Exhibit 1.1
____________________________
DISTRIBUTION AND MANAGEMENT AGREEMENT
DATED AS OF FEBRUARY 1, 2005
ZANETT, INC.
AND
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LTD.
____________________________
$50,000,000
RENEWABLE UNSECURED SUBORDINATED NOTES
TABLE OF CONTENTS
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ARTICLE I DEFINITIONS.........................................................1
Section 1.01 Defined Terms.................................................1
Section 1.02 Accounting Terms..............................................4
ARTICLE II APPOINTMENT OF THE AGENT AND RELATED AGREEMENTS.....................4
Section 2.01 Appointment; Exclusivity......................................4
Section 2.02 Scope of Agency...............................................5
Section 2.03 Compensation to the Agent.....................................5
Section 2.04 Brokers and Dealers...........................................7
Section 2.05 The Agent's Unrelated Activities..............................7
Section 2.06 Best Efforts; Independent Contractor..........................8
Section 2.07 Issuance and Payment..........................................8
ARTICLE III SERVICES; STANDARD OF CARE.........................................8
Section 3.01 Services for the Notes........................................8
Section 3.02 Maintenance of Files and Records.............................11
Section 3.03 Monthly Reports to the Company...............................12
ARTICLE IV REPRESENTATIONS AND COVENANTS OF THE COMPANY.......................12
Section 4.01 Representations, Warranties and Agreements of the Company....12
Section 4.02 Covenants of the Company.....................................19
ARTICLE V REPRESENTATIONS AND COVENANTS OF THE AGENT; CONDITIONS..............21
Section 5.01 Representations and Warranties of the Agent..................21
Section 5.02 Covenants of the Agent.......................................23
ARTICLE VI CONDITIONS.........................................................24
Section 6.01 Conditions of the Agent's Obligations........................24
Section 6.02 Conditions of the Company's Obligations......................30
ARTICLE VII INDEMNIFICATION AND CONTRIBUTION..................................31
Section 7.01 The Company's Indemnification of the Agent...................31
Section 7.02 The Agent's Indemnification of the Company...................31
Section 7.03 Notice of Indemnification Claim..............................32
Section 7.04 Contribution.................................................33
Section 7.05 Notice of Contribution Claim.................................34
Section 7.06 Reimbursement................................................34
Section 7.07 Arbitration..................................................34
Section 7.08 Intellectual Property Infringement...........................34
Section 7.09 Confidentiality..............................................34
ARTICLE VIII TERM AND TERMINATION.............................................35
Section 8.01 Effective Date of this Agreement.............................35
Section 8.02 Termination Prior to Initial Closing Date....................35
Section 8.03 Notice of Termination........................................36
Section 8.04 Termination After Initial Closing Date.......................36
Section 8.05 Termination Without Termination of Offering..................37
ARTICLE IX MISCELLANEOUS......................................................37
Section 9.01 Survival.....................................................37
Section 9.02 Notices......................................................37
Section 9.03 Successors and Assigns; Transfer.............................38
Section 9.04 Cumulative Remedies..........................................38
Section 9.05 Attorneys' Fees..............................................38
Section 9.06 Entire Agreement.............................................38
Section 9.07 Choice of Law; Venue.........................................38
Section 9.08 Rights to Investor Lists.....................................38
Section 9.09 Waiver; Subsequent Modification..............................39
Section 9.10 Severability.................................................39
Section 9.11 Joint Preparation............................................39
Section 9.12 Captions.....................................................39
Section 9.13 Counterparts.................................................39
Section 9.14 Third Party Contractors......................................39
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DISTRIBUTION AND MANAGEMENT AGREEMENT
THIS DISTRIBUTION AND MANAGEMENT AGREEMENT is entered into as of this
1st day of February, 2005 by and between Zanett, Inc., a Delaware corporation,
and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Ltd., a Minnesota corporation.
RECITALS
WHEREAS, the Company proposes to register and publicly offer and sell
an aggregate principal amount of up to $50,000,000 of renewable, unsecured,
subordinated notes of the Company; and
WHEREAS, subject to the termination rights set forth herein, the
Company desires to appoint the Agent to act as the Company's exclusive selling
agent in connection with the offer, sale and renewal of such notes on a best
effort basis and as the Company's servicing agent to provide certain
administrative services with respect to the notes, and Agent desires to accept
such duties, all as provided for by the terms of this Agreement.
NOW, THEREFORE, in consideration of the above and for other good and
valuable consideration, receipt of which is acknowledged, and in consideration
of the mutual promises, covenants, representations and warranties hereinafter
set forth, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 DEFINED TERMS. Whenever used in this Agreement, the
following terms have the respective meanings set forth below. The definitions of
such terms are applicable to the singular as well as to the plural forms of such
terms.
(a) Accepted Note Practices. As applicable to the context in
which this term is used, those procedures and practices with respect to
the offering, marketing, selling, servicing and administration of the
Notes that satisfy the following: (i) meet at least the same
demonstrable standards that Agent would follow in exercising reasonable
care in offering, marketing, selling, servicing and administering
similar programs for publicly offered notes or securities; (ii) comply
with all Governmental Rules; (iii) comply with the provisions of this
Agreement and the Indenture; and (iv) give due consideration to the
accepted standards of practice of prudent investment banking firms that
offer, market, sell, service or administer comparable programs for
publicly offered notes or securities and the reliance of the Company on
the Agent for the offering, marketing, selling, servicing and
administration of the Renewable Note Program.
(b) Agent. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Ltd., a Minnesota corporation, or
its successors in interest or assigns, if approved by the Company as
provided in Sections 5.02(c) and 9.03, below.
(c) Agreement. This Distribution and Management Agreement,
including any exhibits or attachments hereto, as originally executed,
and as amended or supplemented from time to time in accordance with the
terms hereof.
(d) Business Day. Any day other than (a) a Saturday or Sunday
or (b) another day on which banking institutions in the State of New
York or the State of Minnesota are authorized or obligated by law,
executive order, or governmental decree to be closed.
(e) Commission or SEC. The Securities and Exchange Commission.
(f) Company. Zanett, Inc., or its successors or assigns, if
approved by Agent as provided in Section 9.03, below.
(g) Due Period. The monthly, quarterly, semi-annual, or annual
periods, or the full term of the Note if interest is due at maturity,
for which scheduled payments of interest will be paid on any Note.
(h) Exchange Act. The Securities Exchange Act of 1934, as
amended, and as hereafter amended, and the rules and regulations
thereunder.
(i) Governmental Rules. Any law, rule, regulation, ordinance,
order, code, interpretation, judgment, decree, policy, decision or
guideline of any governmental agency, court or authority.
(j) Holder. The registered owner of any Note as it appears on
the records of the Registrar, including any purchaser or any subsequent
transferee or other holder thereof.
(k) Incorporated Documents. All documents that, on or at any
time after the effective date of the Registration Statement, are
incorporated by reference therein, in the Prospectus, or in any
amendment or supplement thereto.
(l) Indenture. That certain Indenture dated on or about
February 1, 2005 by and between the Company and the Trustee with
respect to the Notes.
(m) Initial Closing Date. February 7, 2005, or such later date
as may be agreed by the Company and Agent.
(n) Investor. Any person who purchases Notes or who contacts
the Agent expressing an interest in purchasing the Notes or requesting
information concerning the Notes.
(o) Material Agreement. With respect to a person, any
agreement, contract, joint venture, lease, commitment, guaranty or
other contractual arrangement or any bond, debenture, indenture,
mortgage, deed of trust, loan or security agreement, note, instrument
or other evidence of indebtedness, which in the case of any of the
foregoing is material to the business, assets, operations, condition or
prospects, financial or otherwise, of such person or which is material
to the ability of such person to perform its obligations under this
Agreement.
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(p) NASD. The National Association of Securities Dealers, Inc.
(q) Note Confirmation. With respect to the issuance and
ownership of the Notes in book-entry form, an appropriate written
confirmation of the issuance and ownership or transfer of ownership of
a Note to a Holder, the format of which shall comply with the
provisions of the Indenture.
(r) Note Portfolio. The aggregate of individual Notes, as it
exists from time to time, which, unless the context otherwise requires
or provides, determined by the principal balances of the Notes.
(s) Notes. The renewable, unsecured, subordinated notes of the
Company that are being offered and sold pursuant to the Registration
Statement and that have an aggregate principal amount up to $50,000,000
and such other terms as described in the Prospectus, and any additional
principal amount of the same or similar notes as may be registered from
time to time pursuant to the Registration Statement.
(t) Offering. The offer and sale of the Notes in accordance
with the terms and subject to the conditions set forth in the
Registration Statement.
(u) Proposal. That certain proposal made by the Agent to, and
accepted by, the Company dated August 31, 2004 with respect to the
Renewable Note Program, as amended.
(v) Proprietary Rights. All rights worldwide in and to
copyrights, rights to register copyrights, trade secrets, inventions,
patents, patent rights, trademarks, trademark rights, confidential and
proprietary information protected under contract or otherwise under
law, and other similar rights or interests in intellectual or
industrial property.
(w) Prospectus. The prospectus included in the Registration
Statement at the time it was declared effective by the Commission, as
supplemented by all prospectus supplements (including interest rate
supplements) that are filed with the Commission pursuant to Rules
424(b) or (c) under the Securities Act. References to the Prospectus
shall be deemed to refer to and include the Incorporated Documents to
the extent incorporated by reference therein.
(x) Redemption Payment. The payment of principal plus any
accrued and unpaid interest that is being made at the discretion of the
Company in accordance with the Indenture.
(y) Registration Statement. That certain Registration
Statement on Form S-2 (File No. 333-120524) of the Company with respect
to the Notes filed with the Securities and Exchange Commission under
the Securities Act on or about November 15, 2004, as amended and
declared effective by the Commission, including the respective copies
thereof filed with the Commission. References to the Registration
Statement shall be deemed to refer to and include the Incorporated
Documents to the extent incorporated by reference therein.
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(z) Renewable Note Program. The marketing, subscription and
sale, administration, customer service and investor relations,
registration of ownership, reporting, payment, repurchase, redemption,
renewal and related activities associated with the Notes.
(aa) Repurchase Payment. The payment of principal plus any
accrued and unpaid interest, less any penalties upon the repurchase of
any Note, that is being made at the request of the Holder in accordance
with the Indenture.
(bb) Scheduled Payment. For any Due Period and any Note, the
amount of interest and/or principal indicated in such Note as required
to be paid by the Company under such Note for the Due Period and giving
effect to any rescheduling or reduction of payments in any insolvency
or similar proceeding and any portion thereof.
(cc) Securities Act. The Securities Act of 1933, as amended,
and as hereafter amended, and the rules and regulations thereunder.
(dd) Subscription Agreement. A subscription agreement entered
into by a Person under which such Person has committed to purchase
certain Notes as identified thereby, in such form and substance as
mutually agreed by the parties and as filed as an exhibit to the
Registration Statement.
(ee) Trust Indenture Act. The Trust Indenture Act of 1939, as
amended, and as hereafter amended, and the rules and regulations
thereunder.
(ff) Trustee. U.S. Bank National Association or its successors
or assigns, or any replacement Trustee under the terms of the
Indenture.
(gg) Trustee's Fees. All fees and expenses payable to the
Trustee in accordance with the Indenture.
SECTION 1.02 ACCOUNTING TERMS. Unless otherwise specified in this
Agreement, all accounting terms used in this Agreement shall be interpreted, all
accounting determinations under this Agreement shall be made, and all financial
statements required to be delivered by any person pursuant to this Agreement
shall be prepared, in accordance with U.S. generally accepted accounting
principles, as in effect from time to time and as applied on a consistent basis.
To the extent such principles do not apply to certain reports or accounting
practices of the Agent, the parties will mutually agree on the accounting
practices and assumptions.
ARTICLE II
APPOINTMENT OF THE AGENT AND RELATED AGREEMENTS
SECTION 2.01 APPOINTMENT; EXCLUSIVITY. On the basis of the
representations, warranties and agreements herein contained, and subject to the
terms and conditions set forth herein and in the Prospectus during the term of
this Agreement, the Company appoints the Agent as its exclusive agent for
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purposes of selling, including the offer and sale of the Notes, and servicing,
including the servicing and administration of the Notes, in each case, under the
Renewable Note Program upon the terms and conditions set forth herein,
including, without limitation, compliance and conformity with Accepted Note
Practices and Governmental Rules, and the Agent agrees to use its best efforts
as such agent to offer and sell the Notes to Investors until the later of the
termination of the Offering or the sale of all of the Notes, or until the
termination of this Agreement, if earlier. In connection with the administration
of the Renewable Note Program, the Agent will carry out the duties provided for
herein and as described in the Prospectus as being carried out by the Agent.
During the term of this Agreement, the Company agrees to direct to the Agent all
inquiries it receives with respect to sales of the Notes or administration of
the Renewable Notes Program, as applicable.
SECTION 2.02 SCOPE OF AGENCY. In the performance of its duties
hereunder, the Agent shall have full power and authority to take any and all
actions for purposes of selling, including the offer and sale of Notes, and
servicing, including the servicing and administration of the Notes, in each
case, under the Renewable Note Program that the Agent, in its discretion, deems
necessary or appropriate, subject in all respects to compliance and conformity
with Accepted Note Practices and Governmental Rules. Such discretion shall
include, without limitation, the right to accept or reject Subscription
Agreements, waive or reduce early repurchase penalties when appropriate, change
interest payment dates, enforce early repurchase penalties and allow prepayment
of Notes, with or without penalty, subject, in each case to such limitations or
conditions as may be provided in the Indenture. Notwithstanding the foregoing,
the Agent's authority to take any action on the Company's behalf, other than the
rejection of Subscription Agreements, which has an immediately discernable,
direct, financial impact of $500 or more shall be subject to receiving the prior
written consent of the Company. In the performance of its duties hereunder, the
Agent shall (i) act as the agent of the Company in connection with the Renewable
Note Program; (ii) hold, in trust and as custodian, all Subscription Agreements,
notices or other documents received by it in connection with the Renewable Note
Program for the sole and exclusive use and benefit of the Company; and (iii)
make dispositions of the items in clause (ii) only in accordance with this
Agreement or at the written direction of the Company. Except as set forth herein
with respect to the Renewable Note Program, the Agent shall have no authority,
express or implied, to act in any manner or by any means for or on behalf of the
Company.
SECTION 2.03 COMPENSATION TO THE AGENT.
(a) The Agent's Fees and Commissions. In consideration of the
agreement of the Agent to provide its services as set forth in this
Agreement, the Company will pay the Agent the following amounts:
(i) a commission as set forth in Exhibit B to the
Proposal (which exhibit is hereby incorporated by
reference), which shall be payable in consideration for
the Agent's selling and marketing of Notes; and
(ii) an annual portfolio management fee equal to
0.25% of the weighted average daily principal balance of
the Note Portfolio, to be invoiced monthly as provided
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below, which shall be payable in consideration for the
administrative services provided by the Agent; provided,
however, that in no event will the Company pay or cause to
be paid aggregate portfolio management fees totaling more
than 2.25% of the aggregate principal amount of the Notes
pursuant to the provisions of this Section 2.03(a)(ii).
(b) The Agent's Expenses. Whether or not this Agreement is
terminated or cancelled or the sale of the Notes 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 to the applicable persons the following,
whether incurred prior or subsequent to the date of this Agreement:
(i) subject to the prior written approval by the
Company and in addition to such other costs specifically
provided for below, all reasonable out-of-pocket costs of
the Agent or its affiliates incurred in connection with
the Offering, including, but not limited to, designing,
printing and mailing all offering and advertising
materials, document fulfillment services, advertisements
in newspapers, on the radio, on the internet and through
direct mail, operating a toll-free telephone number, and
assisting the Company with creating a web site, including
any costs of a web developer or other third party
consultants;
(ii) all reasonable fees and expenses of persons
(other than the Agent and its affiliates), including,
without limitation, fees and expenses of the Company's
auditors and legal counsel, in connection with the
preparation, printing, filing, and delivery of the
Registration Statement (including the financial statements
therein and all amendments, schedules, and exhibits
thereto), the Prospectus, and any amendment thereof or
supplement thereto;
(iii) to the extent applicable, all reasonable
fees and expenses incurred in connection with the
qualification of the Notes for offer and sale under the
securities or Blue Sky laws of the states and other
jurisdictions which the Agent may designate (with the
prior approval of the Company) in accordance with the
terms herewith;
(iv) all reasonable out-of-pocket costs incurred
by the Agent or any other contractor in connection with
the preparation, printing, filing, and delivery of
maturity and renewal notices, quarterly statements,
newsletters and any other materials to be sent to Holders
in connection with the Notes or the Offering;
(v) all reasonable fees and expenses of the
Agent's legal counsel related to the Offering and the
ongoing servicing and administration of the Renewable Note
Program as provided herein;
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(vi) all fees and expenses of the Trustee in
connection with the Notes, and
(vii) all reasonable out-of-pocket costs
incidental to the performance of the Agent's obligations
hereunder with respect to the ongoing servicing and
administration of the Renewable Note Program that are not
otherwise specifically described herein.
The provisions of this Section are intended to relieve the Agent from
the payment of reasonable fees, expenses and out-of-pocket costs that
the Company hereby agrees to pay and shall not impair or limit any of
the other obligations of the Company hereunder to the Agent; provided,
however, that except as provided above regarding reimbursement of
expenses in the event of termination of this Agreement (and in Section
2.03(d) below), in no event will the Company pay or cause to be paid
amounts totaling more than .25% of the aggregate principal amount of
the Notes pursuant to the provisions of this Section 2.03(b).
(c) Payment of Fees and Commissions. On the last Business Day
of each month, or as soon thereafter as practicable, the Agent shall
provide the Company with a written invoice for such month's fees and
commissions that are payable with respect to Notes issued up to the
last five Business Days of such month, and Notes issued in the last
five Business Days of the immediately preceding month that are, in each
case, not rescinded. Such commissions and fees will be due and payable
by the later of the fifteenth (15th) day of every month or fifteen (15)
days after the date such invoice is received.
(d) Prior Payments. The parties hereby acknowledge prior
payment of $40,000 to the Agent as a deposit against its due diligence
costs, which amount was paid upon execution of the Proposal. At the
time of the Initial Closing, the Agent will provide a written
accounting of this deposit to the Company. Any remaining funds from
this deposit will be applied against the Agent's expenses as directed
by the Company. To the extent that this Agreement is terminated, the
Agent will promptly refund the excess of any unused portion of such
funds over amounts otherwise owed hereunder.
SECTION 2.04 BROKERS AND DEALERS. The Agent may, in its sole discretion
and at no additional obligation or expense to the Company, use the services of
other brokers or dealers who are members in good standing of the NASD in
connection with the offer and sale of the Notes. The Agent may enter into
agreements with any such broker or dealer to act as its sub-agents for the sale
of the Notes and shall be solely responsible for the payment of any portion of
the Agent's compensation hereunder to such broker or dealer.
SECTION 2.05 THE AGENT'S UNRELATED ACTIVITIES. The Agent may sell other
notes or securities in offerings similar to the Offering for other issuers
during the course of the Offering, provided that the Agent shall obtain the
prior written consent of the Company prior to representing any entity that
provides IT solutions consulting services as a substantial part of its business
and operations, which consent shall not be unreasonably withheld if the Agent
reasonably demonstrates to the Company that the Offering shall not be negatively
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impacted as a result of such representation. The Agent (and the Agency as
defined in Section 3.01(b) below) may advertise other notes or securities of
other issuers on websites, in print, by radio, or by any other means and at such
times as they may determine. The Agent shall have the right to advertise or
otherwise disclose to unrelated prospective issuers, at its own expense, its
relationship with the Company, the services it provides in connection with the
Notes and the amount of money that it raised through the Offering and the
performance of the Offering.
SECTION 2.06 BEST EFFORTS; INDEPENDENT CONTRACTOR. Anything to the
contrary notwithstanding, the Agent shall have no obligation to sell any minimum
principal amount of Notes or to purchase Notes for its own account, for resale
or for any other purpose, but rather the Agent shall use its best efforts as
selling agent in connection with the Offering of the Notes. During the term of
this Agreement, all actions taken by the Agent pursuant to this Agreement shall
be in the capacity of an independent contractor, all sales of Notes conducted by
the Agent shall be solely for the account and at the risk of the Company, and in
no event shall the Agent have any obligations under the Notes.
SECTION 2.07 ISSUANCE AND PAYMENT. The Notes shall be issued pursuant
to the Indenture and all Scheduled Payments, Redemption Payments and Repurchase
Payments shall be made by electronic funds transfer or automated clearing house
(i.e., ACH) remittance from an account to be established by the Company for such
purposes.
ARTICLE III
SERVICES; STANDARD OF CARE
SECTION 3.01 SERVICES FOR THE NOTES. The services to be provided to the
Company by the Agent pursuant to and during the term of this Agreement shall
include the following:
(a) Note Structure and Interest Rates. During the term of this
Agreement, the Agent shall advise the Company regarding the structure
of the Notes and provide sample document forms. Throughout the
Offering, the Agent shall assist the Company in determining appropriate
Note terms and interest rates based on current market conditions and
the Company's capital goals.
(b) Marketing and Advertising. During the term of this
Agreement, the Agent shall develop and execute a direct response
marketing strategy for the Notes designed to meet the Company's capital
goals in a timely manner, which shall be subject to the prior approval
of the Company. The Agent shall also oversee designing and printing all
marketing materials, in accordance with the Securities Act, including
the applicable rules and regulations and any other requirements of the
SEC and NASD and any other Governmental Rules.
(i) For purposes of Sections 2.05 and 3.01 only,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Agency, Inc., an affiliate of the Agent
(the "Agency"), is hereby made a party to this Agreement.
During the term of the Agent's activities to market and
sell the Notes hereunder, the Agency will provide the
Company with media planning, media buying, media
production, media placement and other marketing services
related to the Offering as described on Exhibit A hereto,
and the terms of which shall be binding upon the Company
and the Agency.
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(ii) Notwithstanding the foregoing, the authority
of the Agent and the Agency with respect to all ad
placements and use of all marketing materials shall be
subject to receiving the prior written approval of the
Company.
(iii) In order to minimize advertising costs, the
Agent and/or the Agency may recommend that the Company
enter into term contracts not to exceed one year with
various newspapers and radio stations, and in such event,
in addition to the direct cost of the advertisements
themselves, the Company shall be responsible for any
termination fees that result from the early cancellation
of such contracts if approved by the Company.
(iv) During the term of this Agreement, the
Company shall allow the Agent and the Agency to use the
Company's logo, corporate colors, trademarks, trade names,
fonts, and other aspects of corporate identity in
advertisements and marketing materials related to the
Notes and on the Agent's website, subject to the Company's
prior written approval of the specific use of these items
in writing in each instance (which shall not be
unreasonably withheld). Neither the Agent nor the Agency
will make use of the Company's logo, corporate colors,
trademarks or trade names in any manner that would
reasonably be expected to disparage or damage such marks
or the reputation of the Company or diminish the Company's
goodwill. Neither the Agent nor the Agency is acquiring
any right, title or interest in the Company's logo,
corporate colors, trademarks or trade names, and the
rights of Agent and Agency to use the same shall terminate
upon termination of this Agreement.
(c) Subscription, Sale and Ownership. During the term of this
Agreement, the Agent shall review and process each Subscription
Agreement for the Notes received from an Investor with the objective of
determining whether (i) such agreement is complete and accurate in all
material respects, including without limitation the execution thereof
by such Investor, (ii) such Investor timely remits the proper purchase
price for the Notes in accordance with the Subscription Agreement, and
(iii) the principal amount, interest rate and term to maturity and any
other material terms of the Notes are verified for accuracy and
completeness. Upon delivery by each Investor of a completed
Subscription Agreement for Notes and full payment of the principal
amount of such Notes in accordance with the Investor's Subscription
Agreement, and subject to the prior written consent of the Company if
required pursuant to Section 2.02 (which, for the avoidance of doubt,
may be given in the form of general directives to sell up to a
particular aggregate amount of Notes), the Agent shall promptly (i)
accept or reject such Subscription Agreements on the Company's behalf
based upon such factors as the Agent shall determine, including,
without limitation, the suitability of the proposed Investor, (ii)
verify that the payment of the principal amount of such Investor's
accepted subscription for the Notes is being remitted to the Company in
accordance with the Subscription Agreement in an account established by
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the Company for such purpose or in such other manner as may be directed
by the Company from time to time, and (iii) remit to the Trustee
electronic or hard copies of all accepted Subscription Agreements and
related records as may be reasonably requested by the Trustee,
including without limitation, a record of each deposit relating to the
payment of the subscription amount of the Notes. Pursuant to the
preceding sentence, Notes shall be issued by the Agent on the Company's
behalf in book-entry form only and the Agent shall deliver a Note
Confirmation to each Holder with respect to such Holder's respective
accepted Subscription Agreement and the receipt of full payment for
such Holder's Notes. The Company hereby appoints the Agent, and the
Agent hereby accepts such appointment, as its initial Registrar (as
such term is defined in the Indenture) for the Notes pursuant to the
terms of the Indenture. For so long as the Agent shall serve as the
Registrar for the Notes, the Agent shall perform, in accordance with
the terms of the Indenture, all of the duties and obligations of the
Registrar under the Indenture, including, without limitation, the
obligation to maintain a book-entry registration and transfer system
for the ownership of the Notes in accordance with the terms of the
Indenture.
(d) Investor Relations and Reporting. During the term of this
Agreement, the Agent, in conjunction with the Trustee, shall manage all
aspects of the customer service and investor relations functions with
respect to the Offering, including, but not limited to, handling all
inquiries from Investors, mailing investment kits, delivering to each
Investor the Prospectus and Subscription Agreement, meeting with
Investors, processing Subscription Agreements, responding to all
written or telephonic questions by Investors and Holders relating to
the Notes, recording changes in Holders' addresses or accounts, issuing
maturity and renewal notices, quarterly statements and newsletters to
Holders, directing the payment of Scheduled Payments, Repurchase
Payments and Redemption Payments to Holders in a timely manner, and
issuing Form 1099INT's to Holders as required by law. In addition, the
Agent shall provide the Trustee (and copy the Company) with management
reports regarding the Notes as required under the Indenture.
(e) Web Site Development. Subject to compliance and conformity
with Accepted Note Practices by the Agent, the Agent (or a third party
service provider working at the Agent's direction) shall assist the
Company in developing a dedicated Internet web site separate from the
Company's corporate site to allow Investors to view online and download
copies of the Offering documents (including the Prospectus and
Subscription Agreement) and marketing materials that are included in
the investment kit or comparable information.
(f) Ownership of Web Pages. Any and all web pages developed or
maintained by the Agent in connection with the marketing and selling of
the Notes (the "Web Pages"), and all associated Proprietary Rights,
shall be owned exclusively by the Agent; provided, however, it is
expressly acknowledged and agreed that the Company shall retain, and
the Agent shall not hereby acquire, any Proprietary Rights in the
Company's logos, corporate colors, trademarks, trade names, and
slogans, any descriptions of the Company's business. The Agent hereby
grants the Company a nonexclusive, perpetual, worldwide license to use
the Web Pages for the purpose of marketing and selling the Notes.
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SECTION 3.02 MAINTENANCE OF FILES AND RECORDS. The Agent shall
establish and maintain at all times during the term of this Agreement files and
records (including, without limitation, computerized records) regarding the
Notes and the Note Portfolio, with full and correct entries of all transactions
or modifications in a reasonably secure, up-to-date manner and in accordance
with the following:
(a) Location. All Note and Note Portfolio files and records
shall be stored and maintained at the Agent's principal place of
business, or other location as reasonably designated by the Agent. The
Agent shall keep in its files all correspondence received or sent
regarding each Note, each Investor, and each Holder, whether upon any
purchase or transfer of a Note.
(b) Original Documents. The Agent will store all original
Subscription Agreements, Note Confirmations, correspondence from
Investors and Holders and other materials relating to the Renewable
Note Program in a reasonably secure manner at the Agent's principal
offices or such other location as may be agreed upon with the Company.
The Agent shall exercise due care in handling and delivering the
original documents and the other documents in the Note files and
records. The Agent shall not grant or allow any person an interest in
original documents or rights thereunder, and all original documents in
the possession of the Agent shall be deemed to be in the possession of
the Company.
(c) Examination. At any time during the Agent's normal
business hours, the Company and its agents and representatives may
physically inspect any documents, files or other records relating to
the Renewable Note Program and discuss the same with the Agent's
officers and employees. The Agent shall supply copies of any such
documents, files, or other records upon the request of the Company, as
soon as is reasonably and commercially practicable, at the Company's
cost and expense.
(d) Retention. Unless otherwise requested by the Company, or
unless otherwise required by Governmental Rules, the Agent shall
retain, with respect to each Note, for a period of 36 months from the
date the Note is fully paid, all records, files and documents related
to each such Note. At the end of such 36-month period, all such items
shall be transferred to the Company, or to a third party as designated
by the Company, at the Company's sole cost and expense. The Agent shall
be permitted to retain copies of any such documents for its own files
for its own account and at its own expense. The Agent shall maintain
the privacy of the Investors and Holders in accordance with all
applicable Governmental Rules.
(e) Return. If this Agreement is terminated, the Agent shall
promptly deliver to the Company or its designee, as the case may be,
all Note files and records (including, without limitation, copies of
computerized records and servicing and other software, except as may be
prohibited by any third party contract or license) related to the
selling and servicing of the Notes and all monies collected by it
relating to the Renewable Note Program (less any fees or expenses due
to the Agent). The Agent shall be entitled to make and keep copies of
such records, at its cost and expense. In addition to delivering such
data and monies, the Agent shall use its best efforts to effect the
orderly and efficient transfer of the selling and servicing of the
11
Notes to the Company or other party designated by the Company to assume
responsibility for such selling and servicing, including, without
limitation, directing Holders to remit all repurchase or other notices
to the address designated by the Company. All costs of conversion and
transfer of such records to the Company or another agent shall be paid
by the Company.
(f) Security. The parties shall take appropriate security
measures to protect customer nonpublic personal information ("NPI"), as
defined in the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act of 1999, Title V, and its
implementing regulations, against accidental or unlawful destruction
and unauthorized access, tampering, and copying during storage in
either party's computing or paper environment. Access to NPI must be
restricted to only the personnel that have a business need relating to
the Renewable Note Program. NPI must be stored in a secured format
within all systems at both parties' location and any other locations
where the data may reside. Transmission of such NPI between the parties
or vendors must be done in a secure manner, in a method mutually agreed
upon by both parties. Each party will engage appropriate and
industry-standard measures necessary to meet information security
guidelines as required by the ▇▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Act, Title V and its
implementing regulations as applicable to such party to effectuate this
Agreement.
SECTION 3.03 INFORMATION TO THE COMPANY. At least once a week until the
first $2,000,000 of Notes are sold, and then as agreed by the parties, the Agent
shall make reports and analyses available to the Company regarding the status of
the Note Portfolio, the marketing efforts and the amount of Notes remaining
available for issuance under the Registration Statement. The Agent shall also
provide interim or custom reports at the Company's request as is commercially
reasonable, including, without limitation, a weekly update via email identifying
new Holders by name, address and principal amount of Notes purchased.
ARTICLE IV
REPRESENTATIONS AND COVENANTS OF THE COMPANY
SECTION 4.01 REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY.
The Company represents and warrants to the Agent as follows, which
representations and warranties shall be deemed to be made continuously from and
as of the date hereof until this Offering is terminated and all then outstanding
Notes have been paid in full or such earlier date that this Agreement has been
terminated, except for those representations and warranties that address matters
only as of a particular date, which representations and warranties shall be
deemed to be made as of such date.
(a) The Company satisfies all of the requirements for the use
of Form S-2 with respect to the offer and sale of securities as
contemplated by the Offering. The Commission has not issued any order
preventing or suspending the use of the Registration Statement or
Prospectus and no proceeding for that purpose has been instituted or,
to the Company's knowledge, threatened by the Commission or the
securities authority of any state or other jurisdiction.
(b) The Registration Statement, in the form in which it became
effective and also in such form as it may be when any post-effective
amendment thereto shall become effective, and the Prospectus, and any
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supplement or amendment thereto when filed with the Commission under
Rule 424 under the Securities Act, complied or will comply with the
provisions of the Securities Act and the Trust Indenture Act, and did
not or will not at any such times contain an untrue statement of
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of
the circumstances in which they were made, not misleading, except that
this representation and warranty does not apply to: (i) any statements
in, or omissions from the Agent Disclosure Statements (as defined in
Section 5.01(f) below) in the Registration Statement or the Prospectus,
or any amendment thereof or supplement thereto; or (ii) statements in
or omissions from the Registration Statement (or any amendment thereto)
related to or resulting from the specific terms of the Offering, which
terms are included in the Prospectus.
(c) The Incorporated Documents previously filed, at the time
they were filed, complied in all material respects with the
requirements of the Exchange Act, and all subsequently filed
Incorporated Documents will, at the time they are filed, comply in all
material respects with the requirements of the Exchange Act. No such
previously filed Incorporated Document, when filed, contained an 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; and no such further Incorporated
Document, when filed, will contain an 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 not misleading,
except that this representation and warranty does not apply to the
extent that any misstatement or omission in any Incorporated Document
is superseded by a subsequent Incorporated Document, but in such case
only with respect to the period from and after the filing of the
subsequent Incorporated Document.
(d) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with full power and authority to own, lease and operate
its properties and conduct its business as described in the
Registration Statement, the Prospectus and the Incorporated Documents.
The Company is duly qualified to do business 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 business of the Company and, to the best of the Company's
knowledge, 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.
(e) Each subsidiary of the Company has been duly incorporated
or organized and is validly existing in good standing under the laws of
the jurisdiction of its incorporation or organization, with full power
and authority to own, lease and operate its properties and conduct its
business as described in the Registration Statement, the Prospectus and
the Incorporated Documents. Each such subsidiary is duly qualified to
do business 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
13
(financial or otherwise), earnings, operations or business of the
Company and, to the best of the Company's knowledge, 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.
(f) The Company and each subsidiary 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, the Prospectus and the
Incorporated Documents, all of which are, to the best of the Company's
knowledge, valid and in full force and effect. The Company and each
subsidiary 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 and each subsidiary 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 any such subsidiary or their
respective over its properties.
(g) The Company and each subsidiary is not in violation of its
certificate or articles of incorporation or bylaws (or similar
governing documents) or in default in the performance or observance of
any obligation, agreement, covenant or condition contained in any
Material Agreement to which it is a party or by which it or its
properties are bound, except for any such violation or default which
would not have a material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the Company.
(h) The Company has full requisite power and authority to
enter into this Agreement and perform the transactions contemplated
hereby. This Agreement has 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
subject to bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws of general applicability relating to or
affecting creditors' rights and to general principles of equity. The
performance of this Agreement and the consummation of the transactions
herein contemplated will not result in a breach or violation of any of
the terms and provisions of, or constitute a default under:
(i) any Material Agreement to which the Company
or any subsidiary is a party or by which the Company or
any subsidiary or their respective properties may be
bound;
(ii) the articles of incorporation or bylaws of
the Company, or
(iii) 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 any
subsidiary or their respective properties;
14
except for any such breach or violation which would not have a material
adverse effect on the condition (financial or otherwise), earnings,
operations or business of the Company.
(i) 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 Exchange
Act, the Trust Indenture Act, or under state or other securities or
blue sky laws, all of which requirements have been satisfied.
(j) As of the date hereof, and except as is otherwise
expressly described in or incorporated by reference into 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 subsidiary or any of
their respective officers or properties, assets or rights before any
court, government or governmental agency or body, domestic or foreign,
having jurisdiction there over which, if successful, would be likely to
(A) 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 its properties, assets or rights, or
(B) prevent consummation of the transactions contemplated hereby.
(k) The authorized, issued and outstanding capital stock of
the Company is as set forth in the Prospectus and the shares of issued
and outstanding Common Stock set forth thereunder have been duly
authorized, validly issued, are 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 or
incorporated by reference in the Registration Statement and the
Prospectus. The Notes to be sold hereunder by the Company have been
duly authorized for issuance and sale pursuant to the Indenture and
this Agreement and, when issued and delivered against payment therefor
in accordance with the terms of the Indenture and this Agreement, will
be duly and validly issued and fully paid and non-assessable and will
constitute valid and legally binding obligations of the Company
enforceable in accordance with their terms, subject to bankruptcy,
insolvency, fraudulent transfer, reorganization, moratorium and similar
laws of general applicability relating to or affecting creditors'
rights and to general principles of equity 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
stockholders exists with respect to any of the Notes to be sold
hereunder by the Company or the issuance and sale thereof.
(l) Deloitte & Touche LLP, which has expressed its opinion
with respect to certain of the financial statements filed or
incorporated by reference as part of the Registration Statement, is an
independent accounting firm within the meaning of the Securities Act.
15
The financial statements of the Company set forth or incorporated by
reference 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; and
the supporting schedules included or incorporated by reference in the
Registration Statement present fairly the information required to be
stated therein.
(m) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, except as is
otherwise disclosed in the Registration Statement or Prospectus or as
is otherwise incorporated into the Registration Statement pursuant to
the Securities Act, there has not been (i) any material adverse change
in the condition, financial or otherwise, earnings, affairs or business
of the Company or any subsidiary, or (ii) any material transactions
entered into by the Company, or any of its subsidiaries, other than
those in the ordinary course of business, including, without
limitation:
(i) any material 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;
(ii) any material issuance of options (other than
to directors and employees of the Company), warrants,
convertible securities or other rights to purchase the
capital stock of the Company;
(iii) 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, stockholders' equity,
results of operations or general condition of the Company;
(iv) any transaction entered into by the Company
that is material to the Company, except transactions
entered into by the Company in the ordinary course of
business that are consistent with past practices;
(v) any material obligation, direct or
contingent, incurred by the Company, except obligations
incurred in the ordinary course of business; or
(vi) any loss or damage (whether or not insured)
sustained to the property of the Company, which has a
material adverse effect on the condition (financial or
otherwise), earnings, operations or business of the
Company.
(n) Except as is otherwise expressly disclosed in the
Registration Statement or Prospectus or as is otherwise incorporated
into the Registration Statement pursuant to the Securities Act:
16
(i) the Company and its subsidiaries have 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 them, 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;
(ii) the Material Agreements to which the Company
or any subsidiary is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable
by the Company or such subsidiary 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
(iii) except as set forth in the Registration
Statement and Prospectus, the Company and each of its
subsidiaries owns or leases all such properties as are
necessary to their operations as now conducted.
(o) 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. The Company has paid all taxes shown on such tax
returns as due and payable, and 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; provided, however, that the
Company has not paid, and a deficiency may have been asserted for,
taxes which are being contested by the Company in good faith and by
proper proceedings and for which appropriate and reasonable reserves
have been provided.
(p) The Company and its subsidiaries own, or possess adequate
rights to use, all patents, patent rights, inventions, trade secrets,
know-how, technology, service marks, trade names, copyrights,
trademarks and other intellectual property rights or information which
are necessary for the conduct of their present or intended business as
described in the Registration Statement or Prospectus or incorporated
by reference therein. 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 patents, inventions, trade
secrets, know-how, technology, service marks, trade names, copyrights,
trademarks and other intellectual property rights that, singly or in
the aggregate, if the subject of an unfavorable decision, ruling or
finding, might have a material adverse effect on the condition
(financial or otherwise), earnings, operations, business or business
prospects of the Company.
(q) 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, employees, or other agents) which has constituted
or is designed to, or which might reasonably be expected to, cause or
17
result in stabilization or manipulation, as defined in the Exchange Act
or otherwise, to facilitate the sale or resale of the Notes. The
Company has not distributed and will not distribute prior to the
completion of the distribution of the Notes, any offering material in
connection with the offering and sale of the Notes other than the
Prospectus, the Registration Statement and other materials, if any,
permitted by the Securities Act.
(r) The Company and its subsidiaries maintain insurance, which
is in full force and effect, with insurers of recognized financial
responsibility of the types and in the amounts generally deemed
adequate for its business and the Company has no reason to believe that
it or its subsidiaries will not be able to renew such existing
insurance coverage as and when such coverage expires or 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.
(s) The Company has not at any time during the last five years
made any unlawful contribution to 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 and
transactions are recorded as necessary to permit preparation of
financial statements in conformity with generally accepted accounting
principles. 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.
(t) Except as set forth in the Registration Statement and
Prospectus or as is otherwise incorporated into the Registration
Statement pursuant to the Securities Act:
(i) 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;
(ii) 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;
(iii) to the best of the Company's knowledge, the
Company will not be required to make any future material
capital expenditures to comply with Environmental Laws:
and
18
(iv) no property that 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. ss. 9601,
et seq.), or otherwise designated as a contaminated site
under applicable state or local law.
(u) During the term of this Agreement, and except as set forth
herein and in the Registration Statement, the Company has not taken any
action to create a right in any person or entity other than the Agent
to any compensation or other payments from either the Company or the
Agent, as a finder, underwriter or agent in connection with the
Offering or any other proposed transaction between the Company and the
Agent. The Company shall promptly notify the Agent of any such
relationships, including consulting or prior agency agreements
entitling other parties to compensation for the Offering and shall
provide the Agent with a copy of such agreements.
(v) Any certificate signed by any officer of the Company and
delivered to the Agent or to the Agent's counsel shall be deemed a
representation and warranty by the Company to the Agent as to the
matters covered thereby that have a material relationship to the
Offering, the Registration Statement or the Renewable Note Program.
SECTION 4.02 COVENANTS OF THE COMPANY. The Company hereby covenants
with the Agent 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 Agent 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. The Company will prepare and file with the
Commission, promptly upon the Agent's reasonable request, any
amendments or supplements to the Registration Statement or Prospectus
that, in the Agent's opinion may be reasonably necessary or advisable
in connection with the Offering of the Notes by the Agent.
(b) The Company will advise the Agent, 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
Notes for offering or sale in any jurisdiction, or of the initiation or
receipt of any specific threat of any proceeding for any such purpose.
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
Notes 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, so far as necessary to permit the continuance of
19
sales of or dealings in the Notes as contemplated by the provisions
hereof and the Prospectus. If, during the longer of such period or the
term of this Agreement, any event or change occurs that is material to
the Offering or that causes any of the representations and warranties
of the Company contained herein to be untrue in any material respect,
or 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, then the Company will promptly notify the
Agent, and, if necessary, 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. Without
limiting the foregoing, if this Agreement is terminated for any reason,
the Company shall promptly amend the Prospectus and any related
Offering materials to delete references to the Agent.
(d) The Company will use its best efforts to take such action
as requested by the Agent in order to arrange for the qualification of
the Notes for offering and sale under the securities laws of such
jurisdictions as the Agent may reasonably designate (with the prior
approval of the Company) and to continue such qualifications in effect
for so long as may be required for purposes of the Offering. In each
jurisdiction in which the Notes shall have been qualified as herein
provided, the Company will make and file such statements and reports in
each year as are or may be reasonably required by the laws of such
jurisdiction.
(e) The Company will furnish to the Agent copies of the
Registration Statement, the Prospectus, and all amendments and
supplements to such documents, in each case as soon as available and in
such quantities as the Agent may from time to time reasonably request.
(f) For such period as this Agreement may be in effect, the
Company shall make available to the Agent, as soon as the same shall be
sent to its stockholders generally, copies of all annual or interim
stockholder reports of the Company and will, for the same period, also
furnish the Agent one copy of any report, application or document
(other than exhibits, which, however, will be furnished on the Agent's
request) filed by the Company with the Commission, The Nasdaq Stock
Market or any other securities exchange.
(g) At all times during the term of this Agreement, the
Company shall provide all information reasonably requested by the Agent
that relates to the Renewable Note Program in a timely manner and shall
use its best efforts to insure that such information is complete and
accurate.
(h) The Company will, during the term of this Agreement,
furnish directly to the Agent quarterly profit and loss statements and
reports of the Company's cash flow as reported on the applicable
quarterly report on Form 10-QSB.
20
(i) The Company will apply the net proceeds from the sale of
the Notes substantially in the manner set forth under the caption "Use
of Proceeds" in the Prospectus.
(j) 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 stabilization or manipulation as defined
in the Exchange Act of the price of any security of the Company to
facilitate the sale or resale of the Notes.
(k) The Company hereby authorizes the Agent to conduct due
diligence investigations (limited to one per calendar year following
the date hereof) to verify the Company's ability to offer and perform
its obligations under the Notes during the term of this Agreement and
shall provide the Agent with access to its relevant books and records
for the purpose of performing quarterly cash flow analysis.
ARTICLE V
REPRESENTATIONS AND COVENANTS OF THE AGENT; CONDITIONS
SECTION 5.01 REPRESENTATIONS AND WARRANTIES OF THE AGENT. The Agent
hereby represents and warrants to the Company as follows, which representations
and warranties shall be deemed to be made continuously from and as of the date
hereof until this Offering is terminated or such earlier date that this
Agreement has been terminated:
(a) The Agent (i) has been duly organized, is validly existing
and in good standing as a Minnesota corporation, (ii) has qualified to
do business as a foreign corporation and is in good standing in each
jurisdiction where the character of its properties or the nature of its
activities (including without limitation activities of the Agent
hereunder) makes such qualification necessary, and (iii) has full
power, authority and legal right to own its property, to carry on its
business as presently conducted, and to enter into and perform its
obligations under this Agreement. The Agent is a member in good
standing of the NASD.
(b) The Agent has full requisite power and authority to enter
into this Agreement and perform the transactions contemplated hereby.
This Agreement has been duly authorized, executed and delivered by the
Agent and is a valid and binding agreement on the part of the Agent,
enforceable against the Agent in accordance with its terms subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general principles of equity. The performance
of this Agreement and the consummation of the transactions herein
contemplated will not result in a breach or violation of any of the
terms and provisions of, or constitute a default under:
(i) any Material Agreement to which the Agent is
a party or by which the Company or its properties may be
bound;
(ii) the articles of incorporation or bylaws of
the Agent, or
21
(iii) 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 Agent or over its
properties.
(c) The Agent has obtained all governmental consents,
licenses, approvals and authorizations, registrations and declarations
which are necessary for the execution, delivery, performance, validity
and enforceability of the Agent's obligations under this Agreement. The
Agent is a registered broker-dealer in good standing under the
appropriate laws and regulations of each of the states in which offers
or solicitations of offers to subscribe for the Notes will be made by
the Agent.
(d) There are no actions, suits or proceedings pending or, to
the knowledge of the Agent, threatened against or affecting the Agent,
before or by any court, administrative agency, arbitrator or
governmental body with respect to any of the transactions contemplated
by this Agreement, or which will, if determined adversely to the Agent,
materially and adversely affect it or its business, assets, operations
or condition, financial or otherwise, or adversely affect the Agent's
ability to perform its obligations under this Agreement. The Agent is
not in default with respect to any order of any court, administrative
agency, arbitrator or governmental body so as to materially and
adversely affect the transactions contemplated by this Agreement.
(e) The Agent has obtained all necessary consents, approvals,
waivers and notifications of creditors, lessors and other
nongovernmental persons in connection with the execution and delivery
of this Agreement, and the consummation of all the transactions herein
contemplated.
(f) The Agent Disclosure Statements in 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. "Agent Disclosure Statements" shall
mean any statements or disclosures included within or the subject of
the Registration Statement or the Prospectus, which, when the
Prospectus Supplement is or was filed with the Commission and at all
times subsequent thereto, are either (i) included within the disclosure
under the heading "Plan of Distribution" in the Prospectus, or (ii)
based upon and conform to written information relating to the Agent
furnished in writing to the Company by the Agent specifically for use
in the preparation of the Prospectus, or any supplement to the
Prospectus; provided, however, the Agent makes no representation with
respect to any Agent Disclosure Statement made without the consent of
the Agent, or with respect to which the Agent has provided the Company
a written objection.
(g) The Agent 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 conduct its
business as contemplated by and described in this Agreement, all of
which are, to the Agent's knowledge, valid and in full force and
22
effect. The Agent is conducting its business in substantial compliance
with all applicable Governmental Rules, laws, rules and regulations of
the jurisdictions in which it is conducting business, and the Agent is
not in material violation of any applicable Governmental Rules, 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 Agent or over its properties.
(h) The Agent has not distributed and will not distribute
prior to the completion of the Offering, any offering material in
connection with the Offering, other than the Prospectus, the
Registration Statement, the Incorporated Documents, and other
materials, if any, permitted by and in compliance with the Securities
Act.
(i) The Agent maintains insurance, which is in full force and
effect, with insurers of recognized financial responsibility of the
types and in the amounts generally deemed adequate for its business
and, to the best of the Agent's knowledge, in line with the insurance
maintained by similar companies and businesses; and the Agent shall add
the Company as a beneficiary or additional insured against any covered
loss and shall provide the Company with a copy of the respective
insurance policies; and the Agent has no reason to believe that it will
not be able to renew its existing insurance coverage as and when such
coverage expires or 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 financial condition or business
operations of the Agent.
SECTION 5.02 COVENANTS OF THE AGENT. The Agent hereby covenants to the
Company as follows, which covenants shall be deemed in force unless and until
this Agreement is terminated as provided herein:
(a) The Agent shall punctually perform and observe all of its
obligations and agreements contained in this Agreement.
(b) Except as provided in this Agreement, the Agent shall not
take any action, or permit any action to be taken by others, which
would excuse any person from any of its covenants or obligations under
any Note, or under any other instrument related to a Note, or which
would result in the amendment, hypothecation, subordination,
termination or discharge of, or impair the validity or effectiveness
of, any Note or any such instrument or any right in favor of the
Company in a Note or such instrument, without the written consent of
the Company.
(c) The Agent shall not assign this Agreement or any of its
rights, powers, duties or obligations hereunder without the express
prior written consent of the Company, which shall not be unreasonably
withheld.
(d) Within the shorter of the time during which a prospectus
relating to the Notes is required to be delivered under the Securities
Act or the term of this Agreement, the Agent will comply with all
requirements imposed upon it by the Securities Act, so far as necessary
to permit the continuance of sales of or dealings in the Notes as
23
contemplated by the provisions hereof and the Prospectus. If, during
the shorter of such period or the term of this Agreement, to the
Agent's best knowledge, any event or change occurs that could
reasonably be considered material to the Offering or that causes any of
the representations and warranties of the Agent contained herein to be
untrue in any material respect, or 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, to the Agent's best knowledge, it is necessary to amend the
Registration Statement or supplement the Prospectus to comply with the
Securities Act, then the Agent will promptly notify the Company, and,
if necessary, use reasonable efforts to assist the Company in amending
the Registration Statement or supplementing the Prospectus (at the
expense of the Company) so as to correct such statement or omission or
effect such compliance.
(e) The Agent will use reasonable efforts (i) to determine and
designate the states or jurisdictions, if any, where the qualification
or registration of the Notes is necessary or advisable in connection
with the Offering and (ii) to assist the Company in arranging for the
qualification or registration of the Notes for offering and sale under
the securities laws of such states or jurisdictions and to continue
such qualifications or registrations in effect for so long as may be
required for purposes of the distribution of the Notes. In each state
or jurisdiction in which the Notes shall have been qualified or
registered as herein provided, the Agent will assist with making and
filing the Company statements and reports in each year as are or may be
reasonably required by the laws of such states or jurisdiction.
(f) At all times during the term of this Agreement, the Agent
shall provide all information relating to the Offering, the Renewable
Note Program or the Note Portfolio reasonably requested by the Company
in a timely manner and shall use its best efforts to insure that such
information is complete and accurate in all material respects.
(g) The Agent shall take such additional action as is
reasonably requested by the Company in order to carry out the purposes
of this Agreement.
ARTICLE VI
CONDITIONS
SECTION 6.01 CONDITIONS OF THE AGENT'S OBLIGATIONS. The obligation of
the Agent to sell the Notes on a best efforts basis as provided herein shall be
subject to the accuracy of the representations and warranties of the Company, to
the performance by the Company of its obligations hereunder, and to the
satisfaction of the following additional conditions:
(a) The Registration Statement shall be effective, 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 Agent, threatened by the Commission or
any state securities commission or similar regulatory body. Any request
of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been
complied with to the satisfaction of the Agent and the Agent's counsel.
24
(b) The Agent shall not have advised the Company of its
reasonable belief that the Registration Statement or Prospectus, or any
amendment thereof or supplement thereto, contains any untrue statement
of a fact which is material or omits to state a fact which is material
and is required to be stated therein or is necessary to make the
statements contained therein, in light of the circumstances under which
they were made, not misleading, or, if the Agent has so advised the
Company, the Company shall not have taken reasonable action to
investigate such belief and, where appropriate, amend the Registration
Statement or supplement the Prospectus so as to correct such statement
or omission or effect such compliance.
(c) There shall not have occurred any change that materially
and adversely affects the Company's condition (financial or otherwise),
earnings, operations, properties or business from that set forth in the
Registration Statement or Prospectus, and which is material and adverse
or that makes it impracticable or inadvisable to proceed with the
Offering of the Notes as contemplated by the Prospectus and this
Agreement.
(d) The Indenture shall have been duly authorized, executed
and delivered by the Company and duly qualified under the Trust
Indenture Act and shall constitute a valid and binding obligation of
the Company enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium
and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles.
(e) 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 Notes shall have been reasonably satisfactory to the
Agent's counsel, in all material respects, and the Agent'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.
(f) The Agent shall have received the opinion of Drinker
▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel for the Company, dated as of the Initial
Closing Date, satisfactory in form and substance to the Agent and the
Agent's counsel, which includes the opinions as set forth in Exhibit B
attached hereto. Such counsel, in rendering the foregoing opinion, may
rely as to questions of fact upon representations or certificates of
officers of the Company and of government officials, in which case its
opinion is to state such reliance. Copies of any opinion,
representation or certificate so relied upon shall be delivered to the
Agent and to the Agent's counsel.
(g) On the Initial Closing Date, the Agent shall have received
from Deloitte & Touche LLP a letter, dated as of the Initial Closing
Date, in form and substance satisfactory to the Agent, to the effect
that they are independent accountants with respect to the Company
within the meaning of the Securities Act and the applicable rules and
regulations thereunder, and further stating that:
25
(i) In their opinion, the consolidated balance
sheets of the Company as of December 31, 2003 and 2002,
and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for each of the
years in the two-year period then ended, all audited by
them and incorporated by reference in the Registration
Statement, comply as to form in all material respects with
the applicable accounting requirements of the Act and the
related rules and regulations adopted by the SEC.
(ii) For purposes of the letter they have:
(A) read the minutes of the
stockholders' and directors' meetings of the
Company;
(B) inquired of certain officials of the
Company responsible for financial and accounting
matters;
(C) performed the procedures specified
by the American Institute of Certified Public
Accountants for a review of interim financial
information as described in Statement of Auditing
Standards No. 71, Interim Financial Information,
on any unaudited financial statements included or
incorporated by reference in the Registration
Statement; and
(D) reviewed the unaudited consolidated
balance sheet of the Company as of March 31, June
30 and September 30, 2004 and the unaudited
consolidated statements of income for the three,
six and nine-month periods ended March 31, 2004
and 2003, June 30, 2004 and 2003, and September
30, 2004 and 2003, respectively, each of which
has been incorporated by reference in the
Registration Statement.
(iii) Nothing came to their attention as a result
of the procedures described above that caused them to
believe that:
(A) any material modifications should be
made to the unaudited consolidated financial
statements included or incorporated by reference
in the Registration Statement, for them to be in
conformity with accounting principles generally
accepted in the United States of America;
(B) the unaudited consolidated financial
statements included or incorporated by reference
in the Registration Statement do not comply as to
form in all material respects with the applicable
accounting requirements of the Securities Act and
the Securities Exchange Act of 1934, as amended,
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;
26
(C) the unaudited amounts of revenues,
income before provision for income taxes, net
income and ratio of earnings to fixed charges of
the Company included or incorporated by reference
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;
(D) at a specified date not more than
five Business Days prior to the date of the
letter, there was any change in: (i) the capital
stock, (ii) short term indebtedness or long-term
debt of the Company and its consolidated
subsidiaries, or (iii) stockholders' equity, as
compared with amounts shown on the latest balance
sheet incorporated by reference in the
Registration Statement; or
(E) for the period from the closing date
of the latest income statement filed on a Form
10-QSB incorporated by reference in the
Registration Statement to the closing date of the
latest available income statement read by such
accountants, there were any changes, as compared
with the corresponding period of the previous
year, in consolidated revenues, net income or in
the ratio of earnings to fixed charges;
except in all cases set forth in clauses (C) and (D)
above, for changes which the Registration Statement
discloses have occurred or may occur or which are
described in such letter.
(iv) They have compared specified dollar amounts
(or percentages derived from such dollar amounts) and
other financial information contained in the Registration
Statement (in each case to the extent that such dollar
amounts, percentage and other financial information are
derived from the general accounting records of the Company
and its subsidiaries subject to the internal controls of
the Company's accounting system or are derived directly
from such records by analysis or computation) with the
results obtained from inquires, a reading of such general
accounting records and other procedures specified in such
letter and have found such dollar amounts, percentages and
other financial information to be in agreement with such
results, except as otherwise specified in such letter.
27
(h) The Agent shall have received from the Company a
certificate, dated as of the Initial Closing Date, of the principal
financial officer of the Company, to the effect that:
(i) The representations and warranties of the
Company in this Agreement are true and correct in all
material respects as if made on and as of the date of the
certificate, and the Company has complied with all the
agreements and satisfied all the conditions on its part to
be performed or satisfied under this Agreement.
(ii) No stop order or other order suspending the
effectiveness of the Registration Statement or any
amendment thereof or the qualification of the Notes for
offering or sale have been issued, and no proceedings for
that purpose have been instituted or, to the best of his
knowledge, are contemplated by the Commission or any state
or regulatory body.
(iii) The signer of said certificate has
carefully examined the Registration Statement and the
Prospectus and any amendments thereof or supplements
thereto.
(iv) 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.
(v) There has not 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 except as set
forth on contemplated in the Prospectus (or in the
Incorporated Documents as of the date of such
certificate).
(vi) 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 Agreements, not
in the ordinary course of business consistent with past
practice, and except as disclosed in the financial
statements incorporated by reference in the Registration
Statement, there has not been any material change in the
capital stock, or any material increase in the short-term
debt or long-term debt (other than consistent with past
practices), or in the issuance of options (other than to
28
directors and employees of the Company), 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.
(vii) 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.
(i) The Agent shall have received a certificate of Secretary
of the Company, dated as of such Initial 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 certificate 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
certificate of incorporation of the Company, and no
resolutions have been adopted by the Board of Directors or
stockholders of the Company relating to (A) the amendment
of said certificate 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 Delaware 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 stockholders 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 Notes 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.
29
(iv) 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.
(j) Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP shall deliver to the Agent a
Blue Sky Memorandum reasonably satisfactory to the Agent confirming
that all requisite actions for the offer and sale of the Notes in all
jurisdictions requested by the Agent have been taken.
(k) The Company shall have furnished to the Agent and to the
Agent's counsel such additional certificates, documents and evidence as
the Agent 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 Agent and the Agent'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 Agent may waive in writing the performance of any one or more of
the conditions specified in this Section or extend the time for their
performance.
If any of the conditions specified in this Section 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 Agent, this Agreement
and all obligations of the Agent hereunder may be canceled at, or at any time
prior to, the Initial Closing Date by the Agent. Any such reasonable
cancellation shall be without liability of the Agent to the Company and shall
not relieve the Company of its obligations under Article VII hereof. Notice of
such cancellation shall be given to the Company as specified in Section 8.03.
SECTION 6.02 CONDITIONS OF THE COMPANY'S OBLIGATIONS. The obligations
of the Company as provided herein shall be subject to the accuracy of the
representations and warranties of the Agent, the performance by the Agent of its
obligations hereunder and to the Company's receipt, within five Business Days of
the Initial Closing Date, of the opinion of ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP,
counsel for the Agent, dated as of the Initial Closing Date, satisfactory in
form and substance to the Company and the Company's counsel, which includes the
opinions as set forth in Exhibit C hereto. Such counsel, in rendering the
foregoing opinion, may rely as to questions of fact upon representations or
certificates of officers of the Agent and of government officials, in which case
its opinion is to state such reliance. Copies of any opinion, representation or
certificate so relied upon shall be delivered to the Company and to the
Company's counsel.
30
ARTICLE VII
INDEMNIFICATION AND CONTRIBUTION
SECTION 7.01 THE COMPANY'S INDEMNIFICATION OF THE AGENT. The Company
shall indemnify and hold harmless the Agent, and each person, if any, who
controls the Agent within the meaning of Section 15 of the Securities Act,
against any losses, claims, damages or liabilities that arise out of, or are
based upon, (i) any breach, in any material respect, 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 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 the Prospectus or any related preliminary prospectus
or prospectus supplement, 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 Notes under, or exempt the Notes 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 Agent and each such controlling person (subject to
the limitation set forth in Section 7.03 hereof) for any legal or other expenses
reasonably incurred by the Agent or controlling person in connection with
defending against any such loss, claim, damage, liability or action. However,
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 (i) made
in reliance upon and in conformity with the Agent Disclosure Statements or any
written information furnished to the Company by the Agent specifically for use
in any application or other statement executed by the Company or the Agent filed
in any jurisdiction in order to qualify the Notes under, or exempt the Notes or
the sale thereof from qualification under, the securities laws of such
jurisdiction (unless the Agent provided the Company with written notice of such
untrue statement or omission within a reasonable time prior to the use thereof
and the Company failed to undertake prompt action to correct such untrue
statement or omission before its use, in which case the Company's
indemnification shall nevertheless apply); or (ii) is corrected in any amendment
or supplement to the Registration Statement or the Prospectus; provided that the
Company has performed its obligations hereunder in respect of such amendment or
supplement and, to the extent that a prospectus relating to the Notes was
required to be delivered by the Agent under the Securities Act, the Agent,
having been furnished by or on behalf of the Company with copies of the
Prospectus as so amended or supplemented, thereafter fails to deliver such
amended or supplemented Prospectus prior to or concurrently with the sale of the
Notes to the person asserting such loss, claim, damage or liability.
31
SECTION 7.02 THE AGENT'S INDEMNIFICATION OF THE COMPANY. The Agent
shall 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 that arise out of, or are
based upon, (i) any breach, in any material respect, of any representation,
warranty, agreement, obligation or covenant of the Agent 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 thereto, a
material fact required to be stated therein or necessary to make the statements
therein not misleading; (iii) any untrue statement or alleged untrue statement
of a material fact contained in the Prospectus (as amended or as supplemented),
or the omission or alleged omission to state therein a material fact required to
be stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading; or (iv) any
untrue statement or alleged untrue statement of a material fact contained in any
application or other statement executed by the Company or by the Agent and filed
in any jurisdiction in order to qualify the Notes under, or exempt the Notes 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; provided, however, that indemnification under subsections
(ii) through (iv) above shall extend 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 the Agent Disclosure Statements or any
written information furnished to the Company by, or on behalf of, the Agent
specifically for use in any application or other statement executed by the
Company or by the Agent and filed in any jurisdiction (unless the Agent provided
the Company with written notice of such untrue statement or omission within a
reasonable time prior to the use thereof and the Company failed to undertake
prompt action to correct such untrue statement or omission before its use in
which case the Agent's indemnification shall not apply). The Agent will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer, or controlling person (subject to the limitation in
Section 7.03 hereof) in connection with defending against any such loss, claim,
damage, liability or action. This indemnity agreement is in addition to any
liability which the Agent may otherwise have.
SECTION 7.03 NOTICE OF INDEMNIFICATION CLAIM. Promptly after receipt by
an indemnified party under Sections 7.01 or 7.02 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 Sections 7.01 or 7.02, notify in
writing the indemnifying party of the commencement thereof. Failure or delay to
so notify the indemnifying party will not relieve it from any liability under
Sections 7.01 or 7.02 as to the particular item for which indemnification is
then being sought, except to the extent that the indemnifying party incurs or
sustains damages or losses or is otherwise materially prejudiced as a result of
such failure to notify or delay in notification. 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, to assume
the defense thereof, with counsel who shall be reasonably satisfactory to such
indemnified party. After notice from the indemnifying party to such indemnified
party of the indemnifying party's election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under Sections
7.01 or 7.02 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof; provided, however,
that if the defendants in any such action include both the indemnified party and
32
the indemnifying party, and the indemnified party shall have reasonably
concluded that there may be legal defenses available to it 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 one 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 such separate counsel shall be
borne by the indemnifying party. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel for each indemnified party
separate from the indemnifying party's respective counsel(s) for all indemnified
parties in connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general allegations or
circumstances. 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.
SECTION 7.04 CONTRIBUTION. In order to provide for just and equitable
contribution in any action in which the Agent or the Company (or any person who
controls the Agent or the Company within the meaning of Section 15 of the
Securities Act) makes claim for indemnification pursuant to Sections 7.01 or
7.02 hereof, but such indemnification is unavailable or insufficient to hold
harmless and indemnify a party under Sections 7.01 or 7.02, as applicable, 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 Sections 7.01 or 7.02, as applicable, (i) in such proportion as
is appropriate to reflect the relative benefits received by the Company on the
one hand and the Agent on the other from the offering of the Notes 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 Agent 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 Agent on the
other shall be deemed to be in the same proportion as the total net proceeds
from the offering of the Notes (before deducting expenses) received by the
Company bear to the total commissions received by the Agent. 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
Agent and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Agent agree that it would not be just and equitable if contributions
pursuant to this Section 7.04 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 this Section 7.04. The amount paid by an
indemnified party as a result of the losses, claims, damages or liabilities
referred to in this Section 7.04 shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
defending against any action or claim which is the subject of this Section 7.04.
Notwithstanding the provisions of this Section, the Agent shall not be required
to contribute any amount in excess of the amount by which (x) the total price at
which the Notes which are the subject of the action were distributed to the
public exceeds (y) the amount of any damages that the Agent 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.
33
SECTION 7.05 NOTICE OF CONTRIBUTION CLAIM. 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 failure to so notify the
Contributing Party will not relieve the Contributing Party from any liability
which it may have to any party other than under Section 7.04. Any notice given
pursuant to Section 7.03 hereof shall be deemed to be like notice under this
Section 7.05. 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.
SECTION 7.06 REIMBURSEMENT. In addition to its other obligations under
Section 7.01 and 7.04 hereof, the indemnifying party, as applicable, shall, as
an interim measure during the pendency of any claim, action, investigation,
inquiry or other proceeding described in Section 7.01, reimburse the indemnified
party on a monthly basis for all legal or other expenses incurred in connection
with defending any such claim, action, investigation, inquiry or other
proceeding, notwithstanding the absence of a judicial determination as to the
propriety and enforceability of the indemnifying party's obligation to reimburse
the indemnified party for such expenses and the possibility that such payments
might later be held to have been improper by a court of competent jurisdiction.
To the extent that any such interim reimbursement payment is so held to have
been improper, the indemnified party shall promptly return such payment to the
indemnifying party.
SECTION 7.07 ARBITRATION. Any controversy rising out of the operation
of the interim reimbursement arrangements set forth in Section 7.06 hereof,
including the amounts of any requested reimbursement payments and the method of
determining such amounts, shall be settled by arbitration conducted pursuant to
the Code of Arbitration Procedure of the NASD. Any such arbitration must be
commenced by service of a written demand for arbitration or a written notice of
intention to arbitrate, therein electing the arbitration tribunal. If the party
demanding arbitration does not make such designation of an arbitration tribunal
in such demand or notice, then the party responding to said demand or notice is
authorized to do so. Any such arbitration will be limited to the operation of
the interim reimbursement provisions contained in Section 7.06 hereof and will
not resolve the ultimate propriety or enforceability of the obligation to
indemnify for expenses which is created by the provisions of Sections 7.01 and
7.02 hereof or the obligation to contribute to expenses which is created by the
provisions of Section 7.04 hereof.
SECTION 7.08 INTELLECTUAL PROPERTY INFRINGEMENT. The Agent shall
defend, indemnify and hold harmless, at its own expense, all suits and claims
against the Company and any officers, directors, employees and affiliates of the
Company (collectively, the "Company Indemnified Parties"), for infringement or
violation of any patent, trademark, copyright, trade secret, know how, business
methods or other intellectual property rights of any third party that relates to
this Agreement or the Offering, sale or servicing of the Notes. The Agent shall
pay all sums, including without limitation, reasonable attorneys' fees and other
costs incurred by the Company, in defense of, by final judgment or decree, or in
34
settlement of any suit or claim asserted or assessed against, or incurred by,
any of the Company Indemnified Parties on account of such infringement or
violation, provided that the Company Indemnified Parties involved shall
cooperate in all reasonable respects with the Agent and its attorneys in the
investigation, trial and defense of such lawsuit or action and any appeal
arising therefrom; provided, however, that the Company Indemnified Parties may,
at their own cost, participate in the investigation, trial and defense of such
lawsuit or action and any appeal arising therefrom. The parties shall cooperate
with each other in any notifications to insurers.
SECTION 7.09 CONFIDENTIALITY. All information, whether oral or written,
concerning a disclosing party and its business operations, prospects and
strategy, which is furnished by the disclosing party to the other party is
deemed to be confidential, restricted and proprietary to the disclosing party
(the "Proprietary Information"). Proprietary Information supplied shall not be
disclosed, used or reproduced in any form except as required to accomplish the
intent of, and in accordance with the terms of, this Agreement and the
Indenture. The receiving party shall provide the same care to avoid disclosure
or unauthorized use of Proprietary Information as it provides to protect its own
proprietary information, including without limitation retaining Proprietary
Information in a secure place with limited access, but in no event shall the
receiving party fail to use reasonable care under the circumstances to avoid
disclosure or unauthorized use of Proprietary Information. Unless otherwise
specified in writing, all Proprietary Information shall (i) remain the property
of the disclosing party, (ii) be used by the receiving party only for the
purpose for which it was intended under this Agreement and the Indenture, and
(iii) together with all copies of such information, be returned to the
disclosing party or destroyed upon request of the disclosing party, and, in any
event, upon termination of this Agreement, except as otherwise provided or
contemplated by this Agreement, including Sections 3.02(b) and (e) and 8.05
hereof. Proprietary Information does not include information which is: (a)
published or included as disclosure within the Registration Statement or
otherwise available in the public domain through no fault of the receiving
party; (b) lawfully received from a third party having rights in the information
without restriction of the third party's right to disseminate the information
and without notice of any restriction against its further disclosure; or (c)
produced under order of a court of competent jurisdiction or other similar
requirement of a governmental agency or authority, so long as the party required
to disclose the information provides the other party with prior notice of such
order or requirement and its cooperation to the extent reasonable in preserving
its confidentiality. Because damages may be difficult to ascertain, and without
limiting any other rights and remedies specified herein, an injunction may be
sought against the party who has breached or threatened to breach this Section.
ARTICLE VIII
TERM AND TERMINATION
SECTION 8.01 EFFECTIVE DATE OF THIS AGREEMENT. This Agreement shall
become effective as of the date first set forth above, and shall continue in
full force and effect until terminated as provided below.
SECTION 8.02 TERMINATION PRIOR TO INITIAL CLOSING DATE. This Agreement
may be terminated by the Agent, at its option, by giving notice to the Company,
if (i) the Company shall have failed, refused, or been unable, at or prior to
35
the Initial Closing Date, to perform any agreement on its part to be performed
hereunder; or (ii) any other condition of the Agent's obligations hereunder is
not fulfilled or waived by the Agent. Any such termination shall be without
liability of any party to any other party, except as provided in Sections 7.01,
7.02 and 7.04 hereof; provided, however, that the Company shall remain obligated
to pay costs and expenses to the extent provided in Section 2.03 hereof.
SECTION 8.03 NOTICE OF TERMINATION. If the Agent elects to terminate
this Agreement as provided in Section 8.02, it shall notify the Company and the
Company's counsel promptly by telephone or transmitted by any standard form of
telecommunication, confirmed by letter sent to the address specified in Section
9.02 hereof.
SECTION 8.04 TERMINATION AFTER INITIAL CLOSING DATE. The Company or the
Agent may terminate this Agreement at any time subsequent to the Initial Closing
Date in whole or in part as more specifically provided below, and in such case,
the Agent will be paid fees and commissions incurred up to the date of such
termination plus its expenses accrued as of such date within 30 days of such
termination:
(a) The Company will have the ability to terminate this
Agreement in the following manner:
(i) with respect to the Company's termination of
the Agent's activities to market and sell the Notes, the
Company must provide at least seven days prior written
notice to the Agent except as otherwise provided herein or
in the event of any material breach hereof by the Agent,
in which case such termination may be effective upon one
days' notice, and
(ii) with respect to the Company's termination of
the Agent's administration activities relating to the
Notes, the Company will provide at least 30 days prior
written notice to the Agent;
(b) In the event of a material breach of this Agreement by the
Company, the Agent will have the ability to terminate this Agreement
effective (i) immediately upon notice, if such breach is not capable of
being cured; or (ii) fifteen (15) days following notice of such breach
and the Company's failure to cure within such period, if the breach is
capable of being cured.
(c) In the event of termination of the Agent's activities to
market and sell the Notes under Section 8.04(a)(i), but not the
administration activities as set forth in Section 8.04(a)(ii), the
Company will continue to be obligated to pay the portfolio fee under
Section 2.03(a)(ii) but will have no obligation to pay commissions
under Section 2.03(a)(i) and Section 2.03(c) accruing from and after
the effective date of such termination.
(d) In the event of the termination of the administration of
the Notes by the Agent pursuant to Section 8.04(a)(ii), but not the
termination of the sales and marketing of the Notes by the Agent
pursuant to Section 8.04(a)(i), the Company will continue to be
obligated to pay the commission fee under Section 2.03(a)(i), but will
not be obligated to pay the portfolio fee under Section 2.03(a)(ii) for
periods after the effective date of such termination.
36
SECTION 8.05 TERMINATION WITHOUT TERMINATION OF OFFERING. Anything to
the contrary notwithstanding, the termination of this Agreement shall not
prevent the Company from commencing or cause the Company to terminate the
Offering. In the event this Agreement is terminated without a termination of the
Offering, then the Company, or its agents, shall be entitled to use all
materials developed by the Agent related to the Notes as provided elsewhere
herein.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01 SURVIVAL. The respective indemnity and contribution
agreements of the Company and the Agent set forth herein and the respective
representations, warranties, covenants and agreements of the Company and the
Agent set forth herein, shall remain operative and in full force and effect,
regardless of any investigation made by, or on behalf of, the Agent, the
Company, any of its officers and directors, or any controlling person referred
to in Article VII and shall survive the sale of the Notes and 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.
SECTION 9.02 NOTICES. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be mailed,
delivered or transmitted by any standard form of telecommunication, as follows:
If to the Agent, to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Ltd.
▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: K. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Tel. (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
Tel. (▇▇▇) ▇▇▇-▇▇▇▇
If to the Company, to: Zanett, Inc.
▇▇▇ ▇. ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: Pierre-▇▇▇▇▇▇▇ ▇▇▇
Tel. (▇▇▇) ▇▇▇-▇▇▇▇
37
with copies to: Drinker ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
One ▇▇▇▇▇ Square
▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Tel. (▇▇▇) ▇▇▇-▇▇▇▇
SECTION 9.03 SUCCESSORS AND ASSIGNS; TRANSFER. This Agreement shall
inure to the benefit of and be binding upon the Agent and the Company and their
respective successors and permitted assigns, and the officers, directors and
controlling persons referred to in Article VII. 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 Article VII, 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. Neither party may assign its
rights and obligations under this Agreement without the written consent of the
other party.
SECTION 9.04 CUMULATIVE REMEDIES. Unless otherwise expressly provided
herein, the remedies of the parties provided for herein shall be cumulative and
concurrent, and may be pursued singularly, successively or together, at the sole
discretion of the party for whose benefit such remedy is provided, and may be
exercised as often as occasion therefor shall arise.
SECTION 9.05 ATTORNEYS' FEES. In the event of any action to enforce or
interpret this Agreement, the prevailing party shall be entitled to recover
reasonable attorneys' fees and costs, whether or not such action proceeds to
judgment.
SECTION 9.06 ENTIRE AGREEMENT. Except as otherwise expressly provided
herein, this Agreement constitutes the entire agreement of the parties hereto
with respect to the matters addressed herein and supersedes all prior or
contemporaneous contracts, promises, representations, warranties and statements,
whether written or oral (including, but not limited to, the Proposal), with
respect to such matters.
SECTION 9.07 CHOICE OF LAW; VENUE. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware, without
regard to conflict of law principles.
SECTION 9.08 RIGHTS TO INVESTOR LISTS. The parties acknowledge that the
Offering will produce a list of investors that purchase Notes, a list of
prospects that respond to advertisements, but do not purchase any Notes, a list
of former investors who redeemed their Notes, and a list of former investors
whose Notes the Company redeemed. Subject to any privacy laws, both the Company
and the Agent will be able to use these lists for their own business purposes as
long as doing so does not interfere with the marketing, sale or administration
of the Notes.
38
SECTION 9.09 WAIVER; SUBSEQUENT MODIFICATION. Except as expressly
provided herein, no delay or omission by any party in insisting upon the strict
observance or performance of any provision of this Agreement, or in exercising
any right or remedy, shall be construed as a waiver or relinquishment of such
provision, nor shall it impair such right or remedy, and no waiver by any party
or any failure or refusal of the other party to comply with its obligations
under this Agreement shall be deemed a waiver of any other or subsequent failure
or refusal to so comply by such other party. No waiver or modification of the
terms hereof shall be valid unless in writing and signed by the party to be
charged, and then only to the extent therein set forth.
SECTION 9.10 SEVERABILITY. If any term or provision of this Agreement
or application thereof to any person or circumstance shall, to any extent, be
found by a court of competent jurisdiction to be invalid or unenforceable, the
remainder of this Agreement, or the application of such term or provision to
persons or circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term or provision of this
Agreement shall be valid and enforceable to the fullest extent permitted by law.
SECTION 9.11 JOINT PREPARATION. The preparation of this Agreement has
been a joint effort of the parties and the resulting document shall not, solely
as a matter of judicial construction, be construed more severely against one of
the parties than the other.
SECTION 9.12 CAPTIONS. The title of this Agreement and the headings of
the various articles, section and subsections have been inserted only for the
purpose of convenience, are not part of this Agreement and shall not be deemed
in any manner to modify, explain, expand or restrict any of the provisions of
this Agreement.
SECTION 9.13 COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
SECTION 9.14 THIRD PARTY CONTRACTORS. In the event that the Company
engages a third party to perform any of the obligations of the Agent under this
Agreement, including, without limitation, coordinating the receipt and logging
of incoming Subscription Agreements to purchase Notes and accompanying funds and
documents, the Company shall provide written notice to the Agent of such
engagement, the Agent shall thereafter be relieved of any such obligations for
which the third party was engaged, and in no event shall the Agent be liable
for, or be obligated to indemnify the Company with regard to, any act (or
failure to act) of such third party. The Company agrees to indemnify the Agent
against any loss, claim, damage or liability arising from the Company's
engagement of any such third party or such third party's acts (or failures to
act) in a manner consistent with the provisions of Article VII hereof.
[Remainder of page intentionally left blank]
39
IN WITNESS WHEREOF, this Distribution and Management Agreement is
hereby entered into by the undersigned parties as of the date first set forth
above.
ZANETT, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
-----------------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Title: Chief Executive Officer
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LTD.
By: /s/ K. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
Name: K. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ AGENCY, INC.
(for purposes of Sections 2.05 and 3.01 only)
By: /s/ K. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-----------------------------------------
Name: K. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Title: President
40
EXHIBIT A
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ AGENCY, INC. SERVICES
The following describes the media planning, media buying and other marketing
services to be provided by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Agency, Inc ("Agency") to Zanett,
Inc. ("Company") in connection with the offer and sale of Company's renewable,
unsecured, subordinated notes (the "Notes"), as more specifically defined in,
and pursuant to the terms of, the Distribution and Management Agreement between
Company and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Ltd., the parent company of Agency ("Agent") to
which this description is an exhibit.
1. Agency Services.
Agency will perform the following services for Company:
o Employ on Company's behalf Agency's knowledge of the available
media and marketing approaches that can effectively be used to
promote the issuance of the Notes on a "direct to the consumer"
basis.
o Acting on the study, analysis and knowledge of the product
described above, formulate and recommend a marketing and media
plan (or plans).
o In the execution of the plan (or plans), when approved by
Company:
o Order space, time or other marketing services and materials to
be used for advertising, endeavoring to secure the most
advantageous rates available.
o Check and verify insertions, displays, broadcasts or other
means used.
o Audit invoices for space and time and other marketing services
performed on Company's behalf.
2. General Provisions.
Approval of Expenditures: Agency agrees to secure Company's written
approval of all expenditures in connection with Company's plans.
Cancellation of Plans: Company reserves the right to modify, reject,
cancel or stop any and all plans, schedules or work in progress. In such event
Agency shall take reasonable steps to carry out Company's instructions as
promptly as practicable. Company agrees to assume liability for all commitments
made by Agency on its behalf, and to reimburse Agency for any losses (including
cancellation penalties) that Agency may sustain derived therefrom and for all
expenses incurred in connection with Company approved plans on its
authorization, and to pay Agency any service charges relating thereto, in
accordance with the provisions hereof.
41
Failure of Suppliers to Perform: Agency will endeavor to the best of
its knowledge and ability guard against any loss to Company through failure of
media or suppliers to properly execute their commitments, but shall not be held
responsible for any failure on their part.
Confidentiality: Agency acknowledges its responsibility to use all
reasonable efforts to preserve the confidentiality of any proprietary or
confidential information or data developed by Agency on behalf of Company or
disclosed by Company to Agency.
Responsibility of and Indemnification by Agency: Agency agrees to
indemnify and hold Company, its officers, directors, agents and employees
harmless from and against any claims, liabilities, losses, costs, expenses, or
the like, including reasonable attorneys' fees, incurred in respect to any
material breach by Agency hereof or Agency's negligence and/or intentional
wrongdoing in connection with the services.
Responsibility of and Indemnification by Company: Company agrees to
indemnify and hold Agency, its officers, directors, agents and employees
harmless from and against any claims, liabilities, losses, costs, expenses, or
the like, including reasonable attorneys' fees, incurred in respect to any
material breach by Company of this Agreement or Company's negligence and/or
intentional wrongdoing in connection with the services. Company shall be
responsible for the accuracy, completeness and propriety of information
concerning its products and services that it furnishes to Agency in connection
with the performance of the services.
3. Charges.
o Charges for Advertising Space and Time: Company agrees to pay the
media expense directly to Agency. Payment will be at current
published gross rates (or at lower gross rates when available)
for advertising that runs in all media or the difference between
the published gross advertising rates and the net advertising
rates or an equivalent ▇▇▇▇-up.
o Rate Adjustments:
o Short Rates: If, in a medium having a schedule of graduated
rates, less space or time than contracted for is used, Company
is to pay the difference, if any, between the rate billed and
the rate actually earned.
o Other Refunds: Agency shall refund or credit Company any other
refunds received by us in connection with advertising space or
time.
o Other Marketing Expenses. Company agrees to pay Agency for all
other out of pocket, non-media charge marketing expenses related
to the development and production of all direct marketing and
promotional materials. All work will be outlined in a Project Fee
Estimate and must be approved in writing by Company.
42
o Maximum Charges. Notwithstanding anything to the contrary herein,
in no event will the amounts paid to Agency for its aggregate
▇▇▇▇-up of the advertising and media costs exceed 2.5% of the
aggregate principal amount of the Notes sold in the Offering.
4. Terms of Payment.
o Timing of Payment: To the extent that the aggregate ▇▇▇▇-up owed
to Agency hereunder exceeds 2.5% of the Notes sold in the
Offering, the excess amount of such ▇▇▇▇-up will accrue until
such time when Company has sold a sufficient amount of the Notes.
To the extent Agency's ▇▇▇▇-up is permitted to be paid pursuant
to the foregoing sentence, Agent will issue an invoice to Company
for such amount.
o Terms of Payment: Payment of invoices will be due either by check
or wire transfer, as requested by Agency, within 30 days.
o Wire Instructions: Payment of invoices are to be made by wire
transfer to:
The Business Bank
Minnetonka, MN
ABA# ▇▇▇▇▇▇▇▇▇
FC: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ Agency, Inc.
Acct# 102657
o Company Agreement to Pay: Company agrees to pay Agency invoices
on payment dates stated thereon. So that Company may have
sufficient time to audit and pay Agency bills and that Agency may
have sufficient time to pay the media suppliers, by payment date,
Agency will mail media invoices at least 15 days before payment
due date.
o Right to Change Payment Terms: Agency reserves the right in case
of delinquency in Company payments, or such impairment of
Company's credit as in Agency's opinion might endanger future
payments to Agency, to change the requirements as to terms of
payment under this Agreement, including but not limited to,
payment in advance for all Agency services and purchases
including media advertising when applicable.
5. Termination.
o Period of Services: The services provided by Agency shall begin
upon execution and delivery of the Distribution and Management
Agreement and shall continue until termination of Agent's
activities to market and sell the Notes thereunder.
o Payment for Purchases and Work Done: Any materials, services,
etc. Agency has committed to purchase for Company's account, or
with Company's approval (or any uncompleted work previously
approved by Company either specifically or as part of a plan)
prior to termination of the Services shall be paid for by Company
in accordance with the provisions of this Agreement.