop orders suspending the effectiveness of the Registration Statement
have been issued and no proceedings for that purpose have been
instituted or are pending or contemplated under the 0000 Xxx.
(vii) To the best of such counsel's knowledge, there are no
material legal or governmental proceedings of a character required by
the 1933 Act and the Rules and Regulations to be described or referred
to in the Registration Statement or Prospectus that are not described
or referred to therein. All pending legal or
-15-
governmental proceedings, if any, to which the Company is a party or
to which any of its 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.
(viii) No authorization, approval or consent of any governmental
authority or agency is necessary in connection with the issuance and
sale of the Shares as contemplated under this Agreement, except such
as may be required and obtained under the 1933 Act or under state or
other securities laws in connection with the purchase and distribution
of the Shares by the Underwriter.
(ix) The Registration Statement, when it became effective, the
Prospectus and any amendments thereof or supplements thereto, (other
than the financial statements and supporting financial and statistical
data included or incorporated therein, as to which such counsel need
express no opinion) on the date of filing or the date thereof,
complied as to form in all material respects with the requirements of
the 1933 Act and the Rules and Regulations.
(x) This Agreement has been duly authorized, executed and
delivered by, and is a valid and binding agreement of the Company,
enforceable in accordance with its terms, except as enforceability may
be limited by the application of bankruptcy, insolvency, moratorium or
similar laws affecting the rights of creditors generally and judicial
limitations on the right of specific performance and except as the
enforceability of indemnification or contribution provisions hereof
may be limited by federal or state securities laws.
(xi) To the best of such counsel's knowledge, the execution,
delivery and performance of this Agreement and the consummation of the
transactions described herein will not result in a violation of, or a
default under, the terms or provisions of (A) any material bond,
debenture, note, contract, lease, license, indenture, mortgage, deed
of trust, loan agreement, joint venture or other agreement or
instrument to which the Company is a party or by which the Company or
any of its properties are bound, or (B) any material law, order, rule,
regulation, writ, injunction, or decree known to such counsel of any
government, governmental agency or court having jurisdiction over the
Company or any of its properties.
(xii) To the best of such counsel's knowledge, except as
described in the Prospectus, there are no United States patents of
third parties which are infringed by the manufacture, use or sale of
the products or processes currently made, used or sold by the Company.
(xiii) To the best of such counsel's knowledge, and except as
stated below, there are no legal, governmental or administrative
proceedings pending or threatened against the Company that relate to
patents, trademarks or other intellectual property, except for pending
or proposed United States and foreign patent applications.
-16-
(xiv) To the best of such counsel's knowledge, after due
inquiry, the Company has not received any notice of conflict with the
asserted rights of others in respect of any trademarks, service marks,
trade names, trademark registrations, service xxxx registrations,
copyrights, licenses, inventions, trade secrets, patents, patent
applications, know-how, or similar rights, nor of any threatened
actions with respect thereto, which, if determined adversely to the
Company, would individually or in the aggregate have a material
adverse effect on the general affairs, financial position, net worth
or results of operations of the Company.
(xv) To the best of such counsel's knowledge, after due inquiry,
the Company owns, possesses or is licensed under all such material
trademarks, trademark applications, trademark registrations, service
marks, service xxxx registrations, copyrights, patents, patent
applications and licenses as are described in the Prospectus and which
are necessary for the Company's present or planned future business as
described in the Prospectus.
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 opinion shall also include
a statement to the effect that, although such counsel cannot guarantee the
accuracy, completeness or fairness of any of the statements contained in the
Registration Statement, Prospectus, or any amendment thereof or supplement
thereto in connection with such counsel's representation, investigation and due
inquiry of the Company in the preparation of the Registration Statement,
Prospectus and any amendment thereof or supplement thereto, nothing has come to
the attention of such counsel which causes them to believe that the Registration
Statement, Prospectus, or any amendment thereof or supplement thereto (other
than the financial statements and supporting financial and statistical data
included or incorporated therein, as to which such counsel need express no
opinion) contains an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading;
provided, however, that such opinion of counsel does not require any statement
concerning statements in, or omissions from, the Registration Statement,
Prospectus, or any amendment thereof or supplement thereto, which are based upon
and conform to written information furnished to the Company by any of the
Underwriter specifically for use in the preparation of the Registration
Statement, Prospectus, or any such amendment or supplement.
(e) The Underwriter shall have received from Xxxxxxxxxx & Xxxxx,
P.A., its counsel, such opinion or opinions as the Underwriter may
reasonably require, dated as of each closing date and satisfactory in form
and substance to the Underwriter, with respect to the sufficiency of
corporate proceedings and other legal matters relating to this Agreement
and the transactions contemplated hereby, and the Company shall have
furnished to said counsel such documents as they may have requested for the
purpose of enabling them to pass upon such matters. In connection with
such opinion, as to matters of fact relevant to conclusions of law, such
counsel may rely, to the extent that they
-17-
deem proper, upon representations or certificates of public officials and
of responsible officers of the Company.
(f) The Underwriter and the Company shall have received letters,
dated the date hereof and as of each Closing Date, from Xxxxx, Xxxxx &
Xxxxxx, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial and statistical information contained in the Registration
Statement and the Prospectus, all in form and substance satisfactory to the
Underwriter.
(g) The Underwriter shall have received from the Company a
certificate, dated as of each Closing Date, of the principal executive
officer and the principal financial or accounting officer of the Company to
the effect that:
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made on and as of each closing
date. The Company has complied with all the agreements and satisfied
all the conditions on its part to be performed or satisfied at, or
prior to, such date.
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued and no proceeding for that
purpose has been instituted or is pending or to the best knowledge of
such officers contemplated under the 1933 Act.
(iii) Neither the Registration Statement nor the Prospectus nor
any amendment thereof or supplement thereto included any untrue
statement of a material fact or omitted to state any 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, and, since the effective date of the Registration
Statement, there has occurred no event required to be set forth in an
amended or supplemented prospectus which has not been so set forth;
provided, however, that such certificate does not require any
representation concerning 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 any of the Underwriter
specifically for use in the preparation of the Registration Statement
or the Prospectus, or any such amendment or supplement.
(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, and except
as contemplated or referred to in the Prospectus, no event has
occurred that should have been set forth in an amendment or supplement
to Registration Statement or the Prospectus which has not been so set
forth and the Company has not incurred any direct or contingent
liabilities or obligations material to the Company, or entered into
any material transactions, except liabilities, obligations or
transactions in the ordinary course of business, and there has not
been any change in the capital stock or long-term debt of the Company,
(including any capitalized lease obligations), any material increase
in the short-term debt of the Company, any material adverse
-18-
change in the financial position, net worth or results of operations
of the Company or declaration or payment of any dividend.
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, the Company
has not sustained any material loss of, or damage to, its properties,
whether or not insured.
(vi) Except as is otherwise expressly stated in the Registration
Statement and Prospectus, there are no material actions, suits or
proceedings pending before any court or governmental agency, authority
or body, or, to the best of their knowledge, threatened, to which the
Company is a party or of which the business or property of the Company
is the subject.
(h) 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 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 that such resolutions and the Articles of Incorporation of the
Company and the Bylaws of the Company have been validly adopted and have
not been amended or modified.
(i) The Underwriter shall have received a written agreement from each
of the officers, directors and stockholders of the Company, that for 180
days following the Effective Date, such person will not, without the
Underwriter's prior written consent, sell, transfer or otherwise dispose
of, or agree to sell, transfer or otherwise dispose of, other than by gift
to donees who agree to be bound by the same restriction or by will or the
laws of descent, any of his or her Common Stock, or any options, warrants
or rights to purchase Common Stock or any shares of Common Stock received
upon exercise of any options, warrants or rights to purchase Common Stock,
all of which are beneficially held by such persons during the 180-day
period.
(j) The Company shall not have failed to have performed any of its
agreements herein contained and required to be performed by it at or prior
to the First Closing Date or the Second Closing Date, as the case may be.
The Underwriter may waive in writing the performance of any one or more of
the conditions specified in this Section 4 or extend the time for their
performance.
(k) The Shares shall have been registered or qualified for sale or
exempt from such registration or qualification under the securities laws of
such jurisdictions as designated by the Underwriter such qualifications or
exemptions shall continue in effect to and including the First Closing Date
or the Second Closing Date, as the case may be.
(l) The Company shall have furnished to the Underwriter, dated as of
the date of each Closing Date, such further certificates and documents as
the Underwriter shall have reasonably required.
(m) All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably
satisfactory to the Underwriter and
-19-
its legal counsel. All statements contained in any certificate, letter, or
other document delivered pursuant hereto by, or on behalf of, the Company
shall be deemed to constitute representations and warranties of the
Company.
(n) The Underwriter may waive in writing the performance of any one
or more of the conditions specified in this Section 4 or extend the time
for their performance.
(o) If any of the conditions specified in this Section 4 shall not
have been fulfilled when and as required by this Agreement to be fulfilled,
this Agreement and all obligations of the Underwriter hereunder may be
canceled at, or at any time prior to, each Closing Date by the Underwriter.
Any such cancellation shall be without liability of the Underwriter to the
Company and shall not relieve the Company of its obligations under Section
3(g) hereof. Notice of such cancellation shall be given to the Company at
the address specified in Section 10 hereof in writing, or by telegraph or
telephone confirmed in writing.
5. UNDERWRITER'S WARRANTS. On the First Closing Date, the Company shall
grant to the Underwriter 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.
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 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 made by the Company in Section 1 hereof; (ii)
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; (iii) 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 Commission 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 (iv) 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
Shares under, or exempt the
-20-
Shares or the sale thereof from qualification under, the securities 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. The Company will reimburse the
Underwriter and each such controlling person for any legal or other
expenses reasonably incurred by the Underwriter or such controlling person
(subject to the limitation set forth in Section 7(d) hereof) in connection
with investigating or defending against any such loss, claim, damage,
liability or action. The Company, however, 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 the Underwriter filed in any jurisdiction in order to
qualify the Shares under, or exempt the Shares or the sale thereof from
qualification under, the securities laws of such jurisdiction. Further,
the foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any untrue statement, alleged untrue statement, omission
or alleged omission made in any Preliminary Prospectus but eliminated or
remedied in the Prospectus, such indemnity agreement shall not inure to the
benefit of the Underwriter if the person asserting any loss, claim, damage
or liability purchased the Shares from the Underwriter which are the
subject thereof (or to the benefit of any person who controls the
Underwriter), if a copy of the Prospectus was not sent or given to such
person with, or prior to, the written confirmation of the sale of such
Shares to such person due to the fault of the Underwriter. This indemnity
agreement is in addition to any liability which the Company may otherwise
have.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of the Company's directors, each of the Company's officers
who has signed the Registration Statement and each person who controls the
Company within the meaning of Section 15 of the 1933 Act against any
losses, claims, damages or liabilities to which the Company or any such
director, officer, or controlling person may become subject, under the 1933
Act, the 1934 Act, the 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 Commission any amendment thereof or supplement thereto), or the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they were made, not misleading; or
(iii) any untrue statement or alleged untrue statement of a material fact
contained in any application or other statement executed by the Company or
by the
-21-
Underwriter and filed in any jurisdiction in order to qualify the Shares
under, or exempt the Shares or the sale thereof from qualification under,
the securities 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. 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. Further, the foregoing
indemnity agreement is subject to the condition that, insofar as it relates
to any untrue statement, alleged untrue statement, omission or alleged
omission made in any Preliminary Prospectus but eliminated or remedied in
the Prospectus, such indemnity agreement shall not inure to the benefit of
the Company if the person asserting any loss, claim, damage or liability
purchased the Shares from the Underwriter which are the subject thereof (or
to the benefit of any person who controls any Underwriter), if a copy of
the Prospectus was not sent or given to such person with, or prior to, the
written confirmation of the sale of such Shares to such person due to no
fault of the Underwriter. 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. 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
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and expenses of such separate counsel shall be borne by the indemnifying
party and paid as incurred. Any such indemnifying party shall not be
liable to any such indemnified party on account of any settlement of any
claim or action effected without the prior written consent of such
indemnifying party.
7. CONTRIBUTION.
(a) If the indemnification provided for in Section 6 is unavailable
for any reason or is insufficient to hold harmless an indemnified party
under Section 6(a) or (b) above in respect of any losses, claims, damages
or liabilities (or actions in respect thereof) referred to therein, then
each indemnifying party shall, in lieu of indemnifying such indemnified
party, contribute to the amount paid or payable by such indemnified party
as a result of such losses, claims, damages or liabilities (or actions in
respect thereof) in such proportion as is appropriate to reflect the
relative benefits received by the Company and the Underwriter from the
offering of the Firm Shares and the Option Shares, if any. If, however,
the allocation provided by the immediately preceding sentence is not
permitted by applicable law or if the indemnified party failed to give the
notice required under Section 6(c) above, then each indemnifying party
shall contribute to such amount paid or payable by such indemnified party
in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Underwriter in
connection with the statements or omissions that resulted in such losses,
claims, damages or liabilities (or actions in respect thereof), as well as
any other relevant equitable considerations. The relative benefits
received by the Company and the Underwriter shall be deemed to be in the
same proportion as the total net proceeds from the offering (before
deducting expenses) received by the Company and bear to the total
underwriting discounts and commissions received by the Underwriter, in each
case as set forth in the table on the cover page of the Prospectus. The
relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to
information supplied by the Company or the Underwriter and the parties'
relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 10(e) of the
Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation.
The Company and the Underwriter agree that it would not be just and
equitable if contribution pursuant to this Section 7(a) were determined by
pro rata allocation or by any other method of allocation that does not take
account of the equitable considerations referred to above in this Section
7(a). The amount paid or payable by an indemnified party as a result of
the losses, claims, damages or liabilities (or actions in respect thereof)
referred to above in this Section 7(a) shall be deemed to include any legal
or other expenses to which such indemnified party would be entitled if
Section 6(a) or (b) were applied. Notwithstanding the provisions of this
Section 7(a), the Underwriter shall not be required to contribute any
amount in excess of the amount by which the total price at which the Shares
underwritten by it and distributed to the public were offered to the public
exceeds the amount of any damages that such Underwriter has otherwise been
required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission.
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(b) Promptly after receipt by any party to this Agreement of notice
of the commencement of any action, suit or proceeding, such party will, if
a claim for contribution in respect thereof is to be made against another
party (the "contributing party"), notify the contributing party of the
commencement thereof. The omission so to notify the contributing party
will not relieve it from any liability that it may have to any other party
so long as the failure to notify does not materially prejudice the
contributing party's rights. If any such action, suit or proceeding is
brought against any party, and such party 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.
(c) Any losses, claims, damages, liabilities or expenses for which an
indemnified party is entitled to indemnification or contribution under
Section 6 or this Section 7 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses
are incurred. A successor to the Underwriter, or to the Company, or any
actor or officer of, or any person controlling, the Underwriter or the
Company shall be entitled to the benefits of the agreements contained in
Sections 6 and 7.
8. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective at 8:00 a.m., Minneapolis
time, on the day on which the Underwriter releases the initial public
offering of the Firm Shares for sale to the public. The Underwriter shall
notify the Company immediately after any action has been taken which causes
this Agreement to become effective. Until this Agreement is effective, it
may be terminated by the Company or the Underwriter by giving notice as
hereinafter provided, except that the provisions of Sections 4(g), 6, 7 and
8 shall at all times be effective. For purposes of this Agreement, the
release of the initial public offering of the Firm Shares for sale to the
public shall be deemed to have been made when the Underwriter releases, by
telegram or otherwise, firm offers of the Firm Shares to securities dealers
or release for publication a newspaper advertisement relating to the Firm
Shares, 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 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 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 Shares, 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-SM- or the
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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 Shares; (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; or (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.
Any such termination shall be without liability of any party to any other
party, except as provided in Sections 6 and 7 hereof; provided, however,
that the Company shall remain obligated to pay costs and expenses to the
extent provided in Section 3(g) hereof.
(c) If the Underwriter elects to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 8, 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.
9. 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 3 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 Shares. 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.
10. NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and, if sent to Underwriter
or any of the Underwriter, shall be mailed, delivered or telegraphed and
confirmed, to X. X. Xxxxxxxx & Company, 000 Xxxxxxx Xxxxx, 000 Xxxxxxxx Xxxx,
Xxxxxxxxxxx, XX 00000, Attention: Xxxxxxx X. Xxxxxxx, Senior Vice President and
Managing Director with a copy to Xxxxxxx X. Xxxx, Esq., Xxxxxxxxxx & Xxxxx,
P.A., 1100 International Centre, 000 Xxxxxx Xxxxxx Xxxxx, Xxxxxxxxxxx, Xxxxxxxxx
00000; or, if sent to the Company, shall be mailed, delivered or telegraphed and
confirmed, to
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Electronic Processing, Inc., 000 Xxxxxx Xxxxxx, Xxxxxx Xxxx, XX 00000,
Attention: Xxx X. Xxxxxxx , with a copy to Xxxx X. Xxxxxxx, Esq., Petillon &
Xxxxxx, 1260 Union Bank Tower, 00000 Xxxxxxxxx Xxxxxxxxx, Xxxxxxxx, Xxxxxxxxxx
00000.
11. INFORMATION FURNISHED BY THE 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 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.
12. PARTIES. This Agreement shall inure to the benefit of and be binding
upon the Underwriter and the Company, their respective successors and assigns,
and the officers, directors and controlling persons referred to in Sections 6
and 7. Nothing expressed in this Agreement is intended or shall be construed to
give any person or corporation, other than the parties hereto, their respective
successors and assigns, and the controlling persons, officers and directors
referred to in Sections 6 and 7 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 the parties hereto and their
respective executors, administrators, successors, assigns and such controlling
persons, officers and directors, and for the benefit of no other person or
corporation. No purchaser of any Shares from the Underwriter shall be construed
a successor or assign merely by reason of such purchase.
13. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
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If the foregoing is in accordance with the Underwriter's understanding of
this agreement, kindly sign and return to the Company the enclosed counterpart
of this Agreement, whereupon it will become a binding agreement between the
Company and the Underwriter in accordance with its terms.
Very truly yours,
ELECTRONIC PROCESSING, INC.
By
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Its
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ACCEPTANCE
The foregoing Underwriting Agreement is hereby confirmed and accepted by the
undersigned
X. X. XXXXXXXX & COMPANY
By
---------------------------------
Its
--------------------------------
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SCHEDULE I
PERSONS TO BE
SUBJECT TO LOCK-UP AGREEMENT
Xxx X. Xxxxxxx
Xxxxx X. Xxxxxxx
Xxxxxxxxxxx X. Xxxxxxx
Xxxxxx X. Xxxx
Xxxx X. Xxxxxx
Xxxxx X. Xxxxxxx
FORM OF LOCK-UP AGREEMENT
The undersigned, a director, executive officer, or beneficial owner of the
common stock, $0.01 par value (the "Common Stock"), of Electronic Processing,
Inc. (the "Company"), understands that the Company has filed with the Securities
and Exchange Commission a registration statement on Form SB-2 (the "Registration
Statement") for the registration of up to 1,600,000 shares of Common Stock, plus
an overallotment option of 240,000 shares of Common Stock. The undersigned
further understands that in connection with the public offering of the Shares,
the Company contemplates entering into an underwriting agreement with X. X.
Xxxxxxxx & Company (the "Underwriter").
In order to induce the Underwriter to proceed with the public offering,
the undersigned agrees, for the benefit of the Company and the Underwriter,
that should such public offering be effectuated the undersigned will not,
without the prior written consent of the Underwriter, which consent shall not
be unreasonably withheld, during the 180-day period commencing on the
effective date of the Registration Statement (the "Lockup Period") (i) sell,
transfer or otherwise dispose of, or agree to sell, transfer or otherwise
dispose of any shares of Common Stock of the Company beneficially held by the
undersigned during the Lockup Period, (ii) sell, transfer or otherwise
dispose of or agree to sell, transfer or otherwise dispose of any options,
rights, warrants or other securities exercisable or convertible into shares
of Common Stock of the Company beneficially held by the undersigned during
the Lockup Period, or (iii) sell or grant, or agree to sell or grant,
options, rights, warrants or other securities exercisable or convertible into
to any such shares of Common Stock. The foregoing does not prohibit gifts to
donees who agree to be bound by the restrictions set forth herein or
transfers by will or the laws of descent.
This Agreement shall be binding on the undersigned and his, her or its
respective successors, heirs, personal representatives and assigns.
Dated:
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