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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1998
REGISTRATION NO. 333-______
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
WOODROAST SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1563961
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
10250 Valley View Road, Suite 145
Eden Prairie, MN 55344
(612) 944-5113
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Sheldon F. Jacobs
President and Chief Executive Officer
Woodroast Systems, Inc.
10250 Valley View Road, Suite 145
Eden Prairie, MN 55344
(612) 944-5113
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Gay L. Greiter, Esq.
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, Minnesota 55402-4140
(612) 672-8200
Approximate date of the commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement.
If the only securities being registered on this form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering.
[ ] ------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
AMOUNT OF PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SHARES TO BE AGGREGATE OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED (1) PRICE PER SHARE OFFERING PRICE REGISTRATION FEE
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.005 par value 735,000 $0.313 (2) $230,055.00 $67.87
================================= ====================== ======================== ======================= =====================
</TABLE>
(1) 635,000 of the shares are issuable on exercise of outstanding Warrants.
(2) Calculated pursuant to Rule 457(c) and Rule 457(o) under the Securities
Act of 1933 based upon the average of the high and low trading prices
on July 22, 1998, as reported on The Nasdaq Stock Market.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date
until the Registrant shall file a further amendment which specifically states
that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
the Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may determine.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these shall not constitute an offer to sell
or the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws of any
such State.
SUBJECT TO COMPLETION; DATED JULY 28, 1998
PROSPECTUS
WOODROAST SYSTEMS, INC.
735,000 SHARES OF
COMMON STOCK
This Prospectus relates to 735,000 shares of Common Stock of Woodroast
Systems, Inc. (the "Company") being sold by certain shareholders (the "Selling
Shareholders") of the Company. Six hundred thousand of the shares being offered
hereby are or were issuable upon the exercise of a warrant (the "Berman
Warrant") granted to one of the Selling Shareholders, which Warrant has been
exercised to the extent of 375,000 shares as of the date hereof. The gross
proceeds to the Company from the exercise of the Berman Warrant, if the Berman
Warrant is exercised in full, would be $6,000. Another 100,000 shares being
offered hereby were issued to another Selling Shareholder in exchange for
certain investment banking services. The remaining 35,000 shares being offered
hereby are issuable upon the exercise of a warrant (the "RRG Warrant") to be
granted to another of the Selling Shareholders in lieu of a commission in
connection with the sale of the Company's restaurant in Rockville, Maryland,
which sale is expected to be concluded in the third quarter of fiscal 1998. The
gross proceeds to the Company from the exercise of the RRG Warrant, if the RRG
Warrant is exercised in full, would be $13,125. The Company will receive no
proceeds from the sale of the Common Stock.
The Company's Common Stock is listed on the Nasdaq SmallCap Market
under the symbol "WRSI." On July 22, 1998, the last sale price for the Common
Stock as reported on the Nasdaq SmallCap Market was $0.313.
The Securities offered hereby involve a high degree of risk. See "Risk
Factors" beginning on page 3 for a description of certain factors which should
be considered by investors before purchasing the securities offered hereby.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is _________, 1998.
<PAGE> 3
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements, including the notes thereto,
appearing elsewhere or incorporated by reference in this Prospectus. This
Prospectus contains and incorporates by reference forward-looking statements
that involve risks and uncertainties. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such differences include, but are not limited to, those
discussed under the heading "Risk Factors," which prospective investors should
carefully consider.
THE COMPANY
Woodroast Systems, Inc. is a Minnesota corporation (the "Company")
headquartered in Eden Prairie, Minnesota. The Company owns and operates
restaurants with unique cooking and decor styles and cigar bars under its
federally registered trademark "Shelly's Woodroast" and "Shelly's Back Room"
design. The Shelly's Woodroast restaurant concept includes a north woods lodge
design and "Original Woodroast Cooking(R)," a signature style of cuisine
featuring slow-roasted meat, fish and fowl prepared in patented,
computer-controlled wood-burning ovens. The Shelly's Back Room concept features,
in addition to fine food and beverage service, accommodations for cigar smokers,
club seating, retail cigar sales, and a state-of-the-art air purification system
called "kleen-aire(TM)."
The Company owns and operates Shelly's Woodroast restaurants in St.
Louis Park, Minnesota, a suburb of Minneapolis (the "St. Louis Park
Restaurant"), and Rockville, Maryland, a suburb of Washington, D.C. (the
"Rockville Restaurant") (collectively, the "Restaurants"). The Company also
operates stand-alone Shelly's Back Rooms in Washington, D.C. (the "Washington
Back Room") and in Chicago, Illinois (the "Chicago Back Room"). The Company has
been operating the St. Louis Park Restaurant since 1989, the Rockville
Restaurant since November 1995, the Washington Back Room since June 1997 and the
Chicago Back Room since January 1998.
The Company is in the process of attempting the sell the Rockville and
St. Louis Park Restaurants in the context of changing its business strategy to
focus exclusively on Back Room cigar parlors rather than on full-fledged
restaurants. The Company is currently in the process of negotiating the sale of
the Rockville Restaurant and expects to conclude the sale during the third
quarter of fiscal 1998. However, no assurances can be given that such sale will
be concluded successfully.
The Company was incorporated as a Minnesota corporation in January
1987. The address and telephone number of its principal executive offices are
10250 Valley View Road, Suite 145, Eden Prairie, Minnesota 55344, (612)
944-5113.
THE OFFERING
Common Stock Offered.............................. 735,000 shares
Common Stock outstanding
before the offering............................ 4,255,804 shares
Common Stock outstanding
after the offering............................. 4,990,804 shares
Nasdaq SmallCap Market Symbol..................... WRSI
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RISK FACTORS
Each prospective investor should carefully consider the following
factors, among others, prior to purchasing the Shares offered hereby.
LACK OF PROFITABILITY; DEPENDENCE ON TWO RESTAURANTS AND TWO BACK ROOMS
The Company opened the St. Louis Park Restaurant in autumn of 1989 and
the Rockville Restaurant in November 1995. The Company opened its first
stand-alone Shelly's Back Room "The American Tavern" in Washington D.C. in June
1997 and its second in Chicago, Illinois in January 1998. The Company has
operated at a loss since its inception and had net losses of ($1,167,433),
($1,702,566) and ($3,182,294) during the fiscal years ended December 31, 1995,
December 29, 1996 and December 28, 1997, respectively, and a working capital
deficit of $1,283,617 at March 29, 1998. The Company expects losses to continue
for the near future. The Company is currently attempting to sell the St. Louis
Park and Rockville Restaurants.
Future revenues and profits will depend upon various factors, including
market acceptance of the Shelly's Back Room concept and general economic
conditions. There can be no assurance of the Company's ability to attain
profitability. The Company's present sole sources of revenue are two Woodroast
restaurants and two Shelly's Back Rooms. The Company also faces all of the
risks, expenses and difficulties frequently encountered in connection with the
operation and development of a new and expanding business. Furthermore, to the
extent that the Company's expansion strategy is successful, the Company must
manage the transition to multiple site operations (both Company-owned and
franchise operations), higher volume operations, the control of overhead
expenses and the addition of necessary personnel.
CHARGES TO EARNINGS
The Company will or may be required to reflect certain non-cash charges
to earnings in its financial statements during the second and third quarters of
fiscal 1998. These charges will be made as a result of the following
transactions: (1) Issuance of the Berman Warrant to Lyle Berman on April 29,
1998 for the purchase of 600,000 shares of common stock at an exercise price of
$.01 per share, which Warrant became exercisable during the second quarter for
375,000 shares and will become exercisable as to the remaining 225,000 shares if
and to the extent that Mr. Berman chooses to make additional advances to the
Company pursuant to a Secured Demand Promissory Note entered into in connection
with the Berman Warrant; (2) the expected sale of the Rockville Restaurant,
which would necessitate the Company writing down the carrying value of the
assets associated with the Rockville Restaurant to the net selling price; (3)
issuance of 100,000 shares of common stock to Fortress Financial Group, Ltd. for
certain investment banking services; and (4) the issuance of the RRG Warrant to
Retail Resource Group as of July 23, 1998 at an exercise price of $.375 in lieu
of a commission in connection with the expected sale of the Rockville
Restaurant. See "Selling Shareholders."
DEVELOPMENT OF SHELLY'S BACK ROOM CONCEPT; NEED FOR FINANCING
Future expansion of the Shelly's Back Room concept will depend upon
several factors, including market acceptance of the Back Room concept, general
economic conditions, the costs of developing and opening new facilities and the
Company's ability to obtain additional financing if necessary. The Company
estimates that the costs of developing additional Company-owned Back Rooms will
range from $679,500 to $1,344,500, depending upon construction costs and the
level of landlord contributions. The cost of developing, constructing and
opening the Washington, D.C. Shelly's Back Room was approximately $1,020,000,
not including approximately $107,000 for pre-opening costs, and was
approximately $1,450,000
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for the Chicago Shelly's Back Room, not including approximately $113,000 for
pre-opening costs. Although the Company has developed a standardized Back Room
layout, there can be no assurance that additional Back Rooms will be developed
at a cost within the Company's estimated range or that such Back Rooms, if
developed, would be profitable. Management anticipates that it will require
additional financing to open future Back Rooms, and there can be no assurance
that such financing will be available when needed or on terms acceptable to the
Company or its shareholders.
DEPENDENCE ON CONSUMER ACCEPTANCE IN NEW MARKETS
The Company's success will be dependent upon consumer acceptance of the
Shelly's Back Room concept in new markets. Until November 1995, the Company's
operating experience was limited to the Minneapolis-St. Paul metropolitan area.
Although the Company believes that the Shelly's Back Room concept has been
accepted by the public in the Washington, D.C. and Chicago metropolitan markets,
no assurance can be given that such acceptance will continue or be received in
new markets.
COSTS AND RISKS ASSOCIATED WITH EXPANSION
The opening of additional Shelly's Back Rooms outside of the
Minneapolis-St. Paul metropolitan market will give rise to additional expenses
associated with managing restaurants located in multiple markets. Such expenses
include: advertising in more than one market; lease rates and construction costs
which may be higher in the new markets; travel costs; and other similar
expenses. Moreover, the Company's results of operations may be adversely
affected by economic conditions in those regions and other geographic areas in
which the Company may expand. In addition, the Company's successful growth and
expansion will depend on the ability of the Company's management to identify
suitable sites and to negotiate leases or purchases of such sites; timely and
economic development and construction of restaurants; the hiring of skilled
management and other personnel; the ability of the Company's management to apply
standardized policies and procedures to a larger number of restaurants; the
general ability to successfully manage growth (including monitoring restaurants,
controlling costs and maintaining effective quality controls); and the general
state of the economy. As such, there can be no assurance that the Company will
be able to successfully open new restaurants.
COMPETITION; CERTAIN FACTORS AFFECTING THE HOSPITALITY INDUSTRY
The hospitality industry is highly competitive with respect to price,
service, food quality (including taste, freshness, healthfulness and nutritional
value) and location, and, as a result, has a high failure rate. There are
numerous well-established competitors, including national, regional and local
restaurant and hospitality chains, possessing substantially greater financial,
marketing, personnel and other resources than the Company. There can be no
assurance that the Company will be able to respond to various competitive
factors affecting the hospitality industry. The hospitality industry is also
generally affected by changes in consumer preferences, national, regional and
local economic conditions, and demographic trends. The performance of individual
locations may also be affected by factors such as traffic patterns, demographic
considerations, and the type, number and location of competing establishments.
In addition, factors such as inflation, increased food, labor and employee
benefit costs, and the availability of experienced management and hourly
employees may also adversely affect the hospitality industry in general and the
Company's restaurants and Back Rooms in particular. Hospitality operating costs
are further affected by increases in the minimum hourly wage, unemployment tax
rates and similar matters over which the Company has no control.
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LONG-TERM, NON-CANCELABLE LEASES
The Company leases the land under its restaurants and Back Rooms
pursuant to long-term, non-cancelable leases. Any additional Back Rooms
developed by the Company may be subject to similar long-term leases. If an
existing or future location does not perform at a profitable level, and the
decision is made to close that location, the Company will nonetheless be
committed to perform its obligations under the applicable lease.
EFFECTS OF DELISTING FROM NASDAQ SMALLCAP MARKET; LACK OF LIQUIDITY OF LOW
PRICED STOCKS
The Company has failed to maintain the minimum bid price of $1.00 per
share for its Common Stock to trade on the Nasdaq SmallCap Market sporadically
since December 1997. Accordingly, its securities may be delisted from the Nasdaq
SmallCap Market. Additional factors giving rise to such delisting could include,
but not be limited to, a reduction of the Company's net tangible assets to below
$2,000,000, a reduction to one active market maker or a reduction in the market
value of the public float in the Company's securities to less than $1,000,000.
In such event, trading, if any, in the Common Stock would thereafter be
conducted in the over-the-counter markets in the so-called "pink sheets" or the
National Association of Securities Dealer's "Electronic Bulletin Board."
Consequently, the liquidity of the Company's Common Stock would likely be
impaired, not only in the number of shares which could be bought and sold, but
also through delays in the timing of the transactions, reduction in security
analysts' and the news media's coverage, if any, of the Company and lower prices
for the Company's securities than might otherwise prevail. If the Company's
Common Stock were to be delisted from the Nasdaq SmallCap Market, it would
become subject to Rule 15g-9 under the Exchange Act (the "Penny Stock Rules"),
which imposes additional sales practice requirements on broker-dealers which
sell such common stock to persons other than established customers and certain
institutional investors. For transactions covered by the Penny Stock Rules, a
broker-dealer must make a special suitability determination for the purchaser
and have received the purchaser's written consent to the transaction prior to
sale. Consequently, the Penny Stock Rules may adversely affect the ability of
broker-dealers to sell the Company's Common Stock and may adversely affect the
ability of the Company's shareholders to sell any of their shares of Common
Stock in the secondary market.
GOVERNMENT REGULATION
The restaurant business is subject to various federal, state and local
government regulations, including those relating to the sale of food and
alcoholic beverages. While the Company to date has not experienced an inability
to obtain or maintain any necessary governmental licenses, permits or approvals,
the failure to maintain food and liquor licenses could have a material adverse
effect on the Company's operating results. In addition, restaurant operating
costs are affected by increases in the minimum hourly wage, unemployment tax
rates, sales taxes and similar costs over which the Company has no control.
Since many of the Company's restaurant personnel are paid at rates based on the
federal minimum wage, increases in the minimum wage will result in an increase
in the Company's labor costs. The Company also may be subject in certain states
to "dram shop" statutes which generally provide a person injured by an
intoxicated person the right to recover damages from an establishment that
served alcoholic beverages to an intoxicated person.
DEPENDENCE ON KEY PERSONNEL; NEED FOR ADDITIONAL MANAGEMENT
The Company is highly dependent upon the personal efforts and
abilities of Sheldon F. Jacobs, its Chairman and Chief Executive Officer. The
loss of the services of Mr. Jacobs could have a substantial adverse effect on
the Company's ability to achieve its objectives. The Company has not obtained
key-man
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life insurance on Mr. Jacobs' life. The Company will need to hire other
corporate level and management employees to help implement and operate its
expansion plans, including a chief financial officer and a chief operating
officer. The failure to obtain, or delays in obtaining, such employees could
have a material adverse affect on the Company.
DEPENDENCE ON POPULARITY OF CIGAR SMOKING
The success of Shelly's Back Rooms will depend, in part, on the
continued popularity of cigar smoking. While Shelly's Back Rooms also offer a
full service bar and a limited menu, they are designed to cater to the
increasing number of cigar smokers. A decline in the popularity of cigar smoking
may have an adverse impact on the success of Shelly's Back Rooms and the
Company. There can be no assurance that the popularity of cigar smoking will
continue to increase or that a level of popularity sufficient to support the
Back Room concept will be sustained.
ABSENCE OF DIVIDENDS
The Company has not paid any dividends on its capital stock since its
incorporation and does not intend to pay any cash dividends in the foreseeable
future.
CONTROL BY EXISTING MANAGEMENT
Sheldon F. Jacobs, the Company's Chief Executive Officer, owns
approximately 27.0% of the issued and outstanding shares of the Common Stock of
the Company. Accordingly, Mr. Jacobs may have substantial influence with respect
to the Company's affairs including, without limitation, the sale of equity or
debt securities of the Company, the appointment of officers, and the
determination of officers' salaries.
UNDESIGNATED STOCK
The Company's authorized capital consists of 33,000,000 shares of
capital stock. The Board of Directors, without any action by the Company's
stockholders, is authorized to designate and issue shares in such classes or
series (including classes or series of preferred stock) as it deems appropriate
and to establish the rights, preferences and privileges of such shares,
including dividends, liquidation and voting rights. The Company currently has
4,255,804 shares of Common Stock outstanding and 116,900 shares of Class A 8%
Convertible Preferred Stock, par value and stated value $10.00 per share,
outstanding. No other class of common stock or preferred stock is currently
designated and there is no current plan to designate or issue any such
securities. The rights of holders of preferred stock and other classes of common
stock that may be issued may be superior to the rights granted to the holders of
the Common Stock. Further, the ability of the Board of Directors to designate
and issue such undesignated shares could impede or deter an unsolicited tender
offer or takeover proposal regarding the Company and the issuance of additional
shares having preferential rights could adversely affect the voting power and
other rights of holders of Common Stock.
LIMITATIONS ON DIRECTOR LIABILITY
The Company's Amended and Restated Articles of Incorporation provide,
as permitted by governing Minnesota law, that a director of the Company shall
not be personally liable to the Company or its shareholders for monetary damages
for breach of fiduciary duty as a director, with certain exceptions. These
provisions may discourage shareholders from bringing suit against a director for
breach of fiduciary duty and may reduce the likelihood of derivative litigation
brought by shareholders on behalf of the Company
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against a director. In addition, the Company's Bylaws provide for mandatory
indemnification of directors and officers to the fullest extent permitted by
Minnesota law.
MINNESOTA ANTI-TAKEOVER LAW
The Company is subject to Minnesota statutes regulating business
combinations and restricting voting rights of certain persons acquiring shares
of the Company, which may hinder or delay a change in control of the Company.
See "Plan of Distribution."
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USE OF PROCEEDS
The gross proceeds to the Company from the exercise of the Berman and
the RRG Warrants, if the Warrants are exercised in full, would be $19,125, which
are intended to be used as working capital. As of the date hereof, the Berman
Warrant has been exercised for 375,000 shares, yielding proceeds to the Company
of $3,750. The Company will not receive any proceeds from the sale of the Common
Stock by the Selling Shareholders.
SELLING SHAREHOLDERS
The following table sets forth the number of shares of the Common Stock
owned by the Selling Shareholders as of the date hereof and after giving effect
to this offering. The Company will not receive any proceeds from the sale of the
Common Stock by the Selling Shareholders.
<TABLE>
<CAPTION>
Shares Shares Number of Percentage
Beneficially Beneficially Shares Offered by Beneficial
owned prior owned prior Selling Ownership After
Name to the Offering to the Offering Shareholder the Offering
- ------------------------------ ------------------ ----------------- ------------- -------------
<S> <C> <C> <C> <C>
Lyle Berman................... 500,840(1) 10.6% 600,000 2.9%
Fortress Financial
Group, Ltd................. 100,000 2.1% 100,000 --
Retail Resource Group......... 35,000 -- 35,000 --
</TABLE>
(1) Includes 375,000 shares obtained upon exercise of the Berman Warrant
through the date hereof and 33,335 shares issuable upon the exercise of
Class A Redeemable Warrants. Does not include 225,000 shares as to
which the Berman Warrant is not currently exercisable.
The 600,000 Shares being offered hereby by Mr. Berman, a shareholder of
the Company, are issuable upon the exercise of the Berman Warrant at an exercise
price of $.01 per Share. The Berman Warrant was issued to Mr. Berman on April
29, 1998 in connection with Mr. Berman's agreeing to lend up to $2,000,000 to
the Company at an annual rate of interest of 10%. Mr. Berman became entitled to
exercise the Berman Warrant for 200,000 Shares upon the execution of the loan
documents, and thereafter will be entitled to exercise the Berman Warrant for
2,000 additional Shares for each $10,000 advanced under the loan. As of the date
hereof, Mr. Berman has made advances aggregating $875,000 and has exercised the
Berman Warrant for 375,000 Shares. All 600,000 Shares are being registered
pursuant to certain registration rights granted to Mr. Berman by the Company.
The Berman Warrant is exercisable until April 30, 1999.
In November 1995, the Company sold $1,000,000 in principal amount of
Secured Promissory Notes, of which $500,000 in principal amount were purchased
by Mr. Berman. The Notes are secured by substantially all of the assets of the
Company and bear interest at 15% annually. The holders of the Notes received
warrants to purchase an aggregate of 200,016 shares of Common Stock at $.0033
per share, of which Mr. Berman received warrants to purchase 100,005 shares.
In October 1995, Mr. Berman loaned $200,000 to the Company, which loan
was repaid in November 1995. In December 1995, Mr. Berman loaned $300,000 to
the Company, which loan was repaid on April 15, 1995. On March 24, 1998,
Mr. Berman loaned $300,000 to Sheldon Jacobs, the Chairman and Chief
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Executive Officer of the Company, which loan was unsecured and accrued interest
at 8% per annum. This loan was repaid on May 29, 1998.
The 100,000 Shares being offered hereby by Fortress Financial Group,
Ltd., a Delaware corporation, were issued to that firm as partial consideration
for investment banking services to be performed pursuant to an Investment
Banking Agreement dated as of June 22, 1998 between that firm and the Company.
The 35,000 Shares being offered hereby by Retail Resource Group are
issuable upon exercise of the RRG Warrant at an exercise price of $.375 per
Share. The RRG Warrant was issued to Retail Resource Group in lieu of a
commission in connection with the sale of the Company's restaurant in Rockville,
Maryland, which sale is expected to be concluded in the third quarter of fiscal
1998. The RRG Warrant is exercisable until July 23, 2001.
PLAN OF DISTRIBUTION
The Company agreed to file a registration statement under the
Securities Act covering resale by the Selling Shareholders of the Shares upon
the Selling Shareholders' written request therefor and to use its best efforts
to cause such registration statement to be declared effective as soon as
possible thereafter. The Company agreed to bear all expenses of such
registration, including registration and filing fees, Nasdaq listing fees, fees
of complying with federal and state securities laws, fees of attorneys and
accountants for the Company, and printing expenses.
Subject to the preceding paragraph, the Shares may be sold from time to
time by the Selling Shareholders or by their pledgees, donees, transferees or
other successors in interest. Such sales may be made in the over-the-counter
market, or otherwise, at prices and at terms then prevailing or at prices
related to the then-current market price, or in negotiated transactions. The
Shares may be sold by one or more of the following: (i) a block trade in which
the broker or dealer so engaged will attempt to sell the Shares as agent but may
position and resell a portion of the block as principal to facilitate the
transaction; (ii) purchases by a broker or dealer as principal and resale by
such broker or dealer for its account pursuant to this prospectus; (iii) an
exchange distribution in accordance with the rules of such exchange; and (iv)
ordinary brokerage transactions and transactions in which the broker solicits
purchases. In effecting sales, brokers or dealers engaged by the Selling
Shareholders may arrange for other brokers or dealers to participate. Brokers or
dealers will receive commissions or discounts from the Selling Shareholders in
amounts to be negotiated immediately prior to the sale. Such brokers or dealers
and any other participating brokers or dealers may be deemed to be
"underwriters" within the meaning of the Securities Act in connection with such
sales. In addition, any Shares covered by this prospectus which qualify for sale
pursuant to Rule 144 may be sold under Rule 144 rather than pursuant to this
prospectus.
MINNESOTA ANTI-TAKEOVER LAW
The Company is governed by the provisions of Sections 302A.671 and
302A.673 of the Minnesota Business Corporation Act. In general, Section 302A.671
provides that the shares of a corporation acquired in a "control share
acquisition" have no voting rights unless voting rights are approved in a
prescribed manner. A "control share acquisition" is an acquisition, directly or
indirectly, of beneficial ownership of shares that would, when added to all
other shares beneficially owned by the acquiring person, entitle the acquiring
person to have voting power of 20% or more in the election of directors. In
general, Section 302A.673 prohibits a publicly-held Minnesota corporation from
engaging in a "business combination" with an "interested shareholder" for a
period of four years after the date of transaction in which the person became
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an interested shareholder, unless the business combination is approved in a
prescribed manner. "Business combination" includes mergers, asset sales and
other transactions resulting in a financial benefit to the interested
shareholder. An "interested shareholder" is a person who is the beneficial
owner, directly or indirectly, or 10% or more of the corporation's voting stock
or who is an affiliate or associate of the corporation and at any time within
four years prior to the date in question was the beneficial owner, directly or
indirectly, of 10% or more of the corporation's voting stock.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents heretofore filed by the Company with the
Commission (File No. 0-25926) pursuant to the Exchange Act are incorporated by
reference in this Prospectus:
(1) Annual Report on Form 10-KSB for the fiscal year ended December
28, 1997;
(2) Quarterly Report on Form 10-QSB for the quarter ended March 29,
1998;
(3) The Company's Proxy Statement dated May 4, 1998 for the 1998
Annual Meeting of Shareholders held on June 4, 1998; and
(4) The description of the Company's Common Stock contained in the
Company's Form SB-2 Registration Statement dated March 25, 1994, Registration
No. 33-75152C.
All documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act, subsequent to the date of this
Prospectus and prior to the termination of the offering described herein, shall
be deemed to be incorporated by reference in this Prospectus from the respective
dates those documents are filed. Any statement contained in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purposes of this Prospectus to the extent that a
statement contained herein or in any other subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Prospectus.
The Company will provide without charge to each person to whom a copy
of this Prospectus has been delivered, on the written or oral request of such
person, a copy of any or all of the documents referred to above which have been,
or may be, incorporated in this Prospectus by reference, other than exhibits to
such documents. Requests for such copies should be directed to Woodroast
Systems, Inc., 10250 Valley View Road, Suite 145, Eden Prairie, MN 55344,
Attention: Mark Dacko, Controller.
AVAILABLE INFORMATION
This Prospectus is part of a Registration Statement on Form S-3
(together with all amendments and exhibits thereto, the "Registration
Statement") which the Company has filed with the Securities and Exchange
Commission (the "Commission") under the Securities Act of 1933, as amended (the
"Securities Act") relating to the securities offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is made to the
Registration Statement. Statements made in this Prospectus as to the contents of
any contract, agreement or other document referred
10
<PAGE> 12
to herein are not necessarily complete. With respect to each such contract,
agreement or other document filed as an exhibit to the Registration Statement,
reference is made to the exhibit for a more complete description of the matter
involved, and each such statement shall be deemed qualified in its entirety by
such reference.
The Company is subject to the informational reporting requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and, in
accordance therewith, files reports, proxy and information statements and other
information with the Commission. Such reports, proxy and information statements
and other information as well as the Registration Statement and Exhibits of
which this Prospectus is a part filed by the Company may be inspected and copied
at the public reference facilities of the Commission, Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, DC 20549, as well as at the following
Regional Offices: 7 World Trade Center, 13th Floor, New York, New York 10048 and
500 West Madison Street, Suite 1400, Chicago, Illinois 60661. Copies of such
material can be obtained from the Commission by mail at prescribed rates.
Requests should be directed to the Commission's Public Reference Section, Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549. In
addition, the Commission maintains a Web site that contains reports, proxy and
information regarding registrants, such as the Company, that file electronically
with the Commission. The address of this Web site is: http://www.sec.gov.
Material filed by the Company can also be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street N.W.,
Washington, D.C. 20006.
LEGAL MATTERS
Certain legal matters in connection with the validity of the securities
offered hereby will be passed upon for the Company by Maslon Edelman Borman &
Brand, LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of Woodroast Systems, Inc. as of
December 28, 1997 and December 29, 1996, and for the years then ended
incorporated by reference in the Registration Statement of which this Prospectus
is a part, have been audited by Lund Koehler Cox & Arkema, LLP, independent
public accountants, as indicated in their report with respect thereto, and are
incorporated herein in reliance upon the authority of that firm as experts in
giving said report.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to any proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines, including, without limitation, excise taxes
assessed against such person with respect to an employee benefit plan,
settlements, and reasonable expenses, including attorney's fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person has not been indemnified by another organization or
employee benefit plan for the same expenses with respect to the same acts or
omissions; acted in good faith; received no improper personal benefit and
Section 302A.255, if applicable, has been satisfied; in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and in
the case of acts or omissions by persons in their official capacity for the
corporation, reasonably believed that the conduct was in the best interests of
the corporation, or in the case
11
<PAGE> 13
of acts or omissions by persons in their capacity for other organizations,
reasonably believed that the conduct was not opposed to the best interests of
the corporation. Subdivision 4 of Section 302A.521 of the Minnesota Statutes
provides that a corporation's articles of incorporation or bylaws may prohibit
such indemnification or place limits upon the same. The Company's articles and
bylaws do not include any such prohibition or limitation. As a result, the
Company is bound by the indemnification provisions set forth in Section 302A.521
of the Minnesota Statutes. As permitted by Section 302A.251 of the Minnesota
Statutes, the Articles of Incorporation of the Company provide that a director
shall have no personal liability to the Company and its shareholders for breach
of fiduciary duty as a director, to the fullest extent permitted by law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the
opinion of the Commission such indemnification is against public policy as
expressed in the Securities Act and is therefore unenforceable.
12
<PAGE> 14
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER INDIVIDUAL HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFERING MADE HEREBY, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL,
OR SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED HEREBY TO ANY PERSON
IN ANY JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER
ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE INFORMATION CONTAINED HEREIN
IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
<TABLE>
<CAPTION>
<S> <C>
TABLE OF CONTENTS PAGE
Prospectus Summary................................................................................................2
Risk Factors......................................................................................................3
Use of Proceeds...................................................................................................8
Selling Shareholders..............................................................................................8
Plan of Distribution..............................................................................................9
Incorporation of Certain Documents
by Reference..................................................................................................10
Available Information............................................................................................10
Legal Matters....................................................................................................11
Experts..........................................................................................................11
Disclosure of Commission Position
on Indemnification For Securities
Act Liabilities...............................................................................................11
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
735,000 SHARES
WOODROAST SYSTEMS, INC.
COMMON STOCK
---------------------
PROSPECTUS
---------------------
__________, 1998
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 15
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution
of the securities registered hereby are set forth in the following table:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 68
Nasdaq SmallCap Market additional listing fee............... 7,000
Legal fees and expenses..................................... 5,000
Accounting fees and expenses................................ 2,000
--------
Total....................................................... $14,068
=======
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by Minnesota Statutes Chapter 302A. Minnesota
Statutes Section 302A.521 provides that a corporation shall indemnify any person
made or threatened to be made a party to any proceeding by reason of the former
or present official capacity of such person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorney's fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person has not been
indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255, if applicable, has
been satisfied; in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and in the case of acts or omissions by
persons in their official capacity for the corporation, reasonably believed that
the conduct was in the best interests of the corporation, or in the case of acts
or omissions by persons in their capacity for other organizations, reasonably
believed that the conduct was not opposed to the best interests of the
corporation. Subdivision 4 of Section 302A.521 of the Minnesota Statutes
provides that a company's articles of incorporation or bylaws may prohibit such
indemnification or place limits upon the same. The Company's articles and bylaws
do not include any such prohibition or limitation. As a result, the Company is
bound by the indemnification provisions set forth in Section 302A.521 of the
Minnesota Statutes.
As permitted by Section 302A.251 of the Minnesota Statutes, the
Articles of Incorporation of the Company provide that a director shall have no
personal liability to the Company and its shareholders for breach of his
fiduciary duty as a director, to the fullest extent permitted by law. The Agency
Agreement contains provisions under which the Company, on the one hand, and the
Placement Agent, on the other hand, have agreed to indemnify each other
(including officers and directors of the Company and the Placement Agent, and
any person who may be deemed to control the Company or the Placement Agent)
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
II-1
<PAGE> 16
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
4.1 Warrant to Purchase Common Stock of Woodroast Systems, Inc.
dated April 29, 1998
4.2 Warrant to Purchase Common Stock of Woodroast Systems, Inc.
dated July 23, 1998
5 Opinion of Maslon Edelman Borman & Brand, LLP
10.1 Secured Demand Promissory Note dated April 29, 1998 from
Woodroast Systems, Inc. to Lyle Berman
10.2 Investment Banking Agreement dated as of June 22, 1998 between
Woodroast Systems, Inc. and Fortress Financial Group, Ltd.
23.1 Consent of Lund Koehler Cox & Arkema, LLP
23.2 Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5).
24 Power of Attorney (included on page II-3).
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement: (i) to include any
prospectus required by Section 10(a)(3) of the Securities Act; (ii) to reflect
in the Prospectus any facts or events arising after the effective date of the
Registration Statement (or the most recent post-effective amendment thereof)
which, individually or in the aggregate, represent a fundamental change in the
information set forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering; and
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that
II-2
<PAGE> 17
is incorporated by reference in the registration statement shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Eden
Prairie, State of Minnesota, on July 28, 1998.
WOODROAST SYSTEMS, INC., Registrant
By: /s/ Sheldon F. Jacobs
-------------------------------
Name: Sheldon F. Jacobs
Title: Chairman and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Sheldon F. Jacobs and Mark D. Dacko, each
or either of them, his or her true and lawful attorneys-in-fact and agents, with
full power of substitution and resubstitution for him or her and in his or her
name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file
the same with all exhibits thereto, and other documents in connection therewith
with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitutes,
may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below on July 28, 1998 by the following
persons in the capacities indicated:
SIGNATURE TITLE
/s/ Sheldon F. Jacobs
- ----------------------------- Chairman, Chief Executive Officer (principal
Sheldon F. Jacobs executive officer)
/s/ Mark D. Dacko
- ----------------------------- Controller (principal financial and
Mark D. Dacko accounting officer)
/s/ Greg R. Barron
- -----------------------------
Greg R. Barron Director
/s/ Richard A. Orenstein
- -----------------------------
Richard A. Orenstein Director
II-3
<PAGE> 18
EXHIBIT INDEX
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
4.1 Warrant to Purchase Common Stock of Woodroast Systems, Inc.
dated April 29, 1998
4.2 Warrant to Purchase Common Stock of Woodroast Systems, Inc.
dated July 23, 1998
5 Opinion of Maslon Edelman Borman & Brand, LLP
10.1 Secured Demand Promissory Note dated April 29, 1998 from
Woodroast Systems, Inc. to Lyle Berman
10.2 Investment Banking Agreement dated as of June 22, 1998
between Woodroast Systems,
Inc. and Fortress Financial Group, Ltd.
23.1 Consent of Lund Koehler Cox and Company, PLLP
23.2 Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5).
24 Power of Attorney (included on page II-3).
II-4
<PAGE> 1
EXHIBIT 4.1
WARRANT
TO PURCHASE COMMON STOCK OF
WOODROAST SYSTEMS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, Lyle Berman or
his registered assigns ("Holder"), is entitled to subscribe for and purchase
from Woodroast Systems, Inc., a Minnesota corporation (the "Company"), up to Six
Hundred Thousand (600,000) fully paid and nonassessable shares of the Common
Stock of the Company (the "Warrant Shares") at the price of $.01 per share (the
"Warrant Exercise Price") subject to the antidilution provisions of this
Warrant. As used herein, the term "Holder" means the person named above, any
party who acquires all or a part of this Warrant as a registered transferee of
such person, or any record holder or holders of the Warrant Shares issued upon
exercise, whether in whole or in part, of the Warrant; and the term "Common
Stock" means and includes the Company's presently authorized common stock, $.005
par value, and shall also include any capital stock of any class of the Company
hereafter authorized which shall not be limited to a fixed sum or percentage in
respect of the rights of the holders thereof to participate in dividends or in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution, or winding up of the Company.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise: Term: Transferability.
(a) The rights represented by this Warrant may be exercised at any time
up to and including April 30, 1999, on which date the rights shall terminate.
(b) The rights represented by this Warrant may be exercised by the
Holder hereof, in whole or in part (but not as to a fractional share of Common
Stock), by written notice of exercise (in the form attached hereto) delivered to
the Company at the principal office of the Company prior to the expiration of
this Warrant and accompanied or preceded by the surrender of this Warrant along
with a certified or bank cashier's check in payment of the Warrant Exercise
Price for such shares (except as otherwise set forth in Section 12), provided,
this Warrant shall be exercisable only as follows: this Warrant may be exercised
for 2,000 Warrant Shares for each additional $10,000 advanced by Holder to the
Company after the date hereof pursuant to that certain $2,000,000 Secured Demand
Promissory Note of the Company payable to the order of the Holder dated as of
April 29, 1998.
(c) This Warrant may be sold, transferred, assigned, hypothecated or
divided into two or more Warrants of smaller denominations, and Warrant Shares
issued pursuant to exercise of this Warrant may be transferred, subject to the
limitations of Section 7 hereof.
2. Exchange and Replacement. Subject to Sections 1 and 7 hereof, this
Warrant is exchangeable upon the surrender hereof by the Holder to the Company
at its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated
<PAGE> 2
by the Holder at the time of such surrender. Upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon surrender and
cancellation of this Warrant, if mutilated, the Company will make and deliver a
new Warrant of like tenor, in lieu of this Warrant; provided, however, that if
the person named above shall be such Holder, an agreement of indemnity by such
Holder shall be sufficient for all purposes of this Section 2. This Warrant
shall be promptly canceled by the Company upon the surrender hereof in
connection with any exchange or replacement. The Company shall pay all
expenses, taxes (other than stock transfer taxes), and other charges payable in
connection with the preparation, execution, and delivery of Warrants pursuant to
this Section 2.
3. Issuance of the Warrant Shares.
(a) The Company agrees that the shares of Common Stock purchased hereby
shall be and are deemed to be issued to the Holder as of the close of business
on the date on which this Warrant shall have been surrendered and the payment
made for such Warrant Shares as aforesaid. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding fifteen (15) days after the
rights represented by this Warrant shall have been so exercised, and, unless
this Warrant has expired, a new Warrant representing the right to purchase the
number of Warrant Shares, if any, with respect to which this Warrant shall not
then have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Company shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Nothing herein, however, shall obligate the Company to effect registrations
under federal or state securities laws, except as provided in Section 9. If
registrations are not in effect to the extent required as provided in Section 9
and if exemptions are not available when the Holder seeks to exercise the
Warrant, the Warrant exercise period will be extended, if need be, to prevent
the Warrant from expiring, until such time as either such registrations become
effective or exemptions are available, and the Warrant shall then remain
exercisable for a period of at least 45 calendar days from the date the Company
delivers to the Holder written notice of the availability of such registrations
or exemptions. The Holder agrees to execute such documents and make such
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company, or the registrations made, for
the issuance of the Warrant Shares.
4. Covenants of the Company. The Company covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
nonassessable, and free from all taxes, liens, and charges with respect to the
issue thereof. The Company further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Company will at all times have authorized and reserved for the purpose of issue
or transfer upon exercise of the subscription rights evidenced by this Warrant a
sufficient number of shares of Common Stock to provide for the exercise of the
rights represented by this Warrant.
2
<PAGE> 3
5. Antidilution Adjustments. The provisions of this Warrant are subject
to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be adjusted from time to time such
that in case the Company shall hereafter:
(i) pay any dividends on any class of stock of the Company
payable in Common Stock or securities convertible into Common Stock;
(ii) subdivide its then outstanding shares of Common Stock into a
greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this subsection shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this subsection, the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the adjusted Warrant Exercise Price between or
among shares of such classes of capital stock or shares of Common Stock and
other capital stock. All calculations under this subsection shall be made to the
nearest cent or to the nearest 1/100 of a share as the case may be. In the event
that at any time as a result of an adjustment made pursuant to this subsection,
the holder of any Warrant thereafter surrendered for exercise shall become
entitled to receive any shares of the Company other than shares of Common Stock,
thereafter the Warrant Exercise Price of such other shares so receivable upon
exercise of any Warrant shall be subject to adjustment from time to time in a
manner and on terms as nearly equivalent as practicable to the provisions with
respect to Common Stock contained in this Section.
(b) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) above, the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
3
<PAGE> 4
(c) In case of any consolidation or merger to which the Company is a
party other than a merger or consolidation in which the Company is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Company as an entirety or substantially as an
entirety, or in the case of any statutory exchange of securities with another
corporation (including any exchange effected in connection with a merger of a
third corporation into the Company), there shall be no adjustment under
subsection (a) of this Section above but the Holder of each Warrant then
outstanding shall have the right thereafter to convert such Warrant into the
kind and amount of shares of stock and other securities and property which he
would have owned or have been entitled to receive immediately after such
consolidation, merger, statutory exchange, sale, or conveyance had such Warrant
been converted immediately prior to the effective date of such consolidation,
merger, statutory exchange, sale, or conveyance and in any such case, if
necessary, appropriate adjustment shall be made in the application of the
provisions set forth in this Section with respect to the rights and interests
thereafter of any Holders of the Warrant, to the end that the provisions set
forth in this Section shall thereafter correspondingly be made applicable, as
nearly as may reasonably be, in relation to any shares of stock and other
securities and property thereafter deliverable on the exercise of the Warrant.
The provisions of this subsection shall similarly apply to successive
consolidations, mergers, statutory exchanges, sales or conveyances.
(d) Upon any adjustment of the Warrant Exercise Price, then and in each
such case, the Company shall give written notice thereof, by first-class mail,
postage prepaid, addressed to the Holder as shown on the books of the Company,
which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares of
Common Stock purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Company.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) Subject to the sale, assignment, hypothecation, or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Company before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer. Promptly upon receiving such
written notice, the Company shall present copies thereof to the Company's
counsel and to counsel to the original purchaser of this Warrant. If in the
opinion of each such counsel the proposed transfer may be effected without
registration or qualification (under any federal or state securities laws), the
Company, as promptly as practicable, shall notify the Holder of such opinion,
whereupon the Holder shall be entitled to transfer this Warrant or to dispose of
Warrant Shares received upon the previous exercise of this Warrant, all in
accordance with the terms of the notice delivered by the Holder to the Company;
provided that an appropriate legend may be endorsed on this Warrant or the
certificates for such Warrant Shares respecting restrictions upon transfer
thereof necessary or advisable in the opinion of counsel and satisfactory to the
Company to prevent further transfers which would be in violation of Section 5 of
the Securities Act of 1933, as amended (the 1933 Act") and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such
4
<PAGE> 5
representations, warranties, and agreements as may be required solely to comply
with the exemptions relied upon by the Company for the transfer or disposition
of the Warrant or Warrant Shares.
(b) If in the opinion of either of the counsel referred to in this
Section 7, the proposed transfer or disposition of this Warrant or such Warrant
Shares described in the written notice given pursuant to this Section 7 may not
be effected without registration or qualification of this Warrant or such
Warrant Shares, the Company shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of both such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Company shall, upon the exercise of this Warrant for the
largest number of whole shares then called for, pay a sum in cash equal to the
Market Price of such fractional share. For purposes of this Section, the term
"Market Price" with respect to shares of Common Stock of any class or series
means (i) the last reported sale price or, if none, the average of the last
reported closing bid and asked prices on any national securities exchange or
quoted in the National Association of Securities Dealers, Inc's Automated
Quotations System (Nasdaq), or (ii) if not traded on an exchange or on NASDAQ
but is traded on the over-the-counter market, then the average closing bid and
asked prices reported for the ten (10) business days immediately preceding the
Determination Date or (iii) if not traded on any public market, then the fair
market value thereof determined in good faith by the Board of Directors of the
Company.
9. Registration Rights.
(a) If at any time through October 31, 2000, (i) the Company receives a
written request therefor from the record holder or holders of an aggregate of at
least twenty-five percent (25%) of the "Registrable Securities" not theretofore
registered under the Securities Act and sold, and (ii) the Company is eligible
to use Form S-3 (or a successor form) for the registration of its common stock
for sale by selling shareholders, the Company shall prepare and file a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") covering the Registrable Securities which are the subject of
such requests and shall use its best efforts to cause such registration
statement to become effective. In addition, upon the receipt of such request,
the Company shall promptly give written notice to all other record holders of
Registrable Securities that such registration is to be effected. The Company
shall include in such registration statement such Registrable Securities for
which it has received written requests to register by such other record holders
within 30 days after the Company's written notice to such other record holders.
The Company shall be obligated to prepare, file and cause to be effective only
two (2) registration statements pursuant to this Section 9(a). In the event that
the holders of a majority of those Registrable Securities for which registration
has been requested pursuant to this Section determine for any reason not to
proceed with a registration at an time before the registration statement has
been declared effective by the Commission, and such registration statement, if
theretofore filed with the Commission, is withdrawn with respect to the
Registrable Securities covered thereby, and the holders of such Registrable
Securities agree to bear their own expenses incurred in connection therewith and
to reimburse the Company for the expenses incurred by it attributable to the
registration of such Registrable Securities, then the holders of such
Registrable Securities shall not be deemed to have
5
<PAGE> 6
exercised their right to require the Company to register Registrable Securities
pursuant to this Section at the expense of the Company. If a registration
statement filed by the Company at the request of holders of Registrable
Securities pursuant to this Section is withdrawn at the initiative of the
Company, then the holders of Registrable Securities shall not be deemed to have
exercised their right to require the Company to register Registrable Securities
pursuant to this Section.
For purposes of this Section 9(a), (a) "Registrable Securities" shall
mean (i) the shares of common stock issuable pursuant to this Warrant (the
"Warrant Shares"), and (ii) any additional securities issued with respect to the
Warrant Shares upon any stock split, stock dividend, recapitalization or similar
event, and (b) the record holder of Warrants will be considered to be the record
holder of the Warrant Shares covered thereby.
The managing underwriter, if any, of an offering registered pursuant to
this Section shall be selected by the holders of a majority of the Registrable
Securities for which registration has been requested and shall be reasonably
acceptable to the Company. Without the written consent of the holders of a
majority of the Registrable Securities for which registration has been requested
pursuant to this Section, neither the Company nor any other holder of securities
of the Company may include securities in such registration if in the good faith
judgment of the managing underwriter of such public offering the inclusion of
such securities would interfere with the successful marketing of the Common
Shares or require the exclusion of any portion of the Registrable Securities to
be registered.
(b) If at any time on or prior to May 31, 2002, the Company proposes to
register under the 1933 Act (except by a Form S-4 or Form S-8 Registration
Statement or any successor forms thereto) or qualify for a public distribution
under Section 3(b) of the 1933 Act, any of its equity securities or debt with
equity features, it will give written notice to all Holders of this Warrant, any
Warrants issued pursuant to Section 2 and/or Section 3(a) hereof, and any
Warrant Shares of its intention to do so and, on the written request of any such
Holder given within twenty (20) days after receipt of any such notice (which
request shall specify the Warrant Shares (then issued or issuable upon exercise
of this Warrant) intended to be sold or disposed of by such Holder and describe
the nature of any proposed sale or other disposition thereof), the Company will
use its best efforts to cause all such Warrant Shares, the Holders of which
shall have requested the registration or qualification thereof, to be included
in such registration statement proposed to be filed by the Company; provided,
however, that if a greater number of Warrants and Warrant Shares is offered for
participation in the proposed offering than in the reasonable opinion of the
managing underwriter of the proposed offering can be accommodated without
adversely affecting the proposed offering, then the amount of Warrant Shares
proposed to be offered by such Holders for registration, as well as the number
of securities of any other selling shareholders participating in the
registration, shall be proportionately reduced to a number deemed satisfactory
by the managing underwriter.
(c) With respect to each inclusion of securities in a registration
statement pursuant to Section 9(a) or 9(b), the Company shall bear the following
fees, costs, and expenses: all registration, filing and NASD fees, Nasdaq fees,
printing expenses, fees and disbursements of counsel and accountants for the
Company, fees and disbursements of counsel for the underwriter or underwriters
of such securities (if the offering is underwritten and the Company is required
to bear such fees and disbursements), all internal expenses, the premiums and
other costs of policies of insurance against liability arising out of
6
<PAGE> 7
the public offering, and legal fees and disbursements and other expenses of
complying with state securities laws of any jurisdictions in which the
securities to be offered are to be registered or qualified. Fees and
disbursements of special counsel and accountants for the selling Holders,
underwriting discounts and commissions, and transfer taxes for selling Holders
and any other expenses relating to the sale of securities by the selling Holders
not expressly included above shall be borne by the selling Holders.
(d) The Company hereby indemnifies each of the Holders of this Warrant
and of any Warrant Shares, and the officers and directors, if any, who control
such Holders, within the meaning of Section 15 of the 1933 Act, against all
losses, claims, damages, and liabilities caused by (1) any untrue statement or
alleged untrue statement of a material fact contained in any Registration
Statement or Prospectus (and as amended or supplemented if the Company shall
have furnished any amendments thereof or supplements thereto), any Preliminary
Prospectus or any state securities law filings; (2) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as such
losses, claims, damages, or liabilities are caused by any untrue statement or
omission contained in information furnished in writing to the Company by such
Holder expressly for use therein; and each such Holder by its acceptance hereof
severally agrees that it will indemnify and hold harmless the Company, each of
its officers who signs such Registration Statement, and each person, if any, who
controls the Company, within the meaning of Section 15 of the 1933 Act, with
respect to losses, claims, damages, or liabilities which are caused by any
untrue statement or omission contained in information furnished in writing to
the Company by such Holder expressly for use therein.
IN WITNESS WHEREOF, Woodroast Systems, Inc. has caused this Warrant to
be signed by its duly authorized officer and to be dated as of this 5th day of
June, 1998.
WOODROAST SYSTEMS, INC.
By: /s/ Ralph J. Guarino
------------------------
Its: President
7
<PAGE> 8
Woodroast Systems, Inc.
WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
The undersigned, the holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and to
purchase thereunder, shares of the Common Stock of Woodroast Systems, Inc. to
which such Warrant relates and herewith makes payment of $ therefor in cash or
by certified or cashier's check and requests that the certificates for such
shares be issued in the name of, and be delivered to, whose address is set forth
below the signature of the undersigned. If said number of shares shall not be
all the shares purchasable under the Warrant, a new Warrant is to be issued in
the name of the undersigned for the balance remaining of the shares purchasable
thereunder.
Name of Warrant Holder:
Lyle Berman
--------------------------------------------
Address of Warrant Holder:
433 Bushaway Road
Wayzata, Minnesota 55391
Tax Identification No. or Social Security
No. of Warrant Holder:
###-##-####
Signature
----------------------------------
Note: The above signature should correspond
exactly with the name of the Warrant Holder
as it appears on the first page of the
Warrant or on a duly executed Warrant
Assignment.
Dated:
--------------------------------------
8
<PAGE> 9
Woodroast Systems, Inc.
WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto _______________________________________, the assignee, whose address is
_________________________________ and whose tax identification or social
security number is _______________, the right represented by the foregoing
Warrant to purchase ________ shares of the Common Stock of Woodroast Systems,
Inc. to which the foregoing Warrant relates and appoints ___________________
attorney to transfer said right on the books of Woodroast Systems, Inc., with
full power of substitution in the premises. If said number of shares shall not
be all the shares purchasable under the Warrant, a new Warrant is to be issued
in the name of the undersigned for the balance remaining of the shares
purchasable thereunder.
Name of Warrant Holder/Assignor:
--------------------------------------
(Please print)
Address of Warrant Holder/Assignor:
--------------------------------------
--------------------------------------
Tax Identification No. or Social
Security No. of Warrant Holder/Assignor:
--------------------------------------
Signature
-----------------------------
Note: The above signature should
correspond exactly with the name of the
first page of the Warrant or with the
name of the assignee appearing on a duly
executed assignment form.
Dated:
--------------------------------
9
<PAGE> 1
EXHIBIT 4.2
THE SECURITIES EVIDENCED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "1933 ACT") AND MAY NOT BE TRANSFERRED UNLESS
REGISTERED UNDER THE 1933 ACT, EXCEPT IN A TRANSACTION WHICH, IN THE OPINION OF
COUNSEL REASONABLY SATISFACTORY TO THE HOLDER HEREOF QUALIFIES AS AN EXEMPT
TRANSACTION UNDER THE 1933 ACT AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER.
STOCK PURCHASE WARRANT
TO PURCHASE SHARES OF
COMMON STOCK OF
WOODROAST SYSTEMS, INC.
THIS CERTIFIES THAT, for good and valuable consideration, RETAIL
RESOURCE GROUP, or its registered assignees, is entitled to subscribe for and
purchase from Woodroast Systems, Inc., a Minnesota corporation (the
"Corporation"), at any time during the period set forth in Section 1 hereof (the
"Exercise Period"), up to 35,000 of fully paid and nonassessable shares of the
Common Stock of the Corporation at a price of 375/1000 Dollars ($0.375) per
share (the "Warrant Exercise Price"), subject to the antidilution provisions set
forth in Section 5 hereof. The shares which may be acquired upon exercise of
this Warrant are referred to herein as the "Warrant Shares." As used herein, the
term "Holder" means the initial holder, any party who acquires all or a part of
this Warrant as a registered transferee of the initial holder in accordance with
the terms of this Warrant, or any record holder or holders of the Warrant Shares
issued upon exercise, whether in whole or in part, of the Warrant; the term
"Common Stock" means and includes the Corporation's presently authorized common
stock, $.005 par value per share, and shall also include any capital stock of
any class of the Corporation hereafter authorized which shall not be limited to
a fixed sum or percentage in respect of the rights of the holders thereof to
participate in dividends or in the distribution of assets upon the voluntary or
involuntary liquidation, dissolution, or winding up of the Corporation; and the
term "Convertible Securities" means any stock or other securities convertible
into, or exchangeable for, Common Stock.
This Warrant is subject to the following provisions, terms and
conditions:
1. Exercise. The Warrant Exercise Period shall commence on the date
hereof and expire on July 23, 2001. The rights represented by this Warrant may
be exercised by the Holder hereof, in whole or in part (but not as to a
fractional share of Common Stock), prior to the expiration of this Warrant by
written notice of exercise (in the form attached hereto) delivered to the
Corporation at the principal office of the Corporation and accompanied or
preceded by the surrender of this Warrant along with cash, a certified check or
bank draft in payment of the Warrant Exercise Price for such shares. The Holder
shall then complete and comply with a subscription agreement in a form requested
by the Corporation.
2. Exchange and Replacement. Subject to Section 7 hereof, this Warrant
is exchangeable upon the surrender hereof by the Holder to the Corporation at
its office for new Warrants of like tenor and date representing in the aggregate
the right to purchase the number of Warrant Shares purchasable hereunder, each
of such new Warrants to represent the right to purchase such number of Warrant
Shares (not to exceed
<PAGE> 2
the aggregate total number purchasable hereunder) as shall be designated by the
Holder at the time of such surrender. Upon receipt by the Corporation of
evidence reasonably satisfactory to it of the loss, theft, destruction, or
mutilation of this Warrant, and, in case of loss, theft or destruction, of
indemnity or security reasonably satisfactory to it, and upon surrender and
cancellation of this Warrant, if mutilated, the Corporation will make and
deliver a new Warrant of like tenor, in lieu of this Warrant; provided, however,
that if the initial holder shall be such Holder, an agreement of indemnity by
such Holder shall be sufficient for all purposes of this Section 2. This Warrant
shall be promptly canceled by the Corporation upon the surrender hereof in
connection with any exchange or replacement. The Corporation shall pay all
expenses, taxes (other than stock transfer or income taxes), and other charges
payable in connection with the preparation, execution, and delivery of Warrants
pursuant to this Section 2.
3. Issuance of the Warrant Shares.
(a) The Corporation agrees that the shares of Common Stock
purchased hereby shall be and are deemed to be issued to the Holder as of the
close of business on the date on which this Warrant shall have been surrendered,
the payment made for such Warrant Shares as aforesaid and the subscription
agreement is returned to the Corporation. Subject to the provisions of the next
section, certificates for the Warrant Shares so purchased shall be delivered to
the Holder within a reasonable time, not exceeding five days after the rights
represented by this Warrant shall have been so exercised, and, unless this
Warrant has expired, a new Warrant representing the right to purchase the number
of Warrant Shares, if any, with respect to which this Warrant shall not then
have been exercised shall also be delivered to the Holder within such time.
(b) Notwithstanding the foregoing, however, the Corporation
shall not be required to deliver any certificate for Warrant Shares upon
exercise of this Warrant except in accordance with exemptions from the
applicable securities registration requirements or registrations under
applicable securities laws. Nothing herein, however, shall obligate the
Corporation to effect registrations under federal or state securities laws,
except as provided in Section 9. The Holder agrees to execute such documents and
make such representations, warranties, and agreements as may be required solely
to comply with the exemptions relied upon by the Corporation, or the
registrations made, for the issuance of the Warrant Shares.
4. Covenants of the Corporation. The Corporation covenants and
agrees that all Warrant Shares will, upon issuance, be duly authorized and
issued, fully paid, nonassessable, and free from all taxes (except stock
transfer and income taxes), liens, and charges with respect to the issue
thereof. The Corporation further covenants and agrees that during the period
within which the rights represented by this Warrant may be exercised, the
Corporation will at all times have authorized and reserved for the purpose of
issue or transfer upon exercise of the subscription rights evidenced by this
Warrant a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant.
5. Antidilution Adjustment. The provisions of this Warrant are
subject to adjustment as provided in this Section 5.
(a) The Warrant Exercise Price shall be subject to adjustment
from time to time such that in case the Corporation shall hereafter:
(i) pay any dividends on any class of stock of the
Corporation payable in Common Stock;
2
<PAGE> 3
(ii) subdivide its then outstanding shares of Common Stock
into a greater number of shares; or
(iii) combine outstanding shares of Common Stock, by
reclassification or otherwise;
then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (a) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (b) the total number of shares of Common Stock outstanding
immediately after such event (including the maximum number of shares of Common
Stock issuable in respect of any securities convertible into Common Stock), and
the resulting quotient shall be the adjusted Warrant Exercise Price per share.
An adjustment made pursuant to this Section 5(a) shall become effective
immediately after the record date in the case of a dividend or distribution and
shall become effective immediately after the effective date in the case of a
subdivision, combination or reclassification. If, as a result of an adjustment
made pursuant to this Section 5(a), the Holder of any Warrant thereafter
surrendered for exercise shall become entitled to receive shares of two or more
classes of capital stock or shares of Common Stock and other capital stock of
the Corporation, the Board of Directors (whose determination shall be
conclusive) shall determine the allocation of the adjusted Warrant Exercise
Price between or among shares of such classes of capital stock or shares of
Common Stock and other capital stock. All calculations under this Section 5(a)
shall be made to the nearest cent or to the nearest 1/100 of a share, as the
case may be. In the event that at any time as a result of an adjustment made
pursuant to this Section 5(a), the Holder of any Warrant thereafter surrendered
for exercise shall become entitled to receive any shares of the Corporation
other than shares of Common Stock, thereafter the Warrant Exercise Price of such
other shares so receivable upon exercise of any Warrant shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to Common Stock contained in this
Section.
(b) If the Corporation shall at any time after the date hereof
issue shares of Common Stock or rights, options or warrants to subscribe for or
purchase shares of Common Stock, or securities convertible into, or exchangeable
for, Common Stock (excluding shares, rights, options, warrants or convertible or
exchangeable securities issued or issuable in any of the transactions with
respect to which an adjustment is provided pursuant to Section 5(a)), at a price
per share (determined, in the case of such rights, options, warrants or
convertible or exchangeable securities, by dividing (i) the total amount
received or receivable by the Corporation in consideration of the sale and
issuance of such rights, options, warrants, or convertible, exercisable or
exchangeable securities, plus the maximum aggregate consideration payable to the
Corporation upon exercise, conversion or exchange thereof, by (ii) the maximum
number of shares issuable upon conversion, exercise or exchange as the case may
be, of such rights, options, warrants or convertible or exchangeable securities)
less than the fair market value (as determined by the Board of Directors in good
faith, then the Warrant Exercise Price shall be changed to a price determined by
multiplying the Warrant Exercise Price in effect immediately prior thereto by a
fraction, the numerator of which shall be the sum of (i) the number of shares of
Common Stock outstanding immediately prior to such issuance and (ii) the number
of shares of Common Stock which could be purchased at the current Warrant
Exercise Price using the aggregate consideration received or receivable by the
Corporation in consideration of such sale and/or issuance (including any amounts
payable to the Corporation upon exercise, conversion or exchange of any rights,
options, warrants or convertible or exchangeable securities) and of which the
denominator shall be the number of shares of Common Stock outstanding
immediately after such issuance and/or sale. All calculations under this Section
5(a) shall be made to the nearest cent or to the nearest 1/100 of a share, as
the case may be.
3
<PAGE> 4
For the purposes of such adjustment, the maximum number of
shares of Common Stock which the holders of any such rights, options, warrants
or convertible or exchangeable securities shall be entitled to initially
subscribe for or purchase or convert or exchange such securities into shall be
deemed to be issued and outstanding as of the date of such issuance, and the
consideration received by the Corporation therefor shall be deemed to be the
consideration received by the Corporation for such rights, options, warrants or
convertible or exchangeable securities, plus the maximum aggregate consideration
or premiums stated in such rights, options, warrants, or convertible or
exchangeable securities to be paid for the shares issuable thereby. No further
adjustment of the Warrant Exercise Price shall be made as a result of the actual
issuance of shares of Common Stock upon exercise of such rights, options or
warrants or on conversion or exchange of such convertible or exchangeable
securities. Upon the expiration or the termination of such rights, options, or
warrants, or the termination of such right to convert or exchange, the Warrant
Exercise Price shall be readjusted to such Warrant Exercise Price as would have
been obtained had the adjustments made upon the issuance of such rights,
options, warrants or convertible or exchangeable securities been made upon the
basis of the delivery of only the number of shares of Common Stock actually
delivered upon the exercise of such rights, options, or warrants or upon the
conversion or exchange of any such securities. In case the Corporation shall
issue shares of Common Stock or any such rights, options, warrants or
convertible or exchangeable securities for a consideration consisting, in whole
or in part, of property other than cash or its equivalent, then the "price per
share" and the "consideration received by the Corporation" for purposes of the
first sentence of this Section 5(b) shall be determined in good faith by the
Corporation in its sole discretion.
Such adjustment shall become effective on the date of such
issuance. Shares of Common Stock owned by or held for the account of the
Corporation or any majority owned subsidiary shall not be deemed outstanding for
the purpose of any such computation. In no event shall any adjustment be made
with respect to the issuance of any securities of the Corporation pursuant to
the exercise of any options or warrants outstanding as of the date hereof.
(c) Upon each adjustment of the Warrant Exercise Price pursuant to
Section 5(a) or 5(b), the Holder of each Warrant shall thereafter (until another
such adjustment) be entitled to purchase at the adjusted Warrant Exercise Price
the number of shares, calculated to the nearest full share, obtained by
multiplying the number of shares specified in such Warrant (as adjusted as a
result of all adjustments in the Warrant Exercise Price in effect prior to such
adjustment) by the Warrant Exercise Price in effect prior to such adjustment and
dividing the product so obtained by the adjusted Warrant Exercise Price.
(d) In case of any consolidation or merger to which the Corporation is
a party other than a merger or consolidation in which the Corporation is the
continuing corporation, or in case of any sale or conveyance to another
corporation of the property of the Corporation as an entirety or substantially
as an entirety, or in the case of any statutory exchange of securities with
another corporation (including any exchange effected in connection with a merger
of a third corporation into the Corporation), there shall be no adjustment under
Section 5(a) but the Holder of each Warrant then outstanding shall have the
right thereafter to convert such Warrant into the kind and amount of shares of
stock and other securities and property which the Holder would have owned or
have been entitled to receive immediately after such consolidation, merger,
statutory exchange, sale, or conveyance had such Warrant been converted
immediately prior to the effective date of such consolidation, merger, statutory
exchange, sale, or conveyance and in any such case, if necessary, appropriate
adjustment shall be made in the application of the provisions set forth in this
Section with respect to the rights and interests thereafter of any Holders of
the Warrant, to the end that the provisions set forth in this Section shall
thereafter correspondingly be made applicable, as nearly as may reasonably be,
in relation to any shares of stock and other securities and
4
<PAGE> 5
property thereafter deliverable on the exercise of the Warrant. The provisions
of this Section 5(d) shall similarly apply to successive consolidations,
mergers, statutory exchanges, sales or conveyances.
(e) Upon any adjustment of the Warrant Exercise Price, then,
and in each such case, the Corporation shall give written notice thereof, by
first class mail, postage prepaid, addressed to the Holder as shown on the books
of the Corporation, which notice shall state the Warrant Exercise Price
resulting from such adjustment and the increase or decrease, if any, in the
number of shares of Common Stock purchasable at such price upon the exercise of
this Warrant, setting forth in reasonable detail the method of calculation and
the facts upon which such calculation is based.
6. No Voting Rights. This Warrant shall not entitle the Holder to any
voting rights or other rights as a shareholder of the Corporation.
7. Notice of Transfer of Warrant or Resale of the Warrant Shares.
(a) The Holder, by acceptance hereof, agrees to give seven (7)
days written notice to the Corporation before transferring this Warrant or
transferring any Warrant Shares of such Holder's intention to do so, describing
briefly the manner of any proposed transfer, except that no notice need be given
of the transfer of Warrant Shares following registration of the Warrant Shares
pursuant to Section 9 hereof. Such notice may be provided in the form of Warrant
Assignment attached hereto. Promptly upon receiving such written notice, the
Corporation shall present copies thereof to counsel reasonably satisfactory to
the Holder. If in the opinion of such counsel the proposed transfer may be
effected without registration or qualification (under any federal or state
securities laws), the Corporation, as promptly as practicable, shall notify the
Holder of such opinion, whereupon the Holder shall be entitled to transfer this
Warrant or to dispose of Warrant Shares received upon the previous exercise of
this Warrant, all in accordance with the terms of the notice delivered by the
Holder to the Corporation; provided that an appropriate legend may be endorsed
on this Warrant or the certificates for such Warrant Shares respecting
restrictions upon transfer thereof necessary or advisable in the opinion of
counsel and satisfactory to the Corporation to prevent further transfer which
would be in violation of Section 5 of the 1933 Act and applicable state
securities laws; and provided further that the prospective transferee or
purchaser shall execute such documents and make such representations, warranties
and agreements as may be required solely to comply with the exemptions relied
upon by the Corporation for the transfer or disposition of the Warrant or
Warrant Shares.
(b) If in the opinion of the counsel referred to in this Section 7,
the proposed transfer or disposition of this Warrant or such Warrant Shares
described in the written notice given pursuant to this Section 7 may not be
effected without registration or qualification of this Warrant or such Warrant
Shares the Corporation shall promptly give written notice thereof to the
Holder, and the Holder will limit its activities in respect to such as, in the
opinion of such counsel, are permitted by law.
8. Fractional Shares. Fractional shares shall not be issued upon the
exercise of this Warrant, but in any case where the Holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Corporation shall, upon the exercise of this Warrant for
the largest number of whole shares then called for, pay a sum in cash equal to
the sum of (a) the excess, if any, of the Fair Value of such fractional share
over the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
"Fair Value" with respect to shares of Common Stock of any class or series means
the last reported sale price or, if none, the average of the last reported
closing bid and asked prices on any national securities exchange or listed in
the National Association of Securities Dealers Automated Quotations System
("Nasdaq"), or if not listed on a national securities exchange or listed
5
<PAGE> 6
in Nasdaq, the average of the last reported closing bid and asked prices as
reported by Metro Data Corporation, Inc. from quotations by market makers in
such Common Stock on the Minneapolis-St. Paul local over-the-counter sales or,
if not traded on the Minneapolis-St. Paul over-the-counter market, the per share
consideration received by the Corporation upon the most recent issuance and sale
of its Common Stock, exclusive of issuances pursuant to the exercise or
conversion of outstanding options, common stock purchase warrants or other
securities convertible into shares of Common Stock.
9. Registration Rights. The Corporation shall, as soon as practicable,
register the Warrant Shares under a registration statement (the "Registration
Statement") to be filed pursuant to the 1933 Act with the Securities and
Exchange Commission (the "Commission"). The Corporation shall keep the
Registration Statement effective and current until the earlier of (i) the sale
by the Holder of all of the Warrant Shares or (ii) the second anniversary of the
date that this Warrant is fully exercised. All expenses of any such registration
referred to in this Section 9, except the fees of counsel to the Holder and
underwriting commissions or discounts, shall be borne by the Corporation. The
Holder of the Warrant agrees to cooperate with the Corporation in the
preparation and filing of any Registration Statement, and in the furnishing of
information concerning the holder for inclusion therein, or in any efforts by
the Corporation to establish that the proposed sale is exempt under the Act as
to any proposed distribution.
IN WITNESS WHEREOF, Woodroast Systems, Inc. has caused this Warrant to
be signed by its duly authorized officers this 23rd day of July, 1998.
WOODROAST SYSTEMS, INC.
By: /s/ Sheldon F. Jacobs
Its: Chairman and Chief Executive Officer
6
<PAGE> 7
NOTICE OF WARRANT EXERCISE
(To be signed only upon exercise of Warrant)
TO: Woodroast Systems, Inc.
The undersigned hereby irrevocably elects to exercise the attached
Warrant to purchase for cash, _____________ of the shares issuable upon the
exercise of such Warrant and herewith makes payment of $ therefor in cash
or by certified or cashier's check, and requests that certificates for such
shares (together with a new Warrant to purchase the number of shares, if any,
with respect to which this Warrant is not exercised) shall be issued in the
name of
--------------------------------------
(Print Name)
Please insert social security or other
identifying number of registered holder
of certificate ( )
-------------
--------------------------------------
--------------------------------------
(Address)
Date:
---------------------, ------- --------------------------------------
Signature*
*The signature of the Notice of Exercise of Warrant must correspond to the name
as written upon the face of the Warrant in every particular without alteration
or enlargement or any change whatsoever. When signing on behalf of a
corporation, partnership, trust or other entity, PLEASE indicate your
position(s) and title(s) with such entity.
7
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WARRANT ASSIGNMENT
(To be signed only upon transfer of Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ______________________________ the right represented by the foregoing
warrant to purchase Common Stock of Woodroast Systems, Inc., to which the
foregoing warrant relates and appoints ________________________________ attorney
to transfer said right on the books of Woodroast Systems, Inc., with full power
of substitution in the premises.
The manner of the proposed transfer by the undersigned is described
briefly in the space below.
Dated:
-------------------------
----------------------------------
(Signature)
----------------------------------
----------------------------------
----------------------------------
(Address)
In the Presence of:
- ------------------------------
8
<PAGE> 1
EXHIBIT 5
July 28, 1998
Woodroast Systems, Inc.
10250 Valley View Road, Suite 145
Eden Prairie, MN 55344
Ladies and Gentlemen:
We have acted on behalf of Woodroast Systems, Inc., a Minnesota
corporation (the "Company") in connection with the preparation of a Registration
Statement on Form S-3 (the "Registration Statement") to be filed by the Company
with the Securities and Exchange Commission on July 28, 1998 relating to the
registration under the Securities Act of 1933, as amended, of 735,000 shares of
common stock, par value $.005 per share ("Common Stock"), of which 600,000
shares have been issued or are issuable by the Company upon exercise of that
certain Warrant (the "Berman Warrant") issued by the Company to Lyle Berman,
35,000 shares are issuable by the Company upon exercise of that certain Warrant
(the "RRG Warrant") issued by the Company to Retail Resource Group and 100,000
shares have been issued to Fortress Financial Group, Inc.
Upon examination of such corporate documents and records as we have
deemed necessary or advisable for the purposes hereof and including and in
reliance upon certain certificates by the Company, it is our opinion that:
a. The Company is a validly existing corporation in good standing
under the laws of the State of Minnesota.
b. The 600,000 shares of Common Stock issuable upon exercise of
the Berman Warrant have been duly authorized and, when issued
in accordance with the terms of the Berman Warrant, will be
legally issued, fully paid and non-assessable.
c. The 35,000 shares of Common Stock issuable upon exercise of
the RRG Warrant have been duly authorized and, when issued in
accordance with the terms of the RRG Warrant, will be legally
issued, fully paid and non-assessable.
d. The 100,000 shares of Common Stock issued to Fortress
Financial Group, Inc. have been duly authorized, and are
validly issued, fully paid and non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and the reference to our firm under the heading "Legal
Matters" in the Registration Statement.
Very truly yours,
MASLON EDELMAN BORMAN & BRAND, LLP
<PAGE> 1
EXHIBIT 10.1
SECURED DEMAND PROMISSORY NOTE
$2,000,000.00 Minneapolis, Minnesota
April 29, 1998
FOR VALUE RECEIVED, the undersigned, Woodroast Systems, Inc. (the
"Debtor"), promises to pay UPON DEMAND to the order of Lyle Berman (the
"Lender"), at 433 Bushaway Road, Wayzata, MN 55391, or at such other place as
the holder of this Note may designate from time to time, the principal sum of
Two Million and 00/100 Dollars ($2,000,000.00), or such other amount as may be
advanced under this Note, together with interest on the unpaid principal
balance, from the date hereof until this Note is fully paid at the rate of ten
percent (10%) per annum. Interest shall be computed on the basis of the actual
number of days elapsed in a 360-day year.
The indebtedness evidenced hereby shall be payable as follows:
(a) Accrued interest shall be payable ON DEMAND, and if no demand, then
on the first day of each calendar month commencing the first such
date hereafter and on the Maturity Date (as hereafter defined);
(b) Upon the sale of any of the Debtor's assets securing this Note, the
net proceeds of each such sale (after payment of senior liens, if
any) shall be paid to reduce the accrued but unpaid interest, if
any, and principal balance of this Note.
(c) All principal and unpaid interest shall be payable ON DEMAND, and if
no demand, then one year from the date of this Note (the "Maturity
Date").
All or any part of the unpaid balance of this Note may be prepaid at any
time without penalty. Each such prepayment shall be applied first to the payment
of other charges under this Note, second to the payment of interest accrued
through the date of prepayment and third to payment of principal.
The Lender may, from time to time, but is not required to, advance up to
$2,000,000 evidenced by this Note. All advances under this Note are at the sole
discretion of the Lender.
This Note is secured by the following (collectively, together with all
ancillary documents, the "Security Documents"):
(a) Business Security Agreement of even date herewith executed by the
Debtor in favor of the Lender.
(b) Patent Collateral Assignment of even date herewith executed by the
Debtor in favor of the Lender.
(c) Trademark Collateral Assignment of even date herewith executed by
the Debtor in favor of the Lender.
(d) Collateral Assignment of Leases of even date herewith executed by
the Debtor in favor of the Lender.
<PAGE> 2
(e) Guaranty of Shelly's Woodroast-Two, Inc. (the "Guarantor") of even
date herewith.
(f) Business Security Agreement of even date herewith executed by the
Guarantor in favor of the Lender.
If an Event of Default, as defined in any of the Security Documents, shall
occur, the principal of this Note may be declared immediately due and payable.
Debtor agrees to pay on demand the costs of collection, including, without
limitation, reasonable attorneys' fees incurred by Lender in collecting or
attempting to collect any amount under this Note after an Event of Default, or
to enforce its rights under this Note. All such costs of collection shall bear
interest, payable on demand, from the date of payment thereof by Lender until
paid in full by Debtor at the rate applicable to the principal amount of this
Note.
Lender shall not, by any act of omission or commission, be deemed to waive
any of his rights or remedies hereunder unless such waiver is in writing and
signed by Lender and then only to the extent specifically set forth therein. A
waiver on one occasion shall not be construed to be a continuing waiver of such
right or remedy on any other occasion.
Every person who is at any time liable for the payment of the debt
evidenced by this Note hereby waives presentment for payment, demand, notice of
nonpayment of this Note, protest and notice of protest, in any litigation
arising out of, relating to or connected with this Note or with any instrument
given as security here for; and hereby agrees that Lender may extend, without
affecting their liability hereon, the time for payment of any part of or the
whole of the debt evidenced by this Note, at any time, at the request of any
other person or entity liable for that debt. The payments due to Lender
hereunder shall not be subject to offset for any reason whatsoever.
The form and validity of this Note shall be governed by the laws of the
State of Minnesota applicable to contracts made and to be performed wholly
within Minnesota, without giving effect to conflicts of laws principles. All
lawsuits and judicial proceedings regarding the interpretation of this Note, any
dispute arising hereunder or the collection of any amount due under this Note
shall be brought and heard in the District Court, State of Minnesota, Fourth
Judicial District, and Debtor hereby consents to such jurisdiction. If any
portion of this Note is unenforceable, the remainder of this Note shall continue
in full force and effect. Time is of the essence with respect to all of Debtor's
obligations and agreements under this Note. This Note and all the provisions,
conditions, promises and covenants hereof shall inure to the benefit of Lender,
his successors and assigns, and shall be binding upon Debtor, its successors and
assigns.
WOODROAST SYSTEMS, INC.
a Minnesota corporation
By: /s/ Ralph J. Guarino
-------------------------------
Its President
<PAGE> 1
EXHIBIT 10.2
INVESTMENT BANKING AGREEMENT
This Agreement is made as of June 22, 1998 by and between Woodroast Systems,
Inc., a Minnesota Corporation, ("Contractor") with its principal offices at
10250 Valley View Road, Eden Prairie, MN 55344, and Fortress Financial Group,
Ltd., a Delaware Corporation, ("FORTRESS") with its principal offices at 1204
Palm Boulevard, Second Floor, Isle Of Palms, South Carolina 29451.
WITNESSETH
WHEREAS, Contractor requires expertise in the area of investment banking to
support its business and growth;
WHEREAS, FORTRESS has substantial contacts among the members of the investment
community, investment banking expertise, and desires to act as a consultant to
provide investment banking and advisory services;
NOW, THEREFORE, in consideration of the premise and the mutual promises and
covenants contained herein and subject specifically to the conditions hereof,
and intending to be legally bound thereby, the parties agree as follows:
1. CERTAIN DEFINITIONS - When used in this Agreement, the following terms
shall have the meanings set forth below:
1.1 AFFILIATE - any persons or entities controlled by a party.
1.2 CONTRACTOR - the Contractor who use the services of FORTRESS.
1.3 CONTRACTOR CLIENTS - the Contractor's clients who use the services
of FORTRESS through the Contractor.
1.4 CONTACT PERSON - the person who shall be primarily responsible for
carrying out the duties of the parties hereunder. Contractor and
FORTRESS shall each appoint a Contact Person to be responsible for
their respective duties. In the event that one party gives notice to
the other party in writing that, in their reasonable opinion, the
other party's Contact Person is not able to fulfill their duties and
responsibilities hereunder, both parties shall mutually agree upon a
replacement Contact Person within 10 days of the said notice.
1.5 EXTRAORDINARY EXPENSES - expenses that are beyond those expenses
that are usual, regular, or customary in the conduct of in-house
activities in fulfillment of the scope of this agreement.
1.6 EQUITY - cash, securities or liquid assets, specifically excluding
real property.
1.7 PAYMENT OR PAYABLE IN KIND - distribution of the proceeds of a
transaction in the same type and form as was given as valuable
consideration for the transaction.
<PAGE> 2
2. CONTACT PERSONS. The Contact Person for Contractor is Sheldon Jacobs,
Chairman of the Board and Chief Executive Officer. The Contact Person for
FORTRESS is Gregory D. Walker, President.
3. SERVICES TO BE RENDERED BY FORTRESS. Services to be rendered, on a best
efforts basis, by FORTRESS are as follows:
3.1 ADVICE AND COUNSEL. FORTRESS will provide advice and counsel
regarding Contractor's strategic business and financial plans,
strategy and negotiations with potential lenders/investors,
merger/acquisition candidates, joint ventures, corporate partners
and others involving financial and financially related transactions.
3.2 INTRODUCTIONS TO THE SECURITIES BROKERAGE COMMUNITY. FORTRESS has a
close association with numerous broker/dealers and investment
professionals across the country and will enable contact between
Contractor and/or Contractor Clients to facilitate business
transactions among them. FORTRESS shall use their contacts in the
brokerage community to assist Contractor in establishing
relationships with securities dealers and to provide the most recent
corporate information to interested securities dealers on a regular
and continuous basis. FORTRESS understands that this is in keeping
with Contractor's business objective to establish a nationwide
network of securities dealers who have an interest in Contractor's
securities.
3.3 MARKET-MAKING INTELLIGENCE. FORTRESS's clearing agent, JB Oxford &
Company, is a market-maker in numerous securities, and FORTRESS has
access to proprietary information through JB Oxford & Company's
market-making facilities and personnel. FORTRESS will monitor and
react to sensitive market information on a timely basis and provide
advice and counsel and proprietary intelligence (including but not
limited to information on price, volume and the identification of
market-makers, buyers and sellers) to Contractor in a timely fashion
with respect to securities in which Contractor has an interest.
Contractor understands that this information is available from other
sources but acknowledges that FORTRESS can provide it in a more
timely fashion and with substantial value-added interpretation of
such information. The foregoing notwithstanding, no information will
be provided to Contractor with respect to the activities of any
other FORTRESS customers or customer accounts without such
customer's prior consent.
3.4 CONTRACTOR AND/OR CONTRACTOR CLIENT TRANSACTION DUE DILIGENCE.
FORTRESS will undertake due diligence on all proposed financial
transactions affecting the Contractor, of which FORTRESS is notified
in writing in advance, including investigation and advice on the
financial, valuation and stock price implications thereof.
3.5 ADDITIONAL DUTIES. Contractor and FORTRESS shall mutually agree upon
any additional duties which FORTRESS may provide for compensation
paid or payable by Contractor under this Agreement. Such additional
agreement(s) may, although there is no requirement to do so, may be
attached hereto and made a part hereof by written amendments to be
listed as "Exhibits" beginning with "Exhibit A" and initialed by
both parties.
3.6 BEST EFFORTS. FORTRESS shall devote such time and best efforts to
the affairs of the Contractor as is reasonable and adequate to
render the consulting services contemplated by this agreement.
FORTRESS is not responsible for the performance of any services
which may be rendered hereunder without the Contractor providing the
necessary information in writing prior thereto, nor shall FORTRESS
include any services that constitute the rendering
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<PAGE> 3
of any legal opinions or performance of work that is in the ordinary
purview of the Certified Public Accountant. FORTRESS cannot
guarantee results on behalf of Contractor, but shall pursue all
avenues available through its network of financial contacts. At such
time as an interest is expressed in Contractor's needs, FORTRESS
shall notify Contractor and advise it as to the source of such
interest and any terms and conditions of such interest. The
acceptance and consummation of any transaction is subject to
acceptance of the terms and conditions by Contractor. It is
understood that a portion of the compensation to be paid hereunder
is being paid hereunder by Contractor to have FORTRESS remain
available to assist with transactions on an as needed basis.
4. COMPENSATION TO FORTRESS.
4.1 INITIAL FEE. Contractor shall pay FORTRESS a non-refundable initial
fee of 100,000 (One hundred thousand) shares of the company's common
stock for FORTRESS' initial set-up of activities which are necessary
for FORTRESS to provide the services herein.
4.2 ADDITIONAL FEES. Contractor and FORTRESS shall mutually agree upon
any additional fees which Contractor may pay in the future for
services rendered by FORTRESS under this Agreement. Such additional
agreement(s) may, although there is no requirement to do so, be
attached hereto and made a part hereof as Exhibits beginning with
Exhibit A.
4.3 OPTIONAL FORM OF PAYMENT. FORTRESS may, at the time for each payment
and at its sole option, elect to receive all or a portion of said
fees in the form of securities, equity, or financing instruments
issued by Contractor to FORTRESS on terms agreed by Contractor in
writing.
4.4 EXTRAORDINARY EXPENSES. Extraordinary expenses (those not dofined in
4.7) FORTRESS shall be submitted to Contractor for approval prior to
expenditure and shall be paid by Contractor, within ten (10)
business days of receipt of FORTRESS' request for payment.
4.5 FINDER FEES.
A. In the event that FORTRESS introduces Contractor or a Contractor
affiliate to any third party funding source(s), underwriter(s),
merger partner(s) or joint venture(s) who enters into a funding,
underwriting, merger, joint venture or similar agreement with
Contractor or Contractor's affiliate, Contractor hereby agrees to
pay FORTRESS an advisory fee of 5% of the gross proceeds derived
from such funding, underwriting, merger, joint venture or similar
agreement with Contractor or Contractor's client, unless generally
accepted industry standards dictate otherwise, payable upon the
commencement of such funding, underwriting, merger, joint venture or
similar agreement with Contractor or Contractor's client. (This
provision shall survive this agreement, even though the term of this
agreement may have expired, as pursuant to the section titled "Term
of Agreement and Termination").
B. FORTRESS may, at its sole option, elect to receive all or a
portion of said advisory fee as payment in kind, i.e., prorated in
the same form and type of securities, equity, or financing
instruments issued to the funding source or underwriter by
Contractor. In the event the exercise of this option results in
additional expense over and above the expense of the funding and/or
underwriting then the additional expenses shall be borne by
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<PAGE> 4
FORTRESS. In addition the exercise of this option by FORTRESS
shall not impede or otherwise have a negative effect on the
funding or underwriting.
4.6 INTEREST ON FUNDS DUE. Contractor shall pay interest on all payments
in arrears due FORTRESS, at the rate of ten percent (10%) per annum.
4.7 EXPENSES. All expenses including, but not limited to, all
registration fees paid to the Securities and Exchange Commission,
fees and expenses of accountants, fees and expenses of legal
counsel, printing and engraving expenses, postage and distribution
fees, transfer agent fees, escrow fees, NASD registration or
exchange listing fees (but not including underwriting discounts and
commissions relating to shares and warrants of any holder being
offered thereby and fees and expenses of any special counsel of any
selling shareholder) of any registration(s) made pursuant to
paragraph 4.1 hereof shall be borne and paid by the Contractor.
Underwriting discounts and commissions shall be borne pro rata by
any selling shareholder in proportion to the number of shares being
offered by such selling shareholder.
5. Indemnification. The Contractor agrees to indemnify and hold harmless
FORTRESS, each of its officers, directors, employees and each person, if
any, who controls FORTRESS against any and all liability, loss and costs,
expenses or damages, including but not limited to, any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending
against any litigation, commenced or threatened, or any claim whatsoever
or howsoever caused by reason of any injury (whether to body, property,
personal or business character or reputation) sustained by any person or
to any person or property by reason of any omission, or any untrue or
alleged untrue statement of a material fact, or any misrepresentation of
any material fact or any breach of any material warranty or covenant of
the Contractor or any of its agents, employees, or other representatives
arising out of, or in relation to, this Agreement. Nothing herein is
intended to nor shall it relieve either party from liability for its own
act, omission or negligence. All remedies provided by law or in equity
shall be cumulative and not in the alternative.
FORTRESS agrees to indemnify and hold harmless Contractor, each of its
officers, directors, employees and each person, if any, who controls
FORTRESS against any and all liability, loss and costs, expenses or
damages, including but not limited to, any and all expenses whatsoever
reasonably incurred in investigating, preparing or defending against any
litigation, commenced or threatened, or any claim whatsoever or howsoever
caused by reason of any injury (whether to body, property, personal or
business character or reputation) sustained by any person or to any person
or property by reason of any act, neglect, default or omission, or any
untrue or alleged untrue statement of a material fact, or any
misrepresentation of any material fact or any breach of any material
warranty or covenant of the Contractor or any of its agents, employees, or
other representatives arising out of, or in relation to, this Agreement.
Nothing herein is intended to nor shall it relieve either party from
liability for its own act, omission or negligence. All remedies provided
by law or in equity shall be cumulative and not in the alternative.
6. CONTRACTOR REPRESENTATIONS. Contractor hereby represents, covenants and
warrants to FORTRESS as follows:
6.1 AUTHORIZATION. Contractor and its signatories herein have full power
and authority to enter into this Agreement and to carry out the
transactions contemplated hereby.
6.2 NO VIOLATION. Neither the execution and delivery of this Agreement
nor the consummation of the transactions contemplated hereby will
violate any provision of the charter or by-laws
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<PAGE> 5
of Contractor, or violate any terms or provision of any other
Agreement or any statute or law.
6.3 LITIGATION. Except as set forth below, there is no action, suit,
inquiry, proceeding or investigation by or before any court or
governmental or other regulatory or administrative agency or
commission pending or, to the best knowledge of Contractor
threatened against or invoking Contractor, which questions or
challenges the validity of this Agreement and its subject matter;
and Contractor does not know or have any reason to know of any valid
basis for any such action, proceeding or investigation.
6.4 CONSENTS. No consent of any person, other than the signatories
hereto, is necessary to the consummation of the transactions
contemplated hereby, including, without limitation, consents from
parties to loans, contracts, lease or other Agreements and consents
from governmental agencies, whether federal, state, or local.
6.5 FORTRESS RELIANCE. FORTRESS has and will rely upon the documents,
instruments and written information furnished to FORTRESS by the
Contractor's officers or designated employees.
A. CONTRACTOR'S MATERIAL. All representations and statements
provided about the Contractor are true and complete and accurate to
the best of Contractor's knowledge. Contractor agrees to indemnify,
hold harmless, and defend FORTRESS, its officers, directors, agents
and employees, at Contractor's expense for any proceeding or suit
which may raise out of any inaccuracy or incompleteness of any such
material or written information supplied to FORTRESS.
6.6 SERVICES NOT EXPRESSED OR IMPLIED.
A. FORTRESS has not agreed with Contractor in this Agreement or any
other Agreement, verbal or written, to be a market-maker (but may be
a placement agent by other "Selling Agreement" from time-to-time) in
Contractor's securities or in any specific securities or securities
in which Contractor or Contractor's Client has an interest; and,
B. Any payments made herein to FORTRESS are not, and shall not be
construed as, compensation to FORTRESS for the purposes of making a
market, to cover FORTRESS out-of-pocket expenses for making a
market, or for the submission by FORTRESS of an application to make
a market in any securities; and,
C. No payments made herein to FORTRESS are for the purpose of
affecting the price of any security or influencing any market-making
functions, including but not limited to bid/ask quotations,
initiation and termination of quotations, retail securities
activities, or for the submission of any application to make a
market.
7. CONFIDENTIALITY.
7.1 FORTRESS and Contractor each agree to provide reasonable security
measures to keep information confidential where release may be
detrimental to their respective business interests. FORTRESS and
Contractor shall each require their employees, agents, affiliates,
subcontractors, other licensees, and others who will have access to
the information through
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<PAGE> 6
FORTRESS and Contractor respectively, to first enter appropriate
non-disclosure Agreements requiring the confidentiality contemplated
by this Agreement in perpetuity.
7.2 FORTRESS will not, either during its engagement by the Contractor
pursuant to this agreement or at any time thereafter, disclose, use
or make known for its or another's benefit, any confidential
information, knowledge, or data of the Contractor or any of its
affiliates in any way acquired or used by FORTRESS during its
engagement by the Contractor. Confidential information, knowledge or
data of the Contractor and its affiliates shall not include any
information which is, or becomes generally available to the public
other than as a result of a disclosure by FORTRESS or its
representatives.
8. MISCELLANEOUS PROVISIONS.
8.1 AMENDMENT AND MODIFICATION. This Agreement may be amended, modified
and supplemented only by written agreement of FORTRESS and
Contractor.
8.2 WAIVER OF COMPLIANCE. Any failure of FORTRESS, on the one hand, or
Contractor, on the other, to comply with any obligation, agreement,
or condition herein may be expressly waived in writing, but such
waiver or failure to insist upon strict compliance with such
obligation, covenant, agreement or condition shall not operate as a
waiver of, or estoppel with respect to, any subsequent or other
failure.
8.3 EXPENSES: TRANSFER TAXES, ETC. Whether or not the transaction, if
any, contemplated by this Agreement shall be consummated, FORTRESS
agrees that all fees and expenses incurred by FORTRESS in connection
with this Agreement shall be borne by FORTRESS and Contractor agrees
that all fees and expenses incurred by Contractor in connection with
this Agreement shall be borne by Contractor, including, without
limitation as to FORTRESS or Contractor, all fees of counsel and
accountants.
8.4 OTHER BUSINESS OPPORTUNITIES. Except as expressly provided in this
Agreement, each party hereto shall have the right independently to
engage in and receive full benefits from business activities. In
case of business activities which would be competitive with the
other party, notice shall be given prior to this Agreement. The
doctrines of "corporate opportunity" or "business opportunity" shall
not be applied to any other activity, venture, corporation of either
party.
8.5 COMPLIANCE WITH REGULATORY AGENCIES. Each party agrees that all
actions, direct or indirect, taken by it and its respective agents,
employees and affiliates in connection with this agreement and any
financing or underwriting hereunder shall conform to all applicable
Federal and State securities laws.
8.6 NOTICES. Any notices to be given hereunder by any party to the other
may be effected by personal delivery in writing or in by mail,
registered or certified, postage prepaid with return receipt
requested. Mailed notices shall be addressed to the "Contact Person"
at the addresses appearing in the introductory paragraph of this
Agreement, but any party may change his address by written notice in
accordance with this subsection. Notices delivered personally shall
be deemed communicated as of actual receipt; mailed notices shall be
deemed communicated as of five (5) days after mailing.
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8.7 ASSIGNMENT. This agreement and all of the provisions hereof shall be
binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns, but neither this
Agreement nor any right, interest or obligations hereunder will be
assigned by any of the parties hereto without the prior written
consent of the other parties, except by operation of law.
8.8 DELEGATION. Neither party shall delegate the performance of its
duties under this agreement without the prior written consent of the
other party.
8.9 PUBLICITY. Neither FORTRESS nor Contractor shall make or issue, or
cause to be made or issued, any announcement or written statement
concerning this Agreement or the transaction contemplated hereby for
dissemination to the general public without the prior consent of the
other party. This provision shall not apply, however, to any
announcement or written statement required to be made by law or the
regulations of any Federal or State governmental agency, except that
the party concerning the timing and consent of such announcement
before such announcement is made.
8.10 GOVERNING LAW. This Agreement and the legal relations among the
parties hereto shall be governed by and construed in accordance with
the laws of the State of South Carolina, without regard to its
conflict of law doctrine. Contractor and FORTRESS agree that if any
action is instituted to enforce or interpret any provision of this
Agreement, the jurisdiction and venue shall be Charleston County,
South Carolina.
8.11 COUNTERPARTS. This Agreement may be executed simultaneouslymoretwo
or counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
8.12 HEADINGS. The heading of the sections of this Agreement are inserted
for convenience only and shall not constitute a part hereto or
affect in any way the meaning or interpretation of this Agreement.
8.13 ENTIRE AGREEMENT. This Agreement, including any Exhibits hereto, and
the other documents and certificates delivered pursuant to the terms
hereto, sets forth the entire Agreement and understanding of the
parties hereto in respect of the subject matter contained herein,
and supersedes all prior agreements, promise, covenants,
arrangements, communications, representations or warranties, whether
oral or written, by any officer, employee or representative of any
party hereto.
8.14 THIRD PARTIES. Except as specifically set forth or referred to
herein, nothing herein expressed or implied is intended or shall be
construed to confer upon or give to any person or corporation other
than the parties hereto and their successors or assigns, any rights
or remedies under or by reason of this Agreement.
8.15 ATTORNEYS' FEES AND COSTS. If any action is necessary to enforce and
collect upon the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees and costs, in addition to
any other relief to which that party may be entitled. This provision
shall be construed as applicable to the entire Agreement.
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8.16 SURVIVABILITY. If any part of this Agreement is found, or deemed by
a court of competent jurisdiction to be invalid or unenforceable,
that part shall be severable from the remainder of the Agreement.
8.17 FURTHER ASSURANCES. Each of the parties agrees that it shall from
time-to-time take such actions and execute such additional
instruments as may be reasonably necessary or convenient to
implement and carry out the intent and purpose of this Agreement.
8.18 RELATIONSHIP OF THE PARTIES. Nothing contained in this Agreement
shall be deemed to constitute either party to become the partner of
the other, the agent or legal representative of the other, nor
create any fiduciary relationship between them, except as otherwise
expressly provided herein. Neither party shall have any authority to
act for or to assume any obligation or responsibility on behalf of
the other party, except as otherwise expressly provided herein. Each
party shall be responsible only for its obligations as herein set
out and shall be liable only for its share of the costs and expenses
as provided herein.
8.19 NO AUTHORITY TO OBLIGATE THE CONTRACTOR. Without the consent of the
Board of Directors of the Contractor, FORTRESS shall have no
authority to take, nor shall it take, any action committing or
obligating the Contractor in any manner, and it shall not represent
itself to others as having such authority.
9. ARBITRATION. WITH RESPECT TO THE ARBITRATION OF ANY DISPUTE, THE
UNDERSIGNED HEREBY ACKNOWLEDGE THAT:
A. ARBITRATION IS FINAL AND BINDING ON THE PARTIES.
B. THE PARTIES ARE WAIVING THEIR RIGHT TO SEEK REMEDY IN COURT,
INCLUDING THEIR RIGHT TO JURY TRIAL;
C. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND
DIFFERENT FROM COURT PROCEEDING;
D. THE ARBITRATOR'S AWARD IS NOT REQUIRED TO INCLUDE FACTUAL FINDINGS
OR LEGAL REASONING AND ANY PARTY'S RIGHT OF APPEAL OR TO SEEK
MODIFICATION OF RULING BY THE ARBITRATORS IS STRICTLY LIMITED;
E. THE PANEL OF ARBITRATORS WILL TYPICALLY INCLUDE A MINORITY OF
ARBITRATORS WHO WERE OR ARE AFFILIATED WITH SECURITIES INDUSTRY; AND
F. THIS ARBITRATION AGREEMENT IS SPECIFICALLY INTENDED TO INCLUDE ANY
AND ALL STATUTORY CLAIMS WHICH MIGHT BE ASSERTED BY ANY PARTY.
G. ALL DISPUTES, CONTROVERSIES, OR DIFFERENCES BETWEEN THE CONTRACTOR,
FORTRESS FINANCIAL GROUP, LTD. OR ANY OF THEIR OFFICERS, DIRECTORS, LEGAL
REPRESENTATIVES, ATTORNEYS, ACCOUNTANTS, AGENTS OR EMPLOYEES, OR ANY
CUSTOMER OR OTHER PERSON OR ENTITY, ARISING OUT OF, IN CONNECTION WITH OR
AS A RESULT OF THIS AGREEMENT, SHALL BE RESOLVED THROUGH ARBITRATION
RATHER THAN THROUGH LITIGATION.
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H. THE UNDERSIGNED CONTRACTOR HEREBY AGREES TO SUBMIT THE DISPUTE FOR
RESOLUTION TO EITHER THE AMERICAN ARBITRATION ASSOCIATION, IN ATLANTA,
GEORGIA, OR THE NATIONAL ASSOCIATION OF SECURITIES DEALERS, INC. IN
ATLANTA, GEORGIA, WHICHEVER ASSOCIATION MAY ASSERT JURISDICTION OVER THE
DISPUTE WITHIN FIVE (5) DAYS AFTER RECEIVING A WRITTEN REQUEST TO DO SO
FROM ANY OF THE AFORESAID PARTIES.
I. IF ANY PARTY FAILS TO SUBMIT THE DISPUTE TO ARBITRATION ON REQUEST,
THEN THE REQUESTING PARTY MAY COMMENCE AN ARBITRATION PROCEEDING,
BUT IS UNDER NO OBLIGATION TO DO SO.
J. ANY HEARING SCHEDULED AFTER AN ARBITRATION IS INITIATED SHALL TAKE
PLACE IN CHARLESTON COUNTY, SOUTH CAROLINA AND THE FEDERAL ARBITRATION ACT
SHALL GOVERN THE PROCEEDING AND ALL ISSUES RAISED BY THIS AGREEMENT TO
ARBITRATE.
K. IF ANY PARTY SHALL INSTITUTE ANY COURT PROCEEDING IN AN EFFORT TO
RESIST ARBITRATION AND BE UNSUCCESSFUL IN RESISTING ARBITRATION OR SHALL
UNSUCCESSFULLY CONTEST THE JURISDICTION OF ANY ARBITRATION FORUM LOCATED
IN ATLANTA COUNTY, GEORGIA, OVER ANY MATTER WHICH IS THE SUBJECT OF THIS
AGREEMENT, THE PREVAILING PARTY SHALL BE ENTITLED TO RECOVER FROM THE
LOSING PARTY ITS LEGAL FEES AND ANY OUT-OF-POCKET EXPENSES INCURRED IN
CONNECTION WITH THE DEFENSE OF SUCH LEGAL PROCEEDING OR ITS EFFORTS TO
ENFORCE ITS RIGHTS TO ARBITRATION AS PROVIDED FOR HEREIN.
L. EACH PARTY WILL SIGN ANY REQUIRED NASD UNIFORM SUBMISSION AGREEMENT
OR THE APPLICABLE PAPERWORK FOR THE AMERICAN ARBITRATION ASSOCIATION,
AT THE TIME ANY DISPUTE IS SUBMITTED FOR ARBITRATION, WHICHEVER ONE IS
APPLICABLE.
M. THE PARTIES SHALL ACCEPT THE DECISION OF ANY AWARD AS BEING FINAL
AND CONCLUSIVE AND AGREE TO ABIDE THEREBY.
N. ANY DECISION MAY BE FILED WITH ANY COURT AS A BASIS FOR JUDGMENT AND
EXECUTION FOR COLLECTION.
10. TERM OF AGREEMENT AND TERMINATION. This Agreement shall be effective upon
execution, shall continue for one year unless terminated sooner, by the
Contractor, upon giving to the other party thirty (30) days written
notice, after which time this Agreement is terminated. FORTRESS shall be
entitled to the finders fees described in this Agreement for funding or
underwriting commitments entered into by Contractor's client within one
(1) year after the termination of this Agreement if said funding or
underwriting was the result of FORTRESS efforts prior to the termination
of Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed, all as of the day and year first above written.
CONTRACTOR: Woodroast Systems, Inc.
By: /s/ S. F. Jacobs
---------------------------------------------
Sheldon Jacobs, Chairman of the Board/Chief Executive Officer
FORTRESS: Fortress Financial Group, Ltd.
By: /s/ G. D. Walker
---------------------------------------------
Gregory D. Walker, President
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EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
Woodroast Systems, Inc. on Form S-3 (File No. 333- ) of our report
dated February 19, 1998 on the consolidated financial statements of Woodroast
Systems, Inc. We consent to the reference to our Firm under the caption
"Experts."
LUND KOEHLER COX & ARKEMA, LLP
Minneapolis, Minnesota
July 28, 1998
