EXHIBIT 1.1
FOUNDERS FOOD & XXXXXXX LTD.
1,000,000 SHARES OF COMMON STOCK(1)
UNDERWRITING AGREEMENT
____________, 2000
Equity Securities Investments, Inc.
0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxxxxxxxx, XX 00000
Ladies and Gentlemen:
Founders Food & Xxxxxxx Ltd., a Minnesota corporation (the
"Company"), hereby confirms its agreement to issue and sell to Equity
Securities Investments, Inc. (the "Underwriter") an aggregate of 1,000,000
authorized and unissued shares (the "Firm Shares") of common stock, $0.01 par
value per share ("Common Stock"), of the Company. The Company also hereby
confirms its agreement to grant to the Underwriter an option to purchase up
to 150,000 additional authorized and unissued shares of Common Stock (the
"Option Shares") on the terms and for the purposes set forth in Section 2(b)
hereof. (As used in this Agreement, the term "Shares" shall consist of the
Firm Shares and the Option Shares.) The Company also hereby confirms its
agreement to issue to the Underwriter a warrant for the purchase of up to
100,000 shares of Common Stock as described in Section 6 hereof (the
"Underwriter's Warrant"), contingent upon the purchase by the Underwriter of
the Firm Shares. The shares of Common Stock issuable upon exercise of the
Underwriter's Warrant are referred to in this Agreement as the "Warrant
Shares."
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
(a) The Company represents and warrants to and agrees
with the Underwriter as follows:
(i) A registration statement on Form SB-2 (File No.
333-93459) with respect to the Shares, including a prospectus subject
to completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the rules and regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder
----------------
(1) Plus an option to purchase up to 150,000 additional shares to cover
over-allotments.
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and has been filed with the Commission under the Securities Act; one or
more amendments to such registration statement have also been so
prepared and have been, or will be, so filed. Copies of the
registration statement and amendments and each related preliminary
prospectus to date have been delivered by the Company to the
Underwriter, and, to the extent applicable, were identical to the
electronically transmitted copies thereof filed with the Commission
pursuant to the Commission's Electronic Data Gathering Analysis and
Retrieval System ("XXXXX"), except to the extent permitted by
Regulation S-T under the Securities Act. If the Company has elected not
to rely upon Rule 430A of the Rules and Regulations, the Company has
prepared and will promptly file an amendment to the registration
statement and an amended prospectus. If the Company has elected to rely
upon Rule 430A of the Rules and Regulations, it will prepare and file a
prospectus pursuant to Rule 424(b) that discloses the information
previously omitted from the prospectus in reliance upon Rule 430A. Such
registration statement as amended at the time it is or was declared
effective by the Commission, including the information deemed to be
part of the registration statement at the time of effectiveness
pursuant to Rule 430A(b), if applicable, is hereinafter called the
"Registration Statement" and, if any amendment thereto shall be filed
after the effective date and prior to the "First Closing Date" (as
hereinafter defined), the term "Registration Statement" shall refer to
the registration statement as so amended (but only from and after the
effectiveness of such amendment). The prospectus included in the
Registration Statement at the time it is or was declared effective by
the Commission is hereinafter called the "Prospectus," except that if
any prospectus filed by the Company with the Commission pursuant to
Rule 424(b) of the Rules and Regulations or any other prospectus
provided to the Underwriter by the Company for use in connection with
the offering of the Shares (whether or not required to be filed by the
Company with the Commission pursuant to Rule 424(b) of the Rules and
Regulations) differs from the prospectus on file at the time the
Registration Statement is or was declared effective by the Commission,
the term "Prospectus" shall refer to such differing prospectus from and
after the time such prospectus is filed with the Commission or
transmitted to the Commission for filing pursuant to such Rule 424(b)
or from and after the time it is first provided to the Underwriter by
the Company for such use. The term "Preliminary Prospectus" as used
herein means any preliminary prospectus included in the Registration
Statement prior to the time it becomes or became effective under the
Securities Act and any prospectus subject to completion as described in
Rule 430A of the Rules and Regulations. For purposes of this Agreement,
all references to the Registration Statement, any Preliminary
Prospectus, the Prospectus, or any amendment or supplement to any of
the foregoing shall be deemed to include the respective copies thereof
filed with the Commission pursuant to XXXXX.
(ii) At the time the Registration Statement is or was
declared effective by the Commission and at all times subsequent
thereto up to the "First Closing Date" and the "Second Closing Date"
(as such terms are hereinafter defined), the Registration Statement and
Prospectus, and all amendments thereof and supplements thereto, will
comply or complied with the provisions and requirements of the
Securities Act and the
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Rules and Regulations. Neither the Commission nor any state securities
authority has issued any order preventing or suspending the use of any
Preliminary Prospectus or requiring the recirculation of a Preliminary
Prospectus, or issued a stop order with respect to the offering of the
Shares (if the Registration Statement has been declared effective), or
instituted or, to the Company's knowledge, threatened the institution
of, proceedings for any of such purposes. When the Registration
Statement shall become effective and when any post-effective amendment
thereto shall become effective, the Registration Statement (as amended,
if the Company shall have filed with the Commission any post-effective
amendments thereto) will not or did 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 in which they were made, not misleading. When the
Registration Statement is or was declared effective by the Commission
and at all times subsequent thereto up to the First Closing Date and
the Second Closing Date, the Prospectus (as amended or supplemented, if
the Company shall have filed with the Commission any amendment thereof
or supplement thereto) will not or did not contain any untrue statement
of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in
light of the circumstances in which they were made, not misleading.
When any Preliminary Prospectus was first filed with the Commission and
when any amendment thereof or supplement thereto was first filed with
the Commission, such Preliminary Prospectus and any amendment thereof
and supplement thereto complied in all material respects with the
applicable provisions of the Securities Act and the Rules and
Regulations, with the exception of the initial filing of the
Registration Statement on December 22, 1999, which failed to contain
loss per common share information in "Summary Financial Data" due to
printer error, and did not contain an untrue statement of a material
fact and did not omit to state any material fact required to be stated
therein or necessary in order to make the statements therein not
misleading. None of the representations and warranties in this
Subsection 1(a) shall apply to statements in, or omissions from, the
Registration Statement or the Prospectus, or any amendment thereof or
supplement thereto, which are based upon and conform to written
information relating to the Underwriter 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.
(iii) The Company has no subsidiaries and is not
affiliated with any other company or business entity, except as
disclosed in the Prospectus. The Company has been duly incorporated and
is validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation, with full power and authority
(corporate and other) 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 and is 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 condition
(financial or otherwise), earnings, operations or
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business of the Company; and no proceeding has been instituted in any
such jurisdiction revoking, limiting or curtailing, or seeking to
revoke, limit or curtail, such power and authority or qualification.
(iv) The Company has operated and is operating in
material compliance with all authorizations, licenses, certificates,
consents, permits, 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, all of which are, to the
Company's knowledge, valid and in full force and effect; the Company is
conducting its business in substantial compliance with all applicable
laws, rules and regulations of the jurisdictions in which it is
conducting business; and the Company is not in material violation of
any applicable law, order, rule, regulation, writ, injunction, judgment
or decree of any court, government or governmental agency or body,
domestic or foreign, having jurisdiction over the Company or over its
properties. Except as set forth in the Registration Statement and
Prospectus:
(A) the Company is in material compliance
with all material rules, laws and regulations relating to the
use, treatment, storage and disposal of toxic substances and
protection of health or the environment (the "Environmental
Laws") which are applicable to its business;
(B) the Company has received no notice from
any governmental authority or third party of an asserted claim
under Environmental Laws, which claim is required to be
disclosed in the Registration Statement and the Prospectus;
(C) the Company will not be required to make
any future material capital expenditures to comply with
Environmental Laws; and
(D) to the best of its knowledge, no
property which is owned, leased or occupied by the Company has
been designated as a Superfund site pursuant to the
Comprehensive Response, Compensation and Liability Act of
1980, as amended (42 U.S.C. Section 9601, ET SEQ.), or
otherwise designated as a contaminated site under applicable
state or local law.
(v) The Company is not in violation of its articles
of incorporation or bylaws or 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, lease, indenture, mortgage, loan
agreement, joint venture or other agreement or instrument to which it
is a party or by which it or its properties are bound, which default is
material to the business of the Company.
(vi) The Company has full requisite power and
authority to enter into this Agreement and perform the transactions
contemplated hereby. This Agreement has
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been duly authorized, executed and delivered by the Company and is a
valid and binding agreement on the part of the Company, enforceable
against the Company in accordance with its terms, except as
enforceability may be limited by the application of bankruptcy,
insolvency, reorganization, moratorium or other 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 law or the public policies underlying such law. The
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a material breach or violation
of any of the terms and provisions of, or constitute a material default
under:
(A) any indenture, mortgage, deed of trust,
loan agreement, bond, debenture, note, agreement or other
evidence of indebtedness, any lease, contract, joint venture
or other agreement or instrument to which the Company is a
party or by which the Company or its properties may be bound;
(B) the articles of incorporation or
bylaws of the Company; or
(C) any material applicable law, order,
rule, regulation, writ, injunction, judgment or decree of any
court, government or governmental agency or body, domestic or
foreign, having jurisdiction over the Company or over its
properties.
No consent, approval, authorization or order of or qualification with
any court, governmental agency or body, domestic or foreign, having
jurisdiction over the Company or over its properties is required for
the execution and delivery of this Agreement and the consummation by
the Company of the transactions herein contemplated, except such as
may be required under the Securities Act, the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), or under state or other
securities or Blue Sky laws, all of which requirements, to the best
of the Company's knowledge, have been satisfied.
(vii) Except as is otherwise expressly described in
the Registration Statement or Prospectus, there is neither pending nor,
to the best of the Company's knowledge, threatened, any action, suit,
claim or proceeding against the Company or any of its officers or any
of its properties, assets or rights before any court, government or
governmental agency or body, domestic or foreign, having jurisdiction
over the Company or over its officers or properties or otherwise which
(A) might result in any material adverse change in the condition
(financial or otherwise), earnings, operations or business of the
Company or might materially and adversely affect their properties,
assets or rights, or (B) might prevent consummation of the transactions
contemplated hereby.
(viii) The Company has, and at the First Closing Date
and Second Closing Date (collectively, the "Closing Dates") will have,
the duly authorized and
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outstanding capitalization set forth in the Prospectus. All
outstanding shares of capital stock of the Company are duly
authorized and validly issued, fully paid and non-assessable, have
been issued in compliance with all federal and state securities laws,
were not issued in violation of or subject to any preemptive rights
or other rights to subscribe for or purchase securities, and the
authorized and outstanding capital stock of the Company conforms in
all material respects with the statements relating thereto contained
in the Registration Statement and the Prospectus; the Shares to be
sold hereunder by the Company have been duly authorized for issuance
and sale to the Underwriter pursuant to this Agreement and, when
issued and delivered by the Company against payment therefor in
accordance with the terms of this Agreement, will be duly and validly
issued and fully paid and non-assessable and will be sold free and
clear of any pledge, lien, security interest, encumbrance, claim or
equitable interest; and no preemptive right, co-sale right,
registration right, right of first refusal or other similar right of
shareholders exists with respect to any of the Shares to be sold
hereunder by the Company or the issuance and sale thereof, or the
issuance and sale or exercise of the Underwriter's Warrants, other
than those that have been expressly waived prior to the date hereof.
Except as disclosed in the Prospectus, the Company has no outstanding
options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations
convertible into, or any contracts or commitments to issue or sell,
shares of its capital stock or any such options, rights, convertible
securities or obligations. The certificates evidencing the Shares
comply as to form with all applicable provisions of the laws of the
State of Minnesota.
(ix) 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, reorganization, moratorium or other similar
laws affecting the rights of creditors generally and by judicial
limitations on the right of specific performance and except insofar as
the indemnification provisions thereof may be limited by applicable law
and the policies underlying such law. The Warrant Shares, when issued
in accordance with the terms of this Agreement and pursuant to the
Underwriter's Warrants, will be fully paid and non-assessable 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 has been reserved for issuance by the Company upon exercise of
the Underwriter's Warrants.
(x) Schechter, Dokken, Kanter, Xxxxxxx & Xxxxxx,
Ltd., which has expressed its opinion with respect to the financial
statements filed as part of the Registration Statement and included in
the Registration Statement and Prospectus, are
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independent accountants within the meaning of the Securities Act and
the Rules and Regulations. The financial statements of the Company set
forth in the Registration Statement and Prospectus comply in all
material respects with the requirements of the Securities Act and
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 in accordance with generally accepted accounting
principles consistently applied throughout the periods involved
(subject, in the case of unaudited financial statements, to normal
year-end adjustments which in the opinion of management of the Company
are not material, and except as otherwise stated therein); and the
supporting schedules included in the Registration Statement, if any,
present fairly the information required to be stated therein. The
selected and summary financial and statistical data included in the
Registration Statement present fairly the information shown therein and
have been compiled on a basis consistent with the audited financial
statements presented therein. No other financial statements or
schedules are required by the Securities Act or the Rules and
Regulations to be included in the Registration Statement.
(xi) Subsequent to the respective dates as of which
information is given in the Registration Statement and Prospectus, and
at each Closing Date, except as is otherwise disclosed in the
Registration Statement or Prospectus, there has not been:
(A) any change in the capital stock or
long-term debt (including any capitalized lease obligation) or
material increase in the short-term debt of the Company (other
than issuances of Common Stock upon the exercise of options
outstanding as of the Effective Date and options granted under
the Company's 1997 Stock Option Plan and the Company's 1997
Director Stock Option Plan (collectively, the "Option
Plans"));
(B) any issuance of options, warrants,
convertible securities or other rights to purchase the capital
stock of the Company (other than options granted under the
Option Plans);
(C) any material adverse change, or any
development involving a material adverse change, in or
affecting the condition (financial or otherwise), earnings,
operations, business, or business prospects, management,
financial position, shareholders' equity, results of
operations or general condition of the Company;
(D) any transaction entered into by the
Company that is material to the Company;
(E) any obligation, direct or contingent,
incurred by the Company except obligations incurred in the
ordinary course of business that, in the aggregate, are not
material;
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(F) any dividend or distribution of any kind
declared, paid or made on the capital stock of the Company; or
(G) any loss or damage (whether or not
insured) to the property of the Company which has been
sustained which has a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of
the Company.
(xii) Except as is otherwise expressly disclosed in
the Registration Statement or Prospectus:
(A) the Company has good and marketable
title to all of the property, real and personal, and assets
described in the Registration Statement or Prospectus as being
owned by it, free and clear of any and all pledges, liens,
security interests, encumbrances, equities, charges or claims,
other than such as would not have a material adverse effect on
the condition (financial or otherwise), earnings, operations
or business of the Company;
(B) the agreements to which the Company is a
party described in the Registration Statement and Prospectus
are valid agreements, enforceable by the Company except as the
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by
judicial limitations on the right of specific performance; and
(C) the Company has valid and enforceable
leases for all properties described in the Registration
Statement and Prospectus as leased by it, except as the
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting creditors' rights generally or by
judicial limitations on the right of specific performance.
Except as set forth in the Registration Statement and
Prospectus, the Company owns or leases all such properties as
are necessary to its operations as now conducted.
(xiii) The Company has timely filed (or has timely
requested an extension of time to file) all necessary federal and state
income and franchise tax returns and has paid all taxes shown thereon
as due; there is no tax deficiency that has been or, to the best of the
Company's knowledge, could be asserted against the Company that might
have a material adverse effect on the condition (financial or
otherwise), earnings, operations, business or properties of the
Company; and all tax liabilities are adequately provided for in the
books of the Company.
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(xiv) No labor disturbance by the employees of the
Company exists or, to the best of the Company's knowledge, is imminent.
Except as disclosed in the Registration Statement and the Prospectus,
no collective bargaining agreement exists with any of the employees of
the Company and, to the best of the Company's knowledge, no such
agreement is imminent.
(xv) To the extent described in the Registration
Statement, the Company owns, or possesses adequate rights to use, all
service marks, trade names, copyrights, trademarks and proprietary
rights or information which are necessary for the conduct of its
present or intended business as described in the Registration Statement
or Prospectus; and the Company has not received any notice of, and has
no knowledge of, any infringement of or conflict with the asserted
rights of others with respect to any trademarks, service marks, trade
names or copyrights which, singly or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company. Except as
disclosed in the Registration Statement or 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, patent rights, inventions, trade
secrets, know-how, technology, service marks, trade names, trademark,
copyright or other intangible asset, with respect to the use thereof or
in connection with the conduct of its business or otherwise.
(xvi) The Shares have been approved for quotation on
The Nasdaq SmallCap Market.
(xvii) The Company has no defined benefit pension
plan or other pension benefit plan 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.
(xviii) 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, shareholders 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 Exchange Act
or otherwise, of the price of any security of the Company to facilitate
the sale or resale of the Shares. The Company has not distributed and
will not distribute prior to the later of (A) the First Closing Date or
the Second Closing Date, as the case may be, and (B) completion of the
distribution of the Shares, any offering material in connection with
the offering and sale of the Shares other than any Preliminary
Prospectus, the Prospectus, the Registration Statement and other
materials, if any, permitted by the Securities Act. Except as is
otherwise disclosed in the Registration Statement or Prospectus, and to
the best of the Company's knowledge, no person is entitled, directly or
indirectly, to
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compensation from the Company or the Underwriter for services as a
"finder" or otherwise in connection with the transactions contemplated
by this Agreement.
(xix) The Company maintains insurance, which is in
full force and effect, with insurers of recognized financial
responsibility of the types and in the amounts which it deems adequate
for its business and, to the best of the Company's knowledge, in line
with the insurance maintained by similar companies and businesses; and
the Company has no any reason to believe that it will not be able to
renew its existing insurance coverage as and when such coverage expires
or to obtain similar coverage from similar insurers as may be necessary
to continue its business at a cost that would not materially and
adversely affect the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
(xx) Each executive officer and director of the
Company and each beneficial owner of ten percent (10%) or more of the
Common Stock to be outstanding after the sale of the Firm Shares
(calculated in accordance with Rule 13d-3 under the Exchange Act) has
agreed pursuant to the form of One-Year Lock-up Agreement attached
hereto as APPENDIX A-1 (the "One-Year Lock-up Agreement") that such
person will not, for a period of one year from the date (the "Effective
Date") that the Registration Statement is declared effective by the
Commission (the "One-Year Lock-up Period"), without the prior written
consent of the Underwriter, offer to sell, contract to sell, sell,
pledge, hypothecate, transfer or otherwise dispose of, or grant any
rights with respect to (collectively, a "Disposition"), any shares of
Common Stock and any options, warrants and other rights to purchase any
shares of Common Stock or any securities convertible into or
exchangeable or exercisable for shares of Common Stock now owned or
hereafter acquired by such person (collectively, "Securities"), or with
respect to which such person has or hereafter acquires the power of
Disposition, other than as permitted by the One- Year Lock-up
Agreement. In addition, certain other beneficial owners of Common Stock
of the Company have agreed pursuant to the Lock-up Agreement attached
hereto as APPENDIX A-2 (the "Six-Month Lock-up Agreement") that such
persons shall not, for a period of six (6) months from the Effective
Date ("Six-Month Lock-up Period"), Dispose of any Securities now owned
or hereafter acquired by such persons or with respect to which such
persons have or hereafter acquire the power of Disposition, other than
as permitted by the Six-Month Lock-up Agreement. (The One-Year Lock-up
Agreement and the Six-Month Lock-up Agreement shall hereinafter be
collectively referred to as the "Lock-up Agreements.") The Company has
provided to the Underwriter true, accurate and complete copies of all
of the Lock-up Agreements. The Company has provided to counsel for the
Underwriter ("Underwriter's Counsel") a complete and accurate list of
all holders of Securities of the Company and the number and type of
securities held by each holder of Securities.
(xxi) The Company has not at any time during the last
five (5) years (or, if formed during the last five years, since its
inception) made any unlawful contribution to
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any candidate for an office or failed to disclose fully any
contribution in violation of law, or made any payment to any federal or
state governmental officer or official, domestic or foreign, or other
person charged with similar public or quasi-public duties, other than
payments required or permitted by the laws of the United States or any
jurisdiction thereof. The Company maintains a system of internal
accounting controls sufficient to provide reasonable assurances that
transactions are executed in accordance with management's general or
specific authorizations, transactions are recorded as necessary to
permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain accountability for
assets, access to assets is permitted only in accordance with
management's general or specific authorization, and the recorded
accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to
any differences.
(xxii) Neither the Company nor any of its affiliates
is presently doing business with the government of Cuba or with any
person or affiliate located in Cuba.
(b) Any certificate signed by any officer of the Company
and delivered to the Underwriter or to Underwriter's Counsel shall be deemed
a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
2. PURCHASE, SALE, DELIVERY AND PAYMENT.
(a) On the basis of the representations, warranties and
agreements herein contained, and subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, the Firm Shares at a purchase price of
$3.60 per Share. The Underwriter will purchase all of the Firm Shares if any
are purchased.
The Firm Shares will be delivered by the Company to the
Underwriter for the account of the Underwriter against payment of the
purchase price therefor by wire transfer or other same-day funds payable to
the order of the Company at the offices of Equity Securities Investments,
Inc., 0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxxx, Xxxxxxxxx 00000 (or at
such other place as may be agreed upon by the Underwriter and the Company),
at 9:00 a.m., Minneapolis, Minnesota time, on (i) the third (3rd) full
business day following the date hereof if the Registration Statement is
declared effective before 3:30 p.m., Minneapolis, Minnesota time on the date
hereof, (ii) the fourth (4th) full business day following the date hereof if
the Registration Statement is declared effective after 3:30 p.m., Minneapolis,
Minnesota time on the date hereof, or (iii) such other time and date as the
Underwriter and the Company may determine, such time and date of payment and
delivery being herein called the "First Closing Date." Delivery of the Firm
Shares will be made by credit to "full fast" transfer to the account or
accounts at The Depository Trust Company designated by the Underwriter.
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(b) On the basis of the representations, warranties and
agreements 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 150,000 Option Shares at the same purchase price as the
Firm Shares, for use solely in covering any over-allotments made by the
Underwriter in the sale and distribution of the Firm Shares. The option
granted hereunder may be exercised by the Underwriter at any time (but not
more than once), in whole or in part, during the period of thirty (30) days
after the Effective Date of the Registration Statement by giving written
notice to the Company and the Company's counsel, which notice shall set forth
the aggregate number of Option Shares as to which the Underwriter is
exercising the option, the names and denominations in which the Option Shares
are to be registered, and the date and time, as determined by the
Underwriter, when the Option Shares are to be delivered, such time and date
being herein referred to as the "Second Closing Date;" provided, however,
that the Second Closing Date shall not be earlier than the First Closing Date
nor earlier than the second business day after the date on which the option
shall have been exercised. No Option Shares shall be sold and delivered
unless the Firm Shares previously have been, or simultaneously are, sold and
delivered.
The Option Shares will be delivered by the Company to the
Underwriter for the account of the Underwriter against payment of the
purchase price therefor by wire transfer or other same-day funds payable to
the order of the Company at the offices of Equity Securities Investments,
Inc. 0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000, Xxxxxxxxxxx, Xxxxxxxxx 00000 (or at
such other place as may be agreed upon by the Underwriter and the Company) at
9:00 a.m., Minneapolis, Minnesota time, on the Second Closing Date. Delivery
of the Option Shares will be made by credit to "full fast" transfer to the
account or accounts at The Depository Trust Company designated by the
Underwriter.
3. COVENANTS OF THE COMPANY. The Company hereby covenants and agrees
with the Underwriter as follows:
(a) If the Registration Statement has not already been
declared effective by the Commission, the Company will use its best efforts
to cause the Registration Statement and any post-effective amendments thereto
to become effective as promptly as possible; the Company will notify the
Underwriter promptly of the time when the Registration Statement or any
post-effective amendment to the Registration Statement has become effective
or any supplement to the Prospectus has been filed and of any request by the
Commission for any amendment or supplement to the Registration Statement or
Prospectus or additional information; if the Company has elected to rely on
Rule 430A of the Rules and Regulations, the Company will file a Prospectus
containing the information omitted therefrom pursuant to such Rule 430A with
the Commission within the time period required by, and otherwise in
accordance with the provisions of, Rules 424(b) and 430A of the Rules and
Regulations; the Company will prepare and file with the Commission, promptly
upon the Underwriter's request, any amendments or supplements to the
Registration Statement or Prospectus that, in the Underwriter's reasonable
opinion, may be necessary or advisable in connection with the distribution of
the Shares by the Underwriter; and
12
the Company will not file any amendment or supplement to the Registration
Statement or Prospectus to which the Underwriter shall reasonably object by
notice to the Company after having been furnished a copy a reasonable time
prior to the filing.
(b) Within the time during which a prospectus relating to
the Shares is required to be delivered under the Securities Act, the Company
will advise the Underwriter, promptly after it shall receive notice or obtain
knowledge thereof, of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement, of the suspension
of the qualification of the Shares for offering or sale in any jurisdiction,
or of the initiation or threatening of any proceeding for any such purpose;
and the Company will promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such a stop order should be
issued.
(c) Within the time during which a prospectus relating to
the Shares is required to be delivered under the Securities Act, the Company
will comply as far as it is able with all requirements imposed upon it by the
Securities Act, as now and hereafter amended, and by the Rules and
Regulations, as from time to time in force, so far as necessary to permit the
continuance of sales of or dealings in the Shares as contemplated by the
provisions hereof and the Prospectus. If, during such period, any event
occurs as a result of which the Prospectus would include an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances then existing, not
misleading, or if, during such period, it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the
Securities Act, the Company will promptly notify the Underwriter and will
amend the Registration Statement or supplement the Prospectus (at the expense
of the Company) so as to correct such statement or omission or effect such
compliance.
(d) The Company will use its best efforts to arrange for
the qualification of the Shares for offering and sale under the securities
laws of such jurisdictions as the Underwriter may designate and to continue
such 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 in any jurisdiction where 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 in which the Shares shall have been qualified as herein
provided, the Company will make and file such statements and reports, during
such period, as are or may be reasonably required by the laws of such
jurisdiction.
(e) The Company will furnish to the Underwriter copies of
the Registration Statement (two of which will be signed and will include all
exhibits), each Preliminary Prospectus, the Prospectus, and all amendments
and supplements to such documents, in each case as soon as available and in
such quantities as the Underwriter may from time to time reasonably request.
13
(f) For a period of five years from the Effective Date, the
Company will furnish directly to the Underwriter as soon as the same shall be
sent to its shareholders generally copies of all annual or interim
shareholder reports of the Company and will, for the same period, also
furnish the Underwriter with the following:
(i) One copy of any report, application or document
(other than exhibits, which, however, will be furnished on your
request) filed by the Company with the Commission, Nasdaq (with the
exception of Listing of Additional Shares forms), the NASD or any
securities exchange, provided that the Company shall not be required
to furnish any information pursuant hereto that is not made publicly
available;
(ii) As soon as the same shall be sent to
shareholders generally, copies of each communication sent to
shareholders; and
(iii) From time to time, such other information
concerning the Company as the Underwriter may reasonably and
specifically request, provided that the Company shall not be required
to furnish any information pursuant hereto that is not furnished to its
shareholders or not otherwise made publicly available.
(g) The Company will, as required by the Rules and
Regulations, publicly disclose the application of the proceeds of the offering
of the Shares by the Company.
(h) The Company will make generally available to its
security holders as soon as practicable, but in any event not later than the
fifteen (15) months after the end of the Company's current fiscal quarter, an
earnings statement (which will be in reasonable detail but need not be
audited) complying with the provisions of Section 11(a) of the Securities Act
and Rule 158 of the Rules and Regulations and covering a twelve (12)-month
period beginning after the Effective Date of the Registration Statement.
(i) After completion of the offering of the Shares, the
Company will make all filings required to maintain the quotation of the
Common Stock on The Nasdaq SmallCap Market or any national stock exchange.
(j) The Company will apply the net proceeds from the sale
of the Shares substantially in the manner set forth under the caption "Use of
Proceeds" in the Prospectus.
(k) For a period of six months after the Effective Date of
the Registration Statement, the Company will not, without the prior written
consent of the Underwriter, directly or indirectly, effect the Disposition of
any Securities including, without limitation, any Securities that are
convertible into or exchangeable or exercisable for Common Stock, except the
Company may take the following actions:
(i) sell Shares pursuant to this Agreement;
14
(ii) grant options under the Option Plans in the
ordinary course, provided that the exercise price or conversion price
of any options shall have an exercise price or conversion price that is
not less than the market price of the Common Stock at the date of
grant, or if greater, $4.00 per share;
(iii) issue shares of Common Stock pursuant to the
exercise of options granted under the Option Plans; and
(iv) sell Common Stock, grant warrants to purchase
Common Stock (and issue shares pursuant to the exercise of such
warrant), and grant other Securities convertible into Common Stock (and
issue shares pursuant to the exercise of such Securities), to the
Company's strategic business partners or in connection with
acquisitions, provided that the exercise price or conversion price of
any warrants or other convertible Security shall have an exercise price
or conversion price that is not less than the market price of the
common stock at the date of grant, or if greater, $4.00 per share.
(l) 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.
(m) The Company will inform the Florida Department of
Banking and Finance at any time prior to the consummation of the distribution
of the Shares by the Underwriter if it commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba. Such
information shall be provided within ninety (90) days after the commencement
thereof or after a change occurs with respect to previously reported
information.
(n) The Company hereby grants to the Underwriter a right of
first refusal to act as the sole or managing agent or underwriter, as the
case may be, for any private or public offering of equity or debt securities
commenced by the Company during the period of three (3) years following the
Effective Date of the Registration Statement if the Company seeks to utilize
an underwriter or selling agent in such offering. If the Company receives a
bona fide offer from any third party to serve as sole or managing agent or
underwriter in such a private or public offering which the Company is willing
to accept, the Company shall promptly give written notice to the Underwriter,
including all essential terms and conditions of such offer. The Underwriter
shall have a period of fifteen (15) days after receipt of such written notice
to elect to enter into an agreement with the Company as sole or managing
agent or underwriter, as the case may be, on the same terms and conditions as
set forth in the Company's written notice, after which time the Underwriter
will be deemed to have declined such exercise. If the Underwriter declines to
exercise its right of first refusal or fails to notify the Company within
such 15-day period of an election to invoke its right of first refusal, the
Company may enter into an agreement with such third party from whom it has
received a bona fide offer and the Underwriter's right of first refusal with
respect to other offerings shall cease. If the Company fails to enter into
such an agreement
15
with such third party, if the terms and conditions of such offer are
thereafter materially changed or if the proposed offering is not completed,
the right of first refusal granted to the Underwriter shall once again apply.
(o) The Company hereby grants to the Underwriter the right
to nominate a representative to serve on the Company's Board of Directors
during the period of three (3) years following the Effective Date of the
Registration Statement, and the Company shall use its best efforts to secure
the election of such representative to the Company's Board of Directors. Such
representative shall be subject to the approval of the Company, which
approval shall not be unreasonably withheld. The Underwriter's right to
nominate a representative to serve on the Company's Board of Directors
supersedes, and is not in addition to, the similar right granted to the
Underwriter in the Agency Agreement for the Company's 1997 private placement.
4. Expenses.
(a) The Company agrees with the Underwriter that:
Whether or not this Agreement becomes effective or
is terminated or cancelled or the sale of the Shares hereunder is
consummated, and regardless of the reason for or cause of any such
termination, cancellation, or failure to consummate, the Company will
pay or cause to be paid:
(i) all expenses (including any transfer
taxes) incurred in connection with the delivery to the
Underwriter of the Shares;
(ii) all expenses and fees (including, without
limitation, fees and expenses of the Company's accountants and
of counsel to the Company, excluding, however, fees of
Underwriter's Counsel) in connection with the preparation,
printing, filing, delivery, and shipping of the Registration
Statement (including the financial statements therein and all
amendments, schedules, and exhibits thereto), each Preliminary
Prospectus, the Prospectus, and any amendment thereof or
supplement thereto;
(iii) all fees and reasonable expenses, including all
reasonable counsel fees of Underwriter's Counsel, incurred in
connection with the qualification of the Shares for offering
and sale by the Underwriter or by dealers under the securities
or Blue Sky laws of the states and other jurisdictions which
the Underwriter may designate in accordance with Section 3(d)
hereof, subject to a maximum of $25,000.00;
(iv) all costs and expenses incident to qualification
with The Nasdaq SmallCap Market;
16
(v) postage and express charges and other expenses in
connection with delivery to the Underwriter of the Preliminary
Prospectus and Prospectus; and
(vi) all other costs and expenses incident to the
performance of the Company's obligations hereunder that are
not otherwise specifically described herein.
(b) In addition to and not in lieu of the foregoing, the
Company shall pay to the Underwriter on each Closing Date for
out-of-pocket expenses (including fees of Underwriter's Counsel other
than fees and expenses incurred in connection with Blue Sky or state
securities qualifications) a nonaccountable expense allowance equal to
three percent (3.0%) of the aggregate public offering price for all the
Shares sold to the Underwriter on each Closing Date, including Shares
sold pursuant to orders received through the Company.
(c) If the Underwriter withdraws from the sale of the Shares
as herein proposed:
(i) for any reason within the control of the
Company such as, for example, the sale of the Shares as
herein proposed is abandoned by the Company;
(ii) based upon the fact that there has been a
material adverse change in the financial or other affairs of
the Company since the date of the last financial statements
of the Company provided to the Underwriter;
(iii) because any of the Company's representations
or warranties in this Agreement prove to be untrue in any
material respect;
(iv) because there shall have occurred any general
suspension of trading in securities on the New York Stock
Exchange or any limitation on prices for such trading or
because any new restrictions on the distribution of
securities shall have been established by the New York Stock
Exchange or by the Commission or by any federal or state
agency, all to such a degree as, in the Underwriter's
reasonable judgment, would restrict materially a free market
for the Shares;
(v) because there shall have occurred such a
materiel change in general economic, political or financial
conditions, or because the effect of international conditions
on the financial markets in the United States become such as,
in the Underwriter's reasonable judgment, makes it
inadvisable to proceed with the sale of the Shares;
17
(vi) because the Company's financial condition or
its business prospects do not fulfill the Underwriter's
expectations based on representations made by the Company
prior to the Effective Date;
(vii) because the offering of the Shares lacks
public interest prior to the Effective Date; or
(viii) because adverse market or other conditions
make the offering of the Shares not feasible in the
Underwriter's reasonable judgment;
the Company will pay to the Underwriter the amount of all actual
accountable, out-of-pocket expenses (including reasonable fees and
disbursements of Underwriter's Counsel, including all fees incurred in
connection with the qualification of the Shares for offering and sale
by the Underwriter or by dealers under the securities or Blue Sky laws
of the states and other jurisdictions which the Underwriter may
designate in accordance with Section 3(d) hereof, subject to a maximum
of $25,000.00) incurred by the Underwriter in connection with the
contemplated purchase, offer and sale of the Shares, including, without
limitation, expenses incurred in its investigation, preparation to
market, and marketing of the Shares, and in contemplation of performing
and in performance of its obligations hereunder, up to a maximum of
$25,000.00. All reimbursements pursuant to this Section 4 shall occur
within ten (10) days after the Underwriter delivers to the Company a
written itemization of such expenses. The provisions of this Section 4
are intended to relieve the Underwriter from the payment of the
expenses and costs which the Company hereby agrees to pay and shall not
impair the obligations of the Company hereunder to the Underwriter.
5. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligation 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 4:00 p.m. Minneapolis, Minnesota time on the date of this
Agreement, or such later date or time as shall be consented to in writing by
the Underwriter (the "Effective Date"); and no stop order suspending the
effectiveness thereof shall have been issued and no proceedings for that
purpose shall have been initiated or, to the knowledge of the Company, or the
Underwriter, threatened by the Commission or any state securities commission
or similar regulatory body; and any request of the Commission for additional
information (to be included in the Registration Statement or the
18
Prospectus or otherwise) shall have been complied with to the satisfaction of
the Underwriter and Underwriter's Counsel.
(b) Neither the Registration Statement or Prospectus, or
any amendment thereof or supplement thereto, shall contain 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 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 Effective Date and prior to each
Closing Date, there shall not have occurred any change, or any development
involving a prospective change, which materially and adversely affects the
Company's condition (financial or otherwise), earnings, operations,
properties, business or business prospects from that set forth in the
Registration Statement or Prospectus, and which, in the Underwriter's
reasonable judgment, is material and adverse and that makes it impracticable
or inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus and this Agreement.
(d) All corporate proceedings and other legal matters in
connection with this Agreement, the form of Registration Statement and the
Prospectus, and the registration, authorization, issue, sale and delivery of
the Shares shall have been reasonably satisfactory to Underwriter's Counsel,
and Underwriter's Counsel shall have been furnished with such papers and
information as it may reasonably have requested to enable it to pass upon the
matters referred to in this Section.
(e) On each Closing Date, the Underwriter shall have
received the opinion of Xxxxxx and Xxxxxx, P.A., counsel for the Company,
dated as of such Closing Date, satisfactory in form and substance to the
Underwriter and Underwriter's Counsel, to the effect that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws of
the jurisdiction of its incorporation and has the corporate power and
authority to own, lease and operate its properties and to conduct its
business as currently being carried on and as described in the
Registration Statement and Prospectus.
(ii) The Company is duly qualified to do business as
a foreign corporation and is in good standing in each jurisdiction, if
any, in which the ownership or leasing of its properties or the conduct
of its business requires such qualification, except where the failure
to be so qualified or be in good standing would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations or business of
19
the Company. To the best of such counsel's knowledge, the Company does
not own or control, directly or indirectly, any corporation,
association or other entity.
(iii) The capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus
under the caption "Description of Securities." The issued and
outstanding shares of capital stock of the Company have been duly and
validly issued and are fully paid and non-assessable, and the holders
thereof are not subject to any personal liability solely by reason of
being such holders.
(iv) The Shares to be issued by the Company pursuant
to the terms of this Agreement have been duly authorized and, upon
issuance and delivery against payment therefor in accordance with the
terms hereof, will be duly and validly issued and fully paid and
non-assessable, and the holders thereof will not be subject to personal
liability solely by reason of being such holders. Except as otherwise
stated in the Registration Statement and Prospectus, there are no
preemptive rights or other rights to subscribe for or to purchase, or
any restriction upon the voting or transfer of, any shares of capital
stock pursuant to the Company's articles of incorporation, bylaws or
any agreement or other instrument known to such counsel to which the
Company is a party or by which the Company is bound. To the best of
such counsel's knowledge, except as set forth in the Prospectus,
neither the filing of the Registration Statement nor the offering or
sale of the Shares as contemplated by this Agreement gives rise to any
rights for or relating to the registration of any shares of capital
stock or other securities of the Company and no such rights exist,
other than those rights that have been waived prior to the date hereof.
To the best of such counsel's knowledge, except as described in the
Registration Statement and Prospectus, there are no options, warrants,
agreements, contracts or rights in existence to purchase or acquire
from the Company any shares of capital stock of the Company.
(v) 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, reorganization, moratorium, or other similar laws affecting
the rights of creditors generally and by judicial limitations and 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 fully paid and non-assessable 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 has been reserved for issuance by the Company upon exercise of
the Underwriter's Warrants.
(vi) The Company has the requisite corporate power
and authority to enter into this Agreement and to issue, sell and
deliver to the Underwriter the Shares to be issued and sold by it
hereunder. This Agreement has been duly authorized by all necessary
20
corporate action on the part of the Company and has been duly executed
and delivered by the Company and, assuming due authorization, execution
and delivery by the Underwriter, is a valid, legal and binding
agreement of the Company, enforceable in accordance with its terms,
except insofar as indemnification and contribution provisions may be
limited by applicable law or the public policies underlying such law
and except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or similar laws
relating to or affecting creditors' rights generally or by general
equitable principles.
(vii) The Registration Statement has become effective
under the Securities Act and, to the best of such counsel's knowledge,
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 threatened under the Securities Act.
(viii) The Registration Statement and the Prospectus,
and each amendment thereof or supplement thereto (other than the
financial statements, including the notes thereto and the supporting
schedules, and other financial, numerical, statistical and accounting
data derived therefrom, as to which such counsel need express no
opinion), comply as to form in all material respects with the
requirements of the Securities Act and the Rules and Regulations.
(ix) The form of certificates evidencing the Common
Stock and filed as an exhibit to the Registration Statement complies
with Minnesota law.
(x) The description in the Registration Statement and
the Prospectus of the Company's articles of incorporation and bylaws
and of statutes, legal and governmental proceedings, contracts and
other documents are accurate in all material respects and fairly
present the information required to be presented by the Securities Act
and the applicable Rules and Regulations; and such counsel does not
know of any statutes or legal or governmental proceedings required to
be described in the Prospectus that are not described as required, or
of any agreements, contracts, leases or documents of a character
required to be described or referred to in the Registration Statement
or Prospectus or to be filed as an exhibit to the Registration
Statement which are not described or referred to therein or filed as
required.
(xi) The execution, delivery and performance of this
Agreement and the consummation of the transactions herein contemplated
(other than performance of the Company's indemnification and
contribution obligations hereunder, concerning which no opinion need be
expressed) do not result in any violation of the Company's articles of
incorporation or bylaws or result in a breach or violation of any of
the terms and provisions of, or constitute a default under, any bond,
debenture, note or other evidence of indebtedness, or any material
lease, contract, indenture, mortgage, deed of trust, loan agreement,
joint venture or other material agreement or instrument known to such
counsel
21
to which the Company is a party or by which its properties are bound,
or any applicable statute, rule or regulation known to such counsel or,
to the best of such counsel's knowledge, any order, writ or decree of
any court, government or governmental agency or body having
jurisdiction over the Company or other any of its material properties
or operations.
(xii) No consent, approval, authorization or order
of, or filing with, or qualification with, any court, government or
governmental agency or body is necessary in connection with the
execution, delivery and performance of this Agreement or for the
execution, delivery and performance of this Agreement or for the
consummation of the transactions herein contemplated, except such as
have been obtained under the Securities Act or such as may be required
under state or other securities or Blue Sky laws in connection with the
purchase and the distribution of the Shares by the Underwriter.
(xiii) To the best of such counsel's knowledge, there
are no legal or governmental proceedings pending or threatened against
the Company of a character required to be disclosed in the Registration
Statement or the Prospectus by the Securities Act or the Rules and
Regulations, other than those described therein.
(xiv) To the best of such counsel's knowledge, the
Company is not presently (A) in violation of its articles of
incorporation or bylaws, (B) in material breach or violation of any
applicable statute, rule or regulation known to such counsel or any
order, writ or decree of any court or governmental agency or body, or
(C) in breach of or otherwise in default in the performance of any
material obligation, agreement or condition contained in any bond,
debenture, note, loan agreement or any other material contract, lease
or other instrument to which the Company is subject or by which it may
be bound, or to which any of the material assets or property of the
Company is subject.
(xv) To the best of such counsel's knowledge, and
except as described in the Registration Statement, the Company holds,
and is operating in compliance in all material respects with, all
franchises, grants, authorizations, licenses, permits, easements,
consents, certificates and orders of any government or self-regulatory
body required for the conduct of its business, and all such franchises,
grants, authorizations, licenses, permits, easements, consents,
certifications and orders are valid and in full force and effect.
(xvi) To the best of such counsel's knowledge, after
due inquiry, the Company has not received any notice of, and has no
knowledge of, any infringement of or conflict with the asserted rights
of others with respect to any trade marks, service marks, trade names,
or copyrights which, individually or in the aggregate, if the subject
of an unfavorable decision, ruling or finding, would have a material
adverse effect on the condition (financial or otherwise), earnings,
operations, business or business prospects of the Company.
22
(xvii) To the best of such counsel's knowledge, after
due inquiry, the Company owns, or possesses adequate rights to use, all
service marks, trade names, copyrights, trade marks and proprietary
rights or information which are necessary for the conduct of its
present or intended business as described in the Registration Statement
or Prospectus.
(xviii) On the basis of information obtained as a
result of discussions and meetings with officers and other employees or
representatives of the Company, discussions with representatives of the
independent public accountants for the Company, in connection with the
preparation of the Registration Statement and the Prospectus, and the
examination of other information and documents requested by such
counsel, nothing has come to such counsel's attention that has caused
them to believe that the Registration Statement and any amendment
thereof, at the time it became effective and at all times subsequent
thereto up to and on that Closing Date, contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein not
misleading, or that the Prospectus, and any amendment or supplement
thereto, at the first date of its issuance and up to and at all times
subsequent thereto up to and on that Closing Date, contained any untrue
statement of a material fact or omitted to state 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. Such counsel may further state that in making the
foregoing comments, such counsel does not intend them to include or
cover the financial statements and notes thereto and related schedules
and other financial, numerical, statistical and accounting data
contained or omitted from the Registration Statement and any amendment
or supplement thereto and the Prospectus.
Counsel rendering the foregoing opinion may rely as to
questions of law not involving the laws of the United States or the State of
Minnesota upon opinions of local counsel, and, as to questions of fact, upon
representations or certificates of officers of the Company and of government
officials, in which case their opinion is to state the extent of such
reliance. Copies of any opinion, representation or certificate so relied upon
shall be delivered to the Underwriter and to Underwriter's Counsel.
(f) The Underwriter shall have received from Robins,
Kaplan, Xxxxxx & Xxxxxx L.L.P., Underwriter's Counsel, such opinion or
opinions as the Underwriter may reasonably require, dated as of the First
Closing Date and the Second Closing Date, which are 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
Underwriter's Counsel such documents as it may have requested for the purpose
of enabling it to pass upon such matters. In connection with such opinion, as
to matters of fact relevant to conclusions of law, Underwriter's Counsel may
rely, to
23
the extent that it deems proper, upon representations or certificates of
public officials and of responsible officers of the Company.
(g) At the time of execution of this Agreement, the
Underwriter shall have received from Schechter, Dokken, Kanter, Xxxxxxx &
Xxxxxx, Ltd. a letter dated the date of such execution, in form and substance
satisfactory to the Underwriter, to the effect that they are independent
accountants with respect to the Company within the meaning of the Securities
Act and the applicable published instructions, and the Rules and Regulations
thereunder, and further stating in effect that:
(i) In their opinion, the audited financial
statements included in the Registration Statement and Prospectus
covered by their report included therein comply as to form in all
material respects with the applicable requirements of the Securities
Act, the published instructions and the Rule and Regulations.
(ii) On the basis of (A) a reading of the minutes
of the shareholders' and directors' meetings of the Company since
inception, (B) inquiries of certain officials of the Company
responsible for financial and accounting matters, (C) a reading of the
Company's monthly operating statements for the months beginning on June
26, 1997, and (D) other specified procedures and inquiries (but not an
audit in accordance with generally accepted accounting principles),
nothing came to their attention causing them to believe that:
(1) the unaudited financial statements of
the Company contained in the Prospectus and any amendment
thereof or supplement thereto do not comply as to form, in all
material respects, with the applicable accounting requirements
of the Securities Act and the published Rules and Regulations
or were not prepared in conformity with generally accepted
accounting principles and practices applied on a basis
consistent in all material respects with those followed in the
preparation of the audited financial statements of the Company
included therein; or
(2) the unaudited amounts of revenues,
income before provision for income taxes, net income and ratio
of earnings to fixed charges of the Company contained in the
Prospectus, or any amendment thereof or supplement thereto,
were not derived from financial statements prepared in
conformity with generally accepted accounting principles and
practices applied on a basis consistent in all material
respects with those followed in the preparation of the audited
financial statements of the Company included therein; or
24
(3) the unaudited pro forma financial
statements of the Company contained in the Prospectus or any
amendment thereof or supplement thereto, were not properly
compiled in accordance with generally accepted accounting
principles or did not provide for all adjustments necessary
for a fair presentation of the information purported to be
shown thereby; or
(4) with respect to the period subsequent to
September 30, 1999, there were, at a specified date, not more
than five (5) business days prior to the date of the letter,
any changes or any material increases or decreases in capital
stock, long-term or short-term debt or shareholders' equity,
decreases in net assets, net current assets, or net worth or
any material decrease, as compared with the corresponding
period of the prior year, in revenues or net income of the
Company as compared with the amounts shown in the balance
sheet included in the Registration Statement, except as
disclosed or referred to in the Prospectus and Registration
Statement.
(iii) Certain information set forth on the cover of
the Prospectus and in the Prospectus under the headings "Prospectus
Summary" (including the subheading "Summary Financial Data"), "Risk
Factors," "Use of Proceeds," "Dividend Policy," "Capitalization,"
"Dilution," "Selected Financial Data," "Management's Discussion and
Analysis of Financial Condition and Results of Operations," "Business,"
"Management," "Certain Relationships and Related Transactions,"
"Principal Shareholders," "Shares Eligible for Future Sale," and
"Description of Securities" and that are expressed in dollars (or
percentages derived from dollar amounts) or numbers have been compared
to accounting records of the Company which were subject to the internal
accounting controls of the Company and are in agreement with such
records or computations made therefrom, excluding any questions of
legal interpretation.
(h) The Underwriter shall have received from Schechter,
Dokken, Kanter, Xxxxxxx & Xxxxxx, Ltd. a letter dated as of each Closing Date
to the effect that such accountants reaffirm, as of such Closing Date, and as
though made on such Closing Date, the statements made in the letter furnished
by such accountants pursuant to Section 5(g), except that the specified date
referred to in such letter will be a date not more than five (5) business
days prior to such Closing Date.
(i) The Underwriter shall have received from the Company a
certificate, dated as of the First Closing Date and the Second 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 such Closing Date, and 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 Closing Date;
25
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any amendment thereof
or the qualification of the Shares for offering or sale have been
issued, and no proceedings for that purpose have been instituted or,
to the best of their knowledge, are contemplated by the Commission or
any state or regulatory body; and
(iii) The signers of said certificate have carefully
examined the Registration Statement and the Prospectus and any
amendments thereof or supplements thereto, and
(A) such documents contain all statements
and information required to be included therein; the
Registration Statement, or any amendment thereof, does not
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein not misleading; and
the Prospectus, as amended or supplemented, does not include
any untrue statement of material fact or omit to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading;
(B) 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;
(C) subsequent to the respective dates as of
which information is given in the Registration Statement and
the Prospectus, the Company has not incurred any material
liabilities or material obligations, direct or contingent, or
entered into any material transactions, not in the ordinary
course of business consistent with past practice, or declared
or paid any dividends or made any distribution of any kind
with respect to its capital stock, and except as disclosed in
the Prospectus, there has not been any change in the capital
stock (other than a change in the number of outstanding shares
of Common Stock due to the offering of the Shares or the
issuance of shares upon the exercise of options outstanding as
of the Effective Date or options granted pursuant to the
Option Plans described in the Registration Statement), or any
material increase in the short-term debt or long-term debt, or
in the issuance of options, warrants, convertible securities
or other rights to purchase the capital stock, of the Company,
or any material adverse change or any development involving a
prospective material adverse change (whether or not arising in
the ordinary course of business) in the general affairs,
condition (financial or otherwise), business, key personnel,
property, prospects, net worth or results of operations of the
Company, and
26
(D) except as stated in the Registration
Statement and Prospectus, there is not pending or, to their
knowledge, threatened or contemplated, any action, suit or
proceeding to which the Company is a party before or by any
court or governmental agency, authority or body, or any
arbitrator, which might result in any material adverse change
of the condition, (financial or otherwise), business,
prospects, or results of operations of the Company.
(j) On each Closing Date, there shall have been furnished
the Underwriter a certificate of Secretary of the Company, dated as of such
Closing Date, with the documents listed herein attached, and to the effect
and certifying as follows:
(i) Attached thereto are true and correct copies of
the articles of incorporation of the Company, as amended to the date of
the certificate, and stating that there have been no changes or
amendments to the attached articles of incorporation of the Company,
and no resolutions have been adopted by the Board of Directors or
shareholders of the Company relating to (A) the amendment of said
articles of incorporation, (B) the merger, consolidation or dissolution
of the Company, or (C) the sale of all or substantially all of the
assets or business of the Company, and that the Company is in good
standing in the State of Minnesota and has paid all of its corporate
franchise taxes due as of the date of such certificate.
(ii) Attached thereto is a true and correct copy of
the bylaws of the Company as in effect as of the date of such
certificate and no resolutions have been adopted by the Board of
Directors or shareholders of the Company relating to changes or
amendments to the attached Bylaws.
(iii) Attached thereto are true and correct copies of
the resolutions of the Board of Directors of the Company relating to
the preparation and signing of the Registration Statement and this
Agreement, the issuance and sale of the Shares and other related
matters, and such resolutions have not been amended, modified or
rescinded and are in full force and effect as of the date of such
certificate and are the only resolutions adopted by the Board of
Directors of the Company with respect to the offering contemplated by
the Registration Statement.
(iv) Attached thereto are true and correct copies of
all material correspondence with respect to the Registration Statement
and Prospectus and related matters between the Company, its counsel,
and/or Schechter, Dokken, Kanter, Xxxxxxx & Xxxxxx, Ltd., on the one
hand, and the Commission, on the other.
(v) This Agreement, as executed and delivered by the
Company, is in the form presented to and approved by officers
authorized to do so by the Board of Directors of the Company.
27
(vi) Attached thereto is a specimen of the
certificate for the Common Stock in the form authorized and approved
for use by the Board of Directors of the Company.
(vii) The persons who have signed the Registration
Statement and all amendments thereto were duly elected at the
respective times of such signing and duly acting as officers and
directors of the Company or as an attorney-in-fact therefor, as set
forth in the Registration Statement.
(k) The Underwriter shall have received from each of the
executive officers and directors of the Company and each beneficial owner of
ten percent (10%) or more of the Common Stock to be outstanding after the
sale of the Firm Shares (calculated in accordance with Rule 13d-3 under the
Exchange Act) the One-Year Lock-up Agreement in the form of APPENDIX A-1
hereto whereby each such person agrees that during the One-Year Lock-up
Period such person will not, without the Underwriter's prior written consent,
effect the Disposition of any Securities except as permitted by the One-Year
Lock-up Agreement, and the Underwriter shall have received from certain other
shareholders of the Company the Six-Month Lock-up Agreement in the form of
APPENDIX A-2 hereto whereby each such person agrees that during the Six-Month
Lock-up Period such person will not, without the Underwriter's prior written
consent, effect the Disposition of any Securities other than as permitted by
the Six-Month Lock-up Agreement.
(l) The Common Stock of the Company shall be included and
quoted on The Nasdaq SmallCap Market.
(m) Robins, Kaplan, Xxxxxx & Xxxxxx L.L.P. shall deliver to
the Underwriter a Blue Sky Memorandum reasonably satisfactory to the
Underwriter confirming that all requisite actions for the offer and sale of
the Shares in all jurisdictions requested by the Underwriter have been taken.
(n) The Company shall have furnished to the Underwriter and
to Underwriter's Counsel such additional certificates, documents and evidence
as the Underwriter shall reasonably request.
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 Underwriter's 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.
The Underwriter may waive in writing the performance of any
one or more of the conditions specified in this Section 5 or extend the time
for their performance.
28
If any of the conditions specified in this Section 5 shall
not have been fulfilled when and as required by this Agreement to be
fulfilled and if the fulfillment of said condition has not been waived by the
Underwriter, 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 4(a) hereof. Notice of such cancellation shall be
given to the Company at the address specified in Section 11 hereof in
writing, or by telegraph or telephone confirmed in writing.
6. UNDERWRITER'S WARRANT. In consideration of the agreement of the
Underwriter to act as Underwriter, and upon payment of a purchase price of
$100.00, on the First Closing Date the Company will issue and deliver to the
Underwriter, for its account, the Underwriter's Warrant to purchase Shares in
an amount up to ten percent (10%) of the number of Firm Shares purchased by
the Underwriter in the offering. The Underwriter's Warrant shall be issued on
the First Closing Date and shall be dated as of the Effective Date. The
Underwriter's Warrant shall be exercisable commencing one year after the
Effective Date and for a period of five years after the Effective Date at a
price equal to 120% of the public offering price set forth on the cover page
of the Prospectus. As to other terms, the Underwriter's Warrant shall be in
form and substance substantially the same as APPENDIX B hereto. The Company
represents and warrants that the Underwriter's Warrant has been duly
authorized and, when granted and delivered in accordance with the terms
hereof, will be a valid, binding and enforceable obligation of the Company,
except insofar as indemnification and contribution provisions may be limited
by applicable law or the public policies underlying such law and except as
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance or similar laws relating to or affecting
creditors' rights generally or by general equitable principles; the Warrant
Shares issuable upon exercise of the Underwriter's Warrant have been duly
authorized and reserved for issuance upon exercise; and upon receipt by the
Company of the consideration for such securities in accordance with the terms
of the Underwriter's Warrant, the Warrant Shares shall have been duly and
validly issued, fully paid and non-assessable.
7. 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 Securities 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
Securities Act, the Exchange Act, the common law or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of, or are based upon, (i) any breach of any representation,
warranty, agreement or covenant of the Company contained in this Agreement,
(ii) any untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any amendment thereof or
supplement thereto, or the omission or alleged omission to state in the
Registration Statement or any amendment thereof or supplement
29
thereto a material fact 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 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 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 reasonable legal or other expenses reasonably incurred
by the Underwriter or controlling person in connection with investigating or
defending against any such loss, claim, damage, liability or action;
provided, however, that the Company will not be liable to indemnified parties
for the legal or other expenses of more than one law firm representing
indemnified parties and 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 or omission or
alleged omission made in reliance upon and in conformity with written
information relating to the Underwriter furnished to the Company by 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; and provided further that 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 (or to the benefit of any person who controls the Underwriter) if
the person asserting any loss, claim, damage or liability purchased the
Shares from 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. 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 its directors, each of its officers who has signed the
Registration Statement, and each person who controls the Company within the
meaning of Section 15 of the Securities 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 Securities Act, the Exchange
Act, the common law or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of, or are based upon,
(i) any untrue statement or alleged untrue statement of a
30
material fact contained in the Registration Statement or any amendment
thereof or supplement thereto, or the omission or alleged omission to state
in the Registration Statement or any amendment thereof or supplement thereto,
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
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 to the extent, that such untrue statement or alleged untrue
statement or 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 7 of notice of the commencement of any action, such indemnified
party shall, if a claim in respect thereof is to be made against any
indemnifying party under this Section 7, notify in writing the indemnifying
party of the commencement thereof. The omission so to notify the indemnifying
party will relieve it from any liability under this Section 7 as to the
particular item for which indemnification is then being sought, but not from
any other liability which it may have to any indemnified party. 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 the indemnifying party's
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section 7 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 the defendants in any such action include both the
indemnified party and the indemnifying party, and
31
the indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party, the
indemnified party or parties shall have the right to select separate counsel
to assume such legal defenses and to otherwise participate in the defense of
such action on behalf of such indemnified party or parties, in which event
the fees and expenses of only one such separate counsel shall be borne by the
indemnifying party. 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 consent of such indemnifying party.
8. CONTRIBUTION.
(a) In order to provide for just and equitable contribution
in any action in which the Underwriter or the Company (or any person who
controls the Underwriter or the Company within the meaning of Section 15 of
the Securities Act) makes claim for indemnification pursuant to Section 7
hereof, but such indemnification is unavailable or insufficient to hold
harmless and indemnify a party under Section 7, then each indemnifying party
shall contribute to the amount paid or payable by such indemnified party as a
result of the losses, claims, damages or liabilities referred to in Section 7
above (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company on the one hand and the Underwriter on the
other from the offering of the Shares hereunder or (ii) if the allocation
provided by the foregoing clause (i) is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in such clause (i) but also the relative fault of the Company on
the one hand and the Underwriter on the other in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations. The
relative benefits received by the Company on the one hand and the Underwriter
on the other shall be deemed to be in the same proportion as the total net
proceeds from the offering of the Shares (before the deducting expenses)
received by the Company bear to the total underwriting discounts 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 untrue statement or omission. The Company and the Underwriter
agree that it would not be just and equitable if contributions pursuant to
this Section 8 were to be determined by pro rata allocation or by any other
method of allocation which does not take into account the equitable
considerations referred to in the first sentence of this Section 8. The
amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the first sentence of this Section 8
shall be deemed to include any legal or other expenses of one law firm
reasonably incurred by such indemnified party in connection with
investigating or defending against any action or claim which is the subject
of this Section 8. Notwithstanding the provisions of this Section 8, 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
32
any damages that the Underwriter has otherwise been required to pay by reason
of such untrue or alleged untrue statement or omission or alleged omission.
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation.
(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 8. Any notice given pursuant
to Section 7 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.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION.
(a) This Agreement shall become effective immediately after
the time at which the Registration Statement shall become effective under the
Securities Act upon the Effective Date of the Registration Statement.
(b) Until the First Closing Date, this Agreement may be
terminated by the Underwriter, at its option, by giving notice to the
Company, and the option referred to in Section 2(b), if exercised, may be
cancelled at any time prior to the Second Closing Date, if (i) the Company
shall have failed, refused, or been unable, at or prior to such Closing Date,
to perform any agreement on its part to be performed hereunder, (ii) any
other condition of the Underwriter's obligations hereunder is not fulfilled
or waived by the Underwriter, (iii) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange or in the
over-the-counter market shall have been suspended, (iv) minimum or maximum
prices for trading shall have been fixed, or maximum ranges for prices for
securities shall be required, on the New York Stock Exchange, the American
Stock Exchange, or in the over-the-counter market, by such Exchange or by
Nasdaq or by order of the Commission or any other governmental authority
having jurisdiction, (v) a banking moratorium shall have been declared by
federal, New York, or Minnesota authorities, (vi) there shall have been such
a serious, unusual and material 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 as, in the
reasonable judgment of the Underwriter, makes it inadvisable to proceed with
the delivery of the Shares, (vii) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of
any court or other governmental authority which, in the reasonable judgment
of the Underwriter, materially and adversely affects or will materially and
adversely affect the business or operations of the Company, or (viii) there
shall be a material outbreak of hostilities or material escalation and
deterioration in the political and military situation between
33
the United States and any foreign power, or a formal declaration of war by
the United States of America shall have occurred. Any such termination shall
be without liability of any party to any other party, except as provided in
Sections 7 and 8 hereof; provided, however, that the Company shall remain
obligated to pay costs and expenses to the extent provided in Sections 4(a)
and 4(c) 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 and the Company's counsel promptly by
telegram or telephone, confirmed by letter sent to the address specified in
Section 11 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 addresses specified in Section 11
hereof.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION AGREEMENTS, WARRANTIES AND
REPRESENTATIONS. The respective indemnity and contribution agreements of the
Company and the Underwriter contained in Sections 7 and 8, the
representations and warranties of the Company set forth in Section 1 hereof,
and the covenants and agreements 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 7 and 8, 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.
11. NOTICES. All notices or communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be
mailed, delivered or telegraphed, and confirmed, as follows:
If to the Underwriter, to: Equity Securities Investments, Inc.
0000 Xxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
with a copy to: Robins, Kaplan, Xxxxxx & Xxxxxx L.L.P.
0000 XxXxxxx Xxxxx
000 XxXxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxx X. Xxxxxx, Esq.
34
If to the Company, to: Founders Food & Xxxxxxx Ltd.
0000 Xxxxx Xxxx Xxxx
Xx. Xxxxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxxx
with a copy to: Xxxxxx and Xxxxxx, P.A.
2400 IDS Center
00 Xxxxx Xxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx, Esq.
12. 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(a)(ii) and Sections 7(a) and 7(b) hereof.
13. SUCCESSORS AND ASSIGNS. This Agreement shall inure to the
benefit of and be binding upon the Underwriter and the Company and their
respective successors and assigns, and the officers, directors and
controlling persons referred to in Sections 7 and 8. 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 7 and 8 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.
14. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of Minnesota.
35
If the foregoing is in accordance with your understanding
of our agreement, please sign and return to us 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,
FOUNDERS FOOD & XXXXXXX LTD.
By
----------------------------------------
Signature
Xxxxxx X. Xxxxxxxxx
------------------------------------------
Name Typed or Printed
Its President and Chief Executive Officer
--------------------------------------
Title Typed or Printed
ACCEPTANCE
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us as of the
date first above written.
EQUITY SECURITIES INVESTMENTS, INC.
By
---------------------------------
Signature
-----------------------------------
Name Type or Printed
Its
--------------------------------
Title Typed or Printed
36
APPENDIX A-1
ONE-YEAR LOCK-UP AGREEMENT
Equity Securities Investments, Inc.
0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xx. Xxxxx Xxxx, XX 00000
RE: FOUNDERS FOOD & XXXXXXX LTD.
Ladies and Gentlemen:
I am the owner of shares of common stock of Founders Food & Xxxxxxx Ltd.
(the "Company"). I understand that the Company proposes to make a public
offering of shares of its common stock and in connection with that public
offering intends to file or has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (the "Registration
Statement"). I also understand that the Company and Equity Securities
Investments, Inc. expect to enter into an underwriting agreement for the
public offering of the common stock, and that you will be named as the
underwriter in the underwriting agreement.
In order to induce you to proceed with the public offering, I agree that
I will not transfer any securities of the Company during the period beginning
on the date of this Lock-Up Agreement and ending twelve (12) months after the
effective date of the Registration Statement unless you consent in writing to
such transfer or such transfer is a transfer described in the following
paragraph. I understand that (a) "transfer" includes any sale, pledge,
hypothecation, or other disposition of the Company's securities, and (b)
"securities" includes common stock and stock options, warrants or securities
convertible into common stock. I also understand that this restriction
applies to all securities that I have the power to transfer (even if I am not
the beneficial owner of those securities), as well as securities that I may
acquire or have the power to transfer in the future.
I understand that I may transfer securities as a gift if the recipient
agrees in writing to comply with the restrictions in this Lock-Up Agreement.
I may also transfer securities by will or the laws of descent and
distribution, and if I do so, I understand that the securities will be subject
to the restrictions in this Lock-Up Agreement.
I agree that you or the Company may instruct the Company's transfer
agent not to effect any transfer of the securities unless I comply with the
terms of this Lock-Up Agreement.
I also agree that if I sell any securities of the Company in the public
market within two years after the effective date of the Registration
Statement, I will do so through you.
Very truly yours,
Dated:
-------------------- --------------------------------
Signature
--------------------------------
Named Typed or Printed
APPENDIX A-2
SIX-MONTH LOCK-UP AGREEMENT
Equity Securities Investments, Inc.
0000 Xxxxxxx Xxxxxxxxx, Xxxxx 000
Xx. Xxxxx Xxxx, XX 00000
RE: FOUNDERS FOOD & XXXXXXX LTD.
Ladies and Gentlemen:
I am the owner of shares of common stock of Founders Food & Xxxxxxx Ltd.
(the "Company"). I understand that the Company proposes to make a public
offering of shares of its common stock and in connection with that public
offering intends to file or has filed with the Securities and Exchange
Commission a Registration Statement on Form SB-2 (the "Registration
Statement"). I also understand that the Company and Equity Securities
Investments, Inc. expect to enter into an underwriting agreement for the
public offering of the common stock, and that you will be named as the
underwriter in the underwriting agreement.
In order to induce you to proceed with the public offering, I agree that
I will not transfer any securities of the Company during the period beginning
on the date of this Lock-Up Agreement and ending six (6) months after the
effective date of the Registration Statement unless you consent in writing to
such transfer or such transfer is a transfer described in the following
paragraph. I understand that (a) "transfer" includes any sale, pledge,
hypothecation, or other disposition of the Company's securities, and (b)
"securities" includes common stock and stock options, warrants or securities
convertible into common stock. I also understand that this restriction
applies to all securities that I have the power to transfer (even if I am not
the beneficial owner of those securities), as well as securities that I may
acquire or have the power to transfer in the future.
I understand that I may transfer securities as a gift if the recipient
agrees in writing to comply with the restrictions in this Lock-Up Agreement.
I may also transfer securities by will or the laws of descent and
distribution, and if I do so, I understand that the securities will be subject
to the restrictions in this Lock-Up Agreement.
I agree that you or the Company may instruct the Company's transfer
agent not to effect any transfer of the securities unless I comply with the
terms of this Lock-Up Agreement.
Very truly yours,
Dated:
-------------------- --------------------------------
Signature
--------------------------------
Named Typed or Printed
