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EXHIBIT 1.1
[Form of Underwriting Agreement - Subject to Additional Review]
1,733,334 SHARES OF COMMON STOCK
AMERICAN DIVERSIFIED HOLDINGS, INC.
UNDERWRITING AGREEMENT
New York, New York
, 1998
MILLENNIUM FINANCIAL GROUP, INC.
As Representative of the
Several Underwriters listed on Schedule A hereto
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
American Diversified Holdings, Inc., a Nevada corporation (the
"Company"), confirms its agreement with Millennium Financial Group, Inc.
("Millennium"), and each of the underwriters named in Schedule A hereto
(collectively, the "Underwriters," which term shall also include any underwriter
substituted as hereinafter provided in Section 11), for whom Millennium is
acting as representative (in such capacity, Millennium shall hereinafter
sometimes be referred to as "you" or the "Representative"), with respect to the
sale by the Company and the purchase by the Underwriters, acting severally and
not jointly, of the respective numbers of shares of the Company's common stock,
no par value ("Common Stock") set forth in Schedule A hereto. The aggregate
[________] shares of Common Stock set forth on Schedule A are hereinafter
referred to as the "Firm Securities." In addition, the Company has informed the
Representative that the Company will place (the "Direct Offering") an estimated
[______] shares of the Company's Common Stock (the "Direct Securities") directly
to investors located primarily in Europe. The Firm Securities and the Direct
Securities are hereinafter collectively referred to as the "Offered Securities."
Upon your request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriters, acting severally and not
jointly, their proportionate share, based upon the ratio that the Firm
Securities bears to the Offered Securities, of an additional [_______] shares of
Common Stock for the purpose of covering over-allotments, if any. The remainder
of the [_______] shares of Common Stock shall be available to the Company to
cover over-allotments, if any, in connection with the Direct Offering. The
[_______] shares of Common Stock are hereinafter referred to as the "Option
Securities." The Company also proposes to issue and sell to the Representative
warrants (the "Representative's Warrants") pursuant to the Representative's
Warrant Agreement (the "Representative's Warrant Agreement") for the purchase of
a number of shares of Common Stock equal to ten percent (10%) of the Firm
Securities. The Shares of Common Stock issuable upon exercise of the
Representative's Warrants are hereinafter referred to as the "Representative's
Securities." The Offered Securities, the Option Securities, the Representative's
Warrants and the Representative's Securities (collectively, hereinafter referred
to as the "Securities") are more fully described in the Registration Statement
and the Prospectus referred to below.
The Company has 5,000,000 shares of Series A Preferred Stock issued and
outstanding, which are held by approximately 320 shareholders (the "Converting
Shareholders") and are convertible into 1,666,667 shares of Common Stock (the
"Converted Securities"). All of the shares of Series A Preferred Stock not
converted by the Converting Shareholders prior to the offering will be
automatically converted upon the completion of the offering. The Converted
Securities are not being registered for resale under the offering.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to, and agrees with, each of the Underwriters as of the date
hereof, and as of the Closing Date (as hereinafter defined) and each Option
Closing Date (as hereinafter defined), if any, as follows:
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(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and an
amendment or amendments thereto, on Form SB-2 (No. 333-62489), including any
related preliminary prospectus ("Preliminary Prospectus"), for the registration
of the Offered Securities and the Option Securities under the Securities Act of
1933, as amended (the "Act"), which registration statement and amendment or
amendments have been prepared by the Company in conformity with the requirements
of the Act, and the rules and regulations (the "Regulations") of the Commission
under the Act. The Company will promptly file a further amendment to said
registration statement in the form heretofore delivered to the Underwriters and
will not file any other amendment thereto to which the Underwriters shall have
objected in writing after having been furnished with a copy thereof. Except as
the context may otherwise require, such registration statement, as amended, on
file with the Commission at the time the registration statement becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to those documents or information incorporated by
reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430(A) of the Regulations)), is
hereinafter called the "Registration Statement", and the form of prospectus in
the form first filed with the Commission pursuant to Rule 424(b) of the
Regulations, is hereinafter called the "Prospectus." For purposes hereof, "Rules
and Regulations" mean the rules and regulations adopted by the Commission under
either the Act or the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or Prospectus or any part thereof and no proceedings
for a stop order suspending the effectiveness of the Registration Statement or
any of the Company's securities have been instituted or are pending or
threatened. Each of the Preliminary Prospectus, the Registration Statement and
Prospectus at the time of filing thereof conformed with the requirements of the
Act and the Rules and Regulations, and none of the Preliminary Prospectus, the
Registration Statement or Prospectus at the time of filing thereof contained an
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading, except that this
representation and warranty does not apply to statements made in reliance upon
and in conformity with written information furnished to the Company with respect
to the Underwriters by or on behalf of the Underwriters expressly for use in
such Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date (as defined herein) and each
Option Closing Date (as defined herein), if any, and during such longer period
as the Prospectus may be required to be delivered in connection with sales by
the Underwriters or a dealer, the Registration Statement and the Prospectus will
contain all statements which are required to be stated therein in accordance
with the Act and the Rules and Regulations, and will conform to the requirements
of the Act and the Rules and Regulations; neither the Registration Statement nor
the Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, provided, however,
that this representation and warranty does not apply to statements made or
statements omitted in reliance upon and in conformity with information furnished
to the Company in writing by or on behalf of any Underwriter expressly for use
in the Preliminary Prospectus, Registration Statement or Prospectus or any
amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the state of its incorporation.
Except as set forth in the Prospectus, the Company does not own an interest in
any corporation, partnership, trust, joint venture or other business entity. The
Company is duly qualified and licensed and in good standing as a foreign
corporation in each jurisdiction in which its ownership or leasing of any
properties or the character of its operations requires such qualification or
licensing. The Company has all requisite power, and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business
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income and other taxes in such financial statements are sufficient for the
payment of all accrued and unpaid federal, state, local and foreign income
taxes, interest, penalties, assessments or deficiencies applicable to the
Company, whether disputed or not, for the applicable period then ended and
periods prior thereto; adequate allowance for doubtful accounts has been
provided for unindemnified losses due to the operations of the Company; and the
statements of income do not contain any items of special or nonrecurring income
not earned in the ordinary course of business, except as specified in the notes
thereto.
(g) The Company (i) has paid all federal, state, local, and foreign
taxes for which it is liable, or has established adequate reserves for such
taxes, (ii) has furnished all information returns it is required to furnish
pursuant to the Internal Revenue Code of 1986, as amended (the "Code"), (iii)
has established adequate reserves for such taxes which are not due and payable,
and (iv) does not have any tax deficiency or claims outstanding, proposed or
assessed against it, other than as described in the Registration Statement.
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriters in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriters of the Firm Securities
and the Option Securities from the Company and the purchase by the
Representative of the Representative's Warrants from the Company, (iii) the
consummation by the Company of any of its obligations under this Agreement, or
(iv) resales of the Firm Securities and the Option Securities in connection with
the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, malpractice and property insurance, which insures
the Company, and its employees, against such losses and risks generally insured
against by comparable businesses. The Company (A) has not failed to give notice
or present any insurance claim with respect to any matter, including but not
limited to the Company 's business, property or employees, under any insurance
policy or surety bond in a due and timely manner, (B) does not have any disputes
or claims against any underwriter of such insurance policies or surety bonds or
has failed to pay any premiums due and payable thereunder, or (C) has failed to
comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those having jurisdiction over environmental or similar matters),
domestic or foreign, pending or, to the best of the Company's knowledge,
threatened against (or circumstances that may give rise to the same), or
involving the properties or business of, the Company which (i) questions the
validity of the capital stock of the Company, this Agreement, or the
Representative's Warrant Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with this Agreement or the Representative's
Warrant Agreement, (ii) is required to be disclosed in the Registration
Statement which is not so disclosed (and such proceedings as are summarized in
the Registration Statement are accurately summarized in all material respects),
or (iii) might materially and adversely affect the condition, financial or
otherwise, or the earnings, position, prospects, stockholders' equity, value,
operation, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, enter into this Agreement and
the Representative's Warrant Agreement and to consummate the transactions
provided for in this Agreement and the Representative's Warrant Agreement; and
this Agreement and the Representative's Warrant Agreement have each been duly
and properly authorized, executed and delivered by the Company. Each of this
Agreement and the Representative's Warrant Agreement constitutes a legal, valid
and binding agreement of the Company enforceable against the Company in
accordance with its terms, and none of the Company's issue and sale of the
Securities, execution or delivery of this Agreement or the Representative's
Warrant Agreement, its performance hereunder and thereunder, its consummation of
the transactions contemplated herein and therein, or the conduct of its business
as described in the Registration Statement, the Prospectus, and any amendments
or supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any
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property or assets (tangible or intangible) of the Company pursuant to the terms
of (i) the articles of incorporation or by-laws of the Company, (ii) any
license, contract, collective bargaining agreement, indenture, mortgage, deed of
trust, lease, voting trust agreement, stockholders agreement, note, loan or
credit agreement or any other agreement or instrument to which the Company is a
party or by which the Company is or may be bound or to which its or assets
(tangible or intangible) is or may be subject, or any indebtedness, or (iii) any
statute, judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any court, regulatory body, government agency or other body, domestic or
foreign, is required for the issuance of the Securities pursuant to the
Prospectus and the Registration Statement, the performance of this Agreement and
the Representative's Warrant Agreement and the transactions contemplated hereby
and thereby, including without limitation, any waiver of any preemptive, first
refusal or other rights that any entity or person may have for the issue and/or
sale of any of the Securities, except such as have been or may be obtained under
the Act or may be required under state securities or Blue Sky laws in connection
with the Underwriters' purchase and distribution of the Firm Securities and the
Option Securities, and the Representative's Warrants to be sold by the Company
hereunder.
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it or they
may be bound or to which its assets, properties or business may be subject have
been duly and validly authorized, executed and delivered by the Company and
constitute the legal, valid and binding agreements of the Company, as the case
may be, enforceable against it in accordance with its terms. The descriptions in
the Registration Statement of agreements, contracts and other documents are
accurate and fairly present the information required to be shown with respect
thereto by Form SB-2, and there are no contracts or other documents which are
required by the Act to be described in the Registration Statement or filed as
exhibits to the Registration Statement which are not described or filed as
required, and the exhibits which have been filed are complete and correct copies
of the documents of which they purport to be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and Prospectus, and except as may otherwise
be indicated or contemplated herein or therein, the Company has not (i) issued
any securities or incurred any liability or obligation, direct or contingent,
for borrowed money, (ii) entered into any transaction other than in the ordinary
course of business, or (iii) declared or paid any dividend or made any other
distribution on or in respect of its capital stock of any class, and there has
not been any change in the capital stock, or any change in the debt (long or
short term) or liabilities or material adverse change in or affecting the
general affairs, management, financial operations, stockholders' equity or
results of operations of the Company.
(o) Except as may be set forth in the Registration Statement, no
default exists in the due performance and observance of any term, covenant or
condition of any license, contract, collective bargaining agreement, indenture,
mortgage, installment sale agreement, lease, deed of trust, voting trust
agreement, stockholders agreement, partnership agreement, note, loan or credit
agreement, purchase order, or any other agreement or instrument evidencing an
obligation for borrowed money, or any other material agreement or instrument to
which the Company is a party or by which the Company may be bound or to which
the property or assets (tangible or intangible) of the Company is subject or
affected.
(p) To the best of the Company's knowledge it has generally enjoyed a
satisfactory employer-employee relationship with its employees and 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
the Company pending before the National Labor Relations Board or any lockout,
strike, picketing, boycott, dispute, slowdown or stoppage pending or threatened
against or
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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
under any expired or existing collective bargaining agreements of the Company.
No labor dispute with the employees of the Company exists, or, is imminent.
(q) Except as may be set forth in the Registration Statement, the
Company does not maintain, sponsor or contribute to any program or arrangement
that is an "employee pension benefit plan," an "employee welfare benefit plan,"
or a "multi-employer plan" as such terms are defined in Sections 3(2), 3(1) and
3(37), respectively, of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA") ("ERISA Plans"). Except as may be set forth in the
Registration Statement, the Company does not maintain or contribute, now or at
any time previously, to a defined benefit plan, as defined in Section 3(35) of
ERISA. No ERISA Plan (or any trust created thereunder) has engaged in a
"prohibited transaction" within the meaning of Section 406 of ERISA or Section
4975 of the Code, which could subject the Company to any tax penalty on
prohibited transactions and which has not adequately been corrected. Each ERISA
Plan is in compliance with all reporting, disclosure and other requirements of
the Code and ERISA as they relate to any such ERISA Plan. Determination letters
have been received from the Internal Revenue Service with respect to each ERISA
Plan which is intended to comply with Code Section 401(a), stating that such
ERISA Plan and the attendant trust are qualified thereunder. The Company has
never completely or partially withdrawn from a "multi-employer plan."
(r) Neither the Company, nor any of its employees, directors,
stockholders, partners, or affiliates (within the meaning of the Rules and
Regulations) has taken or will take, directly or indirectly, any action designed
to or which has constituted or which might be expected to cause or result in,
under the Exchange Act, or otherwise, stabilization or manipulation of the price
of any security of the Company to facilitate the sale or resale of the
Securities or otherwise.
(s) Except as otherwise disclosed in the Prospectus, none of the
patents, patent applications, trademarks, service marks, trade names and
copyrights, and licenses and rights to the foregoing presently owned or held by
the Company, are in dispute so far as known by the Company or are in any
conflict with the right of any other person or entity. Except as otherwise
disclosed in the Prospectus, the Company (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever, all
patents, trademarks, service marks, trade names and copyrights, technology and
licenses and rights with respect to the foregoing, used in the conduct of its
business as now conducted or proposed to be conducted without infringing upon or
otherwise acting adversely to the right or claimed right of any person,
corporation or other entity under or with respect to any of the foregoing and
(ii) is not obligated or under any liability whatsoever to make any payment by
way of royalties, fees or otherwise to any owner or licensee of, or other
claimant to, any patent, trademark, service ▇▇▇▇, trade name, copyright,
know-how, technology or other intangible asset, with respect to the use thereof
or in connection with the conduct of its business or otherwise.
(t) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects, or other
restrictions or equities of any kind whatsoever, other than those referred to in
the Prospectus and liens for taxes not yet due and payable.
(u) McGladrey & ▇▇▇▇▇▇, LLP, whose report is filed with the
Commission as a part of the Registration Statement, are independent certified
public accountants as required by the Act and the Rules and Regulations.
(v) The Company has agreed to cause to be duly executed agreements
pursuant to which each of the Company's executive officers, directors, and
certain shareholders have agreed not to, directly or indirectly, sell, assign,
transfer, or otherwise dispose of any shares of Common Stock or securities
convertible into, exercisable or exchangeable for or evidencing any right to
purchase or subscribe for any shares of Common Stock for a period of
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twelve (12) months following the effective date of the Registration Statement.
The Company will cause the Transfer Agent (as hereinafter defined) to ▇▇▇▇ an
appropriate legend on the face of stock certificates representing all of such
securities and to place "stop transfer" orders on the Company's stock ledgers.
(w) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuance with
respect to the Company, or any of its officers, directors, stockholders,
partners, employees or affiliates, that may affect the Underwriters'
compensation, as determined by the National Association of Securities Dealers,
Inc. ("NASD").
(x) The Offered Securities and Option Securities have been approved
for quotation on [the National Association of Securities Dealers Automated
Quotation System].
(y) Neither the Company, nor any of its officers, employees, agents
or any other person acting on behalf of the Company has, directly or indirectly,
given or agreed to give any money, gift or similar benefit (other than legal
price concessions to customers in the ordinary course of business) to any
customer, supplier, employee or agent of a customer or supplier, or official or
employee of any governmental agency (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or other person who was, is, or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (a) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (b) if
not given in the past, might have had a material adverse effect on the assets,
business or operations of the Company, or (c) if not continued in the future,
might adversely affect the assets, business, condition, financial or otherwise,
earnings, position, properties, value, operations or prospects of the Company.
The Company's internal accounting controls are sufficient to cause the Company
to comply with the Foreign Corrupt Practices Act of 1977, as amended.
(z) Except as set forth in the Prospectus, no officer, director,
stockholder or partner 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, either directly or
indirectly, (i) an interest in any person or entity which (A) furnishes or sells
services or products which are furnished or sold or are proposed to be furnished
or sold by the Company, or (B) purchases from or sells or furnishes to the
Company any goods or services, or (ii) a beneficiary interest in any contract or
agreement to which the Company is a party or by which it may be bound or
affected. Except as set forth in the Prospectus under "Certain Transactions,"
there are no existing agreements, arrangements, understandings or transactions,
or proposed agreements, arrangements, understandings or transactions, between or
among the Company, and any officer, director, or 5% or greater security holder
of the Company, or any partner, affiliate or associate of any of the foregoing
persons or entities.
(aa) Any certificate signed by any officer of the Company, and
delivered to the Underwriters or to Underwriters' Counsel (as defined herein)
shall be deemed a representation and warranty by the Company to the Underwriters
as to the matters covered thereby.
(bb) The minute books of the Company have been made available to the
Underwriters and contain a complete summary of all meetings and actions of the
directors (including committees thereof) and stockholders of each of the
Company, since the time of its incorporation, and reflect all transactions
referred to in such minutes accurately in all material respects.
(cc) Except and to the extent described in the Prospectus, no holders
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company have the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement under the Act and no person or entity holds any
anti-dilution rights with respect to any securities of the Company.
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(dd) The Company has as of the effective date of the Registration
Statement entered into employment agreements with ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ Rea, Jr.,
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ in the forms filed as Exhibits 10.3, 10.4 and
10.5, respectively, to the Registration Statement.
(ee) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurance that (i) transactions are executed in
accordance with management's general or specific authorizations; (ii)
transactions are recorded as necessary to permit preparations of financial
statements in conformity 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 authorizations; and (iv) the
recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES: DIRECT OFFERING.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to each Underwriter, and each Underwriter,
severally and not jointly, agrees to purchase from the Company at a price of
$___ [92% of the public offering price] per share of Common Stock, that number
of Firm Securities set forth in Schedule A opposite the name of such
Underwriter, subject to such adjustment as the Representative in its discretion
shall make to eliminate any sales or purchases of fractional shares, plus any
additional number of Firm Securities which such Underwriter may become obligated
to purchase pursuant to the provisions of Section 11 hereof. The parties
acknowledge and agree that the difference between the public offering price per
share of Common Stock and the per share purchase price payable by the
Underwriters for the Firm Securities (and, if applicable, the Option Securities)
represents an eight percent (8%) fee comprised of the following: (i) a four
percent (4%) selling commission, (ii) a two percent (2%) underwriting fee, and
(iii) a two percent (2%) management fee.
(b) In addition, on the basis of the representations, warranties,
covenants and agreements herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriters, severally and not jointly, to purchase all or any part of their
proportionate share of the Option Securities, based upon the ratio that the Firm
Securities bears to the Offered Securities, at a price of $___ [92% of the
public offering price] per share of Common Stock. The option granted hereby will
expire forty-five (45) days after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely on Rule 430A under the
Rules and Regulations, or (ii) the date of this Agreement if the Company has
elected to rely upon Rule 430A under the Rules and Regulations, and may be
exercised in whole or in part from time to time only for the purpose of covering
over-allotments which may be made in connection with the offering and
distribution of the Firm Securities upon notice by the Representative to the
Company setting forth the number of Option Securities as to which the several
Underwriters are then exercising the option and the time and date of payment and
delivery for any such Option Securities. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Representative, but shall not
be later than three (3) full business days after the exercise of said option,
nor in any event prior to the Closing Date, as hereinafter defined, unless
otherwise agreed upon by the Representative and the Company. Nothing herein
contained shall obligate the Underwriters to make any over-allotments. No Option
Securities shall be delivered unless the Firm Securities shall be simultaneously
delivered or shall theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Securities shall be made at the offices of the Representative at
▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other
place as shall be agreed upon by the Representative and the Company. Such
delivery and payment shall be made at 10:00 a.m. (New York City time) on , 1998
or at such other time and date as shall be agreed upon by the Representative and
the Company, but not less than three (3) nor more than five (5) full business
days after the effective date of the Registration Statement (such time and date
of payment and delivery being herein called the "Closing Date"). In addition, in
the event that any or all of the Option Securities are purchased by the
Underwriters, payment of the purchase price for, and delivery of certificates
for, such Option Securities shall be made at the above-mentioned office of the
Representative or at such other place as shall be agreed upon by the
Representative and the Company on each
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Option Closing Date as specified in the notice from the Representative to the
Company. Delivery of the certificates for the Firm Securities and the Option
Securities, if any, shall be made to the Underwriters against payment by the
Underwriters, severally and not jointly, of the purchase price for the Firm
Securities and the Option Securities, if any, to the order of the Company for
the Firm Securities and the Option Securities, if any, by New York Clearing
House funds. In the event such option is exercised, the Underwriters, acting
severally and not jointly, shall purchase that proportion of the total number of
Option Securities then being purchased which the number of Firm Securities set
forth in Schedule A hereto opposite the name of such Underwriter bears to the
total number of Firm Securities, subject in each case to such adjustments as the
Representative in its discretion shall make to eliminate any sales or purchases
of fractional shares. Certificates for the Firm Securities and the Option
Securities, if any, shall be in definitive, fully registered form, shall bear no
restrictive legends and shall be in such denominations and registered in such
names as the Underwriters may request in writing at least two (2) business days
prior to the Closing Date or the relevant Option Closing Date, as the case may
be. The certificates for the Firm Securities and the Option Securities, if any,
shall be made available to the Representative at such office or such other place
as the Representative may designate for inspection, checking and packaging no
later than 9:30 a.m. on the last business day prior to the Closing Date or the
relevant Option Closing Date, as the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Representative the Representative's Warrants at a purchase price of $.001 per
warrant, which Representative's Warrants shall entitle the Representative to
purchase an aggregate number of shares of Common Stock equal to ten percent
(10%) of the Firm Securities. The Representative's Warrants shall be exercisable
for a period of five (5) years commencing from the effective date of the
Registration Statement at a price equaling one hundred fifty percent (150%) of
the initial public offering price of the shares of Common Stock. The
Representative's Warrant Agreement and form of Warrant Certificate shall be
substantially in the form attached hereto as Exhibit A. Payment for the
Representative's Warrants shall be made on the Closing Date.
(e) With respect to the Company's offer and sale of the Direct
Securities pursuant to the Direct Offering, the Company agrees to pay to the
Representative an amount equal to two percent (2%) of the gross proceeds
received by the Company from the Direct Offering as an additional component of
the management fee (referenced in subsection (a) above with respect to the Firm
Securities) payable to the Representative for managing the entire offering (the
"Management Fee"). The Management Fee shall be paid to the Representative on the
closing date of the Direct Offering.
3. PUBLIC OFFERING OF THE SHARES OF COMMON STOCK. As soon after the
Registration Statement becomes effective as the Representative deems advisable,
the Underwriters shall make a public offering of the shares of Common Stock
(other than to residents of or in any jurisdiction in which qualification of the
shares of Common Stock is required and has not become effective) at the price
and upon the other terms set forth in the Prospectus. The Representative may
from time to time increase or decrease the public offering price after
distribution of the shares of Common Stock has been completed to such extent as
the Representative, in its discretion deems advisable. The Underwriters may
enter into one or more agreements as the Underwriters, in their sole discretion,
deem advisable with one or more broker-dealers who shall act as dealers in
connection with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants and
agrees with the Underwriters as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or Exchange
Act before termination of the offering of the shares of Common Stock by the
Underwriters of which the Representative shall not previously have been advised
and furnished with a copy, or to which the Representative shall have objected or
which is not in compliance with the Act, the Exchange Act or the Rules and
Regulations.
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(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Representative and confirm the notice in writing (i)
when the Registration Statement, as amended, becomes effective, if the
provisions of Rule 430A promulgated under the Act will be relied upon, when the
Prospectus has been filed in accordance with said Rule 430A and when any
post-effective amendment to the Registration Statement becomes effective; (ii)
of the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding suspending the effectiveness of the Registration
Statement or any order preventing or suspending the use of the Preliminary
Prospectus or the Prospectus, or any amendment or supplement thereto, or the
institution of proceedings for that purpose; (iii) of the issuance by the
Commission or by any state securities commission of any proceedings for the
suspension of the qualification of any of the Securities for offering or sale in
any jurisdiction or of the initiation, or the threatening, of any proceeding for
that purpose; (iv) of the receipt of any comments from the Commission; and (v)
of any request by the Commission for any amendment to the Registration Statement
or any amendment or supplement to the Prospectus or for additional information.
If the Commission or any state securities commission shall enter a stop order or
suspend such qualification at any time, the Company will make every effort to
obtain promptly the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Representative) or transmit the Prospectus by a means
reasonably calculated to result in filing with the Commission pursuant to Rule
424(b)(1) (or, if applicable and if consented to by the Representative, pursuant
to Rule 424(b)(4)) not later than the Commission's close of business on the
earlier of (i) the second business day following the execution and delivery of
this Agreement and (ii) the fifth business day after the effective date of the
Registration Statement.
(d) The Company will give the Representative notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use by the
Underwriters in connection with the offering of the Securities which differs
from the corresponding prospectus on file at the Commission at the time the
Registration Statement becomes effective, whether or not such revised prospectus
is required to be filed pursuant to Rule 424(b) of the Rules and Regulations),
and will furnish the Representative with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed filing or use, as
the case may be, and will not file any such prospectus to which the
Representative or ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP ("Underwriters' Counsel") shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Representative, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Representative may designate to permit the
continuance of sales and dealings therein for as long as may be necessary to
complete the distribution, and shall make such applications, file such documents
and furnish such information as may be required for such purpose; provided,
however, the Company shall not be required to qualify as a foreign corporation
or file a general or limited consent to service of process in any such
jurisdiction. In each jurisdiction where such qualification shall be effected,
the Company will, unless the Representative agrees that such action is not at
the time necessary or advisable, use all reasonable efforts to file and make
such statements or reports at such times as are or may reasonably be required by
the laws of such jurisdiction to continue such qualification.
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act and the Exchange Act, as now and
hereafter amended and by the Rules and Regulations, as from time to time in
force, so far as necessary to permit the continuance of sales of or dealings in
the Securities in accordance with the provisions hereof and the Prospectus, or
any amendments or supplements thereto. If at any time when a prospectus relating
to the Securities is required to be delivered under the Act, any event shall
have occurred as a result of which, in the opinion of counsel for the Company or
Underwriters' Counsel, 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 Representative 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
Underwriters' Counsel, and the Company will furnish to the Underwriters copies
of such amendment or supplement as soon as available and in such quantities as
the Underwriters may request.
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(g) As soon as practicable, but in any event not later than
forty-five (45) days after the end of the 12-month period beginning on the day
after the end of the fiscal quarter of the Company during which the effective
date of the Registration Statement occurs (ninety (90) days in the event that
the end of such fiscal quarter is the end of the Company 's fiscal year), the
Company shall make generally available to its security holders, in the manner
specified in Rule 158(b) of the Rules and Regulations, and to the
Representative, an earnings statement which will be in the detail required by,
and will otherwise comply with, the provisions of Section 11(a) of the Act and
Rule 158(a) of the Rules and Regulations, which statement need not be audited
unless required by the Act, covering a period of at least twelve (12)
consecutive months after the effective date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings, and will deliver to the Representative:
(i) concurrently with furnishing such quarterly reports to its
stockholders, statements of income of the Company for each quarter in the form
furnished to the Company's stockholders and certified by the Company's principal
financial or accounting officer;
(ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the preceding
fiscal year, together with statements of operations, stockholders' equity, and
cash flows of the Company for such fiscal year, accompanied by a copy of the
certificate thereon of independent certified public accountants;
(iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
(iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the NASD or any
securities exchange;
(v) very press release and every material news item or article of
interest to the financial community in respect of the Company, or its affairs,
which was released or prepared by or on behalf of the Company; and
(vi) any additional information of a public nature concerning the
Company (and any future subsidiary) or its businesses which the Representative
may reasonably request.
During such five-year period, if the Company has an active subsidiary,
the foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiary(ies) are consolidated, and
will be accompanied by similar financial statements for any significant
subsidiary which is not so consolidated.
(i) The Company will maintain a transfer agent ("Transfer Agent")
and, if necessary under the jurisdiction of incorporation of the Company, a
Registrar (which may be the same entity as the Transfer Agent) for its Common
Stock.
(j) The Company will furnish to the Representative or on the
Representative's order, without charge, at such place as the Representative may
designate, copies of each Preliminary Prospectus, the Registration Statement and
any pre-effective or post-effective amendments thereto (two of which copies will
be signed and will include all financial statements and exhibits), the
Prospectus, and all amendments and supplements thereto, including any prospectus
prepared after the effective date of the Registration Statement, in each case as
soon as available and in such quantities as the Representative may request.
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(k) On or before the effective date of the Registration Statement,
the Company shall provide the Representative with true original copies of duly
executed, legally binding and enforceable agreements pursuant to which, for a
period of twelve (12) months from the effective date of the Registration
Statement, the Company's executive officers, directors and 5% shareholders agree
that it or he or she will not, directly or indirectly, issue, offer to sell,
sell, grant an option for the sale or purchase of, assign, transfer, pledge,
hypothecate or otherwise encumber or dispose of any shares of Common Stock or
securities convertible into, exercisable or exchangeable for or evidencing any
right to purchase or subscribe for any shares of Common Stock (either pursuant
to Rule 144 of the Rules and Regulations or otherwise) or dispose of any
beneficial interest therein without the prior consent of the Representative
(collectively, the "Lock-up Agreements"). During the twelve (12) month period
commencing on the effective date of the Registration Statement, the Company
shall not, without the prior written consent of the Representative, sell,
contract or offer to sell, issue, transfer, assign, pledge, distribute, or
otherwise dispose of, directly or indirectly, any shares of Common Stock or any
options, rights or warrants with respect to any shares of Common Stock. On or
before the Closing Date, the Company shall deliver instructions to the Transfer
Agent authorizing it to place appropriate legends on the certificates
representing the securities subject to the Lock-up Agreements and to place
appropriate stop transfer orders on the Company's ledgers. The Company further
covenants that it will not file a registration statement with the Commission
during the twelve (12) month period commencing on the effective date of the
Registration Statement without the prior written consent of the Representative.
(l) Neither the Company, nor any of its officers, directors,
stockholders, nor any of their affiliates (within the meaning of the Rules and
Regulations) will 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 any securities of the Company.
(m) Except for cumulative changes of less than $500,000 in each
specific item set forth in the "Use of Proceeds" section in the Prospectus,
which will be mutually acceptable for the Company and the Representative, the
Company will not change the manner in which it uses the proceeds from the sale
of the Securities from that which is set forth in the "Use of Proceeds" without
giving written notice of such change to the Representative at least ten (10)
business days prior to any such use.
(n) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, a Form SR as may be
required pursuant to Rule 463 under the Act) from time to time, under the Act,
the Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents filed will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act, and the Rules and Regulations.
(o) The Company shall furnish to the Representative as early as
practicable prior to the date hereof, the Closing Date and each Option Closing
Date, if any, but no later than two (2) full business days prior thereto, a copy
of the latest available unaudited interim financial statements of the Company
(which in no event shall be as of a date more than thirty (30) days prior to the
date of the Registration Statement) which has been read by the Company's
independent public accountants, as stated in their letters to be furnished
pursuant to Sections 6(l) and 6(m) hereof.
(p) The Company shall cause the Common Stock to be listed on NASDAQ
and, for a period of five (5) years from the date hereof, use its best efforts
to maintain the NASDAQ listing of the Common Stock to the extent outstanding.
(q) For a period of five (5) years from the Closing Date, the Company
shall furnish to the Representative at reasonable request and the Company's sole
expense, (i) daily consolidated transfer sheets relating to the Common Stock
(ii) the list of holders of all of the Company's securities and (iii) a Blue Sky
"Trading Survey" for secondary sales of the Company's securities prepared by
counsel to the Company.
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(r) As soon as practicable, (i) but in no event more than five (5)
business days before the effective date of the Registration Statement, file a
Form 8-A with the Commission providing for the registration under the Exchange
Act of the Securities and (ii) but in no event more than thirty (30) days after
the effective date of the Registration Statement, take all necessary and
appropriate actions to be included in Standard and Poor's Corporation
Descriptions and ▇▇▇▇▇'▇ OTC Manual and to continue such inclusion for a period
of not less than five (5) years.
(s) The Company hereby agrees that, except as set forth above in
Section 4(k) and the 1,000,000 shares issued or reserved for future issuance
under the Company's 1998 Stock Option and Incentive Plan ("Stock Option Plan"),
it will not, for a period of twelve (12) months from the effective date of the
Registration Statement, adopt, propose to adopt or otherwise permit to exist any
employee, officer, director, consultant or compensation plan or similar
arrangement, permitting (i) the grant, issue, sale or entry into any agreement
to grant, issue or sell any option, warrant or other contract right (x) at an
exercise price that is less than the greater of the public offering prices of
the Common Stock set forth herein and the fair market value on the date of grant
or sale or (y) to any of its executive officers or directors or to any holder of
5% or more of the Common Stock; (ii) the maximum number of shares of Common
Stock or other securities of the Company purchasable at any time pursuant to
options or warrants issued by the Company to exceed such 1,000,000 shares
reserved for future issuance under the Company's Stock Option Plan; (iii) the
payment for such securities with any form of consideration other than cash; or
(iv) the existence of stock appreciation rights, phantom options or similar
arrangements. Furthermore, the Company agrees that for a period of twelve (12)
months from the effective date of the Registration Statement, the Company will
not amend any material employment agreement or option agreement or other
agreement providing compensation to any executive officer, director or other
principal stockholder, without the prior written consent of the Representative.
(t) Until the completion of the distribution of the Securities, the
Company shall not, without the prior written consent of the Representative and
Underwriters' Counsel, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(u) For a period equal to the lesser of (i) five (5) years from the
date hereof, or (ii) the sale to the public of the Representative's Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form SB-2 (or other appropriate form) for the registration
under the Act of the Representative's Securities.
(v) The Company shall maintain an active Board of Directors following
the completion of the offering which will consist of a minimum of two (2)
outside and independent directors. The Board of Directors shall also have both
an audit and compensation committees each consisting of no more than three (3)
members, at least one of which shall be an independent director.
(w) The Company agrees to offer the Representative a right of first
refusal to act as the managing underwriter in connection with any future public
offerings and private placements, or a merger or other corporate transaction
involving the Company, occurring within two (2) years following the effective
date of the Offering.
(x) The Company agrees that, except for those shares of Common Stock
to be sold pursuant to the Direct Offering, the Company shall direct all
inquires regarding the offering to the Representative.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay on the Closing Date, and each
Option Closing Date, if any, all expenses and fees (other than fees of
Underwriters' Counsel, except as provided in (iv) below) incident to the
performance of the obligations of the Company under this Agreement and the
Representative's Warrant Agreement, including, without limitation, (i) the fees
and expenses of accountants and counsel for the Company, (ii) all costs and
expenses incurred in connection with the preparation, duplication, printing
(including mailing and handling charges), filing, delivery and mailing
(including the payment of postage with respect thereto) of the Registration
Statement and the Prospectus and any amendments and supplements thereto and the
printing, mailing (including the payment of
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postage with respect thereto) and delivery of this Agreement, the
Representative's Warrant Agreement, [the Agreement Among Underwriters], the
Selected Dealer Agreements, and related documents, including the cost of all
copies thereof and of the Preliminary Prospectuses and of the Prospectus and any
amendments thereof or supplements thereto supplied to the Underwriters and such
dealers as the Underwriters may request, in quantities as hereinabove stated,
(iii) the printing, engraving, issuance and delivery of the Securities
including, but not limited to, (x) the purchase by the Underwriters of the Firm
Securities and the Option Securities and the purchase by the Representative of
the Representative's Warrants from the Company, (y) the consummation by the
Company of any of its obligations under this Agreement and the Representative's
Warrant Agreement, and (z) resale of the Firm Securities and the Option
Securities by the Underwriters in connection with the distribution contemplated
hereby, (iv) the qualification of the Securities under state or foreign
securities or "Blue Sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum", th "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and disbursements and fees of counsel in
connection therewith, (v) advertising costs and expenses, including but not
limited to costs and expenses in connection with the "road show", information
meetings and presentations, bound volumes and prospectus memorabilia and
"tombstone" advertisement expenses, (vi) costs and expenses in connection with
due diligence investigations, including but not limited to the fees of any
independent counsel, expert or consultant retained, (vii) fees and expenses of
the Transfer Agent and registrar and all issue and transfer taxes, if any,
(viii) applications for assignment of a rating of the Securities by qualified
rating agencies, (ix) the fees payable to the Commission and the NASD, and (x)
the fees and expenses incurred in connection with the quotation of the Offered
Securities and the Option Securities on the NASDAQ and any other exchange.
(b) If this Agreement is terminated by the Underwriters in accordance
with the provisions of Section 6 (except Sections 6(c), 6(j) and 6(n)) or
Section 12, the Company shall indemnify the Underwriters for all of their actual
accountable out-of-pocket expenses, including the Representative's staff time at
agreed rates and the reasonable fees and disbursements of counsel for the
Underwriters and all Blue Sky counsel fees (excluding filing fees) and
disbursements (less amounts previously paid pursuant to Section 5(c) hereof).
(c) The Company further agrees that, in addition to the expenses
payable pursuant to subsection (a) of this Section 5, it will pay to the
Representative on the Closing Date by certified or bank cashier's check or, at
the election of the Representative, by deduction from the applicable proceeds,
(i) a non-accountable expense allowance equal to three percent (3.0%) of the
gross proceeds received by the Company from the sale of the Firm Securities,
$25,000 of which has been paid to date, and (ii) a non-accountable expense
allowance equal to two percent (2.0%) of the gross proceeds received by the
Company from the sale of the Direct Securities. In the event the Representative
elects to exercise the overallotment option described in Section 2(b) hereof,
the Company further agrees to pay to the Representative on each Option Closing
Date, by certified or bank cashier's check, or at the Representative's election,
by deduction from the proceeds of the Option Securities purchased on such Option
Closing Date, a non-accountable expense allowance equal to 3% of the gross
proceeds received by the Company from the Underwriters' sale of their
proportionate share of the Option Securities.
6. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the
Underwriters hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date or each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date or Option Closing Date, if any,
of the statements of the officers of the Company made pursuant to the provisions
hereof; and the performance by the Company on and as of the Closing Date and
each Option Closing Date, if any, of its covenants and obligations hereunder and
to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 9:30 a.m., New York time, on or such later date and time as shall be
consented to in writing by the Representative, and, at the Closing Date and each
Option Closing Date, if any, no stop order suspending the effectiveness of the
Registration Statement shall have been issued and no proceedings for that
purpose shall have been instituted or shall be pending or contemplated by the
Commission and any request on the part of the Commission for additional
information shall have been complied
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with to the reasonable satisfaction of Underwriters' Counsel. If the Company has
elected to rely upon Rule 430A of the Rules and Regulations, the price of the
Common Stock and any price-related information previously omitted from the
effective Registration Statement pursuant to such Rule 430A shall have been
transmitted to the Commission for filing pursuant to Rule 424(b) of the Rules
and Regulations within the prescribed time period and, prior to the Closing
Date, the Company shall have provided evidence satisfactory to the
Representative of such timely filing, or a post-effective amendment providing
such information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
(b) The Representative shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein not misleading, or
that the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Representative's opinion, is material, or omits to state a
fact which, in the Representative's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(c) On or prior to the Closing Date and each Option Closing Date, if
any, the Representative shall have received from Underwriters' Counsel, such
opinion or opinions with respect to the organization of the Company, the
validity of the Securities, the Registration Statement, the Prospectus and other
related matters as the Representative may reasonably request and Underwriters'
Counsel shall have received such papers and information as they reasonably
request to enable them to pass upon such matters.
(d) At the Closing Date, the Underwriters shall have received the
favorable opinion of Jeffers, Wilson, ▇▇▇▇▇ & ▇▇▇▇, LLP, counsel to the Company,
dated the Closing Date, addressed to the Underwriters and in form and substance
satisfactory to Underwriters' Counsel, to the effect that:
(i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its jurisdiction,
(B) is duly qualified and licensed and in good standing as a foreign corporation
in each jurisdiction in which its ownership or leasing of any properties or the
character of its operations requires such qualification or licensing, and (C)
has all requisite corporate power and authority, and has obtained any and all
necessary authorizations, approvals, orders, licenses, certificates, franchises
and permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such 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. The disclosures in the Registration Statement concerning the
effects of federal, state and local laws, rules and regulations on the Company's
business as currently conducted and as contemplated are correct in all material
respects and do not omit to state a fact required to be stated therein or
necessary to make the statements contained therein not misleading in light of
the circumstances in which they were made;
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(ii) except as described in the Prospectus, the Company does not
own an interest in any other corporation, partnership, joint venture, trust or
other business entity;
(iii) the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus, and any amendment or supplement
thereto, under "CAPITALIZATION", and the Company is not a party to or bound by
any instrument, agreement or other arrangement providing for it to issue, sell,
transfer, purchase or redeem any capital stock, rights, warrants, options or
other securities, except for this Agreement and the Representative's Warrant
Agreement and as described in the Prospectus. The Securities and all other
securities issued or issuable by the Company conform in all material respects to
all statements with respect thereto contained in the Registration Statement and
the Prospectus. All issued and outstanding securities of the Company have been
duly authorized and validly issued and are fully paid and non-assessable; the
holders thereof have no rights of rescission with respect thereto, and are not
subject to personal liability by reason of being such holders; and none of such
securities were issued in violation of the preemptive rights of any holders of
any security of the Company or any similar rights granted by the Company. The
Securities to be sold by the Company hereunder and under the Representative's
Warrant Agreement are not and will not be subject to any preemptive or other
similar rights of any stockholder, have been duly authorized and, when issued,
paid for and delivered in accordance with the terms hereof, will be validly
issued, fully paid and non-assessable and conform to the description thereof
contained in the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be taken for
the authorization, issue and sale of the Securities has been duly and validly
taken; and the certificates representing the Securities are in due and proper
form. The Representative's Warrants constitute valid and binding obligations of
the Company to issue and sell, upon exercise thereof and payment therefor, the
number and type of securities of the Company called for thereby. Upon the
issuance and delivery pursuant to this Agreement of the Firm Securities and the
Option Securities and the Representative's Warrants to be sold by the Company,
the Underwriters and the Representative, will acquire good and marketable title
to the Firm Securities and the Option Securities and the Representative's
Warrants free and clear of any pledge, lien, charge, claim, encumbrance, pledge,
security interest, or other restriction or equity of any kind whatsoever. No
transfer tax is payable by or on behalf of the Underwriters in connection with
(A) the issuance by the Company of the Securities, (B) the purchase by the
Underwriters of the Firm Securities and the Option Securities from the Company,
and the purchase by the Representative of the Representative's Warrants from the
Company (C) the consummation by the Company of any of its obligations under this
Agreement or the Representative's Warrant Agreement, or (D) resales of the Firm
Securities and the Option Securities in connection with the distribution
contemplated hereby.
(iv) based on oral and/or written advice from the staff of the
Commission, the Registration Statement has become effective under the Act, and,
if applicable, filing of all pricing information has been timely made in the
appropriate form under Rule 430A, and to the knowledge of such counsel, no stop
order suspending the use of the Preliminary Prospectus, the Registration
Statement or Prospectus or any part of any thereof or suspending the
effectiveness of the Registration Statement has been issued and no proceedings
for that purpose have been instituted or are pending or threatened or
contemplated under the Act;
(v) the Preliminary Prospectus, the Registration Statement, and
the Prospectus and any amendments or supplements thereto (other than the
financial statements and other financial and statistical data included therein,
as to which no opinion need be rendered) comply as to form in all material
respects with the requirements of the Act and the Rules and Regulations.
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(vi) to the best of such counsel's knowledge, (A) there are no
agreements, contracts or other documents required by the Act to be described in
the Registration Statement and the Prospectus and filed as exhibits to the
Registration Statement other than those described in the Registration Statement
(or required to be filed under the Exchange Act if upon such filing they would
be incorporated, in whole or in part, by reference therein) and the Prospectus
and filed as exhibits thereto, and the exhibits which have been filed are
correct copies of the documents of which they purport to be copies; (B) the
descriptions in the Registration Statement and the Prospectus and any supplement
or amendment thereto of contracts and other documents to which the Company is a
party or by which it is bound, including any document to which the Company is a
party or by which it is bound, incorporated by reference into the Prospectus and
any supplement or amendment thereto, are accurate and fairly represent the
information required to be shown by Form SB-2; (C) there is not pending or
threatened against the Company any action, arbitration, suit, proceeding,
inquiry, investigation, litigation, governmental or other proceeding (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, pending or threatened against (or circumstances
that may give rise to the same), or involving the properties or business of the
Company which (x) is required to be disclosed in the Registration Statement
which is not so disclosed (and such proceedings as are summarized in the
Registration Statement are accurately summarized in all respects), (y) questions
the validity of the capital stock of the Company or this Agreement or the
Representative's Warrant Agreement, or of any action taken or to be taken by the
Company pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be described in
the Prospectus is not described as required; and (E) there is no action, suit or
proceeding pending, or threatened, against or affecting the Company before any
court or arbitrator or governmental body, agency or official (or any basis
thereof known to such counsel) in which there is a reasonable possibility of a
decision which may result in a material adverse change in the condition,
financial or otherwise, or the earnings, position, prospects, stockholders'
equity, value, operation, properties, business or results of operations of the
Company, which could adversely affect the present or prospective ability of the
Company to perform its obligations under this Agreement or the Representative's
Warrant Agreement or which in any manner draws into question the validity or
enforceability of this Agreement or the Representative's Warrant Agreement;
(vii) the Company has full legal right, power and authority to
enter into this Agreement and the Representative's Warrant Agreement, and to
consummate the transactions provided for therein; and this Agreement and the
Representative's Warrant Agreement has been duly authorized, executed and
delivered by the Company. Each of this Agreement and the Representative's
Warrant Agreement, assuming due authorization, execution and delivery by each
other party thereto, constitutes a legal, valid and binding agreement of the
Company enforceable against the Company in accordance with its terms (except as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law), and none of the Company's
execution or delivery of this Agreement and the Representative's Warrant
Agreement, its performance hereunder or thereunder, its consummation of the
transactions contemplated herein or therein, or the conduct of its business as
described in the Registration Statement, the Prospectus, and any amendments or
supplements thereto, conflicts with or will conflict with or results or will
result in any breach or violation of any of the terms or provisions of, or
constitutes or will constitute a default under, or result in the creation or
imposition of any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any property
or assets (tangible or intangible) of the Company pursuant to the terms of, (A)
the articles of incorporation or by-laws of the Company, (B) any license,
contract, collective bargaining agreement, indenture, mortgage, deed of trust,
lease, voting trust agreement, stockholders agreement, note, loan or credit
agreement or any other agreement or instrument to which the Company is a party
or by which it is or may be bound or to which any of its properties or assets
(tangible or intangible) is or may be subject, or any indebtedness, or (C) any
statute, judgment, decree, order, rule or regulation applicable to the Company
of any arbitrator, court, regulatory body or administrative agency or other
governmental agency or body (including, without limitation, those having
jurisdiction over environmental or similar matters), domestic or foreign, having
jurisdiction over the Company or any of its respective activities or properties.
(viii) no consent, approval, authorization or order, and no
filing with, any court, regulatory body, government agency or other body (other
than registration under the Act or qualification under state or foreign
securities law or approval by the NASD) is required in connection with the
issuance of the Firm Securities and the Option Securities pursuant to the
Prospectus and the Registration Statement, the issuance of the Representative's
Warrants, the performance of this Agreement and the Representative's Warrant
Agreement, and the transactions contemplated hereby and thereby;
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(ix) the properties and business of the Company conform in all
material respects to the description thereof contained in the Registration
Statement and the Prospectus; and the Company has good and marketable title to,
or valid and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, in each case free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever,
other than those referred to in the Prospectus and liens for taxes not yet due
and payable;
(x) to such counsel's knowledge, the Company is not in breach of,
or in default under, any term or provision of any license, contract, collective
bargaining agreement, indenture, mortgage, installment sale agreement, deed of
trust, lease, voting trust agreement, stockholders' agreement, partnership
agreement, note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which the Company may be bound
or to which the properties or assets (tangible or intangible) of the Company is
subject or affected; and the Company is not in violation of any term or
provision of its articles of incorporation or by-laws or in violation of any
franchise, license, permit, judgment, decree, order, statute, rule or
regulation;
(xi) the statements in the Prospectus under "RISK FACTORS," "THE
COMPANY," "BUSINESS," "MANAGEMENT," "SECURITY OWNERSHIP OF MANAGEMENT AND
CERTAIN SECURITY HOLDERS," "CERTAIN TRANSACTIONS," "DESCRIPTION OF SECURITIES,"
and "SHARES ELIGIBLE FOR FUTURE SALE" have been reviewed by such counsel, and
insofar as they refer to statements of law, descriptions of statutes, licenses,
rules or regulations or legal conclusions, are correct in all material respects;
(xii) the Offered Securities and Option Securities have been
accepted for quotation on the NASDAQ;
(xiii) the persons listed under the caption "SECURITY OWNERSHIP
OF MANAGEMENT AND CERTAIN SECURITY HOLDERS" in the Prospectus are the respective
"beneficial owners" (as such phrase is defined in regulation 13d-3 under the
Exchange Act) of the securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
(xiv) to such counsel's knowledge, neither the Company nor any of
its officers, stockholders, employees or agents, nor any other person acting on
behalf of the Company has, directly or indirectly, given or agreed to give any
money, gift or similar benefit (other than legal price concessions to customers
in the ordinary course of business) to any customer, supplier, employee or agent
of a customer or supplier, or official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or any political party
or candidate for office (domestic or foreign) or other person who is or may be
in a position to help or hinder the business of the Company (or assist it in
connection with any actual or proposed transaction) which (A) might subject the
Company to any damage or penalty in any civil, criminal or governmental
litigation proceeding, (B) if not given in the past, might have had an adverse
effect on the assets, business or operations of the Company, as reflected in any
of the financial statements contained in the Registration Statement, or (C) if
not continued in the future, might adversely affect the assets, business,
operations or prospects of the Company;
(xv) except as may be disclosed therein, no person, corporation,
trust, partnership, association or other entity has the right to include and/or
register any securities of the Company in the Registration Statement, require
the Company to file any registration statement or, if filed, to include any
security in such registration statement;
(xvi) except as described in the Prospectus, there are no claims,
payments, issuances, arrangements or understandings for services in the nature
of a finder's or origination fee with respect to the sale of the Securities
hereunder or financial consulting arrangements or any other arrangements,
agreements, understandings, payments or issuances that may affect the
Underwriters' compensation, as determined by the NASD;
(xvii) assuming due execution by the parties thereto other than
the Company, the Lock-up Agreements are legal, valid and binding obligations of
the parties thereto, enforceable against the party and any subsequent holder of
the securities subject thereto in accordance with its terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting enforcement of creditors' rights and the application of equitable
principles in any action, legal or equitable, and except as rights to indemnity
or contribution may be limited by applicable law);
(xviii) except as described in the Prospectus, the Company does
not (A) maintain, sponsor or contribute to any ERISA Plans, (B) maintain or
contribute, now or at any time previously, to a defined benefit plan, as defined
in Section 3(35) of ERISA, and (C) has never completely or partially withdrawn
from a "multi-employer plan";
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(xix) the minute books of the Company have been made available to
the Underwriters and to such counsel's knowledge 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 material respects;
(xx) except as set forth in the Prospectus and to the best
knowledge of such counsel, 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, either directly or indirectly, (A) an interest in any
person or entity which (x) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (y)
purchases from or sells or furnishes to the Company any goods or services, or
(B) a beneficial interest in any contract or agreement to which the Company is a
party or by which it may be bound or affected. Except as set forth in the
Prospectus under "CERTAIN TRANSACTIONS," there are no existing agreements,
arrangements, understandings or transactions, or proposed agreements,
arrangements, understandings or transactions, between or among the Company, and
any officer, director, or 5% or greater securityholder of the Company, or any
affiliate or associate of any such person or entity;
(xxi) to the best of such counsel's knowledge, after due inquiry,
there is no action, suit, proceeding, inquiry, investigation, litigation or
governmental proceeding, domestic or foreign, pending or threatened (or
circumstances that may give rise to the same) involving the Company's
production, use, testing, manufacturing or marketing of any products or
services, which (i) questions the authority of the Company to produce, use,
test, manufacture or market any products or services as described in the
Prospectus, (ii) questions the completeness or accuracy of data generated by any
trials, tests or studies being conducted by or on behalf of the Company, (iii)
is required to be disclosed in the Prospectus which is not so disclosed, or (iv)
might materially and adversely affect the condition, financial or otherwise, or
the earnings, prospects, value, operations or business of the Company.
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company, and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus, and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement and Prospectus, on the basis
of the foregoing, no facts have come to the attention of such counsel which lead
them to believe that either the Registration Statement or any amendment thereto,
at the time such Registration Statement or amendment became effective or the
Preliminary Prospectus or Prospectus or amendment or supplement thereto as of
the date of such opinion contained any untrue statement of a material fact or
omitted to state a material fact required to be stated therein or necessary to
make the statements therein not misleading (it being understood that such
counsel need express no opinion with respect to the financial statements and
schedules and other financial and statistical data included in the Preliminary
Prospectus, the Registration Statement or the Prospectus). Such counsel shall
further state that its opinions may be relied upon by Underwriters' Counsel in
rendering its opinion to the Underwriters.
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriters' Counsel) of
other counsel acceptable to Underwriters' Counsel, familiar with the applicable
laws; (B) as to matters of fact, to the extent they deem proper, on certificates
and written statements of responsible officers of the Company and certificates
or other written statements of officers of departments of various jurisdictions
having custody of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or certificates
shall be delivered to Underwriters' Counsel if requested. The opinion of such
counsel for the Company shall state that the opinion of any such other counsel
is in form satisfactory to such counsel and that the Representative,
Underwriters' Counsel and they are each justified in relying thereon.
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(e) At each Option Closing Date, if any, the Underwriters shall have
received the favorable opinion of Jeffers, Wilson, ▇▇▇▇▇ & ▇▇▇▇ LLP, counsel to
the Company, dated on such Option Closing Date, addressed to the Underwriters
and in form and substance satisfactory to Underwriters' Counsel confirming as of
such Option Closing Date the statements made by Jeffers, Wilson, ▇▇▇▇▇ & ▇▇▇▇
LLP in its opinions delivered on the Closing Date.
(f) On or prior to the Closing Date and each Option Closing Date, if
any, Underwriters' Counsel shall have been furnished such documents,
certificates and opinions as they may reasonably require for the purpose of
enabling them to review or pass upon the matters referred to in subsection (c)
of this Section 6, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company, or herein contained.
(g) Prior to the Closing Date and each Option Closing Date, if any,
(i) there shall have been no material adverse change nor development involving a
prospective change in the condition, financial or otherwise, earnings, position,
value, properties, results of operations, prospects, stockholders' equity or the
business activities of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such condition is set forth in the
Registration Statement and Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the
Company, from the latest date as of which the financial condition of the Company
is set forth in the Registration Statement and Prospectus which is materially
adverse to the Company or; (iii) the Company nor shall not be in material
default under any provision of any instrument relating to any outstanding
indebtedness; (iv) the Company shall not have issued any securities (other than
the Securities) or declared or paid any dividend or made any distribution in
respect of its capital stock of any class and there has not been any change in
the capital stock or any material change in the debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise); (v) no
material amount of the assets of the Company shall have been pledged or
mortgaged, except as set forth in the Registration Statement and Prospectus;
(vi) no action, suit or proceeding, at law or in equity, shall have been pending
or threatened (or circumstances giving rise to same) against the Company, or
affecting any of its properties or businesses before or by any court or federal,
state or foreign commission, board or other administrative agency wherein an
unfavorable decision, ruling or finding may materially adversely affect the
business, operations, earnings, position, value, properties, results of
operations, prospects or financial condition or income of the Company; and (vii)
no stop order shall have been issued under the Act nd no proceedings therefor
shall have been initiated, threatened or contemplated by the Commission.
(h) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or Option Closing Date, as the
case may be, to the effect that such persons has carefully examined the
Registration Statement, the Prospectus, and this Agreement, and that:
(i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing Date or the
Option Closing Date, as the case may be, and the Company has complied with all
agreements and covenants and satisfied all conditions contained in this
Agreement on its part to be performed or satisfied at or prior to such Closing
Date or Option Closing Date, as the case may be;
(ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no proceedings
for that purpose have been instituted or are pending or, to the best of each of
such person's knowledge, are contemplated or threatened under the Act;
(iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto, contain all statements and
information required to be included therein, and none of the Registration
Statement, the Prospectus nor any amendment or supplement thereto includes any
untrue statement of a material fact or omits to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
and neither the Preliminary Prospectus or any supplement thereto included any
untrue statement of a material fact or omitted to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading; and
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(iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (a) the Company has
not incurred up to and including the Closing Date or the Option Closing Date, as
the case may be, other than in the ordinary course of its business, any material
liabilities or obligations, direct or contingent; (b) the Company has not paid
or declared any dividends or other distributions on its capital stock; (c) the
Company has not entered into any material transactions not in the ordinary
course of business; (d) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other than any
increase in the short-term borrowings in the ordinary course of business) of the
Company; (e) the Company has not sustained any material loss or damage to its
properties or assets, whether or not insured; (f) there is no litigation which
is pending or threatened (or circumstances giving rise to same) against the
Company or any affiliated party which is required to be set forth in an amended
or supplemented Prospectus which has not been set forth; and (g) there has
occurred no event required to be set forth in an amended or supplemented
Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this
subsection (h) are to such documents as amended and supplemented at the date of
such certificate.
(i) By the Closing Date, the Underwriters will have received
clearance from the NASD as to the amount of compensation allowable or payable to
the Underwriters, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriters shall
have received a letter, dated such date, addressed to the Underwriters in form
and substance satisfactory (including the non-material nature of the changes or
decreases, if any, referred to in clause (iii) below) in all respects to the
Underwriters and Underwriters' Counsel, from McGladrey & ▇▇▇▇▇▇, LLP:
(i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act and the
applicable Rules and Regulations;
(ii) stating that it is their opinion that the financial
statements and supporting schedules of the Company included in the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations thereunder and
that the Representative may rely upon the opinion of McGladrey & ▇▇▇▇▇▇, LLP
with respect to the financial statements and supporting schedules included in
the Registration Statement;
(iii) stating that, on the basis of a limited review which
included a reading of the latest available unaudited interim financial
statements of the Company, a reading of the latest available minutes of the
stockholders and board of directors and the various committees of the board of
directors of the Company, consultations with officers and other employees of the
Company responsible for financial and accounting matters and other specified
procedures and inquiries, nothing has come to their attention which would lead
them to believe that (A) the unaudited financial statements and supporting
schedules of the Company included in the Registration Statement do not comply as
to form in all material respects with the applicable accounting requirements of
the Act and the Rules and Regulations or are not fairly presented in conformity
with generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements of the Company included
in the Registration Statement, or (B) at a specified date not more than five (5)
days prior to the effective date of the Registration Statement, there has been
any change in the capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity or net current assets or net assets of the
Company as compared with amounts shown in the ________ balance sheet included in
the Registration Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease, setting forth
the amount of such change or decrease, and (C) during the period from _________
to a specified date not more than five (5) days prior to the effective date of
the Registration Statement, there was any decrease in net revenues, net earnings
or increase in net earnings per common share of the Company or the Subsidiaries,
in each case as compared with the corresponding period beginning _________,
other than as set forth in or contemplated by the Registration Statement, or, if
there was any such decrease, setting forth the amount of such decrease;
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(iv) setting forth, at a date not later than five (5) days prior
to the date of the Registration Statement, the amount of liabilities of the
Company taken as a whole (including a break-down of commercial paper and notes
payable to banks);
(v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements and other
financial information pertaining to the Company set forth in the Prospectus in
each case to the extent that such amounts, numbers, percentages, statements and
information may be derived from the general accounting records, including work
sheets, of the Company and excluding any questions requiring an interpretation
by legal counsel, with the results obtained from the application of specified
readings, inquiries and other appropriate procedures (which procedures do not
constitute an examination in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
(vi) statements as to such other matters incident to the
transaction contemplated hereby as the Representative may reasonably request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriters shall have received from McGladrey & ▇▇▇▇▇▇, LLP a letter, dated as
of the Closing Date or the Option Closing Date, as the case may be, to the
effect that they reaffirm that statements made in the letter furnished pursuant
to subsection (j) of this Section, except that the specified date referred to
shall be a date not more than five (5) days prior to the Closing Date or the
Option Closing Date, as the case may be, and, if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that they have
carried out procedures as specified in clause (v) of subsection (j) of this
Section with respect to certain amounts, percentages and financial information
as specified by the Representative and deemed to be a part of the Registration
Statement pursuant to Rule 430A(b) and have found such amounts, percentages and
financial information to be in agreement with the records specified in such
clause (v).
(l) On the Closing Date and each Option Closing Date, if any, there
shall have been duly tendered to the Representative for the several
Underwriters' accounts the appropriate number of Firm Securities or Option
Securities, as the case may be.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Representative pursuant to subsection (e) of
Section 4 hereof shall have been issued on either the Closing Date or the Option
Closing Date, if any, and no proceedings for that purpose shall have been
instituted or shall be contemplated.
(n) On or before the Closing Date, the Company shall have executed
and delivered to the Representative (i) the Representative's Warrant Agreement
substantially in the form filed as Exhibit 4.2 to the Registration Statement, in
final form and substance satisfactory to the Representative, and (ii) the
Representative's Warrants in such denominations and to such designees as shall
have been provided to the Company by the Representative.
(o) On or before the Closing Date, the Offered Securities and Option
Securities shall have been duly approved for listing on NASDAQ, subject to
official notice of issuance.
(p) On or before the Closing Date, there shall have been delivered to
the Representative all of the Lock-up Agreements, in form and substance
satisfactory to Underwriters' Counsel.
If any condition to the Underwriters' obligations hereunder to be
fulfilled prior to or at the Closing Date or the relevant Option Closing Date,
as the case may be, is not so fulfilled, the Representative may terminate this
Agreement or, if the Representative so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
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7. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the
Underwriters (for purposes of this Section 7 "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
including specifically each person who may be substituted for an Underwriter as
provided in Section 11 hereof), and each person, if any, who controls the
Underwriter ("controlling person") within the meaning of Section 15 of the Act
or Section 20(a) of the Exchange Act, from and against any and all losses,
claims, damages, expenses or liabilities, joint or several (and actions,
proceedings, investigations, inquiries, suits and litigation in respect
thereof), whatsoever (including but not limited to any and all expenses
whatsoever reasonably incurred in investigating, preparing or defending against
any such claim, action, proceeding, investigation, inquiry, suit or litigation,
commenced or threatened, or any claim whatsoever), as such are incurred, to
which the Underwriter or such controlling person may become subject under the
Act, the Exchange Act or any other statute or at common law or otherwise or
under the laws of foreign countries, arising out of or based upon (A) any untrue
statement or alleged untrue statement of a material fact contained (i) in any
Preliminary Prospectus, the Registration Statement or the Prospectus (as from
time to time amended and supplemented); (ii) in any post-effective amendment or
amendments or any new registration statement and prospectus in which is included
securities of the Company issued or issuable upon exercise of the Securities; or
(iii) in any application or other document or written communication (in this
Section 7 collectively called "application") executed by the Company or based
upon written information furnished by the Company in any jurisdiction in order
to qualify the Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency, NASDAQ or any other
securities exchange; (B) the omission or alleged omission therefrom of a
material fact required to be stated therein or necessary to make the statements
therein not misleading (in the case of the Prospectus, in the light of the
circumstances under which they were made), or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this subsection (a) shall be in addition to any liability which the Company may
have at common law or otherwise.
The foregoing indemnity with respect to any untrue statement
contained in or omission from a Preliminary Prospectus shall not inure to the
benefit of any Underwriter (or any person controlling such Underwriter) from
whom the person asserting any such loss, liability, claim, damage or expense
purchased any of the Securities which are the subject thereof if (1) the Company
or shall sustain the burden of proving that such asserting person did not
receive a copy of the Prospectus (or the Prospectus as amended or supplemented)
at or prior to the written confirmation of the sale of such Securities to such
person and the untrue statement contained in or omitted from such Preliminary
Prospectus was corrected in the Prospectus (or the Prospectus as amended or
supplemented); and (2) the Company shall have complied with its covenant
pursuant to Section 4(f) of this Agreement.
(b) the Underwriters agree severally, but not jointly, to indemnify
and hold harmless the Company, its directors and officers who have signed the
Registration Statement, and each other person, if any, who controls the Company
within the meaning of the Act, to the same extent as the foregoing indemnity
from the Company to the Underwriters but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
application made in reliance upon, and in strict conformity with, written
information furnished to the Company with respect to any Underwriter by such
Underwriter expressly for use in such Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto or in any
such application, provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration Statement
or Prospectus directly relating to the transactions effected by the Underwriters
in connection with this Offering. The Company acknowledges that the statements
with respect to the public offering of the Firm Securities and the Option
Securities set forth under the heading "Underwriting" and the stabilization
legend in the Prospectus have been furnished by the Underwriters expressly for
use therein and constitute the only information furnished in writing by or on
behalf of the Underwriters for inclusion in the Prospectus.
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(c) Promptly after receipt by an indemnified party under this Section
7 of notice of the commencement of any claim, action, suit, investigation,
inquiry, proceeding or litigation, such indemnified party shall, if a claim in
respect thereof is to be made against one or more indemnifying parties under
this Section 7, notify each party against whom indemnification is to be sought
in writing of the commencement thereof (but the failure so to notify an
indemnifying party shall not relieve it from any liability which it may have
under this Section 7 except to the extent that it has been prejudiced in any
material respect by such failure or from any liability which it may have
otherwise). In case any such claim, action, suit, investigation, inquiry,
proceeding or litigation is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it may elect by written notice delivered to the indemnified party
promptly after receiving the aforesaid notice from such indemnified party, to
assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, the indemnified party or
parties shall have the right to employ its or their own counsel in any such case
but the fees and expenses of such counsel shall be at the expense of such
indemnified party or parties unless (i) the employment of such counsel shall
have been authorized in writing by the indemnifying parties in connection with
the defense of thereof at the expense of the indemnifying party, (ii) the
indemnifying parties shall not have employed counsel reasonably satisfactory to
such indemnified party to have charge of the defense thereof within a reasonable
time after notice of commencement thereof, or (iii) such indemnified party or
parties shall have reasonably concluded that there may be defenses available to
it or them which are different from or additional to those availble to one or
all of the indemnifying parties (in which case the indemnifying parties shall
not have the right to direct the defense thereof on behalf of the indemnified
party or parties), in any of which events such fees and expenses of one
additional counsel shall be borne by the indemnifying parties. In no event shall
the indemnifying parties be liable for fees and expenses of more than one
counsel (in addition to any local counsel) separate from their own counsel for
all indemnified parties in connection with any one claim, action, suit,
investigation, inquiry, proceeding or litigation or separate but similar or
related claims, actions, suits, investigations, inquiries, proceedings or
litigation in the same jurisdiction arising out of the same general allegations
or circumstances. Anything in this Section 7 to the contrary notwithstanding, an
indemnifying party shall not be liable for any settlement of any claim, action,
suit, investigation, inquiry, proceeding or litigation effected without its
written consent; provided, however, that such consent was not unreasonably
withheld. An indemnifying party will not, without the prior written consent of
the indemnified parties, settle, compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action, suit,
investigation, inquiry, proceeding or litigation in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim, action, suit,
investigation, inquiry, proceeding or litigation), unless such settlement,
compromise or consent (i) includes an unconditional release of each indemnified
party from all liability arising out of such claim, action, suit, investigation,
inquiry, proceeding or litigation and (ii) does not include a statement as to or
an admission of fault, culpability or a failure to act by or on behalf of any
indemnified party.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes claim for indemnification pursuant
to this Section 7, but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this Section 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions in respect thereof) (A) in such proportion as is appropriate to reflect
the relative benefits received by the contributing parties, on the one hand, and
the party to be indemnified on the other hand, from the offering of the Firm
Securities and the Option Securities or (B) if the allocation provided by clause
(A) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the contributing parties, on the one hand,
and the party to be indemnified on the other hand in connection with the
statements or omissions that resulted in such losses, claims, damages, expenses
or liabilities, as well as any other relevant equitable considerations. In any
case where the Company is the contributing party and the Underwriters are the
indemnified party, the relative benefits received by the Company on the one
hand, and the Underwriters, on the other, shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Firm Securities
and the Option Securities (before deducting expenses) bear to the total
underwriting discounts received by the Underwriters hereunder, in each case as
set forth in the table on the Cover
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Page of the Prosectus. Relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the Company, or by the Underwriters, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The amount paid or payable by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions in respect thereof) referred to above in this subsection
(d) shall be deemed to include any legal or other expenses reasonably incurred
by such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), the
Underwriters shall not be required to contribute any amount in excess of the
underwriting discount applicable to the Firm Securities and the Option
Securities purchased by the Underwriters hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this Section 7, each person, if
any, who controls the Company or the Underwriter within the meaning of the Act,
each officer of the Company who has signed the Registration Statement, and each
director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
subsection (d). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit or proceeding against such party
in respect to which a claim for contribution may be made against another party
or parties under this subsection (d), 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 frm whom contribution may be sought from
any obligation it or they may have hereunder or otherwise than under this
subsection (d), 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.
8. REPRESENTATIONS AND AGREEMENTS TO SURVIVE DELIVERY. All
representations, warranties and agreements contained in this Agreement or
contained in certificates of officers of the Company submitted pursuant hereto,
shall be deemed to be representations, warranties and agreements at the Closing
Date and the Option Closing Date, as the case may be, and such representations,
warranties and agreements of the Company and the indemnity agreements contained
in Section 7 hereof, shall remain operative and in full force and effect
regardless of any investigation made by or on behalf of any Underwriter, the
Company, any controlling person of any Underwriter or the Company, and shall
survive termination of this Agreement or the issuance and delivery of the
Securities to the Underwriters and the Representative, as the case may be.
9. EFFECTIVE DATE. This Agreement shall become effective at 10:00 a.m.,
New York City time, on the next full business day following the date hereof, or
at such earlier time after the Registration Statement becomes effective as the
Representative, in its discretion, shall release the Securities for sale to the
public; provided, however, that the provisions of Sections 5, 7 and 10 of this
Agreement shall at all times be effective. For purposes of this Section 9, the
Securities to be purchased hereunder shall be deemed to have been so released
upon the earlier of dispatch by the Representative of telegrams to securities
dealers releasing such securities for offering or the release by the
Representative for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. TERMINATION.
(a) Subject to subsection (b) of this Section 10, the Representative
shall have the right to terminate this Agreement, (i) if any domestic or
international event or act or occurrence has materially adversely disrupted, or
in the Representative's opinion will in the immediate future materially
adversely disrupt, the financial markets; (ii) if any material adverse change in
the financial markets shall have occurred; (iii) if trading generally shall have
been suspended or materially limited on or by, as the case may be, any of the
New York Stock Exchange, the American Stock Exchange, the NASD, the Commission
or any governmental authority having jurisdiction over such matters; (iv) if
trading of any of the securities of the Company shall have been suspended by a
state securities administrator or the Commission; (v) if the United States shall
have become involved in a war or major hostilities, or if there shall have been
an escalation in an existing war or major hostilities or a national emergency
shall have been declared in the United States; or (vi) if a banking moratorium
has been declared by a state or federal authority; (vii) if
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25
a moratorium in foreign exchange trading has been declared; (viii) if the
Company shall have sustained a loss material or substantial to the Company or by
fire, flood, accident, hurricane, earthquake, theft, sabotage or other calamity
or malicious act which, whether or not such loss shall have been insured, will,
in the Representative's opinion, make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities; (ix) if there shall have been
such a material adverse change in the conditions or prospects of the Company or
such material adverse change in the general market, political or economic
conditions, in the United States or elsewhere, that, in each case, in the
Representative's judgment, would make it inadvisable to proceed with the
offering, sale and/or delivery of the Firm Securities, or (x) if ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Rea, Jr. shall no longer serve the Company in his presen capacity.
(b) If this Agreement is terminated by the Representative in
accordance with the provisions of Section 10(a) the Company shall promptly
reimburse and indemnify the Representative for all of its actual out-of-pocket
expenses, including the fees and disbursements of counsel for the Underwriters
and all Blue Sky counsel fees (excluding filing fees) and disbursements (less
amounts previously paid pursuant to Section 5(c) above). In addition, the
Company shall remain liable for all Blue Sky counsel fees and disbursements,
expenses and filing fees. Notwithstanding any contrary provision contained in
this Agreement, if this Agreement shall not be carried out within the time
specified herein, or any extension thereof granted to the Representative, by
reason of any failure on the part of the Company to perform any undertaking or
satisfy any condition of this Agreement by it to be performed or satisfied
(including, without limitation, pursuant to Section 6 (except if this Agreement
is terminated pursuant to Sections 6(c), 6(j) or 6(o)) or Section 12) then, the
Company shall promptly reimburse and indemnify the Representative for all of
their actual accountable out-of-pocket expenses, including the reasonable fees
and disbursements of counsel for the Underwriters (less amounts previously paid
pursuant to Section 5(c) above). In addition, the Company shall remain liable
for all Blue Sky counsel fees and disbursements, expenses and filing fees.
Notwithstanding any contrary provision contained in this Agreement, any election
hereunder or any termination of this Agreement (including, without limitation,
pursuant to Sections 6, 10, 11 and 12 hereof), and whether or not this Agreement
is otherwise carried out, the provisions of Section 5 and Section 7 shall not be
in any way affected by such election or termination or failure to carry out the
terms of this Agreement or any part hereof.
11. SUBSTITUTION OF THE UNDERWRITERS. If one or more of the Underwriters
shall fail (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 6, Section 10 or Section 12
hereof) to purchase Firm Securities which it or they are obligated to purchase
on such date under this Agreement (the "Defaulted Securities"), the
Representative shall have the right, within 24 hours thereafter, to make
arrangement for one or more of the non-defaulting Underwriters, or any other
underwriters, to purchase all, but not less than all, of the Defaulted
Securities in such amounts as may be agreed upon and upon the terms herein set
forth; if, however, the Representative shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
total number of Firm Securities to be purchased on such date, the non-defaulting
Underwriters shall be obligated to purchase the full amount thereof in the
proportions that underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Underwriters, or
(b) if the number of Defaulted Securities exceeds 10% of the total
number of Firm Securities, this Agreement shall terminate without liability on
the part of any non-defaulting Underwriters (or, if such default shall occur
with respect to any Option Securities to be purchased on an Option Closing Date,
the Underwriters may at the Representatives' option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date).
No action taken pursuant to this Section 11 shall relieve any
defaulting Underwriter from liability in respect of any default by such
Underwriter under this Agreement.
In the event of any such default which does not result in a
termination of this Agreement, the Representative shall have the right to
postpone the Closing Date for a period not exceeding seven (7) days in order to
effect any required changes in the Registration Statement or Prospectus or in
any other documents or arrangements.
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12. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or at any Option Closing Date, as applicable, to sell and deliver the
number of Firm Securities which it is obligated to sell hereunder on such date,
then this Agreement shall terminate (or, if such default shall occur with
respect to any Option Securities to be purchased on an Option Closing Date, the
Underwriters may at the Representatives' option, by notice from the
Representative to the Company, terminate the Underwriters' obligation to
purchase Option Securities from the Company on such date) without any liability
on the part of any non-defaulting party other than pursuant to Section 5,
Section 7 and Section 10 hereof. No action taken pursuant to this Section 12
shall relieve the Company from liability, if any, in respect of such default;
provided, however, that the Company's liability shall be limited to the
reimbursement of these items specified in the first sentence of Section 10(b)
plus an amount equal to the unused portion, if any, of the $25,000 retainer and
pursuant to Section 5(c).
13. NOTICES. All notices and communications hereunder, except as herein
otherwise specifically provided, shall be in writing and shall be deemed to have
been duly given if mailed or transmitted by any standard form of
telecommunication. Notices to the Underwriters shall be directed to the
Representative, Millennium Financial Group, Inc., ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇
▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇, Managing Director,
with a copy to ▇▇▇▇▇ & ▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq. Notices to the Company
shall be directed to the Company at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Chairman, with a copy to:
Jeffers, Wilson, ▇▇▇▇▇ & ▇▇▇▇ LLP, ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention:
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
14. PARTIES. This Agreement shall inure solely to the benefit of and
shall be binding upon, the Underwriters, the Company and the controlling
persons, directors and officers referred to in Section 7 hereof, and successors,
legal representatives and assigns, and no other person shall have or be
construed to have any legal or equitable right, remedy or claim under or in
respect of or by virtue of this Agreement or any provisions herein contained. No
purchaser of Firm Securities or Option Securities from any Underwriter shall be
deemed to be a successor by reason merely of such purchase.
15. CONSTRUCTION. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of New York without giving
effect to the choice of law or conflict of laws principles. The prevailing party
in any dispute hereunder shall be entitled to an award of its reasonable legal
fees for resolving such dispute.
16. ARBITRATION. The parties agree that in the event of any dispute with
respect to this Agreement or their respective obligations hereunder, such
dispute shall be settled by arbitration in Los Angeles, California, or such
other jurisdiction as the parties may agree, in accordance with the rules of the
National Association of Securities Dealers, Inc. Any award rendered by the
arbitrators shall be final and judgment may be entered upon him or it by any
court of competent jurisdiction.
17. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
18. ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the
Representative's Warrant Agreement constitute the entire agreement of the
parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof. This
Agreement may not be amended except in a writing, signed by the Representative
and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriters and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement among
us.
Very truly yours,
AMERICAN DIVERSIFIED HOLDINGS, INC.
By:
----------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇, Jr., President
and Chief Executive Officer
Confirmed and accepted as of
the date first above written.
MILLENNIUM FINANCIAL GROUP, INC.
For itself and as Representative
of the several Underwriters named in
Schedule A hereto.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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SCHEDULE A
FIRM SECURITIES
Number of Shares
of Common Stock
Underwriters to be Purchased
------------ ------------------
Millennium Financial Group, Inc...................
Total............................................. [_________]
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EXHIBIT A
FORM OF REPRESENTATIVE'S WARRANT AGREEMENT
--------------------------------------------------------------------------------
AMERICAN DIVERSIFIED HOLDINGS, INC.
AND
MILLENNIUM FINANCIAL GROUP, INC.
---------------------
REPRESENTATIVE'S WARRANT AGREEMENT
DATED AS OF ________, 1998
--------------------------------------------------------------------------------
30
THIS REPRESENTATIVE'S WARRANT AGREEMENT dated as of _______, 1998
between AMERICAN DIVERSIFIED HOLDINGS, INC., a Nevada corporation (the
"Company"), and MILLENNIUM FINANCIAL GROUP, INC. (hereinafter referred to
variously as the "Holder", "Millennium", or "Representative").
W I T N E S S E T H:
WHEREAS, the Company has prepared and filed with the Securities and
Exchange Commission a registration statement on Form SB-2 (No. 333-62489) for
the registration of 1,733,334 shares of the common stock, no par value, of the
Company (the "Common Stock"), an estimated _________ shares of which the Company
will place directly to investors located primarily in Europe (the "Direct
Shares");
WHEREAS, Millennium has agreed pursuant to an underwriting agreement
(the "Underwriting Agreement") dated as of the date hereof among Millennium
Financial Group, Inc. as the Representative of the several Underwriters listed
therein, and the Company to act as a Representative in connection with the
Company's proposed public offering of the remaining ________ shares of Common
Stock (the "Firm Shares") at a public offering price of $14.00 per share; and
WHEREAS, the Company proposes to issue to Millennium warrants
("Warrants") to purchase a number of shares of Common Stock, no par value
("Common Stock"), of the Company equal to ten percent (10%) of the Firm Shares
placed by Millennium (up to a maximum of ________ shares), in connection with
the Company's proposed public offering; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to Millennium or its designees in consideration for,
and as part of Millennium's compensation in connection with, its acting as the
Representative pursuant to the Underwriting Agreement.
NOW, THEREFORE, in consideration of the premises, the payment by
Millennium to the Company of an aggregate _________ dollars ($_________), the
agreements herein set forth and other good and valuable consideration, hereby
acknowledged, the parties hereto agree as follows:
1. GRANT. Millennium (or its designees) is hereby granted the right to
purchase, at any time from the effective date of the Registration Statement,
until 5:30 P.M., New York time, on __________, 2003, up to an aggregate number
of shares of Common Stock equal to ten percent (10%) of the Firm Share placed by
Millennium, (up to a maximum of ________ shares) in connection with the
Company's public offering, subject to the terms and conditions of this
Agreement. Except as set forth herein, the shares of Common Stock are in all
respects identical to the shares of Common Stock being purchased by the
Underwriters for resale to the public pursuant to the terms and provisions of
the Underwriting Agreement. The shares of Common Stock are sometimes hereinafter
referred to as the "Securities."
2. WARRANT CERTIFICATE. The warrant certificate (the "Warrant
Certificate") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit 1, attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions, and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3.1. METHOD OF EXERCISE. The Warrants initially are exercisable at an
aggregate initial exercise price (subject to adjustment as provided in Section 8
hereof) per share of Common Stock set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
shares of Common Stock purchased at the Company's principal executive offices in
California (presently located at ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ 90025) the registered holder of a Warrant Certificate
("Holder" or "Holders") shall be entitled to receive a certificate or
certificates for the shares of Common Stock so purchased. The purchase rights
represented by
A-1
31
the Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrant). The Warrant may be exercised to purchase all or part of the shares
of Common Stock. In the case of the purchase of less than all the shares of
Common Stock purchasable under the Warrant Certificate, the Company shall cancel
said Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the shares of
Common Stock purchasable thereunder.
3.2. EXERCISE BY SURRENDER OF WARRANT. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrant shall have the right at any time and
from time to time to exercise the Warrant in full or in part by surrendering the
Warrant Certificate in the manner specified in Section 3.1 hereof. The number of
shares of Common Stock to be issued pursuant to this Section 3.2 shall be equal
to the difference between (a) the number of shares of Common Stock in respect of
which the Warrant is exercised and (b) a fraction, the numerator of which shall
be the number of shares of Common Stock in respect of which the Warrant is
exercised multiplied by the Exercise Price and the denominator of which shall be
the Market Price (as defined in Section 3.3 hereof) of the Common Stock. Solely
for the purposes of this paragraph, Market Price shall be calculated either (i)
on the date on which the form of election attached hereto is deemed to have been
sent to the Company pursuant to Section 13 hereof ("Notice Date") or (ii) as the
average of the Market Prices for each of the five trading days preceding the
Notice Date, whichever of (i) or (ii) is greater.
3.3 DEFINITION OF MARKET PRICE. As used herein, the phrase "Market
Price" at any date shall be deemed to be the last reported sale price of the
Common Stock, or, in the case no such reported sale takes place on such day, the
average of the last reported sale prices for the last three (3) trading days, in
either case as officially reported by the principal securities exchange on which
the Common Stock is listed or admitted for trading or by the Nasdaq SmallCap
Market ("Nasdaq SmallCap") or by the National Association of Securities Dealers
Automated Quotation System ("Nasdaq"), or, if the Common Stock is not listed or
admitted for trading on any national securities exchange or quoted by Nasdaq,
the average closing bid price as furnished by the National Association of
Securities Dealers, Inc. ("NASD") through Nasdaq or similar organization if
Nasdaq is no longer reporting such information, or if the Common Stock is not
quoted on Nasdaq, as determined in good faith (using customary valuation
methods) by resolution of the members of the Board of Directors of the Company,
based on the best information available to it.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrant, the
issuance of certificates for shares of Common Stock and/or other securities,
properties or rights underlying such Warrant shall be made forthwith (and in any
event within five (5) business days thereafter) without charge to the Holder
thereof including, without limitation, any tax which may be payable in respect
of the issuance thereof, and such certificates shall (subject to the provisions
of Sections 5 and 7 hereof) be issued in the name of, or in such names as may be
directed by, the Holder thereof; provided, however, that the Company shall not
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certificates in a name other
than that of the Holder, and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates representing the shares of
Common Stock underlying the Warrant (and/or other securities, property or rights
issuable upon the exercise of the Warrant) shall be executed on behalf of the
Company by the manual or facsimile signature of the then Chairman or Vice
Chairman of the Board of Directors or President or Vice President of the
Company. The Warrant Certificate shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
Certificates representing the shares of Common Stock (and/or other securities,
property or rights issuable upon exercise of the Warrant) shall be dated as of
the Notice Date (regardless of when executed or delivered) and dividend bearing
securities so issued shall accrue dividends from the Notice Date.
5. RESTRICTION ON TRANSFER OF WARRANT. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrant is
being acquired as an investment and not with a view to the distribution thereof;
that the Warrant may not be sold, transferred, assigned, hypothecated or
otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers of the Representative.
A-2
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6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise provided
in Section 8 hereof, the initial exercise price of the Warrant shall be $____
[150% of the initial public offering price] per share of Common Stock. The
adjusted exercise price shall be the price which shall result from time to time
from any and all adjustments of the initial exercise price in accordance with
the provisions of Section 8 hereof. Any transfer of the Warrant shall constitute
an automatic transfer and assignment of the registration rights set forth in
Section 7 hereof with respect to the Securities or other securities, properties
or rights underlying the Warrant.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context or unless otherwise specified.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrant, the
shares of Common Stock or other securities issuable upon exercise of the
Warrant, (collectively, the "Warrant Securities") have not been registered under
the Securities Act of 1933, as amended (the "Act") pursuant to the Company's
Registration Statement on Form SB- 2 (Registration No. 333-62489) (the
"Registration Statement"). The certificates representing the Warrant Securities
shall bear the following legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered or sold except pursuant to (i) an
effective registration statement under the Act, (ii) to the
extent applicable, Rule 144 under the Act (or any similar rule
under such Act relating to the disposition of securities), or
(iii) an opinion of counsel, if such opinion shall be reasonably
satisfactory to counsel to the issuer, that an exemption from
registration under such Act is available.
7.2 PIGGYBACK REGISTRATION. If, at any time commencing after the date
hereof and expiring five (5) years thereafter, the Company proposes to register
any of its securities under the Act (other than pursuant to Form ▇-▇, ▇▇▇▇ ▇-▇
or a comparable registration statement) it will give written notice by
registered mail, at least thirty (30) days prior to the filing of each such
registration statement, to Millennium and to all other Holders of the Warrant
and/or the Warrant Securities of its intention to do so. If Millennium or other
Holders of the Warrant and/or Warrant Securities notify the Company within
twenty (20) business days after receipt of any such notice of its or their
desire to include any such securities in such proposed registration statement,
the Company shall afford Millennium and such Holders of the Warrant and/or
Warrant Securities the opportunity to have any such Warrant Securities
registered under such registration statement.
Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time commencing after the date hereof and expiring
five (5) years thereafter, the Holder of the Warrant and/or Warrant
Securities representing a "Majority" (as hereinafter defined) of such
securities (assuming the exercise of all of the Warrant) shall have
the one-time right (which right is in addition to the registration
rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Securities
and Exchange Commission (the "Commission") a registration statement
and such other documents, including a prospectus, as may
A-3
33
be necessary in the opinion of both counsel for the Company and
counsel for Millennium and Holders, in order to comply with the
provisions of the Act, so as to permit a public offering and sale
of their respective Warrant Securities for six (6) consecutive
months by such Holders and any other Holder of the Warrant and/or
Warrant Securities who notify the Company within ten (10) days
after receiving notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of
any registration request under this Section 7.3 by any Holder or
Holders to all other registered Holders of the Warrant and the
Warrant Securities within ten (10) days from the date of the receipt
of any such registration request.
(c) Notwithstanding anything to the contrary contained herein, if
the Company shall not have filed a registration statement for the
Warrant Securities within the time period specified in Section 7.4(a)
hereof pursuant to the written notice specified in Section 7.3(a) of
a Majority of the Holders of the Warrant and/or Warrant Securities,
the Company may, at its option, upon the written notice of election
of a Majority of the Holders of the Warrant and/or Warrant Securities
requesting such registration, repurchase (i) any and all Warrant
Securities of such Holders at the higher of the Market Price per
share of Common Stock on (x) the date of the notice sent pursuant to
Section 7.3(a) or (y) the expiration of the period specified in
Section 7.4(a) and (ii) any and all Warrant of such Holders at such
Market Price less the Exercise Price of such Warrant. Such repurchase
shall be in immediately available funds and shall close within two
(2) days after the later of (i) the expiration of the period
specified in Section 7.4(a) or (ii) the delivery of the written
notice of election specified in this Section 7.3(c).
(d) If all of the Holders are able to sell the Warrant Securities
pursuant to Rule 144 under the Securities Act of 1933, as amended,
and without regard to the volume limitations thereunder, the Holders'
rights under Section 7.2 and 7.3(a) shall terminate.
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor,
shall use its best efforts to have any registration statements
declared effective at the earliest possible time, and shall furnish
each Holder desiring to sell Warrant Securities such number of
prospectuses as shall reasonably be requested.
(b) The Company shall pay all costs (excluding fees and expenses
of Holder(s)' counsel and any underwriting or selling commissions),
fees and expenses in connection with all registration statements
filed pursuant to Sections 7.2 and 7.3(a) hereof including, without
limitation, the Company's legal and accounting fees, printing
expenses, blue sky fees and expenses.
(c) The Company will take all necessary action which may be
required in qualifying or registering the Warrant Securities included
in a registration statement for offering and sale under the
securities or blue sky laws of such states as reasonably are
requested by the Holder(s), provided that the Company shall not be
obligated to execute or file any general consent to service of
process or to qualify as a foreign corporation to do business under
the laws of any such jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of
Section 15 of the Act or Section 20(a) of the Securities Exchange Act
of 1934, as amended ("Exchange Act"), against all loss, claim,
damage, expense or liability (including all expenses reasonably
incurred in investigating, preparing or defending against any claim
whatsoever) to which any of them may become subject under the Act,
the Exchange Act or otherwise, arising from such registration
statement but only to the same extent and with the same effect as the
provisions pursuant to which the Company has agreed to indemnify each
of the Underwriters contained in Section 7 of the Underwriting
Agreement.
A-4
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(e) The Holder(s) of the Warrant Securities to be sold pursuant
to a registration statement, and their successors and assigns, shall
severally, and not jointly, indemnify the Company, its officers and
directors and each person, if any, who controls the Company within
the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, against all loss, claim, damage, expense or liability (including
all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which they may become
subject under the Act, the Exchange Act or otherwise, arising from
information furnished by or on behalf of such Holders, or their
successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the
provisions contained in Section 7 of the Underwriting Agreement
pursuant to which the Underwriters have agreed to indemnify the
Company.
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrant prior to the
initial filing of any registration statement or the effectiveness
thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof, or permit any other
registration statement to be or remain effective during the
effectiveness of a registration statement filed pursuant to Section
7.3 hereof (other than (i) shelf registrations effective prior
thereto and (ii) registrations on Form S-4 or S-8), without the prior
written consent of the Holders of the Warrant and Warrant Securities
representing a Majority of such securities.
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart,
addressed to such Holder or underwriter, of (i) an opinion of counsel
to the Company, dated the effective date of such registration
statement (and, if such registration includes an underwritten public
offering, an opinion dated the date of the closing under the
underwriting agreement), and (ii) a "cold comfort" letter dated the
effective date of such registration statement (and, if such
registration includes an underwritten public offering, a letter dated
the date of the closing under the underwriting agreement) signed by
the independent public accountants who have issued a report on the
Company's financial statements included in such registration
statement, in each case covering substantially the same matters with
respect to such registration statement (and the prospectus included
therein) and, in the case of such accountants' letter, with respect
to events subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the effective
date of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders"
(within the meaning of Rule 158 under the Act) an earnings statement
(which need not be audited) complying with Section 11(a) of the Act
and covering a period of at least 12 consecutive months beginning
after the effective date of the registration statement.
(j) The Company shall deliver promptly to each Holder
participating in the offering requesting the correspondence and
memoranda described below and to the managing underwriters, copies of
all correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with
the Commission or its staff with respect to the registration
statement and permit each Holder and underwriter to do such
investigation, upon reasonable advance notice, with respect to
information contained in or omitted from the registration statement
as it deems reasonably necessary to comply with applicable securities
laws or rules of the NASD. Such investigation shall include access to
books, records and properties and opportunities to discuss the
A-5
35
business of the Company with its officers and independent auditors,
all to such reasonable extent and at such reasonable times and as
often as any such Holder or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with
the managing underwriters selected for such underwriting by Holders
holding a Majority of the Warrant Securities requested pursuant to
Section 7.3(a) to be included in such underwriting, which may be
Millennium. Such agreement shall be satisfactory in form and
substance to the Company, each Holder and such managing
underwriter(s), and shall contain such representations, warranties
and covenants by the Company and such other terms as are customarily
contained in agreements of that type used by the managing
underwriter(s). The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant
Securities whether pursuant to Section 7.2 or Section 7.3(a) and may,
at their option, require that any or all of the representations,
warranties and covenants of each of the Company and the Subsidiary to
or for the benefit of such underwriter(s) shall also be made to and
for the benefit of such Holders. Such Holders shall not be required
to make any representations or warranties to or agreements with the
Company or the underwriter(s) except as they may relate to such
Holders and their intended methods of distribution.
(l) For purposes of this Agreement, the term "Majority" in
reference to the Holders of Warrant or Warrant Securities, shall mean
in excess of fifty percent (50%) of the then outstanding Warrant or
Warrant Securities that (i) are not held by the Company, an
affiliate, officer, creditor, employee or agent thereof or any of
their respective affiliates, members of their family, persons acting
as nominees or in conjunction therewith and (ii) have not been resold
to the public pursuant to a registration statement filed with the
Commission under the Act.
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1. SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.2. STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall pay
a dividend in, or make a distribution of, shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased. An adjustment made pursuant
to this Section 8.2 shall be made as of the record date for the subject stock
dividend or distribution.
8.3. ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted exercise price of
each Warrant shall be adjusted to the nearest full amount by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrant immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4. DEFINITION OF COMMON STOCK. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as may be amended as of
the date hereof, or (ii) any other class of stock resulting from successive
changes or reclassifications of such Common Stock consisting solely of changes
in par value, or from par value to no par value, or from no par value to par
value.
8.5. MERGER OR CONSOLIDATION. In case of any consolidation of the
Company with, or merger of the Company with, or merger of the Company into,
another corporation (other than a consolidation or merger which does not result
in any reclassification or change of the outstanding Common Stock), the
corporation formed by such consolidation or merger shall execute and deliver to
the Holder a supplemental warrant agreement providing that the holder of each
Warrant then outstanding or to be outstanding shall have the right thereafter
(until the expiration of such Warrant) to receive, upon exercise of such
Warrant, the kind and amount of shares of stock and other securities and
A-6
36
property receivable upon such consolidation or merger, by a holder of the number
of securities of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in Section 8. The above provision of this
subsection shall similarly apply to successive consolidations or mergers.
8.6. NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment
of the Exercise Price shall be made if the amount of said adjustment shall be
less than two cents ($0.02) per Warrant Security, provided, however, that in
such case any adjustment that would otherwise be required then to be made shall
be carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least two cents ($0.02) per Warrant Security.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Warrant Securities in such denominations as
shall be designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of any Warrant Certificate, and, in
case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrant, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the Warrant, nor shall it be required to issue scrip or pay
cash in lieu of fractional interests, it being the intent of the parties that
all fractional interests shall be eliminated by rounding any fraction up to the
nearest whole number of shares of Common Stock or other securities, properties
or rights.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrant, such number
of shares of Common Stock or other securities, properties or rights as shall be
issuable upon the exercise thereof. The Company covenants and agrees that, upon
exercise of the Warrant and payment of the Exercise Price therefor, all shares
of Common Stock, and other securities issuable upon such exercise shall be duly
and validly issued, fully paid, non-assessable and not subject to the preemptive
rights of any stockholder. As long as the Warrant shall be outstanding, the
Company shall use its best efforts to cause all shares of Common Stock issuable
upon the exercise of the Warrant to be listed (subject to official notice of
issuance) on all securities exchanges on which the Common Stock may then be
listed and/or quoted on Nasdaq SmallCap or Nasdaq.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrant and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable otherwise than in cash, or a cash dividend or
distribution payable otherwise than out of current or retained earnings
or capital surplus (in accordance with applicable law), as indicated by
the accounting treatment of such dividend or distribution on the books
of the Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
A-7
37
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety
shall be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least thirty (30) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall specify
such record date or the date of closing the transfer books, as the case may be.
Failure to give such notice or any defect therein shall not affect the validity
of any action taken in connection with the declaration or payment of any such
dividend, or the issuance of any convertible or exchangeable securities, or
subscription rights, options or Warrant, or any proposed dissolution,
liquidation, winding up or sale.
13. NOTICES.
All notices, requests, consents and other communications hereunder shall
be in writing and shall be deemed to have been duly made and sent when
delivered, or mailed by registered or certified mail, return receipt requested:
(a) If to the registered Holder of the Warrant, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
14. SUPPLEMENTS AND AMENDMENTS. The Company and Millennium may from time
to time supplement or amend this Agreement without the approval of any Holders
of Warrant Certificates (other than Millennium) in order to cure any ambiguity,
to correct or supplement any provision contained herein which may be defective
or inconsistent with any provisions herein, or to make any other provisions in
regard to matters or questions arising hereunder which the Company and
Millennium may deem necessary or desirable and which the Company and Millennium
deem shall not adversely affect the interests of the Holders of Warrant
Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement shall
be binding upon and inure to the benefit of the Company, the Holders and their
respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of business
on _______, [2004]. Notwithstanding the foregoing, the indemnification
provisions of Section 7 shall survive such termination until the close of
business on _______, [2010].
17. GOVERNING LAW; LEGAL COSTS AND EXPENSES. This Agreement and each
Warrant Certificate issued hereunder shall be 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 without giving effect to the rules of
said State governing the conflicts of laws.
The Company, Millennium and the Holders agree that the prevailing
party(ies) in any action, proceeding or claim arising out of, or relating in any
way to this Agreement shall be entitled to recover from the other party(ies) all
of its/their reasonable legal costs and expenses relating to such action or
proceeding and/or incurred in connection with the preparation therefor.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement) contains the entire understanding between the parties
hereto with respect to the subject matter hereof and may not be modified or
amended except by a writing duly signed by the party against whom enforcement of
the modification or amendment is sought.
▇-▇
▇▇
▇▇. SEVERABILITY. If any provision of this Agreement shall be held to be
invalid or unenforceable, such invalidity or unenforceability shall not affect
any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this Agreement are
for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and
Millennium and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole benefit of the Company and
Millennium and any other registered Holders of Warrant Certificates or Warrant
Securities.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall together constitute but one and the
same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed, as of the day and year first above written.
AMERICAN DIVERSIFIED HOLDINGS, INC.
By: _______________________________
Name:
Title:
Attest:
___________________________________
Secretary
MILLENNIUM FINANCIAL GROUP, INC
By: _______________________________
Name:
Title:
A-9
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EXHIBIT 1
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, (ii) TO THE
EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION OF COUNSEL, IF
SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE ISSUER, THAT AN
EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANT REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE 5:30 P.M., NEW YORK TIME, __________, 2003.
No. W- Warrant to Purchase
____ Shares of Common Stock and/or
WARRANT CERTIFICATE
This Warrant Certificate certifies that __________, or registered
assigns, is the registered holder of Warrant to purchase initially, at any time
from the effective date of the Registration Statement until 5:30 p.m. New York
time on ___________, 2003 [five years from the effective date of the
Registration Statement] ("Expiration Date"), up to __________ fully-paid and
non-assessable shares of common stock, no par value ("Common Stock"), of
AMERICAN DIVERSIFIED HOLDINGS, INC., a Nevada corporation (the "Company"), at
the initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $______ [150% of the initial public offering price] per
share of Common Stock upon surrender of this Warrant Certificate and payment of
the Exercise Price at an office or agency of the Company, but subject to the
conditions set forth herein and in the warrant agreement dated as of _______,
1998 between the Company and Millennium Financial Group, Inc. (the "Warrant
Agreement"). Payment of the Exercise Price shall be made by certified or
official bank check in New York Clearing House funds payable to the order of the
Company or by surrender of this Warrant Certificate.
No Warrant may be exercised after 5:30 p.m., New York time, on the
Expiration Date, at which time all Warrant evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrant evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrant issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrant.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrant; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrant shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided
Ex-1
40
herein and in the Warrant Agreement, without any charge except for any tax or
other governmental charge imposed in connection with such transfer.
Upon the exercise of less than all of the Warrant evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrant.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of ___________, 1998
AMERICAN DIVERSIFIED HOLDINGS, INC.
By: _______________________________
Name:
Title:
Ex-2
41
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] _________________ shares of Common Stock;
and herewith tenders in payment for such securities a certified or official bank
check payable in New York Clearing House Funds to the order of American
Diversified Holdings, Inc. in the amount of $_______________________, all in
accordance with the terms of Section 3.1 of the Representative's Warrant
Agreement dated as of ______________________, 1998 between American Diversified
Holdings, Inc. and Millennium Financial Group, Inc. The undersigned requests
that a certificate for such securities be registered in the name of whose
address is and that such Certificate be delivered to ____________________ whose
address is ________________________.
Dated: _____________________
Signature__________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
___________________________________
(Insert Social Security or Other
Identifying Number of Holder)
42
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase:
[ ] _________________ shares of Common Stock;
and herewith tenders in payment for such securities ________ Warrant all in
accordance with the terms of Section 3.2 of the Representative's Warrant
Agreement dated as of __________________, 1998 between American Diversified
Holdings, Inc. and Millennium Financial Group, Inc. The undersigned requests
that a certificate for such securities be registered in the name of whose
address is _____________ and that such Certificate be delivered to
____________________ whose address is ______________________________.
Dated: ___________________
Signature ________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate.)
__________________________________
(Insert Social Security or Other
Identifying Number of Holder)
43
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _________________________ hereby sells, assigns and
transfers unto _________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint Attorney, to transfer the
within Warrant Certificate on the books of the within-named Company, with full
power of substitution.
Dated:______________________
Signature __________________________
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant
Certificate.)
____________________________________
(Insert Social Security or Other
identifying Number of Holder)