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2,500,000 UNITS CONSISTING OF 2,500,000 SHARES OF COMMON STOCK
AND
2,500,000 REDEEMABLE CLASS A COMMON STOCK PURCHASE WARRANTS
HOTEL DISCOVERY, INC.
UNDERWRITING AGREEMENT
____________, 1997
▇. ▇. ▇▇▇▇▇▇▇▇ & Company
As Representative of the
Several Underwriters
One Financial Plaza
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Hotel Discovery, Inc., an Minnesota corporation (the "COMPANY"), proposes
to issue and sell to you (the "REPRESENTATIVE") and the other Underwriters
named in Schedule I hereto, an aggregate of 2,500,000 Units ("UNITS"), each
Unit consisting of one share of Common Stock ("COMMON STOCK") and one
Redeemable Class A Common Stock Purchase Warrant (the "WARRANT") exercisable
for a period of four (4) years commencing on the effective date of the
Registration Statement to purchase one share of Common Stock of the Company at
a price of $6.50 per share. The Warrants shall be immediately exercisable and
are detachable and transferable commencing ten (10) trading days after the
effective date of the Registration Statement under the Act or at any earlier
time agreed to by the Underwriters and the Company. The Warrants shall be
redeemable at the option of the Company at $.01 per Warrant at any time ninety
(90) days after the effective date and upon thirty (30) days' prior notice in
writing of the Company's intention to redeem, provided that the average closing
bid price for the Common Stock exceeds $7.00 per share (subject to adjustment)
for any 14 consecutive trading days prior to such notice, on such other terms
set forth in the Preliminary Prospectus (defined herein).
The 2,500,000 Units to be purchased from the Company are referred to
herein as the "FIRM UNITS." In addition, solely for the purpose of covering
overallotments with respect to the Firm Units, the Company proposes to grant to
the Underwriters, for their account, the option to purchase up to an additional
375,000 Units (the "OPTION UNITS"). The Firm Units and any Option Units
purchased pursuant to this Underwriting Agreement are herein referred to as the
"UNITS."
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The Company hereby confirms its agreement with respect to the purchase of
the Units by the Underwriters.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and agrees with, the several Underwriters as
follows:
(a) The Company has prepared in conformity in all material
respects with the requirements of the Securities Act of 1933, as
amended (the "ACT"), and the applicable rules and regulations of the
Securities and Exchange Commission (the "COMMISSION") thereunder, and has
filed with the National Office of the Commission in Washington, D.C., a
registration statement on Form SB-2, File No. 333-34235, including a
Prospectus relating to the Units, and will file with the Commission before
the effective date of the registration statement one or more amendments
thereto. Copies of such registration statement and amendments (including
all forms of the preliminary prospectus) have been delivered to you. Any
such preliminary prospectus (as described in Rule 430 under the Act)
included at any time as part of such registration statement is herein
called a "PRELIMINARY PROSPECTUS." As used herein, the term "REGISTRATION
STATEMENT" shall, except where the context otherwise requires, mean said
registration statement (and all exhibits thereto) as amended by all
amendments filed prior to its effective date; and the term "PROSPECTUS"
shall, except where the context otherwise requires, mean said final
prospectus on file with the Commission when the Registration Statement
becomes effective (except that, if the prospectus filed by the Company
pursuant to Rule 424(b) under Act shall differ from the prospectus
included in the Registration Statement, the term "PROSPECTUS" shall,
except where the context otherwise requires, mean the prospectus so filed
pursuant to Rule 424(b) from and after the date on which it shall have
been first used.) Reference herein to the Registration Statement, to any
Preliminary Prospectus, to the Prospectus or to any amendment of or
supplement to the Prospectus includes all documents and information
incorporated therein by reference.
(b) The Commission has not issued any order preventing or
suspending the use of any Preliminary Prospectus, and each Preliminary
Prospectus, at the time of filing thereof with the Commission, 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 the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that none of the
representations and warranties in this subparagraph shall apply to
statements in, or omissions from, any Preliminary Prospectus which are
based upon and conform to written information furnished to the Company by
or on behalf of you specifically for use in the preparation thereof.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to each Closing Date (defined hereinafter)
and upon the effective date of any post-effective amendment to the
Registration Statement, the Registration Statement and the Prospectus, and
any amendments thereof or supplements thereto, will in all material
respects conform to the requirements of the Act and of the applicable
rules
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and regulations of the Commission thereunder (the "RULES AND
REGULATIONS"). When the Registration Statement becomes effective and at
all times subsequent thereto, up to each Closing Date and the effective
date of any post-effective amendment to the Registration Statement,
neither the Registration Statement (as amended, if the Company shall have
filed with the Commission any post-effective amendment thereto), nor the
Prospectus, will include an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary to make
the statements therein, in the light of the circumstances under which they
were made, not misleading; PROVIDED, HOWEVER, that the Company makes no
representations or warranties as to information contained in or omitted
from the Registration Statement or the Prospectus, or any such amendment
or supplement, in reliance upon and in conformity with written information
furnished to the Company by you specifically for use in the preparation
thereof. There is no contract or document required to be described in the
Registration Statement or Prospectus, or to be filed as an exhibit to the
Registration Statement, which was not described or filed as required.
(d) [Deleted]
(e) Ernst & Young, LLP, the accountants who have examined certain
financial statements and schedules of the Company, filed and to be
filed with the Commission as part of the Registration Statement and the
Prospectus, are independent public accountants within the meaning of the
Act and the Rules and Regulations. The financial statements of the
Company, together with related notes and summaries thereof, set forth in
the Registration Statement and Prospectus, in all material respects
present fairly the financial position and results of operations and
changes in financial position of the Company as of the dates and for the
periods indicated. All such financial statements (including the related
notes) have been prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods concerned except as
may be otherwise stated therein.
(f) Subsequent to the respective dates as of which information is
given in the Registration Statement and Prospectus, and other
than as described in the Registration Statement and Prospectus, (i) the
Company has not incurred any material liabilities or obligations,
contingent or otherwise, or entered into any material transaction, except
obligations incurred in the ordinary course of business that in the
aggregate are not material; (ii) the Company has not paid or declared any
dividend or other distribution on its Common Stock; (iii) there has not
been any change in the Common Stock or increase in the long-term debt of
the Company (including any capitalized lease obligation), or any issuance
of options, warrants, or rights to purchase Common Stock of the Company,
or any material adverse change in the business, financial position,
results of operations, key personnel, capitalization, properties, or net
worth of the Company, considered as a whole; and (iv) no material loss or
damage (whether or not insured) to the property of the Company has been
sustained.
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(g) The Company has been duly incorporated and is validly existing
as a corporation in good standing under the laws of its jurisdiction of
incorporation, with full power and authority to own its properties and
conduct its business as it is currently being carried on and as described
in the Prospectus and is duly qualified to do business as a foreign
corporation and is in good standing in all states or jurisdictions in
which the ownership or lease of property or the conduct of its business
requires such qualification and in which the failure to so qualify would
have a material adverse effect on its business condition (financial or
other), or properties. The Company has all necessary and material
authorizations, approvals and orders of and from all governmental
regulatory officials and bodies to own its properties and conduct its
business as described in the Prospectus and is conducting its business in
substantial compliance with all applicable laws, rules and regulations of
the jurisdictions in which it is conducting business.
(h) The Company is not in violation of its articles of
incorporation, bylaws, or other governing documents and is not in
default in the performance of any obligation, agreement or condition
contained in any lease agreement or in any bond, debenture, note or any
other evidence of indebtedness or in any material contract, indenture, loan
agreement or license where such default would have a material adverse
effect on the business condition (financial or other) or properties of the
Company, considered as a whole which violation or default has not been
waived. The consummation of the transactions herein contemplated and the
fulfillment of the terms hereof will not conflict with or result in a
material breach of any of the terms or provisions of, or constitute a
material default under, the articles of incorporation or bylaws, or other
governing documents of the Company, or any indenture, mortgage, agreement
or other instrument to which the Company is a party or by which it is
bound, or to which any property of the Company is subject, or conflict with
or violate any law or any order, rule or regulation, applicable to the
Company of any court, or of any federal or state regulatory body or
administrative agency, having jurisdiction over the Company or any of its
properties which conflict, breach or default has not been waived.
(i) The Company will, as of each Closing Date, have the duly
authorized and outstanding capitalization set forth in the Prospectus.
The outstanding Common Stock of the Company is duly authorized and validly
issued, fully paid and nonassessable. The Common Stock of the Company
conform in all material respects in substance to all statements in relation
thereto contained in the Registration Statement and the Prospectus. The
Company has all requisite power and authority (corporate and other) to
issue, sell, and deliver the Units, including the Common Stock issuable
upon exercise of the Warrants in accordance with and upon the terms and
conditions set forth in this Agreement and in the Registration Statement
and Prospectus; and all corporate action required to be taken by the
Company for the due and proper authorization, issuance, sale, and delivery
of the Units, including the Common Stock issuable upon exercise of the
Warrants, has been validly and sufficiently taken.
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(j) The Company has full legal power, right and authority
(corporate and other) to enter into this Underwriting Agreement and to
perform and discharge its obligations hereunder, and this Underwriting
Agreement has been duly authorized, executed and delivered on behalf of the
Company and is the valid and binding obligation of the Company, subject, as
to the enforcement of remedies, to applicable bankruptcy, insolvency,
moratorium and other laws affecting the rights of creditors generally, and
except as enforceability of the indemnification or contribution provisions
may be limited by federal or state securities laws or principles of public
policy.
(k) The Company will apply the proceeds of the sale of the Units
by it substantially to the purposes set forth in the Prospectus.
(l) To the best of the Company's knowledge, no approval,
authorization, consent or order of any public board or body (other than
in connection with or in compliance with the provisions of the Act and the
securities or Blue Sky laws of various jurisdictions) is legally required
for the sale of the Units by the Company.
(m) The Company has no subsidiaries.
(n) The Company has good and marketable title, free and clear of all
liens, encumbrances, equities, charges or claims, to all of the
property, real and personal, described in the Registration Statement and
Prospectus as being owned by it, except as otherwise set forth in the
Registration Statement and Prospectus and except for such as are not in the
aggregate material in relation to the property of the Company considered as
a whole and do not materially affect the value of such property, and,
except as otherwise stated in the Registration Statement and Prospectus,
has valid and binding leases to the real and/or personal property described
in the Registration Statement and Prospectus as under lease to it with such
exceptions as could not materially interfere with the conduct of the
business.
(o) There are no actions, suits or proceedings or investigations
pending before any court or governmental agency, authority or body to
which the Company is a party or of which the business or property of the
Company is the subject which, if decided adversely, would have a material
adverse effect on the general affairs, condition (financial or other),
business, properties, net worth, or results of operations of the Company,
and, to the best of the Company's knowledge, no such actions, suits or
proceedings are threatened.
(p) The Company has not taken or will not take, directly or
indirectly, any action designed to or which has constituted or which
might reasonably be expected to cause or result in stabilization or
manipulation as defined in the Securities Exchange Act of 1934, as amended,
of the price of the Company's securities to facilitate the sale or resale
of the Units.
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(q) The Company has not, directly or indirectly, at any time during
the past five years (i) made any contributions to any candidate for
political office, or failed to disclose fully any contribution in violation
of law, or (ii) made any payment to any state, Federal or foreign
governmental officer or official, or other person charged with similar
public or quasi-public duties, other than payments required or permitted by
applicable law.
(r) Except as described in the Prospectus and to the best knowledge
of the Company, the Company owns or possesses the right to utilize all
the patents, patent applications, trademarks, service marks, trade names,
trademark registrations, service ▇▇▇▇ registrations, copyrights, licenses,
inventions, trade secrets, and similar rights necessary for the present
conduct of its business as described in the Prospectus, without any known
conflict with the asserted rights of others in respect of such matters.
Except as may be stated in the Prospectus, the Company has not received any
notice of any infringement of, or license or similar fees for, any patents,
patent applications, trademarks, service marks, trade names, trademark
registrations, service ▇▇▇▇ registrations, copyrights, licenses,
inventions, trade secrets, or other similar rights of others, or any claim
with respect thereto, which would have a material adverse effect on the
business of the Company.
(s) The Company has filed all necessary federal, state and foreign
income and franchise tax returns or if not filed, has obtained all
necessary extensions and has paid all taxes as shown as due on any such
returns; and the Company has no knowledge of any material tax deficiency
which has been asserted against the Company, and, to the best of the
Company's knowledge, the Company has no material obligation to pay any
taxes except as may be stated in the Prospectus.
(t) All prior offers or sales of the securities of the Company were
exempt from registration under the Act and all applicable state blue sky
laws.
(u) No securities of the Company have been sold within three years
prior to the date hereof, except as set out in Item 26 of Part II of the
Registration Statement.
(v) The Company knows of no outstanding claims for services in the
nature of a finder's fee or origination fee with respect to the sale of
the Units or Underwriter's Warrants (defined hereinafter) hereunder
resulting from its acts for which the Underwriters may be responsible.
The Company will indemnify the Underwriters for and hold the Underwriters
harmless against any claim for such finder's fees or origination fees.
(w) All material contracts or agreements are properly filed as an
exhibit to the Registration Statement. Each contract to which the
Company is a party and which is filed as a part of or incorporated by
reference into the Registration Statement has been duly and validly
executed, is in full force and effect in all material respects in
accordance with its terms, and none of such contracts have been assigned
by the Company, and the Company knows of no present situation or
condition or fact which would prevent compliance by the
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Company with the terms of such contracts, as amended to date. Except
for amendments or modifications of such contracts in the ordinary course of
business, the Company has no intention of exercising any right which it may
have to cancel any of its obligations under any of such contracts, and has
no knowledge that any other party to any of such contracts has any
intention not to render full performance under such contracts.
(x) The Company maintains insurance which is in full force and
effect, of the types and in an amount, in the judgment of the Company and
except as otherwise disclosed in the Prospectus, which is reasonable for
its present business taking into account its operations and assets,
including, but not limited to, insurance covering all personal property
owned or leased by the Company against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against.
(y) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are
executed in accordance with management's general or specific
authorizations, (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets, (iii)
access to assets is permitted only in accordance with management's
general or specific authorization, and (iv) the recorded accountability
for assets is compared with existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(z) All material transactions between the Company and its officers,
directors, promoters, and its shareholders who beneficially own 5% or
more of any class of the Company's voting securities required to be
disclosed in the Prospectus have been accurately disclosed in the
Prospectus, and the terms of each such transaction are fair to the Company
and no less favorable to the Company than the terms that could have been
obtained from unrelated parties.
2. PURCHASE OF THE UNITS BY THE UNDERWRITERS.
(a) On the basis of the representations and warranties herein
contained, but subject to the terms and conditions herein set forth,
the Company agrees to sell to the several Underwriters, and the
Underwriters, severally and not jointly, agree to purchase from the
Company, the Firm Units. The purchase price for each Firm Unit shall be
$4.60 per Unit.
(b) The Company hereby grants to the Underwriters, for their
account, an option to purchase from the Company, solely for the purpose
of covering overallotments in the sale of Firm Units, all or any portion
of an aggregate of 375,000 Option Units for a period of 45 days from the
date hereof at the same purchase price per Option Unit as the purchase
price per Firm Unit set forth in Section 2(a) above.
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3. DELIVERY OF AND PAYMENT FOR UNITS. Delivery of certificates for the
Firm Units and payment therefor shall be made at the offices of ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand, PLLP (or such other place as mutually may be agreed
upon), at 10:00 a.m., Minneapolis, Minnesota time, on or before the third full
business day following the effective date of the Registration Statement (the
"FIRST CLOSING DATE").
The option to purchase Option Units granted in Section 2(b) hereof may be
exercised at any time (but not more than once) during the 45-day term thereof
by written notice to the Company from you. Such notice shall set forth the
aggregate number of Option Units as to which the option is being exercised, and
the time and date, not earlier than either the First Closing Date or the second
business day after the day on which the option shall have been exercised but
not later than the third full business day after the date of such exercise, as
determined by you, when the Option Units are to be delivered (the "SECOND
CLOSING DATE"). Delivery and payment for such Option Units to be purchased by
you are to be at the offices set forth above for delivery and payment of the
Firm Units. The First Closing Date and the Second Closing Date are sometimes
herein individually called the "CLOSING DATE" and collectively called the
"CLOSING DATES."
Delivery of facsimile certificates for the Units shall be made by or on
behalf of the Company to you against payment by you of the purchase price
therefor by wire transfer or certified or official bank check in clearing house
funds to the order of the Company. The certificates for such Units shall be
registered in such names and denominations as you shall have requested at least
two full business days prior to the applicable Closing Date. Time shall be of
the essence and delivery at the time and place specified in this Agreement is a
further condition to your obligations hereunder.
4. COVENANTS OF THE COMPANY. The Company covenants and agrees with each
Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become and remain effective, up to each Closing Date. The
Company will notify you promptly of any request by the Commission for any
amendment of or supplement to the Registration Statement or the Prospectus
or for additional information, will prepare and file with the Commission,
promptly upon your request, any amendments of or supplements to the
Registration Statement or Prospectus which, in your reasonable opinion,
may be necessary or advisable in connection with the distribution of the
Units; and will not file any amendments and supplements to the
Registration Statement as originally filed with the Commission unless it
shall first have delivered copies of such amendments or supplements to
you, or file any such amendment or supplement to which you shall have
reasonably objected in writing to the Company. The Company will
immediately advise you by telephone, confirming such advice in writing (i)
when notice is received from the Commission that the Registration
Statement has become effective, (ii) of any order suspending the
effectiveness of the Registration Statement or of any proceedings or
examination under the Act, as soon as the Company is advised thereof, and
(iii) of any order or communication of any public authority addressed to
the Company suspending or
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threatening to suspend qualification of the Units for sale in any
state. The Company will use its best efforts to prevent the issuance of
any stop order or other such order, and, should a stop order or other such
order be issued, to obtain as soon as possible the lifting thereof.
(b) If, at any time when a prospectus relating to the Units is
required to be delivered under the Act, any event shall have occurred
as a result of which, in the opinion of counsel for the Company or in the
reasonable opinion of counsel for you, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make
the statements therein not misleading, or if it is necessary at any time
to amend or supplement the Prospectus to comply with the Act, the Company
will notify you promptly and prepare and file with the Commission an
appropriate amendment or supplement.
(c) The Company will use its best efforts to take or cause to be
taken all necessary action and furnish to whomever you may reasonably
direct such information as may be required in qualifying the Units for
offering and sale under the Blue Sky or securities laws of such states as
you and the Company shall designate. The Company shall not, however, be
required to register or qualify as a foreign corporation or as a dealer in
securities or, except as to matters and transactions related to the
offering or sale of the Units, consent to service of process in any state.
(d) The Company will furnish to each of the several Underwriters,
from time to time and without charge, copies of the Registration
Statement, each Preliminary Prospectus, the Prospectus (including all
documents from which information is incorporated by reference), and all
amendments of and supplements to any of such documents, in each case as
soon as available and in such quantities as you may from time to time
reasonably request for the purposes contemplated by the Act. The Company
authorizes the several Underwriters and all dealers to whom any of the
Units may be sold by the Underwriters to use the Preliminary Prospectuses
and Prospectuses supplied, as from time to time amended or supplemented,
in connection with the sale of the Units as and to the extent permitted by
federal and applicable state and local securities laws.
(e) The Company will furnish to each of you two copies of the
Registration Statement and all amendments thereof which are signed and
include all exhibits and schedules.
(f) The Company will, for a period of two (2) years after the
Effective Date, furnish directly to you, and to each Underwriter who
may so request in writing, as soon as the same shall be sent to
shareholders generally, copies of all annual or interim shareholder
reports of the Company, and will, for the same period, also furnish each
of you, and to each Underwriter who may so request in writing, with the
following:
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(i) two copies of any report, application, or document
(other than exhibits, which, however, will be furnished on request)
which the Company shall file with the Commission or any securities
exchange;
(ii) as soon as the same shall be sent to shareholders
generally, copies of each communication which shall be sent to
shareholders; and
(iii) from time to time such other information concerning the
Company as you may reasonably request, provided that the Company
shall not be required to furnish any information pursuant hereto
that is not furnished to its shareholders or not otherwise made
publicly available.
(g) The Company will, for a period of two (2) years after the
Effective Date, furnish directly to you, quarterly profit and loss
statements, reports of the Company's cash flow filed by the Company with
the Commission.
(h) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than
eighteen months after the effective date of the Registration Statement, a
statement of earnings of the Company (which need not be audited) complying
with Section 11(a) of the Act and the rules and regulations of the
Commission thereunder (including, at the option of the Company, Rule 158).
(i) Whether or not this Agreement becomes effective or is
terminated or cancelled or the sale of the Units to you 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 (A) all expenses (including any transfer taxes) incurred in
connection with the delivery to you of the Units, (B) all expenses and
fees (including, without limitation, fees and expenses of the Company's
accountants and counsel, excluding, however, fees of the Underwriters'
counsel) in connection with the preparation, printing, filing, delivery,
and shipping of the Registration Statement (including the financial
statements therein and all amendments, schedules, and exhibits thereto),
each Preliminary Prospectus, the Prospectus, and any amendment thereof or
supplement thereto, (C) all fees and expenses, including all Company
counsel fees, (D) fees and expenses of the Underwriters' counsel, incurred
in connection with the qualification of the Units for offering and sale by
the Underwriters or by dealers under the securities or Blue Sky laws of
the states and other jurisdictions which you and the Company mutually
shall designate in accordance with Section 4(c) hereof, (E) subject to the
further provisions of this Section 4(i), all fees and expenses, including
all counsel fees, excluding, however, fees of the Underwriters' counsel,
incurred in connection with the review of the offering by the National
Association of Securities Dealers, Inc. and listing fees, if any, (F) all
costs and expenses incident to qualification with The Nasdaq SmallCap
Market, (G) postage and express charges and other expenses in connection
with delivery of the Preliminary and Final Prospectus to the Underwriters,
and (H) all other costs and expenses incident to the performance of the
Company's obligations hereunder that are not otherwise specifically
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provided for herein. In addition to and not in lieu of the foregoing,
the Company shall pay to the Representative on each Closing Date, for
out-of-pocket expenses (including fees of Underwriters' counsel), a
nonaccountable expense allowance equal to two percent (2%) of the
aggregate purchase price for the Units sold to all the Underwriters on
each Closing Date. If the Underwriters withdraw from the sale of the
Units as herein proposed for any reason other than their inability to sell
the Units and through no other fault of their own, or if the sale of the
Units as herein proposed is abandoned by the Company, the Company will
reimburse the Representative in the amount of all accountable expenses
(including fees and disbursements of counsel) incurred by the
Representative in connection with the contemplated purchase, offer, and
sale of the Units, including without limitation, expenses incurred in
their investigation, preparation to market, and marketing of the Units,
and in contemplation of performing and in performance of its obligations
hereunder, up to an aggregate of $30,000, such expenses and fees to be
evidenced by appropriate receipts, invoices, or other documentation.
(j) The Company will cause each officer and director of the Company
to furnish to the Representative, on or prior to the date of this
Agreement, a letter or letters, in form and substance satisfactory to
counsel for the Representative, pursuant to which each such person shall
agree not to offer for sale, sell, distribute or otherwise dispose of any
securities of the Company for a period of 180 days from the date hereof.
The Company will use its best efforts to cause each significant
shareholder of the Company (as reasonably determined by the
Representative) to furnish to the Representative, on or prior to the date
of this Agreement, a letter or letters, in form and substance satisfactory
to counsel for the Representative, pursuant to which each such shareholder
shall agree not to offer for sale, sell, distribute or otherwise dispose
of any securities of the Company for a period of 90 days from the date
hereof.
(k) The Company will not, during the 180 days following the
effective date of the Registration Statement, except with your prior
written consent, offer for sale, sell, distribute, or otherwise dispose of
any Common Stock or sell or grant options, rights, or warrants with
respect to any Common Stock (except for the grants, options, rights,
warrants or convertible securities pursuant to the Company's 1997 Stock
Option and Incentive Compensation Plan), otherwise than in accordance with
this Agreement or as contemplated by the Prospectus.
(l) The Company authorizes the Underwriters and all dealers to whom
any of the Units may be sold by the Underwriters in connection with the
distribution of the Units, to use the Prospectus as from time to time
amended or supplemented in connection with the offering and sale of the
Units and in accordance with the applicable provisions of the Act and the
applicable Rules and Regulations and applicable state Blue Sky or
securities laws.
(m) The Company shall not request an effective date nor allow the
Registration Statement to be declared effective without the prior
approval of the Underwriters.
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(n) Within the time during which the Prospectus is required to be
delivered under the Act, the Company will comply, at its own expense,
with all requirements imposed upon it by the Act, by the Rules and
Regulations, by the Exchange Act, and by any order of the Commission, so
far as necessary to permit the continuance of sales or dealings in the
Units.
(o) The Company shall file an application and take all other steps
necessary to have the Units actually listed on The Nasdaq SmallCap Market
on or prior to the effective date of the Registration Statement under the
Act.
(p) The Company will reserve and keep available that maximum number
of its authorized but unissued shares of Common Stock which are issuable
upon exercise of Warrants and the Underwriter's Warrants during the term
of the Warrants and the Underwriter's Warrants.
(q) Prior to the Closing Date, no discussions will be held by
officers, directors or any other affiliate or associate of the Company
with any member of the news media and no news release or other publicity
about the Company will be permitted without prior approval of the
Company's and the Underwriters' respective legal counsel.
(r) The Company shall have obtained a CUSIP number for the Units
(and its components) prior to the effective date of the Registration
Statement under the Act.
(s) The Company shall supply to the Representative, and its legal
counsel, at the Company's cost, one complete bound volume of all of the
documents relating to the public offering, within a reasonable time after
the Closing Date, not to exceed four (4) months. The volume shall be
hard cover bound in book format.
(t) The Company will apply the proceeds from the sale of the Units
by it to the purposes and in the manner set forth in the Registration
Statement and, pending such application, shall invest such net proceeds
only in one or more of the following, except as otherwise provided by
prior written consent of the Underwriters: (i) interest-bearing
obligations issued by the United States Government or issued by an agency
or instrumentality of the United States Government and guaranteed by the
United States Government and having a maturity not in excess of one year,
(ii) interest-bearing domestic commercial paper having a maturity of not
more than 365 days and, at the time of purchase by the Company, rated
investment grade by ▇▇▇▇▇'▇ Investors Service, Inc. or Standard & Poor's
Corporation, (iii) interest-bearing certificates of deposit issued by a
commercial bank chartered by the United States Government or by any state
of the United States having shareholders' equity of at least $500,000,000
except that the foregoing notwithstanding, the Company may invest no more
than $100,000 of such net proceeds in certificates of deposit issued by
any such commercial bank regardless of shareholders' equity, and (iv)
shares or other units of interest in a registered open-ended investment
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company the assets of which aggregate at least $200,000,000 and are
invested solely in so-called "money market" obligations.
5. CONDITIONS OF UNDERWRITERS' OBLIGATIONS. The obligations of the
several Underwriters herein shall be subject to the accuracy of the
representations and warranties on the part of the Company herein as of the date
hereof, and as of each Closing Date, to the accuracy of the written statements
of Company officers made pursuant to the provisions hereof, to the performance
by the Company of its obligations hereunder and to the following additional
conditions:
(a) The Registration Statement shall have become effective not later
than 5:00 P.M., Minneapolis, Minnesota time, on the date of this
Agreement or on such later time and date as shall be satisfactory to you,
as Representative of the several Underwriters, no stop order suspending
the effectiveness of the Registration Statement or any amendment thereof
or supplement or the qualification of the Units for offering or sale shall
have been issued and no proceedings for that purpose shall have been
instituted or shall be pending or shall be threatened by the Commission or
by any state securities authority, and 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 your
satisfaction.
(b) You shall not have advised the Company that the Registration
Statement or Prospectus, or any amendment thereof or supplement
thereto, contains an untrue statement of fact that, in your reasonable
opinion, is material, or omits to state a fact that, in your reasonable
opinion, is material and is required to be stated therein or is necessary
to make the statements therein not misleading provided that this Section
5(b) shall not apply to statements in, or omissions from, the Registration
Statement or Prospectus, or any amendment thereof or supplement thereto
that are based upon and conform to written information provided by you
specifically for use in the Registration Statement or Prospectus.
(c) On or prior to each Closing Date, the form and validity of the
Units, the legality and sufficiency of the corporate proceedings and
matters relating to the incorporation of the Company and other matters
incident to the issuance of the Units, the form of the Registration
Statement and the Prospectus and of any amendments thereof or supplements
thereto filed prior to such Closing Date (other than financial statements
and schedules and other financial or statistical data included therein),
the authorization, execution, and delivery of this Agreement and the
description of the Units contained in the Prospectus shall have been
reasonably approved by you. In connection with such determination, the
Company shall have furnished to you such documents as you may have
requested for the purpose of enabling you to pass upon such matters.
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(d) On each Closing Date there shall have been furnished to you, as
Representative of the several Underwriters, the favorable opinion
(addressed to the Underwriters) of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & Brand, a
Professional Limited Liability Partnership, counsel for the Company, dated
such Closing Date, and in form reasonably satisfactory to counsel for the
Underwriters, to the effect that:
(i) The Company is a corporation duly incorporated, validly
existing and in good standing under the laws of the State of
Minnesota, with corporate power and authority to own or lease its
properties and conduct its business as described in the Prospectus.
The Company has no subsidiaries other than as described in the
Prospectus.
(ii) The authorized capital stock of the Company as of the
date of this Agreement is as set forth in the Prospectus. The
outstanding shares of the Common Stock of the Company have been duly
authorized and validly issued and are fully paid and nonassessable.
The Units (and their components) have been duly authorized and, upon
issuance, delivery and payment therefor as described in this
Agreement, will be validly issued, fully paid and nonassessable. The
shares of Common Stock underlying the Warrants have been duly
authorized and reserved for issuance and when issued, sold and
delivered in accordance with the terms of the Warrant, will be
validly issued, fully paid and nonassessable. The issuance, sale and
delivery of the Underwriter's Warrant has been duly authorized and
the shares (the "WARRANT SHARES") of Common Stock issuable upon the
exercise thereof have been reserved for issuance upon such exercise.
The Warrant Shares, when issued, sold and delivered in accordance
with the terms of the Underwriter's Warrant, will be validly issued,
fully paid and nonassessable. No preemptive rights of, or rights of
refusal in favor of, stockholders of the Company exist with respect
to the Units (or any component thereof), the Underwriter's Warrant or
the Warrant Shares, or the issue and sale thereof, pursuant to the
Company's Articles of Incorporation or Bylaws.
(iii) The authorized securities of the Company conform as to
legal matters in all material respects to the description
thereof set forth in the Prospectus under the caption "Description of
Securities." The certificates representing the Warrants and the
Common Stock are in proper form under the Minnesota Business
Corporation Act.
(iv) The Registration Statement has become effective under
the Securities Act and, to such counsel's knowledge, no stop
order suspending the effectiveness of the Registration Statement or
suspending or preventing the use of the Prospectus is in effect and,
to our knowledge, no proceedings for that purpose have been
instituted or are pending by the Commission.
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(v) The Registration Statement and the Prospectus comply as to
form in all material respects with the requirements of the
Securities Act and with the Rules and Regulations, except the
financial statements, the notes thereto and the related schedules and
other financial and statistical data contained therein, as to which
we express no opinion.
(vi) Counsel knows of no contracts, leases, documents or
pending legal proceedings that are required to be described in
the Prospectus or to be filed as exhibits to the Registration
Statement that are not so described or filed.
(vii) The Underwriting Agreement, the Warrant Agreement and
the Underwriter's Warrant have been duly authorized by all
requisite corporate action, executed and delivered by the Company and
constitute the valid and binding obligations of the Company
enforceable in accordance with their respective terms.
(viii) The execution and delivery of the Underwriting
Agreement and the issue and sale of the Underwriter's Warrant,
the Units (and their components) and the shares underlying the
Warrant will not violate or conflict with the Articles of
Incorporation or the Bylaws of the Company or any material provision
of any material contract or instrument filed as an exhibit to the
Registration Statement to which the Company is a party or by which
the Company is bound (other than any violation of or conflict with
any financial tests or covenants contained therein, as to which
counsel need express no opinion) or any law of the United States or
the State of Minnesota, any rule or regulation of any governmental
authority or regulatory body of the United States or the State of
Minnesota, or any judgment, order or decree known to us and
applicable to the Company of any court or governmental authority.
(ix) No holders of capital stock of the Company, or securities
convertible into capital stock of the Company, have the right
to cause the Company to include such holder's capital stock in the
Registration Statement pursuant to the Company's Articles of
Incorporation or Bylaws or any contract or agreement.
(x) No consent, approval, authorization or order of, and no
notice to or filing with, any governmental agency or body or
any court is required to be obtained or made by the Company for the
issue and sale of the Units pursuant to the Underwriting Agreement,
except such as have been obtained or made and such as may be required
under applicable state securities or blue sky laws or by the National
Association of Securities Dealers, Inc., as to which we
express no opinion.
Although counsel to the Company cannot guarantee the accuracy
and completeness of the statements contained in the Registration
Statement or in the Prospectus, on the basis of discussions and meetings
with officers of the Company,
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representatives of the Company's independent auditors, the Underwriters
and counsel to the Underwriters, our participation in the preparation of
the Registration Statement and the Prospectus, our examination of the
documents referred to in the Registration Statement and in the Prospectus,
and our procedures forming the basis of the opinions expressed above,
nothing came to our attention that led us to believe that the Registration
Statement, as of the date it was declared effective, contained an untrue
statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading, or that the Prospectus, as of its date or on the date hereof,
contained or contains an untrue statement of a material fact or omitted or
omits to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading (provided that we express no view with
respect to the content of financial statements, the notes thereto and the
related schedules and other financial or statistical data included in the
Registration Statement or the Prospectus or as to statements in the
Registration Statement or Prospectus which are based on and conform to
written information furnished to the Company by or on your behalf
specifically for use in the preparation thereof).
In rendering such opinion, such counsel may rely (A) as to questions
of the law of jurisdictions other than the State of Minnesota or the
United States upon an opinion or opinions (dated the Closing Date,
addressed to you and in form satisfactory to you) of counsel acceptable to
you and (B) as to matters of fact, to the extent they deem proper, on
certificates of appropriate officers of the Company, of the transfer agent
and registrar for the Units and of public officials; PROVIDED, such
opinions and certificates must be attached to the opinion of counsel.
(e) At the time of execution of this Agreement, the Underwriters
shall have received from Ernst & Young, LLP, a letter dated the date of
such execution, in form and substance satisfactory to the Representative,
to the effect that they are independent accountants with respect to the
Company within the meaning of the Act and the applicable published
instructions, and Regulations thereunder, and further stating in effect
that:
(i) In their opinion, the audited financial statements
included in the Registration Statement and Prospectus covered
by their report included therein, comply as to form in all material
respects with the applicable requirements of the Act and the
published instructions, and Regulations, thereunder.
(ii) On the basis of (A) a reading of the minutes of the
shareholders' and directors' meetings of the Company since
inception, (B) inquiries of certain officials of the Company
responsible for financial and accounting matters, (C) a reading of
the Company's monthly operating statements subsequent to December 31,
1996, and (D) other specified procedures and inquiries (but not an
audit in accordance with generally accepted auditing standards),
nothing came to their attention causing them to believe that:
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(1) that the unaudited financial statements of the
Company, contained in the Prospectus and any amendment thereof
or supplement thereto, do not comply as to form, in all material
respects, with the applicable accounting requirements of the Act
and the published Rules and Regulations or were not prepared in
conformity with generally-accepted accounting principles and
practices applied on a basis consistent in all material respects
with those followed in the preparation of, the audited financial
statements of the Company included therein; or
(2) that the unaudited amounts of revenues, income
before provision for income taxes, net income and ratio of
earnings to fixed charges of the Company contained in the
Prospectus, or any amendment thereof or supplement thereto, were
not derived from financial statements prepared in conformity
with generally-accepted accounting principles and practices
applied on a basis consistent in all material respects with
those followed in the preparation of the audited financial
statements of the Company included therein; or
(3) that the unaudited pro forma financial statements of
the Company and recently-acquired companies, if any, contained
in the Prospectus or any amendment thereof or supplement
thereto, were not properly compiled in accordance with
generally-accepted accounting principles or did not provide for
all adjustments necessary for a fair presentation of the
information purported to be shown thereby; or
(4) with respect to the period subsequent to December
31, 1996, there were, at a specified date, not more than five
(5) business days prior to the date of the letter, any changes
or any material increases or decreases in capital stock,
long-term or short-term debt or shareholders' equity, decreases
in net assets, net current assets, or net worth or any material
decrease, as compared with the corresponding period of the prior
year, in revenues or net income of the Company as compared with
the amounts shown in the December 31, 1996 balance sheet
included in the Registration Statement, except as disclosed or
referred to in the Prospectus and Registration Statement.
(iii) Certain information set forth on the cover of the
Prospectus, and in the Prospectus under the headings
"Prospectus Summary," "Summary Financial Information," "Risk
Factors," "Use of Proceeds," "Dilution," "Capitalization,"
"Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business," "Management," "Reorganization,"
"Certain Transactions," "Principal Shareholders" and "Description of
Securities" and that are expressed in dollars (or percentages derived
from dollar amounts) or numbers have been compared to accounting
records of the Company which were subject to
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the internal accounting controls of the Company and are in
agreement with such records or computations made therefrom, excluding
any questions of legal interpretation.
(f) The Underwriters shall have received from Ernst & Young, LLP, a
letter dated as of each Closing Date, to the effect that such
accountants reaffirm, as of such Closing Date, and as though made on such
Closing Date, the statements made in the letter furnished by such
accountants pursuant to subparagraph (e) of this Section 5, except that
the specified date referred to in such letter will be a date not more than
five (5) business days prior to such Closing Date.
(g) At each Closing Date, the Company shall have performed all
material obligations and satisfied all material conditions on its part
to be performed or satisfied on or prior thereto (except any condition
satisfaction of which shall have been waived as herein provided) and
compliance with the provisions of this subparagraph (g) shall be evidenced
by a certificate of an executive officer of the Company.
(h) On each Closing Date there shall have been furnished to you a
certificate, dated as of such Closing Date and addressed to you, as
Representative of the several Underwriters, signed by the principal
executive officer and principal financial officer of the Company to the
effect that:
(i) the representations and warranties and covenants of the
Company in this Agreement are true and correct in all material
respects as if made at and as of such Closing Date and the Company
has complied in all material respects with all the agreements and
satisfied all the material conditions on its part to be performed or
satisfied hereunder at or prior to such Closing Date;
(ii) no stop order or other order suspending the
effectiveness of the Registration Statement or any amendment or
supplement thereto or the qualification of the Units for offering or
sale has been issued and, to the Company's knowledge, no proceedings
for that purpose have been instituted or are pending or, to the
knowledge of the respective signers thereof, are threatened by the
Commission or any state or regulatory body;
(iii) neither the Registration Statement, as of the date it
was declared effective, nor the Prospectus, as of its date and
the Closing Date, included any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; (B) since
the effective date of the Registration Statement, no event has
occurred which should have been set forth in an amendment or
supplement to the Prospectus which has not been set forth in such an
amendment or supplement; (C) subsequent to the respective dates as of
which information is given in the Registration Statement and
Prospectus and
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except as set forth in or contemplated by the Prospectus, the
Company has not incurred any material liability or obligation, direct
or contingent, whether or not in the ordinary course of business, or
entered into any material transaction, outside of the ordinary course
of business, and there has not been any material change in the Common
Stock, or any increase in the short-term or long-term debt, including
any capitalized lease obligation (other than in the ordinary course
of its business and in an amount which is not material) or any
issuance of options, warrants, convertible securities or other rights
to purchase the Common Stock of the Company or any material adverse
change in the general affairs, business, key personnel,
capitalization or financial position of the Company considered as a
whole (other than the issuance of Common Stock pursuant to existing
options); and subsequent to the date of the Underwriting Agreement,
the Company has not sustained any material loss or damage to its
property or interference with its business by strike, fire, flood,
accident or other calamity, whether or not any of the foregoing is
insured, that would have a material adverse effect upon the Company
considered as a whole, (D) the projection of the Company previously
presented to the Representative showing that the Company will be able
to meet the maintenance requirements for listing on The Nasdaq
SmallCap Market for a period of 24 months from the date hereof, were
prepared in good faith and continue to represent the signers' best
present estimate of the Company's financial condition following the
Closing of the sale of the Units.
(i) The Underwriters shall receive a Blue Sky Memorandum reasonably
satisfactory to the Representative from ▇▇▇▇▇▇▇, Rumble & Butler, P.A.,
confirming that all requisite action for the offer and sale of the Units
in all jurisdictions requested has been taken.
(j) The Underwriters shall have received "lock up" agreements, in
form and substance acceptable to the Representative, from (i) all
directors, officers and five percent or greater shareholders of the
Company restricting the sale, assignment or other conveyance of any
securities of the Company without the prior written consent of the
Representative for a period of 180 days from the effective date of the
Registration Statement under the Act, and (ii) from all significant
shareholders of the Company (as reasonably determined by the
Representative) restricting the sale, assignment or other conveyance of
any securities of the Company without the prior written consent of the
Representative for a period of 90 days from the effective date of the
Registration Statement under the Act.
(k) The Company's Units (and the securities comprising the Units)
shall be listed on The Nasdaq SmallCap Market on or prior to the
effective date of the Registration Statement under the Act.
(l) Prior to the First Closing, the number of issued and outstanding
shares of common stock of the Company shall not exceed 5,399,289 shares,
and there shall be no
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change in the capitalization of the Company without the prior written
consent of the Representative.
(m) The Company's Units (and the securities comprising the Units)
shall be registered under the Securities Exchange Act of 1934, as
amended, pursuant to Form 8-A, on or prior to the effective date of the
Registration Statement under the Act.
(n) The Company shall have furnished to the Representative and
▇▇▇▇▇▇▇, Rumble & Butler, P.A., counsel for the Representative, such
further certificates and documents as your Underwriters' counsel may
reasonably request, relating to the fulfillment of the conditions set
forth in this Section 5.
All such opinions, certificates, letters and documents will be in
compliance with the provisions hereof only if they are reasonably satisfactory
to you and to counsel for the Underwriters. The Company will furnish you with
such conformed copies of such opinions, certificates, letters, and other
documents as you shall reasonably request. The Representative, on behalf of
the several Underwriters, may waive in writing the performance of any one or
more of the conditions specified in this Section 5 or extend the time for their
performance.
If any of the conditions specified in this Section 5 shall not have been
fulfilled when and as required by this Agreement to be fulfilled, this
Agreement and all obligations of the several Underwriters hereunder may be
cancelled by you, as Representative of the several Underwriters, at, or at any
time prior to, each Closing Date. Any such cancellation shall be without
liability of the Underwriters to the Company or any liability of the Company to
the Underwriters, except pursuant to Section 4(i) hereof. Notice of such
cancellation shall be given to the Company in writing, or by telefax or
telephone confirmed in writing.
The Representative may waive in writing the performance of any one or more
of the foregoing conditions or extend the time for their performance.
6. EFFECTIVE DATE AND TERMINATION.
(a) This Agreement shall become effective at immediately after the
time at which the Registration Statement shall have become effective
under the Act.
(b) Until the First Closing Date, this Agreement may be terminated
by you by giving notice to the Company, if (i) the Company shall have
sustained a loss or damage by fire, flood, accident, or other calamity
which is material to the property, business, or condition (financial or
other) of the Company considered as a whole, any properties of the Company
shall have become a party or subject to litigation material to the Company
considered as a whole, or there shall have been, since the respective
dates as of which information is given in the Registration Statement or
the Prospectus, any material adverse change or development in the general
affairs, condition (financial or other), business, key personnel,
capitalization, properties, results of operations or net worth, of the
Company
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considered as a whole, whether or not arising in the ordinary course of
business, which loss, damage, or change, in your judgment, shall render it
inadvisable to proceed with the delivery of the Units, whether or not such
loss shall have been insured, (ii) trading in securities generally on the
New York Stock Exchange, the American Stock Exchange, The Nasdaq National
Market, The Nasdaq SmallCap Market or the over-the-counter market shall
have been suspended or minimum prices shall have been established on such
exchange or market by the Commission or by such exchange, (iii) a general
banking moratorium shall have been declared by federal or state
authorities, or (iv) there shall have been such a serious, unusual and
material adverse change in general economic, political, or financial
conditions or the effect of international conditions on the financial
markets in the United States shall be such as, in your reasonable
judgment, makes it inadvisable to proceed with the delivery of the Units.
Any termination of this Agreement pursuant to this Section 6 shall be
without liability of the Company to the Underwriters, except as otherwise
provided in Sections 4(i), 7 and 8 hereof, and without liability of the
Underwriters to the Company, except as provided in Sections 7 and 8
hereof.
(c) Any notice referred to in this Section 6 may be given at the
address specified in Section 11 hereof in writing or by telegraph or
telephone, and if by telegraph or telephone, shall be immediately
confirmed in writing.
7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person, if any, who controls any Underwriter
within the meaning of the Act against any losses, claims, damages or
liabilities, joint or several, to which such Underwriter or such
controlling person may become subject, under the Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact made by the Company in Section
l hereof or contained (A) in the Registration Statement, any Preliminary
Prospectus, or the Prospectus, or any amendment thereof or supplement
thereto, or (B) in any Blue Sky application or other document executed by
the Company specifically for that purpose or based upon and conforming to
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Units under the
securities laws thereof (any such application, document or information
being hereinafter called a "BLUE SKY APPLICATION"), or (ii) the omission
or alleged omission to state in the Registration Statement, any
Preliminary Prospectus, or the Prospectus, or any amendment thereof or
supplement thereto, or in any Blue Sky Application a material fact
required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not
misleading; and will reimburse the Underwriters, their officers and
directors and each such controlling person for any legal or other expenses
reasonably incurred by the Underwriters, their officers and directors or
such controlling person in connection with investigating or defending any
such loss, claim, damage, liability or action; provided,
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however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged
untrue statement or omission or alleged omission made in reliance upon and
in conformity with written information furnished to the Company through
you or on your behalf specifically for use in the preparation of the
Registration Statement or any amendment thereof or supplement thereto, or
any such Blue Sky Application or any such Preliminary Prospectus or the
Prospectus or any such amendment thereof or supplement thereto; and
provided, further, that the foregoing indemnity agreement is subject to
the condition that, insofar as it relates to any untrue statement, alleged
untrue statement, omission or alleged omission made in any Preliminary
Prospectus but eliminated or remedied in the Prospectus (as amended or
supplemented), such indemnity agreement shall not inure to the benefit of
any Underwriter (or to the benefit of any person who controls any
Underwriter), if the person asserting any loss, liability, claim or damage
purchased the Units which are the subject thereof and a copy of the
Prospectus (as then supplemented or amended) was not sent or given to such
person with or prior to the written confirmation of the sale of such Units
to such person.
(b) Each Underwriter, severally, but not jointly, will indemnify and
hold harmless the Company, each of its directors, each of its officers
who has signed the Registration Statement, and each person, if any, who
controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, to which the Company or
any such director or officer, or controlling person, may become subject,
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of a material fact
contained (A) in the Registration Statement, any Preliminary Prospectus,
or the Prospectus, or any amendment thereof or supplement thereto, or (B)
in any Blue Sky Application, or (ii) the omission or alleged omission to
state in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment thereof or supplement thereto or in any Blue
Sky Application a material fact required to be stated therein or necessary
to make the statements therein, in the light of the circumstances under
which they were made, not misleading, in each case to the extent, but only
to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity
with written information furnished to the Company through you, as
Representative of the Underwriters by or on behalf of such Underwriter,
specifically for use with reference to the Underwriter in the preparation
of the Registration Statement or any amendment thereof or supplement
thereto or any such Blue Sky Application or any such Preliminary
Prospectus or the Prospectus or any such amendment thereof or supplement
thereto; and will reimburse the Company, any such director or officer, or
controlling person, for any legal or other expenses reasonably incurred by
the Company or any such director or officer, or controlling person, in
connection with investigating or defending any such loss, claim, damage,
liability or action. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
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(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such
indemnified party will, if a claim in respect thereof is to be made
against any indemnifying party under this Section 7, notify in writing the
indemnifying party of the commencement thereof; no indemnification shall
be available to any party who shall fail to give notice as provided in
this Section 7(c) if the party to whom notice was not given was unaware of
the proceeding to which such notice would have related and was prejudiced
by the failure to give such notice, but the omission so to notify such
indemnifying party of any such action, suit or proceeding shall not
relieve it from any liability that it may have to any indemnified party
for contribution or otherwise than under this section. In case any such
action is brought against any indemnified party, and the indemnified party
notifies an indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate therein, and, to the
extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel who shall
be to the reasonable satisfaction of such indemnified party, and
(notwithstanding subparagraphs (a) and (b) of this Section 7) after notice
from the indemnifying party to such indemnified party of its election so
to assume the defense thereof, the indemnifying party will not be liable
to such indemnified party under this Section 7 for any legal or other
expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation
except as provided below. The indemnified party shall have the right to
employ its counsel in any such action, but the fees and expenses of such
counsel shall be at the expense of such indemnified party unless (i) the
employment of counsel by such indemnified party has been authorized in
writing by the indemnifying parties, (ii) the indemnified party shall have
reasonably concluded that there may be a conflict of interest between the
indemnifying parties, or any of them, and the indemnified party in the
conduct of the defense of such action (in which case the indemnifying
parties shall not have the right to direct the defense of such action on
behalf of the indemnified party) or (iii) the indemnifying parties shall
not have employed counsel to assume the defense of such action within a
reasonable time after notice of the commencement thereof, in each of which
cases the fees and expenses of counsel shall be at the expense of the
indemnifying parties; provided, however, that the indemnifying parties
shall not be liable for the fees and expenses of more than one counsel for
the indemnified parties. Any such indemnifying party shall not be liable
to any such indemnified party on account of any settlement of any claim or
action effected by the indemnified party without the consent of such
indemnifying party.
8. CONTRIBUTION. In order to provide for just and equitable contribution
in circumstances in which indemnification provided for in Section 7 is
unavailable, each indemnifying party shall contribute to the aggregate losses,
claims, damages, expenses and liabilities to which the indemnified parties may
be subject in such proportion so that the several Underwriters are responsible
for that portion (the "UNDERWRITING PORTION") represented by the percentage
that the underwriting commissions appearing on the cover page of the Prospectus
bear to the public offering price (net of Underwriting Commissions) appearing
thereon and the Company is responsible for the remaining portion (the "RESIDUAL
PORTION"); provided, however, (i) that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of
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the Act) will be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation; and (ii) if such allocation is not permitted
by applicable law, then the relative fault of the Company, its directors,
officers and controlling persons, on the one hand, and the several
Underwriters, and their respective officers, directors and its controlling
persons, on the other, in connection with the statements or omissions which
resulted in such damages and other relevant equitable considerations shall also
be considered. The relative fault shall be determined by reference to, among
other things, whether in the case of an untrue statement of a material fact or
the omission to state a material fact, such statement or omission relates to
information supplied by the Company or by the Underwriters and the parties'
relative intent, knowledge, access to information, and opportunity to correct
or prevent such untrue statement or omission. The Company and the several
Underwriters agree that it would not be just and equitable if the respective
obligations of the Company on the one hand, and the Underwriters, on the other,
to contribute pursuant to this Section 8 were to be determined by pro rata or
per capita allocation of the aggregate damages (even if the Underwriters, and
their respective officers, directors and their respective controlling persons
in the aggregate were treated as one entity for such purpose) or by any other
method of allocation that does not take account of the equitable considerations
referred to in this Section 8. For purposes of this Section 8, the term
"DAMAGES" shall include any legal or other expense reasonably incurred by the
indemnified party in connection with investigating or defending any action or
claim that is the subject of the contribution provisions of this Section 8.
Notwithstanding the provisions of this Section 8, the several Underwriters,
their respective officers, directors and its controlling persons in the
aggregate shall not be required to contribute any amount in excess of the
amount by which the total purchase price of the Units purchased by it, directly
or indirectly, from the Company pursuant to this Agreement exceeds the amount
of any damages that the several Underwriters, their respective officers,
directors and their respective controlling persons in the aggregate have
otherwise been required to pay by reason of such untrue statement or omission.
For purposes of this Section 8, each person, if any, who controls any
Underwriter within the meaning of the Act shall have the same rights to
contribution as such Underwriter, and each person, if any, who controls the
Company within the meaning of the Act, each officer who shall have signed the
Registration Statement and each director of the Company shall have the same
rights to contribution as the Company. Each party entitled to contribution
agrees that, upon the service of a summons or other initial legal process upon
it in any action instituted against it in respect of which contribution may be
sought, it will promptly give written notice of such service to the party or
parties from whom contribution may be sought, but the omission so to notify
such party or parties of any such service shall not relieve the party from whom
contribution may be sought from any obligation it may have hereunder or
otherwise. In case any such action, suit, or proceeding is brought against any
party, and such person so notifies a contributing party of the commencement
thereof, the contributing party will be entitled to participate therein with
the notifying party and any other contributing party similarly notified.
9. SUBSTITUTION OF UNDERWRITERS. If one or more of the Underwriters shall
fail or refuse (otherwise than for a reason sufficient to justify the
cancellation or termination of this Agreement under the provisions of Sections
5 or 6 hereof) to purchase and pay for the number of Units agreed to be
purchased by such Underwriter or Underwriters upon tender to you of such Units
in accordance with the terms hereof, and the number of such Units shall not
exceed 10%
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of the total number of units to be purchased by the Underwriters hereunder,
then, each of the nondefaulting Underwriters shall purchase and pay for (in
addition to the number of Units which it has severally agreed to purchase
hereunder) that proportion of the number of Units which the defaulting
Underwriter or Underwriters shall have so failed or refused to purchase which
the number of Units agreed to be purchased by the nondefaulting Underwriter
bears to the aggregate number of Units so agreed to be purchased by all such
nondefaulting Underwriters. In such case, you or the Company shall have the
right to postpone each Closing Date specified in Section 3 hereof to a date not
later than the seventh full business day after the date originally fixed as
such Closing Date pursuant to said Section 3 in order that any necessary
changes in the Registration Statement, the Prospectus, or any other documents
or arrangements may be made.
If one or more of the Underwriters shall fail or refuse (otherwise than
for a reason sufficient to justify the cancellation or termination of this
Agreement under the provisions of Sections 5 or 6 hereof) to purchase and pay
for the number of Units agreed to be purchased by such Underwriter or
Underwriters upon tender to you of such Units in accordance with the terms
hereof and the number of such Units shall exceed 10% of the total number of
Units to be purchased by the Underwriters, hereunder, then (unless within
forty-eight hours after such default arrangements to your satisfaction shall
have been made for the purchase of the defaulted Units by an Underwriter or
Underwriters) this Agreement shall terminate without liability on the part of
any nondefaulting Underwriter or on the part of the Company except as otherwise
provided in Sections 4(i), 7 and 8 hereof. As used in this Agreement, the term
"UNDERWRITER" includes any person substituted for an Underwriter under this
paragraph. Nothing in this Section 9, and no action taken hereunder, shall
relieve an defaulting Underwriter from liability in respect of any default of
such Underwriter under this Agreement.
10. SURVIVAL OF INDEMNITIES, CONTRIBUTION, WARRANTIES AND REPRESENTATIONS.
The respective indemnity and contribution agreements of the Company and the
Underwriters contained in Sections 7 and 8 hereof, the representations,
warranties, and covenants of the Company contained in Sections 1 and 4 hereof
and the representations and warranties of the Underwriters contained in Section
14 hereof shall remain operative and in full force and effect, regardless of
any termination or cancellation of this Agreement or any investigation made by
or on behalf of any of the Underwriters or the Company or any of their
respective directors or officers, or any controlling person referred to in said
Sections 7 and 8, and shall survive the delivery of, and payment for, the
Units.
11. NOTICES. Except as otherwise expressly provided in this Agreement,
all notices and other communications hereunder shall be in writing and, if
given to the Underwriters, shall be mailed, delivered or telefaxed to ▇. ▇.
▇▇▇▇▇▇▇▇ & Company, One Financial Plaza, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇,
▇▇ ▇▇▇▇▇, Attention: President, with a copy to Girard P. Miller, Doherty,
Rumble & Butler, P.A., ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇, or if given to the Company, shall be mailed, delivered or telefaxed to
it at Hotel Discovery, Inc., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇
▇▇▇▇▇, Attention: President, with a copy to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ & Brand, a Professional Limited Liability Partnership, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇.
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12. UNDERWRITER'S WARRANT. Upon payment of a purchase price of $50 by the
Representative, the Company will issue and deliver to ▇. ▇. ▇▇▇▇▇▇▇▇ & Company,
for its account, Warrants to purchase Common Stock in an amount equal to
250,000 shares of Common Stock. Such Warrants shall be issued on the Closing
Date and shall be dated as of the Closing Date. Such Warrants shall be
exercisable commencing one (1) year after the Effective Date for a period of
four years thereafter at a price per share of $6.00. Such Warrant shall
contain such terms and conditions as contained in the form of Underwriter's
Warrant attached hereto and labeled Appendix A.
13. INFORMATION FURNISHED BY UNDERWRITERS. The statements relating to
stabilization activities of the Underwriters on the inside front cover of the
Preliminary Prospectus and the Prospectus, and under the caption "UNDERWRITING"
in any Preliminary Prospectus and in the Prospectus, and, to the extent the
same relate to you, in any Blue Sky application, constitute the written
information furnished by or on behalf of you referred to in Section 1 hereof
and in paragraphs (a) and (b) of Section 7 hereof.
14. PARTIES. This Agreement is made solely for the benefit of the several
Underwriters, the Company, any director, officer, or controlling person
referred to in Sections 7 and 8 hereof, and their respective personal
representatives, successors and assigns, and no other person shall acquire or
have any right by virtue of this Agreement. The term "personal
representatives, successors and assigns," as used in this Agreement, shall not
include any purchaser of Units (as such purchaser) from the Underwriters.
15. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE REPRESENTATIVE. The
Representative, on behalf of the several Underwriters, represents, warrants to
and agrees with the Company that:
(a) The Underwriters are corporations or partnerships duly formed
and validly existing in good standing under the laws of the jurisdiction
in which they are incorporated or formed.
(b) Each Underwriter is duly registered as a broker-dealer under the
Securities Exchange Act of 1934, as amended, and under the securities
laws of Minnesota and of such other states in which it intends to offer
or sell the Units, if such registration is required in any such other
state, and is a member in good standing of the National Association of
Securities Dealers, Inc., and no proceedings have been initiated or
threatened to suspend any such registration or membership.
(c) The execution, delivery and performance of this Agreement by the
Representative on behalf of the several Underwriters, and the
consummation of the transactions contemplated hereby, have been duly
authorized by the Underwriters, and at the time of its execution,
performance, or consummation, will not constitute or result in any breach
or violation of any of the terms, provisions or conditions of, or
constitute a default under, any federal statute or regulation (including,
without limitation, the net
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capital requirements under Rule 15c-1 of the Securities Exchange Act of
1934) or any statute or regulation of any state in which it intends to
offer or sell the Units, or any order, judgment, decree, rule or
regulation of any court or governmental agency or body having
jurisdiction over the Underwriter or any of its activities or property;
and other than registration of the Units under the Act and applicable
states securities laws and subject to the favorable review by the
National Association of Securities Dealers, Inc., no consent, approval,
authorization or order of any court or governmental agency or body is
required for the consummation of the transactions contemplated hereby.
(d) There is not now pending or threatened against any of the
Underwriters or any control person of an Underwriter any action or
proceeding either in any court of competent jurisdiction or before the
Commission, National Association of Securities Dealers, Inc. or the
securities authorities of any state, based upon any action or failure to
act on the part of the Underwriter or any controlling person of an
Underwriter that would restrict your ability to perform your obligations
hereunder.
(e) The Units will be offered by the Underwriters only to persons
resident in Minnesota and such other states as are mutually designated by
the Representative and the Company pursuant to Section 4(c) hereof. All
of such persons shall be persons and entities for whom the purchase of
the Units is a suitable investment and you shall employ or engage no
Selected Dealer, sales person, agent or representative in the offer or
sale of the Units, which Selected Dealer, sales person, agent or
representative is not properly registered and licensed for the purpose of
such offer or sale. All such registrations and licenses shall remain in
full force and effect until after the Closing Dates.
(f) The Representative, on behalf of the several Underwriters,
agrees that neither any Underwriter nor any officer or other person
employed by any Underwriter or any Selected Dealer will provide any
information or make any representations to offerees of the Units, other
than such information and representations as are either contained in the
Prospectus or the Registration Statement or are not inconsistent with
information set forth in the Prospectus or the Registration Statement.
(g) The Representative, on behalf of the several Underwriters,
agrees that in any event the Representative learns of any circumstances
or fact which it believes would make any Preliminary Prospectus, the
Prospectus, or the Registration Statement inaccurate or misleading in any
material respect, it will immediately bring such circumstances or facts
to the attention of the Company.
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16. GOVERNING LAW. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of Minnesota.
HOTEL DISCOVERY, INC.
By _________________________________________
Its ________________________________
"COMPANY"
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written:
▇. ▇. ▇▇▇▇▇▇▇▇ & COMPANY
By _________________________________
Authorized Officer
____________________________________
Print Name
"REPRESENTATIVE OF THE SEVERAL UNDERWRITERS"
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SCHEDULE I
NUMBER OF FIRM UNITS
UNDERWRITERS TO BE PURCHASED
------------ --------------------
TOTAL
30
APPENDIX A
COMMON STOCK PURCHASE WARRANT
(FORM OF)
31
HOTEL DISCOVERY, INC.
COMMON STOCK PURCHASE WARRANT
Hotel Discovery, Inc., an Minnesota corporation (the "COMPANY"), hereby
agrees that, for value received, ________________________________, or its
assigns, is entitled, subject to the terms set forth below, to purchase from
the Company at any time or from time to time after ____________, 1998, and
before 4:30 p.m., Minneapolis, Minnesota time, on __________, 2002 Two Hundred
Fifty Thousand (250,000) shares of the $.01 par value Common Stock of the
Company, at an exercise price of $6.00 per Share, subject to adjustment as
provided herein.
1. EXERCISE OF WARRANT. The purchase rights granted by this Warrant shall
be exercised (in minimum quantities of 100 shares) by the holder surrendering
this Warrant with the form of exercise attached hereto duly executed by such
holder, to the Company at its principal office, accompanied by payment, in cash
or by cashier's check payable to the order of the Company, of the purchase
price payable in respect of the Shares being purchased. If less than all of
the Shares purchasable hereunder is purchased, the Company will, upon such
exercise, execute and deliver to the holder hereof a new Warrant (dated the
date hereof) evidencing the number of Shares not so purchased. As soon as
practicable after the exercise of this Warrant and payment of the purchase
price, the Company will cause to be issued in the name of and delivered to the
holder hereof, or as such holder may direct, a certificate or certificates
representing the Shares purchased upon such exercise. The Company may require
that such certificate or certificates contain on the face thereof a legend
substantially as follows:
"The transfer of the shares represented by this certificate is
restricted pursuant to the terms of a Common Stock Purchase
Warrant dated , 1997, issued by Hotel Discovery,
Inc., a copy of which is available for inspection at the offices
of Hotel Discovery, Inc. Transfer may not be made except in
accordance with the terms of the Common Stock Purchase Warrant.
In addition, no sale, offer to sell or transfer of the shares
represented by this certificate shall be made unless a
Registration Statement under the Securities Act of 1933, as
amended (the "ACT"), with respect to such shares is then in effect
or an exemption from the registration requirements of the Act is
then in fact applicable to such shares."
___________________________
THIS WARRANT IS SUBJECT TO THE RESTRICTIONS ON TRANSFER SET FORTH
AT THE BOTTOM OF PAGE 8 HEREOF.
32
2. NEGOTIABILITY AND TRANSFER. This Warrant is issued upon the following
terms, to which each holder hereof consents and agrees:
(a) Except where directed by a court of competent
jurisdiction pursuant to the dissolution or liquidation of a
corporate holder hereof, for the period ending one year from
, 1997, title to this Warrant may not be sold,
transferred, assigned or hypothecated, except that within such
one-year period title to this Warrant may be transferred only
to ________________ (the "UNDERWRITER"), or to a person who is
both an officer and shareholder, or both an officer and
employee, of the Underwriter, or to a successor (or both an
officer and shareholder, or both an officer and employee) in
interest to the business of the Underwriter, by endorsement
(by the holder hereof executing the form of assignment
attached hereto) and delivery in the same manner as in the
case of a negotiable instrument transferable by endorsement
and delivery subject to the requirements of Section 4 hereof.
(b) Until this Warrant is duly transferred on the
books of the Company, the Company may treat the registered
holder of this Warrant as absolute owner hereof for all
purposes without being affected by any notice to the contrary.
(c) Each successive holder of this Warrant, or of any
portion of the rights represented thereby, shall be bound by
the terms and conditions set forth herein.
3. ANTIDILUTION ADJUSTMENTS. If the Company shall at any time hereafter
subdivide or combine its outstanding shares of Common Stock, or declare
a dividend payable in Common Stock, the exercise price in effect immediately
prior to the subdivision, combination or record date for such dividend payable
in Common Stock shall forthwith be proportionately increased, in the case of
combination, or proportionately decreased, in the case of subdivision or
declaration of a dividend payable in Common Stock, and the number of Shares
purchasable upon exercise of this Warrant, immediately preceding such event,
shall be changed to the number determined by dividing the then current exercise
price by the exercise price as adjusted after such subdivision, combination or
dividend payable in Common Stock and against the number of Shares purchasable
upon the exercise of this Warrant immediately preceding such event, so as to
achieve an exercise price and number of Shares purchasable after such event
proportional to such exercise price and number of Shares purchasable
immediately preceding such event. No adjustment in exercise price shall be
required unless such adjustment would require an increase or decrease of at
least five cents ($0.05) in such price; PROVIDED, HOWEVER, that any adjustments
which are not require to be so made shall be carried forward and taken into
account in any subsequent adjustment. All calculations hereunder shall be made
to the nearest cent or to the nearest one-hundredth of a share, as the case may
be.
No fractional Shares are to be issued upon the exercise of the Warrant,
but the Company shall pay a cash adjustment in respect of any fraction of a
Share which would otherwise be
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issuable in an amount equal to the same fraction of the market price per share
of Common Stock on the day of exercise as determined in good faith by the
Company.
In case of any capital reorganization or any reclassification of the
Common Stock of the Company, or in the case of any consolidation with or merger
of the Company into or with another corporation, or the sale of all or
substantially all of its assets to another corporation, which is effected in
such a manner that the holders of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a part of such reorganization, reclassification, consolidation, merger
or sale, as the case may be, lawful provision shall be made so that the holder
of the Warrant shall have the right thereafter to receive, upon the exercise
hereof, the kind and amount of shares of stock or other securities or property
which the holder would have been entitled to receive if, immediately prior to
such reorganization, reclassification, consolidation, merger or sale, the
holder had held the number of Shares which were then purchasable upon the
exercise of the Warrant. In any such case, appropriate adjustment (as
determined in good faith by the Board of Directors of the Company) shall be
made in the application of the provisions set forth herein with respect to the
rights and interest thereafter of the holder of the Warrant, to the end that
the provisions set forth herein (including provisions with respect to
adjustments of the exercise price) shall thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of the Warrant.
When any adjustment is required to be made in the exercise price, initial
or adjusted, the Company shall forthwith determine the new exercise price, and
(a) prepare and retain on file a statement describing in
reasonable detail the method used in arriving at the new exercise
price; and
(b) cause a copy of such statement to be mailed to the holder of
the Warrant as of a date within ten (10) days after the date when
the circumstances giving rise to the adjustment occurred.
4. REGISTRATION RIGHTS. Prior to making any disposition of the Warrant or
of any Shares purchased upon exercise of the Warrant, the holder will give
written notice to the Company describing briefly the manner of any such
proposed disposition. The holder will not make any such disposition until (i)
the Company has notified him that, in the opinion of its counsel, registration
under the Act is not required with respect to such disposition, or (ii) a
Registration Statement covering the proposed distribution has been filed by the
Company and has become effective. The Company agrees that, upon receipt of
written notice from the holder hereof with respect to such proposed
distribution, it will use its best efforts, in the consultation with the
holder's counsel, to ascertain as promptly as possible whether or not
registration is required, and will advise the holder promptly with respect
thereto, and the holder will cooperate in providing the Company with
information necessary to make such determination.
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If, at any time prior to the expiration of seven (7) years from the date
hereof, the Company shall propose to file any Registration Statement (other
than any registration on Forms ▇-▇, ▇-▇ or any other similarly inappropriate
form or Registration Statement with respect to an initial public offering in
which there are no selling shareholders) under the Securities Act of 1933, as
amended, covering a public offering of the Company's Units or shares, it will
notify the holder hereof at least thirty (30) days prior to each such filing
and will include in the Registration Statement (to the extent permitted by
applicable regulation), the shares purchased by the holder or purchasable by
the holder upon the exercise of the Warrant to the extent requested by the
holder hereof. Notwithstanding the foregoing, the number of shares of the
holders of the Warrants proposed to be registered thereby shall be reduced pro
rata with any other selling shareholder (other than the Company) upon the
reasonable request of the managing underwriter of such offering. If the
Registration Statement or Offering Statement filed pursuant to such thirty (30)
day notice has not become effective within six months following the date such
notice is given to the holder hereof, the Company must again notify such holder
in the manner provided above.
At any time prior to the expiration of five (5) years from the date
hereof, and provided that a registration statement on Form S-3 (or its
equivalent) is then available to the Company, and on a one-time basis only, if
the holders of 50% or more of the Warrants and/or the Shares acquired upon
exercise of the Warrants request the registration of the Shares on Form S-3 (or
its equivalent), the Company shall promptly thereafter use its best efforts to
effect the registration under the Securities Act of 1933, as amended, of all
such shares which such holders request in writing to be so registered, and in a
manner corresponding to the methods of distribution described in such holders'
request.
All expenses of any such registrations referred to in this Section 4,
except the fees of counsel to such holders and underwriting commissions or
discounts, filing fees, and any transfer or other taxes applicable to such
shares, shall be borne by the Company.
Upon effectiveness of a Registration Statement which includes Common Stock
purchased or purchasable upon the exercise of this Warrant in accordance with a
valid demand under this Section 4, the rights under this Warrant of all holders
to make another such demand shall terminate. Each purchaser or transferee of a
portion of this Warrant is responsible to determine whether his or her demand
rights under this paragraph have been terminated by such an exercise. Any
Warrants issued upon transfers subsequent to such an exercise shall have all of
the demand registration provisions under this Section 4 deleted.
The Company will mail to each record holder, at the last known post office
address, written notice of any exercise of the rights granted under this
paragraph 4, by certified or registered mail, return receipt requested, and
each holder shall have twenty (20) days from the date of deposit of such notice
in the U.S. Mail to notify the Company in writing whether such holder wishes to
join in such exercise.
The Company will furnish the holder hereof with a reasonable number of
copies of any prospectus included in such filings and will amend or supplement
the same as required during the
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period of required use thereof. The Company will maintain, at its expense, the
effectiveness of any Registration Statement or the Offering Statement filed by
the Company, whether or not at the request of the holder hereof, for at least
six (6) months following the effective date thereof.
In the case of the filing of any Registration Statement, and to the extent
permissible under the Securities Act of 1933, as amended, and controlling
precedent thereunder, the Company and the holder hereof shall provide cross
indemnification agreements to each other in customary scope covering the
accuracy and completeness of the information furnished by each.
The holder of the Warrant agrees to cooperate with the Company in the
preparation and filing of any such Registration Statement or Offering
Statement, and in the furnishing of information concerning the holder for
inclusion therein, or in any efforts by the Company to establish that the
proposed sale is exempt under the Act as to any proposed distribution.
5. RIGHT TO CONVERT.
(a) The holder of this Warrant shall have the right
to require the Company to convert this Warrant (the
"CONVERSION RIGHT"), at any time after ________________, 1998
and prior to its expiration, into Common Stock as provided for
in this Section 5. Upon exercise of the Conversion Right, the
Company shall deliver to the holder (without payment by the
holder of any exercise price) that number of shares of Common
Stock equal to the quotient obtained by dividing (x) the value
of the Warrant at the time the Conversion Right is exercised
(determined by subtracting the exercise price for one Warrant
Share in effect immediately prior to the exercise of the
Conversion Right from the Fair Market Value (as determined
below) for one Warrant Share immediately prior to the exercise
of the Conversion Right) by (y) the Fair Market Value of one
share of Common Stock immediately prior to the exercise of the
Conversion Right.
(b) The Conversion Right may be exercised by the
holder, at any time or from time to time, prior to its
expiration, on any business day, by delivering a written
notice (the "CONVERSION NOTICE") to the Company at the offices
of the Company exercising the Conversion Right and specifying
(i) the total number of shares of Common Stock the
Warrantholder will purchase pursuant to such conversion, and
(ii) a place, and a date not less than five (5) nor more than
twenty (20) business days from the date of the Conversion
Notice, for the closing of such purchase.
(c) At any closing under Section 5(b) hereof, (i) the
holder will surrender the Warrant, (ii) the Company will
deliver to the holder a certificate or certificates for the
number of shares of Common Stock issuable upon such
conversion, together with cash, in lieu of any fraction of a
share, and (iii) the Company will deliver to the holder a new
Warrant representing the
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number of shares, if any, with respect to which the Warrant
shall not have been converted.
(d) "FAIR MARKET VALUE" of a share of Common Stock as
of a particular date (the "DETERMINATION DATE") shall mean:
(i) If the Company's Common Stock is
traded on an exchange or is quoted on The Nasdaq
National Market or The Nasdaq SmallCap Market, then the
average closing or last sale prices, respectively,
reported for the ten (10) business days immediately
preceding the Determination Date.
(ii) If the Company's Common Stock is not
traded on an exchange or on The Nasdaq National Market
or The Nasdaq SmallCap Market, but is traded in the
over-the-counter market, then the average of the closing
bid and asked prices reported for the ten (10) business
days immediately preceding the Determination Date.
(iii) If the Company's Common Stock is not publicly
traded and there has been a bona fide sale for cash on
an arm's-length basis within 45 days prior to the
Determination Date of such Common Stock by the Company
privately to one or more investors unaffiliated with
the Company (a "Qualifying Sale"), then the most recent
such sales price; and
(iv) If the Company's Common Stock is not publicly
traded and there has been no Qualifying Sale, then the
appraised fair market value of such stock, as
determined by mutual agreement of the Company and the
holder of the Warrant; or if the parties cannot agree
to such valuation, then each of the Company and the
holder shall select an arbitrator and such arbitrators
shall select a third, and such three arbitrators shall
determine (in accordance with the Commercial
Arbitration Rules of the American Arbitration
Association, such expenses to be borne equally by the
parties) the fair market value (without any discount
for lack of marketability or minority interest) of a
share of Common Stock of the Company.
6. NOTICES. The Company shall mail to the registered holder of the
Warrant, at his or her last known post office address appearing on the books of
the Company, not less than fifteen (15) days prior to the date on which (a) a
record will be taken for the purpose of determining the holders of Common Stock
entitled to dividends (other than cash dividends) or subscription rights, or
(b) a record will be taken (or in lieu thereof, the transfer books will be
closed) for the purpose of determining the holders of common stock entitled to
notice of and to vote at a meeting of shareholders at which any capital
reorganization, reclassification of common stock, consolidation,
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merger, dissolution, liquidation, winding up or sale of substantially
all of the Company's assets shall be considered and acted upon.
7. RESERVATION OF COMMON STOCK. A number of shares of Common Stock
sufficient to provide for the exercise of the Warrant and the shares of Common
Stock included therein upon the basis herein set forth shall at all times be
reserved for the exercise thereof.
8. MISCELLANEOUS. Whenever reference is made herein to the issue or sale
of shares of Common Stock, the terms "COMMON STOCK" or "SHARES" shall include
any stock of any class of the Company other than preferred stock that has a
fixed limit on dividends and a fixed amount payable in the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company.
The Company will not, by amendment of its Articles of Incorporation or
through reorganization, consolidation, merger, dissolution or sale of assets,
or by any other voluntary act or deed, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, but will, at all times in good faith,
assist, insofar as it is able, in the carrying out of all provisions hereof and
in the taking of all other action which may be necessary in order to protect
the rights of the holder hereof against dilution.
Upon written request of the holder of this Warrant, the Company will
promptly provide such holder with a then current written list of the names and
addresses of all holders of warrants originally issued under the terms of, and
concurrent with, this Warrant.
The representations, warranties and agreements herein contained shall
survive the exercise of this Warrant. References to the "holder of" include
the immediate holder of shares purchased on the exercise of this Warrant, and
the word "holder" shall include the plural thereof. This Common Stock Purchase
Warrant shall be interpreted under the laws of the State of Minnesota.
All Shares or other securities issued upon the exercise of the Warrant
shall be validly issued, fully paid and non-assessable, and the Company will
pay all taxes in respect of the issuer thereof.
Notwithstanding anything contained herein to the contrary, the holder of
this Warrant shall not be deemed a stockholder of the Company for any purpose
whatsoever until and unless this Warrant is duly exercised.
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IN WITNESS WHEREOF, this Warrant has been duly executed by Hotel
Discovery, Inc., this day of , 1997.
HOTEL DISCOVERY, INC.
By __________________________________________
Its _________________________________
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, OR APPLICABLE STATE SECURITIES LAW. THESE
SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE
OFFERED FOR SALE, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ASSIGNED
OR OTHERWISE DISPOSED OF, AND NO TRANSFER OF THE SECURITIES WILL
BE MADE BY THE COMPANY OR ITS TRANSFER AGENT, IN THE ABSENCE OF
SUCH REGISTRATION OR AN OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
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WARRANT EXERCISE FORM
To be signed only upon exercise of Warrant.
The undersigned, the holder of the within Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of Common Stock of Hotel
Discovery, Inc. to which such Warrant relates and herewith makes payment of
therefor in cash or by certified check, and requests that such
$ shares be issued and be delivered to, ,
the address for which is set forth below the signature of the undersigned.
Dated:______________
______________________________ _____________________________________
(Taxpayer's I.D. Number) Signature)
_____________________________________
(Address)
_____________________________________
ASSIGNMENT FORM
To be signed only upon authorized transfer of Warrant.
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto the right to purchase shares of Common
Stock of Hotel Discovery, Inc. to which the within Warrant relates and appoints
, attorney, to transfer said right on the books of Hotel
Discovery, Inc. with full power of substitution in the premises.
Dated: ________________________
_____________________________________
(Signature)
_____________________________________
(Address)
_____________________________________
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CASHLESS EXERCISE FORM
(To be executed upon exercise of Warrant pursuant to Section 5)
The undersigned hereby irrevocably elects a cashless exercise of the right
of purchase represented by the within Common Stock Purchase Warrant for, and to
purchase thereunder, ______________________ shares of Common Stock, as provided
for in Section 5 therein.
If said number of shares shall not be all the shares purchasable under the
within Common Stock Purchase Warrant, a new Warrant is to be issued in the name
of said undersigned for the balance remaining of the shares purchasable
thereunder rounded up to the next higher number of shares.
Please issue a certificate or certificates for such Common Stock in the
name of, and pay any cash for any fractional shares to:
NAME ____________________________________________________________
(Please Print Name)
ADDRESS ____________________________________________________________
____________________________________________________________
SOCIAL SECURITY NO. ______________________________________________________
SIGNATURE ____________________________________________________________
NOTE: The above signature should correspond exactly with the
name on the first page of this Common Stock Purchase Warrant
or with the name of the assignee appearing in the assignment
form on the preceding page.