2,000,000 UNITS, EACH
UNIT CONSISTING OF ONE SHARE OF
COMMON STOCK AND ONE REDEEMABLE WARRANT
HAWAIIAN NATURAL WATER COMPANY, INC.
UNDERWRITING AGREEMENT
New York, New York
May 14, 1997
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & COMPANY, INC.
▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Ladies and Gentlemen:
Hawaiian Natural Water Company, Inc., a Hawaii corporation (the
"Company"),confirms its agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc.
(hereinafter referred to as "you" or the "Underwriter"), with respect to the
sale by the Company and the purchase by the Underwriter of 2,000,000 units
(the "Units"), each Unit consisting of one (1) share of common stock, no par
value (the "Common Stock") and one (1) redeemable warrant (the "Redeemable
Warrants"). Each Redeemable Warrant is exercisable for one share of Common
Stock. The Common Stock and Redeemable Warrants will be separately tradeable
upon issuance and are hereinafter referred to as the "Firm Units." The
Redeemable Warrants are exercisable commencing May 14, 1997 until May 13,
2002, unless previously redeemed by the Company, at an initial exercise price
equal to $6.00 per share, subject to adjustment. The Redeemable Warrants may
be redeemed by the Company, in whole, and not in part, at a redemption price
of five cents ($.05) per Redeemable Warrant at any time commencing May 14,
1998 on 30 days' prior written notice provided that the average closing bid
price of the Common Stock equals or exceeds 150% of the then exercise price
per share (subject to adjustment) for any twenty (20) trading days within a
period of thirty (30) consecutive trading days ending on the fifth (5th)
trading day prior to the date of the notice of redemption and the Company
shall have obtained the prior written consent of the Underwriter. Upon the
Underwriter's request, as provided in Section 2(b) of this Agreement, the
Company shall also issue and sell to the Underwriter up to an additional
300,000 Units for the purpose of covering over-allotments, if any. Such
300,000 Units are hereinafter collectively referred to as the "Option Units."
The Company also proposes to issue and sell to the Underwriter or its
designees warrants (the "Underwriter's Warrants"), pursuant to the
Underwriter's Warrant Agreement (the "Underwriter's Warrant Agreement"), for
the purchase of an additional 200,000 shares of Common Stock. The shares of
Common
Stock underlying the Underwriter's Warrants are hereinafter collectively
referred to as the "Underwriter's Securities." The shares of Common Stock
issuable upon exercise of the Redeemable Warrants are hereinafter referred to
as the "Warrant Shares." Further, an additional 643,500 Redeemable Warrants
(the "Selling Securityholders Warrants") and 643,500 shares of Common Stock
underlying the Selling Securityholders Warrants (the "Selling Securityholders
Shares"), are being registered for the account of certain selling security
holders in connection with this offering (the "Offering") which are not being
underwritten by the Underwriter. The Selling Securityholders Warrants and the
Selling Securityholders Shares are hereinafter collectively referred to as
the "Selling Securityholders Securities." The Firm Units, the Option Units,
the Underwriter's Warrants, the Underwriter's Securities, the Selling
Securityholders Securities and the Warrant Shares are hereinafter
collectively referred to as the "Securities" and are more fully described in
the Registration Statement and the Prospectus referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as
of the date hereof, and as of the Closing Date (hereinafter defined) and the
Option Closing Date (hereinafter defined), if any, as follows:
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and
amendments thereto, on Form SB-2 (Registration No. 333-18289), including any
related preliminary prospectus or prospectuses (each a "Preliminary
Prospectus"), for the registration of the Securities (excluding the
Underwriter's Warrants and the Underwriter's 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 of the
Commission under the Act. The Company will not file any other amendment to
such registration statement which the Underwriter shall have objected to 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 it 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 that information incorporated by reference therein)
and all information deemed to be a part thereof as of such time pursuant to
paragraph (b) of Rule 430A of the rules and regulations under the Act), 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
rules and regulations under the Act 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 the Prospectus or any part of any
thereof and no proceedings for a stop order suspending the effectiveness of
the Registration Statement or any sale of the Company's securities have been
instituted or are pending or, to the best knowledge of the Company,
threatened. Each of the Preliminary Prospectus and the Registration Statement
and the Prospectus, at the time of filing thereof, conformed in all material
respects with the requirements of the Act and the Rules and
2
Regulations, and none of the Preliminary Prospectus, the Registration
Statement nor the 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 in 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 written
information furnished to the Company with respect to the Underwriter and its
proposed method of distribution of the Units by or on behalf of the
Underwriter expressly for use in such Preliminary Prospectus, the
Registration Statement or the Prospectus; provided that such written
information or omissions only pertain to disclosures in the Preliminary
Prospectus, the Registration Statement or Prospectus or any amendment thereof
or supplement thereto directly relating to the transactions effected by the
Underwriter in connection with this Offering. The Company acknowledges that
the statements with respect to the public offering of the Securities set
forth under the heading "Underwriting" and the stabilization legend in the
Prospectus have been furnished by the Underwriter expressly for use therein
and constitute the only information furnished in writing by or on behalf of
the Underwriter for inclusion in the Prospectus.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date,
if any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriter 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; and, at and through such dates, 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 in 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 written information furnished to the Company with
respect to the Underwriter and its proposed method of distribution of the
Units by or on behalf of the Underwriter expressly for use in the
Registration Statement or the Prospectus or any amendment thereof or
supplement thereto; provided that such written information or omissions only
pertain to disclosures in the Preliminary Prospectus, the Registration
Statement or Prospectus or any amendment thereof or supplement thereto
directly relating to the transactions effected by the Underwriter in
connection with this Offering. The Company acknowledges that the statements
with respect to the Offering set forth under the heading "Underwriting" and
the stabilization legend in the Prospectus have been furnished by the
Underwriter expressly for use therein and constitute the only information
furnished in writing by or on behalf of the Underwriter for inclusion in the
Prospectus.
(d) The Company has been duly organized and is validly existing as
a corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly qualified and licensed and in good
standing as a foreign corporation in each jurisdiction in which its
operations require such qualification or licensing. The Company does not own,
directly or indirectly, an interest in any other corporation, partnership,
trust, joint venture or other business entity. The Company has all requisite
power and authority (corporate
3
and other), 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 conducted on the
date hereof and as described in the Prospectus except where the failure to be
so qualified or licensed would not have a material adverse effect; the
Company is and has been doing business in material compliance with all such
authorizations, approvals, orders, licenses, certificates, franchises and
permits and with all federal, state, local and foreign laws, rules and
regulations to which it is subject; 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 and adversely affect the condition,
financial or otherwise, or the earnings, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the
Company. The disclosure in the Registration Statement concerning the effects
of federal, state, local and foreign laws, rules and regulations on the
Company's business as currently conducted and as contemplated are correct in
all respects and do not omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading.
(e) Except for up to 15,863 additional options granted by the
Company, the Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Capital Stock" and will have the adjusted capitalization set
forth therein on the Closing Date and the Option Closing Date, if any, based
upon the assumptions set forth therein, and the Company is not a party to or
bound by any instrument, agreement or other arrangement providing for it to
issue any capital stock, rights, warrants, options or other securities,
except for this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement (as defined in SECTION 1(ff) hereof of this Agreement) and
as described in the Prospectus. The Securities and all other securities
issued or issuable by the Company on or prior to the Closing Date and each
Option Closing Date, if any, conform or, when issued and paid for, will
conform, in all respects to the descriptions thereof 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 holder of any security of the
Company or any similar contractual right granted by the Company. The
Securities to be issued and sold by the Company hereunder and pursuant to the
Underwriter's Warrant Agreement and the 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 and thereof, will be validly issued, fully
paid and non-assessable and conform to the descriptions 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, when delivered by
the Company, will be in due and proper form. Upon the issuance and delivery
of the Securities, pursuant to the terms hereof, and pursuant to the Warrant
Agreement and the Underwriter's Warrant Agreement, to be sold by the Company
4
hereunder and thereunder to the Underwriter, the Underwriter will acquire
good and marketable title to such Securities, free and clear of any lien,
charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against the Company or
any affiliate (within the meaning of the Rules and Regulations) of the
Company.
(f) The financial statements of the Company and the notes thereto
included in the Registration Statement, each Preliminary Prospectus and the
Prospectus fairly present the financial position, changes in stockholders'
equity and the results of operations of the Company at the respective dates
and for the respective periods to which they apply. Such financial statements
have been prepared in conformity with generally accepted accounting
principles and the Rules and Regulations, consistently applied throughout the
periods involved. Except as described in the Prospectus, there has been no
adverse change or development involving a material prospective change in the
condition, financial or otherwise, or in the earnings, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, whether or not arising in the ordinary course of
business, since the date of the financial statements included in the
Registration Statement and the Prospectus; and the outstanding debt, the
property, both tangible and intangible, and the business of the Company
conform in all respects to the descriptions thereof contained in the
Registration Statement and the Prospectus. The financial information set
forth in the Prospectus under the headings "The Company," "Summary Financial
Information," "Capitalization," "Selected Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
fairly presents, on the basis stated in the Prospectus, the information set
forth therein and such financial information has been derived from or
compiled on a basis consistent with that of the financial statements included
in the Prospectus.
(g) The Company (i) has paid all federal, state, local and foreign
taxes for which it is liable, including, but not limited to, withholding
taxes and amounts payable under the Internal Revenue Code of 1986, as amended
(the "Code"), and has furnished all information returns it is required to
furnish pursuant to the Code, (ii) has established adequate reserves for such
taxes which are not due and payable, and (iii) does not have any tax
deficiency or claims outstanding, proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by
or on behalf of the Underwriter in connection with (i) the issuance by the
Company of the Securities, (ii) the purchase by the Underwriter of any of the
Securities from the Company, (iii) the consummation by the Company of any of
its obligations under this Agreement, the Warrant Agreement, or the
Underwriter's Warrant Agreement, or (iv) resales of the Securities in
connection with the distribution contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees
against such losses and risks generally insured against by comparable
businesses. The Company (i) has not failed to give notice or present any
insurance claim with respect to any insurable matter under the appropriate
insurance policy or surety bond in a due and timely manner, (ii) has no
disputes or claims against any underwriter of such insurance policies or
surety bonds, nor has the Company failed to pay any premiums due
5
and payable thereunder, or (iii) has not 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 pertaining to environmental or similar matters), domestic
or foreign, pending or, to the best knowledge of the Company, 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, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting Agreement (as defined in
Section 1(gg) hereof) or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Underwriter's Warrant
Agreement, the Warrant Agreement or the Consulting 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 respects), or (iii) might
materially and adversely affect the condition, financial or otherwise, or the
earnings, prospects, stockholders' equity, value, operations, 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, to enter into this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement and to consummate the transactions provided for in such
agreements; and each of this Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement and the Consulting Agreement have been duly and
properly authorized, executed and delivered by the Company. Each of this
Agreement, the Underwriter's Warrant Agreement, the Warrant Agreement and the
Consulting Agreement 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 the enforcement of creditors' rights and the application of
equitable principles in any motion, legal or equitable, and except as
obligations to indemnify or contribute to losses may be limited by applicable
law). None of the Company's issue and sale of the Securities, execution or
delivery of this Agreement, the Underwriter's Warrant Agreement, the Warrant
Agreement or the Consulting 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 and 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 (i) the
articles of incorporation or by-laws of the Company, (ii) any license,
contract, indenture, mortgage, lease, deed of trust, voting trust agreement,
stockholders' agreement, note, loan or credit agreement or 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
6
is or may be bound or to which its properties or assets (tangible or
intangible) are or may be subject, 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 arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement, the Underwriter's Warrant Agreement and the
Warrant Agreement, the performance of this Agreement, the Underwriter's
Warrant Agreement, the Warrant Agreement and the Consulting Agreement and the
transactions contemplated hereby and thereby, except such as have been
obtained under the Act, state securities or Blue Sky laws and the rules of
the National Association of Securities Dealers, Inc. (the "NASD") in
connection with the issuance and sale of the Securities by the Company and
the Underwriter's purchase and distribution of the Firm Units and the Option
Units.
(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 the
Company 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 legal, valid and binding agreements of the Company,
enforceable against the Company, in accordance with their respective terms
(except as such enforceability may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
relating to or affecting the enforcement of creditors' rights and the
application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). 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 agreements, 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 the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities other than up to 15,863 options 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 any class of its capital stock; and, subsequent to such dates,
and except as may otherwise be disclosed in the Prospectus, there has not
been any change in the capital stock, debt (long or short term) or
liabilities of the Company or any material change in the condition, financial
or otherwise, or the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company.
7
(o) Except as described in the Prospectus, no default exists in the
due performance and observance of any term, covenant or condition of any
material license, permit, contract, indenture, mortgage, lease, deed of
trust, voting trust agreement, stockholders' 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 is or may be bound or to which the property
or assets (tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and the Company is in
material compliance with all federal, state, local and foreign laws, rules
and regulations respecting employment, employment practices, terms and
conditions of employment and wages and hours. There are no pending
investigations involving the Company by the United States Department of Labor
or any other governmental agency responsible for the enforcement of any
federal, state, local or foreign laws, rules and regulations relating to
employment. There is no unfair labor practice charge or complaint against the
Company pending before the National Labor Relations Board or any strike,
picketing, boycott, dispute, slowdown or stoppage pending or, to the
knowledge of the Company, threatened against or involving the Company, or any
predecessor entity, and none has ever occurred. No representation question
exists respecting the employees of the Company, and no collective bargaining
agreement or modification thereof is currently being negotiated by the
Company. No grievance or arbitration proceeding is pending under any expired
or existing collective bargaining agreements of the Company. No labor dispute
with the employees of the Company exists or, to the knowledge of the Company,
is imminent.
(q) 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 "multiemployer 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")
other than the Company's unfunded group health plans and the Company's
disability plan. 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 material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service
with respect to each ERISA Plan which is intended to comply with Code Section
401(a), stating that such ERISA Plan and the attendant trust are qualified
thereunder. The Company has never completely or partially withdrawn from a
"multiemployer plan."
(r) Neither the Company, nor any of its respective employees,
directors, stockholders 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, the stabilization or
8
manipulation of the price of any security of the Company, whether to
facilitate the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the trademarks,
trade names, service marks, service names, copyrights, patents and patent
applications, and none of the licenses and rights to the foregoing, presently
owned or held by the Company are in dispute or are in conflict with the right
of any other person or entity. 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 trademarks, trade names, service marks, service names, copyrights,
patents and patent applications, 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 payments by way of royalties, fees or
otherwise to any owner or licensee of, or other claimant to, any trademark,
trade name, service ▇▇▇▇, service name, copyright, patent or patent
application except as set forth in the Registration Statement or the
Prospectus. There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental or other proceeding, domestic or
foreign, pending or to the knowledge of the Company, threatened (or
circumstances that may give rise to the same) against the Company which
challenges the exclusive rights of the Company with respect to any
trademarks, trade names, service marks, service names, copyrights, patents,
patent applications or licenses or rights to the foregoing used in the
conduct of its business.
(t) The Company owns and has the unrestricted right to use all
trade secrets, know-how (including all unpatented and/or unpatentable
proprietary or confidential information, systems or procedures), inventions,
technology, designs, processes, works of authorship, computer programs and
technical data and information that are material to the development,
manufacture, operation and sale of all products and services sold or proposed
to be sold by the Company, free and clear of and without violating any right,
lien, or claim of others, including, without limitation, former employers of
its employees.
(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property
currently used in the conduct of business or 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 liens for taxes not yet due and
payable.
(v) ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP whose reports are 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.
(w) The holders of all shares of Common Stock and securities
exchangeable for or convertible into shares of Common Stock of the Company,
including each director, officer and principal stockholder of the Company
have executed an agreement (collectively, the "Lock-Up Agreements") pursuant
to which he, she or it has agreed, (i) for a period extending
9
eighteen (18) months following the effective date of the Registration
Statement (the "Lock-Up Period"), not to, directly or indirectly, offer,
offer to sell, sell, grant an option for the purchase or sale of, transfer,
assign, pledge, hypothecate or otherwise encumber (whether pursuant to Rule
144 of the Rules and Regulations or otherwise) any securities issued or
issuable by the Company, whether or not owned by or registered in the name of
such persons, or dispose of any interest therein, without the prior written
consent of the Underwriter and (ii) for a period extending twenty-four (24)
months following the effective date of the Registration Statement, that all
sales of such securities issued by the Company shall be made through the
Underwriter in accordance with its customary brokerage policies. The Company
will cause its transfer agent 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.
(x) 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
issuances that may affect the Underwriter's compensation, as determined by
the NASD.
(y) The Units, the Common Stock and the Redeemable Warrants have
been approved for quotation on the Nasdaq SmallCap Market ("Nasdaq").
(z) Neither the Company, nor any of its directors, officers,
stockholders, 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 any official or employee of any governmental
agency or instrumentality of any government (domestic or foreign) or
instrumentality of any government (domestic or foreign) or any political
party or candidate for office (domestic or foreign) or any 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 (i) 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), (ii) if not given in the past, might have had a
material and adverse effect on the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company, or
(iii) if not continued in the future, might materially and adversely affect
the condition, financial or otherwise, or the earnings, business affairs,
prospects, stockholders' equity, value, operations, properties, business or
results of operations 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.
(aa) [intentionally omitted]
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company and no affiliate or associate (as these terms are
defined in 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
10
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 beneficial interest in any contract or agreement to
which the Company is a party or by which the Company may be bound. 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 any person listed in the
"Principal Stockholders" section of the Prospectus or any affiliate or
associate of any of the foregoing persons or entities.
(cc) The minute books of the Company have been made available to the
Underwriter, contain a complete summary of all material actions of the
directors and stockholders of the Company since the time of incorporation,
and reflect all material transactions referred to in such minutes accurately
in all respects.
(dd) Except as to the extent described in the Prospectus, no holder
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to
include any securities issued by the Company in the Registration Statement.
Except for the registration rights of Leisure Fund Associates, L.P. relating
to 24,351 warrants to purchase common stock of the Company as set forth in
that certain common stock purchase warrant dated May 24, 1996, no holder of
any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to
include any securities issued by the Company in any registration statement
(other than on Form S-8) to be filed by the Company or to require the Company
to file a registration statement. Except as set forth in the Prospectus, no
person or entity holds any anti-dilution rights with respect to any
securities of the Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in
Section 4(d) herein), shall be deemed a representation and warranty by the
Company to the Underwriter as to the matters covered thereby.
(ff) The Company has entered into a warrant agreement, substantially
in the form filed as Exhibit 4.2 to the Registration Statement (the "Warrant
Agreement"), with Continental Stock Transfer & Trust Company, in form and
substance satisfactory to the Underwriter, with respect to the Redeemable
Warrants and providing for the payment of warrant solicitation fees
contemplated by Section 4(x) hereof. The Warrant Agreement has been duly and
validly authorized by the Company and, assuming due execution by the parties
thereto other than the Company, constitutes a valid and legally 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 the enforcement of creditors' rights and
the application of equitable principles in any action, legal or equitable,
and except as obligations to indemnify or contribute to losses may be limited
by applicable law).
(gg) The Company has entered into a financial advisory and
consulting agreement substantially in the form filed as Exhibit 10.7 to the
Registration Statement (the
11
"Consulting Agreement") with the Underwriter, with respect to the rendering
of consulting services by the Underwriter to the Company. The Consulting
Agreement provides that the Underwriter shall be retained by the Company
commencing on the consummation of the proposed public offering and ending 24
months thereafter. The Consulting Agreement has been duly and validly
authorized by the Company and assuming due execution by the parties thereto
other than the Company, constitutes a valid and legally 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).
(hh) The Company has filed a Form 8-A with the Commission providing
for the registration under the Exchange Act of the Units, the Redeemable
Warrants and the Common Stock and such Form 8-A has been declared effective
by the Commission.
(ii) Each warrant issued in connection with the Private Placement
financing completed in August 1996, (each a "Selling Securityholders
Warrant") has been automatically converted into a Redeemable Warrant without
any action by the holder thereof and all of such Redeemable Warrants, as
converted and the Selling Securityholders Shares, have been registered in the
Registration Statement.
(jj) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with ▇▇▇▇▇▇ ▇▇▇▇▇▇, in the
form filed as Exhibit 10.6 to the Registration Statement and (ii) purchased
term key man insurance on the life of ▇▇▇▇▇▇ ▇▇▇▇▇▇, in the amount of
$1,000,000, which policy names the Company as the sole beneficiary thereof.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(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 the Underwriter, and the Underwriter
agrees to purchase from the Company, the Firm Units at a price equal to $3.60
per Unit.
(b) In addition, on the basis of the representations, warranties,
covenants and agreement, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Units at a price equal
to $3.60 per Unit. 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 Units upon notice by the Underwriter to the Company setting forth the
number of Option Units as to which the Underwriter is then exercising the
option and the time and date of payment and delivery for
12
any such Option Units. Any such time and date of delivery (an "Option Closing
Date") shall be determined by the Underwriter, but shall not be later than
seven (7) full business days after the exercise of said option, nor in any
event prior to the Closing Date, unless otherwise agreed upon by the
Underwriter and the Company. Nothing herein contained shall obligate the
Underwriter to exercise the option granted hereby. No Option Units shall' be
delivered unless the Firm Units 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 Units shall be made at the offices of the Underwriter at ▇▇
▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, or at such other place as shall be
agreed upon by the Underwriter and the Company. Such delivery and payment
shall be made at 10:00 a.m. (New York City time) on May 19, 1997 or at such
other time and date as shall be agreed upon by the Underwriter and the
Company, but not less than three (3) nor more than seven (7) 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 Units are purchased by
the Underwriter, payment of the purchase price for, and delivery of
certificates for, such Option Units shall be made at the above mentioned
office of the Underwriter or at such other place as shall be agreed upon by
the Underwriter and the Company. Delivery of the certificates for the Firm
Units and the Option Units, if any, shall be made to the Underwriter against
payment by the Underwriter of the purchase price for the Firm Units and the
Option Units, if any, to the order of the Company by New York Clearing House
funds. Certificates for the Firm Units and the Option Units, 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
Underwriter 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 Units and the Option Units, if any, shall be made
available to the Underwriter at such offices or such other place as the
Underwriter 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
Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of $.0001 per warrant, which warrants shall entitle the
holders thereof to purchase an aggregate of an additional 200,000 shares of
Common Stock. The Underwriter's Warrants shall be exercisable for a period of
four (4) years commencing one (1) year from the effective date of the
Registration Statement at a price equaling one hundred and sixty-five percent
(165%) of the initial public offering price of the Units. The Underwriter's
Warrant Agreement and the form of the certificates for the Underwriter's
Warrants shall be substantially in the form filed as Exhibit 4.3 to the
Registration Statement. Payment for the Underwriter's Warrants shall be made
on the Closing Date.
3. PUBLIC OFFERING OF THE UNITS. As soon after the Registration
Statement becomes effective as the Underwriter deems advisable, the
Underwriter shall make a public offering of the Firm Units and such of the
Option Units as the Underwriter may determine (other than to residents of or
in any jurisdiction in which qualification of the Units is required and has
13
not become effective) at the price and upon the other terms set forth in the
Prospectus. The Underwriter may from time to time increase or decrease the
public offering price after distribution of the Units has been completed to
such extent as the Underwriter, in its sole discretion, deems advisable. The
Underwriter may enter into one or more agreements as the Underwriter, in its
sole discretion, deems 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 Underwriter 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 the Exchange Act before termination of the offering of the
Firm Units and the Option Units to the public by the Underwriter, of which
the Underwriter shall not previously have been advised and furnished with a
copy, or to which the Underwriter shall have objected or which is not in
compliance with the Act, the Exchange Act and the Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm the same in writing, (i)
when the Registration Statement, as amended, becomes effective, when any
post-effective amendment to the Registration Statement becomes effective and,
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, (ii) of
the issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding the outcome of which may result in the
suspension of 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 any
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 regulatory authority
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 Underwriter) with the Commission, or transmit the
Prospectus by a means reasonably calculated to result in filing the same with
the Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or,
if applicable and if consented to by the Underwriter, pursuant to Rule
424(b)(4) of the Rules and Regulations) within the time period specified in
Rule 424(b)(1) (or, if applicable and if consented to by the Underwriter,
Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment)
14
or any amendment or supplement to the Prospectus (including any revised
prospectus which the Company proposes for use in connection with the offering
of any 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
Underwriter 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 amendment or supplement to which the Underwriter or
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation with
the Underwriter, 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 Underwriter may reasonably
designate to permit the continuance of sales and dealings therein for as long
as may be necessary to complete the distribution contemplated hereby, 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 Underwriter agrees that such action is not at the time
necessary or advisable, use all reasonable efforts to file and make such
statements or reports at such times as are or may 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, the Exchange Act and the Rules
and Regulations 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 Underwriter's Counsel, the Prospectus, as then
amended or supplemented, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, or if it is necessary at any time to amend or
supplement the prospectus to comply with the Act, the Company will notify the
Underwriter promptly and prepare and file with the Commission an appropriate
amendment or supplement in accordance with Section 10 of the Act, each such
amendment or supplement to be satisfactory to Underwriter's Counsel, and the
Company will furnish to the Underwriter copies of such amendment or
supplement as soon as available and in such quantities as the Underwriter may
request.
(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
Underwriter, an earnings statement which will
15
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 seven (7) 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 will deliver to the Underwriter:
i) 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 report thereon of the Company's
independent certified public accountants;
ii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iii) 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;
iv) every 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
v) any additional information of a public nature
concerning the Company (and any future subsidiaries) or its business
which the Underwriter may request.
During such seven-year period, if the Company has active subsidiaries,
the foregoing financial statements will be on a consolidated basis to the
extent that the accounts of the Company and its subsidiaries 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 and warrant 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 the Units, the
Common Stock and the Redeemable Warrants.
(j) The Company will furnish to the Underwriter, without charge and
at such place as the Underwriter may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or
post-effective amendments thereto (one of which 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 Underwriter may request.
16
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Underwriter with originally-executed copies of
duly executed, legally binding and enforceable Lock-Up Agreements which are
in form and substance satisfactory to the Underwriter. On or before the
Closing Date, the Company shall deliver instructions to its transfer agent
authorizing such transfer agent to place appropriate legends on the
certificates representing the securities of the Company subject to the
Lock-Up Agreements and to place appropriate stop transfer orders on the
Company's ledgers.
(l) The Company agrees that, for a period of eighteen (18) months
commencing on the effective date of the Registration Statement, and except as
contemplated by this Agreement, it and its present and future subsidiaries
will not, without the prior written consent of the Underwriter (i) issue,
sell, contract or offer to sell, grant an option for the purchase or sale of,
assign, transfer, pledge, distribute or otherwise dispose of, directly or
indirectly, any shares of capital stock or any option, right or warrant with
respect to any shares of capital stock or any security convertible,
exchangeable or exercisable for capital stock, except pursuant to stock
options or warrants issued by the Company or any other person or entity on
the date hereof or up to 759,137 shares of Common Stock issuable pursuant to
options which may be granted after the date hereof, PROVIDED, HOWEVER, that
such options shall have an exercise price which is at least equal to the
greater of (a) the initial public offering price per Unit and (ii) the fair
market value of the Common Stock on the date of grant or (iii) file any
registration statement for the offer or sale by the Company or any other
person or entity securities issued or to be issued by the Company or any
present or future subsidiaries.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of the
Securities offered to the public in the manner set forth under "Use of
Proceeds" in the Prospectus. No portion of the net proceeds will be used,
directly or indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, any Form SR
required by 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 will comply as to form and substance with the applicable
requirements under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of 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 hereof, the Closing Date or the relevant
Option Closing Date, as the
17
case may be) which have been read by the Company's independent public
accountants, as stated in their letters to be furnished pursuant to SECTION
6(j) hereof.
(q) The Company shall cause the Units, the Common Stock and the
Redeemable Warrants to be quoted on Nasdaq and, for a period of seven (7)
years from the date hereof, use its best efforts to maintain the Nasdaq
quotation listing of the Units, the Common Stock and the Redeemable Warrants
to the extent outstanding.
(r) For a period of five (5) years from the Closing Date, the
Company shall at the request of the Underwriter, furnish or cause to be
furnished to the Underwriter and at the Company's sole expense, (i) daily
consolidated transfer sheets relating to the Units, the Common Stock and the
Redeemable Warrants and (ii) a list of holders of all of the Company's
securities.
(s) For a period of five (5) years from the Closing Date, the
Company shall, at the Company's sole expense, (i) promptly provide the
Underwriter, upon any and all requests of the Underwriter, with a "blue sky
trading survey" for secondary sales of the Company's securities, prepared by
counsel to the Company, and (ii) take all necessary and appropriate actions
to further qualify the Company's securities in all jurisdictions of the
United States in order to permit secondary sales of such securities pursuant
to the "blue sky" laws of those jurisdictions, provided that such
jurisdictions do not require the Company to qualify as a foreign corporation.
(t) As soon as practicable, but in no event more than thirty (30)
days after the effective date of the Registration Statement, the Company
agrees to 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 seven (7) years.
(u) Without the prior written consent of the Underwriter, the
Company hereby agrees that it will not, for a period of eighteen (18) months
from the effective date of the Registration Statement, (i) adopt, propose to
adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement permitting 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 per share of Common Stock
that is less than the greater of (a) the initial public offering price of the
Units and (b) the fair market value per share of Common Stock on the date of
grant or sale or (y) to any holder of five percent (5%) or more of the Common
Stock other than an officer or director or any holder of five percent (5%) or
more of the Common Stock as the result of the exercise or conversion of
equivalent securities other than an officer or director, including, but not
limited to options, warrants or other contract rights and securities
convertible, directly or indirectly, into shares of Common Stock or any
affiliate of the foregoing; (ii) permit the maximum number of shares of
Common Stock or other securities of the Company purchasable at any time
pursuant to options, warrants or other contract rights to exceed 1,024,351
shares of Common Stock (subject to customary anti-dilution provisions),
excluding the Underwriter's Warrants and the Redeemable Warrants; (iii)
permit the existence of stock appreciation rights, phantom options or similar
arrangements; or (iv) permit the payment for such securities with any form of
consideration other than cash.
18
(v) Until the completion of the distribution of the Units to the
public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Underwriter, 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.
(w) For a period of five (5) years after the effective date of the
Registration Statement, the Company shall use its best efforts to cause one
(1) individual selected by the Underwriter to be elected to the Board of
Directors of the Company (the "Board"), if requested by the Underwriter. In
the event the Underwriter shall not have designated such individual at the
time of any meeting of the Board or such person has not been elected or is
unavailable to serve, the Company shall notify the Underwriter of each
meeting of the Board. An individual selected by the Underwriter shall be
permitted to attend all meetings of the Board and to receive all notices and
other correspondence and communications sent by the Company to members of the
Board. The Company shall reimburse the Underwriter's designee for his or her
out-of-pocket expenses reasonably incurred in connection with his or her
attendance of the Board meetings.
(x) Commencing one year from the date hereof, to pay the
Underwriter a warrant solicitation fee equal to five percent (5%) of the
exercise price of the Redeemable Warrants, payable on the date of the
exercise thereof on terms provided in the Warrant Agreement. The Company will
not solicit the exercise of the Redeemable Warrants through any solicitation
agent other than the Underwriter. The Underwriter will not be entitled to any
warrant solicitation fee unless the Underwriter provides bona fide services
in connection with any warrant solicitation and the investor designates, in
writing, that the Underwriter is entitled to such fee.
(y) For a period equal to the lesser of (i) seven (7) years from
the date hereof, and (ii) the sale to the public of the Underwriter'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 S-1 (or other appropriate
form) for the registration under the Act of the Underwriter's Securities.
(z) For a period of twenty four (24) months after the effective
date of the Registration Statement, the Company shall not restate, amend or
alter any term of any written employment, consulting or similar agreement
entered into between the Company and any officer, director or key employee as
of the effective date of the Registration Statement in a manner which is more
favorable to such officer, director or key employee, without the prior
written consent of the Underwriter.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five years after
the date hereof.
19
(bb) The Company agrees, that for a period of twenty-four (24)
months from the effective date of the Registration Statement, it will not
without the prior written consent of the Underwriter (i) declare or pay any
dividend or make any other distribution on any equity securities of the
Company except for the payment of an aggregate of approximately $39,000 in
dividends on preferred stock of the Company which was converted into Common
Stock upon consummation of the Company's bridge financing on October 10,
1996, or (ii) purchase, redeem or otherwise acquire or retire for value any
equity securities of the Company, except for the Redeemable Warrants, or
(iii) permit a subsidiary of the Company to purchase, redeem or otherwise
acquire or retire for value any equity securities of the Company, except for
the Redeemable Warrants.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay (such payment to be made, at
the discretion of the Underwriter, on the Closing Date and any Option Closing
Date (to the extent not paid on the Closing Date or a previous Option Closing
Date)) all expenses and fees (other than fees of Underwriter's Counsel except
as provided in (iv) below) incident to the performance of the obligations of
the Company under this Agreement, the Underwriter's Warrant Agreement and the
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, overnight delivery or courier charges with
respect thereto) of the Registration Statement and the Prospectus and any
amendments and supplements thereto and the printing, mailing (including the
payment of postage, overnight delivery or courier charges with respect
thereto) and delivery of this Agreement, the Underwriter's Warrant Agreement,
the Warrant Agreement, and agreements with selected dealers, and related
documents, including the cost of all copies thereof and of each Preliminary
Prospectus and of the Prospectus and any amendments thereof or supplements
thereto supplied to the Underwriter and such dealers as the Underwriter may
request, in such quantities as the Underwriter may request, (iii) the
printing, engraving, issuance and delivery of the Securities, (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," the "Supplemental Blue Sky Memorandum" and "Legal
Investments Survey," if any, and disbursements and fees (such fees not to
exceed $45,000) of counsel in connection therewith, (v) advertising costs and
expenses, including, but not limited to costs and expenses in connection with
"road shows," information meetings and presentations (such costs and expenses
relating to "road shows", information meetings and presentations not to
exceed $25,000), 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 or consultants (excluding Underwriter's Counsel's fees relating to
due diligence), (vii) fees and expenses of a transfer and warrant agent and
registrar for the Securities, (viii) applications for assignments 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 Securities on Nasdaq and any other exchange.
20
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of SECTION 6, SECTION 10(a) or SECTION 11
hereof, the Company shall reimburse and indemnify the Underwriter for all of
its actual out-of-pocket expenses, including the fees and disbursements of
Underwriter's Counsel, less any amounts already paid pursuant to SECTION 5(c)
hereof. In addition, the Company shall remain liable for all Blue Sky counsel
fees (such fees not to exceed $45,000) and expenses and Blue Sky filing fees.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to SECTION 5(a) hereof, it will pay to the Underwriter on
the Closing Date by certified or bank cashier's check, or, at the election of
the Underwriter, by deduction from the proceeds of the offering of the Firm
Units, a non-accountable expense allowance equal to three percent (3%) of the
gross proceeds received by the Company from the sale of the Firm Units,
twenty-five thousand dollars ($25,000) of which has been paid to date by the
Company. In the event the Underwriter elects to exercise the over-allotment
option described in SECTION 2(b) hereof, the Company further agrees to pay to
the Underwriter on each Option Closing Date, by certified or bank cashier's
check, or, at the Underwriter's election, by deduction from the proceeds of
the Option Units purchased on such Option Closing Date, a non-accountable
expense allowance equal to three percent (3%) of the gross proceeds received
by the Company from the sale of such Option Units.
6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of
the Underwriter 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 and each Option Closing Date, as
the case may be; the accuracy on and as of the Closing Date and each Option
Closing Date, if any, of the statements of officers of the Company made
pursuant to the provisions hereof; 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 12:00 p.m., New York time, on the date of this Agreement or such
later date and time as shall be consented to in writing by the Underwriter,
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
with to the reasonable satisfaction of Underwriter's Counsel. If the Company
has elected to rely upon Rule 430A of the Rules and Regulations, the price of
the Units 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 Underwriter
of such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective in
accordance with the requirements of Rule 430A of the Rules and Regulations.
21
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue
statement of fact which, in the Underwriter's opinion, is material, or omits
to state a fact which, in the Underwriter's opinion, is material and is
required to be stated therein or is necessary to make the statements therein,
in light of the circumstances in which they were made not misleading, or that
the Prospectus, or any supplement thereto, contains an untrue statement of
fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of
the circumstances in which they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have
received from Underwriter's Counsel such opinion or opinions with respect to
the organization of the Company, the validity of the Securities, the
Registration Statement, the Prospectus and such other related matters as the
Underwriter may request and Underwriter's Counsel shall have received such
papers and information as they may request in order to enable them to pass
upon such matters.
(d) On the Closing Date, the Underwriter shall have received the
favorable opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, counsel to the Company, dated the
Closing Date, addressed to the Underwriter, in form and substance
satisfactory to Underwriter's Counsel and substantially in the form of
Exhibit A attached hereto:
At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP counsel to the Company,
dated the relevant Option Closing Date, addressed to the Underwriter, and in
form and substance satisfactory to Underwriter's Counsel confirming as of the
Option Closing Date, the statements made by ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP in its opinion
delivered on the Closing Date.
(e) On the Closing Date, the Underwriter shall have received the
favorable opinion of Tam, ▇'▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇, counsel to the Company, dated
the Closing Date, addressed to the Underwriter, in form and substance
satisfactory to Underwriter's Counsel and substantially in the form of
Exhibit B attached hereto.
At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Tam, ▇'▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ counsel to the
Company, dated the relevant Option Closing Date, addressed to the
Underwriter, and in form and substance satisfactory to Underwriter's Counsel
confirming as of the Option Closing Date, the statements made by Tam,
▇'▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ in its opinion delivered on the Closing Date.
(f) On or prior to each of the Closing Date and each Option
Closing Date, if any, Underwriter's Counsel shall have been furnished with
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 SECTION 6(c) hereof, or in order to evidence the accuracy, completeness or
satisfaction of any of the representations, warranties or conditions of the
Company herein contained.
22
(g) Prior to the Closing Date and each Option Closing Date, if
any, (i) there shall have been no material adverse change or development
involving a prospective adverse change in the condition, financial or
otherwise, or the earnings, stockholders' equity, value, operations,
properties, business or results of operations of the Company, whether or not
in the ordinary course of business, from the latest dates as of which such
matters are set forth in the Registration Statement and the 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 the
Prospectus; (iii) except as disclosed in the Prospectus, the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any
securities except for the Securities and up to 15,863 options having an
exercise price equal to or greater than the initial public offering price of
the Units or declared or paid any dividend or made any distribution in
respect of its capital stock of any class except as set forth in the
Prospectus and there shall not have been any change in the capital stock,
debt (long or short term) or liabilities or obligations of the Company
(contingent or otherwise) from the latest dates as of which such matters are
set forth in the Registration Statement and the Prospectus; (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 the Prospectus; (vi) no
action, suit, proceeding, inquiry, arbitration, investigation, litigation or
governmental or other proceeding, domestic or foreign, shall be pending or
threatened (or circumstances giving rise to same) against the Company or
affecting any of its properties or business 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 and
adversely affect the condition, financial or otherwise, or the earnings,
stockholders' equity, value, operations, properties, business or results of
operations of the Company taken as a whole, except as set forth in the
Registration Statement and Prospectus; and (vii) no stop order shall have
been issued under the Act with respect to the Registration Statement and 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
Underwriter 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 the relevant Option Closing
Date, as the case may be, to the effect that each of 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, in all material respects, 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;
23
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 or 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, in light of
the circumstances in which they were made, not misleading and
neither the Preliminary Prospectus nor 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 in
which they were made, not misleading; and
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 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
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
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 property 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 affiliate (within
the meaning of the Rules and Regulations) of the foregoing 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 SECTION
6(h) are to such documents as amended and supplemented at the date of such
certificate.
(i) By the Closing Date, the Underwriter will have received
clearance from the NASD as to the amount of compensation allowable or payable
to the Underwriter, as described in the Registration Statement.
(j) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter and in
form and substance satisfactory in all respects (including the non-material
nature of the changes or decreases, if any, referred to in clause (iii)
below) to the Underwriter and Underwriter's Counsel, from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP.
i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the
Act and the Rules and Regulations;
24
ii) stating that it is their opinion that the consolidated
financial statements 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 and that the Underwriter may rely upon the opinion of
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP with respect to such 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 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 nor 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
December 31, 1996 balance sheet included in the Registration
Statement, other than as set forth in or contemplated by the
Registration Statement, or, if there was any change or decrease,
setting forth the amount of such change or decrease, and (C) during
the period from December 31, 1996 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
net earnings per share of Common Stock, in each case as compared
with the corresponding period beginning December 31, 1995, other
than as set forth in or contemplated by the Registration Statement,
or, if there was any such decrease, setting forth the amount of
such decrease;
iv) setting forth, at a date not later than five (5) days
prior to the effective date of the Registration Statement, the
amount of liabilities of the Company (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
25
counsel, with the results obtained from the application of
specified readings, inquiries and other appropriate procedures
(which procedures do not constitute an audit in accordance with
generally accepted auditing standards) set forth in the letter and
found them to be in agreement; and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may request.
(k) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP a letter, dated as
of the Closing Date or the relevant Option Closing Date, as the case may be,
to the effect that (i) it reaffirms the statements made in the letter
furnished pursuant to SECTION 6(j), (ii) if the Company has elected to rely
on Rule 430A of the Rules and Regulations, to the further effect that ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP has carried out procedures as specified in clause (v) of SECTION
6(j) hereof with respect to certain amounts, percentages and financial
information as specified by the Underwriter 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) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects
to the Underwriter, from ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP stating that they have not
during the immediately preceding five (5) year period brought to the
attention of the Company's management any "weakness," as defined in Statement
of Auditing Standard No. 60 "Communication of Internal Control Structure
Related Matters Noted in an Audit," in any of the Company's internal controls.
(m) On each of the Closing Date and Option Closing Date, if any,
there shall have been duly tendered to the Underwriter the appropriate number
of Securities.
(n) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to SECTION 4(e) 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.
(o) On or before the effective date of the Registration Statement,
the Company shall have executed and delivered to the Underwriter, the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit
4.3 to the Registration Statement. On or before the Closing Date, the Company
shall have executed and delivered to the Underwriter the Underwriter's
Warrants in such denominations and to such designees as shall have been
provided to the Company.
(p) On or before Closing Date, the Units, the Common Stock and the
Redeemable Warrants shall have been duly approved for quotation on Nasdaq,
subject to official notice of issuance.
26
(q) On or before Closing Date, there shall have been delivered to
the Underwriter all of the Lock-Up Agreements, in form and substance
satisfactory to Underwriter's Counsel.
(r) On or before the Closing Date, the Company shall have executed
and delivered to the Underwriter the Consulting Agreement, substantially in
the form filed as Exhibit 10.7 to the Registration Statement.
(s) On or before the effective date of the Registration Statement,
the Company and Continental Stock Transfer & Trust Company shall have
executed and delivered to the Underwriter the Warrant Agreement,
substantially in the form filed as Exhibit 4.2 to the Registration Statement.
(t) At least two (2) full business days prior to the date hereof,
the Closing Date and each Option Closing Date, if any, the Company shall have
delivered to the Underwriter the unaudited interim consolidated financial
statements required to be so delivered pursuant to SECTION 4(p) of this
Agreement.
If any condition to the Underwriter's obligations hereunder to be
fulfilled prior to or at the Closing Date or at any Option Closing Date, as
the case may be, is not so fulfilled, the Underwriter may terminate this
Agreement or, if the Underwriter so elects, it may waive any such conditions
which have not been fulfilled or extend the time for their fulfillment.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless the
Underwriter (for purposes of this SECTION 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the
Underwriter), 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 and suits in respect thereof), whatsoever
(including but not limited to any and all costs and expenses whatsoever
reasonably incurred in investigating, preparing or defending against such
action, proceeding, investigation, inquiry or suit 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 referred to as "applications")
executed by the Company or based upon written information furnished by the
Company filed, delivered or used 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, the NASD, Nasdaq or any securities
exchange; (B) the
27
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 light of the circumstances in 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 any Prospectus, or any amendment thereof or
supplement thereto, or in any application, as the case may be. The indemnity
agreement in this Section 7(a) shall be in addition to any liability which
the Company may have at common law or otherwise.
(b) The Underwriter agrees, to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the
Registration Statement, and each 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 Underwriter but only with respect to statements or
omissions, if any, made in any Preliminary Prospectus, the Registration
Statement or the 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 the Underwriter
by the 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 the Prospectus directly relating to the
transactions effected by the Underwriter in connection with the offering
contemplated hereby. The Company acknowledges that the statements with
respect to the Offering set forth under the heading "Underwriting" and the
stabilization legend in the Prospectus have been furnished by the Underwriter
expressly for use therein and constitute the only information furnished in
writing by or on behalf of the Underwriter for inclusion in any Preliminary
Prospectus, the Registration Statement or the Prospectus. The indemnity
agreement in this Section 7(b) shall be in addition to any liability which
the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this
SECTION 7 of notice of the commencement of any action, 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 to so 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 action,
investigation, inquiry, suit or proceeding 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 or they 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, an
indemnified party shall have the right to employ its own counsel in any such
case but the fees and expenses of such counsel shall be at
28
the expense of such indemnified party unless (i) the employment of such
counsel shall have been authorized in writing by the indemnifying parties in
connection with the defense of such action 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 of such action within a reasonable time after notice of commencement
of the action, or (iii) such indemnified party shall have reasonably
concluded that there may be defenses available to it which are different from
or additional to those available to one or all of the indemnifying parties
(in which event the indemnifying parties shall not have the right to direct
the defense of such action, investigation, inquiry, suit or proceeding 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
action, investigation, inquiry, suit or proceeding or separate but similar or
related actions, investigations, inquiries, suits or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances. 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 or
proceeding 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 or action), 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 or proceeding 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. Anything in this
SECTION 7 to the contrary notwithstanding, an indemnifying party shall not be
liable for any settlement of any claim or action effected without its written
consent; PROVIDED, HOWEVER, that such consent may not be unreasonably
withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes a 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, investigations, inquiries,
suits or proceedings in respect thereof) (A) in such proportion as is
appropriate to reflect the relative benefits received by each of the
contributing parties, on the one hand, and the party to be indemnified, on
the other hand, from the offering of the 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 (A) above but also the relative fault of each 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 a
contributing party and the Underwriter is the indemnified party, the relative
benefits received by the Company, on the one hand, and the Underwriter, on
the other, shall be deemed to be in
29
the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting
discounts received by the Underwriter hereunder, in each case as set forth in
the table on the cover page of the Prospectus. 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 Underwriter, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The amount paid by an indemnified party as a result of the losses,
claims, damages, expenses or liabilities (or actions, investigations,
inquiries, suits or proceedings in respect thereof) referred to in the first
(1st) sentence of this SECTION 7(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, claim, investigation,
inquiry suit or proceeding. Notwithstanding the provisions of this SECTION
7(d), the Underwriter shall not be required to contribute any amount in
excess of the underwriting discount applicable to the Securities purchased by
the Underwriter hereunder. No person guilty of fraudulent misrepresentation
(within the meaning of SECTION 12(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(d), 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 SECTION 7(d). Any party entitled to contribution will, promptly after
receipt of notice of commencement of any action, suit, inquiry, investigation
or proceeding, against such party in respect to which a claim for
contribution may be made against another party or parties under this SECTION
7(d), notify such party or parties from whom contribution may be sought, but
the omission to so notify such party or parties shall not relieve the party
or parties from whom contribution may be sought from any obligation it or
they may have hereunder or otherwise than under this SECTION 7(d), or to the
extent that such party or parties were not adversely affected by such
omission. Notwithstanding anything in this SECTION 7 to the contrary, no
party will be liable for contribution with respect to the settlement of any
action or claim effected without its written consent. 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, WARRANTIES, COVENANTS AND AGREEMENTS TO
SURVIVE DELIVERY. All representations, warranties, covenants and agreements
of the Company contained in this Agreement, or contained in certificates of
officers of the Company submitted pursuant hereto, shall be deemed to be
representations, warranties, covenants and agreements at the Closing Date and
each Option Closing Date, if any, and such representations, warranties,
covenants and agreements of the Company, and the respective indemnity and
contribution 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 the Underwriter, the Company, any controlling person of the
Underwriter or the Company, and shall survive the termination of this
Agreement or the issuance and delivery of the Securities to the Underwriter.
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
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time after the Registration Statement becomes effective as the Underwriter,
in its discretion, shall release the Firm Units 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 Underwriter of telegrams to
securities dealers releasing such Firm Units for offering or the release by
the Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. TERMINATION.
(a) Subject to SECTION 10(b) hereof, the Underwriter 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
Underwriter's opinion will in the immediate future materially adversely
disrupt, the financial markets; or (ii) if any material adverse change in the
financial markets shall have occurred; or (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; or (iv) if trading of any of the securities of the Company shall
have been suspended, or if any of the securities of the Company shall have
been delisted, on any exchange or in any over-the-counter market; or (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 shall have been declared by any state
or federal authority; or (vii) if a moratorium in foreign exchange trading
shall have been declared; or (viii) if the Company shall have sustained a
material or substantial loss by fire, flood, accident, hurricane, earthquake,
theft, sabotage, volcanic eruption or other calamity or malicious act which,
whether or not such loss shall have been insured, will, in the Underwriter's
opinion, make it inadvisable to proceed with the delivery of the Securities;
or (ix) if there shall have occurred any outbreak or escalation of
hostilities or any calamity or crisis or there shall have been such a
material adverse change in the conditions or prospects of the Company, or if
there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in
the Underwriter's judgment would make it inadvisable to proceed with the
offering, sale and/or delivery of the Securities; or (x) ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇
shall no longer serve the Company in his present capacities.
(b) If this Agreement is terminated by the Underwriter in
accordance with the provisions of SECTION 6, SECTION 10(a) or SECTION 11
hereof the Company shall promptly reimburse and indemnify the Underwriter for
all its actual out-of-pocket expenses, including the fees and disbursements
of Underwriter's Counsel, less amounts previously paid pursuant to SECTION
5(c) hereof. In addition, the Company shall remain liable for all "blue sky"
counsel fees and expenses and "blue sky" 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(a) and 11 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 be affected by such election or termination or failure to carry
out the terms of this Agreement or any part hereof.
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11. DEFAULT BY THE COMPANY. If the Company shall fail at the
Closing Date or any Option Closing Date, as applicable, to sell and deliver
the number of 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 Units to be purchased on an Option Closing Date,
the Underwriter may, at its option, by notice from the Underwriter to the
Company, terminate the Underwriter's obligation to purchase Option Units 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 11 shall relieve the
Company from liability, if any, in respect of such default.
12. 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 Underwriter shall be directed to the
Underwriter at ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Company, Inc., ▇▇ ▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇. ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, with a copy to ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇,
Attention: ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇, Esq. Notices to the Company shall be directed to
the Company at Hawaiian Natural Water Company, Inc., ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer,
with a copy to ▇▇▇▇▇▇ & ▇▇▇▇▇ LLP, ▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇, ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Attention: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, Esq.
13. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in SECTION 7 hereof, and their
respective 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 Units from the Underwriter shall be deemed
to be a successor by reason merely of such purchase.
14. 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 choice of law or conflict of laws principles.
15. 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.
16. ENTIRE AGREEMENT: AMENDMENTS. This Agreement, the
Underwriter's Warrant Agreement and the Consulting 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 and thereof. This Agreement may not be amended except in a
writing signed by the Underwriter and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below
for that purpose, whereupon this letter shall constitute a binding agreement
between us.
Very truly yours,
HAWAIIAN NATURAL WATER COMPANY, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇
Title: Chief Executive Officer
Confirmed and accepted as of
the date first above written.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & COMPANY, INC.
By: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇
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Name:
Title: