Exhibit 1.1
1,500,000 Shares
▇.▇▇▇▇, INC.
Common Stock, par value $.001 per share
Underwriting Agreement
As of , 1999
HD ▇▇▇▇▇ & Co, Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
▇.▇▇▇▇, Inc., a Delaware corporation (the "Company"), proposes to issue
and sell to HD ▇▇▇▇▇ & Co., Inc., a New York corporation ("▇▇▇▇▇" or the
"Underwriter"), upon the basis of the representations, warranties, and
agreements of the Company contained in this Underwriting Agreement (the
"Agreement") and, subject to the terms and conditions of this Agreement, the
Underwriter proposes to purchase from the Company, an aggregate of 1,500,000
shares of the Company's common stock, par value $.001 per share ("Common
Stock"). The 1,500,000 shares of Common Stock are hereinafter collectively
referred to as the "Firm Shares." In addition, the Company proposes to grant the
Underwriter the option to purchase from the Company up to an additional 225,000
shares of Common Stock (collectively "Option Shares") solely for the purpose of
covering over-allotments, if any, in connection with the sale of the Firm
Shares. The Firm Shares and the Option Shares are collectively referred to as
the "Shares." The Company also proposes to issue and sell to the Underwriter or
its designees, Warrants (collectively, the "Warrants") to purchase 150,000
shares of Common Stock (collectively the "Warrant Shares") as more fully
described in Paragraph 5(a) of this Agreement. The Firm Shares, Option Shares,
the Warrants and Warrant Shares are referred to in this Agreement collectively
as the "Securities."
The Company hereby confirms the agreement made by it with respect to
the purchase of the Firm Shares and the Option Shares by the Underwriter, as
follows.
1. Purchase, Sale, and Delivery of the Securities
(a) Purchase and Sale of Firm Shares. Subject to the terms and
conditions of this Agreement, and upon the basis of the representations and
warranties contained in this Agreement, the Company agrees to issue and sell to
the Underwriter, and Underwriter agrees to purchase from the Company, the Firm
Shares at a price of and /100 dollars ($ . ) per Share. The
Underwriter plans to offer the Firm Shares for sale to the public at the price
and upon the terms set forth in the Prospectus (the "Public Offering") as soon
as practicable after the date the Registration Statement, as hereinafter
defined, is declared effective (the "Effective Date") by the Securities and
Exchange Commission (the "Commission"). The Company acknowledges
that the Underwriter shall have the right to enter into agreements with selected
dealers for the sale of the Shares to the public.
(b) Over-Allotment Option.
(i) The Company hereby grants to the Underwriter
an option (the "Over-Allotment Option") to purchase from the Company, solely for
the purpose of covering over-allotments in connection with the sale of Firm
Shares, all or any portion of the Option Shares for a period of forty-five (45)
days from the date of this Agreement at the same purchase price payable by the
Underwriter for Firm Shares as provided in Paragraph 1(a) of this Agreement. The
Option Shares shall be purchased from the Company, for the account of
Underwriter.
(ii) The Over-Allotment Option may be exercised
during the term thereof by written notice to the Company from the Underwriter.
Such notice shall set forth the aggregate number of Option Shares as to which
the option is being exercised and the time and date of payment and delivery
therefor. Such time and date of delivery shall not be earlier than either the
Closing Date (as defined below) or the second business day after the day on
which the option shall have been exercised, nor later than the fifth business
day after the date of such exercise, as determined by the Underwriter (the
"Option Closing Date"). Delivery and payment for such Option Shares shall be at
the offices set forth below for delivery and payment of the Firm Shares.
(iii) The obligation of the Underwriter to
purchase and pay for any of the Option Shares is subject to the accuracy and
completeness (as of the date of this Agreement and as of the Option Closing
Date) of and compliance in all material respects with the representations and
warranties of the Company in this Agreement, to the accuracy and completeness of
the statements of the Company or its officers made in any certificate or other
documents to be delivered by the Company pursuant to this Agreement, to the
performance in all material respects by the Company of its obligations
hereunder, to the satisfaction by the Company of the conditions as of the date
of this Agreement and as of the Option Closing Date set forth in Paragraph 1(c)
of this Agreement and to the delivery to the Underwriter an opinion,
certificates and letters dated the Option Closing Date substantially similar in
scope to those specified in Paragraph 6 of this Agreement, but with each
reference to the "Closing Date" being deemed to be the "Option Closing Date."
Notwithstanding the exercise of the Over-Allotment Option, the Underwriter may,
at any time prior to the payment for the purchase price of the Option Shares,
cancel, in whole or in part, the exercise of the Over-Allotment Option, in which
event, the Underwriter shall only be obligated to purchase and pay for those
only Option Shares, if any, remaining subject to the exercise of the Over-
Allotment Option after such cancellation.
(c) Delivery of and Payment for Securities.
(i) Delivery of the certificates representing
the securities comprising the Firm Shares shall be made to the Underwriter at
the offices of ▇▇▇▇▇, ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or such
other location as you shall determine and advise the Company upon at least two
(2) full business days' notice in writing, against payment therefor by certified
or bank cashier's check drawn in New York clearing house funds or similar next
day funds or by wire transfer payable to the order of the Company, at 10:00
A.M., Eastern Time, on , 1999, or at such other time and business day
(Saturdays, Sundays, and legal holidays in New York, New York not being
considered business days for the purposes of this Agreement), not later
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than the 10th business day following the Effective Date, as shall be determined
by the Underwriter, which time and date are herein called the "Closing Date."
(ii) Delivery of certificates for the Shares
shall be made in registered form in such name or names and in such denominations
as you shall specify to the Company upon at least two (2) full business days'
notice in writing prior to the Closing Date or the Option Closing Date, as the
case may be. The Company will make the certificates available to the Underwriter
for examination at the offices of the Underwriter, ▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chairman, or at such other
location as you shall specify to the Company, not later than 2:00 P.M., Eastern
Time, on the business day immediately preceding the Closing Date or the Option
Closing Date, as the case may be. At the request of the Underwriter, delivery of
the Shares shall be made through the facilities of Depository Trust Company.
(d) Use of Preliminary Prospectus. The Company hereby confirms
its authorization to the Underwriter to use, and to make available for use by
prospective dealers, the Preliminary Prospectus, and the Company hereby
authorizes the Underwriter, all selected dealers, and all other dealers to whom
any of the Securities may be sold by the Underwriter or Selected Dealers, to use
the Prospectus, as from time to time amended or supplemented, in connection with
the sale of the Securities in accordance with the applicable provisions of the
Securities Act of 1933, as amended (the "Securities Act"), the rules and
regulations (the "Regulations") of the Commission thereunder, and applicable
state law until completion of the Public Offering and for such longer period as
Underwriter may request if the Prospectus is required to be delivered in
connection with sales of the Securities by Underwriter or a dealer.
2. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the Underwriter that:
(a) Filing of Registration Statement. The Company has prepared
in conformity with the requirements under the Securities Act and the
Regulations, and has filed with the Commission under the Securities Act, a
registration statement on Form SB-2, File No. 333- , including the related
preliminary prospectus, for the registration of the Securities. The conditions
for the use of a registration statement on Form SB-2 set forth in the General
Instructions thereto have been satisfied with respect to the Company, the
transactions contemplated by this Agreement, and the Registration Statement. As
used in this Agreement, the term "Registration Statement" means such
registration statement of the Company, as amended, on file with the Commission
at the time the registration statement becomes effective under the Securities
Act (including all financial statements and financial schedules, exhibits, all
other documents filed as a part thereof or incorporated by reference therein,
and all the information contained in any final prospectus filed with the
Commission pursuant to Rule 424(b) under the Securities Act or deemed by virtue
of Rule 430A of this Commission under the Securities Act to be part of the
Registration Statement). The term "Prospectus" as used in this Agreement means
the final prospectus included as part of the Registration Statement, including,
if applicable, the information contained in any final prospectus filed with the
Commission pursuant to Rule 424(b) of the Commission under the Securities Act or
deemed by virtue of Rule 430A of the Commission under the Securities Act to be
part of the Registration Statement. The term "Preliminary Prospectus" refers to
and means any prospectus included in the Registration Statement or any
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amendment thereto prior to the Registration Statement becoming effective under
the Securities Act.
(b) Use and Accuracy of Preliminary Prospectus. The Commission
has not issued any order preventing or suspending the use of any Preliminary
Prospectus or any part thereof, and each Preliminary Prospectus delivered to the
Underwriter for dissemination in connection with the offering, at the time of
filing thereof and delivery to the Underwriter for such dissemination, did not
contain any untrue statement of a material fact, or omit to state 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;
the foregoing shall not apply, however, to statements in, or omissions from, any
Preliminary Prospectus that are based upon and conform to written information
furnished to the Company with respect to Underwriter (or any affiliate or
associate thereof) by or on behalf of the Underwriter or such Underwriter
specifically for use in the preparation thereof.
(c) Effectiveness and Accuracy of Registration Statement. The
Registration Statement and the Prospectus, from the Effective Date through the
Closing Date and, if Option Shares are purchased, up to the Option Closing Date,
will comply as to form in all material respects with the applicable requirements
of the Securities Act and the Regulations, and neither the Registration
Statement nor the Prospectus will, on such dates, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and, on such dates, no
event will have occurred that should have been set forth in an amendment or
supplement to the Registration Statement or the Prospectus that has not then
been set forth in such an amendment or supplement; the foregoing shall not
apply, however, to statements in, or omissions from, the Registration Statement
or Prospectus that are based upon and conform to written information furnished
to the Company with respect to the Underwriter (or any affiliate or associate
thereof) by or on behalf of the Underwriter specifically for use in the
preparation thereof. The descriptions in the Registration Statement and the
Prospectus of contracts and other documents of the Company are accurate and
present fairly the information required to be disclosed, and there are no
contracts or other documents required to be described in the Registration
Statement or Prospectus or to be filed as exhibits to the Registration Statement
under the Securities Act or the Regulations which have not been so described or
filed as required.
(d) Independent Public Accountants. Ernst & Young, LLP, the
accountants whose reports on the financial statements of the Company are filed
with the Commission as a part of the Registration Statement, are, and were
during the periods covered by its report, independent public accountants with
respect to the Company as required by the Securities Act and the Regulations.
(e) Organization and Qualification. Each of the Company and
its wholly-owned subsidiaries, College Directory Publishing, Inc., a Delaware
corporation, and University Publishing, Inc., a Pennsylvania corporation
(together, the "Subsidiaries"), is (i) a corporation duly organized and existing
in good standing under the laws of the state of its incorporation and has the
requisite corporate power to own its properties and to carry on its business as
now being conducted and (ii) qualified to conduct business as a foreign
corporation to do business and in good standing in every jurisdiction in which
the nature of the business conducted by it makes such qualification necessary
and where the failure so to qualify would have a Material Adverse
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Effect. Other than the Subsidiaries, the Company has no subsidiaries and has no
equity interest in, and no loans to or guarantee of obligations of, any other
corporation, limited liability company, partnership or other entity. As used in
this Agreement, the term "Material Adverse Effect" means any material adverse
effect on (A) the Common Stock and the Warrants; (B) the ability of the Company
to perform its obligations under this Agreement, or (C) the business,
operations, properties, financial condition or prospects of the Company or the
Subsidiaries. As used in this Agreement, the term "the Company's Knowledge" or
words of like import shall mean and include (i) actual knowledge of the Company
or either Subsidiary or any executive officer or director of the Company or
either of the Subsidiaries and (ii) that knowledge which a prudent
businessperson could reasonably have obtained in the management of such person's
business affairs after exercising reasonable due diligence.
(f) No Other Interests of Investments. Except for the
Company's ownership of and advances to the Subsidiaries, neither the Company nor
either Subsidiary controls, directly or indirectly, or has any direct or
indirect interest or investment in, any corporation, firm, partnership,
association, limited liability company, business trust or other business
organization, and does not own any shares of stock or any other securities of
(other than bank certificates of deposit, shares or units of interest in "money
market" funds, or as set forth in the Prospectus) and, except as set forth in
the Prospectus, neither the Company nor either Subsidiary has made any loans
(other than advances to employees in the ordinary course of business, none of
which are material or made to officers or directors) to or guaranteed any
obligations of, any other corporation, firm, partnership, association, limited
liability company, business trust or other business organization.
(g) Capitalization and Legality of Securities.
(i) The authorized, issued and outstanding
capital stock of the Company is as set forth in the Prospectus under the caption
"Capitalization." The capital stock and other securities of the Company conform
to the descriptions thereof contained in the Prospectus under the caption
"Description of Capital Stock." Except as otherwise set forth in the Prospectus,
there are no outstanding options, warrants, or other rights to purchase any
shares of Common Stock or other capital stock, or to purchase any other
securities convertible into or exchangeable for Common Stock. The outstanding
shares of Common Stock of the Company and the outstanding shares of stock of
each of the Subsidiaries have been duly authorized and validly issued and are
fully paid and non-assessable, and the shares of Common Stock issuable upon
exercise of outstanding options, including the stock option plan as described in
the Prospectus, have been duly authorized for issuance and, when issued pursuant
to the terms of the applicable option, will be duly and validly authorized and
issued, fully paid and nonassessable. All the shares of Common Stock which are
registered pursuant to the Registration Statement and issuable upon exercise of
the Warrants have been duly authorized and, when issued and delivered against
payment therefor as provided in this Agreement or the Warrants, as applicable,
will be validly issued, fully paid and nonassessable.
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(ii) All of the outstanding shares of Common
Stock and all of the outstanding shares of the Company's Series A Preferred
Stock, par value $.001 per share ("Series A Preferred Stock"), Series B
Preferred Stock, par value $1.00 per share ("Series B Preferred Stock"), Series
C Preferred Stock, par value $.001 per share ("Series C Preferred Stock"),
Series D Preferred Stock, par value $.001 per share ("Series D Preferred
Stock"), and Series E Convertible Redeemable Preferred Stock, par value $.001
per share ("Series E Preferred Stock"), are duly and validly authorized and
issued, fully paid and non-assessable, conform to the description set forth in
the Prospectus and do not have any, and were not issued in violation of any,
preemptive rights under the Company's certificate of incorporation or by-laws or
any other agreement. The shares of Common Stock issuable upon conversion of the
Series A, B, C, D and E Preferred Stock as described in the Prospectus, have
been duly authorized for issuance and, when issued upon conversion thereof will
be are duly and validly authorized and issued, fully paid and non-assessable,
and do not have any, and were not issued in violation of any, preemptive rights
under the Company's certificate of incorporation or by-laws or any other
agreement. At the Closing Date, the Series A, B, C, and D Preferred Stock are
automatically converted into Common Stock as described in the Prospectus.
(iii) The Company owns all of the issued and
outstanding capital stock of each of the Subsidiaries. Neither Subsidiary has
granted any options, warrants or rights or issued any convertible notes,
debentures, preferred stock or other securities or entered into any agreement or
understanding upon the exercise or conversion of which or pursuant to the terms
of which any shares of any class or series of capital stock of either Subsidiary
may be issued.
(iv) This Agreement constitutes, and the
Warrants, when issued pursuant to this Agreement, will constitute valid and
binding obligations of the Company enforceable in accordance with their
respective terms, except to the extent that enforcement thereof may be limited
by (i) bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and similar laws and court decisions now or hereafter in effect
relating to or affecting creditors' rights and remedies generally and (ii)
general principles of equity (regardless of whether such enforcement is
considered in a proceeding at law or in equity). A sufficient number of shares
of Common Stock have been reserved for issuance upon sale of the Shares pursuant
to this Agreement and for issuance upon exercise of the Warrants.
(h) Financial Statements. The financial statements (audited
and unaudited) of the Company and the related financial exhibits and schedules
included in the Prospectus or filed with and as part of the Registration
Statement present fairly the financial position of the Company (and the
Subsidiaries and its predecessor as set forth in the Prospectus) as of the
balance sheet dates and the results of its operations and cash flows for the
respective periods covered thereby, and such financial statements have been
prepared in accordance with generally accepted accounting principles applied on
a consistent basis throughout the periods involved; all adjustments that are
necessary for a fair presentation of the results for such periods have been
made. The financial statements filed with the Registration Statement or included
in the Prospectus are the only financial statements required under the
Securities Act or the Regulations to be included in the Registration Statement
and Prospectus.
(i) Material Loss. Neither the Company nor either Subsidiary
has, since the date of the latest financial statements included in the
Prospectus, sustained any material loss or interference with its business from
fire, explosion, flood, or other calamity, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order, or decree,
other
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than as set forth in the Prospectus. Since the respective dates as of which
information is set forth in the Prospectus, and except as otherwise set forth
therein: (i) there has not been any change in the capital stock, or material
increase in the long-term debt, of the Company or either Subsidiary; (ii) there
has not been any material adverse change in the condition (financial or
otherwise), business, results of operations, general affairs, or management of
the Company or either Subsidiary, whether or not arising in the ordinary course
of business; (iii) no event has occurred that would result in a material write-
down of assets of the Company or either Subsidiary; (iv) neither the Company nor
either Subsidiary has incurred any material liability or obligation, direct or
contingent, or entered into any material transaction, other than those in the
ordinary course of business; (v) neither the Company nor either Subsidiary has
purchased any of the Company's outstanding capital stock; (vi) there has been no
dividend or distribution of any kind declared, paid, or made by the Company in
respect of the Common Stock; (vii) there has not been any material interruption
in the availability of materials, supplies, or equipment necessary for the
conduct of the business of the Company, either Subsidiary or the Joint Venture;
and (viii) there has not been any execution or imposition of any material lien,
charge, or encumbrance upon any property or assets of the Company or either
Subsidiary.
(j) Compliance with Documents and Laws. Neither the Company
nor either Subsidiary is in violation of its certificate of incorporation,
by-laws, or other governing documents, or in material default in the due
performance of any material lease or other material contract, indenture,
mortgage, deed of trust, note, loan, or other material agreement or instrument
to which the Company or either Subsidiary is a party or by which it or any of
its properties or businesses are subject or bound, or, to the Knowledge of the
Company, any applicable material license, franchise, certificate, permit,
authorization, statute, rule or regulation of or from any public, regulatory, or
governmental agency or authority having jurisdiction over the Company or either
Subsidiary or any of their respective properties or assets, or any approval,
consent, order, judgment or decree, except such as could not reasonably be
expected to have a Material Adverse Effect. The execution and performance of
this Agreement by the Company will not conflict with or result in a breach or
violation of, or default under, any material lease or other material contract,
indenture, mortgage, deed of trust, note, loan, or other material agreement or
instrument to which the Company or either of its Subsidiaries is a party or by
which the Company, either of the Subsidiaries or any of their respective
properties or businesses are subject, and no consent, approval, authorization,
or order of any court or governmental authority or agency having jurisdiction
over any of the Company, either Subsidiary or any of their respective properties
or assets is required to be obtained by the Company for the consummation by the
Company of the transactions contemplated by this Agreement, except such as have
been obtained or may be required under the Securities Act, the Regulations, the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
regulations of the Commission thereunder or state securities (or "Blue Sky")
laws or the applicable rules and regulations promulgated thereunder.
(k) Authorization of Agreements. Each of this Agreement and
the Warrants has been duly authorized, executed and delivered by the Company and
constitutes the valid, binding and enforceable obligation of the Company. The
execution, delivery and performance of this Agreement and the Warrants by the
Company, the consummation by the Company of the transactions herein and therein
contemplated, and the compliance by the Company with the terms of this Agreement
and the Warrants 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 any violation of the certificate of incorporation and by-
laws of the Company, (ii) result in a breach of or conflict with any of the
terms or provisions of, or constitute a default under, or result
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in the modification or termination of, or result in the creation or imposition
of any lien, security interest, charge or encumbrance upon any of the properties
or assets of the Company or either Subsidiary pursuant to any indenture,
mortgage, note, contract, commitment or other agreement or instrument to which
the Company or either Subsidiary is a party or which the Company or either
Subsidiary or any of their respective properties or assets are or may be bound
or affected, (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, either Subsidiary or any of their
respective properties or business, or (iv) violate any permit, certification,
registration, approval, consent, license or franchise applicable to the business
or properties of the Company or either Subsidiary.
(l) Title to Property. The Company has good title to, and
valid and enforceable leasehold estates in, all items of property described in
the Registration Statement or Prospectus as owned or leased by it, as the case
may be, or that are material to the conduct of the Company's businesses, free
and clear of all liens, encumbrances, claims, security interests, and other
restrictions, other than those described in the Prospectus and those that
individually or in the aggregate could not reasonably be expected to have a
Material Adverse Effect. The leases, licenses or other contracts or instruments
under which the Company leases, holds or is entitled to use any property, real
or personal, are valid, subsisting and enforceable as against the Company and,
to the Company's Knowledge, the other parties thereto, with only such exceptions
as are not material and do not interfere with the use of such property made, or
proposed to be made, by the Company, and all rentals, royalties or other
payments accruing thereunder which became due prior to the date of this
Agreement have been duly paid, and neither the Company nor, to its knowledge,
any other party is in default thereunder and, to the Company's knowledge, no
event has occurred which, with the passage of time or the giving of notice, or
both, would constitute a default thereunder. The Company has not received notice
of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties except any such violation
that could not reasonably be expected to have a Material Adverse Effect. The
Company has insured their respective properties against loss or damage by fire
or other casualty and maintain such other insurance which management of the
Company believes is adequate for the Company's present and proposed business
operations.
(m) Copyrights, Trademarks and Intellectual Property Rights.
Except as set forth in the Prospectus, the Company owns or possesses the
requisite licenses or rights to use all trademarks, copyrights, service marks,
service names, and trade names, if any, presently used in or necessary to
conduct their respective businesses as described in the Prospectus. Neither the
Company nor either Subsidiary has knowingly infringed the rights of another in
any trademark, copyright, service ▇▇▇▇, service name, trade name, trade secret,
confidential information, or any other such intellectual property, and there is
no outstanding claim of others alleging any such infringement. To the Company's
Knowledge, there is no claim or action by any person pertaining to, or
proceeding pending, or threatened, which challenges the exclusive rights of the
Company or either Subsidiary with respect to any trademarks, copyrights, service
marks, service names and trade names used in the conduct of the Company's or
either Subsidiary's business.
(n) Litigation. There is no litigation or governmental or
other proceeding or investigation before any court or before or by any public,
regulatory, or governmental agency or authority (or any judgment, decree, or
order of such court, agency, or authority) pending or, to the Company's
Knowledge, threatened, to which the Company or either Subsidiary is a party or
of which the business or property of the Company is the subject that is material
to the Company and
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is not disclosed in the Prospectus. There are no outstanding orders, judgments
or decrees of any court, governmental agency or other tribunal naming the
Company or either Subsidiary and enjoining the Company or either Subsidiary from
taking, or requiring the Company or either Subsidiary to take, any action, or to
which the Company, either Subsidiary, or their respective properties or
businesses are bound or subject.
(o) Prohibited Payments. Neither the Company nor either
Subsidiary nor any of their respective directors or officers acting in any
capacity on behalf of the Company or either Subsidiary nor, to the Company's
Knowledge, any of the Company's or its Subsidiaries' sales agents, directly or
indirectly, has used any corporate funds for unlawful contributions, gifts,
entertainment, or other unlawful expenses relating to political activity; made
any unlawful payment to foreign or domestic government officials or employees or
to foreign or domestic political parties or campaigns from corporate funds;
violated any provision of the Foreign Corrupt Practices Act of 1977, as amended;
or made any bribe, rebate, payoff, influence payment, kickback, or other
unlawful payment.
(p) Internal Accounting Controls. The Company and its
Subsidiaries maintain a system of internal accounting controls which, taken as a
whole, is sufficient to meet the broad objectives of preventing and detecting
errors or irregularities in amounts that would be material to the Company's and
each Subsidiary's financial statements, and neither the Company nor either
Subsidiary has received any formal or informal notice from its independent
accountants to the contrary. Except as specifically disclosed in the Prospectus,
neither the Company nor any of its employees or agents has made any payment or
transfer of any funds or assets of the Company, conferred any personal benefit
by the use of the assets of the Company or received any funds, assets, or
personal benefit in violation of any law, rule, or regulation, which is required
to be stated in the Prospectus or necessary to make the statements therein not
misleading.
(q) Tax Returns. The Company and each Subsidiary has filed all
Federal, state, and local tax returns required to be filed through the date of
this Agreement, including but not limited to franchise tax returns, or has
obtained valid extensions with respect to such filings not made; neither the
Company nor either Subsidiary is in default in the payment of any taxes or other
amounts that were payable pursuant to said returns or any assessments with
respect thereto; and neither the Company nor either Subsidiary is aware of any
tax or other payment deficiency outstanding, proposed, or assessed against the
Company or either Subsidiary that could, in the aggregate, have a Material
Adverse Effect. Except as disclosed in writing to the Underwriter, neither the
Company nor either Subsidiary has executed or filed with any taxing authority,
foreign or domestic, any agreement extending the period for assessment or
collection of any income taxes and is not a party to any pending action or
proceeding by and foreign or domestic governmental agency for assessment or
collection of taxes; and no claims for assessment or collection of taxes have
been asserted against the Company or either Subsidiary.
(r) Employee Plans. Except as set forth in the Prospectus, the
Company does not have any employee benefit plans (including, without limitation,
pension, profit sharing, and welfare benefit plans, but excluding health and
disability insurance plans and disability provisions of employment contracts) or
deferred compensation arrangements.
(s) Labor Disputes. No labor dispute exists or, to the
Company's Knowledge, is imminent with the employees or other persons engaged by
the Company or by either of its Subsidiaries which could reasonably be expected
to result in a Material Adverse Effect.
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(t) Registration Rights. No person, firm or entity of any
nature whatsoever has any right to require the Company to register or attempt to
register under the Securities Act or any other securities law any shares of
Common Stock or securities convertible into or exchangeable or exercisable for
any shares of Common Stock, by reason of the filing of the Registration
Statement with the Commission, and no person, firm or entity has any rights
which may require the Company to file a registration statement within eighteen
(18) months from the Effective Date.
(u) Stabilization. Neither the Company nor any person that
controls, is controlled by or is under common control with the Company has taken
or will take, directly or indirectly, any action designed to, or that might
reasonably be expected to, cause or result in under the Exchange Act,
stabilization or manipulation of the price of any security in order to
facilitate the sale or resale of any of the Securities.
(v) Finder or Broker. The Company has not retained or dealt
with any broker or finder with respect to the transactions contemplated hereby,
and the Company knows of no outstanding claims for services in the nature of a
finder's fee or origination fee with respect to the sale of the Securities. The
Company will indemnify and hold harmless Underwriter with respect to any claim
for a finder's fee by any party claiming to be owed such fee based on contacts,
conversations or arrangements with the Company.
(w) Employment Agreements. The employment agreements between
the Company and its officers named under the caption "Management -- Employment
Agreements" in the Prospectus, are binding and enforceable obligations upon the
respective parties thereto in accordance with their respective terms, except as
such enforceability may be limited by applicable bankruptcy, insolvency,
moratorium or other similar laws or arrangements affecting creditors' rights
generally and subject to principles of equity, and public policy considerations.
(x) Contracts. Each material contract or other instrument
(however characterized or described) to which the Company or either Subsidiary
is a party or by which it or its property or business is or may be bound or
affected and to which reference is made in the Prospectus has been duly and
validly executed by the Company or by a Subsidiary, as applicable, is in full
force and effect in all material respects and, assuming that each other party
has full power, corporate or other, to execute, deliver and perform such
contracts, is enforceable against the parties thereto in accordance with its
terms, and none of such contracts or instruments has been assigned by the
Company or either Subsidiary, and neither the Company nor either Subsidiary nor,
to the Company's Knowledge, any other party is in default thereunder and, to 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 any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court having jurisdiction over the Company or either Subsidiary or any
of their assets or businesses, where such violation or default would have a
Material Adverse Effect.
(y) Year 2000 Compliance. Except as disclosed in the
Prospectus, the Company's and each Subsidiary's computer systems and products
are designed to be year 2000 compliant, and the disclosure in the Prospectus
concerning Year 2000 compliance is true and correct in all material respects.
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3. Covenants of the Company. The Company and each Subsidiary, as
applicable, covenants and agrees with the Underwriter that:
(a) Effectiveness of Registration Statement. The Company will
use its best efforts to cause the Registration Statement and any subsequent
amendments thereto to become effective as promptly as possible. The Company will
notify you promptly (i) when the Registration Statement or any subsequent
amendment thereto has become effective or any supplement to the Prospectus has
been filed and (ii) of the receipt of any requests, and the nature and substance
thereof, by the Commission for any amendment or supplement to the Registration
Statement or Prospectus or for any other additional information. The Company
will prepare and file with the Commission, promptly upon your reasonable
request, any amendments or supplements to the Registration Statement or
Prospectus that may be necessary or advisable in connection with the
distribution of the Securities or any of the Securities. The Company will file
no amendment or supplement to the Registration Statement or Prospectus (other
than any document required to be filed under the Exchange Act that upon filing
is deemed to be incorporated by reference therein) to which you shall reasonably
object by notice to the Company after having been furnished a copy within a
reasonable time, but no later than three (3) business days, prior to the
proposed filing thereof. The Company will furnish to you at or prior to the
filing thereof a copy of any document that upon filing is deemed to be
incorporated by reference in whole or in part in the Registration Statement or
Prospectus.
(b) Notice of Stop Order. The Company will advise you
promptly, and confirm in writing, when and if it receives notice or obtains
Knowledge of (i) the issuance by the Commission of any stop order or other order
preventing or suspending the use of any Preliminary Prospectus or the Prospectus
or the effectiveness of the Registration Statement, (ii) the suspension of the
qualification of any of the Securities for offering or sale in any jurisdiction
in which they were previously qualified, or (iii) the initiation or threat of
any proceeding for that purpose. The Company will promptly use its best efforts
to prevent the issuance, and to obtain the withdrawal if such issuance is not
prevented, of any such stop order or other suspension.
(c) Compliance with the Securities Act and the Exchange Act.
Within the time during which a prospectus relating to the Securities is required
to be delivered under the Securities Act, the Company will use its best efforts
to comply with all requirements imposed upon it by the Securities Act and the
Exchange Act, as now and hereafter amended, and by the Regulations, as from time
to time in force to permit the continuance of sales of or dealings in the
distribution of the Securities as contemplated by the provisions therein, in
this Agreement, and in the Prospectus. If during such period any event as to
which the Company has Knowledge occurs as a result of which the Prospectus as
then amended or supplemented includes an untrue statement of a material fact or
omits to state a material fact necessary to make the statements therein, in the
light of the circumstances then existing, not misleading, or if during such
period it is necessary to amend the Registration Statement or supplement the
Prospectus to comply with the Securities Act, the Company will notify you
promptly, will amend the Registration Statement or supplement the Prospectus to
comply with the Securities Act, the Company will notify you promptly, will amend
the Registration Statement or supplement the Prospectus (at the expense of the
Company) so as to correct such statement or omission or otherwise to effect such
compliance, and will furnish without charge to Underwriter and to any dealer in
securities as many copies of such amended or supplemented Prospectus as you may
from time to time reasonably request.
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(d) Copies of Registration Statement. The Company will deliver
to Underwriter, from time to time without charge, such number of copies of the
Registration Statement (at least one of which delivered to you shall be manually
signed and will include all exhibits), each Preliminary Prospectus, the
Prospectus, and all amendments and supplements thereto, in each case as soon as
available and in such quantities and to such persons as requested by you.
(e) Blue Sky Qualifications. The Company will use its best
efforts, in cooperation with you and your counsel, to register or qualify the
Securities for offering and sale under the securities laws of such jurisdictions
as you reasonably designate, and will continue such qualifications in effect for
so long as may be necessary to complete the distribution of such Securities;
provided that in no event shall the Company be required in connection therewith
to qualify to do business in any jurisdiction where it is not now so qualified
or to take any action which would subject it to general service of process in
any jurisdiction where it is not now so subject.
(f) Section 11(a) Earnings Statement. The Company will make
generally available to its security holders (within the meaning of Section 11(a)
of the Securities Act) and deliver to you as soon as practicable (but not later
than fifteen (15) months after the Effective Date), an earnings statement that
shall satisfy the requirements of Section 11(a) and Rule 158 under the
Securities Act, covering a period of at least twelve (12) consecutive months
after the Effective Date.
(g) Information to the Underwriter. Until the earlier of the
third (3rd) anniversary of the Effective Date or such date as of which the
Warrants have been exercised or have expired, the Company will, at its cost and
expense, furnish or cause to be furnished to you and your counsel, with
reasonable promptness, copies of (i) annual audited balance sheets and audited
statements of operations and changes in cash flows of the Company, and quarterly
balance sheets and statements of income of the Company (which need not be
audited), (ii) all reports, if any, to its stockholders, (iii) all reports filed
by the Company with the Commission, and any securities exchange or the National
Association of Securities Dealers, Inc. ("NASD"), and (iv) such other material
documents and information with respect to the Company and its affairs as you may
from time to time reasonably request and which the Company can produce at
reasonable cost; provided, however, that the Company shall not be required to
produce such information or documents if the Company has received the opinion of
its counsel that providing such information to Underwriter is reasonably likely
to create liability under applicable Federal and state securities laws. Upon
request, the Company shall also provide the Underwriter with current lists of
its stockholders. In addition to the foregoing, during the six months following
the Effective Date, the Company shall, at its cost and expense, furnish or cause
to be furnished to the Underwriter, (x) daily issuer transfer sheets by
Depository Trust Company ("DTC"), which shall be transmitted to the Underwriter
by fax daily, and (y) weekly transfer sheets provided by the Company's transfer
agent, which shall be provided to the Underwriter at the end of each week. For
the three years subsequent to such six month period, upon request of the
Underwriter, the Company shall furnish or cause to be furnished to the
Underwriter with copies of the Company's monthly DTC transfer sheets and
transfer sheets from the Company's transfer agent.
(h) Listing in Securities Manual; Investor Relations Firm. The
Company shall, as soon as practicable after the Effective Date, use its best
efforts to obtain listing on an
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expedited basis in Standard and Poor's Corporation Records or such other
recognized securities manuals for which it may qualify for listing, and the
Company shall use its best efforts to maintain such listings for at least three
(3) years after the Closing Date. The Company further agrees at any time during
the three (3) year period following the Closing Date, to engage within sixty
(60) days of a written request by you, the services of an investor relations
firm reasonably acceptable to you, who will act as investor relations liaison
during such three (3) year period, which spokesperson is not required to be the
same person during the duration of the three (3) year period, to consult with
and advise the Company regarding communications and relations with stockholders
and the financial and investment communities.
(i) Listing on Nasdaq and the Pacific Exchange. The Company
shall apply for the inclusion of the Common Stock on The Nasdaq SmallCap Market
(the "SmallCap Market") and the Pacific Exchange ("Pacific") as a Tier I Issuer
under proposed symbols acceptable to the Underwriter, to take effect on the
Effective Date. At such time as the Company meets the eligibility requirements
for the inclusion of the Common Stock on the Nasdaq National Market ("NNM"), the
Company shall use its commercially reasonable efforts to obtain such listing.
The Company shall use its best efforts to maintain the Nasdaq inclusion provided
for in this Paragraph 3(i) for at least three (3) years after the date of this
Agreement.
(j) Exchange Act Filings. The Company shall file such
registration statement and take such other reasonable action, including the
filing of a registration statement on Form 8-A and requesting concurrent
effectiveness with the Registration Statement, to register Common Stock and the
Warrants pursuant to Section 12(g) of the Exchange Act, such registration
statement to become effective simultaneously with the effectiveness of the
Registration Statement, and shall thereafter use its best efforts to keep such
registration effective. The Company shall comply with the Securities Act, the
Regulations, the Exchange Act and the rules and regulations promulgated
Commission under the Exchange Act, the applicable rules and regulations of the
NASD and Pacific, and applicable state securities laws so as to permit the
continuance of sales of and dealings in the Common Stock in compliance with
applicable provisions of such laws, rules, and regulations, including the filing
with the Commission and the NASD and Pacific of all reports required to be so
filed, and the Company will deliver to the holders of the Securities all reports
required to be provided to such holders pursuant to such laws, rules, or
regulations. The Company shall promptly file with the Commission and deliver to
you, from time to time as required to make the same reasonably current, such
statements and reports as are required under Rule 15c2-11 of the Exchange Act.
(k) Use of Proceeds. The Company shall apply the net proceeds
received from the sale of the Securities in the manner set forth under the
caption "Use of Proceeds" in the Prospectus. The Company shall report the use of
proceeds from the Offering in accordance with the Regulations and will provide a
copy of each such report to you and your counsel.
(l) Board Meetings and Membership.
(i) For a period of five (5) years commencing
on the Closing Date, the Underwriter shall have the right to designate one
nominee (reasonably acceptable to the Company) for election to the Company's
Board of Directors. The Company shall initially elect such designee as soon as
possible after the identity of such designee is provided to the Company and
thereafter shall include the Underwriter's designee as a member of the board of
directors' slate. Following the election of such nominee as a director, such
person shall receive the same
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compensation, including options, that is paid to other non-employee directors of
the Company and 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 to indemnify and hold such
director harmless to the maximum extent permitted by law (to the extent not
precluded by the Company's certificate of incorporation), against any and all
claims, actions, awards and judgments arising out of his or her service as a
director and, in the event the Company maintains a liability insurance policy
affording coverage for the acts of its officers and directors, to include such
director as an insured under such policy. Such director shall also serve on the
Company's audit, compensation and, if such committees are appointed, nominating
and executive committees. The rights and benefits of such indemnification and
the benefits of such insurance shall, to the extent possible, extend to the
Underwriter insofar as it may be or may be alleged to be responsible for such
director, without additional cost to the Company.
(ii) In lieu of designating a member of the
board of directors pursuant to Paragraph 3(l)(i) of this Agreement, the
Underwriter shall have the right, during the five-year period commencing on the
Closing Date, to have one observer to attend all meetings of the Board of
Directors of the Company and its executive, audit, compensation and such other
committees as shall be designated by Underwriter. Such observer shall be
entitled to the same compensation and reimbursement for expenses of attending
meetings as is provided to non-employee directors and committee members and, to
the extent it may legally do so, such indemnity as is provided to the Company's
non-employee directors.
(m) Future Sales. Except for the permitted issuances described
below, for a period of one (1) year from the Effective Date, the Company shall
not sell or otherwise dispose of any Common Stock (or securities convertible
into or exercisable for Common Stock) or Preferred Stock of the Company or any
subsidiary of the Company without the Underwriter's prior written consent.
Permitted issuance shall mean shares of Common Stock issuable (i) upon the
exercise or conversion of options, warrants or shares of preferred stock
specifically contemplated in the Prospectus or provided for in this Agreement,
(ii) pursuant to and in order to consummate a merger with or acquisition of an
unaffiliated party in a transaction negotiated at arms' length and approved by
(A) a majority of the Company's Board of Directors, and (B) all of the
non-employee directors; (iii) in a public offering approved by the Underwriter,
and (iv) pursuant to a private placement, at a price per share, or, with respect
to convertible securities and warrants, having an exercise or conversion price,
not less than 80% of the average of the closing bid prices of the Common Stock
for ten (10) consecutive trading days ending not earlier than three (3) days
prior to the date of such sale or on other terms acceptable to the Underwriter.
(n) Press Releases. Prior to the later of the Closing Date or
the Option Closing Date, if any, the Company will not issue, directly or
indirectly, without your prior written consent (which consent shall not be
unreasonably withheld), any press release or other public communication or hold
any press conference with respect to the Company, its activities, or the public
offering, other than trade releases in the ordinary course of the Company's
business.
(o) Undertakings. The Company will comply with the provisions
of all undertakings contained in the Registration Statement or made in
connection with any application to register or qualify any of the Securities
under blue sky laws.
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(p) Certain Deliveries to the Underwriter. The Company will
obtain from its officers, counsel, and accountants those certificates, opinions,
and letters referred to in Paragraph 6 of this Agreement.
(q) Key Man Life Insurance. The Company will obtain on or
before the Closing Date, and use its reasonable best efforts to maintain
thereafter for the term of their respective employment with the Company, key man
life insurance policies insuring the lives of Messrs. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇
▇. ▇▇▇▇▇▇▇▇▇, with the Company named as sole beneficiary, in a policy amount of
not less than $1,000,000.
(r) Employment Agreements. The Company has entered into
employment agreements with Messrs. ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇
▇▇▇▇▇▇ on the terms that are disclosed in the Prospectus.
(s) Redemption and Dividends. For a period of two (2) years
from the Closing Date, the Company shall not redeem any of its securities (other
than redemptions that may be required in connection with possible termination of
employment agreements with the Company under the terms of Employment Agreements
in effect on the Effective Date or as otherwise provided in this Agreement), and
shall not pay any dividends or make any other cash distribution without
obtaining the Underwriter's prior written consent. The Underwriter shall either
approve or disapprove such contemplated redemption of securities or dividend
payment or distribution within ten (10) business days from the date the
Underwriter receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the ten (10) business
day period shall be deemed approval of the transaction.
(t) Restrictions on Sales, Options by Affiliates. The Company
will cause each of its officers, directors and stockholders to agree in writing
that such person (i) will not, during the twelve (12) month (nine (9) month for
stockholders who are not officers, directors or 5% stockholders) period
immediately following the Effective Date (the "Lockup Period"), offer, pledge,
sell (which term includes a short sale or sale against the box), contract to
sell, grant any option for the sale of, or otherwise transfer or dispose of,
directly or indirectly, any shares of the Company's Common Stock without
obtaining the Underwriter's prior written approval.
(u) Outstanding Warrants, Options and Other Rights. There
shall not be outstanding on the Closing Date any warrants, options, or other
rights to purchase any shares of Common Stock, except as otherwise set forth in
the Prospectus. During the two (2) years following the Effective Date, the
Company shall not, without the prior written consent of the Underwriter, grant
options, rights or warrants or sell any securities to its officers, directors,
employees or consultants under its stock option plan as described in the
Prospectus or otherwise except at an exercise, purchase or conversion price
which is not less than the market price of the Common Stock on the date of
grant, issuance or sale, as the case may be.
(v) Restrictions on Filing Registration Statements. During the
eighteen (18) months following the Effective Date, the Company will not, without
the prior written consent of the Underwriter, register any securities pursuant
to the Securities Act, except that such restriction shall not apply to the
registration of Common Stock issuable pursuant to the Company's present stock
option plan, as described in the Prospectus, on a Form S-8 registration
statement.
-15-
(w) Waiver of Registration Rights. The Company shall obtain a
waiver of so-called "piggy-back" registration rights from any holders of any
securities of the Company who have the right to require inclusion of any or all
of their securities in the Registration Statement contemplated by this
Agreement.
(x) Directors and Officers Liability Insurance. Within ninety
(90) days after the effective date of the Registration Statement, the Company
will use commercially reasonable efforts to obtain Directors and Officers
Liability Insurance in an amount no less than $5,000,000 per occurrence.
(y) Accounting Firm. The Company shall retain an independent
public accounting firm reasonably acceptable to the Underwriter for a period of
three (3) years from the Effective Date. The Underwriter agrees that the firm of
Ernst & Young, LLP is acceptable to the Underwriter. In addition, for a period
of two years from the Effective Date, the Company, at its expense, shall cause
its independent accounting firm 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
quarterly report on Form 10-QSB and the mailing of quarterly financial
information to stockholders, if applicable.
(z) Restrictions on Acquisitions. During the one (1) year
following the Closing Date, without the prior consent of the Underwriter, the
Company shall not enter into any agreement to acquire any other business or the
assets of any other business. The term "acquire" shall be broadly construed and
shall include the acquisition of assets, the merger with or into another
corporation or entity, whether directly by the Company or through a subsidiary,
or the acquisition of stock or other equity interests, however defined, of
another corporation, partnership, limited liability company, business trust,
sole proprietorship or other entity of any kind or description.
4. Offering Expenses and Related Matters
(a) General. Whether or not the Public Offering is
consummated, the Company will pay all costs and expenses incident to the
performance of the obligations of the Company hereunder, including without
limiting the generality of the foregoing, (i) the preparation, printing, filing,
and copying of the Registration Statement, Prospectus, this Agreement, blue sky
memoranda, the Agreement Among Underwriter, if any, the Selected Dealers
Agreement, and other underwriting documents, if any, and any drafts, amendments
or supplements thereto, including the cost of all copies thereof supplied to the
Underwriter in such quantities as reasonably requested by the Underwriter, the
costs of mailing Prospectuses to offerees and purchasers of the Securities, and
the out-of-pocket travel expenses of the Underwriter and counsel to the
Underwriter or other professionals designated by the Underwriter to visit the
Company's facilities or its counsel's offices for purposes of discharging due
diligence responsibilities; (ii) the printing, engraving, issuance and delivery
of certificates representing Common Stock and Warrants, including any transfer
or other taxes payable thereon; (iii) the registration or qualification of the
Securities under state securities or "blue sky" laws, including the reasonable
fees and disbursements of counsel (regardless of whether such counsel is also
counsel to the Underwriter, subject to the limitation set forth in Paragraph
4(c) of this Agreement) and filing fees in connection therewith; (iv) all
reasonable fees and expenses of the Company's counsel and accountants; (v) all
filing fees in connection with review of the terms of the Public
-16-
Offering by the NASD; (vi) all costs and expenses of any listing of the Common
Stock on the Pacific and the SmallCap Market or the NNM and/or any other stock
exchange and/or in Standard and Poor's Stock Guide and/or any other securities
manuals; (vii) all costs and expenses of four (4) bound volumes provided to the
Underwriter and its counsel of all closing documents, paper exhibits,
correspondence and records forming the materials included in the Public
Offering; (viii) the reasonable costs and expenses of all pre-closing and post-
closing advertisements relating to the Public Offering (such as tombstone adds),
in addition to fifteen (15) lucite cubes; (ix) all costs of holding
informational meetings and "road shows;" and (x) all other costs and expenses
incurred or to be incurred by the Company in connection with the transactions
contemplated by this Agreement. The obligations of the Company under this
Paragraph 4(a) shall survive any termination or cancellation of this Agreement.
(b) Non-Accountable Expense Allowance. In addition to the
Company's responsibility for payment of the foregoing expenses, the Company
shall pay to the Underwriter a non-accountable expense allowance equal to three
percent (3%) of the gross proceeds of the Public Offering, including in such
amount the proceeds from any sale of Option Shares. The non-accountable expense
allowance due shall be paid at the Closing Date and any Option Closing Date, as
applicable, and shall include fees and disbursements of Underwriter's counsel
(exclusive of legal fees for state registration and qualification as provided in
Paragraph 4(c) of this Agreement), but shall not include fees of the Company's
counsel, state registration filing fees, NASD filing fees, Nasdaq listing fees,
printing and mailing to members of the underwriting or selling group, and any
and all other expenses customarily paid by the issuer in a public offering of
securities.
You hereby acknowledge your prior receipt from the Company of
$50,000, which amount shall be applied to the non-accountable expense allowance
due when and if the Public Offering is closed. If the Public Offering does not
close, then any portion of such amount in excess of your accountable
reimbursable expenses shall be returned promptly by you to the Company.
(c) Compliance with Blue Sky Laws. You shall determine in
which states or jurisdictions the Securities shall be registered or qualified
for sale. Copies of all applications and related documents for the registration
or qualification of securities (except for the Registration Statement and
Prospectus) filed with the various states shall be supplied to the Company's
counsel not later than one business day following their transmission to the
various states, and copies of all comments and orders received from the various
states shall be made available promptly to the Company's counsel. Immediately
prior to the Effective Date, counsel for the Underwriter shall advise counsel
for the Company in writing of all states in which the offering has been
registered or qualified for sale or has been canceled, withdrawn, or denied, the
date of each such event, and the number of Securities registered or qualified
for sale in each such state. The Company shall be responsible for the cost of
state registration or qualification filing fees and the legal fees of
Underwriter's counsel in connection with such filings, which filing fees are
payable to Underwriter's counsel in advance of such filings. The legal fees
payable by the Company with respect to blue sky filings by Underwriter's counsel
shall be sixty thousand dollars ($60,000), of which twenty five thousand dollars
($25,000) has been paid. The Company hereby acknowledges that any remaining
balance with respect to legal fees or blue sky filing fees is immediately due
and payable.
-17-
5. Warrants; Other Financial Arrangements
(a) Warrants. On the Closing Date, the Company will sell to
the Underwriter, for an aggregate price of $10, Warrants to purchase an
aggregate of one hundred fifty thousand (150,000) shares of Common Stock from
the Company at an exercise price equal to one hundred twenty percent (120%) of
the public offering price of the Shares. The Warrants and the underlying
securities shall be non-transferable (other than to officers or partners of
members of the underwriting or selling group or as otherwise may be permitted by
the NASD) during the one (1) year period commencing on the Effective Date. The
Warrants and the terms of the underlying securities shall be exercisable for a
period of four (4) years commencing one (1) year from the Effective Date. The
Warrants shall be in substantially the form provided by the Underwriter and
filed as an Exhibit to the Registration Statement.
(b) M/A Agreement.
(i) The Company hereby agrees that if, during
the five (5) year period commencing on the Effective Date, the Underwriter shall
introduce to the Company another party or entity (the "Introduced Party"), and,
as a result of such introduction, a Transaction is consummated with such
Introduced Party, the Company shall pay to the Underwriter a finder's fee (the
"Fee") equal to six percent (6%) of the first three million five hundred
thousand dollars ($3,500,000) of the consideration paid or received in such
Transaction; plus five percent (5%) of the consideration in excess of three
million five hundred thousand dollars ($3,500,000) and up to four million five
hundred thousand dollars ($4,500,000); plus four percent (4%) of the
consideration in excess of four million five hundred thousand dollars
($4,500,000) and up to five million five hundred thousand dollars ($5,500,000);
plus three percent (3%) of the consideration in excess of five million five
hundred thousand dollars ($5,500,000) and up to six million five hundred
thousand dollars ($6,500,000); plus two percent (2%) of the consideration in
excess of six million five hundred thousand dollars ($6,500,000). As used in
this Paragraph 5(b), a "Transaction" shall mean any of the following (i) the
sale of all or substantially all of the assets and properties of the Company or
all or substantially all of the stock of the Company, (ii) the merger or
consolidation of the Company with or into any other corporation or other entity
(other than a merger with a company owned or controlled by the Company), (iii)
the acquisition by the Company of the assets or stock of another business entity
in which the Company may be involved, or (iv) a joint venture, licensing or
marketing agreement or arrangement, however structured.
(ii) The Fee shall be paid in cash at the
closing of the particular Transaction, regardless of whether the Transaction
involves installment payments or the consideration paid includes securities or a
combination of securities and cash; provided, however, that in the event that
the Transaction is a marketing or license or other agreement pursuant to which a
stream of revenue or cash receipts may be generated or other Transaction where
it is impossible to determine the value of the consideration to be paid or
received or in the event that there are contingent payments, the Fee shall be
paid with respect to each payment at the same time as the payment is made or
received, as the case may be, regardless of when the payment is received as long
as the original agreement pursuant to which the payment is made was entered into
during the five (5) year period commencing on the Effective Date. No
modification of payment or other terms of any agreement shall impair the
Underwriter's right to the Fee. In the event that the Transaction involves a
merger or sale of assets or tender offer or sale of stock
-18-
where the consideration is paid to any or all of the Company's stockholders, the
consideration paid to such stockholders shall be included in the consideration
paid or received for purposes of computing the Fee. All references to the
Company in the context of a Transaction shall include ▇.▇▇▇▇, Inc., any of its
present or future subsidiaries or any affiliate of the Company, regardless of
whether such party shall pay or receive the consideration paid in the
Transaction.
(iii) In determining the value of the consideration
paid or received, the following provisions shall apply:
(A) Any securities which are regularly
traded on a securities exchange or in the over-the-counter market shall be
valued at the average of the closing prices in the case of securities listed on
the New York or American Stock Exchange or the Nasdaq Stock Market (or the
closing bid price if there are no transactions on any of such days) or the
average of the closing bid prices, as reported by Nasdaq or the National
Quotation Bureau, Inc. or similar recognized reporting agency, in the case of
securities not traded on such exchanges or in such markets on the ten (10)
trading days prior to the earlier of (I) the date of the agreement or (II) in
the event that a press release or other announcement is made by the Company
and/or the Introduced Party concerning the Transaction and the consideration
provided for in the agreement includes the transfer of a fixed number of
securities, the date of such press release or announcement.
(B) Any debt securities which are not
regularly traded on a securities exchange or on the over-the-counter market
shall be valued at the principal amount thereof if such obligations bear a
stated interest rate or, if no interest rate is stated, at the present value of
the payments due, discounted using an interest rate equal to the prime rate of
Chemical Bank in effect on the second business day prior to the closing date.
(C) The consideration received in a joint
venture shall be based on the consideration paid to the joint venture by the
Introduced Party plus any additional consideration paid by or on behalf of the
joint venture partner to the Company.
(D) In the event that the Transaction
involves the receipt by the Company of property or equipment the consideration
shall be fair value of the property and equipment.
(E) In the event that the fair market value
of any property cannot be determined pursuant to the application of Paragraph
5(b)(iii) of this Agreement and the Company and the Underwriter shall not be
able to agree on a value, the value shall be determined by an appraiser jointly
selected by the Company and the Underwriter.
(iv) Notwithstanding anything in this Paragraph
5(b) to the contrary, if the Company shall, within one hundred eighty (180) days
immediately following the expiration of five (5) years from the Effective Date,
consummate a Transaction with an Introduced Party which was introduced by the
Underwriter to the Company during such five (5) year period, the Company shall
pay the Underwriter the Fee in the same manner as is otherwise provided in this
Paragraph 5(b).
-19-
6. Conditions to the Obligations of the Underwriter. The obligation of
Underwriter to purchase and pay for the Securities shall be subject to the
accuracy in all material respects, as of the date of this Agreement and each
Closing Date (whether the Closing Date with respect to the Firm Shares or an
Option Closing Date with respect to the Option Shares), as if made on such
Closing Date, of the representations and warranties of the Company contained in
this Agreement and the following additional conditions:
(a) Effectiveness of Registration Statement.
(i) The Registration Statement shall have
become effective not later than 5:30 P.M., Eastern Time, on the date of this
Agreement, or such later time or date as shall have been consented to by you in
writing (the "Effective Date").
(ii) On the Closing Date, no stop order
suspending the effectiveness of the Registration Statement or the qualification
or registration of the Securities under the blue sky laws of any jurisdiction
(whether or not a jurisdiction specified by the Underwriter) shall have been
issued, and no proceeding for that purpose shall have been initiated or shall be
threatened or contemplated by the Commission or the authorities of any such
jurisdiction.
(iii) Any request of the Commission or any such
authorities for additional information to be included in the Registration
Statement or Prospectus or otherwise shall have been complied with to the
reasonable satisfaction of counsel for the Underwriter.
(b) Representations; Compliance with Agreement. The
representations and warranties of the Company in this Agreement shall be true
and correct on and as of the Closing Date, with the same effect as if made on
the Closing Date, and the Company shall have complied with all the agreements
and satisfied all the obligations required to be performed or satisfied by each
of them at or prior to the Closing Date.
(c) No Untrue Statements. The Registration Statement and the
Prospectus shall contain all statements required to be stated therein in
accordance with the Securities Act and the Regulation and the Registration
Statement and the Prospectus shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and, since the
Effective Date, there shall not have occurred any event required to be set forth
in an amended or supplemented Prospectus that has not been so set forth (except
any such statement or omission based upon information furnished in writing by or
on behalf of the Underwriter for inclusion in the Registration Statement).
(d) No Material Change. Subsequent to the respective dates as
of which information is given in the Registration Statement and Prospectus, and
except as set forth or contemplated in the Prospectus, (i) there shall have been
no material adverse changes with respect to the officers, directors, operations,
capitalization, contractual obligations, legal proceedings, proposed use of
proceeds from the sale of the Securities, business, plans or prospects, net
assets or liabilities or obligations, properties, or any other aspect of the
financial condition or results of operations of the Company or either of the
Subsidiaries, (ii) neither the Company nor either Subsidiary shall have entered
into any material transaction not in the ordinary course of business,
(iii)neither the Company nor either Subsidiary shall have paid or declared any
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dividends or other distributions on its capital stock, (iv) the conduct of the
business and operations of the Company and each Subsidiary shall not have been
materially interfered with by strike, fire, flood, hurricane, accident or other
calamity (whether or not insured), or by any court or governmental action, order
or decree, and the properties of the Company and of each Subsidiary shall not
have sustained any material loss or damage (whether or not insured) as a result
of any such occurrence, and (v) except as set forth in the Prospectus, there are
no actions, suits, proceedings or investigations pending before any arbitrator,
court or governmental agency, authority or body or, to the Company's Knowledge,
threatened, to which the Company or either Subsidiary is a party or of which the
business or property of the Company or either Subsidiary is the subject and
which, if adversely decided, could reasonably be expected to have a material
adverse affect on the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company or either Subsidiary,
and there have been no material adverse development in any such suits, actions,
proceedings or investigations.
(e) NASD. The NASD shall have indicated that it has no
objection to the underwriting arrangements pertaining to the sale of the Shares
by the Underwriter. No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date, for any member firm of the NASD to execute transactions (as
principal or as agent) in the Securities, Common Stock or Warrants and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the Underwriter's or the Company's Knowledge, shall be
contemplated by the Commission or the NASD. The Company represents at the date
of this Agreement, and shall represent as of the Closing Date or Option Closing
Date, as the case may be, that it has no Knowledge that any such action is in
fact contemplated by the Commission or the NASD.
(f) Certificates, Bylaws and Proceedings. The Company's
Certificate of Incorporation and By-Laws, and 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.
(g) Officers' Certificate. The Company shall have furnished to
the Underwriter a certificate of the President and of the Chief Financial
Officer of the Company, dated the day of the Closing Date, to the effect that
each signer of such certificate has examined the Registration Statement, the
Prospectus, and this Agreement, and confirming, in form satisfactory to the
Underwriter, that the compliance by the Company of the conditions set forth in
Paragraphs 6(a) through (d) of this Agreement have been satisfied.
(h) Opinion of Company Counsel. The Company shall have
furnished to the Underwriter the opinion of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, PA, counsel for the
Company, dated the Closing Date, in form and substance reasonably satisfactory
to counsel to the Underwriter and substantially in the form of Exhibit A
attached hereto. In rendering the opinion, such counsel may rely as to matters
of fact, to the extent they deem proper, upon certificates of the Company's
officers and governmental officials.
(i) Accountants' Letter. At the time this Agreement is
executed and as of the Closing Date, Ernst & Young, LLP, independent public
accountants for the Company, shall have furnished to you a letter addressed to
the Underwriter and dated the date of this Agreement or the Closing Date, as
applicable, in form and substance previously approved by the Underwriter and its
counsel.
-21-
(j) Agreements with Stockholders. The Underwriter shall have
received the agreements, in form and substance satisfactory to the Underwriter,
as contemplated by Paragraph 3(t) of this Agreement.
(k) Change in Capitalization. Subsequent to the respective
dates as of which information is given in the Registration Statement and the
Prospectus, there shall not have been any material adverse change or decrease in
the capital stock or long-term debt obligations of the Company or any decreases
in stockholders' equity, net assets or current net assets of the Company or any
material adverse change in the financial position, revenues, expenses or results
of operations of the Company or either of the Subsidiaries, each as compared
with the amounts shown in the most recent financial statements included in the
Registration Statement, except as disclosed in the Prospectus, that makes it
impractical or inadvisable in the reasonable judgment of the Underwriter to
proceed with the Public Offering or the delivery of the Securities, as the case
may be, as contemplated in the Prospectus.
(l) Warrants. The Company shall have executed and delivered to
the Underwriter the Warrants to purchase one hundred fifty thousand (150,000)
Shares.
(m) Opinion of Underwriter's Counsel. The Underwriter shall
have received an opinion from Esanu Katsky ▇▇▇▇▇▇ & Siger, LLP, counsel for the
Underwriter, as to the organization of the Company, the validity of the
Securities, the form of the Registration Statement and the Prospectus, and such
other related matters as you may request, and such counsel shall have been
furnished by the Company such papers and information as they request to enable
them to pass upon such matters. It is understood that such counsel will express
no opinion with respect to the financial statements and other financial,
accounting, and statistical data included in the Registration Statement and the
Prospectus. In rendering the foregoing opinion, such counsel shall be entitled
to rely upon the opinion delivered to the Underwriter pursuant to Paragraph 6(h)
of this Agreement as to matters of Federal securities law, and may rely as to
matters of fact upon such certificates and other documents and information as
they may reasonably request for purposes of such opinion.
(n) Other Information. Prior to the Closing Date, the Company
shall have furnished to the Underwriter such further information, certificates,
and documents in connection with the Company's obligations set forth in this
Agreement as you may reasonably request.
If any of the conditions specified in this Paragraph 6 shall
not have been fulfilled when and as required by this Agreement, this Agreement
and all obligations of the Underwriter hereunder may be terminated by you at, or
at any time prior to, the Closing Date. Notice of such termination shall be
given to the Company in writing, or by facsimile transmission or telephone and
confirmed in writing.
7. Indemnification
(a) Indemnification by the Company. The Company agrees to
indemnify and hold harmless Underwriter and each person who controls any
Underwriter within the meaning of the Securities Act, from and against any and
all losses, claims, damages or liabilities, joint or several, to which they or
any of them may become subject under the Securities Act, the Exchange Act, or
other Federal or state statutory law or regulation, at common law or otherwise,
insofar as
-22-
such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon (i) any untrue statement or alleged untrue
statement of a material fact made by the Company in this Agreement, (ii) any
untrue statement or alleged untrue statement of a material fact made by the
Company contained in the Registration Statement, or any amendment thereof, or in
any Preliminary Prospectus or the Prospectus, or any amendment thereof or
supplement thereto, or in any blue sky application or other document executed by
the Company specifically for that purpose (or based upon written information
furnished by the Company) filed in any state or other jurisdiction in order to
qualify any of the Securities or other Securities under the securities laws
thereof (any such application, document or information being referred to as a
"Blue Sky Application"); or (iii) the omission or alleged omission to state in
any such Registration Statement, Preliminary Prospectus or Prospectus, or
amendment thereof or supplement thereto, or Blue Sky Application a material fact
required to be stated therein or necessary to make the statements made therein
not misleading, and agrees to reimburse each such indemnified party for any
legal or other expenses reasonably incurred by it in connection with
investigating or defending against any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any such case
to the extent that any such loss, claim, damage, or liability arises out of or
is based upon any such untrue statement or alleged untrue statement or omission
or alleged omission made therein or omitted therefrom in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
you or such Underwriter specifically for use in connection with the preparation
thereof, and further provided, however, that the foregoing indemnity with
respect to any untrue statement, alleged untrue statement, omission, or alleged
omission contained in any Preliminary Prospectus shall not inure to the benefit
of any Underwriter from whom the person asserting any such loss, claims any of,
damage, or liability purchased any of the securities that are the subject
thereof (or to the benefit of any person who controls such Underwriter), if a
copy of the Prospectus was not delivered to such person with or prior to the
written confirmation of the sale of such security to such person. This indemnity
agreement will be in addition to any liability that the Company may otherwise
have.
(b) Indemnification by Underwriter. Underwriter agrees to
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed or signs the Registration Statement, and each person who
controls the Company within the meaning of the Securities Act, from and against
any and all losses, claims, damages or liabilities, joint or several, to which
they or any of them may become subject under the Securities Act, the Exchange
Act, or other Federal or state statutory law or regulation, at common law or
otherwise, insofar as such losses, claims, damages, or liabilities (or actions
in respect thereof) arise out of or are based upon (i) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement, or any amendment thereof, or in any Preliminary Prospectus or the
Prospectus, or any amendment thereof or supplement thereto, or in a Blue Sky
Application, or (ii) the omission or the alleged omission to state in any such
Registration Statement, Preliminary Prospectus or Prospectus, amendment thereof
or supplement thereto, or Blue Sky Application a material fact required to be
stated therein or necessary to make the statements made therein not
misleading, in each case to the extent, but only to the extent, that the same
was made therein or omitted therefrom in reliance upon and in conformity with
written information furnished to the Company by or on behalf of you or such
Underwriter specifically for use in the preparation thereof, and agrees to
reimburse each such indemnified party for any legal or other expenses reasonably
incurred by it in connection with investigating or defending against any such
loss, claim, damage, liability or action. This indemnity agreement will be in
addition to any liability that the Underwriter may otherwise have.
-23-
(c) Claims. Within five (5) days after receipt by an
indemnified party under Paragraph 7(a) or (b) of this Agreement of notice of the
commencement of any action, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party under such subsection,
notify the indemnifying party in writing of the commencement thereof; the
failure so to notify the indemnifying party shall relieve the indemnifying party
from any liability under this Paragraph 7 as to the particular item for which
indemnification is then being sought, unless such indemnifying party has
otherwise received actual notice of the action at least thirty (30) days before
any answer or response is required by the indemnifying party in its defense of
such action, but will not relieve it from any liability that it may have to any
indemnified party otherwise than under this Paragraph 7. If any such action is
brought against any indemnified party and it notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
therein and, to the extent that it may elect by written notice delivered to the
indemnified party promptly after receiving the aforesaid notice from such
indemnified party, to assume the defense thereof; provided, that if the
defendants in any such action include both the indemnified party and the
indemnifying party and either (i) the indemnifying party or parties agree, or
(ii) representation of both the indemnifying party or parties and the
indemnified party or parties by the same counsel is inappropriate under
applicable standards of professional conduct because of actual or potential
conflicting interests between them, then the indemnified party or parties shall
have the right to select separate counsel to assume such legal defense and to
otherwise participate in the defense of such action. The indemnifying party will
not be liable to such indemnified party under this Paragraph 7 for any legal or
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof unless (i) the indemnified party shall have employed
counsel in connection with the assumption of legal defenses in accordance with
the proviso to the immediately preceding sentence (it being understood, however,
that the indemnifying party shall not be liable for the expenses of more than
one separate counsel approved by the indemnifying party for all indemnified
parties), (ii) the indemnifying party shall not have employed counsel to
represent the indemnified party within a reasonable time after notice of
commencement of the action, or (iii) the indemnifying party has authorized the
employment of counsel for the indemnified party at the expense of the
indemnifying party. In no event shall an indemnifying party be liable under this
Paragraph 7 for any settlement, effected without its written consent, which
consent shall not be unreasonably withheld, of any claim or action against an
indemnified party.
(d) Contribution. In order to provide for just and equitable
contribution under the Securities Act in any case in which (i) an indemnified
party makes a claim for indemnification pursuant to Paragraphs 7(a) or (b) of
this Agreement (subject to the limitations thereof) but 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 that the provisions of this Paragraph 7 provide for
indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any indemnified or indemnifying party in
circumstances for which indemnification is provided under Paragraphs 7(a) or (b)
of this Agreement, then, and in each such case, the Company and the Underwriter
shall contribute to the aggregate losses, claims, damages, or liabilities to
which they may be subject (after contribution from all others) in such
proportion so 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 Public Offering Price appearing thereon, and the
Company is responsible for the remaining portion; provided, however, that if
such allocation is not permitted by applicable law, then the relative fault of
the Company and the Underwriter in connection with the statements or omissions
that resulted
-24-
in such losses, liabilities, claims, and damages and other relevant equitable
considerations shall also be considered. The relative fault shall be determined
by reference to, among other things, whether in the case of an untrue statement
of a material fact or the omission to state a material fact, such statement or
omission relates to information supplied by the Company or by the Underwriter
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such untrue statement or omission. The Company
and the Underwriter agree that it would not be just and equitable if the
respective obligations of the Company and the Underwriter to contribute pursuant
to this Paragraph 7(d) were to be determined by pro rata or per capita
allocation of the aggregate damages (even if the Underwriter and their
respective controlling persons in the aggregate were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Paragraph
7(d). For purposes of this Paragraph 7(d), the term "damages" shall include any
legal or other expenses reasonably incurred by the indemnified party in
connection with investigating or defending against or appearing as a third party
witness in any action or claim that is the subject of the contribution
provisions of this Paragraph 7(d). Notwithstanding the provisions of this
Paragraph 7(d), an Underwriter and its controlling persons collectively shall
not be required to contribute any amount in excess of the difference between the
total price of the Securities purchased by the Underwriter, directly or
indirectly, from the Company pursuant to this Agreement and the amount of any
damages that such Underwriter and its controlling persons collectively have been
required to pay by reason of such untrue statement or omission other than
pursuant to this Paragraph 7(d). No person guilty of a fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For the purposes of this Paragraph 7(d), any
person who controls an Underwriter within the meaning of Section 15 of the
Securities Act or Section 20(a) of the Exchange Act shall have the same rights
to contributions as the Underwriter and each director of the Company, each
officer of the Company who signed the Registration Statement, and each person,
if any, who controls the Company within Section 15 of the Securities Act or
Section 20(a) of the Exchange Act shall have the same rights to contribution as
the Company.
The foregoing contribution agreement shall in no way
affect the contribution liabilities of any person having liability under Section
11 of the Securities Act other than the Company and the Underwriter and persons
controlling the Company or the Underwriter.
After receipt by any party to this Agreement of
notice of the commencement of any action, suit, or proceeding, such person will,
if a claim for contribution in respect thereof is to be made against another
party (the "contributing party"), notify the contributing party of the
commencement thereof within a reasonable time thereafter, but the failure so to
notify the contributing party will not relieve the contributing party from any
liability that it may have to any party other than for contribution pursuant to
this Paragraph 7(d). Any notice given pursuant to any other provision of this
Paragraph 7 shall be deemed to be like notice pursuant to this Paragraph 7(d).
If any such action, suit or proceeding is brought against any party, and such
person notifies a contributing party of the commencement thereof, the
contributing party will be entitled to participate therein with the notifying
party and any other contributing party similarly notified, subject to the
provisions of Paragraph 7(c) of this Agreement.
(e) Survival. The respective indemnity and contribution
agreements by the Underwriter and the Company contained in this Paragraph 7, and
the covenants, representations and warranties of the Company set forth in this
Agreement, shall remain operative and in full force
-25-
and effect regardless of (i) any investigation made by the Underwriter or on
their behalf or by or on behalf of any person who controls any Underwriter, by
the Company or any controlling person of the Company or any director or any
officer of the Company, (ii) acceptance of the Securities and payment therefor,
or (iii) any termination of this Agreement, and shall survive the delivery of
the Securities, and any successor to the Company or to any Underwriter or any
person who controls any Underwriter or the Company, as the case may be, shall be
entitled to the benefit of such respective indemnity and contribution
agreements.
8. Effectiveness. This Agreement shall become effective
contemporaneously with the effectiveness of the Registration Statement, or at
such date after the effective time of the Registration Statement as you, in your
discretion, shall first release the Securities for sale to the public; provided,
--------
however, that the provisions of Paragraphs 4, 6, and 7 of this Agreement shall
-------
at all times be in full force and effect. For the purposes of this Paragraph 8,
the Securities shall be deemed to have been released for sale to the public upon
release by you after effectiveness of the Registration Statement of a newspaper
advertisement relating to the Securities or upon release by you thereafter of
telegrams advising securities dealers of the effectiveness of the Registration
Statement, whichever shall first occur.
9. Termination. This Agreement may be terminated, in your absolute
discretion, by notice given to the Company prior to the Closing Date if the
Company shall have failed, refused, or been unable, prior to the Closing Date,
to perform any material agreement required to be performed by it hereunder, or
if any other condition of the Underwriter's obligations hereunder required to be
fulfilled by the Company is not fulfilled. In addition, this Agreement may be
terminated, as set forth above, if, prior to the Closing Date, any of the
following shall have occurred: (a) material governmental restrictions (not in
force and effect on the date of this Agreement) have been imposed on trading in
securities on the New York Stock Exchange or American Stock Exchange or in the
over-the-counter market; (b) the determination by you that there shall have
occurred a material adverse change, beyond normal fluctuations, in general
financial market or economic conditions from such conditions on the date of this
Agreement; (c) a material interruption in mail or telecommunications service or
other general means of communications within the United States after the
execution and delivery of this Agreement; (d) a banking moratorium has been
declared by Federal or New York state authorities; (e) an outbreak of major
international hostilities or other national or international calamity has
occurred; (f) the passage by the Congress of the United States or by any state
legislative body of any act or measure, or the adoption of any orders, rules, or
regulations by any governmental body or executive or any authoritative
accounting institute or board, that you believe will have a Material Adverse
Effect on the business, financial condition, or financial statements of the
Company or the distribution of the Securities or market for the Securities; or
(g) any material adverse change has occurred, since the respective dates of
which information is given in the Registration Statement and Prospectus, in the
condition of the Company, financial or otherwise, whether or not arising in the
ordinary course of business. Any such termination shall be without liability of
any party to any other party, except as provided in Paragraph 7 in this
Agreement and except that the Company shall remain obligated to pay costs and
expenses pursuant to Paragraph 4 in this Agreement. If you elect to prevent this
Agreement from becoming effective, or to terminate this Agreement, as provided
in this Paragraph 9, you shall promptly notify the Company by telecopier or
telephone, and confirm by letter, and the Underwriter shall not be under any
liability to the Company.
-26-
10. Survival of Representations, Warranties, and Indemnities. The
respective agreements, representations, warranties, and indemnities contained in
this Agreement will remain in full force and effect regardless of any
investigation made by or on behalf of you, any Underwriter or the Company, or
any of your or their respective officers or directors or controlling persons,
and will survive delivery of and payment for the Securities.
11. Notices. All notices and other communications hereunder (unless
otherwise expressly provided for in this Agreement) shall be in writing and
shall be deemed given when delivered in person or by overnight courier service
or Express Mail, on the business day (before 5:00 P.M.) transmitted if sent by
facsimile transmission or similar means of communication if receipt if confirmed
or if transmission is confirmed as otherwise provided in this Paragraph 11, or
the fifth (5th) day after mailing if mailed if sent by registered or certified
mail (return receipt requested) to the party to receive the same at the
following addresses (or at such other address for a party as shall be specified
by like notice):
If to the Company: ▇.▇▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇,
Chief Executive Officer
With a copy to: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, P.A.
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
If to the Underwriter: HD ▇▇▇▇▇ & Co., Inc.
▇▇ ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇,
Chairman
With a copy to: Esanu Katsky ▇▇▇▇▇▇ & Siger, LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Facsimile: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ P.C.
12. Successors. This Agreement will inure to the benefit of and be
binding upon the parties hereto and their respective successors. The terms
"successor" and "successors and assigns" as used in this Agreement shall not
include any buyer, as such, of any of the Securities from the Underwriter.
13. Entire Understanding. This Agreement contains the entire
understanding between the parties to this Agreement and supersedes any prior or
contemporaneous oral or prior written agreement, understandings or letter of
intent, and may not be modified or amended nor may any right be waived except by
a writing signed by all parties in the case of a modification or
-27-
amendment or the party to be charged in the case of a waiver. No course of
conduct or dealing and no trade custom or practice shall be construed to modify
any of the provisions of this Agreement.
14. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be an original but all of which taken together
shall constitute one and same agreement.
15. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York applicable to
agreements executed and to be performed wholly within such State.
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Please confirm, by signing and returning to the Company
counterparts of this Underwriting Agreement, that the foregoing correctly sets
forth the understanding between the Company and you, whereupon this Agreement
will constitute a binding agreement among us.
Very truly yours,
▇.▇▇▇▇, INC.
By:________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Chief Executive Officer
Confirmed and Accepted as of
the date first above-written:
HD ▇▇▇▇▇ & CO, INC.
By:__________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, Chairman
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Exhibit A
Opinion of Company Counsel
--------------------------
1. The Company and each Subsidiary (a) has been duly incorporated and
is a validly existing corporation in good standing under the laws of the state
of its incorporation, with full corporate power and authority to own and operate
its properties and to carry on its business as set forth in the Registration
Statement and Prospectus; (b) on the Effective Date has authorized and
outstanding capital stock as set forth in the Prospectus, and (c) is duly
licensed or qualified as a foreign corporation in Pennsylvania and all other
jurisdictions in which by reason of owning or leasing real property in such
jurisdiction it is required to be so licensed or qualified except where failure
to be so qualified or licensed would have no Material Adverse Effect.
2. All of the outstanding shares of Common Stock, including the shares
of Common Stock issued upon conversion of the Company's Series A, B, C and D
Preferred Stock, as described in the Prospectus, and all of the outstanding
shares of Series E Preferred Stock, are duly and validly authorized and issued
and outstanding, fully paid and non-assessable, conform to the description set
forth in the Prospectus and do not have any, and were not issued in violation of
any, preemptive rights under the Company's certificate of incorporation or
by-laws or any other agreement known to such counsel. As of the Closing Date,
there are no shares of Series A, B, C and D Preferred Stock outstanding.
3. The Company has authorized and reserved for issuance the shares of
Common Stock issuable upon exercise of the outstanding options or warrants,
including the Warrants, in accordance with their respective terms, and, when
issued upon such exercise, such shares of Common Stock will be duly and validly
authorized and issued, fully paid and non-assessable and not subject to any
preemptive rights or rights of first refusal pursuant to the Company's
certificate of incorporation or by-laws or other agreement known to such
counsel.
4. The Shares offered pursuant to the Prospectus (a) are duly and
validly authorized and issued, fully paid and non-assessable, (b) have not been
issued in violation of the pre-emptive rights or rights of first refusal
pursuant to the Company's certificate of incorporation or any agreement known to
such counsel and (c) are not subject to any liens, encumbrances, claims,
security interests, stockholders agreements, voting trusts or restrictions on
voting or transfer other than as disclosed in the Prospectus or as may be
imposed under Federal and state securities laws.
5. The Warrants constitute the valid, binding and enforceable
obligations of the Company, subject to bankruptcy, insolvency and other laws of
general applications affecting the enforceability of creditors' rights and
subject to the discretionary nature of any remedies in the nature of equitable
relief and except that no opinion is given with respect to the indemnification
and contribution provisions of the Warrants.
6. Except as set forth in or contemplated by the Prospectus, to such
counsel's knowledge, as of the date of this Agreement, there were no outstanding
options, warrants or other rights providing for the issuance of any class of
capital stock of the Company, or any security convertible into, or exchangeable
for, any shares of any class of capital stock of the Company.
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7. To such counsel's knowledge, neither the filing of the Registration
Statement nor the offering of the Shares as contemplated by this Agreement gives
rise to any registration rights or other rights, other than those which have
been waived or satisfied, relating to the registration under the Securities Act
of any shares of Common Stock.
8. The certificates evidencing the Shares are in proper legal form.
9. To such counsel's knowledge, no consents, approvals, authorizations
or orders of agencies, officers or other regulatory authorities are necessary
for the valid authorization, issue or sale of the Securities pursuant to this
Agreement, except such as may be required under the Securities Act, the Exchange
Act or state securities or blue sky laws or pursuant to the NASD's rules,
regulations and policies or as required under the regulations of the Nasdaq
SmallCap Market and the Pacific.
10. This Agreement and the Warrants have been duly authorized and
executed by the Company and constitute the valid and binding agreements of the
Company, enforceable in accordance with their respective terms, subject to
bankruptcy, insolvency and other laws of general applications affecting the
enforceability of creditors' rights and subject to the discretionary nature of
any remedies in the nature of equitable relief and except that no opinion is
given with respect to the provisions of Paragraph 7 of this Agreement.
11. The Company has corporate power and authority to authorize, issue
and sell the Securities on the terms and conditions set forth in this Agreement
and the Warrants, as the case may be, and in the Registration Statement and in
the Prospectus, and the execution and delivery of this Agreement, the
consummation of the transactions contemplated by this Agreement and the Warrants
and compliance by the Company with the terms of this Agreement and the Warrants
will not conflict with, or constitute a default under, the certificate of
incorporation or by-laws of the Company or any indenture, mortgage, deed or
trust, note or any other agreement or instrument known to such counsel to which
the Company or either Subsidiary is a party or by which they or their respective
businesses or properties are bound, or, to such counsel's knowledge, any law,
order, rule or regulation, writ, injunction or decree of any government,
governmental instrumentality, or court having jurisdiction over the Company, the
Subsidiaries or their respective businesses or properties.
12. Such counsel knows of no actions, suits or proceedings at law or in
equity of a material nature pending, or to such counsel's knowledge, threatened,
against the Company before or by any state commission, regulatory body, or
administrative agency or other governmental body, wherein an unfavorable ruling,
decision or finding would materially adversely affect the business or financial
condition of the Company or which question either (a) the validity of the
issuance of the Securities, the execution of the Underwriting Agreement or the
Warrants by the Company, or (b) any action taken or to be taken by the Company
pursuant to the Underwriting Agreement or the Warrants, which are not disclosed
in or contemplated by the Prospectus.
13. The Registration Statement has become effective under the Act.
Furthermore, the Registration Statement and the Prospectus (except as
to the financial statements and other financial, statistical and accounting
information contained therein or omitted therefrom, as to which no opinion is
expressed), comply as to form in all material respects with
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the requirements of the Act and the rules and regulations (the "Rules") of the
Commission under the Securities Act. In passing upon the form of such documents,
such counsel has assumed the correctness and completeness of the statements made
or included therein by the Company and take no responsibility for the accuracy,
completeness or fairness of the statements contained therein except insofar as
such statements relate to the description of the Securities or relate to such
counsel. However, in the course of the preparation by the Company of the
Registration Statement and the Prospectus, such counsel had conferences with
officers and directors of the Company in connection with the preparation of the
Registration Statement and Prospectus, and, without independently verifying the
accuracy, completeness or fairness of the statements contained in the
Registration Statement and the Prospectus and relying on the Company's officers
regarding materiality, no facts have come such counsel's attention which gave
such counsel reason to believe that the Registration Statement, as of the
effective date thereof (except as to the financial statements and other
financial, statistical and accounting information contained therein or omitted
therefrom, as to which no opinion is expressed), contained any untrue statement
of a material fact or omitted 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 that the Prospectus
(except as to the financial statements and other financial, statistical and
accounting information contained therein or omitted therefrom, as to which no
opinion is expressed) contained any untrue statement of a material fact or omits
to state a material fact necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading. Such counsel
does not know of any documents which are required to be filed as exhibits to the
Registration Statement which have not been so filed.
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