Ex. 1
INTELLI-CHECK, INC.
UNDERWRITING AGREEMENT
1,000,000 Shares of Common Stock
(Par Value $.001 Per Share)
New York, New York
September , 1999
GunnAllen Financial, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇ - ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇
Dear Sirs:
Intelli-Check, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to GunnAllen Financial, Inc. (the "Underwriter")
pursuant to this Underwriting Agreement (the "Agreement") One Million
(1,000,000) Firm Shares of Common Stock of the Company, par value $.001 per
share, and to grant to the Underwriter the option referred to in Section 2(b)
hereof to purchase all or any part of an additional One Hundred and Fifty
Thousand (150,000) Option Shares or such other number as may be permitted
thereunder, for the purpose of covering over-allotments. It is understood that
the Underwriter proposes to offer the Shares to be purchased hereunder to the
public upon the terms and conditions set forth in the Registration Statement (as
hereinafter defined) after the Registration Statement becomes effective. As used
in this Agreement, the term "Common Stock" shall mean the authorized capital
stock of the Company, par value $.001 per share; the term "Firm Shares" shall
mean the 1,000,000 shares of Common Stock to be issued and sold to the
Underwriter at the First Closing Date referred to in Section 2(a) hereof; the
term "Option Shares" shall mean such of the additional 150,000 shares of Common
Stock as are purchased pursuant to the option referred to in Section 2(b)
hereof; and the term "Shares" shall mean the Firm Shares and the Option Shares
collectively. The Company will also issue and sell to the Underwriter, for its
own account and the accounts of its designees for an aggregate price of $100.00,
warrants (the "Underwriter's Warrants") to purchase up to an aggregate of
100,000 shares of Common Stock (the"Warrant Shares") at an exercise price of
$7.70 per share, which sale will be consummated in accordance with the terms and
conditions of the form of Underwriter's Warrant substantially in the form of
Exhibit 4.2 to the Registration Statement.
1. Representations and Warranties. The Company represents and warrants
to, and agrees with, the Underwriter:
(a) The conditions for use of a registration statement on Form SB-2
have been satisfied with respect to the Company, the transactions contemplated
herein and in the
Registration Statement (defined below). A Registration Statement on Form SB-2
(File No. 333-_______), including a preliminary form of Prospectus (the
"Registration Statement"), relating to the offering of the Shares, the
Underwriter's Warrants and the Warrant Shares (all of which collectively are
referred to as the "Securities") has been prepared by the Company in conformity
with the requirements of the Securities Act of 1933, as amended (the "Act"), and
the rules and regulations (the"Rules and Regulations") of the Securities and
Exchange Commission (the "Commission") promulgated pursuant to the Act, and said
Registration Statement has been filed with the Commission under the Act. One or
more amendments to said Registration Statement has or have, as the case may be,
been similarly prepared and filed with the Commission covering the registration
of the Securities under the Act including the related preliminary prospectus or
preliminary prospectuses (each thereof being herein called a "Preliminary
Prospectus"). Each Preliminary Prospectus was endorsed with the legend required
by Item 501(a) of Regulation S-B and, if applicable, Rule 430A of the Rules and
Regulations. The Company has prepared and proposes to file on or prior to the
effective date of said Registration Statement an additional amendment thereto
which will include the final Prospectus. The Company will not, so long as any
portion of the Underwriter's Warrants remains outstanding and exercisable, file
any amendment to the Registration Statement or any amendment or supplement to
the Preliminary Prospectus or the Prospectus (as those terms are defined below)
unless the Company has given reasonable and prior notice thereof to the
Underwriter and counsel for the Underwriter and neither shall have reasonably
objected within a reasonable period of time prior to the filing thereof. As used
in this Agreement and unless the context indicates otherwise, the term
"Registration Statement" refers to and means said Registration Statement,
including any documents incorporated by reference therein, all exhibits,
financial statements and schedules and the Prospectus included therein, as
finally amended and revised on or prior to the effective date (the "Effective
Date") of said Registration Statement. The term "Preliminary Prospectus" refers
to and means any prospectus filed with the Commission and included in said
Registration Statement before it becomes effective, and the term "Prospectus"
refers to and means the Prospectus included in the Registration Statement,
except that (i) if the prospectus first filed by the Company pursuant to Rule
424(b) of the Rules and Regulations shall differ from the Prospectus, the term
"Prospectus" shall refer to the prospectus filed pursuant to Rule 424 (b) and
(ii) if the Registration Statement is amended or such Prospectus is supplemented
after the Effective Date and prior to the Option Closing Date (as defined in
Section 2), then the terms "Registration Statement" and "Prospectus" shall
include such documents as so amended or supplemented. The terms used herein
shall have the same meaning as in the Prospectus unless the context hereof
otherwise requires.
(b) Neither the Commission nor, to the best of the Company's
knowledge after due investigation, any state regulatory authority has issued an
order preventing or suspending the use of any Preliminary Prospectus nor has the
Commission or any such authority instituted or, to the best of the Company's
knowledge, threatened to institute any proceedings with respect to such an
order.
(c) The Registration Statement when it becomes effective, the
Prospectus (and any amendments or supplements thereto) when it is filed with the
Commission pursuant to Rule 424(b), and both documents as of First Closing Date
and the Option Closing
- 2 -
Date referred to below, will contain all statements which are required to be
stated therein in accordance with the Act and the Rules and Regulations and will
conform in all material respects to the requirements of the Act and the Rules
and Regulations, and at such times neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading in
light of the circumstances in which they were made, except that the
representations and warranties in this Section 1(c) do not apply to statements
or omissions made in the Registration Statement or Prospectus made in reliance
upon and in conformity with information furnished in writing to the Company in
connection with the Registration Statement or Prospectus or any amendment or
supplement thereto by the Underwriter, expressly for use therein.
(d) The Company has been duly incorporated and is now, and at
the Closing Dates will be, validly existing and in good standing as a
corporation under the laws of the State of Delaware, and has full power and
authority, corporate and other, to own or lease, as the case may be, its
properties, whether tangible or intangible, and conduct its business as
presently conducted and as described in, or contemplated by, the Registration
Statement and to execute, deliver and perform this Agreement and the
Underwriter's Warrant Agreement and to consummate the transactions contemplated
hereby and thereby. The Company is duly qualified to do business and is in good
standing as a foreign corporation in all jurisdictions in which the nature of
the business transacted by it or the character or location of its properties, in
each case taken as a whole, makes such qualification necessary, except where the
failure to so qualify would not have a material adverse effect upon the
financial condition, results of operations, business or properties of the
Company, taken as a whole. The Company holds, or will hold by the First Closing
Date, all licenses, certificates and permits from state, federal or other
regulatory authorities necessary for the conduct of its business as presently
conducted and as described in or contemplated by the Registration Statement and
is in material compliance with all laws and regulations and all orders and
decrees applicable to it or to such business or assets, and there are no
proceedings pending or, to the knowledge of the Company, threatened, seeking to
cancel, terminate or limit such licenses, approvals or permits. The Company does
not own, directly or indirectly, any capital stock of or other equity interest
in any corporation, partnership or other legal entity whatsoever.
(e) The financial statements of the Company, including the
schedules and related notes filed as part of the Registration Statement and
included in the Prospectus, are complete, correct and present fairly the
financial position of the Company as of the dates thereof and the results of
operations and changes in financial position of the Company for the respective
periods indicated therein. Such financial statements have been prepared in
accordance with generally accepted accounting principles consistently applied
throughout the periods involved, except as otherwise stated in the Registration
Statement and the Prospectus, and all adjustments necessary for a fair
presentation of results for such periods have been made. The selected financial
data set forth in the Registration Statement and the Prospectus present fairly
the information shown therein and have been compiled on a basis consistent with
that of the audited and unaudited financial statements included in the
Registration Statement and the Prospectus.
- 3 -
(f) The accounting firm of ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, who has
certified certain of the financial statements filed and to be filed with the
Commission as part of the Registration Statement, are independent public
accountants within the meaning of the Act and the Rules and Regulations.
(g) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus and the Company's
latest financial statements, (i) the Company has not incurred any material
liability or obligation, direct or contingent, or entered into any material
transactions whether or not incurred in the ordinary course of business; (ii)
the Company has not sustained any material loss or interference with its
business from fire, storm, explosion, flood or other casualty (whether or not
such loss is insured against), or from any labor dispute or court or
governmental action, order or decree; (iii) since the respective dates as of
which information is given in the Registration Statement and Prospectus, there
have not been, and through and including the First Closing Date referred to
below, there will not be, any changes in the capital stock or any material
increases in the long-term debt or other securities of the Company or any
material adverse change in the condition (financial or other), business,
operations, income, net worth or properties of the Company; and (iv) the Company
has not paid or declared any dividend or other distribution on its Common Stock
or its other securities or redeemed or repurchased any of its Common Stock or
other securities.
(h) This Agreement and compliance by the Company with the
terms thereof, has been duly and validly authorized by all necessary corporate
action and has been duly executed and delivered by the Company and constitutes
the valid and binding obligations of the Company enforceable in accordance with
its terms, except to the extent enforceability may be limited by any bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and, to the extent that the remedy of
specific performance and injunction or other forms of equitable relief may be
subject to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought. The Underwriter's Warrant Agreement (as
defined in Section 2(d) below) and compliance by the Company with the terms
thereof, have been duly and validly authorized by all necessary corporate action
and upon execution and delivery will be duly executed and delivered by the
Company and will constitute the valid and binding obligations of the Company
enforceable in accordance with their respective terms, except to the extent
enforceability may be limited by any bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium or similar laws affecting creditors' rights
generally and to the extent that the remedy of specific performance and
injunction or other forms of equitable relief may be subject to equitable
defenses and the discretion of the court before which any proceeding therefor
may be brought. The Company is not presently in violation of or in default under
this Agreement and the Underwriter's Warrant Agreement and the execution,
delivery and performance by the Company of this Agreement and the Underwriter's
Warrant Agreement and the consummation of the transactions herein and therein
contemplated, will not, with or without the giving of notice or the lapse of
time or both, (i) result in a breach of or constitute default under any of the
terms, conditions or provisions of the Certificate of incorporation or by-laws,
each as amended, 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 in the
modification or termination of, or the creation or imposition of any lien,
security
- 4 -
interest, charge or encumbrance upon any property or asset of the Company
pursuant to any material note, indenture, mortgage, deed of trust, contract,
commitment or other agreement or instrument to which the Company is a party or
by which the Company or any of its respective properties or assets may be bound
or affected; (iii) violate any existing law, order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality, agency,
body or court, domestic or foreign, having jurisdiction over the Company or any
of its properties or businesses; or (iv) have any effect on any permit,
certification, registration, approval, consent, order license, franchise or
other authorization (collectively, the "Permits") necessary for the Company to
own or lease and operate its properties and to conduct its business or the
ability to make use thereof.
(i) To the Company's knowledge no Permits of any government or
governmental instrumentality, agency, body or court other than under the Act,
the blue sky or securities laws of any state or the rules of the National
Association of Securities Dealers, Inc. ("NASD") (including approval of
underwriting compensation and listing of the Common Stock on The Nasdaq Stock
Market) are required (i) for the valid authorization, issuance, sale and
delivery of the shares to the Underwriter, and (ii) the consummation by the
Company of the transactions contemplated by this Agreement and the Underwriter's
Warrant Agreement.
(j) Except as disclosed in the Prospectus there is neither
pending nor, to the best of knowledge of the Company after due investigation,
threatened, against the Company any claim, action, suit, or proceeding at law or
in equity, arbitration (or circumstances that may give rise to the same),
investigation or inquiry to which the Company or any of its respective officers,
directors or shareholders is a party or involving the Company's properties or
businesses before or by any court, arbitration tribunal or governmental
instrumentality, agency, or body, which, if determined adversely to the Company,
would individually or in the aggregate result in any material adverse change in
the condition (financial or other), business, management of affairs or business
prospects, results of operations, income, shareholders' equity, net worth or
properties or which question the validity of the capital stock of the Company or
prevent consummation of the transactions contemplated hereby; nor are there any
such actions, suits or proceedings against the Company related to consumer
protection, distribution, rental and sales, or environmental matters or matters
related to discrimination on the basis of age, sex, religion or race; and no
labor disturbance by the employees of the Company exists or to the knowledge of
the Company is imminent which might be expected to materially adversely affect
the conduct of the business, property, operations, financial condition or
earnings of the Company, taken as a whole.
(k) There is no contract or other document which is required
by the Act or by the Rules and Regulations to be described in the Registration
Statement or the Prospectus or to be filed as an exhibit to the Registration
Statement which has not been so described or filed as required and each contract
or document which has been described in the Registration Statement has been
described accurately and presents fairly the information required to be
described and each such contract or document which is filed as an exhibit to the
Registration Statement is and shall be in full force and effect at the Closing
Date or shall have been terminated in accordance with its terms or as set forth
in the Registration Statement and
- 5 -
Prospectus, and no party to any such contract has given notice to the Company of
the cancellation of or, to the knowledge of the Company, shall have threatened
to cancel, any such contract, and except as described in the Prospectus, the
Company is not in default thereunder.
(l) The Company does not own any real property. The Company
has good title to all of its personal property (tangible and intangible) and
assets, including any licenses, trademarks and copyrights, described in the
Registration Statement as owned by it, free and clear of all security interests,
liens, charges, mortgages, encumbrances and restrictions other than such as are
not materially significant in relation to the business of the Company and other
than as described in the Registration Statement and Prospectus. The leases,
subleases and licenses under which the Company is entitled to lease, hold or use
any real or personal property are valid, subsisting and enforceable only with
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 become due prior to the date of this
Agreement have been duly paid and neither the Company nor, to the Company's best
knowledge after due investigation, any other party is in default in respect of
any of the terms or provisions of any such leases, subleases and licenses, and
no claim of any sort has been asserted by anyone adverse to the rights of the
Company under any such leases, subleases or licenses affecting or questioning
the rights of the Company to the continued use or enjoyment of the rights and
property covered thereby. 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. The Company owns or leases all such properties
as are necessary to its operations as now conducted and as proposed to be
conducted as set forth in the Prospectus.
(m) The Company has filed with the appropriate federal, state
and local governmental agencies, and all appropriate foreign countries and
political subdivisions thereof, all tax returns, including franchise tax
returns, which are required to be filed or have duly obtained extensions of time
for the filing thereof and have paid all taxes shown on such returns and all
assessments received by them to the extent that the same have become due; and
the provisions for income taxes payable, if any, shown on the financial
statements filed with or as part of the Registration Statement are sufficient
for all accrued and unpaid foreign and domestic taxes, whether or not disputed,
and for all periods to and including the dates of such consolidated financial
statements. Except as disclosed in writing to the Underwriter, neither the
Company nor any 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 any 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 any Subsidiary.
(n) The Company maintains insurance, which is in full force
and effect, including but not limited to personal injury and product liability
insurance, insurance covering all personal property owned or leased by the
Company against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against. The Company maintains insurance in amounts as
are usually maintained by companies engaged in the same or similar businesses
located in their geographic area. The Company is not aware of any facts or
circumstances which
- 6 -
would require it to notify its insurers of any claim of which notice has not
been made or will not be made in a timely manner. To the best knowledge of the
Company, there are no facts or circumstances under any existing insurance policy
or surety bond which would relieve any insurer of its obligation to satisfy in
full any existing valid claim of the Company under such policy or bond.
(o) The Company owns or otherwise possesses adequate,
enforceable and unrestricted rights to use all patents, patent rights,
inventions, trademarks, service marks, trade names and copyrights, rights, trade
secrets, confidential information, processes and formulations (including all
other unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), inventions, designs, works of authorship, computer
programs and technical data and information used or proposed to be used in the
conduct of its business as described in the Prospectus (collectively, the
"Intangibles"). The Company has not infringed nor is it infringing upon the
rights of others with respect to the Intangibles and the Company has not
received any notice that it has or may have infringed or is infringing on the
rights of others with respect to the intangibles. The Company has not received
any notice of conflict with the asserted rights of others with respect to the
Intangibles which could, singly or in the aggregate, materially adversely affect
its business as presently conducted or the prospects, financial condition or
results of operations of the Company, and the Company knows of no basis
therefor. To the best of the Company's knowledge, no others have infringed upon
the Intangibles of the Company. Except as disclosed in the Prospectus, the
Company is not obligated or under any liability whatsoever to make any payment
by way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, the Intangibles with respect to the use thereof or in connection
with the conduct of its business or otherwise. The Company has taken reasonable
security measures to protect the secrecy, confidentiality and value of all its
Intangibles in all material aspects.
(p) Neither the Company nor any of its affiliates has incurred
any liability for, nor is there is any outstanding claim for services in the
nature of, a finder's fee or similar fee in connection with the transactions
herein contemplated.
(q) No officer or director of the Company, or any affiliate
(as such term is defined in Rule 405 promulgated under the Rules and
Regulations) of any such officer or director, has taken, and each officer or
director has agreed that he will not take, directly or indirectly, any action
designed to constitute or which has constituted or which might reasonably be
expected to cause or result in the stabilization of the price of the Common
Stock or a violation of Regulation M of the Rules and Regulations or in a
manipulation of the price of any security issued by the Company.
(r) Except as disclosed in or contemplated by the Prospectus,
no officer, director or stockholder of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had
during the past three years, either directly or indirectly, (i) an interest in
any person or entity which (A) furnishes or sells products which are furnished
or sold or are proposed to be furnished or sold by the Company, or (B) purchases
from or sells or
- 7 -
furnishes to the Company any goods or services, or (ii) a beneficial interest in
any contract or agreement to which the Company is a party or by which it may be
bound or affected. There are no existing agreements, arrangements, or
transactions, between or among the Company and any officer, director of the
Company, or any partner, affiliate or associate of any of the foregoing persons
or entities which are required to be described in the Registration Statement and
which are not so described.
(s) The minute books of the Company have been made available
to the Underwriter and contain a complete summary of all meetings and actions of
the directors and stockholders of the Company since the time of its
incorporation, and reflect all transactions referred to in such minutes
accurately in all respects.
(t) No labor problem exists with any of the Company's
employees or is imminent, nor is the Company aware of any bankruptcy, labor
disturbance or other event affecting any of its principal suppliers or
customers, which could materially adversely affect the condition, financial or
otherwise, prospects, business or results of operation of the Company.
(u) The Securities and the other securities of the Company
conform to all statements in relation thereto in the Registration Statement; the
authorized, issued and outstanding shares of Common Stock are set forth in the
Prospectus under the caption "Capitalization"; the outstanding shares of Common
Stock have been duly authorized and validly issued and are fully paid and
non-assessable; the outstanding options and warrants to purchase Common Stock
have been duly authorized and validly issued and constitute the valid and
binding obligations of the Company, enforceable in accordance with their terms;
the holders of the outstanding Common Stock are not subject to personal
liability for obligations of the Company solely by reason of being stockholders;
and none of such outstanding shares of Common Stock or warrants or options to
purchase Common Stock were issued in violation of the pre-emptive rights of any
stockholder of the Company. The offers and sales of the outstanding Common Stock
and outstanding options and warrants to purchase Common Stock were at all
relevant times either registered under the Act and the applicable state
securities or Blue Sky laws or exempt from such registration requirements.
Except as forth in the Registration Statement and Prospectus, on the Effective
Date and on the Closing Dates there will be no outstanding options or warrants
for the purchase of, or other outstanding rights to purchase or acquire, Common
Stock or securities convertible or exchangeable into Common Stock. Except as set
forth in the Prospectus, no holder of any securities of the Company has any
rights, "demand", "piggyback" or otherwise to have such securities registered
under the Act.
(v) The issuance and sale of the Shares have been duly
authorized and, upon delivery against payment therefor as contemplated by this
Agreement, the Shares will be validly issued, fully paid and non-assessable, and
the holders thereof will not be subject to personal liability solely by reason
of being such holders. The Shares will not be subject to pre-emptive rights of
any stockholder of the Company.
(w) The issuance and sale of the Underwriter's Warrants has
been duly authorized and when issued and delivered in accordance with the terms
hereof and the
- 8 -
Underwriter's Warrant Agreement, shall constitute the valid and binding
obligations of the Company enforceable in accordance with their terms. The
issuance and sale of the Warrant Shares have been duly authorized, and, when
duly delivered against payment therefor as contemplated by the Underwriter's
Warrant Agreement, such Warrant Shares will be validly issued, fully paid and
non-assessable, and will conform to the description thereof contained in the
Prospectus. Holders of Warrant Shares issuable upon the exercise of the
Underwriter's Warrants will not be subject to personal liability solely by
reason of being such holders. Neither the Underwriter's Warrants nor the Warrant
Shares issuable upon exercise thereof will be subject to pre-emptive rights of
any stockholder of the Company. The Company has reserved a sufficient number of
shares of Common Stock from its authorized but unissued Common Stock for
issuance upon exercise of the Underwriter's Warrants in accordance with the
provisions of the Underwriter's Warrant Agreement. The Underwriter's Warrants
conform to the descriptions thereof contained in the Registration Statement and
the Prospectus.
(x) During the period of twelve (12) months from the Effective
Date hereof (the "Lock-Up Period") neither the Company nor any of its officers,
directors or 5% stockholders will offer for sale or sell or otherwise dispose
of, directly or indirectly, any securities of the Company, in any manner
whatsoever, whether pursuant to Rule 144 of the Regulations or otherwise without
the prior written consent of the Underwriter; provided, however, (A) each
Stockholder, to the extent permitted by law, may sell his securities in a
private transaction during the Lock-Up Period so long as the acquirer of the
securities at the time of acquisition enters into a written agreement with
Underwriter to be bound by the terms of the seller's Lock-Up Agreement, and (B)
each such person desiring to sell securities during the two-year period
commencing on termination of said Lock-Up Period shall sell his securities
through the Underwriter if the price and terms of execution offered by the
Underwriter are at least as favorable as may be obtained from other brokerage
firms. The Lock-up Agreements also provide that (i) in the event that any of the
sellers desire to sell their shares during any period commencing two-years after
expiration of the lock-up period pursuant to Rule 144, then the seller shall
sell the shares through the Underwriter as long as the terms of such sale are at
least as favorable as may be obtained from other brokerage firms and (ii) such
seller waives all registration rights for a period of 12 months following the
Effective Date.
(y) Neither the Company nor any officer, director or other
agent of the Company has, acting on behalf of the Company, at any time (i) made
any contributions to any candidate for political office in violation of law, or
failed to disclose fully any such contributions in violation of law, (ii) made
any payment to any state, Federal or foreign governmental officer or official,
or any other person charged with similar public or quasi-public duties, other
than payments required or allowed by applicable law or (iii) made any payment of
funds of the Company or received or retained any funds in violation of any law,
rule or regulation and under circumstances requiring the disclosure of such
payment, receipt or retention of funds in the Prospectus. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
- 9 -
(z) The Company is not an "Investment Company" or a company
"controlled" by an "investment Company," within the meaning of the Investment
Company Act of 1940, as amended.
(aa) No securities of the Company have been sold by the
Company or by or on behalf of, or for the benefit of any person or persons
controlling, controlled by or under common control with the Company within the
three years prior to the date hereof, except as disclosed in the Registration
Statement.
(ab) The employment, consulting, confidentiality and
non-competition agreements between the Company and its officers, employees and
consultants, described in the Registration Statement are binding and enforceable
obligations upon the respective parties thereto in accordance with their terms,
except to the extent enforceability may be limited by any applicable bankruptcy,
insolvency, reorganization, fraudulent conveyance, moratorium or similar laws
affecting creditors' rights generally and to the extent that the remedy of
specific performance and injunction or other forms of equitable relief may be
subject to equitable defenses and the discretion of the court before which any
proceeding therefor may be brought.
(ac) Except as set forth in the Prospectus, the Company has no
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974.
(ad) Except as set forth in the Properties there are no voting
or other stockholder agreements between the Company and any stockholders of the
Company or between or by and among any stockholders of the Company.
(ae) The Company has filed a registration statement on Form
8-A with respect to its Common Stock under Section 12(b) of the Securities
Exchange Act of 1934, as amended (the"1934 Act") and such registration statement
has been declared effective by the SEC. The Company has filed a listing
application with respect to its Common Stock with the American Stock Exchange,
Inc. ("AMEX") and such listing application has been accepted by the AMEX,
subject to official notice of issuance.
(af) The Company is in compliance with all federal, state,
local, and foreign laws and regulations respecting employment and employment
practices, terms and conditions of employment and wages and hours. There are no
pending investigations involving the Company, by the U.S. Department of Labor or
any other governmental agency responsible for the enforcement of such federal,
state, local, or foreign laws and regulations. There is no unfair labor practice
charge or complaint against either the Company pending before the National Labor
Relations Board or any strike, picketing, boycott, dispute, slowdown or stoppage
pending or, to the Company's best knowledge, threatened against or involving the
Company [or any predecessor entity,] and none has ever occurred. No
representation question exists respecting the employees of the Company, and no
collective bargaining agreement or modification thereof is currently being
negotiated by the Company. No grievance or arbitration proceeding is pending
- 10 -
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company or the Subsidiaries exists,
or, is imminent.
(ag) The Shares have been approved for listing on the AMEX.
(ah) The software and hardware operated by the Company are
capable of providing or are being adapted to provide uninterrupted millennium
functionality to record, store, process and present calendar dates falling on or
after January 1, 2000 and date-dependent data in substantially the same manner
and with the same functionality as such software records, stores, processes and
presents such calendar dates and date-dependent data as of the date hereof,
except as would not have a material adverse effect on the Company.
(ai) The Company has provided to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP,
counsel to the Underwriter ("Underwriter's Counsel"), all agreements,
certificates, correspondence and other items, documents and information
requested by such counsel's Corporate Review Memorandum dated ________, 1999.
(aj) Any certificate signed by an officer of the Company in
his capacity as such and delivered to the Underwriter or Underwriter's Counsel
shall be deemed a representation and warranty by the Company to the Underwriter
as to the matters covered thereby.
(ak) The Company is and has been doing business in material
compliance with all authorizations, approvals, orders, licenses, certificates,
franchises and permits and all federal, state, and local laws, rules and
regulations; and the Company has not received any notice of proceedings relating
to the revocation or modification of any such authorization, approval, order,
license, certificate, franchise, or permit which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would materially
adversely affect the business operations, condition, financial or otherwise, or
the earnings, business affairs, position, prospects, value, operation,
properties, business or results of operations of the Company, taken as a whole.
2. Purchase, Delivery and Sale of the Shares and the Underwriter's
Warrants.
(a) Subject to the terms and conditions of this Agreement, and
on the basis of the representations, warranties, and agreements herein
contained, the Company hereby agrees to sell the Firm Shares to the Underwriter,
and the Underwriter agrees to purchase the Firm Shares from the Company at a net
purchase price of $6.37 per share (net of commissions).
On the First Closing Date, as hereinafter defined, definitive
certificates in negotiable form for the Firm Shares will be delivered by the
Company to the Underwriter against payment of the purchase price by the
Underwriter by wire transfer or certified or official bank check or checks in
New York Clearing House funds, payable to the order of the Company.
- 11 -
Delivery of the Firm Shares against payment therefor shall
take place at the offices of the Underwriter, at 10:00 a.m., local New York
Time, on the third business day following the Effective Date (the fourth
business day following the Effective Date in the event that trading of the Firm
Shares commences on the day following the Effective Date) such time and date of
payment and delivery for the Firm Shares being herein called the "First Closing
Date."
(b) For the purposes of covering any overallotments in
connection with the distribution and sale of the Firm Shares as contemplated by
the Prospectus, the Underwriter is hereby granted an option to purchase all or
any part of the Optional Shares from the Company. The purchase price to be paid
for the Optional Shares will be the same price per Optional Share as the price
per Firm Share set forth in Section 2(a) hereof. The option granted hereby may
be exercised by the Underwriter as to all or any part of the Optional Shares at
any time within 45 days after the Effective Date. The Underwriter will not be
under any obligation to purchase any Optional Shares prior to the exercise of
such option.
The option granted hereby may be exercised by the Underwriter
by giving oral notice to the Company, which must be confirmed by a letter, telex
or telegraph setting forth the number of Optional Shares to be purchased, the
date and time for delivery of and payment for the Optional Shares to be
purchased and stating that the Optional Shares referred to therein are to be
used for the purpose of covering over-allotments in connection with the
distribution and sale of the Firm Shares. If such notice is given prior to the
First Closing Date, the date set forth therein for such delivery and payment
will not be earlier than either two full business days thereafter or the First
Closing Date, whichever occurs later. If such notice is given on or after the
First Closing Date, the date set forth therein for such delivery and payment
will not be earlier than two full business days thereafter. In either event, the
date so set forth will not be more than 15 full business days after the date of
such notice. The date and time set forth in such notice is herein called the
"Option Closing Date." Upon exercise of such option, through the Underwriter's
delivery of the aforementioned notice, the Company will become obligated to
convey to the Underwriter, and, subject to the terms and conditions set forth in
this Section 2(b) hereof, the Underwriter will become obligated to purchase, the
number of Optional Shares specified in such notice.
Payment for any Optional Shares purchased will be made to the
Company by wire transfer or certified or official bank check or checks payable
to its order in New York Clearing House funds, at the office of the Underwriter,
against delivery of the Optional Shares purchased to the Underwriter.
The obligation of the Underwriter to purchase and pay for any
of the Optional Shares is subject to the accuracy and completeness (as of the
date hereof and as of the Option Closing Date) of and compliance in all material
respects with the representations and warranties of the Company herein, to the
accuracy and completeness of the statements of the Company or its officers made
in any certificate or other document 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
- 12 -
of the date hereof and as of the Option Closing Date, set forth in this Section
2(b), and to the delivery to the Underwriter of opinions, certificates and
letters dated the Option Closing Date substantially similar in scope to those
specified in Section 8(d), (e) and (f) hereof, but with each reference to "Firm
Shares" and "First Closing Date" to be, respectively, to the Optional Shares and
the Option Closing Date.
(c) The Company will make the certificates for the Shares to
be purchased by the Underwriter hereunder available to the Underwriter for
inspection, checking and packaging at the office of the Company's transfer agent
or correspondent in New York City, Continental Stock Transfer and Trust Company,
_______________, New York, 1000__, not less than one full business day prior to
the First Closing Date and the Option Closing Date, as the case may be (both of
which are collectively referred to herein as the "Closing Dates"). The
certificates representing the shares shall be in such names and denominations as
the Underwriter may request at least two full business days prior to the
respective Closing Dates. In the event that the Underwriter determines to
utilize the Depository Trust Company ("DTC") the parties will use their best
efforts to make the offering of the Shares DTC eligible and to comply with the
procedures thereof.
(d) On the First Closing Date, the Company will sell the
Underwriter's Warrants to the Underwriter or to the Underwriter's designees
limited to officers and partners of the Underwriter, members of the selling
group and/or their officers or partners (collectively, the "Underwriter's
Designees"). The Underwriter's Warrants will be in the form of, and in
accordance with, the provisions of the Underwriter's Warrant attached as an
exhibit to the Registration Statement. The aggregate purchase price for the
Underwriter's Warrants is One Hundred Dollars ($100.00). The Underwriter's
Warrants will be restricted from sale, transfer, assignment or hypothecation for
a period of one (1) year from the Effective Date, except to the Underwriter's
Designees. Payment for the Underwriter's Warrants will be made to the Company by
check or checks payable to its order on the First Closing Date against delivery
of the certificates representing the Underwriter's Warrants. The certificates
representing the Underwriter's Warrants will be in such denominations and such
names as the Underwriter may request prior to the Closing Date.
The information set forth on the cover page concerning the
Underwriter and under the caption "Underwriting"or otherwise specifically
relating to the Underwriter in any Preliminary Prospectus or in the final
Prospectus relating to the Shares proposed to be filed by the Company (insofar
as such information relates to the Underwriter) as heretofore filed and as
presently proposed to be amended constitutes the only information furnished by
the Underwriter to the Company for inclusion therein, and the Underwriter
represent and warrant to the Company that the statements made therein are
correct and do not include 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 light of the circumstances under which they were made,
not misleading.
3. Public Offering by the Underwriter. The Underwriter agrees
to cause the Shares to be offered to the public initially at the price and under
the terms set forth in the
- 13 -
Prospectus as soon, on or after the effective date of this Agreement, as the
Underwriter deems advisable, but no more than five (5) full business days after
such effective date. The Underwriter may allow such concessions and discounts
upon sales to other dealers as set forth in the Prospectus. The Underwriter
agrees to notify the Company in writing when the offering is first made and when
it is completed. After the completion of the initial public offering, the public
offering price, the concessions and the reallowance may be changed by the
Underwriter.
4. Agreements of the Company. The Company covenants and agrees
with the Underwriter that:
(a) The Company will use its best efforts to cause the
Registration Statement to become effective as promptly as possible, and will not
at any time, whether before or after the Effective Date, file any amendment or
supplement to the Registration Statement, (i) which shall not have been
previously submitted to, and approved by, the Underwriter or counsel for the
Underwriter a reasonable time prior to the filing thereof, (ii) to which the
Underwriter or counsel for the Underwriter shall have reasonably objected in
writing as not being in compliance with the Act or the Rules and Regulations or
(iii) which is not in compliance with the Act or the Rules and Regulations.
(b) The Company will notify the Underwriter, promptly after it
shall have received notice of the effectiveness of the Registration Statement or
any amendment or supplement thereto, of the receipt of any comments of the
Commission with respect thereto, of the time when the Registration Statement or
any post-effective amendment thereto has become effective or any supplement to
the Prospectus has been filed.
(c) The Company will advise the Underwriter promptly of any
request of the Commission for an amendment or supplement to the Registration
Statement or the Prospectus, or for any additional information, or of the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, or of any judgment, order, injunction or decree
preventing or suspending the use of any Preliminary Prospectus or the
Prospectus, or of the institution of any proceedings for any of such purposes,
of which it has knowledge, and will use its best efforts to prevent the issuance
of any stop order, and, if issued, to obtain as promptly as possible the lifting
thereof.
(d) If at any time when a Prospectus relating to the
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which, in the opinion of counsel for the Company or
counsel for the Underwriter, the Prospectus, as then amended or supplemented,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein,
in the light of the circumstances under which they were made, not misleading, or
if it is necessary at any time to amend the Prospectus to comply with the Act,
the Company will notify the Underwriter promptly and prepare and file with the
Commission an appropriate amendment or supplement in accordance with Section 10
of the Act, each such amendment or supplement to be satisfactory to counsel for
the Underwriter, and the Company will furnish to the Underwriter
- 14 -
copies of such amendment or supplement as soon as available and in such
quantities as the Underwriter may reasonably request.
(e) Within the time during which the Prospectus is required to
be delivered under the Act, or pursuant to the undertakings of the Company in
the Registration Statement, the Company will comply, at its own expense, with
all requirements imposed upon it by the Act, the Rules and Regulations, the 1934
Act or the rules and regulations of the Commission promulgated under the 1934
Act, each as now or hereafter amended or supplemented, and by any order of the
Commission so far as necessary to permit the continuance of sales of, or
dealings in, the Shares.
(f) The Company will furnish to the Underwriter, without
charge, a signed copy of the Registration Statement and of any amendment or
supplement thereto which has been filed prior to the date of this Agreement,
together with two (2) copies of each exhibit filed therewith, and five (5)
conformed copies of such Registration Statement and as many amendments thereto
(unsigned and exclusive of exhibits) as the Underwriter may reasonably request.
The signed copies of the Registration Statement so furnished to the Underwriter
will include signed copies of any and all consents and reports of the
independent public auditors as to the financial statements included in the
Registration Statement and Prospectus, and signed copies of any and all consents
and certificates of any other person whose profession gives authority to
statements made by them and who are named in the Registration Statement or
Prospectus as having prepared, certified or reviewed any parts thereof.
(g) The Company will deliver to the Underwriter, without
charge, (i) prior to the Effective Date, copies of each Preliminary Prospectus
filed with the Commission bearing in red ink the statement required by Item 501
of Regulation S-B of the Rules and Regulations; (ii) on and from time to time
after the Effective Date, copies of the Prospectus; and (iii) as soon as they
are available, and from time to time thereafter, copies of each amended or
supplemented Prospectus, and the number of copies to be delivered in each such
case will be such as the Underwriter may reasonably request. The Company has
consented and hereby consents to the use of each Preliminary Prospectus for the
purposes permitted by the Act and the Rules and Regulations. The Company
authorizes the Underwriter and dealers to use the Prospectus in connection with
the sale of the Shares and the Warrant Shares, for such period as, in the
opinion of counsel for the Underwriter, delivery of the Prospectus is required
to comply with the applicable provisions of the Act and the Rules and
Regulations.
(h) The Company will take such action as may be necessary to
qualify the Shares for offer and sale under the blue sky or securities laws of
such states or other jurisdictions as is required and as the Underwriter or
counsel for the Underwriter may designate (provided that such states or
jurisdictions do not require the Company to qualify as a foreign corporation or
to file a general consent to service of process) and to continue such
qualifications in effect so long as may be required for the purposes of the
distribution of the Shares. In each state or jurisdiction where the Company
shall qualify the Shares as above provided, the Company will prepare and file
such statements or reports as may be required by the laws of such state or
jurisdiction, and the Underwriter shall, upon the written request of the
Company, supply
- 15 -
the Company with all information known to the Underwriter and required to be
included in such statements or reports.
(i) During the period of two years from the Effective Date,
the Company, at its expense, shall furnish the Underwriter with (i) copies of
each annual report of the Company; (ii) as soon as practicable and in any event
not later than ninety (90) days after the end of the Company's fiscal year, a
financial report of the Company, which will include a balance sheet as of the
end of such fiscal year, a statement of operations, a statement of stockholders'
equity (deficit) and a statement of cash flows covering such fiscal year, such
report being in reasonable detail and audited by independent public auditors;
(iii) for each fiscal quarter of the Company other than the last fiscal quarter
in any fiscal year, as soon as practicable and in any event not later than
forty-five (45) days after the end of each fiscal quarter, a financial report of
the Company, which will include a balance sheet as of the end of such fiscal
quarter, a statement of operations, a statement of stockholders' equity
(deficit) and a statement of cash flows covering such fiscal quarter, together
with notes thereto, for such fiscal quarter and for the fiscal year to date,
setting forth in each case in comparative form the corresponding figures for the
preceding year, such report being in reasonable detail and to fairly present the
financial condition of the Company at the date thereof and the results of
operations for the period then ending and to have been prepared in accordance
with generally accepted accounting principles consistently applied, except for
normal year end adjustments; (iv) a copy of any Schedule 13D, 13G, 14D-1, 13E-3
or 13E4 received or filed by the Company from time to time; (v) a copy of each
report or document, including, without limitation, reports on Form 8-K, 10-K (or
10-KSB), 10-Q or 10-QSB and exhibits thereto, filed or furnished by the Company
pursuant to the 1934 Act to the Commission, any Securities Exchange or the NASD
on the date each such report or document is so filed or furnished; and (vi) such
additional information concerning the business and financial condition of the
Company as the Underwriter may from time to time reasonably request.
(j) For a period of three (3) years from the First Closing
Date, the Company shall continue to retain ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP (or such other
nationally recognized accounting firm acceptable to the Underwriter) as the
Company's independent certified public accountants, and shall not change such
accountants without the Underwriter's prior written consent. For a period of
five years from the First Closing Date, the Company shall promptly submit to the
Underwriter copies of all accountants' management reports and similar
correspondence between the Company and its independent public accountants.
(k) For a period of five (5) years from the First Closing
Date, the Company, at its expense, shall cause its then independent certified
public accountants, as described in Section 4(j) above, 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 10-Q (or 10-QSB) quarterly report (or other equivalent
report) and the mailing of quarterly financial information to stockholders.
(l) As soon as practicable, but in any event not later than 45
days after the end of the 12-month period beginning on the day after the end of
the fiscal quarter of the
- 16 -
Company during which the effective date of the Registration Statement occurs (90
days in the event that the end of such fiscal quarter is the end of the
Company's fiscal year), the Company will make generally available to its
security holders in accordance with Section 11 (a) of the Act an earnings
statement of the Company meeting the requirements of Rule 158(a) under the Act
covering a period of at least 12 months beginning after the Effective Date, and
advise the Underwriter that such statement has been so made available.
(m) The Company will apply the net proceeds ("Proceeds") it
realizes from the sale of the Shares in the manner set forth under the caption
"Use of Proceeds" in the Prospectus. The Company will provide on a monthly basis
a report from its Chief Financial Officer which report shall indicate the use of
the proceeds for such monthly period and the Company's expenses and revenues.
(n) The Company, on the First Closing Date, will sell to the
Underwriter the Underwriter's Warrants (to be divided in such amounts as
determined by the Underwriter) according to the terms specified in Section 2(d)
hereof. The Company has reserved and shall continue to reserve a sufficient
number of shares of Common Stock for issuance upon exercise of the Underwriter's
Warrants.
(o) For the period of three (3) years following the Effective
Date, the Underwriter and its successors will have the right to designate a
nominee for election, at its or their option, as a non-voting advisor to the
Board of Directors of the Company and the Company agrees to use its best efforts
to elect to its Board of Directors and continue in office such nominee as an
advisor to the Board of Directors. Such advisor shall be entitled to the same
cash compensation and reimbursement of expenses as the Company affords its
directors who are not also officers or employees of the Company and to receive
all copies of all notices and other documents distributed to the members of the
Company's Board of Directors (including, but not limited to, any unanimous
consents prepared and advance notices of all proposed Board actions or
consents), as if such advisor were a member of the Company's Board of Directors.
The Company agrees to indemnify and hold such advisor harmless against any and
all claims, actions, awards and judgments arising out of his service and in the
event the Company maintains a liability insurance policy affording coverage for
the acts of its officers and directors, to include such advisor as an insured
under such policy. In the event the Company does not have a liability insurance
policy in effect on the Effective Date, the Company agrees to use its best
efforts to obtain, as promptly as practicable but in any event not later than
thirty (30) days following the Effective Date, such a policy in an amount not
less than twenty-five (25%) of the gross proceeds of this offering. The rights
and benefits of such indemnification and the benefits of such insurance shall,
to the extent possible, extend to the Underwriter in so far as it may be, or be
alleged to be, responsible for such designee. During such three (3) year period,
the Company will cause its Board of Directors to meet, either in person or
telephonically, at least four (4) times per year.
(p) For a period of years from the Effective Date, the Company
agrees that it will maintain insurance in full force and effect of the types and
in the amounts which are customary for similarly situated companies, including
but not limited to, personal
- 17 -
injury and product liability insurance and insurance covering all personal
property owned or leased by the Company against theft, damage, destruction, acts
of vandalism and all other risks customarily insured against.
(q) During the course of the distribution of the Shares, the
Company will not take, directly or indirectly, any action designed to or which
might, in the future, reasonably be expected to cause or result in stabilization
or manipulation of the price of the Shares. During the so-called "quiet period"
in which delivery of a Prospectus is required, if applicable, the Company will
not issue press releases or engage in any other publicity without the
Underwriter's prior written consent.
(r) The Company will use its best efforts, at its cost and
expense, to take all necessary and appropriate action to maintain the listing of
the Shares on the AMEX or on the NASDAQ automated quotation system and maintain
such listing for as long as the Shares are so qualified.
(s) The Company shall, as of the date hereof, have filed an
application for listing in Standard & Poor's Corporation records Service
(including annual report information) or ▇▇▇▇▇'▇ Industrial Manual and shall use
its best efforts to have the Company listed in such manual and shall maintain
such listing for a period of five (5) years from the Effective Date.
(t) The Company has filed with the Commission a registration
statement on Form 8-A and will, concurrently with the Effective Date, register
the class of equity securities of which the Shares are a part under Section
12(b) or 12(g) of the 1934 Act. The Company will maintain its registration under
the 1934 Act in effect for a period of five (5) years from the Effective Date.
(u) The Company will at all times, from the First Closing Date
until at least three (3) years from such date, maintain in full force, or cause
to be maintained in full force, from an insurer rated "A" or better (General
Policyholders Rating) in the most recent edition of "Best Life Reports", term
life insurance in the amount of at least $1,000,000 on the life of ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇. Such policy shall be owned by the Company and all benefits
thereunder shall be payable to the Company.
(v) On the Closing Dates, all transfer or other taxes (other
than income taxes) which are required to be paid in connection with the sale and
transfer of the Shares will have been fully paid by the Company and all laws
imposing such taxes will have been fully complied with.
(w) For a period of __ months commencing on the Effecting
Date, except with the prior written consent of the Underwriter, the Company will
not issue or sell, directly or indirectly, any shares of its capital stock, or
sell or grant options, or warrants or rights to purchase any shares of its
capital stock, except pursuant to (i) this Agreement, (ii) the
- 18 -
Underwriter's Warrants and (iii) warrants and options of the Company heretofore
issued and described in the Prospectus.
(x) The Company will not file any Registration Statement
relating to the offer or sale of any of the Company's securities, including any
Registration Statement on Form S-8, during the____(__)months following the
Effective Date without Underwriter's prior written consent.
(y) The Company shall retain a transfer agent for the Shares,
reasonably acceptable to the Underwriter, for a period of three (3) years from
the Effective Date, and will not, during such period change its transfer agent
for the Common Stock without the prior written consent of the Underwriter. In
addition, for a period of two (2) years from the Effective Date, the Company, at
its own expense, shall cause such transfer agent to provide to the Underwriter
on a monthly basis copies of the Company's daily stock transfer sheets;
provided, however, that any confidential information relating thereto which is
hereafter provided to the Underwriter pursuant to the terms of this Agreement
shall be kept confidential by it. In addition, for a period of two (2) years
from the Effective Date, the Company, at its own expense, shall cause Depository
Trust Company to provide to the Underwriter as frequently as may be required by
it a copy of a security position listing with respect to the Common Stock.
(z) Subsequent to the dates as of which information is given
in the Registration Statement and Prospectus and prior to the Closing Dates,
except as disclosed in or contemplated by the Registration Statement and
Prospectus, (i) the Company will not have incurred any liabilities or
obligations, direct or contingent, or entered into any material transactions
other than in the ordinary course of business; (ii) there shall not have been
any change in the capital stock, funded debt (other than regular repayments of
principal and interest on existing indebtedness) or other securities of the
Company, any adverse change in the condition (financial or other), business,
operations, prospects, income, net worth or properties, including any loss or
damage to the properties of the Company (whether or not such loss is insured
against), which could adversely affect the condition (financial or other),
business, operations, prospects income, net worth or properties of the Company
and the Subsidiaries, taken as a whole; and (iii) the Company shall not have
paid or declared any dividend or other distribution on its Common Stock or its
other securities or redeemed or repurchased any of its Common Stock or other
securities.
(aa) For the period of two (2) years following the Effective
Date, the Company shall not redeem any of its securities, and shall not pay any
dividends or make any other cash distribution in respect of its securities in
excess of the amount of the Company's current or retained earnings derived after
the Effective Date 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 five (5) business days
from the date it receives written notice of the Company's proposal with respect
thereto; a failure of the Underwriter to respond within the five (5) business
day period shall be deemed approval of the transaction.
- 19 -
(ab) The Company will not, for a period of three (3) years
from the Effective Date of the Registration Statement, increase or authorize an
increase in the compensation of its five most highly paid employees greater than
those increases provided for in their employment agreements with the Company in
effect as of the Effective Date and disclosed in the Registration Statement,
without the prior written consent of the Underwriter.
(ac) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(ad) For a period of five (5) years from the First Closing
Date, management of the Company shall provide the Board of Directors, on an
annual basis, with an internal budget for the next fiscal year, which budget
must be approved by the Board of Directors.
(ae) Prior to the Effective Date and for a period of three (3)
years thereafter, the Company shall retain a financial public relations firm
reasonably acceptable to the Underwriter.
(af) Except as set forth under the caption "Use of Proceeds"
in the Prospectus or otherwise consented to by the Underwriter, no proceeds from
the sale of the Shares will be used to pay outstanding loans from officers,
directors or shareholders or to pay any accrued salaries or bonuses to any
current or former employees or consultants or any affiliates thereof or to pay
off any other outstanding debt other than as described in the Prospectus.
(ag) The Company agrees that for so long as the Common Stock
is registered under the 1934 Act, the Company will hold an annual meeting of
stockholders for the election of directors and will provide the Company's
stockholders with the audited financial statements of the Company as of the end
of the fiscal year just completed prior thereto. Such financial statements shall
be those required by applicable rules under the 1934 Act and shall be included
in an annual report pursuant to the requirements thereof.
(ah) The Company shall provide the Underwriter, at the First
Closing Date and at least annually thereafter, until the earlier of such time as
the Common Stock is listed on the New York Stock Exchange or American Stock
Exchange or quoted on NASDAQ/NMS or five years after the First Closing Date,
with a list setting forth those states in which the Common Stock may be traded
in non-issuer transactions under the blue sky laws of the 50 states.
- 20 -
(ai) For a period of three (3) years from the Effective Date,
the Company shall not issue any shares of its Preferred Stock without the prior
written approval of the Underwriter. From the second anniversary of the
Effective Date through the fifth anniversary of the Effective Date, the Company
shall not issue any shares of its Preferred Stock without the unanimous consent
of its Board of Directors.
(aj) For a period of three (3) years from the Effective Date,
the Company will not offer or sell any of its securities (i) pursuant to
Regulation S, or similar regulation, promulgated under the Act or (ii) at a
discount to market or in a discounted transaction, without the prior written
consent of the Underwriter, other than the issuance of Common Stock upon
exercise of options and warrants outstanding on the First Closing Date and
described in the Prospectus.
5. Indemnification.
(a) The Company agrees to indemnify and hold harmless the
Underwriter and each person, if any, who controls the Underwriter within the
meaning of the Act against any losses, claims, damages, expenses or liabilities,
joint or several (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all reasonable
attorney's fees), to which the Underwriter or any such controlling person may
become subject, under the Act or otherwise, but only as such losses, claims,
damages or liabilities (or action in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case (i) to
the extent that any such loss, claim, damages or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus
or the Prospectus or any amendment or supplement thereto, in reliance upon, and
in conformity with, written information furnished to the Company by the
Underwriter specifically for use in the preparation thereof; (ii) if the
Underwriter failed to deliver a Prospectus to the claimant seeking damages from
the Company or (iii) if a material misstatement or omission was corrected by the
Company in an amended or supplemented Prospectus and the Underwriter failed to
deliver such amended or supplemented Prospectus to the claimant seeking damages
from the Company. The information set forth on the cover page concerning the
Underwriter and under the caption "Underwriting" or otherwise specifically
relating to the Underwriter in the Registration Statement shall be deemed to
have been furnished to the Company by the Underwriter for purposes hereof. This
indemnity will be in addition to any liability which the Company may otherwise
have.
(b) The Underwriter agrees that it will indemnify and hold
harmless the Company, each of its directors, each nominee (if any) for director
named in the Prospectus, each of its officers who has signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages,
- 21 -
expenses or liabilities (which shall, for all purposes of this Agreement,
include, but not be limited to, all costs of defense and investigation and all
attorney's fees), joint or several, to which the Company or any such director,
nominee, officer or controlling person may become subject under the Act or
otherwise, but only as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of any material fact contained in the Registration
Statement, any Preliminary Prospectus or the Prospectus or any amendment or
supplement thereto, or arise out of or are based upon the omission or the
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, but in each case
only to the extent that such untrue statement or alleged untrue statement or
omission or alleged omission was made in the Registration Statement, any
Preliminary Prospectus or the Prospectus or such amendment or supplement thereto
in reliance upon and in conformity with written information furnished to the
Company by the Underwriter specifically for use in the preparation thereof,
provided, however, that the obligation of each Underwriter to indemnify the
Company (including any controlling person, director or officer thereof) shall
(i) only relate to any untrue statement or alleged untrue statement or any
omission or alleged omission which applies to such Underwriter and (ii) be
limited in amount to the net proceeds received by the Company from such
Underwriter. The information set forth on the cover page concerning the
Underwriter and under the caption "Underwriting" or otherwise specifically
relating to the Underwriter in the Registration Statement shall be deemed to
have been furnished to the Company by the Underwriter for purposes hereof. This
indemnity will be in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this
Section 5 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 5, notify the indemnifying party of the commencement thereof;
but the omission so to notify the indemnifying party will not relieve the
indemnifying party from any liability which it may have to any indemnified party
otherwise than solely pursuant to this Section 5. In case any such action is
brought against any indemnified party, which notifies the indemnifying party of
the commencement thereof, the indemnifying party will be entitled to participate
in, and, to the extent that it may choose, jointly with any other indemnifying
party similarly notified, reasonably assume the defense thereof. Subject to the
provisions herein stated and after notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party will not be liable to such indemnified party under this
Section 5 for any legal or other expenses subsequently incurred by such
indemnified party in connection with the defense thereof other than reasonable
costs of investigation, unless the indemnifying party shall have a default
judgment entered against it or shall settle such action without the consent of
the indemnified party. The indemnified party shall have the right to employ one
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
indemnifying party if the indemnifying party has assumed the defense of the
action with counsel reasonably satisfactory to the indemnified party; provided
that the fees and expenses of such counsel shall be at the expense of the
indemnifying party if (i) the employment of such counsel has been specifically
authorized in writing by the indemnifying party, (ii) the named parties to such
action (including
- 22 -
any impleaded parties) include both the indemnified and the indemnifying party
and the indemnified party shall have been advised by such counsel that there may
be one or more legal defenses available to the indemnifying party different from
or in conflict with any legal defenses which may be available to the indemnified
party (in which case the indemnifying party shall not have the right to assume
the defense of such action on behalf of the indemnified party, it being
understood, however, that the indemnifying party shall, in connection with any
one such action or separate but substantially similar or related actions in the
same jurisdiction arising out of the same general allegations or circumstances,
be liable only for the reasonable fees and expenses of one separate firm of
attorneys for the indemnified party, which firm shall be designated in writing
by the indemnified party), or (iii) the professional competence of the counsel
to be employed by the indemnifying party is not reasonably acceptable to the
indemnified party. No settlement of any action against an indemnified party
shall be made without the prior written consent of the indemnified party, which
consent shall not be unreasonably withheld. The indemnifying party shall not be
liable to indemnify the indemnified party for any settlement of any action
effected without the indemnifying party's prior written consent to any such
settlement, which consent shall not be unreasonably withheld.
6. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) the Underwriter makes a
claim for indemnification pursuant to Section 5 hereof but it is judicially
determined (by the entry of a final judgment or decree by a court of competent
jurisdiction and the expiration of time to appeal or denial of the last right of
appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that the express provisions of Section 5 provide for
indemnification in such case, or (ii) contribution under the Act may be required
on the part of the Underwriter, then the Company and the Underwriter shall
contribute to the aggregate losses, claims, damages or liabilities to which they
may be subject (which shall, for all purposes of this Agreement, include, but
not be limited to, all costs of defense and investigation and all attorneys'
fees) in either such case (after contribution from others) in such proportions
such that the Underwriter shall be responsible in the aggregate for that portion
of such losses, claims, damages or liabilities determined by multiplying the
total amount of such losses, claims, damages or liabilities by the difference
between the public offering price of the Shares and the purchase price of the
Shares to such Underwriter and dividing the product by the public offering price
of the Shares, and the Company shall be responsible for that portion of such
losses, claims, damages or liabilities determined by multiplying the total
amount of such losses, claims, damages or liabilities by the purchase price of
the Shares to the Underwriter and dividing the product thereof by the public
offering price of the Shares. No person guilty of a fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who is not guilty of such fraudulent
misrepresentation. The foregoing contribution agreement shall in no way affect
the contribution liabilities of any persons having liability under Section 11 of
the Act other than the Company and the Underwriter. As used in this Section 6,
the term "Underwriter" includes any person who controls the Underwriter within
the meaning of Section 15 of the Act. If the full amount of the contribution
specified in this Section 6 is not permitted by law, then the Underwriter shall
be entitled to contribution from the Company, its officers, directors and
controlling persons to the fullest extent permitted by law. Any party entitled
to contribution will, promptly after receipt of notice of commencement of any
action, suit or proceeding against
- 23 -
such party in respect to which a claim for contribution may be made against
another party or parties under this Section 6, notify such party or parties from
whom contribution may be sought, but the omission so to notify such party or
parties shall not relieve the party or parties from whom contribution may be
sought from any obligation it or they may have hereunder or otherwise than under
this Section 6, or to the extent that such party or parties were not adversely
affected by such omission. The contribution agreement set forth above shall be
in addition to any liabilities which any indemnifying party may have at common
law or otherwise.
7. Survival of Agreements etc. All statements contained in any
schedule, exhibit or other instrument delivered by or on behalf of the parties
hereto, or in connection with the transactions contemplated by this Agreement,
shall be deemed to be representations and warranties hereunder. Notwithstanding
any investigations made by or on behalf of the parties to this Agreement, all
representations, warranties, indemnities and agreements made by the parties to
this Agreement or pursuant hereto shall remain in full force and effect and will
survive delivery of and the payment for the Shares, for a period of three years
from the date hereof, except that, if a party hereto has actual knowledge at the
time of the Closing Dates of facts which would constitute a breach of the
representations and warranties contained herein, such breaches shall be waived
by such party if such party consummates the transactions contemplated by this
Agreement.
8. Conditions of Underwriter's Obligations. The obligations of
the Underwriter hereunder will be subject (as of the date of this Agreement and
as of the Closing Dates) to the accuracy of and compliance in all material
respects with the representations, warranties and agreements of the Company
herein, to the accuracy of the statements of the Company or its officers made
pursuant hereto, to the performance in all material respects by the Company of
its obligation hereunder, and to the following additional conditions:
(a) The Registration Statement shall have become effective not
later than 10:00 a.m., New York City time, on the day following this Agreement,
or at such later time or on such later date as shall be consented to in writing
by the Underwriter; prior to the First Closing date, no stop order suspending
the effectiveness of the Registration Statement shall have been issued and no
proceeding for that purpose shall have been initiated or be pending or, to the
knowledge of the Company or the Underwriter, contemplated or threatened by the
Commission; and any request by the Commission for additional information to be
included in the Registration Statement or the Prospectus or otherwise shall have
been complied with to the satisfaction of counsel for the Underwriter, and
qualification under the securities laws of such states as the Underwriter may
designate of the issue and sale of the Shares upon the terms and conditions
herein set forth or contemplated and containing no provision unacceptable to the
Underwriter shall have been secured; and no stop order shall be in effect
denying or suspending effectiveness of such qualifications, nor shall any stop
order proceedings with respect thereto be instituted or pending or threatened
under such laws. If the Company has elected to rely upon Rule 430A of the Rules
and Regulations, the price of the Shares and any price-related information
previously omitted from the effective Registration Statement pursuant to such
Rule 430A shall have been transmitted to the Commission for filing pursuant to
Rule 424(b) of the Rules and Regulations within the prescribed time period, and
prior to the First Closing Date the
- 24 -
Company shall have provided evidence satisfactory to the Underwriter of such
timely filing, or a post-effective amendment providing such information shall
have been promptly filed and declared effective in accordance with the
requirements of Rule 430A of the Rules and Regulations.
(b) No amendment to the Registration Statement, any
Preliminary Prospectus or the Prospectus to which the Underwriter or counsel for
the Underwriter shall have objected, after having received reasonable notice of
a proposal to file the same, shall have been filed.
(c) The Underwriter shall not have discovered and disclosed to
the Company prior to the respective Closing Dates that the Registration
Statement or the Prospectus, or any amendment or supplement thereto, contains an
untrue statement of fact which, in the reasonable opinion of counsel for the
Underwriter, is material, or omits to state a fact which, in the opinion of such
counsel, is material and is required to be stated therein or is necessary to
make the statements therein not misleading.
(d) The Underwriter shall have received from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
LLP, two signed certificates or letters, one dated and delivered on the
Effective Date and one dated and delivered on the First Closing Date, in form
and substance satisfactory to the Underwriter, stating that:
(i) they are independent certified public accountants with
respect to the Company within the meaning of the Act and the Rules and
Regulations, and no disclosure under Item 13 of the Registration Statement is
required insofar as it relates to them;
(ii) the financial statements included in the Registration
Statement and the Prospectus were examined by them and, in their opinion, comply
as to form in all material respects with the applicable requirements of the Act,
the Rules and Regulations and instructions of the Commission with respect to
Registration Statements on Form SB-2 and that the Underwriter may rely upon the
opinion of such firm with respect to the financial statements and supporting
schedules included in the Registration Statement;
(iii) on the basis of inquiries and procedures conducted by
them (not constituting an examination in accordance with generally accepted
auditing standards), including a reading of the latest available unaudited
interim financial statements or other financial information of the Company (with
an indication of the date of the latest available unaudited interim financial
statements), inquiries of officers of the Company who have responsibility for
financial and accounting matters, reviews of minutes of all meetings of the
shareholders, the Board of Directors and any committees of the Board of
Directors of the Company, as set forth in the minute books of the Company, and
other specified inquiries and procedures, nothing has come to their attention as
a result of the foregoing inquiries and procedures that causes them to believe
that:
- 25 -
(A) during the period from the date of the latest financial
statements of the Company appearing in the Registration Statement and Prospectus
to a specified date not more than three (3) business days prior to the date of
such letter, there has been any decreases in net current assets or net assets,
change in the Common Stock or other securities of the Company (except as
specifically disclosed in such certificates or letters), any decreases in
shareholders equity or working capital or any increases in net current
liabilities, net liabilities or long-term debt, in each case as compared with
amounts shown in such financial statements; and any decrease in revenues or in
the total or per share amounts of income before extraordinary items or net
income or loss, or any other material change in each case as compared with the
corresponding period in the preceding year or any change in the capitalization
or long term debt of the Company, except in each case for increases, changes or
decreases which the Prospectus discloses have occurred or will or may occur.
(B) the unaudited interim financial statements of the Company,
if any, appearing in the Registration Statement and the Prospectus, do not
comply as to form in all material respects with the applicable accounting
requirements of the Act and the Regulations or are not fairly presented in
conformity with generally accepted accounting principles and practices on a
basis substantially consistent with the audited financial statements included in
the Registration Statement or the Prospectus.
(iv) On the basis of certain procedures specified by the
Underwriter and described in their letter, they have compared specific dollar
amounts, numbers of shares, percentages of revenue and earnings and other
information (to the extent they are contained in or derived from the accounting
records of the Company, and excluding any questions of legal interpretations)
included in the Registration Statement and Prospectus with the accounting
records and other appropriate data of the Company and have found them to be in
agreement.
(e) At the time this Agreement is executed and at the First
closing Date, the Underwriter shall have received from ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ & ▇▇▇▇▇▇ LLP counsel for the Company ("Company Counsel"), a signed opinion
dated as of the date hereof and the First Closing Date, as the case may be,
reasonably satisfactory to the Underwriter's Counsel, in the form and substance
of Exhibit A annexed hereto.
(f) The Underwriter shall have received a certificate, dated
and delivered as of the date of the First Closing Date, of the Chief Executive
Officer and Secretary of the Company stating that:
(i) The Company and such officers have complied with all the
agreements and satisfied all the conditions on their respective part to be
performed or satisfied hereunder at or prior to such date, including but not
limited to the agreements and covenants of the Company set forth in Section
hereof.
- 26 -
(ii) No stop order suspending the effectiveness of the
Registration Statement has been issued, and no proceedings for that purpose have
been instituted or are pending, contemplated or threatened under the Act.
(iii) Such officers have carefully examined the Registration
Statement and the Prospectus and any supplement or amendment thereto, each of
which contains all statements required to be stated therein or necessary to make
the statements therein not misleading and does not contain any untrue statement
of a material fact, and since the Effective Date there has occurred no event
required to be set forth in the amended or supplemented Prospectus which has not
been set forth.
(iv) As of the date of such certificate, the representations
and warranties contained in Section 1 hereof are true and correct as if such
representations and warranties were made in their entirety on the date of such
certificate, and the Company has complied with all its agreements herein
contained as of the date hereof and certifying as to the matters referred to in
Sections __ (h) and (i).
(v) Subsequent to the respective dates as of which information
is given in the Registration Statement and Prospectus, and except as
contemplated in the Prospectus, the Company has not incurred any material
liabilities or obligations, direct or contingent (other than in the ordinary
course of business), or entered into any material transactions and there has not
been any change in the Common Stock or funded debt of the Company or any
material adverse change in the condition (financial or other), business,
operations, income, net worth, properties or prospects of the Company and its
Subsidiaries, taken as a whole, except for such changes as are contemplated by,
or disclosed in the Prospectus.
(vi) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall have not sustained any material loss of or damage to its
properties, whether or not insured, and since such respective dates, no
dividends or distributions whatever shall have been declared or paid, or both,
on or with respect to any security (except interest in respect of loans) of the
Company.
(vii) Neither the Company nor any of its officers or
affiliates shall have taken, and the Company, its officers and affiliates will
not take, directly or indirectly, any action designed to, or which might
reasonably be expected to, cause or result in the stabilization or manipulation
of the price of the Company's securities to facilitate the sale or resale of the
Shares.
(viii) No action, suit or proceeding, at law or in equity,
which may (A) result in the imposition of damages or penalties against, or
payments by, the Company in excess of $25,000 or (B) adversely affect the
operation of the Company's business shall be pending or, to the knowledge of
such officers, threatened against the Company, or affecting any of its
properties, before or by any commission, board or other administrative agency,
except as otherwise set forth in the Registration Statement.
- 27 -
(ix) Subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, the
Company shall not have lost any significant customers or been advised that it
may lose any such significant customers.
(g) On the First Closing Date, the Company shall not be a party to, or
be involved in, any arbitration, litigation (except as set forth in the
Registration Statement) or governmental proceeding, which is then pending, or,
to the knowledge of the Company, threatened, of a character which might
materially and adversely affect the Company or be required to be disclosed in
the Registration Statement.
(h) Subsequent to the respective date as of which information is given
in the Registration Statement and the Prospectus, the Company shall not have
sustained any loss on account of fire, flood, accident, or other calamity,
whether or not covered by insurance, which, in the sole judgment of the
Underwriter materially adversely affects the business of the Company.
(i) All of the certificates representing the Shares shall have been
tendered for delivery in accordance with the terms and provisions of this
Agreement.
(j) The Underwriter shall have received the Lock-Up Agreements referred
to in paragraph (x) of Section 1 hereof.
(k) At each of the Closing Dates, (i) the representations and
warranties of the Company contained in this Agreement shall be true and correct
with the same effect as if made on and as of the Closing Dates and the Company
shall have performed, in all material respects, all its obligations due to be
performed prior thereto; (ii) the Registration Statement and the Prospectus and
any amendment or supplement thereto shall contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations and conform in all material respects to the requirements thereof,
and neither the Registration Statement nor the Prospectus nor any amendment or
supplement thereto shall 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 not misleading; (iii) there shall have been, since the
date as of which information is given, no material adverse change in the
condition, business, operations, properties, business prospects, securities,
long-term or short-term debt or general affairs of the Company from that set
forth in the Registration Statement or the Prospectus, except changes which the
Registration Statement and the Prospectus indicate will occur after the
Effective Date and prior to such Closing Date, and the Company shall not have
incurred any material liabilities or obligations, direct or contingent, or
entered into any material transaction, contract or agreement not in the ordinary
course of business other than as referred to in the Registration Statement and
the Prospectus; and (iv) except as set forth in the Prospectus, no action, suit
or proceeding, at law or in equity, shall be pending or threatened against the
Company which might be required to be set forth in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable
- 28 -
decision, ruling or finding might materially adversely affect the condition,
business, operations, properties, prospects or general affairs of the Company.
(l) The NASD shall have indicated that it has no objection to the
underwriting arrangements pertaining to the sale of the Shares by the
Underwriter.
(m) 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 or
the Option Closing Date, as the case may be, for any member firm of the NASD to
execute transactions (as principal or as agent) in the Shares, and no
proceedings for the purpose of taking such action shall have been instituted or
shall be pending, or, to the best of the Underwriter's or the Company's
knowledge, shall be contemplated by the Commission or the NASD. The Company
represents at the date hereof, 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.
(n) The Company meets the current and any existing and proposed
criteria for inclusion of the Shares on AMEX.
(o) All proceedings taken at or prior to the Closing Date or the Option
Closing Date, as the case may be, in connection with the authorization, issuance
and sale of the Shares shall be reasonably satisfactory in form and substance to
the Underwriter and to Underwriter's Counsel, and such counsel shall have been
furnished with all such documents, certificates and opinions as they may request
for the purpose of enabling them to pass upon the matters referred to in this
Section 8 hereof and in order to evidence the accuracy and completeness of any
of the representations, warranties or statements of the Company, the performance
of any covenants of the Company, or the compliance by the Company with any of
the conditions herein contained.
(p) Upon exercise of the option provided for in Section 2(b) hereof,
the obligations of the Underwriter to purchase and pay for the Option Shares
will be subject to the following additional conditions:
(i) The Registration Statement shall remain effective at the Option
Closing Date, and no stop order suspending the effectiveness thereof shall have
been issued and no proceedings for that purpose shall have been instituted or
shall be pending, or, to the knowledge of the Underwriter or the Company, shall
be contemplated by the Commission, and any request on the part of the Commission
for additional information shall have been complied with to the satisfaction of
counsel for the Underwriter.
(ii) At the Option Closing Date there shall have been delivered to the
Underwriter the signed opinion of Company Counsel, in form and substance
reasonably satisfactory to counsel for the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinions furnished to the
Underwriter by Company Counsel at the date hereof and at First Closing Date
pursuant to Section 8 (e).
-29-
(iii) At the Option Closing Date there shall have been delivered to the
Underwriter a certificate of the Chief Executive Officer and the Secretary of
the Company dated the Option Closing Date, in form and substance satisfactory to
counsel for the Underwriter, substantially the same in scope and substance as
the certificates furnished to the Underwriter at the First Closing Date pursuant
to Section 8 (f).
(iv) At the Option Closing Date there shall have been delivered to the
Underwriter a certificate or letter in form and substance satisfactory to the
Underwriter from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, dated the Option Closing Date and
addressed to the Underwriter, confirming the information in its certificate or
letter referred to in Section 8(d) hereof and stating that nothing has come to
their attention during the period from the ending date of their review referred
to in said certificate or letter to a date not more than three (3) business days
prior to the Option Closing Date which would require any change in said
certificate or letter if it were required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date in
connection with the sale and transfer of the Option Shares shall be satisfactory
in form and substance to the Underwriter, and the Underwriter and counsel for
the Underwriter, shall have been furnished with all such documents,
certificates, affidavits and opinions as the Underwriter and counsel for the
Underwriter may reasonably request in connection with this transaction in order
to evidence the accuracy and completeness of any of the representations,
warranties or statements of the Company or its compliance with any of the
covenants or conditions contained herein.
(q) The Company shall have issued the Underwriter's Warrants.
The opinions and certificates mentioned above or elsewhere in
this Agreement will be deemed to be in compliance with the provisions hereof
only if they are reasonably satisfactory to the Underwriter and to counsel for
the Underwriter.
Any certificate signed by an officer of the Company delivered
to the Underwriters or to counsel for the Underwriter, will be deemed a
representation and warranty by the Company to the Underwriter as to the
statements made therein.
9. Effective Date. This Agreement will become effective no
later than 10:00 a.m. on the first business day following the date on which the
Registration Statement becomes effective; provided, however, this Agreement will
become effective at such later time after the Registration Statement becomes
effective as the Underwriter may determine on and by notice to the Company or by
release of any of the Shares for sale to the public or by any other action
constituting a commencement of the public offering. For the purposes of this
Section 9, the Shares will be deemed to be so released upon the release for
publication of any newspaper advertisement relating to the Shares or upon the
release by the Underwriter of telegrams offering the Shares for sale to
securities dealers, whichever may occur first. The term "business day" shall
mean a calendar day other than a Saturday, Sunday or holiday. Notwithstanding
anything
- 30 -
herein to the contrary, the provisions of this Section and of Sections 5, 6,10
and 11 hereof will, however, be effective upon the execution of this Agreement.
10. Termination. This Agreement may be terminated by the
Underwriter, in its absolute discretion, by notice to the Company (i) at any
time before this Agreement becomes effective in accordance with Section 9
hereof; (ii) if, prior to the First Closing Date or the Option Closing Date, as
the case may be, the Company shall have failed or refused to fully comply with
any of the provisions of this Agreement on its part to be performed prior
thereto, or if any of the agreements, conditions, covenants, representations or
warranties of the Company herein contained are not correct or shall not have
been performed or fulfilled within the times specified; (iii) trading in
securities generally on the New York Stock Exchange or the American Stock
Exchange will have been suspended; (iv) limited or minimum prices will have been
established on either such Exchange or maximum ranges for prices for securities
shall have been required on the over-the-counter market by the NASD; (v) a
banking moratorium will have been declared either by federal or New York State
authorities; (vi) any other restrictions on transactions in securities
materially affecting the free market for securities or the payment for such
securities, will be established by either of such Exchanges, by the Commission
by any other federal or state agency, by action of the Congress or by Executive
Order; (vii) the Company will have sustained a material loss, whether or not
insured, by reason of fire, flood, accident or other calamity; (viii) any action
has been taken by the Government of the United States or any department or
agency thereof which, in the sole judgment of the Underwriter, has had a
material adverse effect upon the general market for securities; (ix) if, prior
to the First Closing Date or the Option Closing Date, as the case may be, a
there shall have occurred the outbreak of any war or any other event or calamity
which, in the sole judgment of the Underwriter, materially disrupts the
financial markets of the United States; (x) if, prior to the First Closing Date
or the Option Closing Date, as the case may be, the general market for
securities or political, legal or financial conditions should deteriorate so
materially from that in effect on the date of this Agreement that, in the sole
judgment of the Underwriter, it becomes impracticable for the Underwriter to
commence or proceed with the public offering of the Shares and with the payment
for or acceptance thereof; (xi) if trading of any securities of the Company
shall have been suspended, halted or delisted on any exchange or in any
over-the- counter market or by the Commission; or (xii) if, prior to the First
Closing Date or the Option Closing Date, as the case may be, any materially
adverse change shall have occurred in the sole judgment of the Underwriter,
since the date as of which information is given in the Registration Statement
and the Prospectus, in the financial condition, business, prospects, operations,
properties or obligations of the Company. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement, and whether or not this Agreement is otherwise carried out, the
provisions of Section 6, 7 and 11 shall not be in any way affected by such
election or termination or failure to carry out the terms of this Agreement or
any part hereof.
11. Expenses.
(a) Whether or not the offering is consummated, the Company will pay
all costs and expenses incident to the performance of the obligations of the
Company hereunder,
-31-
including without limiting the generality of the foregoing, (i) the preparation,
printing, filing, and copying of the Registration Statement, Prospectus, this
Agreement, the Selected Dealer 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 and the costs of mailing Prospectuses to offerees
and purchasers of the Shares; (ii) the printing, engraving, issuance and
delivery of certificates representing the Shares, including any transfer or
other taxes payable thereon; (iii) the registration or qualification of the
Shares under state securities or "blue sky" laws, in accordance with the
provisions of Section 11(c) below and the cost of printing and mailing the "blue
sky Survey"; (iv) all reasonable fees and expenses of the Company's counsel and
accountants; (v) all NASD filing fees in connection with the offering; (vi) all
costs and expenses of any listing of the Shares on NASDAQ the or any other stock
exchange or in Standard and Poor's Corporation Reports or any other securities
manuals; (vii) all costs and expenses of four (4) bound volumes provided to the
Underwriter of all documents, paper exhibits, correspondence and records forming
the materials included in the offering; (viii) the cost of "tombstone"
advertisements to be placed in one or more daily or weekly periodicals as the
Underwriter may request (up to a maximum of $10,000); (ix) all expenses (up to a
maximum of $5,000) incurred in connection with presentation of a "due diligence"
meeting in New York City; (x) the cost of printing and mailing the Selected
Dealer Agreement and (xi) 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 subsection (a) shall
survive any termination or cancellation of this Agreement.
(b) 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
offering, including in such amount the proceeds from the exercise of the
Underwriter's over-allotment option. The non-accountable expense allowance due
shall be paid at the First Closing Date and any Option Closing Date, as
applicable. The Underwriter hereby acknowledges prior receipt from the Company
of $30,000, which amount shall be applied to the non-accountable expense
allowance due when and if the offering is closed. If the offering is not
consummated because the Underwriter elects to terminate this Agreement in
accordance with Section 10 hereof, then the Company shall reimburse the
Underwriter in full for its actual out-of-pocket expenses (including, without
limitation, the fees and disbursements of its counsel) inclusive of the $30,000
previously paid on account. If the Company decides not to proceed with the
offering for any reason, and subsequently engages in any public offering,
private placement, merger, acquisition, joint venture or corporate
reorganization with any entity within 12 months after the Company notifies the
Underwriter of its decision not to proceed, the Underwriter shall be entitled to
receive from the Company a cash fee equal to three percent (3%) of the
consideration paid or received by the Company in connection with such
transaction.
(c) The Underwriter shall determine in which states or jurisdictions
the Shares shall be registered or qualified for sale. Immediately prior to the
Effective Date, counsel for the Company shall advise the Underwriter in writing
of all states in which the offering has been registered or qualified for sale or
has been canceled, withdrawn or denied and the number
-32-
of Shares registered or qualified for sale in each such state. The Company shall
be responsible for the cost of state registration or qualification, including
the filing fees (which filing fees are payable to Underwriter's counsel in
advance of such filings) and the legal fees and disbursements of Underwriter's
counsel in connection with obtaining such registration or qualification;
12. Notices. Any notice hereunder shall be in writing, unless
otherwise expressly provided herein, and if to the respective persons indicated,
will be sufficient if mailed by certified mail, return receipt requested,
postage prepaid, or hand delivered, and confirmed in writing or by telecopier,
addressed as respectively indicated or to such other address as will be
indicated by a written notice similarly given, to the following persons:
(a) If to the Underwriter - addressed to (i) GunnAllen
Financial Inc., ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇. ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇, ▇▇▇▇▇▇▇ ▇▇▇▇▇, Attn:
▇▇▇▇▇▇ ▇▇▇▇▇, with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
(b) If to the Company - addressed to Intelli-Check, Inc., ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇,
Chairman, with a copy to ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ & Lerach LLP, ▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Esq.
Notice shall be deemed delivered upon receipt.
13. Successors. This Agreement will inure to the benefit of and be
binding upon the Underwriter and the Company and their respective successors and
assigns. Nothing expressed or mentioned in this Agreement is intended, or will
be construed, to give any person, corporation or other entity other than the
persons, corporations and other entities mentioned in the preceding sentence any
legal or equitable right, remedy, or claim under or in respect to this Agreement
or any provisions herein contained, this Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other persons; except that the
representations, warranties and indemnities of the Company contained in this
Agreement will also be for the benefit of the directors and officers of the
Underwriter and any person or persons who control any of the Underwriter within
the meaning of Section 15 of the Act, and except that the indemnities of the
Underwriter will also be for the benefit of the directors and officers of the
Company and any person or persons who control the Company within the meaning of
Section 15 of the Act. No purchaser of any of the Shares from the Underwriter
will be deemed a successor or assign solely because of such purchase.
14. Finders and Holders of First Refusal Rights.
(a) The Company hereby represents and warrants to the
Underwriter that it has not paid any compensation for services as a finder in
connection with any prior financing of the Company during the twelve-month
period immediately preceding the date hereof and that no person is entitled,
directly or indirectly, to compensation for services as a finder in
-33-
connection with the proposed transactions. The Company further represents and
warrants that other than as set forth below on subsection (c), no person holds a
right of first refusal or similar right in connection with the proposed
offering, and the Company hereby agrees to indemnify and hold harmless the
Underwriter, its respective officers, directors, agents and each person, if any,
who controls such Underwriter within the meaning of Section 15 of the Act, from
and against any loss, liability, claim, damage or expense whatsoever arising out
of a claim by an alleged finder or alleged holder of a right of first refusal or
similar right in connection with the proposed offering, insofar as such loss,
liability, claim, damage or expense arises out of any action or alleged action
of the Company.
(b) The Underwriter hereby represents and warrants to the
Company that no person is entitled, directly or indirectly, to compensation for
services as a finder in connection with the proposed transactions contemplated
by this Agreement; and of the Underwriter hereby agrees, severally and not
jointly, to indemnify and hold harmless the Company, its officers, directors and
agents, from and against any loss, liability, claim, damage or expense
whatsoever arising out of a claim by an alleged finder in connection with the
proposed offering, insofar as such loss, liability, claim, damage or expense
arises out of any action or alleged action of such Underwriter.
(c) For the three year period from the Effective Date the
Underwriter shall have a right of first refusal with respect to the placement of
any private offering or the underwriting of any public offering of debt or
equity securities of the Company.
15. Applicable Law. This Agreement shall be a deemed to be a contract
made under the laws of the State of New York and for all purposes shall be
construed in accordance with the laws of said state applicable to contracts made
and to be performed entirely within such State. The Company (1) agrees that any
legal suit, action or proceeding arising out of or relating to this Agreement
shall be instituted exclusively in New York State Supreme Court, County of New
York, or in the United States District Court for the Southern District of New
York, (2) waives any objection which the Company may have now or hereafter to
the venue of any such suit, action or proceeding, and (3) irrevocably consents
to.the jurisdiction of the New York State Supreme Court, County of New York and
the United States District Court for the Southern District of New York in any
such suit, action or procedure. Each of the Company and the Underwriter further
agrees to accept and acknowledge service of any and all process which may be
served in any suit, action or proceeding in the New York State Supreme Court,
County of New York and the United States District Court for the Southern
District of New York, and agrees that service of process upon the Company mailed
by certified mail to the Company's address shall be deemed in every respect
effective service of process upon the Company in any such suit, action or
proceeding. In the event of litigation between the parties arising hereunder,
the prevailing party shall be entitled to costs and reasonable attorney's fees.
16. Headings. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect any of the terms or
provisions hereof.
-34-
17. Counterparts. This Agreement may be executed in any number
of counterparts which, taken together, shall constitute one and the same
instrument.
18. Entire Agreement. This Agreement sets forth the entire
agreement and understanding between the Underwriter and the Company with respect
to the subject matter hereof, and supersedes all prior agreements, arrangements
and understandings, written or oral, between them.
19. Terminology. All personal pronouns used in this Agreement,
whether used in the masculine, feminine or neuter gender, shall include all
other genders and the singular shall include the plural, and vice versa.
If the foregoing correctly sets forth our understanding,
please indicate the Underwriter's acceptance thereof, as of the day and year
first above written, in the spaces provided below for that purpose, whereupon
this letter with the Underwriter's acceptance shall constitute a binding
agreement among us.
Very truly yours,
INTELLI-CHECK, INC.
By:___________________________________
Name: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
Title: Chairman
Confirmed and accepted on the
day and year first above written.
GUNNALLEN FINANCIAL INC.
By:_________________________________
Name:
Title:
-35-
EXHIBIT A
(i) The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority, corporate and other, and with all Permits necessary to own
or lease, as the case may be, and operate its properties, whether tangible or
intangible, and to conduct its business as described in the Registration
Statement. The Company is qualified to do business as a foreign corporation and
is in good standing in all jurisdictions wherein such qualifications is
necessary and failure to so qualify could have a material adverse effect on the
financial condition, results of operation, business or properties of the
Company.
The Company has no subsidiaries. To the best of Company
Counsel's knowledge, the Company has no equity interests in any other entity.
(ii) The Company has full power and authority, corporate and
other, to execute, deliver and perform the Underwriting Agreement and the
Underwriter's Warrant Agreement and to consummate the transactions contemplated
thereby. The execution, delivery and performance of the Underwriting Agreement
and the Underwriter's Warrant Agreement by the Company, the consummation by the
Company of the transactions therein contemplated and the compliance by the
Company with the terms of the Underwriting Agreement and the Underwriter's
Warrant Agreement have been duly authorized by all necessary corporate action,
and the Underwriting Agreement has been duly executed and delivered by the
Company. The Underwriting Agreement is and, when executed and delivered by the
Company on the Closing Date, the Underwriter's Warrant Agreement will be, valid
and binding obligations of the Company, enforceable in accordance with their
respective terms, subject, as to enforcement of remedies, to applicable
bankruptcy, insolvency, reorganization, moratorium and other laws affecting the
rights of creditors generally and the discretion of courts in granting equitable
remedies and except that enforceability of the indemnification and contribution
provisions set forth in the Underwriting Agreement and the Underwriter's Warrant
Agreement may be limited by the federal securities laws or public policy
underlying such laws.
(iii) The execution, delivery and performance of the
Underwriting Agreement and the Underwriter's Warrant Agreement by the Company,
the consummation by the Company of the transactions therein contemplated and the
compliance by the Company with the terms of the Underwriting Agreement and the
Underwriter's Warrant Agreement do not, and will not, with or without the giving
of notice or the lapse of time, or both, (A) result in a violation of the
Certificate of Incorporation or By-Laws, each as amended, of the Company, (B)
result in a breach of or conflict with any terms or provisions of, or constitute
a default under, or result 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 pursuant to any indenture,
mortgage, note, contract, commitment or other material agreement or instrument
to which the Company is a party or by which the Company, or any of the Company's
properties or assets are or may be bound or affected; (C) violate any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, or self regulatory organization,
including, without limitation, the NASD,
NYSE and AMEX, having jurisdiction over the Company or any of the Company's
properties or business; or (D) have any effect on any Permit necessary for the
Company to own or lease, as the case may be, and operate its properties or
conduct its businesses or the ability of the Company to make use thereof.
(iv) No Permits of any court or governmental agency or body
(other than under the Act, the Regulations and applicable state securities or
Blue Sky laws) are required for the valid authorization, issuance, sale and
delivery of the Shares or the Underwriter's Warrants to the Underwriter, and the
consummation by the Company of the transactions contemplated by the Agreement or
the Underwriter's Warrant Agreement.
(v) The Registration Statement has become effective under the
Act; no stop order suspending the effectiveness of the Registration Statement
has been issued, and no proceedings for that purpose have been instituted or are
pending, threatened or contemplated under the Act or applicable state securities
laws.
(vi) The Registration Statement and the Prospectus, as of the
Effective Date, and each amendment or supplement thereto as of its effective or
issue date (except for the financial statements and other financial data
included therein or omitted therefrom, as to which Company Counsel need not
express an opinion) comply as to form in all material respects with the
requirements of the Act and Regulations and the conditions for use of a
registration statement on Form SB-2 have been satisfied by the Company.
(vii) The descriptions in the Registration Statement and the
Prospectus of statutes, regulations, government classifications, contracts and
other documents (including opinions of such counsel); and the response to Item
13 of Form SB-2 have been reviewed by Company Counsel, and, based upon such
review, are accurate in all material respects and present fairly the information
required to be disclosed, and there are no material statutes, regulations or
government classifications, or, to the best of Company Counsel's knowledge,
material contracts or documents, of a character required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to the
Registration Statement, which are not so described or filed as required.
None of the material provisions of the contracts or instruments
described above violates any existing applicable law, rule, regulation,
judgment, order or decree of any governmental agency or court, domestic or
foreign, or self regulatory organization, including, without limitation, the
NASD, NYSE and AMEX, having jurisdiction over the Company or any of its assets
or businesses, including, without limitation, those promulgated by the
Commission and comparable state and local regulatory authorities.
(viii) The outstanding Common Stock and outstanding options
and warrants to purchase Common Stock have been duly authorized and validly
issued. The outstanding Common Stock are fully paid and nonassessable. The
outstanding options and warrants to purchase Common Stock constitute the valid
and binding obligations of the Company, enforceable in accordance with their
terms. None of the outstanding Common Stock
or options or warrants to purchase Common Stock has been issued in violation of
the preemptive rights of any stockholder of the Company. None of the holders of
the outstanding Common Stock is subject to personal liability solely by reason
of being such a holder. The offers and sales of the outstanding Common Stock and
outstanding options and warrants to purchase Common Stock were at all relevant
times either registered under the Act and the applicable state securities or
Blue Sky laws or exempt from such registration requirements. The authorized
Common Stock and outstanding options and warrants to purchase Common Stock
conform to the descriptions thereof contained in the Registration Statement and
Prospectus. Except as set forth in the Prospectus, no holders of any of the
Company's securities has any rights, "demand", "piggyback" or otherwise, to have
such securities registered under the Act.
(ix) The issuance and sale of the Shares have been duly
authorized and, when the Shares have been issued and duly delivered against
payment therefor as contemplated by the Underwriting Agreement, the Shares will
be validly issued, fully paid and nonassessable, and the holders thereof will
not be subject to personal liability solely by reason of being such holders. The
Shares are not subject to preemptive rights of any stockholder of the Company.
The certificates representing the Shares are in proper legal form.
(x) The issuance and sale of the Warrant Shares issuable upon
exercise of the Underwriter's Warrants have been duly authorized and, when such
Warrant Shares have been duly delivered against payment therefor, as
contemplated by the Underwriter's Warrant Agreement, such Warrant Shares will be
validly issued, fully paid and nonassessable. Holders of Warrant Shares issuable
upon exercise of the Underwriter's Warrants will not be subject to personal
liability solely by reason of being such holders. Neither the Underwriter's
Warrants nor the Warrant Shares issuable upon exercise thereof will be subject
to preemptive rights of any stockholder of the Company. The Company has reserved
a sufficient number of Common Stock from its authorized, but unissued Common
Stock for issuance upon exercise of the Underwriter's Warrants in accordance
with the provisions of the Underwriter's Warrant Agreement. The Underwriter's
Warrants conform to the descriptions thereof in the Registration Statement and
Prospectus.
(xi) Upon delivery of the Firm Shares to the Underwriter
against payment therefor as provided in the Underwriting Agreement, the
Underwriter (assuming it is a bona fide purchaser within the meaning of the
Uniform Commercial Code) will acquire good title to the Firm Shares, free and
clear of all liens, encumbrances, equities, security interests and claims.
(xii) Assuming that the Underwriter exercises the
over-allotment option to purchase any of the Optional Shares and makes payment
therefor in accordance with the terms of the Underwriting Agreement, upon
delivery of the Optional Shares to the Underwriter hereunder, the Underwriter
(assuming it is a bona fide purchaser within the meaning of the Uniform
Commercial Code) will acquire good title to such Optional Shares, free and clear
of any liens, encumbrances, equities, security interests and claims.
(xiii) To the best of Company Counsel's knowledge, there are
no claims, actions, suits, proceedings, arbitrations, investigations or
inquiries before any governmental agency, court or tribunal, foreign or
domestic, or before any private arbitration tribunal, pending or threatened
against the Company, or involving the Company's properties or businesses, other
than as described in the Prospectus, such description being accurate, and other
than litigation incident to the kind of business conducted by the Company which,
individually and in the aggregate, is not material.
(xiv) The Company owns or possesses adequate and enforceable
rights to use all patents, patent applications, trademarks, service marks,
copyrights, rights, trade secrets, confidential information, processes and
formulations used or proposed to be used in the conduct of its business as
described in the Prospectus (collectively the "Intangibles"); to the best of
Company Counsel's knowledge, the Company has not infringed nor is infringing
with the rights of others with respect to the Intangibles; and, to the best of
Company Counsel's knowledge, the Company has not received any notice that it has
or may have infringed, is infringing upon or is conflicting with the asserted
rights of others with respect to the Intangibles which might, singly or in the
aggregate, materially adversely affect its business, results of operations or
financial condition and such counsel is not aware of any licenses with respect
to the Intangibles which are required to be obtained by the Company other than
those licenses which the Company has obtained. The opinions described in this
Section 6(b)(xiv) may be given by Company Counsel in reliance on the opinion of
an attorney, reasonably acceptable to Underwriter's Counsel, practicing in the
patent area.
Company Counsel has participated in reviews and discussions in
connection with the preparation of the Registration Statement and the
Prospectus, and in the course of such reviews and discussions and such other
investigation as Company Counsel deemed necessary, no facts came to its
attention which lead it to believe that (A) the Registration Statement (except
as to the financial statements and other financial data contained therein, as to
which Company Counsel need not express an opinion), on the Effective Date,
contained any untrue statement of a material fact required to be stated therein
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 (B) the Prospectus (except as to the
financial statements and other financial data contained therein, as to which
Company Counsel need not express an opinion) contains any untrue statement of a
material fact or omits to state any material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. Each counsel giving an opinion must give the opinion set
forth in this paragraph as to such subject matter of its opinion.