UNDERWRITING AGREEMENT
BETWEEN
THE MILLBROOK PRESS INC.
AND
GKN SECURITIES CORP.
DATED: DECEMBER __, 1996
THE MILLBROOK PRESS INC.
1,500,000 SHARES OF COMMON STOCK
AND
1,500,000 COMMON STOCK PURCHASE WARRANTS
UNDERWRITING AGREEMENT
New York, New York
December ___, 1996
GKN Securities Corp.
▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
The undersigned The Millbrook Press Inc., a Delaware corporation
("Company"), hereby confirms its agreement with GKN Securities Corp. (being
referred to herein variously as "you" or the "Underwriter") as follows:
1. PURCHASE AND SALE OF SECURITIES.
1.1 FIRM SECURITIES.
1.1.1 PURCHASE OF FIRM SECURITIES. On the basis of the
representations and warranties herein contained, but subject to the terms and
conditions herein set forth, the Company agrees to issue and sell to the
Underwriter and the Underwriter agrees to purchase from the Company 1,500,000
shares of the Company's Common Stock, par value $.01 per share ("Common Stock"),
at a purchase price of $4.50 per share, and 1,500,000 of Redeemable Common Stock
Purchase Warrants ("Warrant(s)"), at a purchase price of $.09 per Warrant, each
Warrant to purchase one share of Common Stock at a purchase price of $4.50 per
share commencing one year after the Effective Date (as hereinafter defined)
until the fifth anniversary of the Effective Date (these shares of Common Stock
and Warrants being referred to herein as "Firm Securities").
1.1.2 PAYMENT AND DELIVERY. Delivery and payment for the Firm
Securities shall be made at 10:00 A.M., New York time, on or before the third
business day following the date that the Firm Securities commence trading or at
such earlier time as the Underwriter shall determine, or at such other time as
shall be agreed upon by the Underwriter and the Company at the offices of the
Underwriter or at such other place as shall be agreed upon by the Underwriter
and the Company. The hour and date of delivery and payment for the Firm
Securities are called the "Closing Date." Payment for the Firm Securities shall
be made on the Closing Date at the
Underwriter's election by certified or bank cashier's check(s) in New York
Clearing House funds, payable to the order of the Company upon delivery to you
of certificates (in form and substance satisfactory to the Underwriter)
representing the Firm Securities for the account of the Underwriter. The Firm
Securities shall be registered in such name or names and in such authorized
denominations as the Underwriter may request in writing at least two full
business days prior to the Closing Date. The Company will permit the
Underwriter to examine and package the Firm Securities for delivery, at least
one full business day prior to the Closing Date. The Company shall not be
obligated to sell or deliver the Firm Securities except upon tender of payment
by the Underwriter for all the Firm Securities.
1.2 OVER-ALLOTMENT OPTION.
1.2.1 OPTION SECURITIES. For the purposes of covering any over-
allotments in connection with the distribution and sale of the Firm Securities,
the Underwriter is hereby granted an option to purchase up to an additional
225,000 shares of Common Stock and/or 225,000 Warrants from the Company
("Over-allotment Option"). Such additional 225,000 shares of Common Stock and
225,000 Warrants are hereinafter referred to as the "Option Securities." The
Firm Securities and the Option Securities are together with the shares of Common
Stock issuable upon exercise of the Warrants, hereinafter referred to
collectively as the "Public Securities." The purchase price to be paid for the
Option Securities will be the same price per Option Security as the price per
Firm Security set forth in Section 1.1.1 hereof.
1.2.2 EXERCISE OF OPTION. The Over-allotment Option granted
pursuant to Section 1.2.1 hereof may be exercised by the Underwriter as to all
or any part of the Option Securities at any time, from time to time, within
forty-five days after the effective date ("Effective Date") of the Registration
Statement (as hereinafter defined). The Underwriter will not be under any
obligation to purchase any Option Securities prior to the exercise of the
Over-allotment Option. The Over-allotment Option granted hereby may be
exercised by the giving of oral notice to the Company from the Underwriter,
which must be confirmed by a letter or telecopy setting forth the number of
Option Securities to be purchased, the date and time for delivery of and payment
for the Option Securities and stating that the Option Securities referred to
therein are to be used for the purpose of covering over-allotments in connection
with the distribution and sale of the Firm Securities. If such notice is given
at least two full business days prior to the Closing Date, the date set forth
therein for such delivery and payment will be the Closing Date. If such notice
is given thereafter, the date set forth therein for such delivery and payment
will not be earlier than five full business days after the date of the notice.
If such delivery and payment for the Option Securities does not occur on the
Closing Date, the date and time of the closing for such Option Securities will
be as set forth in the notice (hereinafter the "Option Closing Date"). Upon
exercise of the Over-allotment Option, the Company will become obligated to
convey to the Underwriter, and, subject to the terms and conditions set forth
herein, the Underwriter will become obligated to purchase, the number of Option
Securities specified in such notice.
1.2.3 PAYMENT AND DELIVERY. Payment for the Option Securities
will be at the Underwriter's election by certified or bank cashier's check(s) in
New York Clearing House funds, payable to the order of the Company at the
offices of the Underwriter or at such other place as shall be agreed upon by the
Underwriter and the Company upon delivery to you of certificates
2
representing such securities for the Underwriter. The certificates representing
the Option Securities to be delivered will be in such denominations and
registered in such names as the Underwriter requests not less than two full
business days prior to the Closing Date or the Option Closing Date, as the case
may be, and will be made available to the Underwriter for inspection, checking
and packaging at the aforesaid office of the Company's transfer agent or
correspondent not less than one full business day prior to such Closing Date.
1.3 UNDERWRITER'S PURCHASE OPTION.
1.3.1 PURCHASE OPTION. The Company hereby agrees to issue and
sell to the Underwriter (and/or its designees) on the Effective Date an option
("Underwriter's Purchase Option") for the purchase of an aggregate of 150,000
shares of Common Stock at an initial exercise price of ___% of the initial
offering price of a share of common stock, i.e., $_____ per share of Common
Stock ("Underwriter's Shares"), and/or 150,000 Warrants ("Underwriter's
Warrants") at an initial exercise price of ____ % of the initial offering price
of a Warrant, i.e., $.__ per Warrant. Each of the Underwriter's Shares and the
Underwriter's Warrants is identical to the Firm Securities. The Underwriter's
Purchase Option, the Underwriter's Shares, the Underwriter's Warrants and the
shares of Common Stock issuable upon exercise of the Underwriter's Warrants are
hereinafter referred to collectively as the "Underwriter's Securities." The
Public Securities and the Underwriter's Securities are hereinafter referred to
collectively as the "Securities."
1.3.2 PAYMENT AND DELIVERY. Delivery and payment for the
Underwriter's Purchase Option shall be made on the Closing Date. The Company
shall deliver to the Underwriter, upon payment therefor, certificates for the
Underwriter's Purchase Option in the name or names and in such authorized
denominations as the Underwriter may request.
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and
warrants to the Underwriter as follows:
2.1 FILING OF REGISTRATION STATEMENT.
2.1.1 PURSUANT TO THE ACT. The Company has filed with the
Securities and Exchange Commission ("Commission") a registration statement and
an amendment or amendments thereto, on Form SB-2 Registration No. 333-14631
including any related preliminary prospectus ("Preliminary Prospectus"), for the
registration of the Public Securities under the Securities Act of 1933, as
amended ("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 ("Regulations") of the Commission under the Act.
Except as the context may otherwise require, such registration statement, as
amended, on file with the Commission at the time the registration statement
becomes effective (including the prospectus, financial statements, schedules,
exhibits and all other documents filed as a part thereof or incorporated therein
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the Regulations), is hereinafter called the
"Registration Statement," and the form of the final prospectus dated the
Effective Date (or, if applicable, the form of final prospectus filed with the
Commission pursuant to Rule 424 of the Regulations), is hereinafter called
3
the "Prospectus." The Registration Statement has been declared effective by the
Commission on the date hereof.
2.1.2 PURSUANT TO THE EXCHANGE ACT. The Company has filed with
the Commission a registration statement on Form 8-A No. _______ providing for
the registration under the Securities Exchange Act of 1934, as amended,
("Exchange Act") of the Public Securities. Such registration of the Securities
has been declared effective by the Commission on the date hereof.
2.2 NO STOP ORDERS, ETC. Neither the Commission nor, to the best of
the Company's knowledge, any state regulatory authority has issued any order
preventing or suspending the use of any Preliminary Prospectus, Prospectus or
has instituted or, to the best of the Company's knowledge, threatened to
institute any proceedings with respect to such an order.
2.3 DISCLOSURES IN REGISTRATION STATEMENT.
2.3.1 SECURITIES ACT AND EXCHANGE ACT REPRESENTATION. At the
time the Registration Statement became effective and at all times subsequent
thereto up to and including the Closing Date and the Option Closing Date, if
any, the Registration Statement and the Prospectus and any amendment or
supplement thereto contained and will contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations,
and conformed and will conform in all material respects to the requirements of
the Act and the Regulations; neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, during such time period and
on such dates, contained or will contain any untrue statement of a material fact
or omitted or will omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading, nor did they or will
they contain any untrue statement of a material fact or did they or will they
omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading. When any Preliminary Prospectus was first filed with the
Commission (whether filed as part of the Registration Statement for the
registration of the Securities or any amendment thereto or pursuant to Rule
424(a) of the Regulations) and when any amendment thereof or supplement thereto
was first filed with the Commission, such Preliminary Prospectus and any
amendments thereof and supplements thereto at the time such filing was made
complied in all material respects with the applicable provisions of the Act and
the Regulations. The representation and warranty made in this Section 2.3.1
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 the Underwriter expressly for use in the Registration Statement
or Prospectus or any amendment thereof or supplement thereto.
2.3.2 DISCLOSURE OF CONTRACTS. The description in the
Registration Statement and the Prospectus of contracts and other documents is
accurate and presents fairly the information required to be disclosed and there
are no contracts or other documents required to be described in the Registration
Statement or the Prospectus or to be filed with the Commission as exhibits to
the Registration Statement, which have not been so described or filed. Each
contract or other instrument (however characterized or described) to which the
Company is a party or by which its property or business is or may be bound or
affected and (i) which is referred to in the Prospectus, or (ii) is material to
the Company's business, has been duly and validly executed, is in full force and
4
effect in all material respects and is enforceable against the parties thereto
in accordance with its terms, and none of such contracts or instruments has been
assigned by the Company, and neither the Company nor, to the best of the
Company's knowledge, any other party is in default thereunder and, to the best
of the Company's knowledge, no event has occurred which, with the lapse of time
or the giving of notice, or both, would constitute a default thereunder. None
of the material provisions of such contracts or instruments violates or will
result in a violation of any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court having
jurisdiction over the Company or any of its respective assets or businesses,
including, without limitation, those relating to environmental laws and
regulations.
2.3.3 PRIOR SECURITIES TRANSACTIONS. No securities of the
Company have been sold by the Company or by or on behalf of, or for the benefit
of, any person or persons controlling, controlled by, or under common control
with the Company within the three years prior to the date hereof, except as
disclosed in the Registration Statement.
2.4 CHANGES AFTER DATES IN REGISTRATION STATEMENT.
2.4.1 NO MATERIAL ADVERSE CHANGE. Since the respective dates as
of which information is given in the Registration Statement and the Prospectus,
except as otherwise specifically stated therein, (i) there has been no material
adverse change in the condition, financial or otherwise, or in the results of
operations, business or business prospects of the Company, including, but not
limited to, a material loss or interference with its business from fire, storm,
explosion, flood or other casualty, whether or not covered by insurance, or from
any labor dispute or court or governmental action, order or decree, whether or
not arising in the ordinary course of business, and (ii) there have been no
transactions entered into by the Company, other than those in the ordinary
course of business, which are material with respect to the condition, financial
or otherwise, or to the results of operations, business or business prospects of
the Company.
2.4.2 RECENT SECURITIES TRANSACTIONS, ETC. Subsequent to the
respective dates as of which information is given in the Registration Statement
and the Prospectus, and except as may otherwise be indicated or contemplated
herein or therein, the Company has not (i) issued any securities or incurred any
liability or obligation, direct or contingent, for borrowed money; or
(ii) declared or paid any dividend or made any other distribution on or in
respect to its capital stock.
2.5 INDEPENDENT ACCOUNTANTS. KPMG Peat Marwick LLP whose report is
filed with the Commission as part of the Registration Statement, are independent
accountants as required by the Act and the Regulations.
2.6 FINANCIAL STATEMENTS. The financial statements, including the
notes thereto and supporting schedules included in the Registration Statement
and Prospectus, fairly present the financial position and the results of
operations of the Company at the dates and for the periods to which they apply;
and such financial statements have been prepared in conformity with generally
accepted accounting principles, consistently applied throughout the periods
involved; and the supporting schedules included in the Registration Statement
present fairly the information required to be stated therein.
5
2.7 AUTHORIZED CAPITAL; OPTIONS; ETC. The Company had at the date or
dates indicated in the Prospectus duly authorized, issued and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
Based on the assumptions stated in the Registration Statement and the
Prospectus, the Company will have on the Closing Date the adjusted stock
capitalization set forth therein. Except as set forth in the Registration
Statement and the Prospectus, on the Effective Date and on the Closing Date
there will be no options, warrants, or other rights to purchase or otherwise
acquire any authorized but unissued shares of Common Stock of the Company,
including any issuances pursuant to anti-dilution provisions, or any security
convertible into shares of Common Stock of the Company, or any contracts or
commitments to issue or sell shares of Common Stock or any such options,
warrants, rights or convertible securities.
2.8 VALID ISSUANCE OF SECURITIES; ETC.
2.8.1 OUTSTANDING SECURITIES. All issued and outstanding
securities of the Company 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 similar
contractual rights granted by the Company. The outstanding options and warrants
to purchase shares of Common Stock constitute the valid and binding obligations
of the Company, enforceable in accordance with their terms. The authorized
Common Stock and outstanding options and warrants to purchase shares of Common
Stock conform to all statements relating thereto contained in the Registration
Statement and the Prospectus. The offers and sales of the outstanding Common
Stock, options and warrants to purchase shares of Common Stock were at all
relevant times either registered or qualified under the Act and the applicable
state securities or Blue Sky Laws or exempt from such registration requirements.
2.8.2 SECURITIES SOLD PURSUANT TO THIS AGREEMENT. The
Securities have been duly authorized and, when issued and paid for, will be
validly issued, fully paid and non-assessable; the holders thereof are not and
will not be subject to personal liability by reason of being such holders; the
Securities are not and will not be subject to the preemptive rights of any
holders of any security of the Company or similar contractual rights granted by
the Company; and all corporate action required to be taken for the
authorization, issuance and sale of the Securities has been duly and validly
taken. When issued, the Underwriter's Purchase Option, the Underwriter's
Warrants and the Warrants will 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 and the
Underwriter's Purchase Option, the Underwriter's Warrants and the Warrants will
be enforceable against the Company in accordance with their respective terms,
except (i) as such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally, (ii) as
enforceability of any indemnification provision may be limited under the federal
and state securities laws, and (iii) that the remedy of specific performance and
injunctive and other forms of equitable relief may be subject to the equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
6
2.9 REGISTRATION RIGHTS OF THIRD PARTIES. Except as set forth in the
Prospectus, no holders of any securities of the Company or of any options or
warrants of the Company exercisable for or convertible or exchangeable into
securities of the Company have the right to require the Company to register any
such securities of the Company under the Act or to include any such securities
in a registration statement to be filed by the Company.
2.10 VALIDITY AND BINDING EFFECT OF AGREEMENTS. This Agreement, the
employment agreements with ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ("Employment
Agreements"), the Underwriters' Purchase Option and the Warrant Agreement (as
hereinafter defined) have been duly and validly authorized by the Company and
constitute, or when executed and delivered, will constitute, the valid and
binding agreements of the Company, enforceable against the Company in accordance
with their respective terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
2.11 NO CONFLICTS, ETC. The execution, delivery, and performance by the
Company of this Agreement, the Underwriter's Purchase Option and the Warrant
Agreement, the consummation by the Company of the transactions herein and
therein contemplated and the compliance by the Company with the terms hereof and
thereof have been duly authorized by all necessary corporate action and do not
and will not, with or without the giving of notice or the lapse of time or both,
(i) result in a breach of, or conflict with any of the terms and provisions of,
or constitute a default under, or result in the creation, modification,
termination or imposition of any lien, charge or encumbrance upon any property
or assets of the Company pursuant to the terms of any indenture, mortgage, deed
of trust, 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 is a party or by which the Company may be bound
or to which any of the property or assets of the Company is subject; (ii) result
in any violation of the provisions of the Certificate of Incorporation or the
By-Laws of the Company; (iii) violate any existing applicable law, rule,
regulation, judgment, order or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business; or (iv) have a material adverse effect on any permit,
license, certificate, registration, approval, consent, license or franchise
concerning the Company.
2.12 NO DEFAULTS; VIOLATIONS. Except as described in the Prospectus, no
default exists in the due performance and observance of any term, covenant or
condition of any material license, contract, indenture, mortgage, deed of trust,
note, loan or credit agreement, or any other agreement or instrument evidencing
an obligation for borrowed money, or any other material agreement or instrument
to which the Company is a party or by which the Company may be bound or to which
any of the properties or assets of the Company is subject. The Company is not
in violation of any term or provision of its Certificate of Incorporation or
By-Laws or in violation of any franchise, license, permit, applicable law, rule,
regulation, judgment or decree of any governmental agency or court, domestic or
foreign, having jurisdiction over the Company or any of its properties or
business, except as described in the Prospectus.
7
2.13 CORPORATE POWER; LICENSES; CONSENTS.
2.13.1 CONDUCT OF BUSINESS. The Company has all requisite
corporate power and authority, and has all necessary authorizations, approvals,
orders, licenses, certificates and permits of and from all governmental
regulatory officials and bodies to own or lease its properties and conduct its
business as described in the Prospectus, and the Company is and has been doing
business in compliance with all such material authorizations, approvals, orders,
licenses, certificates and permits and all federal, state and local laws, rules
and regulations. The disclosures in the Registration Statement concerning the
effects of federal, state and local regulation on the Company's business as
currently contemplated are correct in all material respects and do not omit to
state a material fact.
2.13.2 TRANSACTIONS CONTEMPLATED HEREIN. The Company has all
corporate power and authority to enter into this Agreement and to carry out the
provisions and conditions hereof, and all consents, authorizations, approvals
and orders required in connection therewith have been obtained. No consent,
authorization or order of, and no filing with, any court, government agency or
other body is required for the valid issuance, sale and delivery, of the
Securities pursuant to this Agreement, the Warrant Agreement and the
Underwriter's Purchase Option, and as contemplated by the Prospectus, except
with respect to applicable federal and state securities laws.
2.14 TITLE TO PROPERTY; INSURANCE. The Company has good and marketable
title to, or valid and enforceable leasehold estates in, all items of real and
personal property (tangible and intangible) owned or leased by it, free and
clear of all liens, encumbrances, claims, security interests, defects and
restrictions of any material nature whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable. The Company has
adequately insured its properties against loss or damage by fire or other
casualty and maintains, in adequate amounts, such other insurance as is usually
maintained by companies engaged in the same or similar business.
2.15 LITIGATION; GOVERNMENTAL PROCEEDINGS. Except as set forth in the
Prospectus, there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding pending or threatened
against, or involving the properties or business of, the Company which might
materially and adversely affect the financial position, prospects, value or the
operation or the properties or the business of the Company, or which question
the validity of the capital stock of the Company or this Agreement or of any
action taken or to be taken by the Company pursuant to, or in connection with,
this Agreement. There are no outstanding orders, judgments or decrees of any
court, governmental agency or other tribunal naming the Company and enjoining
the Company from taking, or requiring the Company to take, any action, or to
which the Company, its properties or business is bound or subject.
2.16 GOOD STANDING. The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of the state of
its incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which ownership or
leasing of any properties or the character of its operations requires such
qualification or licensing, except where the failure to qualify would not have a
material adverse effect on the Company.
8
2.17 TAXES. The Company has filed all returns (as hereinafter defined)
required to be filed with taxing authorities prior to the date hereof or has
duly obtained extensions of time for the filing thereof. The Company has paid
all taxes (as hereinafter defined) shown as due on such returns that were filed
and has paid all taxes imposed on or assessed against the Company. The
provisions for taxes payable, if any, shown on the financial statements filed
with or as part of the Registration Statement are sufficient for all accrued and
unpaid taxes, whether or not disputed, and for all periods to and including the
dates of such consolidated financial statements. Except as disclosed in writing
to the Underwriter, (i) no issues have been raised (and are currently pending)
by any taxing authority in connection with any of the returns or taxes asserted
as due from the Company, and (ii) no waivers of statutes of limitation with
respect to the returns or collection of taxes have been given by or requested
from the Company. The term "taxes" mean all federal, state, local, foreign, and
other net income, gross income, gross receipts, sales, use, ad valorem,
transfer, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, property,
windfall profits, customs, duties or other taxes, fees, assessments, or charges
of any kind whatever, together with any interest and any penalties, additions to
tax, or additional amounts with respect thereto. The term "returns" means all
returns, declarations, reports, statements, and other documents required to be
filed in respect to taxes.
2.18 EMPLOYEES' OPTIONS. No more than ________ shares of Common Stock
are eligible for sale pursuant to Rule 701 promulgated under the Act in the
12-month period following the Effective Date.
2.19 TRANSACTIONS AFFECTING DISCLOSURE TO NASD.
2.19.1 FINDER'S FEES. There are no claims, payments, issuances,
arrangements or understandings 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 issuance with
respect to the Company that may affect the Underwriter's compensation, as
determined by the National Association of Securities Dealers, Inc. ("NASD").
2.19.2 PAYMENTS WITHIN TWELVE MONTHS. The Company has not made
any direct or indirect payments (in cash, securities or otherwise) to (i) any
person, as a finder's fee, investing fee or otherwise, in consideration of such
person raising capital for the Company or introducing to the Company persons who
provided capital to the Company, (ii) to any NASD member, or (iii) to any person
or entity that has any direct or indirect affiliation or association with any
NASD member within the twelve month period prior to the date on which the
Registration Statement was filed with the Commission ("Filing Date") or
thereafter, other than payments to the Underwriter and except as disclosed on
Schedule 2.19.2 attached hereto.
2.19.3 USE OF PROCEEDS. None of the net proceeds of the offering
will be paid by the Company to any participating NASD member or any affiliate or
associate of any participating NASD member, except as specifically authorized
herein.
2.19.4 INSIDERS' NASD AFFILIATION. No officer or director of the
Company or owner of any of the Company's unregistered securities has any direct
or indirect affiliation or association
9
with any NASD member. The Company will advise the Underwriter and the NASD if
any stockholder of the Company is or becomes an affiliate or associated person
of an NASD member participating in the offering.
2.20 FOREIGN CORRUPT PRACTICES ACT. Neither the Company nor any of its
officers, directors, employees, agents or any other person acting on behalf of
the Company 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 official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or any political party or
candidate for office (domestic or foreign) or other person who was, is, or may
be in a position to help or hinder the business of the Company (or assist it in
connection with any actual or proposed transaction) which (i) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation or proceeding, (ii) if not given in the past, might have had a
materially adverse effect on the assets, business or operations of the Company
as reflected in any of the financial statements contained in the Prospectus or
(iii) if not continued in the future, might adversely affect the assets,
business, operations or prospects of the Company. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
with the Foreign Corrupt Practices Act of 1977, as amended.
2.21 NASDAQ AND THE BOSTON STOCK EXCHANGE ELIGIBILITY. As of the
Effective Date, the Public Securities have been approved for quotation on the
Nasdaq SmallCap Market ("Nasdaq") and for listing on the Boston Stock Exchange
("BSE").
2.22 INTANGIBLES. The Company owns or possesses the requisite licenses
or rights to use all trademarks, service marks, service names, trade names,
patents and patent applications, copyrights and other rights (collectively,
"Intangibles") described as being licensed to or owned by it in the Registration
Statement. The Company's Intangibles which have been registered in the United
States Patent and Trademark Office have been fully maintained and are in full
force and effect. There is no claim or action by any person pertaining to, or
proceeding pending or threatened and the Company has not received any notice of
conflict with the asserted rights of others which challenges the exclusive right
of the Company with respect to any Intangibles used in the conduct of the
Company's business except as described in the Prospectus. The Intangibles and
the Company's current products, services and processes do not infringe on any
intangibles held by any third party. To the best of the Company's knowledge, no
others have infringed upon the Intangibles of the Company.
10
2.23 RELATIONS WITH EMPLOYEES.
2.23.1 EMPLOYEE MATTERS. The Company has generally enjoyed a
satisfactory employer-employee relationship with its employees and is in
compliance in all material respects with all federal, state and local laws and
regulations respecting the employment of its employees and employment practices,
terms and conditions of employment and wages and hours relating thereto. There
are no pending investigations involving the Company by the U.S. Department of
Labor, or any other governmental agency responsible for the enforcement of such
federal, state or local laws and regulations. There is no unfair labor practice
charge or complaint against the Company 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 question concerning representation
exists respecting the employees of the Company and no collective bargaining
agreement or modification thereof is currently being negotiated by the Company.
No grievance or arbitration proceeding is pending under any expired or existing
collective bargaining agreements of the Company, if any.
2.23.2 EMPLOYEE BENEFIT PLANS. Other than as set forth in the
Registration Statement, the Company neither maintains, sponsors nor contributes
to, nor is it required to contribute to, any program or arrangement that is an
"employee pension benefit plan," an "employee welfare benefit plan," or a,
"multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). The Company does not, and has at no time,
maintained or contributed to a defined benefit plan, as defined in Section 3(35)
of ERISA. If the Company does maintain or contribute to a defined benefit plan,
any termination of the plan on the date hereof would not give rise to liability
under Title IV of ERISA. 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 Internal Revenue Code of 1986, as amended ("Code"), which
could subject the Company to any tax penalty for 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. The Company has never completely
or partially withdrawn from a "multi-employer plan".
2.24 OFFICERS' CERTIFICATE. Any certificate signed by any duly
authorized officer of the Company and delivered to you or to your counsel shall
be deemed a representation and warranty by the Company to the Underwriter as to
the matters covered thereby.
2.25 WARRANT AGREEMENT. The Company has entered into a warrant
agreement with respect to the Warrants and the Underwriter's Warrants
substantially in the form filed as an exhibit to the Registration Statement
("Warrant Agreement") with Continental Stock Transfer & Trust Company, in form
and substance satisfactory to the Underwriter, providing for among other things,
11
no redemption of the Warrants without the prior written consent of the
Underwriter and for the payment of a warrant solicitation fee, if applicable, as
contemplated by Section 3.9 hereof.
2.26 AGREEMENTS WITH INSIDERS.
2.26.1 LOCK-UP AGREEMENTS. The Company has caused to be duly
executed a legally binding and enforceable agreement pursuant to which all of
the officers, directors and shareholders of the Company on the date hereof
(including their family members and affiliates) and persons (including their
family members and affiliates), or by any option holder who would have the
ability to sell the share underlying his option under Rule 701 under the Act
(collectively, "Insiders", agree not to sell any shares of Common Stock owned by
them (either pursuant to Rule 144 of the Regulations or otherwise) for a period
of 24 months following the Effective Date except with the prior written consent
of the Underwriter and, if required by applicable state blue sky laws, the
securities commissions in any such states.
2.26.2 EMPLOYMENT AGREEMENTS. The Company has entered into an
Employment Agreement with each of ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ in
substantially the same form as set forth in an exhibit to the Registration
Statement, for a term ending on December ___, 1998 and ending on October ___,
1999, respectively.
2.26.3 UNDERWRITER'S PURCHASE OPTION. The Company has executed
and delivered the Underwriter's Purchase Option to the Underwriter substantially
in the form filed as an exhibit to the Registration Statement.
2.27 SUBSIDIARIES. The representations and warranties made by the
Company in this Agreement shall, in the event that the Company has one or more
subsidiaries (a "subsidiary(ies)"), also apply and be true with respect to each
subsidiary, individually and taken as a whole with the Company and all other
subsidiaries, as if each representation and warranty contained herein made
specific reference to the subsidiary each time the term "Company" was used.
2.28 UNAUDITED FINANCIALS. The Company has furnished to the Underwriter
prior to the date hereof a copy of the latest available unaudited interim
financial statements ("Unaudited Financials") of the Company (which in no event
shall be as of a date more than thirty days prior to the Effective Date) which
have been read by the Company's independent accountants, as stated in their
letter to be furnished pursuant to Section 4.3 hereof.
3. COVENANTS OF THE COMPANY. The Company covenants and agrees as follows:
3.1 AMENDMENTS TO REGISTRATION STATEMENT. The Company will deliver to
the Underwriter, prior to filing, any amendment or supplement to the
Registration Statement or Prospectus proposed to be filed after the Effective
Date and not file any such amendment or supplement to which the Underwriter
shall reasonably object.
3.2 FEDERAL SECURITIES LAWS.
12
3.2.1 COMPLIANCE. During the time when a Prospectus is required
to be delivered under the Act and for at least 270 days from the Effective Date
the Company will use all reasonable efforts to comply with all requirements
imposed upon it by the Act, the Regulations and the Exchange Act and by the
regulations under the Exchange Act, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the Public
Securities and the Bridge Warrants (as defined in the Prospectus) in accordance
with the provisions hereof, the Prospectus and the Subscription Agreement
between the Company and each investor in the Bridge Financing which requires the
Company to keep the Registration Statement effective for a period of 270 days
from the Effective Date. If at any time when a Prospectus relating to the
Public Securities and the Bridge Warrants (as defined in the Prospectus) is
required to be delivered under the Act and, in any event, for a period of 270
days from the Effective Date, any event shall have occurred as a result of
which, in the opinion of counsel for the Company or counsel for the Underwriter,
the Prospectus, as then amended or supplemented, includes an 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 under which they were made, not misleading, or if it is necessary
at any time to amend the Prospectus to comply with the Act, the Company will
notify the Underwriter promptly and prepare and file with the Commission,
subject to Section 3.1 hereof, an appropriate amendment or supplement in
accordance with Section 10 of the Act.
3.2.2 FILING OF FINAL PROSPECTUS. The Company will file the
Prospectus (in form and substance satisfactory to the Underwriter) with the
Commission pursuant to the requirements of Rule 424 of the Regulations.
3.2.3 EXCHANGE ACT REGISTRATION. For a period of five years
from the Effective Date, the Company will use its best efforts to maintain the
registration of the Common Stock and Warrants under the provisions of the
Exchange Act.
3.3 BLUE SKY FILING. The Company will endeavor in good faith, in
cooperation with the Underwriter, at or prior to the time the Registration
Statement becomes effective, to qualify the Public Securities and the Bridge
Warrants (as defined in the Prospectus) for offering and sale under the
securities laws of such jurisdictions as the Underwriter may reasonably
designate, provided that no such qualification shall be required in any
jurisdiction where, as a result thereof, the Company would be subject to service
of general process or to taxation as a foreign corporation doing business in
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 be required by the
laws of such jurisdiction.
3.4 DELIVERY TO THE UNDERWRITER OF PROSPECTUSES. The Company will
deliver to the Underwriter, without charge, from time to time during the period
when the Prospectus is required to be delivered under the Act and, in any event,
for at least 270 days from the Effective Date, or the Exchange Act such number
of copies of each Preliminary Prospectus and the Prospectus as the Underwriter
may reasonably request and, as soon as the Registration Statement or any
amendment or supplement thereto becomes effective, deliver to you two original
executed Registration Statements, including exhibits, and all post-effective
amendments thereto and copies
13
of all exhibits filed therewith or incorporated therein by reference and all
original executed consents of certified experts.
3.5 EVENTS REQUIRING NOTICE TO THE UNDERWRITER. The Company will
notify the Underwriter immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment thereto, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding for that purpose, (iii) of the issuance by any
state securities commission of any proceedings for the suspension of the
qualification of the Public Securities for offering or sale in any jurisdiction
or of the initiation, or the threatening, of any proceeding for that purpose,
(iv) of the mailing and delivery to the Commission for filing of any amendment
or supplement to the Registration Statement or Prospectus, (v) of the receipt of
any comments or request for any additional information from the Commission, and
(vi) of the happening of any event during the period described in Section 3.4
hereof which, in the judgment of the Company, makes any statement of a material
fact made in the Registration Statement or the Prospectus untrue or which
requires the making of any changes in the Registration Statement or the
Prospectus in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If the Commission or
any state securities commission shall enter a stop order or suspend such
qualification at any time, the Company will make every reasonable effort to
obtain promptly the lifting of such order.
3.6 REVIEW OF FINANCIAL STATEMENTS. For a period of five years from
the Effective Date, the Company, at its expense, shall cause its regularly
engaged independent certified public accountants to review (but not audit) the
Company's financial statements for each of the first three fiscal quarters prior
to the announcement of quarterly financial information, the filing of the
Company's Form 10-Q quarterly report and the mailing of quarterly financial
information to stockholders.
3.7 SECONDARY MARKET TRADING AND STANDARD & POOR'S. The Company will
take all necessary and appropriate actions to achieve accelerated publication in
Standard and Poor's Corporation Records Corporate Descriptions (within 30 days
after the Effective Date) and to maintain such publication with updated
quarterly information for a period of five years from the Effective Date,
including the payment of any necessary fees and expenses. The Company shall
take such action as may be reasonably requested by the Underwriter to obtain a
secondary market trading exemption in such States as may be requested by the
Underwriter, including the payment of any necessary fees and expenses and the
filing of a Form (e.g. 25101(b)) for secondary market trading in the State of
California on the Effective Date.
3.8 NASDAQ MAINTENANCE. For a period of five years from the date
hereof, the Company will use its best efforts to maintain the quotation by
Nasdaq SmallCap Market and the listing by the BSE of the Common Stock, and, if
outstanding, the Warrants and, if the Company satisfies the inclusion standards
of the Nasdaq National Market, to apply for and maintain quotations by the
Nasdaq National Market of such securities during such period.
3.9 WARRANT SOLICITATION AND REGISTRATION OF COMMON STOCK UNDERLYING
THE WARRANTS.
14
3.9.1 WARRANT SOLICITATION FEES. The Company hereby engages the
Underwriter, on a non-exclusive basis, as its agent for the solicitation of the
exercise of the Warrants. The Underwriter hereby accepts such engagement to
solicit the exercise of the Warrants at such times, and from time to time, that
the Company and the Underwriter may deem appropriate. The Company, at its cost,
will (i) assist the Underwriter with respect to such solicitation, if requested
by the Underwriter and will (ii) provide the Underwriter, and direct the
Company's transfer and warrant agent to provide to the Underwriter, lists of the
record and, to the extent known, beneficial owners of the Company's Warrants.
Commencing one year from the Effective Date, the Company will pay to the
Underwriter a commission of five percent of the Warrant exercise price for each
Warrant exercised, payable on the date of such exercise, on the terms provided
for in the Warrant Agreement, if allowed under the rules and regulations of the
NASD and only if the Underwriter has provided bona fide services in connection
with the exercise of Warrants. In addition to soliciting either orally or in
writing, the exercise of Warrants, such services may also include disseminating
information, either orally or in writing to Warrantholders about the Company or
the market for the Company's securities, and the assisting in the processing of
Warrants. The Underwriter may engage sub-agents in its solicitation efforts.
The Company will disclose the arrangement to pay such solicitation fees to the
Underwriter in any prospectus used by the Company in connection with the
registration of the shares of Common Stock underlying the Warrants.
3.9.2 REGISTRATION OF COMMON STOCK. The Company agrees that
prior to the date that the Warrants become exercisable, it shall file with the
Commission a post-effective amendment to the Registration Statement, if possible
or a new registration statement, for the registration, under the Act, of the
Common Stock issuable upon exercise of the Warrants. In either case, the
Company shall cause the same to become effective at or prior to the date that
the Warrants become exercisable, and to maintain the effectiveness of such
registration statement and keep current a prospectus thereunder until the
expiration of the Warrants in accordance with the provisions of the Warrant
Agreement.
3.10 REPORTS TO THE UNDERWRITER.
3.10.1 PERIODIC REPORTS, ETC. For a period of five years from
the Effective Date, the Company will promptly furnish to the Underwriter and its
counsel copies of such financial statements and other periodic and special
reports as the Company from time to time files with any governmental authority
or furnishes generally to holders of any class of its securities, and promptly
furnish to the Underwriter and its counsel (i) a copy of each periodic report
the Company shall be required to file with the Commission, (ii) a copy of every
press release and every news item and article with respect to the Company or its
affairs which was released by the Company, (iii) copies of each Form SR, (iv) a
copy of each Form 8-K or Schedules 13D, 13G, 14D-1 or 13E-4 received or prepared
by the Company, (v) a copy of monthly statements setting forth such information
regarding the Company's results of operations and financial position (including
balance sheet, profit and loss statements and data regarding outstanding
purchase orders) as is regularly prepared by management of the Company, and (vi)
such additional documents and information with respect to the Company and the
affairs of any future subsidiaries of the Company as the Underwriter may from
time to time reasonably request.
15
3.10.2 TRANSFER SHEETS AND WEEKLY POSITION LISTINGS. For a
period of five years from the Closing Date, the Company will furnish to the
Underwriter at the Company's sole expense such transfer sheets and position
listings of the Company's securities as the Underwriter may request, including
the daily, weekly and monthly consolidated transfer sheets of the transfer agent
of the Company and the weekly position listings of the Depository Trust Company.
3.10.3 SECONDARY MARKET TRADING MEMORANDUM. Until such time as
the Public Securities are listed or quoted, as the case may be, on one of the
following: the New York Stock Exchange, the American Stock Exchange or Nasdaq
National Market, the Company shall cause the Underwriter's legal counsel to
update and deliver to the Underwriter a written memorandum detailing those
states in which Public Securities may be traded in non-issuer transactions under
the Blue Sky laws of the fifty states ("Secondary Market Trading Memorandum")
and to update such memorandum and deliver same to the Underwriter on a timely
basis, but in any event on the Effective Date, and on the first day of every
calendar quarter thereafter. The Company shall pay to the Underwriter's legal
counsel a one-time fee of $5,000 for such services at the Closing.
3.11 [Reserved.]
3.12 DISQUALIFICATION OF FORM S-1 (OR OTHER APPROPRIATE FORM). For a
period equal to seven years from the date hereof, the Company will not take any
action or actions which may prevent or disqualify the Company's use of Form S-1
(or other appropriate form) for the registration of the Warrants and the
Underwriter's Warrants and the securities issuable upon exercise of those
securities under the Act.
3.13 PAYMENT OF EXPENSES.
3.13.1 GENERAL EXPENSES. The Company hereby agrees to pay on
each of the Closing Date and the Option Closing Date, if any, to the extent not
paid at Closing Date, all expenses incident to the performance of the
obligations of the Company under this Agreement, including but not limited to
(i) the preparation, printing, filing, delivery and mailing (including the
payment of postage with respect to such mailing) of the Registration Statement,
the Prospectus and the Preliminary Prospectuses and the printing and mailing of
this Agreement and related documents, including the cost of all copies thereof
and any amendments thereof or supplements thereto supplied to the Underwriter in
quantities as may be required by the Underwriter, (ii) the printing, engraving,
issuance and delivery of the shares of Common Stock, the Warrants and the
Underwriter's Purchase Option, including any transfer or other taxes payable
thereon, (iii) the qualification of the Public Securities under state or foreign
securities or Blue Sky laws, including the filing fees under such Blue Sky laws,
the costs of printing and mailing the "Preliminary Blue Sky Memorandum," and all
amendments and supplements thereto, fees up to an aggregate of $35,000 and
disbursements of the Underwriter's counsel, and fees and disbursements of local
counsel, if any, retained for such purpose, and a one-time fee of $5,000 payable
to the Underwriter's counsel for the preparation of the Secondary Market Trading
Memorandum, (v) costs associated with applications for assignments of a rating
of the Public Securities by qualified rating agencies, (v) filing fees, costs
and expenses (including fees and disbursements for the Underwriter's counsel)
incurred in registering the offering with the NASD, (vi) costs of placing
"tombstone" advertisements in THE WALL STREET JOURNAL, THE NEW YORK TIMES and
▇▇▇▇▇▇'▇ and a third publication which may
16
be selected by the Underwriter, (vii) fees and disbursements of the transfer and
warrant agent, (viii) the reasonable costs associated with holding "due
diligence" meetings arranged by the Underwriter; (ix) the preparation, binding
and delivery of five sets of transaction "bibles," in form and style
satisfactory to the Underwriter and transaction lucite cubes or similar
commemorative items in a style and quantity as reasonably requested by the
Underwriter, (x) any listing of the Public Securities on Nasdaq SmallCap or
Nasdaq National Market, as the case may be, and any securities exchange or any
listing in Standard & Poor's, and (xi) all other costs and expenses incident to
the performance of its obligations hereunder which are not otherwise
specifically provided for in this Section 3.15.1. Since an important part of
the public offering process is for the Company to appropriately and accurately
describe both the background of the principals of the Company and the Company's
competitive position in its industry, the Company has engaged and will pay for
an investigative search firm of the Underwriter's choice to conduct an
investigation of principals of the Company mutually selected by the Underwriter
and the Company the fees of which shall not exceed $15,000. The Underwriter may
deduct from the net proceeds of the offering payable to the Company on the
Closing Date, or the Option Closing Date, if any, the expenses set forth herein
to be paid by the Company to the Underwriter and/or to third parties.
3.13.2 NON-ACCOUNTABLE EXPENSES. The Company further agrees
that, in addition to the expenses payable pursuant to Section 3.15.1, it will
pay to the Underwriter a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds received by the Company from the sale of the
Public Securities, of which $50,000 has been paid to date, and the Company will
pay the balance on the Closing Date and any additional monies owed attributable
to the Option Securities or otherwise on the Option Closing Date by certified or
bank cashier's check or, at the election of the Underwriter, by deduction from
the proceeds of the offering contemplated herein. If the offering contemplated
by this Agreement is not consummated for any reason whatsoever then the
following provisions shall apply: The Company's liability for payment to the
Underwriter of the non-accountable expense allowance shall be equal to the sum
of the Underwriter's actual out-of-pocket expenses (including, but not limited
to, counsel fees, "road-show" and due diligence expenses). The Underwriter
shall retain such part of the non-accountable expense allowance previously paid
as shall equal such actual out-of-pocket expenses. If the amount previously
paid is insufficient to cover such actual out-of-pocket expenses, the Company
shall remain liable for and promptly pay any other actual out-of-pocket
expenses. If the amount previously paid exceeds the amount of actual
out-of-pocket expenses, the Underwriter shall promptly remit to the Company any
such excess.
3.14 APPLICATION OF NET PROCEEDS. The Company will apply the net
proceeds from the offering received by it in a manner consistent with the
application described under the caption "USE OF PROCEEDS" in the Prospectus.
The Company hereby agrees that, without the express prior written consent of the
Underwriter, the Company will not apply any net proceeds from the offering to
pay (i) any debt for borrowed funds, (ii) any debt or obligation owed to any
Insider.
3.15 DELIVERY OF EARNINGS STATEMENTS TO SECURITY HOLDERS. The Company
will make generally available to its security holders as soon as practicable,
but not later than the first day of the fifteenth full calendar month following
the Effective Date, an earnings statement (which need not be certified by
independent public or independent certified public accountants unless required
by the Act or the Regulations, but which shall satisfy the provisions of Rule
158(a) under Section
17
11(a) of the Act) covering a period of at least twelve consecutive months
beginning after the Effective Date.
3.16 KEY PERSON LIFE INSURANCE. The Company will maintain key person
life insurance in an amount no less than $1 million on the life of ▇▇▇▇▇▇▇
▇▇▇▇▇▇ and pay the annual premium naming the Company as the sole beneficiary
thereof for at least three years following the Effective Date.
3.17 STABILIZATION. Neither the Company, nor, to its knowledge, any of
its employees, directors or stockholders has taken or will take, directly or
indirectly, any action designed to or which has constituted or which might
reasonably be expected to cause or result in, under the Exchange Act, or
otherwise, stabilization or manipulation of the price of any security of the
Company to facilitate the sale or resale of the Public Securities.
3.18 INTERNAL CONTROLS. The Company maintains and will continue to
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that: (i) transactions are executed in accordance with
management's general or specific authorization, (ii) transactions are recorded
as necessary in order to permit preparation of financial statements in
accordance with generally accepted accounting principles and to maintain
accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
3.19 [Reserved.]
3.20 TRANSFER AGENT. For a period of five years from the Effective
Date, the Company shall retain a transfer agent for the Common Stock and
Warrants acceptable to the Underwriter. Continental Stock Transfer & Trust
Company is acceptable to the Company.
3.21 SALE OF SECURITIES. The Company agrees not to permit or cause a
private or public sale or private or public offering of any of its securities
(in any manner, including pursuant to Rule 144 under the Act) owned nominally or
beneficially by the Insiders for a period of 24 months following the Effective
Date without obtaining the prior written consent of the Underwriter.
3.22 EXERCISE PRICE OF OPTIONS/WARRANTS. The Company will not grant any
option pursuant to the Company's 1994 Stock Option Plan at an exercise price
less than the greater of $5.00 per share or the fair market value of the Common
Stock on the date of the grant.
4. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of the
Underwriter to purchase and pay for the Securities, as provided herein, shall be
subject to the continuing accuracy of the representations and warranties of the
Company as of the date hereof and as of each of the Closing Date and the Option
Closing Date, if any, to the accuracy of the statements of officers of the
Company made pursuant to the provisions hereof and to the performance by the
Company of its obligations hereunder and to the following conditions:
18
4.1 REGULATORY MATTERS.
4.1.1 EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration
Statement has been declared effective on the date of this Agreement and, at each
of the Closing Date and the Option Closing Date, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for the purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Underwriter.
4.1.2 NASD CLEARANCE. By the Effective Date, the Underwriter
shall have received clearance from the NASD as to the amount of compensation
allowable or payable to the Underwriter as described in the Registration
Statement.
4.1.3 NO BLUE SKY STOP ORDERS. No order suspending the sale of
the Securities in any jurisdiction designated by you pursuant to Section 3.3
hereof shall have been issued on either on the Closing Date or the Option
Closing Date, and no proceedings for that purpose shall have been instituted or
shall be contemplated.
4.2 COMPANY COUNSEL MATTERS.
4.2.1 CLOSING DATE OPINION OF COUNSEL. On the Closing Date, the
Underwriter shall have received the favorable opinion of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome &
▇▇▇▇▇▇▇▇▇▇, L.L.P., counsel to the Company, dated the Closing Date, addressed to
the Underwriter and in form and substance satisfactory to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ &
▇▇▇▇▇▇, counsel to the Underwriter, to the effect that:
(i) The Company has been duly organized and is validly
existing as a corporation and is in good standing under the laws of its state of
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which it owns or leases any
real property or the character of its operations requires such qualification or
licensing, except where the failure to qualify would not have a material adverse
effect on the Company.
(ii) The Company has all requisite corporate power and
authority, and has all necessary authorizations, approvals, orders, licenses,
certificates and permits of and from all governmental or regulatory officials
and bodies to own or lease its properties and conduct its business as described
in the Prospectus, and the Company is and has been doing business in compliance
with all such authorizations, approvals, orders, licenses, certificates and
permits and all federal, state and local laws, rules and regulations. The
Company has all corporate power and authority to enter into this Agreement and
to carry out the provisions and conditions hereof, and all consents,
authorizations, approvals and orders required in connection therewith have been
obtained. No consents, approvals, authorizations or orders of, and no filing
with any court or governmental agency or body (other than such as may be
required under the Act and applicable Blue Sky laws), is required for the valid
authorization, issuance, sale and delivery of the Securities, and the
consummation of the transactions and agreements contemplated by this Agreement,
the Warrant Agreement, the Warrants, the Employment Agreements with ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇
19
▇▇▇▇▇▇, the Underwriter's Purchase Option, and as contemplated by the Prospectus
or if so required, all such authorizations, approvals, consents, orders,
registrations, licenses and permits have been duly obtained and are in full
force and effect and have been disclosed to the Underwriter.
(iii) All issued and outstanding securities of the Company
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 statutory
preemptive rights of any holders of any security of the Company or, to the best
of such counsel's knowledge, similar contractual rights granted by the Company.
The outstanding options and warrants to purchase shares of Common Stock
constitute the valid and binding obligations of the Company, enforceable in
accordance with their terms. The offers and sales of the outstanding Common
Stock and options and warrants to purchase shares of Common Stock were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky Laws or exempt from such registration requirements. The
authorized and outstanding capital stock of the Company is as set forth under
the caption "Capitalization" in the Prospectus.
(iv) The Securities have been duly authorized and, when
issued and paid for, will be validly issued, fully paid and non-assessable; the
holders thereof are not and will not be subject to personal liability by reason
of being such holders. The Securities are not and will not be subject to the
preemptive rights of any holders of any security of the Company or, to the best
of such counsel's knowledge after due inquiry, similar contractual rights
granted by the Company. All corporate action required to be taken for the
authorization, issuance and sale of the Securities has been duly and validly
taken. When issued, the Underwriter's Purchase Option, the Underwriter's
Warrants and the Warrants will 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 and such
Warrants, the Underwriter's Purchase Option, and the Underwriter's Warrants,
when issued, in each case, will be enforceable against the Company in accordance
with their respective terms, except (a) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (b) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (c) that the remedy of
specific performance and injunctive and other forms of equitable relief may be
subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought. The certificates representing the
Securities are in due and proper form.
(v) To the best of such counsel's knowledge, after due
inquiry, except as set forth in the Prospectus, no holders of any securities of
the Company or of any options, warrants or securities of the Company exercisable
for or convertible or exchangeable into securities of the Company have the right
to require the Company to register any such securities of the Company under the
Act or to include any such securities in a registration statement to be filed by
the Company.
20
(vi) To the best of such counsel's knowledge, after due
inquiry, the shares of Common Stock and the Warrants are eligible for quotation
on Nasdaq SmallCap Market and have been approved for listing on the BSE.
(vii) This Agreement, the Underwriter's Purchase Option, the
Warrants and the Warrant Agreement, have each been duly and validly authorized
and, when executed and delivered by the Company, will constitute valid and
binding obligations of the Company, enforceable against the Company in
accordance with their respective terms, except (a) as such enforceability may be
limited by bankruptcy, insolvency, reorganization or similar laws affecting
creditors' rights generally, (b) as enforceability of any indemnification
provisions may be limited under the federal and state securities laws, and (c)
that the remedy of specific performance and injunctive and other forms of
equitable relief may be subject to the equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
(viii) The execution, delivery and performance by the Company
of this Agreement, the Underwriter's Purchase Option, the Warrants and the
Warrant Agreement, the issuance and sale of the Securities, the consummation of
the transactions contemplated hereby and thereby and the compliance by the
Company with the terms and provisions hereof and thereof, do not and will not,
with or without the giving of notice or the lapse of time, or both, (a) conflict
with, or result in a breach of, any of the terms or provisions of, or constitute
a default under, or result in the creation or modification of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company pursuant to the terms of, any material mortgage, deed of trust, note,
indenture, loan, contract, commitment or other material agreement or instrument,
to which the Company is a party or by which the Company or any of its properties
or assets may be bound, (b) result in any violation of the provisions of the
Certificate of Incorporation or the By-Laws of the Company, (c) violate any
statute or any judgment, order or decree, rule or regulation applicable to the
Company of any court, domestic or foreign, or of any federal, state or other
regulatory authority or other governmental body having jurisdiction over the
Company, its properties or assets, or (d) have a material effect on any permit,
certification, registration, approval, consent, license or franchise of the
Company.
(ix) The Registration Statement, each Preliminary Prospectus
and the Prospectus and any post-effective amendments or supplements thereto
(other than the financial statements 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 Regulations. The Securities and all other
securities issued or issuable by the Company conform in all respects to the
description thereof contained in the Registration Statement and the Prospectus.
The statements in the Prospectus under "Business," "Management," "Certain
Transactions," "Risk Factors," Principal Stockholders," "Selling Security
Holders," "Description of Securities" and "Shares Eligible for Future Sale,"
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. No statute or regulation or
legal or governmental proceeding required to be described in the Prospectus is
not described as required, nor are any contracts or documents of a character
required to be described in the Registration Statement or the Prospectus or to
be filed as exhibits to the Registration Statement not so described or filed as
required.
21
(x) Counsel has participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants for the Company and representatives of the Underwriter at which the
contents of the Registration Statement, the Prospectus and related matters were
discussed 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 Registration Statement and Prospectus (except as otherwise set
forth in this opinion), no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or the
Prospectus nor any amendment or supplement thereto, 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 under 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 Registration Statement or Prospectus).
(xi) The Registration Statement is effective under the Act,
and, to the best of such counsel's knowledge, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened under the Act
or applicable state securities laws.
(xii) To the best of such counsel's knowledge, the Company has
good and marketable title to, or valid and enforceable leasehold estates in, all
items of real and personal property (tangible and intangible) stated in the
Prospectus to be owned or leased by it, free and clear of all liens,
encumbrances, claims, security interests, defects and restrictions of any
material nature whatsoever, other than those referred to in the Prospectus and
liens for taxes not yet due and payable.
(xiii) To the best of such counsel's knowledge, no default
exists in the due performance and observance of any term, covenant or condition
of any license, contract, indenture, mortgage, deed of trust, note, loan or
credit agreement, or any other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
properties or assets of the Company is subject, except for such defaults which,
singly or in the aggregate, would not have a material adverse effect on the
Company. To the best of such counsel's knowledge, the Company is not in
violation of any term or provision of its Certificate of Incorporation or
By-Laws or of any franchise, license, permit, or of any applicable law, rule or
regulation, or of any judgment or decree of any governmental agency or court,
domestic or foreign, having jurisdiction over the Company or any of its
properties or business, except for such violations which, singly or in the
aggregate, would not have a material adverse effect on the Company.
(xiv) To the best of such counsel's knowledge after due
inquiry, the Company owns or possesses, free and clear of all liens or
encumbrances and rights thereto or therein by third parties, other than as
described in the Prospectus, the requisite licenses or other rights to use all
Intangibles and other rights necessary to conduct its business (including,
without limitation, any such licenses or rights described in the Prospectus as
being licensed to, owned or possessed by the Company), and there is no claim or
action by any person pertaining to, or proceeding, pending or to the best of
such counsel's knowledge after due inquiry threatened, which challenges the
exclusive rights of the Company with respect to any Intangibles used in the
conduct of the its
22
business (including without limitation any such licenses or rights described in
the Prospectus as being owned or possessed by the Company); to the best of such
counsel's knowledge after due inquiry, the Company's current products, services
and processes do not infringe on any Intangibles held by third parties except as
discussed in the Prospectus; and the Company's Intangibles which have been
registered in the United States Patent and Trademark Office have been fully
maintained and are in full force and effect.
(xv) To the best of such counsel's knowledge, after due
inquiry, except as described in the Prospectus, the Company does not own an
interest in any corporation, partnership, joint venture, trust or other business
entity.
(xvi) To the best of such counsel's knowledge, after due
inquiry except as set forth in the Prospectus, there is no action, suit or
proceeding before or by any court of governmental agency or body, domestic or
foreign, now pending, or threatened against the Company, which might result in
any material and adverse change in the condition (financial or otherwise),
business or prospects of the Company, or might materially and adversely affect
the properties or assets thereof.
Unless the context clearly indicates otherwise, the term
"Company" as used in this Section 4.2.1 shall include each subsidiary of the
Company. The opinion of counsel for the Company and any opinion relied upon by
such counsel for the Company shall include a statement to the effect that it may
be relied upon by counsel for the Underwriter in its opinion delivered to the
Underwriter.
4.2.2 OPTION CLOSING DATE OPINION OF COUNSEL. On the Option
Closing Date, if any, the Underwriter shall have received the favorable opinion
of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome & ▇▇▇▇▇▇▇▇▇▇, L.L.P., counsel to the Company, dated
the Option Closing Date, addressed to the Underwriter and in form and substance
satisfactory to ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel to the Underwriter, confirming
as of the Option Closing Date, the statements made by ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome &
▇▇▇▇▇▇▇▇▇▇, L.L.P. in their opinion delivered on the Effective Date.
4.2.3 RELIANCE. In rendering such opinion, such counsel may
rely (i) 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 reasonably satisfactory
to Underwriter's counsel) of other counsel reasonably acceptable to
Underwriter's counsel, familiar with the applicable laws, and (ii) as to matters
of fact, to the extent they deem proper, on certificates or other written
statements of officers of departments of various jurisdiction having custody of
documents respecting the corporate existence or good standing of the Company,
provided that copies of any such statements or certificates shall be delivered
to Underwriter's counsel if requested. The opinion of counsel for the Company
shall include a statement to the effect that it may be relied upon by counsel
for the Underwriter in its opinion delivered to the Underwriter.
4.2.4 SECONDARY MARKET TRADING MEMORANDUM. On the Effective
Date the Underwriter shall have received the written Secondary Market Trading
Memorandum.
23
4.3 COLD COMFORT LETTER. At the time this Agreement is executed, and at
each of the Closing Date and the Option Closing Date, if any, you shall have
received a letter, 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 you and to ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ & ▇▇▇▇▇▇, counsel for the Underwriter, from KPMG Peat Marwick LLP dated,
respectively, as of the date of this Agreement and as of the Closing Date and
the Option Closing Date, if any:
(i) Confirming that they are independent accountants with respect
to the Company within the meaning of the Act and the applicable Regulations;
(ii) Stating that in their opinion the financial statements of the
Company included in the Registration Statement and Prospectus comply as to form
in all material respects with the applicable accounting requirements of the Act
and the published Regulations thereunder;
(iii) Stating that, based on the performance of procedures
specified by the American Institute of Certified Public Accountants for a review
of the latest available unaudited interim financial statements of the Company
(as described in SAS No.71 Interim Financial Information), with an indication of
the date of the latest available unaudited interim financial statements, a
reading of the latest available minutes of the stockholders and board of
directors and the various committees of the board of directors, consultations
with officers and other employees of the Company 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
financial statements 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 Regulations or any material modification should
be made to the unaudited interim financial statements included in the
Registration Statement for them to be in conformity with generally accepted
accounting principles applied on a basis substantially consistent with that of
the audited financial statements of the Company included in the Registration
Statement, (b) at a date not later than five days prior to the Effective Date,
Closing Date or Option Closing Date, as the case may be, there was any change in
the capital stock or long-term debt of the Company, or any decrease in the
stockholders' equity of the Company as compared with amounts shown in the July
31, 1996 balance sheet included in the Registration Statement, other than as set
forth in or contemplated by the Registration Statement, or, if there was any
decrease, setting forth the amount of such decrease, and (c) during the period
from August 1, 1996 to a specified date not later than five days prior to the
Effective Date, Closing Date or Option Closing Date, as the case may be, there
was any decrease in revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period in the preceding
year and as compared with the corresponding period in the preceding quarter,
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 days prior to the
Effective Date, the amount of liabilities of the Company (including a break-down
of commercial papers and notes payable to banks);
24
(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 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, and work sheets,
of the Company with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(vi) Stating that they have not during the immediately preceding
five year period brought to the attention of the Company's management any
reportable condition related to internal structure, design or operation as
defined in the Statement on Auditing Standards No. 60 -- "Communication of
Internal Control Structure Related Matters Noted in an Audit," in the Company's
internal controls; and
(vii) Statements as to such other matters incident to the
transaction contemplated hereby as you may reasonably request.
4.4 OFFICERS' CERTIFICATES.
4.4.1 OFFICERS' CERTIFICATE. At each of the Closing Date and
the Option Closing Date, if any, the Underwriter shall have received a
certificate of the Company signed by the Chairman of the Board or the President
and the Secretary of the Company, dated the Closing Date or the Option Closing
Date, as the case may be, respectively, to the effect that the Company has
performed all covenants and complied with all conditions required by this
Agreement to be performed or complied with by the Company prior to and as of the
Closing Date, or the Option Closing Date, as the case may be, and that the
conditions set forth in Section 4.5 hereof have been satisfied as of such date
and that, as of Closing Date and the Option Closing Date, as the case may be,
the representations and warranties of the Company set forth in Section 2 hereof
are true and correct. In addition, the Underwriter will have received such
other and further certificates of officers of the Company as the Underwriter may
reasonably request, including but not limited to a certificate confirming the
responses to state examiners made in connection with the state blue sky filings.
4.4.2 SECRETARY'S CERTIFICATE. At each of the Closing Date and
the Option Closing Date, if any, the Underwriter shall have received a
certificate of the Company signed by the Secretary of the Company, dated the
Closing Date or the Option Date, as the case may be, respectively, certifying
(i) that the By-Laws and Certificate of Incorporation, as amended, of the
Company are true and complete, have not been modified and are in full force and
effect, (ii) that the resolutions relating to the public offering contemplated
by this Agreement are in full force and effect and have not been modified, (iii)
all correspondence between the Company or its counsel and the Commission, (iv)
all correspondence between the Company or its counsel and the NASD concerning
inclusion on Nasdaq, (v) all correspondence between the Company or its counsel
and the BSE concerning listing on the BSE, and (vi) as to the incumbency of the
officers of the Company. The documents referred to in such certificate shall be
attached to such certificate.
25
4.5 NO MATERIAL CHANGES. Prior to and on each of the Closing Date and the
Option Closing Date, if any, (i) there shall have been no material adverse
change or development involving a prospective material change in the condition
or prospects or the business activities, financial or otherwise, of the Company
from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus, (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and Prospectus which is materially adverse
to the Company, taken as a whole, (iii) the Company shall not be in default
under any provision of any instrument relating to any outstanding indebtedness
which default would have a material adverse effect on the Company, (iv) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus, (v)
no action suit or proceeding, at law or in equity, shall have been pending or
threatened against the Company or affecting any of its property or business
before or by any court or federal or state commission, board or other
administrative agency wherein an unfavorable decision, ruling or finding may
materially adversely affect the business, operations, prospects or financial
condition or income of the Company, except as set forth in the Registration
Statement and Prospectus, (vi) no stop order shall have been issued under the
Act and no proceedings therefor shall have been initiated or threatened by the
Commission, and (vii) the Registration Statement and the Prospectus and any
amendments or supplements thereto contain all material statements which are
required to be stated therein in accordance with the Act and the Regulations and
conform in all material respects to the requirements of the Act and the
Regulations, and neither the Registration Statement nor the Prospectus nor any
amendment or supplement thereto contains 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 under which they
were made, not misleading.
4.6 DELIVERY OF AGREEMENTS. The Company has delivered to the Underwriter
an executed copy of the Underwriter's Purchase Option.
4.7 OPINION OF COUNSEL FOR THE UNDERWRITER. All proceedings taken in
connection with the authorization, issuance or sale of the Securities as herein
contemplated shall be reasonably satisfactory in form and substance to you and
to ▇▇▇▇▇▇▇▇ Mollen & ▇▇▇▇▇▇, counsel to the Underwriter, and you shall have
received from such counsel a favorable opinion, dated the Closing Date and the
Option Closing Date, if any, with respect to such of these proceedings as you
may reasonably require. On or prior to the Effective Date, the Closing Date and
the Option Closing Date, as the case may be, counsel for the Underwriter shall
have been furnished 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 this Section 4.7, or in order to evidence the accuracy,
completeness or satisfaction of any of the representations, warranties or
conditions herein contained.
5. INDEMNIFICATION.
5.1 INDEMNIFICATION OF THE UNDERWRITER.
26
5.1.1 GENERAL. Subject to the conditions set forth below, the
Company agrees to indemnify and hold harmless the Underwriter, its directors,
officers, agents and employees 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, against any and all loss, liability,
claim, damage and expense whatsoever (including but not limited to any and all
legal or other expenses reasonably incurred in investigating, preparing or
defending against any litigation, commenced or threatened, whether arising out
of any action between the Underwriter and the Company or between the Underwriter
and any third-party or otherwise) to which they or any of them 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
any untrue statement or alleged untrue statement of a material fact contained in
(i) any Preliminary Prospectus, the Registration Statement or the Prospectus (as
from time to time each may be 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 Underwriter's Purchase Option; or (iii) any application or
other document or written communication (in this Section 5 collectively called
"application") executed by the Company or based upon written information
furnished by the Company 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, Nasdaq or any securities exchange; or the
omission or alleged omission therefrom of a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, unless such statement
or omission was made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to the Underwriter by or on
behalf of the Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment or supplement thereof, or
in any application, as the case may be. The Company agrees promptly to notify
the Underwriter of the commencement of any litigation or proceedings against the
Company or any of its officers, directors or controlling persons in connection
with the issue and sale of the Securities or in connection with the Registration
Statement or Prospectus.
5.1.2 PROCEDURE. If any action is brought against the
Underwriter or controlling person in respect of which indemnity may be sought
against the Company pursuant to Section 5.1.1, the Underwriter shall promptly
notify the Company in writing of the institution of such action and the Company
shall assume the defense of such action, including the employment and fees of
counsel (subject to the approval of the Underwriter) and payment of actual
expenses. The Underwriter or controlling person shall have the right to employ
its or their own counsel in any such case, but the fees and expenses of such
counsel shall be at the expense of the Underwriter or such controlling person
unless (i) the employment of such counsel shall have been authorized in writing
by the Company in connection with the defense of such action, or (ii) the
Company shall not have employed counsel to have charge of the defense of such
action, or (iii) such indemnified party or parties shall have reasonably
concluded that there may be defenses available to it or them which are different
from or additional to those available to the Company (in which case the Company
shall not have the right to direct the defense of such action on behalf of the
indemnified party or parties), in any of which events the fees and expenses of
not more than one additional firm of attorneys selected by the Underwriter
and/or controlling person shall be borne by the Company. Notwithstanding
anything to the contrary contained herein, if the Underwriter or controlling
person shall assume the defense of such action as provided above, the Company
shall have the right to
27
approve the terms of any settlement of such action which approval shall not be
unreasonably withheld.
5.2 INDEMNIFICATION OF THE COMPANY. The Underwriter agrees to indemnify
and hold harmless the Company against any and all loss, liability, claim, damage
and expense described in the foregoing indemnity from the Company to the
Underwriter, as incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions directly relating to the
transactions effected by the Underwriter in connection with this offering made
in any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or in any application in reliance upon, and in
strict 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 Prospectus or any
amendment or supplement thereto or in any such application. In case any action
shall be brought against the Company or any other person so indemnified based on
any Preliminary Prospectus, the Registration Statement or Prospectus or any
amendment or supplement thereto or any application, and in respect of which
indemnity may be sought against the Underwriter, the Underwriter shall have the
rights and duties given to the Company, and the Company and each other person so
indemnified shall have the rights and duties given to the Underwriter by the
provisions of Section 5.1.2.
5.3 CONTRIBUTION.
5.3.1 CONTRIBUTION RIGHTS. In order to provide for just and
equitable contribution under the Act in any case in which (i) any person
entitled to indemnification under this Section 5 makes claim for indemnification
pursuant hereto 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
this Section 5 provides for indemnification in such case, or (ii) contribution
under the Act, the Exchange Act or otherwise may be required on the part of any
such person in circumstances for which indemnification is provided under this
Section 5, then, and in each such case, the Company and the Underwriter shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by said indemnity agreement incurred by the Company and
the Underwriter, as incurred, in such proportions that the Underwriter is
responsible for that portion represented by the percentage that the underwriting
discount appearing on the cover page of the Prospectus bears to the initial
offering price appearing thereon and the Company is responsible for the balance;
provided, that, no person guilty of a fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation. Notwithstanding
the provisions of this Section 5.3, the Underwriter shall not be required to
contribute any amount in excess of the amount by which the total price at which
the Public Securities underwritten by it and distributed to the public were
offered to the public exceeds the amount of any damages which the Underwriter
has otherwise been required to pay in respect of such losses, liabilities,
claims, damages and expenses. For purposes of this Section, each director,
officer and employee of the Underwriter, and each person, if any, who controls
the Underwriter within the meaning of Section 15 of the Act shall have the same
rights to contribution as the Underwriter.
28
5.3.2 CONTRIBUTION PROCEDURE. Within fifteen days after receipt
by any party to this Agreement (or its representative) of notice of the
commencement of any action, suit or proceeding, such party will, if a claim for
contribution in respect thereof is to be made against another party
("contributing party"), notify the contributing party of the commencement
thereof, but the omission to so notify the contributing party will not relieve
it from any liability which it may have to any other party other than for
contribution hereunder. In case any such action, suit or proceeding is brought
against any party, and such party notifies a contributing party or its
representative of the commencement thereof within the aforesaid fifteen days,
the contributing party will be entitled to participate therein with the
notifying party and any other contributing party similarly notified. Any such
contributing party shall not be liable to any party seeking contribution on
account of any settlement of any claim, action or proceeding effected by such
party seeking contribution on account of any settlement of any claim, action or
proceeding which was effected by such party without the written consent of such
contributing party. The contribution provisions contained in this Section are
intended to supersede, to the extent permitted by law, any right to contribution
under the Act, the Exchange Act or otherwise available.
6.
6.0.1 OUTSTANDING WARRANTS ONLY. The Company understands that
the redemption rights provided for by this Section 6 apply only to outstanding
Warrants. To the extent a person holds rights to purchase Warrants, such
purchase rights shall not be extinguished by redemption. However, once such
purchase rights are exercised, the Company may redeem the Warrants issued upon
such exercise provided that the criteria for redemption is met. The provisions
of this Section 6.4 may not be modified, amended or deleted without the prior
written consent of the Underwriter.
7. ADDITIONAL COVENANTS.
7.1 BOARD DESIGNEE. For a period of three (3) years from the Effective
Date, the Underwriter shall have the right to designate a person to serve on the
Company's Board of Directors, such person to be subject to the Company's
approval, which shall not be unreasonably withheld. The Company will appoint
such designee to the Board promptly after the Underwriter designates such person
and shall recommend and use its best efforts to have such designee elected at
each annual meeting held after such appointment during the three-year period.
Such designee shall receive no more or less compensation than is paid to other
non-management directors of the Company. To the extent permitted by law, the
Company will agree to indemnify the Underwriter and its designee for the actions
of such designee as a director of the Company. In the event the Company
maintains a liability insurance policy affording coverage for the acts of its
officers and directors, it will, if possible, include each of the Underwriter
and its designee as an insured under such policy. If the Underwriter does not
exercise its option to designate a member for election to the Company's Board of
Directors, the Underwriter shall nevertheless have the right to send a
representative (who need not be the same individual from meeting to meeting) to
observe each meeting of the Board of Directors. Such designee or
representative, as the case may be, shall be entitled to receive reimbursement
for all reasonable costs incurred in attending such meetings, including, but not
limited to, food, lodging and transportation. The Company agrees
29
to give the Underwriter written notice of each such meeting and to provide the
Underwriter with an agenda and minutes of the meeting no later than it gives
such notice and provides such items to the other directors.
7.2 [Reserved.]
7.3 RULE 144 SALES. During the three-year period following the
Effective Date, the Underwriter shall have the right to purchase for the
Underwriter's account or to sell for the account of the Insiders any securities
sold pursuant to Rule 144 under the Act. Each of the Insiders ("144 Sellers")
will agree to consult with the Underwriter with regard to any such sales and
will offer the Underwriter the exclusive opportunity to purchase or sell such
securities on terms at least as favorable to the 144 Sellers as they can secure
elsewhere. If the Underwriter fails to accept in writing any such proposal for
sale by the 144 Sellers within one business day after receipt of a notice
containing such proposal, then the Underwriter shall have no claim or right with
respect to any such sales contained in any such notice. If, thereafter, such
proposal is modified in any material respect, the 144 Sellers shall adopt the
same procedure as with respect to the original proposal.
7.4 PRESS RELEASES. The Company will not issue a press release or
engage in any other publicity until 25 days after the Effective Date without the
Underwriter's prior written consent.
7.5 FORM S-8 OR ANY SIMILAR FORM. The Company shall not file a
Registration Statement on Form S-8 (or any similar or successor form) for the
registration of shares of Common Stock underlying stock options for a period of
one year from the Effective Date without the Underwriter's written consent.
7.6 COMPENSATION AND OTHER ARRANGEMENTS. The Company hereby agrees
that as of the Effective Date, (i) it shall have no less than two directors who
have no affiliation or relationship with the Company other than as directors;
and (ii) all compensation and other arrangements between the Company and its
officers, directors and affiliates shall be approved by the Audit Committee of
the Company's Board of Directors, a majority of the members of which shall have
no affiliation or other relationship with the Company other than as directors.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. Except as the context
otherwise requires, all representations, warranties and agreements contained in
this Agreement shall be deemed to be representations, warranties and agreements
at the Closing Dates and such representations, warranties and agreements of the
Underwriter and Company, including the indemnity agreements contained in Section
5 hereof, shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of the Underwriter, the Company or any
controlling person, and shall survive termination of this Agreement or the
issuance and delivery of the Securities to the Underwriter until the earlier of
the expiration of any applicable statute of limitations and the seventh
anniversary of the later of the Closing Date or the Option Closing Date, if any,
at which time the representations, warranties and agreements shall terminate and
be of no further force and effect.
9. EFFECTIVE DATE OF THIS AGREEMENT AND TERMINATION THEREOF.
30
9.1 EFFECTIVE DATE. This Agreement shall become effective on the
Effective Date at the time that the Registration Statement is declared
effective.
9.2 TERMINATION. You shall have the right to terminate this Agreement
at any time prior to any Closing Date, (i) if any domestic or international
event or act or occurrence has materially disrupted, or in your opinion will in
the immediate future materially disrupt, general securities markets in the
United States; or (ii) if trading on the New York Stock Exchange, the American
Stock Exchange, The Boston Stock Exchange or in the over-the-counter market
shall have been suspended, or minimum or maximum prices for trading shall have
been fixed, or maximum ranges for prices for securities shall have been fixed,
or maximum ranges for prices for securities shall have been required on the
over-the-counter market by the NASD or by order of the Commission or any other
government authority having jurisdiction, or (iii) if the United States shall
have become involved in a war or major hostilities, or (iv) if a banking
moratorium has been declared by a New York State or federal authority, or (v) if
a moratorium on foreign exchange trading has been declared which materially
adversely impacts the United States securities market, or (vi) if the Company
shall have sustained a material 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 your opinion, make it
inadvisable to proceed with the delivery of the Securities, or (vii) if ▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ or ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ shall no longer serve the Company in her/his present
capacity, or (viii) if the Company has breached any of its representations,
warranties or obligations hereunder, or (ix) if the Underwriter shall have
become aware after the date hereof of such a material adverse change in the
condition (financial or otherwise), business, or prospects of the Company, or
such adverse material change in general market conditions as in the
Underwriter's judgment would make it impracticable to proceed with the offering,
sale and/or delivery of the Securities or to enforce contracts made by the
Underwriter for the sale of the Securities.
9.3 NOTICE. If you elect to prevent this Agreement from becoming
effective or to terminate this Agreement as provided in this Section 9, the
Company shall be notified on the same day as such election is made by you by
telephone or telecopy, confirmed by letter.
9.4 EXPENSES. In the event that this Agreement shall not be carried
out for any reason whatsoever, within the time specified herein or any
extensions thereof pursuant to the terms herein, the obligations of the Company
to pay the expenses related to the transactions contemplated herein shall be
governed by Section 3.15 hereof.
9.5 INDEMNIFICATION. Notwithstanding any contrary provision contained
in this Agreement, any election hereunder or any termination of this Agreement,
and whether or not this Agreement is otherwise carried out, the provisions of
Section 5 shall not be in any way affected by, such election or termination or
failure to carry out the terms of this Agreement or any part hereof.
10. MISCELLANEOUS.
10.1 NOTICES. All communications hereunder, except as herein otherwise
specifically provided, shall be in writing and shall be mailed, delivered or
telecopied and confirmed:
If to the Underwriter: GKN Securities Corp.
31
▇▇ ▇▇▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
Att: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Chairman
With a copy to: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇ & ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
Att: ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, Esq.
If to the Company: The Millbrook Press, Inc.
▇ ▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
Att: ▇▇. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
President
With a copy to: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Frome & ▇▇▇▇▇▇▇▇▇▇, L.L.P.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telefax: (▇▇▇) ▇▇▇-▇▇▇▇
Att: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇▇, Esq.
10.2 HEADINGS. The headings contained herein are for the sole purpose
of convenience of reference, and shall not in any way limit or affect the
meaning or interpretation of any of the terms or provisions of this Agreement.
10.3 AMENDMENT. This Agreement may only be amended by a written
instrument executed by each of the parties hereto.
10.4 ENTIRE AGREEMENT. This Agreement (together with the other
agreements and documents being delivered pursuant to or in connection with this
Agreement and the Agency Agreement, dated July 26, 1996, between the Underwriter
and the Company), constitute the entire agreement of the parties hereto with
respect to the subject matter hereof, and supersede all prior agreements and
understandings of the parties, oral and written, with respect to the subject
matter hereof.
10.5 BINDING EFFECT. 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 5 hereof, and their
respective successors, legal representatives and assigns,
32
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.
10.6 GOVERNING LAW, JURISDICTION. This Agreement shall be governed by
and construed and enforced in accordance with the law of the State of New York,
without giving effect to conflicts of law. The Company hereby agrees that any
action, proceeding or claim against it arising out of, relating in any way to
this Agreement shall be brought and enforced in the courts of the State of New
York or the United States District Court for the Southern District of New York,
and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company hereby waives any objection to such exclusive
jurisdiction and that such courts represent an inconvenient forum. Any such
process or summons to be served upon the Company may be served by transmitting a
copy thereof by registered or certified mail, return receipt requested, postage
prepaid, addressed to it at the address set forth in Section 10.1 hereof. Such
mailing shall be deemed personal service and shall be legal and binding upon the
Company in any action, proceeding or claim. The Company agrees that the
prevailing party(ies) in any such action shall be entitled to recover from the
other party(ies) all of its reasonable attorneys' fees and expenses relating to
such action or proceeding and/or incurred in connection with the preparation
therefor.
10.7 EXECUTION IN COUNTERPARTS. This Agreement may be executed in one
or more counterparts, and by the different parties hereto in separate
counterparts, each of which shall be deemed to be an original, but all of which
taken together shall constitute one and the same agreement, and shall become
effective when one or more counterparts has been signed by each of the parties
hereto and delivered to each of the other parties hereto.
10.8 WAIVER, ETC. The failure of any of the parties hereto to at any
time enforce any of the provisions of this Agreement shall not be deemed or
construed to be a waiver of any such provision, nor to in any way effect the
validity of this Agreement or any provision hereof or the right of any of the
parties hereto to thereafter enforce each and every provision of this Agreement.
No waiver of any breach, non-compliance or non-fulfillment of any of the
provisions of this Agreement shall be effective unless set forth in a written
instrument executed by the party or parties against whom or which enforcement of
such waiver is sought; and no waiver of any such breach, non-compliance or
non-fulfillment shall be construed or deemed to be a waiver of any other or
subsequent breach, non-compliance or non-fulfillment.
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,
THE MILLBROOK PRESS INC.
By: _____________________________
33
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: President
Accepted as of the date first
above written.
New York, New York
GKN SECURITIES CORP.
By:___________________________________
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Executive Vice President
34