EXHIBIT 1.1
1,333,333 Units, Each
Unit Consisting of One Share of
Common Stock and One Redeemable Warrant
CTI INDUSTRIES CORPORATION
UNDERWRITING AGREEMENT
New York, New York
____________, 1997
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & COMPANY, INC.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
CTI Industries Corporation, a Delaware corporation (the
"Company"), confirms its agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc. ("JSC")
(hereinafter referred to as "you" or the "Underwriter"), with respect to the
sale by the Company and the purchase by the Underwriter of 1,333,333 units (the
"Units"), each Unit consisting of one (1) share of common stock, ________ par
value (the "Common Stock") and one (1) redeemable warrant (the "Redeemable
Warrants"). Each Redeemable Warrant is exercisable for one share of Common
Stock. The Common Stock and Redeemable Warrants will be separately tradeable
upon issuance and are hereinafter referred to as the "Firm Units." The
Redeemable Warrants are exercisable commencing ________________, 1997 [the date
of the Prospectus] until _____________, 2002 [60 months from the date of the
Prospectus], unless previously redeemed by the Company, at an initial exercise
price equal to $__________ [150% of the initial public offering price per unit]
per share, subject to adjustment. The Redeemable Warrants may be redeemed by the
Company, in whole, and not in part, at a redemption price of five cents ($.05)
per Redeemable Warrant at any time commencing ______________, 1998 [12 months
after the date of the Prospectus] on 30 days' prior written notice provided that
the average closing bid price of the Common Stock equals or exceeds 150% of the
then exercise price per share (subject to adjustment) for any twenty (20)
trading days within a period of thirty (30) consecutive trading days ending on
the fifth (5th) trading day prior to the date of the notice of redemption and
the Company shall have obtained the prior written consent of JSC. Upon the
Underwriter's request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriter up to an additional 199,999
Units for the purpose of covering over-allotments, if any. Such 199,999 Units
are hereinafter collectively referred to as the "Option Units." The Company also
proposes to issue and sell to the Underwriter or its designees warrants (the
"Underwriter's Warrants"),
pursuant to the Underwriter's Warrant Agreement (the "Underwriter's Warrant
Agreement"), for the purchase of an additional 133,333 Units (the "Underwriter's
Units"). The Underwriter's Units, the shares of Common Stock and the Redeemable
Warrants underlying the Underwriter's Units and the shares of Common Stock
underlying the Redeemable Warrants underlying the Underwriter's Units are
hereinafter collectively referred to as the "Underwriter's Securities". The
shares of Common Stock issuable upon exercise of the Redeemable Warrants,
including the Redeemable Warrants underlying the Underwriter's Units, are
hereinafter referred to as the "Warrant Shares." The Firm Units, the Option
Units, the Underwriter's Warrants, the Underwriter's Units and the Warrant
Shares are hereinafter collectively referred to as the "Securities" and are more
fully described in the Registration Statement and the Prospectus referred to
below.
1. Representations and Warranties of the Company. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as of
the date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form SB-2 (Registration No. 333-____), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not file
any other amendment to such registration statement which the Underwriter shall
have objected to in writing after having been furnished with a copy thereof.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time it becomes effective (including
the prospectus, financial statements, schedules, exhibits and all other
documents filed as a part thereof or incorporated therein (including, but not
limited to, those documents or that information incorporated by reference
therein) and all information deemed to be a part thereof as of such time
pursuant to paragraph (b) of Rule 430A of the rules and regulations under the
Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority
has issued any order preventing or suspending the use of any Preliminary
Prospectus, the Registration Statement or the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of the
Registration Statement or any of the Company's securities have been instituted
or are pending or threatened. Each of the Preliminary Prospectus, the
Registration Statement and the Prospectus, at the respective times of filing
thereof, conformed with the requirements of the Act and the Rules and
Regulations, and none of the Preliminary Prospectus, the Registration Statement
nor the Prospectus, at the respective times of filing thereof, contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they
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were made, not misleading; provided, however, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriter by or on behalf of the Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or the Prospectus.
The Company has filed all reports, forms or other documents required to be filed
under the Act and the Exchange Act and the respective Rules and Regulations
thereunder, and all such reports, forms or other documents, when so filed or as
subsequently amended, complied in all material respects with the Act and the
Exchange Act and the respective Rules and Regulations thereunder.
(c) When the Registration Statement becomes effective and at
all times subsequent thereto up to the Closing Date and each Option Closing
Date, if any, and during such longer period as the Prospectus may be required to
be delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations, and will conform to the requirements of the Act and the Rules and
Regulations; and, at and through such dates, neither the Registration Statement
nor the Prospectus, nor any amendment or supplement thereto, will contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading; provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with written information
furnished to the Company with respect to the Underwriter by or on behalf of the
Underwriter expressly for use in the Preliminary Prospectus, Registration
Statement or the Prospectus or any amendment thereof or supplement thereto.
(d) Each of the Company and its wholly-owned subsidiary, CTI
Balloons Ltd., a corporation under the laws of the United Kingdom
("Subsidiary"), has been duly organized and is validly existing as a corporation
in good standing under the laws of the jurisdiction of its incorporation. Each
of the Company and the Subsidiary is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its ownership or
leasing of any properties or the character of its operations require such
qualification or licensing. Except as set forth in the Prospectus, neither the
Company nor the Subsidiary owns, directly or indirectly, an interest in any
corporation, partnership, trust, joint venture or other business entity. Each of
the Company and the Subsidiary has all requisite power and authority (corporate
and other), and has obtained any and all necessary authorizations, approvals,
orders, licenses, certificates, franchises and permits of and from all
governmental or regulatory officials and bodies (including, without limitation,
those having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the Prospectus;
each of the Company and the Subsidiary is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and with all federal, state, local and
foreign laws, rules and regulations to which it is subject; and neither the
Company nor the Subsidiary has received any notice of proceedings relating to
the revocation or modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially and
adversely affect the condition, financial or otherwise, or the earnings,
prospects, stockholders' equity, value, operations, properties, business or
results of
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operations of the Company or the Subsidiary. The disclosure in the Registration
Statement concerning the effects of federal, state, local and foreign laws,
rules and regulations on the Company's business and the Subsidiary's business as
currently conducted and as contemplated are correct in all respects and do not
omit to state a material fact required to be stated therein or necessary to make
the statements therein, in light of the circumstances in which they were made,
not misleading.
(e) The Company ____________, and ____________ (collectively,
the "Recapitalization Agreement Participants") have entered into a
recapitalization agreement (the "Recapitalization Agreement") in substantially
the form filed as Exhibit ____ to the Registration Statement, which provided
for, among other things, the following:
i) The Company restated its Certificate of Incorporation to
provide for Common Stock and Class B Common Stock. The shares
of Class B Common Stock contain rights identical to shares of
Common Stock, except that shares of Class B Common Stock,
voting separately as a class, have the right to elect four of
the Company's seven directors of the Company. Shares of Common
Stock and Class B Common Stock, voting together as a class,
vote on all other matters including the election of the
remaining directors of the Company.
ii) The Company effected a 1 for 2.6 reverse stock split of
both its Common Stock and Class B Common Stock.
iii) The holders of the Company's then outstanding Convertible
Preferred Stock shall upon __________ convert all outstanding
shares of such Convertible Preferred Stock into 2,857,143
shares of Class B Common Stock.
The actions effected pursuant to the Recapitalization Agreement have been duly
and validly authorized and have been or will be, as the case may be, duly and
validly consummated by the Company and, to the best of the Company's knowledge,
by each of the Recapitalization Agreement Participants, in compliance with
applicable law, and constitute valid and binding obligations of the Company in
accordance with the terms of the Recapitalization Agreement and as a result of
such transactions, the Company shall have a duly authorized, issued and
outstanding capitalization as set forth in the Prospectus under "Capitalization"
and "Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and the Option Closing Date, if any, based
upon the assumptions set forth therein, and neither the Company nor the
Subsidiary is a party to or bound by any instrument, agreement or other
arrangement providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the Underwriter's
Warrant Agreement and the Warrant Agreement (as defined in Section 1(ff) hereof
of this Agreement) and as described in the Prospectus. The Securities and all
other securities issued or issuable by the Company on or prior to the Closing
Date and each Option Closing Date, if any, conform or, when issued and paid for,
will conform, in all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. All issued and outstanding securities
of the Company and the Subsidiary have been duly authorized and validly issued
and are fully paid and non-assessable; the holders thereof have no rights of
rescission with respect thereto and are not subject to personal liability by
reason of being such holders; and none of such securities were issued in
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violation of the preemptive rights of any holder of any security of the Company
or any similar contractual right granted by the Company or the Subsidiary. The
Securities to be sold by the Company hereunder and pursuant to the Underwriter's
Warrant Agreement and the Warrant Agreement are not and will not be subject to
any preemptive or other similar rights of any stockholder, have been duly
authorized and, when issued, paid for and delivered in accordance with the terms
hereof and thereof, will be validly issued, fully paid and non-assessable and
conform to the descriptions thereof contained in the Prospectus; the holders
thereof will not be subject to any liability solely as such holders; all
corporate action required to be taken for the authorization, issue and sale of
the Securities has been duly and validly taken; and the certificates
representing the Securities, when delivered by the Company, will be in due and
proper form. Upon the issuance and delivery pursuant to the terms hereof and the
Underwriter's Warrant Agreement of the Securities to be sold by the Company
hereunder and thereunder to the Underwriter, the Underwriter will acquire good
and marketable title to such Securities, free and clear of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever asserted against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the Company.
(f) The audited financial statements of the Company and the
Subsidiary together with the related notes thereto, included in the Registration
Statement, each Preliminary Prospectus and the Prospectus fairly present the
financial position, income, changes in stockholders' equity and the results of
operations of the Company and the Subsidiary at the respective dates and for the
respective periods to which they apply. Such financial statements have been
prepared in conformity with generally accepted accounting principles and the
Rules and Regulations, consistently applied throughout the periods involved.
There has been no adverse change or development involving a material prospective
change in the condition, financial or otherwise, or in the earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company and the Subsidiary taken as a whole, whether or not
arising in the ordinary course of business, since the date of the financial
statements included in the Registration Statement and the Prospectus; and the
outstanding debt, the property, both tangible and intangible, and the businesses
of each of the Company and the Subsidiary conform in all respects to the
descriptions thereof contained in the Registration Statement and the Prospectus.
The financial information set forth in the Prospectus under the headings "The
Company," "Capitalization," "Financial Statements" and "Management's Discussion
and Analysis of Results of Operations and Financial Condition" fairly presents,
on the basis stated in the Prospectus, the information set forth therein and
such financial information has been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus.
(g) Each of the Company and the Subsidiary (i) has paid all
federal, state, local and foreign taxes for which it is liable, including, but
not limited to, withholding taxes and amounts payable under Chapters 21 through
24 of the Internal Revenue Code of 1986, as amended (the "Code"), and has
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
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(h) No transfer tax, stamp duty or other similar tax is
payable by or on behalf of the Underwriter in connection with (i) the issuance
by the Company of the Securities, (ii) the purchase by the Underwriter of the
Securities from the Company, (iii) the consummation by the Company of any of its
obligations under this Agreement or the Underwriter's Warrant Agreement, or (iv)
resales of the Securities in connection with the distribution contemplated
hereby.
(i) Each of the Company and the Subsidiary maintains insurance
policies, including, but not limited to, general liability, property, personal
and product liability insurance, and surety bonds which insure the Company and
the Subsidiary and the employees of each against such losses and risks generally
insured against by comparable businesses. Neither the Company nor the Subsidiary
(i) has failed to give notice or present any insurance claim with respect to any
insurable matter under the appropriate insurance policy or surety bond in a due
and timely manner, (ii) does have any disputes or claims against any underwriter
of such insurance policies or surety bonds, or has failed to pay any premiums
due and payable thereunder, or (iii) has failed to comply with all conditions
contained in such insurance policies and surety bonds. There are no facts or
circumstances under any such insurance policy or surety bond which would relieve
any insurer of its obligation to satisfy in full any valid claim of the Company
or the Subsidiary.
(j) There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar matters),
domestic or foreign, pending or threatened against (or circumstances that may
give rise to the same), or involving the properties or business of, the Company
or the Subsidiary which (i) questions the validity of the capital stock of the
Company, this Agreement, the Underwriter's Warrant Agreement, the
Recapitalization Agreement, the Warrant Agreement or the Consulting Agreement
(as defined in Section 1(gg) hereof) or of any action taken or to be taken by
the Company pursuant to or in connection with this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement or the Consulting Agreement, (ii) is
required to be disclosed in the Registration Statement which is not so disclosed
(and such proceedings as are summarized in the Registration Statement are
accurately summarized in all respects), or (iii) might materially and adversely
affect the condition, financial or otherwise, or the earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company and the Subsidiary taken as a whole.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Underwriter's Warrant Agreement, the Recapitalization Agreement, the Warrant
Agreement and the Consulting Agreement and to consummate the transactions
provided for in such agreements; and each of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement have been
duly and properly authorized, executed and delivered by the Company. Each of
this Agreement, the Underwriter's Warrant Agreement, the Recapitalization
Agreement, the Warrant Agreement and the Consulting Agreement constitutes a
legal, valid and binding agreement of the Company, enforceable against the
Company in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other laws of general application relating to or affecting the enforcement of
creditors' rights and the application of equitable principles in any motion,
legal
6
or equitable, and except as obligations to indemnify or contribute to losses may
be limited by applicable law). None of the Company's issue and sale of the
Securities, execution or delivery of this Agreement, the Underwriter's Warrant
Agreement, the Recapitalization Agreement, the Warrant Agreement or the
Consulting Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, or the conduct of its
business as described in the Registration Statement and the Prospectus and any
amendments or supplements thereto, conflicts with or will conflict with or
results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company or the
Subsidiary pursuant to the terms of (i) the certificate of incorporation or
by-laws of the Company or the Subsidiary, (ii) any license, contract, indenture,
mortgage, lease, deed of trust, voting trust agreement, stockholders' agreement,
note, loan or credit agreement or other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which
either the Company or the Subsidiary is a party or by which it is or may be
bound or to which its properties or assets (tangible or intangible) are or may
be subject, or (iii) any statute, judgment, decree, order, rule or regulation
applicable to the Company or the Subsidiary of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or the
Subsidiary or any of their activities or properties.
(l) No consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Underwriter's Warrant Agreement and the Warrant
Agreement, the performance of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been obtained
under the Act, state securities laws and the rules of the National Association
of Securities Dealers, Inc. (the "NASD") in connection with the Underwriter's
purchase and distribution of the Securities.
(m) All executed agreements, contracts or other documents or
copies of executed agreements, contracts or other documents filed as exhibits to
the Registration Statement to which the Company or the Subsidiary is a party or
by which it may be bound or to which its assets, properties or business may be
subject have been duly and validly authorized, executed and delivered by the
Company or the Subsidiary, and constitute legal, valid and binding agreements of
the Company and the Subsidiary, enforceable against the Company or the
Subsidiary, as the case may be, in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). The descriptions in the Registration Statement of agreements,
contracts and other documents are accurate and fairly present the information
required to be shown with respect thereto by Form SB-2; and there are no
agreements, contracts or other documents which are required by the Act
7
to be described in the Registration Statement or filed as exhibits to the
Registration Statement which are not described or filed as required; and the
exhibits which have been filed are complete and correct copies of the documents
of which they purport to be copies.
(n) Subsequent to the respective dates as of which information
is set forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, neither the Company
nor the Subsidiary has (i) issued any securities or incurred any liability or
obligation, direct or contingent, for borrowed money, (ii) entered into any
transaction other than in the ordinary course of business, or (iii) declared or
paid any dividend or made any other distribution on or in respect of any class
of its capital stock; and, subsequent to such dates, and except as may otherwise
be disclosed in the Prospectus, there has not been any change in the capital
stock, debt (long or short term) or liabilities or any material change in the
condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company and the Subsidiary taken as a whole.
(o) No default exists in the due performance and observance of
any term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company or the Subsidiary is a party or by which the Company or the Subsidiary
is or may be bound or to which the property or assets (tangible or intangible)
of the Company or the Subsidiary is or may be subject.
(p) Each of the Company and the Subsidiary has generally
enjoyed a satisfactory employer-employee relationship with its employees and is
in compliance with all federal, state, local and foreign laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours. There are no pending investigations involving
the Company or the Subsidiary by the United States Department of Labor or any
other governmental agency responsible for the enforcement of any federal, state,
local or foreign laws, rules and regulations relating to employment. There is no
unfair labor practice charge or complaint against the Company or the Subsidiary
pending before the National Labor Relations Board or any strike, picketing,
boycott, dispute, slowdown or stoppage pending or threatened against or
involving the Company, or any predecessor entity, and none has ever occurred. No
representation question exists respecting the employees of the Company or the
Subsidiary, and no collective bargaining agreement or modification thereof is
currently being negotiated by the Company or the Subsidiary. No grievance or
arbitration proceeding is pending under any expired or existing collective
bargaining agreements of the Company or the Subsidiary. No labor dispute with
the employees of the Company or the Subsidiary exists or is imminent.
(q) Neither the Company nor the Subsidiary maintains, sponsors
or contributes to any program or arrangement that is an "employee pension
benefit plan," an "employee welfare benefit plan" or a "multiemployer plan," as
such terms are defined in Sections 3(2), 3(l) and 3(37), respectively, of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA") ("ERISA
Plans"). Neither the Company nor the Subsidiary maintains or contributes, now or
at any time previously, to a defined benefit plan, as defined in Section 3(35)
of ERISA.
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No ERISA Plan (or any trust created thereunder) has engaged in a "prohibited
transaction" within the meaning of Section 406 of ERISA or Section 4975 of the
Code which could subject the Company or the Subsidiary to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
Neither the Company nor the Subsidiary has ever completely or partially
withdrawn from a "multiemployer plan."
(r) Neither the Company nor the Subsidiary, nor any of their
respective employees, directors, stockholders or affiliates (within the meaning
of the Rules and Regulations), has taken or will take, directly or indirectly,
any action designed to or which has constituted or which might be expected to
cause or result in, under the Exchange Act or otherwise, the stabilization or
manipulation of the price of any security of the Company, whether to facilitate
the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the
trademarks, trade names, service marks, service names, copyrights, patents and
patent applications, and none of the licenses and rights to the foregoing,
presently owned or held by the Company and the Subsidiary are in dispute or are
in conflict with the right of any other person or entity. Each of the Company
and the Subsidiary (i) owns or has the right to use, free and clear of all
liens, charges, claims, encumbrances, pledges, security interests, defects or
other restrictions or equities of any kind whatsoever, all trademarks, trade
names, service marks, service names, copyrights, patents and patent
applications, and licenses and rights with respect to the foregoing, used in the
conduct of its business as now conducted or proposed to be conducted without
infringing upon or otherwise acting adversely to the right or claimed right of
any person, corporation or other entity under or with respect to any of the
foregoing and (ii) is not obligated or under any liability whatsoever to make
any payments by way of royalties, fees or otherwise to any owner or licensee of,
or other claimant to, any trademark, trade name, service ▇▇▇▇, service name,
copyright, patent or patent application except as set forth in the Registration
Statement or the Prospectus. There is no action, suit, proceeding, inquiry,
arbitration, investigation, litigation or governmental or other proceeding,
domestic or foreign, pending or threatened (or circumstances that may give rise
to the same) against the Company which challenges the exclusive rights of the
Company with respect to any trademarks, trade names, service marks, service
names, copyrights, patents, patent applications or licenses or rights to the
foregoing used in the conduct of its business.
(t) Each of the Company and the Subsidiary owns and has the
unrestricted right to use all trade secrets, know-how (including all unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures), inventions, technology, designs, processes, works of authorship,
computer programs and technical data and information that are material to the
development, manufacture, operation and sale of all products and services sold
or proposed to be sold by the Company and the Subsidiary, free and clear of and
without violating any right, lien, or claim of others, including, without
limitation, former employers of its employees.
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(u) Each of the Company and the Subsidiary has good and
marketable title to, or valid and enforceable leasehold estates in, all items of
real and personal property stated in the Prospectus to be owned or leased by it,
free and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
other than liens for taxes not yet due and payable.
(v) Coopers & ▇▇▇▇▇▇▇ LLP, whose reports are filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(w) Except upon the consent of the Underwriter, all officers
and directors, and holders of shares of Common Stock, and securities
exercisable, convertible or exchangeable for share of Common Stock, has executed
an agreement (the "Lock-Up Agreements") pursuant to which he, she or it has
agreed not to, directly or indirectly, offer, sell, transfer, pledge, assign,
hypothecate or otherwise encumber any shares or convertible securities whether
or not owned, or otherwise dispose of any interest therein, without the prior
written consent of the Underwriter, under Rule 144 or otherwise, for a period
commencing on the date hereof and ending eighteen months following the effective
date of the Registration Statement (the "Lock-Up Period"); provided, however,
that private sales or transfers shall be permitted so long as the transferee
agrees in writing to be bound by the terms of this Paragraph (w) as a
precondition to such sale or transfer. Such persons have further agreed in the
Lock-Up Agreements that, for a period extending twenty-four (24) months
following the effective date of the Registration Statement, all public sales of
such securities issued by the Company shall be made through JSC in accordance
with its customary brokerage policies. The Company will cause its transfer agent
to ▇▇▇▇ an appropriate legend on the face of stock certificates representing all
of such securities and to place "stop transfer" orders on the Company's stock
ledgers.
(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the NASD.
(y) The Units, the Common Stock and the Redeemable Warrants
have been approved for quotation on The Nasdaq SmallCap Market ("Nasdaq").
(z) Neither the Company, nor the Subsidiary, nor any of their
respective directors, officers, stockholders, employees, agents or any other
person acting on behalf of the Company or the Subsidiary has, directly or
indirectly, given or agreed to give any money, gift or similar benefit (other
than legal price concessions to customers in the ordinary course of business) to
any customer, supplier, employee or agent of a customer or supplier, or any
official or employee of any governmental agency or instrumentality of any
government (domestic or foreign) or instrumentality of any government (domestic
or foreign) or any political party or candidate for office (domestic or foreign)
or any other person who was, is or may be in a position to help or hinder the
business of the Company or the Subsidiary (or assist the Company or the
Subsidiary in connection with any actual or proposed transaction) which (i)
might subject the Company or the Subsidiary, or any other such person to any
damage or penalty in any civil,
10
criminal or governmental litigation or proceeding (domestic or foreign), (ii) if
not given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company or the Subsidiary, or (iii) if not continued in the
future, might materially and adversely affect the condition, financial or
otherwise, or the earnings, business affairs, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the Company
or the Subsidiary. The Company's and the Subsidiary's internal accounting
controls are sufficient to cause the Company to comply with the Foreign Corrupt
Practices Act of 1977, as amended.
(aa) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
An Act Relating to Disclosure of Doing Business with Cuba, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(bb) Except as set forth in the Prospectus, no officer,
director or stockholder of the Company or the Subsidiary, and no affiliate or
associate (as these terms are defined in the Rules and Regulations) of any of
the foregoing persons or entities, has or has had, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company or the Subsidiary, or (B) purchases from or sells or
furnishes to the Company or the Subsidiary any goods or services, or (ii) a
beneficial interest in any contract or agreement to which the Company or the
Subsidiary is a party or by which the Company may be bound. Except as set forth
in the Prospectus under "Certain Transactions," there are no existing
agreements, arrangements, understandings or transactions, or proposed
agreements, arrangements, understandings or transactions, between or among the
Company or the Subsidiary, and any officer, director or any person listed in the
"Principal Stockholders" section of the Prospectus or any affiliate or associate
of any of the foregoing persons or entities.
(cc) The minute books of the Company have been made available
to the Underwriter, contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(dd) Except and to the extent described in the Prospectus, no
holder of any securities of the Company or the Subsidiary or of any options,
warrants or other convertible or exchangeable securities of the Company or the
Subsidiary has the right to include any securities issued by the Company or the
Subsidiary in the Registration Statement or any registration statement to be
filed by the Company or to require the Company to file a registration statement.
11
Except as set forth in the Prospectus, no person or entity holds any
anti-dilution rights with respect to any securities of the Company or the
Subsidiary.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in Section
4(d) herein), shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement,
substantially in the form filed as Exhibit ___ to the Registration Statement
(the "Warrant Agreement"), with Continental Stock Transfer & Trust Company, in
form and substance satisfactory to the Underwriter, with respect to the
Redeemable Warrants and providing for the payment of warrant solicitation fees
contemplated by Section 4(x) hereof. The Warrant Agreement has been duly and
validly authorized by the Company and, assuming due execution by the parties
thereto other than the Company, constitutes a valid and legally binding
agreement of the Company, enforceable against the Company in accordance with its
terms (except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any action, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law).
(gg) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit ____ to the
Registration Statement (the "Consulting Agreement") with the Underwriter, with
respect to the rendering of consulting services by the Underwriter to the
Company. The Consulting Agreement provides that the Underwriter shall be
retained by the Company commencing on the consummation of the proposed public
offering and ending 24 months thereafter, at a monthly retainer of $2,000, all
of which is payable on consummation of the proposed public offering. The
Consulting Agreement has been duly and validly authorized by the Company and
assuming due execution by the parties thereto other than the Company,
constitutes a valid and legally binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws of general application relating to or affecting enforcement of
creditors' rights and the application of equitable principles in any action,
legal or equitable, and except as rights to indemnity or contribution may be
limited by applicable law).
(hh) The Company has filed a Form 8-A with the Commission
providing for the registration under the Exchange Act of the Securities and such
Form 8-A has been declared effective by the Commission.
2. Purchase, Sale and Delivery of the Securities.
(a) On the basis of the representations, warranties, covenants
and agreements herein contained, but subject to the terms and conditions herein
set forth, the Company agrees to sell to the Underwriter, and the Underwriter
agrees to purchase from the Company, the Firm Units at a price equal to $____
per Unit [90% of the initial public offering price].
12
(b) In addition, on the basis of the representations,
warranties, covenants and agreement, herein contained, but subject to the terms
and conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Units at a price equal to
$________ per Unit [90% of the initial public offering price]. The option
granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Units upon notice by the Underwriter to
the Company setting forth the number of Option Units as to which the Underwriter
is then exercising the option and the time and date of payment and delivery for
any such Option Units. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Underwriter, but shall not be later than seven
(7) full business days after the exercise of said option, nor in any event prior
to the Closing Date, unless otherwise agreed upon by the Underwriter and the
Company. Nothing herein contained shall obligate the Underwriter to exercise the
option granted hereby. No Option Units shall be delivered unless the Firm Units
shall be simultaneously delivered or shall theretofore have been delivered as
herein provided.
(c) Payment of the purchase price for, and delivery of
certificates for, the Firm Units shall be made at the offices of the Underwriter
at ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other place as shall be
agreed upon by the Underwriter and the Company. Such delivery and payment shall
be made at 10:00 a.m. (New York City time) on _________, 1997 or at such other
time and date as shall be agreed upon by the Underwriter and the Company, but
not less than three (3) nor more than seven (7) full business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being herein called the "Closing Date"). In addition, in the event that
any or all of the Option Units are purchased by the Underwriter, payment of the
purchase price for, and delivery of certificates for, such Option Units shall be
made at the above mentioned office of the Underwriter or at such other place as
shall be agreed upon by the Underwriter and the Company. Delivery of the
certificates for the Firm Units and the Option Units, if any, shall be made to
the Underwriter against payment by the Underwriter of the purchase price for the
Firm Units and the Option Units, if any, to the order of the Company by New York
Clearing House funds. Certificates for the Firm Units and the Option Units, if
any, shall be in definitive, fully registered form, shall bear no restrictive
legends and shall be in such denominations and registered in such names as the
Underwriter may request in writing at least two (2) business days prior to the
Closing Date or the relevant Option Closing Date, as the case may be. The
certificates for the Firm Units and the Option Units, if any, shall be made
available to the Underwriter at such offices or such other place as the
Underwriter may designate for inspection, checking and packaging no later than
9:30 a.m. on the last business day prior to the Closing Date or the relevant
Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to
the Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of $.0001 per warrant, which warrants shall entitle the holders
thereof to purchase an aggregate of an additional 200,000 Units. The
Underwriter's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a
13
price equaling one hundred and twenty percent (120%) of the initial public
offering price of the Units. The Underwriter's Warrant Agreement and the form of
the certificates for the Underwriter's Warrant shall be substantially in the
form filed as Exhibit ____ to the Registration Statement. Payment for the
Underwriter's Warrants shall be made on the Closing Date.
3. Public Offering of the Units. As soon after the
Registration Statement becomes effective as the Underwriter deems advisable, the
Underwriter shall make a public offering of the Firm Units and such of the
Option Units as the Underwriter may determine (other than to residents of or in
any jurisdiction in which qualification of the Units is required and has not
become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to such
extent as the Underwriter, in its sole discretion, deems advisable. The
Underwriter may enter into one or more agreements as the Underwriter, in its
sole discretion, deems advisable with one or more broker-dealers who shall act
as dealers in connection with such public offering.
4. Covenants and Agreements of the Company. The Company
covenants and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the
Registration Statement and any amendments thereto to become effective as
promptly as practicable and will not at any time, whether before or after the
effective date of the Registration Statement, file any amendment to the
Registration Statement or supplement to the Prospectus or file any document
under the Act or the Exchange Act before termination of the offering of the
Securities to the public by the Underwriter of which the Underwriter shall not
previously have been advised and furnished with a copy, or to which the
Underwriter shall have objected or which is not in compliance with the Act, the
Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge
thereof, the Company will advise the Underwriter and confirm the same in
writing, (i) when the Registration Statement, as amended, becomes effective,
when any post-effective amendment to the Registration Statement becomes
effective and, if the provisions of Rule 430A promulgated under the Act will be
relied upon, when the Prospectus has been filed in accordance with said Rule
430A, (ii) of the issuance by the Commission of any stop order or of the
initiation, or the threatening, of any proceeding the outcome of which may
result in the suspension of the effectiveness of the Registration Statement or
any order preventing or suspending the use of the Preliminary Prospectus or the
Prospectus, or any amendment or supplement thereto, or the institution of any
proceedings for that purpose, (iii) of the issuance by the Commission or by any
state securities commission of any proceedings for the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the receipt of any comments from the Commission, and (v) of any request
by the Commission for any amendment to the Registration Statement or any
amendment or supplement to the Prospectus or for additional information. If the
Commission or any state securities regulatory authority shall enter a stop order
or suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
14
(c) The Company shall file the Prospectus (in form and
substance satisfactory to the Underwriter) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriter, pursuant to Rule 424(b)(4) of
the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriter, Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its
intention to file or prepare any amendment to the Registration Statement
(including any post-effective amendment) or any amendment or supplement to the
Prospectus (including any revised prospectus which the Company proposes for use
in connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Underwriter
or ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation
with the Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may reasonably designate to permit
the continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; provided, however, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall be
effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be
delivered under the Act, the Company shall use all reasonable efforts to comply
with all requirements imposed upon it by the Act, the Exchange Act and the Rules
and Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the Company will notify the Underwriter
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriter's Counsel, and the Company will
15
furnish to the Underwriter copies of such amendment or supplement as soon as
available and in such quantities as the Underwriter may request.
(g) As soon as practicable, but in any event not later than
forty five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the Underwriter,
an earnings statement which will be in the detail required by, and will
otherwise comply with, the provisions of Section 11(a) of the Act and Rule
158(a) of the Rules and Regulations, which statement need not be audited unless
required by the Act, covering a period of at least twelve (12) consecutive
months after the effective date of the Registration Statement.
(h) During a period of seven (7) years after the date hereof,
the Company will furnish to its stockholders, as soon as practicable, annual
reports (including financial statements audited by independent public
accountants) and unaudited quarterly reports of earnings and will deliver to the
Underwriter:
i) concurrently with furnishing such quarterly reports
to its stockholders statements of income of the Company for
such quarter in the form furnished to the Company's
stockholders and certified by the Company's principal
financial and accounting officer;
ii) concurrently with furnishing such annual reports to
its stockholders, a balance sheet of the Company as at the end
of the preceding fiscal year, together with statements of
operations, stockholders' equity and cash flows of the Company
for such fiscal year, accompanied by a copy of the report
thereon of the Company's independent certified public
accountants;
iii) as soon as they are available, copies of all
reports (financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all
reports and financial statements furnished to or filed with
the Commission, the NASD or any securities exchange;
v) every press release and every material news item or
article of interest to the financial community in respect of
the Company, the Subsidiary or their respective affairs which
was released or prepared by or on behalf of the Company or the
Subsidiary; and
vi) any additional information of a public nature
concerning the Company and the Subsidiary (and any future
subsidiaries) or their respective business which the
Underwriter may request.
16
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer and warrant agent
and, if necessary under the jurisdiction of incorporation of the Company, a
registrar (which may be the same entity as the transfer agent) for the Units,
the Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without
charge and at such place as the Underwriter may designate, copies of each
Preliminary Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which will be signed and will include
all financial statements and exhibits), the Prospectus, and all amendments and
supplements thereto, including any prospectus prepared after the effective date
of the Registration Statement, in each case as soon as available and in such
quantities as the Underwriter may request.
(k) On or before the effective date of the Registration
Statement, the Company shall provide the Underwriter with originally-executed
copies of duly executed, legally binding and enforceable Lock-Up Agreements
which are in form and substance satisfactory to the Underwriter. On or before
the Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18)
months commencing on the effective date of the Registration Statement, and
except as contemplated by Section 4(v) of this Agreement, it and its present and
future subsidiaries will not, without the prior written consent of the
Underwriter (i) issue, sell, contract or offer to sell, grant an option for the
purchase or sale of, assign, transfer, pledge, distribute or otherwise dispose
of, directly or indirectly, any shares of capital stock or any option, right or
warrant with respect to any shares of capital stock or any security convertible,
exchangeable or exercisable for capital stock, except pursuant to stock options
or warrants issued on the date hereof, or (ii) file any registration statement
for the offer or sale of securities issued or to be issued by the Company or any
present or future subsidiaries.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of
the Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
17
(o) The Company shall timely file all such reports, forms or
other documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
Section 6(j) hereof.
(q) The Company shall cause the Units, the Common Stock and
the Redeemable Warrants to be quoted on Nasdaq and, for a period of seven (7)
years from the date hereof, use its best efforts to maintain the Nasdaq
quotation of the Units, the Common Stock and the Redeemable Warrants to the
extent outstanding.
(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Underwriter, furnish or cause to be
furnished to the Underwriter and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriter, upon any and all requests of the Underwriter, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions to
further qualify the Company's securities in all jurisdictions of the United
States in order to permit secondary sales of such securities pursuant to the
"blue sky" laws of those jurisdictions, provided that such jurisdictions do not
require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty
(30) days after the effective date of the Registration Statement, the Company
agrees to take all necessary and appropriate actions to be included in Standard
and Poor's Corporation Descriptions and ▇▇▇▇▇'▇ OTC Manual and to continue such
inclusion for a period of not less than seven (7) years.
(u) Without the prior written consent of the Underwriter, the
Company hereby agrees that it will not, for a period of eighteen (18) months
from the effective date of the Registration Statement, adopt, propose to adopt
or otherwise permit to exist any employee, officer, director, consultant or
compensation plan or arrangement (i) permitting the grant, issue, sale or entry
into any agreement to grant, issue or sell any option, warrant or other contract
right (a) at an exercise or sale price per share that is less than the greater
of the initial public offering price of the Units set forth herein or the fair
market value per share of the Common Stock on the date of grant or sale, or (b)
upon payment of less than the full purchase or exercise price for such shares of
Common Stock or other securities of the Company on the date of grant
18
or issuance; or (ii) permitting the existence of stock appreciation rights,
phantom options or similar arrangements; or (iii) permitting the payment for
such securities with any form of consideration other than cash; or (iv)
permitting the maximum number of shares of Common Stock or other securities of
the Company purchasable at any time pursuant to options, warrants or other
contract rights to exceed 300,000.
(v) Until the completion of the distribution of the Units to
the public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Underwriter, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(w) The Company agrees that:
i) For a period of three (3) years after the
effective date of the Registration Statement, the Company
shall cause one (1) individual selected by the Underwriter,
subject to the good faith approval of the Company, to be
elected to the Board of Directors of the Company (the
"Board"), if requested by the Underwriter.
ii) In the event the Underwriter elects not to
exercise the right as set forth above, then it may designate
one person to attend all meetings of the Company's Board of
Directors for a period of five years. Such person shall be
entitled to attend all such meetings and to receive all
notices and other correspondence and communications sent by
the Company to members of its Board of Directors, unless in
the opinion of counsel to the Company the release of such
information would result in the waiver of the Company's
attorney-client privilege.
iii) The Company shall reimburse the Underwriter's
designee for his or her out-of-pocket expenses reasonably
incurred in connection with his or her attendance of the Board
meetings.
iv) In the event the Underwriter shall not have
designated such individual at the time of any meeting of the
Board or such person has not been elected or is unavailable to
serve, the Company shall notify the Underwriter of each
meeting of the Board.
(x) Commencing one year from the date hereof, to pay the
Underwriter a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the exercise
thereof on terms provided in the Warrant Agreement. The Company will not solicit
the exercise of the Redeemable Warrants through any solicitation agent other
than the Underwriter. The Underwriter will not be entitled to any warrant
solicitation fee unless the Underwriter provides bona fide services in
connection with
19
any warrant solicitation and the investor designates, in writing, that the
Underwriter is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years
from the date hereof, and (ii) the sale to the public of the Underwriter's
Securities, the Company will not take any action or actions which may prevent or
disqualify the Company's use of Form SB-2 or S-1 (or other appropriate form) for
the registration under the Act of the Underwriter's Securities.
(z) For a period of twenty four (24) months after the
effective date of the Registration Statement, the Company shall not restate,
amend or alter any term of any written employment, consulting or similar
agreement entered into between the Company and any officer, director or key
employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Underwriter.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after the
date hereof.
(bb) The Company agrees that, for a period of two (2) years
beginning with the effective date of the Registration Statement, JSC shall have
a right of first refusal for all sales of any securities made by the Company or
any of its present or future affiliates or subsidiaries.
(cc) The Company agrees that, from the effective date of the
Registration Statement, it shall retain the services of a public relations firm,
reasonably acceptable to JSC.
5. Payment of Expenses.
(a) The Company hereby agrees to pay (such payment to be made,
at the discretion of the Underwriter, on the Closing Date and any Option Closing
Date (to the extent not paid on the Closing Date or a previous Option Closing
Date)) all expenses and fees (other than fees of Underwriter's Counsel, except
as set forth in clause (iv) below), incident to the performance of the
obligations of the Company under this Agreement, the Underwriter's Warrant
Agreement and the Warrant Agreement, including, without limitation, (i) the fees
and expenses of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing,
(including mailing and handling charges) filing, delivery and mailing (including
the payment of postage, overnight delivery or courier charges with respect
thereto) of the Registration Statement and the Prospectus and any amendments and
supplements thereto and the printing, mailing (including the payment of postage,
overnight delivery or courier charges with respect thereto) and delivery of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement, and
agreements with selected dealers, and related documents, including the cost of
all copies thereof and of each Preliminary Prospectus and of the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriter and
such dealers as the Underwriter may request, in such quantities as the
Underwriter may request, (iii) the printing, engraving, issuance and delivery of
the Securities, (iv) the qualification of the Securities under state or foreign
securities or "blue sky" laws and determination of the status of such securities
under legal investment laws,
20
including the costs of printing and mailing the "Preliminary Blue Sky
Memorandum," the "Supplemental Blue Sky Memorandum" and "Legal Investments
Survey," if any, and disbursements, expenses and fees of counsel (such fees not
to exceed $45,000) in connection therewith, (v) advertising costs and expenses,
including, but not limited to costs and expenses in connection with "road
shows," information meetings and presentations, bound volumes and prospectus
memorabilia and "tombstone" advertisement expenses, (vi) costs and expenses in
connection with due diligence investigations, including, but not limited to, the
fees of any independent counsel or consultants, (vii) fees and expenses of a
transfer and warrant agent and registrar for the Securities, (viii) applications
for assignments of a rating of the Securities by qualified rating agencies, (ix)
the fees payable to the Commission and the NASD, and (x) the fees and expenses
incurred in connection with the listing of the Securities on Nasdaq and any
other exchange.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6 or Section 10(a) hereof, the Company
shall reimburse and indemnify the Underwriter for all of its actual
out-of-pocket expenses, including the fees and disbursements of Underwriter's
Counsel, less any amounts already paid pursuant to Section 5(c) hereof.
(c) The Company further agrees that, in addition to the
expenses payable pursuant to Section 5(a) hereof, it will pay to the Underwriter
on the Closing Date by certified or bank cashier's check, or, at the election of
the Underwriter, by deduction from the proceeds of the offering of the Firm
Units, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of the Firm Units, thirty
thousand dollars ($30,000) of which has been paid to date by the Company. In the
event the Underwriter elects to exercise the overallotment option described in
Section 2(b) hereof, the Company further agrees to pay to the Underwriter on
each Option Closing Date, by certified or bank cashier's check, or, at the
Underwriter's election, by deduction from the proceeds of the Option Units
purchased on such Option Closing Date, a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received by the Company from the
sale of such Option Units.
6. Conditions of the Underwriter's Obligations. The
obligations of the Underwriter hereunder shall be subject to the continuing
accuracy of the representations and warranties of the Company herein as of the
date hereof and as of the Closing Date and each Option Closing Date, if any, as
if they had been made on and as of the Closing Date and each Option Closing
Date, as the case may be; the accuracy on and as of the Closing Date and each
Option Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; the performance by the Company on and as of
the Closing Date and each Option Closing Date, if any, of its covenants and
obligations hereunder; and to the following further conditions:
(a) The Registration Statement shall have become effective not
later than 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter, and,
at the Closing Date and each Option Closing Date, if any, no stop order
suspending the effectiveness of the Registration Statement shall have been
issued and no proceedings for that purpose shall have been instituted or shall
be pending or contemplated by the Commission and any request on the part of the
Commission for
21
additional information shall have been complied with to the reasonable
satisfaction of Underwriter's Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Units and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that
the Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material, or omits to
state a fact which, in the Underwriter's opinion, is material and is required to
be stated therein or is necessary to make the statements therein, in light of
the circumstances in which they were made not misleading, or that the
Prospectus, or any supplement thereto, contains an untrue statement of fact
which, in the Underwriter's opinion, is material, or omits to state a fact
which, in the Underwriter's opinion, is material and is required to be stated
therein or is necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall
have received from Underwriter's Counsel such opinion or opinions with respect
to the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Underwriter may request and Underwriter's Counsel shall have received such
papers and information as they may request in order to enable them to pass upon
such matters.
(d) On the Closing Date, the Underwriter shall have received
the favorable opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., counsel to the Company, dated
the Closing Date, addressed to the Underwriter, in form and substance
satisfactory to Underwriter's Counsel, to the effect that:
i) Each of the Company and the Subsidiary (A) has been
duly organized and is validly existing as a corporation in
good standing under the laws of its jurisdiction of
incorporation, (B) is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the
character of its operations requires such qualification or
licensing, and (C) has all requisite power and authority
(corporate and other) and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates,
franchises and permits of and from all governmental or
regulatory officials and bodies (including, without
limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct
its business as described in the Prospectus; each of the
Company and the Subsidiary is and has been doing business in
compliance with all such authorizations, approvals, orders,
licenses, certificates, franchises and permits obtained by it
from governmental or regulatory officials and agencies and all
federal, state, local and foreign laws, rules and regulations
to which it is subject;
22
and, neither the Company nor the Subsidiary has received any
notice of proceedings relating to the revocation or
modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in
the aggregate, if the subject of an unfavorable decision,
ruling or finding, would materially and adversely affect the
condition, financial or otherwise, or the earnings, prospects,
stockholders' equity, value, operations, properties, business
or results of operations of the Company or the Subsidiary. The
disclosure in the Registration Statement concerning the
effects of federal, state, local and foreign laws, rules and
regulations on the Company's and the Subsidiary's business as
currently conducted and as contemplated are correct in all
respects and do not omit to state a material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not
misleading;
ii) neither the Company nor the Subsidiary owns,
directly or indirectly, an interest in any corporation,
partnership, joint venture, trust or other business entity,
other than its wholly owned subsidiary, CTI Balloons, and its
joint venture agreement with P&TF, as described in the
Registration Statement and the Prospectus. The Company is the
registered owner of one hundred percent (100%) of the
outstanding capital stock of the Subsidiary;
iii) the Company has a duly authorized, issued and
outstanding capitalization and as set forth in the Prospectus
under "Capitalization," and except as set forth in the
Prospectus, neither the Company nor the Subsidiary is a party
to or bound by any instrument, agreement or other arrangement
providing for it to issue any capital stock, rights, warrants,
options or other securities, except for this Agreement, the
Underwriter's Warrant Agreement, the Recapitalization
Agreement and the Warrant Agreement and as described in the
Prospectus. The Securities and all other securities issued or
issuable by the Company conform, or when issued and paid for,
will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of each of the Company
and the Subsidiary have been duly authorized and validly
issued and are fully paid and non-assessable; the holders
thereof have no rights of rescission with respect thereto and
are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation
of the preemptive rights of any holders of any security of the
Company or the Subsidiary or any similar contractual right
granted by the Company or the Subsidiary. The Securities to be
sold by the Company hereunder and under the Underwriter's
Warrant Agreement, the Recapitalization Agreement and the
Warrant Agreement are not and will not be subject to any
preemptive or other similar rights of any stockholder, have
been duly authorized and, when issued, paid for and delivered
in accordance with the terms hereof and thereof, will be
validly issued, fully paid and non-assessable and conform to
the descriptions thereof contained in the Prospectus; the
holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the
Securities are in due and proper
23
form. The Underwriter's Warrants constitute valid and binding
obligations of the Company to issue and sell, upon exercise
thereof and payment therefor, the number and type of
securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement, the
Underwriter's Warrant Agreement, the Recapitalization
Agreement and the Warrant Agreement of the Securities to be
sold by the Company hereunder and thereunder, the Underwriter
will acquire good and marketable title to such Securities,
free and clear of any lien, charge, claim, encumbrance,
pledge, security interest, defect or other restriction or
equity of any kind whatsoever asserted against the Company or
any affiliate (within the meaning of the Rules and
Regulations) of the Company. No transfer tax is payable by or
on behalf of the Underwriter in connection with (A) the
issuance by the Company of the Securities, (B) the purchase by
the Underwriter of the Securities from the Company, (C) the
consummation by the Company of any of its obligations under
this Agreement, the Underwriter's Warrant Agreement, the
Recapitalization Agreement or the Warrant Agreement, or (D)
resales of the Securities in connection with the distribution
contemplated hereby;
iv) the Registration Statement is effective under the
Act, and, if applicable, filing of all pricing information has
been timely made in the appropriate form under Rule 430A, and
no stop order suspending the use of the Preliminary
Prospectus, the Registration Statement or the Prospectus or
any part of any thereof or suspending the effectiveness of the
Registration Statement has been issued and no proceedings for
that purpose have been instituted or are pending, threatened
or contemplated under the Act;
v) each of the Preliminary Prospectus, the
Registration Statement, and the Prospectus and any amendments
or supplements thereto (other than the financial statements
and schedules and other financial and statistical data
included therein, as to which no opinion need be rendered)
comply as to form in all material respects with the
requirements of the Act and the Rules and Regulations;
vi) to such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act
to be described in the Registration Statement and the
Prospectus or required to be filed as exhibits to the
Registration Statement (or required to be filed under the
Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) other than those
described in the Registration Statement and the Prospectus and
filed as exhibits thereto, and the exhibits which have been
filed are correct copies of the documents of which they
purport to be copies; (B) the descriptions in the Registration
Statement and the Prospectus and any supplement or amendment
thereto of agreements, contracts and other documents to which
the Company is a party or by which it is bound are accurate
and fairly represent the information required to be shown by
Form SB-2; (C) except as disclosed in the Registration
Statement and the Prospectus, there is no action, suit,
proceeding, inquiry, arbitration, investigation, litigation or
governmental proceeding (including, without limitation, those
pertaining to environmental or similar matters), domestic
24
or foreign, pending or threatened against (or circumstances
that may give rise to the same), or involving the properties
or business of, the Company which (I) is required to be
disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all
respects), or (II) questions the validity of the capital stock
of the Company or of this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement
or of any action taken or to be taken by the Company pursuant
to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to
be described in the Prospectus is not described as required;
and (E) there is no action, suit or proceeding pending or
threatened against or affecting the Company before any court,
arbitrator or governmental body, agency or official (or any
basis thereof known to such counsel) in which there is a
reasonable possibility of an adverse decision which may result
in a material adverse change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity,
value, operation, properties, business or results of
operations of the Company taken as a whole, which could
adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement or which in any manner draws into
question the validity or enforceability of this Agreement, the
Underwriter's Warrant Agreement, the Warrant Agreement or the
Consulting Agreement;
vii) the Company has full legal right, power and
authority to enter into each of this Agreement, the
Underwriter's Warrant Agreement, the Recapitalization
Agreement, the Warrant Agreement and the Consulting Agreement
and to consummate the transactions provided for herein and
therein; and each of this Agreement, the Underwriter's Warrant
Agreement, the Recapitalization Agreement, the Warrant
Agreement and the Consulting Agreement has been duly
authorized, executed and delivered by the Company. Each of
this Agreement, the Underwriter's Warrant Agreement, the
Recapitalization Agreement, the Warrant Agreement and the
Consulting Agreement, assuming due authorization, execution
and delivery by each other party thereto, constitutes a legal,
valid and binding agreement of the Company, enforceable
against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of
general application relating to or affecting the enforcement
of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as
obligations to indemnify or contribute to losses may be
limited by applicable law). None of the Company's execution or
delivery of this Agreement, the Underwriter's Warrant
Agreement, the Recapitalization Agreement, the Warrant
Agreement or the Consulting Agreement, its performance
hereunder and thereunder, its consummation of the transactions
contemplated herein and therein, or the conduct of its
business as described in the Registration Statement and the
Prospectus and any amendments or supplements thereto,
conflicts with or will conflict with or results or will result
in any breach or violation of any of the terms or provisions
25
of, or constitutes or will constitute a default under, or
result in the creation or imposition of any lien, charge,
claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company or
of the Subsidiary pursuant to the terms of (A) the certificate
of incorporation or bylaws of the Company or of the
Subsidiary, (B) any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders'
agreement, note, loan or credit agreement or any other
agreement or instrument evidencing an obligation for borrowed
money, or any other agreement or instrument to which the
Company or the Subsidiary is a party or by which either is or
may be bound or to which the properties or assets (tangible or
intangible) of either are or may be subject, (C) any statute
applicable to the Company or the Subsidiary or (D) any
judgment, decree, order, rule or regulation applicable to the
Company or the Subsidiary of any arbitrator, court, regulatory
body or administrative agency or other governmental agency or
body (including, without limitation, those having jurisdiction
over environmental or similar matters), domestic or foreign,
having jurisdiction over the Company or the Subsidiary or any
of their activities or properties;
viii) no consent, approval, authorization or order of,
and no filing with, any arbitrator, court, regulatory body,
administrative agency, government agency or other body,
domestic or foreign (other than such as may be required under
"blue sky" laws, as to which no opinion need be rendered), is
required in connection with the issuance of the Securities
pursuant to the Prospectus, the Registration Statement, this
Agreement, the Underwriter's Warrant Agreement, the
Recapitalization Agreement and the Warrant Agreement, or the
performance of this Agreement, the Underwriter's Warrant
Agreement, the Recapitalization Agreement, the Warrant
Agreement and the Consulting Agreement and the transactions
contemplated hereby and thereby;
ix) the properties and business of each of the Company
and the Subsidiary conform to the description thereof
contained in the Registration Statement and the Prospectus;
and each of the Company and the Subsidiary has good and
marketable title to, or valid and enforceable leasehold
estates in, all items of real and personal property stated in
the Prospectus to be owned or leased by it, in each case free
and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or
equities of any kind whatsoever, other than those referred to
in the Prospectus and liens for taxes not yet due and payable;
x) neither the Company nor the Subsidiary is in breach
of, or in default under, any term or provision of any license,
contract, indenture, mortgage, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or
instrument to which the Company or the Subsidiary is a party
or by which it is or may be bound or to which its property or
assets (tangible or intangible) are or may be subject; and
26
each of the Company and the Subsidiary is not in violation of
any term or provision of (A) its certificate of incorporation
or by-laws, (B) any authorization, approval, order, license,
certificate, franchise or permit of any governmental or
regulatory official or body, or (C) any judgement, decree,
order, statute, rule or regulation to which it is subject;
xi) the statements in the Prospectus under "Prospectus
Summary," "Risk Factors," "The Company," "Business,"
"Management," "Principal Stockholders," "Certain
Transactions," "Shares Eligible For Future Sale," and
"Description of Capital Stock" have been reviewed by such
counsel, and insofar as they refer to statements of law,
descriptions of statutes, licenses, rules or regulations or
legal conclusions, are correct in all material respects;
xii) the Units, the Common Stock and the Redeemable
Warrants have been accepted for quotation on Nasdaq;
xiii) each of the Company and the Subsidiary owns or
possesses, free and clear of all liens or encumbrances and
right thereto or therein by third parties, the requisite
licenses or other rights to use all trademarks, service marks,
copyrights, service names, tradenames, patents, patent
applications and licenses necessary to conduct its business
(including without limitation any such licenses or rights
described in the Prospectus as being owned or possessed by the
Company or the Subsidiary) and there is no claim or action by
any person pertaining to, or proceeding, pending or
threatened, which challenges the exclusive rights of the
Company or the Subsidiary with respect to any trademarks,
service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct
of the Company's or the Subsidiary's business (including,
without limitation, any such licenses or rights described in
the Prospectus as being owned or possessed by the Company or
the Subsidiary);
xiv) the persons listed under the captions "Principal
Stockholders" and in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in Rule 13d-3
under the Exchange Act) of the securities set forth opposite
their respective names thereunder as and to the extent set
forth therein;
xv) except as disclosed in the Prospectus, no person,
corporation, trust, partnership, association or other entity
has the right to include and/or register any securities of the
Company or of the Subsidiary in the Registration Statement,
require the Company to file any registration statement or, if
filed, to include any security in such registration statement;
xvi) there are no claims, payments, issuances,
arrangements or understandings, whether oral or written, for
services in the nature of a finder's or origination fee with
respect to the sale of the Securities hereunder or financial
consulting arrangement or any other arrangements, agreements,
understandings,
27
payments or issuances that may affect the Underwriter's
compensation, as determined by the NASD; and
xvii) assuming due execution by the parties thereto, the
Lock-Up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against such parties and any
subsequent holder of the securities subject thereto in
accordance with their terms.
xviii) the Recapitalization Agreement has been duly and
validly authorized, executed and delivered by the Company and
constitutes valid and binding obligations of the Company in
accordance with the terms of the Recapitalization Agreement,
except (i) as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance or similar laws affecting creditors' rights
generally, (ii) as enforceability of any indemnification or
contribution provisions may be limited under applicable laws
or the public policies underlying such laws, and (iii) that
the remedies of specific performance and injunctive and other
forms of equitable relief may be subject to equitable defenses
and to the discretion of the court before which any
proceedings therefor may be brought. Any and all securities
issued or to be issued by the Company pursuant to the
Recapitalization Agreement were or will be issued in
transactions exempt from the registration requirements of the
Act and in accordance with all other applicable state, federal
and local laws, rules, regulations and permits.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to
matters involving the application of laws other than the laws of the United
States and jurisdictions in which they are admitted, to the extent such counsel
deems proper and to the extent specified in such opinion, if at all, upon an
opinion or opinions (in form and substance satisfactory to Underwriter's
28
Counsel) of other counsel acceptable to Underwriter's Counsel, familiar with the
applicable laws; and (b) as to matters of fact, to the extent they deem proper,
on certificates and written statements of responsible officers of the Company or
the Subsidiary and certificates or other written statements of officers of
departments of jurisdictions having custody of documents respecting the
corporate existence or good standing of the Company or the Subsidiary, provided
that copies of any such statements or certificates shall be delivered to
Underwriter's Counsel, if requested. The opinion of such counsel for the Company
shall state that the opinion of any such other counsel is in form satisfactory
to such counsel and that the Underwriter and they are justified in relying
thereon. Such opinion shall also state that the Underwriters' Counsel is
entitled to rely thereon. Such opinion shall not state that it is to be governed
or qualified by, or that it is otherwise subject to, any treatise, written
policy or other document relating to legal opinions, including without
limitation, the Legal Opinion Accord of the ABA Section of Business Law (1991)
or any comparable state accord.
At each Option Closing Date, if any, the Underwriter shall
have received the favorable opinion of ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., counsel to the
Company, dated the relevant Option Closing Date, addressed to the Underwriter,
and in form and substance satisfactory to Underwriter's Counsel confirming as of
the Option Closing Date, the statements made by ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., in its
opinion delivered on the Closing Date.
(e) On the Closing Date, the Underwriter shall have received
the favorable opinion of Tilton, Fallon, ▇▇▇▇▇▇▇ & Chestnut, patent counsel to
the Company, dated the Closing Date, addressed to the Underwriter, in
substantially the form attached hereto as Exhibit A and in form and substance
satisfactory to Underwriter's Counsel.
At each Option Closing Date, if any, the Underwriter shall
have received the favorable opinion of Tilton, Fallon, ▇▇▇▇▇▇▇ & Chestnut, dated
the relevant Option Closing Date, addressed to the Underwriter and in form and
substance satisfactory to Underwriter's Counsel confirming, as of the Option
Closing Date, the statements made by Tilton, Fallon, ▇▇▇▇▇▇▇ & Chestnut in its
opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriter's Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon the matters referred to in
Section 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
(g) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or otherwise,
or the earnings, stockholders' equity, value, operations, properties, business
or results of operations of the Company or the Subsidiary, whether or not in the
ordinary course of business, from the latest dates as of which such matters are
set forth in the Registration Statement and the Prospectus; (ii) there shall
have been no transaction, not in the ordinary course of business, entered into
by the Company or the Subsidiary from the latest date as of which the financial
condition of the Company and the Subsidiary is set forth in the Registration
Statement and the Prospectus; (iii) the Company shall
29
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) neither the Company nor the Subsidiary shall have
issued any securities (other than the Securities) or declared or paid any
dividend or made any distribution in respect of its capital stock of any class
and there shall not have been any change in the capital stock, debt (long or
short term) or liabilities or obligations of the Company or the Subsidiary
(contingent or otherwise) from the latest dates as of which such matters are set
forth in the Registration Statement and the Prospectus; (v) no material amount
of the assets of the Company or the Subsidiary shall have been pledged or
mortgaged, except as set forth in the Registration Statement and the Prospectus;
(vi) no action, suit, proceeding, inquiry, arbitration, investigation,
litigation or governmental or other proceeding, domestic or foreign, shall be
pending or threatened (or circumstances giving rise to same) against the Company
or the Subsidiary or affecting any of its properties or business before or by
any court or federal, state or foreign commission, board or other administrative
agency wherein an unfavorable decision, ruling or finding may materially and
adversely affect the condition, financial or otherwise, or the earnings,
stockholders' equity, value, operations, properties, business or results of
operations of the Company taken as a whole, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall have been
issued under the Act with respect to the Registration Statement and no
proceedings therefor shall have been initiated, threatened or contemplated by
the Commission.
(h) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company
in this Agreement are true and correct, as if made on and as
of the Closing Date or the Option Closing Date, as the case
may be, and the Company has complied with all agreements and
covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior
to such Closing Date or Option Closing Date, as the case may
be;
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued,
and no proceedings for that purpose have been instituted or
are pending or, to the best of each of such person's
knowledge, are contemplated or threatened under the Act;
iii) The Registration Statement and the Prospectus and,
if any, each amendment and each supplement thereto contain all
statements and information required to be included therein,
and none of the Registration Statement, the Prospectus or any
amendment or supplement thereto includes any untrue statement
of a material fact or omits to state any material fact
required to be stated therein or necessary to make the
statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary
Prospectus nor any supplement thereto included any untrue
statement of a material fact or omitted to state any material
fact required to be stated therein or necessary to make the
30
statements therein, in light of the circumstances in which
they were made, not misleading; and
iv) Subsequent to the respective dates as of which
information is given in the Registration Statement and the
Prospectus, (A) the Company has not incurred any material
liabilities or obligations, direct or contingent; (B) the
Company has not paid or declared any dividends or other
distributions on its capital stock; (C) the Company has not
entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital
stock or long-term debt or any increase in the short-term
borrowings (other than any increase in short-term borrowings
in the ordinary course of business) of the Company (E) the
Company has not sustained any material loss or damage to its
property or assets, whether or not insured; (F) there is no
litigation which is pending or threatened (or circumstances
giving rise to same) against the Company or any affiliate
(within the meaning of the Rules and Regulations) of the
foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (G)
there has occurred no event required to be set forth in an
amended or supplemented Prospectus which has not been set
forth.
References to the Registration Statement and the Prospectus in this Section 6(h)
are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriter
shall have received a letter, dated such date, addressed to the Underwriter and
in form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii) below)
to the Underwriter and Underwriter's Counsel, from Coopers & ▇▇▇▇▇▇▇ LLP.
i) confirming that they are independent certified
public accountants with respect to the Company within the
meaning of the Act and the Rules and Regulations;
ii) stating that it is their opinion that the financial
statements of the Company included in the Registration
Statement comply as to form in all material respects with the
applicable accounting requirements of the Act and the Rules
and Regulations and that the Underwriter may rely upon the
opinion of Coopers & ▇▇▇▇▇▇▇ LLP with respect to such
financial statements and supporting schedules included in the
Registration Statement;
iii) stating that, on the basis of a limited review
which included a reading of the latest unaudited interim
consolidated financial statements of the Company and the
Subsidiary, a reading of the latest available minutes of the
stockholders and board of directors and the various committees
of the board of
31
directors of the Company and the Subsidiary, consultations
with officers and other employees of the Company and the
Subsidiary responsible for financial and accounting matters
and other specified procedures and inquiries, nothing has come
to their attention which would lead them to believe that (A)
the unaudited consolidated financial statements and supporting
schedules of the Company included in the Registration
Statement do not comply as to form in all material respects
with the applicable accounting requirements of the Act and the
Rules and Regulations or are not fairly presented in
conformity with generally accepted accounting principles
applied on a basis substantially consistent with that of the
audited consolidated financial statements of the Company
included in the Registration Statement, or (B) at a specified
date nor more than five (5) days prior to the effective date
of the Registration Statement, there has been any change in
the capital stock or long-term debt of the Company and the
Subsidiary, or any decrease in the stockholders' equity or net
current assets or net assets of the Company and the Subsidiary
as compared with amounts shown in the April 30, 1997 balance
sheet included in the Registration Statement, other than as
set forth in or contemplated by the Registration Statement,
or, if there was any change or decrease, setting forth the
amount of such change or decrease, and (C) during the period
from April 30, 1997 to a specified date not more than five (5)
days prior to the effective date of the Registration
Statement, there was any decrease in net revenues, net
earnings or net earnings per share of Common Stock, in each
case as compared with the corresponding period beginning April
30, 1996, other than as set forth in or contemplated by the
Registration Statement, or, if there was any such decrease,
setting forth the amount of such decrease;
iv) setting forth, at a date not later than five (5)
days prior to the effective date of the Registration
Statement, the amount of liabilities of the Company and the
Subsidiary (including a break-down of commercial paper and
notes payable to banks);
v) stating that they have compared specific dollar
amounts, numbers of shares, percentages of revenues and
earnings, statements and other financial information
pertaining to the Company and the Subsidiary set forth in the
Prospectus, in each case to the extent that such amounts,
numbers, percentages, statements and information may be
derived from the general accounting records, including work
sheets, of the Company and the Subsidiary and excluding any
questions requiring an interpretation by legal counsel, with
the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which
procedures do not constitute an audit in accordance with
generally accepted auditing standards) set forth in the letter
and found them to be in agreement; and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may
request.
32
(k) At the Closing Date and each Option Closing Date, if any,
the Underwriter shall have received from Coopers & ▇▇▇▇▇▇▇ LLP a letter, dated
as of the Closing Date or the relevant Option Closing Date, as the case may be,
to the effect that (i) it reaffirms the statements made in the letter furnished
pursuant to Section 6(j), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Coopers & ▇▇▇▇▇▇▇ LLP
has carried out procedures as specified in clause (v) of Section 6(j) hereof
with respect to certain amounts, percentages and financial information as
specified by the Underwriter and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(l) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects to
the Underwriter, from Coopers & ▇▇▇▇▇▇▇ LLP stating that they have not during
the immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness," as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(m) On each of Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter the appropriate number of
Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to Section 4(e) hereof shall
have been issued on either the Closing Date or the Option Closing Date, if any,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
(o) On or before the effective date of the Registration
Statement, the Company shall have executed and delivered to the Underwriter, the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit ___
to the Registration Statement. On or before the Closing Date, the Company shall
have executed and delivered to the Underwriter the Underwriter's Warrants in
such denominations and to such designees as shall have been provided to the
Company.
(p) On or before Closing Date, the Units, the Common Stock and
the Redeemable Warrants shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance.
(q) On or before Closing Date, there shall have been delivered
to the Underwriter all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriter's Counsel.
(r) On or before the Closing Date, the Company shall have (i)
executed and delivered to the Underwriter the Consulting Agreement,
substantially in the form filed as Exhibit ____ to the Registration Statement
and (ii) paid the Underwriter $48,000 representing the retainer fee pursuant to
the Consulting Agreement.
33
(s) On or before the effective date of the Registration
Statement, the Company and Continental Stock Transfer & Trust Company shall have
executed and delivered to the Underwriter the Warrant Agreement, substantially
in the form filed as Exhibit ___ to the Registration Statement.
(t) At least two (2) full business days prior to the date
hereof, the Closing Date and each Option Closing Date, if any, the Company shall
have delivered to the Underwriter the unaudited interim consolidated financial
statements required to be so delivered pursuant to Section 4(p) of this
Agreement.
If any condition to the Underwriter's or the Underwriter's
obligations hereunder to be fulfilled prior to or at the Closing Date or at any
Option Closing Date, as the case may be, is not so fulfilled, the Underwriter
may terminate this Agreement or, if the Underwriter so elects, it may waive any
such conditions which have not been fulfilled or extend the time for their
fulfillment.
7. Indemnification
(a) The Company agrees to indemnify and hold harmless each
Underwriter (for purposes of this Section 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
and each person, if any, who controls the Underwriter ("controlling person")
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions, proceedings, investigations,
inquiries and suits in respect thereof), whatsoever (including but not limited
to any and all costs and expenses whatsoever reasonably incurred in
investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon (A) any untrue statement or alleged untrue statement of a
material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this Section 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
34
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to any Underwriter by such Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or the Prospectus directly
relating to the transactions effected by the Underwriter in connection with the
offering contemplated hereby. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition to
any liability which the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
shall, if a claim in respect thereof is to be made against one or more
indemnifying parties under this Section 7, notify each party against whom
indemnification is to be sought in writing of the commencement thereof (but the
failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this Section 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, an indemnified party shall
have the right to employ its own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel shall have been authorized in writing
by the indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties),
35
in any of which events such fees and expenses of one additional counsel shall be
borne by the indemnifying parties. In no event shall the indemnifying parties be
liable for fees and expenses of more than one counsel (in addition to any local
counsel) separate from their own counsel for all indemnified parties in
connection with any one action, investigation, inquiry, suit or proceeding or
separate but similar or related actions, investigations, inquiries, suits or
proceedings in the same jurisdiction arising out of the same general allegations
or circumstances. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle, compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this Section 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
provided, however, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in
any case in which (i) an indemnified party makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such proportion as is appropriate to reflect the relative benefits received
by each of the contributing parties, on the one hand, and the party to be
indemnified, on the other hand, from the offering of the Securities or (B) if
the allocation provided by clause (A) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (A) above but also the relative fault of each of the
contributing parties, on the one hand, and the party to be indemnified, on the
other hand, in connection with the statements or omissions that resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriter is the indemnified party, the relative benefits received by
the Company, on the one hand, and the Underwriter, on the other, shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriter hereunder, in each case as set forth in the table on
the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriter, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions, investigations, inquiries, suits or proceedings in
respect thereof) referred to in the first (1st) sentence of this Section 7(d)
shall be deemed to
36
include any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action, claim,
investigation, inquiry suit or proceeding. Notwithstanding the provisions of
this Section 7(d), the Underwriter shall not be required to contribute any
amount in excess of the underwriting discount applicable to the Securities
purchased by the Underwriter hereunder. No person guilty of fraudulent
misrepresentation (within the meaning of Section 12(f) of the Act) shall be
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation. For purposes of this Section 7(d), each person, if any, who
controls the Company or the Underwriter within the meaning of the Act, each
officer of the Company who has signed the Registration Statement and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
Section 7(d). Any party entitled to contribution will, promptly after receipt of
notice of commencement of any action, suit, inquiry, investigation or
proceeding, against such party in respect to which a claim for contribution may
be made against another party or parties under this Section 7(d), notify such
party or parties from whom contribution may be sought, but the omission to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this Section 7(d), or to the extent that such party or
parties were not adversely affected by such omission. Notwithstanding anything
in this Section 7 to the contrary, no party will be liable for contribution with
respect to the settlement of any action or claim effected without its written
consent. The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
8. Representations, Warranties, Covenants and Agreements to
Survive Delivery. All representations, warranties, covenants and agreements of
the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution agreements contained in Section 7 hereof, shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any Underwriter, the Company, any controlling person of any
Underwriter or the Company, and shall survive the termination of this Agreement
or the issuance and delivery of the Securities to the Underwriter.
9. Effective Date. This Agreement shall become effective at
10:00 a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for sale to the public; provided, however, that the provisions of Sections 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
Section 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
37
10. Termination.
(a) Subject to Section 10(b) hereof, the Underwriter shall
have the right to terminate this Agreement: (i) if any domestic or international
event or act or occurrence has materially adversely disrupted, or in the
Underwriter's opinion will in the immediate future materially adversely disrupt,
the financial markets; or (ii) if any material adverse change in the financial
markets shall have occurred; or (iii) if trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the NASD, the Boston Stock
Exchange, the Commission or any governmental authority having jurisdiction over
such matters; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have been
delisted, on any exchange or in any over-the-counter market; or (v) if the
United States shall have become involved in a war or major hostilities, or if
there shall have been an escalation in an existing war or major hostilities, or
a national emergency shall have been declared in the United States; or (vi) if a
banking moratorium shall have been declared by any state or federal authority;
or (vii) if the Company shall have sustained a material or substantial loss by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Underwriter's opinion, make it inadvisable to proceed with the delivery
of the Securities; or (ix) if there shall have occurred any outbreak or
escalation of hostilities or any calamity or crisis or there shall have been
such a material adverse change in the conditions or prospects of the Company, or
if there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in the
Underwriter's judgment would make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities; or (x) if ▇▇▇▇▇▇ ▇▇▇▇▇▇ shall no longer
serve the Company in his present capacity.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of Section 6 or Section 10(a) hereof the Company
shall promptly reimburse and indemnify the Underwriter for all its actual
out-of-pocket expenses, including the fees and disbursements of Underwriter's
Counsel, less amounts previously paid pursuant to Section 5(c) hereof. In
addition, the Company shall remain liable for all "blue sky" counsel fees (such
fees not to exceed $45,000) and expenses and "blue sky" filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6 and 10(a) hereof), and whether or not this Agreement is
otherwise carried out, the provisions of Section 5 and Section 7 shall not be in
any way be affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. Default by the Company. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver the
number of Securities which it is obligated to sell hereunder on such date, then
this Agreement shall terminate (or, if such default shall occur with respect to
any Option Units to be purchased on an Option Closing Date, the Underwriter may,
at its option, by notice from the Underwriter to the Company, terminate the
Underwriter's obligation to purchase Option Units from the Company on such date)
without any liability on the part of any non-defaulting party other than
pursuant to Section 5, Section 7 and Section 10 hereof. No action taken pursuant
to this Section 11 shall relieve the Company from liability, if any, in respect
of such default.
38
12. Notices. All notices and communications hereunder, except
as herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc., ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇, Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇
& ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇, Esq. Notices to the Company shall be directed to the Company at CTI
Industries Corporation, ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, P.C., ▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇ ▇. ▇▇▇▇▇▇,
Esq.
13. Parties. This Agreement shall inure solely to the benefit
of, and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Units from the Underwriter shall be deemed to be a
successor by reason merely of such purchase.
14. Construction. This Agreement shall be governed by and
construed and enforced in accordance with the laws of the State of New York,
without giving effect to choice of law or conflict of laws principles.
15. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original, and all of
which taken together shall be deemed to be one and the same instrument.
16. Entire Agreement; Amendments. This Agreement, the
Underwriter's Warrant Agreement and the Consulting Agreement constitute the
entire agreement of the parties hereto and supersede all prior written or oral
agreements, understandings and negotiations with respect to the subject matter
hereof and thereof. This Agreement may not be amended except in a writing signed
by the Underwriter and the Company.
39
If the foregoing correctly sets forth the understanding
between the Underwriter and the Company, please so indicate in the space
provided below for that purpose, whereupon this letter shall constitute a
binding agreement between us.
Very truly yours,
CTI INDUSTRIES CORPORATION
By:_____________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President
Confirmed and accepted as of the date first above written.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & COMPANY, INC.
By:____________________________________
Name:
Title:
40
Exhibit A
[FORM OF INTELLECTUAL PROPERTY OPINION]
___________________, 1997
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & COMPANY, INC.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Re: Public Offering of CTI Industries Corporation
Gentlemen:
We have acted as special counsel to CTI INDUSTRIES
CORPORATION, a Delaware corporation (the "Company"), in connection with the
entering into by the Company of that certain Underwriting Agreement by and
between ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc. ("▇▇▇▇▇▇ ▇▇▇▇▇▇▇"), as underwriter, and
the Company, dated _______________, 1997 (the "Underwriting Agreement"). This
opinion is provided to you pursuant to Section ____ of the Underwriting
Agreement.
For the purpose of rendering the opinions set forth below we
have reviewed the following (collectively, the "Documents"):
(i) the Underwriting Agreement;
(ii) that certain Registration Statement filed _____, 1997,
together with any and all amendments thereof exhibits thereto
(collectively, the "Registration Statement");
(iii) the company's Prospectus dated ___________ __, 1997 (the
"Prospectus");
(iv) a search of the United States Patent and Trademark Office
records relevant to ownership of any and all:
patents and patent applications (including, without
limitation, the patents and patent applications listed
on Schedule A annexed hereto and hereby incorporated
by reference herein (collectively, the "Patents")),
and trademarks, trademark applications, service marks
and service ▇▇▇▇ applications (collectively, the
"Marks") (including, without limitation, the
41
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc. __________, 1997
Marks listed on Schedule B annexed hereto and hereby
incorporated by reference herein (collectively, the
"Trademarks")),
owned, purportedly owned or licensed by the Company
(including, those patents, patent applications and Marks
licensed, without limitation, pursuant to the licenses listed
on Schedule C annexed hereto and hereby incorporated by
reference herein (collectively, the "Licenses")), conducted by
______________________________ and certified as true and
correct as of _______________________, 1997 (no earlier than 5
days prior to the date of the Closing (as defined in the
Underwriting Agreement));
(v) a search of the United States Copyright Office records
relevant to ownership of any and all copyrighted material
(including, without limitation, the copyright in, or license
permitting the Company's actual use of, the material licensed
or otherwise distributed by the Company and listed on Schedule
D annexed hereto and hereby incorporated by reference herein
(collectively, the "Copyrighted Material")), owned,
purportedly owned or licensed by the Company conducted by
_____________________ and certified as true and correct as of
__________________, 1997 (no earlier than 5 days prior to the
date of the Closing);
(vi) an intellectual property litigation search with respect
to all Patents, Trademarks, Licenses and Copyrighted Material,
listed on Schedules A, B, C and D, respectively;
(vii) a search of the Uniform Commercial Code ("UCC")
recordation offices, in the following jurisdictions --
[________________, _____________ and _______], with respect to
the following two categories of general intangibles:
(a) the intellectual property general intangibles of
the Company, including, without limitation, the
Company's patents, patent applications, inventions,
know how, trademarks, service marks, copyrights,
service and trade names, intellectual property
licenses and other rights, and
(b) the intellectual property general intangibles
licensed to the Company, including, without
limitation, the patents, patent applications,
inventions, know how, trademarks, service marks,
copyrights, service and trade names and other
intellectual property rights licensed to the Company
pursuant to the Licenses (listed on Schedule C),
said search certified to us as complete and accurate by
________________ and current through ________________________,
1997 (no earlier than 5 days prior to the date of the Closing)
and said jurisdictions being the only jurisdictions in
42
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc. __________, 1997
which filing of UCC financing statements or other documents
may be filed to effectively evidence a security or other
interest in said general intangibles; and
(viii) any and all records, documents, instruments and
agreements in our possession or under our control relating to
the Company.
We have also examined such corporate records, documents,
instruments and agreements, and inquired into such other matters, as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
Whenever our opinion herein is qualified by the phrase "to the best of our
knowledge" or "to the best of our knowledge, after due inquiry," such language
means that, based upon (i) our inquiries of officers of the Company, (ii) our
review of the Documents, and (iii) our review of such other corporate records,
documents, instruments and agreements described in the first sentence of this
paragraph, we believe that such opinions are factually correct.
To the best of our knowledge, as to all matters of fact
represented to you by the Company, we advise you that nothing has come to our
attention that would cause us to believe that such facts are incorrect,
incomplete or misleading or that reliance thereon is not warranted under the
circumstances. We call to your attention that our opinion is limited to such
facts as they exist on the date hereof and do not take into account any change
of circumstances, fact or law subsequent thereto.
Based upon and subject to the foregoing, we are of the opinion
that:
1. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
owns or has the right to use, free and clear of all liens,
encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever,
(i) all patents and patent applications (including,
without limitation, the Patents),
(ii) all trademarks and service marks (including,
without limitation, the Trademarks),
(iii) all copyrights (including, without limitation,
the Copyrighted Material),
(iv) all service and trade names,
(v) all intellectual property licenses (including,
without limitation, the Licenses), and
43
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc. __________, 1997
(vi) all technology
used in, contemplated to be used in or required for, the
conduct of the Company's business.
2. To the best of our knowledge, after due inquiry,
the Company possesses all material intellectual property
licenses or rights used in, or required for, the conduct of
its business (including, the Licenses and without limitation,
any such licenses or rights described in the Registration
Statement as being owned, possessed or licensed by the
Company, as the case may be), such licenses and rights are in
full force and effect, and the Company's products, methods and
services do not infringe any unlicensed intellectual property
of any third parties.
3. To the best of our knowledge, after due inquiry,
there is no claim or action, pending, threatened or potential,
which affects or could affect the rights of the Company with
respect to any trademarks, service marks, copyrights, service
names, trade names, patents, patent applications or licenses
used in, or required for, the conduct of the Company's
business and all trademarks, service marks, copyrights, trade
names, and patents owned or licensed to the Company are valid.
4. To the best of our knowledge, after due inquiry,
there is no intellectual property based claim or action,
pending, threatened or potential, which affects or could
affect the rights of the Company with respect to any products,
services, processes or licenses, including, without
limitation, the Licenses used in the conduct of the Company's
business.
5. To the best of our knowledge, after due inquiry,
except as described in the Registration Statement, the Company
is not under any obligation to pay royalties or fees to any
third party with respect to any material, technology or
intellectual properties developed, employed, licensed or used
by the Company.
6. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement under the
headings, "Risk Factors - Patents, Trademarks and Proprietary
Information" and "Business - Patents, Trademarks and
Proprietary Information", are accurate in all material
respects, fairly represent the information disclosed therein
and do not omit to state any fact necessary to make the
statements made therein complete and accurate.
7. To the best of our knowledge, after due inquiry,
the statements in the Registration Statement and the
Prospectus do not contain any untrue statement of a material
fact with respect to the intellectual property position of the
Company, or omit to state any material fact relating to the
intellectual property position of
44
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc. __________, 1997
the Company which is required to be stated in the Registration
Statement and the Prospectus or is necessary to make the
statements therein not misleading.
We call your attention to the fact that the members of this
firm are licensed to practice law in the State of ______________ and before the
United States Patent and Trademark Office as Registered Patent Attorneys.
Accordingly, we express no opinion with respect to the laws, rules and
regulations of any jurisdictions other than the State of ___________ and the
United States of America.
The opinions expressed herein are for the sole benefit of, and
may be relied upon only by, the several Underwriters named in Schedule A to the
Underwriting Agreement and ▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP.
45