UNDERWRITING AGREEMENT
1,500,000 UNITS
January __, 1997
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc.
▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Gentlemen:
Racom Systems, Inc., a Delaware corporation (the "Company"), proposes to
issue and sell to you (the "Underwriter") pursuant to this Underwriting
Agreement (the "Agreement") an aggregate of 1,500,000 units (the "Firm Units"),
each unit ("Unit") consisting of one (1) share of the Company's $.01 par value
Common Stock (the "Common Stock"), and one Redeemable Common Stock Warrant
entitling the holder thereof to purchase for $_____, (125% of the Unit Offering
Price) one share of Common Stock for a term of five (5) years from the effective
date of the Registration Statement described below in Section 1(a). The terms
of the Units and the components of the Units shall be as described in the
Registration Statement. In addition, for the sole purpose of covering over-
allotments in connection with the sale of the Firm Units, the Company proposes
to grant to the Underwriter an option to purchase up to an additional 225,000
Units (the "Option Units"). The Company further agrees to sell and issue to you
as Underwriter, five-year warrants (the "Underwriter's Warrants") to purchase
for $_____ per Unit an aggregate of 150,000 Units (the "Underwriter's Warrant
Units"). Each Underwriter's Warrant Unit consists of one (1) share of Common
Stock and one (1) Redeemable Warrant ("Underlying Warrant"). The terms and
conditions of the Underwriter's Warrants, Underwriter's Warrant Units and
Underlying Warrants, including the purchase price thereof, shall be as set forth
in the Underwriter's Warrant filed as an exhibit to the Registration Statement.
The Firm Units, any Option Units purchased pursuant to this Agreement and
the Underwriter's Warrant Units are collectively called herein the "Units" and
the Warrants included in the Units and the Underwriter's Warrants are
collectively called herein the "Warrants." The shares of Common Stock issuable
upon exercise of the Warrants are collectively called the "Warrant Shares" and
the Warrant Shares, together with the shares of Common Stock included in the
Units, are collectively called the "Shares."
You have advised the Company that you intend to purchase the Firm Units,
and that you have been authorized to execute this Agreement. The Company
confirms the agreements made by it with respect to the purchase of the Firm
Units by the Underwriter, as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to, and agrees with, the Underwriter
that:
(a) A registration statement (File No. __________) on Form SB-2 relating
to the public offering of the Units, Warrants and Shares, including a
preliminary form of prospectus, copies of which have heretofore been delivered
to you, has been prepared by the Company in conformity with the requirements of
the Securities Act of 1933, as amended (the "Act"), and the rules and
regulations (the "Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder, and has been filed with the Commission
under the Act. "Preliminary Prospectus" shall mean each prospectus filed
pursuant to Rule 430 of the Rules and Regulations. The registration statement
(including all financial schedules and exhibits) as amended at the time it
becomes effective and the final prospectus included therein are respectively
referred to as the "Registration Statement" and the "Prospectus", except that
(i) if the prospectus first filed by the Company pursuant to Rule 424(b) or Rule
430A of the Rules and Regulations or otherwise utilized and not required to be
so filed shall differ from said prospectus as then amended, the term
"Prospectus" shall mean the prospectus first filed pursuant to Rule 424(b) or
Rule 430A, or so utilized from and after the date on which it shall have been
filed or utilized and (ii) if such registration statement or prospectus is
amended or such prospectus is supplemented, after the effective date (the
"Effective Date") of such registration statement and prior to the Option Closing
Date (as defined in Section 2(b)), the term "Registration Statement" shall
include such registration statement as so amended, and the term "Prospectus"
shall include the prospectus as so amended or supplemented, or both, as the case
may be.
(b) At the time the Registration Statement becomes effective and at all
times subsequent thereto up to the Option Closing Date (defined above), (i) the
Registration Statement and Prospectus will in all respects conform to the
requirements of the Act and the Rules and Regulations, (ii) there will be no
stop order of the Commission, any court of competent jurisdiction or the
securities administrator of any state in which the Units, Warrants and Shares
have been, or are to be, registered or qualified, in effect, pending or
threatened with respect to the effectiveness of the Registration Statement or
the distribution of the Prospectus and (iii) neither the Registration Statement
nor the Prospectus will include any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
statements therein not misleading; provided, however, that the Company makes no
representations, warranties or agreements as to information contained in or
omitted from the Registration Statement or Prospectus in reliance upon, and in
conformity with, written information furnished to the Company by or on behalf of
the Underwriter specifically for use in the preparation thereof. It is
understood that the statements set forth in the Prospectus with respect to
stabilization, the material set forth under the heading "Underwriting", and the
identity of counsel to the Underwriter under the heading "Legal Matters"
constitute the only information furnished in writing by or on behalf of the
Underwriter for inclusion in the Registration Statement and Prospectus, as the
case may be.
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(c) The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, with full power and corporate authority to own its properties and
conduct its business as described in the Prospectus and is duly qualified to do
business as a foreign corporation and is in good standing in all other
jurisdictions in which the nature of its business or the character or location
of its properties requires such qualification, except where failure to so
qualify will not materially affect the Company's business, properties or
financial condition.
(d) The authorized capital stock of the Company as of the date of the
Prospectus, as set forth under "Description of Securities" in the Prospectus,
was 20,000,000 shares of Common Stock, $.01 par value per share, of which not
more than 13,400,000 shares will be issued and outstanding or subject to
outstanding options or warrants as of the Effective Date and 5,000,000 shares of
Preferred Stock, no par value per share, of which no shares will be issued and
outstanding. The shares of issued and outstanding capital stock of the Company
set forth thereunder have been duly authorized, validly issued and are fully
paid and non-assessable; except as set forth in the Prospectus, no options,
warrants or other rights to purchase, agreements or other obligations to issue,
or agreements or other rights to convert any obligation into, any shares of
capital stock of the Company have been granted or entered into by the Company.
The Preferred Stock conforms to all statements relating thereto contained in the
Registration Statement and Prospectus.
(e) The Units and their components upon issuance and delivery and payment
therefor in the manner contemplated by this Agreement will be duly authorized,
validly issued, fully paid and nonassessable. The shares of Common Stock are
not subject to preemptive rights of any security holder of the Company. Neither
the filing of the Registration Statement nor the offering or sale of the Units,
Warrants or Shares, as contemplated in this Agreement and the Underwriter's
Warrant, gives rise to any rights, other than those which have been waived or
satisfied, for or relating to the registration of any shares of Common Stock or
other securities of the Company, except as described in the Registration
Statement.
(f) All offers and sales of the Company's capital stock prior to the date
hereof, other than pursuant to effective registration statements under the Act,
were at all relevant times exempt from the registration requirements of the Act
and were duly registered or the subject of an available exemption from the
registration requirements of the applicable state securities or Blue Sky laws,
or the relevant statutes of limitations have expired, or civil liability
therefor has been eliminated by an offer to rescind.
(g) This Agreement, including the Underwriter's Warrant, the agreement
between the Company and the warrant agent (the "Warrant Agreement") and the
other agreements of the Company provided for herein, has been duly authorized,
executed and delivered by the Company and constitute the valid and binding
agreement of the Company enforceable against the Company in accordance with its
terms, except insofar as rights to indemnity and/or contribution may be limited
by federal or state securities laws or the public policy underlying such laws
and except as enforcement may be limited by bankruptcy, insolvency,
reorganization or other similar laws
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affecting creditors' rights generally, and be subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in equity or at law). The Units, Warrants and Shares have been
duly authorized for issuance and sale, and, when issued pursuant to this
Agreement and the Underwriter's Warrant against payment of the consideration
therefor, will be validly issued, fully paid and nonassessable and not
subject to preemptive rights. The Warrant Shares issuable upon exercise of
the Warrants have been duly authorized and reserved for issuance upon
exercise of the Warrants and when issued upon payment of the exercise price
therefor will be validly issued, fully paid and nonassessable shares of
Common Stock and not subject to preemptive rights.
(h) Except as described in the Prospectus, the Company is not in
violation, breach or default of or under, and consummation of the transactions
herein contemplated and the fulfillment of the terms of this Agreement will not
conflict with, or result in a breach of, any of the terms or provisions of, or
constitute a default under, or result in the creation or imposition of any lien,
charge or encumbrance pursuant to the terms of, any indenture, mortgage, deed of
trust, loan agreement or other material agreement or instrument to which the
Company is a party or by which the Company may be bound or to which any of the
property or assets of the Company are subject, nor will such action result in
any violation of the provisions of the articles of incorporation or the
by-laws of the Company, as amended, or any statute or any order, rule or
regulation applicable to the Company of any court or of any regulatory authority
or other governmental body having jurisdiction over the Company.
(i) Subject to the qualifications stated in the Prospectus, the Company
has good and marketable title to all properties and assets described in the
Prospectus as owned by it, free and clear of all liens, charges, encumbrances or
restrictions, except such as are not materially significant or important in
relation to its business; all of the material leases and subleases under which
the Company is the lessor or sublessor of properties or assets or under which
the Company holds properties or assets as lessee or sublessee as described in
the Prospectus are in full force and effect, and, except as described in the
Prospectus, the Company is not in default in any material respect with respect
to any of the terms or provisions of any of such leases or subleases, and no
claim has been asserted by anyone adverse to rights of the Company as lessor,
sublessor, lessee or sublessee under any of the leases or subleases mentioned
above, or affecting or questioning the right of the Company to continued
possession of the leased or subleased premises or assets under any such lease or
sublease except as described or referred to in the Prospectus; and the Company
owns or leases all such properties described in the prospectus as are necessary
to its operations as now conducted and, except as otherwise stated in the
Prospectus, as proposed to be conducted as set forth in the Prospectus.
(j) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP, who have given their reports on certain financial
statements filed and to be filed with the Commission as a part of the
Registration Statement, which are incorporated in the Prospectus, are
independent with respect to the Company as required by the Act and the Rules and
Regulations.
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(k) The financial statements and schedules, together with related notes,
set forth in the Prospectus or the Registration Statement present fairly the
financial position and results of operations and changes in cash flows of the
Company on the basis stated in the Registration Statement, at the respective
dates and for the respective periods to which they apply. Said statements and
schedules and related notes have been prepared in accordance with generally
accepted accounting principles applied on a basis which is consistent during the
periods involved.
(l) Since the respective dates as of which information is given in the
Registration Statement and the Prospectus, except as may otherwise be stated or
contemplated therein: (i) there has not been any material adverse change in the
condition of the Company and its subsidiaries, taken as a whole, financial and
otherwise, or in the earnings, business prospects or current operations of the
Company and its subsidiaries, taken as a whole, whether or not arising in the
ordinary course of business, (ii) there have not been any material transactions
entered into by the Company or any of its subsidiaries which are required to be
disclosed in the Registration Statement, (iii) there has been no dividend or
distribution of any kind declared, paid or made by the Company on any class of
its capital stock or any material change in the capital stock or material
increase in the long-term indebtedness of the Company; (iv) no action, suit or
proceeding at law or in equity and no governmental or regulatory proceeding has
occurred or is pending or, to the knowledge of the Company, threatened against
or affecting the Company or any of its subsidiaries wherein an unfavorable
decision, ruling or finding would have a material adverse effect on the
consummation of this Agreement or the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries, taken as a
whole and (v) neither the Company nor any of its subsidiaries has sustained a
loss of, or damage to, its properties (whether or not insured) which would have
a material adverse effect on the business, operations, financial condition,
income or business prospects of the Company and its subsidiaries, taken as a
whole.
(m) Except as set forth in the Prospectus, there is not now pending nor,
to the knowledge of the Company, threatened, any action, suit or proceeding
(including those related to environmental matters or discrimination on the basis
of age, sex, religion or race) to which the Company is a party before or by any
court or governmental agency or body, which might result in any material adverse
change in the condition (financial or other), business prospects, net worth or
properties of the Company; and no labor disputes involving the employees of the
Company exist which might be expected to materially adversely affect the conduct
of the business, property or operations or the financial condition or earnings
of the Company.
(n) Except as disclosed in the Prospectus, the Company has filed all
necessary federal, state and foreign income and franchise tax returns and has
paid all taxes shown as due thereon; and there is no tax deficiency which has
been or to the knowledge of the Company might be asserted against the Company.
(o) The Company has sufficient licenses, permits and other governmental
authorizations currently required for the conduct of its business or the
ownership of its property as described in the Prospectus and is in all material
respects complying therewith and, except
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as disclosed in the Prospectus, owns or possesses adequate rights to use all
material patents, patent applications, trademarks, ▇▇▇▇ registrations,
copyrights and licenses necessary for the conduct of such business and has
not received any notice of conflict with the asserted rights of others in
respect thereof. To the best knowledge of the Company, none of the
activities or business of the Company is in violation of, or cause the
Company to violate, any law, rule, regulation or order of the United States,
any state, county or locality, or of any agency or locality, the violation of
which would have a material adverse impact upon the condition (financial or
otherwise), business, property, prospective results of operations or net
worth of the Company.
(p) The Company has not, directly or indirectly, at any time (i) made any
contributions to any candidate for political office, or failed to disclose fully
any such contribution in violation of law, or (ii) made any payment to any
state, federal or foreign governmental officer or official, or other person
charged with similar public or quasi-public duties, other than payments or
contributions required or allowed by applicable law. The Company's internal
accounting controls and procedures are sufficient to cause the Company to comply
in all material respects with the Foreign Corrupt Practices Act of 1977, as
amended.
(q) On the Closing Dates (as defined in Section 2(c)), all transfer or
other taxes (including franchise, capital stock or other tax, other than income
taxes imposed by any jurisdiction), if any, which are required to be paid in
connection with the sale and transfer of the Units, Warrants and Shares to the
Underwriter hereunder will have been fully paid or provided for by the Company
and all laws imposing such taxes will have been fully complied with.
(r) All contracts and other documents of the Company which are, under the
Rules and Regulations, required to be filed as exhibits to the Registration
Statement have been so filed.
(s) The Company has not taken and will not take, directly or indirectly,
any action designed to cause or result in, or which has constituted or which
might reasonably be expected to constitute, the stabilization or manipulation of
the price of the Units, Warrants and Shares to facilitate the sale or resale of
the Units, Warrants and Shares hereunder.
(t) Except as set forth in the Prospectus, the Company has no
subsidiaries.
(u) The Company has not entered into any agreement pursuant to which any
person is entitled either directly or indirectly to compensation from the
Company for services as a finder in connection with the proposed public
offering.
(v) As of the effective date of the Registration Statement, the Common
Stock has been duly registered under Section 12(g) of the 1934 Act; the Common
Stock and Warrants have been approved for quotation on the National Association
of Securities Dealers Automated Quotation Small Cap Market ("Nasdaq Small Cap")
upon official notification of issuance; the Units will not trade on any Exchange
or through the over-the-counter market.
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Any certificate signed by any officer of the Company and delivered to you
or to counsel for the Underwriter in connection with the Closing shall be deemed
a representation and warranty by the Company to the Underwriter as to the
matters covered thereby.
2. PURCHASE, DELIVERY AND SALE OF THE SHARES.
(a) Subject to the terms and conditions of this Agreement, and upon the
basis of the representations, warranties and agreements herein contained, the
Company agrees to issue and sell to the Underwriter, and the Underwriter agrees
to buy from the Company at $_____ per Unit (between $4.25 and $5.25 per Unit) at
the place and time hereinafter specified, 1,500,000 Units.
Delivery of the Firm Units as well as the Underwriter's Warrant against
payment therefor shall take place at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, Inc., ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇., ▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ (or at such other place as may be
designated by agreement between you and the Company) at 9:00 a.m. local time on
January __, 1997 or at such later time and date as you may designate within ten
business days of the effective date of the Registration Statement or the date
which you receive the Prospectus in sufficient quantity to send confirmations of
sale, such time and date of delivery for the Firm Units being herein called the
"First Closing Date." Time shall be of the essence and delivery at the time and
place specified in this subsection (a) is a further condition to the obligations
of the Underwriter hereunder. Payment shall be made to the order of the Company
on the First Closing Date.
(b) In addition, subject to the terms and conditions of this Agreement,
and upon the basis of the representations, warranties and agreements herein
contained, the Company hereby grants an option to you to purchase all or any
part of an aggregate of an additional 225,000 Units at the same price per Unit
as you shall pay for the Firm Units being sold pursuant to the provision of
subsection (a) of this Section 2. This option may be exercised within thirty
(30) days after the First Closing Date upon notice by you to the Company
advising it as to the amount of Option Units as to which the option is being
exercised, the names and denominations in which the certificates for such Option
Units are to be registered and the time and date when such certificates are to
be delivered. Such time and date shall be determined by you but shall not be
earlier than four and not later than ten full business days after the exercise
of said option, nor in any event prior to the First Closing Date, and such time
and date is referred to herein as the "Option Closing Date." Delivery of the
Option Units against payment therefor shall take place at the offices of the
Underwriter. Time shall be of the essence and delivery at the time and place
specified in this subsection (b) is a further condition to your obligations
hereunder. The Option granted hereunder may be exercised only to cover
over-allotments in the sale by the Underwriter of Firm Units referred to in
subsection (a) above.
(c) On the basis of the representations, warranties, covenants and
agreements herein contained, and subject to the terms and conditions herein set
forth, the Company shall sell to you individually, and/or your designated
officers, at the First Closing Date, as defined below, for $100, Underwriter's
Warrants to purchase an aggregate of up to 150,000 Underwriter's Warrant
7
Units. The price, terms and provisions of the Underwriter's Warrant Units and
the respective rights and obligations of the Company and the holders of the
Underwriter's Warrants and/or Underwriter's Warrant Units and the components
thereof are set forth in the Underwriter's Warrant between the Company and
the Underwriter.
(d) The Company will make the certificates for the securities comprising
the Units to be purchased by the Underwriter hereunder available to you for
examination at least two full business days prior to the First Closing Date or
the Option Closing Date (which are collectively referred to herein as the
"Closing Dates" and individually as a "Closing Date"), as the case may be. The
certificates shall be in such names and denominations as you may request, at
least two full business days prior to the relevant Closing Dates. Time shall be
of the essence and the availability of the certificates at the time and place
specified in this Agreement is a further condition to the obligations of the
Underwriter.
Definitive engraved certificates in negotiable form for the Firm Units and
the Option Units to be purchased by the Underwriter hereunder will be delivered
by the Company to you for your account against payment of the purchase price by
you by certified or bank cashier's checks in certified funds, payable to the
order of the Company.
In addition, in the event you exercise the option to purchase from the
Company all or any portion of the Option Units pursuant to the provisions of
subsection (b) above, payment for such Option Units shall be made to or upon the
order of the Company not later than ten (10) business days after the Option
Closing Date by certified checks at the time and date of delivery of such Option
Units as required by the provisions of subsection (b) above, against receipt of
the certificates for such Option Units by you for your account, registered in
such names and in such denominations as you may request.
It is understood that the Underwriter proposes to offer the Units to be
purchased hereunder to the public upon the terms and conditions set forth in the
Registration Statement, after the Registration Statement becomes effective.
3. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the Underwriter that:
(a) The Company will use its best efforts to cause the Registration
Statement to become effective and, upon notification from the Commission that
the Registration Statement has become effective, will so advise you and will not
at any time, whether before or after the effective date, file any amendment to
the Registration Statement or supplement to the Prospectus of which you shall
not previously have been advised and furnished with a copy or to which you or
your counsel shall have objected in writing or which is not in compliance with
the Act and the Rules and Regulations. At any time prior to the later of (i)
the completion by the Underwriter of the distribution of the Shares contemplated
hereby (but in no event more than nine months after the date on which the
Registration Statement shall have become or been
8
declared effective) and (ii) 25 days after the Effective Date, the Company
will prepare and file with the Commission, promptly upon your request, any
amendments or supplements to the Registration Statement or Prospectus which,
in your reasonable opinion, may be necessary or advisable in connection with
the distribution of the Shares.
(i) Promptly after you or the Company is advised thereof, you
will advise the Company or the Company will advise you, as the case
may be, and confirm the advice in writing, of the receipt of any
comments of the Commission, of the effectiveness of any post-effective
amendment to the Registration Statement, of the filing of any
supplement to the Prospectus or any amended Prospectus, of any request
made by the Commission for amendment of the Registration Statement or
for supplementing of the Prospectus or for additional information with
respect thereto, of the issuance by the Commission or any state or
regulatory body of any stop orders or other order suspending the
effectiveness of the Registration Statement or any order preventing or
suspending the use of any Preliminary Prospectus, or of the suspension
of the qualification of the Shares for offering in any jurisdiction,
or the institution of any proceedings for any of such purposes, and
the Company will use its reasonable efforts to prevent the issuance of
any such order and, if issued, to obtain as soon as possible the
lifting thereof.
(ii) The Company has caused to be delivered to you copies of each
Preliminary Prospectus, and the Company has consented and hereby
consents to the use of such copies for the purposes permitted by the
Act. The Company authorizes the Underwriter and selected dealers to
use the Prospectus in connection with the sale of the Units for such
period as in the opinion of counsel of the Underwriter (whether
general, special, patent or otherwise) the use thereof is required to
comply with the applicable provisions of the Act and the Rules and
Regulations. In case of the happening, at any time within such period
as a Prospectus is required under the Act to be delivered in
connection with sales by an underwriter or dealer, of any event of
which the Company has knowledge and which materially affects the
Company or the Securities, or which, in the opinion of counsel for the
Company or counsel for the Underwriter, should be set forth in an
amendment to the Registration Statement or a supplement to the
Prospectus in order to make the statements therein not then
misleading, in light of the circumstances existing at the time the
Prospectus is required to be delivered to a purchaser of the Units, or
in case it shall be necessary to amend or supplement the Prospectus to
comply with the Act or with the Rules and Regulations, the Company
will notify you promptly and forthwith prepare and furnish to you
copies of such amended Prospectus or of such supplement to be attached
to the Prospectus, in such quantities as you may reasonably request,
in order that the Prospectus, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state any
material facts necessary in order to make the statements in the
Prospectus, in the light of the circumstances under which
9
they are made, not misleading. The preparation and furnishing of any
such amendment or supplement to the Registration Statement or amended
Prospectus or supplement to be attached to the Prospectus shall be
without expense to the Underwriter, except that in case the Underwriter
is required, in connection with the sale of the Shares, to deliver a
Prospectus nine months or more after the effective date of the
Registration Statement, the Company will upon your request and at your
expense, amend or supplement the Registration Statement and Prospectus
or file a new registration statement on Form ▇▇-▇, ▇-▇ or S-3, if
necessary, and furnish the Underwriter with reasonable quantities of
prospectuses complying with Section 10(a)(3) of the Act.
(iii) The Company will comply with the Act, the Rules and
Regulations and the Securities Exchange Act of 1934 (the "Exchange
Act") and the rules and regulations thereunder in connection with the
offering and issuance of the Shares.
(b) The Company will use its best efforts and shall pay all costs and
expenses to qualify or register ("Blue Sky") the Firm Units and Option Units for
sale under the securities or "blue sky" laws of such jurisdictions as you may
designate and will make such applications and furnish such information to
counsel for the Company as may be required for that purpose and to comply with
such laws, provided that the Company shall not be required to qualify as a
foreign corporation or a dealer in securities or to execute a general consent of
service of process in any jurisdiction in any action other than one arising out
of the offering or sale of the Firm Units and Option Units. Blue Sky
applications shall be prepared by the Company's counsel, ▇▇▇▇ ▇. Agron, at the
Company's expense. On the Effective Date of this Agreement as defined in
Section 9 below, counsel for the Company shall deliver to Underwriter's counsel
a Blue Sky Memorandum describing, among other things, all states wherein the
Offering has been qualified or registered for sale, the number of Units
registered in each such state and the period of effectiveness of such
qualification or registration. The Company will, from time to time, prepare and
file such statements and reports as are or may be required to continue such
qualification in effect for so long a period as you may reasonably request.
(c) If the sale of the Units provided for herein is not consummated for
any reason caused by the Company, the Company shall pay all costs and expenses
incident to the performance of the Company's obligations hereunder, including
but not limited to, all of the expenses itemized in Section 8, including your
accountable expenses, as provided in Section 8(b).
(d) The Company will use its best efforts to cause a Registration
Statement under the Exchange Act to be declared effective concurrently with the
completion of the offering of the Shares or promptly thereafter, but in no event
later than three days after the date of the Prospectus.
(e) For so long as the Company is a reporting company under either Section
12(g) or 15(d) of the Exchange Act, the Company, at its expense, will furnish to
the holders of its
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Common Stock, Units and Warrants an annual report (including financial
statements audited by independent public accountants), in reasonable detail
and at its expense, will furnish to you during the period ending five years
from the date hereof, (i) within 90 days of the end of each fiscal year, a
balance sheet of the Company and any subsidiaries as at the end of such
fiscal year, together with statements of income, stockholders' equity and
cash flows of the Company and any subsidiaries as at the end of such fiscal
year, all in reasonable detail and accompanied by a copy of the certificate
or report thereon of independent auditors; (ii) as soon as they are
available, a copy of all reports (financial or other) mailed to security
holders; (iii) as soon as they are available, a copy of all non-confidential
reports and financial statements furnished to or filed with the Commission;
and (iv) such other information as you may from time to time reasonably
request.
(f) In addition to the information and reports set forth in Section 3(e)
above, for a period of two years from the Effective Date, the Company, at its
expense, shall furnish to you (i) unaudited quarterly financial statements on a
timely basis, and (ii) monthly shareholder lists prepared by the Company's
transfer agent.
(g) In the event the Company has an active subsidiary or subsidiaries,
such financial statements referred to in subsection (e) above will be on a
consolidated basis to the extent the accounts of the Company and its subsidiary
or subsidiaries are consolidated in reports furnished to its stockholders
generally.
(h) The Company will deliver to you at or before the First Closing Date
two signed copies of the Registration Statement including all financial
statements and exhibits filed therewith, and of all amendments thereto. The
Company will deliver to or upon order of the Underwriter, from time to time
until the Effective Date, as many copies of any Preliminary Prospectus filed
with the Commission prior to the Effective Date as the Underwriter may
reasonably request. The Company will deliver to the Underwriter on the
Effective Date and thereafter for so long as a Prospectus is required to be
delivered under the Act, from time to time, as many copies of the Prospectus, in
final form, or as thereafter amended or supplemented, as the Underwriter may
from time to time reasonably request.
(i) The Company will make generally available to its security holders and
deliver to you as soon as it is practicable to do so, but in no event later than
90 days after the end of 12 months after its current fiscal quarter, an earnings
statement (which need not be audited) covering a period of at least 12
consecutive months beginning after the Effective Date, which shall satisfy the
requirements of Section ll(a) of the Act.
(j) The Company will apply the net proceeds from the sale of the Firm
Units substantially for the purposes set forth under "Use of Proceeds" in the
Prospectus, and will file such reports with the Commission with respect to the
sale of the Units and the application of the proceeds therefrom as may be
required pursuant to Rule 463 of the Rules and Regulations.
11
(k) The Company will, promptly upon your request, prepare and file with
the Commission any amendments or supplements to the Registration Statement,
preliminary Prospectus or Prospectus and take any other action, which in the
reasonable opinion of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, counsel to the Underwriter, may be
reasonably necessary or advisable in connection with the distribution of the
Shares and will use its reasonable efforts to cause the same to become effective
as promptly as possible.
(l) Each of the existing stockholders owning 5% or more of the Company's
outstanding securities and all officers and directors, including to the extent
such stockholders, officers and directors are holders of any Common Stock,
options, warrants or convertible securities, of the Company at the date hereof
(the "Existing Stockholders"), will execute agreements ("Lock Up Agreements"),
in the form previously delivered, to the effect that (i) for a period of 12
months from the date of the Prospectus, they will not sell, assign, hypothecate,
pledge or otherwise dispose of, directly or indirectly, any shares of Common
Stock of the Company owned prior to the date hereof without your prior written
consent, (ii) for a period commencing 12 months and ending 24 months from the
date of the Prospectus, they will not sell, assign, hypothecate, pledge or
otherwise dispose of, directly or indirectly, more than 50% of any shares of
Common Stock of the Company owned as of the date hereof without your prior
written consent, and (iii) will agree to permit all certificates evidencing
their shares to be endorsed with the appropriate restrictive legends, and
consent to the placement of appropriate stop transfer orders with the transfer
agent for the Company. The Company further agrees that for a period of 12
months from the date hereof, it will not register any shares of Common Stock
underlying any existing stock purchase warrants.
(m) The Company shall immediately make all filings required to seek
approval for the quotation of the Common Stock and Units on the NASDAQ National
Market and the Warrants for quotation on the Nasdaq Small Cap and will use its
reasonable efforts to effect and maintain the aforesaid approval for at least
five years from the date of this Agreement. Within 10 days after the Effective
Date, the Company shall cause the Company to be listed in Standard & Poor's
Financial Relations Program (including S&P Corporate Records, Stock Guide, OTC
Stock Reports and Market Guide) and cause such listing to be maintained for five
years from the date of this Agreement.
(n) The Company and the Existing Stockholders represent that it or they
have not taken, and agree that it or they will not take, directly or indirectly,
any action designed to or which has constituted or which might reasonably be
expected to cause or result in the stabilization or manipulation of the price of
the Units to facilitate the sale or resale of the Units.
(o) For a period of twenty-four (24) months from the Closing, the Company
shall, at your option, appoint a non-voting advisor to the Company's Board of
Directors, designated by you and such advisor shall receive notice of and be
entitled to attend all meetings of the Board of Directors. For a period of no
less than five (5) years from the Closing, the Company shall hold at least four
(4) meetings of its Board of Directors each year, and such advisor shall be
entitled to attend all such meetings as well as all other meetings of the Board
of Directors.
12
The Company agrees it shall fully indemnify, defend and hold harmless such
advisor to the fullest extent permitted by law with respect to all acts and
omissions as an advisor to the Company's Board of Directors.
(p) For a period of two (2) years from the date of the Prospectus, the
Company shall maintain in full force a $1,000,000 face amount policy of life
insurance on the life of the Company's President issued by a licensed insurer
not affiliated with the Company or Underwriter. The Company shall be the sole
beneficiary of the life insurance policy.
(q) The Company will reserve and keep available that maximum number of its
authorized but unissued Shares which are issuable upon exercise of the Warrants
and the Underwriter's Warrant (as defined in Section 11).
(r) For a period of thirty-six (36) months from the Effective Date, you
shall have the right to provide a competitive 401k program to management and all
employees of the Company.
(s) The Company shall select Common Stock and Warrant certificates and
utilize a stock transfer agent satisfactory to you.
(t) So long as any Warrants are outstanding, the Company shall use its
best efforts to cause post-effective amendments to the Registration Statement to
become effective in compliance with the 1933 Act and without any lapse of time
between the effectiveness of any such post-effective amendments and cause a copy
of each Prospectus, as then amended, to be delivered to each holder of record of
a Warrant and to furnish to the Underwriters and each dealer as many copies of
each such Prospectus as the Underwriters or dealer may reasonably request.
4. CONDITIONS OF UNDERWRITER'S OBLIGATION.
The obligations of the Underwriter to purchase and pay for the Units which
it has agreed to purchase hereunder are subject to the accuracy (as of the date
hereof, and as of the Closing Dates) of and compliance with the representations
and warranties of the Company herein, to the performance by the Company of its
obligations hereunder, and to the following conditions:
(a) The Registration Statement shall have become effective and you shall
have received notice thereof not later than 4:00 p.m., Eastern time, on the date
of this Agreement, or at such later time or on such later date as to which you
may agree in writing; on the Closing Dates, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that or any similar purpose shall have been instituted or shall
be pending or, to your knowledge or to the knowledge of the Company, shall be
contemplated by the Commission; any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, counsel to the Underwriter; and no stop order
shall be in effect denying or suspending effectiveness of the
13
Registration Statement nor shall any stop order proceedings with respect
thereto be instituted or pending or threatened under the Act.
(b) At the First Closing Date, you shall have received the opinion, dated
as of the First Closing Date, of ▇▇▇▇ ▇. Agron, counsel for the Company, in form
and substance satisfactory to counsel for the Underwriter, to the effect that:
(i) the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware and is duly qualified or licensed to do business as a
foreign corporation in good standing in each other jurisdiction in
which the ownership or leasing of its properties or the conduct of its
business requires such qualification except where failure to so
qualify would not result in a material adverse effect on the Company;
(ii) to the best knowledge of such counsel, (a) the Company has
obtained, or is in the process of obtaining, all licenses, permits and
other governmental authorizations necessary to the conduct of its
business as described in the Prospectus, (b) such obtained licenses,
permits and other governmental authorizations are in full force and
effect, and (c) the Company is in all material respects complying
therewith;
(iii) the authorized capitalization of the Company as of the
date of the Prospectus was as set forth under "Description of
Securities" in the Prospectus; all of the shares of the Company's
outstanding stock requiring authorization for issuance by the
Company's Board of Directors have been duly authorized and validly
issued, are fully paid and non-assessable and conform to the
description thereof contained in the Prospectus; the outstanding
shares of Common Stock of the Company have not been issued in
violation of the preemptive rights of any stockholder and the
stockholders of the Company do not have any preemptive rights or other
rights to subscribe for or to purchase, and there are no restrictions
upon the voting or transfer of, any of the Common Stock; the Units,
Common Stock, Warrants and the Underwriter's Warrants conform to the
respective descriptions thereof contained in the Prospectus; the Units
and each Unit component to be issued as contemplated in the
Registration Statement has been duly authorized and, when paid, will
be non-assessable and free of preemptive rights, and no personal
liability will attach to the ownership thereof; all prior sales of the
Company's securities have been made in compliance with, or under an
exemption from, the Act and applicable state securities laws; a
sufficient number of shares of Common Stock have been reserved for
issuance upon exercise of the Warrants and the Underwriter's Warrants;
and to the best of such counsel's knowledge, neither the filing of the
Registration Statement nor the offering or sale of the Units as
contemplated by this Agreement gives rise to any registration rights
or other rights, other than those which have been waived or satisfied,
for or relating to the registration of the Units;
14
(iv) each of this Agreement, the Underwriter's Warrant, the
Warrant Agreement and the Warrants has been duly and validly
authorized, executed and delivered by the Company, and assuming due
authorization, execution and delivery of this Agreement by the
Underwriter and of such other agreements by the other parties thereto,
all of such agreements are, or when duly executed will be, the valid
and legally binding obligations of the Company (except as to
bankruptcy and related matters described in paragraph 1(f), above);
provided that no opinion need be expressed as to the enforceability of
the indemnity provisions contained in Section 6 or the contribution
provisions contained in Section 7 of this Agreement;
(v) the Warrant Shares (including those issuable upon exercise
of the Underwriter's Warrants) and Underwriter's Warrant Units have
been duly authorized and reserved for issuance and, when issued and
delivered in accordance with the terms of this Agreement and the
Underwriter's Warrant, respectively, will be duly and validly issued,
fully paid and nonassessable.
(vi) the certificate evidencing the Unit components and the
Underwriter's Warrants are in valid and proper legal form; the
Warrants and the Underwriter's Warrants will be exercisable for shares
of Common Stock of the Company in accordance with the terms of the
Warrant Agreement and the Underwriter's Warrant, respectively; and at
the respective prices therein provided for; the shares of Common Stock
of the Company issuable upon exercise of the Warrants and the
Underwriter's Warrants have been duly authorized and reserved for
issuance upon such exercise or conversion, and such shares, when
issued upon such exercise in accordance with the terms of the Warrants
and the Underwriter's Warrants and at the price paid, or upon such
conversion, shall be fully paid and non-assessable;
(vii) such counsel knows of no pending or threatened legal or
governmental proceedings to which the Company is a party which could
materially and adversely affect the business, property, financial
condition or operations of the Company or which question the validity
of the Units or the components thereof, this Agreement, the Warrant
Agreement or the Underwriter's Warrant or of any action taken or to be
taken by the Company pursuant to this Agreement, the Warrant Agreement
or the Underwriter's Warrant; no such proceedings are known to such
counsel to be contemplated against the Company; and there are no
governmental proceedings or regulations known to such counsel required
to be described or referred to in the Registration Statement which are
not so described or referred to;
(viii) to the best knowledge of such counsel, the Company is
not in violation of or default under this Agreement, the Warrant
Agreement or the Underwriter's Warrant, and the execution and delivery
hereof and thereof and the
15
incurrence of the obligations herein and therein set forth and the
consummation of the transactions herein or therein contemplated will
not result in a violation of, or constitute a default under, the
certificate or articles of incorporation or by-laws of the Company, or
in the performance or observation of any material obligation, agreement,
covenant or condition contained in any bond, debenture, note or other
evidence of indebtedness or in any contract, indenture, mortgage, loan
agreement, lease, joint venture or other agreement or instrument to which
the Company is a party or in a violation of any material order, rule,
regulation, writ, injunction or decree or any government, governmental
instrumentality or court, domestic or foreign;
(ix) the Registration Statement has become effective under the
Act, and to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement is in
effect, no proceedings for that purpose have been instituted or are
pending before, or threatened by, the Commission and the Registration
Statement and the Prospectus (except for the financial statements and
other financial data contained therein, or omitted therefrom, as to
which such counsel need express no opinion) comply as to form in all
material respects with the applicable requirements of the Act and the
Rules and Regulations;
(x) such counsel has participated in the preparation of the
Registration Statement and the Prospectus and nothing has come to the
attention of such counsel to cause such counsel to have reason to
believe that the Registration Statement or any amendment thereto at
the time it became effective contained any untrue statement of a
material fact or omitted to state any material fact required to be
stated therein or necessary to make the statements therein not
misleading or that the Prospectus or any supplement thereto contains
any untrue statement of a material fact or omits to state a material
fact necessary in order to make statements therein in light of the
circumstances under which they were made not misleading (except, in
the case of both the Registration Statement and any amendment thereto
and the Prospectus and any supplement thereto, for the financial
statements, notes thereto and other financial information and
statistical data contained therein, as to which such counsel need
express no opinion);
(xi) all descriptions in the Registration Statement and the
Prospectus, and any amendment or supplement thereto, of contracts and
other documents filed as exhibits to the Registration Statement are
accurate and fairly present the information required to be shown, and
such counsel is familiar with all contracts and other documents filed
as exhibits to the Registration Statement and the Prospectus and any
such amendment or supplement, or filed as exhibits to the Registration
Statement, and such counsel does not know of any contracts or
documents of a character required to be summarized or described
therein or to be filed as exhibits thereto which are not so
summarized, described or filed;
16
(xii) no authorization, approval, consent or license of any
governmental or regulatory authority or agency is necessary in
connection with the authorization, issuance, transfer, sale or
delivery of the Units or Unit components by the Company, in connection
with the execution, delivery and performance of this Agreement by the
Company or in connection with the taking of any action contemplated
herein, or the issuance of the Warrants, Underwriter's Warrants or the
securities underlying the Warrants and the Underwriter's Warrants,
other than registration or qualification of the Units and
Underwriter's Warrants under applicable state or foreign securities or
blue sky laws and registration under the Act;
(xiii) the statements in the Registration Statement under the
captions "Business," "Use of Proceeds,"Management" and "Description of
Securities" have been reviewed by such counsel and, insofar as they
refer to descriptions of agreements, statements of law, descriptions
of statutes, licenses, rules or regulations or legal conclusions, are
correct in all material respects; and
Such opinion shall also cover such matters including to the
transactions contemplated hereby as you or counsel for the Underwriter
shall reasonably request. In rendering such opinion, such counsel may
rely upon certificates of any officer of the Company or public
officials as to matters of fact; and may rely as to all matters of law
other than the law of the United States or the corporate law of the
State of Utah upon opinions of counsel satisfactory to you, which may
also be addressed to you, in which case the opinion shall state that
they have no reason to believe that you and they are not entitled to
so rely.
(c) All corporate proceedings and other legal matters relating to this
Agreement, the Registration Statement, the Prospectus, and other related matters
shall be reasonably satisfactory to or approved by ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, counsel to
the Underwriter, and you shall have received from such counsel a signed opinion,
dated as of the First Closing Date, with respect to the validity of the issuance
of the Units, the form of the Registration Statement and Prospectus (other than
the financial statements and other financial data contained therein), the
execution of this Agreement and other related matters as you may reasonably
require. The Company shall have furnished to counsel for the Underwriter such
documents as they may reasonably request for the purpose of enabling them to
render such opinion.
(d) At both the time of the execution of this Agreement by the Company and
at the Closing Date, you shall have received letters in form and substance
satisfactory to you, from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP (collectively the "Auditors"),
dated respectively as of the date of this Agreement and as of the Closing Date,
to the effect that they are independent public accountants with respect to the
Company within the meaning of the Act and published Rules and Regulations, and
that the Registration Statement is correct insofar as it relates to them and
stating in effect that:
17
(i) In their opinion, the audited financial statements and notes
of the Company in the Registration Statement and the Prospectus
audited by them comply as to form in all material respects with the
applicable accounting requirements of the Act and the published Rules
and Regulation with respect to registration statements on Form SB-2.
(ii) On the basis of inquiries and procedures conducted by them
(not constituting an audit in accordance with generally accepted
auditing standards), including a reading of the financial information
and other data included in the Registration Statement and the
Prospectus in response to Item 310 of Regulation S-B; that on the
basis of inquiries of officials of the Company who have responsibility
for financial accounting matters, especially as to whether there was
any adverse change in revenues, net income (loss), or any change in
the capital stock of the Company or any change in the long-term debt
or any increase in bank borrowings or any decreases in total assets,
net current assets or shareholders' equity of the Company; reviewing
minutes of all meetings of shareholders and boards of directors (and
various committees thereof) of the Company since inception and other
specified inquiries and procedures, nothing has come to their
attention as a result of the foregoing inquiries and procedures that
caused them to believe that:
(A) the audited financial statements for the years ended
December 31, 1994 and December 31, 1995, and the unaudited interim
financial statements for the nine months ended September 30, 1995 and
September 30, 1996, as to the Company, included in the Prospectus do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the published Rules and
Regulations with respect to registration statements on Form SB-2; or
said financial statements are fairly presented in conformity with
generally accepted accounting principles; or the amounts included in
the Registration Statement and the Prospectus in response to Item 310
of Regulation S-B are not consistent with the corresponding amounts in
the audited or unaudited financial statements from which such amounts
were derived; or
(B) during the period from September 30, 1996 to a specified
date not more than five (5) days prior to the date of such letter,
there has been any change in the Common Stock or long-term debt of the
Company or any increase in bank borrowings of the Company or any
decrease in the shareholders' equity or working capital of the Company
or change in any other item appearing on the Company's financial
statements as to which the Underwriter may request advice, in each
case as compared with amounts shown in the financial statements
included in the Prospectus, except in each case for increases or
decreases which the Prospectus discloses have occurred or may occur,
or as specified in such letter, in which case the letter shall be
accompanied by an explanation by the Company of the significance
thereof.
18
(iii) On the basis of certain procedure agreed to by the Underwriter
and the Auditors and described in their letter or letters, certain
numerical data and information included in the Registration Statement and
Prospectus and referred to in their letter were in agreement with
specifically designated records of the Company which were not included in
the Registration Statement and Prospectus but from which information in
the Registration Statement or the Prospectus was derived.
(e) At each of the Closing Dates, (i) the representations and warranties
of the Company contained in this Agreement shall be true and correct with the
same effect as if made on and as of such Closing Date, and the Company shall
have performed all of its obligations hereunder and satisfied all the conditions
on its part to be satisfied at or prior to such Closing Date; (ii) the
Registration Statement and the Prospectus and any amendments or supplements
thereto shall contain all statements which are required to be stated therein in
accordance with the Act and the Rules and Regulations, and shall in all material
respects conform to the requirements thereof, and neither the Registration
Statement nor the Prospectus nor any amendment or supplement thereto shall
contain any untrue statements of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading; (iii) there shall have been, since the respective dates as of
which information is given, no material adverse change in the business,
properties, condition (financial or otherwise), results of operations, capital
stock, long-term or short-term debt or general affairs of the Company from that
set forth in the Registration Statement and the Prospectus, except changes which
the Registration Statement and Prospectus indicate might occur after the
effective date of the Registration Statement, and the Company shall not have
incurred any material liabilities nor entered into any agreement not in the
ordinary course of business other than as referred to in the Registration
Statement and Prospectus; and (iv) except as set forth in the Prospectus, no
action, suit or proceeding at law shall be pending or threatened against the
Company which would be required to be disclosed in the Registration Statement,
and no proceedings shall be pending or threatened against the Company before or
by any commission, board or administrative agency in the United States or
elsewhere, wherein an unfavorable decision, ruling or finding would materially
and adversely affect the business, property, condition (financial or otherwise),
results of operations or general affairs of the Company. In addition, you shall
have received, at the First Closing Date, a certificate signed by the Chairman
of the Board and the principal financial or accounting officer of the Company,
dated as of the First Closing Date, evidencing compliance with the provisions of
this subsection (e).
(f) Upon exercise of the option provided for in Section 2(b) hereof, your
obligations to purchase and pay for the Option Units referred to therein will be
subject (as of the date hereof and as of the Option Closing Date) to the
following additional conditions:
(i) The Registration Statement shall remain effective at the
Option Closing Date, no stop order suspending the effectiveness
thereof shall have been issued, and no proceedings for that purpose
shall have been instituted or shall be pending, or, to your knowledge
or the knowledge of the Company, shall be
19
contemplated by the Commission, and any reasonable request on the part
of the Commission for additional information shall have been complied with
to the satisfaction of ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, counsel to the Underwriter.
(ii) At the Option Closing Date there shall have been delivered
to you the signed opinion of ▇▇▇▇ ▇. Agron, counsel for the Company,
dated as of the Option Closing Date, in form and substance satisfactory
to ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, counsel to the Underwriter, which opinion shall be
substantially the same in scope and substance as the opinion furnished
to you at the First Closing Date pursuant to Section 4(b) hereof, except
that such opinion, where appropriate, shall cover the Option Shares
rather than the Firm Shares. If the First Closing Date is the same as
the Option Closing Date, such opinions may be combined.
(iii) At the Option Closing Date, there shall have been
delivered to you a certificate of the Chairman of the Board and the
principal financial or accounting officer of the Company dated the
Option Closing Date, in form and substance satisfactory to ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, counsel to the Underwriter, substantially the same in scope
and substance as the certificate furnished to you at the First Closing
Date pursuant to Section 4(e) hereof.
(iv) At the Option Closing Date, there shall have been delivered
to you letters in form and substance satisfactory to you from the
Auditors, dated the Option Closing Date and addressed to you,
confirming the information in their letter referred to in Section 4(d)
hereof as of the date thereof and stating that, without any additional
investigation required, nothing has come to their attention during the
period from the ending date of their review referred to in said letter
to a date not more than five (5) business days prior to the Option
Closing Date which would require any change in said letter if it were
required to be dated the Option Closing Date.
(v) All proceedings taken at or prior to the Option Closing Date
in connection with the sale and issuance of the Option Units shall be
satisfactory in form and substance to you, and you and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, counsel to the Underwriter, shall have been furnished with all
such documents, certificates and opinions as you may request in
connection with this transaction in order to evidence the accuracy and
completeness of any of the representations, warranties or statements
of the Company or its compliance with any of the covenants or
conditions contained therein.
(g) If any of the conditions herein provided for in this Section shall not
have been completely fulfilled as of the date indicated, this Agreement and all
obligations of the Underwriter under this Agreement may be cancelled at, or at
any time prior to, each Closing Date by your notifying the Company of such
cancellation in writing or by telegram at or prior
20
to the applicable Closing Date. Any such cancellation shall be without
liability of the Underwriter to the Company, except as otherwise provided
herein.
5. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligation of the Company to sell and deliver the Units is subject to
the following conditions:
(a) The Registration Statement shall have become effective not later than
4:00 P.M. Eastern time, on the date of this Agreement, or on such later date or
time as the Company and you may agree in writing.
(b) On the Closing Dates, no stop order suspending the effectiveness of
the Registration Statement shall have been issued under the Act or any
proceedings therefor initiated or threatened by the Commission.
If the conditions to the obligations of the Company provided for in this
Section have been fulfilled on the First Closing Date but are not fulfilled
after the First Closing Date and prior to the Option Closing Date, then only the
obligation of the Company to sell and deliver the Option Units on exercise of
the option provided for in Section 2(b) hereof shall be affected.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify and hold harmless the Underwriter and
each person, if any, who controls the Underwriter, within the meaning of the
Act, from and against any losses, claims, damages or liabilities (which shall,
for all purposes of this Agreement, include, but not be limited to, all
reasonable costs of defense and investigation and all attorneys' fees), joint or
several, to which such Underwriter or such controlling person may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
(i) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment thereof or supplement thereto, or (ii) any blue sky application or
other document executed by the Company specifically for that purpose or based
upon written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Units or other securities
under the securities laws thereof (any such application, document or information
being hereinafter called a "Blue Sky Application"), or arise out of or are based
upon the omission or alleged omission to state in the Registration Statement,
any supplement thereto, or in any Blue Sky Application, a material fact required
to be stated therein or necessary to make the statements therein not misleading;
provided, however, that the Company will not be liable in any such case to the
extent, but only to the extent, that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue statement
or omission or alleged omission made in reliance upon and in conformity with
written information furnished to the Company by or on behalf of the Underwriter
specifically for use in the preparation of the Registration Statement or any
such
21
amendment or supplement thereof or any such Blue Sky Application or any such
Preliminary Prospectus or the Prospectus or any such amendment or supplement
thereto. This indemnity will be in addition to any liability which the
Company may otherwise have.
(b) The Underwriter agrees to indemnify and hold harmless the Company and
each person, if any, who controls the Company, within the meaning of the Act,
from and against any losses, claims, damages or liabilities (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all attorneys' fees) to which the Company
or any such director, nominee, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
the Registration Statement, any preliminary Prospectus, the Prospectus, or any
amendment or supplement thereto, or arise out of or are based upon the omission
or the alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in each case
to the extent, but only to the extent, that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or omission or
alleged omission made in the Registration Statement, any Preliminary Prospectus,
the Prospectus, or any amendment or supplement thereto, in reliance upon and in
conformity with written information furnished to the Company by or on behalf of
the Underwriter, specifically for use in preparation thereof. This indemnity
agreement will be in addition to any liability which the Underwriter may
otherwise have.
(c) Promptly after receipt by an indemnified party under this Section of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the indemnifying party under this
Section, notify in writing the indemnifying party of the commencement thereof,
but the omission so to notify the indemnifying party will not relieve it from
any liability which it may have to any indemnified party otherwise than under
this Section. In case any such action is brought against any indemnified party,
and it notifies the indemnifying party of the commencement thereof, the
indemnifying party will be entitled to participate in and, to the extent that it
may wish, jointly with any other indemnifying party similarly notified, to
assume the defense thereof, subject to the provisions herein stated, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party under this Section for any legal or other expenses
subsequently incurred by such indemnified party in connection with the defense
thereof other than reasonable costs of investigation. The indemnified party
shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is the Underwriter
or a person who controls the Underwriter within the meaning of the Act, the fees
and expenses of such counsel shall be at the expense of the indemnifying party
if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both the Underwriter or such
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controlling person and the indemnifying party, and in the reasonable judgment of
the Underwriter, it is advisable for the Underwriter or controlling persons to
be represented by separate counsel (in which case the indemnifying party shall
not have the right to assume the defense of such action on behalf of the
Underwriter or such controlling person, it being understood, however, that the
indemnifying party shall not, in connection with any one such action or separate
but substantially similar or related actions in the same jurisdiction arising
out of the same general allegations or circumstances, be liable for the
reasonable fees and expenses of more than one separate firm of attorneys). No
settlement of any action against an indemnified party shall be made without the
consent of the indemnified party, which shall not be unreasonably withheld in
light of all factors of importance to such indemnified party.
7. CONTRIBUTION.
In order to provide for just and equitable contribution under the Act in
any case in which (i) the Underwriter makes claims for indemnification pursuant
to Section 6 hereof but it is judicially determined (by the entry of a final
judgment or decree by a court of competent jurisdiction and the expiration of
time to appeal or 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 Section 6 provide for indemnification in such case, or
(ii) contribution under the Act may be required on the part of the Underwriter,
then the Company and each person who controls the Company, in the aggregate, and
the Underwriter shall contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all reasonable attorneys' fees) in either such case (after
contribution from others) in such proportions that such Underwriter is
responsible in the aggregate for that portion of such losses, claims, damages or
liabilities represented by the percentage that the underwriting discount per
Unit appearing on the cover page of the Prospectus bears to the public offering
price per Unit appearing thereon, and the Company shall be responsible for the
remaining portion, provided, however, that (a) if such allocation is not
permitted by applicable law, then the relative fault of the Company and the
Underwriter and controlling persons, in the aggregate, in connection with the
statements or omissions which resulted in such damages and other relevant
equitable considerations shall also be considered. The relative fault shall be
determined by reference to, among other things, whether in the case of an untrue
statement of a material fact or the omission to state a material fact, such
statement or omission relates to information supplied by the Company or the
Underwriter, and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such untrue statement or omission. The
Company and the Underwriter agree (a) that it would not be just and equitable if
the respective obligations of the Company and the Underwriter to contribute
pursuant to this Section 7 were to be determined by PRO RATA or PER CAPITA
allocation of the aggregate damages or by any other method of allocation that
does not take account of the equitable considerations referred to in the first
sentence of this Section 7 and (b) that the contribution of the Underwriter
shall not be in excess of its proportionate share of the portion of such losses,
claims, damages or liabilities for which the Underwriter is responsible. No
person guilty of a fraudulent misrepresentation (within the meaning of Section
ll(f) of the Act) shall be entitled to contribution from any person who
23
is not guilty of such fraudulent misrepresentation. As used in this
paragraph, the word "Company" includes any officer, director, or person who
controls the Company within the meaning of Section 15 of the Act. If the
full amount of the contribution specified in this paragraph is not permitted
by law, then the Underwriter and each person who controls the Underwriter
shall be entitled to contribution from the Company to the full extent
permitted by law. The foregoing contribution agreement shall in no way
affect the contribution liabilities of any persons having liability under
Section 11 of the Act other than the Company and the Underwriter. No
contribution shall be requested with regard to the settlement of any matter
from any party who did not consent to the settlement; provided, however, that
such consent shall not be unreasonably withheld in light of all factors of
importance to such party.
8. COSTS AND EXPENSES.
(a) Whether or not this Agreement becomes effective or the sale of the
Firm Units or Option Units to the Underwriter is consummated, the Company will
pay all costs and expenses incident to the performance of this Agreement by the
Company, including but not limited to the fees and expenses of counsel to the
Company and of the Company's accountants; the costs and expenses incident to the
preparation, printing, filing and distribution under the Act of the Registration
Statement (including the financial statements therein and all amendments and
exhibits thereto), each Preliminary Prospectus and the Prospectus, as amended or
supplemented, the fee of the NASD in connection with the filing required by the
NASD relating to the offering of the Units contemplated hereby; all expenses,
including reasonable fees (but not in excess of the amount set forth in Section
3(b)) and disbursements of counsel to the Underwriter, in connection with the
qualification of the Units and Unit components under the State Securities or
Blue Sky Laws which we shall mutually designate; the cost of printing and
furnishing to the Underwriter copies of the Registration Statement, each
Preliminary Prospectus, the Prospectus, this Agreement, the Selling Agreement
and the Blue Sky Memorandum; the cost of printing the certificates representing
the components comprising the Units, expenses of Company due diligence meetings
and presentations. The Company shall pay any and all taxes (including any
transfer, franchise, capital stock or other tax imposed by any jurisdiction) on
sales to the Underwriter hereunder. The Company will also pay all costs and
expenses incident to the furnishing of any amended Prospectus or of any
supplement to be attached to the Prospectus as called for in Section 3(a) of
this Agreement except as otherwise set forth in said Section.
(b) In addition to the foregoing expenses, the Company shall at the First
Closing Date pay to you the balance of a non-accountable expense allowance of
$__________, of which $35,000 has been paid. In the event the over-allotment
option is exercised in full, the Company shall pay to you at the Option Closing
Date an additional amount equal to 3% of the gross proceeds received upon
exercise of the over-allotment option. In the event the transactions
contemplated hereby are not consummated for any reason, the Underwriter will
retain that portion of the $35,000 non-accountable expense allowance deposit
received from the Company as is equal to its actual accountable expenses and
will reimburse the Company for the remainder, if any.
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(c) No person is entitled either directly or indirectly to compensation
from the Company, from the Underwriter or from any other person for services as
a finder in connection with the proposed offering, and the Company agrees to
indemnify and hold harmless the Underwriter, and the Underwriter agrees to
indemnify and hold harmless the Company from and against any losses, claims,
damages or liabilities, joint or several (which shall, for all purposes of this
Agreement, include, but not be limited to, all reasonable costs of defense and
investigation and all attorneys' fees), to which the indemnified party may
become subject insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon the claim of any
person (other than an employee of the party claiming indemnity) or entity that
he or it is entitled to a finder's fee in connection with the proposed offering
by reason of such person's or entity's influence or prior contact with the
indemnifying party.
9. EFFECTIVE DATE.
The Agreement shall become effective upon its execution, except that you
may, at your option, delay its effectiveness until 10:00 A.M., Eastern time, on
the first full business day following the Effective Date, or at such earlier
time after the Effective Date as you in your discretion shall first commence the
initial public offering of any of the Shares. The time of the initial public
offering shall mean the time of release by you of the first newspaper
advertisement with respect to the Shares, or the time when the Shares are first
generally offered by you to dealers by letter or telegram, whichever shall first
occur. This Agreement may be terminated by you at any time before it becomes
effective as provided above, except that Sections 3(c), 6, 7, 8, 12, 13, 14 and
15 shall remain in effect notwithstanding such termination.
10. TERMINATION.
(a) This Agreement, except for Sections 3(c), 6, 7, 8, 12, 13, 14 and 15,
may be terminated at any time prior to the First Closing Date, and the option
referred to in Section 2(b), if exercised, may be cancelled, at any time prior
to the Option Closing Date, by you if in your judgment it is impracticable to
offer for sale or to enforce contracts made by the Underwriter for the resale of
the Units agreed to be purchased hereunder, by reason of (i) the Company having
sustained a material loss, whether or not insured, by reason of fire,
earthquake, flood, accident or other calamity, or from any labor dispute or
court or government action, order or decree, (ii) trading in securities on the
New York Stock Exchange or the American Stock Exchange having been suspended or
limited, (iii) material governmental restrictions having been imposed on trading
in securities generally which are not in force and effect on the date hereof,
(iv) a banking moratorium having been declared by federal or New York State
authorities, (v) an outbreak of major international hostilities or other
national or international calamity having occurred, (vi) the passage by the
Congress of the United States or by any state legislative body of similar
impact, of any act or measure, or the adoption of any orders, rules or
regulations by any governmental body or any authoritative accounting institute
or board, or any governmental executive, which is reasonably believed likely by
you to have a material adverse impact on the business, financial condition or
financial statements of the Company, (vii) any adverse change having occurred in
the sole opinion of the Underwriter in the financial or securities markets
25
since the date of this Agreement, or (viii) any adverse change having occurred
in the sole opinion of the Underwriter with respect to the earnings, business
prospects or general condition of the Company, financial or otherwise, other
than normal fluctuations in sales, whether or not arising in the ordinary course
of business.
(b) If you elect to prevent this Agreement from becoming effective or to
terminate this Agreement as provided in this Section 10 or in Section 9, the
Company shall be promptly notified by you, by telephone or telegram, confirmed
by letter.
11. UNDERWRITER'S WARRANT.
On the First Closing Date, the Company will issue to you, for a
consideration of $100 and upon the terms and conditions set forth in the form of
Underwriter's Warrant annexed as an exhibit to the Registration Statement, an
Underwriter's Warrant to purchase up to 150,000 Units at an exercise price of
$_____ per Unit. In the event of conflict in the terms of this Agreement and
the Underwriter's Warrant, the language of the Underwriter's Warrant shall
control.
12. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY.
The respective indemnities, agreements, representations, warranties and
other statements of the Company, and the Underwriter, set forth in or made
pursuant to this Agreement will remain in full force and effect regardless of
any investigation made by or on behalf of the Underwriter, the Company or any of
its officers or directors or any controlling persons and will survive delivery
of and payment for the Units and the termination of this Agreement.
13. NOTICE.
All communications hereunder will be in writing and, except as otherwise
expressly provided herein, if sent to you, will be mailed, certified mail,
return receipt requested, delivered or telegraphed and confirmed at ▇▇▇▇
▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇, or if sent to the Company,
will be mailed, certified mail, return receipt requested, delivered, or
telegraphed and confirmed to it at ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇.
14. PARTIES IN INTEREST.
The Agreement herein set forth is made solely for the benefit of the
Underwriter and the Company and any person controlling the Company, or the
Underwriter, and directors of the Company, nominees for directors of the Company
(if any) named in the Prospectus, the officers of the Company who have signed
the Registration Statement, and their respective executors, administrators,
successors and assigns, and no other person shall acquire or have any right
under or by virtue of this Agreement. The term "successors and assigns" shall
not include any purchaser, as such purchaser, from the Underwriter of the Units.
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15. APPLICABLE LAW.
This Agreement will be governed by, and construed in accordance with, the
laws of the State of Colorado applicable to agreements made and to be entirely
performed within Colorado.
If the foregoing is in accordance with your understanding of our agreement,
kindly sign and return this agreement, whereupon it will become a binding
agreement between the Company and the Underwriter in accordance with its terms.
Yours very truly,
RACOM SYSTEMS, INC.
By
------------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Chief Executive Officer
Dated: _______________, 1997
The foregoing Underwriting Agreement is hereby confirmed and accepted as of
the date first above written.
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇, INC.
By
------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇, President
Dated: _______________, 1997
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